Edgar Filing: PEPCO HOLDINGS INC

As filed with the Securities and Exchange Commission on April 11, 2002
					File No. 70-9947
United States Securities and Exchange Commission Washington, D.C. 20549 ________________________________________
PRE-EFFECTIVE AMENDMENT NO. 2 TO FORM U-1 APPLICATION-DECLARATION UNDER THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935 ________________________________________
	Pepco Holdings, Inc. Potomac Electric Power Company 701 Ninth Street 10^th Floor, Suite 1300 Washington, DC 20068 Edison Capital Reserves Corporation 300 Delaware Avenue, 9^th Floor Wilmington, DE 19801 POM Holdings, Inc. Potomac Capital Investment Corporation American Energy Corporation Edison Place, LLC PCI Energy Corporation Pepco Enterprises, Inc. Energy and Telecommunications Services, LLC Severn Cable LLC Severn Construction, LLC W.A. Chester, LLC W.A. Chester Corporation Pepco Technologies, LLC Potomac Capital Markets Corporation Potomac Harmans Corporation Potomac Capital Joint Leasing Corporation PCI Holdings, Inc. Potomac Delaware Leasing Corporation PCI Nevada Investments Potomac Leasing Associates, LP Pepco Energy Company Potomac Land Corporation Longwood Realty Company Harmans Building Associates PepMarket.com 1801 K Street, N.W. Suite 900 Washington, DC 20006 Pepco Energy Services, Inc. Pepco Building Services, Inc. MET Electrical Testing Company, Inc. Substation Test Company, Inc. Engineered Services, Inc. G&L Mechanical Services, Inc. Unitemp, Inc. PES Home Services of Virginia Potomac Power Resources, Inc. Seaboard Mechanical Services, Inc. 2000 K Street, N.W. Suite 750 Washington, DC 20006 PCI Air Management Corporation Potomac Aircraft Leasing Corporation Potomac Nevada Corporation Potomac Nevada Leasing Corporation Potomac Equipment Leasing Corporation Potomac Nevada Investment, Inc. 1575 Delucchi Lane Suite 115 Reno, NV 89502 Friendly Skies, Inc. 5 Kronprindsens Gade St. Thomas USV1 PCI Engine Trading, Ltd. Clarendon House 2 Church Street Hamilton HM 11 Bermuda Conectiv ACE REIT, Inc. ATE Investment, Inc. ATS Operating Services, Inc. Atlantic City Electric Company Atlantic Generation, Inc. Atlantic Jersey Thermal Systems, Inc. Atlantic Southern Properties, Inc. Binghamton General, Inc. Binghamton Limited, Inc. Conectiv Atlantic Generation, L.L.C. Conectiv Bethlehem, Inc. Conectiv Communications, Inc. Conectiv Delmarva Generation, Inc. Conectiv Energy Holding Company Conectiv Energy Supply, Inc. Conectiv Mid-Merit, Inc. Conectiv Operating Services Company Conectiv Pennsylvania Generation, Inc. Conectiv Properties and Investments, Inc. Conectiv Resource Partners, Inc. Conectiv Services, Inc. Conectiv Solutions LLC. Conectiv Thermal Systems, Inc. DCI I, Inc. DCI II, Inc. DCTC-Burney, Inc. Delmarva Power & Light Company King Street Assurance Ltd. Pedrick Gen., Inc. Vineland Limited, Inc. Vineland General, Inc. 800 King Street Wilmington, DE 19899 Conectiv Plumbing, L.L.C. 621 Chapel Avenue Cherry Hill, NJ 08034 (Names of companies filing this statement and addresses of principal executive offices)
	Pepco Holdings, Inc. (Name of top registered holding company)

Dennis R. Wraase President Pepco Holdings, Inc. 701 Ninth Street, NW Washington, DC 20068		William T. Torgerson, Esq. General Counsel Potomac Electric Power Company 701 Ninth Street, NW Washington, DC 20068		Peter F. Clark, Esq. Vice President, General Counsel and Secretary Conectiv 800 King Street Wilmington, DE 19801
(Names and addresses of agents for service)
The Commission is also requested to send copies of any communication in connection with this matter to:
Sheri E. Bloomberg, Esq. Sônia Mendonça, Esq. LeBoeuf, Lamb, Greene & MacRae, L.L.P. 125 West 55^th Street New York, NY 10019-5389 Telephone: (212) 424-8000 Facsimile: (212) 424-8500			Judith A. Center, Esq. William C. Weeden Skadden, Arps, Slate, Meagher & Flom, LLP 1440 New York Avenue, NW Washington, DC 20005 Telephone: (202) 371-7000 Facsimile: (202) 371-5760

TABLE OF CONTENTS

Item 1.	Description of Proposed Transactions					1
	A.	Introduction and General Request				1
		1.	Introduction			1
		2.	General Request			2
	B.	Description of the Parties to the Transaction				3
	C.	Current Financing Authorization of Conectiv				4
	D.	Overview of the Financing Request				4
	E.	Parameters for Financing Authorization				6
		1.	Effective Cost of Money			6
		2.	Maturity of Debt and Final Redemption on Preferred Securities			6
		3.	Issuance Expenses			6
		4.	Use of Proceeds			7
		5.	Financial Condition			7
	F.	Description of Specific Types of Financing				8
		1.	Pepco Holdings External Merger Financing			8
		2.	Pepco Holdings External Financing after the Merger			9
			(a)	Common Stock		9
				(i)	General	9
				(ii)	Acquisitions	10
				(iii)	Stock-Based Management Incentive and Employee Benefit Plans	10
				(iv)	Stock Purchase/Dividend Reinvestment Plan	11
			(b)	Preferred Securities		11
			(c)	Long-Term Debt		12
			(d)	Short-Term Debt		12
			(e)	Guarantees		13
			(f)	Financing Risk Management Devices		14
				(i)	Interest Rate Risk	14
				(ii)	Anticipatory Hedges	15
		3.	Utility Subsidiary Financing			15
			(a)	Short-Term Debt		16
			(b)	Long-Term Debt Securities and Preferred Securities		16
			(c)	Guarantees		16
			(d)	Financing Risk Management Devices		17
		4.	CEH Financing			17
			(a)	External Genco Financing		17
				(i)	Long-Term Debt	18
				(ii)	Short-Term Debt	18
			(b)	Guarantees		18
			(c)	Financing Risk Management Devices		19
			(d)	Acquisition of Utility Property and Internal Financing Thereof		19
			(e)	Financing of Nonutility Subsidiaries of CEH		19
		5.	Conectiv Financing			19
			(a)	Existing Financing Arrangements		19
			(b)	Guarantees		20
			(c)	Financing of Nonutility Subsidiaries of Conectiv		20
		6.	Nonutility Subsidiary Financings			20
		7.	Guarantees by Nonutility Subsidiaries, Money Pool and Intrasystem Advances			21
			(a)	Nonutility Subsidiary Guarantees		21
			(b)	Authorization and Operation of the Pepco Holdings System Money Pool		21
				(i)	Money Pool	22
				(ii)	Operation of the Money Pools and Administrative Matters	24
			(c)	Use of Proceeds		24
			(d)	Intrasystem Financing		24
		8.	Financing Subsidiaries			25
		9.	Changes in Capital Stock of Wholly Owned Subsidiaries			25
	G.	Investments in EWGs and FUCOs				26
		1.	Conectiv Investments in EWGs			26
		2.	Pepco Investments in EWGs and FUCOs			26
		3.	Pepco Holdings Investments in EWGs and FUCOs and Compliance with Rules 53 and 54			26
	H.	Payment of Dividends Out of Capital or Unearned Surplus				31
		1.	Payment of Dividends by Pepco Holdings and Conectiv Out of Capital or Unearned Surplus			31
		2.	Payment of Dividends by Utility Subsidiaries Out of Capital or Unearned Surplus			31
		3.	Payment of Dividends by Nonutility Subsidiaries Out of Capital or Unearned Surplus			31
	I.	Filing of Certificates of Notification				31
Item 2.	Fees, Commissions and Expenses					33
Item 6.	Exhibits and Financial Statements					33

The Application-Declaration as previously filed is hereby amended as follows:

Item 1. Description of Proposed Transactions

A. Introduction and General Request

1. Introduction

Pepco Holdings, Inc., a Delaware corporation ("Pepco Holdings")¹, and Conectiv, a Delaware
corporation and a registered public utility holding company, filed an Application-Declaration on
Form U-1 (File No. 70-9915) on July 20, 2001 (the "Merger U-1") with the Securities and
Exchange Commission (the "Commission") under Sections 9(a)(2) and 10 of the Public Utility
Holding Company Act of 1935, as amended (the "Act"), seeking approvals relating to the proposed
acquisition by Pepco Holdings of all of the common stock of Conectiv and Potomac Electric Power
Company, a Washington, D.C. and Virginia corporation ("Pepco") (the "Merger"). Upon
consummation of the Merger, Pepco Holdings will register with the Commission under the Act.

Upon completion of the Merger, Pepco Holdings will own, directly or indirectly, all of the issued
and outstanding common stock of six public utility subsidiary companies.² These include Pepco,
Atlantic City Electric Company, a New Jersey corporation ("ACE"), Delmarva Power & Light
Company, a Delaware and Virginia corporation ("Delmarva"), Conectiv Atlantic Generation
L.L.C., a Delaware limited liability company ("CAG"), Conectiv Delmarva Generation, Inc., a
Delaware corporation ("CDG") and Conectiv Pennsylvania Generation, Inc. ("CPGI"), a Delaware
Corporation. Collectively, ACE, Delmarva, CAG, CDG, CPGI and any New Utility Subsidiary that
may be established are referred to as the "Conectiv Utility Subsidiaries", and together with Pepco,
are referred to as the "Utility Subsidiaries." Pepco, ACE and Delmarva are sometimes collectively
referred to as the "Operating Utility Companies."

Upon completion of the Merger, Pepco Holdings also will hold, directly or indirectly, all of the
nonutility subsidiaries and investments currently owned by Pepco and Conectiv (collectively, the
"Nonutility Subsidiaries").

Pepco Holdings will maintain Conectiv as a direct wholly owned subsidiary after the Merger.
Conectiv, which will remain a registered holding company, will hold, directly or indirectly, all of
the voting securities of the Conectiv Utility Subsidiaries and its investments in other direct and
indirect Nonutility Subsidiaries.

In addition to Conectiv, the Pepco Holdings System (as defined below) is expected to include two
other registered holding companies: CEH, the parent of CDG and CPGI, and ACE REIT, Inc.
("ACE REIT"), a direct subsidiary of CEH and the parent of CAG, until such time as CDG, CPGI
and CAG achieve exempt wholesale generator ("EWG") status.³

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¹Pepco Holdings, Inc. was previously referred to as New RC, Inc. in this file.
²Pursuant to the Order of the Commission (HCAR No. 35-27415; 70-9095) dated June 7, 2001,
Conectiv Energy Holding Company ("CEH") is authorized to establish additional direct subsidiaries
("the "New Utility Subsidiaries") which will be considered utility companies under the Act.
³Pursuant to the Order of the Commission (HCAR No. 35-27415; 70-9095) dated June 7, 2001,
CEH and ACE REIT would each be deemed to be a registered holding company under Section 5 of
the Act upon the establishment of any New Utility Subsidiary. The establishment of CPGI on

Each of the entities that will be directly or indirectly owned subsidiaries of Pepco Holdings upon
consummation of the acquisition described in the Merger U-1 is referred to herein individually as a
"Subsidiary" and collectively as "Subsidiaries." For purposes hereof, "Subsidiary" and
"Subsidiaries" also include other direct or indirect subsidiaries that Pepco Holdings may form after
the Merger with the approval of the Commission, pursuant to the Rule 58 exemption or pursuant to
Sections 32, 33 or 34 of the Act. Pepco Holdings and the Subsidiaries are sometimes hereinafter
collectively referred to as the "Pepco Holdings System." For purposes of Item 1.F.7(b) of this
Application-Declaration, "Money Pool," the term "Subsidiary" or "Subsidiaries" shall include only
the companies specifically referred to on the cover and named on the signature page of this
Application-Declaration (excluding EWGs, foreign utility companies ("FUCOs") and exempt
telecommunications companies ("ETCs"), which will not participate in the money pool). The
Commission is asked to reserve jurisdiction over the participation in the money pool by existing
companies not currently participating in the money pool and by future companies formed by Pepco
Holdings until a specific post-effective amendment is filed naming the subsidiary to be added as a
participant in the money pool.

A more complete description of Pepco Holdings, Pepco and Conectiv, and their respective
subsidiaries, is contained in the Merger U-1.

2. General Request

This Application-Declaration seeks the authorization and approval of the Commission with respect
to ongoing financing activities, the provision of guarantees, and other matters pertaining to Pepco
Holdings and its Subsidiaries after giving effect to the Merger and registration of Pepco Holdings as
a holding company. Specifically, this Application-Declaration seeks, among other things, the
following authorizations and approvals of the Commission:

In order to ensure that the Pepco Holdings System is able to meet its
capital requirements immediately following registration and plan its
future financing, Pepco Holdings and its Subsidiaries hereby request
authorization for financing transactions for the period beginning with
the effective date of an order issued pursuant to this filing
and continuing to and including June 30, 2005 (the "Authorization Period");

Pepco Holdings requests that the Commission approve the aggregate
financing request in the amount of $3.5 billion representing financing
authorizations relating to equity securities, preferred securities and
debt securities, of which no more than $2.5 billion will be short-term
debt outstanding at any point in time and of which no more than $1.5
billion will be used to provide external Genco financing as more
fully described below;

_______________________________________________________________________________
January 18, 2002 as a direct public utility subsidiary of CEH has triggered this requirement. All
reporting requirements under the Act for CEH and ACE REIT will be subsumed in the reporting
requirements for Conectiv. After the Merger, all reporting requirements under the Act for Conectiv,
CEH and ACE REIT will be subsumed in the reporting requirements for Pepco Holdings. It is
expected that once the utility subsidiaries of CEH and ACE REIT obtain EWG status, CEH and
ACE REIT will deregister.

