10-Q

Quarterly Report on Form 10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended June 30, 2007
Commission File Number	Name of Registrant, State of Incorporation, Address of Principal Executive Offices, and Telephone Number	I.R.S. Employer Identification Number
001-31403	PEPCO HOLDINGS, INC.   (Pepco Holdings or PHI), a Delaware corporation 701 Ninth Street, N.W. Washington, D.C. 20068 Telephone: (202)872-2000	52-2297449
001-01072	POTOMAC ELECTRIC POWER COMPANY   (Pepco), a District of Columbia and     Virginia corporation 701 Ninth Street, N.W. Washington, D.C. 20068 Telephone: (202)872-2000	53-0127880
001-01405	DELMARVA POWER & LIGHT COMPANY   (DPL), a Delaware and Virginia corporation 800 King Street, P.O. Box 231 Wilmington, Delaware 19899 Telephone: (202)872-2000	51-0084283
001-03559	ATLANTIC CITY ELECTRIC COMPANY   (ACE), a New Jersey corporation 800 King Street, P.O. Box 231 Wilmington, Delaware 19899 Telephone: (202)872-2000	21-0398280
Continued
Indicate by check mark whether each 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.

Pepco Holdings	Yes  X	No	Pepco	Yes	No   X
DPL	Yes	No   X	ACE	Yes	No   X

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer. See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act.

	Large Accelerated Filer	Accelerated Filer	Non-Accelerated Filer
Pepco Holdings	X
Pepco			X
DPL			X
ACE			X

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Pepco Holdings	Yes	No   X	Pepco	Yes	No   X
DPL	Yes	No   X	ACE	Yes	No   X

     Pepco, DPL, and ACE meet the conditions set forth in General Instruction H(1)(a) and (b) of Form 10-Q and are therefore filing this Form 10-Q with reduced disclosure format specified in General Instruction H(2) of Form 10-Q.

Registrant	Number of Shares of Common Stock of the Registrant Outstanding at June 30, 2007
Pepco Holdings	193,517,986 ($.01 par value)
Pepco	100 ($.01 par value) (a)
DPL	1,000 ($2.25 par value) (b)
ACE	8,546,017 ($3 par value) (b)

(a)	All voting and non-voting common equity is owned by Pepco Holdings.
(b)	All voting and non-voting common equity is owned by Conectiv, a wholly owned subsidiary of Pepco Holdings.

     THIS COMBINED FORM 10-Q IS SEPARATELY FILED BY PEPCO HOLDINGS, PEPCO, DPL, AND ACE. INFORMATION CONTAINED HEREIN RELATING TO ANY INDIVIDUAL REGISTRANT IS FILED BY SUCH REGISTRANT ON ITS OWN BEHALF. EACH REGISTRANT MAKES NO REPRESENTATION AS TO INFORMATION RELATING TO THE OTHER REGISTRANTS.

TABLE OF CONTENTS
			Page
	Glossary of Terms		i
PART I	FINANCIAL INFORMATION		1
Item 1.	-	Financial Statements	1
Item 2.	-	Management's Discussion and Analysis of    Financial Condition and Results of Operations	110
Item 3.	-	Quantitative and Qualitative Disclosures    About Market Risk	186
Item 4.	-	Controls and Procedures	189
Item 4T.	-	Controls and Procedures	189
PART II	OTHER INFORMATION		191
Item 1.	-	Legal Proceedings	191
Item 1A.	-	Risk Factors	191
Item 2.	-	Unregistered Sales of Equity Securities and Use of Proceeds	192
Item 3.	-	Defaults Upon Senior Securities	192
Item 4.	-	Submission of Matters to a Vote of Security Holders	193
Item 5.	-	Other Information	194
Item 6.	-	Exhibits	194
Signatures			212

TABLE OF CONTENTS - EXHIBITS
Exh. No.	Registrant(s)	Description of Exhibit	Page
12.1	PHI	Statements Re: Computation of Ratios	196
12.2	Pepco	Statements Re: Computation of Ratios	197
12.3	DPL	Statements Re: Computation of Ratios	198
12.4	ACE	Statements Re: Computation of Ratios	199
31.1	PHI	Rule 13a-14(a)/15d-14(a) Certificate of Chief Executive Officer	200
31.2	PHI	Rule 13a-14(a)/15d-14(a) Certificate of Chief Financial Officer	201
31.3	Pepco	Rule 13a-14(a)/15d-14(a) Certificate of Chief Executive Officer	202
31.4	Pepco	Rule 13a-14(a)/15d-14(a) Certificate of Chief Financial Officer	203
31.5	DPL	Rule 13a-14(a)/15d-14(a) Certificate of Chief Executive Officer	204
31.6	DPL	Rule 13a-14(a)/15d-14(a) Certificate of Chief Financial Officer	205
31.7	ACE	Rule 13a-14(a)/15d-14(a) Certificate of Chief Executive Officer	206
31.8	ACE	Rule 13a-14(a)/15d-14(a) Certificate of Chief Financial Officer	207
32.1	PHI	Certificate of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350	208
32.2	Pepco	Certificate of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350	209
32.3	DPL	Certificate of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350	210
32.4	ACE	Certificate of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350	211

	GLOSSARY OF TERMS
Term	Definition
A&N	A&N Electric Cooperative, which has entered into an agreement with DPL to purchase DPL's business of distributing retail electric services to customers located on the Eastern Shore of Virginia
ABO	Accumulated benefit obligation
ACE	Atlantic City Electric Company
ACE Funding	Atlantic City Electric Transition Funding LLC
ACO	Administrative Consent Order
ADFIT	Accumulated deferred federal income taxes
ADITC	Accumulated deferred investment tax credits
Ancillary services	Generally, electricity generation reserves and reliability services
APB	Accounting Principles Board of the American Institute of Certified Public Accountants
APCA	New Jersey Air Pollution Control Act
APIC	Additional paid-in capital
Appellate Division	Appellate Division of the Superior Court of New Jersey
Asset Purchase and   Sale Agreement	Asset Purchase and Sale Agreement, dated as of June 7, 2000 and subsequently amended, between Pepco and Mirant (formerly Southern Energy, Inc.) relating to the sale of Pepco's generation assets
Bankruptcy Court	Bankruptcy Court for the Northern District of Texas
Bankruptcy Funds	$13.25 million in funds from the Bankruptcy Settlement
Bankruptcy Settlement	The bankruptcy settlement among the parties concerning the environmental proceedings at the Metal Bank/Cottman Avenue environmental remediation site
Bcf	Billion cubic feet
BGS	Basic Generation Service (the supply of electricity by ACE to retail customers in New Jersey who have not elected to purchase electricity from a competitive supplier)
BSA	Bill stabilization adjustment mechanism, which "decouples" revenue from unit sales consumption and ties the growth in revenues to the growth in the number of customers
CEP	New Jersey Clean Energy Program
Competitive Energy   business	Consists of the business operations of Conectiv Energy and Pepco Energy Services
Conectiv	A wholly owned subsidiary of PHI, which is a PUHCA 2005 holding company. Conectiv also is the parent of DPL and ACE
Conectiv Energy	Conectiv Energy Holding Company and its subsidiaries
Conectiv Group	Conectiv and certain of its subsidiaries, involved in a like-kind exchange transaction
Cooling Degree Days	Daily difference in degrees by which the mean (high and low divided by 2) dry bulb temperature is above a base of 65 degrees Fahrenheit.
DCPSC	District of Columbia Public Service Commission
Default Electricity   Supply	The supply of electricity within PHI's service territories at regulated rates to retail customers who do not elect to purchase electricity from a competitive supplier, and which, depending on the jurisdiction, is also known as Default Service, SOS, BGS, or formerly POLR service
Default Supply Revenue	Revenue received for Default Electricity Supply
Delaware District Court	U.S. District Court for the District of Delaware
District Court	U.S. District Court for the Northern District of Texas

i

Term	Definition
DPL	Delmarva Power & Light Company
DPSC	Delaware Public Service Commission
EDECA	New Jersey Electric Discount and Energy Competition Act
EDIT	Excess Deferred Income Taxes
EITF	Emerging Issues Task Force
EPA	U.S. Environmental Protection Agency
EPS	Earnings per share
ERISA	Employment Retirement Income Security Act of 1974
Exchange Act	Securities Exchange Act of 1934, as amended
FASB	Financial Accounting Standards Board
FERC	Federal Energy Regulatory Commission
Fifth Circuit	U.S. Court of Appeals for the Fifth Circuit
FIN	FASB Interpretation Number
First Order	Administrative Order and Notice of Civil Administrative Penalty Assessment issued by NJDEP on April 3, 2007
FSP	FASB Staff Position
FSP AUG AIR-1	FSP American Institute of Certified Public Accountants Industry Audit Guide, Audits of Airlines--"Accounting for Planned Major Maintenance Activities"
FTB	FASB Technical Bulletin
Full Requirements   Load Service	The supply of energy by Conectiv Energy to utilities to fulfill their Default Electricity Supply obligations
GAAP	Accounting principles generally accepted in the United States of America
GCR	Gas Cost Rate
GPC	Generation Procurement Credit
GWh	Gigawatt hour
Heating Degree Days	Daily difference in degrees by which the mean (high and low divided by 2) dry bulb temperature is below a base of 65 degrees Fahrenheit.
IRC	Internal Revenue Code
IRS	Internal Revenue Service
LEAC Liability	ACE's $59.3 million deferred energy cost liability existing as of July 31, 1999, related to ACE's Levelized Energy Adjustment Clause and ACE's Demand Side Management Programs
MAPP	Mid-Atlantic Power Pathway Project
MDE	Maryland Department of the Environment
MGP	Manufactured gas plant
Mirant	Mirant Corporation and its predecessors and its subsidiaries
MOA	Memorandum of Agreement
MPSC	Maryland Public Service Commission
NFA	No Further Action Letter issued by NJDEP
NGC	Non Utility Generation Charge in New Jersey
NJBPU	New Jersey Board of Public Utilities
NJDEP	New Jersey Department of Environmental Protection
NOPR	Notice of Proposed Rulemaking by the IRS
Normalization provisions	Sections of the Internal Revenue Code and related regulations that dictate how excess deferred income taxes resulting from the corporate income tax rate reduction enacted by the Tax Reform Act of 1986 and accumulated deferred investment tax credits should be treated for ratemaking purposes

ii

Term	Definition
Notice	Notice 2005-13 issued by the Treasury Department and IRS on February 11, 2005
NUGs	Non-utility generation contracts between ACE and unaffiliated third parties
NYDEC	New York Department of Environmental Conservation
OCI	Other Comprehensive Income
ODEC	Old Dominion Electric Cooperative, which has entered into an agreement with DPL to purchase certain assets principally related to DPL's provision of electric transmission services located on the Eastern Shore of Virginia
OPEB	Other post-employment pension liabilities
Panda	Panda-Brandywine, L.P.
Panda PPA	PPA between Pepco and Panda
PBO	Projected benefit obligation
PCI	Potomac Capital Investment Corporation and its subsidiaries
Pepco	Potomac Electric Power Company
Pepco Distribution	The total aggregate distribution to Pepco pursuant to the Settlement Agreement
Pepco Energy Services	Pepco Energy Services, Inc. and its subsidiaries
Pepco Holdings or PHI	Pepco Holdings, Inc.
PHI Parties	The PHI Retirement Plan, PHI and Conectiv
PJM	PJM Interconnection, LLC
PLR	Private letter ruling from the IRS
POLR	Provider of Last Resort service (the supply of electricity by DPL before May 1, 2006 to retail customers in Delaware who have not elected to purchase electricity from a competitive supplier)
Power Delivery	PHI's Power Delivery Business
PPA	Power Purchase Agreement
PPA-Related   Obligations	Mirant's obligations to purchase from Pepco the capacity and energy that Pepco is obligated to purchase under the FirstEnergy and the Panda PPAs
PRP	Potentially responsible party
PUHCA 1935	Public Utility Holding Company of 1935, which was repealed effective February 8, 2006
PUHCA 2005	Public Utility Holding Company Act of 2005, which became effective February 8, 2006
RAR	IRS Revenue Agent's Report
RC Cape May	RC Cape May Holdings, LLC, an affiliate of Rockland Capital Energy Investments, and the buyer of the B.L. England generating facility
Recoverable stranded costs	The portion of stranded costs that is recoverable from ratepayers as approved by regulatory authorities
Reorganization Plan	Mirant's Plan of Reorganization
RI/FS	Remedial Investigation/Feasibility Study
ROE	Return on equity
RTEP	PJM's Regional Transmission Expansion Plan
SBC	Societal Benefits Charge in New Jersey
SEC	Securities and Exchange Commission
Second Order	Administrative Order and Notice of Civil Administrative Penalty Assessment issued by NJDEP on May 23, 2007
Settlement Agreement	Amended Settlement Agreement and Release, dated as of May 30, 2006 between Pepco and the Mirant Parties

iii

Term	Definition
SFAS	Statement of Financial Accounting Standards
SMECO	Southern Maryland Electric Cooperative, Inc.
SMECO Agreement	Capacity purchase agreement between Pepco and SMECO
SMECO Settlement   Agreement	Settlement Agreement and Release entered into between Mirant and SMECO
SOS	Standard Offer Service (the supply of electricity by Pepco in the District of Columbia, by Pepco and DPL in Maryland and by DPL in Delaware on and after May 1, 2006, to retail customers who have not elected to purchase electricity from a competitive supplier)
Standard Offer Service   revenue or SOS revenue	Revenue Pepco receives for the procurement of energy by Pepco for its SOS customers
Stranded costs	Costs incurred by a utility in connection with providing service which would otherwise be unrecoverable in a competitive or restructured market. Such costs may include costs for generation assets, purchased power costs, and regulatory assets and liabilities, such as accumulated deferred income taxes.
T&D	Transmission and distribution
Third Circuit	U.S. Court of Appeals for the Third Circuit
Transition Bonds	Transition bonds issued by ACE Funding
Treasury lock	A hedging transaction that allows a company to "lock-in" a specific interest rate corresponding to the rate of a designated Treasury bond for a determined period of time
Utility PRPs	A group of utility PRPs including Pepco, parties to a settlement involving the environmental proceedings at the Metal Bank/Cottman Avenue site
VaR	Value at Risk
Virginia District Court	U.S. District Court for the Eastern District of Virginia
VSCC	Virginia State Corporation Commission

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PART I    FINANCIAL INFORMATION

Item 1.   FINANCIAL STATEMENTS

          Listed below is a table that sets forth, for each registrant, the page number where the information is contained herein.

	Registrants
Item	Pepco Holdings	Pepco*	DPL*	ACE
Consolidated Statements of Earnings	3	52	74	92
Consolidated Statements of Comprehensive Earnings	4	N/A	N/A	N/A
Consolidated Balance Sheets	5	53	75	93
Consolidated Statements of Cash Flows	7	55	77	95
Notes to Consolidated Financial Statements	8	56	78	96
*  Pepco and DPL have no subsidiaries and therefore their financial statements are not consolidated.
1

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2

PEPCO HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (Unaudited)
	Three Months Ended June 30,				Six Months Ended June 30,
		2007		2006		2007		2006
		(Millions of dollars, except share data)
Operating Revenue
Power Delivery	$	1,162.3	$	1,179.4	$	2,437.4	$	2,354.2
Competitive Energy		904.1		711.0		1,791.2		1,467.7
Other		17.9		26.2		34.5		46.6
Total Operating Revenue		2,084.3		1,916.6		4,263.1		3,868.5
Operating Expenses
Fuel and purchased energy		1,412.4		1,218.9		2,889.4		2,445.6
Other services cost of sales		134.6		168.2		272.7		325.1
Other operation and maintenance		210.8		209.5		417.9		413.9
Depreciation and amortization		92.7		104.1		185.8		208.3
Other taxes		86.2		82.6		171.5		164.0
Deferred electric service costs		(10.0)		(29.6)		18.1		(10.2)
Impairment loss		1.6		.2		1.6		6.5
Gain on sale of assets		-		(.5)		(2.5)		(1.8)
Total Operating Expenses		1,928.3		1,753.4		3,954.5		3,551.4
Operating Income		156.0		163.2		308.6		317.1
Other Income (Expenses)
Interest and dividend income		3.5		4.2		6.8		7.7
Interest expense		(83.8)		(85.2)		(168.4)		(166.8)
Income (loss) from equity investments		3.7		(.2)		7.1		.5
Other income		6.8		11.6		15.4		32.5
Other expenses		(.2)		(2.9)		(.4)		(7.9)
Total Other Expenses		(70.0)		(72.5)		(139.5)		(134.0)
Preferred Stock Dividend Requirements of Subsidiaries		.1		.3		.2		.7
Income Before Income Tax Expense		85.9		90.4		168.9		182.4
Income Tax Expense		28.7		39.2		60.1		74.4
Net Income		57.2		51.2		108.8		108.0
Retained Earnings at Beginning of Period		1,071.4		1,026.1		1,068.7		1,018.7
Cumulative Effect Adjustment Related to   the Implementation of FIN 48		-		-		1.4		-
LTIP Dividend		-		-		(.2)		-
Dividends Paid on Common Stock (Note 4)		(50.2)		(49.4)		(100.3)		(98.8)
Retained Earnings at End of Period	$	1,078.4	$	1,027.9	$	1,078.4	$	1,027.9
Basic and Diluted Share Information
Weighted average shares outstanding		193.2		190.4		192.8		190.2
Earnings per share of common stock	$	.30	$	.27	$	.56	$	.56
The accompanying Notes are an integral part of these Consolidated Financial Statements.
3

PEPCO HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS (Unaudited)
	Three Months Ended June 30,				Six Months Ended June 30,
		2007		2006		2007		2006
		(Millions of dollars)
Net income	$	57.2	$	51.2	$	108.8	$	108.0
Other comprehensive earnings (losses)
Unrealized gains (losses) on commodity     derivatives designated as cash flow hedges:
Unrealized holding gains (losses) arising during period		1.6		(27.6)		20.3		(117.2)
Less: reclassification adjustment for                 (losses) gains included in net earnings		(.7)		(8.5)		(12.5)		27.3
Net unrealized gains (losses) on commodity derivatives		2.3		(19.1)		32.8		(144.5)
Realized gains on Treasury lock transactions		3.3		3.0		6.2		5.9
Other comprehensive earnings (losses), before taxes		5.6		(16.1)		39.0		(138.6)
Income tax expense (benefit)		3.2		(6.8)		15.0		(55.7)
Other comprehensive earnings (losses), net of income taxes		2.4		(9.3)		24.0		(82.9)
Comprehensive earnings	$	59.6	$	41.9	$	132.8	$	25.1
The accompanying Notes are an integral part of these Consolidated Financial Statements.
4

PEPCO HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited)
ASSETS		June 30, 2007		December 31, 2006
	(Millions of dollars)
CURRENT ASSETS
Cash and cash equivalents		$	23.0	$	48.8
Restricted cash			12.9		12.0
Accounts receivable, less allowance for     uncollectible accounts of $37.0 million     and $35.8 million, respectively			1,270.7		1,253.5
Fuel, materials and supplies-at average cost			282.4		288.8
Unrealized gains - derivative contracts			29.2		72.7
Prepayments of income taxes			267.2		228.4
Prepaid expenses and other			119.6		77.2
Total Current Assets			2,005.0		1,981.4
INVESTMENTS AND OTHER ASSETS
Goodwill			1,407.3		1,409.2
Regulatory assets			1,540.6		1,570.8
Investment in finance leases held in trust			1,349.9		1,321.8
Income taxes receivable			204.1		-
Other			371.9		383.7
Total Investments and Other Assets			4,873.8		4,685.5
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment			11,992.0		11,819.7
Accumulated depreciation			(4,340.4)		(4,243.1)
Net Property, Plant and Equipment			7,651.6		7,576.6
TOTAL ASSETS		$	14,530.4	$	14,243.5
The accompanying Notes are an integral part of these Consolidated Financial Statements.
5

PEPCO HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY		June 30, 2007		December 31, 2006
	(Millions of dollars, except shares)
CURRENT LIABILITIES
Short-term debt		$	286.0	$	349.6
Current maturities of long-term debt			640.5		857.5
Accounts payable and accrued liabilities			803.5		700.7
Capital lease obligations due within one year			5.7		5.5
Taxes accrued			93.5		99.9
Interest accrued			79.1		80.1
Interest and tax liability on uncertain tax positions			124.3		-
Other			377.4		433.6
Total Current Liabilities			2,410.0		2,526.9
DEFERRED CREDITS
Regulatory liabilities			776.7		842.7
Deferred income taxes			2,000.8		2,084.0
Investment tax credits			38.0		46.1
Pension benefit obligation			86.6		78.3
Other postretirement benefit obligations			413.3		405.0
Income taxes payable			159.5		-
Other			294.3		256.5
Total Deferred Credits			3,769.2		3,712.6
LONG-TERM LIABILITIES
Long-term debt			4,087.8		3,768.6
Transition Bonds issued by ACE Funding			449.6		464.4
Long-term project funding			21.9		23.3
Capital lease obligations			108.3		111.1
Total Long-Term Liabilities			4,667.6		4,367.4
COMMITMENTS AND CONTINGENCIES (NOTE 4)
MINORITY INTEREST			6.2		24.4
SHAREHOLDERS' EQUITY
Common stock, $.01 par value, authorized     400,000,000 shares, 193,517,986 shares and     191,932,445 shares outstanding, respectively			1.9		1.9
Premium on stock and other capital contributions			2,676.5		2,645.0
Accumulated other comprehensive loss			(79.4)		(103.4)
Retained earnings			1,078.4		1,068.7
Total Shareholders' Equity			3,677.4		3,612.2
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY		$	14,530.4	$	14,243.5
The accompanying Notes are an integral part of these Consolidated Financial Statements.
6

PEPCO HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
		Six Months Ended June 30,
			2007		2006
	(Millions of dollars)
OPERATING ACTIVITIES
Net income		$	108.8	$	108.0
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization			185.8		208.3
Gain on sale of assets			(2.5)		(1.8)
Gain on sale of other investment			(.7)		(12.3)
Impairment loss			1.6		6.5
Rents received from leveraged leases under income earned			(38.1)		(46.3)
Deferred income taxes			58.0		46.4
Changes in:
Accounts receivable			(21.9)		248.9
Regulatory assets and liabilities			(24.2)		(12.3)
Accounts payable and accrued liabilities			79.3		(297.6)
Interest and taxes accrued			(21.6)		(300.9)
Other changes in working capital			(46.2)		(42.6)
Net other operating			36.5		(22.7)
Net Cash From (Used By) Operating Activities			314.8		(118.4)
INVESTING ACTIVITIES
Net investment in property, plant and equipment			(285.0)		(248.3)
Proceeds from sale of assets			10.6		3.2
Proceeds from the sale of other investments			-		13.1
Changes in restricted cash			(.9)		10.0
Net other investing activities			2.7		7.6
Net Cash Used By Investing Activities			(272.6)		(214.4)
FINANCING ACTIVITIES
Dividends paid on common stock			(100.3)		(98.8)
Dividends paid on preferred stock			(.2)		(.7)
Common stock issued for the Dividend Reinvestment Plan			14.1		15.0
Issuance of common stock			23.9		2.6
Preferred stock redeemed			(18.2)		(21.5)
Issuances of long-term debt			451.4		217.0
Reacquisition of long-term debt			(364.2)		(491.2)
(Repayments) issuances of short-term debt, net			(63.6)		619.7
Cost of issuances			(2.5)		(2.9)
Net other financing activities			(8.4)		5.0
Net Cash (Used By) From Financing Activities			(68.0)		244.2
Net Decrease in Cash and Cash Equivalents			(25.8)		(88.6)
Cash and Cash Equivalents at Beginning of Period			48.8		121.5
CASH AND CASH EQUIVALENTS AT END OF PERIOD		$	23.0	$	32.9
NONCASH ACTIVITIES
Asset retirement obligations associated with removal   costs transferred to regulatory liabilities		$	7.3	$	(3.7)
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash (received) paid for income taxes		$	(6.3)	$	172.8
The accompanying Notes are an integral part of these Consolidated Financial Statements.
7

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

PEPCO HOLDINGS, INC.

(1)  ORGANIZATION

     Pepco Holdings, Inc. (Pepco Holdings or PHI) is a diversified energy company that, through its operating subsidiaries, is engaged in two principal business operations:

· electricity and natural gas delivery (Power Delivery), and

· competitive energy generation, marketing and supply (Competitive Energy).

     PHI was incorporated in Delaware in February 2001, for the purpose of effecting the acquisition of Conectiv by Potomac Electric Power Company (Pepco). The acquisition was completed on August 1, 2002, at which time Pepco and Conectiv became wholly owned subsidiaries of PHI. Conectiv was formed in 1998 to be the holding company for Delmarva Power & Light Company (DPL) and Atlantic City Electric Company (ACE) in connection with a merger between DPL and ACE. As a result, DPL and ACE are wholly owned subsidiaries of Conectiv.

     On February 8, 2006, the Public Utility Holding Company Act of 1935 (PUHCA 1935) was repealed and the Public Utility Holding Company Act of 2005 (PUHCA 2005) went into effect. As a result, PHI has ceased to be regulated by the Securities and Exchange Commission (SEC) as a public utility holding company and is now subject to the regulatory oversight of the Federal Energy Regulatory Commission (FERC). As permitted under FERC regulations promulgated under PUHCA 2005, PHI has given notice to FERC that it will continue, until further notice, to operate pursuant to the authority granted in the financing order issued by the SEC under PUHCA 1935, which has an authorization period ending June 30, 2008, relating to the issuance of securities and guarantees, other financing transactions and the operation of PHI's money pool.

     PHI Service Company, a subsidiary service company of PHI, provides a variety of support services, including legal, accounting, tax, financial reporting, treasury, purchasing and information technology services to PHI and its operating subsidiaries. These services are provided pursuant to a service agreement among PHI, PHI Service Company, and the participating operating subsidiaries. The expenses of the service company are charged to PHI and the participating operating subsidiaries in accordance with costing methodologies set forth in the service agreement.

     The following is a description of each of PHI's two principal business operations.

Power Delivery

     The largest component of PHI's business is Power Delivery, which consists of the transmission and distribution of electricity and the distribution of natural gas.

     PHI's Power Delivery business is conducted by its three regulated utility subsidiaries: Pepco, DPL and ACE. Each subsidiary is a regulated public utility in the jurisdictions that comprise its service territory. Pepco, DPL and ACE each owns and operates a network of wires, substations and other equipment that are classified either as transmission or distribution facilities.

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Transmission facilities are high-voltage systems that carry wholesale electricity into, or across, the utility's service territory. Distribution facilities are low-voltage systems that carry electricity to end-use customers in the utility's service territory. Together the three companies constitute a single segment for financial reporting purposes.

     Each company is responsible for the delivery of electricity and, in the case of DPL, natural gas in its service territory, for which it is paid tariff rates established by the local public service commission. Each company also supplies electricity at regulated rates to retail customers in its service territory who do not elect to purchase electricity from a competitive supplier. The regulatory term for this supply service varies by jurisdiction as follows:

Delaware	Provider of Last Resort service (POLR) -- before May 1, 2006 Standard Offer Service (SOS) -- on and after May 1, 2006
District of Columbia	SOS
Maryland	SOS
New Jersey	Basic Generation Service (BGS)
Virginia	Default Service

     In this Form 10-Q, these supply services are referred to generally as Default Electricity Supply.

Competitive Energy

     The Competitive Energy business provides competitive generation, marketing and supply of electricity and gas, and related energy management services, primarily in the mid-Atlantic region. PHI's Competitive Energy operations are conducted through subsidiaries of Conectiv Energy Holding Company (collectively, Conectiv Energy) and Pepco Energy Services, Inc. and its subsidiaries (collectively, Pepco Energy Services). Conectiv Energy and Pepco Energy Services are separate operating segments for financial reporting purposes.

Other Business Operations

     Through its subsidiary Potomac Capital Investment Corporation (PCI), PHI maintains a portfolio of cross-border energy sale-leaseback transactions with a book value at June 30, 2007 of approximately $1.3 billion. This activity constitutes a fourth operating segment, which is designated as "Other Non-Regulated" for financial reporting purposes. For a discussion of PHI's cross-border leasing transactions, see "Regulatory and Other Matters -- Federal Tax Treatment of Cross Border Leases."

(2)  ACCOUNTING POLICY, PRONOUNCEMENTS, AND OTHER DISCLOSURES

Financial Statement Presentation

     Pepco Holdings' unaudited consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (GAAP). Pursuant to the rules and regulations of the SEC, certain information and footnote disclosures normally included in annual financial statements prepared in accordance with GAAP have been omitted. Therefore, these financial statements should be read along with the annual financial statements

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included in PHI's Annual Report on Form 10-K for the year ended December 31, 2006. In the opinion of PHI's management, the consolidated financial statements contain all adjustments (which all are of a normal recurring nature) necessary to present fairly Pepco Holdings' financial condition as of June 30, 2007, in accordance with GAAP. The year-end balance sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP. Interim results for the three and six months ended June 30, 2007 may not be indicative of PHI's results that will be realized for the full year ending December 31, 2007, since its Power Delivery and Competitive Energy businesses are seasonal.

FIN 46R, "Consolidation of Variable Interest Entities"

     Subsidiaries of Pepco Holdings have power purchase agreements (PPAs) with a number of entities, including three contracts between unaffiliated non-utility generators (NUGs) and ACE and an agreement between Pepco and Panda-Brandywine, L.P. (Panda) entered into in 1991, pursuant to which Pepco is obligated to purchase from Panda 230 megawatts of capacity and energy annually through 2021 (Panda PPA). Due to a variable element in the pricing structure of the NUGs and the Panda PPA, the Pepco Holdings' subsidiaries potentially assume the variability in the operations of the plants related to these PPAs and therefore have a variable interest in the counterparties to these PPAs. In accordance with the provisions of Financial Accounting Standards Board (FASB) Interpretation No. (FIN) 46R (revised December 2003), entitled "Consolidation of Variable Interest Entities" (FIN 46R), Pepco Holdings continued, during the second quarter of 2007, to conduct exhaustive efforts to obtain infor mation from these four entities, but was unable to obtain sufficient information to conduct the analysis required under FIN 46R to determine whether these four entities were variable interest entities or if Pepco Holdings' subsidiaries were the primary beneficiary. As a result, Pepco Holdings has applied the scope exemption from the application of FIN 46R for enterprises that have conducted exhaustive efforts to obtain the necessary information, but have not been able to obtain such information.

     Net purchase activities with the counterparties to the NUGs and the Panda PPA for the three months ended June 30, 2007 and 2006 were approximately $97 million and $98 million, respectively, of which approximately $90 million and $89 million, respectively, were related to power purchases under the NUGs and the Panda PPA.  Net purchase activities with the counterparties to the NUGs and the Panda PPA for the six months ended June 30, 2007 and 2006 were approximately $203 million and $201 million, respectively, of which approximately $186 million and $182 million, respectively, were related to power purchases under the NUGs and the Panda PPA. Pepco Holdings' exposure to loss under the Panda PPA is discussed in Note (4), Commitments and Contingencies, under "Relationship with Mirant Corporation." Pepco Holdings does not have loss exposure under the NUGs because cost recovery will be achieved from ACE's customers through regulated rates.

     In April 2006, the FASB issued FASB Staff Position (FSP) 46(R)-6, "Determining the Variability to Be Considered in Applying FASB Interpretation No. 46(R)" (FSP FIN 46(R)-6), which provides guidance on how to determine the variability to be considered in applying FIN 46(R). Pepco Holdings started applying the guidance in FSP FIN 46(R)-6 to new and modified arrangements effective July 1, 2006.

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FIN 48, "Accounting for Uncertainty in Income Taxes"

     On July 13, 2006, the FASB issued FIN 48, "Accounting for Uncertainty in Income Taxes" (FIN 48). FIN 48 clarifies the criteria for recognition of tax benefits in accordance with Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes," and prescribes a financial statement recognition threshold and measurement attribute for a tax position taken or expected to be taken in a tax return. Specifically, it clarifies that an entity's tax benefits must be "more likely than not" of being sustained prior to recording the related tax benefit in the financial statements. If the position drops below the "more likely than not" standard, the benefit can no longer be recognized. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition.

     PHI adopted the provisions of FIN 48 on January 1, 2007. As a result of the implementation of FIN 48, PHI recorded a $1.4 million increase in beginning retained earnings, representing the cumulative effect of the change in accounting principle. Unrecognized tax benefits represent those tax benefits related to tax positions that have been taken or are expected to be taken in tax returns, including refund claims, that are not recognized in the financial statements because, in accordance with FIN 48, management has either measured the tax benefit at an amount less than the benefit claimed or expected to be claimed or concluded that it is not more likely than not that the tax position will be ultimately sustained. As of January 1, 2007, unrecognized tax benefits totaled $186.9 million. For the majority of these tax positions, the ultimate deductibility is highly certain, but there is uncertainty about the timing of such deductibility. Unrecognized tax benefits at January 1, 2007, included $35.3 million that, if recognized, would lower the effective tax rate.

     PHI recognizes interest on under/over payments of income taxes and penalties in income tax expense. As of January 1, 2007, PHI had accrued approximately $25.0 million of interest expense and penalties.

     PHI and the majority of its subsidiaries file a consolidated federal income tax return. PHI's federal income tax liabilities for Pepco legacy companies for all years through 2000, and for Conectiv legacy companies for all years through 1997, have been determined, subject to adjustment to the extent of any net operating loss or other loss or credit carrybacks from subsequent years. The open tax years for the significant states where PHI files state income tax returns (District of Columbia, Maryland, Delaware, New Jersey, Pennsylvania and Virginia), are the same as noted above.

     Total unrecognized tax benefits that may change over the next twelve months include the matter described in Note (4) Commitments and Contingencies under the heading "IRS Mixed Service Cost Issue."

     Included in the amount of unrecognized tax benefits at January 1, 2007 that, if recognized, would lower the effective tax rate is a state of Maryland claim for refund in the amount of $31.8 million. Pepco filed an amended 2000 Maryland tax return on November 14, 2005 claiming the refund. The amended return claimed additional tax basis for purposes of computing the Maryland tax gain on the sale of Pepco's generating plants based on the tax benefit rule. This claim for refund was rejected by the state. Pepco filed an appeal by letter dated June 28, 2006. The Hearing Officer denied the appeal by a Notice of Final Determination dated February 22, 2007. Pepco petitioned Maryland Tax Court on March 22, 2007 for the refund. The outcome of this

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case was uncertain at June 30, 2007. Based on the FIN 48 criteria, management did not believe at June 30, 2007 that this refund claim met the financial statement recognition threshold and measurement attribute for recording the tax benefits of this transaction. On August 1, 2007, Pepco entered into a settlement agreement related to this refund claim. For a further discussion, see "Maryland Income Tax Refund" in Note (6), Subsequent Events, herein.

     On May 2, 2007, the FASB issued FSP FIN 48-1, "Definition of Settlement in FASB Interpretation No. 48" (FIN 48-1), which provides guidance on how an enterprise should determine whether a tax position is effectively settled for the purpose of recognizing previously unrecognized tax benefits. PHI applied the guidance of FIN 48-1 with its adoption of FIN 48 on January 1, 2007.

Components of Net Periodic Benefit Cost

     The following Pepco Holdings' information is for the three months ended June 30, 2007 and 2006.

		Pension Benefits				Other Postretirement Benefits
		2007		2006		2007		2006
	(Millions of dollars)
Service cost	$	7.4	$	10.1	$	.9	$	1.7
Interest cost		26.3		24.2		8.4		8.3
Expected return on plan assets		(31.9)		(32.5)		(2.7)		(2.7)
Amortization of prior service cost		.2		.2		(1.2)		(1.1)
Amortization of net loss		1.0		4.8		2.4		4.2
Net periodic benefit cost	$	3.0	$	6.8	$	7.8	$	10.4

     The following Pepco Holdings' information is for the six months ended June 30, 2007 and 2006.

		Pension Benefits				Other Postretirement Benefits
		2007		2006		2007		2006
	(Millions of dollars)
Service cost	$	18.1	$	20.3	$	3.6	$	4.2
Interest cost		50.9		48.4		18.3		17.3
Expected return on plan assets		(65.1)		(65.0)		(6.7)		(5.8)
Amortization of prior service cost		.4		.4		(2.1)		(2.0)
Amortization of net loss		4.7		8.7		5.7		7.2
Net periodic benefit cost	$	9.0	$	12.8	$	18.8	$	20.9

     Pension

     The pension net periodic benefit cost for the three months ended June 30, 2007 of $3.0 million includes $1.4 million for Pepco, $.3 million for ACE, and $(1.3) million for DPL. The pension net periodic benefit cost for the six months ended June 30, 2007 of $9.0 million includes $4.5

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million for Pepco, $1.3 million for ACE, and $(2.8) million for DPL. The remaining pension net periodic benefit cost is for other PHI subsidiaries. The pension net periodic benefit cost for the three months ended June 30, 2006 of $6.8 million includes $3.6 million for Pepco, $.2 million for ACE, and $(1.2) million for DPL. The pension net periodic benefit cost for the six months ended June 30, 2006 of $12.8 million includes $6.6 million for Pepco, $2.5 million for ACE, and $(3.0) million for DPL. The remaining pension net periodic benefit cost is for other PHI subsidiaries.

     Pension Contributions

     Pepco Holdings' current funding policy with regard to its defined benefit pension plan is to maintain a funding level in excess of 100% of its accumulated benefit obligation (ABO). PHI's pension plan currently meets the minimum funding requirements of the Employment Retirement Income Security Act of 1974 (ERISA) without any additional funding. PHI may elect, however, to make a discretionary tax-deductible contribution to maintain the pension plan's assets in excess of its ABO. In 2006 and 2005, PHI made discretionary tax-deductible cash contributions to the plan of zero and $60 million, respectively. As of June 30, 2007, no contributions have been made. The potential discretionary funding of the pension plan in 2007 will depend on many factors, including the actual investment return earned on plan assets over the remainder of the year.

     Other Postretirement Benefits

     The other postretirement net periodic benefit cost for the three months ended June 30, 2007 of $7.8 million includes $1.8 million for Pepco, $2.0 million for ACE, and $2.2 million for DPL. The other postretirement net periodic benefit cost for the six months ended June 30, 2007 of $18.8 million includes $6.7 million for Pepco, $4.4 million for ACE, and $4.0 million for DPL. The remaining other postretirement net periodic benefit cost is for other PHI subsidiaries. The other postretirement net periodic benefit cost for the three months ended June 30, 2006 of $10.4 million includes $4.6 million for Pepco, $2.3 million for ACE, and $1.8 million for DPL. The other postretirement net periodic benefit cost for the six months ended June 30, 2006 of $20.9 million includes $9.4 million for Pepco, $4.6 million for ACE, and $3.4 million for DPL. The remaining other postretirement net periodic benefit cost is for other PHI subsidiaries.

Stock-Based Compensation

     No stock options were granted in the second quarter of 2007.

     Cash received from options exercised under all share-based payment arrangements for the quarter ended June 30, 2007, was $3.9 million and the actual tax benefit realized for the tax deductions resulting from these options exercised totaled $.7 million. Cash received from options exercised under all share-based payment arrangements for the six months ended June 30, 2007, was $13.2 million and the actual tax benefit realized for the tax deductions resulting from these options exercised totaled $1.2 million.

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Calculations of Earnings Per Share of Common Stock

     Reconciliations of the numerator and denominator for basic and diluted earnings per share of common stock calculations are shown below.

		For the Three Months Ended June 30,
					2007		2006
			(In millions, except per share data)
Income (Numerator):
Net Income				$	57.2	$	51.2
Add: Loss on redemption of subsidiary's preferred stock					-		-
Earnings Applicable to Common Stock				$	57.2	$	51.2
Shares (Denominator) (a):
Weighted average shares outstanding for basic computation:
Average shares outstanding					193.2		190.4
Adjustment to shares outstanding					(.2)		(.2)
Weighted Average Shares Outstanding for Computation of   Basic Earnings Per Share of Common Stock					193.0		190.2
Weighted average shares outstanding for diluted computation:
Average shares outstanding					193.2		190.4
Adjustment to shares outstanding					.3		.5
Weighted Average Shares Outstanding for Computation of   Diluted Earnings Per Share of Common Stock					193.5		190.9
Basic earnings per share of common stock				$	.30	$	.27
Diluted earnings per share of common stock				$	.30	$	.27
(a)	The number of options to purchase shares of common stock that were excluded from the calculation of diluted EPS as they are considered to be anti-dilutive were approximately zero and .6 million for the three months ended June 30, 2007 and 2006, respectively.

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		For the Six Months Ended June 30,
					2007		2006
			(In millions, except per share data)
Income (Numerator):
Net Income				$	108.8	$	108.0
Add: Loss on redemption of subsidiary's preferred stock					(.6)		(.8)
Earnings Applicable to Common Stock				$	108.2	$	107.2
Shares (Denominator) (a):
Weighted average shares outstanding for basic computation:
Average shares outstanding					192.8		190.2
Adjustment to shares outstanding					(.2)		(.2)
Weighted Average Shares Outstanding for Computation of   Basic Earnings Per Share of Common Stock					192.6		190.0
Weighted average shares outstanding for diluted computation:
Average shares outstanding					192.8		190.2
Adjustment to shares outstanding					.3		.4
Weighted Average Shares Outstanding for Computation of   Diluted Earnings Per Share of Common Stock					193.1		190.6
Basic earnings per share of common stock				$	.56	$	.56
Diluted earnings per share of common stock				$	.56	$	.56
(a)	Options to purchase shares of common stock that were excluded from the calculation of diluted EPS as they are considered to be anti-dilutive were approximately zero and .6 million for the six months ended June 30, 2007 and 2006, respectively.

Impairment Loss

     During the second quarter of 2007, PHI recorded a pre-tax impairment loss of $1.6 million ($1 million, after-tax) on certain energy services business assets owned by Pepco Energy Services. Also, pre-tax impairment losses of $6.5 million ($4.2 million, after-tax) were recorded on other energy services business assets during the six months ended June 30, 2006.

Sale of Interest in Cogeneration Joint Venture

     During the first quarter of 2006, Conectiv Energy recognized a $12.3 million pre-tax gain ($7.9 million after-tax) on the sale of its equity interest in a joint venture which owns a wood burning cogeneration facility in California. The pre-tax gain is included in the line item entitled "Other Income" in the accompanying consolidated statement of earnings.

Goodwill

     A roll forward of PHI's goodwill balance follows (millions of dollars):

Balance,  December 31, 2006	$  1,409.2
Less:  Adjustment due to resolution of pre-merger tax contingencies	(1.9)
Balance,  June 30, 2007	$  1,407.3

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Reconciliation of Consolidated Income Tax Expense

     A reconciliation of PHI's consolidated income tax expense is as follows:

	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2007		2006		2007		2006
	Amount	Rate	Amount	Rate	Amount	Rate	Amount	Rate
	(Millions of dollars)
Income Before Income Tax Expense	$85.9		$90.4		$168.9		$182.4
Add: Preferred stock dividend           requirements of subsidiaries	.1		.3		.2		.7
Income Before Income Tax Expense       and Preferred Dividends	$86.0		$90.7		$169.1		$183.1
Income tax at federal statutory rate	$30.1	.35	$31.8	.35	$ 59.2	.35	$  64.1	.35
Increases (decreases) resulting from:
Depreciation	2.3	.03	2.0	.02	4.3	.03	4.0	.02
Asset removal costs	(.5)	(.01)	(.5)	(.01)	(1.1)	(.01)	(2.0)	(.01)
State income taxes, net of        federal effect	2.6	.03	8.0	.09	6.5	.04	12.6	.07
Tax credits	(1.2)	(.01)	(1.2)	(.01)	(2.3)	(.01)	(2.4)	(.01)
Company dividends reinvested       in 401(k) Plan	(.5)	(.01)	-	-	(1.1)	(.01)	(1.0)	-
Leveraged leases	(1.9)	(.02)	(3.0)	(.03)	(3.7)	(.02)	(4.8)	(.03)
Change in estimates related to        prior year tax liabilities	(2.3)	(.03)	2.9	.03	(2.3)	(.01)	2.5	.01
Software amortization	.7	.01	.1	-	1.5	.01	1.4	.01
Other	(.6)	(.01)	(.9)	(.01)	(.9)	(.01)	-	-
Total Consolidated Income Tax Expense	$28.7	.33	$39.2	.43	$ 60.1	.36	$  74.4	.41

Resolution of Uncertain Tax Positions

     In June 2007, DPL agreed to a settlement with the State of Delaware related to the allocation of a gain on the sale of real property that occurred in 2001, pursuant to which DPL has made a cash payment of approximately $12 million, consisting of $7.4 million in tax and $4.6 million in interest. DPL's FIN 48 tax reserves for this issue were in excess of the amount finally settled with the State. As a result, excess reserves of $2.8 million were credited to DPL's income tax expense in the second quarter. Because the matter involved a Conectiv heritage tax contingency that existed at the time of the acquisition of Conectiv in August 2002, an additional adjustment of $1.9 million has been recorded in Corporate and Other to eliminate a portion of the tax benefit recorded by DPL.

Resolution of Certain Internal Revenue Service Audit Matters

     In the second quarter of 2006, PHI resolved certain, but not all, tax matters that were raised in Internal Revenue Service audits related to the 2001 and 2002 tax years. Adjustments recorded during the second quarter of 2006 related to these resolved tax matters resulted in an increase in net income of $6.3 million ($2.5 million for Power Delivery and $5.4 million for Other Non-Regulated, partially offset by an unfavorable $1.6 million impact in Corporate and Other). To the extent that the matters resolved related to tax contingencies from the Conectiv heritage companies that existed at the August, 2002 merger date, in accordance with accounting rules, an additional adjustment of $9.1 million ($3.1 million related to Power Delivery and $6.0 million related to Other Non-Regulated) has been recorded in Corporate and Other to eliminate the tax

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benefits recorded by the lines of business against the goodwill balance that resulted from the merger.

Amended and Restated Credit Facility

     On May 2, 2007, PHI, Pepco, DPL and ACE entered into an amendment and restatement of their principal credit facility.

     The aggregate borrowing limit under the facility is $1.5 billion, all or any portion of which may be used to obtain loans or to issue letters of credit. PHI's credit limit under the facility is $875 million. The credit limit of each of Pepco, DPL and ACE is the lesser of $500 million and the maximum amount of debt the company is permitted to have outstanding by its regulatory authorities, except that the aggregate amount of credit used by Pepco, DPL and ACE at any given time collectively may not exceed $625 million. The interest rate payable by each company on utilized funds is based on the prevailing prime rate or Eurodollar rate, plus a margin that varies according to the credit rating of the borrower. The facility also includes a "swingline loan sub-facility," pursuant to which each company may make same day borrowings in an aggregate amount not to exceed $150 million. Any swingline loan must be repaid by the borrower within seven days of receipt thereof. All indebted ness incurred under the facility is unsecured.

     The facility commitment expiration date is May 5, 2012, with each company having the right to elect to have 100% of the principal balance of the loans outstanding on the expiration date continued as non-revolving term loans for a period of one year from such expiration date.

     The facility is intended to serve primarily as a source of liquidity to support the commercial paper programs of the respective companies. The companies also are permitted to use the facility to borrow funds for general corporate purposes and issue letters of credit. In order for a borrower to use the facility, certain representations and warranties made by the borrower at the time the amended and restated credit agreement was entered into also must be true at the time the facility is utilized, and the borrower must be in compliance with specified covenants, including the financial covenant described below. However, a material adverse change in the borrower's business, property, and results of operations or financial condition subsequent to the entry into the amended and restated credit agreement is not a condition to the availability of credit under the facility. Among the covenants to which each of the companies is subject are (i) the requirement that each borrowin g company maintain a ratio of total indebtedness to total capitalization of 65% or less, computed in accordance with the terms of the amended and restated credit agreement, which calculation excludes certain trust preferred securities and deferrable interest subordinated debt from the definition of total indebtedness (not to exceed 15% of total capitalization), (ii) a restriction on sales or other dispositions of assets, other than sales and dispositions permitted by the amended and restated credit agreement, and (iii) a restriction on the incurrence of liens on the assets of a borrower or any of its significant subsidiaries other than liens permitted by the amended and restated credit agreement. The agreement does not include any rating triggers.

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Debt

     In April 2007, PHI issued $200 million of 6.0% notes due 2019 in private placement. Proceeds were used to redeem, on May 31, 2007, $200 million of 5.5% notes due August 15, 2007 at a price of 100.0377% of par.

     In April 2007, ACE retired at maturity $15 million of 7.52% medium-term notes.

     In April 2007, Atlantic City Electric Transition Funding LLC (ACE Funding) made principal payments of $4.9 million on Series 2002-1 Transition Bonds, Class A-1 and $2.0 million on Series 2003-1 Transition Bonds, Class A-1 with a weighted average interest rate of 2.89%.

     In May 2007, ACE retired at maturity $1 million of 7.15% medium-term notes.

     In May 2007, DPL retired at maturity $50 million of 8.125% medium-term notes.

     In June 2007, PHI issued $250 million of 6.125% notes due 2017 in a public offering. Net proceeds along with cash on hand or short-term debt will be used to repay $300 million of 5.5% notes due August 15, 2007.

     In June 2007, DPL retired at maturity $3.2 million of 6.95% first mortgage bonds.

Reclassifications

     Certain prior period amounts have been reclassified in order to conform to current period presentations.

New Accounting Standards

     FSP FTB 85-4-1, "Accounting for Life Settlement Contracts by Third-Party Investors"

     In March 2006, the FASB issued FSP FASB Technical Bulletin (FTB) 85-4-1, "Accounting for Life Settlement Contracts by Third-Party Investors" (FSP FTB 85-4-1). This FSP provides initial and subsequent measurement guidance and financial statement presentation and disclosure guidance for investments by third-party investors in life settlement contracts. FSP FTB 85-4-1 also amends certain provisions of FASB Technical Bulletin No. 85-4, "Accounting for Purchases of Life Insurance," and SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." The guidance in FSP FTB 85-4-1 applies prospectively for all new life settlement contracts and is effective for fiscal years beginning after June 15, 2006 (year ending December 31, 2007 for Pepco Holdings). Pepco Holdings has evaluated the impact of FSP FTB 85-4-1 and it does not have a material impact on its overall financial condition, results of operations, or cash flows.

     SFAS No. 155, "Accounting for Certain Hybrid Financial Instruments - an amendment of FASB Statements No. 133 and 140"

     In February 2006, the FASB issued SFAS No. 155, "Accounting for Certain Hybrid Financial Instruments - an amendment of FASB Statements No. 133 and 140" (SFAS No. 155). SFAS No. 155 amends FASB Statements No. 133, "Accounting for Derivative Instruments and Hedging Activities," and SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities." SFAS No. 155 resolves issues addressed in

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Statement 133 Implementation Issue No. D1, "Application of Statement 133 to Beneficial Interests in Securitized Financial Assets." SFAS No. 155 is effective for all financial instruments acquired or issued after the beginning of an entity's first fiscal year that begins after September 15, 2006 (year ending December 31, 2007 for Pepco Holdings). Pepco Holdings has evaluated the impact of SFAS No. 155 and it does not have a material impact on its overall financial condition, results of operations, or cash flows.

     SFAS No. 156, "Accounting for Servicing of Financial Assets, an amendment of FASB Statement No. 140"

     In March 2006, the FASB issued SFAS No. 156, "Accounting for Servicing of Financial Assets" (SFAS No. 156), an amendment of SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities," with respect to the accounting for separately recognized servicing assets and servicing liabilities. SFAS No. 156 requires an entity to recognize a servicing asset or servicing liability upon undertaking an obligation to service a financial asset via certain servicing contracts, and for all separately recognized servicing assets and servicing liabilities to be initially measured at fair value, if practicable. Subsequent measurement is permitted using either the amortization method or the fair value measurement method for each class of separately recognized servicing assets and servicing liabilities.

     SFAS No. 156 is effective as of the beginning of an entity's first fiscal year that begins after September 15, 2006 (year ending December 31, 2007 for Pepco Holdings). Application is to be applied prospectively to all transactions following adoption of SFAS No. 156. Pepco Holdings has evaluated the impact of SFAS No. 156 and it does not have a material impact on its overall financial condition, results of operations, or cash flows.

     EITF Issue No. 06-3, "Disclosure Requirements for Taxes Assessed by a Governmental Authority on Revenue-producing Transactions"

     On June 28, 2006, the FASB ratified Emerging Issues Task Force (EITF) Issue No. 06-3, "Disclosure Requirements for Taxes Assessed by a Governmental Authority on Revenue-producing Transactions" (EITF 06-3). EITF 06-3 provides guidance on an entity's disclosure of its accounting policy regarding the gross or net presentation of certain taxes and provides that if taxes included in gross revenues are significant, a company should disclose the amount of such taxes for each period for which an income statement is presented (i.e., both interim and annual periods). Taxes within the scope of EITF 06-3 are those that are imposed on and concurrent with a specific revenue-producing transaction. Taxes assessed on an entity's activities over a period of time are not within the scope of EITF 06-3. Pepco Holdings implemented EITF 06-3 during the first quarter of 2007. Taxes included in Pepco Holdings gross revenues were $76.9 million and $63.8 million for the three months ended June 30, 2007 and 2006, respectively, and $150.1 million and $125.4 million for the six months ended June 30, 2007 and 2006, respectively.

     FSP FAS 13-2, "Accounting for a Change or Projected Change in the Timing of Cash Flows Relating to Income Taxes Generated by a Leveraged Lease Transaction"

     On July 13, 2006, the FASB issued FSP FAS 13-2, "Accounting for a Change or Projected Change in the Timing of Cash Flows Relating to Income Taxes Generated by a Leveraged Lease Transaction" (FSP FAS 13-2). FSP FAS 13-2, which amends SFAS No. 13, "Accounting for

19

Leases," addresses how a change or projected change in the timing of cash flows relating to income taxes generated by a leveraged lease transaction affects the accounting by a lessor for that lease.

     FSP FAS 13-2 is effective for the first fiscal year beginning after December 15, 2006 (year ending December 31, 2007 for Pepco Holdings). A material change in the timing of cash flows under Pepco Holdings' cross-border leases as the result of a settlement with the Internal Revenue Service or a change in tax law would require an adjustment to the book value of the leases and a charge to earnings equal to the repricing impact of the disallowed deductions which could result in a material adverse effect on its overall financial condition, results of operations, and cash flows. For a further discussion, see "Federal Tax Treatment of Cross-border Leases" in Note (4), "Commitments and Contingencies."

     SFAS No. 157, "Fair Value Measurements"

     In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements" (SFAS No. 157) which defines fair value, establishes a framework for measuring fair value in GAAP, and expands disclosures about fair value measurements. SFAS No. 157 applies under other accounting pronouncements that require or permit fair value measurements and does not require any new fair value measurements. However, it is possible that the application of this Statement will change current practice with respect to the definition of fair value, the methods used to measure fair value, and the expanded disclosures about fair value measurements.

     SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years (year ending December 31, 2008 for Pepco Holdings). Pepco Holdings is currently in the process of evaluating the impact that SFAS No. 157 will have on its overall financial condition, results of operations, and cash flows.

     FSP AUG AIR-1, "Accounting for Planned Major Maintenance Activities"

     On September 8, 2006, the FASB issued FSP American Institute of Certified Public Accountants Industry Audit Guide, Audits of Airlines--"Accounting for Planned Major Maintenance Activities" (FSP AUG AIR-1), which prohibits the use of the accrue-in-advance method of accounting for planned major maintenance activities in annual and interim financial reporting periods for all industries. FSP AUG AIR-1 is effective the first fiscal year beginning after December 15, 2006 (year ending December 31, 2007 for Pepco Holdings). Pepco Holdings has evaluated the impact of FSP AUG AIR-1 and it does not have a material impact on its overall financial condition, results of operations, or cash flows.

     EITF Issue No. 06-5, "Accounting for Purchases of Life Insurance -- Determining the Amount That Could Be Realized in Accordance with FASB Technical Bulletin No. 85-4, Accounting for Purchases of Life Insurance"

     On September 20, 2006, the FASB ratified EITF Issue No. 06-5, "Accounting for Purchases of Life Insurance -- Determining the Amount That Could Be Realized in Accordance with FASB Technical Bulletin No. 85-4, Accounting for Purchases of Life Insurance" (EITF 06-5) which provides guidance on whether an entity should consider the contractual ability to surrender all of the individual-life policies (or certificates under a group life policy) together when determining the amount that could be realized in accordance with FTB 85-4, and whether a guarantee of the

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additional value associated with the group life policy affects that determination. EITF 06-5 provides that a policyholder should (i) determine the amount that could be realized under the insurance contract assuming the surrender of an individual-life by individual-life policy (or certificate by certificate in a group policy) and (ii) not discount the cash surrender value component of the amount that could be realized when contractual restrictions on the ability to surrender a policy exist unless contractual limitations prescribe that the cash surrender value component of the amount that could be realized is a fixed amount, in which case the amount that could be realized should be discounted in accordance with Accounting Principles Board of the American Institute of Certified Public Accountants Opinion 21. EITF 06-5 is effective for fiscal years beginning after December 15, 2006 (year ending December 31, 2007 for Pepco Holdings). Pepco Holdings has evaluated the impact of EITF 06-5 and h as determined that it does not have a material impact on its overall financial condition, results of operations, cash flows, or disclosure requirements.

     FASB Staff Position No. EITF 00-19-2, "Accounting for Registration Payment Arrangements"

     On December 21, 2006, the FASB issued FSP No. EITF 00-19-2, "Accounting for Registration Payment Arrangements" (FSP EITF 00-19-2), which addresses an issuer's accounting for registration payment arrangements and specifies that the contingent obligation to make future payments or otherwise transfer consideration under a registration payment arrangement, whether issued as a separate agreement or included as a provision of a financial instrument or other agreement, should be separately recognized and measured in accordance with FASB SFAS No. 5, "Accounting for Contingencies." FSP EITF 00-19-2 is effective immediately for registration payment arrangements and the financial instruments subject to those arrangements that are entered into or modified subsequent to the date of its issuance. For registration payment arrangements and financial instruments subject to those arrangements that were entered into prior to the issuance of FSP EITF 00-19-2, this guidance is effective for financial statements issued for fiscal years beginning after December 15, 2006, and interim periods within those fiscal years (year ending December 31, 2007 for Pepco Holdings). Pepco Holdings implemented FSP EITF 00-19-2 during the first quarter of 2007. The implementation did not have a material impact on its overall financial condition, results of operations, or cash flows.

     SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities - Including an amendment of FASB Statement No. 115"

     On February 15, 2007, the FASB issued SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities - Including an amendment of FASB Statement No. 115" (SFAS No. 159) which permits entities to elect to measure eligible financial instruments at fair value. The objective of SFAS No. 159 is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. SFAS No. 159 applies under other accounting pronouncements that require or permit fair value measurements and does not require any new fair value measurements. However, it is possible that the application of SFAS No. 159 will change current practice with respect to the definition of fair value, the methods used to measure fair value, and the expanded disclosures about fair value measurements.

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   SFAS No. 159 establishes presentation and disclosure requirements designed to facilitate comparisons between companies that choose different measurement attributes for similar types of assets and liabilities. SFAS No. 159 requires companies to provide additional information that will help investors and other users of financial statements to more easily understand the effect of the company's choice to use fair value on its earnings. It also requires entities to display the fair value of those assets and liabilities for which the company has chosen to use fair value on the face of the balance sheet. SFAS No. 159 does not eliminate disclosure requirements included in other accounting standards.

     SFAS No. 159 applies to fiscal years beginning after November 15, 2007 (year ending December 31, 2008 for Pepco Holdings), with early adoption permitted for an entity that has also elected to apply the provisions of SFAS No. 157, Fair Value Measurements. An entity is prohibited from retrospectively applying SFAS No. 159, unless it chooses early adoption. SFAS No. 159 also applies to eligible items existing at November 15, 2007 (or early adoption date). Pepco Holdings is currently in the process of evaluating the impact that SFAS No. 159 will have on its overall financial condition, results of operations, and cash flows.

FSP FIN 39-1, "Amendment of FASB Interpretation No. 39"

     On April 30, 2007, the FASB issued FSP FIN 39-1, "Amendment of FASB Interpretation No. 39" to amend certain portions of Interpretation 39. The FSP replaces the terms "conditional contracts" and "exchange contracts" in Interpretation 39 with the term "derivative instruments" as defined in Statement 133. The FSP also amends Interpretation 39 to allow for the offsetting of fair value amounts for the right to reclaim cash collateral or receivable, or the obligation to return cash collateral or payable, arising from the same master netting arrangement as the derivative instruments. FSP FIN 39-1 applies to fiscal years beginning after November 15, 2007 (year ending December 31, 2008 for Pepco Holdings), with early adoption permitted. Pepco Holdings is currently in the process of evaluating the impact that FSP FIN 39-1 will have on its overall financial condition, results of operations, cash flows and disclosure requirements.

EITF Issue No. 06-11, "Accounting for Income Tax Benefits of Dividends on Share-Based Payment Awards"

     On June 27, 2007, the FASB ratified EITF Issue No. 06-11, "Accounting for Income Tax Benefits of Dividends on Share-Based Payment Awards" (EITF 06-11) which provides that a realized income tax benefit from dividends or dividend equivalents that are charged to retained earnings and paid to employees for equity classified nonvested equity shares, nonvested equity share units, and outstanding equity share options should be recognized as an increase to additional paid-in capital (APIC). The amount recognized in additional paid-in capital for the realized income tax benefit from dividends on those awards should be included in the pool of excess tax benefits available to absorb tax deficiencies on share-based payment awards (i.e. the "APIC pool").

     EITF Issue No. 06-11 also provides that when the estimated amount of forfeitures increases or actual forfeitures exceed estimates, the amount of tax benefits previously recognized in APIC should be reclassified into the income statement; however, the amount reclassified is limited to the APIC pool balance on the reclassification date.

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     EITF Issue No. 06-11 applies prospectively to the income tax benefits of dividends on equity-classified employee share-based payment awards that are declared in fiscal years beginning after December 15, 2007, and interim periods within those fiscal years (year ending December 31, 2008 for Pepco Holdings). Early application is permitted as of the beginning of a fiscal year for which interim or annual financial statements have not yet been issued. Retrospective application to previously issued financial statements is prohibited. Entities must disclose the nature of any change in their accounting policy for income tax benefits of dividends on share-based payment awards resulting from the adoption of this guidance. Pepco Holdings is currently in the process of evaluating the impact that EITF Issue No. 06-11 will have on its overall financial condition, results of operations, cash flows and disclosure requirements.

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(3)  SEGMENT INFORMATION

     Based on the provisions of SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information," Pepco Holdings' management has identified its operating segments at June 30, 2007 as Power Delivery, Conectiv Energy, Pepco Energy Services, and Other Non-Regulated. Prior to 2007, intrasegment revenues and expenses were not eliminated at the segment level for purposes of presenting segment financial results but rather were eliminated for PHI's consolidated results through the "Corp. & Other" column. Beginning in 2007, intrasegment revenues and expenses are eliminated at the segment level. Segment results for the three months and six months ended June 30, 2006, have been reclassified to conform to the current presentation. Segment financial information for the three and six months ended June 30, 2007 and 2006, is as follows.

		Three Months Ended June 30, 2007                                            (Millions of dollars)
			Competitive Energy Segments
		Power Delivery	Conectiv Energy	Pepco Energy Services	Other    Non-    Regulated	Corp.  & Other (a)	PHI     Cons.
Operating Revenue		$1,162.3	$  478.2 (b)	$522.6	$     19.1	$   (97.9)	$   2,084.3
Operating Expense (c)		1,049.2 (b)	468.1	505.9	1.1	(96.0)	1,928.3
Operating Income		113.1	10.1	16.7	18.0	(1.9)	156.0
Interest Income		1.2	1.7	.6	2.7	(2.7)	3.5
Interest Expense		45.0	8.0	.4	8.8	21.6	83.8
Other Income		5.0	-	.5	4.2	.6	10.3
Preferred Stock    Dividends		-	-	-	.6	(.5)	.1
Income Taxes		27.9	2.0	6.7	.1	(8.0)	28.7
Net Income (Loss)		46.4	1.8	10.7	15.4	(17.1)	57.2
Total Assets		9,282.1	1,806.0	602.7	1,635.5	1,204.1	14,530.4
Construction    Expenditures		$   137.1	$    14.1	$   5.3	$          -	$      1.5	$     158.0
Note:
(a)	Includes unallocated Pepco Holdings' (parent company) capital costs, such as acquisition financing costs, and the depreciation and amortization related to purchase accounting adjustments for the fair value of Conectiv assets and liabilities as of the August 1, 2002 acquisition date. Additionally, the Total Assets line item in this column includes Pepco Holdings' goodwill balance. Included in Corp. & Other are intercompany amounts of $(97.8) million for Operating Revenue, $(96.8) million for Operating Expense, $(23.3) million for Interest Income, $(22.7) million for Interest Expense, and $(.6) million for Preferred Stock Dividends.
(b)	Power Delivery purchased electric energy and capacity and natural gas from Conectiv Energy in the amount of $95.2 million for the three months ended June 30, 2007.
(c)	Includes depreciation and amortization of $92.7 million, consisting of $77.6 million for Power Delivery, $9.3 million for Conectiv Energy, $3.2 million for Pepco Energy Services, $.4 million for Other Non-Regulated and $2.2 million for Corp. & Other.

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		Three Months Ended June 30, 2006                                           (Millions of dollars)
			Competitive Energy Segments
		Power Delivery	Conectiv Energy	Pepco Energy Services	Other     Non-     Regulated	Corp.  & Other (a)	PHI   Cons.
Operating Revenue		$1,179.4	$  468.5 (b) (e)	$347.5	$    28.3	$(107.1) (e)	$ 1,916.6
Operating Expense (c)		1,065.7 (b)	458.5 (e)	333.8	1.7	(106.3) (e)	1,753.4
Operating Income		113.7	10.0	13.7	26.6	(.8)	163.2
Interest Income		2.5	2.3	.6	1.7 (f)	(2.9) (e) (f)	4.2
Interest Expense		45.3	9.1	.9	9.5 (f)	20.4 (e) (f)	85.2
Other Income		6.8	(.3)	.4	1.3	.3	8.5
Preferred Stock    Dividends		.2	-	-	.6	(.5)	.3
Income Taxes		29.5 (d)	1.3	5.6	.9 (d)	1.9 (d)	39.2
Net Income (Loss)		48.0	1.6	8.2	18.6	(25.2)	51.2
Total Assets		8,747.4	1,886.7	502.2	1,500.6	1,058.7	13,695.6
Construction    Expenditures		$  120.6	$     2.6	$   1.2	$         -	$      3.7	$    128.1
Note:
(a)	Includes unallocated Pepco Holdings' (parent company) capital costs, such as acquisition financing costs, and the depreciation and amortization related to purchase accounting adjustments for the fair value of Conectiv assets and liabilities as of the August 1, 2002 acquisition date. Additionally, the Total Assets line item in this column includes Pepco Holdings' goodwill balance. Included in Corp. & Other are intercompany amounts of $(107.1) million for Operating Revenue, $(105.8) million for Operating Expense, $(20.8) million for Interest Income, $(20.2) million for Interest Expense, and $(.6) million for Preferred Stock Dividends.
(b)	Power Delivery purchased electric energy and capacity and natural gas from Conectiv Energy in the amount of $103.6 million for the three months ended June 30, 2006.
(c)	Includes depreciation and amortization of $104.1 million, consisting of $89.6 million for Power Delivery, $9.1 million for Conectiv Energy, $2.9 million for Pepco Energy Services, $.5 million for Other Non-Regulated and $2.0 million for Corp. & Other.
(d)	Includes the total favorable impact of $6.3 million related to tax matters that were resolved during the second quarter of 2006 ($2.5 million for Power Delivery and $5.4 million for Other Non-Regulated, partially offset by an unfavorable $1.6 million in Corp. & Other). Additionally Corp. & Other includes the elimination (against the goodwill generated by the merger) of the tax benefits recorded by the lines of business in the amount of $9.1 million ($3.1 million related to Power Delivery and $6.0 million related to Other Non-Regulated).
(e)	Due to the reclassification referred to in the introductory paragraph, the Conectiv Energy segment does not include $45.7 million of intrasegment operating revenue and operating expense and $6.7 million of intrasegment interest income and interest expense. Accordingly, the Corp. & Other column does not include an elimination for these amounts.
(f)	Due to the reclassification referred to in the introductory paragraph, the Other Non-Regulated segment does not include $47.8 million of intrasegment interest income and interest expense. Accordingly, the Corp. & Other column does not include an elimination for these amounts.

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		Six Months Ended June 30, 2007                                              (Millions of dollars)
			Competitive Energy Segments
		Power Delivery	Conectiv Energy	Pepco Energy Services	Other    Non-    Regulated	Corp.  & Other (a)	PHI     Cons.
Operating Revenue		$2,437.4	$    974.3 (b)	$1,032.5	$     38.4	$(219.5)	$  4,263.1
Operating Expense (c)		2,230.1 (b)	925.0	1,014.7	2.1	(217.4)	3,954.5
Operating Income		207.3	49.3	17.8	36.3	(2.1)	308.6
Interest Income		3.0	2.9	1.5	5.4	(6.0)	6.8
Interest Expense		90.5	16.4	1.7	18.0	41.8	168.4
Other Income		9.8	.1	3.8	7.5	.9	22.1
Preferred Stock    Dividends		.1	-	-	1.2	(1.1)	.2
Income Taxes		49.9	15.1	8.1	3.8	(16.8)	60.1
Net Income (Loss)		79.6	20.8	13.3	26.2	(31.1)	108.8
Total Assets		9,282.1	1,806.0	602.7	1,635.5	1,204.1	14,530.4
Construction    Expenditures		$  255.4	$    20.0	$   7.0	$         -	$      2.6	$    285.0
Note:
(a)	Includes unallocated Pepco Holdings' (parent company) capital costs, such as acquisition financing costs, and the depreciation and amortization related to purchase accounting adjustments for the fair value of Conectiv assets and liabilities as of the August 1, 2002 acquisition date. Additionally, the Total Assets line item in this column includes Pepco Holdings' goodwill balance. Included in Corp. & Other are intercompany amounts of $(219.5) million for Operating Revenue, $(217.2) million for Operating Expense, $(44.2) million for Interest Income, $(43.0) million for Interest Expense, and $(1.2) million for Preferred Stock Dividends.
(b)	Power Delivery purchased electric energy and capacity and natural gas from Conectiv Energy in the amount of $206.1 million for the six months ended June 30, 2007.
(c)	Includes depreciation and amortization of $185.8 million, consisting of $155.7 million for Power Delivery, $18.6 million for Conectiv Energy, $6.1 million for Pepco Energy Services, $.9 million for Other Non-Regulated and $4.5 million for Corp. & Other.

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		Six Months Ended June 30, 2006                                                (Millions of dollars)
			Competitive Energy Segments
		Power Delivery	Conectiv Energy	Pepco Energy Services	Other     Non-     Regulated	Corp.  & Other (a)	PHI     Cons.
Operating Revenue		$2,354.2	$984.5 (b) (g)	$717.2	$   49.2	$(236.6) (g)	$3,868.5
Operating Expense (c)		2,136.6 (b)	951.3 (g)	694.2 (e)	3.3	(234.0) (g)	3,551.4
Operating Income		217.6	33.2	23.0	45.9	(2.6)	317.1
Interest Income		4.8	4.1	1.0	3.1 (h)	(5.3) (g) (h)	7.7
Interest Expense		88.7	17.4	1.7	18.9 (h)	40.1  (g) (h)	166.8
Other Income		9.3	11.7 (d)	.6	2.6	.9	25.1
Preferred Stock    Dividends		1.5	-	-	1.2	(2.0)	.7
Income Taxes		55.9	12.9	9.2	3.3	(6.9)	74.4
Net Income (Loss)		85.6  (f)	18.7	13.7	28.2  (f)	(38.2) (f)	108.0
Total Assets		8,747.4	1,886.7	502.2	1,500.6	1,058.7	13,695.6
Construction    Expenditures		$   233.5	$     5.0	$   3.9	$         -	$      5.9	$    248.3
Note:
(a)	Includes unallocated Pepco Holdings' (parent company) capital costs, such as acquisition financing costs, and the depreciation and amortization related to purchase accounting adjustments for the fair value of Conectiv assets and liabilities as of the August 1, 2002 acquisition date. Additionally, the Total Assets line item in this column includes Pepco Holdings' goodwill balance. Included in Corp. & Other are intercompany amounts of $(238.1) million for Operating Revenue, $(235.4) million for Operating Expense, $(42.2) million for Interest Income, $(41.0) million for Interest Expense, and $(1.2) million for Preferred Stock Dividends.
(b)	Power Delivery purchased electric energy and capacity and natural gas from Conectiv Energy in the amount of $226.3 million for the six months ended June 30, 2006.
(c)	Includes depreciation and amortization of $208.3 million, consisting of $179.6 million for Power Delivery, $18.2 million for Conectiv Energy, $5.8 million for Pepco Energy Services, $.9 million for Other Non-Regulated and $3.8 million for Corp. & Other.
(d)	Includes $12.3 million gain ($7.9 million after tax) related to the gain on disposition of an interest in a cogeneration joint venture.
(e)	Includes $6.5 million impairment loss ($4.2 million after tax) on certain energy services business assets.
(f)	Includes the total favorable impact of $6.3 million related to tax matters that were resolved during the second quarter of 2006 ($2.5 million for Power Delivery and $5.4 million for Other Non-Regulated, partially offset by an unfavorable $1.6 million in Corp. & Other). Additionally Corp. & Other includes the elimination (against the goodwill generated by the merger) of the tax benefits recorded by the lines of business in the amount of $9.1 million ($3.1 million related to Power Delivery and $6.0 million related to Other Non-Regulated).
(g)	Due to the reclassification referred to in the introductory paragraph, the Conectiv Energy segment does not include $81.0 million of intrasegment operating revenue and operating expense and $13.5 million of intrasegment interest income and interest expense. Accordingly, the Corp. & Other column does not include an elimination for these amounts.
(h)	Due to the reclassification referred to in the introductory paragraph, the Other Non-Regulated segment does not include $81.2 million of intrasegment interest income and interest expense. Accordingly, the Corp. & Other column does not include an elimination for these amounts.

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(4)  COMMITMENTS AND CONTINGENCIES

REGULATORY AND OTHER MATTERS

Relationship with Mirant Corporation

     In 2000, Pepco sold substantially all of its electricity generating assets to Mirant Corporation (formerly Southern Energy, Inc.) and certain of its subsidiaries. In July 2003, Mirant and certain of its subsidiaries filed a voluntary petition for reorganization under Chapter 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court for the Northern District of Texas (the Bankruptcy Court). On December 9, 2005, the Bankruptcy Court approved the Plan of Reorganization (the Reorganization Plan) of Mirant and the Mirant business emerged from bankruptcy on January 3, 2006, as a new corporation of the same name (together with its predecessors, Mirant).

     As part of the bankruptcy proceeding, Mirant had been seeking to reject certain ongoing contractual arrangements under the Asset Purchase and Sale Agreement entered into by Pepco and Mirant for the sale of the generating assets that are described below. The Reorganization Plan did not resolve the issues relating to Mirant's efforts to reject these obligations nor did it resolve certain Pepco damage claims against the Mirant bankruptcy estate.

     Power Purchase Agreement

     The Panda PPA obligates Pepco to purchase from Panda 230 megawatts of energy and capacity annually through 2021. At the time of the sale of Pepco's generating assets to Mirant, the purchase price of the energy and capacity under the Panda PPA was, and since that time has continued to be, substantially in excess of the market price. As a part of the Asset Purchase and Sale Agreement, Pepco entered into a "back-to-back" arrangement with Mirant. Under this arrangement, Mirant is obligated through 2021 to purchase from Pepco the capacity and energy that Pepco is obligated to purchase under the Panda PPA at a price equal to Pepco's purchase price from Panda (the PPA-Related Obligations).

     The SMECO Agreement

     Under the Asset Purchase and Sale Agreement, Pepco assigned to Mirant a Facility and Capacity Agreement entered into by Pepco with Southern Maryland Electric Cooperative, Inc. (SMECO), under which Pepco was obligated to purchase from SMECO the capacity of an 84-megawatt combustion turbine installed and owned by SMECO at a former Pepco generating facility at a cost of approximately $500,000 per month until 2015 (the SMECO Agreement). Pepco is responsible to SMECO for the performance of the SMECO Agreement if Mirant fails to perform its obligations thereunder.

     Settlement Agreements with Mirant

     On May 30, 2006, Pepco, PHI, and certain affiliated companies entered into a Settlement Agreement and Release (the Settlement Agreement) with Mirant, which, subject to court approval, settles all outstanding issues between the parties arising from or related to the Mirant bankruptcy. Under the terms of the Settlement Agreement:

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· Mirant will assume the Asset Purchase and Sale Agreement, except for the PPA-Related Obligations, which Mirant will be permitted to reject.

· Pepco will receive an allowed claim under the Reorganization Plan in an amount that will result in a total aggregate distribution to Pepco, net of certain transaction expenses, of $520 million, consisting of (i) $450 million in damages resulting from the rejection of the PPA-Related Obligations and (ii) $70 million in settlement of other Pepco damage claims against the Mirant bankruptcy estate, which, as described below, was paid by Mirant to Pepco in August 2006 (collectively, the Pepco Distribution).

· Except as described below, the $520 million Pepco Distribution will be effected by means of the issuance to Pepco of shares of Mirant common stock, which Pepco will be obligated to resell promptly in one or more block sale transactions. If the net proceeds that Pepco receives from the resale of the shares of Mirant common stock are less than $520 million, Pepco will receive a cash payment from Mirant equal to the difference, and if the net proceeds that Pepco receives from the resale of the shares of Mirant common stock are more than $520 million, Pepco will make a cash payment to Mirant equal to the difference.

· If the closing price of shares of Mirant common stock is less than $16.00 per share for four business days in a twenty consecutive business day period, and Mirant has not made a distribution of shares of Mirant common stock to Pepco under the Settlement Agreement, Mirant has the one-time option to elect to assume, rather than reject, the PPA-Related Obligations. If Mirant elects to assume the PPA-Related Obligations, the Pepco Distribution will be reduced to $70 million.

· All pending appeals, adversary actions or other contested matters between Pepco and Mirant will be dismissed with prejudice, and each will release the other from any and all claims relating to the Mirant bankruptcy.

     Separately, Mirant and SMECO have entered into a Settlement Agreement and Release (the SMECO Settlement Agreement). The SMECO Settlement Agreement provides that Mirant will assume, rather than reject, the SMECO Agreement. This assumption ensures that Pepco will not incur liability to SMECO as the guarantor of the SMECO Agreement due to the rejection of the SMECO Agreement, although Pepco will continue to guarantee to SMECO the future performance of Mirant under the SMECO Agreement.

     According to their terms, the Settlement Agreement and the SMECO Settlement Agreement will become effective when the Bankruptcy Court or the U.S. District Court for the Northern District of Texas (the District Court), as applicable, has entered a final order, not subject to appeal or rehearing, approving both the Settlement Agreement and the SMECO Settlement Agreement.

     On August 9, 2006, the Bankruptcy Court issued an order approving the Settlement Agreement and the SMECO Settlement Agreement. On August 18, 2006, certain holders of Mirant bankruptcy claims, who had objected to approval of the Settlement Agreement and the SMECO Settlement Agreement before the Bankruptcy Court, appealed the approval order to the District Court. On December 26, 2006, the District Court issued an order affirming the Bankruptcy Court's order approving the Settlement Agreement. On January 25, 2007, the parties

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that appealed the Bankruptcy Court's order filed a notice of appeal of the District Court's order with the United States Court of Appeals for the Fifth Circuit (the Fifth Circuit). The brief of the appealing creditors was filed on April 25, 2007, while Mirant's and Pepco's briefs were filed on May 31, 2007.

     In August 2006, Mirant made a cash payment to Pepco of $70 million, which became due in accordance with the terms of the Settlement Agreement as a result of the approval of the Settlement Agreement by the Bankruptcy Court. If the Bankruptcy Court order approving the Settlement Agreement becomes a final order after the exhaustion of all appeals, the payment will be taken into account as if it were proceeds from the resale by Pepco of shares of the Mirant common stock, as described above, and treated as a portion of the $520 million payment due Pepco. If the Bankruptcy Court approval of the Settlement Agreement is not upheld on appeal, Pepco must repay this cash payment to Mirant. Therefore, no income statement impact has been recognized in relation to the $70 million payment.

     Until the approval of the Settlement Agreement and the SMECO Settlement Agreement becomes final, Mirant is required to continue to perform all of its contractual obligations to Pepco and SMECO. Pepco intends to use the $450 million portion of the Pepco Distribution related to the rejection of the PPA-Related Obligations to pay for future capacity and energy purchases under the Panda PPA.

Rate Proceedings

     In electric service distribution base rate cases filed by Pepco in the District of Columbia and Maryland and by DPL in Maryland and in a natural gas distribution base rate case filed by DPL in Delaware, the utility proposed the adoption of a bill stabilization adjustment mechanism (BSA) for retail customers. The BSA would increase rates if revenues from distribution deliveries fall below the level approved by the applicable regulatory commission and will decrease rates if revenues from distribution deliveries are above the commission-approved level. The end result would be that the utility would collect its authorized revenues for distribution deliveries. As a consequence, a BSA "decouples" revenue from unit sales consumption and ties the growth in revenues to the growth in the number of customers. Some advantages of the BSA are that it (i) eliminates revenue fluctuations due to weather and changes in customer usage patterns and, therefore, provides for more predicta ble utility distribution revenues that are better aligned with costs, (ii) provides for more reliable fixed-cost recovery, (iii) tends to stabilize customers' delivery bills, and (iv) removes any disincentives for the regulated utilities to promote energy efficiency programs for their customers, because it breaks the link between overall sales volumes and delivery revenues. The status of the BSA proposals in each of the jurisdictions is described below in discussion of the respective base rate proceedings.

     Delaware

     On August 31, 2006, DPL submitted its 2006 Gas Cost Rate (GCR) filing to the Delaware Public Service Commission (DPSC), which permits DPL to recover gas procurement costs through customer rates. On October 3, 2006, the DPSC issued an initial order approving the proposed rates, which became effective November 1, 2006, subject to refund pending final DPSC approval after evidentiary hearings. On February 23, 2007, DPL submitted an additional filing to the DPSC that proposed an additional 4.3% decrease in the GCR effective April 1, 2007, in compliance with its gas service tariff and to ensure collections are more aligned with

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expenses. On March 20, 2007, the DPSC approved the rate decrease, subject to refund pending final DPSC approval after evidentiary hearings. On July 17, 2007, the DPSC granted final approval for the GCR, as filed.

     On August 31, 2006, DPL submitted an application to the DPSC for an increase in gas distribution base rates, including a proposed BSA. On March 20, 2007, the DPSC approved a settlement agreement filed by all of the parties in this proceeding (DPL, the DPSC staff and the Delaware Division of Public Advocate). The settlement provisions include a $9.0 million increase in distribution rates, including certain miscellaneous tariff fees (of which $2.5 million was put into effect on November 1, 2006), reflecting a return on equity (ROE) of 10.25%, and a change in depreciation rates that will result in a $2.1 million reduction in pre-tax annual depreciation expense. Under the settlement agreement, rates became effective on April 1, 2007. Although the settlement agreement does not include a BSA, it provides for all of the parties to the case to participate in any generic statewide proceeding for the purpose of investigating BSA mechanisms for electric and gas distribution utilitie s. On March 20, 2007, the DPSC issued an order initiating a docket for the purpose of investigating a bill stabilization adjustment mechanism, or other rate decoupling mechanisms.

     District of Columbia

     In February 2006, Pepco filed an update to the District of Columbia Generation Procurement Credit (GPC) for the periods February 8, 2002 through February 7, 2004 and February 8, 2004 through February 7, 2005. The GPC provides for sharing of the profit from SOS sales. The updated GPC filing, which was amended in March 2006, in the District of Columbia takes into account the $112.4 million in proceeds received by Pepco from the December 2005 sale of an allowed bankruptcy claim against Mirant arising from a settlement agreement entered into with Mirant relating to Mirant's obligation to supply energy and capacity to fulfill Pepco's SOS obligations in the District of Columbia. The filing also incorporates true-ups to previous disbursements in the GPC for the District of Columbia. In the filing, Pepco requested that $24.3 million be credited to District of Columbia customers during the twelve-month period beginning April 2006. On June 15, 2006, the District of Columbia Public Service Commission (DCPSC) granted conditional approval of the GPC update as filed, effective July 1, 2006, and on May 24, 2007, the DCPSC issued a final approval.

     On December 12, 2006, Pepco submitted an application to the DCPSC to increase electric distribution base rates, including a proposed BSA. The application requested an annual increase of approximately $46.2 million or an overall increase of 13.5%, reflecting a proposed ROE of 10.75%. If the BSA is not approved, the proposed annual increase is $50.5 million or an overall increase of 14.8%, reflecting an ROE of 11.00%. Hearings were held in the case in June 2007. A DCPSC decision is expected in September 2007.

     Maryland

     On July 19, 2007, the Maryland Public Service Commission (MPSC) issued orders in the electric service distribution rate cases filed by DPL and Pepco. The DPL order approved a temporary annual increase in distribution rates of approximately $14.9 million (including a decrease in annual depreciation expense of approximately $0.9 million). The Pepco order approved a temporary annual increase in distribution rates of approximately $10.6 million (including a decrease in annual depreciation expense of approximately $30.7 million). In each

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case, the approved distribution rate reflects an ROE of 10.0%. The orders each provided that the rate increases are effective as of June 16, 2007, and will remain in effect for an initial period of nine months from the date of the order (or until April 19, 2008). The temporary rates are subject to a Phase II proceeding in which the MPSC will consider the results of audits of each company's cost allocation manual, as filed with the MPSC, to determine whether a further adjustment to the rates is required. For each of the utilities, the MPSC approved the proposed BSA, under which customer delivery rates are subject to adjustment quarterly (through a surcharge or credit mechanism), depending on whether actual revenue per customer exceeds or falls short of, the approved revenue per customer amount.

     New Jersey

     On June 1, 2007, ACE filed with the New Jersey Board of Public Utilities (NJBPU) an application for permission to decrease the Non Utility Generation Charge (NGC) and increase components of its Societal Benefits Charge (SBC) to be collected from customers for the period October 1, 2007 through September 30, 2008. The proposed changes are designed to effect a true-up of the actual and estimated costs and revenues collected through the current NGC and SBC rates through September 30, 2007 and, in the case of the SBC, forecasted costs and revenues for the period October 1, 2007 through September 30, 2008.

     ACE projects that, as of September 30, 2007, the NGC, which is intended primarily to recover the above-market component of payments made by ACE under non-utility generation contracts and stranded costs associated with those commitments, will have an over-recovery balance of $234.6 million. The filing proposes that the NGC balance, including interest, be amortized and returned to ACE customers over a four-year period, beginning October 1, 2007.

     ACE also projects that, as of September 30, 2007, the SBC, which is intended to allow ACE to recover certain costs involved with various NJBPU-mandated social programs, will have an under-recovery of approximately $21.8 million, primarily due to increased costs associated with funding the New Jersey Clean Energy Program (CEP). In addition, ACE has requested an increase to the SBC to reflect the increased funding levels approved by the NJBPU to $18.9 million for calendar year 2007 and $20.4 million for calendar year 2008, which will require a $42.3 million increase in the SBC for the period of October 1, 2007 to September 30, 2008.

     The net impact of the proposed adjustments to the NGC and the SBC, including associated changes in sales and use tax, is an overall rate decrease of approximately $131.8 million for the period October 1, 2007, through September 30, 2008. The proposed adjustments and the corresponding changes in customer rates are subject to the approval of the NJBPU. If approved and implemented, ACE anticipates that the revised rates will remain in effect until September 30, 2008, subject to an annual true-up and change each year thereafter.

     Federal Energy Regulatory Commission

     On May 15, 2007, Pepco, ACE and DPL each updated its FERC-approved formula transmission rates based on its 2006 FERC Form 1. These rates became effective on June 1, 2007, and will provide the following approximate additional annual revenues: for Pepco, $9.5 million; for DPL, $17.2 million; and for ACE, $20 million. These updated rates reflect the end of a settlement adjustment that reduced the prior rate year's (from June 2006 through May 2007) revenues by an annual amount of $25.3 million for the three utilities.

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ACE Restructuring Deferral Proceeding

     Pursuant to orders issued by the NJBPU under the New Jersey Electric Discount and Energy Competition Act (EDECA), beginning August 1, 1999, ACE was obligated to provide BGS to retail electricity customers in its service territory who did not elect to purchase electricity from a competitive supplier. For the period August 1, 1999 through July 31, 2003, ACE's aggregate costs that it was allowed to recover from customers exceeded its aggregate revenues from supplying BGS. These under-recovered costs were partially offset by a $59.3 million deferred energy cost liability existing as of July 31, 1999 (LEAC Liability) related to ACE's Levelized Energy Adjustment Clause and ACE's Demand Side Management Programs. ACE established a regulatory asset in an amount equal to the balance of under-recovered costs.

     In August 2002, ACE filed a petition with the NJBPU for the recovery of approximately $176.4 million in actual and projected deferred costs relating to the provision of BGS and other restructuring related costs incurred by ACE over the four-year period August 1, 1999 through July 31, 2003, net of the $59.3 million offset for the LEAC Liability. The petition also requested that ACE's rates be reset as of August 1, 2003 so that there would be no under-recovery of costs embedded in the rates on or after that date. The increase sought represented an overall 8.4% annual increase in electric rates.

     In July 2004, the NJBPU issued a final order in the restructuring deferral proceeding confirming a July 2003 summary order, which (i) permitted ACE to begin collecting a portion of the deferred costs and reset rates to recover on-going costs incurred as a result of EDECA, (ii) approved the recovery of $125 million of the deferred balance over a ten-year amortization period beginning August 1, 2003, (iii) transferred to ACE's then pending base rate case for further consideration approximately $25.4 million of the deferred balance (the base rate case ended in a settlement approved by the NJBPU in May 2005, the result of which is that any net rate impact from the deferral account recoveries and credits in future years will depend in part on whether rates associated with other deferred accounts considered in the case continue to generate over-collections relative to costs), and (iv) estimated the overall deferral balance as of July 31, 2003 at $195 million, of which $44.6 million was disallowed recovery by ACE. Although ACE believes the record does not justify the level of disallowance imposed by the NJBPU in the final order, the $44.6 million of disallowed incurred costs were reserved during the years 1999 through 2003 (primarily 2003) through charges to earnings, primarily in the operating expense line item "deferred electric service costs," with a corresponding reduction in the regulatory asset balance sheet account. In 2005, an additional $1.2 million in interest on the disallowed amount was identified and reserved by ACE. In August 2004, ACE filed a notice of appeal with respect to the July 2004 final order with the Appellate Division of the Superior Court of New Jersey (the Appellate Division), which hears appeals of the decisions of New Jersey administrative agencies, including the NJBPU. Briefs in the appeal were also filed by the New Jersey Division of Rate Counsel (then known as the Division of the New Jersey Ratepayer Advocate) and by Cogentrix Energy Inc., the co-own er of two cogeneration power plants with contracts to sell ACE approximately 397 megawatts of electricity, as cross-appellants between August 2005 and January 2006. The Appellate Division has not yet set the schedule for oral argument.

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Divestiture Cases

     District of Columbia

     Final briefs on Pepco's District of Columbia divestiture proceeds sharing application were filed with the DCPSC in July 2002 following an evidentiary hearing in June 2002. That application was filed to implement a provision of Pepco's DCPSC-approved divestiture settlement that provided for a sharing of any net proceeds from the sale of Pepco's generation-related assets. One of the principal issues in the case is whether Pepco should be required to share with customers the excess deferred income taxes (EDIT) and accumulated deferred investment tax credits (ADITC) associated with the sold assets and, if so, whether such sharing would violate the normalization provisions of the Internal Revenue Code (IRC) and its implementing regulations. As of June 30, 2007, the District of Columbia allocated portions of EDIT and ADITC associated with the divested generating assets were approximately $6.5 million and $5.8 million, respectively.

     Pepco believes that a sharing of EDIT and ADITC would violate the Internal Revenue Service (IRS) normalization rules. Under these rules, Pepco could not transfer the EDIT and the ADITC benefit to customers more quickly than on a straight line basis over the book life of the related assets. Since the assets are no longer owned there is no book life over which the EDIT and ADITC can be returned. If Pepco were required to share EDIT and ADITC and, as a result, the normalization rules were violated, Pepco would be unable to use accelerated depreciation on District of Columbia allocated or assigned property. In addition to sharing with customers the generation-related EDIT and ADITC balances, Pepco would have to pay to the IRS an amount equal to Pepco's District of Columbia jurisdictional generation-related ADITC balance ($5.8 million as of June 30, 2007), as well as its District of Columbia jurisdictional transmission and distribution-related ADITC balance ($4.4 million as of June 30, 2007) in each case as those balances exist as of the later of the date a DCPSC order is issued and all rights to appeal have been exhausted or lapsed, or the date the DCPSC order becomes operative.

     In March 2003, the IRS issued a notice of proposed rulemaking (NOPR), which would allow for the sharing of EDIT and ADITC related to divested assets with utility customers on a prospective basis and at the election of the taxpayer on a retroactive basis. In December 2005 a revised NOPR was issued which, among other things, withdrew the March 2003 NOPR and eliminated the taxpayer's ability to elect to apply the regulation retroactively. Comments on the revised NOPR were filed in March 2006, and a public hearing was held in April 2006. Pepco filed a letter with the DCPSC in January 2006, in which it has reiterated that the DCPSC should continue to defer any decision on the ADITC and EDIT issues until the IRS issues final regulations or states that its regulations project related to this issue will be terminated without the issuance of any regulations. Other issues in the divestiture proceeding deal with the treatment of internal costs and cost allocations as deductions from the gross proceeds of the divestiture.

     Pepco believes that its calculation of the District of Columbia customers' share of divestiture proceeds is correct. However, depending on the ultimate outcome of this proceeding, Pepco could be required to make additional gain-sharing payments to District of Columbia customers, including the payments described above related to EDIT and ADITC. Such additional payments (which, other than the EDIT and ADITC related payments, cannot be estimated) would be charged to expense in the quarter and year in which a final decision is rendered and could have a

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material adverse effect on Pepco's and PHI's results of operations for those periods. However, neither PHI nor Pepco believes that additional gain-sharing payments, if any, or the ADITC-related payments to the IRS, if required, would have a material adverse impact on its financial position or cash flows.

     Maryland

    Pepco filed its divestiture proceeds plan application with the MPSC in April 2001. The principal issue in the Maryland case is the same EDIT and ADITC sharing issue that has been raised in the District of Columbia case. See the discussion above under "Divestiture Cases -- District of Columbia." As of June 30, 2007, the Maryland allocated portions of EDIT and ADITC associated with the divested generating assets were approximately $9.1 million and $10.4 million, respectively. Other issues deal with the treatment of certain costs as deductions from the gross proceeds of the divestiture. In November 2003, the Hearing Examiner in the Maryland proceeding issued a proposed order with respect to the application that concluded that Pepco's Maryland divestiture settlement agreement provided for a sharing between Pepco and customers of the EDIT and ADITC associated with the sold assets. Pepco believes that such a sharing would violate the normalization rules (discussed above) and would result in Pepco's inability to use accelerated depreciation on Maryland allocated or assigned property. If the proposed order is affirmed, Pepco would have to share with its Maryland customers, on an approximately 50/50 basis, the Maryland allocated portion of the generation-related EDIT ($9.1 million as of June 30, 2007), and the Maryland-allocated portion of generation-related ADITC. Furthermore, Pepco would have to pay to the IRS an amount equal to Pepco's Maryland jurisdictional generation-related ADITC balance ($10.4 million as of June 30, 2007), as well as its Maryland retail jurisdictional ADITC transmission and distribution-related balance ($7.8 million as of June 30, 2007), in each case as those balances exist as of the later of the date a MPSC order is issued and all rights to appeal have been exhausted or lapsed, or the date the MPSC order becomes operative. The Hearing Examiner decided all other issues in favor of Pepco, except for the determination that only one-half of the severance payments that Pepco included in its calculation of corporate reorganization costs should be deducted from the sales proceeds before sharing of the net gain between Pepco and customers. Pepco filed a letter with the MPSC in January 2006, in which it has reiterated that the MPSC should continue to defer any decision on the ADITC and EDIT issues until the IRS issues final regulations or states that its regulations project related to this issue will be terminated without the issuance of any regulations.

     In December 2003, Pepco appealed the Hearing Examiner's decision to the MPSC as it relates to the treatment of EDIT and ADITC and corporate reorganization costs. The MPSC has not issued any ruling on the appeal and Pepco does not believe that it will do so until action is taken by the IRS as described above. However, depending on the ultimate outcome of this proceeding, Pepco could be required to share with its customers approximately 50 percent of the EDIT and ADITC balances described above in addition to the additional gain-sharing payments relating to the disallowed severance payments (which Pepco is not contesting). Such additional payments would be charged to expense in the quarter and year in which a final decision is rendered and could have a material adverse effect on results of operations for those periods. However, neither PHI nor Pepco believes that additional gain-sharing payments, if any, or the ADITC-related payments to the IRS, if required, would have a mat erial adverse impact on its financial position or cash flows.

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     New Jersey

     In connection with the divestiture by ACE of its nuclear generating assets, the NJBPU in July 2000 preliminarily determined that the amount of stranded costs associated with the divested assets that ACE could recover from ratepayers should be reduced by approximately $94.8 million, consisting of $54.1 million of accumulated deferred federal income taxes (ADFIT) associated with accelerated depreciation on the divested nuclear assets, and $40.7 million of current tax loss from selling the assets at a price below the tax basis.

     The $54.1 million in deferred taxes associated with the divested assets' accelerated depreciation; however, is subject to the normalization rules. Due to uncertainty under federal tax law regarding whether the sharing of federal income tax benefits associated with the divested assets, including ADFIT related to accelerated depreciation, with ACE's customers would violate the normalization rules, ACE submitted a request to the IRS for a Private Letter Ruling (PLR) to clarify the applicable law. The NJBPU delayed its final determination of the amount of recoverable stranded costs until after the receipt of the PLR.

     On May 25, 2006, the IRS issued the PLR in which it stated that returning to ratepayers any of the unamortized ADFIT attributable to accelerated depreciation on the divested assets after the sale of the assets by means of a reduction of the amount of recoverable stranded costs would violate the normalization rules.

     On June 9, 2006, ACE submitted a letter to the NJBPU, requesting that the NJBPU conduct proceedings to finalize the determination of the stranded costs associated with the sale of ACE's nuclear assets in accordance with the PLR. In the absence of an NJBPU action regarding ACE's request, on June 22, 2007, ACE filed a motion requesting that the NJBPU issue an order finalizing the determination of such stranded costs in accordance with the PLR. The NJBPU and the other parties in interest have agreed to an expedited schedule for resolution of the motion.

Default Electricity Supply Proceedings

     Delaware

     Effective May 1, 2006, SOS replaced fixed-rate POLR service for customers who do not elect to purchase electricity from a competitive supplier. In October 2005, the DPSC approved DPL as the SOS provider to its Delaware delivery customers. DPL obtains the electricity to fulfill its SOS supply obligation under contracts entered pursuant to a competitive bid procedure approved by the DPSC.

     In response to bids received for the May 1, 2006, through May 31, 2007, period, which had the effect of increasing rates significantly for all customer classes, including an average residential customer increase of 59%, as compared to the fixed rates previously in effect, Delaware in April 2006 enacted legislation that provides for a deferral of the financial impact on customers. This legislation provided for a three-step phase-in of the rate increases, with 15% of the increase taking effect on May 1, 2006, 25% of the increase taking effect on January 1, 2007, and any remaining balance taking effect on June 1, 2007, subject to the right of customers to elect not to participate in the deferral program. Customers who do not "opt-out" of the rate deferral program are required to pay the amounts deferred, without any interest charge, over a 17-month period beginning January 1, 2008. As of June 30, 2007, approximately 53% of the eligible Delaware customers have opted not to participate in the deferral of the SOS rates offered

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by DPL. With approximately 47% of the eligible customers participating in the phase-in program, DPL anticipates a maximum deferral balance of $51.4 million.

     Maryland

     Pursuant to orders issued by the MPSC in November 2006, Pepco and DPL each provides SOS to its delivery customers who do not elect to purchase electricity from a competitive supplier. Each company purchases the power supply required to satisfy its SOS obligations from wholesale suppliers under contracts entered into pursuant to a competitive bid procedure approved and supervised by the MPSC. In March 2006, Pepco and DPL each announced the results of competitive bids to supply electricity to its Maryland SOS customers for one year beginning June 1, 2006. Due to significant increases in the cost of fuels used to generate electricity, the auction results had the effect of increasing the average monthly electric bill by about 38.5% and 35% for Pepco's and DPL's Maryland residential customers, respectively.

     On April 21, 2006, the MPSC approved a settlement agreement among Pepco, DPL, the staff of the MPSC and the Office of People's Counsel, which provides for a rate mitigation plan for the residential customers of each company. Under the plan, the full increase for each company's residential customers who affirmatively elect to participate are being phased-in in increments of 15% on June 1, 2006, 15.7% on March 1, 2007 and the remainder on June 1, 2007. Customers electing to participate in the rate deferral plan will be required to pay the deferred amounts over an 18-month period beginning June 1, 2007. As of June 30, 2007, approximately 2% of Pepco's residential customers and approximately 1% of DPL's residential customers had elected to participate in the phase-in program.

     On June 23, 2006, Maryland enacted legislation that extended the period for customers to elect to participate in the phase-in of higher rates and revised the obligation to provide SOS to residential and small commercial customers until further action of the General Assembly. The legislation also provides for a customer refund reflecting the difference between the interest expense on an initially projected deferred balance at a 25% customer participation level and the interest expense on a deferred balance based on actual participation levels referred to above. The total amount of the refund is approximately $1.1 million for Pepco customers and approximately $.3 million for DPL customers. At Pepco's 2% level of participation, Pepco estimates that the deferral balance, net of taxes, will be approximately $1.4 million. At DPL's 1% level of participation, DPL estimates that the deferral balance, net of taxes, will be approximately $.2 million. In July 200 6, the MPSC approved revised tariff riders filed in June 2006 by Pepco and DPL to implement the legislation.

     Virginia

     As discussed below under the heading "DPL Sale of Virginia Operations," DPL has entered into an agreement to sell substantially all of its Virginia electric service operations.

     On April 2, 2007, DPL filed an application with Virginia State Corporation Commission (VSCC) to adjust its Default Service rates covering the period June 1, 2007, to May 31, 2008. The proposed rates for this service during the first month of this period (June 2007) are based on the fuel proxy rate calculation described below. The proposed rates for the remaining 11 months of the period (July 1, 2007 to May 31, 2008) reflect the fuel cost of Default Service supply based upon the results of the competitive bidding wholesale procurement process. The calculations in

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the application result in a rate decrease of approximately $1.7 million for the period, June 1 to June 30, 2007, and an increase of approximately $4.2 million for the period, July 1, 2007 to May 31, 2008, resulting in an overall annual rate increase of approximately $2.5 million.

     The "fuel proxy rate calculation" was established under a Memorandum of Agreement (MOA) that DPL entered into with the staff of the VSCC in connection with the approval of DPL's divestiture of its generation assets in 2000, and provides for the calculation of the fuel rate portion of Default Service rates that reflect an approximation of the fuel costs that DPL would have incurred had it retained its generating assets. Since June 1, 2006, use of the proxy rate calculation has resulted in DPL being unable to recover fully its cost of providing Default Service. The new rate application reflects DPL's position that the use of the fuel proxy rate calculation to establish Default Service rates terminated on July 1, 2007, and effective that date, it should be permitted to charge customers market based fuel costs. However, pursuant to an order dated June 8, 2007, the VSCC denied the July 1, 2007 rate increase, based on its conclusion that the MOA's provisions relating to fuel cos ts did not end effective June 30, 2007. As a result of this decision, DPL estimates that it will under-recover its cost of providing Default Service by approximately $1.7 million between June 1, 2007 and the September 30, 2007 expiration of the current SOS supply contract. Thereafter, any ongoing under-recovery will be determined by market rates for the fuel portion of SOS supply and the timing of completion of the sale of DPL's Virginia electric operations as described below under the heading "DPL Sale of Virginia Operations."

     DPL filed a complaint for a declaratory order and preliminary injunctive relief with the U.S. District Court for the Eastern District of Virginia (the Virginia District Court). On July 23, 2007, the Virginia District Court dismissed the complaint and denied injunctive relief, finding that the court lacked subject matter jurisdiction and stating that even if it had subject matter jurisdiction, it would abstain from exercising that jurisdiction to allow the Supreme Court of Virginia to consider the issues upon which the complaint was based. On July 31, 2007, DPL filed a notice of appeal of the VSCC's orders with the Supreme Court of Virginia. The sale of DPL's Virginia electric operations as described below under the heading "DPL Sale of Virginia Operations" is not contingent upon resolution of any of the matters that are at issue in these proceedings. If the sale of the Virginia electric operations is completed, the effect, if any, on these proceedings is not determinable at this time.

ACE Sale of B.L. England Generating Facility

     On February 8, 2007, ACE completed the sale of the B.L. England generating facility to RC Cape May Holdings, LLC (RC Cape May), an affiliate of Rockland Capital Energy Investments, LLC, for which it received proceeds of approximately $9 million, after giving effect to certain post-closing adjustments. In addition, RC Cape May and ACE have agreed to submit to arbitration whether RC Cape May must pay to ACE, as part of the purchase price, an additional $3.1 million remaining in dispute. RC Cape May also assumed certain liabilities associated with the B.L. England generating station, including substantially all environmental liabilities.

     The sale of B.L. England will not affect the stranded costs associated with the plant that already have been securitized. ACE anticipates that approximately $9 million to $10 million of additional regulatory assets related to B.L. England may, subject to NJBPU approval, be eligible for recovery as stranded costs. The emission allowance credits associated with B. L. England will be monetized for the benefit of ACE's ratepayers pursuant to the NJBPU order approving

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the sale. Net proceeds from the sale of the plant and monetization of the emission allowance credits, will be credited to ACE's ratepayers in accordance with the requirements of EDECA and NJBPU orders. The appropriate mechanism for monetizing the value of the emission allowances for the benefit of ratepayers is being determined in a Phase II proceeding which is currently pending before the NJBPU.

DPL Sale of Virginia Operations

     On June 13, 2007, DPL entered into separate agreements to sell, respectively, all of its distribution assets and a significant portion of its transmission assets in Virginia for an aggregate sales price of approximately $45 million. DPL currently expects the transactions to close during the fourth quarter of 2007, contingent upon the receipt of required regulatory approvals. These sales, if completed, will not result in a significant financial gain or loss to DPL.

     Distribution Purchase and Sale Agreement

     DPL has entered into an agreement to sell to A&N Electric Cooperative (A&N) all of its assets principally related to DPL's business of distributing retail electric services to customers located on the Eastern Shore of Virginia for a purchase price of approximately $39.8 million, subject to closing adjustments. The assets to be sold include real and personal property, accounts receivable and customer deposits. A&N will assume certain post-closing liabilities and unknown pre-closing liabilities related to the distribution assets including most environmental liabilities, except that DPL will remain liable for unknown pre-closing liabilities if they become known within six months after the closing date. The completion of the sale is contingent upon approval by the VSCC.

     Transmission Purchase and Sale Agreement

     DPL has entered into an agreement to sell to Old Dominion Electric Cooperative (ODEC) certain assets principally related to DPL's provision of electric transmission services located on the Eastern Shore of Virginia for a purchase price of approximately $4.8 million, subject to certain closing adjustments. ODEC will assume certain post-closing liabilities and unknown pre-closing liabilities related to the transmission assets, except that DPL will remain liable for unknown pre-closing liabilities that become known within six months after the closing date. The completion of the sale is contingent upon approval of the transfer by the VSCC and approval of two related agreements by FERC.

General Litigation

     During 1993, Pepco was served with Amended Complaints filed in the state Circuit Courts of Prince George's County, Baltimore City and Baltimore County, Maryland in separate ongoing, consolidated proceedings known as "In re: Personal Injury Asbestos Case." Pepco and other corporate entities were brought into these cases on a theory of premises liability. Under this theory, the plaintiffs argued that Pepco was negligent in not providing a safe work environment for employees or 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 sought $2 million in compensatory damages and $4 million in punitive damages from each defendant.

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     Since the initial filings in 1993, additional individual suits have been filed against Pepco, and significant numbers of cases have been dismissed. As a result of two motions to dismiss, numerous hearings and meetings and one motion for summary judgment, Pepco has had approximately 400 of these cases successfully dismissed with prejudice, either voluntarily by the plaintiff or by the court. As of June 30, 2007, there are approximately 180 cases still pending against Pepco in the State Courts of Maryland, of which approximately 90 cases were filed after December 19, 2000, and have been tendered to Mirant for defense and indemnification pursuant to the terms of the Asset Purchase and Sale Agreement. Under the terms of the Settlement Agreement, Mirant has agreed to assume this contractual obligation. For a description of the Settlement Agreement, see the discussion of the relationship with Mirant above.

     While the aggregate amount of monetary damages sought in the remaining suits (excluding those tendered to Mirant) exceeds $360 million, PHI and Pepco believe the amounts claimed by current plaintiffs are greatly exaggerated. The amount of total liability, if any, and any related insurance recovery cannot be determined at this time; however, based on information and relevant circumstances known at this time, neither PHI nor Pepco believes these suits will have a material adverse effect on its financial position, results of operations or cash flows. However, if an unfavorable decision were rendered against Pepco, it could have a material adverse effect on Pepco's and PHI's financial position, results of operations or cash flows.

Cash Balance Plan Litigation

     In 1999, Conectiv established a cash balance retirement plan to replace defined benefit retirement plans then maintained by ACE and DPL. Following the acquisition by Pepco of Conectiv, this plan became the Conectiv Cash Balance Sub-Plan within the PHI Retirement Plan. In September 2005, three management employees of PHI Service Company filed suit in the U.S. District Court for the District of Delaware (the Delaware District Court) against the PHI Retirement Plan, PHI and Conectiv (the PHI Parties), alleging violations of ERISA, on behalf of a class of management employees who did not have enough age and service when the Cash Balance Sub-Plan was implemented in 1999 to assure that their accrued benefits would be calculated pursuant to the terms of the predecessor plans sponsored by ACE and DPL. A fourth plaintiff was added to the case to represent DPL-heritage "grandfathered" employees who will not be eligible for early retirement at the end of the grandfathered period.

     The plaintiffs have challenged the design of the Cash Balance Sub-Plan and are seeking a declaratory judgment that the Cash Balance Sub-Plan is invalid and that the accrued benefits of each member of the class should be calculated pursuant to the terms of the predecessor plans. Specifically, the complaint alleges that the use of a variable rate to compute the plaintiffs' accrued benefit under the Cash Balance Sub-Plan results in reductions in the accrued benefits that violate ERISA. The complaint also alleges that the benefit accrual rates and the minimal accrual requirements of the Cash Balance Sub-Plan violate ERISA as did the notice that was given to plan participants upon implementation of the Cash Balance Sub-Plan.

