<PAGE>
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED
BY RULE 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12
POTOMAC ELECTRIC POWER COMPANY
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
<PAGE>
[LOGO OF PEPCO APPEARS HERE]
POTOMAC ELECTRIC POWER COMPANY
1900 Pennsylvania Avenue, N.W.
Washington, D.C. 20068
Notice of Annual Meeting of Shareholders
March 10, 1999
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of Potomac
Electric Power Company will be held at 10:00 a.m. on Wednesday, April 28,
1999, at The International Trade Center (The Ronald Reagan Building), Atrium
Ballroom, 1300 Pennsylvania Avenue, N.W., Washingston, D.C. for the following
purposes:
1. To elect four directors to serve for three years, and one director to
serve for one year;
2. To consider and take action with respect to a shareholder proposal
relating to the election of directors, if such proposal is brought before
the meeting; and
3. To transact such other business as may properly be brought before the
meeting.
The holders of the Common Stock of the Company of record at the close of
business on Tuesday, March 9, 1999, will be entitled to vote on each of the
above matters.
By order of the Board of Directors,
ELLEN SHERIFF ROGERS
Secretary
----------------
IMPORTANT
You are cordially invited to attend the meeting in person.
Even if you plan to be present, you are urged to SIGN, DATE AND MAIL the
enclosed proxy promptly.
If you attend the meeting, you may vote either in person or by your proxy.
<PAGE>
PLEASE DATE AND SIGN YOUR
PROXY AND RETURN IT IN
THE ENVELOPE PROVIDED
THANK YOU FOR ACTING PROMPTLY
<PAGE>
PROXY STATEMENT
Annual Meeting of Shareholders
Potomac Electric Power Company
March 10, 1999
This document provides information concerning the Annual Meeting of
Shareholders of Potomac Electric Power Company (the "Company"), 1900
Pennsylvania Avenue, N.W., Washington, D.C. 20068. This information is
furnished by the Board of Directors in connection with its solicitation of
proxies to vote on the matters being submitted to a vote at the Annual
Meeting.
When and where will the Annual Meeting be held?
The Annual Meeting will be held at 10:00 a.m. on Wednesday, April 28, 1999,
at The International Trade Center (The Ronald Reagan Building), Atrium
Ballroom, 1300 Pennsylvania Avenue, N.W., Washington, D.C. Admission to the
meeting will be limited to Company shareholders or their authorized proxies.
Admission tickets are not required.
Who is asking for my vote?
The Board of Directors of the Company asks that you vote on the matters
listed in the Notice of Annual Meeting of Shareholders. The votes will be
formally counted at the Annual Meeting on Wednesday, April 28, 1999, or if the
Annual Meeting is adjourned, at any later meeting.
What are shareholders being asked to vote on?
1.The election of four directors for three-year terms and one director for a
one-year term.
2.A shareholder proposal relating to the election of directors.
How does the Board recommend I vote on the proposals?
1.The Board recommends a vote FOR each of the nominees for director identified
in Item 1.
2.The Board recommends a vote AGAINST the shareholder proposal set forth in
Item 2.
How do I vote?
You may vote in person at the Annual Meeting or by returning your completed
proxy card(s) in the enclosed postage-paid envelope. Your signed proxy card(s)
will be voted in accordance with your instructions on your proxy card(s), or
if you return your signed proxy card(s) but do not mark the boxes showing how
you wish to vote, your shares will be voted FOR the election of each of the
Company's director nominees and AGAINST the shareholder proposal.
What is the quorum requirement?
In order to hold the meeting, the holders of a majority of shares of Common
Stock entitled to be voted must be present at the meeting by proxy or in
person.
1
<PAGE>
Who is eligible to vote?
All shareholders of record at the close of business on March 9, 1999 (the
"Record Date") are entitled to vote at the Annual Meeting. The Notice of
Annual Meeting, this Proxy Statement and a proxy card were first mailed to
shareholders of record on or about March 15, 1999.
How many shares can vote?
At the close of business on the Record Date, the Company had outstanding
118,527,287 shares of common stock, par value $1 per share (the "Common
Stock"). Each shareholder on the Record Date is entitled to one vote for each
full share owned by such shareholder on each of the matters voted on at the
Annual Meeting.
What shares are included on the enclosed proxy card?
The number of shares indicated on the enclosed proxy card consists of the
number of shares of Common Stock that you hold of record and, if you are a
participant in the Potomac Electric Power Company Dividend Reinvestment Plan,
the number of shares held for your account under that Plan. If you do not
execute and return this proxy card, your shares will not be voted.