·	Pepco Holdings requests that the Commission approve the issuance of long-term debt securities and preferred securities by Pepco in an aggregate amount not to exceed $800 million during the Authorization Period and the issuance of short-term debt securities by Pepco and Delmarva in amounts not to exceed $300 million and $275 million, respectively, outstanding at any time during the Authorization Period as more fully described below;
·	In addition to the authorization requested above with regard to the issuance of equity securities, Pepco Holdings requests that the Commission approve the issuance of up to 20 million shares of common stock under stock purchase/dividend reinvestment plans and stock-based management incentive and employee benefit plans pursuant to Sections 6(a) and 7 of the Act, all as more specifically described below;
·	Pepco Holdings requests that the Commission approve the issuance by Pepco Holdings, Pepco, CEH, Conectiv and the Nonutility Subsidiaries of guarantees in an aggregate amount not to exceed $3.5 billion outstanding at any time as more fully described below;
·	Pepco Holdings requests that the Commission authorize and approve under other sections of the Act and applicable rules and regulations of the Commission promulgated thereunder the intrasystem guarantees, the formation and operation of the Pepco Holdings System money pool ("Money Pool") and the payment of dividends out of capital or unearned surplus by Conectiv, ACE and Delmarva as more fully described below; and
·	Pepco Holdings requests that the Commission approve the use of the proceeds of financings in an amount not to exceed 100% of Pepco Holdings' consolidated retained earnings plus $3.5 billion for investments in EWGs and FUCOs as more fully described below.

B. Description of the Parties to the Transaction

Immediately following the consummation of the Merger, Pepco Holdings will have up to five direct
subsidiaries:

·	Pepco, a public utility company engaged in the transmission, distribution and sale of electricity in the District of Columbia and major portions of Prince George's and Montgomery counties in suburban Maryland;
·	Conectiv, a registered holding company under the Act;
·	It is expected that a reorganization will occur shortly after the consummation of the Merger, when Pepco and Pepco Holdings will effect a transaction by which Potomac Capital, Inc. and Pepco Energy Service, Inc. will become first-tier subsidiaries of Pepco Holdings and the current holding company for all of Pepco's non-regulated business activities will cease to exist.
·	If deemed appropriate based on tax and regulatory considerations, the service company for the Pepco Holdings System, which may be either Conectiv Resource Partners, Inc. ("CRP") or its successor, or a newly formed subsidiary company (see the Merger U-1 for a discussion of the options for the establishment of a service company for the Pepco Holdings System).

Conectiv will have as its principal direct subsidiaries:

·	ACE, a public utility company engaged in the supply and delivery of electricity in the southern one-third of New Jersey;
·	Delmarva, a public utility company engaged in the supply and delivery of electricity through its systems in Delaware and portions of Maryland and Virginia and the delivery of natural gas in northern Delaware; and
·	CEH, an intermediate holding company that holds Conectiv's interest in entities that hold energy and related projects (both exempt projects and utility facilities which comprise the "Genco") or that engage in energy trading activities.⁴

C. Current Financing Authorization of Conectiv

In File No. 70-9095, Conectiv and its subsidiaries currently have various authorizations derived
from orders of the Commission dated February 26, 1998 (HCAR No. 35-26833), August 21, 1998
(HCAR No. 35-26907), September 28, 1998 (HCAR No. 35-26921), October 21, 1998 (HCAR No.
35-26930), November 13, 1998 (HCAR No. 35-26941), December 14, 1999 (HCAR No. 35-
27111), August 17, 2000 (HCAR No. 35-27213), June 7, 2001 (HCAR No. 35-27415) and March
22, 2002 (HCAR No. 35-27507) (collectively, the "Conectiv Financing Orders").

After consummation of the Merger, it is anticipated that Conectiv will be financed directly by Pepco
Holdings or from the Money Pool. Therefore, Pepco Holdings and the Subsidiaries request that all
authorizations granted to Conectiv and its subsidiaries in the Conectiv Financing Orders be
consolidated with those requested herein.⁵

D. Overview of the Financing Request

Pepco Holdings and the Subsidiaries hereby request authorization to engage in financing
transactions set forth herein during the Authorization Period. The approval by the Commission of
this Application-Declaration will give Pepco Holdings and the Subsidiaries flexibility that will

______________________________
⁴See the Merger U-1 regarding the corporate structure of CEH.
⁵In File No. 70-9899, Conectiv and ACE requested authorization for Atlantic City Electric
Transition Funding LLC ("ACE Transition Funding"), a wholly owned subsidiary of ACE, to,
among other things, issue up to $1.7 billion of securitization securities pursuant to legislation
deregulating the electric generation industry in New Jersey. Authorizations granted in File No. 70-
9899 are not included in the Conectiv financing authorizations that will be consolidated with the
financing authorizations granted for the Pepco Holdings System pursuant to this filing. In addition,
as discussed in Item 1.G.1 below, Conectiv has existing authorization to invest proceeds of
securities issuances in EWGs in amounts not to exceed $350 million and will utilize such
authorization following consummation of the Merger until such authorization is superceded by the
higher level of Exempt Project authorization granted to Pepco Holdings pursuant to this file.

allow them to respond quickly and efficiently to their financing needs and to changes in market
conditions, allowing them to efficiently and effectively carry on competitive business activities
designed to provide benefits to customers and shareholders. Approval of this Application-
Declaration is consistent with existing Commission precedent, both for newly registered holding
company systems⁶ and holding company systems that have been registered for a longer period of
time.⁷The financing authorizations requested herein relate to:

·	external issuances by Pepco Holdings of common stock, preferred stock and preferred stock equivalent securities (preferred stock and preferred stock equivalent securities are hereinafter referred to as "Preferred Securities"), long-term debt, short-term debt, and other securities, guarantees by Pepco Holdings of obligations of affiliated or unaffiliated persons in favor of other unaffiliated persons, and the entering into of transactions to manage interest rate risk ("Hedging Transactions") by Pepco Holdings.
·	issuances of securities by Pepco and Delmarva and the entering into of Hedging Transactions by the Utility Subsidiaries to the extent not exempt pursuant to Rule 52;
·	the acquisition of up to $1.5 billion of utility property by the direct and indirect utility subsidiaries of CEH and the internal financing thereof;
·	external issuances by CEH, a subsidiary of CEH or a financing entity established by CEH (including an entity established to construct and finance generation assets), of long-term debt, short-term debt, and other securities, guarantees by CEH of obligations of affiliated or unaffiliated persons in favor of other unaffiliated persons, and the entering into by CEH, or a financing subsidiary of CEH, of Hedging Transactions;
·	guarantees by Conectiv of obligations of affiliated or unaffiliated persons in favor of other unaffiliated persons;
·	issuances by Nonutility Subsidiaries of securities and the entering into of Hedging Transactions that are not exempt pursuant to Rule 52;
·	the establishment of the Money Pool and the issuance of intrasystem guarantees by the Nonutility Subsidiaries on behalf of the Subsidiaries;
·	the formation of financing entities and the issuance by such entities of securities otherwise authorized to be issued and sold pursuant to this Application-Declaration or pursuant to applicable exemptions under the Act, including intrasystem guarantees of such securities and the retention of existing financing entities;

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⁶See e.g., New Century Energies, Inc., HCAR No. 35-26750 (Aug. 1, 1997); Ameren Corporation,
HCAR No. 35-26809 (Dec. 30, 1997); Conectiv, HCAR No. 35-26833 (Feb. 26, 1998); Dominion
Resources, Inc., HCAR No. 35-27112 (Dec. 15, 1999); and SCANA Corporation, HCAR No. 35-
27135 (Feb. 14, 2000).
⁷See e.g., The Columbia Gas System, Inc., HCAR No. 35-26634 (Dec. 23, 1996); and Gulf States
Utilities Company, HCAR No. 35-26451 (Jan. 16, 1996).

·	the ability of wholly owned Subsidiaries to alter their capital stock in order to engage in financing transactions with their parent company;
·	the use of proceeds from financings to invest in EWGs and FUCOs; and
·	the ability of Pepco Holdings and the Subsidiaries to pay dividends out of capital or unearned surplus.

Pepco and its subsidiaries and Conectiv and its subsidiaries request authorization to keep existing
financing arrangements in place after the Merger. Please refer to Exhibits K-1 and K-2 for a
descriptioin of such existing arrangements.

E. Parameters for Financing Authorization

Authorization is requested herein to engage in certain financing transactions during the
Authorization Period. The following general terms will be applicable where appropriate to the
financing transactions requested to be authorized hereby:

1. Effective Cost of Money

The effective cost of money on long-term debt borrowings occurring pursuant to the authorizations
granted under this Application-Declaration will not exceed the greater of (a) 500 basis points over
the comparable-term U.S. Treasury securities or (b) a gross spread over U.S. Treasuries that is
consistent with similar securities of comparable credit quality and maturities issued by other
companies. The effective cost of money on short-term debt borrowings pursuant to authorizations
granted under this Application-Declaration will not exceed the greater of (a) 500 basis points over
the comparable-term London Interbank Offered Rate ("LIBOR") or (b) a gross spread over LIBOR
that is consistent with similar securities of comparable credit quality and maturities issued by other
companies.⁸ The dividend rate on any series of Preferred Securities will not exceed the greater of (a)
500 basis points over the yield to maturity of a U.S. Treasury security having a remaining term
equal to the term of such series of Preferred Securities or (b) a rate that is consistent with similar
securities of comparable credit quality and maturities issued by other companies.

2. Maturity of Debt and Final Redemption on Preferred Securities

The maturity of indebtedness will not exceed 50 years. Preferred Securities may not have any
mandatory redemption provisions.

3. Issuance Expenses

The underwriting fees, commissions or other similar remuneration paid in connection with the non-
competitive issue, sale or distribution of a security pursuant to this Application-Declaration (not
including any original issue discount) will not exceed 5% of the principal or total amount of the
security being issued.

______________________________
⁸See Entergy Corporation, HCAR No. 35-27371 (April 3, 2001).

4. Use of Proceeds

The proceeds from the sale of securities in external financing transactions (excluding transactions
required to effect the Merger) will be used for general corporate purposes including:

·	the financing, in part, of the capital expenditures of the Pepco Holdings System;
·	the financing of working capital requirements of the Pepco Holdings System;
·	the acquisition, retirement or redemption pursuant to Rule 42 of securities previously issued by Pepco Holdings or the Subsidiaries without the need for prior Commission approval; and
·	other lawful purposes, including direct or indirect investment in companies authorized under the Merger U-1, including Rule 58 companies, other subsidiaries approved by the Commission, EWGs, FUCOs and ETCs.⁹ Pepco Holdings and the Subsidiaries represent that no such financing proceeds will be used to acquire or form a new subsidiary unless such financing is consummated in accordance with an order of the Commission or an available exemption under the Act.

5. Financial Condition

Pepco Holdings' principal utility operating subsidiaries, Pepco, ACE and Delmarva, are financially
sound and each has investment-grade ratings from major national rating agencies. Pepco Holdings
will also be a financially sound company. Pepco Holdings commits that it will maintain a common
equity ratio (common equity divided by the sum of common equity, preferred stock, long-term debt
and short-term debt) (the "Common Equity Ratio") during the Authorization Period of at least 30%.
Additionally, Pepco Holdings commits that it will maintain during the Authorization Period at least
an investment-grade corporate or senior unsecured debt rating by at least one nationally recognized
rating agency. Further, Pepco and Delmarva each commits that it will maintain a Common Equity
Ratio of at least 30% of its capitalization (calculated in the same manner as described above) and at
least investment-grade senior unsecured and senior secured debt ratings by at least one nationally
recognized rating agency. ACE's Common Equity Ratio was 37.4% as of December 31, 2001.
However, ACE's Common Equity Ratio may fall below 30% after the issuance of securitization
securities scheduled to be completed in 2003.¹⁰ In such event, Pepco Holdings commits that it will
strive to cause ACE's Common Equity Ratio to meet or exceed 30% as soon as practicable
thereafter. ACE commits that it will maintain at least investment grade senior unsecured and senior
secured debt ratings by at least one nationally recognized rating agency.

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⁹Pepco Holdings will make additional investments in EWGs and/or FUCOs during the
Authorization Period. Accordingly, Rules 53 and 54 apply to this Application-Declaration.
Compliance with these rules is addressed below.
¹⁰As previously noted herein, Conectiv and ACE requested authorization in File No. 70-9899 for
ACE Transition Funding to issue up to $1.7 billion of securitization securities. In such filing it was
stated that ACE's Common Equity Ratio would decline to approximately 11% if all of the
securitization securities were issued and ACE used certain of the proceeds to retire debt and/or
equity. It is requested that the Commission reserve jurisdiction over the reduction in ACE's required
Common Equity Ratio pending completion of the record in File No. 70-9899.

As noted previously, CDG, CAG and CPGI are utilities pursuant to the Act. The Common Equity
Ratios for CDG and CAG were 97% and 100%, respectively, as of December 31, 2001. CPGI was
formed on January 18, 2002 and its financial statements are not meaningful at this time. It is Pepco
Holdings' intention to convert CDG, CAG and CPGI to EWGs as soon as practicable. Pepco
Holdings commits that CDG, CAG and CPGI will maintain COmmon Equity Ratios of at least 30%
as long as they are utility companies pursuant to the Act.

Conectiv is a financially sound company as indicated by its investment grade ratings from the major
national rating agencies. As of December 31, 2001, Conectiv's Common Equity Ratio was 28.5%.
Pepco Holdings commits that it will cause Conectiv's Common Equity Ratio to meet or exceed 30%
by December 31, 2003.