     The PHI Parties filed a motion to dismiss the suit, which was denied by the court in July 2006. The Delaware District Court stayed one count of the complaint regarding alleged age discrimination pending a decision in another case before the U.S. Court of Appeals for the Third Circuit (the Third Circuit). In January 2007, the Third Circuit issued a ruling in the other case that PHI believes should result in the favorable disposition of all of the claims (other than the claim of inadequate notice) against the PHI Parties in the Delaware District Court. The PHI

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Parties filed pleadings apprising the Delaware District Court of the Third Circuit's decision in February 2007. In March 2007, the plaintiffs filed pleadings apprising the Delaware District Court that the Third Circuit had denied a request for a rehearing in the other case. Also in January 2007, the plaintiffs filed a Motion for Class Certification and the PHI Parties filed their opposition in February 2007. In May 2007, the PHI Parties filed a motion for summary judgment at the close of discovery. Plaintiffs filed their opposition and cross-motion for summary judgment on June 19, 2007.

     While PHI believes it has a strong legal position in the case and that it is therefore unlikely that the plaintiffs will prevail, PHI estimates that, if the plaintiffs were to prevail, the ABO and projected benefit obligation (PBO), calculated in accordance with SFAS No. 87, each would increase by approximately $12 million, assuming no change in benefits for persons who have already retired or whose employment has been terminated and using actuarial valuation data as of the time the suit was filed. The ABO represents the present value that participants have earned as of the date of calculation. This means that only service already worked and compensation already earned and paid is considered. The PBO is similar to the ABO, except that the PBO includes recognition of the effect that estimated future pay increases would have on the pension plan obligation.

Environmental Litigation

     PHI, through its subsidiaries, is subject to regulation by various federal, regional, state, and local authorities with respect to the environmental effects of its operations, including air and water quality control, solid and hazardous waste disposal, and limitations on land use. In addition, federal and state statutes authorize governmental agencies to compel responsible parties to clean up certain abandoned or unremediated hazardous waste sites. PHI's subsidiaries may incur costs to clean up currently or formerly owned facilities or sites found to be contaminated, as well as other facilities or sites that may have been contaminated due to past disposal practices. Although penalties assessed for violations of environmental laws and regulations are not recoverable from customers of the operating utilities, environmental clean-up costs incurred by Pepco, DPL and ACE would be included by each company in its respective cost of service for ratemaking purposes.

     Cambridge, Maryland Site. In July 2004, DPL entered into an administrative consent order (ACO) with the Maryland Department of the Environment (MDE) to perform a Remedial Investigation/Feasibility Study (RI/FS) to further identify the extent of soil, sediment and ground and surface water contamination related to former manufactured gas plant (MGP) operations at a Cambridge, Maryland site on DPL-owned property and to investigate the extent of MGP contamination on adjacent property. The MDE has approved the RI and DPL submitted a final FS to MDE on February 15, 2007. The costs of cleanup (as determined by the RI/FS and subsequent negotiations with MDE) are anticipated to be approximately $2.7 million. The remedial action will include dredging activities within Cambridge Creek, which are expected to take place as early as October 2007, and soil excavation on DPL's and adjacent property as early as January 2008.

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     Metal Bank/Cottman Avenue Site. In the early 1970s, both Pepco and DPL sold scrap transformers, some of which may have contained some level of PCBs, to a metal reclaimer operating at the Metal Bank/Cottman Avenue site in Philadelphia, Pennsylvania, owned by a nonaffiliated company. In December 1987, Pepco and DPL were notified by the United States Environmental Protection Agency (EPA) that they, along with a number of other utilities and non-utilities, were potentially responsible parties (PRPs) in connection with the PCB contamination at the site.

     In 1994, an RI/FS including a number of possible remedies was submitted to the EPA. In 1997, the EPA issued a Record of Decision that set forth a selected remedial action plan with estimated implementation costs of approximately $17 million. In 1998, the EPA issued a unilateral administrative order to Pepco and 12 other PRPs directing them to conduct the design and actions called for in its decision. In May 2003, two of the potentially liable owner/operator entities filed for reorganization under Chapter 11 of the U.S. Bankruptcy Code. In October 2003, the bankruptcy court confirmed a reorganization plan that incorporates the terms of a settlement among the two debtor owner/operator entities, the United States and a group of utility PRPs including Pepco (the Utility PRPs). Under the bankruptcy settlement, the reorganized entity/site owner will pay a total of $13.25 million to remediate the site (the Bankruptcy Settlement).

     In March 2006, the U.S. District Court for the Eastern District of Pennsylvania approved global consent decrees for the Metal Bank/Cottman Avenue site, entered into on August 23, 2005, involving the Utility PRPs, the U.S. Department of Justice, EPA, The City of Philadelphia and two owner/operators of the site. Under the terms of the settlement, the two owner/operators will make payments totaling $5.55 million to the U.S. Department of Justice and totaling $4.05 million to the Utility PRPs. The Utility PRPs will perform the remedy at the site and will be able to draw on the $13.25 million from the Bankruptcy Settlement to accomplish the remediation (the Bankruptcy Funds). The Utility PRPs will contribute funds to the extent remediation costs exceed the Bankruptcy Funds available. The Utility PRPs also will be liable for EPA costs associated with overseeing the monitoring and operation of the site remedy after the remedy construction is certified to be complete and also the cost of performing the "5 year" review of site conditions required by the Comprehensive Environmental Response, Compensation, and Liability Act of 1980. Any Bankruptcy Funds not spent on the remedy may be used to cover the Utility PRPs' liabilities for future costs. No parties are released from potential liability for damages to natural resources.

     As of June 30, 2007, Pepco had accrued $1.7 million to meet its liability for a remedy at the Metal Bank/Cottman Avenue site. While final costs to Pepco of the settlement have not been determined, Pepco believes that its liability at this site will not have a material adverse effect on its financial position, results of operations or cash flows.

     In 1999, DPL entered into a de minimis settlement with EPA and paid approximately $107,000 to resolve its liability for cleanup costs at the Metal Bank/Cottman Avenue site. The de minimis settlement did not resolve DPL's responsibility for natural resource damages, if any, at the site. DPL believes that any liability for natural resource damages at this site will not have a material adverse effect on its financial position, results of operations or cash flows.

     Delilah Road Landfill Site. In November 1991, the New Jersey Department of Environmental Protection (NJDEP) identified ACE as a PRP at the Delilah Road Landfill site in Egg Harbor Township, New Jersey. In 1993, ACE, along with other PRPs, signed an ACO with

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NJDEP to remediate the site. The soil cap remedy for the site has been completed and the NJDEP conditionally approved the report submitted by the parties on the implementation of the remedy in January 2003. In March 2004, NJDEP approved a Ground Water Sampling and Analysis Plan. Positive results of groundwater monitoring events have resulted in a reduced level of groundwater monitoring. In August 2006, NJDEP issued a No Further Action Letter (NFA) and Covenant Not to Sue for the site. Among other things, the NFA requires the PRPs to monitor the effectiveness of institutional (deed restriction) and engineering (cap) controls at the site every two years and to continue groundwater monitoring. In December 2006, the PRP group filed a petition with NJDEP seeking approval of semi-annual rather than quarterly ground water monitoring for two years and annual groundwater monitoring thereafter if ground water monitoring results remain consistent or improve relative to prior monitoring data. NJDEP has not act ed on the PRP group's petition. In March 2003, EPA demanded from the PRP group reimbursement for EPA's past costs at the site, totaling $168,789. The PRP group objected to the demand for certain costs, but agreed to reimburse EPA approximately $19,000. In a March 19, 2007 letter, EPA demanded from the PRP group reimbursement for EPA's costs at the site between 1985 and 2007 totaling $233,563. The PRP group objected to the demand for these costs for a variety of reasons, including the fact that approximately $97,000 in costs was billed after construction of the remedy by the PRP group was completed. In a June 19, 2007 letter, EPA requested that the PRP group pay $62,623 in response costs and enter into a tolling agreement. In a July 10, 2007 response to EPA, the PRP group indicated a willingness to pay approximately $62,600 (ACE's share of which is one-third) in full satisfaction of EPA's claims for all past and future response costs relating to the site, provided that EPA provides a satisfactory s ettlement agreement with a covenant not sue and release as to such costs. The PRP group response of July 10, 2007 also questioned the need for a tolling agreement for a site that is the subject of an NFA and accordingly warrants little, if any, activity by EPA. The PRP group is evaluating EPA's July 26, 2007 counteroffer of settlement under which the PRP group would resolve its liability for EPA's past and future costs at the site by paying the offered $62,600 plus a 30% premium to cover the risk associated with EPA's unknown future costs for a total of approximately $81,400. A settlement incorporating these terms also would permit EPA to reopen the settlement in the event of new information or unknown conditions at the site. Based on information currently available, ACE anticipates that its share of additional cost associated with this site for post-remedy operation and maintenance will be approximately $555,000 to $600,000. ACE believes that its liability for post-remedy operation and maintenance cost s will not have a material adverse effect on its financial position, results of operations or cash flows.

     Frontier Chemical Site. On June 29, 2007, ACE received a letter from the New York Department of Environmental Conservation (NYDEC) indicating that ACE is a PRP at the Frontier Chemical Waste Processing Company site in Niagara Falls, N.Y. The letter states that NYDEC has hazardous waste manifests indicating that ACE sent in excess of 7,500 gallons of manifested hazardous waste to the site. The letter asks ACE, within 30 days, to express its willingness to enter into an ACO. If ACE is unwilling to enter into the ACO, ACE must respond to NYDEC's request for information within 45 days. ACE informed NYDEC that it has entered into good faith negotiations with a coalescing PRP group to address ACE's responsibility at the site. ACE believes that its responsibility at the site will not have a material adverse effect on its financial position, results of operations or cash flows.

     Deepwater Generating Station. On December 27, 2005, NJDEP issued a Title V Operating Permit for Conectiv Energy's Deepwater Generating Station. The permit includes new limits on unit heat input. In order to comply with these new operational limits, Conectiv Energy restricted

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the output of the Deepwater Generating Station's Unit 1 and Unit 6/8. In 2006 and the first half of 2007, these restrictions resulted in operating losses of approximately $10,000 per operating day on Unit 6/8, primarily because of lost revenues due to reduced output, and to a lesser degree because of lost revenues related to capacity requirements of the PJM Interconnection, LLC (PJM). Since June 1, 2007, Deepwater Unit 6/8 can operate within the heat input limits set forth in the Title V Operating Permit without restricting output, because of technical improvements that partially corrected the inherent bias in the continuous emissions monitoring system that had caused recorded heat input to be higher than actual heat input. In order to comply with the heat input limit at Deepwater Unit 1, Conectiv Energy continues to restrict Unit 1 output. Beginning with the third quarter 2007, this Unit 1 restriction will result in semi-annual operating losses of approximately $500,000 in 2007 and 2008 due to penalt ies and lost revenues related to PJM capacity requirements. Beyond 2008, while penalties due to PJM capacity requirements are not expected, further operating losses due to lost revenues related to PJM capacity requirements may continue to be incurred. The operating losses due to reduced output on Unit 1 have been, and will continue to be, insignificant. Conectiv Energy is challenging these heat input restrictions and other provisions of the Title V Operating Permit for Deepwater Generating Station in the New Jersey Office of Administrative Law.

     On April 3, 2007, NJDEP issued an Administrative Order and Notice of Civil Administrative Penalty Assessment (the First Order) alleging that at Conectiv Energy's Deepwater Generating Station, the maximum gross heat input to Unit 1 exceeded the maximum allowable heat input in calendar year 2005 and the maximum gross heat input to Unit 6/8 exceeded the maximum allowable heat input in calendar years 2005 and 2006. The order required the cessation of operation of Units 1 and 6/8 above the alleged permitted heat input levels, assessed a penalty of $1,091,000 and requested that Conectiv Energy provide additional information about heat input to Units 1 and 6/8. Conectiv Energy provided NJDEP Units 1 and 6/8 calendar year 2004 heat input data on May 9, 2005, and calendar years 1995 to 2003 heat input data on July 10, 2007. On May 23, 2007, NJDEP issued a second Administrative Order and Notice of Civil Administrative Penalty Assessment (the Second Order) alleging that the maximum g ross heat input to Units 1 and 6/8 exceeded the maximum allowable heat input in calendar year 2004. The Second Order required the cessation of operation of Units 1 and 6/8 above the alleged permitted heat input levels and assessed a penalty of $811,600. Conectiv Energy has requested a contested case hearing challenging the issuance of the First and Second Orders and moved for a stay of the orders pending resolution of the Title V Operating Permit contested case described above.

     Carll's Corner Generating Station. On March 9, 2007, NJDEP issued an Administrative Order of Revocation and Notice of Civil Administrative Penalty Assessment alleging that emissions from Unit 1 at Conectiv Energy's Carll's Corner Generating Station exceeded permitted particulate emissions levels during stack testing performed in June and November 2006. The order revoked Conectiv Energy's authority to operate Unit 1 effective April 21, 2007 and assessed a penalty of $110,000 for the alleged permit violations. Conectiv Energy is continuing to investigate the cause of the stack test results. Conectiv Energy requested a contested case hearing challenging the issuance of the order and moved for a stay of the order of revocation. NJDEP issued stays of the order of revocation until August 31, 2007, to provide time for NJDEP review of June 2007 stack test data and preparation of a settlement agreement rescinding the order of revocation.

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IRS Examination of Like-Kind Exchange Transaction

     In 2001, Conectiv and certain of its subsidiaries (the Conectiv Group) were engaged in the implementation of a strategy to divest nonstrategic electric generating facilities and replace these facilities with mid-merit electric generating capacity. As part of this strategy, the Conectiv Group exchanged its interests in two older coal-fired plants for the more efficient gas-fired Hay Road II generating facility, which was owned by an unaffiliated third party. For tax purposes, Conectiv treated the transaction as a "like-kind exchange" under IRC Section 1031. As a result, approximately $88 million of taxable gain was deferred for federal income tax purposes.

     The transaction was examined by the IRS as part of the normal Conectiv tax audit. In May 2006, the IRS issued a revenue agent's report (RAR) for the audit of Conectiv's 2000, 2001 and 2002 income tax returns, in which the IRS exam team disallowed the qualification of the exchange under IRC Section 1031. In July 2006, Conectiv filed a protest of this disallowance to the IRS Office of Appeals.

     PHI believes that its tax position related to this transaction is proper based on applicable statutes, regulations and case law and intends to contest the disallowance. However, there is no absolute assurance that Conectiv's position will prevail. If the IRS prevails, Conectiv would be subject to additional income taxes, interest and possible penalties. However, a portion of the denied benefit would be offset by additional tax depreciation.

     As of June 30, 2007, if the IRS fully prevails, the potential cash impact on PHI would be current income tax and interest payments of approximately $29.8 million and the earnings impact would be approximately $8.5 million in after-tax interest.

Federal Tax Treatment of Cross-border Leases

     PCI maintains a portfolio of cross-border energy sale-leaseback transactions, which, as of June 30, 2007, had a book value of approximately $1.3 billion.

     On February 11, 2005, the Treasury Department and IRS issued Notice 2005-13 informing taxpayers that the IRS intends to challenge on various grounds the purported tax benefits claimed by taxpayers entering into certain sale-leaseback transactions with tax-indifferent parties (i.e., municipalities, tax-exempt and governmental entities) (the Notice). In addition, on June 29, 2005 the IRS published a Coordinated Issue Paper concerning the resolution of audit issues related to such transactions. PCI's cross-border energy leases are similar to those sale-leaseback transactions described in the Notice and the Coordinated Issue Paper.

     PCI's leases have been under examination by the IRS as part of the normal PHI tax audit. On June 9, 2006, the IRS issued its final RAR for its audit of PHI's 2001 and 2002 income tax returns. In the RAR, the IRS disallowed the tax benefits claimed by PHI with respect to certain of these leases for those years. The tax benefit claimed by PHI with respect to the leases under audit is approximately $60 million per year and from 2001 through June 30, 2007 were approximately $317 million. PHI has filed a protest against the IRS adjustments and the unresolved audit has been forwarded to the Appeals Office. The ultimate outcome of this issue is uncertain; however, if the IRS prevails, PHI would be subject to additional taxes, along with interest and possibly penalties on the additional taxes, which could have a material adverse effect on PHI's financial condition, results of operations, and cash flows. PHI believes that its tax position related to these transactions was appropr iate based on applicable statutes,

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regulations and case law, and intends to contest the adjustments proposed by the IRS; however, there is no assurance that PHI's position will prevail.

     On July 13, 2006, the FASB issued FSP FAS 13-2 which amends SFAS No. 13 effective for fiscal years beginning after December 15, 2006. This amendment requires a lease to be repriced and the book value adjusted when there is a change or probable change in the timing of tax benefits of the lease regardless of whether the change results in a deferral or permanent loss of tax benefits. Accordingly, a material change in the timing of cash flows under PHI's cross-border leases as the result of a settlement with the IRS would require an adjustment to the book value of the leases and a charge to earnings equal to the repricing impact of the disallowed deductions which could result in a material adverse effect on PHI's financial condition, results of operations, and cash flows. PHI believes its tax position was appropriate and at this time does not believe there is a probable change in the timing of its tax benefits that would require repricing the leases and a charge to earnings.

IRS Mixed Service Cost Issue

     During 2001, Pepco, DPL, and ACE changed their methods of accounting with respect to capitalizable construction costs for income tax purposes. The change allowed the companies to accelerate the deduction of certain expenses that were previously capitalized and depreciated. Through December 31, 2005, these accelerated deductions generated incremental tax cash flow benefits of approximately $205 million (consisting of $94 million for Pepco, $62 million for DPL, and $49 million for ACE) for the companies, primarily attributable to their 2001 tax returns.

     On August 2, 2005, the Treasury Department released regulations that, if adopted in their current form, would require Pepco, DPL, and ACE to change their method of accounting with respect to capitalizable construction costs for income tax purposes for tax periods beginning in 2005. Based on those regulations, PHI in its 2005 federal tax return adopted an alternative method of accounting for capitalizable construction costs that management believes will be acceptable to the IRS.

     On the same day that the new regulations were released, the IRS issued Revenue Ruling 2005-53, which is intended to limit the ability of certain taxpayers to utilize the method of accounting for income tax purposes they utilized on their tax returns for 2004 and prior years with respect to capitalizable construction costs. In line with this Revenue Ruling, the IRS RAR for the 2001 and 2002 tax returns disallowed substantially all of the incremental tax benefits that Pepco, DPL and ACE had claimed on those returns by requiring the companies to capitalize and depreciate certain expenses rather than treat such expenses as current deductions. PHI's protest of the IRS adjustments is among the unresolved audit matters relating to the 2001 and 2002 audits pending before the Appeals Office.

     In February 2006, PHI paid approximately $121 million of taxes to cover the amount of taxes that management estimated to be payable based on the method of tax accounting that PHI, pursuant to the proposed regulations, has adopted on its 2005 tax return. However, if the IRS is successful in requiring Pepco, DPL and ACE to capitalize and depreciate construction costs that result in a tax and interest assessment greater than management's estimate of $121 million, PHI will be required to pay additional taxes and interest only to the extent these adjustments exceed the $121 million payment made in February 2006.

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Third Party Guarantees, Indemnifications, and Off-Balance Sheet Arrangements

     Pepco Holdings and certain of its subsidiaries have various financial and performance guarantees and indemnification obligations which are entered into in the normal course of business to facilitate commercial transactions with third parties as discussed below.

     As of June 30, 2007, Pepco Holdings and its subsidiaries were parties to a variety of agreements pursuant to which they were guarantors for standby letters of credit, performance residual value, and other commitments and obligations. The fair value of these commitments and obligations was not required to be recorded in Pepco Holdings' Consolidated Balance Sheets; however, certain energy marketing obligations of Conectiv Energy were recorded. The commitments and obligations, in millions of dollars, were as follows:

	Guarantor
		PHI		DPL		ACE		Other		Total
Energy marketing obligations of Conectiv Energy (1)	$	205.5	$	-	$	-	$	-	$	205.5
Energy procurement obligations of Pepco Energy Services (1)		45.7		-		-		-		45.7
Guaranteed lease residual values (2)		-		2.9		3.1		.5		6.5
Other (3)		2.6		-		-		1.7		4.3
Total	$	253.8	$	2.9	$	3.1	$	2.2	$	262.0

1.	Pepco Holdings has contractual commitments for performance and related payments of Conectiv Energy and Pepco Energy Services to counterparties related to routine energy sales and procurement obligations, including requirements under BGS contracts entered into with ACE.
2.	Subsidiaries of Pepco Holdings have guaranteed residual values in excess of fair value related to certain equipment and fleet vehicles held through lease agreements. As of June 30, 2007, obligations under the guarantees were approximately $6.5 million. Assets leased under agreements subject to residual value guarantees are typically for periods ranging from 2 years to 10 years. Historically, payments under the guarantees have not been made by the guarantor as, under normal conditions, the contract runs to full term at which time the residual value is minimal. As such, Pepco Holdings believes the likelihood of payment being required under the guarantee is remote.
3.	Other guarantees consist of:

· Pepco Holdings has guaranteed a subsidiary building lease of $2.6 million. Pepco Holdings does not expect to fund the full amount of the exposure under the guarantee.

· PCI has guaranteed facility rental obligations related to contracts entered into by Starpower Communications, LLC. As of June 30, 2007, the guarantees cover the remaining $1.7 million in rental obligations.

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     Pepco Holdings and certain of its subsidiaries have entered into various indemnification agreements related to purchase and sale agreements and other types of contractual agreements with vendors and other third parties. These indemnification agreements typically cover environmental, tax, litigation and other matters, as well as breaches of representations, warranties and covenants set forth in these agreements. Typically, claims may be made by third parties under these indemnification agreements over various periods of time depending on the nature of the claim. The maximum potential exposure under these indemnification agreements can range from a specified dollar amount to an unlimited amount depending on the nature of the claim and the particular transaction. The total maximum potential amount of future payments under these indemnification agreements is not estimable due to several factors, including uncertainty as to whether or when claims may be made under these indemn ities.

Dividends

     On July 26, 2007, Pepco Holdings' Board of Directors declared a dividend on common stock of 26 cents per share payable September 28, 2007, to shareholders of record on September 10, 2007.

(5) USE OF DERIVATIVES IN ENERGY AND INTEREST RATE HEDGING ACTIVITIES

     PHI accounts for its derivative activities in accordance with SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS No. 133), as amended by subsequent pronouncements. See "Accounting for Derivatives" in Note (2) and "Use of Derivatives in Energy and Interest Rate Hedging Activities" in Note (13) to the Consolidated Financial Statements of PHI included in PHI's Annual Report on Form 10-K for the year ended December 31, 2006, for a discussion of the accounting treatment of the derivatives used by PHI and its subsidiaries.

     The table below provides detail on effective cash flow hedges under SFAS No. 133 included in PHI's Consolidated Balance Sheet as of June 30, 2007. Under SFAS No. 133, cash flow hedges are marked-to-market on the balance sheet with corresponding adjustments to Accumulated Other Comprehensive Income. The data in the table indicates the magnitude of the effective cash flow hedges by hedge type (i.e., other energy commodity and interest rate hedges), maximum term, and portion expected to be reclassified to earnings during the next 12 months.

Cash Flow Hedges Included in Accumulated Other Comprehensive Loss As of June 30, 2007 (Millions of dollars)
Contracts		Accumulated OCI (Loss) After Tax (1)		Portion Expected to be Reclassified to Earnings during the Next 12 Months		Maximum    Term
Other Energy Commodity		$	(40.3)	$	(25.4)	54 months
Interest Rate			(30.7)		(3.7)	302 months
Total		$	(71.0)	$	(29.1)
(1)	Accumulated Other Comprehensive Loss as of June 30, 2007, includes $(8.4) million for an adjustment for minimum pension liability. This adjustment is not included in this table as it is not a cash flow hedge.

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     The following table shows, in millions of dollars, the net pre-tax gain or (loss) recognized in earnings for cash flow hedge ineffectiveness for the three and six months ended June 30, 2007 and 2006, and where they were reported in PHI's Consolidated Statements of Earnings during the periods.

	Three Months Ended				Six Months Ended
		2007		2006		2007		2006
Operating Revenue	$	(.1)	$	.3	$	(.7)	$	-
Fuel and Purchased Energy		.3		(.3)		-		(.5)
Total	$	.2	$	-	$	(.7)	$	(.5)

     In connection with their energy commodity activities, the Competitive Energy businesses designate certain derivatives as fair value hedges. The net pre-tax gains (losses) recognized during the three and six months ended June 30, 2007 and 2006, and included in the Consolidated Statements of Earnings for fair value hedges and the associated hedged items are shown in the following table, in millions of dollars for the three and six months ended June 30, 2007 and 2006.

	Three Months Ended				Six Months Ended
		2007		2006		2007		2006
Gain/(Loss) on Derivative Instruments	$	.4	$	(.4)	$	(1.4)	$	(5.8)
(Loss)/Gain on Hedged Items	$	(.5)	$	.1	$	1.1	$	5.8

     For the three and six months ended June 30, 2007, $1.6 million and $.4 million, respectively, in losses were reclassified from Other Comprehensive Income (OCI) to earnings because the forecasted hedged transactions were deemed no longer probable. For the three months and six months ended June 30, 2006, there were no forecasted hedged transactions or firm commitments deemed to be no longer probable.

     In connection with their other energy commodity activities, the Competitive Energy businesses hold certain derivatives that do not qualify as hedges. Under SFAS No. 133, these derivatives are marked-to-market through earnings with corresponding adjustments on the balance sheet. The pre-tax gains (losses) on these derivatives are included in "Competitive Energy Operating Revenues" and are summarized in the following table, in millions of dollars, for the three and six months ended June 30, 2007 and 2006.

	Three Months Ended				Six Months Ended
		2007		2006		2007		2006
Proprietary Trading (1)	$	-	$	-	$	-	$	-
Other Energy Commodity (2)		9.1		5.5		17.0		22.5
Total	$	9.1	$	5.5	$	17.0	$	22.5
(1) PHI discontinued its proprietary trading activity in 2003.      (2) Includes $.1 million and $.5 million of ineffective fair value hedge gains for the             three and six months ended June 30, 2007, respectively.

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(6)  SUBSEQUENT EVENTS

     Maryland Rate Order

     On July 19, 2007, MPSC issued orders in the electricity service distribution base rate cases filed by Pepco and DPL. For further discussion, see "Rate Proceedings" in Note (4), Commitments and Contingencies, herein.

     Maryland Income Tax Refund

     On August 1, 2007, Pepco entered into a settlement agreement with the Comptroller of Maryland on a State income tax refund claim relating to Pepco's divestiture of its generation assets in 2000. Under the agreement, Pepco will receive a refund of taxes paid in the amount of approximately $30 million reflecting a correction of the tax basis of assets sold. The refund will be recorded in the third quarter of 2007, and is expected to result, net of related professional fees, in an increase in PHI's net income of approximately $17.7 million.

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POTOMAC ELECTRIC POWER COMPANY STATEMENTS OF EARNINGS (Unaudited)
	Three Months Ended June 30,				Six Months Ended June 30,
		2007		2006		2007		2006
		(Millions of dollars)
Operating Revenue	$	495.0	$	520.5	$	1,001.6	$	995.7
Operating Expenses
Fuel and purchased energy		264.3		294.6		560.8		560.3
Other operation and maintenance		71.3		73.2		142.3		144.3
Depreciation and amortization		42.0		40.8		83.9		81.5
Other taxes		72.0		66.0		140.3		130.1
Gain on sale of assets		-		-		(.6)		-
Total Operating Expenses		449.6		474.6		926.7		916.2
Operating Income		45.4		45.9		74.9		79.5
Other Income (Expenses)
Interest and dividend income		.3		1.5		.8		3.0
Interest expense		(18.3)		(19.3)		(36.8)		(38.2)
Other income		3.4		4.5		6.5		8.0
Other expenses		(.1)		(.3)		(.2)		(.3)
Total Other Expenses		(14.7)		(13.6)		(29.7)		(27.5)
Income Before Income Tax Expense		30.7		32.3		45.2		52.0
Income Tax Expense		12.7		13.4		18.5		22.5
Net Income		18.0		18.9		26.7		29.5
Dividends on Redeemable Serial Preferred Stock		-		-		-		1.0
Earnings Available for Common Stock		18.0		18.9		26.7		28.5
Retained Earnings at Beginning of Period		560.2		568.9		559.7		574.3
Cumulative Effect Adjustment Related to   the Implementation of FIN 48		-		-		6.8		-
Dividends Paid to Parent		(14.0)		(49.0)		(29.0)		(64.0)
Retained Earnings at End of Period	$	564.2	$	538.8	$	564.2	$	538.8
The accompanying Notes are an integral part of these Financial Statements.
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POTOMAC ELECTRIC POWER COMPANY BALANCE SHEETS (Unaudited)
ASSETS		June 30, 2007		December 31, 2006
	(Millions of dollars)
CURRENT ASSETS
Cash and cash equivalents		$	11.0	$	12.4
Accounts receivable, less allowance for     uncollectible accounts of $18.2 million     and $17.4 million, respectively			348.1		318.3
Materials and supplies-at average cost			50.7		42.8
Prepayments of income taxes			88.5		66.5
Prepaid expenses and other			9.2		25.5
Total Current Assets			507.5		465.5
INVESTMENTS AND OTHER ASSETS
Regulatory assets			137.9		127.7
Prepaid pension expense			156.1		160.1
Investment in trust			28.9		29.0
Income taxes receivable			178.2		-
Other			70.7		99.6
Total Investments and Other Assets			571.8		416.4
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment			5,281.4		5,157.6
Accumulated depreciation			(2,227.6)		(2,162.5)
Net Property, Plant and Equipment			3,053.8		2,995.1
TOTAL ASSETS		$	4,133.1	$	3,877.0
The accompanying Notes are an integral part of these Financial Statements.
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POTOMAC ELECTRIC POWER COMPANY BALANCE SHEETS (Unaudited)
LIABILITIES AND SHAREHOLDER'S EQUITY		June 30, 2007		December 31, 2006
	(Millions of dollars, except shares)
CURRENT LIABILITIES
Short-term debt		$	171.6	$	67.1
Current maturities of long-term debt			253.0		210.0
Accounts payable and accrued liabilities			220.1		180.1
Accounts payable to associated companies			65.1		46.0
Capital lease obligations due within one year			5.7		5.5
Taxes accrued			79.1		72.8
Interest accrued			17.0		16.9
Interest and tax liability on uncertain tax positions			63.5		-
Other			153.7		153.6
Total Current Liabilities			1,028.8		752.0
DEFERRED CREDITS
Regulatory liabilities			131.0		146.8
Deferred income taxes			572.9		636.3
Investment tax credits			13.5		14.5
Other postretirement benefit obligation			68.0		69.3
Income taxes payable			125.5		-
Other			75.6		66.0
Total Deferred Credits			986.5		932.9
LONG-TERM LIABILITIES
Long-term debt			912.1		990.0
Capital lease obligations			108.1		110.9
Total Long-Term Liabilities			1,020.2		1,100.9
COMMITMENTS AND CONTINGENCIES (NOTE 4)
SHAREHOLDER'S EQUITY
Common stock, $.01 par value, authorized     200,000,000 shares, issued 100 shares			-		-
Premium on stock and other capital contributions			533.4		531.5
Retained earnings			564.2		559.7
Total Shareholder's Equity			1,097.6		1,091.2
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY		$	4,133.1	$	3,877.0
The accompanying Notes are an integral part of these Financial Statements.
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POTOMAC ELECTRIC POWER COMPANY STATEMENTS OF CASH FLOWS (Unaudited)
		Six Months Ended June 30,
			2007		2006
	(Millions of dollars)
OPERATING ACTIVITIES
Net income		$	26.7	$	29.5
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization			83.9		81.5
Deferred income taxes			(5.9)		(.4)
Gain on sale of assets			(.6)		-
Changes in:
Accounts receivable			(29.8)		(11.3)
Regulatory assets and liabilities			(34.3)		(12.1)
Accounts payable and accrued liabilities			53.5		20.6
Interest and taxes accrued			1.6		(106.2)
Other changes in working capital			(3.9)		(1.4)
Net other operating			6.4		13.6
Net Cash From Operating Activities			97.6		13.8
INVESTING ACTIVITIES
Net investment in property, plant and equipment			(134.0)		(102.5)
Net other investing activities			.1		(2.0)
Net Cash Used By Investing Activities			(133.9)		(104.5)
FINANCING ACTIVITIES
Dividends paid to Pepco Holdings			(29.0)		(64.0)
Dividends paid on preferred stock			-		(1.0)
Issuances of long-term debt			-		109.5
Reacquisition of long-term debt			(35.0)		(109.5)
Issuances of short-term debt, net			104.5		52.4
Redemption of preferred stock			-		(21.5)
Net other financing activities			(5.6)		1.5
Net Cash From (Used By) Financing Activities			34.9		(32.6)
Net Decrease in Cash and Cash Equivalents			(1.4)		(123.3)
Cash and Cash Equivalents at Beginning of Period			12.4		131.4
CASH AND CASH EQUIVALENTS AT END OF PERIOD		$	11.0	$	8.1
NONCASH ACTIVITIES
Asset retirement obligations associated with removal   costs transferred to regulatory liabilities		$	3.1	$	(6.8)
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for income taxes    (includes payments to PHI for Federal income taxes)		$	23.2	$	70.8
The accompanying Notes are an integral part of these Financial Statements.
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NOTES TO FINANCIAL STATEMENTS

POTOMAC ELECTRIC POWER COMPANY

(1)  ORGANIZATION

     Potomac Electric Power Company (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. Pepco provides Default Electricity Supply, which is the supply of electricity at regulated rates to retail customers in its territories who do not elect to purchase electricity from a competitive supplier, in both the District of Columbia and Maryland. Default Electricity Supply is known as Standard Offer Service (SOS) in both the District of Columbia and Maryland. Pepco is a wholly owned subsidiary of Pepco Holdings, Inc. (Pepco Holdings or PHI). Because PHI is a public utility holding company subject to the Public Utility Holding Company Act of 2005 (PUHCA 2005), the relationship between PHI and Pepco and certain activities of Pepco are subject to the regulatory oversight of the Federal Energy Regulatory Commission (FERC) under PUHCA 2005.

(2)  ACCOUNTING POLICY, PRONOUNCEMENTS, AND OTHER DISCLOSURES

Financial Statement Presentation

     Pepco's unaudited financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (GAAP). Pursuant to the rules and regulations of the Securities and Exchange Commission, certain information and footnote disclosures normally included in annual financial statements prepared in accordance with GAAP have been omitted. Therefore, these financial statements should be read along with the annual financial statements included in Pepco's Annual Report on Form 10-K for the year ended December 31, 2006. In the opinion of Pepco's management, the financial statements contain all adjustments (which all are of a normal recurring nature) necessary to present fairly Pepco's financial condition as of June 30, 2007, in accordance with GAAP. The year-end balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United Stat es of America. Interim results for the three and six months ended June 30, 2007 may not be indicative of results that will be realized for the full year ending December 31, 2007 since the sales of electric energy are seasonal.

FIN 46R, "Consolidation of Variable Interest Entities"

     Due to a variable element in the pricing structure of Pepco's purchase power agreement with Panda-Brandywine, L.P. (Panda) entered into in 1991, pursuant to which Pepco is obligated to purchase from Panda 230 megawatts of capacity and energy annually through 2021 (Panda PPA), Pepco potentially assumes the variability in the operations of the plants related to the Panda PPA and therefore has a variable interest in the entity. In accordance with the provisions of Financial Accounting Standards Board (FASB) Interpretation No. (FIN) 46R (revised December 2003), entitled "Consolidation of Variable Interest Entities" (FIN 46R), Pepco continued, during the second quarter of 2007, to conduct exhaustive efforts to obtain information from this entity, but was unable to obtain sufficient information to conduct the analysis required

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under FIN 46R to determine whether the entity was a variable interest entity or if Pepco was the primary beneficiary. As a result, Pepco has applied the scope exemption from the application of FIN 46R for enterprises that have conducted exhaustive efforts to obtain the necessary information, but have not been able to obtain such information.

     Power purchases related to the Panda PPA for the three months ended June 30, 2007 and 2006 were approximately $20 million and $19 million, respectively. Power purchases related to the Panda PPA for the six months ended June 30, 2007 and 2006 were approximately $43 million and $38 million, respectively. Pepco's exposure to loss under the Panda PPA is discussed in Note (4), Commitments and Contingencies, under "Relationship with Mirant Corporation."

     In April 2006, the FASB issued FASB Staff Position (FSP) FIN 46(R)-6, "Determining the Variability to Be Considered in Applying FASB Interpretation No. 46(R)" (FSP FIN 46(R)-6), which provides guidance on how to determine the variability to be considered in applying FIN 46(R). Pepco started applying the guidance in FSP FIN 46(R)-6 to new and modified arrangements effective July 1, 2006.

FIN 48, "Accounting for Uncertainty in Income Taxes"

     On July 13, 2006, the FASB issued FIN 48, "Accounting for Uncertainty in Income Taxes" (FIN 48). FIN 48 clarifies the criteria for recognition of tax benefits in accordance with Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes," and prescribes a financial statement recognition threshold and measurement attribute for a tax position taken or expected to be taken in a tax return. Specifically, it clarifies that an entity's tax benefits must be "more likely than not" of being sustained prior to recording the related tax benefit in the financial statements. If the position drops below the "more likely than not" standard, the benefit can no longer be recognized. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition.

     Pepco adopted the provisions of FIN 48 on January 1, 2007. As a result of the implementation of FIN 48, Pepco recorded a $6.8 million increase in beginning retained earnings, representing the cumulative effect of the change in accounting principle. Unrecognized tax benefits represent those tax benefits related to tax positions that have been taken or are expected to be taken in tax returns, including refund claims, that are not recognized in the financial statements because, in accordance with FIN 48, management has either measured the tax benefit at an amount less than the benefit claimed or expected to be claimed or concluded that it is not more likely than not that the tax position will be ultimately sustained. As of January 1, 2007, unrecognized tax benefits totaled $95.1 million. For the majority of these tax positions, the ultimate deductibility is highly certain, but there is uncertainty about the timing of such deductibility. Unrecognized tax benefits at January 1, 2007, included $20.7 million that, if recognized, would lower the effective tax rate.

     Pepco recognizes interest on under/over payments of income taxes and penalties in income tax expense. As of January 1, 2007, Pepco had accrued approximately $4.1 million of interest expense and penalties.

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     Pepco, as a direct subsidiary of PHI, is included on PHI's consolidated federal income tax return. Pepco's federal income tax liabilities for all years through 2000 have been determined, subject to adjustment to the extent of any net operating loss or other loss or credit carrybacks from subsequent years. The open tax years for the significant states where Pepco files state income tax returns (District of Columbia and Maryland), are the same as noted above.

     Total unrecognized tax benefits that may change over the next twelve months include the matter described in Note (4) Commitments and Contingencies under the heading "IRS Mixed Service Cost Issue."

     Included in the amount of unrecognized tax benefits at January 1, 2007 that, if recognized, would lower the effective tax rate is a state of Maryland claim for refund in the amount of $31.8 million. Pepco filed an amended 2000 Maryland tax return on November 14, 2005 claiming the refund. The amended return claimed additional tax basis for purposes of computing the Maryland tax gain on the sale of Pepco's generating plants based on the tax benefit rule. This claim for refund was rejected by the state. Pepco filed an appeal by letter dated June 28, 2006. The Hearing Officer denied the appeal by a Notice of Final Determination dated February 22, 2007. Pepco petitioned Maryland Tax Court on March 22, 2007 for the refund. The outcome of this case was uncertain at June 30, 2007. Based on the FIN 48 criteria, management did not believe at June 30, 2007 that this refund claim met the financial statement recognition threshold and measurement attribute for recording the tax ben efits of this transaction. On August 1, 2007, Pepco entered into a settlement agreement related to this refund claim. For a further discussion, see "Maryland Income Tax Refund" in Note (6), Subsequent Events, herein.

     On May 2, 2007, the FASB issued FSP FIN 48-1, "Definition of Settlement in FASB Interpretation No. 48" (FIN 48-1), which provides guidance on how an enterprise should determine whether a tax position is effectively settled for the purpose of recognizing previously unrecognized tax benefits. Pepco applied the guidance of FIN 48-1 with its adoption of FIN 48 on January 1, 2007.

Components of Net Periodic Benefit Cost

     Pepco accounts for its participation in the Pepco Holdings benefit plans as participation in a multi-employer plan.  PHI's pension and other postretirement net periodic benefit cost for the three months ended June 30, 2007, of $10.8 million includes $3.1 million for Pepco's allocated share. The remaining pension and other postretirement net periodic benefit cost is allocated to other PHI subsidiaries. PHI's pension and other postretirement net periodic benefit cost for the six months ended June 30, 2007, of $27.8 million includes $11.2 million for Pepco's allocated share. The remaining pension and other postretirement net periodic benefit cost is allocated to other PHI subsidiaries. PHI's pension and other postretirement net periodic benefit cost for the three months ended June 30, 2006, of $17.2 million includes $8.2 million for Pepco's allocated share. The remaining pension and other postretirement net periodic benefit cost is allocated to other PHI subsidiarie s. The pension net periodic benefit cost for the six months ended June 30, 2006 of $33.7 million includes $16.0 million for Pepco's allocated share. The remaining pension and other postretirement net periodic benefit cost is allocated to other PHI subsidiaries.

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Reconciliation of Income Tax Expense

     A reconciliation of Pepco's income tax expense is as follows:

	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2007		2006		2007		2006
	Amount	Rate	Amount	Rate	Amount	Rate	Amount	Rate
	(Millions of dollars)
Income Before Income Tax Expense	$30.7		$32.3		$45.2		$52.0
Income tax at federal statutory rate	$10.7	.35	$11.3	.35	$15.8	.35	$18.2	.35
Increases (decreases) resulting from:
Depreciation	1.5	.05	1.5	.05	3.0	.07	3.0	.06
Asset removal costs	(.5)	(.02)	(.5)	(.02)	(1.1)	(.02)	(1.9)	(.04)
State income taxes, net of          federal effect	1.9	.06	1.9	.06	2.8	.06	3.2	.06
Software amortization	.7	.02	.7	.02	1.5	.03	1.4	.03
Tax credits	(.5)	(.02)	(.5)	(.01)	(1.0)	(.02)	(1.0)	(.02)
Change in estimates related to         prior year tax liabilities	(.2)	(.01)	.1	-	(1.0)	(.02)	.2	-
Other	(.9)	(.02)	(1.1)	(.03)	(1.5)	(.04)	(.6)	(.01)
Total Income Tax Expense	$12.7	.41	$13.4	.42	$18.5	.41	$22.5	.43

Amended and Restated Credit Facility

     On May 2, 2007, PHI, Pepco, Delmarva Power & Light Company (DPL) and Atlantic City Electric Company (ACE) entered into an amendment and restatement of their principal credit facility.

     The aggregate borrowing limit under the facility is $1.5 billion, all or any portion of which may be used to obtain loans or to issue letters of credit. PHI's credit limit under the facility is $875 million. The credit limit of each of Pepco, DPL and ACE is the lesser of $500 million and the maximum amount of debt the company is permitted to have outstanding by its regulatory authorities, except that the aggregate amount of credit used by Pepco, DPL and ACE at any given time collectively may not exceed $625 million. The interest rate payable by each company on utilized funds is based on the prevailing prime rate or Eurodollar rate, plus a margin that varies according to the credit rating of the borrower. The facility also includes a "swingline loan sub-facility", pursuant to which each company may make same day borrowings in an aggregate amount not to exceed $150 million. Any swingline loan must be repaid by the borrower within seven days of receipt thereof. All indebted ness incurred under the facility is unsecured.

     The facility commitment expiration date is May 5, 2012, with each company having the right to elect to have 100% of the principal balance of the loans outstanding on the expiration date continued as non-revolving term loans for a period of one year from such expiration date.

     The facility is intended to serve primarily as a source of liquidity to support the commercial paper programs of the respective companies. The companies also are permitted to use the facility to borrow funds for general corporate purposes and issue letters of credit. In order for a borrower to use the facility, certain representations and warranties made by the borrower at the time the amended and restated credit agreement was entered into also must be true at the time the facility is utilized, and the borrower must be in compliance with specified covenants, including

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the financial covenant described below. However, a material adverse change in the borrower's business, property, and results of operations or financial condition subsequent to the entry into the amended and restated credit agreement is not a condition to the availability of credit under the facility. Among the covenants to which each of the companies is subject are (i) the requirement that each borrowing company maintain a ratio of total indebtedness to total capitalization of 65% or less, computed in accordance with the terms of the amended and restated credit agreement, which calculation excludes certain trust preferred securities and deferrable interest subordinated debt from the definition of total indebtedness (not to exceed 15% of total capitalization), (ii) a restriction on sales or other dispositions of assets, other than sales and dispositions permitted by the amended and restated credit agreement, and (iii) a restriction on the incurrence of liens on the assets of a borrower or any of its significant subsidiaries other than liens permitted by the amended and restated credit agreement. The agreement does not contain any rating triggers.

Related Party Transactions

          PHI Service Company provides various administrative and professional services to PHI and its regulated and unregulated subsidiaries, including Pepco, pursuant to a service agreement. The cost of these services is allocated in accordance with cost allocation methodologies set forth in the service agreement using a variety of factors, including the subsidiaries' share of employees, operating expenses, assets, and other cost causal methods. These intercompany transactions are eliminated by PHI in consolidation and no profit results from these transactions at PHI. PHI Service Company costs directly charged or allocated to Pepco for the three months ended June 30, 2007 and 2006 were approximately $30.3 million and $31.0 million, respectively. PHI Service Company costs directly charged or allocated to Pepco for the six months ended June 30, 2007 and 2006 were approximately $61.5 million and $60.6 million, respectively.

     Certain subsidiaries of Pepco Energy Services perform utility maintenance services, including services that are treated as capital costs, for Pepco. Amounts paid by Pepco to these companies for the three months ended June 30, 2007 and 2006 were approximately $7.6 million and $2.6 million, respectively. Amounts paid by Pepco to these companies for the six months ended June 30, 2007 and 2006 were approximately $16.0 million and $4.9 million, respectively.

     In addition to the transactions described above, Pepco's Statements of Earnings include the following related party transactions:

	For the Three Months Ended June 30,		For the Six Months Ended June 30,
	2007	2006	2007	2006
Income (Expense)	(Millions of dollars)
Intercompany power purchases - Conectiv Energy Supply   (included in fuel and purchased energy)	$(13.8)	$(5.7)	$(29.6)	$(5.7)
Intercompany lease transactions related to computer services and   facility and building maintenance (included in other operation and   maintenance)	(.2)	(.6)	(.4)	(1.4)

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     As of June 30, 2007 and December 31, 2006, Pepco had the following balances on its Balance Sheets due (to) from related parties:

	2007	2006
Asset (Liability)	(Millions of dollars)
Payable to Related Party (current)
PHI Service Company	$  (14.9)	$    (.9)
PHI Parent	-	(5.0)
Conectiv Energy Supply	(6.1)	(4.8)
Pepco Energy Services (a)	(44.1)	(35.4)
The items listed above are included in the "Accounts payable to associated companies" balance on the Balance Sheet of $65.1 million and $46.0 million at June 30, 2007 and December 31, 2006, respectively.
Money Pool Balance with Pepco Holdings   (included in short-term debt in 2007 and cash and cash equivalents       in 2006 on the balance sheet)	$(163.5)	$     .4

(a) Pepco bills customers on behalf of Pepco Energy Services where customers have elected to purchase electricity from Pepco Energy Services as their competitive supplier or where Pepco Energy Services has performed work for certain government agencies under a General Services Administration area-wide agreement.

New Accounting Standards

     FSP FTB 85-4-1, "Accounting for Life Settlement Contracts by Third-Party Investors"

     In March 2006, the FASB issued FSP FASB Technical Bulletin (FTB) 85-4-1, "Accounting for Life Settlement Contracts by Third-Party Investors" (FSP FTB 85-4-1). This FSP provides initial and subsequent measurement guidance and financial statement presentation and disclosure guidance for investments by third-party investors in life settlement contracts. FSP FTB 85-4-1 also amends certain provisions of FASB Technical Bulletin No. 85-4, "Accounting for Purchases of Life Insurance," and SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." The guidance in FSP FTB 85-4-1 applies prospectively for all new life settlement contracts and is effective for fiscal years beginning after June 15, 2006 (year ending December 31, 2007 for Pepco). Pepco has evaluated the impact of FSP FTB 85-4-1 and it does not have a material impact on its overall financial condition, results of operations, or cash flows.

     EITF Issue No. 06-3, "Disclosure Requirements for Taxes Assessed by a Governmental Authority on Revenue-producing Transactions"

     On June 28, 2006, the FASB ratified Emerging Issues Task Force (EITF) Issue No. 06-3, "Disclosure Requirements for Taxes Assessed by a Governmental Authority on Revenue-producing Transactions" (EITF 06-3). EITF 06-3 provides guidance on an entity's disclosure of its accounting policy regarding the gross or net presentation of certain taxes and provides that if taxes included in gross revenues are significant, a company should disclose the amount of such taxes for each period for which an income statement is presented (i.e., both interim and annual periods). Taxes within the scope of EITF 06-3 are those that are imposed on and concurrent with a specific revenue-producing transaction. Taxes assessed on an entity's activities over a period of time are not within the scope of EITF 06-3. Pepco implemented EITF 06-3 during the first quarter of 2007. Taxes included in Pepco's gross revenues were $60.5 million and $55.5 million

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for the three months ended June 30, 2007 and 2006, respectively and $116.6 million and $108.3 million for the six months ended June 30, 2007 and 2006, respectively.

     SFAS No. 157, "Fair Value Measurements"

     In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements" (SFAS No. 157) which defines fair value, establishes a framework for measuring fair value in GAAP, and expands disclosures about fair value measurements. SFAS No. 157 applies under other accounting pronouncements that require or permit fair value measurements and does not require any new fair value measurements. However, it is possible that the application of this Statement will change current practice with respect to the definition of fair value, the methods used to measure fair value, and the expanded disclosures about fair value measurements.

     SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years (year ending December 31, 2008 for Pepco). Pepco is currently in the process of evaluating the impact that SFAS No. 157 will have on its overall financial condition, results of operations, and cash flows.

FSP AUG AIR-1, "Accounting for Planned Major Maintenance Activities"

     On September 8, 2006, the FASB issued FSP American Institute of Certified Public Accountants Industry Audit Guide, Audits of Airlines--"Accounting for Planned Major Maintenance Activities" (FSP AUG AIR-1), which prohibits the use of the accrue-in-advance method of accounting for planned major maintenance activities in annual and interim financial reporting periods for all industries. FSP AUG AIR-1 is effective the first fiscal year beginning after December 15, 2006 (year ending December 31, 2007 for Pepco). Pepco has evaluated the impact of FSP AUG AIR-1 and it does not have a material impact on its overall financial condition, results of operations, or cash flows.

     EITF Issue No. 06-5, "Accounting for Purchases of Life Insurance -- Determining the Amount That Could Be Realized in Accordance with FASB Technical Bulletin No. 85-4, Accounting for Purchases of Life Insurance"

     On September 20, 2006, the FASB ratified EITF Issue No. 06-5, "Accounting for Purchases of Life Insurance -- Determining the Amount That Could Be Realized in Accordance with FASB Technical Bulletin No. 85-4, Accounting for Purchases of Life Insurance" (EITF 06-5) which provides guidance on whether an entity should consider the contractual ability to surrender all of the individual-life policies (or certificates under a group life policy) together when determining the amount that could be realized in accordance with FTB 85-4, and whether a guarantee of the additional value associated with the group life policy affects that determination. EITF 06-5 provides that a policyholder should (i) determine the amount that could be realized under the insurance contract assuming the surrender of an individual-life by individual-life policy (or certificate by certificate in a group policy) and (ii) not discount the cash surrender value component of the amount that could be realized when c ontractual restrictions on the ability to surrender a policy exist unless contractual limitations prescribe that the cash surrender value component of the amount that could be realized is a fixed amount, in which case the amount that could be realized should be discounted in accordance with Accounting Principles Board of the American Institute of Certified Public Accountants Opinion 21. EITF 06-5 is effective for fiscal years beginning after December 15, 2006 (year ending December 31, 2007 for Pepco). Pepco has evaluated the impact of EITF 06-5 and has determined that it does not have a material

62

impact on its overall financial condition, results of operations, cash flows, or disclosure requirements.

     SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities - Including an amendment of FASB Statement No. 115"

     On February 15, 2007, the FASB issued SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities - Including an amendment of FASB Statement No. 115" (SFAS No. 159) which permits entities to elect to measure eligible financial instruments at fair value. The objective of SFAS No. 159 is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. SFAS No. 159 applies under other accounting pronouncements that require or permit fair value measurements and does not require any new fair value measurements. However, it is possible that the application of SFAS No. 159 will change current practice with respect to the definition of fair value, the methods used to measure fair value, and the expanded disclosures about fair value measurements.

     SFAS No. 159 establishes presentation and disclosure requirements designed to facilitate comparisons between companies that choose different measurement attributes for similar types of assets and liabilities. SFAS No. 159 requires companies to provide additional information that will help investors and other users of financial statements to more easily understand the effect of the company's choice to use fair value on its earnings. It also requires entities to display the fair value of those assets and liabilities for which the company has chosen to use fair value on the face of the balance sheet. SFAS No. 159 does not eliminate disclosure requirements included in other accounting standards.

     SFAS No. 159 applies to fiscal years beginning after November 15, 2007 (year ending December 31, 2008 for Pepco), with early adoption permitted for an entity that has also elected to apply the provisions of SFAS No. 157, Fair Value Measurements. An entity is prohibited from retrospectively applying SFAS No. 159, unless it chooses early adoption. SFAS No. 159 also applies to eligible items existing at November 15, 2007 (or early adoption date). Pepco is currently in the process of evaluating the impact that SFAS No. 159 will have on its overall financial condition, results of operations, and cash flows.

(3)  SEGMENT INFORMATION

     In accordance with Statement of Financial Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information," Pepco has one segment, its regulated utility business.

(4)  COMMITMENTS AND CONTINGENCIES

REGULATORY AND OTHER MATTERS

Relationship with Mirant Corporation

     In 2000, Pepco sold substantially all of its electricity generating assets to Mirant Corporation (formerly Southern Energy, Inc.) and certain of its subsidiaries. In July 2003, Mirant and certain of its subsidiaries filed a voluntary petition for reorganization under Chapter 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court for the Northern District of Texas (the Bankruptcy Court). On December 9, 2005, the Bankruptcy Court approved the Plan of

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Reorganization (the Reorganization Plan) of Mirant and the Mirant business emerged from bankruptcy on January 3, 2006, as a new corporation of the same name (together with its predecessors, Mirant).

     As part of the bankruptcy proceeding, Mirant had been seeking to reject certain ongoing contractual arrangements under the Asset Purchase and Sale Agreement entered into by Pepco and Mirant for the sale of the generating assets that are described below. The Reorganization Plan did not resolve the issues relating to Mirant's efforts to reject these obligations nor did it resolve certain Pepco damage claims against the Mirant bankruptcy estate.

     Power Purchase Agreement

     The Panda PPA obligates Pepco to purchase from Panda 230 megawatts of energy and capacity annually through 2021. At the time of the sale of Pepco's generating assets to Mirant, the purchase price of the energy and capacity under the Panda PPA was, and since that time has continued to be, substantially in excess of the market price. As a part of the Asset Purchase and Sale Agreement, Pepco entered into a "back-to-back" arrangement with Mirant. Under this arrangement, Mirant is obligated through 2021 to purchase from Pepco the capacity and energy that Pepco is obligated to purchase under the Panda PPA at a price equal to Pepco's purchase price from Panda (the PPA-Related Obligations).

     The SMECO Agreement

     Under the Asset Purchase and Sale Agreement, Pepco assigned to Mirant a Facility and Capacity Agreement entered into by Pepco with Southern Maryland Electric Cooperative, Inc. (SMECO), under which Pepco was obligated to purchase from SMECO the capacity of an 84-megawatt combustion turbine installed and owned by SMECO at a former Pepco generating facility at a cost of approximately $500,000 per month until 2015 (the SMECO Agreement). Pepco is responsible to SMECO for the performance of the SMECO Agreement if Mirant fails to perform its obligations thereunder.

     Settlement Agreements with Mirant

     On May 30, 2006, Pepco, PHI, and certain affiliated companies entered into a Settlement Agreement and Release (the Settlement Agreement) with Mirant, which, subject to court approval, settles all outstanding issues between the parties arising from or related to the Mirant bankruptcy. Under the terms of the Settlement Agreement:

· Mirant will assume the Asset Purchase and Sale Agreement, except for the PPA-Related Obligations, which Mirant will be permitted to reject.

· Pepco will receive an allowed claim under the Reorganization Plan in an amount that will result in a total aggregate distribution to Pepco, net of certain transaction expenses, of $520 million, consisting of (i) $450 million in damages resulting from the rejection of the PPA-Related Obligations and (ii) $70 million in settlement of other Pepco damage claims against the Mirant bankruptcy estate, which, as described below, was paid by Mirant to Pepco in August 2006 (collectively, the Pepco Distribution).

· Except as described below, the $520 million Pepco Distribution will be effected by means of the issuance to Pepco of shares of Mirant common stock, which Pepco will be obligated to resell promptly in one or more block sale transactions.

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	If the net proceeds that Pepco receives from the resale of the shares of Mirant common stock are less than $520 million, Pepco will receive a cash payment from Mirant equal to the difference, and if the net proceeds that Pepco receives from the resale of the shares of Mirant common stock are more than $520 million, Pepco will make a cash payment to Mirant equal to the difference.
·	If the closing price of shares of Mirant common stock is less than $16.00 per share for four business days in a twenty consecutive business day period, and Mirant has not made a distribution of shares of Mirant common stock to Pepco under the Settlement Agreement, Mirant has the one-time option to elect to assume, rather than reject, the PPA-Related Obligations. If Mirant elects to assume the PPA-Related Obligations, the Pepco Distribution will be reduced to $70 million.
·	All pending appeals, adversary actions or other contested matters between Pepco and Mirant will be dismissed with prejudice, and each will release the other from any and all claims relating to the Mirant bankruptcy.

     Separately, Mirant and SMECO have entered into a Settlement Agreement and Release (the SMECO Settlement Agreement). The SMECO Settlement Agreement provides that Mirant will assume, rather than reject, the SMECO Agreement. This assumption ensures that Pepco will not incur liability to SMECO as the guarantor of the SMECO Agreement due to the rejection of the SMECO Agreement, although Pepco will continue to guarantee to SMECO the future performance of Mirant under the SMECO Agreement.

     According to their terms, the Settlement Agreement and the SMECO Settlement Agreement will become effective when the Bankruptcy Court or the U.S. District Court for the Northern District of Texas (the District Court), as applicable, has entered a final order, not subject to appeal or rehearing, approving both the Settlement Agreement and the SMECO Settlement Agreement.

     On August 9, 2006, the Bankruptcy Court issued an order approving the Settlement Agreement and the SMECO Settlement Agreement. On August 18, 2006, certain holders of Mirant bankruptcy claims, who had objected to approval of the Settlement Agreement and the SMECO Settlement Agreement before the Bankruptcy Court, appealed the approval order to the District Court. On December 26, 2006, the District Court issued an order affirming the Bankruptcy Court's order approving the Settlement Agreement. On January 25, 2007, the parties that appealed the Bankruptcy Court's order filed a notice of appeal of the District Court's order with the U.S. Court of Appeals for the Fifth Circuit (the Fifth Circuit). The brief of the appealing creditors was filed on April 25, 2007, while Mirant's and Pepco's briefs were filed on May 31, 2007.

     In August 2006, Mirant made a cash payment to Pepco of $70 million, which became due in accordance with the terms of the Settlement Agreement as a result of the approval of the Settlement Agreement by the Bankruptcy Court. If the Bankruptcy Court order approving the Settlement Agreement becomes a final order after the exhaustion of all appeals, the payment will be taken into account as if it were proceeds from the resale by Pepco of shares of the Mirant common stock, as described above, and treated as a portion of the $520 million payment due Pepco. If the Bankruptcy Court approval of the Settlement Agreement is not upheld on appeal,

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Pepco must repay this cash payment to Mirant. Therefore, no income statement impact has been recognized in relation to the $70 million payment.

     Until the approval of the Settlement Agreement and the SMECO Settlement Agreement becomes final, Mirant is required to continue to perform all of its contractual obligations to Pepco and SMECO. Pepco intends to use the $450 million portion of the Pepco Distribution related to the rejection of the PPA-Related Obligations to pay for future capacity and energy purchases under the Panda PPA.

Rate Proceedings

     In electric service distribution base rate cases filed by Pepco in the District of Columbia and Maryland, Pepco proposed the adoption of a bill stabilization adjustment mechanism (BSA) for retail customers. The BSA would increase rates if revenues from distribution deliveries fall below the level approved by the applicable regulatory commission and will decrease rates if revenues from distribution deliveries are above the commission-approved level. The end result would be that Pepco would collect its authorized revenues for distribution deliveries. As a consequence, a BSA "decouples" revenue from unit sales consumption and ties the growth in revenues to the growth in the number of customers. Some advantages of the BSA are that it (i) eliminates revenue fluctuations due to weather and changes in customer usage patterns and, therefore, provides for more predictable utility distribution revenues that are better aligned with costs, (ii) provides for more reliable fi xed-cost recovery, (iii) tends to stabilize customers' delivery bills, and (iv) removes any disincentives for Pepco to promote energy efficiency programs for its customers, because it breaks the link between overall sales volumes and delivery revenues. The status of the BSA proposals in each of the jurisdictions is described below in discussion of the respective base rate proceedings.

     District of Columbia

     In February 2006, Pepco filed an update to the District of Columbia Generation Procurement Credit (GPC) for the periods February 8, 2002 through February 7, 2004 and February 8, 2004 through February 7, 2005. The GPC provides for sharing of the profit from SOS sales. The updated GPC filing, which was amended in March 2006, in the District of Columbia takes into account the $112.4 million in proceeds received by Pepco from the December 2005 sale of an allowed bankruptcy claim against Mirant arising from a settlement agreement entered into with Mirant relating to Mirant's obligation to supply energy and capacity to fulfill Pepco's SOS obligations in the District of Columbia. The filing also incorporates true-ups to previous disbursements in the GPC for the District of Columbia. In the filing, Pepco requested that $24.3 million be credited to District of Columbia customers during the twelve-month period beginning April 2006. On June 15, 2006, the District of Columbia Public Service Commission (DCPSC) granted conditional approval of the GPC update as filed, effective July 1, 2006, and on May 24, 2007, the DCPSC issued a final approval.

     On December 12, 2006, Pepco submitted an application to the DCPSC to increase electric distribution base rates, including a proposed BSA. The application requested an annual increase of approximately $46.2 million or an overall increase of 13.5%, reflecting a proposed return on equity (ROE) of 10.75%. If the BSA is not approved, the proposed annual increase is $50.5

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million or an overall increase of 14.8%, reflecting an ROE of 11.00%. Hearings were held in the case in June 2007. A DCPSC decision is expected in September 2007.

     Maryland

     On July 19, 2007, the Maryland Public Service Commission (MPSC) issued an order in the electric service distribution rate case filed by Pepco. The order approved a temporary annual increase in distribution rates of approximately $10.6 million (including a decrease in annual depreciation expense of approximately $30.7 million). The approved distribution rate reflects an ROE of 10.0%. The order provided that the rate increase is effective as of June 16, 2007, and will remain in effect for an initial period of nine months from the date of the order (or until April 19, 2008). The temporary rate is subject to a Phase II proceeding in which the MPSC will consider the results of an audit of Pepco's cost allocation manual, as filed with the MPSC, to determine whether a further adjustment to the rate is required. The MPSC approved the proposed BSA, under which customer delivery rates are subject to adjustment quarterly (through a surcharge or credit mechanism), dependin g on whether actual revenue per customer exceeds or falls short of, the approved revenue per customer amount.

     Federal Energy Regulatory Commission

     On May 15, 2007, Pepco updated its FERC-approved formula transmission rates based on its 2006 FERC Form 1. These rates became effective on June 1, 2007, and will provide approximately $9.5 million in additional annual revenues.

Divestiture Cases

     District of Columbia

     Final briefs on Pepco's District of Columbia divestiture proceeds sharing application were filed with the DCPSC in July 2002 following an evidentiary hearing in June 2002. That application was filed to implement a provision of Pepco's DCPSC-approved divestiture settlement that provided for a sharing of any net proceeds from the sale of Pepco's generation-related assets. One of the principal issues in the case is whether Pepco should be required to share with customers the excess deferred income taxes (EDIT) and accumulated deferred investment tax credits (ADITC) associated with the sold assets and, if so, whether such sharing would violate the normalization provisions of the Internal Revenue Code (IRC) and its implementing regulations. As of June 30, 2007, the District of Columbia allocated portions of EDIT and ADITC associated with the divested generating assets were approximately $6.5 million and $5.8 million, respectively.

     Pepco believes that a sharing of EDIT and ADITC would violate the Internal Revenue Service (IRS) normalization rules. Under these rules, Pepco could not transfer the EDIT and the ADITC benefit to customers more quickly than on a straight line basis over the book life of the related assets. Since the assets are no longer owned there is no book life over which the EDIT and ADITC can be returned. If Pepco were required to share EDIT and ADITC and, as a result, the normalization rules were violated, Pepco would be unable to use accelerated depreciation on District of Columbia allocated or assigned property. In addition to sharing with customers the generation-related EDIT and ADITC balances, Pepco would have to pay to the IRS an amount equal to Pepco's District of Columbia jurisdictional generation-related ADITC balance ($5.8 million as of June 30, 2007), as well as its District of Columbia jurisdictional transmission and

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distribution-related ADITC balance ($4.4 million as of June 30, 2007) in each case as those balances exist as of the later of the date a DCPSC order is issued and all rights to appeal have been exhausted or lapsed, or the date the DCPSC order becomes operative.

     In March 2003, the IRS issued a notice of proposed rulemaking (NOPR), which would allow for the sharing of EDIT and ADITC related to divested assets with utility customers on a prospective basis and at the election of the taxpayer on a retroactive basis. In December 2005 a revised NOPR was issued which, among other things, withdrew the March 2003 NOPR and eliminated the taxpayer's ability to elect to apply the regulation retroactively. Comments on the revised NOPR were filed in March 2006, and a public hearing was held in April 2006. Pepco filed a letter with the DCPSC in January 2006, in which it has reiterated that the DCPSC should continue to defer any decision on the ADITC and EDIT issues until the IRS issues final regulations or states that its regulations project related to this issue will be terminated without the issuance of any regulations. Other issues in the divestiture proceeding deal with the treatment of internal costs and cost allocations as deductions from the gross proceeds of the divestiture.

     Pepco believes that its calculation of the District of Columbia customers' share of divestiture proceeds is correct. However, depending on the ultimate outcome of this proceeding, Pepco could be required to make additional gain-sharing payments to District of Columbia customers, including the payments described above related to EDIT and ADITC. Such additional payments (which, other than the EDIT and ADITC related payments, cannot be estimated) would be charged to expense in the quarter and year in which a final decision is rendered and could have a material adverse effect on Pepco's and PHI's results of operations for those periods. However, neither PHI nor Pepco believes that additional gain-sharing payments, if any, or the ADITC-related payments to the IRS, if required, would have a material adverse impact on its financial position or cash flows.

     Maryland

    Pepco filed its divestiture proceeds plan application with the MPSC in April 2001. The principal issue in the Maryland case is the same EDIT and ADITC sharing issue that has been raised in the District of Columbia case. See the discussion above under "Divestiture Cases -- District of Columbia." As of June 30, 2007, the Maryland allocated portions of EDIT and ADITC associated with the divested generating assets were approximately $9.1 million and $10.4 million, respectively. Other issues deal with the treatment of certain costs as deductions from the gross proceeds of the divestiture. In November 2003, the Hearing Examiner in the Maryland proceeding issued a proposed order with respect to the application that concluded that Pepco's Maryland divestiture settlement agreement provided for a sharing between Pepco and customers of the EDIT and ADITC associated with the sold assets. Pepco believes that such a sharing would violate the normalization rules (discussed above) and would result in Pepco's inability to use accelerated depreciation on Maryland allocated or assigned property. If the proposed order is affirmed, Pepco would have to share with its Maryland customers, on an approximately 50/50 basis, the Maryland allocated portion of the generation-related EDIT ($9.1 million as of June 30, 2007), and the Maryland-allocated portion of generation-related ADITC. Furthermore, Pepco would have to pay to the IRS an amount equal to Pepco's Maryland jurisdictional generation-related ADITC balance ($10.4 million as of June 30, 2007), as well as its Maryland retail jurisdictional ADITC transmission and distribution-related balance ($7.8 million as of June 30, 2007), in each case as those balances exist as of the later of the date

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a MPSC order is issued and all rights to appeal have been exhausted or lapsed, or the date the MPSC order becomes operative. The Hearing Examiner decided all other issues in favor of Pepco, except for the determination that only one-half of the severance payments that Pepco included in its calculation of corporate reorganization costs should be deducted from the sales proceeds before sharing of the net gain between Pepco and customers. Pepco filed a letter with the MPSC in January 2006, in which it has reiterated that the MPSC should continue to defer any decision on the ADITC and EDIT issues until the IRS issues final regulations or states that its regulations project related to this issue will be terminated without the issuance of any regulations.

     In December 2003, Pepco appealed the Hearing Examiner's decision to the MPSC as it relates to the treatment of EDIT and ADITC and corporate reorganization costs. The MPSC has not issued any ruling on the appeal and Pepco does not believe that it will do so until action is taken by the IRS as described above. However, depending on the ultimate outcome of this proceeding, Pepco could be required to share with its customers approximately 50 percent of the EDIT and ADITC balances described above in addition to the additional gain-sharing payments relating to the disallowed severance payments, which Pepco is not contesting. Such additional payments would be charged to expense in the quarter and year in which a final decision is rendered and could have a material adverse effect on results of operations for those periods. However, neither PHI nor Pepco believes that additional gain-sharing payments, if any, or the ADITC-related payments to the IRS, if required, would have a mate rial adverse impact on its financial position or cash flows.

Default Electricity Supply Proceedings

     Maryland

     Pursuant to orders issued by the MPSC in November 2006, Pepco provides SOS to its delivery customers who do not elect to purchase electricity from a competitive supplier. Pepco purchases the power supply required to satisfy its SOS obligations from wholesale suppliers under contracts entered into pursuant to a competitive bid procedure approved and supervised by the MPSC. In March 2006, Pepco announced the results of competitive bids to supply electricity to its Maryland SOS customers for one year beginning June 1, 2006. Due to significant increases in the cost of fuels used to generate electricity, the auction results had the effect of increasing the average monthly electric bill by about 38.5% for Pepco's Maryland residential customers.

     On April 21, 2006, the MPSC approved a settlement agreement among Pepco, its affiliate DPL, the staff of the MPSC and the Office of People's Counsel, which provides for a rate mitigation plan for Pepco's residential customers. Under the plan, the full increase for Pepco's residential customers who affirmatively elect to participate are being phased-in in increments of 15% on June 1, 2006, 15.7% on March 1, 2007 and the remainder on June 1, 2007. Customers electing to participate in the rate deferral plan will be required to pay the deferred amounts over an 18-month period beginning June 1, 2007. As of June 30, 2007, approximately 2% of Pepco's residential customers had elected to participate in the phase-in program.

     On June 23, 2006, Maryland enacted legislation that extended the period for customers to elect to participate in the phase-in of higher rates and revised the obligation to provide SOS to residential and small commercial customers until further action of the General Assembly. The

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legislation also provides for a customer refund reflecting the difference between the interest expense on an initially projected deferred balance at a 25% customer participation level and the interest expense on a deferred balance based on actual participation levels referred to above. The total amount of the refund is approximately $1.1 million for Pepco customers. At Pepco's 2% level of participation, Pepco estimates that the deferral balance, net of taxes, will be approximately $1.4 million. In July 2006, the MPSC approved revised tariff riders filed in June 2006 by Pepco to implement the legislation.

General Litigation

     During 1993, Pepco was served with Amended Complaints filed in the state Circuit Courts of Prince George's County, Baltimore City and Baltimore County, Maryland in separate ongoing, consolidated proceedings known as "In re: Personal Injury Asbestos Case." Pepco and other corporate entities were brought into these cases on a theory of premises liability. Under this theory, the plaintiffs argued that Pepco was negligent in not providing a safe work environment for employees or 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 sought $2 million in compensatory damages and $4 million in punitive damages from each defendant.

     Since the initial filings in 1993, additional individual suits have been filed against Pepco, and significant numbers of cases have been dismissed. As a result of two motions to dismiss, numerous hearings and meetings and one motion for summary judgment, Pepco has had approximately 400 of these cases successfully dismissed with prejudice, either voluntarily by the plaintiff or by the court. As of June 30, 2007, there are approximately 180 cases still pending against Pepco in the State Courts of Maryland, of which approximately 90 cases were filed after December 19, 2000, and have been tendered to Mirant for defense and indemnification pursuant to the terms of the Asset Purchase and Sale Agreement. Under the terms of the Settlement Agreement, Mirant has agreed to assume this contractual obligation. For a description of the Settlement Agreement, see the discussion of the relationship with Mirant above.

     While the aggregate amount of monetary damages sought in the remaining suits (excluding those tendered to Mirant) exceeds $360 million, PHI and Pepco believe the amounts claimed by current plaintiffs are greatly exaggerated. The amount of total liability, if any, and any related insurance recovery cannot be determined at this time; however, based on information and relevant circumstances known at this time, neither PHI nor Pepco believes these suits will have a material adverse effect on its financial position, results of operations or cash flows. However, if an unfavorable decision were rendered against Pepco, it could have a material adverse effect on Pepco's and PHI's financial position, results of operations or cash flows.

Environmental Litigation

     Pepco is subject to regulation by various federal, regional, state, and local authorities with respect to the environmental effects of its operations, including air and water quality control, solid and hazardous waste disposal, and limitations on land use. In addition, federal and state statutes authorize governmental agencies to compel responsible parties to clean up certain abandoned or unremediated hazardous waste sites. Pepco may incur costs to clean up currently or formerly owned facilities or sites found to be contaminated, as well as other facilities or sites that may have been contaminated due to past disposal practices. Although penalties assessed for

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violations of environmental laws and regulations are not recoverable from Pepco's customers, environmental clean-up costs incurred by Pepco would be included in its cost of service for ratemaking purposes.

     Metal Bank/Cottman Avenue Site. In the early 1970s, Pepco sold scrap transformers, some of which may have contained some level of PCBs, to a metal reclaimer operating at the Metal Bank/Cottman Avenue site in Philadelphia, Pennsylvania, owned by a nonaffiliated company. In December 1987, Pepco was notified by the United States Environmental Protection Agency (EPA) that it and a number of other utilities and non-utilities, were potentially responsible parties (PRPs) in connection with the PCB contamination at the site.

     In 1994, an Remedial Investigation/Feasibility Study including a number of possible remedies was submitted to the EPA. In 1997, the EPA issued a Record of Decision that set forth a selected remedial action plan with estimated implementation costs of approximately $17 million. In 1998, the EPA issued a unilateral administrative order to Pepco and 12 other PRPs directing them to conduct the design and actions called for in its decision. In May 2003, two of the potentially liable owner/operator entities filed for reorganization under Chapter 11 of the U.S. Bankruptcy Code. In October 2003, the bankruptcy court confirmed a reorganization plan that incorporates the terms of a settlement among the two debtor owner/operator entities, the United States and a group of utility PRPs including Pepco (the Utility PRPs). Under the bankruptcy settlement, the reorganized entity/site owner will pay a total of $13.25 million to remediate the site (the Bankruptcy Settlement).

     In March 2006, the U.S. District Court for the Eastern District of Pennsylvania approved global consent decrees for the Metal Bank/Cottman Avenue site, entered into on August 23, 2005, involving the Utility PRPs, the U.S. Department of Justice, EPA, The City of Philadelphia and two owner/operators of the site. Under the terms of the settlement, the two owner/operators will make payments totaling $5.55 million to the U.S. Department of Justice and totaling $4.05 million to the Utility PRPs. The Utility PRPs will perform the remedy at the site and will be able to draw on the $13.25 million from the Bankruptcy Settlement to accomplish the remediation (the Bankruptcy Funds). The Utility PRPs will contribute funds to the extent remediation costs exceed the Bankruptcy Funds available. The Utility PRPs also will be liable for EPA costs associated with overseeing the monitoring and operation of the site remedy after the remedy construction is certified to be complete and also the cost of performing the "5 year" review of site conditions required by the Comprehensive Environmental Response, Compensation, and Liability Act of 1980. Any Bankruptcy Funds not spent on the remedy may be used to cover the Utility PRPs' liabilities for future costs. No parties are released from potential liability for damages to natural resources.

     As of June 30, 2007, Pepco had accrued $1.7 million to meet its liability for a remedy at the Metal Bank/Cottman Avenue site. While final costs to Pepco of the settlement have not been determined, Pepco believes that its liability at this site will not have a material adverse effect on its financial position, results of operations or cash flows.

IRS Mixed Service Cost Issue

     During 2001, Pepco changed its method of accounting with respect to capitalizable construction costs for income tax purposes. The change allowed the companies to accelerate the deduction of certain expenses that were previously capitalized and depreciated. Through

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December 31, 2005, these accelerated deductions generated incremental tax cash flow benefits of approximately $94 million, primarily attributable to its 2001 tax returns.

     On August 2, 2005, the Treasury Department released regulations that, if adopted in their current form, would require Pepco to change its method of accounting with respect to capitalizable construction costs for income tax purposes for tax periods beginning in 2005. Based on those regulations, PHI in its 2005 federal tax return adopted an alternative method of accounting for capitalizable construction costs that management believes will be acceptable to the IRS.

     On the same day that the new regulations were released, the IRS issued Revenue Ruling 2005-53, which is intended to limit the ability of certain taxpayers to utilize the method of accounting for income tax purposes they utilized on their tax returns for 2004 and prior years with respect to capitalizable construction costs. In line with this Revenue Ruling, the IRS issued a revenue agent's report for the 2001 and 2002 tax returns, in which the IRS exam team disallowed substantially all of the incremental tax benefits that Pepco, DPL and ACE had claimed on those returns by requiring the companies to capitalize and depreciate certain expenses rather than treat such expenses as current deductions. PHI's protest of the IRS adjustments is among the unresolved audit matters relating to the 2001 and 2002 audits pending before the Appeals Office.

     In February 2006, PHI paid approximately $121 million of taxes to cover the amount of taxes that management estimated to be payable based on the method of tax accounting that PHI, pursuant to the proposed regulations, has adopted on its 2005 tax return. However, if the IRS is successful in requiring Pepco to capitalize and depreciate construction costs that result in a tax and interest assessment greater than management's estimate of $121 million, PHI will be required to pay additional taxes and interest only to the extent these adjustments exceed the $121 million payment made in February 2006.

(5)  SUBSEQUENT EVENTS

     Maryland Rate Order

     On July 19, 2007, MPSC issued an order in the electric service distribution base rate case filed by Pepco. For further discussion, see "Rate Proceedings" in Note (4) Commitments and Contingencies, herein.

     Maryland Income Tax Refund

     On August 1, 2007, Pepco entered into a settlement agreement with the Comptroller of Maryland on a State income tax refund claim relating to Pepco's divestiture of its generation assets in 2000. Under the agreement, Pepco will receive a refund of taxes paid in the amount of approximately $30 million reflecting a correction of the tax basis of assets sold. The refund will be recorded in the third quarter of 2007, and is expected to result, net of related professional fees, in an increase in Pepco's net income of approximately $17.7 million.

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DELMARVA POWER & LIGHT COMPANY STATEMENTS OF EARNINGS (Unaudited)
	Three Months Ended June 30,				Six Months Ended June 30,
		2007		2006		2007		2006
		(Millions of dollars)
Operating Revenue
Electric	$	265.0	$	289.8	$	573.7	$	547.9
Natural Gas		65.1		49.5		177.9		159.9
Total Operating Revenue		330.1		339.3		751.6		707.8
Operating Expenses
Fuel and purchased energy		182.5		205.4		403.3		367.2
Gas purchased		51.0		39.0		137.1		127.7
Other operation and maintenance		49.8		45.4		99.4		90.6
Depreciation and amortization		18.2		18.8		37.3		38.2
Other taxes		8.5		9.1		17.8		18.8
Gain on sale of assets		-		(.3)		(.6)		(1.1)
Total Operating Expenses		310.0		317.4		694.3		641.4
Operating Income		20.1		21.9		57.3		66.4
Other Income (Expenses)
Interest and dividend income		.1		.2		.7		.5
Interest expense		(10.4)		(10.0)		(21.4)		(19.3)
Other income		.6		2.0		1.1		3.7
Other expense		-		(1.0)		-		(2.2)
Total Other Expenses		(9.7)		(8.8)		(19.6)		(17.3)
Income Before Income Tax Expense		10.4		13.1		37.7		49.1
Income Tax Expense		1.8		6.2		13.1		21.4
Net Income		8.6		6.9		24.6		27.7
Dividends on Redeemable Serial Preferred Stock		-		.2		-		.4
Earnings Available for Common Stock		8.6		6.7		24.6		27.3
Retained Earnings at Beginning of Period		433.9		405.3		426.4		399.7
Dividends Paid to Parent		(19.0)		-		(27.0)		(15.0)
Preferred Stock Redemption		-		-		(.6)		-
Cumulative Effect Adjustment Related   to the Implementation of FIN 48		-		-		.1		-
Retained Earnings at End of Period	$	423.5	$	412.0	$	423.5	$	412.0
The accompanying Notes are an integral part of these Financial Statements.
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DELMARVA POWER & LIGHT COMPANY BALANCE SHEETS (Unaudited)
ASSETS		June 30, 2007		December 31, 2006
	(Millions of dollars)
CURRENT ASSETS
Cash and cash equivalents		$	4.3	$	8.2
Restricted cash			2.9		-
Accounts receivable, less allowance for     uncollectible accounts of $9.0 million     and $7.8 million, respectively			195.3		193.7
Fuel, materials and supplies-at average cost			42.7		40.1
Prepayments of income taxes			59.2		46.3
Prepaid expenses and other			16.1		18.4
Total Current Assets			320.5		306.7
INVESTMENTS AND OTHER ASSETS
Goodwill			48.5		48.5
Regulatory assets			182.3		187.2
Prepaid pension expense			175.0		171.8
Other			33.3		18.4
Total Investments and Other Assets			439.1		425.9
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment			2,560.9		2,512.8
Accumulated depreciation			(815.1)		(794.2)
Net Property, Plant and Equipment			1,745.8		1,718.6
TOTAL ASSETS		$	2,505.4	$	2,451.2
The accompanying Notes are an integral part of these Financial Statements.
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DELMARVA POWER & LIGHT COMPANY BALANCE SHEETS (Unaudited)
LIABILITIES AND SHAREHOLDER'S EQUITY		June 30, 2007		December 31, 2006
	(Millions of dollars, except shares)
CURRENT LIABILITIES
Short-term debt		$	274.8	$	195.9
Current maturities of long-term debt			4.4		64.7
Accounts payable and accrued liabilities			102.1		95.0
Accounts payable to associated companies			36.8		9.6
Taxes accrued			3.8		3.2
Interest accrued			8.6		6.2
Interest and tax liability on uncertain tax positions			34.1		-
Other			57.5		58.4
Total Current Liabilities			522.1		433.0
DEFERRED CREDITS
Regulatory liabilities			286.3		272.4
Deferred income taxes			392.9		424.1
Investment tax credits			9.5		9.9
Above-market purchased energy contracts and other      electric restructuring liabilities			22.3		23.5
Other			59.7		49.2
Total Deferred Credits			770.7		779.1
LONG-TERM LIABILITIES
Long-term debt			547.5		551.8
COMMITMENTS AND CONTINGENCIES (NOTE 4)
REDEEMABLE SERIAL PREFERRED STOCK			-		18.2
SHAREHOLDER'S EQUITY
Common stock, $2.25 par value, authorized     1,000,000 shares, issued 1,000 shares			-		-
Premium on stock and other capital contributions			241.6		242.7
Retained earnings			423.5		426.4
Total Shareholder's Equity			665.1		669.1
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY		$	2,505.4	$	2,451.2
The accompanying Notes are an integral part of these Financial Statements. 76

DELMARVA POWER & LIGHT COMPANY STATEMENTS OF CASH FLOWS (Unaudited)
		Six Months Ended June 30,
			2007		2006
	(Millions of dollars)
OPERATING ACTIVITIES
Net income		$	24.6	$	27.7
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization			37.3		38.2
Gain on sale of assets			(.6)		(1.1)
Investment tax credit adjustments			(.4)		(.4)
Deferred income taxes			6.8		(18.0)
Changes in:
Accounts receivable			(1.9)		(5.9)
Regulatory assets and liabilities			.6		9.4
Accounts payable and accrued liabilities			37.6		(2.3)
Interest and taxes accrued			.2		(36.5)
Other changes in working capital			(10.1)		15.5
Net other operating			(3.9)		(9.5)
Net Cash From Operating Activities			90.2		17.1
INVESTING ACTIVITIES
Net investment in property, plant and equipment			(59.5)		(75.1)
Restricted cash			(2.9)		-
Proceeds from sale of property			-		2.2
Net other investing activities			.1		(1.6)
Net Cash Used By Investing Activities			(62.3)		(74.5)
FINANCING ACTIVITIES
Dividends paid to Pepco Holdings			(27.0)		(15.0)
Dividends paid on preferred stock			-		(.4)
Reacquisition of long-term debt			(64.7)		(2.9)
Issuances of short-term debt, net			78.9		76.0
Redemption of preferred stock			(18.2)		-
Net other financing activities			(.8)		(.7)
Net Cash (Used By) From Financing Activities			(31.8)		57.0
Net Decrease in Cash and Cash Equivalents			(3.9)		(.4)
Cash and Cash Equivalents at Beginning of Period			8.2		7.4
CASH AND CASH EQUIVALENTS AT END OF PERIOD		$	4.3	$	7.0
NONCASH ACTIVITIES
Asset retirement obligations associated with removal   costs transferred to regulatory liabilities		$	4.2	$	3.1
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for income taxes    (includes payments to PHI for Federal income taxes)		$	11.9	$	40.6
The accompanying Notes are an integral part of these Financial Statements. 77

NOTES TO FINANCIAL STATEMENTS

DELMARVA POWER & LIGHT COMPANY

(1)  ORGANIZATION

     Delmarva Power & Light Company (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 discussed in Note (4), "Commitments and Contingencies -- DPL Sale of Virginia Operations," DPL in June 2007 entered into an agreement to sell substantially all of its Virginia electric service operations. Additionally, DPL supplies electricity at regulated rates to retail customers in its territories who do not elect to purchase electricity from a competitive supplier. The regulatory term for this service varies by jurisdiction as follows:

Delaware	Provider of Last Resort service (POLR) -- before May 1, 2006 Standard Offer Service (SOS) -- on and after May 1, 2006
Maryland	SOS
Virginia	Default Service

     In this Form 10-Q, DPL also refers to this supply service in each of its jurisdictions generally as Default Electricity Supply.

     DPL is a wholly owned subsidiary of Conectiv, which is wholly owned by Pepco Holdings, Inc. (Pepco Holdings or PHI). Because PHI is a public utility holding company subject to the Public Utility Holding Company Act of 2005 (PUHCA 2005), the relationship between PHI and DPL and certain activities of DPL are subject to the regulatory oversight of the Federal Energy Regulatory Commission (FERC) under PUHCA 2005.

(2)  ACCOUNTING POLICY, PRONOUNCEMENTS, AND OTHER DISCLOSURES

Financial Statement Presentation

     DPL's unaudited financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (GAAP). Pursuant to the rules and regulations of the Securities and Exchange Commission, certain information and footnote disclosures normally included in annual financial statements prepared in accordance with GAAP have been omitted. Therefore, these financial statements should be read along with the annual financial statements included in DPL's Annual Report on Form 10-K for the year ended December 31, 2006. In the opinion of DPL's management, the financial statements contain all adjustments (which all are of a normal recurring nature) necessary to present fairly DPL's financial condition as of June 30, 2007, in accordance with GAAP. The year-end balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America. Interim results for the three and six months ended June 30, 2007 may not be indicative of results that will be realized for the full year ending December 31, 2007 since the sales of electric energy are seasonal.

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FIN 48, "Accounting for Uncertainty in Income Taxes"

     On July 13, 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation Number (FIN) 48, "Accounting for Uncertainty in Income Taxes" (FIN 48). FIN 48 clarifies the criteria for recognition of tax benefits in accordance with Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes," and prescribes a financial statement recognition threshold and measurement attribute for a tax position taken or expected to be taken in a tax return. Specifically, it clarifies that an entity's tax benefits must be "more likely than not" of being sustained prior to recording the related tax benefit in the financial statements. If the position drops below the "more likely than not" standard, the benefit can no longer be recognized. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition.

     DPL adopted the provisions of FIN 48 on January 1, 2007. As a result of the implementation of FIN 48, DPL recorded a $.1 million increase in beginning retained earnings, representing the cumulative effect of the change in accounting principle. Unrecognized tax benefits represent those tax benefits related to tax positions that have been taken or are expected to be taken in tax returns, including refund claims, that are not recognized in the financial statements because, in accordance with FIN 48, management has either measured the tax benefit at an amount less than the benefit claimed or expected to be claimed or concluded that it is not more likely than not that the tax position will be ultimately sustained. As of January 1, 2007, unrecognized tax benefits totaled $43.2 million. For the majority of these tax positions, the ultimate deductibility is highly certain, but there is uncertainty about the timing of such deductibility. Unrecognized tax benefits at January 1, 2007, i ncluded $6.7 million that, if recognized, would lower the effective tax rate.

     DPL recognizes interest on under/over payments of income taxes and penalties in income tax expense. As of January 1, 2007, DPL had accrued approximately $9.8 million of interest expense and penalties.

     DPL, as an indirect subsidiary of PHI, is included on PHI's consolidated federal tax return. DPL's federal income tax liabilities for all years through 1997 have been determined, subject to adjustment to the extent of any net operating loss or other loss or credit carrybacks from subsequent years. The open tax years for the significant states where DPL files state income tax returns (Maryland, Delaware, and Virginia), are the same as noted above.

     Total unrecognized tax benefits that may change over the next twelve months include the matter described in Note (4) Commitments and Contingencies under the heading "IRS Mixed Service Cost Issue."

     On May 2, 2007, the FASB issued FASB Staff Position (FSP) FIN 48-1, "Definition of Settlement in FASB Interpretation No. 48" (FIN 48-1), which provides guidance on how an enterprise should determine whether a tax position is effectively settled for the purpose of recognizing previously unrecognized tax benefits. DPL applied the guidance of FIN 48-1 with its adoption of FIN 48 on January 1, 2007.

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Components of Net Periodic Benefit Cost

     DPL accounts for its participation in the Pepco Holdings benefit plans as participation in a multi-employer plan.  PHI's pension and other postretirement net periodic benefit cost for the three months ended June 30, 2007, of $10.8 million includes $.9 million for DPL's allocated share. The remaining pension and other postretirement net periodic benefit cost is allocated to other PHI subsidiaries. PHI's pension and other postretirement net periodic benefit cost for the six months ended June 30, 2007, of $27.8 million includes $1.2 million for DPL's allocated share. The remaining pension and other postretirement net periodic benefit cost is allocated to other PHI subsidiaries. PHI's pension and other postretirement net periodic benefit cost for the three months ended June 30, 2006, of $17.2 million includes $.6 million for DPL's allocated share. The remaining pension and other postretirement net periodic benefit cost is allocated to other PHI subsidiaries. The pens ion net periodic benefit cost for the six months ended June 30, 2006 of $33.7 million includes $.4 million for DPL's allocated share. The remaining pension and other postretirement net periodic benefit cost is allocated to other PHI subsidiaries.

Reconciliation of Income Tax Expense

     A reconciliation of DPL's income tax expense is as follows:

	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2007		2006		2007		2006
	Amount	Rate	Amount	Rate	Amount	Rate	Amount	Rate
	(Millions of dollars)
Income Before Income Tax Expense	$10.4		$13.1		$37.7		$49.1
Income tax at federal statutory rate	$  3.6	.35	$  4.6	.35	$13.2	.35	$17.2	.35
Increases (decreases) resulting from:
State income taxes, net         of federal effect	.6	.05	.6	.05	1.9	.05	3.4	.07
Depreciation	.7	.07	.5	.04	1.2	.03	.9	.02
Tax credits	(.2)	(.02)	(.2)	(.02)	(.4)	(.01)	(.4)	(.01)
Adjustment to prior years' tax	-	-	-	-	-	-	(.8)	(.02)
Change in estimates related to         prior year tax liabilities	(2.9)	(.28)	.8	.06	(2.8)	(.07)	1.2	.03
Other	-	-	(.1)	(.01)	-	-	(.1)	-
Total Income Tax Expense	$  1.8	.17	$  6.2	.47	$13.1	.35	$21.4	.44

     Resolution of Uncertain Tax Positions

     In June 2007, DPL agreed to a settlement with the State of Delaware related to the allocation of a gain on the sale of real property that occurred in 2001, pursuant to which DPL made a cash payment of approximately $12 million, consisting of $7.4 million in tax and $4.6 million in interest. DPL's FIN 48 tax reserves for this issue were in excess of the amount finally settled with the State. As a result, excess reserves of $2.8 million were credited to DPL's income tax expense in the second quarter. Because the matter involved a Conectiv heritage tax contingency that existed at the time of the acquisition of Conectiv in August 2002, an additional adjustment of $1.9 million has been recorded in Corporate and Other to eliminate a portion of the tax benefit recorded by DPL.

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Amended and Restated Credit Facility

     On May 2, 2007, PHI, Potomac Electric Power Company (Pepco), DPL and Atlantic City Electric Company (ACE) entered into an amendment and restatement of their principal credit facility.

     The aggregate borrowing limit under the facility is $1.5 billion, all or any portion of which may be used to obtain loans or to issue letters of credit. PHI's credit limit under the facility is $875 million. The credit limit of each of Pepco, DPL and ACE is the lesser of $500 million and the maximum amount of debt the company is permitted to have outstanding by its regulatory authorities, except that the aggregate amount of credit used by Pepco, DPL and ACE at any given time collectively may not exceed $625 million. The interest rate payable by each company on utilized funds is based on the prevailing prime rate or Eurodollar rate, plus a margin that varies according to the credit rating of the borrower. The facility also includes a "swingline loan sub-facility", pursuant to which each company may make same day borrowings in an aggregate amount not to exceed $150 million. Any swingline loan must be repaid by the borrower within seven days of receipt thereof. All indebted ness incurred under the facility is unsecured.

     The facility commitment expiration date is May 5, 2012, with each company having the right to elect to have 100% of the principal balance of the loans outstanding on the expiration date continued as non-revolving term loans for a period of one year from such expiration date.

     The facility is intended to serve primarily as a source of liquidity to support the commercial paper programs of the respective companies. The companies also are permitted to use the facility to borrow funds for general corporate purposes and issue letters of credit. In order for a borrower to use the facility, certain representations and warranties made by the borrower at the time the amended and restated credit agreement was entered into also must be true at the time the facility is utilized, and the borrower must be in compliance with specified covenants, including the financial covenant described below. However, a material adverse change in the borrower's business, property, and results of operations or financial condition subsequent to the entry into the amended and restated credit agreement is not a condition to the availability of credit under the facility. Among the covenants to which each of the companies is subject are (i) the requirement that each borrowing com pany maintain a ratio of total indebtedness to total capitalization of 65% or less, computed in accordance with the terms of the amended and restated credit agreement, which calculation excludes certain trust preferred securities and deferrable interest subordinated debt from the definition of total indebtedness (not to exceed 15% of total capitalization), (ii) a restriction on sales or other dispositions of assets, other than sales and dispositions permitted by the amended and restated credit agreement, and (iii) a restriction on the incurrence of liens on the assets of a borrower or any of its significant subsidiaries other than liens permitted by the amended and restated credit agreement. The agreement does not include any rating triggers.

Debt

     In May 2007, DPL retired at maturity $50 million of 8.125% medium-term notes.

     In June 2007, DPL retired at maturity $3.2 million of first mortgage bonds.

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Related Party Transactions

     PHI Service Company provides various administrative and professional services to PHI and its regulated and unregulated subsidiaries, including DPL, pursuant to a service agreement. The cost of these services is allocated in accordance with cost allocation methodologies set forth in the service agreement using a variety of factors, including the subsidiaries' share of employees, operating expenses, assets, and other cost causal methods. These intercompany transactions are eliminated by PHI in consolidation and no profit results from these transactions at PHI. PHI Service Company costs directly charged or allocated to DPL for the three months ended June 30, 2007 and 2006 were approximately $26.5 million and $25.7 million, respectively. PHI Service Company costs directly charged or allocated to DPL for the six months ended June 30, 2007 and 2006 were approximately $52.7 million and $50.7 million, respectively.

     In addition to the PHI Service Company charges described above, DPL's Statements of Earnings include the following related party transactions:

	For the Three Months Ended June 30,		For the Six Months Ended June 30,
	2007	2006	2007	2006
Income (Expense)	(Millions of dollars)
Full Requirements Contract with Conectiv Energy Supply for power,         capacity and ancillary services to service POLR (included in fuel         and purchased energy expenses)	$       -	$(30.7)	$         -	$(122.2)
SOS agreement with Conectiv Energy Supply (included in fuel and        purchased energy)	(59.2)	(46.9)	(135.5)	(59.3)
Intercompany lease transactions (included in electric revenue)	1.9	2.2	3.8	4.0
Transcompany pipeline gas sales with Conectiv Energy Supply        (included in gas revenue)	.1	.8	1.6	1.4
Transcompany pipeline gas purchase with Conectiv Energy Supply        (included in gas purchased)	(.2)	(.8)	(1.5)	(1.2)

     As of June 30, 2007 and December 31, 2006, DPL had the following balances on its Balance Sheets due from/(to) related parties:

		2007		2006
Asset (Liability)		(Millions of dollars)
Receivable from Related Party (current)
PHI Service Company	$	-	$	46.4
Payable to Related Party (current)
PHI Service Company		(11.1)		-
PHI Parent		-		(24.7)
Conectiv Energy Supply		(21.4)		(24.6)
Pepco Energy Services		(5.5)		(7.7)
The items listed above are included in the "Accounts payable to associated companies" balance on the Balance Sheet of $36.8 million and $9.6 million at June 30, 2007 and December 31, 2006, respectively.
Money Pool Balance with Pepco Holdings   (included in short-term debt on balance sheet)	$	(140.9)	$	-

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New Accounting Standards

     EITF Issue No. 06-3, "Disclosure Requirements for Taxes Assessed by a Governmental Authority on Revenue-producing Transactions"

     On June 28, 2006, the FASB ratified Emerging Issues Task Force (EITF) Issue No. 06-3, "Disclosure Requirements for Taxes Assessed by a Governmental Authority on Revenue-producing Transactions" (EITF 06-3). EITF 06-3 provides guidance on an entity's disclosure of its accounting policy regarding the gross or net presentation of certain taxes and provides that if taxes included in gross revenues are significant, a company should disclose the amount of such taxes for each period for which an income statement is presented (i.e., both interim and annual periods). Taxes within the scope of EITF 06-3 are those that are imposed on and concurrent with a specific revenue-producing transaction. Taxes assessed on an entity's activities over a period of time are not within the scope of EITF 06-3. DPL implemented EITF 06-3 during the first quarter of 2007. Taxes included in DPL's gross revenues were $3.0 million and $3.7 million for the three months ended June 30, 2007 and 2006, r espectively and $6.2 million and $7.0 million for the six months ended June 30, 2007 and 2006, respectively.

     SFAS No. 157, "Fair Value Measurements"

     In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements" (SFAS No. 157) which defines fair value, establishes a framework for measuring fair value in GAAP, and expands disclosures about fair value measurements. SFAS No. 157 applies under other accounting pronouncements that require or permit fair value measurements and does not require any new fair value measurements. However, it is possible that the application of this Statement will change current practice with respect to the definition of fair value, the methods used to measure fair value, and the expanded disclosures about fair value measurements.

     SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years (year ending December 31, 2008 for DPL). DPL is currently in the process of evaluating the impact that SFAS No. 157 will have on its overall financial condition, results of operations, and cash flows.

FSP AUG AIR-1, "Accounting for Planned Major Maintenance Activities"

     On September 8, 2006, the FASB issued FSP American Institute of Certified Public Accountants Industry Audit Guide, Audits of Airlines--"Accounting for Planned Major Maintenance Activities" (FSP AUG AIR-1), which prohibits the use of the accrue-in-advance method of accounting for planned major maintenance activities in annual and interim financial reporting periods for all industries. FSP AUG AIR-1 is effective the first fiscal year beginning after December 15, 2006 (year ending December 31, 2007 for DPL). DPL has evaluated the impact of FSP AUG AIR-1 and it does not have a material impact on its overall financial condition, results of operations, or cash flows.

     SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities - Including an amendment of FASB Statement No. 115"

     On February 15, 2007, the FASB issued SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities - Including an amendment of FASB Statement No. 115" (SFAS No. 159) which permits entities to elect to measure eligible financial instruments at fair value.

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The objective of SFAS No. 159 is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. SFAS No. 159 applies under other accounting pronouncements that require or permit fair value measurements and does not require any new fair value measurements. However, it is possible that the application of SFAS No. 159 will change current practice with respect to the definition of fair value, the methods used to measure fair value, and the expanded disclosures about fair value measurements.

     SFAS No. 159 establishes presentation and disclosure requirements designed to facilitate comparisons between companies that choose different measurement attributes for similar types of assets and liabilities. SFAS No. 159 requires companies to provide additional information that will help investors and other users of financial statements to more easily understand the effect of the company's choice to use fair value on its earnings. It also requires entities to display the fair value of those assets and liabilities for which the company has chosen to use fair value on the face of the balance sheet. SFAS No. 159 does not eliminate disclosure requirements included in other accounting standards.

     SFAS No. 159 applies to fiscal years beginning after November 15, 2007 (year ending December 31, 2008 for DPL), with early adoption permitted for an entity that has also elected to apply the provisions of SFAS No. 157, Fair Value Measurements. An entity is prohibited from retrospectively applying SFAS No. 159, unless it chooses early adoption. SFAS No. 159 also applies to eligible items existing at November 15, 2007 (or early adoption date). DPL is currently in the process of evaluating the impact that SFAS No. 159 will have on its overall financial condition, results of operations, and cash flows.

(3) SEGMENT INFORMATION

     In accordance with Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information," DPL has one segment, its regulated utility business.

(4)  COMMITMENTS AND CONTINGENCIES

REGULATORY AND OTHER MATTERS

Rate Proceedings

     In an electric service distribution base rate case filed by DPL in Maryland and in a natural gas distribution base rate case filed by DPL in Delaware, DPL proposed the adoption of a bill stabilization adjustment mechanism (BSA) for retail customers. The BSA would increase rates if revenues from distribution deliveries fall below the level approved by the applicable regulatory commission and will decrease rates if revenues from distribution deliveries are above the commission-approved level. The end result would be that DPL would collect its authorized revenues for distribution deliveries. As a consequence, a BSA "decouples" revenue from unit sales consumption and ties the growth in revenues to the growth in the number of customers. Some advantages of the BSA are that it (i) eliminates revenue fluctuations due to weather and changes in customer usage patterns and, therefore, provides for more predictable utility distribution revenues that are better aligned with costs , (ii) provides for more reliable fixed-cost recovery, (iii) tends to stabilize customers' delivery bills, and (iv) removes any disincentives for

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DPL to promote energy efficiency programs for its customers, because it breaks the link between overall sales volumes and delivery revenues. The status of the BSA proposals in each of the jurisdictions is described below in discussion of the respective base rate proceedings.

     Delaware

     On August 31, 2006, DPL submitted its 2006 Gas Cost Rate (GCR) filing to the Delaware Public Service Commission (DPSC), which permits DPL to recover gas procurement costs through customer rates. On October 3, 2006, the DPSC issued an initial order approving the proposed rates, which became effective November 1, 2006, subject to refund pending final DPSC approval after evidentiary hearings. On February 23, 2007, DPL submitted an additional filing to the DPSC that proposed an additional 4.3% decrease in the GCR effective April 1, 2007, in compliance with its gas service tariff and to ensure collections are more aligned with expenses. On March 20, 2007, the DPSC approved the rate decrease, subject to refund pending final DPSC approval after evidentiary hearings. On July 17, 2007, the DPSC granted final approval for the GCR, as filed.

     On August 31, 2006, DPL submitted an application to the DPSC for an increase in gas distribution base rates, including a proposed BSA. On March 20, 2007, the DPSC approved a settlement agreement filed by all of the parties in this proceeding (DPL, the DPSC staff and the Delaware Division of Public Advocate). The settlement provisions include a $9.0 million increase in distribution rates, including certain miscellaneous tariff fees (of which $2.5 million was put into effect on November 1, 2006), reflecting a return on equity (ROE) of 10.25%, and a change in depreciation rates that will result in a $2.1 million reduction in pre-tax annual depreciation expense. Under the settlement agreement, rates became effective on April 1, 2007. Although the settlement agreement does not include a BSA, it provides for all of the parties to the case to participate in any generic statewide proceeding for the purpose of investigating BSA mechanisms for electric and gas distribution utilitie s. On March 20, 2007, the DPSC issued an order initiating a docket for the purpose of investigating a bill stabilization adjustment mechanism, or other rate decoupling mechanisms.

     Maryland

     On July 19, 2007, the Maryland Public Service Commission (MPSC) issued an order in the electric service distribution rate cases filed by DPL. The order approved a temporary annual increase in distribution rates of approximately $14.9 million (including a decrease in annual depreciation expense of approximately $0.9 million). The approved distribution rate reflects an ROE of 10.0%. The order provided that the rate increase is effective as of June 16, 2007, and will remain in effect for an initial period of nine months from the date of the order (or until April 19, 2008). The temporary rate is subject to a Phase II proceeding in which the MPSC will consider the results of an audit of DPL's cost allocation manual, as filed with the MPSC, to determine whether a further adjustment to the rate is required. The MPSC approved the proposed BSA, under which customer delivery rates are subject to adjustment quarterly (through a surcharge or credit mechanism), dependi ng on whether actual revenue per customer exceeds or falls short of, the approved revenue per customer amount.

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     Federal Energy Regulatory Commission

     On May 15, 2007, DPL updated its FERC-approved formula transmission rates based on its 2006 FERC Form 1. These rates became effective on June 1, 2007, and will provide approximately $17.2 million in additional annual revenues.

Default Electricity Supply Proceedings

     Delaware

     Effective May 1, 2006, SOS replaced fixed-rate POLR service for customers who do not elect to purchase electricity from a competitive supplier. In October 2005, the DPSC approved DPL as the SOS provider to its Delaware delivery customers. DPL obtains the electricity to fulfill its SOS supply obligation under contracts entered pursuant to a competitive bid procedure approved by the DPSC.

     In response to bids received for the May 1, 2006, through May 31, 2007, period, which had the effect of increasing rates significantly for all customer classes, including an average residential customer increase of 59%, as compared to the fixed rates previously in effect, Delaware in April 2006 enacted legislation that provides for a deferral of the financial impact on customers. This legislation provided for a three-step phase-in of the rate increases, with 15% of the increase taking effect on May 1, 2006, 25% of the increase taking effect on January 1, 2007, and any remaining balance taking effect on June 1, 2007, subject to the right of customers to elect not to participate in the deferral program. Customers who do not "opt-out" of the rate deferral program are required to pay the amounts deferred, without any interest charge, over a 17-month period beginning January 1, 2008. As of June 30, 2007, approximately 53% of the eligible Delaware customers have opted not to participate in the deferral of the SOS rates offered by DPL. With approximately 47% of the eligible customers participating in the phase-in program, DPL anticipates a maximum deferral balance of $51.4 million.

     Maryland

     Pursuant to orders issued by the MPSC in November 2006, DPL provides SOS to its delivery customers who do not elect to purchase electricity from a competitive supplier. DPL purchases the power supply required to satisfy its SOS obligations from wholesale suppliers under contracts entered into pursuant to a competitive bid procedure approved and supervised by the MPSC. In March 2006, DPL each announced the results of competitive bids to supply electricity to its Maryland SOS customers for one year beginning June 1, 2006. Due to significant increases in the cost of fuels used to generate electricity, the auction results had the effect of increasing the average monthly electric bill by about 35% for DPL's Maryland residential customers.

     On April 21, 2006, the MPSC approved a settlement agreement among DPL, its affiliate Pepco, the staff of the MPSC and the Office of People's Counsel, which provides for a rate mitigation plan for DPL's residential customers. Under the plan, the full increase for DPL's residential customers who affirmatively elect to participate are being phased-in in increments of 15% on June 1, 2006, 15.7% on March 1, 2007 and the remainder on June 1, 2007. Customers electing to participate in the rate deferral plan will be required to pay the deferred amounts over

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an 18-month period beginning June 1, 2007. As of June 30, 2007, approximately 1% of DPL's residential customers had elected to participate in the phase-in program.

     On June 23, 2006, Maryland enacted legislation that extended the period for customers to elect to participate in the phase-in of higher rates and revised the obligation to provide SOS to residential and small commercial customers until further action of the General Assembly. The legislation also provides for a customer refund reflecting the difference between the interest expense on an initially projected deferred balance at a 25% customer participation level and the interest expense on a deferred balance based on actual participation levels referred to above. The total amount of the refund is approximately $.3 million for DPL customers. At DPL's 1% level of participation, DPL estimates that the deferral balance, net of taxes, will be approximately $.2 million. In July 2006, the MPSC approved revised tariff riders filed in June 2006 by DPL to implement the legislation.

     Virginia

     As discussed below under the heading "DPL Sale of Virginia Operations," DPL has entered into an agreement to sell substantially all of its Virginia electric service operations.

     On April 2, 2007, DPL filed an application with Virginia State Corporation Commission (VSCC) to adjust its Default Service rates covering the period June 1, 2007, to May 31, 2008. The proposed rates for this service during the first month of this period (June 2007) are based on the fuel proxy rate calculation described below. The proposed rates for the remaining 11 months of the period (July 1, 2007 to May 31, 2008) reflect the fuel cost of Default Service supply based upon the results of the competitive bidding wholesale procurement process. The calculations in the application result in a rate decrease of approximately $1.7 million for the period, June 1 to June 30, 2007, and an increase of approximately $4.2 million for the period, July 1, 2007 to May 31, 2008, resulting in an overall annual rate increase of approximately $2.5 million.

     The "fuel proxy rate calculation" was established under a Memorandum of Agreement (MOA) that DPL entered into with the staff of the VSCC in connection with the approval of DPL's divestiture of its generation assets in 2000, and provides for the calculation of the fuel rate portion of Default Service rates that reflect an approximation of the fuel costs that DPL would have incurred had it retained its generating assets. Since June 1, 2006, use of the proxy rate calculation has resulted in DPL being unable to recover fully its cost of providing Default Service. The new rate application reflects DPL's position that the use of the fuel proxy rate calculation to establish Default Service rates terminated on July 1, 2007, and effective that date, it should be permitted to charge customers market based fuel costs. However, pursuant to an order dated June 8, 2007, the VSCC denied the July 1, 2007 rate increase, based on its conclusion that the MOA's provisions relating to fuel cos ts did not end effective June 30, 2007. As a result of this decision, DPL estimates that it will under-recover its cost of providing Default Service by approximately $1.7 million between June 1, 2007 and the September 30, 2007 expiration of the current SOS supply contract. Thereafter, any ongoing under-recovery will be determined by market rates for the fuel portion of SOS supply and the timing of completion of the sale of DPL's Virginia electric operations as described below under the heading "DPL Sale of Virginia Operations."

