Pepco, Conectiv Complete Merger, Form New Holding Company; Merger Transparent to Customers

Thursday, August 01, 2002

Potomac Electric Power Company (Pepco) today completed its merger withWilmington, Del.-based Conectiv, creating a regional power delivery companypositioned for growth in a more competitive energy environment.

The two companies will retain their names and continue to operate separately,making the merger transparent to customers. Each company will be a subsidiaryof Pepco Holdings, Inc. (PHI), a newly formed holding company with headquartersin Washington, D.C. PHI common stock is listed on the New York Stock Exchangeand trades under the symbol "POM."

"The combined companies will have greater resources, allowing usto deliver greater value and service to our customers and shareholdersalike," said John M. Derrick, Jr., PHI Chairman and Chief ExecutiveOfficer. "Both Pepco and Conectiv share a commitment to responsive,reliable service and PHI will continue both companies'' strong traditionsof support for the communities we serve."

Conectiv President Thomas Shaw said, "In addition to the many benefitsof the merger, it is important to note what will stay the same. Customerswill still deal with the same local utility company, calling the samephone numbers and paying their bills the same way."

PHI companies will have combined assets of more than $12 billion andfor 2001 had combined revenues of $8 billion. PHI serves more than 1.8million customers in Delaware, the District of Columbia, Maryland, NewJersey and Virginia. Combined, the two utilities deliver about 50,000gigawatt-hours of power annually.

The merger offers significant benefits to customers. PHI, by virtue ofits size and scope, will be better positioned to enhance delivery servicesand improve system reliability while keeping costs down by spreading suchcosts over a larger customer base. The proximity of the two companiesalso will permit them to share resources during weather emergencies, speedingrepairs when necessary. The merger is not expected to result in significantworkforce reductions and all union contracts will be honored.

John M. Derrick, Jr. will be PHI''s Chairman and Chief Executive Officerand Dennis R. Wraase, recent past President and Chief Operating Officerof Pepco, will be President and Chief Operating Officer of PHI. WilliamT. Torgerson will be Executive Vice President and General Counsel, PHI;Andrew W. Williams will be Senior Vice President and Chief Financial Officer,PHI, and Thomas S. Shaw will be Executive Vice President, PHI and Presidentof Conectiv.

The combined company has five principal operatingunits:

  • Pepco led by William J. Sim, President;
  • Conectiv Power Delivery led by Joseph M. Rigby,President;
  • Conectiv Energy led by William H. Spence, President;
  • Pepco Energy Services led by Eddie R. Mayberry,President; and
  • Potomac Capital Investment Corporation led byJohn D. McCallum, President.

The above executives also are Senior Vice Presidentsof PHI. Barbara Graham, also Senior Vice President, PHI, will head PHI''sCorporate Services.

The merger agreement was announced in February 2001and received the approvals of shareholders of both companies, federalregulatory agencies and regulatory authorities in states where Pepco andConectiv operate.

Under terms of the merger agreement, PHI acquiredConectiv for a combination of cash and stock valued at approximately $2.2billion.

In the merger, the outstanding shares of Pepco commonstock are being exchanged for shares of PHI common stock on a one-for-onebasis. The outstanding shares of Conectiv common stock and Conectiv ClassA common stock are being exchanged for 50 percent cash and 50 percentPHI common stock, with the amount of cash and the number of shares ofPHI common stock received by each Conectiv shareholder to be determinedby the exchange ratios and the election, if any, made by the Conectivshareholder and the prorationing provisions of the merger agreement. PHIexpects to announce the final results of the Conectiv shareholder electionsand the application of the prorationing provisions on or before Aug.16,2002.

Pepco Holdings'' Board of Directors has declared a dividend on commonstock of $.16576079 per share payable Sept. 30, 2002, to shareholdersof record on Sept. 10, 2002. The $.16576079 dividend per share is thepro rata amount of $.25 for the number of days in the quarter from andincluding Aug.1, 2002 (the day of the effective time of the merger) toand including Sept. 30, 2002.

Pepco delivers electricity to more than 700,000 customers in a 640-squaremile area that includes the District of Columbia and major portions ofPrince George''s and Montgomery counties in suburban Maryland. Conectivprovides regulated electric service to more than 1 million customers ina 7,500-square-mile area that includes Delaware, Maryland, New Jerseyand Virginia. It also delivers natural gas to about 100,000 customersin northern Delaware. Conectiv also operates a portfolio of "mid-merit"power plants that can stop and start quickly in response to changes incustomer demand.

Information about PHI is available at www.pepcoholdings.com.

Forward-Looking Statements:
Except for historical statements and discussions, the statements in thispress release constitute "forward-looking statements" withinthe meaning of the federal securities laws. These statements contain management''sbeliefs based on information currently available to them and on variousassumptions concerning future events. Forward-looking statements are nota guarantee of future performance or events. They are subject to a numberof uncertainties and other factors, many of which are outside the company''scontrol. In connection with the transaction, additional important factorsthat could cause actual results to differ materially from those in theforward-looking statements herein include risks and uncertainties relatingto delays in obtaining, or adverse conditions contained in, related regulatoryapprovals, changes in economic conditions, availability and cost of capital,changes in weather patterns, changes in laws, regulations or regulatorypolicies, developments in legal or public policy doctrines and other presentlyunknown or unforeseen factors. These uncertainties and factors could causeactual results to differ materially from such statements. The companydisclaims any intention or obligation to update or revise any forward-lookingstatements, whether as a result of new information, future events or otherwise.This information is presented solely to provide additional informationto further understand the results and prospects of the company.