As noted previously, CEH and ACE REIT are deemed to be registered holding companies under the
Act. As of December 31, 2001, CEH's Common Equity Ratio was 66% and ACE REIT's Common
Equity Ratio was 100%.

Below are listed the long-term unsecured debt ratings for Conectiv, Pepco, ACE and Delmarva as of
December 31, 2001

Senior Unsecured Debt Ratings (as of December 31, 2001)

Company	Moody's	Standard & Poor's
Conectiv	Baa1	BBB+
Pepco	A2	A-
ACE	A3	BBB+
Delmarva	A3	A-

F. Description of Specific Types of Financing

1. Pepco Holdings External Merger Financing

To consummate the Merger, Pepco Holdings will issue up to 170,000,000 shares of its common
stock in exchange for the common stock of Pepco and Conectiv. This estimate is based on the
number of shares outstanding on the record date established prior to the date of mailing of the proxy
statement related to the Merger and the assumption that Conectiv stockholders will receive 50% of
the Merger consideration in cash and 50% in Pepco Holdings common stock. Pepco Holdings
common stock issued to effect the Merger will be excluded from the calculation of the Pepco
Holdings Financing Limit (as defined below).

Before completing the Merger, Pepco Holdings will evaluate various sources and methods of
financing the amount necessary to fund a portion of the cash consideration to be paid to Conectiv
stockholders (the total amount of cash consideration is approximately $1.1 billion). Currently,
Pepco Holdings anticipates funding a portion of the cash consideration by using up to $400 million
of proceeds that Pepco received from the recent sale of its generation assets with the remaining
portion being financed at the Pepco Holdings level through external sources (the "Merger
Financing"). Such financings, however, will be offset by reductions since the date of its generation
asset sale in a like amount of Pepco's borrowings. Sources of financing under consideration include,
but are not limited to, commercial and investment banks, institutional lenders and public securities
markets. Methods of financing may include, but are not limited to, commercial paper, bank lines of
credit, debt and/or Preferred Securities of various maturities and types. The Merger Financing, or
any subsequent refinancing, refunding or extension of the Merger Financing, will not be included in
the calculation of the Pepco Holdings Financing Limit (as defined below).

See "Financing the Transaction" in the Merger U-1.

2. Pepco Holdings External Financing after the Merger

Pepco Holdings requests authorization to obtain funds externally through sales of common stock,
Preferred Securities and debt securities in an aggregate amount up to $3.5 billion (the "Pepco
Holdings Financing Limit"). Outstanding short-term debt will be included in the calculation of the
Pepco Holdings Financing Limit but will not exceed $2.5 billion (the "Pepco Holdings Short-Term
Debt Limit") at any point in time. With respect to common stock, Pepco Holdings also requests
authority to issue common stock to third parties in consideration for the acquisition by Pepco
Holdings or a Nonutility Subsidiary of equity or debt securities of a company being acquired
pursuant to Rule 58 or Sections 32, 33 or 34 of the Act. Also, Pepco Holdings requests
authorization to issue common stock under stock purchase/dividend reinvestment plans and stock-
based management incentive and employee benefit plans. In addition, Pepco Holdings seeks the
flexibility to enter into certain Hedging Transactions to manage interest rate risk and for other
lawful purposes.

(a) Common Stock

Pepco Holdings is authorized under its restated articles of incorporation to issue 400,000,000 shares
of common stock ($.01 par value per share). As discussed above, Pepco Holdings will issue up to
170,000,000 shares of common stock in connection with the Merger. The aggregate amount of
financing obtained by Pepco Holdings during the Authorization Period from the issuance and sale
of common stock (other than for stock purchase/dividend reinvestment plans and stock-based
management incentive and employee benefit plans as discussed below and other than shares issued
in connection with the Merger), when combined with the long-term debt and Preferred Securities
issued during the Authorization Period and short-term debt issued during the Authorization Period
then outstanding, as described in this section, shall not exceed the Pepco Holdings Financing Limit
for the uses set forth in Item 1.E.4 above. Pepco Holdings common stock issued in any of the
circumstances described in Item 1.F.2(a)(ii) below relating to acquisitions of companies shall be
valued, for purposes of determining compliance with the aggregate financing limitation set out
herein, at its market value as of the date of issuance (or, if appropriate, at the date of a binding
contract providing for the issuance thereof). In addition, authorization is requested to issue up to 20
million shares in aggregate of Pepco Holdings common stock (or options to purchase shares)
pursuant to stock purchase/dividend reinvestment plans and stock-based management incentive and
employee benefit plans (the "Common Stock Plan Limit").

(i) General

Subject to the foregoing, Pepco Holdings may issue and sell common stock or options, warrants or
other stock purchase rights exercisable for common stock. Pepco Holdings may also buy back
shares of such stock or such options during the Authorization Period in accordance with Rule 42.

Common stock financings may be effected pursuant to underwriting agreements of a type generally
standard in the industry. Public distributions may be pursuant to private negotiation with
underwriters, dealers or agents as discussed below or effected through competitive bidding among
underwriters. In addition, sales may be made through private placements or other non-public
offerings to one or more persons. All such common stock sales will be at rates or prices and under
conditions negotiated or based upon, or otherwise determined by, competitive capital markets.

Pepco Holdings may sell common stock covered by this Application-Declaration in any one of the
following ways: (i) through underwriters or dealers; (ii) through agents; (iii) directly to a limited
number of purchasers or a single purchaser; or (iv) directly to employees (or to trusts established for
their benefit), shareholders and others through its stock purchase/dividend reinvestment plans and
stock-based management incentive and employee benefit plans. If underwriters are used in the sale
of the securities, such securities will be acquired by the underwriters for their own account and may
be resold from time to time in one or more transactions, including negotiated transactions, at a fixed
public offering price or at varying prices determined at the time of sale. The securities may be
offered to the public either through underwriting syndicates (which may be represented by a
managing underwriter or underwriters designated by Pepco Holdings) or directly by one or more
underwriters acting alone. The securities may be sold directly by Pepco Holdings or through agents
designated by Pepco Holdings from time to time. If dealers are utilized in the sale of any of the
securities, Pepco Holdings will sell such securities to the dealers as principals. Any dealer may then
resell such securities to the public at varying prices to be determined by such dealer at the time of
resale. If common stock is being sold in an underwritten offering, Pepco Holdings may grant the
underwriters thereof a "green shoe" option permitting the shares then being offered solely for the
purpose of covering over-allotments.

(ii) Acquisitions

Under Rule 58 and Sections 32, 33 and 34 of the Act, Pepco Holdings is or will be authorized to
acquire securities of companies engaged in functionally related businesses, "energy-related
businesses" as described in Rule 58, EWGs, FUCOs and ETCs. Pepco Holdings may also issue
common stock or options, warrants or other stock purchase rights exercisable for common stock in
public or privately negotiated transactions as consideration for the equity securities or assets of
other companies, provided that the acquisition of any such equity securities or assets has been
authorized in the Merger U-1 or in a separate proceeding or is exempt under the Act or the rules
thereunder.¹¹

(iii) Stock-Based Management Incentive and Employee Benefit Plans

Pepco Holdings proposes, from time to time during the Authorization Period, to issue and/or
acquire in open market transactions or by some other method that complies with applicable law and
Commission interpretations then in effect, shares of Pepco Holdings common stock under stock-
based management incentive and employee benefit plans and under a stock purchase/dividend
reinvestment plan, as described below, in an aggregate amount not to exceed the Common Stock
Plan Limit. Pepco Holdings common stock issued pursuant to the Common Stock Plan Limit will
not be included in the calculation of the Pepco Holdings Financing Limit¹².

______________________________
¹¹The Commission has previously approved the issuance of common stock as consideration for the
acquisition of a new business in an exempt transaction or a transaction that has been approved in a
separate proceeding. See e.g., SCANA Corp., HCAR No. 35-27135 (Feb. 14, 2000)
¹²See Conectiv, HCAR No. 35-26832 (Feb. 26, 1998); New Century Energies, Inc., HCAR
No. 35-27218 (Aug. 22, 2000).

(iv) Stock Purchase/Dividend Reinvestment Plan

Pepco Holdings will establish a stock purchase/dividend reinvestment plan that is expected to
incorporate the existing features of the plans currently offered by Pepco and Conectiv. Upon
consummation of the Merger, the stock purchase/dividend reinvestment plans of Pepco and
Conectiv will be terminated and a new plan will be adopted by Pepco Holdings. Current participants
will be eligible to become participants in Pepco Holdings' new plan. Pepco Holdings common stock
issued to participants in the existing Pepco and Conectiv plans at the time of the Merger will not be
included in the calculation of the Common Stock Plan Limit. Pepco Holdings common stock issued
on an ongoing basis to participants in the Pepco Holdings stock purchase/dividend reinvestment
plan will not be included in the calculation of the Pepco Holdings Financing Limit.

(b) Preferred Securities

Pepco Holdings seeks to have the flexibility to issue Preferred Securities (including, without
limitation, its authorized preferred stock, trust preferred securities or monthly income preferred
securities) directly or indirectly through one or more financing subsidiaries in which Pepco
Holdings directly or indirectly holds all of the voting equity interest specifically for such purpose as
discussed below. The aggregate amount of financing obtained by Pepco Holdings during the
Authorization Period from issuance and sale of Preferred Securities, when combined with the
amount of common stock (other than for benefit plans or stock purchase and dividend reinvestment
plans and other than shares issued in the Merger) and long-term debt issued and short-term debt
then outstanding, as described in this section, shall not exceed the Pepco Holdings Financing Limit
for the uses set forth in Item 1.E.4 above. The proceeds of Preferred Securities would provide an
important source of future financing for the operations of and investments in nonutility businesses
that are exempt under the Act or have been approved by the Commission.¹³ Preferred Securities
may be issued in one or more series with such rights, preferences, and priorities as may be
designated in the instrument creating each such series, as determined by Pepco Holdings' board of
directors. Dividends or distributions on Preferred Securities will be made periodically and to the
extent funds are legally available for such purpose, but may be made subject to terms that allow the
issuer to defer dividend payments for specified periods. Preferred Securities may be convertible or
exchangeable into shares of Pepco Holdings common stock or unsecured indebtedness. Preferred
Securities may be sold directly through underwriters or dealers in connection with an acquisition
in a manner similar to that described for common stock in Item 1.F.2(a)(i) and Item 1.F.2(a)(ii) above.

______________________________
¹³The Commission has approved a similar financing application filed by Southern Company in
which Southern Company requested approval to issue preferred securities and long-term debt,
directly or indirectly through financing entities. See The Southern Company, HCAR No. 35-27134
(Feb. 9, 2000). In that case, the Commission took account of the changing needs of registered
holding companies for sources of capital other than common equity and short-term debt brought
about primarily by the elimination of restrictions under the Act on investments in various types of
non-core businesses (e.g., EWGs, FUCOs, ETCs and businesses allowed by Rule 58). The
Commission noted that, without the ability to raise capital in the external markets appropriate for
such investments, registered holding companies would be at a competitive disadvantage to other
energy companies that are not subject to regulation under the Act. See also Progress Energy, HCAR
No. 35-27297 (Dec. 12, 2000) and KeySpan Corporation, HCAR No. 35-27272 (Nov. 8, 2000).

The aggregate amount of financing obtained by Pepco Holdings during the Authorization Period
from issuance and sale of long-term debt securities, when combined with common stock (other than
for benefit plans or stock purchase and dividend reinvestment plans and other than shares issued in
connection with the Merger), Preferred Securities and short-term debt issued and then outstanding,
as described in this section, shall not exceed the Pepco Holdings Financing Limit for the uses set
forth in Item 1.E.4 above.

Types of long-term debt securities may include, but not be limited to, notes, medium-term notes, or
debentures, under one or more indentures or long-term indebtedness under agreements with banks
or other institutional lenders. Long-term debt issued by Pepco Holdings will be unsecured.

Any long-term debt security would have such designation, aggregate principal amount, maturity,
interest rate(s) or methods of determining the same, terms of payment of interest, redemption
provisions, sinking-fund terms and other terms and conditions as Pepco Holdings may determine at
the time of issuance. Any long-term debt (a) may be convertible into any other authorized securities
of Pepco Holdings, (b) will have maturities ranging from one to 50 years, (c) may be subject to
optional and/or mandatory redemption, in whole or in part, at par or at various premiums above the
principal amount thereof, (d) may be entitled to mandatory or optional sinking-fund provisions, (e)
may provide for reset of the coupon pursuant to a remarketing arrangement, (f) may be subject to
tender or the obligation of the issuer to repurchase at the election of the holder or upon the
occurrence of a specified event, (g) may be called from existing investors by a third party, and (h)
may be entitled to the benefit of financial or other covenants.

Specific terms of any borrowings, such as maturity dates, interest rates, redemption and sinking
fund provisions, tender or repurchase and conversion features, if any, with respect to the long-term
securities of a particular series, will be determined by Pepco Holdings at the time of issuance and
will comply in all regards with the parameters for financing authorization set forth in Item 1.E
above. Associated placement, underwriting or selling agent fees, commissions and discounts, if any,
will be established by negotiation or competitive bidding.

(d) Short-Term Debt

Pepco Holdings seeks authority to issue short-term debt to provide for the reissuance of pre-Merger
letters or lines of credit or commercial paper and to provide financing for general corporate
purposes, working capital requirements and temporary financing of Subsidiary capital expenditures.
The aggregate amount of financing obtained by Pepco Holdings during the Authorization Period
from then outstanding short-term debt, when combined with common stock (other than for
employee benefit plans or stock purchase and dividend reinvestment plans and other than shares
issued in connection with the Merger), long-term debt and Preferred Securities issued, as described
in this section, shall not exceed the Pepco Holdings Financing Limit for the uses set forth in Item
1.E.4. above. Further, at no point in time shall the amount of short-term debt then outstanding
exceed the Pepco Holdings Short-Term Debt Limit, regardless of the level of capacity remaining
under the Pepco Holdings Financing Limit. Short-term debt issued by Pepco Holdings will be
unsecured.

