EMPLOYMENT AGREEMENT

          

This EMPLOYMENT AGREEMENT (the "Agreement") is made as of July 26, 2007 between
PEPCO HOLDINGS, INC. (the "Company") and DENNIS R. WRAASE (the "Executive ").

RECITALS:

          

The Board of Directors of the Company (the "Board of Directors") recognizes that
outstanding management of the Company is essential to advancing the best
interests of the Company, its shareholders and its subsidiaries. The Board of
Directors believes that it is particularly important to have stable, excellent
management at the present time. The Board of Directors believes that this
objective may be achieved by giving key management employees assurances of
financial security for a period of time, so that they will not be distracted by
personal risks and will continue to devote their full time and best efforts to
the performance of their duties.

          

The Compensation/Human Resources Committee of the Board of Directors (the
"Committee") has recommended, and the Board of Directors has approved, entering
into an amended and restated employment agreement with the Executive in order to
achieve the foregoing objectives. Accordingly, this Agreement amends, restates
and supersedes the employment agreement previously entered into between the
Company and the Executive, dated August 1, 2002 when the Executive was Chief
Operating Officer (the "Prior Agreement"). The Prior Agreement was not amended
when the Executive became Chief Executive Officer in April 2003. Upon execution
of this Agreement, the Prior Agreement shall be of no further force or effect.
The Executive is a key management executive of the Company and is a valuable
member of the Company's management team. The Company acknowledges that the
Executive's contributions to the past and future growth and success of the
Company have been and will continue to be substantial. The Company and the
Executive are entering into this Agreement to induce the Executive to remain an
employee of the Company and to continue to devote his full energy to the
Company's affairs. The Executive has agreed to continue to be employed by the
Company under the terms and conditions hereinafter set forth.

          

NOW, THEREFORE, in consideration of the foregoing and the mutual undertakings
contained in this Agreement, the parties agree as follows:

1.          Term of this Agreement. The term of this Agreement shall begin on
the date first set forth above and shall end on the Executive's normal
retirement date of April 1, 2009 (the "Term of this Agreement") or, if earlier,
after all of the Company's and the Executive's obligations hereunder have been
satisfied following termination of the Executive's employment during the Term of
this Agreement.

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2.          Duties. The Company and the Executive agree that, while employed
during the Term of this Agreement, the Executive will serve in a senior
management position with the Company. The Executive (a) will devote his
knowledge, skill and best efforts on a full-time basis to performing his duties
and obligations to the Company (with the exception of absences on account of
illness or vacation in accordance with the Company's policies and civic and
charitable commitments not involving a conflict with the Company's business),
and (b) will comply with the directions and orders of the Board of Directors
with respect to the performance of his duties.

3.          Affiliates. Employment by an Affiliate of the Company or a successor
to the Company will be considered employment by the Company for purposes of this
Agreement, and the Executive's employment with the Company shall be considered
terminated only if the Executive is no longer employed by the Company or any of
its Affiliates or successors. The term "Company" as used in this Agreement will
be deemed to include Affiliates and successors. For purposes of this Agreement,
the term "Affiliate" means the subsidiaries of the Company and other entities
under common control with the Company.

4.          Compensation and Benefits.

             

(a)          During the Term of this Agreement, while the Executive is employed
by the Company, the Company will pay to the Executive the following salary and
incentive awards for services rendered to the Company:

     

          (i)          The Company will pay to the Executive an annual salary in
an amount not less than the base salary in effect for the Executive as of the
date on which this Agreement is executed (in the event the Executive's rate of
annual base salary is increased, such increased rate shall not be decreased
during the Term of this Agreement); and

          

          (ii)          The Executive will be entitled to receive incentive
awards if and to the extent that the Board of Directors determines in good faith
that the Executive's performance merits payment of an award according to the
terms of the incentive compensation plans applicable to senior executives of the
Company.

If the Executive is employed by an Affiliate or a successor (as described in
Section 3), the term "Board of Directors" as used in this Section 4(a) means the
Board of Directors of the Executive's employer.

             (b)          During the Term of this Agreement, while the Executive
is employed by the Company, the Executive will be eligible to participate in a
similar manner as other senior executives of the Company in retirement plans,
fringe benefit plans, supplemental benefit plans and other plans and programs
provided by the Company for its executives or employees from time to time.

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5.          Termination of Employment.

             (a)          If, during the Term of this Agreement, the Company
terminates the Executive's employment other than for Cause (as defined in
Section 8), the Executive shall be entitled to receive the benefits described in
Paragraph 7. below.

