Corporate Governance - Business Policies

Fair Disclosure (Regulation FD)

Regulation FD prohibits the Company, through certain representatives, from selectively disclosing material nonpublic corporate information to securities industry professionals, including securities analysts. Pepco Holdings and its subsidiaries will comply fully with Regulation FD.

I. Summary of Regulation FD
Which Company personnel are covered?
Regulation FD applies to statements made by the following Company representatives (which Regulation FD defines as "Senior Officials").

  • directors (including both employee directors and outside directors)
  • the president
  • any vice president in charge of a principal business unit, division or function (such as transmission, distribution, finance/treasury)
  • any other officer who performs policy making functions for the Company (including the CEO, CFO and COO)
  • any other person who performs a policy making function for the Company (including an executive officer of a subsidiary)
  • any investor relations officer (or person with similar functions)
  • any public relations officer (or person with similar functions)
  • any other officer, employee or agent of the Company who regularly communicates with the types of recipients of information covered by Regulation FD or stockholders
  • any other person who makes a type of communication covered by Regulation FD at the direction of any of the above-listed persons

To whom must a statement be made in order to be covered by Regulation FD?
Statements must be made to any of the following:

  • broker-dealers and associated persons 
  • investment advisers (i.e., securities analysts) and associated persons
  • institutional investment managers and affiliated persons
  • stockholders of the Company (if the information is communicated under circumstances in which it is reasonably likely that the stockholder will purchase or sell the Company's securities on the basis of the information)

What kind of information is covered?
The information covered must be material nonpublic information.
Materiality is not a defined term, but the established standard for materiality is whether there is a substantial likelihood that the fact, if known, would be viewed by the reasonable investor either (i) as having significantly altered the total mix of information made available or (ii) as being important in making an investment decision. In addition, the SEC has published a noninclusive list of types of information which should be reviewed carefully, under the circumstances, to determine materiality:

  • earnings information*                    
  • mergers, acquisitions, tender offers, joint ventures, or changes in assets                    
  • new products or discoveries                    
  • developments regarding customers or suppliers (such as the acquisition or loss of a contract)                    
  • changes in control or in management                    
  • a change in auditors or notification by the auditor that the Company may no longer rely on an auditor's audit report                    
  • events regarding the issuer's securities (such as defaults on senior securities, calls of securities for redemption, repurchase plans, stock splits or changes in dividends, changes to the rights of security holders, public or private sales of additional securities)                    
  • bankruptcies or receiverships

If material nonpublic information is disclosed selectively, what does Regulation FD require to be done?
The information must be disclosed publicly on the following timetable, which depends upon whether the disclosure was intentional or unintentional.

  • A disclosure is "intentional" when the Senior Official making the disclosure on behalf of the Company either knows, or is reckless in not knowing, prior to making the disclosure that the information being communicated is both material and nonpublic. Regulation FD requires any intentional disclosure of material nonpublic information be accompanied by a simultaneous public disclosure of the information.
                        
  • Any disclosure that is not "intentional" is deemed "unintentional." Any unintentional disclosure of material nonpublic information by a Senior Official must be followed promptly by a public disclosure. The term "promptly" is defined to mean as soon as reasonably practicable (but in no event later than (i) 24 hours later or (ii) the opening of trading on the next trading day on the NYSE, whichever is later) after a Senior Official of the Company learns that there has been an unintentional disclosure and the senior official knows, or is reckless in not knowing, that the information is both material and nonpublic.

    Public disclosure is accomplished in the following ways:
                        
  • Filing a Form 8-K with the SEC                    
  • Distributing a press release through a widely circulated news or wire service
  • Holding a conference call that members of the public can listen to by telephone or other electronic transmission such as an Internet web cast (after being given adequate notice of the call and the means for accessing it)

What are the penalties for a violation of Rule FD?
Violation of the rule could result in any one of the following sanctions against the Company:

  • a cease and desist order issued in an SEC administrative proceeding;
  • injunctive relief obtained in a civil judicial proceeding; or                    
  • civil monetary penalty imposed in a judicial proceeding.

In addition, the SEC may issue a cease and desist order, or obtain other sanctions, against a Company official who is responsible for the Company's violation of Regulation FD.
II. Applicability of the Rule to Pepco Holdings and its Subsidiaries

Who are the individuals who should be considered to be "Senior Officials" at Pepco Holdings and its Subsidiaries and therefore are covered by Regulation FD?