     DPL filed a complaint for a declaratory order and preliminary injunctive relief with the U.S. District Court for the Eastern District of Virginia (the Virginia District Court). On July 23,

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2007, the Virginia District Court dismissed the complaint and denied injunctive relief, finding that the court lacked subject matter jurisdiction and stating that even if it had subject matter jurisdiction, it would abstain from exercising that jurisdiction to allow the Supreme Court of Virginia to consider the issues upon which the complaint was based. On July 31, 2007, DPL filed a notice of appeal of the VSCC's orders with the Supreme Court of Virginia. The sale of DPL's Virginia electric operations as described below under the heading "DPL Sale of Virginia Operations" is not contingent upon resolution of any of the matters that are at issue in these proceedings. If the sale of the Virginia electric operations is completed, the effect, if any, on these proceedings is not determinable at this time.

DPL Sale of Virginia Operations

     On June 13, 2007, DPL entered into separate agreements to sell, respectively, all of its distribution assets and a significant portion of its transmission assets in Virginia for an aggregate sales price of approximately $45 million. DPL currently expects the transactions to close during the fourth quarter of 2007, contingent upon the receipt of required regulatory approvals. These sales, if completed, will not result in a significant financial gain or loss to DPL.

     Distribution Purchase and Sale Agreement

     DPL has entered into an agreement to sell to A&N Electric Cooperative (A&N) all of its assets principally related to DPL's business of distributing retail electric services to customers located on the Eastern Shore of Virginia for a purchase price of approximately $39.8 million, subject to closing adjustments. The assets to be sold include real and personal property, accounts receivable and customer deposits. A&N will assume certain post-closing liabilities and unknown pre-closing liabilities related to the distribution assets including most environmental liabilities, except that DPL will remain liable for unknown pre-closing liabilities if they become known within six months after the closing date. The completion of the sale is contingent upon approval by the VSCC.

     Transmission Purchase and Sale Agreement

     DPL has entered into an agreement to sell to Old Dominion Electric Cooperative (ODEC) certain assets principally related to DPL's provision of electric transmission services located on the Eastern Shore of Virginia for a purchase price of approximately $4.8 million, subject to certain closing adjustments. ODEC will assume certain post-closing liabilities and unknown pre-closing liabilities related to the transmission assets, except that DPL will remain liable for unknown pre-closing liabilities that become known within six months after the closing date. The completion of the sale is contingent upon approval of the transfer by the VSCC and approval of two related agreements by FERC.

Environmental Litigation

     DPL is subject to regulation by various federal, regional, state, and local authorities with respect to the environmental effects of its operations, including air and water quality control, solid and hazardous waste disposal, and limitations on land use. In addition, federal and state statutes authorize governmental agencies to compel responsible parties to clean up certain abandoned or unremediated hazardous waste sites. DPL may incur costs to clean up currently or formerly owned facilities or sites found to be contaminated, as well as other facilities or sites that may have been contaminated due to past disposal practices. Although penalties assessed for

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violations of environmental laws and regulations are not recoverable from DPL's customers, environmental clean-up costs incurred by DPL would be included in its cost of service for ratemaking purposes.

     Cambridge, Maryland Site. In July 2004, DPL entered into an administrative consent order (ACO) with the Maryland Department of the Environment (MDE) to perform a Remedial Investigation/Feasibility Study (RI/FS) to further identify the extent of soil, sediment and ground and surface water contamination related to former manufactured gas plant (MGP) operations at a Cambridge, Maryland site on DPL-owned property and to investigate the extent of MGP contamination on adjacent property. The MDE has approved the RI and DPL submitted a final FS to MDE on February 15, 2007. The costs of cleanup (as determined by the RI/FS and subsequent negotiations with MDE) are anticipated to be approximately $2.7 million. The remedial action will include dredging activities within Cambridge Creek, which are expected to take place as early as October 2007, and soil excavation on DPL's and adjacent property as early as January 2008.

     Metal Bank/Cottman Avenue Site. In the early 1970s, DPL sold scrap transformers, some of which may have contained some level of PCBs, to a metal reclaimer operating at the Metal Bank/Cottman Avenue site in Philadelphia, Pennsylvania, owned by a nonaffiliated company. In December 1987, DPL was notified by the United States Environmental Protection Agency (EPA) that it and a number of other utilities and non-utilities, were potentially responsible parties (PRPs) in connection with the PCB contamination at the site. In 1999, DPL entered into a de minimis settlement with EPA and paid approximately $107,000 to resolve its liability for cleanup costs at the Metal Bank/Cottman Avenue site. The de minimis settlement did not resolve DPL's responsibility for natural resource damages, if any, at the site. DPL believes that any liability for natural resource damages at this site will not have a material adverse effect on its financial position, results of operations or cash f lows.

IRS Mixed Service Cost Issue

     During 2001, DPL changed its method of accounting with respect to capitalizable construction costs for income tax purposes. The change allowed the companies to accelerate the deduction of certain expenses that were previously capitalized and depreciated. Through December 31, 2005, these accelerated deductions generated incremental tax cash flow benefits of approximately $62 million, primarily attributable to its 2001 tax returns.

     On August 2, 2005, the Treasury Department released regulations that, if adopted in their current form, would require DPL to change its method of accounting with respect to capitalizable construction costs for income tax purposes for tax periods beginning in 2005. Based on those regulations, PHI in its 2005 federal tax return adopted an alternative method of accounting for capitalizable construction costs that management believes will be acceptable to the Internal Revenue Service (IRS).

     On the same day that the new regulations were released, the IRS issued Revenue Ruling 2005-53, which is intended to limit the ability of certain taxpayers to utilize the method of accounting for income tax purposes they utilized on their tax returns for 2004 and prior years with respect to capitalizable construction costs. In line with this Revenue Ruling, the IRS issued a revenue agent's report for the 2001 and 2002 tax returns, in which the IRS exam team disallowed substantially all of the incremental tax benefits that DPL had claimed on those

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returns by requiring the companies to capitalize and depreciate certain expenses rather than treat such expenses as current deductions. PHI's protest of the IRS adjustments is among the unresolved audit matters relating to the 2001 and 2002 audits pending before the Appeals Office.

     In February 2006, PHI paid approximately $121 million of taxes to cover the amount of taxes that management estimated to be payable based on the method of tax accounting that PHI, pursuant to the proposed regulations, has adopted on its 2005 tax return. However, if the IRS is successful in requiring DPL to capitalize and depreciate construction costs that result in a tax and interest assessment greater than management's estimate of $121 million, PHI will be required to pay additional taxes and interest only to the extent these adjustments exceed the $121 million payment made in February 2006.

(5)  SUBSEQUENT EVENT

     On July 19, 2007, MPSC issued an order in the electric service distribution base rate case filed by DPL. For a further discussion, see "Rate Proceedings" in Note (4) Commitments and Contingencies, herein.

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ATLANTIC CITY ELECTRIC COMPANY CONSOLIDATED STATEMENTS OF EARNINGS (Unaudited)
	Three Months Ended June 30,				Six Months Ended June 30,
		2007		2006		2007		2006
		(Millions of dollars)
Operating Revenue	$	338.3	$	299.0	$	676.5	$	600.5
Operating Expenses
Fuel and purchased energy		243.0		210.9		466.8		401.5
Other operation and maintenance		37.3		36.7		76.9		74.9
Depreciation and amortization		17.4		29.8		34.5		59.6
Other taxes		4.0		5.3		9.7		10.4
Deferred electric service costs		(10.0)		(25.8)		16.0		(11.7)
Gain on sale of asset		(.1)		-		(.4)		-
Total Operating Expenses		291.6		256.9		603.5		534.7
Operating Income		46.7		42.1		73.0		65.8
Other Income (Expenses)
Interest and dividend income		.4		.1		.8		.3
Interest expense		(16.2)		(16.0)		(32.2)		(31.2)
Other income		1.2		1.4		2.4		2.8
Other expense		-		(.1)		-		(3.1)
Total Other Expenses		(14.6)		(14.6)		(29.0)		(31.2)
Income Before Income Tax Expense		32.1		27.5		44.0		34.6
Income Tax Expense		12.9		7.8		17.2		9.5
Income from Continuing Operations		19.2		19.7		26.8		25.1
Discontinued Operations (Note 5)
Income from operations (net of taxes of     zero and $.6 million for the three     months ended June 30, 2007 and 2006,     respectively, and $.1 million and $1.1 million     for the six months ended June 30, 2007     and 2006, respectively)		-		.8		.1		1.6
Net Income		19.2		20.5		26.9		26.7
Dividends on Redeemable Serial Preferred Stock		.1		.1		.1		.1
Earnings Available for Common Stock		19.1		20.4		26.8		26.6
Retained Earnings at Beginning of Period		119.7		165.8		132.0		178.6
Dividends Paid to Parent		(10.0)		-		(30.0)		(19.0)
Retained Earnings at End of Period	$	128.8	$	186.2	$	128.8	$	186.2
The accompanying Notes are an integral part of these Consolidated Financial Statements.
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ATLANTIC CITY ELECTRIC COMPANY CONSOLIDATED BALANCE SHEETS (Unaudited)
ASSETS		June 30, 2007		December 31, 2006
	(Millions of dollars)
CURRENT ASSETS
Cash and cash equivalents		$	4.4	$	5.5
Restricted cash			7.0		9.0
Accounts receivable, less allowance for     uncollectible accounts of $5.0 million     and $5.5 million, respectively			189.2		163.0
Fuel, materials and supplies-at average cost			14.0		12.6
Prepayments of income taxes			64.9		54.5
Prepaid expenses and other			69.3		16.9
B.L. England assets held for sale			-		14.4
Total Current Assets			348.8		275.9
INVESTMENTS AND OTHER ASSETS
Regulatory assets			855.0		857.5
Restricted funds held by trustee			12.6		17.5
Prepaid pension expense			9.8		11.7
Other			39.0		19.5
B.L. England assets held for sale			-		79.2
Total Investments and Other Assets			916.4		985.4
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment			1,995.5		1,942.9
Accumulated depreciation			(617.1)		(599.1)
Net Property, Plant and Equipment			1,378.4		1,343.8
TOTAL ASSETS		$	2,643.6	$	2,605.1
The accompanying Notes are an integral part of these Consolidated Financial Statements.
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ATLANTIC CITY ELECTRIC COMPANY CONSOLIDATED BALANCE SHEETS (Unaudited)
LIABILITIES AND SHAREHOLDER'S EQUITY		June 30, 2007		December 31, 2006
	(Millions of dollars, except shares)
CURRENT LIABILITIES
Short-term debt		$	111.4	$	23.8
Current maturities of long-term debt			80.4		45.9
Accounts payable and accrued liabilities			134.0		110.3
Accounts payable to associated companies			20.8		27.3
Taxes accrued			9.4		8.5
Interest accrued			13.4		13.7
Interest and tax liability on uncertain tax positions			26.6		-
Other			39.2		38.1
Liabilities associated with B.L. England assets held for sale			-		.9
Total Current Liabilities			435.2		268.5
DEFERRED CREDITS
Regulatory liabilities			359.4		360.2
Deferred income taxes			439.1		441.0
Investment tax credits			8.5		14.9
Other postretirement benefit obligation			38.8		27.1
Other			26.7		14.0
Liabilities associated with B.L. England assets held for sale			-		78.6
Total Deferred Credits			872.5		935.8
LONG-TERM LIABILITIES
Long-term debt			415.7		465.7
Transition Bonds issued by ACE Funding			449.6		464.4
Total Long-Term Liabilities			865.3		930.1
COMMITMENTS AND CONTINGENCIES (NOTE 4)
REDEEMABLE SERIAL PREFERRED STOCK			6.2		6.2
SHAREHOLDER'S EQUITY
Common stock, $3.00 par value, authorized     25,000,000 shares, 8,546,017 shares outstanding			25.6		25.6
Premium on stock and other capital contributions			310.0		306.9
Retained earnings			128.8		132.0
Total Shareholder's Equity			464.4		464.5
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY		$	2,643.6	$	2,605.1
The accompanying Notes are an integral part of these Consolidated Financial Statements.
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ATLANTIC CITY ELECTRIC COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
		Six Months Ended June 30,
			2007		2006
	(Millions of dollars)
OPERATING ACTIVITIES
Net income		$	26.9	$	26.7
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization			34.5		59.6
Deferred income taxes			25.1		.3
Gain on sale of assets			(.4)		-
Changes in:
Accounts receivable			(25.7)		32.3
Accounts payable and accrued liabilities			18.8		(69.8)
Prepaid New Jersey sales and excise tax			(53.0)		(48.7)
Regulatory assets and liabilities			9.5		(9.6)
Interest and taxes accrued			(10.6)		(40.2)
Other changes in working capital			(.1)		(5.4)
Net other operating			(1.0)		1.5
Net Cash From (Used By) Operating Activities			24.0		(53.3)
INVESTING ACTIVITIES
Net investment in property, plant and equipment			(61.9)		(55.9)
Proceeds from sale of assets			9.0		-
Net other investing activities			1.7		1.7
Net Cash Used By Investing Activities			(51.2)		(54.2)
FINANCING ACTIVITIES
Dividends paid to Pepco Holdings			(30.0)		(19.0)
Dividends paid on preferred stock			(.1)		(.1)
Issuances of long-term debt			-		105.0
Reacquisition of long-term debt			(30.3)		(78.8)
Issuances of short-term debt, net			87.6		90.4
Net other financing activities			(1.1)		7.6
Net Cash From Financing Activities			26.1		105.1
Net Decrease in Cash and Cash Equivalents			(1.1)		(2.4)
Cash and Cash Equivalents at Beginning of Period			5.5		8.2
CASH AND CASH EQUIVALENTS AT END OF PERIOD		$	4.4	$	5.8
NON-CASH ACTIVITIES
Capital contribution in respect of certain intercompany transactions		$	3.0	$	-
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for income taxes    (includes payments to PHI for Federal income taxes)		$	4.8	$	28.2
The accompanying Notes are an integral part of these Consolidated Financial Statements.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

ATLANTIC CITY ELECTRIC COMPANY

(1) ORGANIZATION

     Atlantic City Electric Company (ACE) is engaged in the generation, transmission and distribution of electricity in southern New Jersey. ACE provides Default Electricity Supply, which is the supply of electricity at regulated rates to retail customers in its service territory who do not elect to purchase electricity from a competitive supplier. Default Electricity Supply is also known as Basic Generation Service (BGS) in New Jersey. ACE is a wholly owned subsidiary of Conectiv, which is wholly owned by Pepco Holdings, Inc. (Pepco Holdings or PHI). Because PHI is a public utility holding company subject to the Public Utility Holding Company Act of 2005 (PUHCA 2005), the relationship between PHI and ACE and certain activities of ACE are subject to the regulatory oversight of the Federal Energy Regulatory Commission (FERC) under PUHCA 2005.

     In addition to its electricity transmission and distribution operations, during 2006 ACE owned a 2.47% undivided interest in the Keystone electric generating facility, a 3.83% undivided interest in the Conemaugh electric generating facility (with a combined generating capacity of 108 megawatts), and also owned the B.L. England electric generating facility (with a generating capacity of 447 megawatts). On September 1, 2006, ACE sold its interests in the Keystone and Conemaugh generating facilities and on February 8, 2007, ACE completed the sale of the B.L. England generating facility.

(2)  ACCOUNTING POLICY, PRONOUNCEMENTS, AND OTHER DISCLOSURES

Financial Statement Presentation

     ACE's unaudited consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (GAAP). Pursuant to the rules and regulations of the Securities and Exchange Commission, certain information and footnote disclosures normally included in annual financial statements prepared in accordance with GAAP have been omitted. Therefore, these financial statements should be read along with the annual financial statements included in ACE's Annual Report on Form 10-K for the year ended December 31, 2006. In the opinion of ACE's management, the consolidated financial statements contain all adjustments (which all are of a normal recurring nature) necessary to present fairly ACE's financial condition as of June 30, 2007, in accordance with GAAP. The year-end balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America. Interim results for the three and six months ended June 30, 2007 may not be indicative of results that will be realized for the full year ending December 31, 2007 since the sales of electric energy are seasonal.

FIN 46R, "Consolidation of Variable Interest Entities"

     ACE has power purchase agreements (PPAs) with a number of entities, including three contracts between unaffiliated non-utility generators (NUGs) and ACE. Due to a variable element in the pricing structure of the NUGs, ACE potentially assumes the variability in the

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operations of the plants related to these PPAs and, therefore, has a variable interest in the entities. In accordance with the provisions of Financial Accounting Standards Board (FASB) Interpretation No. (FIN) 46R (revised December 2003), entitled "Consolidation of Variable Interest Entities" (FIN 46R), ACE continued, during the second quarter of 2007, to conduct exhaustive efforts to obtain information from these entities, but was unable to obtain sufficient information to conduct the analysis required under FIN 46R to determine whether these three entities were variable interest entities or if ACE was the primary beneficiary. As a result, ACE has applied the scope exemption from the application of FIN 46R for enterprises that have conducted exhaustive efforts to obtain the necessary information, but have not been able to obtain such information.

     Net power purchase activities with the counterparties to the NUGs for the three months ended June 30, 2007 and 2006 were approximately $77 million and $79 million, respectively, of which $70 million for each period was related to power purchases under the NUGs. Net power purchase activities with the counterparties to the NUGs for the six months ended June 30, 2007 and 2006 were approximately $159 million and $163 million, respectively, of which $143 million and $144 million, respectively, related to power purchases under the NUGs. ACE does not have exposure to loss under the PPA agreements since cost recovery will be achieved from its customers through regulated rates.

     In April 2006, the FASB issued FASB Staff Position (FSP) FIN 46(R)-6, "Determining the Variability to Be Considered in Applying FASB Interpretation No. 46(R)" (FSP FIN 46(R)-6), which provides guidance on how to determine the variability to be considered in applying FIN 46(R). ACE started applying the guidance in FSP FIN 46(R)-6 to new and modified arrangements effective July 1, 2006.

FIN 48, "Accounting for Uncertainty in Income Taxes"

     On July 13, 2006, the FASB issued FIN 48, "Accounting for Uncertainty in Income Taxes" (FIN 48). FIN 48 clarifies the criteria for recognition of tax benefits in accordance with SFAS No. 109, "Accounting for Income Taxes," and prescribes a financial statement recognition threshold and measurement attribute for a tax position taken or expected to be taken in a tax return. Specifically, it clarifies that an entity's tax benefits must be "more likely than not" of being sustained prior to recording the related tax benefit in the financial statements. If the position drops below the "more likely than not" standard, the benefit can no longer be recognized. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition.

     ACE adopted the provisions of FIN 48 on January 1, 2007. As a result of the implementation of FIN 48, ACE had an immaterial adjustment to its beginning retained earnings, representing the cumulative effect of the change in accounting principle. Unrecognized tax benefits represent those tax benefits related to tax positions that have been taken or are expected to be taken in tax returns, including refund claims, that are not recognized in the financial statements because, in accordance with FIN 48, management has either measured the tax benefit at an amount less than the benefit claimed or expected to be claimed or concluded that it is not more likely than not that the tax position will be ultimately sustained. As of January 1, 2007, unrecognized tax benefits totaled $28.4 million. For the majority of these tax positions, the ultimate deductibility is highly

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certain, but there is uncertainty about the timing of such deductibility. Unrecognized tax benefits at January 1, 2007, included no amounts that, if recognized, would lower the effective tax rate.

     ACE recognizes interest on under/over payments of income taxes and penalties in income tax expense. As of January 1, 2007, ACE had accrued approximately $3.4 million of interest expense and penalties.

     ACE, as an indirect subsidiary of PHI, is included on PHI's consolidated federal tax return. ACE's federal income tax liabilities for all years through 1997, have been determined, subject to adjustment to the extent of any net operating loss or other loss or credit carrybacks from subsequent years. The open tax years for the significant states where ACE files state income tax returns (New Jersey and Pennsylvania), are the same as noted above.

     Total unrecognized tax benefits that may change over the next twelve months include the matter described in Note (4), "Commitments and Contingencies" under the heading "IRS Mixed Service Cost Issue."

     On May 2, 2007, the FASB issued FSP FIN 48-1, "Definition of Settlement in FASB Interpretation No. 48" (FIN 48-1), which provides guidance on how an enterprise should determine whether a tax position is effectively settled for the purpose of recognizing previously unrecognized tax benefits. ACE applied the guidance of FIN 48-1 with its adoption of FIN 48 on January 1, 2007.

Components of Net Periodic Benefit Cost

     ACE accounts for its participation in the Pepco Holdings benefit plans as participation in a multi-employer plan. PHI's pension and other postretirement net periodic benefit cost for the three months ended June 30, 2007, of $10.8 million includes $2.3 million for ACE's allocated share. The remaining pension and other postretirement net periodic benefit cost is allocated to other PHI subsidiaries. PHI's pension and other postretirement net periodic benefit cost for the six months ended June 30, 2007, of $27.8 million includes $5.7 million for ACE's allocated share. The remaining pension and other postretirement net periodic benefit cost is allocated to other PHI subsidiaries. PHI's pension and other postretirement net periodic benefit cost for the three months ended June 30, 2006, of $17.2 million includes $2.5 million for ACE's allocated share. The remaining pension and other postretirement net periodic benefit cost is allocated to other PHI subsidiaries. The pension net pe riodic benefit cost for the six months ended June 30, 2006 of $33.7 million includes $7.1 million for ACE's allocated share. The remaining pension and other postretirement net periodic benefit cost is allocated to other PHI subsidiaries.

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Reconciliation of Consolidated Income Tax Expense

     A reconciliation of ACE's consolidated income tax expense is as follows:

	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2007		2006		2007		2006
	Amount	Rate	Amount	Rate	Amount	Rate	Amount	Rate
	(Millions of dollars)
Income Before Income Tax Expense     and Discontinued Operations	$32.1		$27.5		$44.0		$34.6
Income tax at federal statutory rate	$11.2	.35	$ 9.6	.35	$15.4	.35	$12.1	.35
Increases (decreases) resulting from:
State income taxes,         net of federal effect	2.1	.07	1.9	.07	2.9	.07	2.6	.08
Depreciation	.1	-	-	-	.2	-	.1	-
Tax credits	(.3)	(.01)	(.3)	(.01)	(.7)	(.02)	(.7)	(.02)
Adjustment to prior years' tax	-	-	-	-	(.1)	-	(1.6)	(.05)
Change in estimates related to         prior year tax liabilities	(.2)	(.01)	(3.4)	(.13)	(.4)	(.01)	(3.0)	(.09)
Other	-	-	-	-	(.1)	-	-	-
Total Consolidated Income   Tax Expense	$12.9	.40	$ 7.8	.28	$17.2	.39	$ 9.5	.27

Amended and Restated Credit Facility

     On May 2, 2007, PHI, Potomac Electric Power Company (Pepco), Delmarva Power & Light Company (DPL) and ACE entered into an amendment and restatement of their principal credit facility.

     The aggregate borrowing limit under the facility is $1.5 billion, all or any portion of which may be used to obtain loans or to issue letters of credit. PHI's credit limit under the facility is $875 million. The credit limit of each of Pepco, DPL and ACE is the lesser of $500 million and the maximum amount of debt the company is permitted to have outstanding by its regulatory authorities, except that the aggregate amount of credit used by Pepco, DPL and ACE at any given time collectively may not exceed $625 million. The interest rate payable by each company on utilized funds is based on the prevailing prime rate or Eurodollar rate, plus a margin that varies according to the credit rating of the borrower. The facility also includes a "swingline loan sub-facility", pursuant to which each company may make same day borrowings in an aggregate amount not to exceed $150 million. Any swingline loan must be repaid by the borrower within seven days of receipt thereof. All indebted ness incurred under the facility is unsecured.

     The facility commitment expiration date is May 5, 2012, with each company having the right to elect to have 100% of the principal balance of the loans outstanding on the expiration date continued as non-revolving term loans for a period of one year from such expiration date.

     The facility is intended to serve primarily as a source of liquidity to support the commercial paper programs of the respective companies. The companies also are permitted to use the facility to borrow funds for general corporate purposes and issue letters of credit. In order for a borrower to use the facility, certain representations and warranties made by the borrower at the time the amended and restated credit agreement was entered into also must be true at the time the facility is utilized, and the borrower must be in compliance with specified covenants, including

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the financial covenant described below. However, a material adverse change in the borrower's business, property, and results of operations or financial condition subsequent to the entry into the amended and restated credit agreement is not a condition to the availability of credit under the facility. Among the covenants to which each of the companies is subject are (i) the requirement that each borrowing company maintain a ratio of total indebtedness to total capitalization of 65% or less, computed in accordance with the terms of the amended and restated credit agreement, which calculation excludes certain trust preferred securities and deferrable interest subordinated debt from the definition of total indebtedness (not to exceed 15% of total capitalization), (ii) a restriction on sales or other dispositions of assets, other than sales and dispositions permitted by the amended and restated credit agreement, and (iii) a restriction on the incurrence of liens on the assets of a borrower or any of its significant subsidiaries other than liens permitted by the amended and restated credit agreement. The agreement does not include any rating triggers.

Debt

      In April 2007, ACE retired at maturity $15 million of 7.52% medium-term notes.

     In April 2007, Atlantic City Electric Transition Funding LLC (ACE Funding) made principal payments of $4.9 million on Series 2002-1 Transition Bonds, Class A-1 and $2.0 million on Series 2003-1 Transition Bonds, Class A-1 with a weighted average interest rate of 2.89%.

     In May 2007, ACE retired at maturity $1 million of 7.15% medium-term notes.

Related Party Transactions

     PHI Service Company provides various administrative and professional services to PHI and its regulated and unregulated subsidiaries, including ACE, pursuant to a service agreement. The cost of these services is allocated in accordance with cost allocation methodologies set forth in the service agreement using a variety of factors, including the subsidiaries' share of employees, operating expenses, assets, and other cost causal methods. These intercompany transactions are eliminated in consolidation and no profit results from these transactions at PHI. PHI Service Company costs directly charged or allocated to ACE for the three and six months ended June 30, 2007 and 2006 were $19.3 million and $20.2 million, and $39.4 million and $41.4 million, respectively.

     In addition to the PHI Service Company charges described above, ACE's Consolidated Statements of Earnings include the following related party transactions:

	For the Three Months Ended June 30,		For the Six Months Ended June 30,
	2007	2006	2007	2006
Income (Expense)	(Millions of dollars)
Purchased power from Conectiv Energy Supply (included in   fuel and purchased energy expenses)	$(22.2)	$(20.3)	$(41.0)	$(39.1)
Meter reading services provided by Millennium Account   Services, LLC (b)	.9	.9	1.9	1.9
Intercompany lease transactions (b)	(.3)	.1	(.7)	-
Intercompany use revenue (a)	.4	.2	1.0	.5
Intercompany use expense (a)	(.4)	(.2)	(1.0)	(.4)

     (a) Included in operating revenue

     (b) Included in operation and maintenance

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     As of June 30, 2007 and December 31, 2006, ACE had the following balances on its Consolidated Balance Sheets due (to) from related parties:

		2007		2006
Asset (Liability)		(Millions of dollars)
Receivable from Related Party (current)
PHI Parent	$	-	$	8.4
Payable to Related Party (current)
PHI Service Company		(9.1)		(28.7)
Conectiv Energy Supply		(10.6)		(6.3)
DPL		(.6)		(.3)
The items listed above are included in the "Accounts payable to associated companies" balance on the Consolidated Balance Sheet of $20.8 million and $27.3 million at June 30, 2007 and December 31, 2006, respectively.

Reclassifications

     Certain prior period amounts have been reclassified in order to conform to current period presentation.

New Accounting Standards

     EITF Issue No. 06-3, "Disclosure Requirements for Taxes Assessed by a Governmental Authority on Revenue-producing Transactions"

     On June 28, 2006, the FASB ratified Emerging Issues Task Force (EITF) Issue No. 06-3, "Disclosure Requirements for Taxes Assessed by a Governmental Authority on Revenue-producing Transactions" (EITF 06-3). EITF 06-3 provides guidance on an entity's disclosure of its accounting policy regarding the gross or net presentation of certain taxes and provides that if taxes included in gross revenues are significant, a company should disclose the amount of such taxes for each period for which an income statement is presented (i.e., both interim and annual periods). Taxes within the scope of EITF 06-3 are those that are imposed on and concurrent with a specific revenue-producing transaction. Taxes assessed on an entity's activities over a period of time are not within the scope of EITF 06-3. ACE implemented EITF 06-3 during the first quarter of 2007. Taxes included in ACE's gross revenues were $5.1 million and $4.7 million for the three months ended June 30, 2007 and 2006, re spectively and $10.5 million and $10.1 million for the six months ended June 30, 2007 and 2006, respectively.

     SFAS No. 157, "Fair Value Measurements"

     In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements" (SFAS No. 157) which defines fair value, establishes a framework for measuring fair value in GAAP, and expands disclosures about fair value measurements. SFAS No. 157 applies under other accounting pronouncements that require or permit fair value measurements and does not require any new fair value measurements. However, it is possible that the application of this Statement will change current practice with respect to the definition of fair value, the methods used to measure fair value, and the expanded disclosures about fair value measurements.

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     SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years (year ending December 31, 2008 for ACE). ACE is currently in the process of evaluating the impact that SFAS No. 157 will have on its overall financial condition, results of operations, and cash flows.

     FSP AUG AIR-1, "Accounting for Planned Major Maintenance Activities"

     On September 8, 2006, the FASB issued FSP American Institute of Certified Public Accountants Industry Audit Guide, Audits of Airlines--"Accounting for Planned Major Maintenance Activities" (FSP AUG AIR-1), which prohibits the use of the accrue-in-advance method of accounting for planned major maintenance activities in annual and interim financial reporting periods for all industries. FSP AUG AIR-1 is effective the first fiscal year beginning after December 15, 2006 (year ending December 31, 2007 for ACE). ACE has evaluated the impact of FSP AUG AIR-1 and it does not have a material impact on its overall financial condition, results of operations, or cash flows.

     SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities - Including an amendment of FASB Statement No. 115"

     On February 15, 2007, the FASB issued SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities - Including an amendment of FASB Statement No. 115" (SFAS No. 159) which permits entities to elect to measure eligible financial instruments at fair value. The objective of SFAS No. 159 is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. SFAS No. 159 applies under other accounting pronouncements that require or permit fair value measurements and does not require any new fair value measurements. However, it is possible that the application of SFAS No. 159 will change current practice with respect to the definition of fair value, the methods used to measure fair value, and the expanded disclosures about fair value measurements.

     SFAS No. 159 establishes presentation and disclosure requirements designed to facilitate comparisons between companies that choose different measurement attributes for similar types of assets and liabilities. SFAS No. 159 requires companies to provide additional information that will help investors and other users of financial statements to more easily understand the effect of the company's choice to use fair value on its earnings. It also requires entities to display the fair value of those assets and liabilities for which the company has chosen to use fair value on the face of the balance sheet. SFAS No. 159 does not eliminate disclosure requirements included in other accounting standards.

     SFAS No. 159 applies to fiscal years beginning after November 15, 2007 (year ending December 31, 2008 for ACE), with early adoption permitted for an entity that has also elected to apply the provisions of SFAS No. 157, Fair Value Measurements. An entity is prohibited from retrospectively applying SFAS No. 159, unless it chooses early adoption. SFAS No. 159 also applies to eligible items existing at November 15, 2007 (or early adoption date). ACE is currently in the process of evaluating the impact that SFAS No. 159 will have on its overall financial condition, results of operations, and cash flows.

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(3) SEGMENT INFORMATION

     In accordance with Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information," ACE has one segment, its regulated utility business.

(4)  COMMITMENTS AND CONTINGENCIES

REGULATORY AND OTHER MATTERS

Rate Proceedings

     New Jersey

     On June 1, 2007, ACE filed with the New Jersey Board of Public Utilities (NJBPU) an application for permission to decrease the Non Utility Generation Charge (NGC) and increase components of its Societal Benefits Charge (SBC) to be collected from customers for the period October 1, 2007 through September 30, 2008. The proposed changes are designed to effect a true-up of the actual and estimated costs and revenues collected through the current NGC and SBC rates through September 30, 2007 and, in the case of the SBC, forecasted costs and revenues for the period October 1, 2007 through September 30, 2008.

     ACE projects that, as of September 30, 2007, the NGC, which is intended primarily to recover the above-market component of payments made by ACE under non-utility generation contracts and stranded costs associated with those commitments, will have an over-recovery balance of $234.6 million. The filing proposes that the NGC balance, including interest, be amortized and returned to ACE customers over a four-year period, beginning October 1, 2007.

     ACE also projects that, as of September 30, 2007, the SBC, which is intended to allow ACE to recover certain costs involved with various NJBPU-mandated social programs, will have an under-recovery of approximately $21.8 million, primarily due to increased costs associated with funding the New Jersey Clean Energy Program (CEP). In addition, ACE has requested an increase to the SBC to reflect the increased funding levels approved by the NJBPU to $18.9 million for calendar year 2007 and $20.4 million for calendar year 2008, which will require a $42.3 million increase in the SBC for the period of October 1, 2007 to September 30, 2008.

     The net impact of the proposed adjustments to the NGC and the SBC, including associated changes in sales and use tax, is an overall rate decrease of approximately $131.8 million for the period October 1, 2007, through September 30, 2008. The proposed adjustments and the corresponding changes in customer rates are subject to the approval of the NJBPU. Once approved and implemented, ACE anticipates that the revised rates will remain in effect until September 30, 2008, subject to an annual true-up and change each year thereafter.

     Federal Energy Regulatory Commission

     On May 15, 2007, ACE updated its FERC-approved formula transmission rates based on its 2006 FERC Form 1. These rates became effective on June 1, 2007, and will provide approximately $20 million in additional annual revenues.

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ACE Restructuring Deferral Proceeding

     Pursuant to orders issued by the NJBPU under the New Jersey Electric Discount and Energy Competition Act (EDECA), beginning August 1, 1999, ACE was obligated to provide BGS to retail electricity customers in its service territory who did not elect to purchase electricity from a competitive supplier. For the period August 1, 1999 through July 31, 2003, ACE's aggregate costs that it was allowed to recover from customers exceeded its aggregate revenues from supplying BGS. These under-recovered costs were partially offset by a $59.3 million deferred energy cost liability existing as of July 31, 1999 (LEAC Liability) related to ACE's Levelized Energy Adjustment Clause and ACE's Demand Side Management Programs. ACE established a regulatory asset in an amount equal to the balance of under-recovered costs.

     In August 2002, ACE filed a petition with the NJBPU for the recovery of approximately $176.4 million in actual and projected deferred costs relating to the provision of BGS and other restructuring related costs incurred by ACE over the four-year period August 1, 1999 through July 31, 2003, net of the $59.3 million offset for the LEAC Liability. The petition also requested that ACE's rates be reset as of August 1, 2003 so that there would be no under-recovery of costs embedded in the rates on or after that date. The increase sought represented an overall 8.4% annual increase in electric rates.

     In July 2004, the NJBPU issued a final order in the restructuring deferral proceeding confirming a July 2003 summary order, which (i) permitted ACE to begin collecting a portion of the deferred costs and reset rates to recover on-going costs incurred as a result of EDECA, (ii) approved the recovery of $125 million of the deferred balance over a ten-year amortization period beginning August 1, 2003, (iii) transferred to ACE's then pending base rate case for further consideration approximately $25.4 million of the deferred balance (the base rate case ended in a settlement approved by the NJBPU in May 2005, the result of which is that any net rate impact from the deferral account recoveries and credits in future years will depend in part on whether rates associated with other deferred accounts considered in the case continue to generate over-collections relative to costs), and (iv) estimated the overall deferral balance as of July 31, 2003 at $195 million, of which $44.6 million was disallowed recovery by ACE. Although ACE believes the record does not justify the level of disallowance imposed by the NJBPU in the final order, the $44.6 million of disallowed incurred costs were reserved during the years 1999 through 2003 (primarily 2003) through charges to earnings, primarily in the operating expense line item "deferred electric service costs," with a corresponding reduction in the regulatory asset balance sheet account. In 2005, an additional $1.2 million in interest on the disallowed amount was identified and reserved by ACE. In August 2004, ACE filed a notice of appeal with respect to the July 2004 final order with the Appellate Division of the Superior Court of New Jersey (the Appellate Division), which hears appeals of the decisions of New Jersey administrative agencies, including the NJBPU. Briefs in the appeal were also filed by the New Jersey Division of Rate Counsel (then known as the Division of the New Jersey Ratepayer Advocate) and by Cogentrix Energy Inc., the co-own er of two cogeneration power plants with contracts to sell ACE approximately 397 megawatts of electricity, as cross-appellants between August 2005 and January 2006. The Appellate Division has not yet set the schedule for oral argument.

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Divestiture Case

     In connection with the divestiture by ACE of its nuclear generating assets, the NJBPU in July 2000 preliminarily determined that the amount of stranded costs associated with the divested assets that ACE could recover from ratepayers should be reduced by approximately $94.8 million, consisting of $54.1 million of accumulated deferred federal income taxes (ADFIT) associated with the accelerated depreciation on the divested nuclear assets, and $40.7 million of current tax loss from selling the assets at a price below the tax basis.

     The $54.1 million in deferred taxes associated with the divested assets' accelerated depreciation; however, is subject to the normalization rules. Due to uncertainty under federal tax law regarding whether the sharing of federal income tax benefits associated with the divested assets, including ADFIT related to accelerated depreciation, with ACE's customers would violate the normalization rules, ACE submitted a request to the Internal Revenue Service (IRS) for a Private Letter Ruling (PLR) to clarify the applicable law. The NJBPU delayed its final determination of the amount of recoverable stranded costs until after the receipt of the PLR.

     On May 25, 2006, the IRS issued the PLR in which it stated that returning to ratepayers any of the unamortized ADFIT attributable to accelerated depreciation on the divested assets after the sale of the assets by means of a reduction of the amount of recoverable stranded costs would violate the normalization rules.

     On June 9, 2006, ACE submitted a letter to the NJBPU, requesting that the NJBPU conduct proceedings to finalize the determination of the stranded costs associated with the sale of ACE's nuclear assets in accordance with the PLR. In the absence of an NJBPU action regarding ACE's request, on June 22, 2007, ACE filed a motion requesting that the NJBPU issue an order finalizing the determination of such stranded costs in accordance with the PLR. The NJBPU and the other parties in interest have agreed to an expedited schedule for resolution of the motion.

ACE Sale of B.L. England Generating Facility

     On February 8, 2007, ACE completed the sale of the B.L. England generating facility to RC Cape May Holdings, LLC (RC Cape May), an affiliate of Rockland Capital Energy Investments, LLC, for which it received proceeds of approximately $9 million, after giving effect to certain post-closing adjustments. In addition, RC Cape May and ACE have agreed to submit to arbitration whether RC Cape May must pay to ACE, as part of the purchase price, an additional $3.1 million remaining in dispute. RC Cape May also assumed certain liabilities associated with the B.L. England generating station, including substantially all environmental liabilities.

     The sale of B.L. England will not affect the stranded costs associated with the plant that already have been securitized. ACE anticipates that approximately $9 million to $10 million of additional regulatory assets related to B.L. England may, subject to NJBPU approval, be eligible for recovery as stranded costs. The emission allowance credits associated with B. L. England will be monetized for the benefit of ACE's ratepayers pursuant to the NJBPU order approving the sale. Net proceeds from the sale of the plant and monetization of the emission allowance credits, will be credited to ACE's ratepayers in accordance with the requirements of EDECA and NJBPU orders. The appropriate mechanism for monetizing the value of the emission allowances for the benefit of ratepayers is being determined in a Phase II proceeding, which is currently pending before the NJBPU.

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Environmental Litigation

     ACE is subject to regulation by various federal, regional, state, and local authorities with respect to the environmental effects of its operations, including air and water quality control, solid and hazardous waste disposal, and limitations on land use. In addition, federal and state statutes authorize governmental agencies to compel responsible parties to clean up certain abandoned or unremediated hazardous waste sites. ACE may incur costs to clean up currently or formerly owned facilities or sites found to be contaminated, as well as other facilities or sites that may have been contaminated due to past disposal practices. Although penalties assessed for violations of environmental laws and regulations are not recoverable from ACE's customers, environmental clean-up costs incurred by ACE would be included in its cost of service for ratemaking purposes.

     Delilah Road Landfill Site. In November 1991, the New Jersey Department of Environmental Protection (NJDEP) identified ACE as a potentially responsible party (PRP) at the Delilah Road Landfill site in Egg Harbor Township, New Jersey. In 1993, ACE, along with other PRPs, signed an administrative consent order (ACO) with NJDEP to remediate the site. The soil cap remedy for the site has been completed and the NJDEP conditionally approved the report submitted by the parties on the implementation of the remedy in January 2003. In March 2004, NJDEP approved a Ground Water Sampling and Analysis Plan. Positive results of groundwater monitoring events have resulted in a reduced level of groundwater monitoring. In August 2006, NJDEP issued a No Further Action Letter (NFA) and Covenant Not to Sue for the site. Among other things, the NFA requires the PRPs to monitor the effectiveness of institutional (deed restriction) and engineering (cap) controls at the site every two y ears and to continue groundwater monitoring. In December 2006, the PRP group filed a petition with NJDEP seeking approval of semi-annual rather than quarterly ground water monitoring for two years and annual groundwater monitoring thereafter if ground water monitoring results remain consistent or improve relative to prior monitoring data. NJDEP has not acted on the PRP group's petition. In March 2003, U.S. Environmental Protection Agency (EPA) demanded from the PRP group reimbursement for EPA's past costs at the site, totaling $168,789. The PRP group objected to the demand for certain costs, but agreed to reimburse EPA approximately $19,000. In a March 19, 2007 letter, EPA demanded from the PRP group reimbursement for EPA's costs at the site between 1985 and 2007 totaling $233,563. The PRP group objected to the demand for these costs for a variety of reasons, including the fact that approximately $97,000 in costs was billed after construction of the remedy by the PRP group was completed. In a Jun e 19, 2007 letter, EPA requested that the PRP group pay $62,623 in response costs and enter into a tolling agreement. In a July 10, 2007 response to EPA, the PRP group indicated a willingness to pay approximately $62,600 (ACE's share of which is one-third) in full satisfaction of EPA's claims for all past and future response costs relating to the site, provided that EPA provides a satisfactory settlement agreement with a covenant not to sue and release as to such costs. The PRP group response of July 10, 2007 also questioned the need for a tolling agreement for a site that is the subject of an NFA and accordingly warrants little, if any, activity by EPA. The PRP group is evaluating EPA's July 26, 2007 counteroffer of settlement under which the PRP group would resolve its liability for EPA's past and future costs at the site by paying the offered $62,600 plus a 30% premium to cover the risk associated with EPA's unknown future costs for a total of approximately $81,400. A settlement incorporating these te rms also would permit EPA to reopen the settlement in the event of new information or unknown conditions at the site. Based on information currently available, ACE anticipates that its share of additional cost associated with this site for post-remedy operation and maintenance

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will be approximately $555,000 to $600,000. ACE believes that its liability for post-remedy operation and maintenance costs will not have a material adverse effect on its financial position, results of operations or cash flows.

     Frontier Chemical Site. On June 29, 2007, ACE received a letter from the New York Department of Environmental Conservation (NYDEC) indicating that ACE is a PRP at the Frontier Chemical Waste Processing Company site in Niagara Falls, N.Y. The letter states that NYDEC has hazardous waste manifests indicating that ACE sent in excess of 7,500 gallons of manifested hazardous waste to the site. The letter asks ACE, within 30 days, to express its willingness to enter into an ACO. If ACE is unwilling to enter into the ACO, ACE must respond to NYDEC's request for information within 45 days. ACE informed NYDEC that it has entered into good faith negotiations with a coalescing PRP group to address ACE's responsibility at the site. ACE believes that its responsibility at the site will not have a material adverse effect on its financial position, results of operations or cash flows.

IRS Mixed Service Cost Issue

     During 2001, ACE changed its method of accounting with respect to capitalizable construction costs for income tax purposes. The change allowed the companies to accelerate the deduction of certain expenses that were previously capitalized and depreciated. Through December 31, 2005, these accelerated deductions generated incremental tax cash flow benefits of approximately $49 million, primarily attributable to its 2001 tax returns.

     On August 2, 2005, the Treasury Department released regulations that, if adopted in their current form, would require ACE to change its method of accounting with respect to capitalizable construction costs for income tax purposes for tax periods beginning in 2005. Based on those regulations, PHI in its 2005 federal tax return adopted an alternative method of accounting for capitalizable construction costs that management believes will be acceptable to the IRS.

     On the same day that the new regulations were released, the IRS issued Revenue Ruling 2005-53, which is intended to limit the ability of certain taxpayers to utilize the method of accounting for income tax purposes they utilized on their tax returns for 2004 and prior years with respect to capitalizable construction costs. In line with this Revenue Ruling, the IRS issued a revenue agent's report for the 2001 and 2002 tax returns, in which the IRS exam team disallowed substantially all of the incremental tax benefits that ACE had claimed on those returns by requiring the companies to capitalize and depreciate certain expenses rather than treat such expenses as current deductions. PHI's protest of the IRS adjustments is among the unresolved audit matters relating to the 2001 and 2002 audits pending before the Appeals Office.

     In February 2006, PHI paid approximately $121 million of taxes to cover the amount of taxes that management estimated to be payable based on the method of tax accounting that PHI, pursuant to the proposed regulations, has adopted on its 2005 tax return. However, if the IRS is successful in requiring ACE to capitalize and depreciate construction costs that result in a tax and interest assessment greater than management's estimate of $121 million, PHI will be required to pay additional taxes and interest only to the extent these adjustments exceed the $121 million payment made in February 2006.

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(5)  DISCONTINUED OPERATIONS

     As discussed in Note (4) "Commitments and Contingencies," herein, on February 8, 2007, ACE completed the sale of its B.L. England generating facility. B.L. England comprised a significant component of ACE's generation operations and its sale required "discontinued operations" presentation under SFAS No. 144, "Accounting for the Impairment or Disposal of Long Lived Assets," on ACE's Consolidated Statements of Earnings for the three and six months ended June 30, 2007 and 2006. In September 2006, ACE sold its interests in the Keystone and Conemaugh generating facilities, which for the three and six months ended June 30, 2006, also were reflected as "discontinued operations."

     The following table summarizes discontinued operations information for the three and six months ended June 30:

	For the Three Months Ended June 30,		For the Six Months Ended June 30,
	2007	2006	2007	2006
	(Millions of dollars)
Operating Revenue	$    -	$22.8	$9.7	$55.0
Income Before Income Tax Expense	$    -	$  1.4	$  .2	$  2.7
Net Income	$    -	$   .8	$  .1	$  1.6

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Item 2.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
               AND RESULTS OF OPERATIONS

     The information required by this item is contained herein, as follows:

Registrants	Page No.
Pepco Holdings	111
Pepco	165
DPL	171
ACE	179

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

PEPCO HOLDINGS, INC.

GENERAL OVERVIEW

     Pepco Holdings, Inc. (PHI or Pepco Holdings) is a public utility holding company that, through its operating subsidiaries, is engaged primarily in two principal business operations:

· electricity and natural gas delivery (Power Delivery), and

· competitive energy generation, marketing and supply (Competitive Energy)

     The Power Delivery business is the largest component of PHI's business. For the three months ended June 30, 2007 and 2006, the operating revenues of the Power Delivery business (including intercompany amounts) were equal to 56% and 62% of PHI's consolidated operating revenues, and the operating income of the Power Delivery business (including income from intercompany transactions) was equal to 73%, and 70% of PHI's consolidated operating income, respectively. For the six months ended June 30, 2007 and 2006, the operating revenues of the Power Delivery business (including intercompany amounts) were equal to 57% and 61% of PHI's consolidated operating revenues, and the operating income of the Power Delivery business (including income from intercompany transactions) was equal to 67%, and 69% of PHI's consolidated operating income, respectively.

     The Power Delivery business consists primarily of the transmission, distribution and default supply of electric power, which was responsible for 94% and 96% of Power Delivery's operating revenues for the three month periods ended June 30, 2007 and 2006, and 93% for each of the six month periods ended June 30, 2007 and 2006. The distribution of natural gas contributed 6% and 4% of Power Delivery's operating revenues for the three month periods ended June 30, 2007 and 2006, and 7% for each of the six month periods ended June 30, 2007 and 2006. Power Delivery represents one operating segment for financial reporting purposes.

     The Power Delivery business is conducted by three utility subsidiaries: Potomac Electric Power Company (Pepco), Delmarva Power & Light Company (DPL) and Atlantic City Electric Company (ACE). Each of these companies is a regulated public utility in the jurisdictions that comprise its service territory. Each company is responsible for the distribution of electricity and, in the case of DPL, natural gas in its service territory, for which it is paid tariff rates established by the local public service commissions. Each company also supplies electricity at regulated rates to retail customers in its service territory who do not elect to purchase electricity from a competitive supplier. The regulatory term for this supply service varies by jurisdiction as follows:

Delaware	Provider of Last Resort service (POLR) -- before May 1, 2006 Standard Offer Service (SOS) -- on and after May 1, 2006
District of Columbia	SOS
Maryland	SOS

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New Jersey	Basic Generation Service (BGS)
Virginia	Default Service

   In this Form 10-Q, these supply service obligations are referred to generally as Default Electricity Supply.

     Pepco, DPL and ACE are also responsible for the transmission of wholesale electricity into and across their service territories. The rates each company is permitted to charge for the wholesale transmission of electricity are regulated by the Federal Energy Regulatory Commission (FERC). Each company is entitled to earn a FERC approved return on equity of 10.8% for existing facilities and 11.3% for facilities put into service on or after January 1, 2006.

     The profitability of the Power Delivery business depends on its ability to recover costs and earn a reasonable return on its capital investments through the rates it is permitted to charge. Power Delivery's operating revenue and income are seasonal, and weather patterns may have a material impact on operating results. In addition, customer usage may be affected by economic conditions, energy prices, and energy efficiency measures.

     The Competitive Energy business provides competitive generation, marketing and supply of electricity and gas, and related energy management services primarily in the mid-Atlantic region. These operations are conducted through subsidiaries of Conectiv Energy Holding Company (collectively, Conectiv Energy) and Pepco Energy Services, Inc. and its subsidiaries (collectively, Pepco Energy Services), each of which is treated as a separate operating segment for financial reporting purposes. For the three months ended June 30, 2007 and 2006, the operating revenues of the Competitive Energy business (including intercompany amounts) were equal to 48% and 43% of PHI's consolidated operating revenues, respectively, and the operating income of the Competitive Energy business (including operating income from intercompany transactions) was 17% and 15%, respectively, of PHI's consolidated operating income over the same periods. For the six months ended Ju ne 30, 2007 and 2006, the operating revenues of the Competitive Energy business (including intercompany amounts) were equal to 47% and 44%, respectively, of PHI's consolidated operating revenues, and the operating income of the Competitive Energy business (including operating income from intercompany transactions) was 22% and 18%, respectively, of PHI's consolidated operating income over the same periods. For the three months ended June 30, 2007 and 2006 amounts equal to 10% and 13%, respectively, of the operating revenues of the Competitive Energy business were attributable to electric energy and capacity, and natural gas sold to the Power Delivery segment. For the six months ended June 30, 2007 and 2006, amounts equal to 10% and 13%, respectively, of the operating revenues of the Competitive Energy business were attributable to electric energy and capacity, and natural gas sold to the Power Delivery segment.

· Conectiv Energy provides wholesale electric power, capacity and ancillary services in the wholesale markets administered by PJM Interconnection, LLC (PJM) and also supplies electricity to other wholesale market participants under long and short-term bilateral contracts. Conectiv Energy also supplies electric power to satisfy a portion of ACE's New Jersey, Pepco's Maryland and DPL's Delaware, Maryland, and Virginia Default Electricity Supply load, as well as default electricity supply load shares of other utilities. PHI refers to these activities as Merchant Generation and Load Service. Conectiv Energy obtains the electricity required to meet its Merchant Generation and

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Load Service power supply obligations from its own generation plants, bilateral contract purchases from other wholesale market participants, and purchases in the PJM wholesale market. Conectiv Energy also sells natural gas and fuel oil to very large end-users and to wholesale market participants under bilateral agreements. PHI refers to these sales operations as Energy Marketing.

·

Pepco Energy Services provides retail energy supply and energy services primarily to commercial, industrial, and government customers. Pepco Energy Services sells electricity and natural gas to customers primarily in the mid-Atlantic region. Pepco Energy Services owns and operates two district energy systems, provides energy savings performance contracting services, and designs, constructs and operates combined heat and power and central energy plants. Pepco Energy Services provides high voltage construction and maintenance services to customers throughout the U.S. and low voltage construction and maintenance services in the Washington, D.C. area and owns and operates electric generating plants in Washington, D.C.

     Conectiv Energy's primary objective is to maximize the value of its generation fleet by leveraging its operational and fuel flexibilities. Pepco Energy Services' primary objective is to capture retail energy supply and service opportunities primarily in the mid-Atlantic region. The financial results of the Competitive Energy business can be significantly affected by wholesale and retail energy prices, the cost of fuel to operate the Conectiv Energy plants, and the cost of purchased energy necessary to meet its power supply obligations.

     The Competitive Energy business, like the Power Delivery business, is seasonal, and therefore weather patterns can have a material impact on operating results.

     Through its subsidiary Potomac Capital Investment Corporation (PCI), PHI maintains a portfolio of cross-border energy sale-leaseback transactions with a book value at June 30, 2007 of approximately $1.3 billion. This activity constitutes a fourth operating segment, which is designated as "Other Non-Regulated," for financial reporting purposes. For a discussion of PHI's cross-border leasing transactions, see "Regulatory and Other Matters -- Federal Tax Treatment of Cross-border Leases."

     For additional information including information about PHI's business strategy refer to Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations in PHI's Form 10-K for the year ended December 31, 2006.

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EARNINGS OVERVIEW

Three Months Ended June 30, 2007 Compared to Three Months Ended June 30, 2006

     PHI's net income for the three months ended June 30, 2007 was $57.2 million, or $.30 per share, compared to $51.2 million, or $.27 per share, for the comparable period in 2006 and is set forth in the table below (millions of dollars):

	2007	2006	Change
Power Delivery	$  46.4	$  48.0	$ (1.6)
Conectiv Energy	1.8	1.6	.2
Pepco Energy Services	10.7	8.2	2.5
Other Non-Regulated	15.4	18.6	(3.2)
Corporate & Other	(17.1)	(25.2)	8.1
Total PHI Net Income (GAAP)	$  57.2	$  51.2	$ 6.0

Discussion of Segment Net Income Variances:

     Power Delivery's $1.6 million decrease in earnings is primarily due to the following:

· $3.1 million decrease due to the FERC network transmission formula rate change in June 2006.

· $3.8 million decrease due to higher operation and maintenance costs - primarily electric system maintenance, various construction project write-offs related to customer requested work and regulatory rate case costs.

· $0.8 million decrease due to lower Default Electricity Supply margins primarily as a result of customers electing to purchase their electricity from competitive suppliers.

· $2.9 million decrease primarily due to 2006 company-owned life insurance (COLI) adjustment and increased depreciation expense.

· $9.0 million increase primarily due to higher distribution sales (favorable impact of weather compared to 2006).

     Conectiv Energy's $0.2 million increase in earnings is primarily due to the following:

· $2.7 million increase in Merchant Generation and Load Service primarily due to higher margin default electricity supply and increased generation output.

· $0.4 million increase due to higher Energy Marketing margins.

· $3.0 million decrease due to higher plant maintenance costs.

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     Pepco Energy Services' $2.5 million increase in earnings is primarily due to the following:

· $1.2 million increase from its energy services business primarily due to construction activity.

· $.8 million increase from its retail natural gas business due to more favorable margins in 2007.

     Other Non-Regulated's $3.2 million decrease in earnings is primarily due to the following:

· $6.0 million decrease due to a favorable tax audit adjustment in 2006 related to pre-merger tax issues.

· $2.2 million increase due to favorable valuation adjustments to the investment portfolio.

· $1.2 million increase due to lower interest expense.

     Corporate and Other's $8.1 million increase in earnings is primarily due to prior year tax audit adjustments (tax benefits were recorded by other segments and eliminated in consolidation through Corporate and Other).

Six Months Ended June 30, 2007 Compared to Six Months Ended June 30, 2006

     PHI's net income for the six months ended June 30, 2007 was $108.8 million, or $.56 per share, compared to $108.0 million, or $.56 per share, for the comparable period in 2006.

     Net income for 2006 included the (charges) and credits set forth below (which are presented net of tax and in millions of dollars). The segment that recognized the (charge) or credit is also indicated.

·	Conectiv Energy
	Gain on disposition of assets associated with a         co-generation facility	$ 7.9
·	Pepco Energy Services
	Impairment losses related to certain energy services         business assets	$(4.2)

     Excluding the items listed above, net income would have been $104.3 million in 2006.

     PHI's net income for the six months ended June 30, 2007 compared to the corresponding period in 2006 is set forth in the table below: (millions of dollars)

	2007	2006	Change
Power Delivery	$   79.6	$  85.6	$  (6.0)
Conectiv Energy	20.8	18.7	2.1
Pepco Energy Services	13.3	13.7	(.4)
Other Non-Regulated	26.2	28.2	(2.0)
Corporate & Other	(31.1)	(38.2)	7.1
Total PHI Net Income (GAAP)	$   108.8	$  108.0	$     .8

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Discussion of Segment Net Income Variances:

     Power Delivery's $6.0 million decrease in earnings is primarily due to the following:

· $12.0 million decrease due to the FERC network transmission formula rate change in June 2006.

· $8.4 million decrease due to higher operation and maintenance costs -primarily electric system maintenance, various construction project write-offs related to customer requested work and regulatory rate case costs.

· $4.5 million decrease due to lower Default Electricity Supply margins primarily as a result of customers electing to purchase electricity from competitive suppliers.

· $19.4 million increase primarily due to higher distribution sales (favorable impact of weather compared to 2006).

     Conectiv Energy's $2.1 million increase in earnings is primarily due to the following:

· $12.7 million increase in Merchant Generation and Load Service primarily due to higher margin default electricity supply and increased generation output.

· $3.3 million increase due to higher Energy Marketing margins.

· $7.9 million decrease due to the gain in disposition of assets associated with a co-generation facility in 2006.

· $6.2 million decrease due to higher plant maintenance costs.

     Pepco Energy Services' $0.4 million decrease in earnings is primarily due to the following:

· $7.7 million decrease from its retail energy supply business related to lower electric margins due to gains on the sale of excess supply and more favorable congestion costs in 2006; partially offset by an increase for retail natural gas due to less favorable margins in 2006.

· $4.2 million increase due to the impairment losses on certain energy services business assets in 2006.

· $2.4 million increase from its energy services business primarily due to construction activity.

     Other Non-Regulated's $2.0 million decrease in earnings is primarily due to the following:

· $6.0 million decrease due to a favorable tax audit adjustment in 2006 related to pre-merger tax issues.

· $2.5 million increase due to favorable valuation adjustments to the investment portfolio.

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· $2.2 million increase due to lower interest expense.

     Corporate and Other's $7.1 million increase in earnings is primarily due to the following:

· $9.1 million increase due to prior year tax audit adjustment (tax benefits were recorded by other segments and eliminated in consolidation through Corporate and Other).

· $1.4 million decrease due to higher interest expense.

CONSOLIDATED RESULTS OF OPERATIONS

     The accompanying results of operations discussion is for the three months ended June 30, 2007, compared to the three months ended June 30, 2006. All amounts in the tables (except sales and customers) are in millions.

Three Months Ended June 30, 2007 Compared to the Three Months Ended June 30, 2006

Operating Revenue

     A detail of the components of PHI's consolidated operating revenue is as follows:

	2007		2006		Change
Power Delivery	$	1,162.3	$	1,179.4	$	(17.1)
Conectiv Energy		478.2		468.5		9.7
Pepco Energy Services		522.6		347.5		175.1
Other Non-Regulated		19.1		28.3		(9.2)
Corp. & Other		(97.9)		(107.1)		9.2
Total Operating Revenue	$	2,084.3	$	1,916.6	$	167.7

     Power Delivery Business

     The following table categorizes Power Delivery's operating revenue by type of revenue.

	2007		2006		Change
Regulated T&D Electric Revenue	$	376.8	$	370.3	$	6.5
Default Supply Revenue		704.4		745.5		(41.1)
Other Electric Revenue		16.0		14.1		1.9
Total Electric Operating Revenue		1,097.2		1,129.9		(32.7)
Regulated Gas Revenue		40.5		35.7		4.8
Other Gas Revenue		24.6		13.8		10.8
Total Gas Operating Revenue		65.1		49.5		15.6
Total Power Delivery Operating Revenue	$	1,162.3	$	1,179.4	$	(17.1)

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     Regulated Transmission and Distribution (T&D) Electric Revenue consists of revenue from the transmission of electricity and the delivery of electricity including Default Electricity Supply, to PHI's customers within its service territories at regulated rates.

     Default Supply Revenue is the revenue received for Default Electricity Supply. The costs related to Default Electricity Supply are included in Fuel and Purchased Energy and Other Services Cost of Sales.

     Other Electric Revenue consists of utility-related work and services performed on behalf of customers, including other utilities, which is not subject to price regulation. Work and services includes mutual assistance to other utilities, highway relocation, rents, late payments, and collection fees.

     Regulated Gas Revenue consists of revenues for on-system natural gas sales and the transportation of natural gas for customers within PHI's service territories at regulated rates.

     Other Gas Revenue consists of off-system natural gas sales and the release of excess system capacity.

Electric Operating Revenue

Regulated T&D Electric Revenue	2007		2006		Change
Residential	$	129.7	$	122.1	$	7.6
Commercial		184.2		180.0		4.2
Industrial		6.9		7.8		(.9)
Other (Includes PJM)		56.0		60.4		(4.4)
Total Regulated T&D Electric Revenue	$	376.8	$	370.3	$	6.5

Regulated T&D Electric Sales (gigawatt hour (GWh))	2007		2006		Change
Residential		3,684		3,434		250
Commercial		7,302		7,116		186
Industrial		1,103		1,063		40
Other		56		57		(1)
Total Regulated T&D Electric Sales		12,145		11,670		475

Regulated T&D Electric Customers (000s)	2007		2006		Change
Residential		1,612		1,598		14
Commercial		198		196		2
Industrial		1		2		(1)
Other		2		2		-
Total Regulated T&D Electric Customers		1,813		1,798		15

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     The Pepco, DPL and ACE service territories are located within a corridor extending from Washington, D.C. to southern New Jersey. These service territories are economically diverse and include key industries that contribute to the regional economic base.

· Commercial activity in the region includes banking and other professional services, government, insurance, real estate, strip malls, casinos, stand alone construction, and tourism.

· Industrial activity in the region includes automotive, chemical, glass, pharmaceutical, steel manufacturing, food processing, and oil refining.

     Regulated T&D Electric Revenue increased by $6.5 million primarily due to the following: (i) $15.3 million increase in higher weather-related sales (a 45% increase in Heating Degree Days and a 24% increase in Cooling Degree Days), (ii) $2.8 million increase due to higher pass-through revenue resulting from rate increases (offset in Other Taxes), (iii) $1.1 million increase due to customer growth, partially offset by (iv) $4.6 million decrease due to differences in consumption among the various customer rate classes, (v) $4.4 million decrease in network transmission revenues due to lower PJM transmission rates, (vi) $3.4 million decrease due to a change in Delaware rate structure effective May 1, 2006, which shifted revenue from Regulated T&D Electric Revenue to Default Supply Revenue.

     Default Electricity Supply

Default Supply Revenue	2007		2006		Change
Residential	$	364.3	$	277.9	$	86.4
Commercial		257.7		362.9		(105.2)
Industrial		23.6		30.3		(6.7)
Other (Includes PJM)		58.8		74.4		(15.6)
Total Default Supply Revenue	$	704.4	$	745.5	$	(41.1)

Default Electricity Supply Sales (GWh)	2007		2006		Change
Residential		3,580		3,339		241
Commercial		2,421		4,293		(1,872)
Industrial		238		449		(211)
Other		36		39		(3)
Total Default Electricity Supply Sales		6,275		8,120		(1,845)

Default Electricity Supply Customers (000s)	2007		2006		Change
Residential		1,580		1,569		11
Commercial		167		184		(17)
Industrial		1		1		-
Other		2		2		-
Total Default Electricity Supply Customers		1,750		1,756		(6)

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     Default Supply Revenue decreasedby $41.1 million primarily due to the following: (i) $167.0 million decrease primarily due to an increase in commercial and industrial customers electing to purchase electricity from a competitive supplier, (ii) $15.1 million decrease in wholesale energy revenue primarily due to the sales by ACE of its Keystone and Conemaugh interests and the B.L. England generating facilities, partially offset by (iii) $109.5 million increase due to higher retail electricity rates, primarily the result of new market based rates, (iv) $29.0 million increase due to higher weather-related sales (a 45% increase in Heating Degree Days and a 24% increase in Cooling Degree Days), (v) $3.4 million increase due to a change in Delaware rate structure effective May 1, 2006 that shifted revenue from Regulated T&D Electric Revenue to Default Supply Revenue (partially offset in Fuel and Purchased Energy and Other Services Cost of Sales Expense).

     Gas Operating Revenue

Regulated Gas Revenue	2007		2006		Change
Residential	$	23.1	$	19.4	$	3.7
Commercial		13.6		12.4		1.2
Industrial		2.3		2.6		(.3)
Transportation and Other		1.5		1.3		.2
Total Regulated Gas Revenue	$	40.5	$	35.7	$	4.8

Regulated Gas Sales (billion cubic feet (Bcf))	2007		2006		Change
Residential		1.0		.8		.2
Commercial		.8		.5		.3
Industrial		.2		.2		-
Transportation and Other		1.5		1.4		.1
Total Regulated Gas Sales		3.5		2.9		.6

Regulated Gas Customers (000s)	2007		2006		Change
Residential		112		111		1
Commercial		9		9		-
Industrial		-		-		-
Transportation and Other		-		-		-
Total Regulated Gas Customers		121		120		1

     DPL's natural gas service territory is located in New Castle County, Delaware. Several key industries contribute to the economic base as well as to growth.

· Commercial activity in the region includes banking and other professional services, government, insurance, real estate, strip malls, stand alone construction and tourism.

· Industrial activity in the region includes automotive, chemical and pharmaceutical.

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     Regulated Gas Revenue increasedby $4.8 million primarily due to (i) $4.3 million increase due to differences in consumption among the various customer rate classes, (ii) $3.3 million increase due to colder weather (a 43% increase in Heating Degree Days), (iii) $1.6 million increase due to base rate increases effective in November 2006 and April 2007, partially offset by (iv) $4.9 million decrease due to Gas Cost Rate (GCR) decrease effective in November 2006 and April 2007 due to lower natural gas commodity costs (offset in Fuel and Purchased Energy and Other Services Cost of Sales).

     Other Gas Revenue increased by $10.8 million to $24.6 million in 2007 from $13.8 million in 2006 primarily due to higher off-system sales partially offset in Fuel and Purchased Energy and Other Services Cost of Sales.

     Competitive Energy Businesses

     Conectiv Energy

     The impact of Operating Revenue changes and Fuel and Purchased Energy and Other Services Cost of Sales changes with respect to the Conectiv Energy component of the Competitive Energy business are encompassed within the discussion that follows.

     Operating Revenues of the Conectiv Energy segment are derived primarily from the sale of electricity. The primary components of its Costs of Sales are fuel and purchased power. Because fuel and electricity prices tend to move in tandem, price changes in these commodities from period to period can have a significant impact on Operating Revenue and Costs of Sales without signifying any change in the performance of the Conectiv Energy segment. For this reason, PHI from a managerial standpoint focuses on gross margin as a measure of performance.

     Conectiv Energy Gross Margin

     Merchant Generation & Load Service consists primarily of electric power, capacity and ancillary services sales from Conectiv Energy's generating plants; tolling arrangements entered into to sell energy and other products from Conectiv Energy's generating plants and to purchase energy and other products from generating plants of other companies; hedges of power, capacity, fuel and load; the sale of excess fuel (primarily natural gas) and emission allowances; electric power, capacity, and ancillary services sales pursuant to competitively bid contracts entered into with affiliated and non-affiliated companies to fulfill their default electricity supply obligations; and fuel switching activities made possible by the multi-fuel capabilities of some of Conectiv Energy's power plants.

     Energy Marketing activities consist primarily of wholesale natural gas and fuel oil marketing; the activities of the real-time power desk, which generates margin by capturing price differences between power pools, and locational and timing differences within a power pool; and prior to October 31, 2006, provided operating services under an agreement with an unaffiliated generating plant. Beginning in 2007, power origination activities, which primarily consist of bilateral contracts for products that are not traded or exchanged over-the-counter, have been reclassified into Energy Marketing from Merchant Generation and Load Service. The 2006 activity has been reclassified for comparative purposes accordingly. Power origination makes up $5.7 million and $5.3 million of gross margin for the second quarter of 2007 and 2006, respectively.

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	Three Months Ended June 30,
	2007		2006
Operating Revenue ($ millions):
Merchant Generation & Load Service	$228.4		$246.0
Energy Marketing	249.8		222.5
Total Operating Revenue1	$478.2		$468.5
Cost of Sales ($ millions):
Merchant Generation & Load Service	$177.0		$199.0
Energy Marketing	242.3		215.8
Total Cost of Sales2	$419.3		$414.8
Gross Margin ($ millions):
Merchant Generation & Load Service	$  51.4	$  47.0
Energy Marketing	7.5	6.7
Total Gross Margin	$  58.9	$  53.7
Generation Fuel and Purchased Power Expenses ($ millions) 3:
Generation Fuel Expenses 4,5
Natural Gas	$  51.1	$   28.6
Coal	15.3	11.3
Oil	3.4	2.8
Other6	.5	.9
Total Generation Fuel Expenses	$  70.3	$  43.6
Purchased Power Expenses 5	$  95.0	$  145.8
Statistics:	2007	2006
Generation Output (MWh):
Base-Load 7	497,531	402,317
Mid-Merit (Combined Cycle) 8	625,111	407,439
Mid-Merit (Oil Fired) 9	24,853	(486)
Peaking	12,390	17,639
Tolled Generation	12,119	6,637
Total	1,172,004	833,546
Default Electricity Supply Volume (MWh) 10	1,593,697	1,885,287
Average Power Sales Price 11 ($/MWh):
Generation Sales 4	$78.98	$67.57
Non-Generation Sales 12	$70.96	$54.21
Total	$73.52	$56.45
Average on-peak spot power price at PJM East Hub ($/MWh) 13	$73.63	$61.02
Average around-the-clock spot power price at PJM East Hub ($/MWh) 13	$59.57	$48.01
Average spot natural gas price at market area M3 ($/MMBtu)14	$  8.22	$  7.04
Weather (degree days at Philadelphia Airport): 15
Heating degree days	507	335
Cooling degree days	398	327
1 Includes $96.3 million and $104.5 million of affiliate transactions for 2007 and 2006, respectively. The 2006 figure has been reclassified      to exclude $45.8 million of affiliate transactions that eliminate within the segment.
2 Includes $.6 million and $1.3 million of affiliate transactions for 2007 and 2006, respectively. The 2006 figure has been reclassified to      exclude $45.8 million of affiliate transactions that eliminate within the segment. Also, excludes depreciation and amortization expense      of $9.3 million and $9.1 million, respectively.
3 Consists solely of Merchant Generation & Load Service expenses; does not include the cost of fuel not consumed by the power plants      and intercompany tolling expenses.
4 Includes tolled generation.
5 Includes associated hedging gains and losses.
6 Includes emissions expenses, fuel additives, and other fuel-related costs.
7 Edge Moor Units 3 and 4 and Deepwater Unit 6.
8 Hay Road and Bethlehem, all units.
9 Edge Moor Unit 5 and Deepwater Unit 1. Generation output for these units was negative for the first quarter of 2006 because of      station service consumption.
10 Consists of all default electricity supply sales; does not include standard product hedge volumes.
11 Calculated from data reported in Conectiv Energy's Electric Quarterly Report (EQR) filed with the FERC; does not include      capacity or ancillary services revenue.
12 Consists of default electricity supply sales, standard product power sales, and spot power sales other than merchant generation as      reported in Conectiv Energy's EQR.
13 Source: PJM website (www.pjm.com).
14 Source: Average delivered natural gas price at Tetco Zone M3 as published in Gas Daily.
15 Source: National Oceanic and Atmospheric Administration National Weather Service data.

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     Merchant Generation & Load Service gross margin increased $4.4 million (approximately 9%) primarily due to:

· An increase of $22.9 million primarily due to a 41% increase in generation output primarily due to more favorable weather and higher capacity prices. The higher capacity prices were due to the implementation of PJM's Reliability Pricing Model (RPM) on June 1, 2007, which had a positive impact on generation margin, but an offsetting negative effect on the cost of fulfilling our Default Electricity Supply obligations.

· An increase of $6.3 million primarily due to an increased margin attributable to the Company's generation and load bidding strategies, partially offset by a decrease in proceeds from the sale of excess natural gas and a reduction in proceeds from sales of excess emission allowances.

· A decrease of $16.5 primarily due to the increased cost of fulfilling capacity obligations under the Default Electricity Supply contracts as a result of the implementation of the RPM.

· A decrease of $2.6 million primarily due to the expiration on April 30, 2006, of an agreement with an international investment banking firm to hedge approximately 50% of the commodity price risk of Conectiv Energy's generation and Default Electricity Supply commitment to DPL.

· A decrease of $5.6 million primarily due to less favorable results on natural gas hedging activities.

     Energy Marketing gross margin increased $0.8 million (approximately 12%). The increase was primarily due to $2.4 million in true-ups related to an unaffiliated generation operating services agreement which expired in 2006. These gains were offset primarily by a $2.0 million decrease in oil marketing margin.

     Pepco Energy Services

     Pepco Energy Services' operating revenue increased $175.1 million primarily due to (i) an increase of $159.2 million due to higher volumes of retail electric load served in the 2007 quarter driven by customer acquisitions and (ii) an increase of $23.5 million due to higher volumes of wholesale natural gas sales in the 2007 quarter that resulted from increased natural gas supply price risk management activities, partially offset by (iii) a decrease of $7.4 million due to lower energy services revenues in the 2007 quarter that resulted from the sale of certain energy services business assets in 2006.

     Other Non-Regulated

     Other Non-Regulated operating revenue decreased $9.2 million to $19.1 million in 2007 from $28.3 million in 2006. The operating revenue of this segment primarily consists of lease earnings recognized under Statement of Financial Accounting Standards No. 13, "Accounting for Leases." The revenue decrease is primarily due to changes in lease assumptions on one lease in 2006 that resulted in a one-time earnings pick-up in 2006.

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Operating Expenses

     Fuel and Purchased Energy and Other Services Cost of Sales

     A detail of PHI's consolidated Fuel and Purchased Energy and Other Services Cost of Sales is as follows:

	Three Months Ended June 30,
	2007		2006		Change
Power Delivery	$	740.8	$	763.7	$	(22.9)
Conectiv Energy		419.3		414.8		4.5
Pepco Energy Services		483.6		315.2		168.4
Corporate and Other		(96.7)		(106.6)		9.9
Total	$	1,547.0	$	1,387.1	$	159.9

     Power Delivery Business

     Power Delivery's Fuel and Purchased Energy which is primarily associated with Default Electricity Supply sales, decreased by $22.9 million to $740.8 million in 2007, from $763.7 million in 2006. The decrease is primarily due to: (i) $175.9 million decrease primarily due to an increase in commercial and industrial customers electing to purchase electricity from a competitive supplier, (ii) $19.1 million decrease in the Default Electricity Supply deferral balance, (iii) $3.2 million decrease in network transmission expenses primarily due to the POLR obligation ending April 2006, primarily offset by (iv) $143.2 million increase in average energy costs, the result of new annual Default Electricity Supply contracts, (v) $32.8 million increase due to higher weather-related sales (partially offset in Default Supply Revenue, Regulated Gas Revenue, and Other Gas Revenue).

Competitive Energy Business

Conectiv Energy

     The impact of Fuel and Purchased Energy and Other Services Cost of Sales changes with respect to the Conectiv Energy component of the Competitive Energy business are encompassed within the prior discussion under the heading "Conectiv Energy Gross Margin."

     Pepco Energy Services

     Pepco Energy Services' Fuel and Purchased Energy and Other Services Cost of Sales increased $168.4 million primarily due to (i) an increase of $158.4 million due to higher volumes of purchased electricity at higher prices in the 2007 quarter to serve increased retail customer load and (ii) an increase of $22.1 million due to higher volumes of wholesale natural gas purchases in the 2007 quarter that resulted from increased natural gas supply price risk management activities, partially offset by (iii) a decrease of $12.1 million due to the sale of certain energy services business assets in 2006.

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     Other Operation and Maintenance

     A detail of PHI's other operation and maintenance expense is as follows:

	Three Months Ended June 30,
	2007		2006		Change
Power Delivery	$	156.4	$	161.9	$	(5.5)
Conectiv Energy		38.5		33.3		5.2
Pepco Energy Services		17.7		15.1		2.6
Other Non-Regulated		.6		1.6		(1.0)
Corporate and Other		(2.4)		(2.4)		-
Total	$	210.8	$	209.5	$	1.3

     Other Operation and Maintenance expenses in the Power Delivery segment decreased by $5.5 million to $156.4 million in 2007, from $161.9 million in 2006. The decrease was primarily due to (i) $12.8 million decrease in Default Electricity Supply costs primarily related to the sales by ACE of its Keystone and Conemaugh interests and B.L. England generating facilities (deferred and recoverable), (ii) $3.3 million decrease in professional fees due to a tax consulting project in 2006, (iii) $2.5 million decrease in employee related benefit costs primarily related to pension and other post-employment pension liabilities (OPEB), partially offset by (iv) $5.4 million increased business support, primarily customer service and corporate overhead costs, (v) $3.1 million increase due to various construction project write-offs related to customer requested work, (vi) $3.0 million increase in regulatory filing costs, (vii) $1.4 million increase in operations, maintenance and restorati on costs, and (viii) $1.1 million increase in uncollectible reserve expense.

     The higher operation and maintenance expenses of the Conectiv Energy segment in 2007 were primarily due to increased planned maintenance at its power plants.

     Depreciation and Amortization

     Depreciation and amortization expenses decreased by $11.4 million to $92.7 million in 2007 from $104.1 million in 2006. The decrease is primarily due to lower amortization of regulatory assets.

     Other Taxes

     Other Taxes increased by $3.6 million to $86.2 million in 2007, from $82.6 million in 2006. The increase was primarily due to $4.5 million increased pass-throughs resulting from higher electricity sales and rate increases (partially offset in T&D Revenue).

     Deferred Electric Service Costs

     Deferred Electric Service Costs, which relates only to ACE, increased by $19.6 million to income of $10.0 million in 2007 from income of $29.6 million in 2006. The increase represents a net over-recovery associated with New Jersey BGS, NUGs, market transition charges and other restructuring items. At June 30, 2007, ACE's balance sheet included as a regulatory liability an over-recovery of $171.4 million with respect to these items, which is net of a $46.0 million reserve for items disallowed by the New Jersey Board of Public Utilities

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(NJBPU) in a ruling that is under appeal. For additional information concerning the matter, refer to Note (4), "Commitments and Contingencies" to the consolidated financial statements of PHI included herein.

     Impairment Loss

     During the second quarter of 2007, PHI recorded a pre-tax impairment loss of $1.6 million ($1 million, after-tax) on certain energy services business assets owned by Pepco Energy Services.

Other Income (Expenses)

    Other Expenses (which are net of other income) decreased by $2.5 million to $70 million in 2007 from $72.5 million in 2006, primarily due to earnings recognized in 2007 from increases in the value of investment assets.

Income Tax Expense

     PHI's effective tax rate for the three months ended June 30, 2007 was 33% as compared to the federal statutory rate of 35%. The major reasons for the difference between the effective tax rate and the statutory tax rate were changes in estimates related to tax liabilities for prior tax years subject to audit, tax benefits related to certain leveraged leases and the flow-through of deferred investment tax credits, partially offset by the flow-through of certain book versus tax depreciation differences and state income taxes (net of federal benefit).

     PHI's effective tax rate for the three months ended June 30, 2006 was 43% as compared to the federal statutory rate of 35%. The major reasons for the difference between the effective tax rate and the statutory tax rate were state income taxes (net of federal benefit), changes in estimates related to tax liabilities for prior tax years subject to audit and the flow-through of certain book tax depreciation differences, partially offset by the flow-through of deferred investment tax credits and tax benefits related to certain leveraged leases.

     The accompanying results of operations discussion is for the six months ended June 30, 2007, compared to the six months ended June 30, 2006. All amounts in the tables (except sales and customers) are in millions.

Six Months Ended June 30, 2007 Compared to the Six Months Ended June 30, 2006

Operating Revenue

     A detail of the components of PHI's consolidated operating revenue is as follows:

	2007		2006		Change
Power Delivery	$	2,437.4	$	2,354.2	$	83.2
Conectiv Energy		974.3		984.5		(10.2)
Pepco Energy Services		1,032.5		717.2		315.3
Other Non-Regulated		38.4		49.2		(10.8)
Corp. & Other		(219.5)		(236.6)		17.1
Total Operating Revenue	$	4,263.1	$	3,868.5	$	394.6

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     Power Delivery Business

     The following table categorizes Power Delivery's operating revenue by type of revenue.

	2007		2006		Change
Regulated T&D Electric Revenue	$	736.8	$	740.5	$	(3.7)
Default Supply Revenue		1,490.2		1,425.5		64.7
Other Electric Revenue		32.5		28.3		4.2
Total Electric Operating Revenue		2,259.5		2,194.3		65.2
Regulated Gas Revenue		142.2		135.6		6.6
Other Gas Revenue		35.7		24.3		11.4
Total Gas Operating Revenue		177.9		159.9		18.0
Total Power Delivery Operating Revenue	$	2,437.4	$	2,354.2	$	83.2

     Regulated T&D Electric Revenue consists of revenue from the transmission and the delivery of electricity including Default Electricity Supply to PHI's customers within its service territories at regulated rates.

     Default Supply Revenue is the revenue received for Default Electricity Supply. The costs related to Default Electricity Supply are included in Fuel and Purchased Energy and Other Services Cost of Sales.

     Other Electric Revenue consists of utility-related work and services performed on behalf of customers, including other utilities, which is not subject to price regulation. Work and services includes mutual assistance to other utilities, highway relocation, rents, late payments, and collection fees.

     Regulated Gas Revenue consists of revenues for on-system natural gas sales and the transportation of natural gas for customers within PHI's service territories at regulated rates.

     Other Gas Revenue consists of off-system natural gas sales and the release of excess system capacity.

Electric Operating Revenue

Regulated T&D Electric Revenue	2007		2006		Change
Residential	$	272.0	$	260.5	$	11.5
Commercial		343.2		336.0		7.2
Industrial		13.2		16.2		(3.0)
Other (Includes PJM)		108.4		127.8		(19.4)
Total Regulated T&D Electric Revenue	$	736.8	$	740.5	$	(3.7)

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Regulated T&D Electric Sales (GWh)	2007		2006		Change
Residential		8,526		7,922		604
Commercial		14,033		13,590		443
Industrial		2,018		2,044		(26)
Other		125		126		(1)
Total Regulated T&D Electric Sales		24,702		23,682		1,020

Regulated T&D Electric Customers (000s)	2007		2006		Change
Residential		1,612		1,598		14
Commercial		198		196		2
Industrial		1		2		(1)
Other		2		2		-
Total Regulated T&D Electric Customers		1,813		1,798		15

     The Pepco, DPL and ACE service territories are located within a corridor extending from Washington, D.C. to southern New Jersey. These service territories are economically diverse and include key industries that contribute to the regional economic base.

· Commercial activity in the region includes banking and other professional services, government, insurance, real estate, strip malls, casinos, stand alone construction, and tourism.

· Industrial activity in the region includes automotive, chemical, glass, pharmaceutical, steel manufacturing, food processing, and oil refining.

     Regulated T&D Electric Revenue decreased by $3.7 million primarily due to the following: (i) $19.4 million decrease in network transmission revenues due to lower PJM transmission rates, (ii) $10.0 million decrease due to a change in Delaware rate structure effective May 1, 2006, which shifted revenue from Regulated T&D Electric Revenue to Default Supply Revenue, and (iii) $4.0 million decrease due to a Delaware base rate reduction effective May 1, 2006, partially offset by (iv) $27.5 million increase in sales due to higher weather-related sales (an 18% increase in Heating Degree Days and a 24% increase in Cooling Degree Days in 2007), and (v) $2.8 million increase due to customer growth of 0.8%.

     Default Electricity Supply

Default Supply Revenue	2007		2006		Change
Residential	$	814.0	$	553.4	$	260.6
Commercial		496.6		642.6		(146.0)
Industrial		43.9		61.8		(17.9)
Other (Includes PJM)		135.7		167.7		(32.0)
Total Default Supply Revenue	$	1,490.2	$	1,425.5	$	64.7

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Default Electricity Supply Sales (GWh)	2007		2006		Change
Residential		8,303		7,718		585
Commercial		4,819		8,448		(3,629)
Industrial		457		951		(494)
Other		79		76		3
Total Default Electricity Supply Sales		13,658		17,193		(3,535)

Default Electricity Supply Customers (000s)	2007		2006		Change
Residential		1,581		1,569		12
Commercial		166		184		(18)
Industrial		1		1		-
Other		2		2		-
Total Default Electricity Supply Customers		1,750		1,756		(6)

     Default Supply Revenue increased by $64.7 million primarily due to the following: (i) $325.8 million increase due to higher retail energy rates, primarily the result of new annual market based rates, (ii) $52.0 million increase due to higher weather-related sales (an 18% increase in Heating Degree Days and a 24% increase in Cooling Degree Days), (iii) $10.0 million increase due to a change in Delaware rate structure effective May 1, 2006 that shifted revenue from Regulated T&D Electric Revenue to Default Supply Revenue, offset by (iv) $288.0 million decrease primarily due to an increase in commercial and industrial customers electing to purchase electricity from a competitive supplier, (v) $32.8 million decrease in wholesale energy revenue primarily from the sales by ACE of its Keystone and Conemaugh interests and the B.L. England generating facilities (partially offset in Fuel and Purchased Energy and Other Costs of Sales Expense).

Gas Operating Revenue

Regulated Gas Revenue	2007		2006		Change
Residential	$	85.1	$	79.3	$	5.8
Commercial		48.9		47.9		1.0
Industrial		5.2		5.8		(.6)
Transportation and Other		3.0		2.6		.4
Total Regulated Gas Revenue	$	142.2	$	135.6	$	6.6

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Regulated Gas Sales (Bcf)	2007		2006		Change
Residential		5.1		4.2		.9
Commercial		3.2		2.6		.6
Industrial		.5		.4		.1
Transportation and Other		3.6		3.1		.5
Total Regulated Gas Sales		12.4		10.3		2.1

Regulated Gas Customers (000s)	2007		2006		Change
Residential		112		111		1
Commercial		9		9		-
Industrial		-		-		-
Transportation and Other		-		-		-
Total Regulated Gas Customers		121		120		1

     DPL's natural gas service territory is located in New Castle County, Delaware. Several key industries contribute to the economic base as well as to growth.

· Commercial activity in the region includes banking and other professional services, government, insurance, real estate, strip malls, stand alone construction and tourism.

· Industrial activity in the region includes automotive, chemical and pharmaceutical.

     Regulated Gas Revenue increased by $6.6 million primarily due to (i) a $9.1 million increase primarily due to colder weather (a 17% increase in Heating Degree Days), (ii) an $8.7 million increase due to differences in consumption among various customer rate classes, and (iii) a $2.8 million increase due to base rate increases effective in November 2006 and April 2007, primarily offset by (iv) a $14.0 million decrease due to GCR decreases effective in November 2006 and April 2007 due to lower natural gas commodity costs (offset in Fuel and Purchased Energy and Other Services Cost of Sales).

     Other Gas Revenue increased by $11.4 million to $35.7 million in 2007 from $24.3 million in 2006 primarily due to higher off-system sales (partially offset in Fuel and Purchased Energy and Other Services Cost of Sales).

     Competitive Energy Businesses

     Conectiv Energy

     The impact of Operating Revenue changes and Fuel and Purchased Energy and Other Services Cost of Sales changes with respect to the Conectiv Energy component of the Competitive Energy business are encompassed within the discussion that follows.

     Operating Revenues of the Conectiv Energy segment are derived primarily from the sale of electricity. The primary components of its Costs of Sales are fuel and purchased power. Because fuel and electricity prices tend to move in tandem, price changes in these commodities

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from period to period can have a significant impact on Operating Revenue and Costs of Sales without signifying any change in the performance of the Conectiv Energy segment. For this reason, PHI from a managerial standpoint focuses on gross margin as a measure of performance.

    Conectiv Energy Gross Margin

     Merchant Generation & Load Service consists primarily of electric power, capacity and ancillary services sales from Conectiv Energy's generating plants; tolling arrangements entered into to sell energy and other products from Conectiv Energy's generating plants and to purchase energy and other products from generating plants of other companies; hedges of power, capacity, fuel and load; the sale of excess fuel (primarily natural gas) and emission allowances; electric power, capacity, and ancillary services sales pursuant to competitively bid contracts entered into with affiliated and non-affiliated companies to fulfill their default electricity supply obligations; and fuel switching activities made possible by the multi-fuel capabilities of some of Conectiv Energy's power plants.

     Energy Marketing activities consist primarily of wholesale natural gas and fuel oil marketing; the activities of the real-time power desk, which generates margin by capturing price differences between power pools, and locational and timing differences within a power pool; and prior to October 31, 2006, provided operating services under an agreement with an unaffiliated generating plant. Beginning in 2007, power origination activities, which primarily consist of bilateral contracts for products that are not traded or exchanged over-the-counter, have been reclassified into Energy Marketing from Merchant Generation and Load Service. The 2006 activity has been reclassified for comparative purposes accordingly. Power origination makes up $10.8 million and $7.5 million of gross margin for the first six months of 2007 and 2006, respectively.

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	Six Months Ended June 30,
	2007		2006
Operating Revenue ($ millions):
Merchant Generation & Load Service	$475.7		$544.2
Energy Marketing	498.6		440.3
Total Operating Revenue1	$974.3		$984.5
Cost of Sales ($ millions):
Merchant Generation & Load Service	$360.3		$450.3
Energy Marketing	476.0		423.1
Total Cost of Sales2	$836.3		$873.4
Gross Margin ($ millions):
Merchant Generation & Load Service	$  115.4	$  93.9
Energy Marketing	22.6	17.2
Total Gross Margin	$  138.0	$  111.1
Generation Fuel and Purchased Power Expenses ($ millions) 3:
Generation Fuel Expenses 4,5
Natural Gas	$  82.7	$   52.4
Coal	30.6	25.6
Oil	14.7	6.5
Other6	1.2	1.5
Total Generation Fuel Expenses	$  129.2	$  86.0
Purchased Power Expenses 5	$  197.2	$  293.1
Statistics:	2007	2006
Generation Output (MWh):
Base-Load 7	1,048,388	920,347
Mid-Merit (Combined Cycle) 8	1,008,833	681,200
Mid-Merit (Oil Fired) 9	96,559	(3,566)
Peaking	16,854	32,271
Tolled Generation	19,599	10,300
Total	2,190,233	1,640,552
Default Electricity Supply Volume (MWh) 10	3,619,437	5,325,371
Average Power Sales Price 11 ($/MWh):
Generation Sales 4	$77.11	$66.55
Non-Generation Sales 12	$70.80	$52.12
Total	$72.58	$54.11
Average on-peak spot power price at PJM East Hub ($/MWh) 13	$71.55	$62.23
Average around-the-clock spot power price at PJM East Hub ($/MWh) 13	$60.34	$53.13
Average spot natural gas price at market area M3 ($/MMBtu)14	$  8.33	$  7.74
Weather (degree days at Philadelphia Airport): 15
Heating degree days	3,012	2,522
Cooling degree days	398	328
1 Includes $213.5 million and $233.5 million of affiliate transactions for 2007 and 2006, respectively. The 2006 figure has been      reclassified to exclude $81.0 million of affiliate transactions that eliminate within the segment.
2 Includes $4.0 million and $2.0 million of affiliate transactions for 2007 and 2006, respectively. The 2006 figure has been reclassified to      exclude $81.0 million of affiliate transactions that eliminate within the segment. Also, excludes depreciation and amortization expense      of $18.6 million and $18.2 million, respectively.
3 Consists solely of Merchant Generation & Load Service expenses; does not include the cost of fuel not consumed by the power plants and      intercompany tolling expenses.
4 Includes tolled generation.
5 Includes associated hedging gains and losses.
6 Includes emissions expenses, fuel additives, and other fuel-related costs.
7 Edge Moor Units 3 and 4 and Deepwater Unit 6.
8 Hay Road and Bethlehem, all units.
9 Edge Moor Unit 5 and Deepwater Unit 1. Generation output for these units was negative for the first quarter of 2006 because of      station service consumption.
10 Consists of all default electricity supply sales; does not include standard product hedge volumes.
11 Calculated from data reported in Conectiv Energy's Electric Quarterly Report (EQR) filed with the FERC; does not include      capacity or ancillary services revenue.
12 Consists of default electricity supply sales, standard product power sales, and spot power sales other than merchant generation as      reported in Conectiv Energy's EQR.
13 Source: PJM website (www.pjm.com).
14 Source: Average delivered natural gas price at Tetco Zone M3 as published in Gas Daily.
15 Source: National Oceanic and Atmospheric Administration National Weather Service data.

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     Conectiv Energy revenue and cost of sales are lower in 2007 primarily due to lower sales of default electricity supply. Conectiv Energy was still serving DPL's Delaware customers under the POLR supply agreement during the first quarter of 2006.

     Merchant Generation & Load Service gross margin increased $21.5 million (approximately 23%) primarily due to:

· An increase of $32.5 million primarily due to a 34% increase in generation output, primarily due to more favorable weather.

· An increase of $29.7 primarily due to Default Electricity Supply contracts with higher margins as a result of the implementation of PJM's Reliability Pricing Model.

· An increase of $10.9 million primarily due to an increased margin attributable to the Company's generation and load bidding strategies, an increase in proceeds from the sale of excess natural gas , partially offset by a reduction in proceeds from sales of excess emission allowances.

· A decrease of $26.7 million primarily due to the expiration on April 30, 2006, of an agreement with an international investment banking firm to hedge approximately 50% of the commodity price risk of Conectiv Energy's generation and Default Electricity Supply commitment to DPL.

· A decrease of $25.1 million primarily due to less favorable results on natural gas hedging activities.

     Energy Marketing gross margin increased $5.4 million (approximately 31%). The increase was primarily due to an increase of $3.3 million in power origination margin and $3.4 million of true-ups related to an unaffiliated generation operating services agreement which expired in 2006. These increases were offset primarily by a $1.1 decrease in the real-time power desk's margins.

Pepco Energy Services

     Pepco Energy Services' operating revenue increased $315.3 million primarily due to (i) an increase of $336.4 million due to higher volumes of retail electric load served in the 2007 period driven by customer acquisitions, partially offset by (ii) a decrease of $21.1 million due to lower energy services revenues in 2007 that resulted from the sale of certain energy services business assets in 2006.

Other Non-Regulated

     Other Non-Regulated operating revenue decreased $10.8 million to $38.4 million in 2007 from $49.2 million in 2006. The operating revenue of this segment primarily consists of lease earnings recognized under Statement of Financial Accounting Standards No. 13, "Accounting for Leases." The revenue decrease is primarily due to changes in lease assumptions on one lease that resulted in a one-time earnings pick-up in 2006.

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Operating Expenses

     Fuel and Purchased Energy and Other Services Cost of Sales

     A detail of PHI's consolidated Fuel and Purchased Energy and Other Services Cost of Sales is as follows:

	Six Months Ended June 30,
	2007		2006		Change
Power Delivery	$	1,572.0	$	1,486.3	$	85.7
Conectiv Energy		836.3		873.4		(37.1)
Pepco Energy Services		971.2		647.6		323.6
Corporate and Other		(217.4)		(236.6)		19.2
Total	$	3,162.1	$	2,770.7	$	391.4

     Power Delivery Business

     Power Delivery's Fuel and Purchased Energy which is primarily associated with Default Electric Supply sales, increased by $85.7 million in 2007. The increase is primarily due to: (i) $369.6 million increase in average energy costs, the result of new Default Electricity Supply contracts, (ii) $56.2 million increase due to weather-related sales, primarily offset by (iii) $307.5 million decrease primarily due to an increase in commercial and industrial customers electing to purchase electricity from a competitive supplier, (iv) $19.1 million decrease in the Default Electricity Supply deferral balance, (v) $13.0 million decrease in network transmission expenses primarily due to POLR obligation ending April 2006 (partially offset in Default Supply Revenue, Regulated Gas Revenue and Other Gas Revenue).

Competitive Energy Business

Conectiv Energy

     The impact of Fuel and Purchased Energy and Other Services cost of sales changes with respect to the Conectiv Energy component of the Competitive Energy business are encompassed within the prior discussion under the heading "Conectiv Energy Gross Margin."

Pepco Energy Services

    Pepco Energy Services' fuel and purchased energy and other services cost of sales increased $323.6 million primarily due to (i) an increase of $348.6 million due to higher volumes of purchased electricity at higher prices in 2007 to serve increased retail customer load, partially offset by (ii) a decrease of $25.2 million due to the sale of certain energy services business assets in 2006.

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     Other Operation and Maintenance

     A detail of PHI's other operation and maintenance expense is as follows:

	Six Months Ended June 30,
	2007		2006		Change
Power Delivery	$	318.1	$	322.7	$	(4.6)
Conectiv Energy		68.1		57.6		10.5
Pepco Energy Services		35.5		33.4		2.1
Other Non-Regulated		2.5		3.1		(.6)
Corporate and Other		(6.3)		(2.9)		(3.4)
Total	$	417.9	$	413.9	$	4.0

    The $4.6 million decrease in Other Operation and Maintenance expenses of the Power Delivery segment was primarily due to (i) $19.1 million decrease in costs primarily related to the sales by ACE of its Keystone and Conemaugh interests and B.L. England generating facilities (deferred and recoverable), (ii) $2.7 million decrease in Company-owned life insurance due to a 2006 adjustment, (iii) $1.1 million decrease in environmental costs primarily related to a coal gas liability adjustment in 2006, partially offset by (iv) $4.8 million increase in business support, primarily customer service and corporate overhead costs, (v) $4.7 million increase in operating maintenance and restoration costs, (vi) $3.1 million increase due to various construction project write-offs related to customer requested work, and (vii) $3.2 million increase in regulatory filing costs.

     The higher operation and maintenance expenses of the Conectiv Energy segment in 2007 were primarily due to increased planned maintenance at its power plants.

     Depreciation and Amortization

     Depreciation and amortization expenses decreased by $22.5 million to $185.8 million in 2007 from $208.3 million in 2006. The decrease is primarily due to lower amortization of regulatory assets, partially offset by plant additions.

     Other Taxes

     Other Taxes increased by $7.5 million to $171.5 million in 2007, from $164.0 million in 2006. The increase was primarily due to increased pass-throughs resulting from higher electricity sales and rate increases (partially offset in T&D Revenue).

     Deferred Electric Service Costs

     Deferred Electric Service Costs increased by $28.3 million to an expense of $18.1 million in 2007 from income of $10.2 million in 2006. The increaserepresents a $28.0 million net over-recovery associated with New Jersey BGS, NUGs, market transition charges and other restructuring items. At June 30, 2007, ACE's balance sheet included as a regulatory liability an over-recovery of $171.4 million with respect to these items, which is net of a $46 million reserve for items disallowed by the NJBPU in a ruling that is under appeal. The $171.4 million regulatory liability also includes an $81.3 million gain related to the September 1, 2006 sale of ACE's interests in Keystone and Conemaugh generating facilities and a $14.7 million loss related to the 2007 sale of ACE's B.L. England generating facility. For additional information

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concerning this matter, refer to Note (4), Commitments and Contingencies to the consolidated financial statements of PHI included herein.

     Impairment Loss

     During the second quarter of 2007, PHI recorded a pre-tax impairment loss of $1.6 million ($1 million, after-tax) on certain energy services business assets owned by Pepco Energy Services. During the second quarter of 2006, PHI recorded a pre-tax impairment loss of $6.5 million ($4.2 million, after-tax) on other energy services business assets owned by Pepco Energy Services.

Other Income (Expenses)

     Other Expenses (which are net of Other Income)increased by $5.5 million to $139.5 million in 2007 from $134 million in 2006 due to a $12.3 million gain that was recorded in 2006 related to the disposition of assets associated with a cogeneration facility, partially offset in 2007 by a $2.5 million gain on a settlement agreement between Pepco Energy Services and a subcontractor and an increase in the value of investment assets.

Income Tax Expense

     PHI's effective tax rate for the six months ended June 30, 2007 was 36% as compared to the federal statutory rate of 35%. The major reasons for the difference between the effective tax rate and the statutory tax rate were state income taxes (net of federal benefit) and the flow-through of certain book tax depreciation differences, partially offset by changes in estimates related to tax liabilities for prior tax years subject to audit, the flow-through of deferred investment tax credits, the flow-through of certain asset removal costs and tax benefits related to certain leveraged leases.

     PHI's effective tax rate for the six months ended June 30, 2006 was 41% as compared to the federal statutory rate of 35%. The major reasons for the difference between the effective tax rate and the statutory rate were state income taxes (net of federal benefit), the flow-through of certain book tax depreciation differences and changes in estimates related to tax liabilities for prior tax years subject to audit, partially offset by the flow-through of deferred investment tax credits, the flow-through of certain asset removal costs and tax benefits related to certain leveraged leases.

CAPITAL RESOURCES AND LIQUIDITY

     This section discusses Pepco Holdings' cash flow activity, capital spending plans, and other uses and sources of capital.

Amended and Restated Credit Facility

     On May 2, 2007, PHI, Pepco, DPL and ACE entered into an amendment and restatement of their principal credit facility.

     The aggregate borrowing limit under the facility is $1.5 billion, all or any portion of which may be used to obtain loans or to issue letters of credit. PHI's credit limit under the facility is $875 million. The credit limit of each of Pepco, DPL and ACE is the lesser of $500 million and the maximum amount of debt the company is permitted to have outstanding by its regulatory

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authorities, except that the aggregate amount of credit used by Pepco, DPL and ACE at any given time collectively may not exceed $625 million. The interest rate payable by each company on utilized funds is based on the prevailing prime rate or Eurodollar rate, plus a margin that varies according to the credit rating of the borrower. The facility also includes a "swingline loan sub-facility", pursuant to which each company may make same day borrowings in an aggregate amount not to exceed $150 million. Any swingline loan must be repaid by the borrower within seven days of receipt thereof. All indebtedness incurred under the facility is unsecured.

     The facility commitment expiration date is May 5, 2012, with each company having the right to elect to have 100% of the principal balance of the loans outstanding on the expiration date continued as non-revolving term loans for a period of one year from such expiration date.

     The facility is intended to serve primarily as a source of liquidity to support the commercial paper programs of the respective companies. The companies also are permitted to use the facility to borrow funds for general corporate purposes and issue letters of credit. In order for a borrower to use the facility, certain representations and warranties made by the borrower at the time the amended and restated credit agreement was entered into also must be true at the time the facility is utilized, and the borrower must be in compliance with specified covenants, including the financial covenant described below. However, a material adverse change in the borrower's business, property, and results of operations or financial condition subsequent to the entry into the amended and restated credit agreement is not a condition to the availability of credit under the facility. Among the covenants to which each of the companies is subject are (i) the requirement that each borrowing com pany maintain a ratio of total indebtedness to total capitalization of 65% or less, computed in accordance with the terms of the amended and restated credit agreement, which calculation excludes certain trust preferred securities and deferrable interest subordinated debt from the definition of total indebtedness (not to exceed 15% of total capitalization), (ii) a restriction on sales or other dispositions of assets, other than sales and dispositions permitted by the amended and restated credit agreement, and (iii) a restriction on the incurrence of liens on the assets of a borrower or any of its significant subsidiaries other than liens permitted by the amended and restated credit agreement. The agreement does not include any rating triggers.

Financing Activity During the Three Months Ended June 30, 2007

     In April 2007, PHI issued $200 million of privately placed 6.0% notes due 2019. Proceeds were used to redeem, on May 31, 2007, $200 million of 5.5% notes due August 15, 2007 at a price of 100.0377% of par.

     In April 2007, ACE retired at maturity $15 million of 7.52% medium-term notes.

     In April 2007, Atlantic City Electric Transition Funding LLC (ACE Funding) made principal payments of $4.9 million on Series 2002-1 Transition Bonds, Class A-1 and $2.0 million on Series 2003-1 Transition Bonds, Class A-1 with a weighted average interest rate of 2.89%.

     In May 2007, ACE retired at maturity $1 million of 7.15% medium-term notes.

     In May 2007, DPL retired at maturity $50 million of 8.125% medium-term notes.

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     In June 2007, PHI issued $250 million of 6.125% notes due 2017 in a public offering. Net proceeds along with cash on hand or short-term debt will be used to repay $300 million of 5.5% notes due August 15, 2007.

     In June 2007, DPL retired at maturity $3.2 million of 6.95% first mortgage bonds.

Financing Activity Subsequent to June 30, 2007

     In July 2007, ACE Funding made principal payments of $4.8 million on Series 2002-1 Transition Bonds, Class A-1 and $1.8 million on Series 2003-1 Transition Bonds, Class A-1 with a weighted average interest rate of 2.89%.

Sale of Interest in Cogeneration Joint Venture

     During the first quarter of 2006, Conectiv Energy recognized a $12.3 million pre-tax gain ($7.9 million after-tax) on the sale of its equity interest in a joint venture which owns a wood burning cogeneration facility in California.

Working Capital

     At June 30, 2007, Pepco Holdings' current assets on a consolidated basis totaled $2.0 billion and its current liabilities totaled $2.4 billion. At December 31, 2006, Pepco Holdings' current assets totaled $2.0 billion and its current liabilities totaled $2.5 billion.

     PHI's working capital deficit results in large part from the fact that, in the normal course of business, PHI's utility subsidiaries acquire energy supplies for their customers before the supplies are delivered to, metered and billed to customers. Short-term financing is used to meet liquidity needs. Short-term financing is also used, at times, to fund temporary redemptions of long-term debt, until long-term replacement financings are completed.

     At June 30, 2007, Pepco Holdings' cash and cash equivalents and its restricted cash, totaled $35.9 million. No net cash collateral was held by subsidiaries of PHI engaged in Competitive Energy and Default Electricity Supply activities ($2.9 million of cash collateral was held as restricted cash). At December 31, 2006, Pepco Holdings' cash and cash equivalents and its restricted cash totaled $60.8 million. No net cash collateral was held by subsidiaries of PHI engaged in Competitive Energy and Default Electricity Supply activities (no cash collateral was held as restricted cash). See "Capital Requirements -- Contractual Arrangements with Credit Rating Triggers or Margining Rights" for additional information.

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     A detail of PHI's short-term debt balance and its current maturities of long-term debt and project funding balance follows:

	As of June 30, 2007 (Millions of dollars)
Type	PHI Parent	Pepco	DPL	ACE	ACE Funding	PES	PCI	PHI Consolidated
Variable Rate   Demand Bonds	$        -	$        -	$104.8	$22.6	$        -	$26.8	$      -	$154.2
Commercial Paper	5.8	8.1	29.1	88.8	-	-	-	131.8
Total Short-        Term Debt	$  5.8	$8.1	$133.9	$111.4	$        -	$26.8	$      -	$286.0
Current Maturities   of Long-Term Debt   and Project   Funding	$300.0	$253.0	$4.4	$50.0	$30.4	$  2.7	$      -	$640.5

	As of December 31, 2006 (Millions of dollars)
Type	PHI Parent	Pepco	DPL	ACE	ACE Funding	PES	PCI	PHI Consolidated
Variable Rate   Demand Bonds	$        -	$       -	$104.8	$22.6	$     -	$26.8	$     -	$154.2
Commercial Paper	36.0	67.1	91.1	1.2	-	-	-	195.4
Total Short-         Term Debt	$  36.0	$ 67.1	$195.9	$23.8	$     -	$26.8	$     -	$349.6
Current Maturities   of Long-Term Debt   and Project   Funding	$500.0	$210.0	$ 64.7	$16.0	$29.9	$ 2.6	$34.3	$857.5

Cash Flow Activity

     PHI's cash flows for the six months ended June 30, 2007 and 2006 are summarized below.

	Cash Use
		2007		2006
		(Millions of dollars)
Operating activities	$	314.8	$	(118.4)
Investing activities		(272.6)		(214.4)
Financing activities		(68.0)		244.2
Net decrease in cash and cash equivalents	$	(25.8)	$	(88.6)

     Operating Activities

     Cash flows from operating activities during the six months ended June 30, 2007 and 2006 are summarized below.

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	Cash Source / (Use)
		2007		2006
		(Millions of dollars)
Net income	$	108.8	$	108.0
Non-cash adjustments to net income		240.6		178.1
Changes in working capital		(34.6)		(404.5)
Net cash from (used by) operating activities	$	314.8	$	(118.4)

     Net cash from operating activities was $433.2 million higher for the six months ended June 30, 2007 compared to the same period in 2006. The increase is primarily the result of: (i) a tax payment of $121 million made in February 2006 (see "Regulatory and Other Matters -- IRS Mixed Service Cost Issue" below), (ii) a $58.1 million decrease in income taxes paid (other than the February 2006 payment) and (iii) the change in cash collateral requirements detailed below associated with the activities of Competitive Energy.

     Changes in cash collateral include the following:

· The balance of net cash collateral posted by PHI decreased $28.2 million from December 31, 2006 to June 30, 2007 (an increase in cash).

· The balance of net cash collateral held by PHI decreased $205.8 million from December 31, 2005 to June 30, 2006 (a decrease in cash).

     Investing Activities

     Cash flows from investing activities during the six months ended June 30, 2007 and 2006 are summarized below.

	Cash Use
		2007		2006
		(Millions of dollars)
Construction expenditures	$	(285.0)	$	(248.3)
Cash proceeds from sale of:
Other investments		-		13.1
Other assets		10.6		3.2
Changes in restricted cash		(.9)		10.0
All other investing cash flows, net		2.7		7.6
Net cash used by investing activities	$	(272.6)	$	(214.4)

     Net cash used by investing activities increased $58.2 million primarily due to: (i) a $36.7 million increase in capital expenditures, $21.9 million of which relates to Power Delivery, and (ii) a decrease in total cash proceeds from the sale of other investments and other assets of $5.7 million. The 2006 proceeds primarily consist of $13.1 million from the sale of Conectiv Energy's equity interest in a joint venture which owns a wood burning cogeneration facility in California. The 2007 proceeds primarily consist of the $9.0 million received from the sale of the B.L. England generating facility.

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     Financing Activities

     Cash flows from financing activities during the six months ended June 30, 2007 and 2006 are summarized below.

	Cash (Use) / Source
		2007		2006
		(Millions of dollars)
Dividends paid on common and preferred stock	$	(100.5)	$	(99.5)
Common stock issued for the Dividend Reinvestment Plan		14.1		15.0
Issuance of common stock		23.9		2.6
Preferred stock redeemed		(18.2)		(21.5)
Issuances of long-term debt		451.4		217.0
Reacquisition of long-term debt		(364.2)		(491.2)
(Repayments) issuances of short-term debt, net		(63.6)		619.7
All other financing cash flows, net		(10.9)		2.1
Net cash (used by) from financing activities	$	(68.0)	$	244.2

     Net cash used by financing activities increased $312.2 million for the six months ended June 30, 2007 compared to the same period in 2006.