Any short-term debt outstanding or credit facility of Conectiv, Pepco, ACE or Delmarva existing at
the time of the Merger may be assumed by Pepco Holdings.

Types of short-term debt securities will include, but not be limited to, borrowings under one or
more revolving credit facilities or bank loans, commercial paper, short-term notes and bid notes.
Specific terms of any short-term borrowings will be determined by Pepco Holdings at the time of
issuance and will comply in all regards with the parameters for financing authorization set forth in
Item 1.E above. The maturity of any short-term debt issued will not exceed 364 days or, if the
notional maturity is greater than 364 days, the debt security will include put options at appropriate
points in time to cause the security to be accounted for as a current liability under United States
generally accepted accounting principles.

Pepco Holdings anticipates entering into one or more revolving credit facilities. The credit facilities
may be used for general corporate purposes, to support letters of credit issued by Pepco Holdings or
the Subsidiaries, or to serve as back-up for the commercial paper programs of Pepco Holdings and
its Subsidiaries. It is expected that the credit facilities will contain covenants consistent with those
covenants required by bank lenders for comparable bank facilities.

Pepco Holdings may sell commercial paper, from time to time, in established domestic or European
commercial paper markets. Such commercial paper would be sold directly to investors or sold to
dealers at the discount rate or the coupon rate per annum prevailing at the date of issuance for
commercial paper of comparable quality and maturities sold to commercial paper dealers generally.
It is expected that the dealers acquiring commercial paper from Pepco Holdings will reoffer such
paper at a discount to corporate, institutional and, with respect to European commercial paper,
individual investors. Institutional investors are expected to include commercial banks, insurance
companies, pension funds, investment trusts, foundations, colleges and universities and finance
companies.

Pepco Holdings may sell short-term notes through one or more private placements or public
offerings primarily to traditional money market investors.

Pepco Holdings may enter into individual agreements ("Bid Note Agreements") with one or more
commercial banks that may or may not be lenders under Pepco Holdings credit facilities. The Bid
Note Agreements would permit Pepco Holdings to negotiate with one or more banks (each a "Bid
Note Lender") on any given day for such Bid Note Lender, or any affiliate or subsidiary of such
lender, to purchase promissory notes ("Bid Notes") directly from Pepco Holdings.

Pepco Holdings may issue other types of short-term debt securities generally available in the credit
markets, money markets or capital markets. In all cases, specific terms of any borrowings will
comply in all regards with the parameters for financing authorization set forth in Item 1.E above.

(e) Guarantees

Authorization is requested for Pepco Holdings during the Authorization Period to enter into
guarantees to third parties, obtain letters of credit, enter into support or expense agreements or
liquidity support agreements or otherwise provide credit support with respect to the obligations of
the Subsidiaries as may be appropriate to carry on in the ordinary course of their respective
businesses and to enter into guarantees of non-affiliated third parties' obligations in the ordinary
course of Pepco Holdings' business in an aggregate amount not to exceed $3.5 billion when
aggregated with guarantees issued by the Subsidiaries (the "Pepco Holdings Guarantee Limit").
Excluded from the Pepco Holdings Guarantee Limit are obligations exempt pursuant to Rule 45.
The issuance of any guarantees will be subject to the limitations of Rule 53(c) or Rule 58(a)(1), as
applicable.

A portion of the guarantees proposed to be issued by Pepco Holdings (or by CEH or Conectiv as
described below) may be in connection with the business of Conectiv Energy Supply, Inc. ("CESI")
or Pepco Energy Services, Inc. ("PES"), wholly owned indirect subsidiaries of Pepco Holdings.
CESI conducts power marketing and trading operations. PES provides energy efficiency
contracting, building and systems operation and maintenance as well as conducting gas and electric
marketing. Pepco Holdings may wish to provide credit support in connection with the trading
positions of CESI and PES entered into in the ordinary course of CESI's and PES's energy
marketing and trading businesses. In addition, Pepco Holdings may wish to provide credit support
for PES's construction obligations entered into in the ordinary course of PES's energy contracting
business. The provision of parent guarantees by holding companies to affiliates in the generation,
power marketing and energy contracting business is standard business practice. The portion of the
Pepco Holdings Guarantee Limit to be used on behalf of the trading activities of CESI and PES
allows only for a modest increase over the Authorization Period.

A portion of the guarantees will be for intercompany obligations. Pepco Holdings will guarantee all
deposits in the Money Pool.

Certain of the guarantees may be in support of obligations that are not capable of exact
quantification. In such cases, Pepco Holdings will determine the exposure under a guarantee for
purposes of measuring compliance with the Pepco Holdings Guarantee Limit by appropriate means,
including estimation of exposure based on loss experience or potential payment amounts.

Pepco Holdings proposes to charge each Subsidiary a fee for any guarantee provided on its behalf
that is not greater than the cost, if any, of obtaining the liquidity necessary to perform the guarantee
(for example, bank line commitment fees or letter of credit fees, plus other transactional expenses)
for the period of time the guarantee remains outstanding.

(f) Financing Risk Management Devices

(i) Interest Rate Risk

Pepco Holdings requests authority to enter into, perform, purchase and sell financial instruments
intended to reduce or manage the volatility of interest rates, including but not limited to interest rate
swaps, caps, floors, collars and forward agreements or any other similar agreements. Hedges may
also include the issuance of structured notes (i.e., a debt instrument in which the principal and/or
interest payments are indirectly linked to the value of an underlying asset or index), or transactions
involving the purchase or sale, including short sales, of U.S. Treasury or Agency (e.g., FNMA)
obligations or LIBOR based swap instruments (collectively referred to as "Hedge Instruments").
The transactions would be for fixed periods and stated notional amounts. Pepco Holdings would
employ interest rate derivatives as a means of prudently managing the risk associated with any of its
outstanding debt issued pursuant to this authorization or an applicable exemption by, in effect,
synthetically (i) converting variable-rate debt to fixed-rate debt, (ii) converting fixed-rate debt to
variable-rate debt and (iii) limiting the impact of changes in interest rates resulting from variable-
rate debt. In no case will the notional principal amount of any interest rate swap exceed that of the
underlying debt instrument and related interest rate exposure. Transactions will be entered into for
a fixed or determinable period. Thus, Pepco Holdings will not engage in speculative transactions.
Pepco Holdings will only enter into agreements with counterparties whose senior debt ratings, as
published by a nationally recognized rating agency, are greater than or equal to "BBB," or an
equivalent rating ("Approved Counterparties").

(ii) Anticipatory Hedges

In addition, Pepco Holdings requests authorization to enter into interest rate Hedging Transactions
with respect to anticipated debt offerings ("Anticipatory Hedges"), subject to certain limitations and
restrictions. Such Anticipatory Hedges would only be entered into with Approved Counterparties,
and would be utilized to fix and/or limit the interest rate risk associated with any new issuance
through (i) a forward sale of exchange-traded Hedge Instruments (a "Forward Sale"), (ii) the
purchase of put options on Hedge Instruments (a "Put Options Purchase"), (iii) a Put Options
Purchase in combination with the sale of call options Hedge Instruments (a "Zero Cost Collar"),
(iv) transactions involving the purchase or sale, including short sales, of Hedge Instruments, or
(v) some combination of a Forward Sale, Put Options Purchase, Zero Cost Collar and/or other
derivative or cash transactions, including, but not limited to structured notes, caps and collars,
appropriate for the Anticipatory Hedges. Anticipatory Hedges may be executed on-exchange
("On-Exchange Trades") with brokers through the opening of futures and/or options positions
traded on the Chicago Board of Trade, the opening of over-the-counter positions with one or more
counterparties ("Off-Exchange Trades"), or a combination of On-Exchange Trades and Off-
Exchange Trades. Pepco Holdings will determine the optimal structure of each Anticipatory Hedge
transaction at the time of execution. Pepco Holdings may decide to lock in interest rates and/or limit
its exposure to interest rate increases.¹⁴

3. Utility Subsidiary Financing

As indicated on Exhibits K-1 and K-2 hereto, certain Utility Subsidiaries currently have financing
arrangements in place. These arrangements will remain in place following the Merger and are
described in more detail in such Exhibits.

Rule 52 provides an exemption from the prior authorization requirements of the Act for most of the
issuances and sales of securities by the Utility Subsidiaries because they must be approved by the
relevant state public utility commissions. For Pepco, the issuance of long-term debt and equity
securities is regulated by the District of Columbia Public Service Commission ("DC Commission").
Pepco is also regulated by the Virginia State Corporation Commission ("VSCC") but the VSCC
does not have jurisdiction over its securities issuances. For ACE, the issuance of short-term debt,
long-term debt and equity securities is regulated by the NJBPU. For Delmarva, the issuance of long-
term debt and equity securities is regulated by the Delaware Public Service Commission ("DPSC")
and the issuance of short-term debt, long-term debt and equity securities is regulated by the VSCC.
As discussed more fully below, CAG, CDG, CPGI and any New Utility Subsidiary that may be
established are considered utility companies for purposes of the Act but are not subject to regulation
by any state public utility commission.

______________________________
¹⁴The proposed terms and conditions of the Interest Rate Hedges and Anticipatory Hedges are
substantially the same as the Commission has approved in other cases. See Exelon Corporation,
HCAR No. 35-27266 (November 2, 2000); SCANA Corporation, HCAR No. 35-27135 (Feb. 14,
2000); New Century Energies, Inc., et al., HCAR No. 35-27000 (April 7, 1999); and Ameren Corp.,
et al., HCAR No. 35-27053 (July 23, 1999).

Certain external financings by the Utility Subsidiaries for which authorization is requested herein
may be outside the Rule 52 exemption. The authority herein sought excludes financings exempt
under Rule 52. Authorized financings may be made under instruments in place at the time of the
Merger or new agreements so long as any such instrument or agreement complies with the
limitations described herein. The proceeds from the sale of securities in external financings will be
used for general corporate purposes including the financing of working capital requirements.

(a) Short-Term Debt

Authority is requested for Pepco and Delmarva to have outstanding short-term debt securities in
amounts not to exceed $300 million and $275 million for Pepco and Delmarva, respectively, at any
point in time during the Authorization Period. Pepco and Delmarva request authority to issue the
same types of short-term debt securities under the same terms as requested for Pepco Holdings
above. Pepco and Delmarva may, without counting against the limit set forth above, maintain back-
up lines of credit. Pepco and Delmarva also request authorization to participate in the Pepco
Holdings System Money Pool as more fully described below.

(b) Long-Term Debt Securities and Preferred Securities

Authority is requested for Pepco to issue an aggregate of up to $800 million of long-term debt
securities and Preferred Securities during the Authorization Period. Pepco requests authority to
issue long-term debt securities and Preferred Securities under the same terms as requested for Pepco
Holdings above except that Pepco may issue secured as well as unsecured debt securities. It is
anticipated that any secured long-term debt issued by Pepco will be pursuant to the Mortgage and
Deed of Trust Dated July 1, 1936, as amended and supplemented, between Potomac Electric Power
Company and The Bank of New York, as Successor Trustee to Riggs National Bank of Washington,
D.C. However, Pepco may enter into other similar secured financing arrangements, such as a new
mortgage indenture, a fallaway indenture, pursuant to which Pepco would issue debt securities that
would be secured by a new series of mortgage bonds until such time as its mortgage indenture was
terminated or it secured financing agreements with banks or institutional lenders (i.e., accounts
receivable financing or a sale/leaseback of utility property not subject to the mortgage lien).
Unsecured long-term debt securities that Pepco may issue include, but are not limited to, notes,
medium-term notes or debentures, under one or more indentures or long-term indebtedness under
agreements with banks or other institutional lenders.

Authority is sought for Pepco to enter into guarantees ("Pepco Guarantees") as set forth above for
Pepco Holdings in Item 1.F.2(e). The Pepco Guarantees, together with Pepco Holdings Guarantees,
Conectiv Guarantees (as defined below), CEH Guarantees (as defined below) and Nonutility
Subsidiary Guarantees (as defined below), will not exceed the Pepco Holdings Guarantee Limit at
any time during the Authorization Period, exclusive of any guarantees and other forms of credit
support that are exempt pursuant to Rule 45(b) and Rule 52(b); provided however, that the amount
of Nonutility Guarantees in respect of obligations of any Rule 58 Subsidiaries shall remain subject
to the limitation of Rule 58(a)(1).

Certain of the guarantees may be in support of obligations that are not capable of exact
quantification. In such cases, Pepco will determine the exposure under a guarantee for purposes of
measuring compliance with the Pepco Holdings Guarantee Limit by appropriate means including
estimation of exposure based on loss experience or potential payment amounts.

Pepco may charge its associate company a fee for each guarantee provided on its behalf determined
in the same manner as specified above for guarantees issued by Pepco Holdings.

(d) Financing Risk Management Devices

To the extent not exempt under Rule 52, the Utility Subsidiaries request authority to enter into,
perform, purchase and sell interest rate management devices and Anticipatory Hedges subject to the
limitations and requirements applicable to Pepco Holdings described in Item 1.F.2(f).