             (b)          If the Executive voluntarily terminates employment
with the Company during the Term of this Agreement under circumstances described
in this subsection (b), the Executive will be entitled to receive the benefits
described in subsection (a) above as if the Company had terminated the
Executive's employment other than for Cause. Subject to the provisions of this
subsection (b), these benefits will be provided if the Executive voluntarily
terminates employment after (i) the Company reduces the Executive's base salary
(except a reduction consistent and proportional with an overall reduction, due
to extraordinary business conditions, in the compensation of all other senior
executives of the Company), (ii) the Executive is not in good faith considered
for incentive awards as described in Section 4(a)(ii), (iii) the Company fails
to provide benefits as required by Section 4(b), (iv) the Company relocates the
Executive's place of employment to a location further than 50 miles from
Washington, DC, or (v) the Company demotes the Executive to a position that is
not a senior management position (other than on account of the Executive's
disability, as defined in Section 6 below). In order for this subsection (b) to
be effective: (1) the Executive must give written notice to the Company
indicating that the Executive intends to terminate employment under this
subsection (b), (2) the Executive' s voluntary termination under this subsection
must occur within 60 days after the Executive knows or reasonably should know of
an event described in clause (i), (ii), (iii), (iv), or (v) above, or within 60
days after the last in a series of such events, and (3) the Company must have
failed to remedy the event described in clause (i), (ii), (iii), (iv), or (v),
as the case may be, within 30 days after receiving the Executive's written
notice. If the Company remedies the event described in clause (i), (ii), (iii),
(iv), or (v), as the case may be, within 30 days after receiving the Executive's
written notice, the Executive may not terminate employment under this subsection
(b) on account of the event specified in the Executive's notice. Termination
under the circumstances above shall be deemed an involuntary termination without
Cause for purposes of non-qualified benefit plans.

6.          Disability or Death. Upon the Executive's death or disability, the
provisions of Sections 1, 2, 4, and 5 of this Agreement will terminate. Except
as provided in Paragraph 7, this contract provides no benefits due to disability
or death in addition to any death, disability and other benefit provided under
the Company benefit plans in which the executive participates. The Executive
shall be considered disabled if the Executive is entitled to long-term
disability benefits under the Company's disability plan or policy.

7.          Other Post-Termination Benefits. In addition to any payments or
benefits to which the Executive may become entitled under this Agreement, upon
the termination of the Executive's employment (including, without limitation,
termination of the Executive's employment upon expiration of the Term of this
Agreement), the Executive shall receive the following:

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(a)          The Executive will receive a monthly supplemental retirement
benefit equal to (i) 1/12 of 65% of the sum of (A) the Executive's annual base
salary rate at the time of termination of employment and (B) the highest annual
bonus received by the Executive during the four calendar years preceding the
calendar year in which the termination of employment occurs, less (ii) the
monthly retirement benefits the Executive receives in such month under the
Company's qualified defined benefit retirement plan and any non-qualified
defined benefit retirement or supplemental retirement plans (together, the
"Retirement Plans"). The supplemental retirement benefit provided pursuant to
this subsection 7(a) shall be paid to the Executive in cash on the first day of
each month beginning in the month following the month in which the Executive's
employment terminates and continuing until the Executive's death. If the
Executive is survived by a spouse, following the Executive's death, the
Executive's surviving spouse shall receive from the Company a monthly payment in
cash equal to 75% of the amount determined under subpart (i) of this subsection,
less the monthly retirement benefits, if any, the Executive's surviving spouse
receives under the Retirement Plans. Following termination of employment, the
monthly supplemental retirement benefits the Executive and/or the Executive's
spouse receives under this Section 7(a) shall be adjusted for cost of living
increases at the same rate as are the benefits under the Company's qualified
defined benefit retirement plan.

             

(b)          The Executive shall receive financial services (for tax preparation
and planning) at the Company's expense until the Executive's 70th birthday, at
the same level as was received by him prior to his termination. To the extent
required pursuant to Section 409A of the Internal Revenue Code, all tax
preparation services in respect of a taxable year must be completed prior to
March 15 of the calendar following the year to which such services relate. For
example, tax return preparation services in respect of the tax return to be
filed in 2010 with regard to calendar year 2009 must be completed no later than
March 15, 2011.

             

(c)          All outstanding Service-based Restricted Stock awarded to the
Executive under the terms of the Company's Long Term Incentive Plan shall vest
upon the completion of the term of this Agreement and all Performance-based
Restricted Stock shall vest on a prorated basis for service during the
applicable Performance Period.

             

(d)          The Executive shall receive all benefits to which he is entitled
under any Company generally applicable welfare and savings plans; and under any
executive benefit plan in which he currently participates as would be available
to any similarly situated retired Company executive, all in accordance with the
terms of the plans.

             

(e)          The Executive agrees that he will not be eligible to be a
participant in the Company's Annual or Long Term Incentive Plans for the 2009
plan year.

