|   | · | Link      annual corporate and business priorities and group performance      goals. |
|--------|--------|--------------------------------------------------------------------------------------|

|   | · | Reinforce      a high performance culture tying rewards to measurable accountabilities      and achievement. |
|--------|--------|--------------------------------------------------------------------------------------------------------------|

|   | · | Recognize      and reward individual performance and differentiate award levels based on      absolute and relativecontributions. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------|

|   | · | Provide      a variable award opportunity as part of total compensation that enables      the Company to attract, retain and motivate key  executives. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | "Award"      shall mean an incentive payment made in accordance with the terms of this      Plan. |
|--------|---------------------------------------------------------------------------------------------------|

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|   | A. | Annual      performance objectives for the Company as a whole ("Corporate Performance      Goals"); |
|--------|----|-----------------------------------------------------------------------------------------------------|

|   | B. | Business      unit performance objectives for the business units of the Company      ("Business Unit Performance Goals");and |
|--------|----|------------------------------------------------------------------------------------------------------------------------------|

|   | C. | Individual      performance goals for individual executives participating in the Plan      ("Individual Performance Goals"). |
|--------|----|------------------------------------------------------------------------------------------------------------------------------|

|   | A. | The      Plan shall be administered in accordance with the terms of this Plan      Document by the Compensation/Human Resources Committee upon the      recommendations of the Chairman. All decisions of the Committee shall be      binding and conclusive on the Participants in the Plan, and upon any party      claiming an interest in the Plan through or on behalf of a Participant or      former Participant, or on any other basis. Notwithstanding any other      provision of the Plan, the Committee shall have the discretion to adjust      or eliminate awards within any Participant's Maximum Award Opportunity. A      Participant's participation in the Plan shall not be deemed to create a      contractual relationship or any other form of obligation between the      Participant and the Company, and shall not establish entitlement to any      Award. |
|--------|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|   | B. | The      Human Resources/Compensation Committee, upon recommendation of the      Chairman, shall have the authority to do all such things as are      appropriate to ensure the proper administration of this Plan according to      its terms, including but not limitedto: |
|--------|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (iv) | Approval      of (a) Target Award Levels, (b) Maximum Award Opportunities, and (c)      allocation of the proportion of Awards to be based on Corporate, Business      Unit and Individual Goals; |
|--------|------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (v) | Determination      of the Award, if any, that may be made to each Participant, such      determination to be reported to the Board at its next regularly scheduled      meeting after the determination is made;and |
|--------|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (vi)   | Establishment      of any policies, rules or regulations necessary for the proper      administration of the Plan. |
|------------------|--------------------------------------------------------------------------------------------------------------------|

|   | (vii) | Establishment      of any future service requirements which must be met as a condition to the      full vesting of an Award. |
|--------|-------|------------------------------------------------------------------------------------------------------------------------------|

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|   | A. | Corporate Performance      Goals. The Compensation/Human Resources Committee, upon the      recommendation of the Chairman, shall establish in advance of each Plan      Year Corporate Performance Goals designed to accomplish the purpose set      forth in Section 1 of the Plan. The Committee, upon the recommendation of      the Chairman, shall have the authority to amend Corporate Performance      Goals at any time when, in the Committee's judgment, unforeseen      circumstances exist which require modification in order to ensure that the      purpose of the Plan is properlyserved. |
|--------|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | B. | Business Unit      Performance Goals. The Chairman, upon the recommendation of the      senior officer of each of the business units of the Company shall      establish in advance of each Plan Year Business Unit Performance Goals      designed to accomplish the business plan of the business unit for the Plan      Year. The Chairman, upon the recommendation of the senior officer of the      business unit, shall have the authority to amend Business Unit Performance      Goals at any time when, in the Chairman's judgment, unforeseen      circumstances exist which require modification in order to ensure that the      purpose of the Plan is properlyserved. |
|--------|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | C.     | Individual Performance      Goals. Individual Performance Goals for Participants in the Plan      shall be established in advance for each Plan Year. These Goals will be      developed mutually by the Participant and the Senior Officer to whom the      Participant reports, and will be reviewed and approved by the Chairman.      Individual Performance Goals shall be designed to encourage the      accomplishment of such management objectives as are deemed appropriate in      light of the purpose of the Plan. The Chairman and any other officer      involved in setting Individual Performance Goals, shall ensure that they      meet the following general criteria: |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |
|   |   | (1)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        | Business      Unit and Individual Performance Goals shall not be established which      conflict with the Corporate Performance Goals. |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |
|   |   | (2)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | Business      Unit and Individual Performance Goals shall be considered so that the      Goals of one Business Unit and/or Participant do not conflict      inappropriately with the Goals of another Business Unit and/or      Participant. |

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|   | D. | Future Service      Requirements.  The Chairman may condition any      Participant’s right to receive all or any portion of an Award by      establishing a future service requirement pursuant to which the      Participant’s right to receive a designated portion of an Award will be      forfeited if the Participant terminates employment for any reason other      than death or disability after the Plan Year to which the Award relates      and prior to the end of the designated service  period. |
|--------|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|   |                           |   | PEPCO      HOLDINGS, INC. |
|--------|--------------------------------|--------|---------------------------|
|   |                           |   |                      |   |
|   |                           |   | By:                       | /s/      D. R. WRAASE |
|   |                           |   |                      | Chairman      of the Board  and      Chief Executive Officer |
|   |                           |   |                      |   |
|   |                           |   |                      |   |
| By:    |  /s/      ELLEN S. ROGERS |   |                      |   |
|   | Secretary                      |   |                      |   |

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