What does it mean if I get more than one proxy card?
You will receive one proxy card for each way in which your shares are
registered. If you receive more than one proxy card (other than because you
are a participant in the Company's 401(k) savings plan), it is because your
shares are registered in different names or with different addresses or are
held in different accounts. Please sign and return each proxy card that you
receive to ensure that all your shares are voted. To enable us to provide
better shareholder service, we encourage shareholders to have all their shares
registered in the same name with the same address.
How is stock in the 401(k) plan for employees voted?
If you are an employee or former employee of the Company who is a
participant in the Company's 401(k) savings plan, you will receive a proxy
card indicating the number of shares held for your account under the savings
plan. If you do not vote such shares, The Riggs National Bank, the trustee for
the plan, will vote the shares in your account in proportion to the vote of
all of the 401(k) participants who vote their shares.
Can I change my vote after I have returned my proxy card?
You may revoke your proxy by:
.sending a written statement to that effect to the Secretary of the Company
before your proxy is voted;
.submitting a properly signed proxy with a later date; or
.voting in person at the Annual Meeting.
How can I obtain more information about the Company?
A copy of the Company's 1998 Annual Report to Shareholders was mailed on or
about February 25, 1999 to each direct shareholder.
2
<PAGE>
1. ELECTION OF DIRECTORS
At the Annual Meeting, four directors are to be elected to hold office for
three-year terms that expire in 2002, and until their respective successors
shall have been elected and qualified. In addition, one director is to be
elected to hold office for a one-year term that expires in 2000, and until
that director's successor has been elected and qualified. Twelve directors
constitute the entire Board of Directors.
Can a shareholder nominate someone for election as a director of the Company?
Under the Company's By-Laws, a shareholder may nominate an individual for
election as a director at a future Annual Meeting by giving written notice of
the shareholder's intention to the Company's Secretary at 1900 Pennsylvania
Avenue, N.W., Washington, D.C. 20068, not less than 60 nor more than 85 days
prior to the meeting (or if the Company provides less than 65 days notice of
the meeting, then the written notice must be received no later than the close
of business on the fifteenth day following the date of notice of the meeting).
The notice must set forth the name, residence and record address of the
nominating shareholder and the class and number of shares of capital stock of
the Company beneficially owned by such shareholder; and, for each nominee, the
name, age, business address, residence address, principal occupation or
employment, the class and number of shares of the capital stock of the Company
that are beneficially owned by such nominee, and any other information which
would be required to be included in a proxy statement. The Company will
announce the date of its 2000 Annual Meeting at a later date.
Any shareholder also may recommend for the consideration of the Nominating
Committee one or more candidates who would serve as a Company nominee for
election as a director. Recommendations for the 2000 Annual Meeting must be
received by the Company by November 10, 1999, and must be accompanied by the
information described in the preceding paragraph.
What vote is required to elect the directors?
Nominees for election as directors for the respective terms will be elected
by a plurality of the votes cast.
How will proxies be voted?
It is the intention of the persons named in the enclosed proxy card to vote
the proxy conferred for the election of the nominees of the Board of Directors
named below, unless such authority is withheld. Each nominee has confirmed
that he or she is willing to serve as a director. Should any such person,
prior to the Annual Meeting, become unavailable to serve as a director for any
reason, all proxies will be voted for another nominee selected by the Board of
Directors.
3
<PAGE>
Who are the nominees for director?
NOMINEES FOR ELECTION AS DIRECTORS
For Term Expiring in 2002
ROGER R. BLUNT, SR., age 68, is Chairman of the Board,
[PHOTO OF President and Chief Executive Officer of Blunt
ROGER R. BLUNT SR. Enterprises, LLC (general contracting and construction
APPEARS HERE] management), a Washington-based holding company, that
includes Essex Construction, LLC, of which he is
Chairman of the Board, President and Chief Executive
Officer, and Tyroc Construction, LLC, of which he is
Chairman of the Board, President and Chief Executive
Officer. Mr. Blunt has been a director of the Company
since 1984.
EDMUND B. CRONIN, JR., age 61, is Trustee, President
and Chief Executive Officer of Washington Real Estate
[PHOTO OF Investment Trust, based in Rockville, Maryland, which
EDMUND B. CRONIN, JR. owns income-producing real estate in the Mid-Atlantic
APPEARS HERE] Region. From 1977 until 1994, Mr. Cronin was Chairman
and Chief Executive Officer of H.G. Smithy Company and
its various operating subsidiaries. Mr. Cronin has
been a director of the Company since 1998.
