Pepco Holdings Reports Second-Quarter 2014 Financial Results; Reaffirms Full-Year 2014 Earnings Guidance

Pepco Holdings, Inc. (NYSE: POM) today reported second quarter and six months ended June 30, 2014 earnings from continuing operations as follows:

“We remain committed to system reliability and ongoing improvement of the customer experience as we move forward with our pending merger with Exelon,” said Joseph M. Rigby, Chairman, President and Chief Executive Officer. “The significant investments we continue to make in the electric system have resulted in a more resilient electric grid, and the increase in adjusted earnings for the second quarter reflects the impact of these investments.” Rigby added, “We are working diligently with Exelon on filing and obtaining approval from our regulators and stakeholders to create a stronger combined company better positioned to deliver value to our customers.”

Pepco Holdings’ GAAP net income from continuing operations for the three months ended June 30, 2014 and 2013, was $53 million, or 21 cents per share. Excluding items that we believe are not representative of ongoing business operations, adjusted earnings for the second quarter of 2014 would have been $71 million or 28 cents per share. There were no adjustments to GAAP earnings in the second quarter of 2013.

The increase in adjusted net income from continuing operations (Non-GAAP) in the second quarter of 2014, as compared to the 2013 quarter, was driven by higher electric distribution and network transmission revenue (primarily due to higher rates from increased infrastructure investment) and lower operation and maintenance expense. Partially offsetting these positive factors was higher depreciation expense.

For the six months ended June 30, 2014, Pepco Holdings’ GAAP earnings were $128 million or 51 cents per share, as compared to a net loss of $58 million or 24 cents per share for the six months ended June 30, 2013. Excluding items that we believe are not representative of ongoing business operations, adjusted earnings for the six months ended June 30, 2014 would have been $146 million or 58 cents per share as compared to $109 million or 45 cents per share for the same period in the prior year.

The primary drivers of the increase in adjusted net income from continuing operations (Non-GAAP) for the six months ended June 30, 2014, as compared to the 2013 period, were higher electric distribution and network transmission revenue (primarily due to higher rates from increased infrastructure investment, as well as, higher sales driven by customer growth) and lower operation and maintenance expense. Higher depreciation expense and lower income tax benefits (due to a favorable income tax adjustment in 2013) partially offset the increase for the period.

Non-GAAP Financial Information

Management believes the adjusted net income from continuing operations and related per share data (both as historical financial information and earnings guidance) are representative of Pepco Holdings’ ongoing business operations. Management uses this information internally to evaluate Pepco Holdings’ period-over-period financial performance and, therefore, believes that this information is useful to investors. The presentation of adjusted net income from continuing operations and related per share data is intended to complement, and should not be considered as an alternative to, reported earnings and related per share data presented in accordance with generally accepted accounting principles in the United States (GAAP).

The income tax effects with respect to the foregoing adjustments, where applicable, were calculated using a composite income tax rate of 35 percent. Most merger-related costs are not tax deductible.

Discontinued Operations

Due to the early termination of Pepco Holdings’ cross-border energy lease investments during 2013, these investments are being accounted for as discontinued operations and are no longer reported as a separate segment for financial reporting purposes.

In 2013, Pepco Energy Services (PES) completed a previously announced wind-down of its retail energy supply component. As a result, the operations of PES’ retail electric and natural gas supply businesses are being reported as discontinued operations and are no longer a part of the PES segment for financial reporting purposes.

For the six months ended June 30, 2014 there was no activity in discontinued operations, compared to a net loss of $1.36 per share for the same period in 2013.

Earnings Guidance

Pepco Holdings reaffirms its earnings guidance range for 2014 of between $1.12 and $1.27 per share. The guidance range assumes normal weather conditions and excludes:

• the results of discontinued operations and the impact of any special, unusual or extraordinary items,
• the effect of adopting new accounting standards,
• the effect of changes in tax law,
• the impairment of assets, and
• incremental transaction and integration costs associated with the planned merger with Exelon.