4. CEH Financing

(a) External Genco Financing

Although CAG, CDG, CPGI and the New Utility Subsidiaries are "electric utility companies" under
the Act, they are not subject to the jurisdiction of any state commission in connection with the
issuance of securities. Accordingly, all securities issuances for CAG, CDG, CPGI and the New
Utility Subsidiaries require approval of the Commission until CAG, CDG, CPGI and the New
Utility Subsidiaries achieve EWG status. Pepco Holdings will make the necessary filings with the
Federal Energy Regulatory Commission to designate CAG, CDG, CPGI and any New Utility
Subsidiary as EWGs upon receipt of an order in this file and upon receipt of the required letters
from the appropriate state commissions to the Commission stating that, based on the commitments
of Pepco Holdings and subject to the qualifications referred to or stated in the letters, Pepco
Holdings' investment in EWGs and FUCOs would not have an adverse impact on the respective
state commission's ability to protect Pepco Holdings' Operating Utility Companies or their retail
customers. It is anticipated that such letters will be obtained prior to consummation of the Merger
or shortly thereafter.

The aggregate amount of long-term debt and short-term debt financing to be obtained by CEH, a
subsidiary of CEH or a financing entity established by CEH to fund the Genco activities of Pepco
Holdings during the Authorization Period (excluding securities issued during the Authorization
Period by associate companies or the New RC System Money Pool as described above in Item
1.F.3(c)) shall not exceed $1.5 billion (the "Genco Financing Limit"). Any issuance of securities by
CEH, a subsidiary of CEH or a financing entity established by CEH to unrelated third parties to
fund Genco activities under this authorization will reduce, dollar for dollar, the remaining financing
authority available to Pepco Holdings under the Pepco Holdings Financing Limit. Any issued and
outstanding Genco short-term debt will be included in the calculation of the Pepco Holdings Short-
Term Debt Limit.

Genco Financing may take the form of a project financing. Such financing would be secured by
generation assets of CEH or a subsidiary of CEH and would be non-recourse to Pepco Holdings and
Conectiv.

In File No. 70-9095, Conectiv requested authorization for Genco Financing in an amount up to $1.5
billion. It is anticipated that the investments for which financing authorization is sought herein may
occur prior to the consummation of the Merger. Conectiv requested such authorization in order to
have the flexibility to implement its business plan in the event that financing or investment
opportunities arose prior to the Merger or if the Merger is delayed. Any Genco Financing issued by
Conectiv or its subsidiaries pursuant to an order in File No. 70-9095 will count against the Genco
Financing Limit in this file.

(i) Long-Term Debt

Types of long-term debt securities may include, but not be limited to, notes, medium-term notes or
debentures under one or more indentures or long-term indebtedness under agreements with banks or
other institutional lenders. Long-term debt may be secured by generation assets or unsecured.

Any long-term debt security would have such designation, aggregate principal amount, maturity,
interest rate(s) or methods of determining the same, terms of payment of interest, redemption
provisions, sinking-fund terms and other terms and conditions as CEH may determine at the time of
issuance. Any long-term debt (a) may be convertible into any other authorized securities of CEH,
(b) will have maturities ranging from one to 50 years, (c) may be subject to optional and/or
mandatory redemption, in whole or in part, at par or at various premiums above the principal
amount thereof, (d) may be entitled to mandatory or optional sinking-fund provisions, (e) may
provide for reset of the coupon pursuant to a remarketing arrangement, (f) may be subject to tender
to the issuer for repurchase or be subject to the obligation of the issuer to repurchase at the election
of the holder or upon the occurrence of a specified event and (g) may be called from existing
investors by a third party.

Specific terms of any borrowings, such as maturity dates, interest rates, redemption and sinking
fund provisions, tender or repurchase and conversion features, if any, with respect to the long-term
securities of a particular series, will be determined by the issuer at the time of issuance and will
comply in all regards with the parameters for financing authorization set forth in Item 1.E above.
Associated placement, underwriting or selling agent fees, commissions and discounts, if any, will be
established by negotiation or competitive bidding.

(ii) Short-Term Debt

Authority is requested for CEH, a subsidiary of CEH or a financing entity established by CEH to
issue the same types of short-term debt securities under the same terms as requested above for
Pepco Holdings. CEH may, without counting against the limits set forth above, maintain back-up
lines of credit. Outstanding external short-term debt issued by CEH, a subsidiary of CEH or a
financing entity established by CEH will be included in the calculation of the Pepco Holdings
Short-Term Debt Limit.

(b) Guarantees

Authority is sought for CEH to enter into guarantees of the obligations of its subsidiaries as set forth
above for Pepco Holdings in Item 1.F.2(e) and for subsidiaries of CEH or financing entities
established by CEH to issue guarantees to external lenders in support of their financing activities
(collectively, "CEH Guarantees"). The CEH Guarantees, together with Pepco Holdings Guarantees,
Pepco Guarantees, Conectiv Guarantees (as defined below) and Nonutility Subsidiary Guarantees
(as defined below), will not exceed the Pepco Holdings Guarantee Limit at any time during the
Authorization Period, exclusive of any guarantees and other forms of credit support that are exempt
pursuant to Rule 45(b) and Rule 52(b); provided however, that the amount of Nonutility Guarantees
in respect of obligations of any Rule 58 Subsidiaries shall remain subject to the limitation of Rule
58(a)(1). In no event will any CEH Guarantees involve the pledging of any utility property.

A portion of the guarantees proposed to be issued by CEH may be in connection with the business
of CESI, a wholly owned direct subsidiary of CEH. CESI conducts power marketing and trading
operations. CEH may wish to provide credit support in connection with the trading positions of
CESI entered into in the ordinary course of CESI's energy marketing and trading businesses. The
provision of parent guarantees by holding companies to affiliates in the generation and power
marketing business is standard business practice. The portion of the Pepco Holdings Guarantee
Limit represented by CEH Guarantees allows only for a modest increase in the energy trading
activities of CESI.

Certain of the guarantees may be in support of obligations that are not capable of exact
quantification. In such cases, CEH will determine the exposure under a guarantee for purposes of
measuring compliance with the Pepco Holdings Guarantee Limit by appropriate means including
estimation of exposure based on loss experience or potential payment amounts.

CEH may charge its associate company a fee for each guarantee provided on its behalf determined
in the same manner as specified above for guarantees issued by Pepco Holdings.

CEH or a financing subsidiary established by CEH, request authority to enter into, perform,
purchase and sell interest rate management devices and Anticipatory Hedges subject to the
limitations and requirements applicable to Pepco Holdings described in Item 1.F.2(f).

(d) Acquisition of Utility Property and Internal Financing Thereof

Pursuant to the Order of the Commission dated June 7, 2001 (HCAR No. 35-27415; 70-9095),
CAG, CDG and the New Utility Subsidiaries (which includes CPGI) were authorized to acquire up
to $1 billion of utility property. Authorization was granted (1) for Conectiv to fund CEH, the
subsidiary formed to hold CDG and ACE REIT, an intermediate holding company parent of CAG;
(2) for CEH in turn to fund CDG, ACE REIT and any established New Utility Subsidiary; and (3)
for ACE REIT to fund CAG through the issuance of debt or equity securities to, and the acquisition
of those securities by, the respective parent companies in aggregate amount not to exceed $1 billion.
Further, authorization was granted for CAG, CDG and the New Utility Subsidiaries to borrow up to
$1 billion (less any debt or equity securities issued to their respective parent companies) from the
Conectiv money pool to fund such acquisitions of utility property. As of December 31, 2001, no
utility property has been acquired pursuant to this authorization.

Pepco Holdings requests that the authorizations granted pursuant to the Conectiv Financing Orders
for CAG, CDG, CPGI and the New Utility Subsidiaries to acquire and fund up to $1 billion of
utility property be consolidated in this file. For purposes of this request, the acquisition of utility
property by CAG, CDG, CPGI and the New Utility Subsidiaries (but not Pepco, Delmarva or ACE)
would include any newly constructed facilities, any property acquired from unaffiliated third parties
and any property acquired from associated companies that are public utility companies or EWGs.
Any acquisition of utility property made pursuant to the Conectiv Financing Orders will count
against the authorization for the acquisition of utility property sought herein.

(e) Financing of Nonutility Subsidiaries of CEH

The Nonutility Subsidiaries of CEH will be financed as described in Item 1.F.6 below.

5. Conectiv Financing

(a) Existing Financing Arrangements

As indicated on Exhibit K-2 hereto, Conectiv has certain financing arrangements in place. Those
arrangements that will remain in place following the Merger are described in such Exhibit.

(b) Guarantees

Authority is sought for Conectiv to enter into guarantees of the obligations of its subsidiaries
("Conectiv Guarantees") as set forth above for Pepco Holdings in Item 1.F.2(e). The Conectiv
Guarantees, together with Pepco Holdings Guarantees, Pepco Guarantees, CEH Guarantees and
Nonutility Subsidiary Guarantees (as defined below), will not exceed the Pepco Holdings Guarantee
Limit at any time during the Authorization Period, exclusive of any guarantees and other forms of
credit support that are exempt pursuant to Rule 45(b) and Rule 52(b); provided however, that the
amount of Nonutility Guarantees in respect of obligations of any Rule 58 Subsidiaries shall remain
subject to the limitation of Rule 58(a)(1).

A portion of the guarantees proposed to be issued by Conectiv may be in connection with the
business of CESI, a wholly owned indirect subsidiary of Conectiv. CESI conducts power marketing
and trading operations. Conectiv may wish to provide credit support in connection with the trading
positions of CESI entered into in the ordinary course of CESI's energy marketing and trading
businesses. The provision of parent guarantees by holding companies to affiliates in the generation
and power marketing business is standard business practice. The portion of the Pepco Holdings
Guarantee Limit represented by Conectiv Guarantees allows only for a modest increase in the
energy trading activities of CESI.

Certain of the guarantees may be in support of obligations that are not capable of exact
quantification. In such cases, Conectiv will determine the exposure under a guarantee for purposes
of measuring compliance with the Pepco Holdings Guarantee Limit by appropriate means including
estimation of exposure based on loss experience or potential payment amounts.

Conectiv may charge its associate company a fee for each guarantee provided on its behalf
determined in the same manner as specified above for guarantees issued by Pepco Holdings.

The Nonutility Subsidiaries of Conectiv will be financed as described in Item 1.F.6 below.

6. Nonutility Subsidiary Financings

As indicated on Exhibits K-1 and K-2 hereto, certain Nonutility Subsidiaries have financing
arrangements in place. These arrangements are expected to remain in place following
consummation of the Merger. Certain guarantees in favor of a direct or indirect Nonutility
Subsidiary issued by another Subsidiary may be replaced by Pepco Holdings, CEH or Conectiv
guarantees as described below. In addition, the Merger U-1 contemplates the formation or retention
of other Nonutility Subsidiaries that currently do not have outstanding debt. It is expected that
future financing by all such Nonutility Subsidiaries will be made pursuant to the terms of Rule 52.

In order to be exempt under Rule 52(b), any loans by Pepco Holdings, CEH or Conectiv to a
Nonutility Subsidiary or by one Nonutility Subsidiary to another must have interest rates and
maturities that are designed to parallel the lending company's effective cost of capital. However, in
the limited circumstances where the Nonutility Subsidiary making the borrowing is not wholly
owned, directly or indirectly, by Pepco Holdings, authority is requested under the Act for Pepco
Holdings, CEH, Conectiv or a Nonutility Subsidiary, as the case may be, to make such loans to such
subsidiaries at interest rates and maturities designed to provide a return to the lending company of
not less than its effective cost of capital.¹⁵ If such loans are made to a Nonutility Subsidiary, such
Nonutility Subsidiary will not provide any services to any associate Nonutility Subsidiary except to
a wholly or partially owned subsidiary that meets one of the following conditions (which are the
same conditions for which Pepco Holdings has requested an exemption in the Merger U-1 from the
at cost requirements of the Act with respect to the rendering of services to nonutility subsidiaries
generally): (i) the Nonutility Subsidiary is a FUCO or an EWG that derives no part of its income,
directly or indirectly, from the generation and sale of electric energy within the United States;
(ii) the Nonutility Susbsidiary is an EWG that sells electricity at market-based rates that have been
approved by the FERC or the relevant state public utility commission, provided that the purchaser is
not one of Pepco Holdings' regulated public utility subsidiareis; (iii) the Nonutility Subsidiary is a
QF ("QF") under the Public Utility Regulatory Policies Act of 1978, as amended ("PURPA"), that
sells electricity exclusively at rates negotiated at arm's length to one or more industrial or
commercial customers purchasing the electricity for their own use and not for resale, or to an electric
utility company (other than one of Pepco Holdings' regulated public utility subsidiaries) at the
purchaser's "avoided costs" as determined under the regulations under PURPA; (iv) the Nonutility
Subsidiary is an EWG or QF that sells electricity at rates based upon its cost of service, as approved
by the FERC or any state public utility commission having jurisdiction, provided that the purchaser
of the electricity is not one of Pepco Holdings' regulated public utility subsidiaries; or (v) the
Nonutility Subsidiary is engaged solely in the business of developing, owning, operating and/or
providing services to a company described in clauses (i)-(iv) above.

7. Guarantees by Nonutility Subsidiaries, Money Pool and Intrasystem Advances

(a) Nonutility Subsidiary Guarantees

In addition to guarantees that may be provided by Pepco Holdings, Pepco, CEH and Conectiv, the
Nonutility Subsidiaries request authority to provide to other Nonutility Subsidiaries guarantees and
other forms of credit support ("Nonutility Subsidiary Guarantees"). The Nonutility Subsidiary
Guarantees, together with Pepco Holdings Guarantees, Pepco Guarantees, CEH Guarantees and
Conectiv Guarantees will not exceed the Pepco Holdings Guarantee Limit at any time during the
Authorization Period, exclusive of any guarantees and other forms of credit support that are exempt
pursuant to Rule 45(b) and Rule 52(b); provided however, that the amount of Nonutility Guarantees
in respect of obligations of any Rule 58 Subsidiaries shall remain subject to the limitation of Rule
58(a)(1). The Nonutility Subsidiary providing any such credit support may charge its associate
company a fee for each guarantee provided on its behalf determined in the same manner as
specified above for guarantees issued by Pepco Holdings.