     The change from the net issuances of short-term debt to the net repayment of short-term debt was due to the following: (i) $300 million commercial paper issuance in 2006 used to retire PHI long-term debt, (ii) an Internal Revenue Service (IRS) tax payment of $121 million paid in the first quarter of 2006, and (iii) an increase in collateral requirements of $205.8 million from December 2005 to June 2006.

     Cash flows from the issuance and reacquisition of long-term debt in 2007 are attributable primarily to the following transactions:

· In January 2007, Pepco retired at maturity $35 million of 7.64% medium-term notes.

· In January 2007, ACE Funding made principal payments of $5.2 million on Series 2002-1 Transition Bonds, Class A-1 and $2.1 million on Series 2003-1 Transition Bonds, Class A-1 with a weighted average interest rate of 2.89%.

· In February 2007, DPL retired at maturity $11.5 million of medium-term notes with a weighted average interest rate of 7.08%.

· In February 2007, PCI retired at maturity $34.3 million of 7.62% medium-term notes.

· In April 2007, PHI issued $200 million of 6.0% notes due 2019 in a private placement. Proceeds were used to redeem, on May 31, 2007, $200 million of 5.5% notes due August 15, 2007 at a price of 100.0377% of par.

· In April 2007, ACE retired at maturity $15 million of 7.52% medium-term notes.

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· In April 2007, ACE Funding made principal payments of $4.9 million on Series 2002-1 Transition Bonds, Class A-1 and $2.0 million on Series 2003-1 Transition Bonds, Class A-1 with a weighted average interest rate of 2.89%.

· In May 2007, DPL retired at maturity $50 million of 8.125% medium-term notes.

· In June 2007, PHI issued $250 million of 6.125% notes due 2017 in a public offering. Net proceeds along with cash on hand or short-term debt will be used to repay $300 million of 5.5% notes due August 15, 2007.

· In June 2007, DPL retired at maturity $3.2 million of 6.95% first mortgage bonds.

     Cash flows from the issuance and reacquisition of long-term debt in 2006 were attributable primarily to the following transactions:

· In January 2006, ACE retired at maturity $65 million of medium-term notes.

· In February 2006, PHI retired at maturity $300 million of its 3.75% unsecured notes with proceeds from the issuance of commercial paper.

· On March 15, 2006, ACE issued $105 million of Senior Notes due 2036. The proceeds were used to pay down short-term debt incurred earlier in the quarter to repay medium-term notes at maturity.

· In April 2006, ACE Funding made principal payments of $4.8 million on Series 2002-1 Transition Bonds, Class A-1, and $2.0 million on Series 2003-1 Transition Bonds, Class A-1, with a weighted average interest rate of 2.89%.

· On May 15, 2006, Pepco used the proceeds from a bond refinancing to redeem $109.5 million in three series of first mortgage bonds. The series were combined into one series of $109.5 million due 2022.

· On June 1, 2006, DPL redeemed $2.9 million 6.95% first mortgage bonds due 2008.

     The change in the issuance of common of stock is related to increases in stock options exercised and shares issued under the performance based long-term incentive plan.

Capital Requirements

     Construction Expenditures

     Pepco Holdings' total construction expenditures (including accruals) for the six months ended June 30, 2007 totaled $282.2 million of which $257.9 million was related to its Power Delivery businesses. The remainder was primarily related to Conectiv Energy and Pepco Energy Services. The Power Delivery expenditures were primarily related to capital costs associated with new customer services, distribution reliability, and transmission.

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     In 2007, Pepco Holdings has increased its projected construction expenditures for the five-year period 2007 through 2011 as disclosed in its Form 10-K for the year ended December 31, 2006 by $25 million in 2007, $46 million in 2008, and $4 million in 2009 for the construction by Conectiv Energy of a new combustion turbine power plant.

     In June, 2007, Conectiv Energy filed its compliance plan as required by the Delaware multipollutant emissions regulations adopted by the Delaware Department of Natural Resources and Environmental Control. The plan includes installation of a sodium based sorbent injection system and a Selective Non-Catalytic Reduction (SNCR) system and carbon injection for Edge Moor Units 3 and 4, and use of an SNCR system and lower sulfur oil at Edge Moor Unit 5. Conectiv Energy believes that with these modifications, it can meet the requirements of the new regulations at an estimated capital cost of $50 to $80 million. The compliance plan filed by Conectiv Energy contemplates capital expenditures of $14 million of capital in 2007 and $25 million of capital in 2008. Pepco Holdings five year construction plan includes projected construction spending of $50 million relating to compliance with the Delaware multipollutant regulations, of which an aggregate of $31 million has been included in its construction expenditures for 2007 and 2008.

MAPP Project

     On May 15, 2006, Pepco Holdings announced the proposed construction of a new 230-mile 500-kilovolt interstate transmission line referred to as the PHI Mid-Atlantic Power Pathway Project (the MAPP Project). The proposed transmission line, which would be located in northern Virginia, Maryland, the Delmarva Peninsula and New Jersey, is among the transmission proposals under consideration by PJM, the regional transmission operator for the service territories covered by PHI's utility subsidiaries, for inclusion in the PJM's Regional Transmission Expansion Plan (RTEP) that PJM is developing to address the reliability objectives of the PJM system. The preliminarily estimated cost of the MAPP Project is approximately $1.2 billion over an eight-year construction period beginning in 2008. PJM has not yet determined whether the MAPP Project will be included, in whole or in part, in the RTEP. If the MAPP Project is approved, PHI plans to add significant 230-kilovolt support lines in Maryland and New Jersey to connect with the new 500-kilovolt line. Neither the cost of the MAPP Project nor the cost of the additional 230-kilovolt lines is included in the Pepco Holdings' current projection of construction expenditures.

     Blueprint for the Future

     During 2007, the utility subsidiaries of Pepco Holdings announced an initiative referred to as the "Blueprint for the Future." This initiative combines traditional energy efficiency programs with new technologies and systems to help customers manage their energy use and reduce the total cost of energy. The programs include demand side management efforts, such as rebates or other financial incentives for residential customers to replace inefficient appliances and for business customers to use more energy efficient equipment, such as improved lighting and HVAC systems. Under the proposals, customers also could receive credits on their bills for allowing the utility company to "cycle," or intermittently turn off, their central air conditioning or heat pumps when wholesale electricity prices are high. The proposals contemplate that business customers would receive financial incentives for using energy efficient equipment, and would be rewarded for reducing use during pe riods of peak demand. Additionally, Pepco and DPL intend to install "smart meters" for all customers in the District of Columbia, Maryland and

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Delaware, providing the utilities with the ability to remotely read the meters and identify the location of a power outage.

     Pepco and DPL have made filings with their respective regulatory commissions for approval of certain aspects of these programs. ACE intends to make a filing with the New Jersey Board of Public Utilities later in 2007 proposing to implement similar programs in its service territory. The estimated cost to implement these proposals, if approved by the applicable regulatory commissions, is approximately $646 million over the eight-year period from 2008 to 2014. These costs are not included in Pepco Holdings' current projection of construction expenditures.

     Third Party Guarantees, Indemnifications, and Off-Balance Sheet Arrangements

     Pepco Holdings and certain of its subsidiaries have various financial and performance guarantees and indemnification obligations which are entered into in the normal course of business to facilitate commercial transactions with third parties as discussed below.

     As of June 30, 2007, Pepco Holdings and its subsidiaries were parties to a variety of agreements pursuant to which they were guarantors for standby letters of credit, performance residual value, and other commitments and obligations. The fair value of these commitments and obligations was not required to be recorded in Pepco Holdings' Consolidated Balance Sheets; however, certain energy marketing obligations of Conectiv Energy were recorded. The commitments and obligations, in millions of dollars, were as follows:

	Guarantor
		PHI		DPL		ACE		Other		Total
Energy marketing obligations of Conectiv Energy (1)	$	205.5	$	-	$	-	$	-	$	205.5
Energy procurement obligations of Pepco Energy Services (1)		45.7		-		-		-		45.7
Guaranteed lease residual values (2)		-		2.9		3.1		.5		6.5
Other (3)		2.6		-		-		1.7		4.3
Total	$	253.8	$	2.9	$	3.1	$	2.2	$	262.0

1.

Pepco Holdings has contractual commitments for performance and related payments of Conectiv Energy and Pepco Energy Services to counterparties related to routine energy sales and procurement obligations, including requirements under BGS contracts entered into with ACE.

2.

Subsidiaries of Pepco Holdings have guaranteed residual values in excess of fair value related to certain equipment and fleet vehicles held through lease agreements. As of June 30, 2007, obligations under the guarantees were approximately $6.5 million. Assets leased under agreements subject to residual value guarantees are typically for periods ranging from 2 years to 10 years. Historically, payments under the guarantees have not been made by the guarantor as, under normal conditions, the contract runs to full term at which time the residual value is minimal. As such, Pepco Holdings believes the likelihood of payment being required under the guarantee is remote.

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3. Other guarantees consist of:

· Pepco Holdings has guaranteed a subsidiary building lease of $2.6 million. Pepco Holdings does not expect to fund the full amount of the exposure under the guarantee.

· PCI has guaranteed facility rental obligations related to contracts entered into by Starpower Communications, LLC. As of June 30, 2007, the guarantees cover the remaining $1.7 million in rental obligations.

     Pepco Holdings and certain of its subsidiaries have entered into various indemnification agreements related to purchase and sale agreements and other types of contractual agreements with vendors and other third parties. These indemnification agreements typically cover environmental, tax, litigation and other matters, as well as breaches of representations, warranties and covenants set forth in these agreements. Typically, claims may be made by third parties under these indemnification agreements over various periods of time depending on the nature of the claim. The maximum potential exposure under these indemnification agreements can range from a specified dollar amount to an unlimited amount depending on the nature of the claim and the particular transaction. The total maximum potential amount of future payments under these indemnification agreements is not estimable due to several factors, including uncertainty as to whether or when claims may be made under these indemn ities.

     Dividends

     On July 26, 2007, Pepco Holdings' Board of Directors declared a dividend on common stock of 26 cents per share payable September 28, 2007, to shareholders of record on September 10, 2007.

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     Energy Contract Net Asset/Liability Activity

     The following table provides detail on changes in the net asset or liability position of the Competitive Energy businesses (consisting of the activities of the Conectiv Energy and Pepco Energy Services segments) with respect to energy commodity contracts from one period to the next:

Roll-forward of Mark-to-Market Energy Contract Net Liabilities For the Six Months Ended June 30, 2007 (Dollars are pre-tax and in millions)
	Proprietary Trading (1)	Other Energy Commodity (2)	Total
Total Marked-to-Market (MTM) Energy Contract   Net Liabilities at December 31, 2006	$          -	$(64.3)	$(64.3)
Total change in unrealized fair value	-	19.1	19.1
Reclassification to realized at settlement of contracts	-	(18.9)	(18.9)
Effective portion of changes in fair value - recorded      in Other Comprehensive Income (OCI)	-	22.5	22.5
Ineffective portion of changes in fair value -      recorded in earnings	-	(.2)	(.2)
Total MTM Energy Contract Net Liabilities at June 30, 2007	$          -	$(41.8)	$(41.8)
Detail of MTM Energy Contract Net Liabilities at June 30, 2007 (see above)			Total
Current Assets (other current assets)			$  33.9
Noncurrent Assets (other assets)			10.0
Total MTM Energy Contract Assets			43.9
Current Liabilities (other current liabilities)			(62.5)
Noncurrent Liabilities (other liabilities)			(23.2)
Total MTM Energy Contract Liabilities			(85.7)
Total MTM Energy Contract Net Liabilities			$(41.8)

Notes:
(1)	PHI discontinued its proprietary trading activity in 2003.
(2)	Includes all Statement of Financial Accounting Standards (SFAS) No. 133 hedge activity and non-proprietary trading activities marked-to-market through earnings.

     PHI uses its best estimates to determine the fair value of the commodity and derivative contracts that its Competitive Energy businesses hold and sell. The fair values in each category presented below reflect forward prices and volatility factors as of June 30, 2007 and are subject to change as a result of changes in these factors:

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Maturity and Source of Fair Value of Mark-to-Market Energy Contract Net Assets (Liabilities) As of June 30, 2007 (Dollars are pre-tax and in millions)
	Fair Value of Contracts at June 30, 2007                           Maturities
Source of Fair Value	2007	2008	2009	2010 and  Beyond	Total Fair Value
Proprietary Trading
Actively Quoted (i.e., exchange-traded) prices	$      -	$       -	$      -	$      -	$      -
Prices provided by other external sources	-	-	-	-	-
Modeled	-	-	-	-	-
Total	$      -	$       -	$      -	$      -	$      -
Other Energy Commodity, net (1)
Actively Quoted (i.e., exchange-traded) prices	$(36.9)	$   9.4	$11.4	$ 1.0	$(15.1)
Prices provided by other external sources (2)	(6.7)	(13.9)	(9.7)	(2.1)	(32.4)
Modeled (3)	2.0	2.7	1.1	(.1)	5.7
Total	$(41.6)	$ (1.8)	$ 2.8	$(1.2)	$(41.8)

Notes:
(1)	Includes all SFAS No. 133 hedge activity and non-proprietary trading activities marked-to-market through Accumulated Other Comprehensive Income or on the Statement of Earnings, as required.
(2)	Prices provided by other external sources reflect information obtained from over-the-counter brokers, industry services, or multiple-party on-line platforms.
(3)	This modeled position represents standard offer service and associated supply outside of Conectiv Energy's native Mid-Atlantic Area Council territory in PJM which is receiving fair value accounting with the gains and losses recorded through current income. Pricing for the load portion of the transaction is modeled from broker quotes obtained for the closest trading hub, and adjusted for load following factors and historical congestion. Load volumes are adjusted for expected migration. Anticipated margin (Day 1 gain) on the transaction has been reserved in accordance with Emerging Issues Task Force (EITF) Issue No. 02-3.

     Contractual Arrangements with Credit Rating Triggers or Margining Rights

     Under certain contractual arrangements entered into by PHI's subsidiaries in connection with the Competitive Energy business and other transactions, the subsidiary may be required to provide cash collateral or letters of credit as security for its contractual obligations if the credit ratings of the subsidiary are downgraded. In the event of a downgrade, the amount required to be posted would depend on the amount of the underlying contractual obligation existing at the time of the downgrade. As of June 30, 2007, a one-level downgrade in the credit rating of PHI and all of its affected subsidiaries would have required PHI and such subsidiaries to provide an additional $347 million of aggregate cash collateral or letters of credit. PHI believes that it and its utility subsidiaries maintain adequate short-term funding sources in the event the additional collateral or letters of credit are required.

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     Many of the contractual arrangements entered into by PHI's subsidiaries in connection with Competitive Energy and default electricity supply activities include margining rights pursuant to which the PHI subsidiary or a counterparty may request collateral if the market value of the contractual obligations reaches levels in excess of the credit thresholds established in the applicable arrangements. Pursuant to these margining rights, the affected PHI subsidiary may receive, or be required to post, collateral due to energy price movements. As of June 30, 2007, Pepco Holdings' subsidiaries engaged in Competitive Energy activities and default electricity supply activities provided cash collateral in the amount of $124.7 million in connection with these activities.

REGULATORY AND OTHER MATTERS

Relationship with Mirant Corporation

     In 2000, Pepco sold substantially all of its electricity generating assets to Mirant Corporation (formerly Southern Energy, Inc.) and certain of its subsidiaries. In July 2003, Mirant and certain of its subsidiaries filed a voluntary petition for reorganization under Chapter 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court for the Northern District of Texas (the Bankruptcy Court). On December 9, 2005, the Bankruptcy Court approved the Plan of Reorganization (the Reorganization Plan) of Mirant and the Mirant business emerged from bankruptcy on January 3, 2006, as a new corporation of the same name (together with its predecessors, Mirant).

     As part of the bankruptcy proceeding, Mirant had been seeking to reject certain ongoing contractual arrangements under the Asset Purchase and Sale Agreement entered into by Pepco and Mirant for the sale of the generating assets that are described below. The Reorganization Plan did not resolve the issues relating to Mirant's efforts to reject these obligations nor did it resolve certain Pepco damage claims against the Mirant bankruptcy estate.

     Power Purchase Agreement

     The power purchase agreement (Panda PPA) between Panda-Brandywine, L.P. (Panda) and Pepco obligates Pepco to purchase from Panda 230 megawatts of energy and capacity annually through 2021. At the time of the sale of Pepco's generating assets to Mirant, the purchase price of the energy and capacity under the Panda PPA was, and since that time has continued to be, substantially in excess of the market price. As a part of the Asset Purchase and Sale Agreement, Pepco entered into a "back-to-back" arrangement with Mirant. Under this arrangement, Mirant is obligated through 2021 to purchase from Pepco the capacity and energy that Pepco is obligated to purchase under the Panda PPA at a price equal to Pepco's purchase price from Panda (the PPA-Related Obligations).

     The SMECO Agreement

     Under the Asset Purchase and Sale Agreement, Pepco assigned to Mirant a Facility and Capacity Agreement entered into by Pepco with Southern Maryland Electric Cooperative, Inc. (SMECO), under which Pepco was obligated to purchase from SMECO the capacity of an 84-megawatt combustion turbine installed and owned by SMECO at a former Pepco generating facility at a cost of approximately $500,000 per month until 2015 (the SMECO Agreement).

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Pepco is responsible to SMECO for the performance of the SMECO Agreement if Mirant fails to perform its obligations thereunder.

     Settlement Agreements with Mirant

     On May 30, 2006, Pepco, PHI, and certain affiliated companies entered into a Settlement Agreement and Release (the Settlement Agreement) with Mirant, which, subject to court approval, settles all outstanding issues between the parties arising from or related to the Mirant bankruptcy. Under the terms of the Settlement Agreement:

· Mirant will assume the Asset Purchase and Sale Agreement, except for the PPA-Related Obligations, which Mirant will be permitted to reject.

· Pepco will receive an allowed claim under the Reorganization Plan in an amount that will result in a total aggregate distribution to Pepco, net of certain transaction expenses, of $520 million, consisting of (i) $450 million in damages resulting from the rejection of the PPA-Related Obligations and (ii) $70 million in settlement of other Pepco damage claims against the Mirant bankruptcy estate, which, as described below, was paid by Mirant to Pepco in August 2006 (collectively, the Pepco Distribution).

· Except as described below, the $520 million Pepco Distribution will be effected by means of the issuance to Pepco of shares of Mirant common stock, which Pepco will be obligated to resell promptly in one or more block sale transactions. If the net proceeds that Pepco receives from the resale of the shares of Mirant common stock are less than $520 million, Pepco will receive a cash payment from Mirant equal to the difference, and if the net proceeds that Pepco receives from the resale of the shares of Mirant common stock are more than $520 million, Pepco will make a cash payment to Mirant equal to the difference.

· If the closing price of shares of Mirant common stock is less than $16.00 per share for four business days in a twenty consecutive business day period, and Mirant has not made a distribution of shares of Mirant common stock to Pepco under the Settlement Agreement, Mirant has the one-time option to elect to assume, rather than reject, the PPA-Related Obligations. If Mirant elects to assume the PPA-Related Obligations, the Pepco Distribution will be reduced to $70 million.

· All pending appeals, adversary actions or other contested matters between Pepco and Mirant will be dismissed with prejudice, and each will release the other from any and all claims relating to the Mirant bankruptcy.

     Separately, Mirant and SMECO have entered into a Settlement Agreement and Release (the SMECO Settlement Agreement). The SMECO Settlement Agreement provides that Mirant will assume, rather than reject, the SMECO Agreement. This assumption ensures that Pepco will not incur liability to SMECO as the guarantor of the SMECO Agreement due to the rejection of the SMECO Agreement, although Pepco will continue to guarantee to SMECO the future performance of Mirant under the SMECO Agreement.

     According to their terms, the Settlement Agreement and the SMECO Settlement Agreement will become effective when the Bankruptcy Court or the U.S. District Court for the Northern

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District of Texas (the District Court), as applicable, has entered a final order, not subject to appeal or rehearing, approving both the Settlement Agreement and the SMECO Settlement Agreement.

     On August 9, 2006, the Bankruptcy Court issued an order approving the Settlement Agreement and the SMECO Settlement Agreement. On August 18, 2006, certain holders of Mirant bankruptcy claims, who had objected to approval of the Settlement Agreement and the SMECO Settlement Agreement before the Bankruptcy Court, appealed the approval order to the District Court. On December 26, 2006, the District Court issued an order affirming the Bankruptcy Court's order approving the Settlement Agreement. On January 25, 2007, the parties that appealed the Bankruptcy Court's order filed a notice of appeal of the District Court's order with the U.S. Court of Appeals for the Fifth Circuit (the Fifth Circuit). The brief of the appealing creditors was filed on April 25, 2007, while Mirant's and Pepco's briefs were filed on May 31, 2007.

     In August 2006, Mirant made a cash payment to Pepco of $70 million, which became due in accordance with the terms of the Settlement Agreement as a result of the approval of the Settlement Agreement by the Bankruptcy Court. If the Bankruptcy Court order approving the Settlement Agreement becomes a final order after the exhaustion of all appeals, the payment will be taken into account as if it were proceeds from the resale by Pepco of shares of the Mirant common stock, as described above, and treated as a portion of the $520 million payment due Pepco. If the Bankruptcy Court approval of the Settlement Agreement is not upheld on appeal, Pepco must repay this cash payment to Mirant. Therefore, no income statement impact has been recognized in relation to the $70 million payment.

     Until the approval of the Settlement Agreement and the SMECO Settlement Agreement becomes final, Mirant is required to continue to perform all of its contractual obligations to Pepco and SMECO. Pepco intends to use the $450 million portion of the Pepco Distribution related to the rejection of the PPA-Related Obligations to pay for future capacity and energy purchases under the Panda PPA.

Rate Proceedings

     Delaware

     For a discussion of the history of the Gas Cost Rate (GCR) proceedings in Delaware, please refer to Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Regulatory and Other Matters -- Rate Proceedings -- Delaware" of PHI's Annual Report on Form 10-K for the year ended December 31, 2006 (the PHI 2006 Form 10-K) and Item 2, "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Regulatory and Other Matters -- Rate Proceedings -- Delaware " of PHI's Quarterly Report on Form 10-Q for the quarter ended March 31, 2007 (the PHI 1^st Quarter Form 10-Q). On July 17, 2007, the Delaware Public Service Commission granted final approval for the GCR, as filed.

     District of Columbia

     As previously disclosed in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Regulatory and Other Matters -- Rate Proceedings -- District of Columbia" of the PHI 2006 Form 10-K, in February 2006, Pepco filed an update to

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the District of Columbia Generation Procurement Credit (GPC) for the periods February 8, 2002 through February 7, 2004 and February 8, 2004 through February 7, 2005. The GPC provides for sharing of the profit from SOS sales. On June 15, 2006, the District of Columbia Public Service Commission (DCPSC) granted conditional approval of the GPC update as filed, effective July 1, 2006, and on May 24, 2007, the DCPSC issued a final approval.

     As previously disclosed in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Regulatory and Other Matters -- Rate Proceedings -- District of Columbia" of the PHI 2006 Form 10-K, in December 2006, Pepco submitted an application to the DCPSC to increase electric distribution base rates, including a proposed bill stabilization adjustment mechanism (BSA), which "decouples" revenue from unit sales consumption and ties the growth in revenues to the growth in the number of customers. Hearings were held in the case in June 2007. A DCPSC decision is expected in September 2007.

     Maryland

     As previously disclosed in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Regulatory and Other Matters -- Rate Proceedings -- Maryland" of the PHI 2006 Form 10-K and Item 2, "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Regulatory and Other Matters -- Rate Proceedings -- Maryland" of the PHI 1^st Quarter Form 10-Q, in November 2006, DPL and Pepco each submitted an application to the Maryland Public Service Commission (MPSC) to increase electric distribution base rates, including a proposed BSA. On July 19, 2007, the MPSC issued orders in the electric service distribution rate cases filed by DPL and Pepco. The DPL order approved a temporary annual increase in distribution rates of approximately $14.9 million (including a decrease in annual depreciation expense of approximately $0.9 million). The Pepco order approved a temporary annual increase in distrib ution rates of approximately $10.6 million (including a decrease in annual depreciation expense of approximately $30.7 million). In each case, the approved distribution rate reflects a return on equity of 10.0%. The orders each provided that the rate increases are effective as of June 16, 2007, and will remain in effect for an initial period of nine months from the date of the order (or until April 19, 2008). The temporary rates are subject to a Phase II proceeding in which the MPSC will consider the results of audits of each company's cost allocation manual, as filed with the MPSC, to determine whether a further adjustment to the rates is required. For each of the utilities, the MPSC approved the proposed BSA, under which customer delivery rates are subject to adjustment quarterly (through a surcharge or credit mechanism), depending on whether actual revenue per customer exceeds or falls short of, the approved revenue per customer amount.

     New Jersey

     On June 1, 2007, ACE filed with the NJBPU an application for permission to decrease the Non Utility Generation Charge (NGC) and increase components of its Societal Benefits Charge (SBC) to be collected from customers for the period October 1, 2007 through September 30, 2008. The proposed changes are designed to effect a true-up of the actual and estimated costs and revenues collected through the current NGC and SBC rates through September 30, 2007 and, in the case of the SBC, forecasted costs and revenues for the period October 1, 2007 through September 30, 2008.

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     ACE projects that, as of September 30, 2007, the NGC, which is intended primarily to recover the above-market component of payments made by ACE under non-utility generation contracts and stranded costs associated with those commitments, will have an over-recovery balance of $234.6 million. The filing proposes that the NGC balance, including interest, be amortized and returned to ACE customers over a four-year period, beginning October 1, 2007.

     ACE also projects that, as of September 30, 2007, the SBC, which is intended to allow ACE to recover certain costs involved with various NJBPU-mandated social programs, will have an under-recovery of approximately $21.8 million, primarily due to increased costs associated with funding the New Jersey Clean Energy Program (CEP). In addition, ACE has requested an increase to the SBC to reflect the increased funding levels approved by the NJBPU to $18.9 million for calendar year 2007 and $20.4 million for calendar year 2008, which will require a $42.3 million increase in the SBC for the period of October 1, 2007 to September 30, 2008.

     The net impact of the proposed adjustments to the NGC and the SBC, including associated changes in sales and use tax, is an overall rate decrease of approximately $131.8 million for the period October 1, 2007, through September 30, 2008. The proposed adjustments and the corresponding changes in customer rates are subject to the approval of the NJBPU. Once approved and implemented, ACE anticipates that the revised rates will remain in effect until September 30, 2008, subject to an annual true-up and change each year thereafter.

     Federal Energy Regulatory Commission

     On May 15, 2007, Pepco, ACE and DPL each updated its FERC-approved formula transmission rates based on its 2006 FERC Form 1. These rates became effective on June 1, 2007, and will provide the following approximate additional annual revenues: for Pepco, $9.5 million; for DPL, $17.2 million; and for ACE, $20 million. These updated rates reflect the end of a settlement adjustment that reduced the prior rate year's (from June 2006 through May 2007) revenues by an annual amount of $25.3 million for the three utilities.

Divestiture Case

     New Jersey

     As previously disclosed in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Regulatory and Other Matters -- Divestiture Cases -- New Jersey" of the PHI 2006 Form 10-K, in connection with the divestiture by ACE of its nuclear generating assets, the NJBPU in July 2000 preliminarily determined that the amount of stranded costs associated with the divested assets that ACE could recover from ratepayers should be reduced by approximately $94.8 million, consisting of $54.1 million of accumulated deferred federal income taxes (ADFIT) associated with accelerated depreciation on the divested nuclear assets, and $40.7 million of current tax loss from selling the assets at a price below the tax basis.

     The $54.1 million in deferred taxes associated with the divested assets' accelerated depreciation; however, is subject to the normalization rules. Due to uncertainty under federal tax law regarding whether the sharing of federal income tax benefits associated with the divested assets, including ADFIT related to accelerated depreciation, with ACE's customers would violate the normalization rules, ACE submitted a request to the IRS for a Private Letter Ruling (PLR) to clarify the applicable law. The NJBPU has delayed its final determination of the amount of recoverable stranded costs until after the receipt of the PLR.

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     On May 25, 2006, the IRS issued the PLR in which it stated that returning to ratepayers any of the unamortized ADFIT attributable to accelerated depreciation on the divested assets after the sale of the assets by means of a reduction of the amount of recoverable stranded costs would violate the normalization rules.

     On June 9, 2006, ACE submitted a letter to the NJBPU, requesting that the NJBPU conduct proceedings to finalize the determination of the stranded costs associated with the sale of ACE's nuclear assets in accordance with the PLR. In the absence of an NJBPU action regarding ACE's request, on June 22, 2007, ACE filed a motion requesting that the NJBPU issue an order finalizing the determination of such stranded costs in accordance with the PLR. The NJBPU and the other parties in interest have agreed to an expedited schedule for resolution of the motion.

Default Electricity Supply Proceedings

     Virginia

     As discussed below under the heading "DPL Sale of Virginia Operations," DPL has entered into an agreement to sell substantially all of its Virginia electric service operations.

     As previously disclosed in Item 2, "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Regulatory and Other Matters -- Default Electricity Supply Proceedings -- Virginia" of the PHI 1^st Quarter Form 10-Q, on April 2, 2007, DPL filed an application with Virginia State Corporation Commission (VSCC) to adjust its Default Service rates covering the period June 1, 2007, to May 31, 2008. The proposed rates for this service during the first month of this period (June 2007) are based on the fuel proxy rate calculation described below. The proposed rates for the remaining 11 months of the period (July 1, 2007 to May 31, 2008) reflect the fuel cost of Default Service supply based upon the results of the competitive bidding wholesale procurement process. The calculations in the application result in a rate decrease of approximately $1.7 million for the period, June 1 to June 30, 2007, and an increase of approximately $4.2 million for t he period, July 1, 2007 to May 31, 2008, resulting in an overall annual rate increase of approximately $2.5 million.

     The "fuel proxy rate calculation" was established under a Memorandum of Agreement (MOA) that DPL entered into with the staff of the VSCC in connection with the approval of DPL's divestiture of its generation assets in 2000, and provides for the calculation of the fuel rate portion of Default Service rates that reflect an approximation of the fuel costs that DPL would have incurred had it retained its generating assets. Since June 1, 2006, use of the proxy rate calculation has resulted in DPL being unable to recover fully its cost of providing Default Service. The new rate application reflects DPL's position that the use of the fuel proxy rate calculation to establish Default Service rates terminated on July 1, 2007, and effective that date, it should be permitted to charge customers market based fuel costs. However, pursuant to an order dated June 8, 2007, the VSCC denied the July 1, 2007 rate increase, based on its conclusion that the MOA's provisions relating to fuel cos ts did not end effective June 30, 2007. As a result of this decision, DPL estimates that it will under-recover its cost of providing Default Service by approximately $1.7 million between June 1, 2007 and the September 30, 2007 expiration of the current SOS supply contract. Thereafter, any ongoing under-recovery will be determined by market rates for the fuel portion of SOS supply and the timing of completion of

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the sale of DPL's Virginia electric operations as described below under the heading "DPL Sale of Virginia Operations."

     DPL filed a complaint for a declaratory order and preliminary injunctive relief with the U.S. District Court for the Eastern District of Virginia (the Virginia District Court). On July 23, 2007, the Virginia District Court dismissed the complaint and denied injunctive relief, finding that the court lacked subject matter jurisdiction and stating that even if it had subject matter jurisdiction, it would abstain from exercising that jurisdiction to allow the Supreme Court of Virginia to consider the issues upon which the complaint was based. On July 31, 2007, DPL filed a notice of appeal of the VSCC's orders with the Supreme Court of Virginia. The sale of DPL's Virginia electric operations as described below under the heading "DPL Sale of Virginia Operations" is not contingent upon resolution of any of the matters that are at issue in these proceedings. If the sale of the Virginia electric operations is completed, the effect, if any, on these proceedings is not determinable at this time.

DPL Sale of Virginia Operations

     On June 13, 2007, DPL entered into separate agreements to sell, respectively, all of its distribution assets and a significant portion of its transmission assets in Virginia for an aggregate sales price of approximately $45 million. DPL currently expects the transactions to close during the fourth quarter of 2007, contingent upon the receipt of required regulatory approvals. These sales, if completed, will not result in a significant financial gain or loss to DPL.

     Distribution Purchase and Sale Agreement

     DPL has entered into an agreement to sell to A&N Electric Cooperative (A&N) all of its assets principally related to DPL's business of distributing retail electric services to customers located on the Eastern Shore of Virginia for a purchase price of approximately $39.8 million, subject to closing adjustments. The assets to be sold include real and personal property, accounts receivable and customer deposits. A&N will assume certain post-closing liabilities and unknown pre-closing liabilities related to the distribution assets including most environmental liabilities, except that DPL will remain liable for unknown pre-closing liabilities if they become known within six months after the closing date. The completion of the sale is contingent upon approval by the VSCC.

     Transmission Purchase and Sale Agreement

     DPL has entered into an agreement to sell to Old Dominion Electric Cooperative (ODEC) certain assets principally related to DPL's provision of electric transmission services located on the Eastern Shore of Virginia for a purchase price of approximately $4.8 million, subject to certain closing adjustments. ODEC will assume certain post-closing liabilities and unknown pre-closing liabilities related to the transmission assets, except that DPL will remain liable for unknown pre-closing liabilities that become known within six months after the closing date. The completion of the sale is contingent upon approval of the transfer by the VSCC and approval of two related agreements by FERC.

Environmental Litigation

     Delilah Road Landfill Site. For a discussion of the history of the environmental proceedings at the Delilah Road Landfill site, please refer to Item 7, "Management's Discussion and Analysis

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of Financial Condition and Results of Operations -- Regulatory and Other Matters -- Environmental Litigation " of the PHI 2006 Form 10-K and Item 2, "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Regulatory and Other Matters -- Environmental Litigation " of the PHI 1^st Quarter Form 10-Q. In a June 19, 2007 letter, the United States Environmental Protection Agency (EPA) requested that the group of potentially responsible parties (PRPs) pay $62,623 in response costs and enter into a tolling agreement. In a July 10, 2007 response to EPA, the PRP group indicated a willingness to pay approximately $62,600 (ACE's share of which is one-third) in full satisfaction of EPA's claims for all past and future response costs relating to the site, provided that EPA provides a satisfactory settlement agreement with a covenant not sue and release as to such costs. The PRP group response of July 10, 2007 also questioned the need for a tolling agreement for a site that is the subject of an NFA and accordingly warrants little, if any, activity by EPA. The PRP group is evaluating EPA's July 26, 2007 counteroffer of settlement under which the PRP group would resolve its liability for EPA's past and future costs at the site by paying the offered $62,600 plus a 30% premium to cover the risk associated with EPA's unknown future costs for a total of approximately $81,400. A settlement incorporating these terms also would permit EPA to reopen the settlement in the event of new information or unknown conditions at the site. Based on information currently available, ACE anticipates that its share of additional cost associated with this site for post-remedy operation and maintenance will be approximately $555,000 to $600,000. ACE believes that its liability for post-remedy operation and maintenance costs will not have a material adverse effect on its financial position, results of operations or cash flows.

     Frontier Chemical Site. On June 29, 2007, ACE received a letter from the New York Department of Environmental Conservation (NYDEC) indicating that ACE is a PRP at the Frontier Chemical Waste Processing Company site in Niagara Falls, N.Y. The letter states that NYDEC has hazardous waste manifests indicating that ACE sent in excess of 7,500 gallons of manifested hazardous waste to the site. The letter asks ACE, within 30 days, to express its willingness to enter into an ACO. If ACE is unwilling to enter into the ACO, ACE must respond to NYDEC's request for information within 45 days. ACE informed NYDEC that it has entered into good faith negotiations with a coalescing PRP group to address ACE's responsibility at the site. ACE believes that its responsibility at the site will not have a material adverse effect on its financial position, results of operations or cash flows.

     Deepwater Generating Station. As previously disclosed in Item 2, "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Regulatory and Other Matters -- Environmental Litigation " of the PHI 1^st Quarter Form 10-Q, in December 2005, NJDEP issued a Title V Operating Permit for Conectiv Energy's Deepwater Generating Station. The permit includes new limits on unit heat input. In order to comply with these new operational limits, Conectiv Energy restricted the output of the Deepwater Generating Station's Unit 1 and Unit 6/8. In 2006 and the first half of 2007, these restrictions resulted in operating losses of approximately $10,000 per operating day on Unit 6/8, primarily because of lost revenues due to reduced output, and to a lesser degree because of lost revenues related to PJM capacity requirements. Since June 1, 2007, Deepwater Unit 6/8 can operate within the heat input limits set forth in the Title V Operating Permit w ithout restricting output, because of technical improvements that partially corrected the inherent bias in the continuous emissions monitoring system that had caused recorded heat input to be higher than actual heat input. In order to comply with the heat input limit at Deepwater Unit 1, Conectiv Energy continues to restrict Unit 1 output. Beginning with the third quarter 2007, this Unit 1 restriction will result in semi-annual operating losses of approximately $500,000 in 2007 and 2008 due to penalties and lost revenues

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related to PJM capacity requirements. Beyond 2008, while penalties due to PJM capacity requirements are not expected, further operating losses due to lost revenues related to PJM capacity requirements may continue to be incurred. The operating losses due to reduced output on Unit 1 have been, and will continue to be, insignificant. Conectiv Energy is challenging these heat input restrictions and other provisions of the Title V Operating Permit for Deepwater Generating Station in the New Jersey Office of Administrative Law.

     On April 3, 2007, NJDEP issued an Administrative Order and Notice of Civil Administrative Penalty Assessment (the First Order) alleging that at Conectiv Energy's Deepwater Generating Station, the maximum gross heat input to Unit 1 exceeded the maximum allowable heat input in calendar year 2005 and the maximum gross heat input to Unit 6/8 exceeded the maximum allowable heat input in calendar years 2005 and 2006. The order required the cessation of operation of Units 1 and 6/8 above the alleged permitted heat input levels, assessed a penalty of $1,091,000 and requested that Conectiv Energy provide additional information about heat input to Units 1 and 6/8. Conectiv Energy provided NJDEP Units 1 and 6/8 calendar year 2004 heat input data on May 9, 2005, and calendar years 1995 to 2003 heat input data on July 10, 2007. On May 23, 2007, NJDEP issued a second Administrative Order and Notice of Civil Administrative Penalty Assessment (the Second Order) alleging that the maximum g ross heat input to Units 1 and 6/8 exceeded the maximum allowable heat input in calendar year 2004. The Second Order required the cessation of operation of Units 1 and 6/8 above the alleged permitted heat input levels and assessed a penalty of $811,600. Conectiv Energy has requested a contested case hearing challenging the issuance of the First and Second Orders and moved for a stay of the orders pending resolution of the Title V Operating Permit contested case described above.

     Carll's Corner Generating Station. For a discussion of the history of the environmental proceedings at the Carll's Corner Generating Station, please refer to Item 2, "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Regulatory and Other Matters -- Environmental Litigation " of the PHI 1^st Quarter Form 10-Q. NJDEP issued stays of the order of revocation until August 31, 2007, to provide time for NJDEP review of
June 2007 stack test data and preparation of a settlement agreement rescinding the order of revocation.

Federal Tax Treatment of Cross-border Leases

     PCI maintains a portfolio of cross-border energy sale-leaseback transactions, which, as of June 30, 2007, had a book value of approximately $1.3 billion.

     On February 11, 2005, the Treasury Department and IRS issued Notice 2005-13 informing taxpayers that the IRS intends to challenge on various grounds the purported tax benefits claimed by taxpayers entering into certain sale-leaseback transactions with tax-indifferent parties (i.e., municipalities, tax-exempt and governmental entities) (the Notice). In addition, on June 29, 2005 the IRS published a Coordinated Issue Paper concerning the resolution of audit issues related to such transactions. PCI's cross-border energy leases are similar to those sale-leaseback transactions described in the Notice and the Coordinated Issue Paper.

     PCI's leases have been under examination by the IRS as part of the normal PHI tax audit. On June 9, 2006, the IRS issued its final revenue agent's report (RAR) for its audit of PHI's 2001 and 2002 income tax returns. In the RAR, the IRS disallowed the tax benefits claimed by PHI with respect to certain of these leases for those years. The tax benefit claimed by PHI with

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respect to the leases under audit is approximately $60 million per year and from 2001 through June 30, 2007 were approximately $317 million. PHI has filed a protest against the IRS adjustments and the unresolved audit has been forwarded to the Appeals Office. The ultimate outcome of this issue is uncertain; however, if the IRS prevails, PHI would be subject to additional taxes, along with interest and possibly penalties on the additional taxes, which could have a material adverse effect on PHI's financial condition, results of operations, and cash flows. PHI believes that its tax position related to these transactions was appropriate based on applicable statutes, regulations and case law, and intends to contest the adjustments proposed by the IRS; however, there is no assurance that PHI's position will prevail.

     On July 13, 2006, the Financial Accounting Standards Board (FASB) issued FASB Staff Position (FSP) FAS 13-2 which amends SFAS No. 13 effective for fiscal years beginning after December 15, 2006. This amendment requires a lease to be repriced and the book value adjusted when there is a change or probable change in the timing of tax benefits of the lease regardless of whether the change results in a deferral or permanent loss of tax benefits. Accordingly, a material change in the timing of cash flows under PHI's cross-border leases as the result of a settlement with the IRS would require an adjustment to the book value of the leases and a charge to earnings equal to the repricing impact of the disallowed deductions which could result in a material adverse effect on PHI's financial condition, results of operations, and cash flows. PHI believes its tax position was appropriate and at this time does not believe there is a probable change in the timing of its tax benefits that w ould require repricing the leases and a charge to earnings.

IRS Mixed Service Cost Issue

     For a discussion of the IRS claim relating to capitalization by Pepco, DPL and ACE of certain construction costs for income tax purposes, please refer to Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations -- Regulatory and Other Matters -- IRS Mixed Service Cost Issue in Pepco Holdings' Annual Report on Form 10-K for the year ended December 31, 2006.

CRITICAL ACCOUNTING POLICIES

     For a discussion of Pepco Holdings' critical accounting policies, please refer to Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations in Pepco Holdings' Annual Report on Form 10-K for the year ended December 31, 2006. No material changes to Pepco Holdings' critical accounting policies occurred during the second quarter of 2007.

NEW ACCOUNTING STANDARDS

     FSP FTB 85-4-1, "Accounting for Life Settlement Contracts by Third-Party Investors"

     In March 2006, the FASB issued FSP FASB Technical Bulletin (FTB) 85-4-1, "Accounting for Life Settlement Contracts by Third-Party Investors" (FSP FTB 85-4-1). This FSP provides initial and subsequent measurement guidance and financial statement presentation and disclosure guidance for investments by third-party investors in life settlement contracts. FSP FTB 85-4-1 also amends certain provisions of FASB Technical Bulletin No. 85-4, "Accounting for Purchases of Life Insurance," and SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." The guidance in FSP FTB 85-4-1 applies prospectively for all new life settlement

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contracts and is effective for fiscal years beginning after June 15, 2006 (year ending December 31, 2007 for Pepco Holdings). Pepco Holdings has evaluated the impact of FSP FTB 85-4-1 and it does not have a material impact on its overall financial condition, results of operations, or cash flows.

     SFAS No. 155, "Accounting for Certain Hybrid Financial Instruments - an amendment of FASB Statements No. 133 and 140"

     In February 2006, the FASB issued SFAS No. 155, "Accounting for Certain Hybrid Financial Instruments - an amendment of FASB Statements No. 133 and 140" (SFAS No. 155). SFAS No. 155 amends FASB Statements No. 133, "Accounting for Derivative Instruments and Hedging Activities," and SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities." SFAS No. 155 resolves issues addressed in Statement 133 Implementation Issue No. D1, "Application of Statement 133 to Beneficial Interests in Securitized Financial Assets." SFAS No. 155 is effective for all financial instruments acquired or issued after the beginning of an entity's first fiscal year that begins after September 15, 2006 (year ending December 31, 2007 for Pepco Holdings). Pepco Holdings has evaluated the impact of SFAS No. 155 and it does not have a material impact on its overall financial condition, results of operations, or cash flows.

     SFAS No. 156, "Accounting for Servicing of Financial Assets, an amendment of FASB Statement No. 140"

     In March 2006, the FASB issued SFAS No. 156, "Accounting for Servicing of Financial Assets" (SFAS No. 156), an amendment of SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities," with respect to the accounting for separately recognized servicing assets and servicing liabilities. SFAS No. 156 requires an entity to recognize a servicing asset or servicing liability upon undertaking an obligation to service a financial asset via certain servicing contracts, and for all separately recognized servicing assets and servicing liabilities to be initially measured at fair value, if practicable. Subsequent measurement is permitted using either the amortization method or the fair value measurement method for each class of separately recognized servicing assets and servicing liabilities.

     SFAS No. 156 is effective as of the beginning of an entity's first fiscal year that begins after September 15, 2006 (year ending December 31, 2007 for Pepco Holdings). Application is to be applied prospectively to all transactions following adoption of SFAS No. 156. Pepco Holdings has evaluated the impact of SFAS No. 156 and it does not have a material impact on its overall financial condition, results of operations, or cash flows.

     EITF Issue No. 06-3, "Disclosure Requirements for Taxes Assessed by a Governmental Authority on Revenue-producing Transactions"

     On June 28, 2006, the FASB ratified EITF Issue No. 06-3, "Disclosure Requirements for Taxes Assessed by a Governmental Authority on Revenue-producing Transactions" (EITF 06-3). EITF 06-3 provides guidance on an entity's disclosure of its accounting policy regarding the gross or net presentation of certain taxes and provides that if taxes included in gross revenues are significant, a company should disclose the amount of such taxes for each period for which an income statement is presented (i.e., both interim and annual periods). Taxes within the scope of

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EITF 06-3 are those that are imposed on and concurrent with a specific revenue-producing transaction. Taxes assessed on an entity's activities over a period of time are not within the scope of EITF 06-3. Pepco Holdings implemented EITF 06-3 during the first quarter of 2007. Taxes included in Pepco Holdings gross revenues were $76.9 million and $63.8 million for the three months ended June 30, 2007 and 2006, respectively and $150.1 million and $125.4 million for the six months ended June 30, 2007 and 2006, respectively.

     FSP FAS 13-2, "Accounting for a Change or Projected Change in the Timing of Cash Flows Relating to Income Taxes Generated by a Leveraged Lease Transaction"

     On July 13, 2006, the FASB issued FSP FAS 13-2, "Accounting for a Change or Projected Change in the Timing of Cash Flows Relating to Income Taxes Generated by a Leveraged Lease Transaction" (FSP FAS 13-2). FSP FAS 13-2, which amends SFAS No. 13, "Accounting for Leases," addresses how a change or projected change in the timing of cash flows relating to income taxes generated by a leveraged lease transaction affects the accounting by a lessor for that lease.

     FSP FAS 13-2 is effective for the first fiscal year beginning after December 15, 2006 (year ending December 31, 2007 for Pepco Holdings). A material change in the timing of cash flows under Pepco Holdings' cross-border leases as the result of a settlement with the Internal Revenue Service or a change in tax law would require an adjustment to the book value of the leases and a charge to earnings equal to the repricing impact of the disallowed deductions which could result in a material adverse effect on its overall financial condition, results of operations, and cash flows. For a further discussion, see "Federal Tax Treatment of Cross-border Leases" in Note (4), Commitments and Contingencies.

     SFAS No. 157, "Fair Value Measurements"

     In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements" (SFAS No. 157) which defines fair value, establishes a framework for measuring fair value in accounting principles generly accepted in the United State of America (GAAP), and expands disclosures about fair value measurements. SFAS No. 157 applies under other accounting pronouncements that require or permit fair value measurements and does not require any new fair value measurements. However, it is possible that the application of this Statement will change current practice with respect to the definition of fair value, the methods used to measure fair value, and the expanded disclosures about fair value measurements.

     SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years (year ending December 31, 2008 for Pepco Holdings). Pepco Holdings is currently in the process of evaluating the impact that SFAS No. 157 will have on its overall financial condition, results of operations, and cash flows.

     FSP AUG AIR-1, "Accounting for Planned Major Maintenance Activities"

     On September 8, 2006, the FASB issued FSP American Institute of Certified Public Accountants Industry Audit Guide, Audits of Airlines--"Accounting for Planned Major Maintenance Activities" (FSP AUG AIR-1), which prohibits the use of the accrue-in-advance method of accounting for planned major maintenance activities in annual and interim financial reporting periods for all industries. FSP AUG AIR-1 is effective the first fiscal year beginning

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after December 15, 2006 (year ending December 31, 2007 for Pepco Holdings). Pepco Holdings has evaluated the impact of FSP AUG AIR-1 and it does not have a material impact on its overall financial condition, results of operations, or cash flows.

     EITF Issue No. 06-5, "Accounting for Purchases of Life Insurance -- Determining the Amount That Could Be Realized in Accordance with FASB Technical Bulletin No. 85-4, Accounting for Purchases of Life Insurance"

     On September 20, 2006, the FASB ratified EITF Issue No. 06-5, "Accounting for Purchases of Life Insurance -- Determining the Amount That Could Be Realized in Accordance with FASB Technical Bulletin No. 85-4, Accounting for Purchases of Life Insurance" (EITF 06-5) which provides guidance on whether an entity should consider the contractual ability to surrender all of the individual-life policies (or certificates under a group life policy) together when determining the amount that could be realized in accordance with FTB 85-4, and whether a guarantee of the additional value associated with the group life policy affects that determination. EITF 06-5 provides that a policyholder should (i) determine the amount that could be realized under the insurance contract assuming the surrender of an individual-life by individual-life policy (or certificate by certificate in a group policy) and (ii) not discount the cash surrender value component of the amount that could be realized when c ontractual restrictions on the ability to surrender a policy exist unless contractual limitations prescribe that the cash surrender value component of the amount that could be realized is a fixed amount, in which case the amount that could be realized should be discounted in accordance with Accounting Priniples Board of the American Institute of Certified Public Accountants Opinion 21. EITF 06-5 is effective for fiscal years beginning after December 15, 2006 (year ending December 31, 2007 for Pepco Holdings). Pepco Holdings has evaluated the impact of EITF 06-5 and has determined that it does not have a material impact on its financial condition, results of operations, cash flows, or disclosure requirements.

     FASB Staff Position No. EITF 00-19-2, "Accounting for Registration Payment Arrangements"

     On December 21, 2006, the FASB issued FSP Financial Interpretation No. EITF 00-19-2, "Accounting for Registration Payment Arrangements" (FSP EITF 00-19-2), which addresses an issuer's accounting for registration payment arrangements and specifies that the contingent obligation to make future payments or otherwise transfer consideration under a registration payment arrangement, whether issued as a separate agreement or included as a provision of a financial instrument or other agreement, should be separately recognized and measured in accordance with FASB SFAS No. 5, "Accounting for Contingencies." FSP EITF 00-19-2 is effective immediately for registration payment arrangements and the financial instruments subject to those arrangements that are entered into or modified subsequent to the date of its issuance. For registration payment arrangements and financial instruments subject to those arrangements that were entered into prior to the issuance of FSP EITF 00-19-2, th is guidance is effective for financial statements issued for fiscal years beginning after December 15, 2006, and interim periods within those fiscal years (year ending December 31, 2007 for Pepco Holdings). Pepco Holdings implemented FSP EITF 00-19-2 during the first quarter of 2007. The implementation did not have a material impact on its overall financial condition, results of operations, or cash flows.

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     SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities - Including an amendment of FASB Statement No. 115"

     On February 15, 2007, the FASB issued SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities - Including an amendment of FASB Statement No. 115" (SFAS No. 159) which permits entities to elect to measure eligible financial instruments at fair value. The objective of SFAS No. 159 is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. SFAS No. 159 applies under other accounting pronouncements that require or permit fair value measurements and does not require any new fair value measurements. However, it is possible that the application of SFAS No. 159 will change current practice with respect to the definition of fair value, the methods used to measure fair value, and the expanded disclosures about fair value measurements.

     SFAS No. 159 establishes presentation and disclosure requirements designed to facilitate comparisons between companies that choose different measurement attributes for similar types of assets and liabilities. SFAS No. 159 requires companies to provide additional information that will help investors and other users of financial statements to more easily understand the effect of the company's choice to use fair value on its earnings. It also requires entities to display the fair value of those assets and liabilities for which the company has chosen to use fair value on the face of the balance sheet. SFAS No. 159 does not eliminate disclosure requirements included in other accounting standards.

     SFAS No. 159 applies to fiscal years beginning after November 15, 2007 (year ending December 31, 2008 for Pepco Holdings), with early adoption permitted for an entity that has also elected to apply the provisions of SFAS No. 157, Fair Value Measurements. An entity is prohibited from retrospectively applying SFAS No. 159, unless it chooses early adoption. SFAS No. 159 also applies to eligible items existing at November 15, 2007 (or early adoption date). Pepco Holdings is currently in the process of evaluating the impact that SFAS No. 159 will have on its overall financial condition, results of operations, and cash flows.

FSP FIN 39-1, "Amendment of FASB Interpretation No. 39"

     On April 30, 2007, the FASB issued FSP Financial Interpretation No. 39-1, "Amendment of FASB Interpretation No. 39" to amend certain portions of Interpretation 39. The FSP replaces the terms "conditional contracts" and "exchange contracts" in Interpretation 39 with the term "derivative instruments" as defined in Statement 133. The FSP also amends Interpretation 39 to allow for the offsetting of fair value amounts for the right to reclaim cash collateral or receivable, or the obligation to return cash collateral or payable, arising from the same master netting arrangement as the derivative instruments.  FSP FIN 39-1 applies to fiscal years beginning after November 15, 2007 (year ending December 31, 2008 for Pepco Holdings), with early adoption permitted. Pepco Holdings is currently in the process of evaluating the impact that FSP FIN 39-1 will have on its overall financial condition, results of operations, cash flows and disclosure requirements.

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EITF Issue No. 06-11, "Accounting for Income Tax Benefits of Dividends on Share-Based Payment Awards"

     On June 27, 2007, the FASB ratified EITF Issue No. 06-11, "Accounting for Income Tax Benefits of Dividends on Share-Based Payment Awards" (EITF 06-11) which provides that a realized income tax benefit from dividends or dividend equivalents that are charged to retained earnings and paid to employees for equity classified nonvested equity shares, nonvested equity share units, and outstanding equity share options should be recognized as an increase to additional paid-in capital (APIC). The amount recognized in additional paid-in capital for the realized income tax benefit from dividends on those awards should be included in the pool of excess tax benefits available to absorb tax deficiencies on share-based payment awards (i.e. the "APIC pool").

     EITF Issue No. 06-11 also provides that when the estimated amount of forfeitures increases or actual forfeitures exceed estimates, the amount of tax benefits previously recognized in APIC should be reclassified into the income statement; however, the amount reclassified is limited to the APIC pool balance on the reclassification date.

     EITF Issue No. 06-11 applies prospectively to the income tax benefits of dividends on equity-classified employee share-based payment awards that are declared in fiscal years beginning after December 15, 2007, and interim periods within those fiscal years (year ending December 31, 2008 for Pepco Holdings). Early application is permitted as of the beginning of a fiscal year for which interim or annual financial statements have not yet been issued. Retrospective application to previously issued financial statements is prohibited. Entities must disclose the nature of any change in their accounting policy for income tax benefits of dividends on share-based payment awards resulting from the adoption of this guidance. Pepco Holdings is currently in the process of evaluating the impact that EITF Issue No. 06-11 will have on its overall financial condition, results of operations, cash flows and disclosure requirements.

FORWARD-LOOKING STATEMENTS

     Some of the statements contained in this Quarterly Report on Form 10-Q are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and are subject to the safe harbor created by the Private Securities Litigation Reform Act of 1995. These statements include declarations regarding Pepco Holdings' 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 PHI'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 herein are qualified in their entirety by reference to the following important factors, which are difficult to predict, contain uncertainties, are beyond Pepco Holdings' control and may cause actual results to differ materially from those contained in forward-looking statements:

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· Prevailing governmental policies and regulatory actions affecting the energy industry, including 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;

· 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 accounting standards or practices;

· Changes in project costs;

· Unanticipated changes in operating expenses and capital expenditures;

· The ability to obtain funding in the capital markets on favorable terms;

· Rules and regulations imposed by Federal and/or state regulatory commissions, PJM and other regional transmission organizations (NY ISO, ISO New England), the North American Electric Reliability Council and other applicable electric reliability organizations;

· Legal and administrative proceedings (whether civil or criminal) and settlements that influence PHI's business and profitability;

· Pace of entry into new markets;

· Volatility in market demand and prices for energy, capacity and fuel;

· 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 Quarterly Report and Pepco Holdings undertakes no obligation to update any forward-looking statements to reflect events or circumstances after the date on which such statements are made or to reflect the occurrence of unanticipated events. New factors emerge from time to time, and it is not possible for Pepco Holdings to predict all such factors, nor can Pepco Holdings 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 foregoing review of factors should not be construed as exhaustive.

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

POTOMAC ELECTRIC POWER COMPANY

GENERAL OVERVIEW

     Potomac Electric Power Company (Pepco) is engaged in the transmission and distribution of electricity in Washington, D.C. and major portions of Montgomery County and Prince George's County in suburban Maryland. Pepco provides Default Electricity Supply, which is the supply of electricity at regulated rates to retail customers in its territories who do not elect to purchase electricity from a competitive supplier, in both the District of Columbia and Maryland. Default Electricity Supply is known as Standard Offer Service (SOS) in both the District of Columbia and Maryland. Pepco's service territory covers approximately 640 square miles and has a population of 2.1 million. As of June 30, 2007, 57% of delivered electricity sales were to Maryland customers and 43% were to Washington, D.C. customers.

     Pepco is a wholly owned subsidiary of Pepco Holdings, Inc. (PHI or Pepco Holdings). Because PHI is a public utility holding company subject to the Public Utility Holding Company Act of 2005 (PUHCA 2005), the relationship between PHI and Pepco and certain activities of Pepco are subject to the regulatory oversight of the Federal Energy Regulatory Commission under PUHCA 2005.

RESULTS OF OPERATIONS

     The accompanying results of operations discussion is for the six months ended June 30, 2007 compared to the six months ended June 30, 2006. Other than this disclosure, information under this item has been omitted in accordance with General Instruction H to the Form 10-Q. All amounts in the tables (except sales and customers) are in millions.

Operating Revenue

	2007		2006		Change
Regulated T&D Electric Revenue	$	415.2	$	403.9	$	11.3
Default Supply Revenue		571.3		577.5		(6.2)
Other Electric Revenue		15.1		14.3		.8
Total Operating Revenue	$	1,001.6	$	995.7	$	5.9

     The table above shows the amount of Operating Revenue earned that is subject to price regulation (Regulated Transmission and Distribution (T&D) Electric Revenue and Default Supply Revenue) and that which is not subject to price regulation (Other Electric Revenue). Regulated T&D Electric Revenue includes revenue Pepco receives for the transmission and delivery of electricity for which Pepco is paid regulated rates. Default Supply Revenue is the revenue received from Default Electricity Supply. The costs related to the supply of electricity are included in Fuel and Purchased Energy expense. Other Electric Revenue includes work and services performed on behalf of customers including other utilities, which is not subject to price regulation. Work and services includes mutual assistance to other utilities, highway relocation, rents, late payments, and collection fees.

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     Regulated T&D Electric

Regulated T&D Electric Revenue	2007		2006		Change
Residential	$	116.0	$	107.9	$	8.1
Commercial		248.2		237.3		10.9
Industrial		-		-		-
Other (Includes PJM)		51.0		58.7		(7.7)
Total Regulated T&D Electric Revenue	$	415.2	$	403.9	$	11.3

Regulated T&D Electric Sales (gigawatt hours (GWh))	2007	2006	Change
Residential	3,878	3,570		308
Commercial	9,241	8,950		291
Industrial	-	-		-
Other	77	79		(2)
Total Regulated T&D Electric Sales	13,196	12,599		597

Regulated T&D Electric Customers (000s)	2007		2006		Change
Residential		682		676		6
Commercial		74		73		1
Industrial		-		-		-
Other		-		-		-
Total Regulated T&D Electric Customers		756		749		7

     Regulated T&D Electric Revenue increased by $11.3 million primarily due to the following: (i)$16.4 million increase due to higher weather-related sales (a 20% increase in Heating Degree Days and a 28% increase in Cooling Degree Days in 2007), (ii) $3.5 million increase due to higher pass-through revenue resulting from rate increases (offset in Other Taxes), (iii) $1.1 million increase due to customer growth of 0.8%, offset by (iv) $7.8 million decrease in network transmission revenues due to a decrease in PJM Interconnection, LLC (PJM) transmission rates (partial offsets in Other Taxes), (v) $2.1 million decrease due to differences in consumption among the various customer rate classes.

     Default Electricity Supply

Default Supply Revenue	2007		2006		Change
Residential	$	349.0	$	228.8	$	120.2
Commercial		219.1		345.1		(126.0)
Industrial		-		-		-
Other (Includes PJM)		3.2		3.6		(.4)
Total Default Supply Revenue	$	571.3	$	577.5	$	(6.2)

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Default Electricity Supply Sales (GWh)	2007		2006		Change
Residential		3,684		3,366		318
Commercial		2,183		4,759		(2,576)
Industrial		-		-		-
Other		33		28		5
Total Default Electricity Supply Sales		5,900		8,153		(2,253)

Default Electricity Supply Customers (000s)	2007		2006		Change
Residential		655		646		9
Commercial		52		63		(11)
Industrial		-		-		-
Other		-		-		-
Total Default Electricity Supply Customers		707		709		(2)

     Default Supply Revenue decreased by $6.2 million primarily due to the following: (i) $194.2 million decrease primarily due to an increase in commercial customers electing to purchase electricity from a competitive supplier, partially offset by, (ii) $160.4 million in higher retail energy rates, primarily resulting from new annual market based rates, and (iii) $28.9 million increase due to higher weather-related sales, (a 20% increase in Heating Degree Days and a 28% increase in Cooling Degree Days) (partially offset in Fuel and Purchased Energy).

    The following table shows the percentages of Pepco's total sales by jurisdiction that are derived from customers receiving Default Electricity Supply in that jurisdiction from Pepco.

	2007		2006
Sales to DC customers served by Pepco		36%		60%
Sales to MD customers served by Pepco		51%		68%

Operating Expenses

     Fuel and Purchased Energy

     Fuel and Purchased Energy which is primarily associated with Default Electricity Supply sales, increased by $0.5 million to $560.8 million in 2007, from $560.3 in 2006. The increase is primarily due to the following: (i) $169.8 million increase in average energy costs, the result of new annual SOS supply contracts, (ii) $29.6 million increase due to higher weather-related sales (a 20% increase in Heating Degree Days and a 28% increase in Cooling Degree Days), primarily offset by (iii) $187.2 million decrease primarily due to an increase in commercial customers electing to purchase electricity from a competitive supplier, and (iv) $11.6 million decrease in the Default Supply deferral balance (partially offset by Default Supply Revenue).

     Other Operation and Maintenance

      Other Operation and Maintenance decreased by $2.0 million in 2007. The decrease was primarily due to (i) $2.7 million decrease in Company-owned life insurance due to an adjustment in 2006, (ii) $2.6 million decrease in professional fees primarily related to a tax consulting project in 2006, (iii) $1.8 million decrease due to other post-employment pension

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liabilities (OPEB) and pension residual adjustments, offset by (iv) $3.1 million increase due to various construction project write-offs related to customer requested work, and (v) $2.5 million increase in regulatory filing costs.

     Depreciation and Amortization

     Depreciation and Amortization expenses increased by $2.4 million to $83.9 million in 2007 from $81.5 million primarily due to utility plant additions.

     Other Taxes

     Other Taxes increased $10.2 million to $140.3 million in 2007 from $130.1 million in 2006 primarily due to $9.0 million increased pass-throughs resulting from higher electricity sales and rate increases in the District of Columbia (partially offset in T&D Revenue).

Other Income (Expenses)

     Other Expenses (which are net of Other Income) increased by $2.2 million to a net expense of $29.7 million in 2007 from a net expense of $27.5 million in 2006. This increase was primarily due to increased capital costs driven by interest expense and amortization of debt discount.

Income Tax Expense

     Pepco's effective tax rate for the six months ended June 30, 2007 was 41% as compared to the federal statutory rate of 35%. The major reasons for this difference were state income taxes (net of federal benefit), the flow-through of certain book tax depreciation differences and the flow-through of certain book tax differences on software amortization, partially offset by the flow-through of deferred investment tax credits, changes in estimates related to tax liabilities for prior tax years subject to audit and certain asset removal costs.

     Pepco's effective tax rate for the six months ended June 30, 2006 was 43% as compared to the federal statutory rate of 35%. The major reasons for this difference were state income taxes (net of federal benefit), the flow-through of certain book tax depreciation differences and the flow-through of certain book tax differences on software amortization, partially offset by the flow-through of deferred investment tax credits and certain asset removal costs.

FORWARD-LOOKING STATEMENTS

     Some of the statements contained in this Quarterly Report on Form 10-Q are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and are subject to the safe harbor created by the Private Securities Litigation Reform Act of 1995. These statements include declarations regarding Pepco'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 Pepco's actual results, leve ls of

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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 herein are qualified in their entirety by reference to the following important factors, which are difficult to predict, contain uncertainties, are beyond Pepco'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 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;

· 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;

· The ability to obtain funding in the capital markets on favorable terms;

· Restrictions imposed by Federal and/or state regulatory commissions;

· Legal and administrative proceedings (whether civil or criminal) and settlements that influence Pepco's business and profitability;

· Volatility in market demand and prices for energy, capacity and fuel;

· 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 Quarterly Report and Pepco undertakes no obligation to update any forward-looking statements to reflect events or circumstances after the date on which such statements are made or to reflect the occurrence of unanticipated events. New factors emerge from time to time, and it is not possible for Pepco to predict all such factors, nor can Pepco 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 foregoing review of factors should not be construed as exhaustive.

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

DELMARVA POWER & LIGHT COMPANY

GENERAL OVERVIEW

     Delmarva Power & Light Company (DPL) is engaged in the transmission and distribution of electricity in Delaware and portions of Maryland and Virginia. DPL provides Default Electricity Supply, which is the supply of electricity at regulated rates to retail customers in its territories who do not elect to purchase electricity from a competitive supplier. Default Electricity Supply is also known as Default Service in Virginia, as Standard Offer Service (SOS) in Maryland and Delaware on and after May 1, 2006, and as Provider of Last Resort service in Delaware before May 1, 2006. DPL's electricity distribution service territory covers 6,000 square miles and has a population of 1.3 million. As of June 30, 2007, 65% of delivered electricity sales were to Delaware customers, 32% were to Maryland customers, and 3% were to Virginia customers. DPL also provides natural gas distribution service in northern Delaware. DPL's natural gas distribution service territory cov ers 275 square miles and has a population of .5 million. In June 2007, DPL entered into agreements to sell substantially all of its Virginia electric service operations, subject to regulatory approvals.

     DPL is a wholly owned subsidiary of Conectiv, which is wholly owned by Pepco Holdings, Inc. (PHI). Because PHI is a public utility holding company subject to the Public Utility Holding Company Act of 2005 (PUHCA 2005), the relationship between PHI and DPL and certain activities of DPL are subject to the regulatory oversight of Federal Energy Regulatory Commission under PUHCA 2005.

RESULTS OF OPERATIONS

     The accompanying results of operations discussion is for the six months ended June 30, 2007, compared to the six months ended June 30, 2006. Other than this disclosure, information under this item has been omitted in accordance with General Instruction H to the Form 10-Q. All amounts in the tables (except sales and customers) are in millions.

Electric Operating Revenue

	2007		2006		Change
Regulated T&D Electric Revenue	$	157.6	$	177.0	$	(19.4)
Default Supply Revenue		405.8		359.4		46.4
Other Electric Revenue		10.3		11.5		(1.2)
Total Electric Operating Revenue	$	573.7	$	547.9	$	25.8

     The table above shows the amount of Electric Operating Revenue earned that is subject to price regulation (Regulated Transmission and Distribution (T&D) Electric Revenue and Default Supply Revenue) and that which is not subject to price regulation (Other Electric Revenue). Regulated T&D Electric Revenue includes revenue DPL receives for delivery of electricity, for which DPL is paid regulated rates. Default Supply Revenue is the revenue received from Default Electricity Supply. The costs related to the supply of electricity are included in Fuel and Purchased Energy expense. Other Electric Revenue includes work and services performed on

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behalf of customers including other utilities, which is not subject to price regulation. Work and services includes mutual assistance to other utilities, highway relocation, rents, late payments, and collection fees.

     Regulated T&D Electric

Regulated T&D Electric Revenue	2007		2006		Change
Residential	$	78.8	$	80.1	$	(1.3)
Commercial		43.3		48.7		(5.4)
Industrial		5.7		8.8		(3.1)
Other (Includes PJM)		29.8		39.4		(9.6)
Total Regulated T&D Electric Revenue	$	157.6	$	177.0	$	(19.4)

Regulated T&D Electric Sales (gigawatt hours (GWh))	2007	2006	Change
Residential	2,628	2,470		158
Commercial	2,653	2,577		76
Industrial	1,436	1,437		(1)
Other	26	25		1
Total Regulated T&D Electric Sales	6,743	6,509		234

Regulated T&D Electric Customers (000s)	2007		2006		Change
Residential		453		451		2
Commercial		61		60		1
Industrial		-		1		(1)
Other		1		1		-
Total Regulated T&D Electric Customers		515		513		2

     Regulated T&D Electric Revenue decreased by $19.4 million primarily due to the following: (i) $10.0 million decrease due to a change in Delaware rate structure effective May 1, 2006, which shifted revenue from Regulated T&D Electric Revenue to Default Supply Revenue, (ii) $9.4 million decrease in network transmission revenues due to lower PJM Interconnection, LLC (PJM) transmission rates, (iii) $4.0 million decrease due to a Delaware base rate reduction in May 2006, (iv) $3.2 million decrease due to differences in consumption among the various customer rate classes, offset by (v) $7.2 million increase due to higher weather-related sales (a 18% increase in Heating Degree Days and a 17% increase in Cooling Degree Days).

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     Default Electricity Supply

Default Supply Revenue	2007		2006		Change
Residential	$	266.9	$	165.2	$	101.7
Commercial		115.1		156.4		(41.3)
Industrial		19.9		35.8		(15.9)
Other (Includes PJM)		3.9		2.0		1.9
Total Default Supply Revenue	$	405.8	$	359.4	$	46.4

Default Electricity Supply Sales (GWh)	2007		2006		Change
Residential		2,599		2,469		130
Commercial		1,078		2,197		(1,119)
Industrial		270		753		(483)
Other		24		26		(2)
Total Default Electricity Supply Sales		3,971		5,445		(1,474)

Default Electricity Supply Customers (000s)	2007		2006		Change
Residential		449		451		(2)
Commercial		51		59		(8)
Industrial		-		-		-
Other		1		1		-
Total Default Electricity Supply Customers		501		511		(10)

     Default Supply Revenue increased by $46.4 million primarily due to the following: (i) $124.4 million in higher retail energy rates, primarily resulting from new annual market based rates, (ii) $15.6 million increase due to higher weather-related sales (a 18% increase in Heating Degree Days and a 17% increase in Cooling Degree Days), (iii) $10.0 million increase due to a change in Delaware rate structure effective May 1, 2006 that shifted revenue from Regulated T&D Electric Revenue to Default Supply Revenue, offset by (iv) $104.9 million decrease primarily due to an increase in commercial and industrial customers electing to purchase electricity from a competitive supplier (partially offset in Purchased Fuel and Energy Expense).

     The following table shows the percentages of DPL's total sales by jurisdiction that are derived from customers receiving Default Electricity Supply in that jurisdiction from DPL.

	2007		2006
Sales to DE customers served by DPL		53%		85%
Sales to MD customers served by DPL		68%		80%
Sales to VA customers served by DPL		88%		100%

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Natural Gas Operating Revenue

	2007		2006		Change
Regulated Gas Revenue	$	142.2	$	135.6	$	6.6
Other Gas Revenue		35.7		24.3		11.4
Total Natural Gas Operating Revenue	$	177.9	$	159.9	$	18.0

     The table above shows the amounts of Natural Gas Operating Revenue from sources that are subject to price regulation (Regulated Gas Revenue) and those that generally are not subject to price regulation (Other Gas Revenue). Regulated Gas Revenue includes the revenue DPL receives for on-system natural gas delivered sales and the transportation of natural gas for customers. Other Gas Revenue includes off-system natural gas sales and the release of excess system capacity.

Regulated Gas Revenue	2007		2006		Change
Residential	$	85.1	$	79.3	$	5.8
Commercial		48.9		47.9		1.0
Industrial		5.2		5.8		(.6)
Transportation and Other		3.0		2.6		.4
Total Regulated Gas Revenue	$	142.2	$	135.6	$	6.6

Regulated Gas Sales (billion cubic feet (Bcf))	2007		2006		Change
Residential		5.1		4.2		.9
Commercial		3.2		2.6		.6
Industrial		.5		.4		.1
Transportation and Other		3.6		3.1		.5
Total Regulated Gas Sales		12.4		10.3		2.1

Regulated Gas Customers (000s)	2007		2006		Change
Residential		112		111		1
Commercial		9		9		-
Industrial		-		-		-
Transportation and Other		-		-		-
Total Regulated Gas Customers		121		120		1

     Regulated Gas Revenue

     Regulated Gas Revenue increased by $6.6 million primarily due to (i) $9.1 million increase due to colder weather (an 18% increase in Heating Degree Days), (ii) $8.7 million increase due to differences in consumption among various customer rate classes, and (iii) $2.8 million increase due to base rate increases effective in November 2006 and April 2007, offset by (iv) $14.0 million decrease due to Gas Cost Rate (GCR) decreases effective in November 2006 and April 2007 (offset in Gas Purchased Expense).

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     Other Gas Revenue increased by $11.4 million to $35.7 million in 2007 from $24.3 million in 2006 primarily due to higher off-system sales (partially offset in Gas Purchased expense).

Operating Expenses

     Fuel and Purchased Energy

Fuel and Purchased Energy which is primarily associated with Default Electricity Supply sales, increased by $36.1 million in 2007. The increase is primarily due to (i) $152.2 million increase in average energy costs, the result of new annual SOS supply contracts, (ii) $15.6 million increase due to higher weather-related sales (an 18% increase in Heating Degree Days and a 17% increase in Cooling Degree Days), offset by (iii) $ 113.8 million decrease primarily due to an increase in commercial and industrial customers electing to purchase electricity from a competitive supplier, (iv) $10.4 million decrease in network transmission expenses primarily due to Provider of Last Resort service obligations ending April 1, 2006, and (v) $7.5 million decrease in the Default Supply deferral balance (partially offset in Default Supply Revenue).

     Gas Purchased

     Total Gas Purchased increasedby $9.4 million to $137.1 million in 2007, from $127.7 million in 2006. The increase is primarily due to (i) $10.0 million increase in off-system sales, offset by (ii) $1.4 million decrease from the settlement of financial hedges (entered into as part of DPL's regulated natural gas hedge program) (partially offset in Regulated Gas Revenue and Other Gas Revenue).

     Other Operation and Maintenance

Other Operation and Maintenance increasedby $8.8 million to $99.4 million in 2007, from $90.6 million in 2006. The increase was primarily due to (i) $2.9 million increase in operations, maintenance and restoration costs, (ii) $2.8 million increase in business support costs, primarily customer service and corporate overhead costs, (iii) $1.4 million increase in uncollectible reserve expense, (iv) $1.4 million increase in Default Electricity Supply costs (primarily deferred and recoverable), and (v) $1.4 million increase in employee related costs primarily pension and other post-employment pension liabilities (OPEB), offset by (iv) $1.6 million decrease in environmental costs primarily related to a coal gas liability adjustment in 2006.

Other Income(Expense)

Other Expenses (which are net of Other Income) increasedby $2.3 million to $19.6 million in 2007, from $17.3 million in 2006. The increase is primarily due to an increase in interest expense on long term debt.

Income Tax Expense

     DPL's effective tax rate for the six months ended June 30, 2007 was 35% as compared to the federal statutory rate of 35%. The fluctuations in the rate were caused by state income taxes (net of federal benefit) and the flow-through of certain book tax depreciation differences, offset by changes in estimates related to prior year tax liabilities and the flow-through of deferred investment tax credits.

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     DPL's effective tax rate for the six months ended June 30, 2006 was 44% as compared to the federal statutory rate of 35%. The major reasons for this difference were state income taxes (net of federal benefit), the flow-through of certain book tax depreciation differences and changes in estimates related to tax liabilities of prior tax years subject to audit, partially offset by the flow-through of deferred investment tax credits.

FORWARD-LOOKING STATEMENTS

     Some of the statements contained in this Quarterly Report on Form 10-Q are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and are subject to the safe harbor created by the Private Securities Litigation Reform Act of 1995. These statements include declarations regarding DPL'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 DPL or DPL's 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 herein are qualified in their entirety by reference to the following important factors, which are difficult to predict, contain uncertainties, are beyond DPL'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 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;

· 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;

· The ability to obtain funding in the capital markets on favorable terms;

· Restrictions imposed by Federal and/or state regulatory commissions;

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· Legal and administrative proceedings (whether civil or criminal) and settlements that influence DPL's business and profitability;

· Volatility in market demand and prices for energy, capacity and fuel;

· 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 Quarterly Report and DPL undertakes no obligation to update any forward-looking statements to reflect events or circumstances after the date on which such statements are made or to reflect the occurrence of anticipated events. New factors emerge from time to time, and it is not possible for DPL to predict all such factors, nor can DPL 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 foregoing review of factors should not be construed as exhaustive.

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

ATLANTIC CITY ELECTRIC COMPANY

GENERAL OVERVIEW

     Atlantic City Electric Company (ACE) is engaged in the transmission and distribution of electricity in southern New Jersey. ACE provides Default Electricity Supply, which is the supply of electricity at regulated rates to retail customers in its service territory who do not elect to purchase electricity from a competitive supplier. Default Electricity Supply is also known as Basic Generation Service (BGS) in New Jersey. ACE's service territory covers 2,700 square miles and has a population of 1.0 million.

     ACE is a wholly owned subsidiary of Conectiv, which is wholly owned by Pepco Holdings, Inc. (PHI or Pepco Holdings). Because PHI is a public utility holding company subject to the Public Utility Holding Company Act of 2005 (PUHCA 2005), the relationship between PHI and ACE and certain activities of ACE are subject to the regulatory oversight of the Federal Energy Regulatory Commission under PUHCA 2005.

DISCONTINUED OPERATIONS

     On February 8, 2007, ACE completed the sale of the B.L. England generating facility. B.L. England comprised a significant component of ACE's generation operations and its sale requires "discontinued operations" presentation under Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long Lived Assets", on ACE's Consolidated Statements of Earnings for the three and six months ended June 30, 2007 and 2006. In September 2006, ACE sold its interests in the Keystone and Conemaugh generating facilities, which for the three and six months ended June 30, 2006 were reflected as "discontinued operations".

     The following table summarizes information related to the discontinued operations (millions of dollars):

	For the three months ended June 30,		For the six months ended June 30,
	2007	2006	2007	2006
Operating Revenue	$    -	$22.8	$9.7	$55.0
Income Before Income Tax Expense	$    -	$ 1.4	$  .2	$  2.7
Net Income	$    -	$   .8	$  .1	$  1.6

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RESULTS OF OPERATIONS

     The accompanying results of operations discussion is for the six months ended June 30, 2007, compared to the six months ended June 30, 2006. Other than this disclosure, information under this item has been omitted in accordance with General Instruction H to the Form 10-Q. All amounts in the tables (except sales and customers) are in millions.

Operating Revenue

	2007		2006		Change
Regulated T&D Electric Revenue	$	164.0	$	159.6	$	4.4
Default Supply Revenue		503.4		433.6		69.8
Other Electric Revenue		9.1		7.3		1.8
Total Operating Revenue	$	676.5	$	600.5	$	76.0

     The table above shows the amount of Operating Revenue earned that is subject to price regulation (Regulated Transmission and Distribution (T&D) Electric Revenue and Default Supply Revenue) and that which is not subject to price regulation (Other Electric Revenue). Regulated T&D Electric Revenue consists of the revenue ACE receives for delivery of electricity for which service ACE is paid regulated rates. Default Supply Revenue is the revenue received by ACE for providing Default Electricity Supply. The costs related to the supply of electricity are included in Fuel and Purchased Energy expense. Also included in Default Supply Revenue is revenue from non-utility generators (generation contracts between ACE and unaffiliated third parties (NUGs), transition bond charges, and other restructuring related revenues (see Deferred Electric Service Costs). Other Electric Revenue includes work and services performed on behalf of customers including other utilities, which is not subject to price regulation. Work and services includes mutual assistance to other utilities, highway relocation, rents, late payments, and collection fees.

     Regulated T&D Electric

Regulated T&D Electric Revenue	2007		2006		Change
Residential	$	77.2	$	72.5	$	4.7
Commercial		51.7		50.0		1.7
Industrial		7.5		7.4		.1
Other (Includes PJM)		27.6		29.7		(2.1)
Total Regulated T&D Electric Revenue	$	164.0	$	159.6	$	4.4

Regulated T&D Electric Sales (gigawatt hours (GWh))	2007		2006		Change
Residential		2,020		1,882		138
Commercial		2,139		2,063		76
Industrial		582		607		(25)
Other		22		22		-
Total Regulated T&D Electric Sales		4,763		4,574		189

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Regulated T&D Electric Customers (000s)	2007		2006		Change
Residential		477		472		5
Commercial		63		62		1
Industrial		1		1		-
Other		1		1		-
Total Regulated T&D Electric Customers		542		536		6

     Regulated T&D Electric Revenue increasedby $4.4 million primarily due to the following: (i)$3.9 million higher weather-related sales (an 11% increase in Heating Degree Days, and a 17% increase in Cooling Degree Days), (ii) $1.5 million increase due to differences in consumption among the various customer rate classes and (iii) $1.2 million increase due to customer growth of 1.1%, offset by (iv) $2.1 million decrease in network transmission revenues due to lower PJM Interconnection, LLC (PJM) transmission rates.

     Default Electricity Supply

Default Supply Revenue	2007		2006		Change
Residential	$	198.1	$	159.4	$	38.7
Commercial		162.4		141.1		21.3
Industrial		24.0		26.0		(2.0)
Other (Includes PJM)		118.9		107.1		11.8
Total Default Supply Revenue	$	503.4	$	433.6	$	69.8

Default Electricity Supply Sales (GWh)	2007		2006		Change
Residential		2,020		1,882		138
Commercial		1,558		1,491		67
Industrial		187		201		(14)
Other		22		22		-
Total Default Electricity Supply Sales		3,787		3,596		191

Default Electricity Supply Customers (000s)	2007		2006		Change
Residential		477		472		5
Commercial		63		62		1
Industrial		1		1		-
Other		1		1		-
Total Default Electricity Supply Customers		542		536		6

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     Default Supply Revenue increased by $69.8 million primarily due to the following: (i) $41.2 million increase due to higher retail energy rates, primarily the result of new annual market based rates, (ii) $12.5 million increase in wholesale energy revenues due to the sale into PJM at higher market prices of electricity purchased from NUGs, (iii) $7.6 million increase in higher weather-related sales (an 11% increase in Heating Degree Days and a 17% increase in Cooling Degree Days), (iv) $2.8 million increase due to customer growth of 1.1%, and (v) $6.5 million increase due to differences in consumption among the various customer rate classes (partially offset by Fuel and Purchased Energy Expense).

     For the six months ended June 30, 2007, ACE's customers served energy by ACE represented 80% of ACE's total sales. For the six months ended June 30, 2006, ACE's customers served energy by ACE represented 78% of ACE's total sales.

Operating Expenses

     Fuel and Purchased Energy and Other Services Costs of Sales

     Fuel and Purchased Energy, which is primarily associated with Default Electricity Supply sales, increased by $65.3 million to $466.8 million in 2007 from $401.5 million in 2006. The increase is primarily due to the following: (i) $47.6 million increase in average energy costs, the result of new annual BGS supply contracts, (ii) $11.0 million increase due to higher weather-related sales (an 11% increase in Heating Degree Days and 17% increase in Cooling Degree Days), (iii) $4.8 million increase primarily due to differences in consumption among the various customer rate classes, and (iv) $4.5 million increase due to customer growth, offset by (v) $2.5 million decrease in network transmission costs (partially offset in Default Supply Revenue).

     Other Operation and Maintenance

     Other Operation and Maintenance increased by $2.0 million to $76.9 million in 2007 from $74.9 million in 2006. The increase was primarily due to $1.8 million increase in Demand Side Management (offset in Deferred Electric Service costs).

     Depreciation and Amortization

     Depreciation and Amortization expenses decreased by $25.1 million to $34.5 million in 2007, from $59.6 million in 2006. The decrease is primarily due to lower amortization of regulatory assets.

     Deferred Electric Service Costs

     Deferred Electric Service Costs increased by $27.7 million to an expense of $16.0 million in 2007 from income of $11.7 million in 2006. The increase was primarily due to a $27.1 million net over-recovery associated with New Jersey BGS, NUGs, market transition charges and other restructuring items. At June 30, 2007 ACE's balance sheet included as a regulatory liability an over-recovery of $171.4 million with respect to these items, which is net of a $46.0 million reserve for items disallowed by the New Jersey Board of Public Utilities (NJBPU) in a ruling that is under appeal. The $171.4 million regulatory liability also includes an $81.3 million gain related to the September 1, 2006 sale of ACE's interests in the Keystone and Conemaugh generating facilities and a $14.7 million loss related to the 2007 sale of the B.L. England

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generating facility. For additional information concerning this matter, please refer to Note (4), Commitments and Contingencies to the consolidated financial statements of ACE included herein.

Other Income (Expenses)

     Other Expenses (which are net of Other Income) decreased by $2.2 million to a net expense of $29.0 million in 2007 from a net expense of $31.2 million in 2006. The decrease is primarily due to a $2.5 million Contribution in Aid of Construction tax gross up in 2006.

Income Tax Expense

     ACE's effective tax rate, excluding discontinued operations, for the six months ended June 30, 2007 was 39% as compared to the federal statutory rate of 35%. The major reasons for this difference were state income taxes (net of federal benefit), partially offset by changes in estimates related to tax liabilities of prior tax years subject to audit, and the flow-through of deferred investment tax credits.

     ACE's effective tax rate, excluding discontinued operations, for the six months ended June 30, 2006 was 27% as compared to the federal statutory rate of 35%. The major reasons for this difference were changes in estimates related to tax liabilities of prior tax years subject to audit, an adjustment to accumulated deferred taxes and the flow-through of deferred investment tax credits, partially offset by state income taxes (net of federal benefit).

FORWARD-LOOKING STATEMENTS

     Some of the statements contained in this Quarterly Report on Form 10-Q are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and are subject to the safe harbor created by the Private Securities Litigation Reform Act of 1995. These statements include declarations regarding ACE'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 ACE or ACE's 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 herein are qualified in their entirety by reference to the following important factors, which are difficult to predict, contain uncertainties, are beyond ACE's control and may cause actual results to differ materially from those contained in forward-looking statements:

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· Prevailing governmental policies and regulatory actions affecting the energy industry, including 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;

· 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;

· The ability to obtain funding in the capital markets on favorable terms;

· Restrictions imposed by Federal and/or state regulatory commissions;

· Legal and administrative proceedings (whether civil or criminal) and settlements that influence ACE's business and profitability;

· Volatility in market demand and prices for energy, capacity and fuel;

· 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 Quarterly Report and ACE undertakes no obligation to update any forward-looking statements to reflect events or circumstances after the date on which such statements are made or to reflect the occurrence of anticipated events. New factors emerge from time to time, and it is not possible for ACE to predict all such factors, nor can ACE 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 foregoing review of factors should not be construed as exhaustive.

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Item 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     Risk management policies for PHI and its subsidiaries are determined by PHI's Corporate Risk Management Committee, the members of which are PHI's Chief Risk Officer, Chief Operating Officer, Chief Financial Officer, General Counsel, Chief Information Officer and other senior executives. The Corporate Risk Management Committee monitors interest rate fluctuation, commodity price fluctuation, and credit risk exposure, and sets risk management policies that establish limits on unhedged risk and determine risk reporting requirements.

     For information about PHI's derivative activities, other than the information disclosed herein, refer to "Accounting For Derivatives" in Note 2 and "Use of Derivatives in Energy and Interest Rate Hedging Activities" in Note 13 in the Consolidated Financial Statements of PHI, and Item 7A, "Quantitative and Qualitative Disclosures About Market Risk" included in its Annual Report on Form 10-K for the year ended December 31, 2006.

Pepco Holdings, Inc.

Commodity Price Risk

     The Competitive Energy segments actively engage in commodity risk management activities to reduce their financial exposure to changes in the value of their assets and obligations due to commodity price fluctuations. Certain of these risk management activities are conducted using instruments classified as derivatives under Statement of Financial Accounting Standards (SFAS) No. 133. The Competitive Energy segments also manage commodity risk with contracts that are not classified as derivatives. The Competitive Energy segments' primary risk management objectives are (1) to manage the spread between the cost of fuel used to operate their electric generation plants and the revenue received from the sale of the power produced by those plants by selling forward a portion of their projected plant output and buying forward a portion of their projected fuel supply requirements and (2) to manage the spread between retail sales commitments and the cost of supply used to service those commitments in order to ensure stable and known minimum cash flows and fix favorable prices and margins when they become available.

     PHI's risk management policies place oversight at the senior management level through the Corporate Risk Management Committee which has the responsibility for establishing corporate compliance requirements for the Competitive Energy businesses' energy market participation. PHI collectively refers to these energy market activities, including its commodity risk management activities, as "other energy commodity" activities and identifies this activity separately from that of the discontinued proprietary trading activity. PHI uses a value-at-risk (VaR) model to assess the market risk of its Competitive Energy segments' energy commodity activities. PHI also uses other measures to limit and monitor risk in its commodity activities, including limits on the nominal size of positions and periodic loss limits. VaR represents the potential mark-to-market loss on energy contracts or portfolios due to changes in market prices for a specified time period and confidence level. PHI esti mates VaR using a delta-normal variance / covariance model with a 95 percent, one-tailed confidence level and assuming a one-day holding period. Since VaR is an estimate, it is not necessarily indicative of actual results that may occur.

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Value at Risk Associated with Energy Contracts For the Quarter Ended June 30, 2007 (Millions of dollars)
	Proprietary Trading     VaR	VaR for Competitive Energy Activity (1)
95% confidence level, one-day    holding period, one-tailed
Period end	$   -	$  2.9
Average for the period	$   -	$  6.0
High	$   -	$10.9
Low	$   -	$  2.1

Notes:
(1)	This column represents all energy derivative contracts, normal purchase and sales contracts, modeled generation output and fuel requirements and modeled customer load obligations for the ongoing other energy commodity activities.

     A significant portion of Conectiv Energy's portfolio of electric generating plants consists of "mid-merit" assets and peaking assets. Mid-merit electric generating plants are typically combined cycle units that can quickly change their megawatt output level on an economic basis. These plants are generally operated during times when demand for electricity rises and power prices are higher. Conectiv Energy economically hedges both the estimated plant output and fuel requirements as the estimated levels of output and fuel needs change. Economic hedge percentages include the estimated electricity output of Conectiv Energy's generation plants and any associated financial or physical commodity contracts (including derivative contracts that are classified as cash flow hedges under SFAS No. 133, other derivative instruments, wholesale normal purchase and sales contracts, and load service obligations).

     Conectiv Energy maintains a forward 36 month program with targeted ranges for economically hedging its projected on peak plant output combined with its on-peak energy purchase commitments (based on the then current forward electricity price curve) as follows:

Month	Target Range
1-12	50-100%
13-24	25-75%
25-36	0-50%

     The primary purpose of the risk management program is to improve the predictability and stability of margins by selling forward a portion of its projected plant output, and buying forward a portion of its projected fuel supply requirements. Within each period, hedged percentages can vary significantly above or below the average reported percentages.

     As of June 30, 2007, the electricity sold forward by Conectiv Energy as a percentage of projected on-peak plant output combined with on-peak energy purchase commitments was

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138%, 98%, and 45% for the 1-12 month, 13-24 month and 25-36 month forward periods, respectively. Hedge percentages were above the target ranges for the 1-12 month and 13-24 month periods due to Conectiv Energy's success in the default electricity supply auctions and decreases in projected on-peak plant output since the forward sale commitments were entered into. The amount of forward on-peak sales during the 1-12 month period represents 30% of Conectiv Energy's combined total on-peak generating capability and on-peak energy purchase commitments. The volumetric percentages for the forward periods can vary and may not represent the amount of expected value hedged.

     Not all of the value associated with Conectiv Energy's generation activities can be hedged such as the portion attributable to ancillary services and fuel switching due to the lack of market products, market liquidity, and other factors. Also the hedging of locational value and capacity can be limited.

Credit and Nonperformance Risk

     This table provides information on the Competitive Energy businesses' credit exposure, net of collateral, to wholesale counterparties.

Schedule of Credit Risk Exposure on Competitive Wholesale Energy Contracts (Millions of dollars)
	June 30, 2007
Rating (1)	Exposure Before Credit Collateral (2)	Credit Collateral (3)	Net Exposure	Number of Counterparties Greater Than 10% (4)	Net Exposure of Counterparties Greater Than 10%
Investment Grade	$79.6	$   1.5	$78.1	1	$11.7
Non-Investment Grade	14.4	2.4	12.0	-	-
No External Ratings	25.8	2.9	22.9	-	-
Credit reserves			$ 1.3

(1)	Investment Grade - primarily determined using publicly available credit ratings of the counterparty. If the counterparty has provided a guarantee by a higher-rated entity (e.g., its parent), it is determined based upon the rating of its guarantor. Included in "Investment Grade" are counterparties with a minimum Standard & Poor's or Moody's Investor Service rating of BBB- or Baa3, respectively.
(2)	Exposure before credit collateral - includes the marked to market (MTM) energy contract net assets for open/unrealized transactions, the net receivable/payable for realized transactions and net open positions for contracts not subject to MTM. Amounts due from counterparties are offset by liabilities payable to those counterparties to the extent that legally enforceable netting arrangements are in place. Thus, this column presents the net credit exposure to counterparties after reflecting all allowable netting, but before considering collateral held.
(3)	Credit collateral - the face amount of cash deposits, letters of credit and performance bonds received from counterparties, not adjusted for probability of default, and, if applicable, property interests (including oil and gas reserves).
(4)	Using a percentage of the total exposure.

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     For additional information concerning market risk, please refer to Item 3, "Quantitative and Qualitative Disclosures About Market Risk -- "Commodity Price Risk" and "Credit and Nonperformance Risk," and for information regarding "Interest Rate Risk," please refer to Item 7A, "Quantitative and Qualitative Disclosures About Market Risk" in Pepco Holdings' Annual Report on Form 10-K for the year ended December 31, 2006.

     INFORMATION FOR THIS ITEM IS NOT REQUIRED FOR PEPCO, DPL, AND ACE AS THEY MEET THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION H(1)(a) AND (b) OF FORM 10-Q AND THEREFORE ARE FILING THIS FORM WITH A REDUCED FILING FORMAT.

Item 4.  CONTROLS AND PROCEDURES

Pepco Holdings, Inc.

Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures

     Under the supervision, and with the participation of management, including the chief executive officer and the chief financial officer, Pepco Holdings has evaluated the effectiveness of the design and operation of its disclosure controls and procedures as of June 30, 2007 and, based upon this evaluation, the chief executive officer and the chief financial officer of Pepco Holdings have concluded that these controls and procedures are effective to provide reasonable assurance that material information relating to Pepco Holdings and its subsidiaries that is required to be disclosed in reports filed with, or submitted to, the Securities and Exchange Commission (SEC) under the Securities Exchange Act of 1934, as amended (the Exchange Act) (i) is recorded, processed, summarized and reported within the time periods specified by the SEC rules and forms and (ii) is accumulated and communicated to management, including its chief executive officer and chief financial officer, as approp riate to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

     During the three months ended June 30, 2007, there was no change in Pepco Holdings' internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, Pepco Holdings' internal controls over financial reporting.

Item 4T.  CONTROLS AND PROCEDURES

Potomac Electric Power Company

Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures

     Under the supervision, and with the participation of management, including the chief executive officer and the chief financial officer, Pepco has evaluated the effectiveness of the design and operation of its disclosure controls and procedures as of June 30, 2007, and, based upon this evaluation, the chief executive officer and the chief financial officer of Pepco have concluded that these controls and procedures are effective to provide reasonable assurance that material information relating to Pepco that is required to be disclosed in reports filed with, or submitted to, the SEC under the Exchange Act (i) is recorded, processed, summarized and reported within the time periods specified by the SEC rules and forms and (ii) is accumulated

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and communicated to management, including its chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

     During the three months ended June 30, 2007, there was no change in Pepco's internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, Pepco's internal controls over financial reporting.

Delmarva Power & Light Company

Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures

     Under the supervision, and with the participation of management, including the chief executive officer and the chief financial officer, DPL has evaluated the effectiveness of the design and operation of its disclosure controls and procedures as of June 30, 2007, and, based upon this evaluation, the chief executive officer and the chief financial officer of DPL have concluded that these controls and procedures are effective to provide reasonable assurance that material information relating to DPL that is required to be disclosed in reports filed with, or submitted to, the SEC under the Exchange Act (i) is recorded, processed, summarized and reported within the time periods specified by the SEC rules and forms and (ii) is accumulated and communicated to management, including its chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

     During the three months ended June 30, 2007, there was no change in DPL's internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, DPL's internal controls over financial reporting.

Atlantic City Electric Company

Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures

     Under the supervision, and with the participation of management, including the chief executive officer and the chief financial officer, ACE has evaluated the effectiveness of the design and operation of its disclosure controls and procedures as of June 30, 2007, and, based upon this evaluation, the chief executive officer and the chief financial officer of ACE have concluded that these controls and procedures are effective to provide reasonable assurance that material information relating to ACE and its subsidiaries that is required to be disclosed in reports filed with, or submitted to, the SEC under the Exchange Act (i) is recorded, processed, summarized and reported within the time periods specified by the SEC rules and forms and (ii) is accumulated and communicated to management, including its chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting   

     During the three months ended June 30, 2007, there was no change in ACE's internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, ACE's internal controls over financial reporting.

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Part II    OTHER INFORMATION

Item 1.   LEGAL PROCEEDINGS

Pepco Holdings

     For information concerning litigation matters, please refer to Note (4), Commitments and Contingencies, to the financial statements of PHI included herein.

Pepco

     For information concerning litigation matters, please refer to Note (4), Commitments and Contingencies, to the financial statements of Pepco included herein.

DPL

     For information concerning litigation matters, please refer to Note (4), Commitments and Contingencies, to the financial statements of DPL included herein.

ACE

     For information concerning litigation matters, please refer to Note (4), Commitments and Contingencies, to the financial statements of ACE included herein.

Item 1A.   RISK FACTORS

Pepco Holdings

     For a discussion of Pepco Holdings' risk factors, please refer to Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Risk Factors" in Pepco Holdings' Annual Report on Form 10-K for the year ended December 31, 2006. There have been no material changes to Pepco Holdings' risk factors as disclosed in the 10-K, except that the following risk factor supersedes the risk factor in the Form 10-K entitled "Pending tax legislation could result in a loss of future tax benefits from cross-border energy sale and leaseback transactions entered into by a PHI subsidiary."

Changes in tax law could have a material adverse effect on the tax benefits that PHI realizes from the portfolio of cross-border energy sale-leaseback transactions entered into by one of its subsidiaries.

     In recent years efforts have been made by members of the U.S. Senate to pass legislation that would have the effect of deferring the deduction of losses associated with leveraged lease transactions involving tax-indifferent parties for taxable years beginning after the year of enactment regardless of when the transaction was entered into. These proposals, which would affect transactions such as those included in PCI's portfolio of cross-border energy leases, would effectively defer the deduction of losses associated with such leveraged lease transactions until the taxable year in which the taxpayer recognized taxable income from the lease, which is typically toward the end of the lease term. To date, no such legislation has been enacted; however, PHI anticipates there may be continuing efforts during 2007 by the U.S. Senate to propose legislation directed to the deferral or other curtailment of the tax benefits realized from such transactions. Enactment of legislation of th is nature could result in a material delay of the income tax benefits that PHI would receive in connection with PCI's portfolio of cross-border energy leases.

191

Furthermore, under the Financial Accounting Standards Board Staff Position on Financial Accounting Standards 13-2, PHI would be required to adjust the book value of the leases and record a charge to earnings equal to the repricing impact of the deferred deductions which could result in a material adverse effect on PHI's financial condition, results of operations and cash flows.

Pepco

     For a discussion of Pepco's risk factors, please refer to Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Risk Factors" in Pepco's Annual Report on Form 10-K for the year ended December 31, 2006. There have been no material changes to Pepco's risk factors as disclosed in the 10-K.

DPL

     For a discussion of DPL's risk factors, please refer to Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Risk Factors" in DPL's Annual Report on Form 10-K for the year ended December 31, 2006. There have been no material changes to DPL's risk factors as disclosed in the 10-K.

ACE

     For a discussion of ACE's risk factors, please refer to Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Risk Factors" in ACE's Annual Report on Form 10-K for the year ended December 31, 2006. There have been no material changes to ACE's risk factors as disclosed in the 10-K.

Item 2.    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Pepco Holdings

     None.

     INFORMATION FOR THIS ITEM IS NOT REQUIRED FOR PEPCO, DPL, AND ACE AS THEY MEET THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION H(1)(a) AND (b) OF FORM 10-Q AND THEREFORE ARE FILING THIS FORM WITH A REDUCED FILING FORMAT.

Item 3.    DEFAULTS UPON SENIOR SECURITIES

Pepco Holdings

     None.

     INFORMATION FOR THIS ITEM IS NOT REQUIRED FOR PEPCO, DPL, AND ACE AS THEY MEET THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION H(1)(a) AND (b) OF FORM 10-Q AND THEREFORE ARE FILING THIS FORM WITH A REDUCED FILING FORMAT.

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Item 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Pepco Holdings

(a)    The Annual Meeting of Shareholders was held on May 18, 2007.

(b)    Directors who were elected at the annual meeting:

For Term Expiring in 2008:
Jack B. Dunn IV	Votes cast for: Votes withheld:	152,483,302 4,556,478
Terence C. Golden	Votes cast for: Votes withheld:	153,607,894 3,431,887
Frank O. Heintz	Votes cast for: Votes withheld:	153,560,944 3,478,837
Barbara J. Krumsiek	Votes cast for: Votes withheld:	153,427,927 3,611,853
George F. MacCormack	Votes cast for: Votes withheld:	153,582,553 3,457,228
Richard B. McGlynn	Votes cast for: Votes withheld:	153,507,881 3,531,899
Lawrence C. Nussdorf	Votes cast for: Votes withheld:	153,661,441 3,378,340
Frank K. Ross	Votes cast for: Votes withheld:	153,465,416 3,574,365
Lester P. Silverman	Votes cast for: Votes withheld:	153,534,268 3,505,512
William T. Torgerson	Votes cast for: Votes withheld:	153,529,093 3,510,688

        Directors who are continuing in office:

Term Expires in 2008:

Pauline A. Schneider

Dennis R. Wraase

(c)    The following proposal was voted on at the meeting:

The Board of Directors approved and submitted to a vote of the shareholders a proposal to ratify the appointment of PricewaterhouseCoopers LLP as independent registered public accounting firm of PHI for 2007.

     This proposal passed. The number of shares present and entitled to vote on the proposal was 157,039,781. Adoption of the proposal required the affirmative vote of the holders of a majority of the shares of Pepco Holdings Common Stock present and entitled to vote or 78,519,892 shares. There were 155,910,325 votes cast for the proposal, 176,293 votes cast against the proposal, 953,154 votes abstaining and no broker non-votes.

193

     INFORMATION FOR THIS ITEM IS NOT REQUIRED FOR PEPCO, DPL, AND ACE AS THEY MEET THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION H(1)(a) AND (b) OF FORM 10-Q AND THEREFORE ARE FILING THIS FORM WITH A REDUCED FILING FORMAT.

Item 5.    OTHER INFORMATION

Pepco Holdings and Pepco

     On August 1, 2007, Pepco entered into a settlement agreement with the Comptroller of Maryland on a State income tax refund claim relating to Pepco's divestiture of its generation assets in 2000. Under the agreement, Pepco will receive a refund of taxes paid in the amount of approximately $30 million reflecting a correction of the tax basis of assets sold. The refund will be recorded in the third quarter of 2007, and is expected to result, net of related professional fees, in an increase in both PHI's and Pepco's net income of approximately $17.7 million.

DPL

     None.

ACE

     None.

Item 6.    EXHIBITS

     The documents listed below are being filed or furnished on behalf of Pepco Holdings, Inc. (PHI), Potomac Electric Power Company (Pepco), Delmarva Power & Light Company (DPL), and Atlantic City Electric Company (ACE).

Exhibit
  No.      Registrant(s) Description of Exhibit Reference

10.1	DPL	Transmission Purchase and Sale Agreement By and Between Delmarva Power & Light Company and Old Dominion Electric Cooperative dated as of June 13, 2007	Filed herewith.
10.2	DPL	Purchase And Sale Agreement By and Between Delmarva Power & Light Company and A&N Electric Cooperative dated as of June 13, 2007	Filed herewith.
10.3	DPL	Employment Agreement of Dennis R. Wraase*	Filed herewith.
12.1	PHI	Statements Re: Computation of Ratios	Filed herewith.
12.2	Pepco	Statements Re: Computation of Ratios	Filed herewith.
12.3	DPL	Statements Re: Computation of Ratios	Filed herewith.
12.4	ACE	Statements Re: Computation of Ratios	Filed herewith.
31.1	PHI	Rule 13a-14(a)/15d-14(a) Certificate of Chief Executive Officer	Filed herewith.
31.2	PHI	Rule 13a-14(a)/15d-14(a) Certificate of Chief Financial Officer	Filed herewith.
31.3	Pepco	Rule 13a-14(a)/15d-14(a) Certificate of Chief Executive Officer	Filed herewith.
31.4	Pepco	Rule 13a-14(a)/15d-14(a) Certificate of Chief Financial Officer	Filed herewith.

194

31.5	DPL	Rule 13a-14(a)/15d-14(a) Certificate of Chief Executive Officer	Filed herewith.
31.6	DPL	Rule 13a-14(a)/15d-14(a) Certificate of Chief Financial Officer	Filed herewith.
31.7	ACE	Rule 13a-14(a)/15d-14(a) Certificate of Chief Executive Officer	Filed herewith.
31.8	ACE	Rule 13a-14(a)/15d-14(a) Certificate of Chief Financial Officer	Filed herewith.
32.1	PHI	Certificate of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350	Furnished herewith.
32.2	Pepco	Certificate of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350	Furnished herewith.
32.3	DPL	Certificate of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350	Furnished herewith.
32.4	ACE	Certificate of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350	Furnished herewith.

195

Exhibit 12.1  Statements Re. Computation of Ratios

PEPCO HOLDINGS

				For the Year Ended December 31,
		Six Months Ended  June 30, 2007			2006	2005		2004		2003		2002
		(Millions of dollars)
Income before extraordinary item (a)		$	101.7	$	245.0	$	368.5	$	257.4	$	204.9	$	218.7
Income tax expense			60.1		161.4		255.2		167.3		62.1		124.9
Fixed charges:
Interest on long-term debt,     amortization of discount,     premium and expense			172.0		342.8		341.4		376.2		385.9		229.5
Other interest			8.7		18.8		20.3		20.6		21.7		21.0
Preferred dividend requirements     of subsidiaries			.2		1.2		2.5		2.8		13.9		20.6
Total fixed charges			180.9		362.8		364.2		399.6		421.5		271.1
Non-utility capitalized interest			(.5)		(1.0)		(.5)		(.1)		(10.2)		(9.9)
Income before extraordinary   item, income tax expense,   and fixed charges		$	342.2	$	768.2	$	987.4	$	824.2	$	678.3	$	604.8
Total fixed charges, shown above			180.9		362.8		364.2		399.6		421.5		271.1
Increase preferred stock dividend   requirements of subsidiaries to   a pre-tax amount			.1		.8		1.7		1.8		4.2		11.8
Fixed charges for ratio   computation		$	181.0	$	363.6	$	365.9	$	401.4	$	425.7	$	282.9
Ratio of earnings to fixed charges   and preferred dividends			1.89		2.11		2.70		2.05		1.59		2.14
(a)	Excludes income or losses on equity investments.

196

Exhibit 12.2  Statements Re. Computation of Ratios

PEPCO

				For the Year Ended December 31,
		Six Months Ended June 30, 2007			2006	2005		2004		2003		2002
		(Millions of dollars)
Net income (a)		$	26.7	$	85.4	$	165.0	$	96.5	$	103.2	$	141.1
Income tax expense			18.5		57.4		127.6		55.7		67.3		79.1
Fixed charges:
Interest on long-term debt,     amortization of discount,     premium and expense			39.0		77.1		82.8		82.5		83.8		114.5
Other interest			5.8		12.9		13.6		14.3		16.2		17.3
Preferred dividend requirements     of a subsidiary trust			-		-		-		-		4.6		9.2
Total fixed charges			44.8		90.0		96.4		96.8		104.6		141.0
Non-utility capitalized interest			-		-		-		-		-		(.2)
Income before income tax expense,   and fixed charges		$	90.0	$	232.8	$	389.0	$	249.0	$	275.1	$	361.0
Ratio of earnings to fixed charges			2.01		2.59		4.04		2.57		2.63		2.56
Total fixed charges, shown above			44.8		90.0		96.4		96.8		104.6		141.0
Preferred dividend requirements,   excluding mandatorily redeemable   preferred securities subsequent to   SFAS No. 150 implementation,   adjusted to a pre-tax amount			-		1.7		2.3		1.6		5.5		7.8
Total fixed charges and   preferred dividends		$	44.8	$	91.7	$	98.7	$	98.4	$	110.1	$	148.8
Ratio of earnings to fixed charges   and preferred dividends			2.01		2.54		3.94		2.53		2.50		2.43
(a)	Excludes losses on equity investments.