             

(f)          Notwithstanding the above, if the Executive qualifies as a
"specified employee", as defined in Section 409A(2)(B)(i) of the Internal
Revenue Code at the time of the Executive's separation from service for any
reason other than death, any benefits otherwise payable pursuant to this Section
7 which are subject to Section 409A shall be

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subject to a six month deferral in payment and will not be otherwise payable or
provided to the Executive until six months after the date of such separation
from service. Any amounts that are deferred in respect of this six month
restriction shall be paid to Executive as soon as practicable after the end of
the six-month period, at which time any remaining payments and benefits will
continue to be paid and provided for in the normal form described in this
Section 7.

8.          Cause. For purposes of this Agreement, the term "Cause" means (i)
intentional fraud or material misappropriation with respect to the business or
assets of the Company, (ii) persistent refusal or willful failure of the
Executive to perform substantially his duties and responsibilities to the
Company, other than an asserted responsibility which would give rise under
Section 5(b) above to a right to terminate and have such termination considered
an involuntary termination without Cause, which continues after the Executive
receives notice of such refusal or failure, (iii) conduct that constitutes
disloyalty to the Company, and that materially damages the property, business or
reputation of the Company, or (iv) conviction of a felony involving moral
turpitude.

9.          Termination. This Agreement shall terminate upon the successful
completion of the Term of this Agreement; provided, however, that if the
Executive's employment is terminated during the Term of this Agreement and the
Company's and the Executive's obligations under Sections 5, 7, 10 or 11 hereof
have not been satisfied as of the last day of the Term of this Agreement, such
obligations shall survive the expiration of the Term of this Agreement and shall
remain in effect until such time as all such obligations have been satisfied.

10.          Fees and Expenses. The Company will pay all reasonable fees and
expenses, if any, (including, without limitation, legal fees and expenses) that
are incurred by the Executive to enforce this Agreement and that result from a
breach of this Agreement by the Company, unless such fees and expenses result
from a claim made by the Executive that is deemed by an arbitrator, mediator, or
court, as applicable, to be frivolous or made in bad faith, in which case each
party shall pay its own fees and expenses.

11.          Tax Withholding. The Company may withhold from all amounts payable
under this Agreement an amount necessary to satisfy its income and payroll tax
withholding obligations.

12.          Assignment. The rights and obligations of the Company under this
Agreement will inure to the benefit of and will be binding upon the successors
and assigns of the Company. If the Company is consolidated or merged with or
into another corporation, or if another entity purchases all or substantially
all of the Company's assets, the surviving or acquiring corporation will succeed
to the Company's rights and obligations under this Agreement. The Executive's
rights under this Agreement may not be assigned or transferred in whole or in
part, except that the personal representative of the Executive's estate will
receive any amounts payable under this Agreement after the death of the
Executive.

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13.          Rights Under this Agreement. The right to receive benefits under
the Agreement will not give the Executive any proprietary interest in the
Company or any of its assets. Benefits under the Agreement will be payable from
the general assets of the Company, and there will be no required funding of
amounts that may become payable under the Agreement. The Executive will for all
purposes be a general creditor of the Company. The interest of the Executive
under the Agreement cannot be assigned, anticipated, sold, encumbered or pledged
and will not be subject to the claims of the Executive's creditors.

14.          Notice. For purposes of this Agreement, notices and all other
communications to the Executive must be in writing addressed to the Executive or
his personal representative at his last known address. All notices to the
Company must be directed to the attention of the Board of Directors. Such other
addresses may be used as either party may have furnished to the other in
writing. Notices are effective when mailed if sent by United States registered
mail, return receipt requested, postage prepaid. Notices sent otherwise are
effective when received. Notwithstanding the forgoing, notices of change of
address are effective only upon receipt.

15.          Miscellaneous . To the extent not governed by federal law, this
Agreement will be construed in accordance with the law of the State of Maryland
without reference to its conflict of laws rules. No provisions of this Agreement
may be modified, waived or discharged unless such waiver, modification or
discharge is agreed to in writing and the writing is signed by the Executive and
the Company. A waiver of any breach of or compliance with any provision or
condition of this Agreement is not a waiver of similar or dissimilar provisions
or conditions. The invalidity or unenforceability of any provision of this
Agreement will not affect the validity or enforceability of any other provision
of this Agreement, which will remain in full force and effect. This Agreement
may be executed in one or more counterparts, all of which will be considered one
and the same agreement. As of the date first above written, the Prior Agreement
shall be amended, restated and superseded in its entirety and shall no longer be
of any force or effect.

          WITNESS

the following signatures.

   

PEPCO HOLDINGS, INC.

 

By:

   /s/ WILIAM T. TORGERSON           

   

EXECUTIVE

   

   /s/ D. R. WRAASE                          

 

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