Recent Events

Pepco Holdings – Exelon Merger

During the second quarter, approval applications were submitted to the Federal Energy Regulatory Commission, the Virginia State Corporation Commission, the Delaware Public Service Commission, the New Jersey Board of Public Utilities and the District of Columbia Public Service Commission (DCPSC) related to the planned merger with Exelon Corporation announced earlier this year. The Maryland Public Service Commission (MPSC) approval application and the Hart-Scott-Rodino notification are expected to be filed in the third quarter of 2014. Following receipt of required approvals, the parties anticipate closing the transaction in the second or third quarter of 2015.

Operations

• Power Delivery electric sales were 11,175 gigawatt hours (GWh) in the second quarter of 2014, compared to 11,172 GWh for the same period in 2013. In the electric service territory, cooling degree days decreased by 5 percent for the three months ended June 30, 2014, compared to the same period in 2013. Weather-adjusted electric sales were 11,136 GWh in the second quarter of 2014, compared to 11,041 GWh for the same period in the prior year.
• Power Delivery electric sales were 23,439 GWh for the six months ended June 30, 2014 compared to 23,077 GWh for the six months ended June 30, 2013. In the electric service territory, heating degree days increased by 10 percent and cooling degree days decreased by 5 percent for the six months ended June 30, 2014 compared to the same period in 2013. Weather-adjusted electric sales were 22,945 GWh for the six months ended June 30, 2014 compared to 23,025 GWh for the same period in 2013.
• As of June 30, 2014, Pepco’s installation and activation of smart meters in its District of Columbia and Maryland service territories is complete. Delmarva Power’s installation and activation of smart meters is complete in its Delaware electric service territory, and is underway in its Maryland service territory. Recovery of smart meter costs in electric distribution base rates has begun in the District of Columbia and Delaware. Regulatory assets associated with smart meter installation and activation in Maryland have been created.
• In the six months ended June 30, 2014, PES signed $18 million in energy efficiency contracts and $41 million in underground transmission construction contracts. PES signed $25 million in energy efficiency contracts and $36 million in underground transmission construction contracts for the same period in 2013.

Regulatory Matters

• On July 2, 2014, the MPSC approved an $8.75 million annual increase in Pepco’s electric distribution base rates based on a 9.62 percent return on equity. The annual pre-tax earnings impact of the order is approximately $8.2 million. The new rates were effective July 4, 2014.
• On June 17, 2014, Pepco and the District of Columbia Department of Transportation jointly filed an application with the DCPSC for approval of the triennial plan for the District of Columbia power line undergrounding project. The legislation for the public-private partnership to underground up to 60 high-voltage lines became law on May 3, 2014. The application for the financing and surcharge order will be filed in August 2014. The DCPSC is expected to approve the triennial plan and financing and surcharge applications associated with the legislation in the fourth quarter of 2014.

Financing

• On June 9, 2014, Delmarva Power issued $200 million of 10-year first mortgage bonds. The bonds bear interest at a fixed rate of 3.50 percent and are due on November 15, 2023. The net proceeds were used to repay outstanding commercial paper and for general corporate purposes.

Further details regarding changes in consolidated earnings between 2014 and 2013 are provided in the schedules that follow. Additional information regarding financial results and recent regulatory events can be found in the Pepco Holdings, Inc. Form 10-Q for the quarter ended June 30, 2014, as filed with the Securities and Exchange Commission, and which is also available at www.pepcoholdings.com/investors. Pepco Holdings, Inc. routinely makes available this and other important information on its website, which is a key channel of distribution for Pepco Holdings, Inc. to reach its public investors and to disclose material, non-public information. Information on the website is not part of this news release.

About PHI: Pepco Holdings, Inc. (NYSE: POM) is one of the largest energy delivery companies in the Mid-Atlantic region, serving about 2 million customers in Delaware, the District of Columbia, Maryland and New Jersey. PHI subsidiaries Pepco, Delmarva Power and Atlantic City Electric provide regulated electricity service; Delmarva Power also provides natural gas service. Through Pepco Energy Services, PHI also provides energy savings performance contracting services, underground transmission and distribution construction and maintenance services, and steam and chilled water under long-term contracts.