197

Exhibit 12.3  Statements Re. Computation of Ratios

DPL

			For the Year Ended December 31,
	Six Months Ended June 30, 2007			2006	2005		2004		2003		2002
	(Millions of dollars)
Net income	$	24.6	$	42.5	$	74.7	$	63.0	$	52.4	$	51.5
Income tax expense		13.1		32.1		57.6		48.1		37.0		36.9
Fixed charges:
Interest on long-term debt,     amortization of discount,     premium and expense		21.6		41.3		35.3		33.0		37.2		44.1
Other interest		1.2		2.5		2.7		2.2		2.7		3.6
Preferred dividend requirements     of a subsidiary trust		-		-		-		-		2.8		5.7
Total fixed charges		22.8		43.8		38.0		35.2		42.7		53.4
Income before income tax expense,   and fixed charges	$	60.5	$	118.4	$	170.3	$	146.3	$	132.1	$	141.8
Ratio of earnings to fixed charges		2.65		2.70		4.48		4.16		3.09		2.66
Total fixed charges, shown above		22.8		43.8		38.0		35.2		42.7		53.4
Preferred dividend requirements,   adjusted to a pre-tax amount		-		1.4		1.8		1.7		1.7		2.9
Total fixed charges and   preferred dividends	$	22.8	$	45.2	$	39.8	$	36.9	$	44.4	$	56.3
Ratio of earnings to fixed charges   and preferred dividends		2.65		2.62		4.28		3.96		2.98		2.52

198

Exhibit 12.4  Statements Re. Computation of Ratios

ACE

			For the Year Ended December 31,
	Six Months Ended June 30, 2007			2006	2005		2004		2003		2002
	(Millions of dollars)
Income from continuing operations	$	26.8	$	60.1	$	51.1	$	58.8	$	31.6	$	17.1
Income tax expense		17.2		33.0		41.2		40.7		20.7		5.9
Fixed charges:
Interest on long-term debt,     amortization of discount,     premium and expense		32.9		64.9		60.1		62.2		63.7		55.6
Other interest		1.7		3.2		3.7		3.4		2.6		2.4
Preferred dividend requirements     of subsidiary trusts		-		-		-		-		1.8		7.6
Total fixed charges		34.6		68.1		63.8		65.6		68.1		65.6
Income before extraordinary   item, income tax expense,   and fixed charges	$	78.6	$	161.2	$	156.1	$	165.1	$	120.4	$	88.6
Ratio of earnings to fixed charges		2.27		2.37		2.45		2.52		1.77		1.35
Total fixed charges, shown above		34.6		68.1		63.8		65.6		68.1		65.6
Preferred dividend requirements   adjusted to a pre-tax amount		.2		.5		.5		.5		.5		.9
Total fixed charges and   preferred dividends	$	34.8	$	68.6	$	64.3	$	66.1	$	68.6	$	66.5
Ratio of earnings to fixed charges   and preferred dividends		2.26		2.35		2.43		2.50		1.76		1.33

199

Exhibit 31.1
CERTIFICATION
I, Dennis R. Wraase, certify that:
1.	I have reviewed this report on Form 10-Q of Pepco Holdings, Inc.
2.	Based on my knowledge, this 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 report;
3.	Based on my knowledge, the financial statements, and other financial information included in this 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 report;
4.	The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
	a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared;
	b)	Designed such internal controls over financial reporting, or caused such internal controls over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
	c)	Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
	d)	Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.	The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors:
	a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
	b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date:  August 6. 2007			/s/ D. R. WRAASE                    Dennis R. Wraase Chairman of the Board, President   and Chief Executive Officer

200

Exhibit 31.2
CERTIFICATION
I, Joseph M. Rigby, certify that:
1.		I have reviewed this report on Form 10-Q of Pepco Holdings, Inc.
2.		Based on my knowledge, this 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 report;
3.		Based on my knowledge, the financial statements, and other financial information included in this 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 report;
4.		The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
	a)		Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared;
	b)		Designed such internal controls over financial reporting, or caused such internal controls over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
	c)		Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
	d)		Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.	The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors:
	a)		All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
	b)		Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date:  August 6. 2007				/s/ JOSEPH M. RIGBY                Joseph M. Rigby Senior Vice President and   Chief Financial Officer

201

Exhibit 31.3
CERTIFICATION
I, Thomas S. Shaw, certify that:
1.		I have reviewed this report on Form 10-Q of Potomac Electric Power Company.
2.		Based on my knowledge, this 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 report;
3.		Based on my knowledge, the financial statements, and other financial information included in this 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 report;
4.		The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
	a)		Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared;
	b)		Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
	c)		Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.	The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors:
	a)		All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
	b)		Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date:  August 6. 2007				/s/ T. S. SHAW                                         Thomas S. Shaw President and Chief Executive Officer

202

Exhibit 31.4
CERTIFICATION
I, Joseph M. Rigby, certify that:
1.	I have reviewed this report on Form 10-Q of Potomac Electric Power Company.
2.	Based on my knowledge, this 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 report;
3.	Based on my knowledge, the financial statements, and other financial information included in this 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 report;
4.	The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
		a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared;
		b)	Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
		c)	Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.		The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors:
		a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
		b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date:  August 6. 2007				/s/ JOSEPH M. RIGBY                Joseph M. Rigby Senior Vice President and   Chief Financial Officer

203

Exhibit 31.5
CERTIFICATION
I, Thomas S. Shaw, certify that:
1.	I have reviewed this report on Form 10-Q of Delmarva Power & Light Company.
2.	Based on my knowledge, this 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 report;
3.	Based on my knowledge, the financial statements, and other financial information included in this 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 report;
4.	The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
		a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared;
		b)	Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
		c)	Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.		The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors:
		a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
		b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date:  August 6. 2007				/s/ T. S. SHAW                                        Thomas S. Shaw President and Chief Executive Officer

204

Exhibit 31.6
CERTIFICATION
I, Joseph M. Rigby, certify that:
1.	I have reviewed this report on Form 10-Q of Delmarva Power & Light Company.
2.	Based on my knowledge, this 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 report;
3.	Based on my knowledge, the financial statements, and other financial information included in this 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 report;
4.	The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
		a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared;
		b)	Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
		c)	Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.		The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors:
		a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
		b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date:  August 6. 2007				/s/ JOSEPH M. RIGBY                Joseph M. Rigby Senior Vice President and   Chief Financial Officer

205

Exhibit 31.7
CERTIFICATION
I, Thomas S. Shaw, certify that:
1.	I have reviewed this report on Form 10-Q of Atlantic City Electric Company.
2.	Based on my knowledge, this 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 report;
3.	Based on my knowledge, the financial statements, and other financial information included in this 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 report;
4.	The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
		a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared;
		b)	Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
		c)	Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.		The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors:
		a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
		b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date:  August 6. 2007				/s/ T. S. SHAW                                         Thomas S. Shaw President and Chief Executive Officer

206

Exhibit 31.8
CERTIFICATION
I, Joseph M. Rigby, certify that:
1.	I have reviewed this report on Form 10-Q of Atlantic City Electric Company.
2.	Based on my knowledge, this 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 report;
3.	Based on my knowledge, the financial statements, and other financial information included in this 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 report;
4.	The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
		a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared;
		b)	Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
		c)	Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.		The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors:
		a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
		b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date:  August 6. 2007				/s/ JOSEPH M. RIGBY                Joseph M. Rigby Chief Financial Officer

207

Exhibit 32.1
Certificate of Chief Executive Officer and Chief Financial Officer of Pepco Holdings, Inc. (pursuant to 18 U.S.C. Section 1350)
I, Dennis R. Wraase, and I, Joseph M. Rigby, certify that, to the best of my knowledge, (i) the Quarterly Report on Form 10-Q of Pepco Holdings, Inc. for the quarter ended June 30, 2007, filed with the Securities and Exchange Commission on the date hereof fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and (ii) the information contained therein fairly presents, in all material respects, the financial condition and results of operations of Pepco Holdings, Inc.
August 6. 2007	/s/ D. R. WRAASE                    Dennis R. Wraase Chairman of the Board, President   and Chief Executive Officer
August 6. 2007	/s/ JOSEPH M. RIGBY                Joseph M. Rigby Senior Vice President and   Chief Financial Officer
A signed original of this written statement required by Section 906 has been provided to Pepco Holdings, Inc. and will be retained by Pepco Holdings, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

208

Exhibit 32.2
Certificate of Chief Executive Officer and Chief Financial Officer of Potomac Electric Power Company (pursuant to 18 U.S.C. Section 1350)
I, Thomas S. Shaw, and I, Joseph M. Rigby, certify that, to the best of my knowledge, (i) the Quarterly Report on Form 10-Q of Potomac Electric Power Company for the quarter ended June 30, 2007, filed with the Securities and Exchange Commission on the date hereof fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and (ii) the information contained therein fairly presents, in all material respects, the financial condition and results of operations of Potomac Electric Power Company.
August 6. 2007	/s/ T. S. SHAW                               Thomas S. Shaw President and Chief Executive Officer
August 6. 2007	/s/ JOSEPH M. RIGBY                Joseph M. Rigby Senior Vice President and   Chief Financial Officer
A signed original of this written statement required by Section 906 has been provided to Potomac Electric Power Company and will be retained by Potomac Electric Power Company and furnished to the Securities and Exchange Commission or its staff upon request.

209

Exhibit 32.3
Certificate of Chief Executive Officer and Chief Financial Officer of Delmarva Power & Light Company (pursuant to 18 U.S.C. Section 1350)
I, Thomas S. Shaw, and I, Joseph M. Rigby, certify that, to the best of my knowledge, (i) the Quarterly Report on Form 10-Q of Delmarva Power & Light Company for the quarter ended June 30, 2007, filed with the Securities and Exchange Commission on the date hereof fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and (ii) the information contained therein fairly presents, in all material respects, the financial condition and results of operations of Delmarva Power & Light Company.
August 6. 2007	/s/ T. S. SHAW                                        Thomas S. Shaw President and Chief Executive Officer
August 6. 2007	/s/ JOSEPH M. RIGBY                Joseph M. Rigby Senior Vice President and   Chief Financial Officer
A signed original of this written statement required by Section 906 has been provided to Delmarva Power & Light Company and will be retained by Delmarva Power & Light Company and furnished to the Securities and Exchange Commission or its staff upon request.

210

Exhibit 32.4
Certificate of Chief Executive Officer and Chief Financial Officer of Atlantic City Electric Company (pursuant to 18 U.S.C. Section 1350)
I, Thomas S. Shaw, and I, Joseph M. Rigby, certify that, to the best of my knowledge, (i) the Quarterly Report on Form 10-Q of Atlantic City Electric Company for the quarter ended June 30, 2007, filed with the Securities and Exchange Commission on the date hereof fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and (ii) the information contained therein fairly presents, in all material respects, the financial condition and results of operations of Atlantic City Electric Company.
August 6. 2007	/s/ T. S. SHAW                                 Thomas S. Shaw President and Chief Executive Officer
August 6. 2007	/s/ JOSEPH M. RIGBY                Joseph M. Rigby Chief Financial Officer
A signed original of this written statement required by Section 906 has been provided to Atlantic City Electric Company and will be retained by Atlantic City Electric Company and furnished to the Securities and Exchange Commission or its staff upon request.

211

SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, each of the registrants has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

August 6. 2007	PEPCO HOLDINGS, INC. (PHI) POTOMAC ELECTRIC POWER COMPANY (Pepco) DELMARVA POWER & LIGHT COMPANY (DPL) ATLANTIC CITY ELECTRIC COMPANY (ACE)        (Registrants) By    /s/ JOSEPH M. RIGBY                        Joseph M. Rigby         Senior Vice President and         Chief Financial Officer,             PHI, Pepco and DPL         Chief Financial Officer, ACE
212

INDEX TO EXHIBITS FILED HEREWITH
Exhibit No.	Registrant(s)	Description of Exhibit
10.1	DPL	Transmission Purchase and Sale Agreement By and Between Delmarva Power & Light Company and Old Dominion Electric Cooperative dated as of June 13, 2007
10.2	DPL	Purchase And Sale Agreement By and Between Delmarva Power & Light Company and A&N Electric Cooperative dated as of June 13, 2007
10.3	DPL	Employment Agreement of Dennis R. Wraase*
12.1	PHI	Statements Re: Computation of Ratios
12.2	Pepco	Statements Re: Computation of Ratios
12.3	DPL	Statements Re: Computation of Ratios
12.4	ACE	Statements Re: Computation of Ratios
31.1	PHI	Rule 13a-14(a)/15d-14(a) Certificate of Chief Executive Officer
31.2	PHI	Rule 13a-14(a)/15d-14(a) Certificate of Chief Financial Officer
31.3	Pepco	Rule 13a-14(a)/15d-14(a) Certificate of Chief Executive Officer
31.4	Pepco	Rule 13a-14(a)/15d-14(a) Certificate of Chief Financial Officer
31.5	DPL	Rule 13a-14(a)/15d-14(a) Certificate of Chief Executive Officer
31.6	DPL	Rule 13a-14(a)/15d-14(a) Certificate of Chief Financial Officer
31.7	ACE	Rule 13a-14(a)/15d-14(a) Certificate of Chief Executive Officer
31.8	ACE	Rule 13a-14(a)/15d-14(a) Certificate of Chief Financial Officer

INDEX TO EXHIBITS FURNISHED HEREWITH
Exhibit No.	Registrant(s)	Description of Exhibit
32.1	PHI	Certificate of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350
32.2	Pepco	Certificate of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350
32.3	DPL	Certificate of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350
32.4	ACE	Certificate of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350

213

EX-10.1

EXECUTION COPY

TRANSMISSION PURCHASE AND SALE AGREEMENT

BY AND BETWEEN

DELMARVA POWER & LIGHT COMPANY

and

OLD DOMINION ELECTRIC COOPERATIVE

Dated as of June 13, 2007

TABLE OF CONTENTS
ARTICLE I          DEFINITIONS		1
1.1	Definitions	1
1.2	Construction	9
13	U.S. Dollars	10
ARTICLE II          PURCHASE AND SALE		10
2.1	Transfer of Assets	10
2.2	Excluded Assets	11
2.3	Assumed Liabilities	13
2.4	Excluded Liabilities	14
2.5	Control of Litigation	15
ARTICLE III         THE CLOSING		15
3.1	Closing	15
3.2	Purchase Price	15
3.3	Establishment of Escrow	16
3.4	Adjustment to Purchase Price	16
3.5	Tax Reporting and Allocation of Purchase Price	17
3.6	Prorations	18
3.7	Deliveries by Seller	18
3.8	Deliveries by Buyer	19
3.9	Post-Closing Asset Deliveries	20
ARTICLE IV          REPRESENTATIONS AND WARRANTIES OF SELLER		20
4.1	Organization; Qualification	20
4.2	Authority	21
4.3	Consents and Approvals; No Violation	21
4.4	Insurance	22
4.5	Title and Related Matters	22
4.6	Seller's Environmental Matters	22
4.7	Taxes	23
4.8	Material Transferred Easements	24
4.9	Certain Contracts and Arrangements	24
i
4.10	Legal Proceedings	24
4.11	Permits	24
4.12	Brokers; Finders	25
4.13	Compliance with Laws	25
4.14	No Material Adverse Effect	25
ARTICLE V          REPRESENTATIONS AND WARRANTIES OF BUYER		25
5.1	Organization; Qualification	25
5.2	Authority	25
5.3	Consents and Approvals; No Violation	26
5.4	Availability of Funds	26
5.5	Legal Proceedings	26
5.6	Ability to Close	26
5.7	Brokers; Finders	27
ARTICLE VI          COVENANTS OF THE PARTIES		27
6.1	Conduct of Business Relating to the Purchased Assets	27
6.2	Access to Information	28
6.3	Procedures with Respect to Certain Agreements and Other Assets	30
6.4	Public Statements	30
6.5	Further Assurances	30
6.6	Consents and Approvals	31
6.7	Certain Tax Matters	32
6.8	Right to Update	33
6.9	Employees	33
6.10	Risk of Loss	34
6.11	Equipment Relocation	34
6.12	Meters	34
6.13	Capacitors	34
6.14	Transmission Matters with PJM	34
6.15	Expenses	35
ARTICLE VII          CONDITIONS		35
7.1	Conditions to Obligation of Buyer	35
7.2	Conditions to Obligation of Seller	36
ii
7.3	Conditions to Obligation of Buyer and Seller	37
ARTICLE VIII          INDEMNIFICATION AND ARBITRATION		37
8.1	Indemnification	37
8.2	Defense of Claims	39
8.3	Arbitration	39
ARTICLE IX          TERMINATION		40
9.1	Termination	40
9.2	Effect of Termination	42
ARTICLE X          MISCELLANEOUS PROVISIONS		42
10.1	Amendment and Modification	42
10.2	Bulk Sales Laws	42
10.3	Waiver of Compliance; Consents	42
10.4	Survival	42
10.5	Disclaimers	42
10.6	Notices	43
10.7	Assignment	44
10.8	Governing Law; Forum; Service of Process	45
10.9	Counterparts	45
10.10	Interpretation	45
10.11	Schedules	46
10.12	Disclosure	46
10.13	Entire Agreement	46
10.14	Severability	46
10.15	No Agency	46

LIST OF SCHEDULES
SCHEDULES
1.1(68) 1.1(83) 1.1(93) 2.1(b) 2.1(d) 2.2(a) 3.2(a) 4.3(a)	Permitted Encumbrances Seller's Knowledge Transferable Permits Transmission Assets Seller's Agreements Distribution Assets Net Book Value Calculation Seller's Defaults and Violations
iii
4.3(b) 4.4 4.5(c) 4.6 4.8 4.9(a) 4.9(b) 4.9(c) 4.10 4.12 4.14 5.3(a) 5.3(b) 6.1 6.1(e) 7.1(c) 7.2(c)	Seller's Required Regulatory Approvals Insurance Transferred Easements Exceptions Seller's Environmental Matters Material Transferred Easements Seller's Agreements Seller's Agreements Exceptions Seller's Agreements Defaults and Violations Legal Proceedings Brokers; Finders Material Adverse Effects Buyer's Defaults and Violations Buyer's Required Regulatory Approvals Conduct of Business Exceptions Seller's Budget Certain Buyer's Required Regulatory Approvals Certain Seller's Required Regulatory Approvals
iv
PURCHASE AND SALE AGREEMENT
PURCHASE AND SALE AGREEMENT, dated as of June 13, 2007 (this "Agreement"), by and between Delmarva Power & Light Company, a Virginia corporation ("Seller"), and Old Dominion Electric Cooperative, a Virginia utility aggregation cooperative ("Buyer"). Seller and Buyer may each be referred to herein individually as a "Party," and together as the "Parties."
W I T N E S S E T H
WHEREAS, Seller owns the transmission assets (as described below) and certain properties and assets associated therewith and ancillary thereto; and
WHEREAS, Buyer desires to purchase and assume, and Seller desires to sell and assign, or cause to be sold and assigned, the Purchased Assets (as defined below) and certain associated Liabilities (as defined below), upon the terms and conditions hereinafter set forth in this Agreement;
NOW, THEREFORE, in consideration of the foregoing and of the mutual covenants, representations, warranties and agreements set forth herein, and intending to be legally bound hereby, the Parties hereby agree as follows:
ARTICLE I DEFINITIONS
1.1.         Definitions. As used in this Agreement, the following capitalized terms have the meanings specified in this Section 1.1.
(1)     "Access Agreements" means the agreements between Buyer and Seller, or any Affiliate thereof, to be delivered at the Closing, which shall afford each Party access to certain property and assets as mutually agreed and as necessary to ensure safe and reliable operations.
(2)     "Additional Agreements" means the Restated Interconnection Agreement, the Facilities Agreement, the Operational Coordination Agreement, the Access Agreements, the Special Warranty Deed, the Assignment and Assumption Agreements, the Bill of Sale, the Assignment of Transferred Easements and the Escrow Agreement.
(3)     "Affiliate" means, with respect to any designated Person, any other Person directly or indirectly controlling, or controlled by, or under direct or indirect common control with such designated Person.
(4)     "Agreement" has the meaning set forth in the preamble to this Agreement.
(5)    "Assignment and Assumption Agreements" means the assignment and assumption agreements between Seller and Buyer, to be mutually agreed by the Parties and delivered at the Closing, pursuant to which Seller shall assign the Seller's Agreements, certain
intangible assets and certain other Purchased Assets to Buyer, and Buyer shall accept such assignment and assume the Assumed Liabilities.
(6)     "Assumed Liabilities" has the meaning set forth in Section 2.3.
(7)     "Authorized Agent" has the meaning set forth in Section 10.8.
(8)     "Benefit Plans" means Seller's material deferred compensation, profit-sharing, retirement and pension plans, and all material bonus, fringe benefit and other employee benefit plans, maintained or with respect to which contributions are made by Seller for the benefit of any of Seller's employees.
(9)     "Bill of Sale" means the bill of sale of Seller, to be mutually agreed by the Parties and delivered at the Closing.
(10)    "Business Day" means any day other than Saturday, Sunday and any day on which banking institutions in the Commonwealth of Virginia or the State of New York are authorized or required by Law to close.
(11)    "Buyer" has the meaning set forth in the preamble to this Agreement.
(12)    "Buyer's Indemnitee" has the meaning set forth in Section 8.1(b).
(13)    "Buyer's Knowledge" means the actual knowledge of Lisa D. Johnson or Richard Beam.
(14)    "Buyer's Permits" has the meaning set forth in Section 6.5(a).
(15)    "Buyer's Required Regulatory Approvals" has the meaning set forth in Section 5.3(b).
(16)    "Cap" has the meaning set forth in Section 8.1(a).
(17)    "CERCLA" means the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended.
(18)    "Closing" has the meaning set forth in Section 3.1.
(19)    "Closing Adjustment Amount" has the meaning set forth in Section 3.2(a).
(20)    "Closing Date" has the meaning set forth in Section 3.1.
(21)    "Closing Payment" has the meaning set forth in Section 3.2(c).
(22)    "Closing Statement" has the meaning set forth in Section 3.4(a).
(23)    "COBRA" means Sections 601 through 608 of ERISA and Section 4980B of the Code.
2
(24)    "Code" means the Internal Revenue Code of 1986, as amended.
(25)    "Commercial Arbitration Rules" has the meaning set forth in Section 8.3(c).
(26)    "Commercially Reasonable Efforts" means efforts which are designed to enable a Party to expeditiously satisfy a condition, or otherwise assist, in the consummation of the transaction contemplated by, or the performance of an obligation under, this Agreement, and which do not require the performing Party to expend funds other than expenditures which are customary and reasonable in transactions of the kind and nature contemplated by this Agreement in order for the performing Party to satisfy its obligations hereunder.
(27)    "Confidentiality Agreement" means the Confidentiality Agreement, dated June 29, 2006, between Seller, Buyer and the Distribution Purchaser, as amended.
(28)    "Courts" has the meaning set forth in Section 10.8.
(29)    "Direct Claim" has the meaning set forth in Section 8.2(c).
(30)    "Distribution Assets" has the meaning set forth in Section 2.2(a).
(31)    "Distribution Purchaser" means A&N Electric Cooperative.
(32)    "Distribution Purchase Agreement" means that certain purchase agreement between Seller and the Distribution Purchaser.
(33)    "Easements" means, collectively, (i) all easements, licenses, rights of way and other access rights to be granted by Buyer to Seller or Seller to Buyer, or any Affiliate thereof, pursuant to the Access Agreements, and (ii) all easements, licenses, rights of way and other access rights reserved by Seller, or any Affiliate thereof, in the Special Warranty Deed.
(34)    "Encumbrances" means any and all mortgages, pledges, liens, leases, security interests, easements, activity and use limitations, restrictions, defects of title or other similar encumbrances.
(35)    "Environmental Conditions" means the presence in or Release to the environment, including air, surface and subsurface water, groundwater, soil and sediments, of Hazardous Substances, including any migration of Hazardous Substances through air, surface and subsurface water, groundwater, soil and sediments, at, to or from the Site, or at, to or from any Off-Site Location, regardless of when such presence or Release occurred or is discovered.
(36)    "Environmental Laws" means all Laws relating to pollution or protection of the environment, natural resources or human health and safety, including Laws relating to Releases or threatened Releases of Hazardous Substances or otherwise relating to the manufacture, formulation, generation, processing, distribution, use, treatment, storage, disposal, Release, transport, arrangement for transport for disposal or treatment, arrangement for disposal or treatment, Remediation, abatement, cleanup or handling of Hazardous Substances, including CERCLA.
3
(37)    "Environmental Permits" means all permits, certificates, licenses, approvals and other authorizations of, and required filings with the subdivisions to, all Governmental Authorities under Environmental Laws.
(38)    "ERISA" means the Employee Retirement Income Security Act of 1974, as amended.
(39)    "ERISA Affiliate" has the meaning set forth in Section 2.4(f).
(40)    "Escrow" has the meaning set forth in Section 3.3.
(41)    "Escrow Agent" has the meaning set forth in Section 3.3.
(42)    "Escrow Agreement" means the Escrow Agreement, dated as of the Closing Date, among the Parties and the Escrow Agent, to be mutually agreed by the Parties and delivered at Closing.
(43)    "Escrow Amount" has the meaning set forth in Section 3.3.
(44)    "Estimated Adjustment Amount" has the meaning set forth in Section 3.2(b).
(45)    "Excluded Assets" has the meaning set forth in Section 2.2.
(46)    "Excluded Liabilities" has the meaning set forth in Section 2.4.
(47)    "Facilities Agreement" means the facilities agreement between Buyer and Seller governing the physical interconnection of Buyer's transmission facilities with Seller's transmission facilities.
(48)    "FERC" means the U.S. Federal Energy Regulatory Commission or any successor agency thereto.
(49)    "Good Utility Practices" means any of the practices, methods and acts engaged in or approved by a significant portion of the electric utility industry during the relevant time period, or any of the practices, methods or acts which, in the exercise of reasonable judgment in light of the facts known at the time the decision was made by an entity owning the applicable facilities or equipment throughout their entire useful lives, would have been expected to accomplish the desired result at a reasonable cost consistent with good business practices, reliability, safety and timing requirements.
(50)    "Governmental Authority" means any executive, legislative, judicial, regulatory, tribal or administrative agency, body, commission, department, board, court, tribunal or authority of the U. S. or any foreign country, or any state, local or other governmental subdivision thereof.
(51)    "Hazardous Substances" means (a) any petrochemical or petroleum products, oil or coal ash, coal slag, radioactive materials, radon gas, lead paint, asbestos in any
4
form that is or could become friable, urea formaldehyde foam insulation and transformers or other equipment that contain dielectric fluid which may contain polychlorinated biphenyls, (b) any chemicals, materials or substances defined as or included in the definition of "hazardous substances," "hazardous wastes," "hazardous materials," "hazardous constituents," "restricted hazardous materials," "extremely hazardous substances," "toxic substances," "contaminants," "pollutants," "toxic pollutants" or words of similar meaning and regulatory effect under any applicable Environmental Law and (c) any other chemical, material or substance, exposure to which is prohibited, limited or regulated by any applicable Environmental Law.
(52)    "Income Tax" means any Tax imposed by any Governmental Authority (a) based upon, measured by or calculated with respect to net income, profits or receipts (including capital gains Taxes and minimum Taxes) or (b) based upon, measured by or calculated with respect to multiple bases (including corporate franchise taxes) if one or more of such bases is described in clause (a), in each case, together with any interest, penalties or additions attributable thereto.
(53)    "Indemnifiable Loss" has the meaning set forth in Section 8.1(a).
(54)    "Indemnifying Party" has the meaning set forth in Section 8.1(d).
(55)    "Indemnitee" has the meaning set forth in Section 8.1(b).
(56)    "Independent Accounting Firm" means such nationally recognized, independent accounting firm as is mutually appointed as provided in this Agreement.
(57)    "Initial Amount" has the meaning set forth in Section 3.2(a).
(58)    "Inspection" means all tests, reviews, examinations, inspections, investigations, verifications, samplings and similar activities conducted by Buyer or its Representatives.
(59)    "Known Liabilities" means any liability or obligation relating to all or a portion of the Purchased Assets and arising prior to the Closing, whether liquidated or unliquidated, and whether or not the same should be required by generally accepted accounting principles to be reflected as liabilities in financial statements or disclosed in notes thereto, but excluding any liability or obligation relating to environmental matters, which is either (i) actually known by a member of supervisory management of the Seller or any of its Affiliates, or (ii) reported to any Governmental Authority, health care organization or provider, or emergency medical professional or service.
(60)    "Laws" means all laws, statutes, rules, regulations and ordinances of any Governmental Authority, including common law obligations.
(61)    "Liability" or "Liabilities" means any liability or obligation (whether known or unknown, whether asserted or unasserted, whether absolute or contingent, whether accrued or unaccrued, whether liquidated or unliquidated, whether due or to become due and whether or not the same should be required by generally accepted accounting principles to be
5
reflected as liabilities in financial statements or disclosed in notes thereto), including any liability for Taxes.
(62)    "Material Adverse Effect" means any change or effect that is materially adverse to (a) the ownership or operation of the Purchased Assets after the date hereof or that is materially adverse to the results of operations or financial condition of the Purchased Assets, in all cases, taken as a whole, or (b) the ability of Seller or Buyer to consummate the Closing; other than, in either case, (i) any change or effect affecting the international, national, regional or local electric industry as a whole, and not specific and exclusive to the Purchased Assets, including any change or effect in wholesale or retail markets or local electricity transmission or distribution systems or operations thereof, (ii) changes in general economic conditions, interest rates or securities markets in the United States or worldwide, (iii) changes i n Law, or any judgments, orders or decrees that apply generally to similarly situated Persons, (iv) any change or effect to the extent constituting or involving an Excluded Asset or an Excluded Liability, (v) strikes, work stoppages or other labor disturbances (vi) any matter to the extent that (A) it is disclosed in reasonable detail in any Schedule delivered by Seller and (B) such disclosed matter does not worsen in a material manner, and (vii) any change in or effect on the Purchased Assets which is cured (including by payment of money) before the earlier of the Closing and the termination of this Agreement pursuant to Section 9.1. For the avoidance of doubt, that Parties acknowledge and agree that any increase in value of the Purchased Assets to the Seller following the execution and delivery of this Agreement resulting from any circumstance or event, including a change in Law or the grant of any consents or approvals from any Governmental Authority, shall not constitute a Material Adverse Effect.
(63)    "NERC" means the North American Electric Reliability Council or any successor thereto.
(64)    "Net Book Value" means the acquisition or gross plant value as recorded in account 101, Electric Plant, and 105, Electric Plant Held for Future Use, less all related accumulated depreciation recorded in accounts 108, Accumulated Provision for Depreciation of Electric Utility Plant and account 111, Accumulated Provision for Amortization of Electric Utility Plant. The balances in these accounts include accumulated depreciation and amortization as well as cost of removal, salvage and gain/loss on retirement, all as defined in the FERC Uniform System of Accounts CFR Part 18, Chapter 1. Account 107, Construction Work in Progress, is a component of Utility Plant in Service.
(65)    "Off-Site Location" means any real property other than the Site.
(66)    "Operational Coordination Agreement" means the operational coordination agreement between Seller and Buyer to be delivered at Closing, as mutually agreed by the Parties.
(67)    "Party" and "Parties" have the respective meanings set forth in the preamble to this Agreement.
(68)    "Permitted Encumbrances" means: (a) the Easements; (b) those exceptions to title to the Purchased Assets listed on Schedule 1.1(68); (c) statutory liens for Taxes or other
6
charges or assessments of Governmental Authorities not yet due or delinquent, or which are being contested in good faith by appropriate proceedings and as to which adequate reserves have been made; (d) mechanics', carriers', workers', repairers' and other similar liens arising or incurred in the ordinary course of business which are not delinquent; (e) zoning, entitlement, conservation restriction and other land use and environmental restrictions and regulations of Governmental Authorities which do not materially detract from the value of the Purchased Assets, taken as a whole, as currently used, or materially interfere with the present use of the Purchased Assets, taken as a whole; (f) easements, licenses and rights-of-way which do not materially detract from the value of the Purchased Assets, taken as a whole, as currently used, or materially interfere with the present use of the Purchased Assets, taken as a whole; and (g) Encumbrances created by Buyer, or its successors and assigns; and (h) easements, restrictions, covenants and other matters of record which do not materially detract from the value of the Purchased Assets, taken as a whole, as currently used, or materially interfere with the present use of the Purchased Assets, taken as a whole.
(69)    "Person" means any individual, partnership, limited liability company, joint venture, corporation, trust, unincorporated organization, other entity, business association or Governmental Authority.
(70)    "PJM" means PJM Interconnection, L.L.C., and any successor entity thereto.
(71)    "Prime Rate" has the meaning set forth in Section 3.4(c).
(72)    "Proprietary Information" of a Party means all information about any Party or its properties or operations furnished to the other Party or its Representatives by such Party or its Representatives, from and after the date hereof, regardless of the manner or medium in which it is furnished. Proprietary Information does not include information that: (a) is or becomes generally available to the public, other than as a result of a disclosure by the other Party or its Representatives; (b) was available to the other Party on a non-confidential basis prior to its disclosure by the Party or its Representatives; (c) is or becomes available to the other Party on a non-confidential basis from a source other than such Party; (d) is independently developed by the other Party; or (e) was disclosed pursuant to the Confidentiality Agreeme nt and remains subject to the terms and conditions of the Confidentiality Agreement as long as it is effective.
(73)    "Purchase Price" has the meaning set forth in Section 3.2(a).
(74)    "Purchased Assets" has the meaning set forth in Section 2.1.
(75)    "Regulatory Material Adverse Effect" means, with respect to any Party, any change in or effect resulting from any condition imposed by any Governmental Authority in connection with the grant of such Governmental Authority's consent or approval of the transactions contemplated hereby or by the Additional Agreements that either (a) is materially adverse to such Party, or its results of operations, condition (financial or otherwise), business, properties, assets or liabilities, (b) materially adversely impairs such Party's ability to operate its business, properties or assets substantially in the manner operated on the date hereof, (c) materially detracts from the value of such Party's business, properties or assets, (d) materially
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adversely affects the value of the transactions contemplated hereby or by the Additional Agreements to such Party or the Purchased Assets; provided, that notwithstanding the foregoing, if the changes and effects resulting from any condition so imposed can be liquidated to the payment of money or the incurrence of costs or valued, a "Regulatory Material Adverse Effect" means required payments or the incurrence of costs or Liability which is reasonably expected to equal or exceed $250,000. For the avoidance of doubt, the Parties acknowledge and agree that any increase in value of the Purchased Assets to the Seller following the execution and delivery of this Agreement resulting from any circumstance or event, including a change in Law or the grant of any consents or approvals from any Governmental Authority, shall not constitute a Regulatory Material Adverse Effect.
(76)    "Release" means any release, spill, leak, discharge, disposal of, pumping, pouring, emitting, emptying, injecting, leaching, dumping or allowing to escape into or through the environment, whether air, surface or subsurface water, groundwater, soil or sediment.
(77)    "Remediation" means an action of any kind to address an Environmental Condition or a Release of Hazardous Substances, including the following activities: (a) monitoring, investigation, assessment, treatment, cleanup, containment, removal, mitigation, response or restoration work; (b) obtaining any permits, consents, approvals or authorizations of any Governmental Authority necessary to conduct any such activity; (c) preparing and implementing any plans or studies, and making all relevant filings with and submissions to the relevant Governmental Authorities for any such activity; (d) the use, implementation, application, installation, operation or maintenance of removal actions, remedial technologies applied to the surface or subsurface soils, excavation and treatment or disposal of soils systems for long term treatment of surface water or groundwater, engineering controls or institutional controls; and (e) any other activities required under Environmental Laws to address an Environmental Condition or a Release of Hazardous Substances.
(78)    "Representatives" of a Person means, collectively, such Person's Affiliates and its and their respective directors, officers, partners, members, employees, representatives, agents, advisors (including accountants, legal counsel, environmental consultants, engineering consultants and financial advisors), parent entities and other controlling Persons.
(79)    "Restated Interconnection Agreement" means the restated interconnection agreement between Buyer and Seller governing the physical interconnection between Seller's transmission system and Buyer's distribution system.
(80)    "Seller" has the meaning set forth in the preamble to this Agreement.
(81)    "Seller's Agreements" means, collectively, the contracts, agreements, arrangements, licenses and leases to which Seller is a party, or by or to which Seller or the Purchased Assets is bound or subject, excluding Benefit Plans in each case, relating to the ownership, lease, maintenance or operation of the Purchased Assets.
(82)    "Seller's Indemnitee" has the meaning set forth in Section 8.1(a).
(83)    "Seller's Knowledge" means the actual knowledge of those individuals listed on Schedule 1.1(83).
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(84)    "Seller's Permits" has the meaning set forth in Section 4.11.
(85)    "Seller's Required Regulatory Approvals" has the meaning set forth in Section 4.3(b).
(86)    "Site" has the meaning set forth in the Distribution Purchase Agreement.
(87)    "Tax" or "Taxes" means all taxes, charges, fees, levies, penalties and other assessments imposed by any Governmental Authority, including Income Taxes, gross receipts, excise, property, sales, transfer, use, franchise, payroll, withholding, social security and other taxes, together with any interest, penalties or additions attributable thereto.
(88)    "Tax Return" means any return, report, information return or other document, together with all amendments and supplements thereto (including any related or supporting information), required to be supplied to any Governmental Authority responsible for the administration of Laws governing Taxes.
(89)    "Third-Party Claim" has the meaning set forth in Section 8.2(a).
(90)    "Threshold" has the meaning set forth in Section 8.1(a).
(91)    "Transfer Taxes" has the meaning set forth in Section 6.7(a).
(92)    "Transferred Easements" has the meaning set forth in Section 6.3.
(93)    "Transferable Permits" means those Seller's Permits and Environmental Permits (and all applications pertaining thereto) which are transferable under applicable Laws by Seller to Buyer (with or without a filing with, notice to, consent or approval of any Governmental Authority), as identified on Schedule 1.1(93).
(94)    "VSCC" means Virginia State Corporation Commission.
(95)    "WARN Act" means the Worker Adjustment Retraining and Notification Act of 1988, as amended.
1.2.         Construction. In construing this Agreement, together with the Schedules hereto, the following principles shall be followed:
(a)     references to this Agreement shall include a reference to all schedules hereto;
(b)     the terms "herein," "hereof," "hereby," "hereunder" and other similar terms refer to this Agreement as a whole and not only to the particular Article, Section or other subdivision in which any such terms may be employed;
(c)     except as otherwise set forth herein, references to Articles, Sections, Schedules, and other subdivisions refer to the Articles, Sections, Schedules, and other subdivisions of this Agreement;
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(d)     a reference to any Person shall include such Person's predecessors;
(e)     all accounting terms not otherwise defined herein have the meanings assigned to them in accordance with U.S. generally accepted accounting principles;
(f)     no consideration shall be given to the captions of the Articles, Sections, Schedules, subdivisions, subsections or clauses, which are inserted for convenience in locating the provisions of this Agreement and not as an aid in its construction;
(g)     examples shall not be construed to limit, expressly or by implication, the matter they illustrate;
(h)     the word "includes" and "including" and their syntactical variants mean "includes, but is not limited to" and "including, without limitation," and corresponding syntactical variant expressions;
(i)     a defined term has its defined meaning throughout this Agreement, regardless of whether it appears before or after the place in this Agreement where it is defined;
(j)     the plural shall be deemed to include the singular and vice versa;
(k)    references to any agreement, document or instrument will be construed at a particular time to refer to such agreement, document or instrument as the same may be amended, modified, supplemented or replaced as of such time;
(l)     references to any tariff, rate, or order of any Governmental Authority will mean such tariff, rate or order, as the same may be amended, modified, supplemented or restated and be in effect from time to time;
(m)     if any action or obligation is required to be taken or performed on any day which is not a Business Day, such action or obligation must be performed on the next succeeding Business Day; and
(n)     references to an applicable Law will mean a reference to such applicable Law as the same may be amended, modified, supplemented or restated and be in effect from time to time.
1.3.         U.S. Dollars. When used herein, the term "dollars" and the symbol "$" refer to the lawful currency of the United States.
ARTICLE II PURCHASE AND SALE
2.1.         Transfer of Assets. Upon the terms and subject to the conditions set forth in this Agreement, at the Closing, Seller shall sell, assign, convey, transfer and deliver to Buyer, and Buyer shall purchase, assume and acquire from Seller, free and clear of all Encumbrances, except for the Permitted Encumbrances, all of Seller's right, title and interest in, to and under the
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following assets and properties, except as otherwise provided in Section 2.2 (collectively, the "Purchased Assets"):
(a)     [Reserved];
(b)     The transmission assets of the Seller located on the Virginia Eastern Shore and identified on Schedule 2.1(b).
(c)     [Reserved];
(d)     Subject to the receipt of necessary consents and approvals with respect to assignment, the Seller's Agreements identified on Schedule 2.1(d);
(e)     Subject to the receipt of necessary consents and approvals with respect to assignment, the Transferable Permits;
(f)     [Reserved];
(g)     All books, vendor lists (including electronic records), operating records, maintenance records, engineering designs, plans, system drawings, operating, safety and maintenance manuals, engineering design plans, blueprints and as-built plans, specifications, procedures, and similar items to the extent principally relating to the Purchased Assets (subject to the right of Seller to retain copies of same for its use), other than such items as are proprietary to third parties and accounting records (it being understood that Seller's obligation to transfer such items is for items existing and in such form as currently used with respect to the Purchased Assets); and
(h)     Any other assets of Seller principally related to or necessary for the provision of electric transmission services from Seller through the Purchased Assets on the Virginia Eastern Shore, except for the facilities, or the provision of transmission service over the facilities, identified in Section 2.2.
2.2.         Excluded Assets. Notwithstanding any provision to the contrary in this Agreement, nothing in this Agreement shall constitute or be construed as to require Seller to sell, assign, convey, transfer or deliver, and Buyer shall not be entitled to purchase, assume or acquire, any right, title or interest in, to or under any property, asset, business, operation or division of Seller, or any Affiliate thereof, not identified in Section 2.1, including the following assets and properties which are hereby specifically excluded from the definition of Purchased Assets (collectively, the "Excluded Assets"):
(a)     Assets summarized on Schedule 2.2(a);
(b)     The 138kV and 69kV transmission substation equipment at Oak Hall and Wattsville (Account 353), and certain of the 138kV and 69kV transmission lines, poles, fixtures, and conductors (Accounts 355 and 356), including Kenny to Wattsville, Wattsville to Oak Hall, Oak Hall to Pocomoke, New Church to Oak Hall, and Piney Grove/Oak Hall, New Church;
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(c)     All certificates of deposit, shares of stock, securities, bonds, debentures, evidences of indebtedness, and interests in joint ventures, partnerships, limited liability companies and other entities;
(d)     All cash, cash equivalents, bank deposits, notes receivable, and prepaid expenses, including such as relate to any Excluded Assets or the operation of the Purchased Assets prior to the Closing Date and any income, sales, payroll or other Tax receivables (in each case, whether held by Seller or any third party);
(e)     The right, title and interest of Seller and its successors, assigns and Representatives in, to and under all intellectual property, including, but not limited to, the names "Delmarva Power & Light Company," "Delmarva Power," "DPL," "Conectiv," "Conectiv Power Delivery," "Pepco," "Pepco Holdings" or any derivation thereof, as well as any related or similar name, or any other trade names, trademarks, service marks, corporate names and logos, or any part, derivation, colorable imitation or combination thereof;
(f)     The right, title and interest of Seller and its successors, assigns and Representatives in, to and under all claims against third parties, if any, relating to the ownership, lease, maintenance or operation of any Purchased Assets, by Seller prior to the Closing Date, other than as provided in Section 2.1(f), whether accruing prior to, on or after the Closing Date, including all claims for refunds, prepayments, offsets, recoupment, insurance proceeds, insurance distributions, dividends or other proceeds, condemnation awards, judgments and the like, whether received as payment or credit against future Liabilities;
(g)     All Tax refunds or credits, which refunds or credits are with respect to periods ending prior to the Closing Date, whether directly or indirectly, regardless of when actually paid;
(h)     All employment agreements and personnel records of Seller and its successors, assigns and Representatives;
(i)     The minute books, stock transfer books, corporate seal and other corporate records of Seller and its successors, assigns and Representatives;
(j)     The right, title and interest of Seller and its successors, assigns and Representatives in, to and under all contracts, agreements, arrangements, licenses and leases of any nature, other than the Seller's Agreements set forth on Schedule 2.1(d);
(k)     All assets and properties owned or held by any Benefit Plan;
(l)     All insurance policies relating to the ownership, lease, maintenance or operation of the Purchased Assets;
(m)     All other assets and properties owned or leased by Seller or its successors, assigns and Representatives which are not principally used in or necessary for the operation of the Purchased Assets;
(n)     All of Seller's vehicles;
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(o)     The right, title and interest of Seller and its successors, assigns and Representatives under this Agreement and the Additional Agreements;
(p)     All real property (including all improvements thereon and all appurtenances thereto), but excluding, pursuant to Section 6.3, to the extent transferable, the Transferred Easements; and
(q)     All inventory.
2.3.          Assumed Liabilities. On the Closing Date, Buyer shall assume and agree to pay, perform and otherwise discharge when due all of the following Liabilities of Seller arising or accruing on or after the Closing Date unless otherwise specified (collectively, the "Assumed Liabilities"):
(a)     All Liabilities of Seller, arising or accruing on or after the Closing Date, under (i) the Seller's Agreements identified on Schedule 2.1(d) and the Transferable Permits, in accordance with the respective terms thereof, and (ii) Seller's Agreements entered into by Seller primarily with respect to the Purchased Assets on or after the date hereof consistent with the terms of this Agreement, other than leases of vehicles;
(b)     All Liabilities of Seller which relate to the Purchased Assets in respect of Taxes for which Buyer is liable pursuant to Sections 3.6 or 6.7;
(c)     Except as set forth in Section 2.4(a), (b) or (e), all Liabilities relating to or resulting from the following: (i) any violation of or alleged violation, or non-compliance with, Environmental Laws or Environmental Permits arising from events, conditions or circumstances existing or occurring prior to or on or after the Closing Date, with respect to the ownership, lease, maintenance, construction, modification or operation of the Purchased Assets, including the cost of correcting any such violations or non-compliance, but excluding any fines or penalties arising out of the ownership, maintenance, lease, construction, modification or operation of the Purchased Assets prior to the Closing Date; and (ii) Environmental Conditions or exposure to Hazardous Substances at, on, in, under or adjacent to, or migrating or discharged to or from , the Purchased Assets prior to, on or after the Closing Date, including loss of life, injury to persons or property (including from exposure to asbestos-containing materials) and damage to natural resources (whether or not such loss, injury or damage arose or was made manifest before the Closing Date or arises or becomes manifest after the Closing Date) and Remediation of Environmental Conditions on or after the Closing Date;
(d)     All Taxes that may be imposed by any federal, state or local government on the ownership, lease, maintenance, operations, use or sale of the Purchased Assets (except for Income Taxes) with respect to the period commencing on or after the Closing Date, except for Taxes for which Seller is liable pursuant to Section 3.6; and
(e)     To the extent not identified as one of the Excluded Liabilities pursuant to Section 2.4(a) to (j), all Liabilities relating to the Purchased Assets (i) arising prior to Closing which are not Known Liabilities on or before the date six months after the Closing Date, or (ii) arising on or after the Closing.
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2.4.         Excluded Liabilities. Notwithstanding any provision to the contrary in this Agreement, nothing in this Agreement shall constitute or be construed as to require Buyer to pay, perform or otherwise discharge when due any Liabilities of Seller or any of its Affiliates with respect to the Purchased Assets not expressly referenced in Section 2.3, including the following Liabilities which are hereby specifically excluded from the definition of Assumed Liabilities (the "Excluded Liabilities"):
(a)     Any Liabilities of Seller in respect of any Excluded Assets, including Environmental Conditions existing on, or Releases occurring prior to, the Closing Date on the locations occupied by, or resulting from the construction, ownership or operation of, any of the assets summarized on Schedule 2.2(a), including the Tasley generating facility and any other generating facility of Seller or its Affiliates, whether commissioned or decommissioned;
(b)     Remediation, loss of life, injury to persons or property and damage to natural resources arising from the storage, transportation, treatment, disposal, discharge, recycling or Release, at any Off-Site Location;
(c)     Any Liabilities of Seller in respect of Taxes attributable to the Purchased Assets for taxable periods ending before the Closing Date, except for Taxes for which Buyer is liable pursuant to Section 3.6 or 6.7;
(d)     Any Liabilities of Seller accruing prior to the Closing Date under any of the Seller's Agreements;
(e)     Any fines or penalties imposed by any Governmental Authority resulting from any violation of Law or any Seller's Permit by Seller that occurred prior to the Closing Date, it being understood that costs associated with modifications to the Purchased Assets or the manner of operating the Purchased Assets to correct such violations shall not be deemed to be fines or penalties for purposes hereof;
(f)     Any Liabilities relating to any Benefit Plan maintained by Seller or any trade or business (whether or not incorporated) which is or ever has been under common control, or which is or ever has been treated as a single employer, with Seller under Section 414(b), (c), (m) or (o) of the Code ("ERISA Affiliate") or to which Seller and any ERISA Affiliate contributed thereunder, maintained by, contributed to, or obligated to contribute to, by Seller or any ERISA Affiliate, including any Liability (i) to the Pension Benefit Guaranty Corporation under Title IV of ERISA, or (ii) with respect to any noncompliance by Seller with ERISA;
(g)     Any Liabilities relating to the employment or termination of employment, including discrimination, wrongful discharge or unfair labor practices by Seller of any individual, attributable to any action or omission by Seller prior to the Closing Date;
(h)     Any obligation to provide continuation coverage under COBRA (and notice of the right to elect such coverage) to Seller's employees associated with the Purchased Assets or former dependents of Seller's employees who became eligible for continuation coverage under COBRA on account of a "qualifying event" (as defined under COBRA) occurring prior to the Closing Date;
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(i)     Any Liabilities under lease agreements for any vehicles;
(j)     Any payment Liabilities secured by Permitted Encumbrances and arising prior to Closing relating to (i) mechanics', carriers', workers', repairers' and other similar liens, (ii) obligations for borrowed money or with respect to deposits or advances of any kind, including any Liabilities relating to the lien on the Site in favor of The Bank of New York, individually or as trustee, (iii) obligations upon which interest charges are customarily paid, (iv) all obligations under conditional sale or other title retention agreements, (v) obligations in respect of the deferred purchase price of property or services, (vi) guarantees of indebtedness of others, (vii) capital lease obligations, or (viii) obligations (contingent or otherwise) as an account party in respect of letters of credit or letters of guaranty; and
(k)     To the extent not expressly identified as one of the Assumed Liabilities pursuant to Section 2.3(a) to (d), any Liabilities arising prior to Closing, which become Known Liabilities on or before the date six months after the Closing Date.
2.5.         Control of Litigation. Seller shall be entitled exclusively to control, defend and settle any suit, action or proceeding, and any investigation, arising out of or relating to any Excluded Assets or Excluded Liabilities, and Buyer shall reasonably cooperate with Seller, at Seller's sole cost and expense for out-of-pocket expenses, in connection therewith.
ARTICLE III THE CLOSING
3.1.          Closing. The sale, assignment, conveyance, transfer and delivery of the Purchased Assets by Seller to Buyer, and the purchase, assumption and acquisition by Buyer of the Purchased Assets and the Assumed Liabilities, and the consummation of the other transactions contemplated hereby, shall take place at a closing (the "Closing") to be held at such location as is mutually agreed by the Parties, within five (5) Business Days after the date on which the last of the conditions precedent to the Closing set forth in Article VII of this Agreement, shall have been satisfied or, to the extent permitted by applicable Law, waived by the Party for whose benefit such conditions precedent exist, or at such other date as may be agreed upon between Buyer and Seller. The date on which the Closing actually occurs is hereinafter called the "Closing Date." The Closing shall be effective for all purposes as of 12:01 a.m., New York City time, on the Closing Date.
3.2.          Purchase Price.
(a)     Upon the terms and subject to the conditions set forth in this Agreement, in consideration of the aforesaid sale, assignment, conveyance, transfer and delivery of the Purchased Assets, Buyer shall (i) pay to Seller cash in an aggregate amount equal to Four Million Eight Hundred Thousand Dollars ($4,800,000) (the "Initial Amount") plus or minus such adjustments set forth in this Section 3.2 below ("Closing Adjustment Amount"), subject to Section 3.4 (collectively, the "Purchase Price"), and (ii) assume and agree to pay, perform and otherwise discharge the Assumed Liabilities. For the avoidance of doubt, Buyer acknowledges that its assumption of, and agreement to pay, perform or otherwise discharge, the Assumed Liabilities constitutes an integral part of the consideration to be received by Seller in respect of
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the sale, assignment, conveyance, transfer and deliver of the Purchased Assets hereunder, and that, in the absence of such assumption and agreement by Buyer, Seller would not enter into this Agreement. The Purchase Price shall be (A) increased by the actual installed cost of Purchased Assets acquired since November 30, 2006, and (B) decreased by the Net Book Value of assets or properties which otherwise would have constituted "Purchased Assets" hereunder but for the retirement, disposition or abandonment of such assets or properties prior to the Closing Date. An example of this calculation is set forth on Schedule 3.2(a).
(b)     At least three (3) Business Days prior to the Closing Date, Seller shall provide to Buyer its good faith estimate of the Closing Adjustment Amount, which estimate shall be certified in writing by an appropriate officer of Seller which officer shall be consented to by the Buyer (the "Estimated Adjustment Amount").
(c)     At the Closing, in furtherance but not in duplication of Section 3.2(a), Buyer shall pay to Seller cash in an aggregate amount equal to the Initial Amount, minus the Escrow Amount and plus or minus the Estimated Adjustment Amount (the "Closing Payment"). The Closing Payment shall be paid to Seller by Buyer at the Closing by wire transfer of immediately available funds to the account of Seller designated by Seller at least two (2) Business Days prior to the Closing Date.
3.3.         Establishment of Escrow. At Closing, Buyer shall deliver, or cause to be delivered, an amount equal to Fifty Thousand Dollars ($50,000) of the Purchase Price (the "Escrow Amount") to be paid by Buyer under Section 3.2 to an escrow agent mutually agreed upon by the Parties (the "Escrow Agent"). The Escrow Agent shall hold such funds in escrow (the "Escrow") for three months after the Closing Date, to be used for payments to be made by Seller pursuant to Section 3.2, if any, pursuant to the terms of the Escrow Agreement.
3.4.         Adjustment to Purchase Price.
(a)     Within ninety (90) days after the Closing Date, the Parties shall mutually prepare a statement setting forth the Closing Adjustment Amount (the "Closing Statement") and the amount of any payment to be made, and by whom, pursuant to Section 3.4(c).
(b)     In the event there is disagreement with respect to the preparation of only a portion of the Closing Statement, Buyer or Seller, as the case may be, shall pay all remaining amounts in the manner set forth in Section 3.4(c); and all other amounts shall be paid at such time as all disagreements are resolved provided in accordance with this Section 3.4(b) or otherwise. If the Parties cannot mutually agree on the Closing Statement, then the Parties shall promptly attempt to resolve such disagreements by negotiation. If the Parties are unable to resolve such disagreements within thirty (30) days following such notice of disagreement, then the Parties shall appoint an Independent Accounting Firm within forty-five (45) days following such notice to review the disputed portions of the draft Closing Statement and determine the Closing Adju stment Amount. In the event that Buyer and Seller cannot promptly agree on the selection of an accounting firm to act as the Independent Accounting Firm following the expiration of such forty-five (45) day period, either Party may request the American Arbitration Association to appoint an Independent Accounting Firm, and such appointment shall be final, binding and conclusive on Buyer and Seller. Resolution of any disagreements shall be made by
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the Independent Accounting Firm in a writing addressed to all Parties within thirty (30) days following referral to it by the Parties of such disagreements in accordance with this Agreement. The findings of such Independent Accounting Firm shall be final, binding and conclusive on the Parties. The fees and expenses of the Independent Accounting Firm incurred in the resolution of such dispute shall be borne by the Parties in such proportion as is appropriate to reflect the relative benefits received by Seller on the one hand and Buyer on the other from the resolution of the dispute. For example, if Buyer challenges items underlying the calculation of the Closing Adjustment Amount in the net amount of $100,000, but the Independent Accounting Firm determines that Buyer has a valid claim for only $40,000, Buyer shall bear 60% of the fees and expenses of the Independent Accounting Firm and Seller shall bear the other 40% of such fees and expenses.
(c)     No later than the fifth (5th) Business Day following the determination of the Closing Adjustment Amount pursuant to Section 3.4(b), either (i) Seller shall pay Buyer the amount, if any, by which the Estimated Adjustment Amount exceeds the Closing Adjustment Amount, or (ii) Buyer shall pay Seller the amount, if any, by which the Closing Adjustment Amount exceeds the Estimated Adjustment Amount, in either case, together with simple interest accruing on such payment at the Prime Rate from and after the Closing Date through but not including the date of payment, by wire transfer of immediately available funds to an account designated by the receiving Party. As used herein, "Prime Rate" means, as of any date, the prime rate as published in The Wall Street Journal on such date or, if not published on such da te, on the most recent date of publication.
3.5.         Tax Reporting and Allocation of Purchase Price. Buyer and Seller shall use their Commercially Reasonable Efforts to agree in good faith upon an allocation among the Purchased Assets of the sum of the Purchase Price and the Assumed Liabilities consistent with Section 1060 of the Code and the Treasury Regulations thereunder within sixty (60) days after the determination of the Closing Adjustment Amount pursuant to Section 3.4. In the event that the Parties cannot agree on a mutually satisfactory allocation within such sixty (60) day period, the Parties shall appoint an Independent Accounting Firm that shall, at Seller's and Buyer's joint expense, determine the appropriate allocation. In the event that Buyer and Seller cannot promptly agree on the selection of an accounting firm to act as the Independent Accounting Firm, either Party may request the American Arbitration Association to appoint an Independent Accounting Firm, and such appointment shall be final, binding and conclusive on Buyer and Seller. Resolution of any disagreements shall be made by the Independent Accounting Firm in a writing addressed to all Parties within thirty (30) days following referral to it by the Parties of such disagreements in accordance with this Agreement. The finding of such Independent Accounting Firm shall be final, binding and conclusive on the Parties. After determination of the allocation by agreement of the Parties or by binding determination of the Independent Accounting Firm, Buyer and Seller shall file, for the tax year in which the Closing occurs, Internal Revenue Service Form 8594, and all Tax Returns, in accordance with such allocation. Buyer and Seller shall report the transactions contemplated by this Agreement for U.S. federal Income Tax and all other Tax purposes in a manner consistent with the allocation determined pursuant to this Section 3.5. Buyer a nd Seller shall provide the other promptly with any information required to complete Form 8594. Buyer and Seller shall notify and provide the other with reasonable assistance in the event of an examination, audit or other proceeding regarding the agreed-upon allocation of the Purchase Price and the Assumed Liabilities.
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3.6.         Prorations.
(a)     Except as otherwise provided in this Agreement, all of the items customarily prorated relating to the ownership, lease, maintenance or operation of the Purchased Assets that are attributable to a period commencing prior to the Closing Date and terminating on or after the Closing Date, including those listed below (but expressly excluding Income Taxes), shall be prorated as of the Closing Date, with Seller liable to the extent such items relate to any period prior to the Closing Date, and Buyer liable to the extent such items relate to any period on or after the Closing Date (measured in the same units used to compute the item in question, and otherwise measured by calendar days):
(i)      Personal property, real estate and occupancy Taxes, assessments and other charges, if any, on or with respect to the ownership, lease, maintenance or operation of the Purchased Assets;
(ii)     Rent and all other items (including prepaid services), in each case, payable by or to Seller under any of the Seller's Agreements assigned to and assumed by Buyer hereunder; and
(iii)    Any permit, license, registration, compliance assurance fees or other fees with respect to any Transferable Permit.
(b)     Seller or Buyer, as the case may be, shall promptly reimburse the other Party that portion of any amount paid by such other Party to the extent relating to the period for which Seller or Buyer, as the case may be, is liable under Section 3.6(a), in each case, upon presentation of a statement setting forth in reasonable detail the nature and amount of any such payment. In connection with the prorations set forth in Section 3.6(a), if actual amounts are not available on the Closing Date, the proration shall be calculated based upon the respective amounts accrued through the Closing Date or paid for the most recent year or other appropriate period for which such amounts paid are available. All prorated amounts shall be recalculated and paid to the appropriate Party, if practicable, on the date of the payment of the Closing Adjustmen t Amount pursuant to Section 3.4(c) or otherwise within sixty (60) days after the date that the previously unavailable actual amounts become available. Seller and Buyer shall furnish each other with such documents and other records as may be reasonably requested in order to confirm all proration calculations made pursuant to this Section 3.6. Notwithstanding anything to the contrary herein, no proration shall be made under this Section 3.6 with respect to (i) real property Tax refunds that are Excluded Assets under Section 2.2(h) or (ii) Taxes payable by Buyer pursuant to Section 6.7(a).
3.7.         Deliveries by Seller. At the Closing, Seller shall deliver, or cause to be delivered, the following to Buyer:
(a)     The Special Warranty Deed, duly executed by Seller and in recordable form;
(b)     The Bill of Sale, duly executed by Seller;
(c)     The Assignment and Assumption Agreements, duly executed by Seller;
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(d)     The Access Agreements, duly executed by Seller and in recordable form;
(e)     The Escrow Agreement, duly executed by Seller;
(f)     The Operational Coordination Agreement, duly executed by Seller;
(g)     Evidence, in form and substance reasonably satisfactory to Buyer, demonstrating that Seller has obtained the Seller's Required Regulatory Approvals set forth on Schedule 7.2(c);
(h)     Copies, certified by the Secretary or Assistant Secretary of Seller, of resolutions authorizing the execution, delivery and performance of this Agreement, each Additional Agreement to which Seller is a party and all of the other agreements and instruments, in each case, to be executed, delivered and performed by Seller in connection herewith;
(i)     A certificate of the Secretary or Assistant Secretary of Seller identifying the name and title and bearing the signatures of the officers of Seller authorized to execute and deliver this Agreement, each Additional Agreement to which Seller is a party and the other agreements and instruments contemplated hereby;
(j)     A certificate contemplated by Section 7.1(f);
(k)     All such other agreements, documents, instruments and writings as shall, in the reasonable opinion of Buyer and its counsel, be necessary to sell, assign, convey, transfer and deliver to Buyer the Purchased Assets, in accordance with this Agreement and, where necessary or desirable, in recordable form, provided that Seller shall not be required to prepare or obtain any survey, abstract, title opinion or title insurance policy with respect to the Site;
(l)     A certificate of good standing with respect to Seller from the VSCC;
(m)     Evidence satisfactory to the Buyer of the release and discharge of the lien of the Bank of New York, individually or as trustee, with respect to the Purchased Assets;
(n)     Such other agreements, documents, instruments and writings as are required to be delivered by Seller at or prior to the Closing Date pursuant to this Agreement or otherwise reasonably requested by Buyer in connection herewith; and
(o)     All books, records and other materials referenced in Section 2.1(g) in both hard copy and electronic version, as available; provided that such property shall be delivered to such locations other than the place of Closing as Buyer may reasonably direct.
3.8.         Deliveries by Buyer. At the Closing, Buyer shall deliver, or cause to be delivered, the following to Seller:
(a)     The Closing Payment, by wire transfer of immediately available funds, in accordance with Seller's instructions to the account of Seller designated by Seller at least two (2) Business Days prior to the Closing Date and the Escrow Amount to the Escrow Agent, which shall have entered into the Escrow Agreement;
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(b)     The Assignment and Assumption Agreements, duly executed by Buyer;
(c)     The Access Agreements, duly executed by Buyer;
(d)     The Escrow Agreement, duly executed by Buyer;
(e)     The Operational Coordination Agreement, duly executed by Buyer;
(f)     Evidence, in form and substance reasonably satisfactory to Seller, demonstrating that Buyer has obtained the Buyer's Required Regulatory Approvals set forth on Schedule 7.1(c);
(g)     Copies, certified by the Secretary or Assistant Secretary of Buyer, of resolutions authorizing the execution, delivery and performance of this Agreement, each Additional Agreement to which Buyer is a party, and all of the other agreements and instruments, in each case, to be executed, delivered and performed by Buyer in connection herewith;
(h)     A certificate of the Secretary or Assistant Secretary of Buyer identifying the name and title and bearing the signatures of the officers of Buyer authorized to execute and deliver this Agreement, each Additional Agreement to which Buyer is a party and the other agreements contemplated hereby;
(i)     A certificate contemplated by Section 7.2(f); and
(j)     Such other permits, agreements, documents, instruments and writings as are required to be delivered by Buyer at or prior to the Closing Date pursuant to this Agreement or otherwise reasonably requested by Seller in connection herewith.
3.9.         Post-Closing Asset Deliveries. In the event that Seller or Buyer, or any of their respective Representatives, shall determine after the Closing that any Purchased Asset is in the possession of the Seller (or any of its Representatives) or that any Excluded Asset is in the possession of the Buyer (or any of its Representatives), the Party in possession of such asset or assets shall, or shall cause their respective Representatives to, promptly, but in no event later than five (5) Business Days following such determination, pay or deliver, or cause to be paid or delivered, to the other Party such asset or assets, at the sole cost and expense of the Party in possession of such asset or assets.
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF SELLER
As an inducement to Buyer to enter into this Agreement and consummate the transactions contemplated hereby, Seller hereby represents and warrants to Buyer as follows:
4.1.         Organization; Qualification. Seller is a corporation validly existing and in good standing under the laws of the Commonwealth of Virginia and has all requisite corporate power and authority to own, lease and operate its properties and to carry on its business as it is now being conducted. Seller is duly qualified to do business as a foreign corporation and is in good
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standing under the laws of each jurisdiction in which its business as now being conducted requires it to be so qualified, except to the extent that the failure to be so qualified is not, individually or in the aggregate, reasonably expected to have a Material Adverse Effect.
4.2.         Authority. Seller has full corporate power and authority to execute and deliver this Agreement and each Additional Agreement to which it is a party and to consummate the transactions contemplated hereby and thereby. The execution and delivery by Seller of this Agreement and each Additional Agreement to which it is a party and the consummation by Seller of the transactions contemplated hereby and thereby have been duly authorized by all necessary corporate action required on the part of Seller. This Agreement has been duly executed and delivered by Seller; and this Agreement constitutes, and upon the execution and delivery by Seller of each Additional Agreement to which it is a party, each such Additional Agreement will constitute, the valid and binding obligation of Seller, enforceable against Seller in accordance with its terms, except that (a) such enforceability may be subject to any bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or other Laws now or hereafter in effect affecting or relating to enforcement of creditors' rights generally and (b) the remedy of specific performance and injunctive and other forms of equitable relief may be subject to equitable defenses and to the discretion of the court before which any proceeding therefor may be brought.
4.3.         Consents and Approvals; No Violation.
(a)     Except as set forth on Schedule 4.3(a), subject to obtaining or making all Seller's Required Regulatory Approvals, neither the execution and delivery by Seller of this Agreement and the Additional Agreements to which it is a party nor the consummation by Seller of the transactions contemplated hereby and thereby will (i) conflict with or result in any breach of any provision of the certificate of incorporation or bylaws of Seller; (ii) result in a default (or give rise to any right of termination, cancellation or acceleration or result in the imposition of a lien on any of its assets) under any of the terms, conditions or provisions of any note, bond, mortgage, indenture, agreement, lease or other instrument or obligation to which Seller is a party or by which it, or any of the Purchased Assets, may be bound, except for such defaul ts (or rights of termination, cancellation, acceleration or resulting liens) as to which requisite consents, approvals or waivers have been or will prior to the Closing be obtained, or which are not reasonably expected to individually or in the aggregate, have a Material Adverse Effect; or (iii) violate any Law, order, judgment or decree applicable to Seller or any of the Purchased Assets, which violation, individually or in the aggregate, is not reasonably expected to result in a Material Adverse Effect.
(b)     Except for consents, approvals, filings and notices (including those consents, approvals, filings and notices required in connection with the transfers by Seller to Buyer of Transferable Permits) set forth on Schedule 4.3(b) (the consents, approvals, filings and notices referred to in this paragraph are collectively referred to herein as the "Seller's Required Regulatory Approvals"), no consent or approval of, filing with, or notice to, any Governmental Authority is necessary for the execution and delivery by Seller of this Agreement and the Additional Agreements to which it is a party or the consummation by Seller of the transactions contemplated hereby or thereby, other than (i) such consents, approvals, filings and notices which, if not obtained or made, do not materially impair Seller's ability to perform its material
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obligations under this Agreement or such Additional Agreements; (ii) such consents, approvals, filings and notices which become applicable to Seller or the Purchased Assets as a result of the status of Buyer (or any of its Affiliates) or as a result of any other facts that specifically relate to the business or activities in which Buyer (or any of its Affiliates) is or proposes to be engaged; and (iii) such consents, approvals, filings and notices, the failure of which to obtain or make are not, individually or in the aggregate, reasonably expected to have a Material Adverse Effect.
4.4.         Insurance. Schedule 4.4 sets forth all material liability, property, workers' compensation and other insurance policies with respect to the Purchased Assets. To Seller's Knowledge, the Purchased Assets are insured in such amounts and against such risks and losses as are customary in accordance with Good Utility Practices, no premiums due under any such material insurance policy have not been paid (to the extent any such non-payment would entitle the insurer to terminate such policy) and Seller has not received any written notice of cancellation, termination or denial of a claim thereunder with respect to any material insurance policy of Seller providing coverage in respect of the Purchased Assets which was not replaced prior to the date of cancellation or termination. To Seller's Knowledge, all material insurance policies of Seller covering the Purchased A ssets are in full force and effect, provided, however, that coverage of the Purchased Assets under the Seller's insurance policies will terminate as of the Closing. Seller has not been refused any such insurance with respect to any material Purchased Asset.
4.5.         Title and Related Matters.
(a)     Except for Permitted Encumbrances, Seller has good and valid title to the Purchased Assets, free and clear of all Encumbrances.
(b)     To Seller's Knowledge, the Purchased Assets have been maintained consistent with Good Utility Practice, except to the extent that the failure to so maintain the Purchased Assets, taken as a whole, is not reasonably expected to have a Material Adverse Effect.
(c)     Except as set forth on Schedule 4.5(c), the Transferred Easements are all of the easements, railroad crossing rights and rights of way, and similar rights (other than public rights of way) necessary for the operation of the Purchased Assets as currently operated, except those that are not reasonably expected to have a Material Adverse Effect.
4.6.        Seller's Environmental Matters. Notwithstanding anything contained herein, Sections 4.3, 4.6 and 4.10 are the only Sections containing representations and warranties relating to environmental matters. Except as set forth on Schedule 4.6:
(a)     Seller holds, and is in compliance and has been in compliance over the last six (6) years, in all respects with, all Environmental Permits that Seller requires in order to own, lease, maintain and operate the Purchased Assets, and Seller is and has been over the last six (6) years, otherwise in compliance in all respects with applicable Environmental Laws with respect to the ownership, lease, maintenance or operation of the Purchased Assets, except in all cases for such failures to hold or comply with required Environmental Permits, and such failures to be in
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compliance with applicable Environmental Laws, as are not, individually or in the aggregate, reasonably expected to have a Material Adverse Effect .
(b)     Seller has not received any written or, to Seller's Knowledge, oral (i) request for information or notice that it is a potentially responsible party under CERCLA or any similar state law, with respect to the Site, or (ii) unresolved notice alleging any material violations of Environmental Laws or Environmental Permits.
(c)     Seller has not entered into or agreed to any decree, order or judgment under any Environmental Law relating to the Purchased Assets, and, to Seller's Knowledge, Seller is not subject to any outstanding decrees, orders or judgments relating to compliance with any Environmental Law or to the Remediation of Hazardous Substances under any Environmental Law relating to the Purchased Assets or the Site except for such decrees, orders and judgments as are not material.
(d)     Seller has delivered or made available all material environmental reports (including all Phase I Environmental Site Assessment reports, or Phase II Environmental Site Assessment reports, if applicable), investigations and studies relating to any of the Purchased Assets within the last six (6) years.
(e)     To Seller's Knowledge, there has been no Release of Hazardous Substances on, in, under or onto any part of the Site in respect of which a Governmental Authority has required or may require under applicable Environmental Laws any material Remediation except as are not, individually or in the aggregate, reasonably expected to have a Material Adverse Effect.
(f)     To Seller's Knowledge, there are no underground storage tanks or related piping, asbestos-containing materials or polychlorinated biphenyl-containing transformers or other equipment, active or abandoned, on the Site or included in the Purchased Assets, except as are not, individually or in the aggregate, reasonably expected to have a Material Adverse Effect.
4.7.         Taxes. Seller has timely filed all Tax Returns required to be filed by Seller with respect to the conduct and ownership of the Purchased Assets, including Tax Returns for all applicable federal, state and local income, franchise, sales, use, property, excise and other Taxes, and such Tax Returns are true and correct in all material respects. Seller has paid all material Taxes required to be paid pursuant to such Tax Returns or otherwise required by Law to be paid by it, and there are no other material Taxes payable on account of the ownership of the Purchased Assets from the date of the inception of Seller's investment in the Purchased Assets, except for Taxes not yet due in the ordinary course of business (for which adequate reserves have been established). All other federal, state and local Taxes which Seller was or is required by Law to withhold or collect have been and are be ing withheld or collected by it and are being paid over to the proper Governmental Authorities or are being held by Seller in accordance with Law for such payment. Seller has not made any Tax elections with respect to the Purchased Assets that will bind Buyer. None of the Purchased Assets is tax-exempt use property within the meaning of Section 168(h) of the Code or tax-exempt bond financed property within the meaning of Section 168(g)(5) of the Code and none of such assets is subject to any lease made pursuant to
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Section 168(f)(8) of the Code (as in effect prior to the enactment of the Tax Reform Act of 1986).
4.8.         Material Transferred Easements. Schedule 4.8 sets forth a description of the material Transferred Easements. Seller has not received written notice of any pending or, to Seller's Knowledge, threatened proceedings or actions by any Governmental Authority to modify the zoning classification of or to condemn or take by eminent domain or to classify as a landmark all or any material part of the Purchased Assets.
4.9.         Certain Contracts and Arrangements.
(a)     Schedule 4.9(a) sets forth a list of all written Seller's Agreements, other than such contracts, licenses, agreements, arrangements and leases as (i) constitute Excluded Assets or relate solely to Excluded Liabilities, (ii) may be terminated after the Closing by Buyer upon notice of no more than sixty (60) days, (iii) have been entered into in the ordinary course of business and do not individually involve annual payment obligations in excess of $250,000, (iv) are expected to expire or terminate prior to the Closing, or (v) are entered into by Seller after the date hereof consistent with the terms of this Agreement.
(b)     Except as set forth on Schedule 4.9(b), each Seller's Agreement set forth on Schedule 4.9(a) constitutes a legal, valid and binding obligation of Seller and, to Seller's Knowledge, the other parties thereto.
(c)     Except as set forth on Schedule 4.9(c), (i) there is not under any Seller's Agreement set forth on Schedule 4.9(a) any default or event which, with notice or lapse of time or both, would constitute a default on the part of Seller or, any other party thereto, except such defaults as are not, individually or in the aggregate, reasonably expected to have a Material Adverse Effect, or (ii) to Seller's Knowledge, no party has repudiated any provision of any Seller's Agreements.
4.10.       Legal Proceedings. Except as set forth on Schedule 4.10, there are no suits, actions or proceedings pending or, to Seller's Knowledge, threatened against Seller or relating to the Purchased Assets by or before any Governmental Authority, which are, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. Except as set forth on Schedule 4.10, Seller is not subject to any judgment, order or decree of any Governmental Authority which are, individually or in the aggregate, reasonably expected to have a Material Adverse Effect.
4.11.       Permits. Seller holds, and is in compliance with, all permits, certificates, licenses and other authorizations of all Governmental Authorities (collectively, "Seller's Permits") that Seller requires in order to own, lease, maintain and operate the Purchased Assets, except for (a) those Environmental Permits which are governed by Section 4.6 and (b) such failures to hold, or comply with, Seller's Permits as individually or in the aggregate are not reasonably expected to have a Material Adverse Effect. Except as disclosed in Section 4.6, or individually or in the aggregate are not reasonably expected to have a Material Adverse Effect, (i) Seller has not received any written notification that it is in violation of any such Seller's Permits, and (ii) Seller is in compliance in all material respects with all such Seller's Permits.
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4.12.       Brokers; Finders. Except as set forth on Schedule 4.12, Seller has not, and none of Seller's Affiliates have, retained any financial advisor, broker, agent, or finder or paid or agreed to pay any financial advisor, broker, agent, or finder on account of this Agreement or the transactions contemplated hereby. Buyer shall not have any responsibility or liability (financial or otherwise) with respect to any Person set forth on Schedule 4.12.
4.13.       Compliance with Laws. Except as individually or in the aggregate are not reasonably expected to have a Material Adverse Effect, Seller is in compliance with all applicable Laws or orders of any Governmental Authority applicable to the Purchased Assets. To Seller's Knowledge, no investigation by any Governmental Authority with respect to Seller or any of its Affiliates is pending or threatened, except as individually or in the aggregate are not reasonably expected to have a Material Adverse Effect.
4.14.       No Material Adverse Effect. Except as set forth in Schedule 4.14, or as required by the terms of this Agreement, since November 30, 2006, no change, effect, development or event has occurred which, either individually or in the aggregate, taken as a whole, with all effects, events, developments or changes, has or is reasonably expected to result in a Material Adverse Effect.
ARTICLE V REPRESENTATIONS AND WARRANTIES OF BUYER
As an inducement to Seller to enter into this Agreement and consummate the transactions contemplated hereby, Buyer hereby represents and warrants to Seller as follows:
5.1.         Organization; Qualification. Buyer is a utility aggregation cooperative validly existing and in good standing under the laws of the Commonwealth of Virginia and has all requisite cooperative power and authority to own, lease and operate its properties and to carry on its business as it is now being conducted. Buyer is, or by the Closing will be, qualified to do business in the Commonwealth of Virginia.
5.2.         Authority. Buyer has full cooperative power and authority to execute and deliver this Agreement and each Additional Agreement to which it is a party and to consummate the transactions contemplated hereby and thereby. The execution and delivery of this Agreement and each such Additional Agreement by Buyer and the consummation by Buyer of the transactions contemplated hereby and thereby have been duly authorized by all necessary action required on the part of Buyer. This Agreement has been duly executed and delivered by Buyer; and this Agreement constitutes, and upon the execution and delivery by Buyer of each Additional Agreement to which it is a party, each such Additional Agreement will constitute, the valid and binding obligation of Buyer, enforceable against Buyer in accordance with its terms, except that (a) such enforceability may be subject to any ban kruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or other Laws now or hereafter in effect affecting or relating to enforcement of creditors' rights generally and (b) the remedy of specific performance and injunctive and other forms of equitable relief may be subject to equitable defenses and to the discretion of the court before which any proceeding therefor may be brought.
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5.3.         Consents and Approvals; No Violation.
(a)     Except as set forth on Schedule 5.3(a), and subject to obtaining or making all Buyer's Required Regulatory Approvals, neither the execution and delivery by Buyer of this Agreement and the Additional Agreements to which it is a party nor the consummation by Buyer of the transactions contemplated hereby and thereby will (i) conflict with or result in any breach of any provision of the articles of incorporation or bylaws of Buyer; (ii) result in a default (or give rise to any right of termination, cancellation or acceleration or result in the imposition of a lien on any of its assets) under any of the terms, conditions or provisions of any note, bond, mortgage, indenture, agreement, lease or other instrument or obligation to which Buyer is a party or by which Buyer or any of its properties and assets may be bound, except for such defa ults (or rights of termination, cancellation, acceleration or resulting liens) as to which requisite consents, approvals or waivers have been or will be prior to the Closing obtained, or which are not reasonably expected to, individually or in the aggregate, have a Material Adverse Effect; or (iii) violate any Law, order, judgment or decree applicable to Buyer or its assets, which violation, individually or in the aggregate, is not reasonably expected to result in a Material Adverse Effect.
(b)     Except for consents, approvals, filings and notices set forth on Schedule 5.3(b) (such consents, approvals, filings and notices referred are collectively referred to herein as the "Buyer's Required Regulatory Approvals"), no consent or approval of, filing with, or notice to, any Governmental Authority is necessary for the execution and delivery by Buyer of this Agreement and the Additional Agreements to which it is a party or the consummation by Buyer of the transactions contemplated hereby or thereby, other than such consents, approvals, filings or notices which, if not obtained or made, are not reasonably expected to have a Material Adverse Effect on Buyer's ability to consummate the transactions contemplated hereby or by any Additional Agreement to which it is a party, or to perform its material obligations hereunder or t hereunder.
5.4.         Availability of Funds. Buyer has sufficient funds on hand or available to it pursuant to existing lines of credit, or has received binding written commitments from creditworthy financial institutions, true and correct copies of which have been provided to Seller, to permit Buyer on the Closing Date to pay the Purchase Price, all other amounts payable by Buyer hereunder or under any Additional Agreement, including all Assumed Liabilities, and all fees and expenses incurred by Buyer in connection with the transactions contemplated hereby and by the Additional Agreements, and to permit Buyer to timely pay or perform all of its other obligations under this Agreement and the Additional Agreements.
5.5.         Legal Proceedings. There are no suits, actions or proceedings pending or threatened against Buyer or its assets by or before any Governmental Authority, which are, individually or in the aggregate, reasonably expected to have a Material Adverse Effect. Buyer is not subject to any judgments, orders or decrees of any Governmental Authority which, individually or in the aggregate, have a Material Adverse Effect.
5.6.         Ability to Close. The Buyer has no reason to believe that it will not be able to satisfy on a timely basis any term or condition contained in this Agreement, or that the full
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amount of the consideration payable by the Buyer to the Seller, pursuant to this Agreement will not be available to it as of the Closing.
5.7.         Brokers; Finders. Buyer has not, and none of Buyer's Affiliates have, retained any financial advisor, broker, agent, or finder or paid or agreed to pay any financial advisor, broker, agent, or finder on account of this Agreement or the transactions contemplated hereby.
ARTICLE VI COVENANTS OF THE PARTIES
6.1.         Conduct of Business Relating to the Purchased Assets. Except as set forth on Schedule 6.1, as required for Seller to comply with applicable Law, as contemplated by this Agreement or any Additional Agreement, or to the extent Buyer otherwise consents in writing (such consent not to be unreasonably withheld or delayed), during the period from the date of this Agreement to the Closing Date, Seller shall operate the Purchased Assets in the ordinary course of business consistent with the past practices of Seller and in accordance with Good Utility Practices, and shall use all Commercially Reasonable Efforts to preserve intact the Purchased Assets, and endeavor to preserve the goodwill and relationships with customers, vendors, suppliers, employees and others having business dealings with the Seller. Without limiting the generality of the foregoing, and, except a s set forth on Schedule 6.1, as required for Seller to comply with applicable Law, as contemplated by this Agreement or any Additional Agreement, or to the extent Buyer otherwise consents in writing (such consent not to be unreasonably withheld or delayed), between the date hereof and the Closing Date, Seller shall not, with respect to the Purchased Assets:
(a)     Sell, lease (as lessor), encumber, pledge, transfer or otherwise dispose of, any Purchased Assets (except for Purchased Assets used, consumed or replaced in the ordinary course of business consistent with past practices of Seller or and in accordance with Good Utility Practices) other than to the extent that any such action results in a Permitted Encumbrance;
(b)     Modify, amend or voluntarily terminate prior to the expiration date any material Seller's Agreement set forth on Schedule 2.1(d), other than (i) in the ordinary course of business, to the extent consistent with the past practices of Seller and in accordance with Good Utility Practices or (ii) as may be required in connection with transferring Seller's rights or obligations thereunder to Buyer pursuant to this Agreement;
(c)     Enter into any contract, agreement, commitment or arrangement relating to the Purchased Assets that provides for future payments in any twelve-month period that individually exceed $100,000 or in the aggregate exceed $250,000, unless it is terminable by Seller without penalty or premium upon no more than sixty (60) days' notice, other than any contract, commitment or arrangement relating to any capital expenditure;
(d)     Make any material change in the level of inventories customarily maintained by Seller with respect to the Purchased Assets, other than in the ordinary course of business or consistent with Good Utility Practice;
(e)     Make or commit to any capital expenditures relating to the Purchased Assets in excess of 110% of the amount reflected for such expenditures in the Seller's budget
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attached hereto as Schedule 6.1(e), for the year in which those capital expenditures are made, except for capital expenditures (A) required under any Seller's Agreement or by a Governmental Authority; (B) incurred in connection with the repair or replacement of facilities destroyed or damaged due to casualty or accident (whether or not covered by insurance); or (C) necessary or appropriate under Good Utility Practices to provide or maintain safe and adequate electric transmission services on the Virginia Eastern Shore;
(f)     Except as consistent with past practice, agree or consent to any material changes in courses of dealing with the VSCC, PJM or the FERC, in each case in respect of the operations of the Purchased Assets, except as required by applicable Law, with respect to the SOS case currently pending, or to obtain or renew Transferable Permits or agreements in the ordinary course of business consistent with past practice;
(g)     Fail to maintain insurance on the Purchased Assets with financially responsible insurance companies (or if applicable, self insure) in such amounts and against such risks in the ordinary course of business consistent with past practice;
(h)     Other than in the ordinary course of business, amend in any material respect or allow to terminate or lapse in any material respect, any Seller's Permit material to the Purchased Assets, taken as a whole, other than as required by applicable Law;
(i)     Enter into any agreements which would be transferred to Buyer under Section 2.1(d) that would limit or otherwise restrict in any material respect the use of the Purchased Assets;
(j)     With respect to the Purchased Assets, change, in any material respect, its accounting methods or practices (except in accordance with changes in generally accepted accounting principles, subject to FERC's uniform system of accounts), credit practices, collection policies, or investment, financial reporting, or inventory practices or policies or the manner in which the books and records relating to the Purchased Assets are maintained; and
(k)     Except as otherwise provided herein, enter into any written or oral contract, agreement, commitment or arrangement with respect to any of the prohibited transactions set forth in the foregoing paragraphs (a) through (j).
To Seller's Knowledge and to Buyer's Knowledge, neither Party shall take any action that is intended to result in any of the conditions to Closing set forth in Article VII not being satisfied.
6.2.        Access to Information.
(a)     Between the date of this Agreement and the Closing Date, Seller shall: (i) give Buyer and its Representatives, during normal business hours and upon reasonable notice, reasonable access to all books, records, plans, offices and other facilities and properties in the possession of Seller included in the Purchased Assets (it being understood that Seller shall have the right to have a Representative present at all times during any such access); (ii) furnish Buyer with such financial and operating data and other information in the possession of Seller with respect to the Purchased Assets as Buyer may from time to time reasonably request; and (iii)
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furnish Buyer with all such other information in the possession of Seller and provide such other cooperation as shall be reasonably necessary to enable Buyer, at its request, to verify the accuracy of the representations and warranties of Seller contained in this Agreement; provided, however, that (A) any such access or requests shall be conducted in such manner as not to interfere unreasonably with the operation of the Purchased Assets, (B) Seller shall not be required to take any action which would constitute a waiver of the attorney-client or other privilege, and (C) Seller need not supply Buyer with any information which Seller is under a legal or contractual obligation not to supply if Seller so notifies Buyer.
(b)     All information furnished to or obtained by Buyer and Buyer's Representatives pursuant to this Section 6.2 shall be Proprietary Information and shall be kept confidential in accordance with the terms of the Confidentiality Agreement. Nothing in this Section 6.2 is intended to or shall be deemed to amend, supplement or otherwise modify the obligations of Buyer, its Representatives or its Affiliates under the Confidentiality Agreement, all of which remain in effect until termination of such agreement in accordance with its terms.
(c)     For a period of seven (7) years from and after the Closing Date, each Party and its Representatives shall have reasonable access during normal business hours to all of the books and records of the Purchased Assets in the possession of the other Party to the extent that such access may reasonably be required by such Party in connection with the Assumed Liabilities or the Excluded Liabilities, or other matters relating to or affected by the ownership, lease, maintenance or operation of the Purchased Assets or the Excluded Assets. Such access shall be afforded by the Party in possession of any such books and records upon receipt of reasonable advance notice and during normal business hours. The Party exercising this right of access shall be solely responsible for any costs or expenses incurred by it or any out-of-pocket costs of the other Party with respect to such access pursuant to this Section 6.2(c). If the Party in possession of such books and records shall desire to dispose of any books and records upon or prior to the expiration of such seven-year period, such Party shall, prior to such disposition, give the other Party a reasonable opportunity, at such other Party's cost and expense, to segregate and remove such books and records as such other Party may select. Buyer's right of examination and access pending the Closing with respect to environmental matters relating to the Purchased Assets shall in no event include physical testing of or collection of samples from the Site or the Purchased Assets.
(d)     Buyer shall not, prior to the Closing Date, contact any customer, vendor, supplier of, or director, officer, partner, member or employee of, or any other Person having business dealings with, Seller or its Affiliates with respect to any aspect of the Purchased Assets or the transactions contemplated hereby or by any Additional Agreement, including any Governmental Authority, without the prior consent of Seller; provided, that Buyer may request from a Governmental Authority information which is publicly available. Notwithstanding the foregoing, Seller shall work with Buyer to prepare statements that Buyer or Seller may provide in response to inquiries from any such Person having business dealings with Seller or its Affiliates, with respect to the Purchased Assets or transactions contemplated hereby or by any Additional Agree ment. Except as otherwise provided herein, prior to Closing, Buyer shall not investigate or inquire as to any matter with any Governmental Authority having jurisdiction over any aspect of the Purchased Assets, unless and until the written consent of Seller (not to be unreasonably withheld or delayed) to the making of such investigation or inquiry has been
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received by Buyer and after consultation with Seller as to the scope and manner of the investigation or inquiry.
(e)     All communications and consultations contemplated by Sections 6.2(a), 6.4 and 6.5 shall take place between the respective designated Representatives of Seller and Buyer, as may be designated from time to time by Seller and Buyer in the manner contemplated by Section 10.6. Seller's initial designated Representatives shall be Charles R. Dickerson and Buyer's initial designated Representatives shall be Lisa D. Johnson.
6.3.         Procedures with Respect to Certain Agreements and Other Assets. Seller has easements, real property license agreements (including railroad crossing rights), rights-of-way, and leases for rights-of-way, which relate solely to the Purchased Assets (the "Transferred Easements"). At the Closing, to the extent transferable, Seller will convey and assign to Buyer, subject to the obtaining of any necessary consents, (i) by the Assignment of Transferred Easements, all Transferred Easements, and (ii) to the extent practicable, by separate, recordable Assignment of Easement as to all Transferred Easements in each separate county.
6.4.         Public Statements. Subject to Section 6.2(d), except as required by applicable Law or by applicable rules of any national securities exchange, the Parties shall consult with each other in advance, prior to the Closing Date, with respect to any press release or other public announcement, statement or comment relating to the transactions contemplated by this Agreement; provided, however, that, notwithstanding the provisions of Section 6.2(d) relating to any other Person having business dealings with any Party, the Parties shall be permitted, subject to applicable Law and the Confidentiality Agreement, to discuss with members of the investment and financing community the transactions contemplated hereby, and the financial and operational effects of consummating such transactions, in each case, in connection with bona fide financing and credit-related endeavors.
6.5.         Further Assurances.
(a)     Subject to the terms and conditions of this Agreement, each of the Parties hereto shall use its Commercially Reasonable Efforts to take, or cause to be taken, all actions, and to do, or cause to be done, all things necessary, proper or advisable under applicable Laws to consummate and make effective the purchase and sale of the Purchased Assets pursuant to this Agreement or the assumption of the Assumed Liabilities, including using its Commercially Reasonable Efforts to ensure satisfaction of the conditions precedent to each Party's obligations hereunder, including obtaining all necessary consents, approvals and authorizations of, and making all required notices or filings with, third parties required to be obtained or made in order to consummate the transactions hereunder, including the transfer of the Transferable Permits to Buye r. Seller shall use Commercially Reasonable Efforts to cooperate with Buyer in its efforts to obtain all permits, certificates, licenses and other authorizations of all Governmental Authorities that Buyer requires to own, lease, maintain and operate the Purchased Assets ("Buyer's Permits"), Environmental Permits and Buyer's Required Regulatory Approvals necessary for Buyer to operate the Purchased Assets substantially in the manner operated by Seller prior to the Closing Date. Buyer shall use Commercially Reasonable Efforts to cooperate with Seller in its efforts to obtain all of Seller's Required Regulatory Approvals. No Party shall, without prior written consent of the other Party, take or fail to take any action which might
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reasonably be expected to prevent or materially impede, interfere with or delay the transactions contemplated by this Agreement or any Additional Agreement.
(b)     Without limiting the generality of Section 6.5(a):
(i)       In the event that any Purchased Asset shall not have been conveyed to Buyer at the Closing, Seller shall, subject to Section 6.5(b)(ii), use Commercially Reasonable Efforts after the Closing to convey such asset to Buyer as promptly as practicable.
(ii)      To the extent that Seller's right, title and interest in, to and under any material Seller's Agreement set forth in Section 2.1(d) may not be assigned without the consent, approval or authorization of any third party which consent, approval or authorization has not been obtained by the Closing Date, this Agreement shall not constitute an agreement to assign such right, title and interest if an attempted assignment would constitute a breach of such Seller's Agreement or violate any applicable Law. If any consent, approval or authorization to such assignment of any material Seller's Agreement set forth in Section 2.1(d) shall not be obtained, or if any attempted assignment would be ineffective or would materially impair Buyer's rights and obligations under such Seller's Agreement, such that Buyer would not acquire and assume the benefit and detriment of all such rights and obligations, the Parties, to the fullest extent permitted by applicable Law and such Seller's Agreement, shall, from and after the Closing Date, agree to either appoint Buyer to be Seller's agent with respect to such Seller's Agreement, or, to the fullest extent permitted by applicable Law and such Seller's Agreement, enter into such reasonable arrangements with Buyer or take such other actions as are necessary to provide Buyer with the same or substantially similar rights and obligations under such Seller's Agreement.
6.6.         Consents and Approvals. Without limiting the generality of Section 6.5(a):
(a)     The Parties shall use Commercially Reasonable Efforts to take, or cause to be taken, all actions, and do, or cause to be done, all things necessary, proper or advisable under applicable Laws to obtain all required consents and approvals of all other Governmental Authorities as promptly as practicable after the date hereof, including the VSCC, and make all other filings and give all other notices required to be made prior to the Closing with respect to the transactions contemplated hereby and by the Additional Agreements, including with respect to the Seller's Required Regulatory Approvals and Buyer's Required Regulatory Approvals. The Parties shall respond promptly to any requests for additional information made by such Persons, and use their respective Commercially Reasonable Efforts to cause all such consents and approvals, with out conditions, to be obtained or waived at the earliest possible date after the date of filing. Each Party shall bear its own costs and expenses of the preparation of any such filing or notice.
(b)     The Parties shall use Commercially Reasonable Efforts to make all filings with the VSCC required by such Party under the applicable Laws of Virginia as promptly as practicable after the date hereof, but in any event within forty-five (45) days after the date of this Agreement. Prior to filing any application with the VSCC for an approval required by both Parties, the Parties shall jointly prepare such application and shall incorporate into such application all revisions reasonably requested by the other Party. Each Party shall be solely
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responsible for its own cost of preparing and filing such application, as well as any petitions for rehearing and any reapplications.
6.7.         Certain Tax Matters.
(a)     All transfer, sales and similar Taxes ("Transfer Taxes") incurred in connection with this Agreement and the Additional Agreements, and the transactions contemplated hereby and thereby (including (i) sales and use Tax on the sale or purchase of the Purchased Assets imposed by Virginia and (ii) Transfer Tax on conveyances of interests in real property imposed by Virginia or any political subdivision thereof) shall be borne by Buyer (and, to the extent paid by Seller, Buyer shall reimburse Seller upon request). Buyer, at its expense, shall prepare and file, to the extent required by, or permissible under, applicable Law, all necessary Tax Returns and other documentation with respect to all such Transfer Taxes, and, if required by applicable Law, Seller shall join in the execution of all such Tax Returns and other documentatio n; provided, however, that prior to the Closing Date, to the extent applicable, Buyer shall provide to Seller appropriate certificates of Tax exemption from each applicable Governmental Authority.
(b)     With respect to Taxes to be prorated in accordance with Section 3.6, Seller shall prepare and timely file all Tax Returns required to be filed (without regard to extensions) prior to the Closing Date with respect to the Purchased Assets, if any, and with respect to the periods prior to the Closing Date shall timely pay all Taxes shown to be due on such Tax Returns. With respect to Taxes to be prorated in accordance with Section 3.6, Buyer shall prepare and timely file all Tax Returns required to be filed (without regard to extensions) on or after the Closing Date with respect to the Purchased Assets, if any, and shall timely pay all Taxes shown to be due on such Tax Returns with respect to periods on or after the Closing Date. Tax Returns prepared by either Party pursuant to this Section 6.7(b) shall be promptly provided to the o ther Party following filing.
(c)     Buyer and Seller shall provide the other with such assistance as may reasonably be requested by the other Party in connection with the preparation of any Tax Return, audit or other examination, or any proceeding, by or before any Governmental Authority relating to Liability for Taxes, and each Party shall retain and provide the requesting Party with all books and records or other information which may be relevant to such Tax Return, audit, examination or proceeding. All books, records and information obtained pursuant to this Section 6.7(c) or pursuant to any other Section that provides for the sharing of books, records and information or the review of any Tax Return or other instrument relating to Taxes shall be kept confidential by the parties hereto in accordance with the terms and conditions set forth in the Confidentiality Ag reement.
(d)     In the event that a dispute arises between Seller and Buyer regarding Taxes or any amount due under this Section 6.7, the Parties shall attempt in good faith to resolve such dispute and any agreed-upon amount shall be promptly paid to the appropriate Party. If any such dispute is not resolved within thirty (30) days after notice thereof is given to any Party, the Parties shall submit the dispute to an Independent Accounting Firm for resolution, which resolution shall be final, binding and conclusive on the Parties. In the event that Buyer and Seller cannot promptly agree on the selection of an accounting firm to act as the Independent
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Accounting Firm, either Party may request the American Arbitration Association to appoint an Independent Accounting Firm, and such appointment shall be final, binding and conclusive on Buyer and Seller. Notwithstanding anything in this Agreement to the contrary, the costs, fees and expenses of the Independent Accounting Firm in resolving the dispute shall be borne equally by Seller and Buyer. Any payment required to be made as a result of the resolution by the Independent Accounting Firm of any such dispute shall be made within five (5) Business Days after such resolution, together with any interest determined by the Independent Accounting Firm to be appropriate.
(e)     Seller shall be entitled to any Tax refund or credit relating to any period ending on or prior to the Closing Date (and, if received by Buyer, shall be promptly paid by Buyer to Seller); Buyer shall be entitled to any Tax refund or credit relating to any period commencing after the Closing Date (and, if received by Seller, shall be promptly paid by Seller to Buyer); and any Tax Refund or credit relating to a period commencing prior to the Closing Date and terminating subsequent to the Closing Date shall be prorated in accordance with Section 3.6, with an appropriate portion of the Tax Refund or credit being promptly paid by the Party receiving the same to the other Party.
6.8.         Right to Update. Until the Closing Date, Seller and Buyer shall each have the right to update or amend in any respect its disclosure of any matter set forth or permitted to be set forth on any Schedule with respect to Article IV or V to the extent permitted herein. No change or addition to a Schedule made pursuant to this Section 6.8 shall be deemed to cure any breach of any representation or warranty resulting from such change or addition unless (i) such breach is not reasonably expected to have a Material Adverse Effect, (ii) Buyer or Seller, as applicable, specifically agrees to such change or addition in writing or (iii) consummates the Closing under this Agreement. No such change or addition to any Schedule with respect to Article IV or V shall be considered to constitute or give rise to a waiver by Buyer or Seller, as applicable, of any condition set forth in this Agreement, unless (A) such change is not reasonably expected to have a Material Adverse Effect, (B) such Party specifically agrees to such change or addition in writing or (C) consummates the Closing under this Agreement after receipt of such updated Schedules. Further, if any change or addition to a Schedule made pursuant to this Section 6.8 is specifically agreed to in writing by the Buyer or Seller, as applicable, or if the Closing is consummated after receipt of such updated Schedules, in each case the updated Schedules to the extent agreed to or existing at the time of Closing, as applicable, shall be deemed so amended and used for purposes of determining whether any Indemnitee is entitled to indemnification under Article VIII hereof. Neither Buyer nor Seller shall have any right to update or amend any Schedule with respect to any other Article of this Agreement.
6.9.         Employees.
(a)     Seller shall be responsible, with respect to the Purchased Assets, for performing and discharging all requirements under the WARN Act and under applicable state and local Laws for the notification of employees associated with the Purchased Assets of any "employment loss" (within the meaning of the WARN Act) which occurs prior to the Closing Date.
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6.10.     Risk of Loss.
(a)     From the date hereof to but not including the Closing Date, all risk of loss or damage to the Purchased Assets shall be borne by Seller, other than loss or damage caused by the negligent acts or omissions of Buyer or any Buyer Representative, which loss or damage shall be the responsibility of Buyer.
(b)     Notwithstanding any provision hereof to the contrary, subject to Section 9.1(g), if, before the Closing Date, all or any portion of the Purchased Assets is (i) condemned or taken by eminent domain or is the subject of a pending or threatened condemnation or taking which has not been consummated, or (ii) materially damaged or destroyed by fire or other casualty, Seller shall notify Buyer promptly in writing of such fact, and (x) in the case of a condemnation or taking, Seller shall assign or pay, as the case may be, any net proceeds thereof to Buyer at the Closing and (y) in the case of a fire or other casualty, Seller shall restore such damage. Notwithstanding the foregoing, if such condemnation, taking, damage or destruction results in a Material Adverse Effect, Buyer and Seller shall negotiate to resolve the loss resulting from such condemnation, taking, damage or destruction (and such negotiation shall include the negotiation of a fair and equitable adjustment to the Purchase Price). If no such resolution can be agreed upon prior to the earlier to occur of (i) the date that is ninety (90) days after Seller has notified Buyer of such loss and (ii) the date on which the Closing, pursuant to Section 3.1, would otherwise occur, then Buyer or Seller may terminate this Agreement pursuant to Section 9.1(g).
6.11.       Equipment Relocation. From and after the Closing Date, Buyer shall cooperate with Seller to facilitate Seller's relocation of any Excluded Assets at Seller's sole cost and expense. To the extent that such relocation requires Seller to gain access to the Site on or after the Closing Date such access shall not be unreasonably withheld by Buyer.
6.12.       Meters. Buyer shall be responsible for ensuring that revenue quality metering is installed at all interconnection points with the Seller's transmission system at Buyer's expense. Buyer and Seller agree to work jointly to accomplish this prior to Closing or as soon as possible and will utilize existing metering equipment, wherever possible. Once metering is installed, this metering shall be owned by the Seller.
6.13.       Capacitors. Buyer shall replace existing PCB contaminated capacitors included within the Purchased Assets at its sole cost and expense within two (2) years following the Closing Date. Seller shall promptly take possession of any replaced capacitors at the site of the replacement at its sole cost and expense and dispose of such capacitors at an Off-Site Location.
6.14.       Transmission Matters with PJM.
(a)     Seller shall construct the transmission projects that PJM has determined necessary through the PJM Regional Transmission Expansion Plan ("RTEP") process at the time of Closing that will impact the transmission assets acquired by Buyer. Buyer shall reimburse Seller for the actual costs of such facilities and will own the facilities, subject to any required FERC approval. Any construction projects for transmission facilities that will impact the acquired transmission assets facilities and be in Virginia, identified through the PJM/RTEP process after the Closing, will become Buyer's responsibility to build.
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(b)     If any such RTEP construction project is in progress, contracts have been awarded for such project, or materials have been ordered or purchased for such project as of the Closing Date, Seller shall complete such construction even if such completion occurs after the Closing Date.
6.15.       Expenses. Except to the extent provided herein or any Additional Agreement, and except due to any breach, whether or not the transactions contemplated hereby are consummated, all costs, fees and expenses incurred in connection with this Agreement and the transactions contemplated hereby shall be borne by the Party incurring such costs, fees and expenses, including the fees and commissions referred to in Sections 4.12 and 5.7.
ARTICLE VII CONDITIONS
7.1.         Conditions to Obligation of Buyer. The obligation of Buyer to effect the transactions contemplated by this Agreement shall be subject to the satisfaction (or the waiver, to the extent permitted by applicable Law, by Buyer) at or prior to the Closing of the following conditions:
(a)     No preliminary or permanent injunction, order or decree by any Governmental Authority which prevents the consummation of the transactions contemplated hereby or by the Additional Agreements shall have been issued and remain in effect (Buyer agreeing to use Commercially Reasonable Efforts to have any such injunction, order or decree lifted), and no applicable Law shall be in effect which prohibits the consummation of the transactions contemplated hereby or thereby;
(b)     Buyer shall have obtained each and every one of the Buyer's Required Regulatory Approvals set forth on Schedule 7.1(c), which shall be final and non-appealable, and Buyer shall have received evidence thereof, in form and substance reasonably satisfactory to Buyer, and all conditions to the effectiveness thereof prescribed therein or otherwise by Law shall have been satisfied or waived, it being understood that the imposition by any Governmental Authority of any such condition to the grant or issuance of any such consent or approval requiring any action or omission by Buyer shall not affect Buyer's obligation to consummate the transactions contemplated hereby or by the Additional Agreements unless such condition is, individually or in the aggregate, reasonably expected to have a Regulatory Material Adverse Effect on Buyer;
(c)     Seller shall have obtained each and every one of the Seller's Required Regulatory Approvals set forth on Schedule 7.2(c), which shall be final and non-appealable, and which shall not include any condition requiring any action or omission by Buyer which is, individually or in the aggregate, reasonably expected to have a Regulatory Material Adverse Effect on Buyer; and Buyer shall have received evidence thereof;
(d)     Seller shall have in all material respects performed and complied with the covenants and agreements contained in this Agreement which are required to be performed and complied with by Seller at or prior to the Closing;
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(e)     The representations and warranties of Seller set forth in this Agreement shall be true and correct as though made at and as of the Closing Date (other than representations and warranties that are made as of a specific date which shall have been true and correct as of such date); provided that this condition shall be deemed satisfied unless the failure of such representations and warranties (and with respect to those qualified by materiality without consideration of such qualifiers) to be so true and correct is, individually or in the aggregate, reasonably expected to have a Material Adverse Effect;
(f)     Buyer shall have received a certificate from an authorized officer of Seller, dated the Closing Date, to the effect that, to such officer's knowledge, the conditions set forth in Sections 7.1(d) and (e) have been satisfied by Seller; and
(g)     Buyer shall have received an opinion from Seller's counsel, which counsel shall be reasonably acceptable to Buyer, dated the Closing Date, in form and substance reasonably satisfactory to Buyer and its counsel.
7.2.         Conditions to Obligation of Seller. The obligation of Seller to effect the transactions contemplated by this Agreement shall be subject to the satisfaction (or the waiver, to the extent permitted by applicable Law, by Seller) at or prior to the Closing of the following conditions:
(a)     No preliminary or permanent injunction or other order or decree by any Governmental Authority which prevents the consummation of the transactions contemplated hereby or by the Additional Agreements shall have been issued and remain in effect (Seller agreeing to use its Commercially Reasonable Efforts to have any such injunction, order or decree lifted), and no applicable Law shall be in effect which prohibits the consummation of the transactions contemplated hereby or thereby;
(b)     Seller shall have obtained each and every one of the Seller's Required Regulatory Approvals set forth on Schedule 7.2(c), which shall be final and non-appealable, and Seller shall have received evidence thereof, in form and substance reasonably satisfactory to Seller; and all conditions to the effectiveness thereof prescribed therein or otherwise by Law shall have been satisfied or waived, it being understood that the imposition by any Governmental Authority of any such condition to the grant or issuance of any such consent or approval requiring any action or omission by Seller shall not affect Seller's obligation to consummate the transactions contemplated hereby or by the Additional Agreements unless such condition is, individually or in the aggregate, reasonably expected to have a Regulatory Material Adverse Effect on Seller;
(c)     Buyer shall have obtained each and every one of the Buyer's Required Regulatory Approvals set forth in Schedule 7.1(c), which shall be final and non-appealable, and which shall not include any condition requiring any action or omission by Seller which condition is, individually or in the aggregate, reasonably expected to have a Regulatory Material Adverse Effect on Seller; and Seller shall have received evidence thereof;
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(d)     Buyer shall have in all material respects performed and complied with the covenants and agreements contained in this Agreement which are required to be performed and complied with by Buyer at or prior to the Closing;
(e)     The representations and warranties of Buyer set forth in this Agreement shall be true and correct as though made at and as of the Closing Date (other than representations and warranties that are made as of a specific date which shall have been true and correct as of such date); provided that this condition shall be deemed satisfied unless the failure of such representations and warranties (and with respect to those qualified by materiality without consideration of such qualifiers) to be so true and correct is, individually or in the aggregate, reasonably expected to have a Material Adverse Effect;
(f)     Seller shall have received a certificate from an authorized officer of Buyer, dated the Closing Date, to the effect that, to such officer's knowledge, the conditions set forth in Sections 7.2(d) and (e) have been satisfied by Buyer; and
(g)     Seller shall have received an opinion from one or more of Buyer's counsel, which counsel shall be reasonably acceptable to Seller, dated the Closing Date, in form and substance reasonably satisfactory to Seller and its counsel.
7.3.         Conditions to Obligation of Buyer and Seller. The obligation of Buyer and Seller to effect the transactions contemplated by this Agreement shall be subject to the satisfaction (or the waiver, to the extent permitted by applicable Law, by Seller and Buyer) at or prior to the Closing of the following condition:
(a)     Seller shall consummate the transactions contemplated by the Distribution Purchase Agreement prior to or simultaneously with the Closing.
ARTICLE VIII INDEMNIFICATION AND ARBITRATION
8.1.         Indemnification.
(a)     From and after the Closing Date, Buyer shall indemnify, defend and hold harmless, Seller and its Representatives (each, a "Seller's Indemnitee"), from and against any and all claims, demands, suits, losses, liabilities, penalties, damages, obligations, payments, costs and expenses (including reasonable attorneys' fees and expenses in connection therewith) (each, an "Indemnifiable Loss"), asserted against or suffered by any Seller's Indemnitee relating to, resulting from or arising out of (i) any breach by Buyer of any representation, warranty, covenant or agreement of Buyer contained in this Agreement, (ii) the Assumed Liabilities, or (iii) any Third Party Claim against any Seller's Indemnitee in connection with Buyer's ownership, lease, maintenance, construction, modification or operation of any of the Purchased Asse ts on or after the Closing Date; provided, however, that Buyer shall be liable to Seller only for Indemnifiable Losses for which any Seller's Indemnitee gives written notice to Buyer (setting forth with reasonable specificity the nature and amount of the Indemnifiable Loss) during the period for which such representation, warranty, covenants or agreements survive the Closing in accordance with Section 10.4. In addition, notwithstanding anything contained herein to the contrary, Buyer shall not be required to indemnify any Seller's Indemnitee until the aggregate dollar amount of
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all Indemnifiable Losses exceeds $750,000 (the "Threshold"). In no event shall all Indemnifiable Losses paid by Buyer to Seller's Indemnitees, in the aggregate, exceed 35% of the Purchase Price (the "Cap"), other than with respect to actual or constructive fraud.
(b)     From and after the Closing, Seller shall indemnify, defend and hold harmless, Buyer and its Representatives (each, a "Buyer's Indemnitee" and, together with Seller's Indemnitees, an "Indemnitee"), from and against any and all Indemnifiable Losses asserted against or suffered by any Buyer's Indemnitee relating to, resulting from or arising out of (i) any breach by Seller of any representation, warranty, covenant or agreement of Seller set forth in this Agreement or (ii) the Excluded Liabilities; provided, however, that Seller shall be liable to Buyer only for Indemnifiable Losses for which any Buyer's Indemnitee gives written notice to Seller (setting forth with reasonable specificity the nature and amount of the Indemnifiable Loss) during the period for which such representation, warranty, covenants or a greements survive the Closing in accordance with Section 10.4; and provided further however, that notwithstanding anything contained herein to the contrary, in no event shall Seller be required to indemnify Buyer for any obligations of Seller's Affiliates or any Indemnifiable Losses which are Liabilities of Seller's Affiliates, including without limitation, the Excluded Liabilities set forth in Sections 2.4(a) and 2.4(b). In addition, notwithstanding anything contained herein to the contrary, Seller shall not be required to indemnify any Buyer's Indemnitee until the aggregate dollar amount of all Indemnifiable Losses which would otherwise be indemnifiable exceeds the Threshold. In no event shall all Indemnifiable Losses paid by Seller to Buyer's Indemnitees, in the aggregate, exceed the Cap, other than with respect to actual or constructive fraud. Notwithstanding anything contained herein to the contrary, for the avoidance of doubt, except for the representations and warranties set forth in Article IV, Se ller shall have no indemnification obligations to Buyer relating to the condition of the Purchased Assets, and such Purchased Assets are being sold subject to the disclaimer set forth in Section 10.5.
(c)     The rights and remedies of Seller and Buyer set forth in this Article VIII are exclusive and in lieu of any and all other rights and remedies which Seller and Buyer may have under this Agreement, under applicable Law, whether at common law or in equity, including for declaratory, injunctive or monetary relief, in each case, with respect to any Indemnifiable Loss, other than with respect to the rights of a Party to enforce this Section 8.1.
(d)     Notwithstanding anything to the contrary herein, no Person (including an Indemnitee) shall be entitled to recover from any other Person (including any Party required to provide indemnification under this Agreement (an "Indemnifying Party")) any amount in excess of the actual compensatory damages, court costs and reasonable attorneys' fees suffered by such Party. In furtherance of the foregoing, Buyer and Seller hereby irrevocably waive any right to recover punitive, indirect, special, exemplary and consequential damages arising in connection with or with respect to this Agreement (other than with respect to indemnification for a Third-Party Claim).
(e)     Any Indemnitee shall use Commercially Reasonable Efforts to mitigate all losses, damages and the like relating to a claim under the indemnification provisions in this Section 8.1, including availing itself of any defenses, limitations, rights of contribution, claims against third Persons and other rights at law or equity.
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8.2.         Defense of Claims
(a)     If any Indemnitee receives notice of the assertion of any Indemnifiable Loss or of the commencement of any suit, action or proceeding made or brought by any Person who is not an Indemnitee (a "Third-Party Claim") with respect to which indemnification is to be sought from an Indemnifying Party, the Indemnitee shall give such Indemnifying Party reasonably prompt written notice thereof, but in no event later than ten (10) Business Days after the Indemnitee's receipt of notice of such Third-Party Claim. Such notice shall describe the nature of the Third-Party Claim in reasonable detail and shall indicate the estimated amount, if practicable, of the Indemnifiable Loss that has been or may be incurred by the Indemnitee. The Indemnifying Party shall have the right to participate in or, by giving written notice to the Indemnitee, to elect to assume the defense of any Third-Party Claim at such Indemnifying Party's expense and by such Indemnifying Party's own counsel. If an Indemnifying Party elects not to assume the defense of any Third-Party Claim, the Indemnitee may defend, compromise or settle such Third-Party Claim with counsel selected by it, provided that, without the prior written consent of the Indemnifying Party, the Indemnitee shall not agree to the entry of any judgment with respect to, or any compromise or settlement of, any Third-Party Claim.
(b)     If, within twenty (20) Business Days after an Indemnitee gives written notice to the Indemnifying Party of any Third-Party Claim, such Indemnitee receives written notice from the Indemnifying Party that such Indemnifying Party has elected to assume the defense of such Third-Party Claim as provided in Section 8.2(a), then the Indemnifying Party shall not be liable for any costs, fees or expenses subsequently incurred by the Indemnitee in connection with the defense, compromise or settlement thereof.
(c)     Subject to Section 8.3, any claim by an Indemnitee on account of an Indemnifiable Loss which does not constitute a Third-Party Claim (a "Direct Claim") shall be asserted by giving the Indemnifying Party reasonably prompt written notice thereof, in no event later than twenty (20) Business Days after the Indemnitee becomes aware of such Direct Claim, stating the nature of such claim in reasonable detail and indicating the estimated amount, if practicable, of such Indemnifiable Loss. The Indemnifying Party shall have a period of twenty (20) Business Days within which to respond to such Direct Claim. If the Indemnifying Party fails to respond during such twenty (20) Business Day period, the Indemnifying Party shall be deemed to have accepted such claim and, subject to this Article VIII, shall promptly reimburse the Indemnitee for the Indemnifiable Losses set forth in the Indemnitee's notice.
(d)     A failure to give timely notice as provided in this Section 8.2 shall not affect the rights or obligations of any Party hereunder except to the extent that the Party which was entitled to receive such notice was actually prejudiced as a result of such failure.
8.3.         Arbitration.
(a)     Except as otherwise provided herein, in the event of any dispute between Seller and Buyer arising after the Closing (whether relating to facts, events or circumstances occurring or existing prior to, on or after the Closing Date) and relating to, resulting from or arising out of any provision of this Agreement (other than disputes arising under Section 8.1), including with respect to Direct Claims and Third-Party Claims, the Party asserting such dispute
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shall give written notice to the other of the fact that a dispute has arisen pursuant hereto. Such notice shall include (i) a statement setting forth in reasonable detail the facts, events, circumstances, evidence and arguments underlying such dispute and (ii) proposed arrangements for a meeting to attempt to resolve the dispute to be held within sixty (60) days after such notice is given. Within thirty (30) days after such notice is given, the other Party hereto shall submit to the Party giving such notice a written summary responding to such statement of facts, events, circumstances, evidence and arguments contained in the notice and an acceptance of or proposed alternative to the meeting arrangements set forth in the initial notice.
(b)     The chief executive officers (or any other executive officer or officers directly reporting to, or duly designated by, such chief executive officers) of each of the Parties shall meet at a mutually acceptable time and place to attempt to settle any dispute in good faith; provided, however, that such meeting shall be held at the principal offices of the Party receiving the notice of dispute unless otherwise agreed; and provided further, that any such meeting shall be held no later than sixty (60) days after the written notice of dispute is given pursuant to Section 8.3(a). Each Party shall bear its own costs and expenses with respect to preparation for, attendance at and participation in such meeting.
(c)     In the event that (i) a meeting has been held in accordance with Section 8.3(b), (ii) any such dispute of the kind referred to in Section 8.3(a) shall not have been resolved at such meeting and (iii) the aggregate amount in dispute exceeds $100,000, then either Party may submit such dispute to binding arbitration pursuant to the Commercial Arbitration Rules of the American Arbitration Association (the "Commercial Arbitration Rules"). In the event that such dispute is submitted to arbitration pursuant to the Commercial Arbitration Rules, then the arbitration tribunal shall be composed of three arbitrators (one arbitrator selected by each Party within thirty (30) days after the meeting held in accordance with Section 8.3(b) with the third selected by the other two arbitrators or, in the absence of agreement between them, the American Arbitration Association), the venue of the arbitration shall be Washington, D.C., the language of the arbitration shall be English and the arbitration shall commence no later than sixty (60) days after the meeting held in accordance with Section 8.3(b). The decision, judgment and order of the arbitration tribunal shall be final, binding and conclusive as to the Parties and their respective Representatives, and may be entered in any court of competent jurisdiction. The Parties intend the provisions of this Section 8.3 to be the sole and exclusive remedy of any dispute not arising under Section 8.1. Other than the fees and expenses of the arbitrators, which shall be shared equally by the Parties, each Party shall bear its own costs and expenses (including attorneys' fees and expenses) relating to the arbitration.
ARTICLE IX TERMINATION
9.1.         Termination.
(a)     This Agreement may be terminated at any time prior to the Closing by mutual written consent of the Parties.
(b)     This Agreement may be terminated by Seller or Buyer upon written notice to the other Party, (i) at any time prior to the Closing if any court of competent jurisdiction shall
40
have issued an order, judgment or decree permanently restraining, enjoining or otherwise prohibiting the Closing, and such order, judgment or decree shall have become final and non-appealable; provided that the Party seeking to terminate this Agreement pursuant to this Section 9.1(b)(i) shall have used Commercially Reasonable Efforts to seek relief from such order, judgment or decree; (ii) at any time prior to the Closing if any Law shall have been enacted or issued by any Governmental Authority which prohibits the consummation of the transactions contemplated by this Agreement or by any Additional Agreement; or (iii) at any time after the first anniversary of the date of this Agreement if the Closing shall not have occurred on or before such date; provided, however, that the right to so terminate this Agreement under this Section 9.1(b)(iii) shall not be available to any Party whose breach of this Agreement has caused, or resulted in, the failure of the Closing to occur on or before such da te; and provided, further, that if on such anniversary, any Buyer's Required Regulatory Approval set forth in Schedule 7.1(c) or any Seller's Required Regulatory Approval set forth in Schedule 7.2(c) shall not have been obtained, or shall not be then final and non-appealable, but all other conditions to the Closing shall be satisfied or shall be capable of being satisfied, then no Party shall be entitled to terminate this Agreement pursuant to this Section 9.1(b)(iii) prior to the date that is 180 days after such anniversary.
(c)     This Agreement may be terminated by Buyer, upon written notice to Seller, if any of Buyer's Required Regulatory Approvals, the receipt of which is a condition to the obligation of Buyer to consummate the Closing as set forth in Section 7.1(c), shall have been denied.
(d)     This Agreement may be terminated by Seller, upon written notice to Buyer, if any of the Seller's Required Regulatory Approvals, the receipt of which is a condition to the obligation of Seller to consummate the Closing as set forth in Section 7.2(c), shall have been denied.
(e)     This Agreement may be terminated by Buyer, upon written notice to Seller, if there has been a material breach by Seller of any covenant, agreement, representation or warranty contained in this Agreement, which breach has had or is reasonably expected to have a Material Adverse Effect and such breach is not cured by the earlier of the Closing Date or the date that is thirty (30) days after receipt by Seller of notice specifying in reasonable detail the nature of such breach, unless Buyer shall have previously waived such breach.
(f)     This Agreement may be terminated by Seller, upon written notice to Buyer, if there has been a material breach by Buyer of any covenant, agreement, representation or warranty contained in this Agreement, which breach has had or is reasonably expected to have a Material Adverse Effect and such breach is not cured by the earlier of the Closing Date or the date that is thirty (30) days after receipt by Buyer of notice specifying in reasonable detail the nature of such breach, unless Seller shall have previously waived such breach.
(g)     This Agreement may be terminated by Seller or Buyer upon written notice to the other Party, in accordance with the provisions of the last sentence of Section 6.10(b), provided that the Party seeking to so terminate shall have complied with its obligations under Section 6.10.
41
(h)     This Agreement may be terminated by either Party, upon written notice to the other Party, if any final and non-appealable injunction, order or decree by any Governmental Authority, which prohibits the consummation of the transactions contemplated hereby or by the Additional Agreements, shall have been issued and remain in effect, provided that the Party seeking to terminate this Agreement pursuant to this Section 9.1(h) shall have used its Commercially Reasonable Efforts to have any such injunction, order or decree lifted.
9.2.         Effect of Termination. Upon termination of this Agreement prior to the Closing pursuant to Section 9.1, this Agreement shall be null and void and of no further force or effect (except that the provisions set forth in Section 6.2(b), Section 6.4, this Section 9.2 and Article X, and the Confidentiality Agreement, shall remain in full force and effect in accordance with their respective terms); and no Party shall have any further Liability under this Agreement.
ARTICLE X MISCELLANEOUS PROVISIONS
10.1.       Amendment and Modification. This Agreement may be amended, supplemented or otherwise modified only by written agreement entered into by both Parties.
10.2.       Bulk Sales Laws. Buyer acknowledges that Seller will not comply with the provisions of any bulk sales or transfer laws of any jurisdiction in connection with the transactions contemplated by this Agreement; and Buyer hereby irrevocably waives compliance by Seller with the provisions of the bulk sales or transfer laws of all applicable jurisdictions. Notwithstanding anything to the contrary in this Agreement, Seller shall indemnify and hold Buyer harmless from and against any and all losses, Liabilities, claims or expenses which shall arise against or be incurred by Buyer due to the failure of Seller to comply with such requirements.
10.3.       Waiver of Compliance; Consents. To the extent permitted by applicable Law, any failure of any of the Parties to comply with any representation, warranty, covenant, agreement or condition set forth herein may be waived by the Party entitled to the benefit thereof only by a written instrument signed by such Party, but any such waiver shall not operate as a waiver of, or estoppel with respect to, any prior or subsequent failure to comply therewith or of any other provision set forth herein.
10.4.       Survival. All representations and warranties contained in this Agreement shall survive for a period of six (6) months following the Closing Date except that, (i) the representations and warranties contained in Section 4.6 will expire nine (9) months following the Closing Date; (ii) the representations and warranties set forth in Section 4.7 will expire in accordance with any applicable statutes of limitation period plus ninety (90) days; and (iii) the representations and warranties set forth in Section 4.4 shall not survive the Closing. The covenants and agreements of the Parties contained in this Agreement shall survive the Closing in accordance with their respective terms.
10.5.       Disclaimers. EXCEPT FOR THE REPRESENTATIONS AND WARRANTIES SET FORTH IN ARTICLE IV, THE PURCHASED ASSETS ARE SOLD "AS IS, WHERE IS," AND SELLER EXPRESSLY DISCLAIMS ALL OTHER REPRESENTATIONS AND
42
WARRANTIES OF ANY KIND OR NATURE, EXPRESS OR IMPLIED, AS TO SELLER AND THE PURCHASED ASSETS. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, EXCEPT FOR THE REPRESENTATIONS AND WARRANTIES SET FORTH IN ARTICLE IV: SELLER EXPRESSLY DISCLAIMS ALL OTHER REPRESENTATIONS AND WARRANTIES REGARDING LIABILITIES, OWNERSHIP, LEASE, MAINTENANCE OR OPERATION OF THE PURCHASED ASSETS, THE TITLE, CONDITION, VALUE OR QUALITY OF THE PURCHASED ASSETS OR THE PROSPECTS (FINANCIAL AND OTHERWISE), RISKS AND OTHER INCIDENTS OF THE PURCHASED ASSETS; AND SELLER EXPRESSLY DISCLAIMS ALL REPRESENTATIONS AND WARRANTIES OF MERCHANTABILITY, USAGE, SUITABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE WITH RESPECT TO THE PURCHASED ASSETS, OR ANY PART THEREOF, OR AS TO THE WORKMANSHIP THEREOF, OR THE ABSENCE OF ANY DEFECTS THEREIN, WHETHER LATENT OR PATENT, OR COMPLIANCE WITH ENVIRONMENTAL REQUIREMENTS, OR THE APPLICABILITY OF ANY GOVERNMENTAL AUTHORITY, INCLUDING ANY ENVIRONMENTAL LAWS, OR WHETHER SELLER POSSESSES S UFFICIENT REAL PROPERTY OR PERSONAL PROPERTY TO OPERATE THE PURCHASED ASSETS. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED HEREIN, SELLER FURTHER EXPRESSLY DISCLAIMS ALL REPRESENTATIONS AND WARRANTIES REGARDING THE ABSENCE OF HAZARDOUS SUBSTANCES OR LIABILITY OR POTENTIAL LIABILITY ARISING UNDER ENVIRONMENTAL LAWS WITH RESPECT TO THE PURCHASED ASSETS. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, EXCEPT AS OTHERWISE EXPRESSLY PROVIDED HEREIN, SELLER EXPRESSLY DISCLAIMS ALL REPRESENTATIONS AND WARRANTIES OF ANY KIND REGARDING THE CONDITION OF THE PURCHASED ASSETS OR THE SUITABILITY OF THE PURCHASED ASSETS FOR OPERATION AS TRANSMISSION FACILITIES, AS APPLICABLE, AND NO SCHEDULE OR EXHIBIT TO THIS AGREEMENT, NOR ANY OTHER MATERIAL OR INFORMATION PROVIDED, OR COMMUNICATIONS MADE, BY SELLER OR ITS REPRESENTATIVES, INCLUDING ANY BROKER OR INVESTMENT BANKER, SHALL CONSTITUTE OR CREATE ANY SUCH REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, AS TO THE TITLE, CONDITION, VALUE OR QUALITY OF THE PURCHASED ASSETS.
10.6.       Notices. All notices and other communications hereunder shall be in writing and shall be deemed given on the day when delivered personally or by facsimile transmission (with confirmation), on the next Business Day when delivered to a nationally recognized overnight courier or five (5) Business Days after deposited as registered or certified U.S. mail (return receipt requested), in each case, postage prepaid, addressed to the recipient Party at its address set forth below (or at such other address or facsimile number for a Party as shall be specified by like notice; provided, however, that any such notice of a change of address or facsimile number shall be effective only upon receipt thereof):