Jack B. Dunn, IV Robert Hainey
Terence C. Golden John U. Huffman
Patrick T. HarkerDebbi Jarvis
Frank O. Heintz Anthony J. Kamerick
Barbara J. Krumsiek Donna J. Kinzel
George F. MacCormack Matthew A. Likovich
Lawrence C. Nussdorf Sandra J. May
Joseph M. Rigby Gary J. Morsches
Frank K. Ross Kevin M. McGowan
Pauline A. Schneider Beverly L. Perry
Lester P. Silverman Ellen Sheriff Rogers
Arturo F. Agra Bridget A. Shelton
Karen G. Almquist Brian M. Shivery
E. Clay Anderson David M. Velazquez
Ronald K. Clark Bill R. Yingling
Robert A. Dobkin Anton Zeithammel
Kirk J. Emge  

Who are the analysts that regularly follow Pepco Holdings?
Note: The investment analyst firms which typically write reports on Pepco Holdings for public release are listed below; however, the requirements of Regulation FD apply to any securities analyst, institutional investor or shareholder with whom a Senior Official has contact.

Argus Research Company
Barclays Capital
Credit Suisse - North America
Edward Jones
Hilliard Lyons
J.P. Morgan
KeyBanc Capital Markets
Soleil - Power Insights
Standard & Poors
Valuengine, Inc.
Wells Fargo Securities
Wunderlich Securities

What about communications to rating agencies, lawyers, investment bankers and accountants?
Regulation FD expressly permits disclosures to rating agencies, provided that the information is used solely for developing a credit rating and such rating is made publicly available.

Communications made to the Company's lawyers, investment bankers and accountants (i.e., professionals who owe the Company a duty of trust or confidence) are also excluded from Regulation FD.

What is the Company's policy regarding release of information?
As a matter of policy, the Company will continue communication with the investment community and will coordinate all such communication through the Investor Relations Department. Accordingly, the only individuals who are authorized to talk to analysts at conferences or at industry group meetings are Joseph M. Rigby, David M. Velazquez, Anthony J. Kamerick, John U. Huffman, Gary J. Morsches, Donna J. Kinzel and Brian M. Shivery. Further, Donna J. Kinzel and Brian M. Shivery are the only employees who are authorized, as part of their daily duties, to talk to shareholders** or other individuals who call in to the Company with questions of a financial nature. Of course, Donna J. Kinzel and Brian M. Shivery may consult with any Company employee to gather answers to questions. If employees receive inquiries about the Company or its subsidiaries of a financial nature, they should refer the caller to Donna J. Kinzel or Brian M. Shivery (302-429-3004).

The announcement of earnings will be made by a press release prior to or simultaneously with any discussion of earnings.

The status of meetings with analysts (either in groups or one-on-one) is evolving.  Group meetings, one-on-one meetings and private telephone calls with analysts are permitted under Regulation FD, but material nonpublic information must not be disclosed in such meetings.  Extreme caution must be exercised in these meetings or on these calls to ensure that only publicly disclosed information is discussed.  If material nonpublic information is to be released intentionally, in such a meeting or telephone conversation, simultaneous public disclosure will have to be made.  If an unintentional disclosure of material nonpublic information is made at such a meeting or on the telephone, it will be necessary to release the information within 24 hours (or the opening of the NYSE, whichever is later) of the unintentional disclosure in accordance with Regulation FD.

* Please note: The SEC specifically warns that a private discussion with an analyst who is seeking guidance regarding an earnings estimate involves a "high degree of risk under Regulation FD." According to the SEC:

"If the issuer official communicates selectively to the analyst nonpublic information that the company's anticipated earnings will be higher than, lower than, or even the same as what analysts have been forecasting, the issuer likely will have violated Regulation FD. This is true whether the information about earnings is communicated expressly or through indirect "guidance," the meaning of which is apparent though implied."

Thus, any comment by the Company on the earnings forecasts of securities analysts must be in the form of a public communication.

**Shareholder Service Department representatives may continue to answer questions from shareholders relating to stock transfer issues and other routine shareholder inquiries.