(b) Authorization and Operation of the Pepco Holdings System Money Pool

Pepco Holdings and the Subsidiaries hereby request authorization to establish the Money Pool, and
the Subsidiaries, to the extent not exempted by Rule 52, also request authorization to make
unsecured short-term borrowings from the Money Pool, to contribute surplus funds to the Money

______________________
¹⁵ The Commission has granted similar authority to another registered holding company. See
Entergy Corporation, et al., HCAR No. 35-27039 (June 22, 1999).

Pool and to lend and extend credit to (and acquire promissory notes from) one another through the
Money Pool. Pepco Holdings is requesting authorization to contribute surplus funds and to lend and
extend credit to the Money Pool.¹⁶

Pepco Holdings and the Subsidiaries believe that the cost of the proposed borrowings through the
Money Pool will generally be more favorable to the borrowing participants than the comparable
cost of external short-term borrowings, and the yield to the participants contributing available funds
to the Money Pool will generally be higher than the typical yield on short-term investments.

(i) Money Pool

Under the proposed terms of the Money Pool, short-term funds would be available from the
following sources for short-term loans to the Subsidiaries from time to time: (1) surplus funds in the
treasuries of Money Pool participants other than Pepco Holdings, (2) surplus funds in the treasury
of Pepco Holdings ((1) and (2) comprise "Internal Funds"), and (3) proceeds from the issuance of
short-term debt securities by Money Pool participants or by Pepco Holdings for loan to the Money
Pool ("External Funds"). Funds would be made available from such sources in such order as the
administrator of the Money Pool (CRP or its successor) may determine would result in a lower cost
of borrowing, consistent with the individual borrowing needs and financial standing of the
companies providing funds to the pool. The determination of whether a Money Pool participant at
any time has surplus funds to lend to the Money Pool or shall lend funds to the Money Pool would
be made by such participant's chief financial officer or treasurer, or by a designee thereof, on the
basis of cash flow projections and other relevant factors, in such participant's sole discretion. See
Exhibit I-1 for a copy of the Form of Money Pool Agreement.

No party would be required to effect a borrowing through the Money Pool if it is determined that it
could (and had authority to) effect a borrowing at lower cost directly from other lenders. No loans
through the Money Pool would be made to, and no borrowings through the Money Pool would be
made by, Pepco Holdings. In situations in which limited funds are available in the Money Pool for
loans, the Operating Utility Companies would have first priority for such funds.

___________________________
¹⁶ As registered holding companies, Pepco Holdings and Conectiv will not borrow from the Money
Pool. CEH and ACE REIT are temporary holding companies due to the lack of capacity to
designate all of their direct and indirect subsidiaries' holdings in generation assets as EWGs. CEH
and ACE REIT may borrow from the Money Pool until the earlier of a period of one year from the
date of the Merger or the receipt of EWG authorization requested in this file (CEH and ACE REIT
were originally authorized to participate in the Conectiv money pool pursuant to the Order of the
Commission dated June 29, 2000 (HCAR No. 35-27192; 70-9655)). Pepco Holdings is in the process
of obtaining letters from the state commissions to the Commission stating that, based on the
commitments of Pepco Holdings and subject to the qualifications referred to or stated in the letters,
Pepco Holdings' investment in Exempt Projects (as defined below) up to the Pepco Holdings
Exempt Project Limit would not have an adverse impact on the respective state commission's ability
to protect Pepco Holdings' Operating Utility Companies or their retail customers. Once such letters
are obtained and the Commission issues an order increasing the Exempt Project Limit (as defined
below), it is the intention of Pepco Holdings to have all of the direct and indirect subsidiaries of
CEH engaged in generation activities designated as EWGs. At such time, CEH and ACE REIT will
be deregistered.

The cost of compensating balances, if any, and fees paid to banks to maintain credit lines and
accounts by Money Pool participants lending External Funds to the Money Pool would initially be
paid by the participant maintaining such line. A portion of such costs, or all of such costs in the
event a Money Pool participant establishes a line of credit solely for purposes of lending any
External Funds obtained thereby into the Money Pool, would be retroactively allocated every month
to the companies borrowing such External Funds through the Money Pool in proportion to their
respective daily outstanding borrowings of such External Funds.

If only Internal Funds make up the funds available in the Money Pool, the interest rate applicable
and payable to or by Subsidiaries for all loans of such Internal Funds will be the rates for high-grade
unsecured 30-day commercial paper sold through dealers by major corporations as quoted in The
Wall Street Journal.

If only External Funds comprise the funds available in the Money Pool, the interest rate applicable
to loans of such External Funds would be equal to the lending company's weighted average of the
cost for such External Funds (or, if more than one Money Pool participant had made available
External Funds on such day, the applicable interest rate would be a composite rate equal to the
weighted average of the cost incurred by the respective Money Pool participants for such External
Funds).

In cases where both Internal Funds and External Funds are concurrently borrowed through the
Money Pool, the rate applicable to all loans comprised of such "blended" funds would be a
composite rate equal to the weighted average of the cost of all such External Funds (as determined
pursuant to the immediately preceding paragraph above).

Funds not required by the Money Pool to make loans (with the exception of funds required to
satisfy the Money Pool's liquidity requirements) would ordinarily be invested in one or more short-
term investments, including: (i) interest-bearing accounts with banks; (ii) obligations issued or
guaranteed by the U.S. government and/or its agencies and instrumentalities, including obligations
under repurchase agreements; (iii) obligations issued or guaranteed by any state or political
subdivision thereof, provided that such obligations are rated not less than "A" by a nationally
recognized rating agency; (iv) commercial paper rated not less than "A-1" or "P-1" or their
equivalent by a nationally recognized rating agency; (v) money market mutual funds; (vi) bank
certificates of deposit, (vii) Eurodollar funds; and (viii) such other investments as are permitted by
Section 9(c) of the Act and Rule 40 thereunder.

The interest income earned on investments in the Money Pool would be allocated among the
participants in the Money Pool in accordance with the weighted average proportion each
participant's contribution of funds bears to the total amount of funds in the Money Pool.

Each Subsidiary receiving a loan through the Money Pool would be required to repay the principal
amount of such loan, together with all interest accrued thereon, on demand and in any event not
later than one year after the date of such loan. All loans made through the Money Pool may be
prepaid by the borrower without premium or penalty.

Pepco and Delmarva may have up to $300 million and $275 million, respectively, borrowed at any
one time from the Money Pool. Amounts borrowed by Pepco and Delmarva from the Money Pool
would count against the short-term borrowing authority for Pepco and Delmarva referred to in Item
1.F.3(a) above.

(ii) Operation of the Money Pools and Administrative Matters

Operation of the Money Pool, including record keeping and coordination of loans, will be handled
by CRP, or its successor, or a newly formed subsidiary company established to serve as the service
company for the Pepco Holdings system, under the authority of the appropriate officers of the
participating companies. The Money Pool will be administered on an "at cost" basis.

Proceeds of any short-term borrowings by the Nonutility Subsidiaries may be used by each such
Nonutility Subsidiary (i) for the interim financing of its construction and capital expenditure
programs; (ii) for its working capital needs; (iii) for the repayment, redemption or refinancing of its
debt and equity; (iv) to meet unexpected contingencies, payment and timing differences, and cash
requirements; and (v) to otherwise finance its own business and for other lawful general corporate
purposes. The use of proceeds from the financings would be limited to use in the operations of the
respective businesses in which such Subsidiaries are already authorized to engage.¹⁷

(d) Intrasystem Financing

Generally, Pepco Holdings, CEH, Conectiv or the lending Subsidiary's loans to, and purchase of
capital stock from, such borrowing Subsidiaries will be exempt under Rule 52, and capital
contributions and open account advances without interest will be exempt under Rule 45(b). Loans
by Pepco Holdings, CEH, Conectiv or a Nonutility Subsidiary to a Nonutility Subsidiary generally
will have interest rates and maturity dates that are designed to parallel the lending company's
effective cost of capital, in accordance with Rule 52(b). To the extent that any intrasystem loans or
extensions of credit are not exempt under Rule 45(b) or Rule 52, as applicable, the company making
such loan or extending such credit may charge interest at the same effective rate of interest as the
daily weighted average effective rate of commercial paper, revolving credit and/or other short-term
borrowings of such company, including an allocated share of commitment fees and related
expenses. If no such borrowings are outstanding, then the interest rate shall be predicated on the
Federal Funds effective rate of interest as quoted daily by the Federal Reserve Bank of New York.
In the limited circumstances where the Nonutility Subsidiary effecting the borrowing is not wholly
owned by Pepco Holdings, CEH, Conectiv or a Nonutility Subsidiary, directly or indirectly,
authority is requested under the Act for Pepco Holdings, CEH, Conectiv or a Nonutility Subsidiary
to make such loans to such subsidiaries at interest rates and maturities designed to provide a return
to the lending company of not less than its effective cost of capital. If such loans are made to a
Nonutility Subsidiary, such Nonutility Subsidiary will not provide any services to any associate
Nonutility Subsidiary except a company that meets one of the conditions for rendering of services
on a basis other than at cost as described in the Merger U-1. In the event any such loans are made,
Pepco Holdings will include in the next certificate filed pursuant to Rule 24 substantially the same
information as required on Form U-6B-2 with respect to such transaction.

______________________________
¹⁷The authorization sought herein is substantially the same as that given in recent cases. See
SCANA Corporation, HCAR No. 35-27135 (Feb. 14, 2000); New Century Energies, Inc., HCAR
No. 35-26750 (Aug. 1, 1997) and Conectiv, HCAR No. 35-26833 (Feb. 26, 1998).

Pepco Holdings will comply with the requirements of Rule 45(c) regarding tax allocations except as
otherwise approved by the Commission to alter such requirements.¹⁸

8. Financing Subsidiaries

Pepco Holdings and the Subsidiaries request authority to acquire, directly or indirectly, the equity
securities of one or more corporations, trusts, partnerships or other entities created specifically for
the purpose of facilitating the financing of the authorized and exempt activities (including exempt
and authorized acquisitions) of Pepco Holdings and the Subsidiaries through the issuance of short-
term debt, long-term debt, Preferred Securities or equity securities to third parties and the transfer of
the proceeds of such financings to Pepco Holdings or such Subsidiaries. Pepco Holdings or a
Subsidiary may, if required, guarantee or enter into support or expense agreements in respect of the
obligations of any such financing subsidiaries. Subsidiaries may also provide guarantees and enter
into support or expense agreements, if required, on behalf of such entities pursuant to Rules
45(b)(7) and 52, as applicable. Each of the Subsidiaries also requests authorization to enter into an
expense agreement with its respective financing entity, pursuant to which it would agree to pay all
expenses of such entity. Any amounts issued by such financing entities to third parties pursuant to
this authorization will be included in the overall external financing limitation authorized herein for
the immediate parent of such financing entity. However, the underlying intrasystem mirror debt and
parent guarantee shall not be included.¹⁹

9. Changes in Capital Stock of Wholly Owned Subsidiaries

The portion of an individual Subsidiary's aggregate financing to be effected through the sale of
stock to Pepco Holdings or other immediate parent company during the Authorization Period
pursuant to Rule 52 and/or pursuant to an order issued pursuant to this file cannot be ascertained at
this time. It may happen that the proposed sale of capital securities (i.e., common stock or preferred
stock) may in some cases exceed the then-authorized capital stock of such Subsidiary. In addition,
the Subsidiary may choose to use capital stock with no par value.

As needed to accommodate such proposed transactions and to provide for future issues, request is
made for authority to change the terms of any wholly owned Subsidiary's authorized capital stock
capitalization or other equity interests by an amount deemed appropriate by Pepco Holdings or
other intermediate parent company. This request for authorization will not affect the aggregate
limits or other conditions contained herein. A Subsidiary would be able to change the par value, or
change between par value and no-par stock, without additional Commission approval. Any such
action by a Utility Subsidiary (other than CAG, CDG and the New Utility Subsidiaries) would be

______________________________
¹⁸In the Merger U-1, Pepco Holdings has requested an exception to Rule 45(c)(5) to permit Pepco
Holdings to retain certain payments for tax losses that it would otherwise be required to allocate to
its subsidiaries without payment. Such payments are limited to tax credits resulting from financing
or refinancing the consideration to be paid in the Merger.
¹⁹The authorization sought herein with respect to financing entities is substantially the same as
that given to New Century Energies, Inc., HCAR No. 35-26750 (Aug. 1, 1997); Conectiv, HCAR
No. 35-26833 (Feb. 26, 1998); Cinergy Corp., HCAR No. 35-26984 (Mar. 1, 1999); Dominion
Resources, Inc., HCAR No. 35-27112 (Dec. 15, 1999); SCANA Corporation, HCAR No. 35-27135
(Feb. 14, 2000); Exelon Corporation, HCAR No. 35-27266 (November 2, 2000) and Progress
Energy, HCAR No. 35-27297 (Dec. 12, 2000).

subject to and would only be taken upon the receipt of any necessary approvals by the state
commission in the state or states where the Utility Subsidiary is incorporated and doing business.²⁰

G. Investments in EWGs and FUCOs

1. Conectiv Investments in EWGs

Pursuant to the Conectiv Financing Orders, Conectiv has authorization to invest proceeds of
securities issuances in EWGs in amounts not to exceed $350 million (the "Conectiv EWG Project
Limit"). As of June 30, 2001, Conectiv had investments in EWGs of $156.3 million. Conectiv has
no investments in FUCOs. As of June 30, 2001, Conectiv was in compliance with the requirements
of the Conectiv Financing Orders as they relate to investments in EWGs.