                        (a) If to Seller, to:

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	Delmarva Power & Light 800 King Street P.O. Box 231 Wilmington, Delaware 19899 Attention: President Facsimile: (302) 429-3367
	with a copy (which shall not constitute notice) to:
	Pepco Holdings, Inc. Suite 1100, 10th Floor 701 Ninth Street, NW Washington, D.C. 20068 Attention: Vice President, Legal Services Facsimile: (202) 872-3281
	and a copy (which shall not constitute notice) to:
	McGuireWoods LLP One James Center 901 East Cory Street Richmond, Virginia 23219-4030 Attention: Patrick T. Horne, Esquire Facsimile: (804) 698-2064
(b)	If to Buyer, to:
	Old Dominion Electric Cooperative 4201 Dominion Boulevard Glen Allen, Virginia 23060 Attention: Lisa D. Johnson Facsimile: 804-968-4025
	with a copy (which shall not constitute notice) to:
	Orrick, Herrington & Sutcliffe LLP 666 Fifth Avenue New York, NY 10103 Attention: Carl F. Lyon, Esq. Facsimile: 212-506-5151

          10.7.       Assignment. This Agreement shall be binding upon and inure solely to the benefit of the Parties and their respective successors and permitted assigns, but neither this Agreement nor any of the rights, interests, obligations or remedies hereunder shall be assigned by any Party hereto, including by operation of law, without the prior written consent of the other Party, nor is this Agreement intended to confer upon any other Person any rights, interests,

44

obligations or remedies hereunder. Without limiting the generality of the foregoing, no provision of this Agreement shall create any third-party beneficiary rights in any employee or former employee of Seller (including any beneficiary or dependent thereof), including with respect to continued employment or resumed employment, and no provision of this Agreement shall create any rights in any such Persons in respect of any benefits that may be provided, directly or indirectly, under any employee benefit plan or arrangement. Notwithstanding the foregoing, either Party may, without the prior written consent of the other Party, assign all or any portion of its rights, interests, obligations and remedies hereunder, pursuant to instruments of transfer in form and substance reasonably satisfactory to the other Party, to one or more direct or indirect wholly owned subsidiaries of such Party; provided, however, that (i) no such assignment shall relieve such Party of any of i ts Liabilities hereunder, (ii) Buyer shall guarantee the obligations of its assignee, which guarantee shall be in form and substance reasonably satisfactory to Seller, (iii) no such assignment shall result in any Party requiring any additional consent, approval, filing, or notice of, with or to, any third party, including any Governmental Authority, to consummate the transactions contemplated by this Agreement or any Additional Agreement, and (iv) such assignment does not otherwise prevent or materially impede, interfere with or delay the transactions contemplated by this Agreement or any Additional Agreement.

          10.8.       Governing Law; Forum; Service of Process. This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Virginia (without giving effect to conflicts of law principles) as to all matters, including validity, construction, effect, performance and remedies. Venue in any and all suits, actions and proceedings related to the subject matter of this Agreement shall be in the state and federal courts located in and for the Commonwealth of Virginia (the "Courts"), which shall have exclusive jurisdiction for such purpose, and the Parties hereby irrevocably submit to the exclusive jurisdiction of such courts and irrevocably waive the defense of an inconvenient forum to the maintenance of any such suit, action or proceeding. Service of process may be made in any manner recognized by such Courts. Each of the Parties hereby irrevocabl y waives its right to a jury trial arising out of any dispute in connection with this Agreement or the transactions contemplated hereby. Buyer has irrevocably appointed Lisa D. Johnson as its authorized agent (the "Authorized Agent") upon which process may be served in any suit, action or proceeding based on this Agreement which may be instituted in the Courts by Seller, and Buyer expressly accepts the jurisdiction of any such Court in respect of any such suit, action or proceeding. Buyer represents and warrants that the Authorized Agent has agreed to act as such agent for service of process, and Buyer shall take any and all actions, including the filing of any and all documents and instruments, which may be necessary or appropriate to continue such appointment in full force and effect. Service of process upon the Authorized Agent and written notice of such service to Buyer shall be deemed, in every respect, effective service of process upon Buyer.

          10.9.       Counterparts. This Agreement may be executed by facsimile transmission (with confirmation) and in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

          10.10.     Interpretation. The Article and Section headings contained in this Agreement are solely for the purpose of reference, are not part of the agreement of the parties and shall not in any way affect the meaning or construction of this Agreement. Ambiguities and uncertainties in the wording of this Agreement shall not be construed for or against any Party, but shall be

45

construed in the manner that most accurately reflects the Parties' intent as of the date of this Agreement. Each Party acknowledges that it has been represented by counsel in connection with the review and execution of this Agreement, and, accordingly, there shall be no presumption that this Agreement or any provision hereof be construed against the Party that drafted this Agreement. Notwithstanding any provision of any Additional Agreement to the contrary, the provisions of this Agreement shall govern and control any conflict or inconsistency between or among the provisions of this Agreement and the provisions of any such Additional Agreement.

          10.11.     Schedules. Except as otherwise provided in this Agreement, all Schedules referred to herein are intended to be and hereby are made a part of this Agreement.

          10.12.     Disclosure. Certain information set forth on the Schedules is included solely for informational purposes, is not an admission of liability or materiality with respect to the matters covered by the information and may not be required to be disclosed pursuant to this Agreement. The specification of any dollar amount in the representations and warranties contained in this Agreement or the inclusion of any specific item in the Schedules is not intended to imply that such amounts (or higher or lower amounts) or such items are or are not material, and no Party shall use the fact of the setting of such amounts or the fact of the inclusion of any such item in the Schedules in any dispute or controversy among the Parties as to whether any obligation, item or matter not described herein or included in a Schedule is or is not material for purposes of this Agreement.

          10.13.     Entire Agreement. This Agreement (including the Schedules), together with the Additional Agreements (when executed and delivered by the Parties) and the Confidentiality Agreement, constitutes a single integrated agreement between the Parties and, together, embodies the entire agreement and understanding of the Parties hereto in respect of the transactions contemplated hereby and thereby, and supersedes all prior agreements and understandings between the Parties with respect to such transactions. There are no representations, warranties, covenants or agreements between the Parties with respect to the subject matter set forth in such agreements, other than those expressly set forth or referred to herein or therein. Without limiting the generality of the foregoing, Buyer hereby acknowledges and agrees that there are no representations, warranties, covenants or agreements between t he Parties with respect to the subject matter set forth in such agreements contained in any material made available to Buyer pursuant to the terms of the Confidentiality Agreement , as amended.

          10.14.     Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, void or unenforceable, the remainder of the terms, provision, covenants and restrictions of this Agreement shall continue in full force and effect and shall in no way be affected, impaired or invalidated unless such an interpretation would materially alter the rights and privileges of any Party or materially alter the terms of the Transaction.

          10.15.     No Agency. Neither Buyer nor the Distribution Purchaser is an agent of the other or authorized to bind the other in negotiations with Seller. Any obligation of Buyer or the Distribution Purchaser to Seller will be a several and not a joint obligation.

SIGNATURE PAGE FOLLOWS

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          IN WITNESS WHEREOF, Seller and Buyer have caused this Purchase and Sale Agreement to be duly executed and delivered by their respective duly authorized officers as of the date first above written.

	DELMARVA POWER & LIGHT COMPANY
	By:	/s/ T. S. SHAW                          Name:  Thomas S. Shaw Title:    President and CEO
	OLD DOMINION ELECTRIC COOPERATIVE
	By:	/s/ ROBERT L. KEES                 Name:  Robert L. Kees Title:    Senior Vice President and                 Chief Financial Officer
47

Disclosure schedules
to the
TRANSMISSION purchase and sale agreement
by and between
delmarva power & light company
and
old dominion electric cooperative
Dated as of June 13, 2007
These Schedules are qualified in their entirety by reference to the specific provisions of the referenced Transmission Purchase and Sale Agreement (the "Agreement") and are not intended to constitute, and shall not be construed as constituting, representations or warranties of any Person except as and to the extent explicitly provided in the Agreement. Certain of the representations and warranties set forth in the Agreement contemplate that there will be attached Schedules setting forth information that might be "material" or have a "Material Adverse Effect." The Seller may, at its option, include in such Schedules items or information that are not material or are not likely to have a Material Adverse Effect for the convenience of the Parties, but any such inclusion shall not be deemed to be an acknowledgment or representation that such items are material or would have a Material Adverse Effect, to establish any standard of materiality, Material Adverse Effect, or to define further the meaning of such terms for purposes of the Agreement. Each Section of these Schedules qualifies the correspondingly numbered representation and warranty or covenant in the Agreement to the extent specified therein. Unless otherwise defined in these Schedules, capitalized terms used in these Schedules have the meanings set forth in the Agreement.
SCHEDULE 1.1(68)
Permitted Encumbrances
1.		Mortgage with Bank of New York, individually or as trustee, which shall not be a Permitted Encumbrance as of Closing.
SCHEDULE 1.1(83)
Seller's Knowledge
Thomas S. Shaw President and CEO Delmarva Power & Light Company
Vincent Maione Regional Resource Manager Bay Regional Office
Charles R. Dickerson Vice President Strategic Planning and Chief Risk Officer Pepco Holdings, Inc.
Robert J. Jubic, Jr. Manager Environmental Services New Castle Regional Office
SCHEDULE 1.1(93)
Transferable Permits
1.	See Schedule 2.1(d), to the extent transferable.
2.	Permit from the Virginia Marine Resources Commission that permits the Wattsville-Chincoteague 69kV circuits (6745 and 6746).
3.	See Schedule 4.8, to the extent transferable.
SCHEDULE 2.1(b) 1
Transmission Assets
1.	See attached Continuing Property Records - Transmission.
2.	Virginia Transmission Circuits

· Circuit # 6721 (Kellam, Tasley)

· Circuit # 6745 (Chincoteague, Wattsville)

· Circuit # 6746 (Chincoteague, Wattsville)

· Circuit # 6748 (Wallops Island)

· Circuit # 6750 (Bayview, Kellam)

· Circuit # 6778 (Oak Hall, Tasley)

· Circuit # 6790 (Oak Hall, Tasley)

3. Transmission Lines

· 69kV transmission line # 6745 to Chincoteaque Substation emanating at Wattsville substation from switch # 6745-L1

· 69kV transmission line # 6746 to Chincoteaque Substation emanating at Wattsville substation from switch # 6746-L1

· 69kV transmission line # 6790 to Tasley Substation emanating at Oak Hall substation from switch # 6790-L1

· 69kV transmission line # 6778 to Tasley Substation emanating at Oak Hall substation from switch # 6778-L2

· 69kV transmission line # 6721 from Tasley Substation to Kellam Substation

· 69kV transmission line # 6750 from Kellam Substation to Bayview Substation

· 69kV transmission line # 6748 to Wallops Island Substation tapped from Transmission line 6745 via a three way switch

4. Poles

Unit	Quantity
50 50-1 50-2 50-3 55 55-1 55-2 55-3	19 37 5 77 6 46 22 100

_____________________ 1 Any assets referenced on this Schedule that are owned by Connectiv Energy will not transfer with the sale.
55C 60 60-1 60-2 60-3 60C 65 65-1 65-2 65-3 70 70-1 70-2 70-3 70C 70-H1 75 75-1 75-2 75-3 75C 75-H1 75ST 80 80-1 80-2 80C 80-H1 85 85-1 85-2	2 66 261 25 152 1 38 61 42 59 35 257 170 47 27 39 23 95 31 4 24 6 3 3 29 8 9 2 4 5 2

5. OH Transmission Spans

Unit Quantity

C336.4-26/7
C4/0-7
C477-24/7
C954-42/7
C954-45/7
SW7#8
Unset 43122
240
4176
3039
2013
1279
2,348,003

6. UG Transmission Segment

Unit	Quantity
Unset	3,477

7.	Chincoteague channel crossings
8.	Line 6745, 69kV medium pressure oil filled self contained cable 350kcmil copper, approximately 950 ft.
9.	Line 6746, 69kV medium pressure oil filled self contained cable 350 kcmil copper, approximately 850 ft.
10.	Bayview 69kV Substation

Account	Asset	Asset description	Location
00003530	13573	CONTROL INSTALLATION (9138)	Bayview
00003530	27568	BREAKER,CIRCUIT,72.5KV,1200A	Bayview
00003530	30601	STRUCTURES; Steel	Bayview
00003530	30602	RELAY; Panels	Bayview
00003530	30603	SWITCH; Disconnect, 69KV 1200A PASCOR	Bayview
00003530	30604	BREAKER; Circuit Power,72.5KV,2000A	Bayview
00003530	30605	SWITCHER; Circuit 115kV, 1200A, PRE-Z	Bayview
00003530	30606	CAPACITOR; Bank 69kV, 2.7MVAR	Bayview
00003530	30607	TRANSFORMER; Potential 69kV,350kV BIL	Bayview
00003530	30608	ARRESTER; 60kV, 48kV MCOV	Bayview
00003530	30609	CABLE; Control	Bayview
00003530	30610	SECONDARY; Material Misc	Bayview
00003530	30611	PRIMARY; Material (Misc)	Bayview
00003530	37527	EQUIPMENT; GPR	Bayview
00003620	38766	PANEL; Relay Line 6750 Front Line E2	Bayview
00003620	38761	SWITCH; Hookstick 1Ph 69kV 600A SS MT-H1	Bayview
00003620	10505	SURGE ARRESTERS (LIGHTNING) 60KV (9565)	Bayview
00003620	10585	SWITCHES, AIR BREAK,69KV,600A,N/A (9565)	Bayview
00003620	10589	SWITCHES,DISCONNECT,(INDIVIDUAL) 69KV,600A,N/A	Bayview
00003620	38742	ARRESTER; Surge 60kV 48kV MCOV	Bayview
00003620	38758	INSULATOR; Poly 69kV Strain	Bayview
00003620	38759	INSULATOR; Poly 138kV Strain	Bayview

11. Chincoteague 69kV Substation

Account	Asset	Asset description	Location
00003530	19827	CIRCUIT SWITCHER, 115KV/1200A (USED AT 69KV)	Chincoteague
00003530	19828	CIRCUIT SWITCHER, 115KV/1200A (USED AT 69KV)	Chincoteague

00003530	19831	SURGE ARRESTER (LIGHTNING), 60KV	Chincoteague
00003530	19833	BUS	Chincoteague
00003530	19835	INSULATORS, 115KV	Chincoteague
00003530	19837	STRUCTURE FORMING	Chincoteague
00003530	19839	SWITCH, AIR BREAK (INDIV) 69KV/600A	Chincoteague
00003530	19841	FOUNDATION	Chincoteague
00003530	37026	SWITCH; Gang Oper Air Brk 69kV 1200A w/Aux Cont Sw	Chincoteague
00003530	37027	STRUCTURE; Steel Switch Stand 69kV Sw BT-D2	Chincoteague
00003530	37028	CONDUIT; Sw BT-D2 Aux Switch	Chincoteague
00003530	37029	GROUNDING; Sw BT-D2	Chincoteague
00003530	37030	FOUNDATION; Modifications Sw BT-D2	Chincoteague
00003530	37031	CABLE; Control Aux Switches BT-D1 & BT-D2	Chincoteague
00003530	37032	PANEL; Wiring Modifications	Chincoteague
00003530	37033	BUS; Fittings and Connectors 69kV	Chincoteague

12. Kellam 69kV Substation

Account	Asset	Asset description	Location
00003520	4473	OTHER BUILDING - CONTROL HOUSE (9195)	Kellam
00003520	4475	FENCE PERIMETER - 440' W/1-20'GATE (9786)	Kellam
00003520	4477	FENCE - PERIMETER - ADDITION (9603)	Kellam
00003520	4479	LAND IMPROVEMENT - GRADING & FILL (9195)	Kellam
00003520	4481	LAND IMPROVEMENTS - GRADING & FILL (9603)	Kellam
00003520	4483	ROADS & DRIVES - (9786)	Kellam
00003530	10476	BUS - (9195)	Kellam
00003530	10478	BUS - (9603)	Kellam
00003530	10480	CABLE - CONTROL (9195)	Kellam
00003530	10482	CABLE-CONTROL - (9603)	Kellam
00003530	10484	CABLE TROUGH - (9195)	Kellam
00003530	10486	CONDUIT - (9603)	Kellam
00003530	10488	CONTROL INSTALLATION - (9603)	Kellam
00003530	10490	FIRE PROTECTION - (9561)	Kellam
00003530	10492	FUSE EQUIPMENT, SET OF HIGH VOLTAGE (9195)	Kellam
00003530	10494	FOUNDATIONS - (9195)	Kellam
00003530	10496	FOUNDATIONS - (9603)	Kellam
00003530	10498	LIGHTING SYSTEM - (9603)	Kellam
00003530	10500	SURGE ARRESTER - 21KV (9195)	Kellam
00003530	10502	SURGE ARRESTERS - 69KV (9603)	Kellam
00003530	10504	OIL CIRCUIT BREAKER - SER# K6206467-202 69KV J213	Kellam
00003530	10507	PANEL - RELAY AND CONTROL (9195)	Kellam
00003530	10509	PANEL - STATION POWER CONTROL (9195)	Kellam
00003530	10511	PANEL - 69KV BREAKER RELAY	Kellam
00003530	10513	STATION GROUNDING SYSTEM - (9195)	Kellam
00003530	10515	STATION GROUNDING SYSTEM - (9786)	Kellam
00003530	10517	STATION GROUNDING SYSTEM - (9603)	Kellam
00003530	10519	STRUCTURES - (9195)	Kellam
00003530	10521	STRUCTURE - (9603)	Kellam

00003530	10523	SWITCHES, DISCONNECT (9195)	Kellam
00003530	10525	SWITCHES, DISCONNECT - (9603)	Kellam
00003530	10527	PANEL - 69KV BREAKER RELAY (9813)	Kellam
00003530	17166	BUS - (J213)	Kellam
00003530	17169	CABLE-CONTROL - (J213)	Kellam
00003530	17170	CONTROL INSTALLATION - (J213)	Kellam
00003530	17171	FOUNDATIONS - (J213)	Kellam
00003530	17173	CIRCUIT BREAKER - 69KV SER #0203-A-5847-202 (J213)	Kellam
00003530	17174	PANEL - LINE RELAY (J213)	Kellam
00003530	17175	PANEL - 69KV CONTROL (J213)	Kellam
00003530	17177	PANEL - 69KV STK BRK (J213)	Kellam
00003530	17182	SWITCHES, DISCONNECT - (J213)	Kellam
00003530	19843	FOUNDATIONS	Kellam
00003530	19845	CAPACITOR POTENTIAL DEVICE	Kellam
00003530	19847	BUS	Kellam
00003530	19849	CAPACITOR,SHUNT	Kellam
00003530	19851	CARRIER EQUIPMENT	Kellam
00003530	19853	OIL CIRCUIT BREAKER 69KV/1200A	Kellam
00003530	19855	SWITCHES,DISCONNECT 69KV/1200A	Kellam
00003530	38416	RELAY; Panel Backup L6750 (7R)	Kellam
00003530	38417	RELAY; Panel Backup Transformer T-1 (8R)	Kellam
00003530	38418	PANEL; Annunciator(ANN)	Kellam
00003530	38419	BATTERY; Storage 58Cell 127AH	Kellam
00003530	38420	BATTERY; Charger 130V 20A	Kellam
00003530	38421	TRANSFORMER 40,250:120/67.5 350Kv BIL	Kellam
00003530	38422	ARRESTERS; Surge 48kV MCOV 60kV DC	Kellam
00003530	38423	STRUCTURE;	Kellam
00003530	38424	CABLE; Control	Kellam
00003620	10603	SURGE ARRESTERS - 60KV (9786)	Kellam
00003620	22922	POWER CIRCUIT BREAKER, 72.5KV, 1200A	Kellam
00003620	22924	POWER CIRCUIT BREAKER, 72.5KV, 1200A	Kellam
00003620	22926	POWER CIRCUIT BREAKER, 72.5KV, 1200A	Kellam

13. Tasley 69kV Substation

Account	Asset	Asset description	Location
00003520	4509	FENCE-PERIMETER 1856'-6' (ADJ 237)	Tasley
00003520	4513	LAND IMPROVEMENT (ADJ 237)	Tasley
00003520	4515	LAND IMPROVEMENTS-GRADING & FILL (ADJ 237)	Tasley
00003520	4517	LAND IMPROVEMENTS-GRADING & FILL (ADJ 237)	Tasley
00003520	4519	OTHER BUILDING,N/A CONTROL HOUSE (JV35)	Tasley
00003520	12258	LAND IMPROVEMENTS-GRADING & FILL (ADJ 237)	Tasley
00003520	18943	ADDITION TO CONTROL HOUSE	Tasley
00003530	10655	BUS (9446)	Tasley
00003530	10659	BUS (9809)	Tasley
00003530	10662	CABLE (9809)	Tasley
00003530	10664	CABLE TROUGH (9688)	Tasley
00003530	10666	CONDUIT (9809)	Tasley
00003530	10668	ANNUNCIATOR (9688)	Tasley

00003530	10670	CONTROL INSTALLATION (9688)	Tasley
00003530	10673	FOUNDATIONS (9688)	Tasley
00003530	10675	FOUNDATIONS (9809)	Tasley
00003530	10677	INSULATORS (9688)	Tasley
00003530	10679	LIGHTING SYSTEM (9688)	Tasley
00003530	10685	PANEL (9688)	Tasley
00003530	10686	PANEL (9809)	Tasley
00003530	10688	PANEL (JV435)	Tasley
00003530	10692	SWITCHES, AIR BREAK,69KV,600A,N/A,	Tasley
00003530	10694	STATION GROUNDING SYSTEM (9787)	Tasley
00003530	10698	STATION GROUNDING SYSTEM (9809)	Tasley
00003530	10700	POTENTIAL TRANSF,60KV,N/A,SER #B909044,G.E.	Tasley
00003530	10702	POTENTIAL TRANSF,69KV,N/A,SER#71M1278, WEST	Tasley
00003530	10703	POTENTIAL TRANSF,69KV,N/A,SER #72A9416,WEST	Tasley
00003530	10705	POTENTIAL TRANSF, 69KV,N/A,SER #72A9418, WEST	Tasley
00003530	10707	POTENTIAL TRANSF,69KV,N/A, SER#721918,WEST	Tasley
00003530	10709	POTENTIAL TRANSF,69KV,N/A, SER #721927,WEST	Tasley
00003530	10711	POTENTIAL TRANSF,69KV,N/A,SER # 721924,WEST	Tasley
00003530	10717	SURGE ARRESTERS,LIGHTNING, 60KV (9787)	Tasley
00003530	10719	SURGE ARRESTERS (LIGHTNING),60KV (9688)	Tasley
00003530	10723	STRUCTURE (9809)	Tasley
00003530	10725	SWITCHES,DISCONNECT (INDIVIDUAL),69KV,600A,N/A	Tasley
00003530	10727	SWITCHES,DISCONNECT (INDIVIDUAL)69KV,600A,N/A	Tasley
00003530	10728	SWITCHES,DISCONNECT (INDIVIDUAL)69KV,600A,N/A	Tasley
00003530	10730	CAPACITOR,SHUNT (9809)	Tasley
00003530	13598	FOUNDATIONS (9257)	Tasley
00003530	13599	INSULATORS (9257)	Tasley
00003530	13600	OIL CIR BKR,69KV, 1200A,#7450,SER 33Y6125 WEST	Tasley
00003530	13601	OIL CIR BKR,69KV,1200A,#7460 SER 537Y6125WH	Tasley
00003530	13602	PANEL (9488 & 9409)	Tasley
00003530	13603	STATION GROUNDING SYSTEM (9257)	Tasley
00003530	13604	POTENTIAL TRANSF,69KV,N/A,SER#S7621336,WEST	Tasley
00003530	13605	POTENTIAL TRANSF,69KV,N/A,SER#7621340, WEST	Tasley
00003530	13606	POTENTIAL TRANSF,69KV,N/A, SER #S7621341,WEST	Tasley
00003530	13607	SURGE ARRESTERS (LIGHTNING) 69KV (9257)	Tasley
00003530	13608	STRUCTURE (9257)	Tasley
00003530	13609	SWITCHES,DISCONNECT (INDIVIDUAL) 69KV,600A,N/A	Tasley
00003530	13610	COMMUNICATION EQUIPMENT ,CARRIER EQUIP	Tasley
00003530	17209	CAPACITOR SHUNT (324801)	Tasley
00003530	19859	BREAKER,CIRCUIT,POWER,72.5KV,1200A	Tasley
00003530	19861	BREAKER,CIRCUIT,POWER,72.5KV,1200A	Tasley
00003530	19863	CABLE	Tasley
00003530	19865	CONDUIT	Tasley
00003530	19867	BUS	Tasley
00003530	19869	STATION GROUNDING SYSTEM	Tasley

00003530	27576	BREAKER,POWER,CIRCUIT,72.5KV,1200A	Tasley
00003530	27577	BREAKER,POWER,CIRCUIT,72.5KV,1299A	Tasley
00003530	27578	CABLE	Tasley
00003530	27579	FOUNDATION	Tasley
00003530	27580	CONDUIT	Tasley
00003530	27581	LOAD SHEDDING	Tasley
00003530	27582	PROTECTIVE RELAYS	Tasley
00003530	29143	Power Circuit Breaker SF6, 1200A, 72.5 KV	Tasley
00003530	34743	RELAY; Panels	Tasley
00003530	36869	BATTERY STORAGE; 60 Cell Lead Acid 150AHr	Tasley
00003530	36870	BATTERY CHARGER; 130V DC 16Amp	Tasley
00003530	37530	BREAKER; Circuit 72.5 2000A 40kA SPS2	Tasley
00003530	37531	PANEL; Relay Line Protection	Tasley
00003530	37532	ARRESTER; 69kV	Tasley
00003530	37533	CVT; 69kV	Tasley
00003530	37534	PANEL; Relay Bus Protection	Tasley
00003530	37535	PANEL; Control Breaker 60	Tasley
00003530	37536	STRUCTURES;	Tasley
00003530	37537	SWITCH; Disc 69kV 3Phase 1200A	Tasley
00003530	37538	BUS; Primary	Tasley
00003530	37539	CABLE; Control	Tasley
00003530	37540	CONDUIT;	Tasley
00003530	37541	GROUNDING;	Tasley
00003620	10867	SURGE ARRESTER (LIGHTNING) 60KV (9446)	Tasley
00003620	10886	SWITCH,AIR BKR,69KV,600A,R&IE & DELTA (9446)	Tasley
00003620	15144	SWITCHES,DISCONNECT (INDIVIDUAL) 69KV,600A,N/A	Tasley

14. Wallops 69kV Substation

Account	Asset	Asset description	Location
00003530	19879	SWITCHES, AIR BREAK (INDIV), 138 KV (USED AT 69KV)	Wallops
00003530	19881	CIRCUIT SWITCHER, 138KV/1200A (USED AT 69KV)	Wallops
00003530	19883	SURGE ARRESTER (LIGHTNING), 60KV	Wallops
00003530	19885	BUS	Wallops
00003530	19887	FOUNDATION	Wallops
00003530	19889	STRUCTURE FORMING	Wallops

SCHEDULE 2.1(d)
Seller's Agreements
1.	Service Agreements2

Vendor Name	Service Provided	Term of Agreement
BRUCE GRIFFIN SR	CUSTODIAL SERVICES	4/30/2008
D PAGE KELLAM JR	LANDSCAPING	12/31/2006
Lucas Underground Utilities	Electric utility UG trenching and boring & cable installation	12/31/2007
Utiliquest *	Electric UG cable locating	12/31/2007

*Indicates that the contract serves the entire DPL area and may not be assignable. Seller will use commercially reasonable efforts to assign this agreement to the extent it can be separated.

2.	Agreement between Delmarva Power & Light and the Town of Chincoteague, dated October 29, 1991, as amended by letter dated February 6, 2006.3
3.	Special Agreement for Turn of Century Street Lights between Delmarva Power & Light and the Town of Chincoteague, dated March 23, 2006.4
4.	Off-Peak Service Agreement between Delmarva Power & Light Company and Zieger and Sons, dated November 1, 1994.5
5.	See attached "File: C142" - Wattsville to Chincoteague (Ckt 6745 and 6746)
6.	See attached "File: C143" - Oakhall to Tasley (Ckt 6778)
7.	See attached "File: C144" - Oakhall to Tasley (Ckt 6790)

_________________________________

2 ODEC and A&N to determine who will receive these agreements in the sale.

3 ODEC and A&N to determine who will receive this agreement in the sale.

4 ODEC and A&N to determine who will receive this agreement in the sale.

5 ODEC and A&N to determine who will receive this agreement in the sale.

8.	See attached "File: C145" - Tasley to Kellam (Ckt 6721)
9.	See attached "File: C146" - Kellam to Bayview (Ckt 6750)
10.	See attached "File: C147" - Wattsville to Wallops Island (Ckt 6748)
11.	See Transmission Virginia Railroad Crossings provided by microfiche (consent or approval may be required to transfer).
12.	Agreement for Electric Transmission Lines across the right-of-way, tracks and property of The Pennsylvania Railroad Company, dated February 17, 1967.
13.	Agreement for Electric Transmission Lines across the right-of-way, tracks and property of The Pennsylvania Railroad Company, dated April 23, 1948.
14.	Agreement for Electric Transmission Lines across the right-of-way, tracks and property of The Pennsylvania Railroad Company, dated April 15, 1964.
15.	See Schedule 1.1(93).

SCHEDULE 2.2(a)

Retained Assets

1. Transmission Circuits:

· Circuit # 13763 (New Church, Oak Hall)

· Circuit # 13764 (New Church, Piney Grove)

· Circuit # 13765 (New Church, Oak Hall)

· Circuit # 13787 (Oak Hall, Pocomoke)

· Circuit # 6712 (Wattsville, Stockton)

· Circuit # 6717 (Oak Hall, Wattsville)

2.	See attached "Exhibit 1-A, Assets Retained by DPL"
3.	See attached "Exhibit 1-B, Assets Not Purchased by A&N"
4.	69kV capacitor bank at Oak Hall
5.	2 step 69kV capacitor bank at Wattsville
6.	2- 138/69kV autotransformers at Oak Hall
7.	All 69kV potential transformers and potential devices at Wattsville and Oak Hall
8.	All 138kV potential transformers and potential devices at Oak Hall
9.	Mobile Transformer
10.	All Microwave Equipment
11.	All Licensed Microwave Frequencies
12.	MAS Radio System (MAS Controller at Oak Hall)
13.	MAS hardware (communications/computer equipment) at Chincoteague & Wallops Island
14.	All MAS Licenses
15.	All Land Mobile Radio Frequencies
16.	All Land Mobile Radio Equipment at Oak Hall, Onancock, Exmore and Bayview
17.	Fiber assets between New Church & Oak Hall and MW from Piney Grove to Oak Hall, and associated terminal equipment
18.	Unlicensed Radio Equipment located at Onancock & Tasley supporting Conectiv Energy.

19.	Service Agreement with Atlantic Coast Alarm, Inc. for monitoring of security systems.
20.	Service Agreement with Atlantic Coast Alarm, Inc. for repair of security systems.
21.	Service Agreement with JC Ehrlich Co. Inc. for pest control.
22.	Service Agreement with Trugreen Chemlawn for landscaping.
23.	Service Agreement with Waste Management of Delmarva for trash removal services.
24.	Wattsville 69kV Substation consisting of: 6 breaker ring bus with associated breaker disconnect switches

· 69 kV steel structures and wood poles

· 69 kV line, transformer and capacitor disconnect switches

· 69 kV rigid and aerial bus, insulators, supports, lightning arresters, potential devices

· 69 kV capacitor banks and 2 circuit switchers with associated bus, structures

· Fence, yard lighting, control house, grounding system, foundation, metering

· 69 kV relaying and controls and associated equipment

· 69 kV metering

· RTU and EMS equipment and associated equipment

· AC and DC station service systems

· 69 kV transmission line 6712 to Stockton Substation

· 69 kV transmission line 6717 to Oak Hall Substation

25. Oak Hall 138kV Substation consisting of:

· 6 breaker ring bus with associated breaker disconnect switches

· 2 -138/69kV autotransformers

· 138kV steel structures and wood poles

· 138kV line and transformer disconnect switches

· 138kV lines, intermediate poles and terminations

· 138 kV rigid and aerial bus, insulators, supports, lightning arresters, potential devices

· Fence, yard lighting, control house, grounding system, foundation, metering

· 138kV relaying and controls and associated equipment

· RTU and EMS equipment and associated equipment

· AC and DC station service systems

· 138kV transmission line 13763 to New Church Substation

· 138kV transmission line 13787 to Pocomoke Substation

· 138kV transmission line 13765 to New Church Substation

· 69 kV transformer switches 7655 and 7624, distribution AC and DC station service and grounding, and distribution station fencing

26. Oak Hall 69kV Substation consisting of:

· 6 breaker ring bus with associated breaker disconnect switches

· 69 kV steel structures and wood poles

· 69 kV line and transformer disconnect switches

· 69 kV rigid and aerial bus, insulators, supports, lightning arresters, potential devices

· 69 kV capacitor bank, circuit breaker and associated bus and structures

· Fence, yard lighting, control house, grounding system, foundation, metering

· 69 kV relaying and controls and associated equipment

· RTU and EMS equipment and associated equipment

· AC and DC station service systems

· 69 kV transmission line 6717 to Wattsville 69kV Substation

27.	New Church 138 kV Substation (retained in it entirety)
28.	RTU at Tasley and Bayview
29.	Right of continued use of the space on communication towers in Virginia for PHI Microwave Land Mobile Radio Communications, MAS Radio equipment and Controller and some unlicensed radio equipment located between Onancock and Tasley.
30.	Retained Wattsville Substation Transmission Assets

Account	Asset	Asset description	Location
00003530	10736	BUS - (9810)	Wattsville
00003530	10738	FOUNDATION - (3259)	Wattsville
00003530	10740	FOUNDATION - (J30)	Wattsville
00003530	10742	FOUNDATION - (9993)	Wattsville
00003530	10744	FOUNDATION - (9810)	Wattsville
00003530	10746	FOUNDATION - (332101)	Wattsville
00003530	10748	FUSE EQUIPMENT, SET OF HIGH VOLTAGE 7.5KV (3249)	Wattsville
00003530	10750	INSTRUMENT - (9754)	Wattsville
00003530	10752	INSTRUMENT - (9993)	Wattsville
00003530	10766	INSULATORS - (J30)	Wattsville
00003530	10768	INSULATORS - (9993)	Wattsville
00003530	10770	INSULATORS - (9993)	Wattsville
00003530	10772	CABLE - (3259)	Wattsville
00003530	10774	CABLE	Wattsville
00003530	10776	CABLE - (9754)	Wattsville
00003530	10778	CABLE	Wattsville
00003530	10780	CONDUIT (3259)	Wattsville
00003530	10782	CONDUIT (J30)	Wattsville
00003530	10784	CONDUIT (9002)	Wattsville
00003530	10786	CONTROL INSTALLATION (9993)	Wattsville
00003530	10788	OIL CIRCUIT BREAKER 69KV,#7650,SER #0139A940201 GE	Wattsville
00003530	10790	OIL CIRCUIT BREAKER 69KV,#7630,SER#0139A4940202 GE	Wattsville
00003530	10792	OIL CIRCUIT BREAKER 69KV,#7620,SER#0139A4940203 WH	Wattsville
00003530	10796	PANEL (9754)	Wattsville
00003530	10797	PANEL - (9993)	Wattsville
00003530	10799	PANEL (9810)	Wattsville
00003530	10803	STATION GROUNDING SYSTEM (3259)	Wattsville
00003530	10805	STATION GROUNDING SYSTEM (J30)	Wattsville

00003530	10807	STRUCTURE (3259)	Wattsville
00003530	10809	STRUCTURE (J30)	Wattsville
00003530	10811	STRUCTURE (9993)	Wattsville
00003530	10813	STRUCTURE (9810)	Wattsville
00003530	10815	SWITCH,AIRBREAK,69KV,600A, N/A (J30)	Wattsville
00003530	10817	SWITCH,AIR BREAK,69KV,1200A, N/A (9993)	Wattsville
00003530	10819	SWITCH,DISCONNECT (INDIVIDUAL),69KV,600A,SOUTH STS	Wattsville
00003530	10821	POWER TRANSFORMER ,10KVA,N/A,SER #804693, MOL	Wattsville
00003530	10823	SURGE ARRESTER (LIGHTNING) 69KV (3259)	Wattsville
00003530	17210	ENGERGY CONTROL SYSTEM DEVICES J563	Wattsville
00003530	17211	FOUNDATION - (J30)	Wattsville
00003530	17212	CABLE (332101)	Wattsville
00003530	17213	CONTROL INSTALLATION (J563)	Wattsville
00003530	17214	SURGE ARRESTERS (LIGHTNING) 69KV (332101)	Wattsville
00003530	17215	GAS CIRCUIT BREAKER,72.5KV,#7660,SER#167Y1752,WEST	Wattsville
00003530	17216	GAS CIRCUIT BREAKER,72.5KV,#7610,SER#267Y1752,WEST	Wattsville
00003530	17217	PANEL (J563)	Wattsville
00003530	17218	STRUCTURE (J563)	Wattsville
00003530	19870	CABLE	Wattsville
00003530	19873	SURGE ARRESTER(LIGHTNING) 69KV	Wattsville
00003530	19875	PANELS	Wattsville
00003530	19877	PROTECTIVE RELAYS	Wattsville
00003530	35663	CAPACITOR; Bank 69kV 10.8MVAR	Wattsville
00003530	35664	SWITCHER; Circuit 69kV 1200Amps Pre Insert Z	Wattsville
00003530	35665	TRANSFORMER; Voltage 69kV 40250;115/67	Wattsville
00003530	35666	ARRESTER; Surge 69kV 40kV MCOV	Wattsville
00003530	35667	STRUCTURES; Steel	Wattsville
00003530	35668	PANEL; Relay	Wattsville
00003530	35669	CABLE; Control	Wattsville
00003530	35670	ENCLOSURE; Control Prefabricated	Wattsville
00003530	35671	BUS;	Wattsville
00003530	35672	FOUNDATIONS;	Wattsville
00003530	35673	PCB; SPS2-72.5-40-2000 SF6	Wattsville
00003530	35674	SYSTEM; Grounding	Wattsville
00003530	35675	TRANSFORMER; Voltage 34kV 20125:115	Wattsville
00003530	35676	CONDUIT;	Wattsville
00003530	35677	SWITCH; Gang Operated 69kV 1200A	Wattsville
00003530	35940	BUS; Conductor, Connectors, etc	Wattsville
00003530	36147	PANEL; Relay	Wattsville
00003530	36148	CCVT; 69kV/11567v 350kV BIL Trench	Wattsville
00003530	36149	CCVT; 69kV/11567v 350kV BIL Trench	Wattsville
00003530	37484	BUS; Primary	Wattsville
00003530	37485	TROUGH; Conduit and Cable	Wattsville
00003530	37498	CABLE; Control	Wattsville
00003530	37499	PANEL; Relay SEL351S "CA1"	Wattsville
00003530	37500	SWITCHER; Circuit 69kV 1200A Pre-Z Mark V	Wattsville
00003530	37501	GROUNDING;	Wattsville
00003530	37502	STRUCTURE; Steel 3Phase Bus Support	Wattsville

00003530	37503	ARRESTER; Surge 69kV Metal Oxide Polymer	Wattsville
00003530	37504	FOUNDATION; Cap Bank	Wattsville
00003620	11029	SWITCHES,AIR BREAK, 69KV,600A,DELTA STAR (9993)	Wattsville
00003620	22958	DISCONNECT SWITCH, 72.5KV, 1200A	Wattsville
00003520	4528	HEATING SYSTEM - (J30)	Wattsville
00003520	4541	OTHER BUILDING - 20' X 30' (9993)	Wattsville
00003520	4543	YARD LIGHTING SYSTEM - (9806)	Wattsville
00003971	37427	MASTER; MDS9790 Backup	Wattsville
00003971	37428	REMOTE; MDS9710 Backup	Wattsville

31. Retained Wattsville Substation Transmission Assets

00003530	10533	BUS (9746)	Oak Hall
00003530	10535	BUS (9955)	Oak Hall
00003530	10537	CABLE (9746)	Oak Hall
00003530	10539	CABLE (9955)	Oak Hall
00003530	10541	CABLE (9098)	Oak Hall
00003530	10543	CABLE (9098)	Oak Hall
00003530	10545	CAPACITOR,SHUNT (9098)	Oak Hall
00003530	10549	OIL CIR BKR,69KV,1200A,#7240,SER #137671,AC	Oak Hall
00003530	10551	OIL CIR BKR,69KV,1200A,#7260,SER#0139A9080205,GE	Oak Hall
00003530	10553	OIL CIR BKR,138KV,1200A,#181,SER#0139A6467205,GE	Oak Hall
00003530	10555	CONDUIT (C851)	Oak Hall
00003530	10557	CABLE TROUGH (9955)	Oak Hall
00003530	10559	CABLE TROUGH (9098)	Oak Hall
00003530	10561	CONTROL INSTALLATION (9955)	Oak Hall
00003530	10563	FOUNDATION (9514)	Oak Hall
00003530	10565	FOUNDATION (9746)	Oak Hall
00003530	10567	FOUNDATION (9955)	Oak Hall
00003530	10569	FOUNDATION (9098)	Oak Hall
00003530	10571	INSULATOR (9514)	Oak Hall
00003530	10574	INSULATORS (9746)	Oak Hall
00003530	10576	INSULATORS (9955)	Oak Hall
00003530	10578	INSULATORS (9098)	Oak Hall
00003530	10580	PANEL (9746)	Oak Hall
00003530	10582	PANEL (9955)	Oak Hall
00003530	10584	PANEL (9098)	Oak Hall
00003530	10586	PANEL (9744)	Oak Hall
00003530	10588	POTENTIAL TRANSF,69KV,N/A,SER #6169, AC (9746)	Oak Hall
00003530	10592	POTENTIAL TRANSF,69KV,N/A,SER#6197,AC (9746)	Oak Hall
00003530	10598	STATION GROUNDING SYSTEM (9514)	Oak Hall
00003530	10600	STATION GROUNDING SYSTEM (9768)	Oak Hall
00003530	10602	STATION GROUNDING SYSTEM (9746)	Oak Hall
00003530	10604	STATION GROUNDING SYSTEM (9955)	Oak Hall
00003530	10606	STATION GROUNDING SYSTEM (9098)	Oak Hall
00003530	10608	SURGE ARRESTERS,(LIGHTNING) 69KV	Oak Hall
00003530	10610	SURGE ARRESTERS (LIGHTNING) 60KV	Oak Hall
00003530	10612	SURGE ARRESTERS (LIGHTNING) 69KV	Oak Hall
00003530	10614	SURGE ARRESTERS (LIGHTNING)60KV	Oak Hall
00003530	10616	SURGE ARRESTERS (LIGHTNING) 20KV	Oak Hall
00003530	10618	SWITCHES,AIR BREAK,69KV,600A,N/A (9514)	Oak Hall

00003530	10620	STRUCTURE (3334)	Oak Hall
00003530	10622	STRUCTURE (9514)	Oak Hall
00003530	10624	STRUCTURE (J35)	Oak Hall
00003530	10626	STRUCTURE (9746)	Oak Hall
00003530	10628	STRUCTURE (9955)	Oak Hall
00003530	10630	STRUCTURE (9098)	Oak Hall
00003530	10632	SWITCHES, DISCONNECT,INDIVIDIUAL 69KV,600A,N/A	Oak Hall
00003530	10636	SWITCHES,DISCONNECT,INDIVIDUAL,69KV,600A,N/A	Oak Hall
00003530	10638	SWITCHES,DISCONNET,INDIVIDUAL,69KV,600A,N/A	Oak Hall
00003530	10640	SWITCHES ,DISCONNECT,INDIVIDUAL,161KV,1200A,N/A	Oak Hall
00003530	10642	SWITCHES,DISCONNECT,INDIVIDUAL,69KV,600A,N/A	Oak Hall
00003530	10647	REGULATOR, INDUCTION 69 KV	Oak Hall
00003530	13574	BUS (9241)	Oak Hall
00003530	13575	CABLE (9354)	Oak Hall
00003530	13576	OIL CIR BKR,69KV,1200A,#7270,SER#23Y6125,WEST	Oak Hall
00003530	13578	CABLE TROUGH (9515)	Oak Hall
00003530	13579	CONTROL INSTALLATION (9685)	Oak Hall
00003530	13580	FOUNDATION (9241)	Oak Hall
00003530	13581	FOUNDATION (9515)	Oak Hall
00003530	13582	INSULATORS (9241)	Oak Hall
00003530	13583	INSULATORS (9515)	Oak Hall
00003530	13584	PANEL (9354)	Oak Hall
00003530	13585	PANEL (J563)	Oak Hall
00003530	13590	STATION GROUNDING SYSTEM (9241)	Oak Hall
00003530	13591	STATION GROUNDING SYSTEM (9515)	Oak Hall
00003530	13592	SURGE ARRESTER (LIGHTNING) 69KV (9241)	Oak Hall
00003530	13593	SWITCHES,AIR BREAK,138KV,1200A,N/A, (9515)	Oak Hall
00003530	13594	STRUCTURE (9241)	Oak Hall
00003530	13595	STRUCTURE (9515)	Oak Hall
00003530	13596	SWITCHES,DISCONNECT,INDIVIDUAL,69KV,1200A,N/A	Oak Hall
00003530	13597	SWITCHES,DISCONNECT,INDIVIDUAL,138KV,1200A, RUMSEY	Oak Hall
00003530	17183	ANNUNCIATOR (9685)	Oak Hall
00003530	17184	BUS (312801)	Oak Hall
00003530	17185	CABLE (312801)	Oak Hall
00003530	17187	CABLE TROUGH (312801)	Oak Hall
00003530	17188	CONTROL INSTALLATION (9685)	Oak Hall
00003530	17189	CONTROL INSTALLATION (312801)	Oak Hall
00003530	17190	FOUNDATION (312801)	Oak Hall
00003530	17191	INSULATORS (312801)	Oak Hall
00003530	17192	PANEL (9685)	Oak Hall
00003530	17193	PANEL (312801)	Oak Hall
00003530	17197	POTENTIAL TRANSF,138KV,N/A,SER#1503254 GE	Oak Hall
00003530	17198	POTENTIAL TRANSF,138KV,N/A,SER#1503255 GE	Oak Hall
00003530	17199	POTENTIAL TRANSF,138KV,N/A,SER#1503256 GE	Oak Hall
00003530	17200	STATION GROUNDING SYSTEM (312801)	Oak Hall
00003530	17201	SURGE ARRESTERS (LIGHTNING) 138KV (312801)	Oak Hall
00003530	17202	STRUCTURE (312801)	Oak Hall
00003530	17203	STRUCTURE (332003)	Oak Hall
00003530	17204	POWER TRANSF,138KV,N/A/,N/A,SER #C0654351 ME	Oak Hall
00003530	17205	SWITCHES,DISCONNECT,INDIVIDUAL,69KV,1200A, RUMSEY	Oak Hall

00003530	17206	SWITCHES,DISCONNECT,INDIVIDUAL,69KV,600A,N/A	Oak Hall
00003530	17207	BATTERY CHARGER,N/A,N/A,N/A (312801)	Oak Hall
00003530	17208	BATTERY,STORAGE,105A,125V,105A/H (312801)	Oak Hall
00003530	19857	RELAY	Oak Hall
00003530	27569	BREAKER,POWER,CIRCUIT,72.5KV,1200A	Oak Hall
00003530	27570	BREAKER,POWER,CIRCUIT,72.5KV,1200A	Oak Hall
00003530	27571	CABLE	Oak Hall
00003530	27572	PROTECTIVE RELAY	Oak Hall
00003530	27573	FOUNDATION	Oak Hall
00003530	27574	PANELS	Oak Hall
00003530	27575	PROTECTIVE RELAY	Oak Hall
00003530	35464	SWITCH; Disconnect 69kV 1200A 61kA	Oak Hall
00003530	35465	WIRE; 954 ACSR Aluminum	Oak Hall
00003530	35466	PRIMARY; Miscellaneous Connectors	Oak Hall
00003530	35467	INSULATORS; 69kV Suspension Polymer	Oak Hall
00003530	35468	SECONDARY; Miscellaneous Material	Oak Hall
00003530	35469	PANEL; Relay Line 13765 BU	Oak Hall
00003530	35470	PANEL; Relay Line 13765 FL	Oak Hall
00003530	35471	PANEL; Relay PCB 180 SB	Oak Hall
00003530	35472	BREAKER; Power Circuit 145kV 2000A 40kA	Oak Hall
00003530	35473	BREAKER; Power Circuit 145kV 2000A 40kA	Oak Hall
00003530	35474	BREAKER; Power Circuit 145kV 2000A 40kA	Oak Hall
00003530	35475	BREAKER; Power Circuit 145kV 2000A 40kA	Oak Hall
00003530	35476	BREAKER; Power Circuit 145kV 2000A 40kA	Oak Hall
00003530	35477	BREAKER; Power Circuit 72.5kV 2000A 40kA	Oak Hall
00003530	35478	TRANSFORMER; Auto 144/72kV 60/80/100MVA AT2	Oak Hall
00003530	35479	SWITCH; Disconnect 69kV 1200A 61kA	Oak Hall
00003530	35480	SWITCH; Disconnect 69kV 1200A 61kA	Oak Hall
00003530	35481	SWITCH; Disconnect 138kV 1200A 61kA	Oak Hall
00003530	35482	SWITCH; Disconnect 138kV 2000A 61kA	Oak Hall
00003530	35483	TRANSFORMER; Coupling Capacitor Voltage 80.5kV	Oak Hall
00003530	35484	TRANSFORMER; Coupling Capacitor Voltage 40kV	Oak Hall
00003530	35485	ARRESTER; Lightning 108kV 88kV MCOV PVN	Oak Hall
00003530	35486	ARRESTER; Lightning 60kV 48kV MCOV PVN	Oak Hall
00003530	35487	BUS;	Oak Hall
00003530	35488	INSULATORS; 138kV Suspension Polymer	Oak Hall
00003530	35489	INSULATORS; 138kV Station Post Porcelain	Oak Hall
00003530	35490	INSULATORS; 69kV Suspension Polymer	Oak Hall
00003530	35491	INSULATORS; 69kV Station Post Porcelain	Oak Hall
00003530	35492	PRIMARY; Miscellaneous Connectors	Oak Hall
00003530	35493	SECONDARY; Miscellaneous Material	Oak Hall
00003530	35494	CABLE; Control 3C#6	Oak Hall
00003530	35495	CABLE; Control 3C#10	Oak Hall
00003530	35496	CABLE; Control 5C#10	Oak Hall
00003530	35497	CABLE; Control 12C#12	Oak Hall
00003530	35498	FOUNDATIONS;	Oak Hall
00003530	35499	SYSTEM; Station Grounding	Oak Hall
00003530	35500	CONDUIT; Miscellaneous	Oak Hall
00003530	35501	STRUCTURES; Steel	Oak Hall
00003530	35502	PANEL; Relay Auxiliary Alarm	Oak Hall

00003530	35503	PANEL; Relay Auto-Sync Check	Oak Hall
00003530	35504	PANEL; Relay AT2 FL	Oak Hall
00003530	35505	PANEL; Relay AT2 BU	Oak Hall
00003530	35506	PANEL; Relay Line 13763 FL	Oak Hall
00003530	35507	PANEL; Relay Line 13763 BU	Oak Hall
00003530	35508	PANEL; Relay Line 13787 FL	Oak Hall
00003530	35509	PANEL; Relay Line 13787 BU	Oak Hall
00003530	35510	PANEL; Relay Line 13787 SBTT	Oak Hall
00003530	35511	PANEL; Relay Line 6790 BU	Oak Hall
00003530	35512	PANEL; Relay Line 6717 BU	Oak Hall
00003530	35513	PANEL; Relay Line 6778 BU	Oak Hall
00003530	35514	PANEL; Relay PCB 183 SB	Oak Hall
00003530	35515	PANEL; Control PCB 184	Oak Hall
00003530	35516	PANEL; Relay PCB 184 SB	Oak Hall
00003530	35517	PANEL; Control PCB 185	Oak Hall
00003530	35518	PANEL; Relay PCB 185 SB	Oak Hall
00003530	35519	PANEL; Control PCB 186	Oak Hall
00003530	35520	PANEL; Relay PCB 186 SB	Oak Hall
00003530	35521	PANEL; Control PCB 183	Oak Hall
00003530	35522	PANEL; Relay PCB 80 SB	Oak Hall
00003530	35523	PANEL; Relay PCB 7270 SB	Oak Hall
00003530	35524	PANEL; Relay PCB 7260 SB	Oak Hall
00003530	35525	PANEL; Relay PCB 7220 SB	Oak Hall
00003530	35526	PANEL; Control PCB 7290	Oak Hall
00003530	35527	PANEL; Relay PCB 7290 SB	Oak Hall
00003530	35528	PANEL; Relay PCB 7210 SB	Oak Hall
00003530	35529	BATTERY SYSTEM; 330AH 125VDC 60 Cell Lead Calcium	Oak Hall
00003530	35530	BATTERY CHARGER; 25A 125VDC Output 120/208/240VAC	Oak Hall
00003530	35531	RTU; Nells Automation Sage 2100	Oak Hall
00003530	36119	BREAKER; Gas Circuit SPS2-72.5 69kV 2000A	Oak Hall
00003520	4485	FENCE PERIMETER 6' GALV (ADJ 239)	Oak Hall
00003520	4487	FENCE-PERIMETER 1259 FT (ADJ239)	Oak Hall
00003520	4490	FIRE PROTECTION SYSTEM (ADJ 239)	Oak Hall
00003520	4492	LANDSCAPING (INITIAL) (ADJ 239)	Oak Hall
00003520	4494	LAND IMPROVEMENT-GRADING & FILL (ADJ 239)	Oak Hall
00003520	4496	YARD LIGHTING SYSTEM (ADJ 239)	Oak Hall
00003520	4498	YARD LIGHTING SYSTEM (ADJ 239)	Oak Hall
00003520	4500	OTHER BUILDING N/A (9955)	Oak Hall
00003520	4503	LAND IMPROVEMENT-GRADING & FILL (ADJ 257)	Oak Hall
00003520	4505	ROADS & DRIVES N/A (ADJ 257)	Oak Hall
00003520	12257	FENCE-PERIMETER N/A (ADJ 239)	Oak Hall
00003520	16826	ROADS & DRIVES N/A (ADJ 239)	Oak Hall
00003520	16827	OTHER BUILDING 25 X 20 (ADJ 257)	Oak Hall
00003520	16828	YARD LIGHTING SYSTEM (ADJ 257)	Oak Hall
00003520	16829	HEATING SYSTEM (ADJ 257)	Oak Hall
00003971	39190	AMPLIFIER; Crescend 150W 800MHz	Oak Hall
00003971	39191	AMPLIFIER; Crescend 150W 800MHz	Oak Hall
00003971	39192	AMPLIFIER; Crescend 150W 800MHz	Oak Hall
00003971	39193	AMPLIFIER; Crescend 150W 800MHz	Oak Hall
00003971	39194	AMPLIFIER; Crescend 150W 800MHz	Oak Hall

00003972	35552	RADIO EQUIPMENT	030
00003972	19873E1RADIO	RADIO EQUIPMENT	030
00003972	19893E1RADIO	RADIO EQUIPMENT	030
00003972	19903E1RADIO	RADIO EQUIPMENT	030
00003972	19913E1RADIO	RADIO EQUIPMENT	030
00003972	19943E1RADIO	RADIO EQUIPMENT	030
00003972	19953E1RADIO	RADIO EQUIPMENT	030
00003972	19963E1RADIO	RADIO EQUIPMENT	030
00003971	34494	Radio Equipment - HT1000 Portables ( 800 MHZ sys)	030
00003971	34495	Radio Equipment - MC2000 Mobiles ( 800 MHZ sys)	030
00003971	34496	Radio Equipment -MTS 2000 Portables( 800 MHZ sys)	030
00003971	34497	Radio Equipment -Astro Control Stations and	030
00003971	34498	Radio Equipment - Telecom infra upgrades, IDNX Exp	030

32. Retained Transmission Line Assets

Account	Asset	Asset description	Location	SPLIT ASSETS
00003550	35095	POLE; 75 Ft Wood Class 1	13763
00003550	35096	POLE; 80 Ft Wood Class 1	13763
00003550	35097	POLE; 85 Ft Wood Class 1	13763
00003550	35100	POLE; 50 Ft Wood Class 1	13763
00003550	35087	POLE; 80 Ft Wood Class 1	13764
00003550	35088	POLE; 85 Ft Wood Class 1	13764
00003550	36931	POLE; 45ft Wood	6712
00003550	36932	POLE; 60ft Wood	6712
00003550	36933	POLE; 70ft Wood	6712
00003550	35124	POLE; 70FT Wood Class H1	6717
00003550	35125	POLE; 75FT Wood Class H1	6717
00003550	35126	POLE; 80FT Wood Class H1	6717
00003560	35098	WIRE; 7#8 AW 7STR Bare	13763
00003560	35099	WIRE; 954-45/7 ACSR Bare	13763
00003560	35127	WIRE; 954-45/7 ACSR Bare	6717
00003560	35128	WIRE; 7#8 -7STR AW Bare	6717
00003502	3836	LAND AND LAND RIGHTS - RIGHTS OF WAY	030
00003502	3840	LAND AND LAND RIGHTS - RIGHTS OF WAY	030
00003502	3849	LAND AND LAND RIGHTS - RIGHTS OF WAY	030
00003502	3855	LAND AND LAND RIGHTS - RIGHTS OF WAY	030
00003502	27182	LAND RIGHTS	030	Portion to be sold to ODEC
00003550	19483E000005	POLES AND FIXTURES	030
00003550	19523E000005	POLES AND FIXTURES	030
00003550	19533E000005	POLES AND FIXTURES	030
00003550	19563E000005	POLES AND FIXTURES	030

00003550	19583E000005	POLES AND FIXTURES	030
00003550	19603E000005	POLES AND FIXTURES	030
00003550	19613E000005	POLES AND FIXTURES	030
00003550	19653E000005	POLES AND FIXTURES	030
00003550	19673E000005	POLES AND FIXTURES	030
00003550	19693E000005	POLES AND FIXTURES	030
00003550	19703E000005	POLES AND FIXTURES	030
00003550	19713E000005	POLES AND FIXTURES	030
00003550	19763E000005	POLES AND FIXTURES	030
00003550	19793E000005	POLES AND FIXTURES	030
00003550	19823E000005	POLES AND FIXTURES	030
00003550	19833E000005	POLES AND FIXTURES	030	Portion to be sold to ODEC
00003550	19843E000005	POLES AND FIXTURES	030
00003550	19883E000005	POLES AND FIXTURES	030	Portion to be sold to ODEC
00003550	19903E000005	POLES AND FIXTURES	030	Portion to be sold to ODEC
00003550	19913E000005	POLES AND FIXTURES	030	Portion to be sold to ODEC
00003550	19923E000005	75 FT. POLE (VOC)	030	Portion to be sold to ODEC
00003550	19933E000005	POLES AND FIXTURES	030
00003550	19953E000005	POLES AND FIXTURES	030	Portion to be sold to ODEC
00003560	19413E000008	OVERHEAD CONDUCTORS AND DEVICES	030	Portion to be sold to ODEC
00003560	19483E000008	OVERHEAD CONDUCTORS AND DEVICES	030
00003560	19533E000008	OVERHEAD CONDUCTORS AND DEVICES	030
00003560	19643E000008	OVERHEAD CONDUCTORS AND DEVICES	030	Portion to be sold to ODEC
00003560	19673E000008	OVERHEAD CONDUCTORS AND DEVICES	030
00003560	19763E000008	OVERHEAD CONDUCTORS AND DEVICES	030	Portion to be sold to ODEC
00003560	19833E000008	OVERHEAD CONDUCTORS AND DEVICES	030	Portion to be sold to ODEC
00003560	19933E000008	OVERHEAD CONDUCTORS AND DEVICES	030

SCHEDULE 3.2(a)
Net Book Value Calculation
SAMPLE SALES PRICE ADJUSTMENT:
Sales Price $ 4,800,000
Plus: Additional asset investment since November 30, 2006 $ 200,000
Less: NBV of Retirements, Disposals, and Abandoned Equipment since November 30, 2006 $ 75,000
Adjusted Sales Price $ 4,925,000
SCHEDULE 4.3(a)
Seller's Defaults and Violations
None
SCHEDULE 4.3(b)
Seller's Required Regulatory Approvals
1.	Approval under the Virginia Utilities Transfers Act from the Virginia State Corporation Commission
2.	FERC approval of the Restated Interconnection Agreement
3.	FERC approval of the Facilities Agreement.
SCHEDULE 4.4
Insurance
All DPL properties in Virginia which are covered by insurance are covered under blanket policies which also cover properties of other PHI entities and properties located in other states.
Property: Coverage is provided on an all-risk basis for specified locations. There is no coverage for transmission and distribution lines. The limits are $400 million per occurrence and deductibles vary.
Liability: Coverage is provided on a claims made basis and includes pollution coverage. The limits are $150 per occurrence and retention is $2 million.
SCHEDULE 4.5(c)
Required Easements
Seller has wire crossings with Eastern Shore Railroad, Inc. but cannot locate permits for the following locations:

· MP # 45.05

· MP # 52.90

· MP # 55.70

· MP # 64.60

· MP # 67.80

· MP # 68.90

· MP # 70.12

· MP # 76.30

· MP # 77.70

· MP # 79.21

· MP # 84.50

· MP # 86.00

SCHEDULE 4.6
Seller's Environmental Matters
1.	All matters identified on Phase I and Phase II reports prepared by NTH Consultants, Ltd.
2.	Seller received a letter dated January 3, 2006 from the United States Environmental Protection Agency (the "EPA"). The letter requested that Seller respond to a "First Information Request," pursuant to Section 104 of CERCLA and Section 3007 of RCRA with respect to a Carolina Transformer Site in Fayetteville, Cumberland County, North Carolina. According to the letter, the EPA received information from parties operating the Site that Seller may have conducted business with, or sent materials to, the site. Seller provided a timely response to the EPA's request, dated February 22, 2006. On August 25, 2006, Seller received a letter from the EPA stating that Seller has been identified as a party that sent PCB-laden oil to the Carolina Transformer Superfund Site and may potentially be a responsible party under Section 107(a) of CERCLA.
3.	Underground Storage Tanks
	The Exmore site includes two underground storage tanks, located outdoors to the west of the main building in the central portion of the Exmore Complex. One is a 10,000 gallon diesel double-walled fiberglass tank and the other is a 10,000 gallon diesel double-walled fiberglass tank.
4.	PCB Contaminated Equipment

              ·     7 PCB Capacitors at Wattsville Substation:

o B-399-CAP-10

o B-399-CAP-19

o B-399-CAP-20

o B-399-CAP-21

o B-399-CAP-22

o B-399-CAP-23

o B-399-CAP-24

	Additionally, to the Seller's Knowledge, the PCB status of substation electrical equipment is described in the equipment inventory contained in the SPCC Plan for each substation, which have been provided in due diligence
5.	See attached list of Oil Spills from 1997 to 2007 and Manifests from 1998-2007.
SCHEDULE 4.8
Real Property and Transferred Easements
1.	See Schedule 1.1(93).
2.	See Schedule 2.1(a).
3.	See Transmission Army Corps Water Crossings provided by microfiche (consent or approval may be required to transfer).
4.	See Transmission Virginia Railroad Crossings provided by microfiche (consent or approval may be required to transfer).
5.	Agreement for Electric Transmission Lines across the right-of-way, tracks and property of The Pennsylvania Railroad Company, dated February 17, 1967.
6.	Agreement for Electric Transmission Lines across the right-of-way, tracks and property of The Pennsylvania Railroad Company, dated April 23, 1948.
7.	Agreement for Electric Transmission Lines across the right-of-way, tracks and property of The Pennsylvania Railroad Company, dated April 15, 1964.
SCHEDULE 4.9(a)
Seller's Agreements
1.	See Schedule 1.1(93) and Schedule 2.1(d).
2.	Service Agreement with Atlantic Coast Alarm, Inc. for monitoring of security systems.
3.	Service Agreement with Atlantic Coast Alarm, Inc. for repair of security systems.
4.	Service Agreement with JC Ehrlich Co. Inc. for pest control.
5.	Service Agreement with Trugreen Chemlawn for landscaping.
6.	Service Agreement with Waste Management of Delmarva for trash removal services.
SCHEDULE 4.9(b)
Seller's Agreements Exceptions
None
SCHEDULE 4.9(c)
Seller's Agreements Defaults and Violations
None
SCHEDULE 4.10
Legal Proceedings

1.	On March 10, 2006, DPL filed for a rate increase with the VSCC for its Virginia Default Service customers to take effect on June 1, 2006, which was intended to allow DPL to recover its higher cost for energy established by the competitive bid procedure. On June 19, 2006, the VSCC issued an order that granted a rate increase for DPL of $11.5 million ($8.5 million less than requested by DPL in its March 2006 filing), to go into effect July 1, 2006. In determining the amount of the approved increase, the VSCC applied the proxy rate calculation to DPL's fuel factor, rather than allowing full recovery of the costs DPL incurred in procuring the supply necessary for its Default Service obligation. The estimated after-tax earnings and cash flow impacts of the decision are reductions of approximately $3.6 million in 2006 (including the loss of revenue in June 2006 associated with the Default Service rate increase being deferred from June 1 until July 1) and $2.0 million in 2007. The order also mandated that DP L file an application for Default Service rates to become effective June 1, 2007, including a calculation of the fuel factor that is consistent with the procedures set forth in the order. On April 2, 2007, DPL filed the application in accordance with the terms of the order. The calculations in the application result in a rate decrease of approximately $1.7 million for the first period, June 1 to June 30, 2007, and an increase of approximately $4.2 million for the second period, July 1, 2007 to May 31, 2008, or an overall annual rate increase of approximately $2.5 million.
2.	In February 2007, the Virginia General Assembly passed amendments to the Virginia Electric Utility Restructuring Act to become effective on July 1, 2007(the Virginia Restructuring Act) that modified the method by which investor-owned electric utilities in Virginia will be regulated by the VSCC. The amendments provide that, as of December 31, 2008, the following will terminate: (i) capped electric base rates (the previous expiration date was December 31, 2010); (ii) DPL's Default Service obligation (previously, DPL was obligated to continue to offer Default Service until relieved of that obligation by the VSCC); and (iii) customer choice, except that customers with loads of five megawatts or greater will continue to be able to buy from competitive suppliers, as will smaller non-residential customers that aggregate their loads to reach the five-megawatt threshold and obtain VSCC approval. Additionally, if an ex-customer of Default Service wants to return to DPL as its energy supplier, it must give five y ears notice or obtain approval of the VSCC that the return is in the public interest. In this event, the ex-customer must take DPL's service at market based rates.
	DPL also believes that the amendments to the Virginia Restructuring Act will terminate, as of December 31, 2008, the ratemaking provisions within the memorandum of agreement entered into by DPL, the staff of the VSCC and the Virginia Attorney General's office in the docket approving DPL's generating asset divestiture in 2000 (the MOA), including the application of the proxy rate calculation to DPL's fuel factor as discussed above; however, the VSCC's interpretation of these provisions is not known.
3.	See Schedule 4.6.
4.	See the Order by the Virginia State Corporation Commission in Case No. PUE-2007-00013, Application of Delmarva Power & Light For an increase in its electric rates pursuant to Va. Code §: 56-249.6 and § 56-582.
SCHEDULE 4.12
Brokers; Finders
None
SCHEDULE 4.14
Material Adverse Effects
1.	See Schedule 4.10.
2.	See Schedule 4.6.
SCHEDULE 5.3(a)
Buyer's Defaults and Violations
None
SCHEDULE 5.3(b)
Buyer's Required Regulatory Approvals
1.	Approval under the Virginia Utilities Transfers Act from the Virginia State Corporation Commission
2.	Certificate of Public Convenience & Necessity from the Virginia State Corporation Commission
3.	FERC approval of the Restated Interconnection Agreement
4.	FERC approval of the Facilities Agreement.
5.	FERC approval of a revenue requirement related to the purchased transmission facilities.
SCHEDULE 6.1
Conduct of Business Exceptions
1.	Seller plans to install a 138 kV to 69 kV step-down transformer in the Wattsville 69 kV substation, with an in-service date of May 2009.
2.	Replacement of Tasley CB 3450
3.	Replacement of CB 20 at Kellam
4.	Replacement of CB 570 at Wattsville
SCHEDULE 6.1(e)
Seller's Budget
See attached Seller's Budget.
SCHEDULE 7.1(c)
Certain Buyer's Required Regulatory Approvals
See Schedule 5.3(b).
SCHEDULE 7.2(c)
Certain Seller's Required Regulatory Approvals
See Schedule 4.3(b).

EX-10.2

EXECUTION COPY

PURCHASE AND SALE AGREEMENT

BY AND BETWEEN

DELMARVA POWER & LIGHT COMPANY

and

A&N ELECTRIC COOPERATIVE

Dated as of June 13, 2007

TABLE OF CONTENTS
ARTICLE I          DEFINITIONS		1
1.1	Definitions	1
1.2	Construction	11
13	U.S. Dollars	12
ARTICLE II          PURCHASE AND SALE		12
2.1	Transfer of Assets	12
2.2	Excluded Assets	13
2.3	Assumed Liabilities	15
2.4	Excluded Liabilities	16
2.5	Control of Litigation	17
ARTICLE III         THE CLOSING		18
3.1	Closing	18
3.2	Purchase Price	18
3.3	Establishment of Escrow	19
3.4	Adjustment to Purchase Price	19
3.5	Tax Reporting and Allocation of Purchase Price	20
3.6	Prorations	21
3.7	Deliveries by Seller	21
3.8	Deliveries by Buyer	23
3.9	Post-Closing Asset Deliveries	23
ARTICLE IV          REPRESENTATIONS AND WARRANTIES OF SELLER		24
4.1	Organization; Qualification	24
4.2	Authority	24
4.3	Consents and Approvals; No Violation	24
4.4	Insurance	25
4.5	Title and Related Matters	25
4.6	Seller's Environmental Matters	26
4.7	Taxes	27
4.8	Real Property	27
4.9	Certain Contracts and Arrangements	27
4.10	Legal Proceedings	28
4.11	Permits	28
4.12	Brokers; Finders	28
i
TABLE OF CONTENTS
4.13	Compliance with Laws	28
4.14	No Material Adverse Effect	28
ARTICLE V          REPRESENTATIONS AND WARRANTIES OF BUYER		29
5.1	Organization; Qualification	29
5.2	Authority	29
5.3	Consents and Approvals; No Violation	29
5.4	Availability of Funds	30
5.5	Legal Proceedings	30
5.6	Ability to Close	30
5.7	WARN Act	30
5.8	Brokers; Finders	30
ARTICLE VI          COVENANTS OF THE PARTIES		30
6.1	Conduct of Business Relating to the Purchased Assets	30
6.2	Access to Information	32
6.3	Procedures with Respect to Certain Agreements and Other Assets	34
6.4	Public Statements	34
6.5	Further Assurances	35
6.6	Consents and Approvals	36
6.7	Certain Tax Matters	36
6.8	Right to Update	38
6.9	Employees	38
6.10	Risk of Loss	39
6.11	Power Transformers; Capacitors	39
6.12	Ownership	40
6.13	Equipment Relocation	40
6.14	Disconnection Plan	40
6.15	Meters	40
6.16	Surveys and Title Insurance	40
6.17	Expenses	41
6.18	Communication with Customers	41
6.19	Certain Customers	41
6.20	Remediation	41
6.21	Transmission Facilities	42
ii
TABLE OF CONTENTS
ARTICLE VII          CONDITIONS		42
7.1	Conditions to Obligation of Buyer	42
7.2	Conditions to Obligation of Seller	43
ARTICLE VIII          INDEMNIFICATION AND ARBITRATION		45
8.1	Indemnification	45
8.2	Defense of Claims	46
8.3	Arbitration	47
ARTICLE IX          TERMINATION		48
9.1	Termination	48
9.2	Effect of Termination	49
ARTICLE X          MISCELLANEOUS PROVISIONS		49
10.1	Amendment and Modification	49
10.2	Bulk Sales Laws	50
10.3	Waiver of Compliance; Consents	50
10.4	Survival	50
10.5	Disclaimers	50
10.6	Notices	51
10.7	Assignment	52
10.8	Governing Law; Forum; Service of Process	53
10.9	Counterparts	53
10.10	Interpretation	53
10.11	Schedules	53
10.12	Disclosure	53
10.13	Entire Agreement	54
10.14	Severability	54
10.15	No Agency	54
iii

