• Hiring Employees of Auditor

  • Under the federal securities laws, the annual consolidated financial statements of Pepco Holdings, Inc. ("PHI") and its consolidated subsidiaries must be audited by an "independent" auditor; and

    In accordance with the listing standards of the New York Stock Exchange, the Audit Committee Charter provides that, among its responsibilities, the Audit Committee is required to "set clear hiring policies for employees or former employees of the independent auditor;" and

    Under the rules of the Securities and Exchange Commission (the "SEC"), an auditor will not qualify as "independent" if the audit client employs certain current or former employees of its auditor; and

    In order not to impair the independence of the auditor of PHI's consolidated financial statements, and to avoid any potential conflict of interest either in fact or appearance, the Audit Committee adopted the following policy with respect to, among other things, the hiring by PHI or any subsidiary of current or former employees of its independent auditor or the independent auditor of any of its benefit plans(the "Independent Auditor"):

    • None of PHI or any of its subsidiaries shall employ or permit to serve on its board of directors any current partner, principal, shareholder or professional employee of the Independent Auditor.
    • None of PHI or any of its subsidiaries shall employ a "close family member" of a "covered person" in an accounting role or financial reporting oversight role.
    • None of PHI or any of its subsidiaries shall employ a former partner, principal, shareholder or professional employee of the Independent Auditor in an accounting role or a financial reporting oversight role, unless the individual:
    • None of PHI or any of its subsidiaries shall employ a former partner, principal, shareholder or professional employee of the Independent Auditor in a financial reporting oversight role, unless the individual was not a member of the audit engagement team during the one-year period preceding the date the audit procedures commenced for the fiscal period that included the date of the initial employment of such person by PHI.
    • Certain of the terms used in this Policy are defined as follows:
      • An "accounting role" means a role in which a person is in a position to or does exercise more than minimal influence over the contents of the accounting records or anyone who prepares the accounting records.
      • An "audit partner" means a partner or persons in an equivalent position (other than a partner who consults with others on the audit engagement team during the audit, review or attestation engagement regarding technical or industry-specific issues, transactions or events) who is a member of the audit engagement team and who has responsibility for decision-making on significant auditing, accounting and reporting matters that affect the financial statements, or who maintains regular contact with management and the Audit Committee and includes the following:
        • the lead or coordinating audit partner having primary responsibility for the audit or review;
        • the partner performing a second level of review to provide additional assurance that the financial statements subject to the audit or review are in conformity with generally accepted accounting principles ("GAAP") and the audit or review and any associated report are in accordance with generally accepted auditing standards ("GAAS") and rules promulgated by the SEC or the Public Company Accounting Oversight Board (the "concurring or reviewing partner");
        • other audit engagement team partners who provide more than ten hours of audit, review or attest services in connection with the annual or interim consolidated financial statements; and
        • other audit engagement team partners who serve as the lead partner in connection with any audit or review related to the annual or interim financial statements of a PHI subsidiary whose assets or revenues constitute 20% or more of the assets or revenues of PHI's consolidated assets or revenues.
      • A "close family member" of a person means such person's spouse, spousal equivalent, parent, dependent, nondependent child or sibling.
      • A "covered person" means:
        • all partners, principals, shareholders and professional employees participating in an audit, review or attestation engagement with respect to PHI or any of its subsidiaries, including audit partners and all persons who consult with others on the audit engagement team during the audit, review or attestation engagement regarding technical or industry-specific issues, transactions or events;
        • all persons who:
          • supervise or have direct management responsibility for the audit, including all successively senior levels through the accounting firm's chief executive,
          • evaluate the performance or recommend the compensation of the audit engagement partner, or
          • provide quality control or other oversight of the audit;
        • any other partner, principal, shareholder or managerial employee if the Independent Auditor who has provided ten or more hours of non-audit services to PHI or any of its subsidiaries for the period beginning on the date the non-audit services are provided and ending on the date the Independent Auditor signs the report on the financial statements for the fiscal year during which those services are provided, or who expects to provide ten or more hours of non-audit services to the audit client on a recurring basis; and
        • any other partner, principal or shareholder from the office of the accounting firm in which the lead audit engagement partner primarily practices in connection with the audit.
      • A "financial reporting oversight role" means a role in which a person is in a position to or does exercise influence over the contents of the financial statements or anyone who prepares the financial statements (including a member of the board of directors, the chief executive officer, president, chief financial officer, chief operating officer, general counsel, chief accounting officer, controller, director of internal audit, director of financial reporting, treasurer or any equivalent position).