Fitch Affirms PEPCO Holdings & Subsidiaries; Outlook Stable.

NEW YORK -- Fitch Ratings has affirmed the long-term and short-term debt ratings of PEPCO Holdings, Inc. (PHI) and subsidiaries. The Rating Outlook is Stable. A complete rating list follows below.

PHI's ratings are supported by the relatively stable cash flows of its three regulated electric transmission and distribution subsidiaries (accounting for approximately 66% of consolidated operating income for the year ended 12/31/2007), ample system liquidity, timely recovery of all power supply costs incurred to serve its Default Electric Supply obligations, reasonable distribution rate case decisions in each service territory, implementation of a Bill Stabilization Adjustment in Maryland and debt reduction efforts over the past five years. In addition, the rating considers the sizeable, $5 billion capex plan occurring at the regulated utilities, as well as the higher risk profile of its non-regulated generation and marketing subsidiaries.

PHI's Stable Outlook assumes that the company will continue to maintain consolidated credit ratios that are in line with the rating category and that regulators in Maryland and other jurisdictions will continue to provide reasonable and timely recovery of costs incurred by PHI's utility subsidiaries.

Rate cases filed by PEPCO in the District of Columbia and Maryland and by Delmarva in Maryland and Delaware were decided in the second half of 2007. PEPCO received 56% and 22% of the requested amount in D.C. and Maryland, respectively. PEPCO's $10.6 million rate increase approved in Maryland also included a decrease in annual depreciation expense of approximately $30.7 million. Delmarva received 60% of the requested amount in both Delaware and Maryland. The Maryland rate cases of both Pepco and Delmarva are Phase-I of a two-phase process. Phase-II, which further contemplates any adjustments needed to cover each respective company's operating expenses, is expected to be determined in mid-July.

PEPCO and Delmarva proposed the adoption of a bill stabilization adjustment mechanism (BSA) in Maryland and D.C. The BSA was approved in Maryland and will be applied monthly in order to serve as a decoupling mechanism by stabilizing revenues and help mitigate the volatility of customer bills during colder and warmer than normal weather conditions, as well as to mitigate the financial impact of energy efficiency programs. The Public Service Commission of the District of Columbia has agreed that in theory the BSA reduces the company's risk and will ultimately benefit ratepayers. However, there is question as to whether the BSA can be implemented under existing law and District of Columbia regulators have opened a new proceeding to research this issue. Decoupling is currently also under consideration in Delaware and New Jersey.

PHI, through its regulated subsidiaries, plans to make growing capital investments to maintain and expand its transmission and distribution system in coming years. In October 2007, PHI received approval from the PJM to construct its $1.05 billion, 230 mile 500-kv transmission line in the PJM region that runs from Virginia to New Jersey. The project has a targeted completion time frame of 2013. Fitch views such transmission investments favorably due to the higher potential returns and explicit capital cost recovery mechanisms that are in place. Fitch expects that PHI will fund the project with a balanced mix of debt and equity to support credit quality. PHI remains involved in a tax dispute with the Internal Revenue Service (IRS) that may potentially affect cash flow. The IRS has challenged the tax benefits PHI has claimed from Potomac Capital Investment's (PCI) portfolio of cross-border energy leases. PHI claimed approximately $362 million in tax benefits from these leases over the 2001-March 2008 time period. If the IRS ultimately prevails in this dispute, PHI would be subject to additional taxes, interest and possible penalties. However, this dispute could remain unresolved for an extended period and PHI's financial capacity and liquidity are currently adequate to meet such a contingency.

Fitch affirms the following ratings:

Pepco Holdings, Inc.

--Issuer Default Rating (IDR) 'BBB';

--Senior unsecured debt 'BBB';

--Short Term IDR 'F2'

--Commercial paper 'F2'.

Potomac Capital Investment Corp. (Guaranteed by PEPCO Holdings, Inc.)

--IDR 'BBB';

--Senior unsecured debt 'BBB'.

Potomac Electric Power Co.

--IDR 'BBB+';

--Senior secured 'A';

--Senior unsecured 'A-';

--Preferred stock 'BBB+';

--Short Term IDR 'F2'

--Commercial paper 'F2'.

Delmarva Power and Light Co.

--IDR 'BBB+';

--Senior unsecured 'A-';

--Preferred stock 'BBB+';

--Short Term IDR 'F2'

--Commercial paper 'F2'.

Atlantic City Electric Co.

--IDR 'BBB';

--Senior secured 'A-';

--Senior unsecured 'BBB+';

--Preferred stock 'BBB';

--Short Term IDR 'F2'

--Commercial paper 'F2'.

The Rating Outlook is Stable.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.