It is requested that the authorizations to invest in EWGs contained in the Conectiv Financing Orders
continue in effect upon consummation of the Merger pending authorization of the Exempt Project Limit
requested herein.²¹

2. Pepco Investments in EWGs and FUCOs

As of June 30, 2001, Pepco had investments in EWGs of $31.2 million. These investments
consisted of investments in the Benning Road and Buzzard Point power generation plants.

As of the same date, Pepco had investments of $478.5 million in FUCOs. These investments consist
of interests in projects located in the Netherlands and Australia and were made under long-term
leveraged leases. On December 21, 2001, Pepco made an additional FUCO investment of $164.6
million in a project located in Austria under a long-term leveraged lease.

Pepco Holdings requests authorization to keep in place after the Merger the EWG and FUCO
investments described above.

3. Pepco Holdings Investments in EWGs and FUCOs and Compliance with Rules 53 and 54

As noted above, Conectiv was authorized under the Financing Orders to invest the proceeds of
securities issuances in EWGs in an amount not to exceed the Conectiv EWG Project Limit. In this
filing, Pepco Holdings requests authorization to apply proceeds from proposed financing
transactions to make additional investments in both EWGs and FUCOs (together, "Exempt
Projects"). Specifically, Pepco Holdings requests authorization to invest the proceeds of financings
in Exempt Projects in an amount not to exceed 100% of Pepco Holdings' consolidated retained
earnings plus $3.5 billion (the "Pepco Holdings Exempt Project Limit").

As of June 30, 2001, Pepco Holdings, on a pro forma basis, had investments of $666.0 million in
Exempt Projects consisting of $509.7 million of investments by Pepco and $156.3 million of
investments by Conectiv.

________________________
²⁰Conectiv, HCAR No. 35-26833 (Feb. 26, 1998); SCANA Corporation, HCAR No. 35-27137
(Feb. 14, 2000).
²¹See New Century Energies, Inc., et al., HCAR No. 35-27218 (August 22, 2000). Amounts
invested pursuant to the Conectiv EWG Project Limit will be invested by Conectiv or its existing
associate companies, and will not be contributed or financed by Pepco Holdings, Pepco, or existing
Pepco associate companies.

In December 2000, Pepco executed its business plan to exit the electricity generating business by
completing the divestiture of substantially all its generation assets pursuant to deregulation
legislation. All of Pepco's retained generating assets are EWGs.

In May 1999, Conectiv announced its intention to restructure its portfolio of electricity generation
assets. Conectiv's strategic plan called for the retention and development of flexible, low-cost
generation to back Conectiv's merchant capabilities. As the result of restructuring legislation
enacted in New Jersey, Delaware, Maryland and Virginia, ACE and Delmarva exited the electricity
generation industry. A substantial portion of the generating assets of ACE and Delmarva have been
sold or are under contract to be sold to third parties. On July 1, 2000, pursuant to the Order of the
Commission dated June 29, 2000 (HCAR No. 35-27192) (the "Genco Order"), ACE transferred net
generating assets of approximately 502 megawatts to CAG. Concurrently, and pursuant to the
Genco Order, Delmarva transferred net generating assets of approximately 1,364 megawatts to
CDG. As noted above, CAG and CDG are public utility companies for purposes of the Act but are
not subject to state regulation.

The other part of Conectiv's strategic plan involves the construction of mid-merit generating
projects. The mid-merit market is the segment between base load and peak generation, where
flexibility is more important than size. The mid-merit market consists of electric generating plants
that are fuel-flexible with the ability to start up and shut down quickly based on customer demand,
weather conditions and price fluctuations. The purpose of the request for up to $1.5 billion of Genco
Financing described above is to finance Conectiv's current and future investment in mid-merit
generation projects.

It is the intention of Pepco Holdings that all of the generation assets owned by the merged company
ultimately will become Exempt Projects. Conectiv estimates that its total investment in generating
assets (including Exempt Projects and generation assets held as utility property by CAG and CDG
as noted above) was approximately $836 million as of June 30, 2001. The Conectiv EWG Project
Limit is insufficient to accommodate Pepco Holdings' current holdings and future growth strategy.

Pepco Holdings' proposal to make investments in Exempt Projects in an amount not to exceed the
Pepco Holdings Exempt Project Limit is consistent with rule 53(c). Investing at that level will not
have a substantial adverse impact upon the financial integrity of the Pepco Holdings holding
company system, will not have an adverse impact on the Operating Utility Companies (the Utility
Subsidiaries in the Pepco Holdings System subject to state regulation) or their customers or on the
ability of any affected state commission to protect such Utility Subsidiaries or their customers.

Pepco Holdings' retained earnings will be substantially greater than Conectiv's. Based on the Pepco
Holdings pro forma financial statements, Pepco Holdings' retained earnings are projected to be
approximately $960 million. Pepco Holdings' pro forma retained earnings are artificially low
because of the effects of merger accounting. Pepco Holdings will not be able to consolidate
Conectiv's retained earnings which were $178 million as of June 30, 2001. In the merger between
ACE and Delmarva that created Conectiv, ACE's retained earnings of $225 million were excluded
from Conectiv's retained earnings. Further, as a result of electric industry restructuring, ACE and
Delmarva discontinued applying Statement of Financial Accounting Standards ("SFAS") No. 71 to
their electricity supply businesses in the third quarter of 1999 and applied the requirements of SFAS
No. 101 and Emerging Issues Task Force Issue No. 97-4. Pursuant to the newly adopted accounting
standards, ACE and Delmarva recorded a combined reduction to earnings of $312 million, net of
income taxes. As a result of deregulation and divestiture, Pepco transferred two generating stations
to its subsidiary PES. Pepco determined that the carrying amounts of the generating stations were
not recoverable and the assets were written down to their fair value, and recognized a net of tax
impairment loss of $24 million in the fourth quarter of 2000. Absent the effects of merger
accounting and electric industry restructuring, Pepco Holdings' retained earnings would be
approximately $739 million higher at the date of the Merger.

Pepco Holdings will be a substantially larger company than Conectiv. Pepco Holdings' total
capitalization at the time of the Merger is projected to be $8.9 billion compared to Conectiv's total
capitalization of $4.5 billion as of June 30, 2001.

Further, Pepco Holdings notes that the Commission recently authorized other registered holding
companies, Exelon Corporation²² and Cinergy Corporation,²³ to invest up to $4 billion and $2.7
billion, respectively, in Exempt Projects. The Commission has recognized that registered companies
should not be penalized in the independent power market due to the effects of merger accounting
and state-mandated restructuring.²⁴ As the Commission has previously noted, merger accounting for
the effects of state restructuring artificially and drastically reduced the level of Conectiv's retained
earnings, without affecting the underlying financial integrity of the Conectiv system.²⁵ As
explained above, merger accounting will also severely understate the level of Pepco Holdings'
consolidated retained earnings. For these reasons, the relationship of the proposed level of Exempt
Project investment to Pepco Holdings' retained earnings would not provide an accurate measure of
the impact of such investment on the overall financial strength of the holding company system.

Additionally, Pepco Holdings, like many other registered companies, must have financing
flexibility to capitalize on opportunities in the fast-moving independent power industry, as well as
to accommodate the restructuring of generation assets and their eventual ownership of EWG
affiliates. In this regard, it should be emphasized that the Commission has granted Conectiv
authority to invest up to $1 billion in utility property in order to pursue its strategy of developing
low-cost mid-merit generation in the Mid-Atlantic region. It is Pepco Holdings' intention to secure
EWG status for such projects as soon as practicable.

For the following reasons, in addition to those noted above, Pepco Holdings believes that its present
proposal satisfies the criteria of rule 53(c), including as applied in Exelon and Cinergy:

1. Project review procedures/risk mitigation

Pepco Holdings will subject potential investments in Exempt Projects to a series of rigorous project
review screens before committing any funds, and once funds have been invested, Pepco Holdings
will closely monitor project performance, using effective techniques to mitigate project risks.
Wherever practicable, Pepco Holdings will finance Exempt Projects with non-recourse debt.

______________________________
²²See Exelon Corporation, et al., HCAR No. 35-27296, (Dec. 8, 2000).
²³See Cinergy Corporation, et al., HCAR No. 35-27400, (May 18, 2001).
²⁴See Cinergy Corporation, et al., HCAR No. 35-27400, (May 18, 2001) (lifting reservation of
jurisdiction and permitting investment of 100% of consolidated retained earnings plus $2 billion,
excluding investments in generation assets transferred by utility subsidiaries).
²⁵See Conectiv, et al., HCAR No. 35-27213 (August 17, 2000).

Pepco Holdings' portfolio diversification approach serves to mitigate the risks presented by any
single project. Open access transmission service and the growing demand for new generating
capacity also mitigate risks of domestic EWG projects.

2. Prior investments

Through Conectiv and Pepco, Pepco Holdings has considerable experience with generation projects
and foreign utility investments, including both Exempt Projects and non-exempt projects.

3. Current financial condition

Credit ratings, capitalization ratios, and other financial factors attest that Pepco Holdings and the
Operating Utility Companies are in sound financial condition.

As of June 30, 2001, the senior unsecured debt of the Operating Utility Companies was rated
"investment grade" by both of the major rating agencies. It is anticipated that Pepco Holdings will
receive an investment grade rating. See Item 1.E.5 above for a summary of the debt ratings for the
Operating Utility Companies.

As a result of the terms and conditions applicable to the general financing authorization sought
herein, Pepco Holdings system's authority under the act to engage in financing transactions
would be restricted in the event Pepco Holdings' senior unsecured debt falls below investment
grade. Specifically, Pepco Holdings has committed that without further authorization from the
Commission, it will not issue any additional debt to finance investments in Exempt Projects if, upon
original issuance, Pepco Holdings' senior unsecured debt obligations are not rated investment grade
by at least one of the major ratings agencies.

As of the date of the Merger, the Common Equity Ratios of Pepco Holdings, Pepco, ACE,²⁶ and
Delmarva will exceed the Commission's traditional 30% standard. Pursuant to the terms and
conditions applicable to the general financing authorization sought herein, significant restrictions
come into play if Pepco Holdings' Common Equity Ratio would fall below 30%. In that event,
without a further order from the Commission, Pepco Holdings would be precluded from issuing any
additional debt.

Additional investments in Exempt Projects will not have a negative impact on the Operating Utility
Companies' abilities to fund their operations since the Operating Utility Companies will not depend
on Pepco Holdings for capital. It is anticipated that the Operating Utility Companies will finance
their capital needs entirely with their own internal funds and proceeds of external financings by
them during the Authorization Period. Pepco Holdings does not currently anticipate a need to make
any equity investments in the Operating Utility Companies over the course of the Authorization
Period.

______________________________
²⁶As discussed above under "Financial Condition", Pepco Holdings has requested that ACE's
required Common Equity Ratio be reduced to 10% in the event that ACE Transition Funding issues
$1.7 billion of securitization securities. Also as discussed in the same section, Pepco Holdings has
requested that the Commission reserve jurisdiction over the reduction in ACE's required Common
Equity Ratio.

4. Protection of Operating Utility Companies; state letters

The Operating Utility Companies will remain insulated from the direct effects of EWG and FUCO
investments.

All of Pepco Holdings' Exempt Projects will be legally and structurally separate from the Operating
Utility Companies. Consequently, any losses in connection with Exempt Projects would have no
direct effect on the wholesale or retail electric or gas rates of the Operating Utility Companies.

Pepco Holdings affirms that it will not seek recovery through higher rates to the Operating Utility
Companies' utility customers in order to compensate Pepco Holdings for any losses it may sustain
on investments in any Exempt Projects or for any inadequate returns on those investments.

Pepco Holdings affirms that it will comply with the other conditions of rule 53(a) conferring
specific protections on customers of the Operating Utility Company and their state commissions,
namely:

·	the requirements of rule 53(a)(2) regarding the preparation and making available of books and records and financial reports regarding Exempt Projects;
·	the requirements of rule 53(a)(3) regarding the limitation on the use of Operating Utility Company employees in connection with providing services to Exempt Projects; and
·	the requirement of rule 53(a)(4) regarding filing of copies of applications and reports.

With respect to relevant financial benchmarks specifically contemplated by the terms of rule 53,
none of the conditions enumerated in paragraph (b) thereof is applicable. Pepco Holdings affirms
that it will notify the Commission in writing if any of the circumstances described in rule 53(b) arise
during the Authorization Period.

Pepco Holdings will remain in compliance with the requirements of Rule 53(a), other than Rule
53(a)(1), at all times during the Authorization Period.

Further, in addition to providing the affected state commissions with copies of FUCO notices filed
with this Commission and EWG applications filed with the FERC apprising the state commissions
of each specific project in which Pepco Holdings invests, Pepco Holdings will furnish to these state
commissions, concurrently with submission to the Commission, copies of the quarterly reports
Pepco Holdings files in this docket pursuant to rule 24.

Finally, Pepco Holdings is in the process of obtaining letters from the state commissions to the
Commission stating that, based on the commitments of Pepco Holdings and subject to the
qualifications referred to or stated in the letters, Pepco Holdings' investment in Exempt Projects up
to the Pepco Holdings Exempt Project Limit would not have an adverse impact on the respective
state commission's ability to protect Pepco Holdings' Operating Utility Companies or their retail
customers. Pepco Holdings hereby affirms that it will abide by the restrictions and commitments set
forth in such letters.²⁷

H. Payment of Dividends Out of Capital or Unearned Surplus

1. Payment of Dividends by Pepco Holdings and Conectiv Out of Capital or Unearned Surplus

The Applicants propose that Pepco Holdings and Conectiv be permitted to pay dividends, from time
to time through the Authorization Period, out of capital and unearned surplus, to the extent
permitted under applicable corporate law. The Applicants request that the Commission reserve
jurisdiction over such request pending completion of the file.