Forward-Looking Statements: Some of the statements contained in this news release with respect to Pepco Holdings, Pepco, Delmarva Power and Atlantic City Electric, including each of their respective subsidiaries (each, a “Reporting Company”), are forward-looking statements within the meaning of the U.S. federal securities laws, and are subject to the safe harbor created thereby under the Private Securities Litigation Reform Act of 1995. You can identify forward-looking statements by terminology such as “may,” “might,” “will,” “should,” “could,” “expects,” “intends,” “assumes,” “seeks to,” “plans,” “anticipates,” “believes,” “projects,” “estimates,” “predicts,” “potential,” “future,” “goal,” “objective,” or “continue” or the negative of such terms or other variations thereof or comparable terminology, or by discussions of strategy that involve risks and uncertainties. Forward-looking statements involve estimates, assumptions, known and unknown risks, uncertainties and other factors that may cause one or more Reporting Company’s or their subsidiaries’ 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. Therefore, forward-looking statements are not guarantees or assurances of future performance, and actual results could differ materially from those indicated by the forward-looking statements. These factors should be read together with the risk factors included in the “Risk Factors” section and other statements contained in each Reporting Company’s Annual Report on Form 10-K for the year ended December 31, 2013, filed with the Securities and Exchange Commission on February 28, 2014, and in each Reporting Company’s Quarterly Reports on Form 10-Q for the quarter ended June 30, 2014, and investors should refer to these risk factor sections and other statements. All of such factors and forward-looking statements are difficult to predict, contain uncertainties, are beyond each Reporting Company’s control and may cause actual results to differ materially from those contained in any forward-looking statements. Any forward-looking statements speak only as to the date this news release was issued, and none of the Reporting Companies undertakes any 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 a Reporting Company to predict all such factors. Furthermore, it may not be possible to assess the impact of any such factor on such Reporting Company’s or its subsidiaries’ business (viewed independently or together with the business or businesses of some or all of the other Reporting Companies or their subsidiaries) 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. Any specific factors that may be provided should not be construed as exhaustive.

Additional Information and Where to Find It: This communication does not constitute a solicitation of any vote or approval. PHI intends to file with the SEC and mail to its stockholders a proxy statement in connection with the proposed merger transaction. PHI URGES INVESTORS AND SECURITY HOLDERS TO READ THE PROXY STATEMENT AND ANY OTHER RELEVANT DOCUMENTS WHEN THEY BECOME AVAILABLE, BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION about Exelon, PHI and the proposed merger. Investors and security holders will be able to obtain these materials (when they are available) and other documents filed with the SEC free of charge at the SEC’s website, www.sec.gov. In addition, a copy of PHI’s proxy statement (when it becomes available) may be obtained free of charge from Pepco Holdings, Inc., Corporate Secretary, 701 Ninth Street, N.W., Room 1300, Washington, D.C. 20068. Investors and security holders may also read and copy any reports, statements and other information filed by PHI with the SEC, at the SEC public reference room at 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 or visit the SEC’s website for further information on its public reference room.

Participants in the Merger Solicitation: Exelon, PHI, and their respective directors, executive officers and certain other members of management and employees may be deemed to be participants in the solicitation of proxies in respect of the proposed transaction. Information regarding Exelon’s directors and executive officers is available in its proxy statement filed with the SEC on April 2, 2014 in connection with its 2014 annual meeting of stockholders, and information regarding PHI’s directors and executive officers is available in its proxy statement filed with the SEC on March 25, 2014 in connection with its 2014 annual meeting of stockholders. Other information regarding the participants in the proxy solicitation and a description of their direct and indirect interests, by security holdings or otherwise, will be contained in the proxy statement and other relevant materials to be filed with the SEC when they become available.

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