JUDITH A. McHALE, age 52, is President and Chief
Operating Officer of Discovery Communications, Inc.
[PHOTO OF (DCI), parent company of cable television's Discovery
JUDITH A. MCHALE Channel, which is based in Bethesda, Maryland. From
APPEARS HERE] 1989 to November 1995, she served as Executive Vice
President and General Counsel for DCI. Ms. McHale was
elected as a director by the Board of Directors in
October 1998 to fill a vacancy on the Board. In
accordance with the Company's By-Laws, the term of any
director elected by the Board expires at the next
Annual Meeting. To continue to serve until 2002, Ms.
McHale must be elected by action of the shareholders
at the 1999 Annual Meeting.
A. THOMAS YOUNG, age 60, is retired Executive Vice
President of Lockheed Martin Corporation. From 1990-
[PHOTO OF 1995, he was President and Chief Operating Officer of
A. THOMAS YOUNG Martin Marietta Corporation. He is a director of The
APPEARS HERE] B.F. Goodrich Company and Science Applications
International Corporation. Mr. Young has been a
director of the Company since 1995.
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<PAGE>
NOMINEES FOR ELECTION AS DIRECTORS
For Term Expiring in 2000
TERENCE C. GOLDEN, age 54, has been President, Chief
Executive Officer and a director of Host Marriott
[PHOTO OF Corporation since 1995. Host Marriott Corporation is
TERENCE C. GOLDEN based in Bethesda, Maryland and owns lodging
APPEARS HERE] properties throughout the world. He has been Chairman
of Bailey Realty Corporation since 1991 and Bailey
Capital Corporation in Washington, D.C. since 1993. He
is also a director of Prime Retail, Inc. and Cousins
Properties, Inc. Mr. Golden was elected as a director
by the Board of Directors in December 1998 to fill a
vacancy on the Board. In accordance with the Company's
By-Laws, the term of any director elected by the Board
expires at the next Annual Meeting. To continue to
serve until 2000, Mr. Golden must be elected by action
of the shareholders at the 1999 Annual Meeting.
DIRECTORS CONTINUING IN OFFICE
Term Expires in 2000
DAVID O. MAXWELL, age 68, is retired Chairman of the
Board and Chief Executive Officer of Fannie Mae, a
[PHOTO OF position he held from 1981-1991. Mr. Maxwell has been
DAVID O. MAXWELL a director of the Company since 1993. He is a director
APPEARS HERE] of Financial Security Assurance Holdings Ltd.
FLORETTA D. McKENZIE, age 63, was the founder in 1987
and is the Chairwoman and Chief Executive Officer of
[PHOTO OF The McKenzie Group, Inc., a District of Columbia based
FLORETTA D. MCKENZIE educational consulting firm. Dr. McKenzie has been a
APPEARS HERE] director of the Company since 1988. Dr. McKenzie is a
director of Marriott International, Inc.
EDWARD F. MITCHELL, age 67, has been Chairman of the
[PHOTO OF Board of the Company since December 1992. He was Chief
EDWARD F. MITCHELL Executive Officer from September 1989 until October
APPEARS HERE] 1997. He has been a director of the Company since
1980.
5
<PAGE>
DIRECTORS CONTINUING IN OFFICE
Term Expires in 2001
JOHN M. DERRICK, JR., age 58, has been President and
[PHOTO OF Chief Executive Officer of the Company since October
JOHN M. DERRICK, JR. 1997. From 1992 to October 1997 he served as President
APPEARS HERE] and Chief Operating Officer of the Company. Mr.
Derrick has been a director of the Company since 1994.
Mr. Derrick is a director of Washington Real Estate
Investment Trust.
PETER F. O'MALLEY, age 59, is Of Counsel to O'Malley,
[PHOTO OF Miles, Nylen & Gilmore, P.A., a law firm in Calverton,
PETER F. O'MALLEY Maryland. Mr. O'Malley currently serves as the
APPEARS HERE] President of Aberdeen Creek Corp., a privately held
company engaged in investment, business consulting and
development activities. He has been a director of the
Company since 1982. Mr. O'Malley is a director of Legg
Mason, Inc. and Forensic Technologies International
Corp.
LOUIS A. SIMPSON, age 62, has been President and Chief
Executive Officer of Capital Operations (investments),
[PHOTO OF GEICO Corporation, Washington D. C. since 1993. He has
LOUIS A. SIMPSON been a director of the Company since December 1990.