2. Payment of Dividends by Utility Subsidiaries Out of Capital or Unearned Surplus

The Applicants propose that the Utility Subsidiaries be permitted to pay dividends, from time to
time through the Authorization Period, out of capital and unearned surplus, to the extent permitted
under applicable corporate law. The Applicants request that the Commission reserve jurisdiction
over such request pending completion of the file.

3. Payment of Dividends by Nonutility Subsidiaries Out of Capital or Unearned Surplus

The Applicants propose that Nonutility Subsidiaries (including CEH, ACE REIT, CAG, CDG,
CPGI and the New Utility Subsidiaries upon the receipt of EWG status) be permitted to pay
dividends, from time to time through the Authorization Period, out of capital and unearned surplus,
to the extent permitted under applicable corporate law.

I. Filing of Certificates of Notification

It is proposed that, with respect to Pepco Holdings, the reporting systems of the Securities Act of
1933, as amended (the "1933 Act") and the Securities Exchange Act of 1934, as amended (the
"1934 Act") be integrated with the reporting system under the Act. This would eliminate duplication
of filings with the Commission that cover essentially the same subject matters, resulting in a
reduction of expense for both the Commission and Pepco Holdings. To effect such integration, the
portion of the 1933 Act and 1934 Act reports containing or reflecting disclosures of transactions
occurring pursuant to the authorizations granted in this proceeding would be incorporated by
reference into this proceeding through Rule 24 certificates of notification. The certificates would
also contain all other information required by Rule 24, including the certification that each
transaction being reported on had been carried out in accordance with the terms and conditions of
and for the purposes represented in this Application-Declaration. Such certificates of notification

______________________________
²⁷Pending receipt of all state commission letters, Pepco Holdings' investment in Exempt Projects
will be limited to its existing investment in Exempt Projects at the time of the Merger. (In addition,
as discussed above, Conectiv will continue to finance EWG investments up to the Conectiv EWG
Project Limit.) Exempt Project investments in excess of this amount will be subject to a reservation
of jurisdiction if Pepco Holdings has not obtained all of the required state commission letters prior
to the Merger. In such Event, Pepco Holdings and the Subsidiaries request that all other financings
requested in this Application-Declaration be approved pursuant to Sections 6 and 7 and Rule 54.

would be filed within 60 days after the end of the first three calendar quarters and 90 days after the
end of the last calendar quarter. The initial Rule 24 certificate of notification will be filed as of the
last day of the first full calendar quarter following the date of the Merger.

A copy of relevant documents (e.g., underwriting agreements, indentures, bank agreements) for the
relevant quarter will be filed with, or incorporated by reference from 1933 Act or 1934 Act filings
in such Rule 24 certificates.

The Rule 24 certificates will contain the following information:

·	The sales of any common stock or preferred securities by Pepco Holdings and the purchase price per share and the market price per share at the date of the agreement of sale;
·	The total number of shares of Pepco Holdings common stock issued or issuable pursuant to options granted during the quarter under employee benefit plans and dividend reinvestment plans including any employee benefit plans or dividend reinvestment plans hereafter adopted;
·	If Pepco Holdings common stock has been transferred to a seller of securities of a company being acquired, the number of shares so issued, the value per share and whether the shares are restricted in the hands of the acquirer;
·	If a guarantee is issued during the quarter, the name of the guarantor, the name of the beneficiary of the guarantee and the amount of the guarantee;
·	The amount and terms of any Pepco Holdings indebtedness or Genco debt issued during the quarter;
·	The amount and terms of any short-term debt issued by any jurisdictional Utility Subsidiary during the quarter;
·	The amount and terms of any financings consummated by any Nonuility Subsidiary that are not exempt under Rule 52;

·	The notional amount and principal terms of any Hedge Instruments or Anticipatory Hedges entered into during the quarter and the identity of the other parties thereto;
·	The name, parent company and amount invested in any intermediate subsidiary or financing subsidiary during the quarter and the amount and terms of any securities issued by such subsidiaries during the quarter;
·	A list of U-6B-2 forms filed with the Commission during the quarter, including the name of the filing entity and the date of filing;
·	Consolidated balance sheets as of the end of the quarter and separate balance sheets as of the end of the quarter for each company, including Pepco Holdings, that has engaged in jurisdictional financing transactions during the quarter;
·	A table showing, as of the end of the quarter, the dollar and percentage components of the capital structure of Pepco Holdings on a consolidated basis and CEH and each Operating Utility Company;
·	A retained earnings analysis of Pepco Holdings on a consolidated basis and CEH and each Operating Utility Subsidiary detailing gross earnings, goodwill amortization, dividends paid out of each capital account and the resulting capital account balances at the end of the quarter; and
·	Future registration statements filed under the 1933 Act with respect to securities that are subject of the Application-Declaration will be filed or incorporated by reference as exhibits to the next certificate filed pursuant to Rule 24.

Item 2. Fees, Commissions and Expenses

Estimated legal fees and expenses	*
Estimated miscellaneous expenses and fees	*
Total	*
* To be filed by amendment.

The above estimated fees and expenses do not include underwriting fees and other expenses
incurred in completing specific financial transactions or other transactions covered in this file. The
fees and expenses incurred for specific financings will not exceed 5% of the proceeds thereof.

Item 6. Exhibits and Financial Statements

(a) Exhibits:

A-1	Form of Amended and Restated Certificate of Incorporation of Pepco Holdings, Inc., incorporated by reference to Annex B to Pepco Holdings, Inc.'s Registration Statement in Exhibit B-2, hereto
A-2	Form of Amended and Restated Bylaws of Pepco Holdings, Inc., incorporated by reference to Annex C to Pepco Holdings, Inc.'s Registration Statement in Exhibit B-2 hereto
A-3	Charter of Potomac Electric Power Company, incorporated by reference to Potomac Electric Power Company's Annual Report on Form 10-K, filed on March 27, 2000, SEC File No. 1-1072
A-4	Bylaws of Potomac Electric Power Company, as amended through January 25, 2001, incorporated by reference to Pepco's 2000 Annual Report on Form 10-K, filed on March 23, 2001, SEC File No. 1-1072
A-5	Restated Certificate of Incorporation of Conectiv, incorporated by reference to Conectiv's Current Report on Form 8-K, filed on March 6, 1998, SEC File No. 1-13895
A-6	Conectiv's Bylaws as amended October 26, 1999, incorporated by reference to Conectiv's 2000 Annual Report on Form 10-K filed on March 15, 2001, SEC File No. 1-13895
B-1	Agreement and Plan of Merger, dated as of February 9, 2001 among Potomac Electric Power Company, Pepco Holdings, Inc. and Conectiv, ncorporated by reference to Annex A to Pepco Holdings, Inc.'s Registration Statement in Exhibit B-2 hereto
B-2	Pepco Holdings, Inc. Registration Statement on Form S-4, filed on May 30, 2001, incorporated by reference to SEC File No. 333-57042
C	Not applicable
D	Not applicable
E	Not applicable
F-1	Opinion of Counsel - Pepco (to be filed by amendment)
F-2	Opinion of Counsel - Conectiv (to be filed by amendment)
G-1	Pepco's 2000 Annual Report on Form 10-K, filed on March 23, 2001, incorporated by reference to SEC File No. 1-1072
G-2	Conectiv's 2000 Annual Report on Form 10-K filed on March 15, 2001, incorporated by reference to SEC File No. 1-13895
G-3	Pepco's Quarterly Reports on Form 10-Q, filed on May 2, 2001 and August 10, 2001, incorporated by reference to SEC File No. 1-1072
G-4	Conectiv's Quarterly Reports on Form 10-Q, filed on May 10, 2001 and August 14, 2001, incorporated by reference to SEC File No. 1-13895
H-1	Proposed Form of Notice. (previously filed)
I-1	Form of Money Pool Agreement (previously filed)
J-1	Pepco Holdings Long-Term Incentive Plan incorporated by reference to Annex I to Pepco Holdings, Inc.'s Registration Statement in Exhibit B-2 hereto
K-1	Description of Existing Financing Arrangements of Pepco (previously filed)
K-2	Description of Existing Financing Arrangements of Conectiv incorporated by reference to Exhibits I-1 and I-2 to File No. 70-9095.Such exhibits described existing financing arrangements at the formation of Conectiv. Subsequent Conectiv financing arrangements have been approved by orders of the Commission dated August 21, 1998 (HCAR No. 26907), September 28, 1998 (HCAR No. 26921), October 21, 1998 (HCAR No. 26930), November 13, 1998 (HCAR No. 26941), December 14, 1999 (HCAR No. 27111), August 17, 2000 (HCAR No. 27213) and June 7, 2001 (HCAR No. 27415) (and reported pursuant to Rule 24) or subject to exemption pursuant to Rule 52 (and reported on Form U-6B-2) or Rule 58 (and reported on Form U-9C-3))
M-1	Pepco Holdings, Inc. Cash Flow and Capitalization Forecasts (filed pursuant to a request for confidential treatment)
M-2	Supplemental Pepco Holdings financial forecast information (filed pursuant to a request for confidential treatment)
M-3	Supplemental information regarding energy trading and EWG/FUCO activities (filed pursuant to a request for confidential treatment)

	(b) Financial Statements:
FS-1	Balance Sheets as of June 30, 2001
	1. Potomac Electric Power Company (previously filed)
	2. Conectiv (previously filed)
	3. Pepco Holdings (pro forma for Merger) (previously filed)
	4. Pepco Holdings (pro forma for financing authorization requested in this Application-Declaration) (previously filed)
FS-2	Income Statement for the Twelve Months Ended June 30, 2001
	1. Potomac Electric Power Company (previously filed)
	2. Conectiv (previously filed)
	3. Pepco Holdings (pro forma for Merger) (previously filed)
	4. Pepco Holdings (pro forma for financing authorization requested in this Application-Declaration) (previously filed)
FS-3	Notes to Balance Sheets as of June 30, 2001 and Income Statement for the Twelve Months Ended June 30, 2001 (previously filed)

SIGNATURE

Pursuant to the requirements of the Public Utility Holding Company Act of 1935, the undersigned
companies have duly caused this Pre-Effective Amendment No. 2 to Form U-1 to be signed on their
behalf by the undersigned thereunto duly authorized.

The signatures of the applicants and of the persons signing on their behalf are restricted to the
information contained in this application that is pertinent to the application of the respective
companies.

DATE: April 11, 2002	Pepco Holdings, Inc. Potomac Electric Power Company POM Holdings, Inc.
	By: /s/ D. R. Wraase Dennis R. Wraase President and Chief Operating Officer
DATE: April 11, 2002	Edison Capital Reserves Corporation
	By: /s/ Ellen Sheriff Rogers Ellen Sheriff Rogers President

DATE: April 11, 2002	Potomac Capital Investment Corporation American Energy Corporation Edison Place, LLC PCI Energy Corporation Pepco Enterprises, Inc. Energy and Telecommunications Services, LLC Pepco Technologies, LLC Potomac Capital Markets Corporation Potomac Harmans Corporation Potomac Capital Joint Leasing Corporation PCI Holdings, Inc. Potomac Delaware Leasing Corporation PCI Nevada Investments Potomac Leasing Associates, LP Pepco Energy Company Potomac Land Corporation Longwood Realty Company Harmans Building Associates PepMarket.com PCI Air Management Corporation Potomac Aircraft Leasing Corporation Potomac Nevada Corporation Potomac Nevada Leasing Corporation Potomac Equipment Leasing Corporation Potomac Nevada Investment, Inc. Friendly Skies, Inc. PCI Engine Trading, Ltd.
	By: /s/ John D. McCallum John D. McCallum President and Chief Executive Officer
DATE: April 11, 2002	Severn Cable LLC Severn Construction, LLC
	By: /s/Scott Agnor T. Scott Agnor President and Chief Executive Officer
DATE: April 11, 2002	W.A. Chester, LLC W.A. Chester Corporation
	By: /s/Robert L. Thompson, Jr. Robert L. Thompson, Jr. President and Chief Executive Officer

DATE: April 11, 2002	Pepco Energy Services, Inc. Pepco Building Services, Inc. MET Electrical Testing Company, Inc. Substation Test Company, Inc. Engineered Services, Inc. G&L Mechanical Services, Inc. Unitemp, Inc. PES Home Services of Virginia Potomac Power Resources, Inc. Seaboard Mechanical Services, Inc.
	By: /s/ E. R. Mayberry E. R. Mayberry President and Chief Executive Officer

DATE: April 11, 2002

Conectiv
ACE REIT, Inc.
ATE Investment, Inc.
ATS Operating Services, Inc.
Atlantic City Electric Company
Atlantic Generation, Inc.
Atlantic Jersey Thermal Systems, Inc.
Atlantic Southern Properties, Inc.
Binghamton General, Inc.
Binghamton Limited, Inc.
Conectiv Atlantic Generation, L.L.C.
Conectiv Bethlehem, Inc.
Conectiv Communications, Inc.
Conectiv Delmarva Generation, Inc.
Conectiv Energy Holding Company
Conectiv Energy Supply, Inc.
Conectiv Mid-Merit, Inc.
Conectiv Operating Services Company
Conectiv Pennsylvania Generation, Inc.
Conectiv Plumbing, L.L.C.
Conectiv Properties and Investments, Inc.
Conectiv Resource Partners, Inc.
Conectiv Services, Inc.
Conectiv Solutions LLC
Conectiv Thermal Systems, Inc.
DCI I, Inc.
DCI II, Inc.
DCTC-Burney, Inc.
Delmarva Power & Light Company
King Street Assurance Ltd.
Pedrick Gen., Inc.
Vineland Limited, Inc.
Vineland General, Inc.

By:  /s/ Philip S. Reese
       Philip S. Reese
       Vice President and Treasurer