TABLE OF CONTENTS
SCHEDULES
SCHEDULES
1.1(16) 1.1(74) 1.1(93) 1.1(104) 2.1(a) 2.1(b) 2.1(d) 2.1(e) 2.1(f) 2.1(g) 2.2(a) 2.2(t) 3.2(a)(i) 4.3(a) 4.3(b) 4.4 4.5(c) 4.6 4.8 4.9(a) 4.9(b) 4.9(c) 4.10 4.11 4.12 4.14 5.3(a) 5.3(b) 6.1 6.1(f) 6.2(e)(i) 6.2(e)(ii) 6.9(b) 6.14 6.20 7.1(b) 7.2(b)		Buyer's Knowledge Permitted Encumbrances Seller's Knowledge Transferable Permits Real Property Substations, Distribution Plant and General Plant Vehicles Towers and Supporting Structures Information Technology and Telecommunications Assets Seller's Agreements Retained Assets Excluded Real Property Net Book Value Calculation Seller's Defaults and Violations Seller's Required Regulatory Approvals Insurance Transferred Easements Exceptions Seller's Environmental Matters Real Property and Material Transferred Easements Seller's Agreements Seller's Agreements Exceptions Seller's Agreements Defaults and Violations Legal Proceedings Transferable Permits Exceptions Brokers; Finders Material Adverse Effects Buyer's Defaults and Violations Buyer's Required Regulatory Approvals Conduct of Business Exceptions Seller's Budget Phase I Scope of Environmental Site Assessments Phase II Scope of Environmental Site Assessments Signing Bonuses Disconnection Plan Environmental Standards Certain Buyer's Required Regulatory Approvals Certain Seller's Required Regulatory Approvals
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PURCHASE AND SALE AGREEMENT
PURCHASE AND SALE AGREEMENT, dated as of June 13, 2007 (this "Agreement"), by and between Delmarva Power & Light Company, a Virginia corporation ("Seller"), and A&N Electric Cooperative, a Virginia utility consumer services cooperative ("Buyer"). Seller and Buyer may each be referred to herein individually as a "Party," and together as the "Parties."
W I T N E S S E T H
WHEREAS, Seller owns the substation plant, distribution plant and general plant assets (as described below) and certain properties and assets associated therewith and ancillary thereto; and
WHEREAS, Buyer desires to purchase and assume, and Seller desires to sell and assign, or cause to be sold and assigned, the Purchased Assets (as defined below) and certain associated Liabilities (as defined below), upon the terms and conditions hereinafter set forth in this Agreement;
NOW, THEREFORE, in consideration of the foregoing and of the mutual covenants, representations, warranties and agreements set forth herein, and intending to be legally bound hereby, the Parties hereby agree as follows:
ARTICLE I DEFINITIONS
1.1.        Definitions. As used in this Agreement, the following capitalized terms have the meanings specified in this Section 1.1.
(1)        "Access Agreements" means the agreements between Buyer and Seller, or any Affiliate thereof, to be delivered at the Closing, which shall afford each Party access to certain property and assets as mutually agreed and as necessary to ensure safe and reliable operations.
(2)        "Accounts Payable" means Seller's accounts payable with respect to the Customers as accounted for on the books of Seller as such.
(3)        "Accounts Receivable" means Seller's accounts receivable on its books and unbilled revenue, in each case with respect to the Customers on the Closing Date.
(4)        "Additional Agreements" means the Transition Services Agreement, the Access Agreements, the Special Warranty Deed, the Assignment and Assumption Agreements, the Pole Attachment Assignment and Assumption Agreement, the Bill of Sale the Assignment of Transferred Easements, the Escrow Agreement and the Lease Agreement.
(5)        "Affiliate" means, with respect to any designated Person, any other Person directly or indirectly controlling, or controlled by, or under direct or indirect common control with such designated Person.
(6)        "Agreement" has the meaning set forth in the preamble to this Agreement.
(7)        "Assignment and Assumption Agreements" means the assignment and assumption agreements between Seller and Buyer, to be mutually agreed by the Parties and delivered at the Closing, pursuant to which Seller shall assign the Seller's Agreements, certain intangible assets and certain other Purchased Assets to Buyer, and Buyer shall accept such assignment and assume the Assumed Liabilities.
(8)        "Assumed Liabilities" has the meaning set forth in Section 2.3.
(9)        "Authorized Agent" has the meaning set forth in Section 10.8.
(10)      "Benefit Plans" means Seller's material deferred compensation, profit-sharing, retirement and pension plans, and all material bonus, fringe benefit and other employee benefit plans, maintained or with respect to which contributions are made by Seller for the benefit of any Employee.
(11)       "Bill of Sale" means the bill of sale of Seller, to be mutually agreed by the Parties and delivered at the Closing.
(12)       "Business" means the business of distributing retail electric services to the Customers.
(13)       "Business Day" means any day other than Saturday, Sunday and any day on which banking institutions in the Commonwealth of Virginia or the State of New York are authorized or required by Law to close.
(14)       "Buyer" has the meaning set forth in the preamble to this Agreement.
(15)       "Buyer's Indemnitee" has the meaning set forth in Section 8.1(b).
(16)       "Buyer's Knowledge" means the actual knowledge of those individuals listed on Schedule 1.1(16).
(17)       "Buyer's Permits" has the meaning set forth in Section 6.5(a).
(18)       "Buyer's Required Regulatory Approvals" has the meaning set forth in Section 5.3(b).
(19)       "Cap" has the meaning set forth in Section 8.1(b).
(20)       "CERCLA" means the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended.
(21)       "Closing" has the meaning set forth in Section 3.1.
(22)       "Closing Adjustment Amount" has the meaning set forth in Section 3.2(a).
(23)       "Closing Date" has the meaning set forth in Section 3.1.
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(24)       "Closing Payment" has the meaning set forth in Section 3.2(c).
(25)       "Closing Statement" has the meaning set forth in Section 3.4(a).
(26)       "COBRA" means Sections 601 through 608 of ERISA and Section 4980B of the Code.
(27)       "Code" means the Internal Revenue Code of 1986, as amended.
(28)       "Commercial Arbitration Rules" has the meaning set forth in Section 8.3(c).
(29)       "Commercially Reasonable Efforts" means efforts which are designed to enable a Party to expeditiously satisfy a condition, or otherwise assist, in the consummation of the transaction contemplated by, or the performance of an obligation under, this Agreement, and which do not require the performing Party to expend funds other than expenditures which are customary and reasonable in transactions of the kind and nature contemplated by this Agreement in order for the performing Party to satisfy its obligations hereunder.
(30)       "Confidentiality Agreement" means the Confidentiality Agreement, dated June 29, 2006, between Seller, Buyer and the Transmission Purchaser, as amended.
(31)       "Courts" has the meaning set forth in Section 10.8.
(32)       "Customers" means Persons currently receiving retail electric services from Seller through the Purchased Assets and meters located on the Eastern Shore of the Commonwealth of Virginia.
(33)       "Customer Deposits" means the Customers' deposits and Customer advances for construction accounted for on the books of Seller as such; provided, however, that Customer Deposits shall not include (i) Customers' deposits or Customer advances for construction that has been completed, (ii) the proportionate share of any Customers' deposits or Customers advances equal to the portion of construction that has been completed; or (iii) Customers' deposits or Customer advances for new construction that has not commenced.
(34)       "Direct Claim" has the meaning set forth in Section 8.2(c).
(35)       "Easements" means, collectively, (i) all easements, licenses, rights of way and other access rights to be granted by Buyer to Seller or by Seller to Buyer, or any Affiliate thereof, pursuant to the Access Agreements, and (ii) all easements, licenses, rights of way and other access rights reserved by Seller, or any Affiliate thereof, in the Special Warranty Deed.
(36)       "Employees" has the meaning set forth in Section 6.9(b).
(37)       "Encumbrances" means any and all mortgages, pledges, liens, leases, security interests, easements, activity and use limitations, restrictions, defects of title or other similar encumbrances.
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(38)       "Environmental Conditions" means the presence in or Release to the environment, including air, surface and subsurface water, groundwater, soil and sediments, of Hazardous Substances, including any migration of Hazardous Substances through air, surface and subsurface water, groundwater, soil and sediments, at, to or from the Site, or at, to or from any Off-Site Location, regardless of when such presence or Release occurred or is discovered.
(39)       "Environmental Consultant" means NTH Consultants Ltd.
(40)       "Environmental Laws" means all Laws relating to pollution or protection of the environment, natural resources or human health and safety, including Laws relating to Releases or threatened Releases of Hazardous Substances or otherwise relating to the manufacture, formulation, generation, processing, distribution, use, treatment, storage, disposal, Release, transport, arrangement for transport for disposal or treatment, arrangement for disposal or treatment, Remediation, abatement, cleanup or handling of Hazardous Substances, including CERCLA.
(41)       "Environmental Permits" means all permits, certificates, licenses, approvals and other authorizations of, and required filings with the subdivisions to, all Governmental Authorities under Environmental Laws.
(42)       "ERISA" means the Employee Retirement Income Security Act of 1974, as amended.
(43)       "ERISA Affiliate" has the meaning set forth in Section 2.4(f).
(44)       "ERISA Affiliate Plans" has the meaning set forth in Section 2.4(f).
(45)       "Escrow" has the meaning set forth in Section 3.3.
(46)       "Escrow Agent" has the meaning set forth in Section 3.3.
(47)       "Escrow Agreement" means the Escrow Agreement, dated as of the Closing Date, among the Parties and the Escrow Agent, to be mutually agreed by the Parties and delivered at Closing
(48)       "Escrow Amount" has the meaning set forth in Section 3.3.
(49)       "Estimated Adjustment Amount" has the meaning set forth in Section 3.2(b).
(50)       "Excluded Assets" has the meaning set forth in Section 2.2.
(51)       "Excluded Liabilities" has the meaning set forth in Section 2.4.
(52)       "FERC" means the U. S. Federal Energy Regulatory Commission or any successor agency thereto.
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(53)       "FIRPTA Affidavit" means the Foreign Investment in Real Property Tax Act Certification and Affidavit of Seller, to be mutually agreed by the Parties and delivered at Closing.
(54)       "Good Utility Practices" means any of the practices, methods and acts engaged in or approved by a significant portion of the electric utility industry during the relevant time period, or any of the practices, methods or acts which, in the exercise of reasonable judgment in light of the facts known at the time the decision was made by an entity owning the applicable facilities or equipment throughout their entire useful lives, would have been expected to accomplish the desired result at a reasonable cost consistent with good business practices, reliability, safety and timing requirements.
(55)       "Governmental Authority" means any executive, legislative, judicial, regulatory, tribal or administrative agency, body, commission, department, board, court, tribunal or authority of the U. S. or any foreign country, or any state, local or other governmental subdivision thereof.
(56)       "Hazardous Substances" means (a) any petrochemical or petroleum products, oil or coal ash, coal slag, radioactive materials, radon gas, lead paint, asbestos in any form that is or could become friable, urea formaldehyde foam insulation and transformers or other equipment that contain dielectric fluid which may contain polychlorinated biphenyls, (b) any chemicals, materials or substances defined as or included in the definition of "hazardous substances," "hazardous wastes," "hazardous materials," "hazardous constituents," "restricted hazardous materials," "extremely hazardous substances," "toxic substances," "contaminants," "pollutants," "toxic pollutants" or words of similar meaning and regulatory effect under any applicable Environmental Law, and (c) any other chemical, material or substance, exposure to which is pr ohibited, limited or regulated by any applicable Environmental Law.
(57)       "Income Tax" means any Tax imposed by any Governmental Authority (a) based upon, measured by or calculated with respect to net income, profits or receipts (including capital gains Taxes and minimum Taxes) or (b) based upon, measured by or calculated with respect to multiple bases (including corporate franchise taxes) if one or more of such bases is described in clause (a), in each case, together with any interest, penalties or additions attributable thereto.
(58)       "Indemnifiable Loss" has the meaning set forth in Section 8.1(a).
(59)       "Indemnifying Party" has the meaning set forth in Section 8.1(d).
(60)       "Indemnitee" has the meaning set forth in Section 8.1(b).
(61)       "Independent Accounting Firm" means such nationally recognized, independent accounting firm as is mutually appointed as provided in this Agreement.
(62)       "Initial Amount" has the meaning set forth in Section 3.2(a).
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(63)       "Inspection" means all tests, reviews, examinations, inspections, investigations, verifications, samplings and similar activities conducted by Buyer or its Representatives.
(64)       "Known Liabilities" means any liability or obligation relating to all or a portion of the Purchased Assets or the Business and arising prior to the Closing, whether liquidated or unliquidated, and whether or not the same should be required by generally accepted accounting principles to be reflected as liabilities in financial statements or disclosed in notes thereto, but excluding any liability or obligation relating to environmental matters, which is either (i) actually known by a member of supervisory management of the Seller or any of its Affiliates, or (ii) reported to any Governmental Authority, health care organization or provider, or emergency medical professional or service.
(65)       "Laws" means all laws, statutes, rules, regulations and ordinances of any Governmental Authority, including common law obligations.
(66)       "Lease Agreement" means the lease agreement between Buyer and Seller to be delivered at the Closing, as mutually agreed by the Parties, for a term of ninety-nine (99) years, providing for nominal rent and a purchase option by Buyer for one ($1) dollar at any time during the term.
(67)       "Liability" or "Liabilities" means any liability or obligation (whether known or unknown, whether asserted or unasserted, whether absolute or contingent, whether accrued or unaccrued, whether liquidated or unliquidated, whether due or to become due and whether or not the same should be required by generally accepted accounting principles to be reflected as liabilities in financial statements or disclosed in notes thereto), including any liability for Taxes.
(68)       "Material Adverse Effect" means any change or effect that is materially adverse to (a) the ownership or operation of the Purchased Assets after the date hereof or that is materially adverse to the results of operations or financial condition of the Purchased Assets, in all cases, taken as a whole, or (b) the ability of Seller or Buyer to consummate the Closing; other than, in either case, (i) any change or effect affecting the international, national, regional or local electric industry as a whole, and not specific and exclusive to the Purchased Assets, including any change or effect in wholesale or retail markets or local electricity transmission or distribution systems or operations thereof, (ii) changes in general economic conditions, interest rates or securities markets in the United States or worldwide, (iii) cha nges in Law, or any judgments, orders or decrees that apply generally to similarly situated Persons, (iv) any change or effect to the extent constituting or involving an Excluded Asset or an Excluded Liability, (v) strikes, work stoppages or other labor disturbances, (vi) any matter to the extent that (A) it is disclosed in reasonable detail in any Schedule delivered by Seller and (B) such disclosed matter does not worsen in a material manner, and (vii) any change in or effect on the Purchased Assets which is cured (including by payment of money) before the earlier of the Closing and the termination of this Agreement pursuant to Section 9.1. For the avoidance of doubt, that Parties acknowledge and agree that any increase in value of the Purchased Assets or the Business to the Seller following the execution and delivery of this Agreement resulting from any circumstance or
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event, including a change in Law or the grant of any consents or approvals from any Governmental Authority, shall not constitute a Material Adverse Effect.
(69)       "NERC" means the North American Electric Reliability Council or any successor thereto.
(70)       "Net Book Value" means the acquisition or gross plant value as recorded in account 101, Electric Plant, and 105, Electric Plant Held for Future Use, less all related accumulated depreciation recorded in accounts 108, Accumulated Provision for Depreciation of Electric Utility Plant and account 111, Accumulated Provision for Amortization of Electric Utility Plant. The balances in these accounts include accumulated depreciation and amortization as well as cost of removal, salvage and gain/loss on retirement, all as defined in the FERC Uniform System of Accounts CFR Part 18, Chapter 1. Account 107, Construction Work in Progress, is a component of Utility Plant in Service.
(71)       "Non-Union Employees" has the meaning set forth in Section 6.9(b).
(72)       "Off-Site Location" means any real property other than the Site.
(73)       "Party" and "Parties" have the respective meanings set forth in the preamble to this Agreement.
(74)       "Permitted Encumbrances" means: (a) the Easements; (b) those exceptions to title to the Purchased Assets listed on Schedule 1.1(74); (c) statutory liens for Taxes or other charges or assessments of Governmental Authorities not yet due or delinquent, or which are being contested in good faith by appropriate proceedings and as to which adequate reserves have been made; (d) mechanics', carriers', workers', repairers' and other similar liens arising or incurred in the ordinary course of business which are not delinquent; (e) zoning, entitlement, conservation restriction and other land use and environmental restrictions and regulations of Governmental Authorities which do not materially detract from the value of the Purchased Assets, taken as a whole, as currently used, or materially interfere with the present use of the P urchased Assets, taken as a whole; (f) easements, licenses and rights-of-way which do not materially detract from the value of the Purchased Assets, taken as a whole, as currently used, or materially interfere with the present use of the Purchased Assets, taken as a whole, or the operation of the Business; and (g) Encumbrances created by Buyer, or its successors and assigns; and (h) easements, restrictions, covenants and other matters of record which do not materially detract from the value of the Purchased Assets, taken as a whole, as currently used, or materially interfere with the present use of the Purchased Assets, taken as a whole, or the operation of the Business.
(75)       "Person" means any individual, partnership, limited liability company, joint venture, corporation, trust, unincorporated organization, other entity, business association or Governmental Authority.
(76)       "PJM" means PJM Interconnection, L.L.C., and any successor entity thereto.
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(77)       "Pole Attachment Agreement" means the agreements described as such on Schedule 2.1(g).
(78)       "Pole Attachment Assignment and Assumption Agreement" means the assignment and assumption agreement for the Pole Attachment Agreements between Seller and Buyer to be mutually agreed upon by the Parties and delivered as of the Closing.
(79)       "Prime Rate" has the meaning set forth in Section 3.4(c).
(80)       "Proprietary Information" of a Party means all information about any Party or its properties or operations furnished to the other Party or its Representatives by such Party or its Representatives, from and after the date hereof, regardless of the manner or medium in which it is furnished. Proprietary Information does not include information that: (a) is or becomes generally available to the public, other than as a result of a disclosure by the other Party or its Representatives; (b) was available to the other Party on a non-confidential basis prior to its disclosure by the Party or its Representatives; (c) is or becomes available to the other Party on a non-confidential basis from a source other than such Party; (d) is independently developed by the other Party; or (e) was disclosed pursuant to the Confidentiality A greement and remains subject to the terms and conditions of the Confidentiality Agreement as long as it is effective.
(81)       "Purchase Price" has the meaning set forth in Section 3.2(a).
(82)       "Purchased Assets" has the meaning set forth in Section 2.1.
(83)       "Real Property" has the meaning set forth in Section 2.1(a).
(84)       "Regulatory Material Adverse Effect" means, with respect to any Party, any change in or effect resulting from any condition imposed by any Governmental Authority in connection with the grant of such Governmental Authority's consent or approval of the transactions contemplated hereby or by the Additional Agreements that either (a) is materially adverse to such Party, or its results of operations, condition (financial or otherwise), business, properties, assets or liabilities, (b) materially adversely impairs such Party's ability to operate its business, properties or assets substantially in the manner operated on the date hereof, (c) materially detracts from the value of such Party's business, properties or assets, (d) materially adversely affects the value of the transactions contemplated hereby or by the Additional A greements to such Party or the Business; provided, that notwithstanding the foregoing, if the changes and effects resulting from any condition so imposed can be liquidated to the payment of money or the incurrence of costs or valued, a "Regulatory Material Adverse Effect" means required payments or the incurrence of costs or Liability which is reasonably expected to equal or exceed $250,000. For the avoidance of doubt, the Parties acknowledge and agree that any increase in value of the Purchased Assets or the Business to the Seller following the execution and delivery of this Agreement resulting from any circumstance or event, including a change in Law or the grant of any consents or approvals from any Governmental Authority, shall not constitute a Regulatory Material Adverse Effect.
(85)       "Release" means any release, spill, leak, discharge, disposal of, pumping, pouring, emitting, emptying, injecting, leaching, dumping or allowing to escape into or through the environment, whether air, surface or subsurface water, groundwater, soil or sediment.
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(86)       "Remediation" means an action of any kind to address an Environmental Condition or a Release of Hazardous Substances, including the following activities: (a) monitoring, investigation, assessment, treatment, cleanup, containment, removal, mitigation, response or restoration work; (b) obtaining any permits, consents, approvals or authorizations of any Governmental Authority necessary to conduct any such activity; (c) preparing and implementing any plans or studies, and making all relevant filings with and submissions to the relevant Governmental Authorities for any such activity; (d) the use, implementation, application, installation, operation or maintenance of removal actions, remedial technologies applied to the surface or subsurface soils, excavation and treatment or disposal of soils systems for long term treatme nt of surface water or groundwater, engineering controls or institutional controls; and (e) any other activities required under Environmental Laws to address an Environmental Condition or a Release of Hazardous Substances.
(87)       "Remediation Cost" has the meaning set forth in Section 6.20(a).
(88)       "Representatives" of a Person means, collectively, such Person's Affiliates and its and their respective directors, officers, partners, members, employees, representatives, agents, advisors (including accountants, legal counsel, environmental consultants, engineering consultants and financial advisors), parent entities and other controlling Persons.
(89)       "Replacement Transaction" has the meaning set forth in Section 6.21.
(90)       "Seller" has the meaning set forth in the preamble to this Agreement.
(91)       "Seller's Agreements" means, collectively, the contracts, agreements, arrangements, licenses and leases to which Seller is a party, or by or to which Seller or the Purchased Assets is bound or subject, excluding Benefit Plans in each case, relating to the Business or the ownership, lease, maintenance or operation of the Purchased Assets.
(92)       "Seller's Indemnitee" has the meaning set forth in Section 8.1(a).
(93)       "Seller's Knowledge" means the actual knowledge of those individuals listed on Schedule 1.1(93).
(94)       "Seller's Permits" has the meaning set forth in Section 4.11.
(95)       "Seller's Required Regulatory Approvals" has the meaning set forth in Section 4.3(b).
(96)       "Site" means the parcels of land included in the Real Property. Any reference to the Site shall include the surface and subsurface elements, including the soil, surface water and groundwater present at the Site.
(97)       "Special Warranty Deed" means the special warranty deed, to be mutually agreed by the Parties and delivered at the Closing, pursuant to which Seller will convey the Real Property to Buyer.
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(98)       "Tax" or "Taxes" means all taxes, charges, fees, levies, penalties and other assessments imposed by any Governmental Authority, including Income Taxes, gross receipts, excise, property, sales, transfer, use, franchise, payroll, withholding, social security and other taxes, together with any interest, penalties or additions attributable thereto.
(99)       "Tax Return" means any return, report, information return or other document, together with all amendments and supplements thereto (including any related or supporting information), required to be supplied to any Governmental Authority responsible for the administration of Laws governing Taxes.
(100)     "Third-Party Claim" has the meaning set forth in Section 8.2(a).
(101)     "Threshold" has the meaning set forth in Section 8.1(a).
(102)     "Transfer Taxes" has the meaning set forth in Section 6.7(a).
(103)     "Transferred Easements" has the meaning set forth in Section 6.3.
(104)     "Transferable Permits" means those Seller's Permits and Environmental Permits (and all applications pertaining thereto) which are transferable under applicable Laws by Seller to Buyer (with or without a filing with, notice to, consent or approval of any Governmental Authority), as identified on Schedule 1.1(104).
(105)     "Transferred Employee Records" means records of Seller that relate to Transferred Employees, but only to the extent that such records pertain to: (i) skill and development training, (ii) seniority histories, (iii) salary and benefit information, (iv) Occupational, Safety and Health Administration reports, and (v) active medical restriction forms.
(106)     "Transferred Employees" has the meaning set forth in Section 6.9(b).
(107)     "Transferred Non-Union Employee" has the meaning set forth in Section 6.9(b).
(108)     "Transferred Union Employee" has the meaning set forth in Section 6.9(a).
(109)     "Transition Services Agreement" means the transition services agreement between Seller and Buyer, to be delivered at the Closing, as mutually agreed by the Parties.
(110)     "Transmission Assets" has the meaning set forth in Section 2.2(b).
(111)     "Transmission Purchaser" means Old Dominion Electric Cooperative.
(112)     "Transmission Purchase Agreement" means that certain purchase agreement between Seller and the Transmission Purchaser.
(113)     "Union Employees" has the meaning set forth in Section 6.9(a).
(114)     "VSCC" means Virginia State Corporation Commission.
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(115)     "WARN Act" means the Worker Adjustment Retraining and Notification Act of 1988, as amended.
1.2.        Construction. In construing this Agreement, together with the Schedules hereto, the following principles shall be followed:
(a)        "references to this Agreement shall include a reference to all schedules hereto;
(b)        "the terms "herein," "hereof," "hereby," "hereunder" and other similar terms refer to this Agreement as a whole and not only to the particular Article, Section or other subdivision in which any such terms may be employed;
(c)        "except as otherwise set forth herein, references to Articles, Sections, Schedules, and other subdivisions refer to the Articles, Sections, Schedules, and other subdivisions of this Agreement;
(d)        "a reference to any Person shall include such Person's predecessors;
(e)        "all accounting terms not otherwise defined herein have the meanings assigned to them in accordance with U.S. generally accepted accounting principles;
(f)        "no consideration shall be given to the captions of the Articles, Sections, Schedules, subdivisions, subsections or clauses, which are inserted for convenience in locating the provisions of this Agreement and not as an aid in its construction;
(g)        "examples shall not be construed to limit, expressly or by implication, the matter they illustrate;
(h)        "the word "includes" and "including" and their syntactical variants mean "includes, but is not limited to" and "including, without limitation," and corresponding syntactical variant expressions;
(i)        "a defined term has its defined meaning throughout this Agreement, regardless of whether it appears before or after the place in this Agreement where it is defined;
(j)        "the plural shall be deemed to include the singular and vice versa;
(k)        "references to any agreement, document or instrument will be construed at a particular time to refer to such agreement, document or instrument as the same may be amended, modified, supplemented or replaced as of such time;
(l)        "references to any tariff, rate, or order of any Governmental Authority will mean such tariff, rate or order, as the same may be amended, modified, supplemented or restated and be in effect from time to time;
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(m)        "if any action or obligation is required to be taken or performed on any day which is not a Business Day, such action or obligation must be performed on the next succeeding Business Day; and
(n)        "references to an applicable Law will mean a reference to such applicable Law as the same may be amended, modified, supplemented or restated and be in effect from time to time.
1.3.        U.S. Dollars. When used herein, the term "dollars" and the symbol "$" refer to the lawful currency of the United States.
ARTICLE II PURCHASE AND SALE
2.1.        Transfer of Assets. Upon the terms and subject to the conditions set forth in this Agreement, at the Closing, Seller shall sell, assign, convey, transfer and deliver to Buyer, and Buyer shall purchase, assume and acquire from Seller, free and clear of all Encumbrances, except for the Permitted Encumbrances, all of Seller's right, title and interest in, to and under the real and installed personal property, tangible or intangible, principally related to the Business, including the following assets and properties, except as otherwise provided in Section 2.2 (collectively, the "Purchased Assets"):
(a)        "The real property (including all buildings and other improvements thereon and all appurtenances thereto) identified on Schedule 2.1(a), including the Exmore building, and, to the extent permitted, the Transferred Easements (the "Real Property");
(b)        "The substations, distribution plant and general plant of the Seller located on the Virginia Eastern Shore and identified on Schedule 2.1(b) and the transformers located at Bayview;
(c)        "The machinery, equipment, furniture and other personal property (other than vehicles) owned by Seller, in each case, located on the Real Property or used or held for use principally with respect to the Business and Purchased Assets and identified on Schedule 2.1(b);
(d)        "The vehicles owned by the Seller identified on Schedule 2.1(d);
(e)        "The towers and supporting structures identified on Schedule 2.1(e);
(f)        "The information technology and telecommunications assets identified on Schedule 2.1(f);
(g)        "Subject to the receipt of necessary consents and approvals with respect to assignment, the Seller's Agreements identified on Schedule 2.1(g);
(h)        "Subject to the receipt of necessary consents and approvals with respect to assignment, the Transferable Permits;
(i)        "[Reserved];
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(j)        "To the extent permitted by applicable Law, the Transferred Employee Records;
(k)        "All books, vendor lists (including electronic records), operating records, maintenance records, engineering designs, plans, system drawings, operating, safety and maintenance manuals, engineering design plans, blueprints and as-built plans, specifications, procedures, and similar items to the extent principally relating to the Purchased Assets or the Business (subject to the right of Seller to retain copies of same for its use), other than such items as are proprietary to third parties and accounting records, and copies of the same with respect to the "Purchased Assets" as defined in the Transmission Purchase Agreement (it being understood that Seller's obligation to transfer such items is for items as existing and in such form as currently used in the Business);
(l)        "The Accounts Receivable and all rights to enforce, execute on or collect such Accounts Receivable; and
(m)        "The Customer Deposits.
2.2.        Excluded Assets. Notwithstanding any provision to the contrary in this Agreement, nothing in this Agreement shall constitute or be construed as to require Seller to sell, assign, convey, transfer or deliver, and Buyer shall not be entitled to purchase, assume or acquire, any right, title or interest in, to or under any property, asset, business, operation or division of Seller, or any Affiliate thereof, in the following assets and properties which are hereby specifically excluded from the definition of Purchased Assets (collectively, the "Excluded Assets"):
(a)        "Assets summarized on Schedule 2.2(a), including the Tasley generating facility and any other generating facility of Seller or its Affiliates, whether commissioned or decommissioned;
(b)        "The right, title and interest of Seller and its successors, assigns and Representatives in, to and under certain electrical transmission or generation facilities (as opposed to distribution facilities) or information technology and telecommunications assets of Seller or any of its Affiliates located at or forming a part of the Purchased Assets (whether or not regarded as a "transmission" or "generation" asset for regulatory or accounting purposes), including all switchyard facilities, substation facilities and support equipment, as well as all permits, contracts and warranties, to the extent they relate to such specified transmission and generation assets or information technology and telecommunications assets (other than the assets set forth on Schedule 2.1(f), all of which are included as Purchased Assets) (collectiv ely, the "Transmission Assets");
(c)        "All certificates of deposit, shares of stock, securities, bonds, debentures, evidences of indebtedness, and interests in joint ventures, partnerships, limited liability companies and other entities;
(d)        "All cash, cash equivalents, bank deposits, notes receivable, prepaid expenses and interest accruing on Customer Deposits prior to the Closing Date (but not the Customer Deposits, except as provided in (v) below), including such as relate to any Excluded
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Assets or the operation of the Purchased Assets and the Business prior to the Closing Date and any income, sales, payroll or other Tax receivables (in each case, whether held by Seller or any third party);
(e)        "The right, title and interest of Seller and its successors, assigns and Representatives in, to and under all intellectual property, including, but not limited to, the names "Delmarva Power & Light Company," "Delmarva Power," "DPL," "Conectiv," "Conectiv Power Delivery," "Pepco," "Pepco Holdings" or any derivation thereof, as well as any related or similar name, or any other trade names, trademarks, service marks, corporate names and logos, or any part, derivation, colorable imitation or combination thereof;
(f)        "All tariffs, agreements and arrangements to which Seller or its Representatives is a party for the purchase or sale of electric capacity or energy, or for the purchase of generation, transmission, or ancillary services;
(g)        "The right, title and interest of Seller and its successors, assigns and Representatives in, to and under all claims against third parties, if any, relating to the ownership, lease, maintenance or operation of any Purchased Assets, by Seller prior to the Closing Date other than as provided in Section 2.1(l), whether accruing prior to, on or after the Closing Date, including all claims for refunds, prepayments, offsets, recoupment, insurance proceeds, insurance distributions, dividends or other proceeds, condemnation awards, judgments and the like, whether received as payment or credit against future Liabilities;
(h)        "All Tax refunds or credits (including refunds or credits of real property Taxes paid or due with respect to the Purchased Assets and the Business, or any related real property), which refunds or credits are with respect to periods ending prior to the Closing Date, whether directly or indirectly, regardless of when actually paid;
(i)        "All employment agreements and personnel records of Seller and its successors, assigns and Representatives, other than, to the extent permitted by applicable Law, Transferred Employee Records;
(j)        "The minute books, stock transfer books, corporate seal and other corporate records of Seller and its successors, assigns and Representatives;
(k)        "The right, title and interest of Seller and its successors, assigns and Representatives in, to and under all contracts, agreements, arrangements, licenses and leases of any nature, other than the Seller's Agreements set forth on Schedule 2.1(g);
(l)        "All assets and properties owned or held by any Benefit Plan;
(m)        "All insurance policies relating to the ownership, lease, maintenance or operation of the Purchased Assets;
(n)        "All other assets and properties owned or leased by Seller or its successors, assigns and Representatives which are not principally used in or necessary for the operation of the Purchased Assets or the Business;
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(o)        "The vehicles not identified on Schedule 2.1(d);
(p)        "The right, title and interest of Seller and its successors, assigns and Representatives under this Agreement and the Additional Agreements;
(q)        "PBX telephone system and mobile and fixed radio communications equipment (Account 397.1);
(r)        "Seller's assets related to the Business with respect to customers located in Maryland, Delaware, the District of Columbia, and New Jersey;
(s)        "[Reserved];
(t)        "The real property (including all improvements thereon and all appurtenances thereto) identified on Schedule 2.2(t);
(u)        "All inventory; and
(v)        "(i) Customers' deposits or Customer advances for construction that has been completed, (ii) the proportionate share of any Customers' deposits or Customer advances equal to the portion of construction that has been completed, or (iii) Customers' deposits or Customer advances for new construction that has not commenced.
2.3.        Assumed Liabilities. On the Closing Date, Buyer shall assume and agree to pay, perform and otherwise discharge when due all of the following Liabilities of Seller arising or accruing on or after the Closing Date unless otherwise specified, (collectively, the "Assumed Liabilities"):
(a)        "All Liabilities of Seller, arising or accruing on or after the Closing Date, under (i) the Seller's Agreements identified on Schedule 2.1(g) and the Transferable Permits, in accordance with the respective terms thereof, and (ii) Seller's Agreements entered into by Seller primarily with respect to the Purchased Assets, the Business or the Site on or after the date hereof consistent with the terms of this Agreement, other than leases of vehicles;
(b)        "All Liabilities of Seller which relate to the Business or Purchased Assets or the Site in respect of Taxes for which Buyer is liable pursuant to Sections 3.6 and 6.7;
(c)        "Except as set forth in Section 2.4(a), (b) or (e), all Liabilities relating to or resulting from the following: (i) any violation of or alleged violation, or non-compliance with, Environmental Laws or Environmental Permits arising from events, conditions or circumstances existing or occurring prior to or on or after the Closing Date, with respect to the ownership, lease, maintenance, construction, modification or operation of the Purchased Assets, or the Site, including the cost of correcting any such violations or non-compliance, but excluding any fines or penalties arising out of the ownership, maintenance, lease, construction, modification or operation of the Purchased Assets or the Site prior to the Closing Date; and (ii) Environmental Conditions or exposure to Hazardous Substances at, on, in, under or adjacent to, or migrating or discharged to or from, the Purchased Assets, or the Site, prior to, on or after the Closing Date, including loss of life, injury to persons or property (including from exposure to asbestos-
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containing materials) and damage to natural resources (whether or not such loss, injury or damage arose or was made manifest before the Closing Date or arises or becomes manifest after the Closing Date) and Remediation of Environmental Conditions on or after the Closing Date;
(d)        "All Taxes that may be imposed by any federal, state or local government on the ownership, lease, maintenance, operations, use or sale of the Purchased Assets, the Business or the Site (except for Income Taxes) with respect to the period commencing on or after the Closing Date, except for Taxes for which Seller is liable pursuant to Section 3.6;
(e)        "All Liabilities and obligations of Seller with respect to Customer Deposits arising or accruing before, on or after the Closing Date;
(f)        "Accounts Payable (other than Customer Deposits) and related Taxes (other than utility taxes on unbilled revenue with respect to Customer Deposits); and
(g)        "To the extent not identified as one of the Excluded Liabilities pursuant to Section 2.4(a) to (j), all Liabilities relating to the Purchased Assets or the Business (i) arising prior to Closing which are not Known Liabilities on or before the date six months after the Closing Date, or (ii) arising on or after the Closing.
2.4.        Excluded Liabilities. Notwithstanding any provision to the contrary in this Agreement, nothing in this Agreement shall constitute or be construed as to require Buyer to pay, perform or otherwise discharge when due any Liabilities of Seller or any of its Affiliates with respect to the Business or the Purchased Assets not expressly referenced in Section 2.3, including the following Liabilities which are hereby specifically excluded from the definition of Assumed Liabilities (the "Excluded Liabilities"):
(a)        "Any Liabilities of Seller in respect of any Excluded Assets, including Environmental Conditions existing on, or Releases occurring prior to, the Closing Date on the locations occupied by, or resulting from the construction, ownership or operation of, any of the assets summarized on Schedule 2.2(a), including the Tasley generating facility and any other generating facility of Seller or its Affiliates, whether commissioned or decommissioned;
(b)        "Remediation, loss of life, injury to persons or property and damage to natural resources arising from the storage, transportation, treatment, disposal, discharge, recycling or Release, at any Off-Site Location;
(c)        "Any Liabilities of Seller in respect of Taxes attributable to the Purchased Assets or the Business for taxable periods ending before the Closing Date, except for Taxes for which Buyer is liable pursuant to Section 3.6 or 6.7;
(d)        "Any Liabilities of Seller accruing prior to the Closing Date under any of the Seller's Agreements;
(e)        "Any fines or penalties imposed by any Governmental Authority resulting from any violation of Law or any Seller's Permit by Seller that occurred prior to the Closing Date, it being understood that costs associated with modifications to the Purchased Assets or the
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manner of operating the Purchased Assets or the Business to correct such violations shall not be deemed to be fines or penalties for purposes hereof;
(f)        "Any Liabilities relating to any Benefit Plan maintained by Seller or any trade or business (whether or not incorporated) which is or ever has been under common control, or which is or ever has been treated as a single employer, with Seller under Section 414(b), (c), (m) or (o) of the Code ("ERISA Affiliate") or to which Seller and any ERISA Affiliate contributed thereunder (the "ERISA Affiliate Plans"), maintained by, contributed to, or obligated to contribute to, by Seller or any ERISA Affiliate, including any Liability (i) to the Pension Benefit Guaranty Corporation under Title IV of ERISA, or (ii) with respect to any noncompliance by Seller with ERISA;
(g)        "Any Liabilities relating to the employment or termination of employment, including discrimination, wrongful discharge or unfair labor practices by Seller of any individual, attributable to any action or omission by Seller prior to the Closing Date;
(h)        "Any obligation to provide continuation coverage under COBRA (and notice of the right to elect such coverage) to Transferred Employees, employees associated with the Purchased Assets or the Business who do not become Transferred Employees (and their dependents or former dependents), and former dependents of Transferred Employees who became eligible for continuation coverage under COBRA on account of a "qualifying event" (as defined under COBRA) occurring prior to the Closing Date;
(i)        "Any Liabilities under the lease agreements for the vehicles not identified on Schedule 2.1(d);
(j)        "Any payment Liabilities secured by Permitted Encumbrances and arising prior to Closing relating to (i) mechanics', carriers', workers', repairers' and other similar liens, (ii) obligations for borrowed money or with respect to deposits or advances of any kind, including any Liabilities relating to the lien on the Real Property in favor of The Bank of New York, individually or as trustee, (iii) obligations upon which interest charges are customarily paid, (iv) all obligations under conditional sale or other title retention agreements, (v) obligations in respect of the deferred purchase price of property or services, (vi) guarantees of indebtedness of others, (vii) capital lease obligations, or (viii) obligations (contingent or otherwise) as an account party in respect of letters of credit or letters of guaranty; and
(k)        "To the extent not expressly identified as one of the Assumed Liabilities pursuant to Section 2.3(a) to (f), any Liabilities arising prior to Closing, which become Known Liabilities on or before the date six months after the Closing Date.
2.5.        Control of Litigation. Seller shall be entitled exclusively to control, defend and settle any suit, action or proceeding, and any investigation, arising out of or relating to any Excluded Assets or Excluded Liabilities, and Buyer shall reasonably cooperate with Seller, at Seller's sole cost and expense for out-of-pocket expenses, in connection therewith.
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ARTICLE III THE CLOSING
3.1.        Closing. The sale, assignment, conveyance, transfer and delivery of the Purchased Assets by Seller to Buyer, and the purchase, assumption and acquisition by Buyer of the Purchased Assets and the Assumed Liabilities, and the consummation of the other transactions contemplated hereby, shall take place at a closing (the "Closing") to be held at such location as is mutually agreed by the Parties, within five (5) Business Days after the date on which the last of the conditions precedent to the Closing set forth in Article VII shall have been satisfied or, to the extent permitted by applicable Law, waived by the Party for whose benefit such conditions precedent exist, or at such other date as may be agreed upon between Buyer and Seller. The date on which the Closing actually occurs is hereinafter called the "Closing Date." The Closing shall be effective for all purposes as of 12:01 a.m., New York City time, on the Closing Date.
3.2.        Purchase Price.
(a)        "Upon the terms and subject to the conditions set forth in this Agreement, in consideration of the aforesaid sale, assignment, conveyance, transfer and delivery of the Purchased Assets, Buyer shall (i) pay to Seller cash in an aggregate amount equal to Thirty-Nine Million Eight Hundred Twenty-Five Thousand Dollars ($39,825,000) (the "Initial Amount") plus or minus such adjustments set forth in this Section 3.2 below ("Closing Adjustment Amount"), subject to Section 3.4 (collectively, the "Purchase Price"), and (ii) assume and agree to pay, perform and otherwise discharge the Assumed Liabilities. For the avoidance of doubt, Buyer acknowledges that its assumption of, and agreement to pay, perform or otherwise discharge, the Assumed Liabilities constitutes an integral part of the consideration to be received by Seller in respect of the sale, assignment, conveyance, transfer and deliver of the Purchased Assets hereunder, and that, in the absence of such assumption and agreement by Buyer, Seller would not enter into this Agreement. The Purchase Price shall be adjusted as follows:
	(i)          The Purchase Price shall be (A) increased by the actual installed cost of Purchased Assets acquired since November 30, 2006, and (B) decreased by the Net Book Value of assets or properties which otherwise would have constituted "Purchased Assets" hereunder but for the retirement, disposition or abandonment of such assets or properties prior to the Closing Date, excluding for all purposes any amounts relating to Accounts Receivable or Customer Deposits. An example of this calculation is set forth on Schedule 3.2(a)(i);
	(ii)         The Purchase Price shall be increased by the product of (A) the amount of the Accounts Receivable on the Closing Date and (B) 0.995;
	(iii)        The Purchase Price shall be decreased by an amount equal to the applicable accrued interest on Customer Deposits transferred to Buyer, accruing as of January 1, 2007, through the Closing Date;
	(iv)         The Purchase Price shall be decreased, by the amount of the Customer Deposits on the Closing Date; and
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	(v)          The Purchase Price shall be decreased by the difference between $250,000 and the amounts paid by Seller to Transferred Employees as signing bonuses pursuant Section 6.9(b).
(b)        "At least three (3) Business Days prior to the Closing Date, Seller shall provide to Buyer its good faith estimate of the Closing Adjustment Amount, which estimate shall be certified in writing by an appropriate officer of Seller which officer shall be consented to by the Buyer (the "Estimated Adjustment Amount").
(c)        "At the Closing, in furtherance but not in duplication of Section 3.2(a), Buyer shall pay to Seller cash in an aggregate amount equal to the Initial Amount, minus the Escrow Amount and plus or minus the Estimated Adjustment Amount (the "Closing Payment"). The Closing Payment shall be paid to Seller by Buyer at the Closing by wire transfer of immediately available funds to the account of Seller designated by Seller at least two (2) Business Days prior to the Closing Date.
3.3.        Establishment of Escrow. At Closing, Buyer shall deliver, or cause to be delivered, an amount equal to Four Hundred Fifty Thousand Dollars ($450,000) of the Purchase Price (the "Escrow Amount") to be paid by Buyer under Section 3.2 to an escrow agent mutually agreed upon by the Parties (the "Escrow Agent"). The Escrow Agent shall hold such funds in escrow (the "Escrow") for three months after the Closing Date, to be used for payments to be made by Seller pursuant to Section 3.2, if any, pursuant to the terms of the Escrow Agreement.
3.4.        Adjustment to Purchase Price.
(a)        "Within ninety (90) days after the Closing Date, the Parties shall mutually prepare a statement setting forth the Closing Adjustment Amount (the "Closing Statement") and the amount of any payment to be made, and by whom, pursuant to Section 3.4(c).
(b)        "In the event there is disagreement with respect to the preparation of only a portion of the Closing Statement, Buyer or Seller, as the case may be, shall pay all remaining amounts in the manner set forth in Section 3.4(c); and all other amounts shall be paid at such time as all disagreements are resolved provided in accordance with this Section 3.4(b) or otherwise. If the Parties cannot mutually agree on the Closing Statement, then the Parties shall promptly attempt to resolve such disagreements by negotiation. If the Parties are unable to resolve such disagreements within thirty (30) days following such notice of disagreement, then the Parties shall appoint an Independent Accounting Firm within forty-five (45) days following such notice to review the disputed portions of the draft Closing Statement and determine the Closing Adjustment Amount. In the event that Buyer and Seller cannot promptly agree on the selection of an accounting firm to act as the Independent Accounting Firm following the expiration of such forty-five (45) day period, either Party may request the American Arbitration Association to appoint an Independent Accounting Firm, and such appointment shall be final, binding and conclusive on Buyer and Seller. Resolution of any disagreements shall be made by the Independent Accounting Firm in a writing addressed to all Parties within thirty (30) days following referral to it by the Parties of such disagreements in accordance with this Agreement. The findings of such Independent Accounting Firm shall be final, binding and conclusive on the Parties. The fees and expenses of the Independent Accounting Firm incurred in the resolution of
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such dispute shall be borne by the Parties in such proportion as is appropriate to reflect the relative benefits received by Seller on the one hand and Buyer on the other from the resolution of the dispute. For example, if Buyer challenges items underlying the calculation of the Closing Adjustment Amount in the net amount of $100,000, but the Independent Accounting Firm determines that Buyer has a valid claim for only $40,000, Buyer shall bear 60% of the fees and expenses of the Independent Accounting Firm and Seller shall bear the other 40% of such fees and expenses.
(c)        "No later than the fifth (5th) Business Day following the determination of the Closing Adjustment Amount pursuant to Section 3.4(b), either (i) Seller shall pay Buyer the amount, if any, by which the Estimated Adjustment Amount exceeds the Closing Adjustment Amount, or (ii) Buyer shall pay Seller the amount, if any, by which the Closing Adjustment Amount exceeds the Estimated Adjustment Amount, in either case, together with simple interest accruing on such payment at the Prime Rate from and after the Closing Date through but not including the date of payment, by wire transfer of immediately available funds to an account designated by the receiving Party. As used herein, "Prime Rate" means, as of any date, the prime rate as published in The Wall Street Journal on such date or, if not publish ed on such date, on the most recent date of publication.
3.5.        Tax Reporting and Allocation of Purchase Price. Buyer and Seller shall use their Commercially Reasonable Efforts to agree in good faith upon an allocation among the Purchased Assets of the sum of the Purchase Price and the Assumed Liabilities consistent with Section 1060 of the Code and the Treasury Regulations thereunder within sixty (60) days after the determination of the Closing Adjustment Amount pursuant to Section 3.4. In the event that the Parties cannot agree on a mutually satisfactory allocation within such sixty (60) day period, the Parties shall appoint an Independent Accounting Firm that shall, at Seller's and Buyer's joint expense, determine the appropriate allocation. In the event that Buyer and Seller cannot promptly agree on the selection of an accounting firm to act as the Independent Accounting Firm, either Party may request the American Arbitr ation Association to appoint an Independent Accounting Firm, and such appointment shall be final, binding and conclusive on Buyer and Seller. Resolution of any disagreements shall be made by the Independent Accounting Firm in a writing addressed to all Parties within thirty (30) days following referral to it by the Parties of such disagreements in accordance with this Agreement. The finding of such Independent Accounting Firm shall be final, binding and conclusive on the Parties. After determination of the allocation by agreement of the Parties or by binding determination of the Independent Accounting Firm, Buyer and Seller shall file, for the tax year in which the Closing occurs, Internal Revenue Service Form 8594, and all Tax Returns, in accordance with such allocation. Buyer and Seller shall report the transactions contemplated by this Agreement for U. S. federal Income Tax and all other Tax purposes in a manner consistent with the allocation determined pursuant to this Section 3.5. Buyer and Se ller shall provide the other promptly with any information required to complete Form 8594. Buyer and Seller shall notify and provide the other with reasonable assistance in the event of an examination, audit or other proceeding regarding the agreed-upon allocation of the Purchase Price and the Assumed Liabilities.
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3.6.        Prorations.
(a)        "Except as otherwise provided in this Agreement, all of the items customarily prorated relating to the ownership, lease, maintenance or operation of the Business and Purchased Assets that are attributable to a period commencing prior to the Closing Date and terminating on or after the Closing Date, including those listed below (but expressly excluding Income Taxes), shall be prorated as of the Closing Date, with Seller liable to the extent such items relate to any period prior to the Closing Date, and Buyer liable to the extent such items relate to any period on or after the Closing Date (measured in the same units used to compute the item in question, and otherwise measured by calendar days):
(i)        "Personal property, real estate and occupancy Taxes, assessments and other charges, if any, on or with respect to the ownership, lease, maintenance or operation of the Business and Purchased Assets;
(ii)       "Rent and all other items (including prepaid services), in each case, payable by or to Seller under any of the Seller's Agreements assigned to and assumed by Buyer hereunder;
(iii)      "Any permit, license, registration, compliance assurance fees or other fees with respect to any Transferable Permit; and
(iv)       "Sewer rents and charges for water, telephone, electricity and other utilities.
(b)        "Seller or Buyer, as the case may be, shall promptly reimburse the other Party that portion of any amount paid by such other Party to the extent relating to the period for which Seller or Buyer, as the case may be, is liable under Section 3.6(a), in each case, upon presentation of a statement setting forth in reasonable detail the nature and amount of any such payment. In connection with the prorations set forth in Section 3.6(a), if actual amounts are not available on the Closing Date, the proration shall be calculated based upon the respective amounts accrued through the Closing Date or paid for the most recent year or other appropriate period for which such amounts paid are available. All prorated amounts shall be recalculated and paid to the appropriate Party, if practicable, on the date of the payment of the Clos ing Adjustment Amount pursuant to Section 3.4(c) or otherwise within sixty (60) days after the date that the previously unavailable actual amounts become available. Seller and Buyer shall furnish each other with such documents and other records as may be reasonably requested in order to confirm all proration calculations made pursuant to this Section 3.6. Notwithstanding anything to the contrary herein, no proration shall be made under this Section 3.6 with respect to (i) real property Tax refunds that are Excluded Assets under Section 2.2(h) or (ii) Taxes payable by Buyer pursuant to Section 6.7(a).
3.7.        Deliveries by Seller. At the Closing, Seller shall deliver, or cause to be delivered, the following to Buyer:
(a)        "The Special Warranty Deed, duly executed by Seller and in recordable form;
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(b)        "The Bill of Sale, duly executed by Seller;
(c)        "The Assignment and Assumption Agreements and the Pole Attachment Assignment and Assumption Agreement, duly executed by Seller;
(d)        "The Transition Services Agreement, duly executed by Seller;
(e)        "The Access Agreements, duly executed by Seller and in recordable form;
(f)        "The Escrow Agreement, duly executed by the Seller;
(g)        "The Lease Agreement, duly executed by the Seller and in recordable form;
(h)        "Evidence, in form and substance reasonably satisfactory to Buyer, demonstrating that Seller has obtained the Seller's Required Regulatory Approvals set forth on Schedule 7.2(b);
(i)        "A FIRPTA Affidavit, duly executed by Seller;
(j)        "Copies, certified by the Secretary or Assistant Secretary of Seller, of resolutions authorizing the execution, delivery and performance of this Agreement, each Additional Agreement to which Seller is a party and all of the other agreements and instruments, in each case, to be executed, delivered and performed by Seller in connection herewith;
(k)        "A certificate of the Secretary or Assistant Secretary of Seller identifying the name and title and bearing the signatures of the officers of Seller authorized to execute and deliver this Agreement, each Additional Agreement to which Seller is a party and the other agreements and instruments contemplated hereby;
(l)        "A certificate contemplated by Section 7.1(f);
(m)        "All such other agreements, documents, instruments and writings as shall, in the reasonable opinion of Buyer and its counsel, be necessary to sell, assign, convey, transfer and deliver to Buyer the Purchased Assets, in accordance with this Agreement and, where necessary or desirable, in recordable form, provided that Seller shall not be required to prepare or obtain any survey, abstract, title opinion or title insurance policy with respect to the Real Property;
(n)        "A certificate of good standing with respect to Seller from the VSCC;
(o)        "Evidence satisfactory to the Buyer of the release and discharge of the lien of the Bank of New York, individually or as trustee, with respect to the Purchased Assets;
(p)        "Such other agreements, documents, instruments and writings as are required to be delivered by Seller at or prior to the Closing Date pursuant to this Agreement or otherwise reasonably requested by Buyer in connection herewith; and
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(q)        "All books, records and other materials referenced in Section 2.1(k) in both hard copy and electronic version, as available; provided that such property shall be delivered to such locations other than the place of Closing as Buyer may reasonably direct.
3.8.        Deliveries by Buyer. At the Closing, Buyer shall deliver, or cause to be delivered, the following to Seller:
(a)        "The Closing Payment, by wire transfer of immediately available funds, in accordance with Seller's instructions to the account of Seller designated by Seller at least two (2) Business Days prior to the Closing Date and the Escrow Amount to the Escrow Agent, which shall have entered into the Escrow Agreement;
(b)        "The Assignment and Assumption Agreements and the Pole Attachment Assignment and Assumption Agreement, duly executed by Buyer;
(c)        "The Transition Services Agreement, duly executed by Buyer;
(d)        "The Operational Coordination Agreement, duly executed by Buyer;
(e)        "The Access Agreements, duly executed by Buyer;
(f)        "The Escrow Agreement, duly executed by Buyer;
(g)        "The Lease Agreement, duly executed by Buyer;
(h)        "Evidence, in form and substance reasonably satisfactory to Seller, demonstrating that Buyer has obtained the Buyer's Required Regulatory Approvals set forth on Schedule 7.1(b);
(i)        "Copies, certified by the Secretary or Assistant Secretary of Buyer, of resolutions authorizing the execution, delivery and performance of this Agreement, each Additional Agreement to which Buyer is a party, and all of the other agreements and instruments, in each case, to be executed, delivered and performed by Buyer in connection herewith;
(j)        "A certificate of the Secretary or Assistant Secretary of Buyer identifying the name and title and bearing the signatures of the officers of Buyer authorized to execute and deliver this Agreement, each Additional Agreement to which Buyer is a party and the other agreements contemplated hereby;
(k)        "A certificate contemplated by Section 7.2(f); and
(l)        "Such other permits, agreements, documents, instruments and writings as are required to be delivered by Buyer at or prior to the Closing Date pursuant to this Agreement or otherwise reasonably requested by Seller in connection herewith.
3.9.        Post-Closing Asset Deliveries. In the event that Seller or Buyer, or any of their respective Representatives, shall determine after the Closing that any Purchased Asset is in the
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possession of the Seller (or any of its Representatives) or that any Excluded Asset is in the possession of the Buyer (or any of its Representatives), the Party in possession of such asset or assets shall, or shall cause their respective Representatives to, promptly, but in no event later than five (5) Business Days following such determination, pay or deliver, or cause to be paid or delivered, to the other Party such asset or assets, at the sole cost and expense of the Party in possession of such asset or assets.
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF SELLER
As an inducement to Buyer to enter into this Agreement and consummate the transactions contemplated hereby, Seller hereby represents and warrants to Buyer as follows:
4.1.        Organization; Qualification. Seller is a corporation validly existing and in good standing under the laws of the Commonwealth of Virginia and has all requisite corporate power and authority to own, lease and operate its properties and to carry on its business as it is now being conducted. Seller is duly qualified to do business as a foreign corporation and is in good standing under the laws of each jurisdiction in which its business as now being conducted requires it to be so qualified, except to the extent that the failure to be so qualified is not, individually or in the aggregate, reasonably expected to have a Material Adverse Effect.
4.2.        Authority. Seller has full corporate power and authority to execute and deliver this Agreement and each Additional Agreement to which it is a party and to consummate the transactions contemplated hereby and thereby. The execution and delivery by Seller of this Agreement and each Additional Agreement to which it is a party and the consummation by Seller of the transactions contemplated hereby and thereby have been duly authorized by all necessary corporate action required on the part of Seller. This Agreement has been duly executed and delivered by Seller; and this Agreement constitutes, and upon the execution and delivery by Seller of each Additional Agreement to which it is a party, each such Additional Agreement will constitute, the valid and binding obligation of Seller, enforceable against Seller in accordance with its terms, except that (a) such enforc eability may be subject to any bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or other Laws now or hereafter in effect affecting or relating to enforcement of creditors' rights generally and (b) the remedy of specific performance and injunctive and other forms of equitable relief may be subject to equitable defenses and to the discretion of the court before which any proceeding therefor may be brought.
4.3.        Consents and Approvals; No Violation.
(a)        "Except as set forth on Schedule 4.3(a), subject to obtaining or making all Seller's Required Regulatory Approvals, neither the execution and delivery by Seller of this Agreement and the Additional Agreements to which it is a party nor the consummation by Seller of the transactions contemplated hereby and thereby will (i) conflict with or result in any breach of any provision of the certificate of incorporation or bylaws of Seller; (ii) result in a default (or give rise to any right of termination, cancellation or acceleration or result in the imposition of a lien on any of its assets) under any of the terms, conditions or provisions of any note, bond, mortgage, indenture, agreement, lease or other instrument or obligation to which Seller is a party
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or by which it, or any of the Purchased Assets, may be bound, except for such defaults (or rights of termination, cancellation, acceleration or resulting liens) as to which requisite consents, approvals or waivers have been or will prior to the Closing be obtained, or which are not reasonably expected to individually or in the aggregate, have a Material Adverse Effect; or (iii) violate any Law, order, judgment or decree applicable to Seller or any of the Purchased Assets, which violation, individually or in the aggregate, is not reasonably expected to result in a Material Adverse Effect.
(b)        "Except for consents, approvals, filings and notices (including those consents, approvals, filings and notices required in connection with the transfers by Seller to Buyer of Transferable Permits) set forth on Schedule 4.3(b) (the consents, approvals, filings and notices referred to in this paragraph are collectively referred to herein as the "Seller's Required Regulatory Approvals"), no consent or approval of, filing with, or notice to, any Governmental Authority is necessary for the execution and delivery by Seller of this Agreement and the Additional Agreements to which it is a party or the consummation by Seller of the transactions contemplated hereby or thereby, other than (i) such consents, approvals, filings and notices which, if not obtained or made, do not materially impair Seller's ability to perfo rm its material obligations under this Agreement or such Additional Agreements; (ii) such consents, approvals, filings and notices which become applicable to Seller or the Purchased Assets as a result of the status of Buyer (or any of its Affiliates) or as a result of any other facts that specifically relate to the business or activities in which Buyer (or any of its Affiliates) is or proposes to be engaged; and (iii) such consents, approvals, filings and notices, the failure of which to obtain or make are not, individually or in the aggregate, reasonably expected to have a Material Adverse Effect.
4.4.        Insurance. Schedule 4.4 sets forth all material liability, property, workers' compensation and other insurance policies with respect to the Purchased Assets. To Seller's Knowledge, the Purchased Assets are insured in such amounts and against such risks and losses as are customary in accordance with Good Utility Practices, no premiums due under any such material insurance policy have not been paid (to the extent any such non-payment would entitle the insurer to terminate such policy) and Seller has not received any written notice of cancellation, termination or denial of a claim thereunder with respect to any material insurance policy of Seller providing coverage in respect of the Purchased Assets which was not replaced prior to the date of cancellation or termination. To Seller's Knowledge, all material insurance policies of Seller covering the Purchased Assets are in full force and effect, provided, however, that coverage of the Purchased Assets under the Seller's insurance policies will terminate as of the Closing. Seller has not been refused any such insurance with respect to any material Purchased Asset.
4.5.        Title and Related Matters.
(a)        "Except for Permitted Encumbrances, Seller has good, valid and marketable title to (or, in the case of leased property, has a valid and enforceable leasehold interest in) the Real Property included in the Purchased Assets and has good and valid title to all other Purchased Assets, free and clear of all Encumbrances.
(b)        "To Seller's Knowledge, the Purchased Assets have been maintained consistent with Good Utility Practice, except to the extent that the failure to so maintain the
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Purchased Assets, taken as a whole, is not reasonably expected to have a Material Adverse Effect.
(c)        "Except as set forth on Schedule 4.5(c), the Transferred Easements are all of the easements, railroad crossing rights and rights of way, and similar rights (other than public rights of way) necessary for the operation of the Business as currently conducted, except those that are not reasonably expected to have a Material Adverse Effect.
(d)        "Schedule 2.1(a) describes all real property leases under which Seller is a lessee or lessor that relate principally to the Business or the Purchased Assets.
4.6.        Seller's Environmental Matters. Notwithstanding anything contained herein, Sections 4.3, 4.6 and 4.10 are the only Sectio                       (a)        "ns containing representations and warranties relating to environmental matters. Except as set forth on Schedule 4.6:
(a)        "Seller holds, and is in compliance and has been in compliance over the last six (6) years, in all respects with, all Environmental Permits that Seller requires in order to own, lease, maintain and operate the Purchased Assets or the Business, and Seller is, and has been over the last six (6) years, otherwise in compliance in all respects with applicable Environmental Laws with respect to the ownership, lease, maintenance or operation of the Purchased Assets or the Business, except in all cases for such failures to hold or comply with required Environmental Permits, and such failures to be in compliance with applicable Environmental Laws, as are not, individually or in the aggregate, reasonably expected to have a Material Adverse Effect.
(b)        "Seller has not received any written or, to Seller's Knowledge, oral (i) request for information or notice that it is a potentially responsible party under CERCLA or any similar state law, with respect to the Site, or (ii) unresolved notice alleging any material violations of Environmental Laws or Environmental Permits.
(c)        "Seller has not entered into or agreed to any decree, order or judgment under any Environmental Law relating to the Purchased Assets or the Business, and, to Seller's Knowledge, Seller is not subject to any outstanding decrees, orders or judgments relating to compliance with any Environmental Law or to the Remediation of Hazardous Substances under any Environmental Law relating to the Purchased Assets, the Business or the Site except for such decrees, orders and judgments as are not material.
(d)        "Seller has delivered or made available all material environmental reports (including all Phase I Environmental Site Assessment reports, or Phase II Environmental Site Assessment reports, if applicable), investigations and studies relating to any of the Purchased Assets or the Business prepared by or on behalf of or in the possession of the Seller within the last six (6) years. To Seller's Knowledge, no Affiliate of Seller is in possession of any such material environmental reports or studies primarily relating to the Purchased Assets or the Business.
(e)        "To Seller's Knowledge, there has been no Release of Hazardous Substances on, in, under or onto any part of the Site in respect of which a Governmental Authority has required or may require under applicable Environmental Laws any material
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Remediation except as are not, individually or in the aggregate, reasonably expected to have a Material Adverse Effect.
(f)        "To Seller's Knowledge, there are no underground storage tanks or related piping, asbestos-containing materials or polychlorinated biphenyl-containing transformers or other equipment, active or abandoned, on the Site or included in the Purchased Assets, except as are not, individually or in the aggregate, reasonably expected to have a Material Adverse Effect.
4.7.        Taxes. Seller has timely filed all Tax Returns required to be filed by Seller with respect to the conduct and ownership of the Purchased Assets or the Business, including Tax Returns for all applicable federal, state and local income, franchise, sales, use, property, excise and other Taxes, and such Tax Returns are true and correct in all material respects. Seller has paid all material Taxes required to be paid pursuant to such Tax Returns or otherwise required by Law to be paid by it, and there are no other material Taxes payable on account of the ownership of the Purchased Assets or the Business from the date of the inception of Seller's investment in the Purchased Assets or the Business, except for Taxes not yet due in the ordinary course of business (for which adequate reserves have been established). All other federal, state and local Taxes which Seller was or is required by Law to withhold or collect have been and are being withheld or collected by it and are being paid over to the proper Governmental Authorities or are being held by Seller in accordance with Law for such payment. Seller has not made any Tax elections with respect to the Purchased Assets or the Business that will bind Buyer. None of the Purchased Assets is tax-exempt use property within the meaning of Section 168(h) of the Code or tax-exempt bond financed property within the meaning of Section 168(g)(5) of the Code and none of such assets is subject to any lease made pursuant to Section 168(f)(8) of the Code (as in effect prior to the enactment of the Tax Reform Act of 1986).
4.8.        Real Property. Schedule 4.8 sets forth a description of the Real Property and the material Transferred Easements. True and correct copies of all current surveys, abstracts, title opinions and policies of title insurance currently in force, in each case, in Seller's possession and relating to the Real Property, have been previously delivered or otherwise made available to Buyer. Except as set forth in Schedule 2.1(a), Schedule 2.1(g), Schedule 4.8, or Schedule 4.9(a), Seller has not (i) leased or otherwise granted any Person the right to use or occupy all or any portion of the Real Property and there are no outstanding options, rights of first offer or rights of first refusal to purchase any portion of the Real Property, and (ii) Seller has not received written notice of any pending or, to Seller's Knowledge, threatened proceedings or actions by any Governmental Authority to modify the zoning classification of or to condemn or take by eminent domain or to classify as a landmark all or any material part of the Purchased Assets.
4.9.        Certain Contracts and Arrangements.
(a)        "Schedule 4.9(a) sets forth a list of all written Seller's Agreements, other than such contracts, licenses, agreements, arrangements and leases as (i) constitute Excluded Assets or relate solely to Excluded Liabilities, (ii) may be terminated after the Closing by Buyer upon notice of no more than sixty (60) days, (iii) have been entered into in the ordinary course of business and do not individually involve annual payment obligations in excess of $250,000, (iv) are expected to expire or terminate prior to the Closing, or (v) are entered into by Seller after the date hereof consistent with the terms of this Agreement.
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(b)        "Except as set forth on Schedule 4.9(b), each Seller's Agreement set forth on Schedule 4.9(a) constitutes a legal, valid and binding obligation of Seller and, to Seller's Knowledge, the other parties thereto.
(c)        "Except as set forth on Schedule 4.9(c), (i) there is not under any Seller's Agreement set forth on Schedule 4.9(a) any default or event which, with notice or lapse of time or both, would constitute a default on the part of Seller or, any other party thereto, except such defaults as are not, individually or in the aggregate, reasonably expected to have a Material Adverse Effect, or (ii) to Seller's Knowledge, no party has repudiated any provision of any Seller's Agreements.
4.10.       Legal Proceedings. Except as set forth on Schedule 4.10, there are no suits, actions or proceedings pending or, to Seller's Knowledge, threatened against Seller or relating to the Purchased Assets by or before any Governmental Authority, which are, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. Except as set forth on Schedule 4.10, Seller is not subject to any judgment, order or decree of any Governmental Authority which are, individually or in the aggregate, reasonably expected to have a Material Adverse Effect.
4/11.       Permits. Seller holds, and is in compliance with, all permits, certificates, licenses and other authorizations of all Governmental Authorities (collectively, "Seller's Permits") that Seller requires in order to own, lease, maintain and operate the Purchased Assets or the Business, except for (a) those Environmental Permits which are governed by Section 4.6 and (b) such failures to hold, or comply with, Seller's Permits as individually or in the aggregate are not reasonably expected to have a Material Adverse Effect. Except as disclosed in Section 4.6, or individually or in the aggregate are not reasonably expected to have a Material Adverse Effect, (i) Seller has not received any written notification that it is in violation of any such Seller's Permits, and (ii) Seller is in compliance in all material respects with all such Seller's Permits.
4.12.       Brokers; Finders. Except as set forth on Schedule 4.12, Seller has not, and none of Seller's Affiliates have, retained any financial advisor, broker, agent, or finder or paid or agreed to pay any financial advisor, broker, agent, or finder on account of this Agreement or the transactions contemplated hereby. Buyer shall not have any responsibility or liability (financial or otherwise) with respect to any Person set forth on Schedule 4.12.
4.13.       Compliance with Laws. Except as individually or in the aggregate are not reasonably expected to have a Material Adverse Effect, Seller is in compliance with all applicable Laws or orders of any Governmental Authority applicable to the Purchased Assets or the Business. To Seller's Knowledge, no investigation by any Governmental Authority with respect to Seller or any of its Affiliates is pending or threatened, except as individually or in the aggregate are not reasonably expected to have a Material Adverse Effect.
4.14.       No Material Adverse Effect. Except as set forth in Schedule 4.14, or as required by the terms of this Agreement, since November 30, 2006, no change, effect, development or event has occurred which, either individually or in the aggregate, taken as a whole, with all effects, events, developments or changes, has or is reasonably expected to result in a Material Adverse Effect.
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ARTICLE V REPRESENTATIONS AND WARRANTIES OF BUYER
As an inducement to Seller to enter into this Agreement and consummate the transactions contemplated hereby, Buyer hereby represents and warrants to Seller as follows:
5.1.        Organization; Qualification. Buyer is a utility consumer services cooperative validly existing and in good standing under the laws of the Commonwealth of Virginia and has all requisite cooperative power and authority to own, lease and operate its properties and to carry on its business as it is now being conducted. Buyer is, or by the Closing will be, qualified to do business in the Commonwealth of Virginia.
5.2.        Authority. Buyer has full cooperative power and authority to execute and deliver this Agreement and each Additional Agreement to which it is a party and to consummate the transactions contemplated hereby and thereby. The execution and delivery of this Agreement and each such Additional Agreement by Buyer and the consummation by Buyer of the transactions contemplated hereby and thereby have been duly authorized by all necessary action required on the part of Buyer. This Agreement has been duly executed and delivered by Buyer; and this Agreement constitutes, and upon the execution and delivery by Buyer of each Additional Agreement to which it is a party, each such Additional Agreement will constitute, the valid and binding obligation of Buyer, enforceable against Buyer in accordance with its terms, except that (a) such enforceability may be subject to any ban kruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or other Laws now or hereafter in effect affecting or relating to enforcement of creditors' rights generally and (b) the remedy of specific performance and injunctive and other forms of equitable relief may be subject to equitable defenses and to the discretion of the court before which any proceeding therefor may be brought.
5.3.        Consents and Approvals; No Violation.
(a)        "Except as set forth on Schedule 5.3(a), and subject to obtaining or making all Buyer's Required Regulatory Approvals, neither the execution and delivery by Buyer of this Agreement and the Additional Agreements to which it is a party nor the consummation by Buyer of the transactions contemplated hereby and thereby will (i) conflict with or result in any breach of any provision of the articles of incorporation or bylaws of Buyer; (ii) result in a default (or give rise to any right of termination, cancellation or acceleration or result in the imposition of a lien on any of its assets) under any of the terms, conditions or provisions of any note, bond, mortgage, indenture, agreement, lease or other instrument or obligation to which Buyer is a party or by which Buyer or any of its properties and assets may be bound, except for such defaults (or rights of termination, cancellation, acceleration or resulting liens) as to which requisite consents, approvals or waivers have been or will be prior to the Closing obtained, or which are not reasonably expected to, individually or in the aggregate, have a Material Adverse Effect; or (iii) violate any Law, order, judgment or decree applicable to Buyer or its assets, which violation, individually or in the aggregate, is not reasonably expected to result in a Material Adverse Effect
(b)        "Except for consents, approvals, filings and notices set forth on Schedule 5.3(b) (such consents, approvals, filings and notices referred are collectively referred to herein as
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the "Buyer's Required Regulatory Approvals"), no consent or approval of, filing with, or notice to, any Governmental Authority is necessary for the execution and delivery by Buyer of this Agreement and the Additional Agreements to which it is a party or the consummation by Buyer of the transactions contemplated hereby or thereby, other than such consents, approvals, filings or notices which, if not obtained or made, are not reasonably expected to have a Material Adverse Effect on Buyer's ability to consummate the transactions contemplated hereby or by any Additional Agreement to which it is a party, or to perform its material obligations hereunder or thereunder.
5.4.        Availability of Funds. Buyer has sufficient funds on hand or available to it pursuant to existing lines of credit, or has received binding written commitments from creditworthy financial institutions, true and correct copies of which have been provided to Seller, to permit Buyer on the Closing Date to pay the Purchase Price, all other amounts payable by Buyer hereunder or under any Additional Agreement, including all Assumed Liabilities, and all fees and expenses incurred by Buyer in connection with the transactions contemplated hereby and by the Additional Agreements, and to permit Buyer to timely pay or perform all of its other obligations under this Agreement and the Additional Agreements.
5.5.        Legal Proceedings. There are no suits, actions or proceedings pending or threatened against Buyer or its assets by or before any Governmental Authority, which are, individually or in the aggregate, reasonably expected to have a Material Adverse Effect. Buyer is not subject to any judgments, orders or decrees of any Governmental Authority which, individually or in the aggregate, have a Material Adverse Effect.
5.6.        Ability to Close. The Buyer has no reason to believe that it will not be able to satisfy on a timely basis any term or condition contained in this Agreement, or that the full amount of the consideration payable by the Buyer to the Seller, pursuant to this Agreement will not be available to it as of the Closing.
5.7.        WARN Act. Buyer does not intend to engage within sixty (60) days of the Closing Date in a "plant closing" or "mass layoff," as such terms are defined in the WARN Act.
5.8.        Brokers; Finders. Buyer has not, and none of Buyer's Affiliates have, retained any financial advisor, broker, agent, or finder or paid or agreed to pay any financial advisor, broker, agent, or finder on account of this Agreement or the transactions contemplated hereby.
ARTICLE VI COVENANTS OF THE PARTIES
6.1.        Conduct of Business Relating to the Purchased Assets. Except as set forth on Schedule 6.1, as required for Seller to comply with applicable Law, as contemplated by this Agreement or any Additional Agreement, or to the extent Buyer otherwise consents in writing (such consent not to be unreasonably withheld or delayed), during the period from the date of this Agreement to the Closing Date, Seller shall operate the Purchased Assets or the Business in the ordinary course of business consistent with the past practices of Seller and in accordance with Good Utility Practices, and shall use all Commercially Reasonable Efforts to preserve intact the Purchased Assets, and endeavor to preserve the goodwill and relationships with customers,
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vendors, suppliers, employees and others having business dealings with the Business. Without limiting the generality of the foregoing, and, except as set forth on Schedule 6.1, as required for Seller to comply with applicable Law, as contemplated by this Agreement or any Additional Agreement, or to the extent Buyer otherwise consents in writing (such consent not to be unreasonably withheld or delayed), between the date hereof and the Closing Date, Seller shall not, with respect to the Purchased Assets:
(a)        "Sell, lease (as lessor), encumber, pledge, transfer or otherwise dispose of, any Purchased Assets (except for Purchased Assets used, consumed or replaced in the ordinary course of business consistent with past practices of Seller or and in accordance with Good Utility Practices) other than to the extent that any such action results in a Permitted Encumbrance;
(b)        "Modify, amend or voluntarily terminate prior to the expiration date any material Seller's Agreement set forth on Schedule 2.1(g), other than (i) in the ordinary course of business, to the extent consistent with the past practices of Seller and in accordance with Good Utility Practices or (ii) as may be required in connection with transferring Seller's rights or obligations thereunder to Buyer pursuant to this Agreement;
(c)        "Enter into any contract, agreement, commitment or arrangement relating to the Purchased Assets or the Business that provides for future payments in any twelve-month period that individually exceed $100,000 or in the aggregate exceed $250,000, unless it is terminable by Seller without penalty or premium upon no more than sixty (60) days' notice, other than any contract, commitment or arrangement relating to (i) any capital expenditure, or (ii) the disconnection plan as set forth in Section 6.14;
(d)        "Except (i) as otherwise required by the terms of the Benefit Plans or applicable Law and (ii) customary, annual merit-based salary increases for Transferred Non-Union Employees, materially increase (y) the salaries or wages of Transferred Employees payable after the Closing, or (z) the aggregate benefits payable to Transferred Employees after the Closing;
(e)        "Make any material change in the level of inventories customarily maintained by Seller with respect to the Business, other than in the ordinary course of business or consistent with Good Utility Practice;
(f)        "Make or commit to any capital expenditures relating to the Business or the Purchased Assets in excess of 110% of the amount reflected for such expenditures in the Seller's budget attached hereto as Schedule 6.1(f), for the year in which those capital expenditures are made, except for capital expenditures (A) required under any Seller's Agreement or by a Governmental Authority; (B) incurred in connection with the repair or replacement of facilities destroyed or damaged due to casualty or accident (whether or not covered by insurance); (C) necessary or appropriate under Good Utility Practices to provide or maintain safe and adequate electric service to the Customers; or (D) incurred in connection with new Customers;
(g)        "Except as consistent with past practice, agree or consent to any material changes in courses of dealing with the VSCC, or the FERC, in each case in respect of the operations of the Business or the Purchased Assets, except as required by applicable Law, with
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respect to the SOS case currently pending, or to obtain or renew Transferable Permits or agreements in the ordinary course of business consistent with past practice;
(h)        "Fail to maintain insurance on the Purchased Assets with financially responsible insurance companies (or if applicable, self insure) in such amounts and against such risks in the ordinary course of business consistent with past practice;
(i)        "Other than in the ordinary course of business, amend in any material respect or allow to terminate or lapse in any material respect, any Seller's Permit material to the Business or the Purchased Assets, taken as a whole, other than as required by applicable Law;
(j)        "Enter into any agreements which would be transferred to Buyer under Section 2.1(g) that would limit or otherwise restrict in any material respect the Business or the Purchased Assets;
(k)        "Except for filings in the ordinary course of business consistent with past practice or to the extent required by Law or with respect to the SOS case currently pending, (A) implement any material changes in Seller's rates or charges (other than automatic cost pass-through rate adjustment clauses), standards of service or accounting, in any such case, as relates to the Customers or the Business or execute any agreement which would be transferred to Buyer under Section 2.1(g) with respect thereto (other than as otherwise permitted under this Agreement), without consulting with Buyer prior to implementing any such changes or executing any such agreement, or (B) agree to any material settlement of any rate proceeding that would provide for a reduction in annual revenues or would establish a rate moratorium or phased-in rate increases (other than automatic cost pass-through rate adjustment clauses) with respect to the Business or the Purchased Assets after the Closing Date;
(l)        "With respect to the Business, change, in any material respect, its accounting methods or practices (except in accordance with changes in generally accepted accounting principles, subject to FERC's uniform system of accounts), credit practices, collection policies, or investment, financial reporting, or inventory practices or policies or the manner in which the books and records of the Business are maintained; and
(m)        "Except as otherwise provided herein, enter into any written or oral contract, agreement, commitment or arrangement with respect to any of the prohibited transactions set forth in the foregoing paragraphs (a) through (l).
To Seller's Knowledge and to Buyer's Knowledge, neither Party shall take any action that is intended to result in any of the conditions to Closing set forth in Article VII not being satisfied
6.2.        Access to Information.
(a)        "Between the date of this Agreement and the Closing Date, Seller shall: (i) give Buyer and its Representatives, during normal business hours and upon reasonable notice, reasonable access to all books, records, plans, offices and other facilities and properties in the possession of Seller included in the Purchased Assets (it being understood that Seller shall have the right to have a Representative present at all times during any such access); (ii) furnish Buyer
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with such financial and operating data and other information in the possession of Seller with respect to the Purchased Assets or the Business as Buyer may from time to time reasonably request; and (iii) furnish Buyer with all such other information in the possession of Seller and provide such other cooperation as shall be reasonably necessary to enable Buyer, at its request, to verify the accuracy of the representations and warranties of Seller contained in this Agreement; provided, however, that (A) any such access or requests shall be conducted in such manner as not to interfere unreasonably with the operation of the Purchased Assets, (B) Seller shall not be required to take any action which would constitute a waiver of the attorney-client or other privilege, and (C) Seller need not supply Buyer with any information which Seller is under a legal or contractual obligation not to supply if Seller so notifies Buyer. Seller shall only furnish or provide such access to Employee personnel recor ds and files to the extent permitted by applicable Law and to the extent that such records and files pertain to the following: (i) skill and development training; (ii) seniority histories; (iii) salary and benefit information; (iv) Occupational Safety and Health Administration reports; and (v) active medical restriction forms.
(b)        "All information furnished to or obtained by Buyer and Buyer's Representatives pursuant to this Section 6.2 shall be Proprietary Information and shall be kept confidential in accordance with the terms of the Confidentiality Agreement. Nothing in this Section 6.2 is intended to or shall be deemed to amend, supplement or otherwise modify the obligations of Buyer, its Representatives or its Affiliates under the Confidentiality Agreement, all of which remain in effect until termination of such agreement in accordance with its terms.
(c)        "For a period of seven (7) years from and after the Closing Date, each Party and its Representatives shall have reasonable access during normal business hours to all of the books and records of the Purchased Assets or the Business, including all Transferred Employee Records, in the possession of the other Party to the extent that such access may reasonably be required by such Party in connection with the Assumed Liabilities or the Excluded Liabilities, or other matters relating to or affected by the ownership, lease, maintenance or operation of the Purchased Assets, the Business or the Excluded Assets. Such access shall be afforded by the Party in possession of any such books and records upon receipt of reasonable advance notice and during normal business hours. The Party exercising this right of access shall be solel y responsible for any costs or expenses incurred by it or any out-of-pocket costs of the other Party with respect to such access pursuant to this Section 6.2(c). If the Party in possession of such books and records shall desire to dispose of any books and records upon or prior to the expiration of such seven-year period, such Party shall, prior to such disposition, give the other Party a reasonable opportunity, at such other Party's cost and expense, to segregate and remove such books and records as such other Party may select. Buyer's right of examination and access pending the Closing with respect to environmental matters relating to the Purchased Assets shall in no event include physical testing of or collection of samples from the Real Property or the Purchased Assets except as otherwise provided herein, it being understood that the provisions set forth in (e) below shall be Buyer's sole rights relating thereto.
(d)        "Except as otherwise provided in Section 6.18, Buyer shall not, prior to the Closing Date, contact any customer, vendor, supplier of, or director, officer, partner, member or employee of, or any other Person having business dealings with, Seller or its Affiliates with respect to any aspect of the Business or Purchased Assets or the transactions contemplated hereby or by any Additional Agreement, including any Governmental Authority, without the
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prior consent of Seller; provided, that Buyer may request from a Governmental Authority information which is publicly available. Notwithstanding the foregoing, Seller shall work with Buyer to prepare statements that Buyer or Seller may provide in response to inquiries from any such Person having business dealings with Seller or its Affiliates, with respect to the Business or Purchased Assets or transactions contemplated hereby or by any Additional Agreement. Except as otherwise provided herein, prior to Closing, Buyer shall not investigate or inquire as to any matter with any Governmental Authority having jurisdiction over any aspect of the Business or Purchased Assets, unless and until the written consent of Seller (not to be unreasonably withheld or delayed) to the making of such investigation or inquiry, has been received by Buyer and after consultation with Seller as to the scope and manner of the investigation or inquiry.
(e)        "Without limiting any other provision of this Section 6.2, with respect to the Real Property, the scope of work to be conducted by the Environmental Consultant shall include such reviews, analysis, site visits and sampling as are sufficient, in the case of Phase I, to meet the requirements of ASTM 1527-05 and the scope attached hereto as Schedule 6.02(e)(i), and a Phase II consistent with the scope attached hereto as Schedule 6.02(e)(ii) covering the areas and issues as reasonably recommended by the Environmental Consultant after the Phase I. The Parties agree that the scope of the Phase II Site assessment may be expanded upon the mutual agreement of Buyer and Seller if Buyer reasonably concludes there may be a material Liability after its due diligence investigation, and if requested within thirty (30) days from the d ate the results of the Phase I assessment are provided to Buyer. Any reports or studies completed by the Environmental Consultant in connection with this Section 6.2(e) shall be addressed to both the Buyer and the Seller; provided, however, that in no event shall Buyer be able to instruct or otherwise direct the Environmental Consultant. Notwithstanding anything in this Agreement to the contrary, the costs, fees and expenses of the Environmental Consultant in performance of the Phase I and Phase II Environmental Site Assessments contemplated in this Section 6.2(e) shall be borne by Seller. The Phase II review shall not commence before the filing by the Buyer of the applications and materials contemplated in Section 6.6 with the VSCC, except as otherwise agreed by Seller.
(f)        "All communications and consultations contemplated by Sections 6.2(a), 6.4 and 6.5 shall take place between the respective designated Representatives of Seller and Buyer, as may be designated from time to time by Seller and Buyer in the manner contemplated by Section 10.6. Seller's initial designated Representatives shall be Charles R. Dickerson and Buyer's initial designated Representatives shall be Vernon N. Brinkley.
6.3.        Procedures with Respect to Certain Agreements and Other Assets. Seller has easements, real property license agreements (including railroad crossing rights), rights-of-way, and leases for rights-of-way, which relate solely to the Business and Purchased Assets (the "Transferred Easements"). At the Closing, to the extent transferable, Seller will convey and assign to Buyer, subject to the obtaining of any necessary consents, (i) by the Assignment of Transferred Easements, all Transferred Easements, and (ii) to the extent practicable, by separate, recordable Assignment of Easement as to all Transferred Easements in each separate county.
6.4.        Public Statements. Subject to Section 6.2(d), except as required by applicable Law or by applicable rules of any national securities exchange, the Parties shall consult with each other in advance, prior to the Closing Date, with respect to any press release or other public
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announcement, statement or comment relating to the transactions contemplated by this Agreement; provided, however, that, notwithstanding the provisions of Section 6.2(d) relating to any other Person having business dealings with any Party, the Parties shall be permitted, subject to applicable Law and the Confidentiality Agreement, to discuss with members of the investment and financing community the transactions contemplated hereby, and the financial and operational effects of consummating such transactions, in each case, in connection with bona fide financing and credit-related endeavors.
6.5.        Further Assurances.
(a)        "Subject to the terms and conditions of this Agreement, each of the Parties hereto shall use its Commercially Reasonable Efforts to take, or cause to be taken, all actions, and to do, or cause to be done, all things necessary, proper or advisable under applicable Laws to consummate and make effective the purchase and sale of the Business or the Purchased Assets pursuant to this Agreement or the assumption of the Assumed Liabilities, including using its Commercially Reasonable Efforts to ensure satisfaction of the conditions precedent to each Party's obligations hereunder, including obtaining all necessary consents, approvals and authorizations of, and making all required notices or filings with, third parties required to be obtained or made in order to consummate the transactions hereunder, including the transfer of the Transferable Permits to Buyer. Seller shall use Commercially Reasonable Efforts to cooperate with Buyer in its efforts to obtain all permits, certificates, licenses and other authorizations of all Governmental Authorities that Buyer requires to own, lease, maintain and operate the Purchased Assets or the Business ("Buyer's Permits"), Environmental Permits and Buyer's Required Regulatory Approvals necessary for Buyer to operate the Purchased Assets substantially in the manner operated by Seller prior to the Closing Date. Buyer shall use Commercially Reasonable Efforts to cooperate with Seller in its efforts to obtain all of Seller's Required Regulatory Approvals. No Party shall, without prior written consent of the other Party, take or fail to take any action which might reasonably be expected to prevent or materially impede, interfere with or delay the transactions contemplated by this Agreement or any Additional Agreement.
(b)        "Without limiting the generality of Section 6.5(a):
(i)        In the event that any Purchased Asset shall not have been conveyed to Buyer at the Closing, Seller shall, subject to Section 6.5(b)(ii), use Commercially Reasonable Efforts after the Closing to convey such asset to Buyer as promptly as practicable.
(ii)       To the extent that Seller's right, title and interest in, to and under any material Seller's Agreement set forth in Section 2.1(g) may not be assigned without the consent, approval or authorization of any third party which consent, approval or authorization has not been obtained by the Closing Date, this Agreement shall not constitute an agreement to assign such right, title and interest if an attempted assignment would constitute a breach of such Seller's Agreement or violate any applicable Law. If any consent, approval or authorization to such assignment of any material Seller's Agreement set forth in Section 2.1(g) shall not be obtained, or if any attempted assignment would be ineffective or would materially impair Buyer's rights and obli gations under such Seller's Agreement, such that Buyer would not acquire and assume the benefit and detriment of all such rights and obligations, the Parties, to the fullest
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extent permitted by applicable Law and such Seller's Agreement, shall, from and after the Closing Date, agree to either appoint Buyer to be Seller's agent with respect to such Seller's Agreement, or, to the fullest extent permitted by applicable Law and such Seller's Agreement, enter into such reasonable arrangements with Buyer or take such other actions as are necessary to provide Buyer with the same or substantially similar rights and obligations under such Seller's Agreement.
6.6.        Consents and Approvals. Without limiting the generality of Section 6.5(a):
(a)        "The Parties shall use Commercially Reasonable Efforts to take, or cause to be taken, all actions, and do, or cause to be done, all things necessary, proper or advisable under applicable Laws to obtain all required consents and approvals of all other Governmental Authorities as promptly as practicable after the date hereof, including the VSCC, and make all other filings and give all other notices required to be made prior to the Closing with respect to the transactions contemplated hereby and by the Additional Agreements, including with respect to the Seller's Required Regulatory Approvals and Buyer's Required Regulatory Approvals. The Parties shall respond promptly to any requests for additional information made by such Persons, and use their respective Commercially Reasonable Efforts to cause all such consents and ap provals, without conditions, to be obtained or waived at the earliest possible date after the date of filing. Each Party shall bear its own costs and expenses of the preparation of any such filing or notice.
(b)        "The Parties shall use Commercially Reasonable Efforts to make all filings with the VSCC required by such Party under the applicable Laws of Virginia as promptly as practicable after the date hereof, but in any event within forty-five (45) days after the date of this Agreement. Prior to filing any application with the VSCC for an approval required by both Parties, the Parties shall jointly prepare such application and shall incorporate into such application all revisions reasonably requested by the other Party. Each Party shall be solely responsible for its own cost of preparing and filing such application, as well as any petitions for rehearing and any reapplications.
6.7.        Certain Tax Matters.
(a)        "All transfer, sales and similar Taxes ("Transfer Taxes") incurred in connection with this Agreement and the Additional Agreements, and the transactions contemplated hereby and thereby (including (i) sales and use Tax on the sale or purchase of the Purchased Assets imposed by Virginia and (ii) Transfer Tax on conveyances of interests in real property imposed by Virginia or any political subdivision thereof) shall be borne by Buyer (and, to the extent paid by Seller, Buyer shall reimburse Seller upon request). Buyer, at its expense, shall prepare and file, to the extent required by, or permissible under, applicable Law, all necessary Tax Returns and other documentation with respect to all such Transfer Taxes, and, if required by applicable Law, Seller shall join in the execution of all such Tax Returns and other documentation; provided, however, that prior to the Closing Date, to the extent applicable, Buyer shall provide to Seller appropriate certificates of Tax exemption from each applicable Governmental Authority.
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(b)        "With respect to Taxes to be prorated in accordance with Section 3.6, Seller shall prepare and timely file all Tax Returns required to be filed (without regard to extensions) prior to the Closing Date with respect to the Business and Purchased Assets, if any, and with respect to the periods prior to the Closing Date shall timely pay all Taxes shown to be due on such Tax Returns. With respect to Taxes to be prorated in accordance with Section 3.6, Buyer shall prepare and timely file all Tax Returns required to be filed (without regard to extensions) on or after the Closing Date with respect to the Business and Purchased Assets, if any, and shall timely pay all Taxes shown to be due on such Tax Returns with respect to periods on or after the Closing Date. Notwithstanding anything herein to the contrary, Buyer shall be r esponsible for all utility taxes relating to the Accounts Receivable transferred to Buyer at Closing. Tax Returns prepared by either Party pursuant to this Section 6.7(b) shall be promptly provided to the other Party following filing.
(c)        "Buyer and Seller shall provide the other with such assistance as may reasonably be requested by the other Party in connection with the preparation of any Tax Return, audit or other examination, or any proceeding, by or before any Governmental Authority relating to Liability for Taxes, and each Party shall retain and provide the requesting Party with all books and records or other information which may be relevant to such Tax Return, audit, examination or proceeding. All books, records and information obtained pursuant to this Section 6.7(c) or pursuant to any other Section that provides for the sharing of books, records and information or the review of any Tax Return or other instrument relating to Taxes shall be kept confidential by the parties hereto in accordance with the terms and conditions set forth in the Confi dentiality Agreement.
(d)        "In the event that a dispute arises between Seller and Buyer regarding Taxes or any amount due under this Section 6.7, the Parties shall attempt in good faith to resolve such dispute and any agreed-upon amount shall be promptly paid to the appropriate Party. If any such dispute is not resolved within thirty (30) days after notice thereof is given to any Party, the Parties shall submit the dispute to an Independent Accounting Firm for resolution, which resolution shall be final, binding and conclusive on the Parties. In the event that Buyer and Seller cannot promptly agree on the selection of an accounting firm to act as the Independent Accounting Firm, either Party may request the American Arbitration Association to appoint an Independent Accounting Firm, and such appointment shall be final, binding and conclusive on Buyer and Seller. Notwithstanding anything in this Agreement to the contrary, the costs, fees and expenses of the Independent Accounting Firm in resolving the dispute shall be borne equally by Seller and Buyer. Any payment required to be made as a result of the resolution by the Independent Accounting Firm of any such dispute shall be made within five (5) Business Days after such resolution, together with any interest determined by the Independent Accounting Firm to be appropriate.
(e)        "Seller shall be entitled to any Tax refund or credit relating to any period ending on or prior to the Closing Date (and, if received by Buyer, shall be promptly paid by Buyer to Seller); Buyer shall be entitled to any Tax refund or credit relating to any period commencing after the Closing Date (and, if received by Seller, shall be promptly paid by Seller to Buyer); and any Tax Refund or credit relating to a period commencing prior to the Closing Date and terminating subsequent to the Closing Date shall be prorated in accordance with
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Section 3.6, with an appropriate portion of the Tax Refund or credit being promptly paid by the Party receiving the same to the other Party.
6.8.        Right to Update. Until the Closing Date, Seller and Buyer shall each have the right to update or amend in any respect its disclosure of any matter set forth or permitted to be set forth on any Schedule with respect to Article IV or V to the extent permitted herein. No change or addition to a Schedule made pursuant to this Section 6.8 shall be deemed to cure any breach of any representation or warranty resulting from such change or addition unless (i) such breach is not reasonably expected to have a Material Adverse Effect, (ii) Buyer or Seller, as applicable, specifically agrees to such change or addition in writing or (iii) consummates the Closing under this Agreement. No such change or addition to any Schedule with respect to Article IV or V shall be considered to constitute or give rise to a waiver by Buyer or Seller, as applicable, of any condition set forth in this Agreement, unle ss (A) such change is not reasonably expected to have a Material Adverse Effect, (B) such Party specifically agrees to such change or addition in writing or (C) consummates the Closing under this Agreement after receipt of such updated Schedules. Further, if any change or addition to a Schedule made pursuant to this Section 6.8 is specifically agreed to in writing by the Buyer or Seller, as applicable, or if the Closing is consummated after receipt of such updated Schedules, in each case the updated Schedules to the extent agreed to or existing at the time of Closing, as applicable, shall be deemed so amended and used for purposes of determining whether any Indemnitee is entitled to indemnification under Article VIII hereof. Neither Buyer nor Seller shall have any right to update or amend any Schedule with respect to any other Article of this Agreement.
6.9.        Employees.
(a)        "Buyer shall have the right to offer employment, effective as of the Closing Date, to any, all or none of the employees of Seller employed at the facility as of the Closing Date who are covered by any collective bargaining agreement, including those employees absent from active service due to illness or leave of absence (the "Union Employees"). Each Union Employee who becomes employed by Buyer on the Closing Date is referred to herein as a "Transferred Union Employee."
(b)        "Buyer shall have the right to offer employment, effective as of the Closing Date, to any, all or none of the employees of Seller who are employed at the facility (other than Union Employees) ("Non-Union Employees" and, together with Union Employees, "Employees"). Within ninety (90) days after the date hereof, Seller shall, upon reasonable notice and to the extent not disruptive to the operation of the Business and Purchased Assets, provide Buyer with reasonable access to Non-Union Employees and, to the extent permitted by applicable Law, their personnel records. Within ninety (90) days after the date hereof, Buyer may tender to any, all or no Non-Union Employees an offer of employment. Each Non-Union Employee who becomes employed by Buyer pursuant to this Section 6.9(b) shall be referred to herein as a "Transferred Non-Union Employee" and, together with Transferred Union Employees, the "Transferred Employees." On or before the date that is thirty (30) days after the Closing Date, each Transferred Employee still employed by the Buyer shall receive a lump sum signing bonus in the amount as set forth on Schedule 6.9(b).
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(c)        "Buyer shall provide notice of and the opportunity to purchase continuation coverage as required by COBRA to any dependent or former dependent of a Transferred Employee who incurs a "qualifying event" (as such term is defined in COBRA) on or after the Closing Date, or who incurs a "qualifying event" prior to the Closing Date (other than a termination of employment or death of the employee) as to which notice is not provided to Seller or Buyer until the Closing Date or thereafter.
(d)        "Seller shall be responsible, with respect to the Purchased Assets or the Business, for performing and discharging all requirements under the WARN Act and under applicable state and local Laws for the notification of Union Employees and Non-Union Employees of any "employment loss" (within the meaning of the WARN Act) which occurs prior to the Closing Date.
(e)        "Within sixty (60) days after the Closing Date, Seller shall provide Buyer with a written statement setting forth the number of unused hours of vacation, accrued vacation, carryover vacation, perfect attendance holidays and floating holidays accrued during the period commencing on January 1 of the calendar year during which the Closing occurs and ending on the day immediately preceding the Closing Date for Transferred Non-Union Employees.
6.10.       Risk of Loss.
(a)        "From the date hereof to but not including the Closing Date, all risk of loss or damage to the Purchased Assets shall be borne by Seller, other than loss or damage caused by the negligent acts or omissions of Buyer or any Buyer Representative, which loss or damage shall be the responsibility of Buyer.
(b)        "Notwithstanding any provision hereof to the contrary, subject to Section 9.1(g), if, before the Closing Date, all or any portion of the Purchased Assets is (i) condemned or taken by eminent domain or is the subject of a pending or threatened condemnation or taking which has not been consummated, or (ii) materially damaged or destroyed by fire or other casualty, Seller shall notify Buyer promptly in writing of such fact, and (x) in the case of a condemnation or taking, Seller shall assign or pay, as the case may be, any net proceeds thereof to Buyer at the Closing and (y) in the case of a fire or other casualty, Seller shall restore such damage. Notwithstanding the foregoing, if such condemnation, taking, damage or destruction results in a Material Adverse Effect, Buyer and Seller shall negotiate to resolve the loss re sulting from such condemnation, taking, damage or destruction (and such negotiation shall include the negotiation of a fair and equitable adjustment to the Purchase Price). If no such resolution can be agreed upon prior to the earlier to occur of (i) the date that is ninety (90) days after Seller has notified Buyer of such loss and (ii) the date on which the Closing, pursuant to Section 3.1, would otherwise occur, then Buyer or Seller may terminate this Agreement pursuant to Section 9.1(g).
6.11.       Power Transformers; Capacitors. Seller shall replace any oil containing polychlorinated biphenyls in any station transformers prior to the Closing at its sole cost and expense and dispose of such transformers at an Off-Site Location. Buyer shall replace existing PCB contaminated capacitors included within the Purchased Assets at its sole cost and expense within two (2) years following the Closing Date. Seller shall promptly take possession of any
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replaced capacitors at the site of the replacement at its sole cost and expense and dispose of such capacitors at an Off-Site Location.
6.12.       Ownership. Seller and Buyer shall enter into mutually satisfactory arrangements relating to the ownership of and rights of access to certain property relating to the Oak Hall and Wattsville substations and the Tasley and Bayview generating facilities.
6.13.       Equipment Relocation. From and after the Closing Date, Buyer shall cooperate with Seller to facilitate Seller's relocation of any Excluded Assets at Seller's sole cost and expense. To the extent that such relocation requires Seller to gain access to the Real Property on or after the Closing Date such access shall not be unreasonably withheld by Buyer.
6.14.       Disconnection Plan. The Parties agree that between the date hereof and Closing, that Seller shall take all actions necessary to cause the disconnection of certain customers from Seller's system, and the Parties agree that they shall use Commercially Reasonable Efforts to transition and cutover Customers in accordance with the plan set forth on Schedule 6.14.
6.15.       Meters. Within two (2) years from the date of Closing, Buyer shall replace all single phase retail meters of the Customers. Buyer shall notify Seller of the location of any meters replaced pursuant to this Section 6.15 within thirty (30) days from such date of replacement and Seller thereafter promptly shall remove such meters, but no later than thirty (30) days after such notification.
6.16.       Surveys and Title Insurance. At Buyer's option, and at Buyer's sole cost and expense, Buyer may obtain (i) surveys desired by Buyer in respect of the Purchased Assets, in form and substance reasonably satisfactory to Buyer; (ii) policies, dated the Closing Date, with extended coverage guaranteeing the standard exceptions to title customarily contained in such policies, covering the Real Estate issued by a nationally recognized title insurance company, insuring, as of the Closing Date, the fee simple title or leasehold interest of Buyer in such fee simple or leasehold interests of Buyer in the Purchased Assets in an amount reasonably determined by Buyer, subject only to the Permitted Encumbrances. Seller shall cooperate as is commercially reasonable and in good faith in Buyer's efforts to obtain such policies of title insurance, including executing and delivering , or causing to be executed and delivered, to the title insurance company any affidavits reasonably requested and customarily required by it or Buyer in connection with the issuance of the policies; provided that to the extent Buyer requests Seller to provide such cooperation and/or execute and deliver such affidavits, and without limiting any rights Buyer has under this Agreement, including Article VIII, Buyer shall indemnify and hold harmless Seller, its officers, directors and Affiliates from and against losses suffered or incurred by any of them with respect to any claims made by third parties or any Liability relating to or based upon any affidavit of Seller provided at Buyer's request pursuant to this Section 6.16; provided, however, that Buyer shall not have any obligation to indemnify and hold harmless Seller, its officers, directors or Affiliates to the extent that any such losses suffered or incurred arose from information provided by Seller in writing in any affidavit pursuant to thi s Section 6.16 failing to be true and correct in all material respects. Notwithstanding anything in this Agreement, this covenant shall not be deemed or treated in any respect as a condition to Closing.
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6.17.       Expenses. Except to the extent provided herein or any Additional Agreement, and except due to any breach, whether or not the transactions contemplated hereby are consummated, all costs, fees and expenses incurred in connection with this Agreement and the transactions contemplated hereby shall be borne by the Party incurring such costs, fees and expenses, including the fees and commissions referred to in Sections 4.12 and 5.8.
6.18.       Communication with Customers.
(a)        "Seller and Buyer shall cooperate to develop a joint communication plan regarding transfer of the Business from Seller to Buyer and to facilitate the effective continuation of the Business on the Closing Date and to minimize transfer issues with the Customers on or after the Closing Date.
(b)        "As soon as practicable following the Closing, Seller will cooperate with Buyer to cause to be sent to the Customers a notice of the transfer of the customers from Seller to Buyer. The notification will contain such information as is required by applicable Law and approved by Buyer and Seller, which approval will not be unreasonably withheld or delayed.
(c)        "Prior to Closing, Seller shall provide Buyer its reasonable estimate of completion of new construction, the percentage of completion of such construction, and the respective Customers' deposits and Customer advances related thereto.
6.19.       Certain Customers. Buyer shall reimburse Seller up to $30,000 of the costs or expenses incurred by Seller in connection with the development or construction of facilities to permit Buyer to serve certain Customers currently served by facilities other than the Purchased Assets. An estimate of such reimbursement shall be included and paid simultaneously with the Estimated Adjustment Amount and final reimbursement shall occur on the date the Closing Adjustment Amount is paid pursuant to Section 3.4(c).
6.20.       Remediation. Seller shall complete any Remediation that is required by applicable Environmental Laws in existence as of Closing for any Environmental Condition existing as of the Closing Date identified by the Environmental Consultant in the Phase II study described in Section 6.2(e) hereof or disclosed in Schedule 4.6 in accordance with Environmental Laws and, if risk-based, then based upon the Real Property being used for industrial purposes; provided, however, that if PCB, petroleum or lead contamination is discovered by the Phase II Study, then such contamination shall be Remediated, in accordance with the standards set forth on Schedule 6.20 unless a risk based standard has been accepted by a Governmental Authority with jurisdiction over such Remediation.
(a)        "The Environmental Consultant shall provide Seller and Buyer with an estimate of the cost of Remediation for any Environmental Condition that is to be Remediated pursuant to this Agreement (the "Remediation Cost"), including all capital and related implementation costs, and taking into account operation and maintenances for a reasonable period of time for any Remediation that is anticipated to be implemented over more than one (1) year.
(b)        "If the Remediation Cost is reasonably likely to exceed the Cap, then Buyer may elect to Remediate the excess above the Cap, provided, however, it delivers a letter of credit
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to Buyer, which is reasonably acceptable to Buyer, and is for the amount of the Remediation Cost that is reasonably likely to exceed the Cap. Buyer must make its election and deliver the letter of credit by the earlier of (i) the Closing or (ii) thirty (30) days after receipt of the Remediation Cost.
(c)        "Seller shall in no event be required to complete any Remediation in excess of the Cap
(d)        "Seller shall use Commercially Reasonable Efforts to complete any Remediation as soon as reasonably practicable but may conduct or complete Remediation as required under this Section 6.20 after the Closing and Buyer shall provide all access reasonably required to allow Seller to complete any required Remediation.
6.21.       Transmission Facilities. If the Transmission Purchaser fails to purchase the "Purchased Assets" as defined in the Transmission Purchase Agreement (the "Transmission Facilities") as a result of the termination of the Transmission Purchase Agreement, Buyer shall have the option to purchase the Transmission Facilities by notifying Seller within thirty (30) days after the date of such termination. Within thirty (30) days after receipt by Seller of notice of Buyer's exercise of its option to purchase the Transmission Facilities, Buyer and Seller shall enter into an agreement on substantially the same terms and conditions as the Transmission Purchase Agreement ("Replacement Transaction"). Closing of the Replacement Transaction is expressly contingent on Buyer meeting all requirements of FERC and PJM for transmission owners. Should the Parties be unable to agree on the terms and conditions of suc h transaction through good faith negotiations during the thirty (30) day period, the thirty (30) day period may only be extended by mutual agreement of the Parties.
ARTICLE VII CONDITIONS
7.1.        Conditions to Obligation of Buyer. The obligation of Buyer to effect the transactions contemplated by this Agreement shall be subject to the satisfaction (or the waiver, to the extent permitted by applicable Law, by Buyer) at or prior to the Closing of the following conditions:
(a)        "No preliminary or permanent injunction, order or decree by any Governmental Authority which prevents the consummation of the transactions contemplated hereby or by the Additional Agreements shall have been issued and remain in effect (Buyer agreeing to use Commercially Reasonable Efforts to have any such injunction, order or decree lifted), and no applicable Law shall be in effect which prohibits the consummation of the transactions contemplated hereby or thereby;
(b)        "Buyer shall have obtained each and every one of the Buyer's Required Regulatory Approvals set forth on Schedule 7.1(b), which shall be final and non-appealable, and Buyer shall have received evidence thereof, in form and substance reasonably satisfactory to Buyer, and all conditions to the effectiveness thereof prescribed therein or otherwise by Law shall have been satisfied or waived, it being understood that the imposition by any Governmental Authority of any such condition to the grant or issuance of any such consent or approval
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requiring any action or omission by Buyer shall not affect Buyer's obligation to consummate the transactions contemplated hereby or by the Additional Agreements unless such condition is, individually or in the aggregate, reasonably expected to have a Regulatory Material Adverse Effect on Buyer;
(c)        "Seller shall have obtained each and every one of the Seller's Required Regulatory Approvals set forth on Schedule 7.2(b), which shall be final and non-appealable, and which shall not include any condition requiring any action or omission by Buyer which is, individually or in the aggregate, reasonably expected to have a Regulatory Material Adverse Effect on Buyer; and Buyer shall have received evidence thereof;
(d)        "Seller shall have in all material respects performed and complied with the covenants and agreements contained in this Agreement which are required to be performed and complied with by Seller at or prior to the Closing;
(e)        "The representations and warranties of Seller set forth in this Agreement shall be true and correct as though made at and as of the Closing Date (other than representations and warranties that are made as of a specific date which shall have been true and correct as of such date); provided that this condition shall be deemed satisfied unless the failure of such representations and warranties (and with respect to those qualified by materiality without consideration of such qualifiers) to be so true and correct is, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect;
(f)        "Buyer shall have received a certificate from an authorized officer of Seller, dated the Closing Date, to the effect that, to such officer's knowledge, the conditions set forth in Sections 7.1(d) and (e) have been satisfied by Seller;
(g)        "Buyer shall have received an opinion from Seller's counsel, which counsel shall be reasonably acceptable to Buyer, dated the Closing Date, in form and substance reasonably satisfactory to Buyer and its counsel; and
(h)        "The Remediation Cost is reasonably likely to exceed the Cap.
7.2.        Conditions to Obligation of Seller. The obligation of Seller to effect the transactions contemplated by this Agreement shall be subject to the satisfaction (or the waiver, to the extent permitted by applicable Law, by Seller) at or prior to the Closing of the following conditions:
(a)        "No preliminary or permanent injunction or other order or decree by any Governmental Authority which prevents the consummation of the transactions contemplated hereby or by the Additional Agreements shall have been issued and remain in effect (Seller agreeing to use its Commercially Reasonable Efforts to have any such injunction, order or decree lifted), and no applicable Law shall be in effect which prohibits the consummation of the transactions contemplated hereby or thereby;
(b)        "Seller shall have obtained each and every one of the Seller's Required Regulatory Approvals set forth on Schedule 7.2(b), which shall be final and non-appealable, and Seller shall have received evidence thereof, in form and substance reasonably satisfactory to
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Seller; and all conditions to the effectiveness thereof prescribed therein or otherwise by Law shall have been satisfied or waived, it being understood that the imposition by any Governmental Authority of any such condition to the grant or issuance of any such consent or approval requiring any action or omission by Seller shall not affect Seller's obligation to consummate the transactions contemplated hereby or by the Additional Agreements unless such condition is, individually or in the aggregate, reasonably expected to have a Regulatory Material Adverse Effect on Seller;
(c)        "Buyer shall have obtained each and every one of the Buyer's Required Regulatory Approvals set forth in Schedule 7.1(b), which shall be final and non-appealable, and which shall not include any condition requiring any action or omission by Seller which condition is, individually or in the aggregate, reasonably expected to have a Regulatory Material Adverse Effect on Seller; and Seller shall have received evidence thereof;
(d)        "Buyer shall have in all material respects performed and complied with the covenants and agreements contained in this Agreement which are required to be performed and complied with by Buyer at or prior to the Closing;
(e)        "The representations and warranties of Buyer set forth in this Agreement shall be true and correct as though made at and as of the Closing Date (other than representations and warranties that are made as of a specific date which shall have been true and correct as of such date); provided that this condition shall be deemed satisfied unless the failure of such representations and warranties (and with respect to those qualified by materiality without consideration of such qualifiers) to be so true and correct is, individually or in the aggregate, reasonably expected to have a Material Adverse Effect;
(f)        "Seller shall have received a certificate from an authorized officer of Buyer, dated the Closing Date, to the effect that, to such officer's knowledge, the conditions set forth in Sections 7.2(d) and (e) have been satisfied by Buyer;
(g)        "Seller shall have received an opinion from one or more of Buyer's counsel, which counsel shall be reasonably acceptable to Seller, dated the Closing Date, in form and substance reasonably satisfactory to Seller and its counsel;
(h)        "The Disconnection Plan and Customer cutover as set forth in Section 6.14 shall have been satisfactorily completed in the reasonable judgment of Seller; and
(i)        "The Remediation Cost is reasonably likely to exceed the Cap by Five Million Dollars ($5,000,000).
ARTICLE VIII INDEMNIFICATION AND ARBITRATION
8.1.        Indemnification.
(a)        "From and after the Closing Date, Buyer shall indemnify, defend and hold harmless, Seller and its Representatives (each, a "Seller's Indemnitee"), from and against any and all claims, demands, suits, losses, liabilities, penalties, damages, obligations, payments, costs
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and expenses (including reasonable attorneys' fees and expenses in connection therewith) (each, an "Indemnifiable Loss"), asserted against or suffered by any Seller's Indemnitee relating to, resulting from or arising out of (i) any breach by Buyer of any representation, warranty, covenant or agreement of Buyer contained in this Agreement, (ii) the Assumed Liabilities, or (iii) any Third Party Claim against any Seller's Indemnitee in connection with Buyer's ownership, lease, maintenance, construction, modification or operation of any of the Purchased Assets on or after the Closing Date; provided, however, that Buyer shall be liable to Seller only for Indemnifiable Losses for which any Seller's Indemnitee gives written notice to Buyer (setting forth with reasonable specificity the nature and amount of the Indemnifiable Loss) during the period for which such representation, warranty, covenants or agreements survive the Closing in accordance with Section 10.4. In addition, notwithstandin g anything contained herein to the contrary, Buyer shall not be required to indemnify any Seller's Indemnitee until the aggregate dollar amount of all Indemnifiable Losses exceeds $750,000 (the "Threshold"). In no event shall all Indemnifiable Losses paid by Buyer to Seller's Indemnitees, in the aggregate, exceed 35% of the Purchase Price, other than with respect to actual or constructive fraud.
(b)        "From and after the Closing, Seller shall indemnify, defend and hold harmless, Buyer and its Representatives (each, a "Buyer's Indemnitee" and, together with Seller's Indemnitees, an "Indemnitee"), from and against any and all Indemnifiable Losses asserted against or suffered by any Buyer's Indemnitee relating to, resulting from or arising out of (i) any breach by Seller of any representation, warranty, covenant or agreement of Seller set forth in this Agreement or (ii) the Excluded Liabilities; provided, however, that Seller shall be liable to Buyer only for Indemnifiable Losses for which any Buyer's Indemnitee gives written notice to Seller (setting forth with reasonable specificity the nature and amount of the Indemnifiable Loss) during the period for which such representation, warranty, c ovenants or agreements survive the Closing in accordance with Section 10.4; and provided further however, that notwithstanding anything contained herein to the contrary, in no event shall Seller be required to indemnify Buyer for any obligations of Seller's Affiliates or for any Indemnifiable Losses which are Liabilities of Seller's Affiliates, including without limitation, the Excluded Liabilities set forth in Sections 2.4(a) and 2.4(b). In addition, notwithstanding anything contained herein to the contrary, Seller shall not be required to indemnify any Buyer's Indemnitee until the aggregate dollar amount of all Indemnifiable Losses which would otherwise be indemnifiable exceeds the Threshold. In no event shall all Indemnifiable Losses paid by Seller to Buyer's Indemnitees, in the aggregate, exceed 35% of the Purchase Price (the "Cap"), other than with respect to actual or constructive fraud. Notwithstanding anything contained herein to the contrary, (i) for the avoidance of doubt, except for the representations and warranties set forth in Article IV and the obligations under Section 6.20, Seller shall have no indemnification obligations to Buyer relating to the condition of the Purchased Assets, and such Purchased Assets are being sold subject to the disclaimer set forth in Section 10.5, and (ii) Seller's obligations under Section 6.20 are not subject to the Threshold.
(c)        "The rights and remedies of Seller and Buyer set forth in this Article VIII are exclusive and in lieu of any and all other rights and remedies which Seller and Buyer may have under this Agreement, under applicable Law, whether at common law or in equity, including for declaratory, injunctive or monetary relief, in each case, with respect to any Indemnifiable Loss, other than with respect to the rights of a Party to enforce this Section 8.1.
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(d)        "Notwithstanding anything to the contrary herein, no Person (including an Indemnitee) shall be entitled to recover from any other Person (including any Party required to provide indemnification under this Agreement (an "Indemnifying Party")) any amount in excess of the actual compensatory damages, court costs and reasonable attorneys' fees suffered by such Party. In furtherance of the foregoing, Buyer and Seller hereby irrevocably waive any right to recover punitive, indirect, special, exemplary and consequential damages arising in connection with or with respect to this Agreement (other than with respect to indemnification for a Third-Party Claim).
(e)        "Any Indemnitee shall use Commercially Reasonable Efforts to mitigate all losses, damages and the like relating to a claim under the indemnification provisions in this Section 8.1, including availing itself of any defenses, limitations, rights of contribution, claims against third Persons and other rights at law or equity.
8.2.        Defense of Claims.
(a)        "If any Indemnitee receives notice of the assertion of any Indemnifiable Loss or of the commencement of any suit, action or proceeding made or brought by any Person who is not an Indemnitee (a "Third-Party Claim") with respect to which indemnification is to be sought from an Indemnifying Party, the Indemnitee shall give such Indemnifying Party reasonably prompt written notice thereof, but in no event later than ten (10) Business Days after the Indemnitee's receipt of notice of such Third-Party Claim. Such notice shall describe the nature of the Third-Party Claim in reasonable detail and shall indicate the estimated amount, if practicable, of the Indemnifiable Loss that has been or may be incurred by the Indemnitee. The Indemnifying Party shall have the right to participate in or, by giving written notice to the Indemnitee, to elect to assume the defense of any Third-Party Claim at such Indemnifying Party's expense and by such Indemnifying Party's own counsel. If an Indemnifying Party elects not to assume the defense of any Third-Party Claim, the Indemnitee may defend, compromise or settle such Third-Party Claim with counsel selected by it, provided that, without the prior written consent of the Indemnifying Party, the Indemnitee shall not agree to the entry of any judgment with respect to, or any compromise or settlement of, any Third-Party Claim.
(b)        "If, within twenty (20) Business Days after an Indemnitee gives written notice to the Indemnifying Party of any Third-Party Claim, such Indemnitee receives written notice from the Indemnifying Party that such Indemnifying Party has elected to assume the defense of such Third-Party Claim as provided in Section 8.2(a), then the Indemnifying Party shall not be liable for any costs, fees or expenses subsequently incurred by the Indemnitee in connection with the defense, compromise or settlement thereof.
(c)        "Subject to Section 8.3, any claim by an Indemnitee on account of an Indemnifiable Loss which does not constitute a Third-Party Claim (a "Direct Claim") shall be asserted by giving the Indemnifying Party reasonably prompt written notice thereof, in no event later than twenty (20) Business Days after the Indemnitee becomes aware of such Direct Claim, stating the nature of such claim in reasonable detail and indicating the estimated amount, if practicable, of such Indemnifiable Loss. The Indemnifying Party shall have a period of twenty (20) Business Days within which to respond to such Direct Claim. If the Indemnifying Party fails to respond during such twenty (20) Business Day period, the Indemnifying Party shall be
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deemed to have accepted such claim and, subject to this Article VIII, shall promptly reimburse the Indemnitee for the Indemnifiable Losses set forth in the Indemnitee's notice.
(d)        "A failure to give timely notice as provided in this Section 8.2 shall not affect the rights or obligations of any Party hereunder except to the extent that the Party which was entitled to receive such notice was actually prejudiced as a result of such failure.
8.3.        Arbitration.
(a)        "Except as otherwise provided herein, in the event of any dispute between Seller and Buyer arising after the Closing (whether relating to facts, events or circumstances occurring or existing prior to, on or after the Closing Date) and relating to, resulting from or arising out of any provision of this Agreement (other than disputes arising under Section 8.1), including with respect to Direct Claims and Third-Party Claims, the Party asserting such dispute shall give written notice to the other of the fact that a dispute has arisen pursuant hereto. Such notice shall include (i) a statement setting forth in reasonable detail the facts, events, circumstances, evidence and arguments underlying such dispute and (ii) proposed arrangements for a meeting to attempt to resolve the dispute to be held within sixty (60) days after such notice is given. Within thirty (30) days after such notice is given, the other Party hereto shall submit to the Party giving such notice a written summary responding to such statement of facts, events, circumstances, evidence and arguments contained in the notice and an acceptance of or proposed alternative to the meeting arrangements set forth in the initial notice.
(b)        "The chief executive officers (or any other executive officer or officers directly reporting to, or duly designated by, such chief executive officers) of each of the Parties shall meet at a mutually acceptable time and place to attempt to settle any dispute in good faith; provided, however, that such meeting shall be held at the principal offices of the Party receiving the notice of dispute unless otherwise agreed; and provided further, that any such meeting shall be held no later than sixty (60) days after the written notice of dispute is given pursuant to Section 8.3(a). Each Party shall bear its own costs and expenses with respect to preparation for, attendance at and participation in such meeting.
(c)        "In the event that (i) a meeting has been held in accordance with Section 8.3(b), (ii) any such dispute of the kind referred to in Section 8.3(a) shall not have been resolved at such meeting and (iii) the aggregate amount in dispute exceeds $100,000, then either Party may submit such dispute to binding arbitration pursuant to the Commercial Arbitration Rules of the American Arbitration Association (the "Commercial Arbitration Rules"). In the event that such dispute is submitted to arbitration pursuant to the Commercial Arbitration Rules, then the arbitration tribunal shall be composed of three arbitrators (one arbitrator selected by each Party within thirty (30) days after the meeting held in accordance with Section 8.3(b) with the third selected by the other two arbitrators or, in the absence of agreement between them, the American Arbitration Association), the venue of the arbitration shall be Washington, D.C., the language of the arbitration shall be English and the arbitration shall commence no later than sixty (60) days after the meeting held in accordance with Section 8.3(b). The decision, judgment and order of the arbitration tribunal shall be final, binding and conclusive as to the Parties and their respective Representatives, and may be entered in any court of competent jurisdiction. The Parties intend the provisions of this Section 8.3 to be the sole and exclusive remedy of any dispute not arising
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under Section 8.1. Other than the fees and expenses of the arbitrators, which shall be shared equally by the Parties, each Party shall bear its own costs and expenses (including attorneys' fees and expenses) relating to the arbitration.
ARTICLE IX TERMINATION
9.1.        Termination.
(a)        "This Agreement may be terminated at any time prior to the Closing by mutual written consent of the Parties.
(b)        "This Agreement may be terminated by Seller or Buyer upon written notice to the other Party, (i) at any time prior to the Closing if any court of competent jurisdiction shall have issued an order, judgment or decree permanently restraining, enjoining or otherwise prohibiting the Closing, and such order, judgment or decree shall have become final and non-appealable; provided that the Party seeking to terminate this Agreement pursuant to this Section 9.1(b)(i) shall have used Commercially Reasonable Efforts to seek relief from such order, judgment or decree; (ii) at any time prior to the Closing if any Law shall have been enacted or issued by any Governmental Authority which prohibits the consummation of the transactions contemplated by this Agreement or by any Additional Agreement; or (iii) at any time after the first an niversary of the date of this Agreement if the Closing shall not have occurred on or before such date; provided, however, that the right to so terminate this Agreement under this Section 9.1(b)(iii) shall not be available to any Party whose breach of this Agreement has caused, or resulted in, the failure of the Closing to occur on or before such date; and provided, further, that if on such anniversary, any Buyer's Required Regulatory Approval set forth in Schedule 7.1(b) or any Seller's Required Regulatory Approval set forth in Schedule 7.2(b) shall not have been obtained, or shall not be then final and non-appealable, but all other conditions to the Closing shall be satisfied or shall be capable of being satisfied, then no Party shall be entitled to terminate this Agreement pursuant to this Section 9.1(b)(iii) prior to the date that is 180 days after such anniversary.
(c)        "This Agreement may be terminated by Buyer, upon written notice to Seller, if any of Buyer's Required Regulatory Approvals, the receipt of which is a condition to the obligation of Buyer to consummate the Closing as set forth in Section 7.1(b), shall have been denied.
(d)        "This Agreement may be terminated by Seller, upon written notice to Buyer, if any of the Seller's Required Regulatory Approvals, the receipt of which is a condition to the obligation of Seller to consummate the Closing as set forth in Section 7.2(b), shall have been denied.
(e)        "This Agreement may be terminated by Buyer, upon written notice to Seller, if there has been a material breach by Seller of any covenant, agreement, representation or warranty contained in this Agreement, which breach has had or is reasonably expected to have a Material Adverse Effect and such breach is not cured by the earlier of the Closing Date or the
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date that is thirty (30) days after receipt by Seller of notice specifying in reasonable detail the nature of such breach, unless Buyer shall have previously waived such breach.
(f)        "This Agreement may be terminated by Seller, upon written notice to Buyer, if there has been a material breach by Buyer of any covenant, agreement, representation or warranty contained in this Agreement, which breach has had or is reasonably expected to have a Material Adverse Effect and such breach is not cured by the earlier of the Closing Date or the date that is thirty (30) days after receipt by Buyer of notice specifying in reasonable detail the nature of such breach, unless Seller shall have previously waived such breach.
(g)        "This Agreement may be terminated by Seller or Buyer upon written notice to the other Party, in accordance with the provisions of the last sentence of Section 6.10(b), provided that the Party seeking to so terminate shall have complied with its obligations under Section 6.10.
(h)        "This Agreement may be terminated by either Party, upon written notice to the other Party, if any final and non-appealable injunction, order or decree by any Governmental Authority, which prohibits the consummation of the transactions contemplated hereby or by the Additional Agreements, shall have been issued and remain in effect, provided that the Party seeking to terminate this Agreement pursuant to this Section 9.1(h) shall have used its Commercially Reasonable Efforts to have any such injunction, order or decree lifted.
(i)        "This Agreement may be terminated by Buyer or Seller, as applicable, if its respective condition to close set forth in Sections 7.1(h) or 7.2(i) is not met, or by Seller, by the earlier of (i) the Closing or (ii) thirty (30) days after Seller's failure to comply with Section 6.20(b), if the Cost of Remediation is reasonably likely to exceed the Cap, and Buyer does not provide a letter of credit as set forth in Section 6.20(b).
9.2.        Effect of Termination. Upon termination of this Agreement prior to the Closing pursuant to Section 9.1, this Agreement shall be null and void and of no further force or effect (except that the provisions set forth in Section 6.2(b), Section 6.4, this Section 9.2 and Article X, and the Confidentiality Agreement, shall remain in full force and effect in accordance with their respective terms); and no Party shall have any further Liability under this Agreement.
ARTICLE X MISCELLANEOUS PROVISIONS
10.1.       Amendment and Modification. This Agreement may be amended, supplemented or otherwise modified only by written agreement entered into by both Parties.
10.2.       Bulk Sales Laws. Buyer acknowledges that Seller will not comply with the provisions of any bulk sales or transfer laws of any jurisdiction in connection with the transactions contemplated by this Agreement; and Buyer hereby irrevocably waives compliance by Seller with the provisions of the bulk sales or transfer laws of all applicable jurisdictions. Notwithstanding anything to the contrary in this Agreement, Seller shall indemnify and hold Buyer harmless from and against any and all losses, Liabilities, claims or expenses which shall arise against or be incurred by Buyer due to the failure of Seller to comply with such requirements.
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10.3.       Waiver of Compliance; Consents. To the extent permitted by applicable Law, any failure of any of the Parties to comply with any representation, warranty, covenant, agreement or condition set forth herein may be waived by the Party entitled to the benefit thereof only by a written instrument signed by such Party, but any such waiver shall not operate as a waiver of, or estoppel with respect to, any prior or subsequent failure to comply therewith or of any other provision set forth herein.
10.4.       Survival. All representations and warranties contained in this Agreement shall survive for a period of six (6) months following the Closing Date except that, (i) the representations and warranties contained in Section 4.6 will expire nine (9) months following the Closing Date; (ii) the representations and warranties set forth in Section 4.7 will expire in accordance with any applicable statutes of limitation period plus ninety (90) days; and (iii) the representations and warranties set forth in Section 4.4 shall not survive the Closing. The covenants and agreements of the Parties contained in this Agreement shall survive the Closing in accordance with their respective terms.
10.5.       Disclaimers. EXCEPT FOR THE REPRESENTATIONS AND WARRANTIES SET FORTH IN ARTICLE IV, THE PURCHASED ASSETS ARE SOLD "AS IS, WHERE IS," AND SELLER EXPRESSLY DISCLAIMS ALL OTHER REPRESENTATIONS AND WARRANTIES OF ANY KIND OR NATURE, EXPRESS OR IMPLIED, AS TO SELLER AND THE PURCHASED ASSETS. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, EXCEPT FOR THE REPRESENTATIONS AND WARRANTIES SET FORTH IN ARTICLE IV: SELLER EXPRESSLY DISCLAIMS ALL OTHER REPRESENTATIONS AND WARRANTIES REGARDING LIABILITIES, OWNERSHIP, LEASE, MAINTENANCE OR OPERATION OF THE PURCHASED ASSETS, THE TITLE, CONDITION, VALUE OR QUALITY OF THE PURCHASED ASSETS OR THE PROSPECTS (FINANCIAL AND OTHERWISE), RISKS AND OTHER INCIDENTS OF THE PURCHASED ASSETS; AND SELLER EXPRESSLY DISCLAIMS ALL REPRESENTATIONS AND WARRANTIES OF MERCHANTABILITY, USAGE, SUITABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE WITH RESPECT TO THE PURCHASED ASSET S, OR ANY PART THEREOF, OR AS TO THE WORKMANSHIP THEREOF, OR THE ABSENCE OF ANY DEFECTS THEREIN, WHETHER LATENT OR PATENT, OR COMPLIANCE WITH ENVIRONMENTAL REQUIREMENTS, OR THE APPLICABILITY OF ANY GOVERNMENTAL AUTHORITY, INCLUDING ANY ENVIRONMENTAL LAWS, OR WHETHER SELLER POSSESSES SUFFICIENT REAL PROPERTY OR PERSONAL PROPERTY TO OPERATE THE PURCHASED ASSETS. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED HEREIN, SELLER FURTHER EXPRESSLY DISCLAIMS ALL REPRESENTATIONS AND WARRANTIES REGARDING THE ABSENCE OF HAZARDOUS SUBSTANCES OR LIABILITY OR POTENTIAL LIABILITY ARISING UNDER ENVIRONMENTAL LAWS WITH RESPECT TO THE PURCHASED ASSETS. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, EXCEPT AS OTHERWISE EXPRESSLY PROVIDED HEREIN, SELLER EXPRESSLY DISCLAIMS ALL REPRESENTATIONS AND WARRANTIES OF ANY KIND REGARDING THE CONDITION OF THE PURCHASED ASSETS OR THE SUITABILITY OF THE PURCHASED ASSETS FOR OPERATION AS A DISTRIBUTION FACILITY, AS APPLICABLE, AND NO SCHEDULE TO THIS AGREEMENT, NOR ANY OTHER MATERIAL OR INFORMAT ION PROVIDED, OR COMMUNICATIONS MADE, BY
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SELLER OR ITS REPRESENTATIVES, INCLUDING ANY BROKER OR INVESTMENT BANKER, SHALL CONSTITUTE OR CREATE ANY SUCH REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, AS TO THE TITLE, CONDITION, VALUE OR QUALITY OF THE PURCHASED ASSETS.
10.6.       Notices. All notices and other communications hereunder shall be in writing and shall be deemed given on the day when delivered personally or by facsimile transmission (with confirmation), on the next Business Day when delivered to a nationally recognized overnight courier or five (5) Business Days after deposited as registered or certified U.S. mail (return receipt requested), in each case, postage prepaid, addressed to the recipient Party at its address set forth below (or at such other address or facsimile number for a Party as shall be specified by like notice; provided, however, that any such notice of a change of address or facsimile number shall be effective only upon receipt thereof):

(a)	If to Seller, to:
	Delmarva Power & Light 800 King Street P.O. Box 231 Wilmington, Delaware 19899 Attention: President Facsimile: (302) 429-3367
	with a copy (which shall not constitute notice) to:
	Pepco Holdings, Inc. Suite 1100, 10th Floor 701 Ninth Street, NW Washington, D.C. 20068 Attention: Vice President, Legal Services Facsimile: (202) 872-3281
	and a copy (which shall not constitute notice) to:
	McGuireWoods LLP One James Center 901 East Cory Street Richmond, Virginia 23219-4030 Attention: Patrick T. Horne, Esquire Facsimile: (804) 698-2064
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(b)	If to Buyer, to:
	A&N Electric Cooperative 21275 Cooperative Way Tasley, VA 23441 Attention: Vernon Brinkley Facsimile: 757-787-9780
	with a copy (which shall not constitute notice) to:
	Orrick, Herrington & Sutcliffe LLP 666 Fifth Avenue New York, NY 10103 Attention: Carl F. Lyon, Esq. Facsimile: 212-506-5151

          10.7.       Assignment. This Agreement shall be binding upon and inure solely to the benefit of the Parties and their respective successors and permitted assigns, but neither this Agreement nor any of the rights, interests, obligations or remedies hereunder shall be assigned by any Party hereto, including by operation of law, without the prior written consent of the other Party, nor is this Agreement intended to confer upon any other Person any rights, interests, obligations or remedies hereunder. Without limiting the generality of the foregoing, no provision of this Agreement shall create any third-party beneficiary rights in any Employee or former employee of Seller (including any beneficiary or dependent thereof), including with respect to continued employment or resumed employment, and no provision of this Agreement shall create any rights in any such Persons in respect of an y benefits that may be provided, directly or indirectly, under any employee benefit plan or arrangement. Notwithstanding the foregoing, either Party may, without the prior written consent of the other Party, assign all or any portion of its rights, interests, obligations and remedies hereunder, pursuant to instruments of transfer in form and substance reasonably satisfactory to the other Party, to one or more direct or indirect wholly owned subsidiaries of such Party; provided, however, that (i) no such assignment shall relieve such Party of any of its Liabilities hereunder, (ii) Buyer shall guarantee the obligations of its assignee, which guarantee shall be in form and substance reasonably satisfactory to Seller, (iii) no such assignment shall result in any Party requiring any additional consent, approval, filing, or notice of, with or to, any third party, including any Governmental Authority, to consummate the transactions contemplated by this Agreement or any Additional Agreement, and (iv) such assignment does not otherwise prevent or materially impede, interfere with or delay the transactions contemplated by this Agreement or any Additional Agreement.

          10.8.       Governing Law; Forum; Service of Process. This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Virginia (without giving effect to conflicts of law principles) as to all matters, including validity, construction, effect, performance and remedies. Venue in any and all suits, actions and proceedings related to the subject matter of this Agreement shall be in the state and federal courts located in and for the Commonwealth of Virginia (the "Courts"), which shall have exclusive jurisdiction for such purpose, and the Parties hereby irrevocably submit to the exclusive jurisdiction of such courts and irrevocably waive the defense of an inconvenient forum to the maintenance of any such suit,

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action or proceeding. Service of process may be made in any manner recognized by such Courts. Each of the Parties hereby irrevocably waives its right to a jury trial arising out of any dispute in connection with this Agreement or the transactions contemplated hereby. Buyer has irrevocably appointed Vernon N. Brinkley as its authorized agent (the "Authorized Agent") upon which process may be served in any suit, action or proceeding based on this Agreement which may be instituted in the Courts by Seller, and Buyer expressly accepts the jurisdiction of any such Court in respect of any such suit, action or proceeding. Buyer represents and warrants that the Authorized Agent has agreed to act as such agent for service of process, and Buyer shall take any and all actions, including the filing of any and all documents and instruments, which may be necessary or appropriate to continue such appointment in full force and effect. Service of process upon the Authorized Agent and wri tten notice of such service to Buyer shall be deemed, in every respect, effective service of process upon Buyer.

          10.9.       Counterparts. This Agreement may be executed by facsimile transmission (with confirmation) and in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

          10.10.      Interpretation. The Article and Section headings contained in this Agreement are solely for the purpose of reference, are not part of the agreement of the parties and shall not in any way affect the meaning or construction of this Agreement. Ambiguities and uncertainties in the wording of this Agreement shall not be construed for or against any Party, but shall be construed in the manner that most accurately reflects the Parties' intent as of the date of this Agreement. Each Party acknowledges that it has been represented by counsel in connection with the review and execution of this Agreement, and, accordingly, there shall be no presumption that this Agreement or any provision hereof be construed against the Party that drafted this Agreement. Notwithstanding any provision of any Additional Agreement to the contrary, the provisions of this Agreement shall govern and cont rol any conflict or inconsistency between or among the provisions of this Agreement and the provisions of any such Additional Agreement.

          10.11.      Schedules. Except as otherwise provided in this Agreement, all Schedules referred to herein are intended to be and hereby are made a part of this Agreement.

          10.12.      Disclosure. Certain information set forth on the Schedules is included solely for informational purposes, is not an admission of liability or materiality with respect to the matters covered by the information and may not be required to be disclosed pursuant to this Agreement. The specification of any dollar amount in the representations and warranties contained in this Agreement or the inclusion of any specific item in the Schedules is not intended to imply that such amounts (or higher or lower amounts) or such items are or are not material, and no Party shall use the fact of the setting of such amounts or the fact of the inclusion of any such item in the Schedules in any dispute or controversy among the Parties as to whether any obligation, item or matter not described herein or included in a Schedule is or is not material for purposes of this Agreement.

          10.13.      Entire Agreement. This Agreement (including the Schedules), together with the Additional Agreements (when executed and delivered by the Parties) and the Confidentiality Agreement, constitutes a single integrated agreement between the Parties and, together, embodies the entire agreement and understanding of the Parties hereto in respect of the

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transactions contemplated hereby and thereby, and supersedes all prior agreements and understandings between the Parties with respect to such transactions. There are no representations, warranties, covenants or agreements between the Parties with respect to the subject matter set forth in such agreements, other than those expressly set forth or referred to herein or therein. Without limiting the generality of the foregoing, Buyer hereby acknowledges and agrees that there are no representations, warranties, covenants or agreements between the Parties with respect to the subject matter set forth in such agreements contained in any material made available to Buyer pursuant to the terms of the Confidentiality Agreement, as amended.

          10.14.      Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, void or unenforceable, the remainder of the terms, provision, covenants and restrictions of this Agreement shall continue in full force and effect and shall in no way be affected, impaired or invalidated unless such an interpretation would materially alter the rights and privileges of any Party or materially alter the terms of the Transaction.

          10.15       No Agency. Neither Buyer nor the Transmission Purchaser is an agent of the other or authorized to bind the other in negotiations with Seller. Any obligation of Buyer or the Transmission Purchaser to Seller will be a several and not a joint obligation.

SIGNATURE PAGE FOLLOWS

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          IN WITNESS WHEREOF, Seller and Buyer have caused this Purchase and Sale Agreement to be duly executed and delivered by their respective duly authorized officers as of the date first above written.

	DELMARVA POWER & LIGHT COMPANY
	By:	/s/ T. S. SHAW                          Name:  Thomas S. Shaw Title:    President and CEO
	A & N Electric Cooperative
	By:	/s/ VERNON N. BRINKLEY             Name:  Vernon N. Brinkley Title:    President and CEO
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Disclosure schedules
to the
purchase and sale agreement
by and between
delmarva power & light company
and
a & n electric cooperative
Dated as of June 13, 2007
These Schedules are qualified in their entirety by reference to the specific provisions of the referenced Purchase and Sale Agreement (the "Agreement") and are not intended to constitute, and shall not be construed as constituting, representations or warranties of any Person except as and to the extent explicitly provided in the Agreement. Certain of the representations and warranties set forth in the Agreement contemplate that there will be attached Schedules setting forth information that might be "material" or have a "Material Adverse Effect." The Seller may, at its option, include in such Schedules items or information that are not material or are not likely to have a Material Adverse Effect for the convenience of the Parties, but any such inclusion shall not be deemed to be an acknowledgment or representation that such items are material or would have a Material Adverse Effect, to establish any standard of materiality, Material Adverse Effect, or to define further the meaning of such terms for purposes of the Agreement. Each Section of these Schedules qualifies the correspondingly numbered representation and warranty or covenant in the Agreement to the extent specified therein. Unless otherwise defined in these Schedules, capitalized terms used in these Schedules have the meanings set forth in the Agreement.
SCHEDULE 1.1(16)
Buyer's Knowledge
Vernon Brinkley
R. Dodd Obenshain
Thomas A. Larson
SCHEDULE 1.1(74)
Permitted Encumbrances

1.	See attached Abstracts of Title, excluding anything covered by Section 2.4(j).
2.	Mortgage with Bank of New York, individually or as trustee, which shall not be a Permitted Encumbrance as of Closing.
3.	Easement and License Agreement dated as of July 1, 2000 between Seller and Conectiv Delmarva Generation, Inc. for access to generation facilities at the Tasley Substation.
4.	Easement and License Agreement dated as of July 1, 2000 between Seller and Conectiv Delmarva Generation, Inc. for access to generation facilities at the Bayview Substation.
5.	Easement Agreement dated as of October 25, 1990 between Seller and The Town of Exmore, Virginia, to construct, operate, lay, repair, maintain and remove a water line at Kellam Substation.
6.	Easement Agreement dated as of April 24, 1972 between Seller and Dulany Foods Division of United Foods, Inc. to construct and operate an underground conduit drainage system at Kellam Substation.
7.	Easement Agreement dated as of September 1, 2005 between Seller and Oxbridge Investments, LLC to construct, operate, lay, repair, maintain and remove a storm sewer line at Bayview (NH-008.05).
8.	Encroachment/License Agreement dated as of August 31, 1999 between Seller and Shore Holdings, Inc. for a 15 foot crossing strip at Bayview (NH-008.03).

SCHEDULE 1.1(93)

Seller's Knowledge

Thomas S. Shaw
President and CEO
Delmarva Power & Light Company

Vincent Maione
Regional Resource Manager
Bay Regional Office

Charles R. Dickerson
Vice President Strategic Planning and Chief Risk Officer
Pepco Holdings, Inc.

Robert J. Jubic, Jr.
Manager Environmental Services
New Castle Regional Office

SCHEDULE 1.1(104)

Transferable Permits

1.	US EPA Identification (ID) Number (also known as a RCRA ID Number) for the Exmore Office (Exmore Operations EPA ID# VAR000007971) (approval is required to transfer).
2.	Underground Storage Tank Registration for the Exmore Office (approval is required to transfer).
3.	See Schedule 2.1(g), to the extent transferable.
4.	See Schedule 4.8, to the extent transferable.

SCHEDULE 2.1(a)

Real Property

PLAN	MAP	SITE NAME	DEED NO.
AC-002.01	O33	CHINCOTEAGUE SUBSTATION	VO201
AC-002.03	O33	CHINCOTEAGUE SUBSTATION	VO219
AC-003.01	O32	OAK HALL SUBSTATION	VO202
AC-003.02	O32	OAK HALL SUBSTATION	VO205
AC-003.03	O32	OAK HALL SUBSTATION	VO216
AC-003.04	O32	OAK HALL SUBSTATION	VO217
AC-003.05	O32	OAK HALL SUBSTATION	VO218
AC-005.01	O32	WATTSVILLE SUBSTATION	VO203
AC-005.02	O32	WATTSVILLE SUBSTATION	VO204
AC-005.03	O32	WATTSVILLE SUBSTATION	VO213
AC-005.04	O32	WATTSVILLE SUBSTATION	VO214
AC-010.01	O33	-	VO220
AC-010.02	O33	-	VO222
AC-010.03	O33	-	VO225
AC-010.04	O33	-	VO226
AC-011.01	O32	-	VO221
AC-013.01	O33	-	VO223
AC-014.01	O33	-	VO224
AC-015.01	O32	WALLOPS SUBSTATION	VO121
NH-003.01	T29	-	VO101
NH-004.01	R30	EXMORE SUBSTATION	VO103
NH-004.02	R30	KELLAM SUBSTA.	VO107
NH-004.03	R30	KELLAM SUBSTA.	VO109
NH-007.01	S29	-	VO108

NH-008.02	T29	BAYVIEW SUBSTA.	VO113
NH-008.03	T29	BAYVIEW SUBSTA.	VO114
NH-008.04	T29	BAYVIEW SUBSTA.	VO115
NH-008.05	T29	BAYVIEW SUBSTA.	VO120
NH-010.01	U29	KIPTOPEAKE SUBSTA.	VO116
NH-012.01	R30	EXMORE DIST. OFF.	VO119

SCHEDULE 2.1(b) ¹

Substations, Distribution Plant and General Plant

1.	See attached Exhibit 1, Continuing Property Records -- Distribution and General.
2.	Distribution Circuits

Circuit # VA0576 (Chincoteague)
Circuit # VA0577 (Chincoteague)
Circuit # VA0579 (Wattsville)
Circuit # VA0580 (Wattsville)
Circuit # VA0581 (Wattsville)
Circuit # VA0582 (Wattsville)
Circuit # VA0583 (Chincoteague)
Circuit # VA0584 (Wallops Island)
Circuit # VA2201 (Kellam)
Circuit # VA2213 (Oak Hall)
Circuit # VA2214 (Oak Hall)
Circuit # VA2219 (Bayview)
Circuit # VA2220 (Tasley)
Circuit # VA2240 (Bayview)
Circuit # VA2251 (Kellam)
Circuit # VA2262 (Bayview)
Circuit # VA2287 (Tasley)

3.	Step down transformers
4.	Capacitors

Unit	Quantity
C150-12 C200-25 CB1200-12 CB1200-25 CB3F600-25 CB3S1200-25 CB600-12 CB900-12 CB900-25 Unset 2	1 9 3 7 1 15 9 6 1 86

_____________

1 Any assets referenced on this Schedule that are owned by Connectiv Energy will not transfer with the sale.

2 Unset assets have not been assigned specific code number.

5. Cutouts

Unit	Quantity
CO1-12L CO2-12XCUL COF7U100 COLB1-12L COLB1-12PL COLB1-25L COLB1-25PL LBDISC25L LBDISC25PCL Unset	76 2 13 4 1 224 7 24 1 2634

6. OH Gang OP Switches

Unit	Quantity
LBS1/0HH25 LBS477HH12 LBS477HH25 LBS477HV25 Unset	2 1 3 1 36

7. OH Stepdown Transformers

Unit	Quantity
T167E14 T25C7 T25E14 T500C14 T50E14 Unset	3 1 4 3 2 3

8. OH Switches

Unit	Quantity
DS25900 INLNE1/0-25 INLNE1/0A25 INLNE397-25 INLNE4/0-25 INLNE4/0A25	6 6 6 3 33 3

INLNE477-25
LBDISC25L
SW600R35L
Unset 6
1
6
409

9. OH Transformers

Unit	Quantity
T100B14 T100B15 T100B5 T100B7 T100B8 T100B8C T100G15 T100H11C T100H15 T10B13 T10B14 T10B6 T10B7 T15B14 T15B15 T15B16 T15B5 T15B7 T15B8 T15B8C T15B9 T167B15 T167B7 T167B8 T25B14 T25B15 T25B16 T25B2 T25B5 T25B7 T25B7C T25B8 T25B8C T25B9 T25F7C T25G15 T25G8	54 4 1 22 1 1 3 1 3 260 93 64 15 178 43 228 8 21 12 1 33 4 1 2 1273 314 814 2 156 326 7 86 50 357 1 12 3

T25H15
T25H8
T333B14
T37B15
T50B14
T50B15
T50B16
T50B5
T50B7
T50B7C
T50B8
T50B8C
T50B9
T50F7
T50G15
T50G8
T50H15
T50H7
T5B13
T5B15
T5B5
T5B8
T5B9
T75B14
T75B15
T75B7
T75B8
T75B8C
T75H15
T833H8
Unset 2
3
3
5
286
86
14
29
157
2
36
28
2
3
11
6
10
3
43
23
2
4
5
2
8
1
3
3
3
3
51

10. Primary Meters

Unit	Quantity
PM25-1/0 PMPM12 PMPM25 Unset	2 2 1 13

11. Reclosers

Unit	Quantity
RCL3/1VIPR27S	3

RCL3TRIMOD27S
RCL3VIPR27S
RCL-NOVA27-12
RCL-RV-25
RCL-WVE1-12
RCL-WVE1-25
RCVW
Unset
2
1
1
1
1
2
1
11

12. Poles

Unit	Quantity
30-5 35 35-2 35-4 35-5 40 40-1 40-2 40-3 45 45-1 45-2 45-3 PFG40D-BZ-T PLFBG13 PLFLT14AL RFG12B-BK-TWASH RFG17D-BK-T RFG30D-GY RFG35D-BZ-T RFG35D-GY Unset	141 1 1 1626 1 5 4 7 4255 2 1 296 14 1 2 2 38 17 7 1 2 12,936

13. Street Lights

Unit	Quantity
FACON150 FHPS70 FMVBR3.5 LAMP100MV P100H3TGVIL P100H-BX	1 1 1 1 12 1

P100H-HZ
P100H-PACK
P100M-HZ
P150H-FLD-S
P150H-HZ-FLC
P175M-HZ
P175M-PACK
P250H-BX
P250M-HZ
P400H-HZ
P400MH-FLD-S
P400M-HZ
R100H-BX
R100H-HZ
R100H-HZ-FLC
R100H-PACK
R100H-TT
R100M-HZ
R150H-BX
R150H-HZ
R150H-HZ-FLC
R175M-PACK
R250H-BX-AD
R250H-FLD
R250H-HZ
R400H-FLD-S
R400H-HZ
R400M-HZ
R50H3TGVIL
R70H-HZ
R70H-TT
Unset 22
73
47
1
1
16
217
2
1
3
1
18
2
90
5
1
16
19
5
9
4
4
13
1
8
2
13
7
28
4
5
3372

14. Switch Cabinets

Unit	Quantity
SWGR12-11 SWGR12-5 SWGR12-9C SWGR15KV Unset	1 1 1 1 1

15. UG Primary Junction

Unit	Quantity
PRIPED1-25 PRIPED3-25 U1006-1225-3	48 28 1

U1006-1225-4
Unset 1
182

16. UG Secondary Junction Box

Unit	Quantity
BOXPAD-C-JS ENCLPSS SECPED-350 SECPED-350P SECPED36ABOV SECPED44ABOV SECPED-ABOVE SECPED-ABOVE36 SECPED-BELOW Unset	1 3 17 1 111 14 22 9 2 577

17. UG Transformers

Unit	Quantity
3PMT150G8 3PMT150G8C 3PMT150H15 3PMT2000H8 3PMT225G15 3PMT225G5 3PMT225G8 3PMT225G8C 3PMT225H15 3PMT3000H15 3PMT300G15 3PMT300G8 3PMT300H15 3PMT500G15 3PMT500H15 3PMT500H5 3PMT1000H15 3PMT1500H15 3PMT150G15 3PMT150G5 3PMT750G15 3PMT750H15 3PMT75G15 3PMT75G5 3PMT75G8 PMT100B15 PMT100B5	7 1 22 2 11 1 12 1 5 1 2 2 1 1 8 6 7 6 4 2 1 6 24 1 6 91 5

PMT100B8
PMT100B8C
PMT15B15
PMT15B8
PMT167B15
PMT167B8C
PMT25B15
PMT25B2
PMT25B5
PMT25B8
PMT25B8C
PMT37B8
PMT50B15
PMT50B5
PMT50B8
PMT50B8C
PMT75B15
PMT75B8
PMT75B8C
Unset 49
8
11
4
18
2
702
2
66
666
86
1
217
21
191
39
91
4
4
70

18. Vaults

Unit	Quantity
Unset	4

19. OH Primary Spans

Unit	Quantity
N1/0 P1/0 P1/0AAC P1/0ACSR P1/0ACSR-WP P1/0CU P101ACSR12/7 P2 P2/0CU P2ACSR P2CU P3#8 P336ACSR P336ACSR26/7 P355ACAR P397ACSR P4/0 P4/0ACSR	1487 155487 222 2988905 191600 26342 38463 89 1800 1055476 287493 6076 7392 106424 597868 6376 435 479290

P4/0CU
P4/0CU-WP
P477
P477-24/7
P4ACSR
P4ACW
P4CU
P6ACW
P6CU
P7#8
P80ACSR
Unset 11067
129
182852
111089
106184
273
1250508
3162
74531
1902
80
21,420

20. OH Secondary Spans

Unit	Quantity
BUNDLE1/0 CUHC4 DUPLEX1/0 DUPLEX4AWAC N1/0 P1/0 QPLEX1/0S QPLEX4/0 QPLEX4/0S QUADPLEX2S S1/0AAAC S1/0AAAC-WP S1/0CU-WP S10CU-WP S2/0ACSR-WP S2ACSR-WP S2CU S2CU-WP S4/0ACSR-WP S4CU S4CU-WP S6CU S6CU-WP S8CU-WP TPLEX1/0C TPLEX1/0CS TPLEX1/0S TPLEX2/0S TPLEX2S TPLEX4/0S TPLEX4S TPLEX6S TRIPLEX1/0S Unset	358346 40 270 548 70 70 8448 54 11189 471 193 192152 1937 598 1770 3596 384 276452 4339 2342 260102 146 21484 147 60 40448 118116 161739 3651 1668 84765 1341 25 137,560

21. OH Service Spans

Unit	Quantity
1000CU1C 2AAAC 3#10CU 4/0CU-WP 4CU 6CU-WP 8CU-WP CUSC1/0 CUSC500 DPLEX4 QPLEX1/0 QPLEX2 QPLEX4/0 QUAAL3C1B SERVENTR1/0 SV1/0AAAC TPLEX1/0C TPLEX2 TPLEX2/0 TPLEX4 TPLEX4/0 TPLEX4S TPLEX6CU TRIAL2 Unset	508 200 54 2311 7789 251641 500 584 1155 27985 5148 1776 7223 30 100 140 129755 17313 3495 351033 2025 160 10162 745 402,520

22. UG Primary Segments

Unit	Quantity
1/0URD12 1/0URD25 1/0URD25J 1000URD12 1000URD25J 3-350URD25J 750URD12 Unset	44183 604325 867606 324 3165 360 5010 161,557

23. UG Secondary Segment

Unit	Quantity
1/0URDR 10UGP 10UGR	616 175 4524

12UGP
12UGR
250URD1C
350URD
350URD1C
350URD1CS
350URDS
4/0URD
4/0URD1C
4/0URD1CS
4/0URDS
4UGR
500URD
500URD1C-CS
500URD1CS
500URD4CS
500URDS
TPLEX4P
TPLEX4R
Unset 14
124
890
422
2016
90518
9693
145
971
44129
536
9419
1015
60
5786
245
7693
60
25
56,366

24. UG Service Segment

Unit	Quantity
1/0URD 2/0URD 250URD1C 2URD 350URD 350URD1C 4/0URD 4/0URD1C 4UG 500URD 500URD1C 500URD1C-C 500URD4C TPLEX4/0 TPLEX4R Unset	128 134178 11747 35 98229 28637 786872 18181 2360 15165 163542 1314 1205 50 214 218,419

25. Bayview Substation

Distribution assets consist of a 69-25kV, 28 MVA transformer, 25kV substation bus including distribution circuit breakers and regulators, bus, switches, other primary equipment and 25kV capacitor bank. Includes all associated property improvements, structures, poles, foundations, grounding, cables, control enclosure, secondary, metering, relay and controls, AC & DC power. Conectiv generation is located adjacent to the substation and output connects to the 25kV bus.

Account	Asset	Asset description	Location
00003610	1182	FENCE-PERIMETER 1240' (ADJ 227)	Bayview
00003610	1183	FIRE PROTECTION SYSTEM (ADJ 227)	Bayview
00003610	1184	HEATING SYSTEM (ADJ 227)	Bayview
00003610	1185	LAND IMPROVEMENTS-GRADING & FILL (ADJ 227)	Bayview
00003610	1186	ROADS AND DRIVES N/A (ADJ 227)	Bayview
00003610	1187	OTHER BUILDING 20' X 30' (9565)	Bayview
00003610	1188	YARD LIGHTING SYSTEM	Bayview
00003610	1189	YARD LIGHTING SYSTEM	Bayview
00003610	17568	LAND IMPROVEMENTS	Bayview
00003610	20739	BUILDING SHELL	Bayview
00003610	38746	STONING; Yard Improvements	Bayview
00003610	38754	SYSTEM; Oil Spill Containment	Bayview
00003620	10469	FAN (9293)	Bayview
00003620	10471	CABLE (9704)	Bayview
00003620	10477	BUS (9022)	Bayview
00003620	10479	BUS (9370)	Bayview
00003620	10481	BUS (9571)	Bayview
00003620	10483	BUS (9966)	Bayview
00003620	10485	CAPACITOR,SHUNT (9704)	Bayview
00003620	10487	CONDUIT (9565)	Bayview
00003620	10489	CONDUIT (9846)	Bayview
00003620	10493	FOUNDATION (9022)	Bayview
00003620	10495	FOUNDATION (9370)	Bayview
00003620	10497	FOUNDATION (9571)	Bayview
00003620	10499	CURRENT TRANSFORMER 8.7KV,N/A,N/A,N/A (9704)	Bayview
00003620	10501	INSTRUMENT (9565)	Bayview
00003620	10503	INSTRUMENT (9966)	Bayview
00003620	10506	SURGE ARRESTERS (LIGHTNING) 20KV (9565)	Bayview
00003620	10508	SURGE ARRESTERS (LIGHTNING) 20KV (9022)	Bayview
00003620	10514	POTENTIAL TRANSF,14.4KV,N/A,SER#CL22048196,MOL	Bayview
00003620	10516	POT TRANSF,14.4KV,N/A,SER#CL2048197,MOL50KVA	Bayview
00003620	10518	POT TRANSF,14.4KV,N/A,SER#CL12026563,MOL50 KVA	Bayview
00003620	10520	POT TRANSF,14.4KV,N/A,SER#CL12026234,MOL5 KVA	Bayview
00003620	10522	POTENTIAL TRANSF,14.4KV,N/A,SER#69BH185002,ME 5KVA	Bayview
00003620	10524	POTENTIAL TRANSF,14.4KV,N/A,SER#E3865,MOL,5KVA	Bayview
00003620	10526	POTENTIAL TRANSF,23KV,N/A,SER#5178217,WEST,(9565)	Bayview
00003620	10528	POTENTIAL TRANSF,24KV,N/A,SER#8276444,G.E. (9565)	Bayview
00003620	10532	POTENTIAL TRANSF,24KV,N/A,SER#B518041,G.E. (9672)	Bayview
00003620	10538	INSULATORS (9704)	Bayview
00003620	10542	INSULATORS (9022)	Bayview
00003620	10544	INSULATORS (9966)	Bayview
00003620	10546	FUSE EQUIPMENT,SET OF HIGH VOLTAGE 23KV (9565)	Bayview
00003620	10548	FUSE EQUIPMENT,SET OF HIGH VOLTAGE,25KV (9966)	Bayview
00003620	10556	OIL CIR BKR,23KV,600A,#2240-30,SER#0442A1097204,GE	Bayview
00003620	10560	RESISTOR (9672)	Bayview
00003620	10573	STATION GROUNDING SYSTEM (9672 & 9704)	Bayview
00003620	10575	STATION GROUNDING SYSTEM (9571)	Bayview
00003620	10577	STATION GROUNDING SYSTEM (9966)	Bayview
00003620	10579	STATION GROUNDING SYSTEM (9704)	Bayview

00003620	10583	STRUCTURE (9966)	Bayview
00003620	15099	REGULATOR 14.4KV/200A	Bayview
00003620	18274	BATTERY CHARGER 120-5A,120V,N/A (332001)	Bayview
00003620	18275	BATTERY,STORAGE N/A,N/A,200AH (332001)	Bayview
00003620	18276	CAPACITOR,SHUNT (334801)	Bayview
00003620	22814	CONTROL INSTALLATION	Bayview
00003620	22816	CONTROL INSTALLATION	Bayview
00003620	22818	ADDITION TO 20'X 30' BUILDING	Bayview
00003620	22820	BUS	Bayview
00003620	22822	INSULATORS 25KV	Bayview
00003620	22824	STATION GROUNDING SYSTEM	Bayview
00003620	22826	STRUCTURE FORMING	Bayview
00003620	22828	35' WOOD POLE	Bayview
00003620	22830	30' WOOD POLE	Bayview
00003620	22832	SWITCHES,DISCONNECT (HOOKSTICK) 25KV/1200A	Bayview
00003620	22834	SWITCHES,DISCONNECT 12/25KV/600A	Bayview
00003620	22836	REGULATOR, INDUCTION	Bayview
00003620	22838	FOUNDATION	Bayview
00003620	28085	BREAKER,CIRCUIT,38KV,1200A	Bayview
00003620	28086	BREAKER,CIRCUIT,38KV,1200A	Bayview
00003620	28087	CABLE	Bayview
00003620	28088	PROTECTIVE RELAY	Bayview
00003620	28089	SWITCHES,DISCONNECT,23KV,1200A,40KV(INDIV)	Bayview
00003620	28090	SWITCHES,DICONNECT,23KV,1200A,61KA(INDIV)	Bayview
00003620	34746	RELAY; Panel	Bayview
00003620	34834	BREAKER; Circuit R3 25kV 1200A Zero Close	Bayview
00003620	34835	PANEL; Relay Capacitor Bank	Bayview
00003620	34836	CAPACITOR BANK; 25kV 2700KVAR	Bayview
00003620	35339	PANELS; Relay	Bayview
00003620	35358	REGULATOR; Step Voltage 14.4kV 288KVA 200A VR-1	Bayview
00003620	35359	REGULATOR; Step Voltage 14.4kV 288KVA 200A VR-1	Bayview
00003620	35360	REGULATOR; Step Voltage 14.4kV 288KVA 200A VR-1	Bayview
00003620	35361	REGULATOR; Step Voltage 14.4kV 288KVA 200A VR-1	Bayview
00003620	37133	BREAKER; Circuit Vac 25.8kV 1200A 25kA 150kV BIL	Bayview
00003620	38738	TRANSFORMER; Power 3Ph 69-24.9kV 16.8/22MVA	Bayview
00003620	38739	LTC; RMV-II-25kV	Bayview
00003620	38740	BUSHINGS; Transformer 69kV 400A	Bayview
00003620	38741	BUSHINGS; Transformer 25kV 1200A	Bayview
00003620	38743	ARRESTER; Surge 21kV 17kV MCOV	Bayview
00003620	38745	CONDUIT;	Bayview
00003620	38747	BUS;	Bayview
00003620	38748	FOUNDATION;	Bayview
00003620	38749	GRID; Ground	Bayview
00003620	38750	TRANSFORMER; Instrument OTCF 072SR 346/600:1:1	Bayview
00003620	38751	TRANSFORMER; Instrument OTCF 072SR 346/600:1:1	Bayview
00003620	38752	TRANSFORMER; Instrument OTCF 072SR 346/600:1:1	Bayview
00003620	38753	TRANSFORMER; Instrument VEF 25-10, 120:1	Bayview
00003620	38755	TRANSFORMER; Instrument VEF 25-10, 120:1	Bayview
00003620	38756	STRUCTURE; 25Kv ED2S	Bayview
00003620	38757	SWITCH; Hookstick 1Ph 25kV 600A T1-L2	Bayview
00003620	38760	INSULATOR; Poly 25kV Strain	Bayview
00003620	38762	RELAY; SEK 387 T!F-SEL387	Bayview
00003620	38763	RELAY; SEL 351S T1B-SEL351S	Bayview
00003620	38764	RELAY; SEL 351S 6750F-T1B-SEL351S	Bayview
00003620	38765	PANEL; Relay T1 Protection E1	Bayview
00003620	38767	CABLE; Control	Bayview
00003620	35358	REGULATOR; Step Voltage 14.4 kV 288 KVA 200A VR-1	Bayview
00003620	35359	REGULATOR; Step Voltage 14.4 kV 288 KVA 200A VR-1	Bayview
00003620	35360	REGULATOR; Step Voltage 14.4 kV 288 KVA 200A VR-1	Bayview
00003620	22836	REGULATOR; INDUCTION	Bayview

00003620	10564	REGULATOR; INDUCTION, 14.4 KV, 0200A, SER#33738012652AC	Bayview
00003620	10566	REGULATOR; INDUCTION, 14.4 KV, 0200A, SER#33738012652AC	Bayview
00003620	10568	REGULATOR; INDUCTION, 14.4 KV, 0100A, SER#D592842, GE	Bayview
00003620	10570	REGULATOR; INDUCTION, 14.4 KV, 0100A, SER#D593719, GE	Bayview
00003620	10572	REGULATOR; INDUCTION, 14.4 KV, 0100A, SER#D592839, GE	Bayview

26. Chincoteague Substation

Distribution assets consist of two 69-12kV, 22.4MVA transformers, 12 kV substation bus including distribution circuit breakers, bus, switches and other primary equipment. Includes all associated property improvements, structures, poles, foundations, grounding, cables, control enclosure, secondary, relay and controls, metering, AC & DC power.

Account	Asset	Asset description	Location
00003610	1190	BULKHEAD - (JV35)	Chincoteague
00003610	17569	BULKHEAD - (322401)	Chincoteague
00003610	20741	YARD LIGHTING SYSTEM	Chincoteague
00003610	20743	GRADING AND FILL (SITE PREP)	Chincoteague
00003610	20745	GRADING AND FILL (STONING)	Chincoteague
00003610	20747	ROADS AND DRIVES	Chincoteague
00003610	20749	FENCE (PERIMETER)	Chincoteague
00003610	20751	BUILDING SHELL("L" SHAPED CONTROL HOUSE) 550 SQ FT	Chincoteague
00003610	20753	OIL CONTAINMENT SYSTEM	Chincoteague
00003610	20755	ROADS AND DRIVES	Chincoteague
00003610	35342	FENCE;	Chincoteague
00003620	10597	7200SEC 120/240V 50KVA	Chincoteague
00003620	22840	STRUCTURE FORMING	Chincoteague
00003620	22842	CABLE	Chincoteague
00003620	22844	POWER TRANSFORMER, 69KV/12KV	Chincoteague
00003620	22846	STATION SERVICE TRANSFORMER, 50KVA	Chincoteague
00003620	22850	GAS CIRCUIT BREAKER, 15KV/1200A	Chincoteague
00003620	22852	GAS CIRCUIT BREAKER, 15KV/1200A	Chincoteague
00003620	22854	GAS CIRCUIT BREAKER, 15KV/1200A	Chincoteague
00003620	22857	SWITCHES, LOAD BREAK (INDIV), 25KV/1200A	Chincoteague
00003620	22859	SWITCH, DISCONNECT, SIDEBREAK, (INDIV) 25KV/1200A	Chincoteague
00003620	22861	SWITCHES, DISCONNECT, HOOKSTICK (INDIV),25KV/1200A	Chincoteague
00003620	22863	SURGE ARRESTER (LIGHTNING), 10KV	Chincoteague
00003620	22865	BUS	Chincoteague
00003620	22867	INSULATOR, 25KV	Chincoteague
00003620	22869	CONDUIT/CABLE TROUGH	Chincoteague
00003620	22871	STATION GROUNDING SYSTEM	Chincoteague
00003620	22873	PANELS	Chincoteague
00003620	22875	BATTERY, STORAGE, 29 CELLS	Chincoteague
00003620	22877	BATTERY CHARGER	Chincoteague
00003620	22879	ENERGY CONTROL SYSTEM (RTU)	Chincoteague
00003620	22881	FOUNDATION	Chincoteague
00003620	22883	POWER TRANSFORMER	Chincoteague
00003620	22887	DISCONNECT SWITCH	Chincoteague
00003620	22889	STATION SERVICE TRANSFORMER	Chincoteague
00003620	22893	ALUMINUM STRUCTURES	Chincoteague
00003620	22895	PANEL	Chincoteague
00003620	22897	FOUNDATIONS	Chincoteague
00003620	22899	BUS	Chincoteague
00003620	22901	CABLE	Chincoteague
00003620	22903	GROUNDING	Chincoteague
00003620	22905	CONDUIT	Chincoteague

27. Kellam Substation

Distribution assets consists of 2 69-25 kV transformers, 25 kV substation bus including distribution circuit breakers and regulator, bus, switches and other primary equipment. Includes all associated property improvements, structures, poles, foundations, grounding, cables, control enclosure, secondary, relay and controls, metering, AC & DC power.

Account	Asset	Asset description	Location
00003610	17570	FENCE PERIMETER - 260' (J213)	Kellam
00003610	17571	LAND IMPROVEMENTS - GRADING & FILL (J213)	Kellam
00003610	17572	ROADS AND DRIVES - (J213)	Kellam
00003610	20757	BUILDING SHELL	Kellam
00003530	17176	PANEL - 25KV CONTROL (J213)	Kellam
00003530	17172	SURGE ARRESTERS - 21KV (J213)	Kellam
00003530	17178	PANEL- T-2 METERING (J213)	Kellam
00003530	17179	PANEL - T-2 RELAY (J213)	Kellam
00003530	17180	PANEL - 25KV L-5 RELAY (J213)	Kellam
00003530	17181	PANEL - 25KV L-6 RELAY (J213)	Kellam
00003620	10599	BUS - (9786)	Kellam
00003620	10601	FOUNDATIONS - (9786)	Kellam
00003620	10609	STRUCTURE - (9786)	Kellam
00003620	10611	SWITCH, AIR BREAK - 600A (9786)	Kellam
00003620	10613	POWER TRANSFORMER - SER #8565824 (9786)	Kellam
00003620	15105	POTENTIAL TRANSFORMER 25 KV	Kellam
00003620	15106	POTENTIAL TRANSFORMER 25 KV	Kellam
00003620	15107	POTENTIAL TRANSFORMER 25 KV	Kellam
00003620	15108	POTENTIAL TRANSFORMER 25 KV	Kellam
00003620	18277	BUS - (J213)	Kellam
00003620	18278	CABLE - 477 24/7 ACSR 456'	Kellam
00003620	18279	CABLE TROUGH - (J213)	Kellam
00003620	18280	INSTRUMENT - (332002)	Kellam
00003620	18281	FOUNDATIONS - (J213)	Kellam
00003620	18282	LIGHTING SYSTEM - (J213)	Kellam
00003620	18283	CIRCUIT BREAKER - 25KV SER # 39958-10 (J213)	Kellam
00003620	18284	CIRCUIT BREAKER - 25KV SER #39958-2 (J213)	Kellam
00003620	18285	PANEL - 25KV CONTROL	Kellam
00003620	18287	STATION GROUNDING SYSTEM - (J213)	Kellam
00003620	18288	STRUCTURES - (J213)	Kellam
00003620	18289	SWITCHES, DISCONNECT - (J213)	Kellam
00003620	18290	POWER TRANSFORMERS - SER #FP26-19 #50673-1 (J213)	Kellam
00003620	22907	STATION GROUNDING EQUIPMENT_(KELLAM EAST SUB.)	Kellam
00003620	22909	REGULATOR, INDUCTION, 333KVA	Kellam
00003620	22911	STATION GROUNDING SYSTEM	Kellam
00003620	22913	DISCONNECT SWITCH, 72.5KV, 3P	Kellam
00003620	22914	ENERGY CONTROL SYSTEM ( RTU )	Kellam
00003620	22916	WIRE, CU., 7 STR., 600V	Kellam
00003620	22918	PROTECTIVE RELAY	Kellam
00003620	22920	CABLE, CU.	Kellam
00003620	22928	REGULATOR, STEP VOLTAGE 14.4KV/231A	Kellam
00003620	36420	REGULATOR; 1 Ph 14.4kV 300A VR-1	Kellam
00003620	36421	REGULATOR; 1 Ph 14.4kV 300A VR-1	Kellam

28. Oak Hall Substation

Distribution assets consists of 1 69-25kV transformer and 1 138-25kV transformer, 25kV substation bus including distribution circuit breakers, recloser and regulator, bus, switches and other primary equipment. Includes all associated property improvements, structures, poles, foundations, grounding, cables, secondary, relay and controls, metering, AC & DC power.

Account	Asset	Asset description	Location
00003610	17573	LAND IMPROVEMENT-GRADING & FILL (ADJ 236)	Oak Hall
00003620	10656	POWER TRANSF, 69KV, N/A SER 2621645, AC JV227	Oak Hall
00003620	15109	FOUNDATION (9515)	Oak Hall
00003620	15110	FUSE EQUIPMENT,SET OF HIGH VOLTAGE,20KV (9515)	Oak Hall
00003620	15111	INSTRUMENT (JV435)	Oak Hall
00003620	15112	INSTRUMENT	Oak Hall
00003620	15113	INSTRUMENT (JV435)	Oak Hall
00003620	15114	INSTRUMENT (9531)	Oak Hall
00003620	15115	POT TRANSF, 14.4KV N/A SER#4059420779 KUH, 50KVA	Oak Hall
00003620	15116	POT TRANSF. 14.4KV N/A 78A362849,WEST 10KVA (9515)	Oak Hall
00003620	15117	POT TRANS 14.4KV, N/A SER#78A362850 WEST 10KVA	Oak Hall
00003620	15118	POT TRANSF 14.4KV N/A SER#M897734YHRA GE 10 KVA	Oak Hall
00003620	15119	INSULATORS (9515)	Oak Hall
00003620	15120	OIL CIR BKR, 25.8KV 1200A, #3210,SER #0442A7693101	Oak Hall
00003620	15121	OIL CIR BKR, 25KV 1200A. #3230 SER#0442A7541111 GE	Oak Hall
00003620	15122	PANEL (9544)	Oak Hall
00003620	15123	STRUCTURE (9515)	Oak Hall
00003620	15124	SWITCHES, AIR BREAK, 25KV, 1200A, N/A (9515)	Oak Hall
00003620	15125	SWITCHES, AIR BREAK, 25KV, 1200A, N/A (9515)	Oak Hall
00003620	15126	SWITCHES, AIR BREAK, 25KV, 1200A, N/A (9515)	Oak Hall
00003620	15127	SWITCHES, DISCONNECT, INDIVIDUAL 25 KV, 1200A 9515	Oak Hall
00003620	15128	POWER TRANSF 72KV, 15/20/25 MVA N/A C0598251 ME	Oak Hall
00003620	18291	CABLE (9685)	Oak Hall
00003620	18292	FOUNDATION (9686)	Oak Hall
00003620	18293	INSULATORS (9686)	Oak Hall
00003620	18294	SURGE ARRESTORS (LIGHTNING) 20KV (9686)	Oak Hall
00003620	18295	RECLOSER (312801)	Oak Hall
00003620	18296	PANEL (9686)	Oak Hall
00003620	18297	PANEL (9685)	Oak Hall
00003620	18298	STATION GROUNDING SYSTEM (9686)	Oak Hall
00003620	18299	STRUCTURES (9686)	Oak Hall
00003620	22934	STATION GROUNDING EQUIPMENT (OAK HALL SUB.)	Oak Hall
00003620	28091	FOUNDATION	Oak Hall
00003620	28092	STRUCTURE FORMING	Oak Hall

29. Tasley Substation

Distribution assets consists of 2 69-25kV transformers, 25kV substation bus including distribution circuit breakers and regulator, bus, switches and other primary equipment. Includes all associated property improvements, structures, poles, control enclosure, foundations, grounding, cables, secondary, relay and controls, metering, AC & DC power.

Account	Asset	Asset description	Location
00003610	1202	FENCE-PERIMETER,N/A, ADDITION (ADJ 229)	Tasley
00003610	1203	LAND IMPROVEMENT (ADJ 226)	Tasley
00003610	13793	LAND IMPROVEMENTS-GRADING & FILL (ADJ 226)	Tasley
00003610	17574	LAND IMPROVEMENTS (719698)	Tasley
00003610	17575	OTHER BUILDING, N/A, REPLACE ROOF (719711)	Tasley
00003530	10672	FUSE EQUIPMENT,SET OF HIGH VOLTAGE 7.5KV (9446)	Tasley

00003620	10810	CABLE (9413)	Tasley
00003620	10812	CABLE (9194)	Tasley
00003620	10814	CABLE (9397)	Tasley
00003620	10816	CABLE TROUGH (9413)	Tasley
00003620	10818	CABLE TROUGH (9194)	Tasley
00003620	10820	CONDUIT (9194)	Tasley
00003620	10822	CONDUIT (9933)	Tasley
00003620	10824	CONDUIT (9413)	Tasley
00003620	10826	BUS (9376)	Tasley
00003620	10828	BUS (9446)	Tasley
00003620	10830	BUS (9787)	Tasley
00003620	10832	BUS (9194)	Tasley
00003620	10834	BUS (9786)	Tasley
00003620	10836	BUS (9397)	Tasley
00003620	10838	BUS (9714)	Tasley
00003620	10839	FUSE EQUIPMENT,SET OF HIGH VOLTAGE, 23KV (9397)	Tasley
00003620	10841	FUSE EQUIPMENT,SET OF HIGH VOLTAGE,23KV (9557)	Tasley
00003620	10843	FUSE EQUIPMENT, SET OF HIGH VOLTAGE, 23KV (9688)	Tasley
00003620	10845	FOUNDATION (9446)	Tasley
00003620	10847	FOUNDATION (9787)	Tasley
00003620	10849	FOUNDATION (9104)	Tasley
00003620	10851	FOUNDATION (9795)	Tasley
00003620	10853	FOUNDATION (9397)	Tasley
00003620	10855	INSULATORS (9376)	Tasley
00003620	10857	INSULATORS (9446)	Tasley
00003620	10859	INSULATORS (9194)	Tasley
00003620	10861	INSULATORS (9397)	Tasley
00003620	10863	INSTRUMENT (9397)	Tasley
00003620	10865	INSTRUMENT (9088)	Tasley
00003620	10869	SURGE ARRESTERS (LIGHTNING) (9194)	Tasley
00003620	10871	SURGE ARRESTERS (LIGHTNING) 20KV (9397)	Tasley
00003620	10873	STATION GROUNDING SYSTEM (9413)	Tasley
00003620	10875	STATION GROUNDING SYSTEM (9194)	Tasley
00003620	10877	OIL CIR BKR,25KV,600A,#3450,SER#0442A109-205,G.E	Tasley
00003620	10882	STRUCTURE (9446)	Tasley
00003620	10884	STRUCTURE (9397)	Tasley
00003620	10888	SWITCHES,DISCCONNECT (INDIVIDUAL)23KV, 400A N/A	Tasley
00003620	10890	SWITCHES,DISCONNECT (INDIVIDUAL) 23KV,600A,N/A	Tasley
00003620	10892	SWITCHES,DISCONNECT (INDIVIDUAL)34.5KV,600A,N/A	Tasley
00003620	10896	POWER TRANSFORMER 66KV 1000KVA	Tasley
00003620	10898	14400SEC 120/240V 5KVA	Tasley
00003620	10900	14400SEC 120/240V 10KVA	Tasley
00003620	10902	14400SEC 120/240V 10KVA	Tasley
00003620	15130	FUSE EQUIPMENT,SET OF HIGH VOLTAGE,23KV, (9245)	Tasley
00003620	15131	FOUNDATION (9245)	Tasley
00003620	15132	INSULATORS (9245)	Tasley
00003620	15136	PANEL (9488)	Tasley
00003620	15137	STATION GROUNDING SYSTEM (9245)	Tasley
00003620	15138	POTENTIAL TRANSF,14.4KV,N/A,SER#228251322,MOL50KVA	Tasley
00003620	15139	POT TRANSF,14.4KV,N/A,SER#76A192056,WEST,(10KVA)	Tasley
00003620	15140	POT TRANSF,14.4KV,N/A,SER#76A192055,WEST (10KVA)	Tasley
00003620	15141	OIL CIR BKR,25KV,1200A,#3420,SER#0442A6905110,GE	Tasley
00003620	15142	POWER TRANSF,N/A,15.20/25 KVA,SER#C0541351,ME	Tasley
00003620	15143	STRUCTURE (9245)	Tasley
00003620	15145	SWITCHES,DISCONNECT,(INDIVIDUAL) 25KV,600A,N/A	Tasley
00003620	15146	SWITCHES,DISCONNECT (INDIVIDUAL)25KV,1200A,N/A	Tasley
00003620	18300	CABLE (376001)	Tasley
00003620	18301	INSTRUMENT (9738)	Tasley
00003620	18302	STRUCTURE (376001)	Tasley

00003620	22938	MICROPROCESSORTERMINAL (REMOTE TERMINAL UNIT)	Tasley
00003620	22940	SWITCH, RELAY	Tasley
00003620	22942	STATION GROUNDING EQUIPMENT (TASLEY SUB.)	Tasley
00003620	22946	PROTECTIVE RELAY - TASLEY	Tasley
00003620	22948	LIGHTING SYSTEM-TASLEY SUB	Tasley
00003620	22950	FOUNDATION	Tasley
00003620	28093	INSULATORS,138KV	Tasley
00003620	28094	STRUCTURE, WOOD POLE,40'	Tasley
00003620	28095	CABLE	Tasley
00003620	28096	BREAKER,CIRCUIT,POWER,27KV,1200A	Tasley
00003620	28097	BREAKER,CIRCUIT,POWER,27KV,1200A	Tasley
00003620	28098	PROTECTIVE RELAY	Tasley
00003620	28099	STRUCTURE FORMING	Tasley

30. Wallops Substation

Distribution assets consists of 1 69-12 kV transformers, 12 kV substation bus including distribution circuit breaker and regulator, bus, switches, and other primary equipment. Includes all associated property improvements, structures, poles, control enclosure, foundations, grounding, cables, secondary, relay and controls, metering, AC & DC power.

Account	Asset	Asset description	Location
00003610	20761	BUILDING SHELL (CONTROL HOUSE), 40' X 25'	Wallops Is
00003610	20763	GRADING AND FILL (SITE PREP)	Wallops Is
00003610	20766	OIL SPILL CONTAINMENT	Wallops Is
00003610	20768	FENCE (PERIMETER)	Wallops Is
00003610	20770	GRADING AND FILL (STONING)	Wallops Is
00003620	11056	POWER TRANSFORMER, 69KV/12KV	Wallops Is
00003620	22962	POWER TRANSFORMER INSTALLATION COST	Wallops Is
00003620	22964	STATION SERVICE TRANSFORMER, 50KVA	Wallops Is
00003620	22966	POTENTIAL TRANSFORMER, 7200/120V	Wallops Is
00003620	22968	GAS CIRCUIT BREAKER, 12KV/1200A	Wallops Is
00003620	22970	SWITCHES, DISCONNECT (INDIV), 25KV (USED AT 12KV)	Wallops Is
00003620	22973	SURGE ARRESTER (LIGHTNING), 10KV	Wallops Is
00003620	22975	BUS	Wallops Is
00003620	22977	CONDUIT/CABLE TROUGH	Wallops Is
00003620	22979	CABLE	Wallops Is
00003620	22981	STATION GROUNDING SYSTEM	Wallops Is
00003620	22983	PANELS	Wallops Is
00003620	22985	BATTERY CHARGER	Wallops Is
00003620	22987	BATTERY, STORAGE, 29 CELLS	Wallops Is
00003620	22989	FOUNDATION	Wallops Is
00003620	22991	STRUCTURE FORMING	Wallops Is
00003620	22993	ENERGY CONTROL SYSTEM (RTU)	Wallops Is
00003620	22995	SWITCH, LOAD BREAK, 25KV/1200A	Wallops Is
00003620	22997	POWER TRANSFORMER, 69KV/12KV	Wallops Is

31. Wattsville Substation

Distribution assets consists of 2 69-12kV transformers, 12kV substation bus including distribution circuit breakers and regulators, bus, switches, primary, other primary equipment and 12kV capacitor banks . Includes all associated property improvements, structures, poles, foundations, grounding, cables, secondary, relay and controls, metering, AC & DC power.

Account	Asset	Asset description	Location
00003610	1204	FENCE-PERIMETER ,N/A (9993)	Wattsville
00003610	1205	FENCE-PERIMETER,N/A	Wattsville

00003610	1206	FIRE PROTECTION SYSTEM (9135)	Wattsville
00003610	1207	LAND IMPROVEMENTS-GRADING AND FILL (9993)	Wattsville
00003610	1208	LAND IMPROVEMENTS-GRADING AND FILL (9497)	Wattsville
00003610	13794	LAND IMPROVEMENTS GRADING AND FILL	Wattsville
00003610	17576	LANDSCAPING (INITIAL)	Wattsville
00003610	20759	FENCE-PERIMETER 90'X 176'	Wattsville
00003620	10904	BUS (3259)	Wattsville
00003620	10906	BUS (J39)	Wattsville
00003620	10908	BUS (9993)	Wattsville
00003620	10910	BUS (9499)	Wattsville
00003620	10912	BUS (9497)	Wattsville
00003620	10914	BUS	Wattsville
00003620	10916	CABLE (9993)	Wattsville
00003620	10918	CABLE (9499)	Wattsville
00003620	10920	CABLE (9497)	Wattsville
00003620	10922	CABLE (9810)	Wattsville
00003620	10924	CAPACITOR,SHUNT (9499)	Wattsville
00003620	10926	CAPACITOR, SHUNT (33200)	Wattsville
00003620	10928	CABLE TROUGH (9993)	Wattsville
00003620	10929	CONDUIT (9993)	Wattsville
00003620	10931	FOUNDATION (9993)	Wattsville
00003620	10933	FOUNDATION (9283)	Wattsville
00003620	10935	FOUNDATION (9499)	Wattsville
00003620	10937	FOUNDATION (9497)	Wattsville
00003620	10939	FOUNDATION (9973)	Wattsville
00003620	10941	FIRE PROTECTION EQUIP (9193)	Wattsville
00003620	10943	FURNITURE & OFFICE EQUIP (9499)	Wattsville
00003620	10945	FURNITURE & OFFICE EQUIP (J563)	Wattsville
00003620	10947	FUSE EQUIP, SET OF HIGH - 15KV (9993)	Wattsville
00003620	10949	FUSE EQUIP,SET OF HIGH 14.4KV (9499)	Wattsville
00003620	10951	FUSE EQUIP, SET OF HIGH 14.4KV (9973 & 9810)	Wattsville
00003620	10953	INSTRUMENT (9497)	Wattsville
00003620	10954	CURRENT TRANS 8.7KV, N/A #C48.21,SER#F315580,GE	Wattsville
00003620	10956	CURRENT TRANS N/A 400/5A #C9227 #333039,ASTRA	Wattsville
00003620	10958	CURRENT TRANS N/A 400/5A, C9732, SER#333046 ASTRA	Wattsville
00003620	10960	CURRENT TRANSFORMER,10/5KV,N/A,SER#68C11315,NEOT	Wattsville
00003620	10962	POTENTIAL TRANSFORMER,7.2KV,N/A,SER#4932607,WEST	Wattsville
00003620	10964	POTENTIAL TRANSFORMER,7.2KV,N/A,SER#4932608,WEST	Wattsville
00003620	10966	POTENTIAL TRANSFORMER,7.2KV,N/A,SER#4932606,WEST	Wattsville
00003620	10968	INSULATORS (9993)	Wattsville
00003620	10970	INSULATORS (9499)	Wattsville
00003620	10972	INSULATORS (9497)	Wattsville
00003620	10974	INSULATORS (9973)	Wattsville
00003620	10976	SURGE ARRESTER ,9KV (9493)	Wattsville
00003620	10978	SURGE ARRESTERS , 20KV (9993)	Wattsville
00003620	10980	SURGE ARRESTERS, 9KV (9678)	Wattsville
00003620	10982	OIL CKT BKR 14.4KV, 1200A,#560 SER#16426, PENNA	Wattsville
00003620	10984	OIL CKT BKR 14.4KV, 600A #570, SER#139Y8655,WEST	Wattsville
00003620	10986	OIL CKT BKR 25.8KV 1200A#500,SER#0442A4402-201 GE	Wattsville
00003620	10988	OIL CKT BKR 23KV, 1200A #510,SER #380451, AC	Wattsville
00003620	10990	OIL CKT BKR 23KV, 1200A, #520,SER#380453, AC	Wattsville
00003620	10992	PANELS (9133 &J35)	Wattsville
00003620	10994	PANELS (9499)	Wattsville
00003620	10996	PANELS (9497)	Wattsville
00003620	10998	PANELS (9810)	Wattsville
00003620	11000	PANELS (9236)	Wattsville
00003620	11002	STATION GROUNDING SYSTEM (9493)	Wattsville
00003620	11004	STATION GROUNDING SYSTEM (9993)	Wattsville
00003620	11006	STATION GROUNDING SYSTEM (9499)	Wattsville
00003620	11008	STATION GROUNDING SYSTEM (9497)	Wattsville

00003620	11009	STATION GROUNDING SYSTEM (9973)	Wattsville
00003620	11011	STRUCTURES (9993)	Wattsville
00003620	11013	STRUCTURES (9499)	Wattsville
00003620	11015	STRUCTURES (9497)	Wattsville
00003620	11017	STRUCTURES (9810)	Wattsville
00003620	11019	SWITCHES,DISCONNECT (INDIVIDUAL) 15KV,600A, N/A	Wattsville
00003620	11021	SWITCHES,DISCONNECT (INDIVIDUAL),15KV,600A,N/A	Wattsville
00003620	11023	SWITCHES DISCONNECT,INDIVIDUAL 3KV,600A,N/A	Wattsville
00003620	11025	SWITCHES DISCONNECT (INDIVIDUAL),15KV,1200A, N/A	Wattsville
00003620	11027	SWITCHES DISCONNECT (INDIVIDUAL),25KV, 600A, N/A	Wattsville
00003620	11031	POWER TRANSFORMER,7500/9375KV,N/A,SER#F960280,GE	Wattsville
00003620	11033	POTENTIAL TRANSFORMER,5KVA,N/A, WEST (9993)	Wattsville
00003620	11035	POTENTIAL TRANSFORMER,5KVA, N/A, WEST (9993)	Wattsville
00003620	11037	POTENTIAL TRANSFORMER, 5KVA, N/A,SER #5603726, WH	Wattsville
00003620	11039	POWER TRANSFORMER,9375/10500KV,N/A,SER#670192,MOL	Wattsville
00003620	11041	POTENTIAL TRANSFORMER, 10KV,N/A,SER #73TN515007 MC	Wattsville
00003620	11042	POTENTIAL TRANSFORMER,10KV,N/A,SER#73TN515014, MCGR	Wattsville
00003620	11044	POTENTIAL TRANSFORMER,10KV,N/A,SER#73TN515006, MCGR	Wattsville
00003620	11046	POTENTIAL TRANSFORMER,10KV,N/A,SER#73TN515001, MCGR	Wattsville
00003620	11048	POTENTIAL TRANSFORMER,50KV,N/A,SER#B-4337921,LM	Wattsville
00003620	11050	POTENTIAL TRANSFORMER,10KV,N/A,SER#73TN515011, MCGR	Wattsville
00003620	15147	CABLE (9067)	Wattsville
00003620	15148	INSTRUMENT (9067)	Wattsville
00003620	15149	PANELS (9230)	Wattsville
00003620	18305	CABLE (J563)	Wattsville
00003620	18306	PANELS (J563)	Wattsville
00003620	22952	CABLE	Wattsville
00003620	22954	SURGE ARRESTER(LIGHTNING) 10KV	Wattsville
00003620	22956	CONDUCTOR	Wattsville
00003620	22960	FOUNDATION	Wattsville
00003620	28100	CABLE	Wattsville
00003620	28101	CIRCUIT BREAKER, 1200A, 15KV	Wattsville
00003620	28102	CIRCUIT BREAKER, 1200A, 15KV	Wattsville
00003620	28103	PROTECTIVE RELAY	Wattsville
00003620	29159	Regulator	Wattsville
00003620	29160	Regulator	Wattsville
00003620	30476	Relay; Equipment	Wattsville

SCHEDULE 2.1(d)

Vehicles

Vehicle #	Year	Make	Model	Description	Parking Location	Class Description	Comment
35267	1987	HYST	H80XL	FORKLIFT - 8000# CAP	EXMORE	FORKLIFTS 6000 - 8000 LBS	Purchase if inspections and PM OK
65043	1990	KRUG	09D196K12DE	TRL - EQUIPMENT - 18000# CAP	EXMORE	TRAILERS
65051	1991	SAUB	1555-DM	TRL - THREE-IN-ONE - 6200# CAP	EXMORE	TRAILERS
65052	1991	SAUB	1555-DM	TRL - THREE-IN-ONE - 6200# CAP	EXMORE	TRAILERS
35999	2001	FORD	F550	F-550 SERVICE BODY W/CRANE	SALISBURY	MD TRK W/ELEC CRANE (GEN)	Purchase if Capacity OK

SCHEDULE 2.1(e)

Towers and Supporting Structures

1.	Oak Hall Tower
2.	Onancock Tower
3.	Exmore Tower
4.	Bayview Tower

Note: Seller must retain a right of continued use of the space on these towers for PHI Microwave, Land Mobile Radio Communications, MAS Radio equipment and Controller and some unlicensed radio equipment located between Onancock & Tasley, for a rental fee of $1/year. Buyer agrees to provide meters for such use and Seller will pay customary fees for the energy provided by Buyer.

SCHEDULE 2.1(f)

Information Technology and Telecommunications Assets

None

SCHEDULE 2.1(g)

Seller's Agreements

1. Joint Use Infrastructure License Agreements

Agreement for the Joint Use of Poles between Delmarva Power & Light Company and The Chesapeake and Potomac Telephone Company of Virginia, dated February 1, 1983.

License Agreement for CATV Pole Attachments to Delmarva Poles by and between Delmarva Power & Light Company and Bayshore CATV, Inc., dated October 17, 1982, as amended.

Assignment Agreement between Benchmark/Bayshore Cable Fund Limited Partnership and Falcon Cable Media, dated November 1, 1988, assigning the License Agreement for CATV Pole Attachments to Delmarva Poles by and between Delmarva Power & Light Company and Bayshore CATV, Inc.

Amendment No. 1 to Agreement for CATV Pole Attachments to Delmarva Poles by and between Delmarva Power & Light Company and Bayshore CATV, Inc., dated August 5, 1985.

License Agreement for CATV Pole Attachments to Delmarva Poles by and between Delmarva Power & Light Company and 1st Commonwealth Communications, Inc., dated October 10, 1983.

Amendment No. 1 to Agreement for CATV Pole Attachments between Delmarva Power & Light Company and 1st Commonwealth Communications, dated September 3, 1985.

Assignment Agreement between First Commonwealth Communications, Inc. and Falcon Cable Media, dated December 15, 1989, assigning the License Agreement for CATV Pole Attachments to Delmarva Poles by and between Delmarva Power & Light Company and 1st Commonwealth Communications, Inc.

License Agreement for CATV Pole Attachments to Delmarva Poles by and between Delmarva Power & Light Company and Coastal Cable TV, dated May 2, 1983.

Amendment No. 1 to Agreement for CATV Pole Attachments between Delmarva Power & Light Company and Benchmark Cable Fund Limited Partnership, dated August 12, 1985.

Assignment Agreement between Columbia Associates, L.P. and Falcon Cable Media, dated December 20, 1988, assigning license agreements dated May 2, 1983 and June 21, 1984 with Delmarva Power & Light Company.

2. Service Agreements²

Vendor Name	Service Provided	Term of Agreement
BRUCE GRIFFIN SR	CUSTODIAL SERVICES	4/30/2008
D PAGE KELLAM JR	LANDSCAPING	12/31/2006
Lucas Underground Utilities	Electric utility UG trenching and boring & cable installation	12/31/2007
Utiliquest *	Electric UG cable locating	12/31/2007

*Indicates that the contract serves the entire DPL area and may not be assignable. Seller will use commercially reasonable efforts to assign this agreement to the extent it can be separated.

3.	Agreement between Delmarva Power & Light and the Town of Chincoteague, dated October 29, 1991, as amended by letter dated February 6, 2006.2
4.	Special Agreement for Turn of Century Street Lights between Delmarva Power & Light and the Town of Chincoteague, dated March 23, 2006.3
5.	Off-Peak Service Agreement between Delmarva Power & Light Company and Zieger and Sons, dated November 1, 1994.4
6.	See Distribution Easement Agreements provided by microfiche (current through 2002) (consent or approval may be required to transfer). See previously provided exmo.dist file for listing of Seller's easements through 1990.
7.	See attached list of Distribution Easement Agreements (consent or approval may be required to transfer).
8.	See attached list of Distribution Virginia Railroad Crossings (consent or approval may be required to transfer).

1 ODEC and A&N to determine who will receive these agreements in the sale.

2 ODEC and A&N to determine who will receive this agreement in the sale.

3 ODEC and A&N to determine who will receive this agreement in the sale.

4 ODEC and A&N to determine who will receive this agreement in the sale.

9.	See Department of Highway and Transportation Permits provided by microfiche (consent or approval may be required to transfer).
10.	See Schedule 1.1(104), to the extent transferable.

SCHEDULE 2.2(a)

Retained Assets

1. Transmission Circuits:

· Circuit # 13763 (New Church, Oak Hall)

· Circuit # 13764 (New Church, Piney Grove)

· Circuit # 13765 (New Church, Oak Hall)

· Circuit # 13787 (Oak Hall, Pocomoke)

· Circuit # 6712 (Wattsville, Stockton)

· Circuit # 6717 (Oak Hall, Wattsville)

2.	See attached "Exhibit 1-A, Assets Retained by DPL"
3.	See attached "Exhibit 1-B, Assets Not Purchased by A&N"
4.	69kV capacitor bank at Oak Hall
5.	2 step 69kV capacitor bank at Wattsville
6.	2 - 138/69kV autotransformers at Oak Hall
7.	All 69kV potential transformers and potential devices at Wattsville and Oak Hall
8.	All 138kV potential transformers and potential devices at Oak Hall
9.	Mobile Transformer
10.	All Microwave Equipment
11.	All Licensed Microwave Frequencies
12.	MAS Radio System (MAS Controller at Oak Hall)
13.	MAS hardware (communications/computer equipment) at Chincoteague & Wallops Island
14.	All MAS Licenses
15.	All Land Mobile Radio Frequencies
16.	All Land Mobile Radio Equipment at Oak Hall, Onancock, Exmore and Bayview
17.	Fiber assets between New Church & Oak Hall and MW from Piney Grove to Oak Hall, and associated terminal equipment
18.	Unlicensed Radio Equipment located at Onancock & Tasley supporting Conectiv Energy.

19.	Service Agreement with Atlantic Coast Alarm, Inc. for monitoring of security systems.
20.	Service Agreement with Atlantic Coast Alarm, Inc. for repair of security systems.
21.	Service Agreement with JC Ehrlich Co. Inc. for pest control.
22.	Service Agreement with Trugreen Chemlawn for landscaping.
23.	Service Agreement with Waste Management of Delmarva for trash removal services.
24.	Wattsville 69kV Substation consisting of: 6 breaker ring bus with associated breaker disconnect switches

· 69 kV steel structures and wood poles

· 69 kV line, transformer and capacitor disconnect switches

· 69 kV rigid and aerial bus, insulators, supports, lightning arresters, potential devices

· 69 kV capacitor banks and 2 circuit switchers with associated bus, structures

· Fence, yard lighting, control house, grounding system, foundation, metering

· 69 kV relaying and controls and associated equipment

· 69 kV metering

· RTU and EMS equipment and associated equipment

· AC and DC station service systems

· 69 kV transmission line 6712 to Stockton Substation

· 69 kV transmission line 6717 to Oak Hall Substation

25. Oak Hall 138kV Substation consisting of:

· 6 breaker ring bus with associated breaker disconnect switches

· 2 -138/69kV autotransformers

· 138kV steel structures and wood poles

· 138kV line and transformer disconnect switches

· 138kV lines, intermediate poles and terminations

· 138 kV rigid and aerial bus, insulators, supports, lightning arresters, potential devices

· Fence, yard lighting, control house, grounding system, foundation, metering

· 138kV relaying and controls and associated equipment

· RTU and EMS equipment and associated equipment

· AC and DC station service systems

· 138kV transmission line 13763 to New Church Substation

· 138kV transmission line 13787 to Pocomoke Substation

· 138kV transmission line 13765 to New Church Substation

· 69 kV transformer switches 7655 and 7624, distribution AC and DC station service and grounding, and distribution station fencing

26. Oak Hall 69kV Substation consisting of:

· 6 breaker ring bus with associated breaker disconnect switches

· 69 kV steel structures and wood poles

· 69 kV line and transformer disconnect switches

· 69 kV rigid and aerial bus, insulators, supports, lightning arresters, potential devices

· 69 kV capacitor bank, circuit breaker and associated bus and structures

· Fence, yard lighting, control house, grounding system, foundation, metering

· 69 kV relaying and controls and associated equipment

· RTU and EMS equipment and associated equipment

· AC and DC station service systems

· 69 kV transmission line 6717 to Wattsville 69kV Substation

27.	New Church 138 kV Substation (retained in it entirety)
28.	RTU at Tasley and Bayview
29.	Right of continued use of the space on communication towers in Virginia for PHI Microwave Land Mobile Radio Communications, MAS Radio equipment and Controller and some unlicensed radio equipment located between Onancock and Tasley.
30.	Retained Wattsville Substation Transmission Assets

Account	Asset	Asset description	Location
00003530	10736	BUS - (9810)	Wattsville
00003530	10738	FOUNDATION - (3259)	Wattsville
00003530	10740	FOUNDATION - (J30)	Wattsville
00003530	10742	FOUNDATION - (9993)	Wattsville
00003530	10744	FOUNDATION - (9810)	Wattsville
00003530	10746	FOUNDATION - (332101)	Wattsville
00003530	10748	FUSE EQUIPMENT, SET OF HIGH VOLTAGE 7.5KV (3249)	Wattsville
00003530	10750	INSTRUMENT - (9754)	Wattsville
00003530	10752	INSTRUMENT - (9993)	Wattsville
00003530	10766	INSULATORS - (J30)	Wattsville
00003530	10768	INSULATORS - (9993)	Wattsville
00003530	10770	INSULATORS - (9993)	Wattsville
00003530	10772	CABLE - (3259)	Wattsville
00003530	10774	CABLE	Wattsville
00003530	10776	CABLE - (9754)	Wattsville
00003530	10778	CABLE	Wattsville
00003530	10780	CONDUIT (3259)	Wattsville
00003530	10782	CONDUIT (J30)	Wattsville
00003530	10784	CONDUIT (9002)	Wattsville
00003530	10786	CONTROL INSTALLATION (9993)	Wattsville
00003530	10788	OIL CIRCUIT BREAKER 69KV,#7650,SER #0139A940201 GE	Wattsville
00003530	10790	OIL CIRCUIT BREAKER 69KV,#7630,SER#0139A4940202 GE	Wattsville
00003530	10792	OIL CIRCUIT BREAKER 69KV,#7620,SER#0139A4940203 WH	Wattsville
00003530	10796	PANEL (9754)	Wattsville
00003530	10797	PANEL - (9993)	Wattsville
00003530	10799	PANEL (9810)	Wattsville
00003530	10803	STATION GROUNDING SYSTEM (3259)	Wattsville
00003530	10805	STATION GROUNDING SYSTEM (J30)	Wattsville

00003530	10807	STRUCTURE (3259)	Wattsville
00003530	10809	STRUCTURE (J30)	Wattsville
00003530	10811	STRUCTURE (9993)	Wattsville
00003530	10813	STRUCTURE (9810)	Wattsville
00003530	10815	SWITCH,AIRBREAK,69KV,600A, N/A (J30)	Wattsville
00003530	10817	SWITCH,AIR BREAK,69KV,1200A, N/A (9993)	Wattsville
00003530	10819	SWITCH,DISCONNECT (INDIVIDUAL),69KV,600A,SOUTH STS	Wattsville
00003530	10821	POWER TRANSFORMER ,10KVA,N/A,SER #804693, MOL	Wattsville
00003530	10823	SURGE ARRESTER (LIGHTNING) 69KV (3259)	Wattsville
00003530	17210	ENGERGY CONTROL SYSTEM DEVICES J563	Wattsville
00003530	17211	FOUNDATION - (J30)	Wattsville
00003530	17212	CABLE (332101)	Wattsville
00003530	17213	CONTROL INSTALLATION (J563)	Wattsville
00003530	17214	SURGE ARRESTERS (LIGHTNING) 69KV (332101)	Wattsville
00003530	17215	GAS CIRCUIT BREAKER,72.5KV,#7660,SER#167Y1752,WEST	Wattsville
00003530	17216	GAS CIRCUIT BREAKER,72.5KV,#7610,SER#267Y1752,WEST	Wattsville
00003530	17217	PANEL (J563)	Wattsville
00003530	17218	STRUCTURE (J563)	Wattsville
00003530	19870	CABLE	Wattsville
00003530	19873	SURGE ARRESTER(LIGHTNING) 69KV	Wattsville
00003530	19875	PANELS	Wattsville
00003530	19877	PROTECTIVE RELAYS	Wattsville
00003530	35663	CAPACITOR; Bank 69kV 10.8MVAR	Wattsville
00003530	35664	SWITCHER; Circuit 69kV 1200Amps Pre Insert Z	Wattsville
00003530	35665	TRANSFORMER; Voltage 69kV 40250;115/67	Wattsville
00003530	35666	ARRESTER; Surge 69kV 40kV MCOV	Wattsville
00003530	35667	STRUCTURES; Steel	Wattsville
00003530	35668	PANEL; Relay	Wattsville
00003530	35669	CABLE; Control	Wattsville
00003530	35670	ENCLOSURE; Control Prefabricated	Wattsville
00003530	35671	BUS;	Wattsville
00003530	35672	FOUNDATIONS;	Wattsville
00003530	35673	PCB; SPS2-72.5-40-2000 SF6	Wattsville
00003530	35674	SYSTEM; Grounding	Wattsville
00003530	35675	TRANSFORMER; Voltage 34kV 20125:115	Wattsville
00003530	35676	CONDUIT;	Wattsville
00003530	35677	SWITCH; Gang Operated 69kV 1200A	Wattsville
00003530	35940	BUS; Conductor, Connectors, etc	Wattsville
00003530	36147	PANEL; Relay	Wattsville
00003530	36148	CCVT; 69kV/11567v 350kV BIL Trench	Wattsville
00003530	36149	CCVT; 69kV/11567v 350kV BIL Trench	Wattsville
00003530	37484	BUS; Primary	Wattsville
00003530	37485	TROUGH; Conduit and Cable	Wattsville
00003530	37498	CABLE; Control	Wattsville
00003530	37499	PANEL; Relay SEL351S "CA1"	Wattsville
00003530	37500	SWITCHER; Circuit 69kV 1200A Pre-Z Mark V	Wattsville
00003530	37501	GROUNDING;	Wattsville
00003530	37502	STRUCTURE; Steel 3Phase Bus Support	Wattsville
00003530	37503	ARRESTER; Surge 69kV Metal Oxide Polymer	Wattsville
00003530	37504	FOUNDATION; Cap Bank	Wattsville
00003620	11029	SWITCHES,AIR BREAK, 69KV,600A,DELTA STAR (9993)	Wattsville

00003620	22958	DISCONNECT SWITCH, 72.5KV, 1200A	Wattsville
00003520	4528	HEATING SYSTEM - (J30)	Wattsville
00003520	4541	OTHER BUILDING - 20' X 30' (9993)	Wattsville
00003520	4543	YARD LIGHTING SYSTEM - (9806)	Wattsville
00003971	37427	MASTER; MDS9790 Backup	Wattsville
00003971	37428	REMOTE; MDS9710 Backup	Wattsville

31. Retained Oak Hall Substation Transmission Assets

00003530	10533	BUS (9746)	Oak Hall
00003530	10535	BUS (9955)	Oak Hall
00003530	10537	CABLE (9746)	Oak Hall
00003530	10539	CABLE (9955)	Oak Hall
00003530	10541	CABLE (9098)	Oak Hall
00003530	10543	CABLE (9098)	Oak Hall
00003530	10545	CAPACITOR,SHUNT (9098)	Oak Hall
00003530	10549	OIL CIR BKR,69KV,1200A,#7240,SER #137671,AC	Oak Hall
00003530	10551	OIL CIR BKR,69KV,1200A,#7260,SER#0139A9080205,GE	Oak Hall
00003530	10553	OIL CIR BKR,138KV,1200A,#181,SER#0139A6467205,GE	Oak Hall
00003530	10555	CONDUIT (C851)	Oak Hall
00003530	10557	CABLE TROUGH (9955)	Oak Hall
00003530	10559	CABLE TROUGH (9098)	Oak Hall
00003530	10561	CONTROL INSTALLATION (9955)	Oak Hall
00003530	10563	FOUNDATION (9514)	Oak Hall
00003530	10565	FOUNDATION (9746)	Oak Hall
00003530	10567	FOUNDATION (9955)	Oak Hall
00003530	10569	FOUNDATION (9098)	Oak Hall
00003530	10571	INSULATOR (9514)	Oak Hall
00003530	10574	INSULATORS (9746)	Oak Hall
00003530	10576	INSULATORS (9955)	Oak Hall
00003530	10578	INSULATORS (9098)	Oak Hall
00003530	10580	PANEL (9746)	Oak Hall
00003530	10582	PANEL (9955)	Oak Hall
00003530	10584	PANEL (9098)	Oak Hall
00003530	10586	PANEL (9744)	Oak Hall
00003530	10588	POTENTIAL TRANSF,69KV,N/A,SER #6169, AC (9746)	Oak Hall
00003530	10592	POTENTIAL TRANSF,69KV,N/A,SER#6197,AC (9746)	Oak Hall
00003530	10598	STATION GROUNDING SYSTEM (9514)	Oak Hall
00003530	10600	STATION GROUNDING SYSTEM (9768)	Oak Hall
00003530	10602	STATION GROUNDING SYSTEM (9746)	Oak Hall
00003530	10604	STATION GROUNDING SYSTEM (9955)	Oak Hall
00003530	10606	STATION GROUNDING SYSTEM (9098)	Oak Hall
00003530	10608	SURGE ARRESTERS,(LIGHTNING) 69KV	Oak Hall
00003530	10610	SURGE ARRESTERS (LIGHTNING) 60KV	Oak Hall
00003530	10612	SURGE ARRESTERS (LIGHTNING) 69KV	Oak Hall
00003530	10614	SURGE ARRESTERS (LIGHTNING)60KV	Oak Hall
00003530	10616	SURGE ARRESTERS (LIGHTNING) 20KV	Oak Hall
00003530	10618	SWITCHES,AIR BREAK,69KV,600A,N/A (9514)	Oak Hall
00003530	10620	STRUCTURE (3334)	Oak Hall
00003530	10622	STRUCTURE (9514)	Oak Hall

00003530	10624	STRUCTURE (J35)	Oak Hall
00003530	10626	STRUCTURE (9746)	Oak Hall
00003530	10628	STRUCTURE (9955)	Oak Hall
00003530	10630	STRUCTURE (9098)	Oak Hall
00003530	10632	SWITCHES, DISCONNECT,INDIVIDIUAL 69KV,600A,N/A	Oak Hall
00003530	10636	SWITCHES,DISCONNECT,INDIVIDUAL,69KV,600A,N/A	Oak Hall
00003530	10638	SWITCHES,DISCONNET,INDIVIDUAL,69KV,600A,N/A	Oak Hall
00003530	10640	SWITCHES ,DISCONNECT,INDIVIDUAL,161KV,1200A,N/A	Oak Hall
00003530	10642	SWITCHES,DISCONNECT,INDIVIDUAL,69KV,600A,N/A	Oak Hall
00003530	10647	REGULATOR, INDUCTION 69 KV	Oak Hall
00003530	13574	BUS (9241)	Oak Hall
00003530	13575	CABLE (9354)	Oak Hall
00003530	13576	OIL CIR BKR,69KV,1200A,#7270,SER#23Y6125,WEST	Oak Hall
00003530	13578	CABLE TROUGH (9515)	Oak Hall
00003530	13579	CONTROL INSTALLATION (9685)	Oak Hall
00003530	13580	FOUNDATION (9241)	Oak Hall
00003530	13581	FOUNDATION (9515)	Oak Hall
00003530	13582	INSULATORS (9241)	Oak Hall
00003530	13583	INSULATORS (9515)	Oak Hall
00003530	13584	PANEL (9354)	Oak Hall
00003530	13585	PANEL (J563)	Oak Hall
00003530	13590	STATION GROUNDING SYSTEM (9241)	Oak Hall
00003530	13591	STATION GROUNDING SYSTEM (9515)	Oak Hall
00003530	13592	SURGE ARRESTER (LIGHTNING) 69KV (9241)	Oak Hall
00003530	13593	SWITCHES,AIR BREAK,138KV,1200A,N/A, (9515)	Oak Hall
00003530	13594	STRUCTURE (9241)	Oak Hall
00003530	13595	STRUCTURE (9515)	Oak Hall
00003530	13596	SWITCHES,DISCONNECT,INDIVIDUAL,69KV,1200A,N/A	Oak Hall
00003530	13597	SWITCHES,DISCONNECT,INDIVIDUAL,138KV,1200A,RUMSEY	Oak Hall
00003530	17183	ANNUNCIATOR (9685)	Oak Hall
00003530	17184	BUS (312801)	Oak Hall
00003530	17185	CABLE (312801)	Oak Hall
00003530	17187	CABLE TROUGH (312801)	Oak Hall
00003530	17188	CONTROL INSTALLATION (9685)	Oak Hall
00003530	17189	CONTROL INSTALLATION (312801)	Oak Hall
00003530	17190	FOUNDATION (312801)	Oak Hall
00003530	17191	INSULATORS (312801)	Oak Hall
00003530	17192	PANEL (9685)	Oak Hall
00003530	17193	PANEL (312801)	Oak Hall
00003530	17197	POTENTIAL TRANSF,138KV,N/A,SER#1503254 GE	Oak Hall
00003530	17198	POTENTIAL TRANSF,138KV,N/A,SER#1503255 GE	Oak Hall
00003530	17199	POTENTIAL TRANSF,138KV,N/A,SER#1503256 GE	Oak Hall
00003530	17200	STATION GROUNDING SYSTEM (312801)	Oak Hall
00003530	17201	SURGE ARRESTERS (LIGHTNING) 138KV (312801)	Oak Hall
00003530	17202	STRUCTURE (312801)	Oak Hall
00003530	17203	STRUCTURE (332003)	Oak Hall
00003530	17204	POWER TRANSF,138KV,N/A/,N/A,SER #C0654351 ME	Oak Hall
00003530	17205	SWITCHES,DISCONNECT,INDIVIDUAL,69KV,1200A,RUMSEY	Oak Hall
00003530	17206	SWITCHES,DISCONNECT,INDIVIDUAL,69KV,600A,N/A	Oak Hall
00003530	17207	BATTERY CHARGER,N/A,N/A,N/A (312801)	Oak Hall

00003530	17208	BATTERY,STORAGE,105A,125V,105A/H (312801)	Oak Hall
00003530	19857	RELAY	Oak Hall
00003530	27569	BREAKER,POWER,CIRCUIT,72.5KV,1200A	Oak Hall
00003530	27570	BREAKER,POWER,CIRCUIT,72.5KV,1200A	Oak Hall
00003530	27571	CABLE	Oak Hall
00003530	27572	PROTECTIVE RELAY	Oak Hall
00003530	27573	FOUNDATION	Oak Hall
00003530	27574	PANELS	Oak Hall
00003530	27575	PROTECTIVE RELAY	Oak Hall
00003530	35464	SWITCH; Disconnect 69kV 1200A 61kA	Oak Hall
00003530	35465	WIRE; 954 ACSR Aluminum	Oak Hall
00003530	35466	PRIMARY; Miscellaneous Connectors	Oak Hall
00003530	35467	INSULATORS; 69kV Suspension Polymer	Oak Hall
00003530	35468	SECONDARY; Miscellaneous Material	Oak Hall
00003530	35469	PANEL; Relay Line 13765 BU	Oak Hall
00003530	35470	PANEL; Relay Line 13765 FL	Oak Hall
00003530	35471	PANEL; Relay PCB 180 SB	Oak Hall
00003530	35472	BREAKER; Power Circuit 145kV 2000A 40kA	Oak Hall
00003530	35473	BREAKER; Power Circuit 145kV 2000A 40kA	Oak Hall
00003530	35474	BREAKER; Power Circuit 145kV 2000A 40kA	Oak Hall
00003530	35475	BREAKER; Power Circuit 145kV 2000A 40kA	Oak Hall
00003530	35476	BREAKER; Power Circuit 145kV 2000A 40kA	Oak Hall
00003530	35477	BREAKER; Power Circuit 72.5kV 2000A 40kA	Oak Hall
00003530	35478	TRANSFORMER; Auto 144/72kV 60/80/100MVA AT2	Oak Hall
00003530	35479	SWITCH; Disconnect 69kV 1200A 61kA	Oak Hall
00003530	35480	SWITCH; Disconnect 69kV 1200A 61kA	Oak Hall
00003530	35481	SWITCH; Disconnect 138kV 1200A 61kA	Oak Hall
00003530	35482	SWITCH; Disconnect 138kV 2000A 61kA	Oak Hall
00003530	35483	TRANSFORMER; Coupling Capacitor Voltage 80.5kV	Oak Hall
00003530	35484	TRANSFORMER; Coupling Capacitor Voltage 40kV	Oak Hall
00003530	35485	ARRESTER; Lightning 108kV 88kV MCOV PVN	Oak Hall
00003530	35486	ARRESTER; Lightning 60kV 48kV MCOV PVN	Oak Hall
00003530	35487	BUS;	Oak Hall
00003530	35488	INSULATORS; 138kV Suspension Polymer	Oak Hall
00003530	35489	INSULATORS; 138kV Station Post Porcelain	Oak Hall
00003530	35490	INSULATORS; 69kV Suspension Polymer	Oak Hall
00003530	35491	INSULATORS; 69kV Station Post Porcelain	Oak Hall
00003530	35492	PRIMARY; Miscellaneous Connectors	Oak Hall
00003530	35493	SECONDARY; Miscellaneous Material	Oak Hall
00003530	35494	CABLE; Control 3C#6	Oak Hall
00003530	35495	CABLE; Control 3C#10	Oak Hall
00003530	35496	CABLE; Control 5C#10	Oak Hall
00003530	35497	CABLE; Control 12C#12	Oak Hall
00003530	35498	FOUNDATIONS;	Oak Hall
00003530	35499	SYSTEM; Station Grounding	Oak Hall
00003530	35500	CONDUIT; Miscellaneous	Oak Hall
00003530	35501	STRUCTURES; Steel	Oak Hall
00003530	35502	PANEL; Relay Auxiliary Alarm	Oak Hall
00003530	35503	PANEL; Relay Auto-Sync Check	Oak Hall
00003530	35504	PANEL; Relay AT2 FL	Oak Hall
00003530	35505	PANEL; Relay AT2 BU	Oak Hall

00003530	35506	PANEL; Relay Line 13763 FL	Oak Hall
00003530	35507	PANEL; Relay Line 13763 BU	Oak Hall
00003530	35508	PANEL; Relay Line 13787 FL	Oak Hall
00003530	35509	PANEL; Relay Line 13787 BU	Oak Hall
00003530	35510	PANEL; Relay Line 13787 SBTT	Oak Hall
00003530	35511	PANEL; Relay Line 6790 BU	Oak Hall
00003530	35512	PANEL; Relay Line 6717 BU	Oak Hall
00003530	35513	PANEL; Relay Line 6778 BU	Oak Hall
00003530	35514	PANEL; Relay PCB 183 SB	Oak Hall
00003530	35515	PANEL; Control PCB 184	Oak Hall
00003530	35516	PANEL; Relay PCB 184 SB	Oak Hall
00003530	35517	PANEL; Control PCB 185	Oak Hall
00003530	35518	PANEL; Relay PCB 185 SB	Oak Hall
00003530	35519	PANEL; Control PCB 186	Oak Hall
00003530	35520	PANEL; Relay PCB 186 SB	Oak Hall
00003530	35521	PANEL; Control PCB 183	Oak Hall
00003530	35522	PANEL; Relay PCB 80 SB	Oak Hall
00003530	35523	PANEL; Relay PCB 7270 SB	Oak Hall
00003530	35524	PANEL; Relay PCB 7260 SB	Oak Hall
00003530	35525	PANEL; Relay PCB 7220 SB	Oak Hall
00003530	35526	PANEL; Control PCB 7290	Oak Hall
00003530	35527	PANEL; Relay PCB 7290 SB	Oak Hall
00003530	35528	PANEL; Relay PCB 7210 SB	Oak Hall
00003530	35529	BATTERY SYSTEM; 330AH 125VDC 60 Cell Lead Calcium	Oak Hall
00003530	35530	BATTERY CHARGER; 25A 125VDC Output 120/208/240VAC	Oak Hall
00003530	35531	RTU; Nells Automation Sage 2100	Oak Hall
00003530	36119	BREAKER; Gas Circuit SPS2-72.5 69kV 2000A	Oak Hall
00003520	4485	FENCE PERIMETER 6' GALV (ADJ 239)	Oak Hall
00003520	4487	FENCE-PERIMETER 1259 FT (ADJ239)	Oak Hall
00003520	4490	FIRE PROTECTION SYSTEM (ADJ 239)	Oak Hall
00003520	4492	LANDSCAPING (INITIAL) (ADJ 239)	Oak Hall
00003520	4494	LAND IMPROVEMENT-GRADING & FILL (ADJ 239)	Oak Hall
00003520	4496	YARD LIGHTING SYSTEM (ADJ 239)	Oak Hall
00003520	4498	YARD LIGHTING SYSTEM (ADJ 239)	Oak Hall
00003520	4500	OTHER BUILDING N/A (9955)	Oak Hall
00003520	4503	LAND IMPROVEMENT-GRADING & FILL (ADJ 257)	Oak Hall
00003520	4505	ROADS & DRIVES N/A (ADJ 257)	Oak Hall
00003520	12257	FENCE-PERIMETER N/A (ADJ 239)	Oak Hall
00003520	16826	ROADS & DRIVES N/A (ADJ 239)	Oak Hall
00003520	16827	OTHER BUILDING 25 X 20 (ADJ 257)	Oak Hall
00003520	16828	YARD LIGHTING SYSTEM (ADJ 257)	Oak Hall
00003520	16829	HEATING SYSTEM (ADJ 257)	Oak Hall
00003971	39190	AMPLIFIER; Crescend 150W 800MHz	Oak Hall
00003971	39191	AMPLIFIER; Crescend 150W 800MHz	Oak Hall
00003971	39192	AMPLIFIER; Crescend 150W 800MHz	Oak Hall
00003971	39193	AMPLIFIER; Crescend 150W 800MHz	Oak Hall
00003971	39194	AMPLIFIER; Crescend 150W 800MHz	Oak Hall
00003972	35552	RADIO EQUIPMENT	030
00003972	19873E1RADIO	RADIO EQUIPMENT	030
00003972	19893E1RADIO	RADIO EQUIPMENT	030
00003972	19903E1RADIO	RADIO EQUIPMENT	030

00003972	19913E1RADIO	RADIO EQUIPMENT	030
00003972	19943E1RADIO	RADIO EQUIPMENT	030
00003972	19953E1RADIO	RADIO EQUIPMENT	030
00003972	19963E1RADIO	RADIO EQUIPMENT	030
00003971	34494	Radio Equipment - HT1000 Portables ( 800 MHZ sys)	030
00003971	34495	Radio Equipment - MC2000 Mobiles ( 800 MHZ sys)	030
00003971	34496	Radio Equipment -MTS 2000 Portables( 800 MHZ sys)	030
00003971	34497	Radio Equipment -Astro Control Stations and	030
00003971	34498	Radio Equipment - Telecom infra upgrades, IDNX Exp	030

32. Retained Transmission Line Assets

Account	Asset	Asset description	Location	ASSETS
00003550	35095	POLE; 75 Ft Wood Class 1	13763
00003550	35096	POLE; 80 Ft Wood Class 1	13763
00003550	35097	POLE; 85 Ft Wood Class 1	13763
00003550	35100	POLE; 50 Ft Wood Class 1	13763
00003550	35087	POLE; 80 Ft Wood Class 1	13764
00003550	35088	POLE; 85 Ft Wood Class 1	13764
00003550	36931	POLE; 45ft Wood	6712
00003550	36932	POLE; 60ft Wood	6712
00003550	36933	POLE; 70ft Wood	6712
00003550	35124	POLE; 70FT Wood Class H1	6717
00003550	35125	POLE; 75FT Wood Class H1	6717
00003550	35126	POLE; 80FT Wood Class H1	6717
00003560	35098	WIRE; 7#8 AW 7STR Bare	13763
00003560	35099	WIRE; 954-45/7 ACSR Bare	13763
00003560	35127	WIRE; 954-45/7 ACSR Bare	6717
00003560	35128	WIRE; 7#8 -7STR AW Bare	6717
00003502	3836	LAND AND LAND RIGHTS - RIGHTS OF WAY	030
00003502	3840	LAND AND LAND RIGHTS - RIGHTS OF WAY	030
00003502	3849	LAND AND LAND RIGHTS - RIGHTS OF WAY	030
00003502	3855	LAND AND LAND RIGHTS - RIGHTS OF WAY	030
00003502	27182	LAND RIGHTS	030	Portion to be sold to ODEC
00003550	19483E000005	POLES AND FIXTURES	030
00003550	19523E000005	POLES AND FIXTURES	030
00003550	19533E000005	POLES AND FIXTURES	030
00003550	19563E000005	POLES AND FIXTURES	030
00003550	19583E000005	POLES AND FIXTURES	030
00003550	19603E000005	POLES AND FIXTURES	030
00003550	19613E000005	POLES AND FIXTURES	030
00003550	19653E000005	POLES AND FIXTURES	030
00003550	19673E000005	POLES AND FIXTURES	030
00003550	19693E000005	POLES AND FIXTURES	030
00003550	19703E000005	POLES AND FIXTURES	030
00003550	19713E000005	POLES AND FIXTURES	030
00003550	19763E000005	POLES AND FIXTURES	030
00003550	19793E000005	POLES AND FIXTURES	030

00003550	19823E000005	POLES AND FIXTURES	030
00003550	19833E000005	POLES AND FIXTURES	030	Portion to be sold to ODEC
00003550	19843E000005	POLES AND FIXTURES	030
00003550	19883E000005	POLES AND FIXTURES	030	Portion to be sold to ODEC
00003550	19903E000005	POLES AND FIXTURES	030	Portion to be sold to ODEC
00003550	19913E000005	POLES AND FIXTURES	030	Portion to be sold to ODEC
00003550	19923E000005	75 FT. POLE (VOC)	030	Portion to be sold to ODEC
00003550	19933E000005	POLES AND FIXTURES	030
00003550	19953E000005	POLES AND FIXTURES	030	Portion to be sold to ODEC
00003560	19413E000008	OVERHEAD CONDUCTORS AND DEVICES	030	Portion to be sold to ODEC
00003560	19483E000008	OVERHEAD CONDUCTORS AND DEVICES	030
00003560	19533E000008	OVERHEAD CONDUCTORS AND DEVICES	030
00003560	19643E000008	OVERHEAD CONDUCTORS AND DEVICES	030	Portion to be sold to ODEC
00003560	19673E000008	OVERHEAD CONDUCTORS AND DEVICES	030
00003560	19763E000008	OVERHEAD CONDUCTORS AND DEVICES	030	Portion to be sold to ODEC
00003560	19833E000008	OVERHEAD CONDUCTORS AND DEVICES	030	Portion to be sold to ODEC
00003560	19933E000008	OVERHEAD CONDUCTORS AND DEVICES	030

SCHEDULE 2.2(t)

Excluded Real Property

PLAN	MAP	SITE NAME	DEED NO.
AC-001.01	Q31	TASLEY SUBSTATION	VO200
AC-001.02	Q31	TASLEY SUBSTATION	VO207
AC-001.03	Q31	TASLEY SUBSTATION	VO215
AC-007.01	P32		VO208
AC-007.02	P32		VO209
NH-006.01	S29	KENDALL GROVE SUBSTATION	VO105
NH-008.01	T29	BAYVIEW SUBSTATION	VO111

SCHEDULE 3.2(a)(i)

Net Book Value Calculation

SAMPLE SALES PRICE ADJUSTMENT:

Sales Price                                                                                                      $39,825,000

Plus: Additional asset investment since November 30, 2006                               $  2,000,000

Less: Net Book Value of Retirements, Disposals, and Abandoned
Equipment since November 30, 2006                                                                 $    375,000

Adjusted Sales Price                                                                                       $41,450,000

SCHEDULE 4.3(a)

Seller's Defaults and Violations

None

SCHEDULE 4.3(b)

Seller's Required Regulatory Approvals

1. Approval under the Virginia Utilities Transfers Act from the Virginia State Corporation Commission.

SCHEDULE 4.4

Insurance

All DPL properties in Virginia which are covered by insurance are covered under blanket policies which also cover properties of other PHI entities and properties located in other states.

Property: Coverage is provided on an all-risk basis for specified locations. There is no coverage for transmission and distribution lines. The limits are $400 million per occurrence and deductibles vary.

Liability: Coverage is provided on a claims made basis and includes pollution coverage. The limits are $150 per occurrence and retention is $2 million.

SCHEDULE 4.5(c)

Required Easements

Seller has wire crossings with Eastern Shore Railroad, Inc. but cannot locate permits for the following locations:

· MP # 45.05

· MP # 52.90

· MP # 55.70

· MP # 64.60

· MP # 67.80

· MP # 68.90

· MP # 70.12

· MP # 76.30

· MP # 77.70

· MP # 79.21

· MP # 84.50

· MP # 86.00

SCHEDULE 4.6

Seller's Environmental Matters

1.	All matters identified on Phase I and Phase II reports prepared by NTH Consultants, Ltd.
2.	Seller received a letter dated January 3, 2006 from the United States Environmental Protection Agency (the "EPA"). The letter requested that Seller respond to a "First Information Request," pursuant to Section 104 of CERCLA and Section 3007 of RCRA with respect to a Carolina Transformer Site in Fayetteville, Cumberland County, North Carolina. According to the letter, the EPA received information from parties operating the Site that Seller may have conducted business with, or sent materials to, the site. Seller provided a timely response to the EPA's request, dated February 22, 2006. On August 25, 2006, Seller received a letter from the EPA stating that Seller has been identified as a party that sent PCB-laden oil to the Carolina Transformer Superfund Site and may potentially be a responsible party under Section 107(a) of CERCLA.
3.	Underground Storage Tanks
	The Exmore site includes two underground storage tanks, located outdoors to the west of the main building in the central portion of the Exmore Complex. One is a 10,000 gallon diesel double-walled fiberglass tank and the other is a 10,000 gallon diesel double-walled fiberglass tank.
4.	PCB Contaminated Equipment

· 7 PCB Capacitors at Wattsville Substation:

o B-399-CAP-10

o B-399-CAP-19

o B-399-CAP-20

o B-399-CAP-21

o B-399-CAP-22

o B-399-CAP-23

o B-399-CAP-24

	Additionally, to the Seller's Knowledge, the PCB status of substation electrical equipment is described in the equipment inventory contained in the SPCC Plan for each substation, which have been provided in due diligence.
5.	See attached list of Oil Spills from 1997 to 2007 and Manifests from 1998-2007.

SCHEDULE 4.8

Real Property and Transferred Easements

1.	See Schedule 1.1(104).
2.	See Schedule 2.1(a).
3.	See Distribution Army Corps of Engineer Permits Water Crossings provided by microfiche.
4.	See Distribution Easement Agreements provided by microfiche (current through 2002) (consent or approval may be required to transfer). See previously provided exmo.dist file for listing of Seller's easements through 1990.
5.	See list of Distribution Easement Agreements attached to Schedule 2.1(g) (consent or approval may be required to transfer).
6.	See list of Distribution Virginia Railroad Crossings attached to Schedule 2.1(g) (consent or approval may be required to transfer).
7.	See Department of Highway and Transportation Permits provided by microfiche (consent or approval may be required to transfer).

SCHEDULE 4.9(a)

Certain Seller's Agreements

1.	See Schedule 1.1(104) and Schedule 2.1(g).
2.	Service Agreement with Atlantic Coast Alarm, Inc. for monitoring of security systems.
3.	Service Agreement with Atlantic Coast Alarm, Inc. for repair of security systems.
4.	Service Agreement with JC Ehrlich Co. Inc. for pest control.
5.	Service Agreement with Trugreen Chemlawn for landscaping.
6.	Service Agreement with Waste Management of Delmarva for trash removal services.

SCHEDULE 4.9(b)

Seller's Agreements Exceptions

None

SCHEDULE 4.9(c)

Seller's Agreements Defaults and Violations

None

SCHEDULE 4.10

Legal Proceedings

1.	On March 10, 2006, DPL filed for a rate increase with the VSCC for its Virginia Default Service customers to take effect on June 1, 2006, which was intended to allow DPL to recover its higher cost for energy established by the competitive bid procedure. On June 19, 2006, the VSCC issued an order that granted a rate increase for DPL of $11.5 million ($8.5 million less than requested by DPL in its March 2006 filing), to go into effect July 1, 2006. In determining the amount of the approved increase, the VSCC applied the proxy rate calculation to DPL's fuel factor, rather than allowing full recovery of the costs DPL incurred in procuring the supply necessary for its Default Service obligation. The estimated after-tax earnings and cash flow impacts of the decision are reductions of approximately $3.6 million in 2006 (including the loss of revenue in June 2006 associated with the Default Service rate increase being deferred from June 1 until July 1) and $2.0 million in 2007. The order also mandated that DP L file an application for Default Service rates to become effective June 1, 2007, including a calculation of the fuel factor that is consistent with the procedures set forth in the order. On April 2, 2007, DPL filed the application in accordance with the terms of the order. The calculations in the application result in a rate decrease of approximately $1.7 million for the first period, June 1 to June 30, 2007, and an increase of approximately $4.2 million for the second period, July 1, 2007 to May 31, 2008, or an overall annual rate increase of approximately $2.5 million.
2.	In February 2007, the Virginia General Assembly passed amendments to the Virginia Electric Utility Restructuring Act to become effective on July 1, 2007(the Virginia Restructuring Act) that modified the method by which investor-owned electric utilities in Virginia will be regulated by the VSCC. The amendments provide that, as of December 31, 2008, the following will terminate: (i) capped electric base rates (the previous expiration date was December 31, 2010); (ii) DPL's Default Service obligation (previously, DPL was obligated to continue to offer Default Service until relieved of that obligation by the VSCC); and (iii) customer choice, except that customers with loads of five megawatts or greater will continue to be able to buy from competitive suppliers, as will smaller non-residential customers that aggregate their loads to reach the five-megawatt threshold and obtain VSCC approval. Additionally, if an ex-customer of Default Service wants to return to DPL as its energy supplier, it must give five y ears notice or obtain approval of the VSCC that the return is in the public interest. In this event, the ex-customer must take DPL's service at market based rates.
	DPL also believes that the amendments to the Virginia Restructuring Act will terminate, as of December 31, 2008, the ratemaking provisions within the memorandum of agreement entered into by DPL, the staff of the VSCC and the Virginia Attorney General's office in the docket approving DPL's generating asset divestiture in 2000 (the MOA), including the application of the proxy rate calculation to DPL's fuel factor as discussed above; however, the VSCC's interpretation of these provisions is not known.
3.	See Schedule 4.6.

4. See the Order by the Virginia State Corporation Commission in Case No. PUE-2007-00013, Application of Delmarva Power & Light For an increase in its electric rates pursuant to Va. Code § 56-249.6 and § 56-582.

SCHEDULE 4.12

Brokers; Finders

None

SCHEDULE 4.14

No Material Adverse Effect

1.	See Schedule 4.10.
2.	See Schedule 4.6.

SCHEDULE 5.3(a)

Buyer's Defaults and Violations

None

SCHEDULE 5.3(b)

Buyer's Required Regulatory Approvals

1.	Approval under the Virginia Utilities Transfers Act from the Virginia State Corporation Commission
2.	Certificate of Public Convenience & Necessity from the Virginia State Corporation Commission

SCHEDULE 6.1

Conduct of Business Exceptions

1.	Seller plans to install a 138 kV to 69 kV step-down transformer in the Wattsville 69 kV substation, with an in-service date of May 2009.
2.	Replacement of Tasley CB 3450
3.	Replacement of CB 20 at Kellam
4.	Replacement of CB 570 at Wattsville

SCHEDULE 6.1(f)

Seller's Budget

See attached Seller's Budget.

SCHEDULE 6.2(e)(i)

Phase I Scope of Environmental Site Assessments

See attached Proposal for Phase I and Phase II Environmental Site Assessments in DP&L Service Territory, and a Facility in Virginia.

SCHEDULE 6.2(e)(ii)

Phase II Scope of Environmental Site Assessments

See Proposal for Phase I and Phase II Environmental Site Assessments in DP&L Service Territory, and a Facility in Virginia, attached to Schedule 6.2(e)(i).

SCHEDULE 6.9(b)

Signing Bonuses

Delmarva Power Incentive Package
Incentive Will be by Delmarva Power to Employees Who Accept Employment With A&N

One Time Payment to be Offered to Delmarva Exmore Employees
Who Accept Employment With ANEC at Closing of Transaction

Journeyman Lineman or T&S Lineman		Staking Engineer	Meter Reader
0 to 19 Years of Service	20 Years of Service	5 years of Service	20 Years of Service
$15,000	$20,000	$5,000	$2,500

Each employee who accepts employment with ANEC at closing of the transaction will be paid a one time separation fee based on the categories listed above for which they qualify.

SCHEDULE 6.14

Disconnection Plan

Note: This outline assumes a November 1, 2007 Closing Date. Appropriate adjustments shall be made if Closing is delayed.

Buyer and Seller shall mutually agree as soon as practicable after the date hereof on a customer transition plan, including but not limited to the following:

-	Final bills will be issued on customer's normal October meter reading.
-	A process and system change will be made at Delmarva so that the customer deposit is not applied to the customer's final bill balance. The deposit will be transferred to A&N, as set forth in the Agreement.
-	Delmarva will hold final bills and will mail multiple cycles once a week.
-	Delmarva will transfer weekly file to A&N with 5 cycles of final bill accounts. Delmarva final bill insert will include transition information, and an envelope addressed to A&N for final payment.
-	Delmarva will not have ability to cut-off customers for nonpayment or obtain regulatory recovery of uncollectibles after transition.
-	A&N will take over responsibility for customer contact as of the final bill being issued.
-	A&N and Delmarva may need to coordinate work activities through the month of October to minimize impact to customer such as outage response.
-	Physical cutover will take place November 1.
-	Delmarva and A&N will conduct a true-up for Delmarva's unbilled revenue (revenue between individual customer's final October reading and the actual cutover of November 1). A&N will reimburse Delmarva at the Delmarva tariff rate for the October unbilled revenue. A&N will account for changing rates, recognizing the first A&N bill will be partially based on Delmarva rates and partially based on A&N rates.
-	Delmarva will transfer deposits to A&N. Delmarva will not calculate year to date interest on the deposit, nor will they apply the deposit to the final bill balance. A&N's vendor, NISC, will apply the deposit interest due to the customer on A&N bill. A&N to pay Delmarva for outstanding A/R and unbilled revenue as set forth in the Agreement.
Final Billing
-	Delmarva will final bill customers on their scheduled October meter readings.
-	Delmarva will attempt to get actual readings in August, September, and October. In the event an October meter read is not obtained, having actual readings from August and September will increase accuracy of estimate. In addition, October is a shoulder month which increases the accuracy of estimation.
-	Delmarva stores deposit information in a separate account. Delmarva will not calculate year to date interest on the deposit, nor will they apply the deposit to the final bill balance.
-	Delmarva final bill package will include final bill, insert about transition, and envelope addressed to A&N.

-	Delmarva will hold the final bills and will mail several cycles at one time (mailing will be done about once a week which will result in extra postage)
-	After final billing is done, the account becomes inactive which means the only activity that can be done within the Delmarva system will be to create an outage (via Navigator only).
-	Delmarva will return any customer payments made inadvertently to Delmarva which is our normal process.
-	Delmarva provided A&N a sample of the (bill print) Doc 1 file. It appears that Buyer will be able to access an image of the final bill to assist in answering customer's questions, as needed.
-	Delmarva will file and remit the money to the various taxing agencies for the final Delmarva bill, but the Buyer will file and remit the taxes for the period between the billing cutover (and reduce their unbilled revenue payment to us by the appropriate amount).
Questions / Corrections to final bills
-	The customer call would go to A&N as communicated in the final bill.
-	A&N would work with Delmarva billing to determine the amount of the bill correction by exception, if needed.
-	Any true-up of revenue would be handled as part of a reconciliation process.
Transfer data
-	Delmarva will create weekly files to pass to A&N. These files will contain multiple days' worth of bill cycles final bills.
-	The format sent by Delmarva will essentially be the same as Delmarva used in the St. Michael's transfer which is familiar to NISC.
-	Delmarva will be sending final account balance, as well as payment history to A&N.
-	Delmarva will be sending the deposit balance information to A&N. This is a separate account within Delmarva's system, but Delmarva will include a cross reference to the billing account. Information included will be deposit amount, date deposit paid in full, account to which deposit applies. This was not done for the St. Michael's interface.
PJM
-	Delmarva will continue to be responsible for all customer load and related PJM services that are not supplied by a Third Party Supplier through October 31.
-	A&N's supplier (presumably ODEC) will be responsible for all customer load and related PJM services as of November 1.
-	Delmarva will include the transferred load in ODEC's eSCHEDULE and eRPM capacity / transmission responsibilities beginning November 1.

SCHEDULE 6.20

Remediation Standards

PCB Contamination	Remediation shall be conducted in accordance with the standards set forth in 40 CFR 761.61 for restricted access industrial property (25 ppm).
Petroleum	Soils shall be remediated to a level of one thousand (1,000) parts per million or less of TPH.
Lead	Soils shall be remediated to a level of eight hundred (800) parts per million or less of lead, however, if Seller enters the regulatory process with respect to any lead Remediation, then Seller may remediate to any risk based standards accepted by the regulatory agency.

SCHEDULE 7.1(b)

Certain Buyer's Required Regulatory Approvals

See Schedule 5.3(b).

SCHEDULE 7.2(b)

Certain Seller's Required Regulatory Approvals

See Schedule 4.3(b).

EX-10.3

EMPLOYMENT AGREEMENT

          This EMPLOYMENT AGREEMENT (the "Agreement") is made as of July 26, 2007 between PEPCO HOLDINGS, INC. (the "Company") and DENNIS R. WRAASE (the "Executive ").

RECITALS:

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

          The Compensation/Human Resources Committee of the Board of Directors (the "Committee") has recommended, and the Board of Directors has approved, entering into an amended and restated employment agreement with the Executive in order to achieve the foregoing objectives. Accordingly, this Agreement amends, restates and supersedes the employment agreement previously entered into between the Company and the Executive, dated August 1, 2002 when the Executive was Chief Operating Officer (the "Prior Agreement"). The Prior Agreement was not amended when the Executive became Chief Executive Officer in April 2003. Upon execution of this Agreement, the Prior Agreement shall be of no further force or effect. The Executive is a key management executive of the Company and is a valuable member of the Company's management team. The Company acknowledges that the Executive's contributions to the past and future growth and success of the Company have bee n and will continue to be substantial. The Company and the Executive are entering into this Agreement to induce the Executive to remain an employee of the Company and to continue to devote his full energy to the Company's affairs. The Executive has agreed to continue to be employed by the Company under the terms and conditions hereinafter set forth.

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

1.          Term of this Agreement. The term of this Agreement shall begin on the date first set forth above and shall end on the Executive's normal retirement date of April 1, 2009 (the "Term of this Agreement") or, if earlier, after all of the Company's and the Executive's obligations hereunder have been satisfied following termination of the Executive's employment during the Term of this Agreement.

1

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

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

4.          Compensation and Benefits.

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

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

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

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

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

2

5.          Termination of Employment.

             (a)          If, during the Term of this Agreement, the Company terminates the Executive's employment other than for Cause (as defined in Section 8), the Executive shall be entitled to receive the benefits described in Paragraph 7. below.

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

6.          Disability or Death. Upon the Executive's death or disability, the provisions of Sections 1, 2, 4, and 5 of this Agreement will terminate. Except as provided in Paragraph 7, this contract provides no benefits due to disability or death in addition to any death, disability and other benefit provided under the Company benefit plans in which the executive participates. The Executive shall be considered disabled if the Executive is entitled to long-term disability benefits under the Company's disability plan or policy.

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

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

             (b)          The Executive shall receive financial services (for tax preparation and planning) at the Company's expense until the Executive's 70th birthday, at the same level as was received by him prior to his termination. To the extent required pursuant to Section 409A of the Internal Revenue Code, all tax preparation services in respect of a taxable year must be completed prior to March 15 of the calendar following the year to which such services relate. For example, tax return preparation services in respect of the tax return to be filed in 2010 with regard to calendar year 2009 must be completed no later than March 15, 2011.

             (c)          All outstanding Service-based Restricted Stock awarded to the Executive under the terms of the Company's Long Term Incentive Plan shall vest upon the completion of the term of this Agreement and all Performance-based Restricted Stock shall vest on a prorated basis for service during the applicable Performance Period.

             (d)          The Executive shall receive all benefits to which he is entitled under any Company generally applicable welfare and savings plans; and under any executive benefit plan in which he currently participates as would be available to any similarly situated retired Company executive, all in accordance with the terms of the plans.

             (e)          The Executive agrees that he will not be eligible to be a participant in the Company's Annual or Long Term Incentive Plans for the 2009 plan year.

             (f)          Notwithstanding the above, if the Executive qualifies as a "specified employee", as defined in Section 409A(2)(B)(i) of the Internal Revenue Code at the time of the Executive's separation from service for any reason other than death, any benefits otherwise payable pursuant to this Section 7 which are subject to Section 409A shall be

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subject to a six month deferral in payment and will not be otherwise payable or provided to the Executive until six months after the date of such separation from service. Any amounts that are deferred in respect of this six month restriction shall be paid to Executive as soon as practicable after the end of the six-month period, at which time any remaining payments and benefits will continue to be paid and provided for in the normal form described in this Section 7.

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

9.          Termination. This Agreement shall terminate upon the successful completion of the Term of this Agreement; provided, however, that if the Executive's employment is terminated during the Term of this Agreement and the Company's and the Executive's obligations under Sections 5, 7, 10 or 11 hereof have not been satisfied as of the last day of the Term of this Agreement, such obligations shall survive the expiration of the Term of this Agreement and shall remain in effect until such time as all such obligations have been satisfied.

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

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

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

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

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

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

          WITNESS the following signatures.

		PEPCO HOLDINGS, INC.
	By:	/s/ WILIAM T. TORGERSON
		EXECUTIVE
		/s/ D. R. WRAASE
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