APPEARS HERE] Mr. Simpson is a director of Cohr, Inc., MediaOne
Group, Inc., Pacific American Income Shares, Inc. and
LM Institutional Fund Advisors 1, Inc.
DENNIS R. WRAASE, age 54, has been Senior Vice
President and Chief Financial Officer of the Company
[PHOTO OF since 1996. From 1992 until 1996, he served as Senior
DENNIS R. WRAASE Vice President, Finance and Accounting. Mr. Wraase has
APPEARS HERE] been a director of the Company since 1998.
6
<PAGE>
What are the Committees of the Board? How often did the Board and each
Committee of the Board meet in 1998?
The Board of Directors held six meetings in 1998. There are six Committees
of the Board which are described below. With the exception of the Executive
Committee, the members of each committee are independent, non-employee
directors. In 1998, each director attended more than 75% of the aggregate
number of Board and Committee meetings of which he or she was a member that
were held during the period of his or her service.
The Audit Committee held four meetings in 1998. The Committee's duties and
responsibilities include recommending to the Board the engagement of the
independent accountant, approving the plan and scope of the audit and the fee
before the audit begins and, following the audit, reviewing the results with
the independent accountant and its comments on the Company's system of
internal accounting controls. The Committee also reviews with the Company's
General Manager, Internal Audit the plan, scope and results of internal audits
and his comments on the Company's system of internal accounting controls. It
further reviews with management, the independent accountant and the General
Manager, Internal Audit the accounting principles applied in financial
reporting and the reports relating to compliance with the Company's statements
of policy relating to conflicts of interest. The Committee reports its
activities to the Board periodically and makes such recommendations and
findings concerning any audit or related matter as it deems appropriate.
In carrying out these functions, the Audit Committee represents the Board in
discharging its responsibility of oversight, but the existence of the
Committee does not alter the traditional roles and responsibilities of the
Company's management and the independent accountant with respect to the
accounting and control functions and financial statement presentation.
Committee members are Directors Blunt (Chairman), Cronin, Golden, McHale,
McKenzie, Simpson and Young.
The Chairman's Advisory Committee held three meetings in 1998. The Committee
is responsible for providing advice on various matters as may be requested at
the discretion of the Chairman of the Board. Committee members are Directors
Maxwell, McKenzie, Mitchell (Chairman), O'Malley, Simpson and Young.
The Executive Committee held one meeting in 1998. The Committee has, and may
exercise, when the Board is not in session, all the powers of the Board in the
management of the property, business and affairs of the Company except as
otherwise provided by law. The Committee does not hold planned meetings.
Committee members are Directors Blunt, Derrick, McKenzie, Mitchell (Chairman)
and Wraase.
The Finance Committee held four meetings in 1998. The Committee is
responsible for reviewing, approving or ratifying and recommending to the
Board, as appropriate, the Company's financial planning, financing program and
investment programs, and for reviewing activities, progress and results with
respect to such planning and programs. Committee members are Directors
Maxwell, Mitchell, O'Malley, Simpson (Chairman) and Young.
The Nominating Committee held three meetings in 1998. The Committee
recommends to the Board candidates for nomination for election as directors.
Committee members are Directors Cronin, Maxwell, McKenzie (Chairman),
Mitchell, O'Malley and Young.
The Human Resources Committee held five meetings in 1998. The Committee
recommends to the Board the annual salary administration program for all
exempt employees, including specific salary recommendations for senior
officers and employees, and administers the executive compensation plans. The
Committee also makes
7
<PAGE>
recommendations to the Board with respect to the Company's General Retirement
Plan, other benefit plans, and officer and senior management succession.
Committee members are Directors Blunt, Golden, Maxwell, McHale, O'Malley
(Chairman) and Simpson.
What are the directors paid for their services?
Each of the Company's non-employee directors is paid an annual retainer of
$26,000, plus a fee of $1,250 for each Board and Committee meeting attended.
Each director who is a Chairman of a Committee is paid an additional retainer
of $3,500.
As of July 1, 1998, the Stock Compensation Plan for Directors was amended to
require each Director who is not an employee of the Company to receive half of
his or her $26,000 annual retainer in either (i) shares of Common Stock or
(ii) as a Common Stock equivalent deferral under the Company's Deferred
Compensation Plan, the value of which corresponds to the market price of the
Company's Common Stock. A Director may elect to receive up to 100% of his or
her retainer and meeting fees in shares of Common Stock or Common Stock
equivalents. Common Stock equivalents are credited with additional amounts
equal to the dividend payment on the corresponding number of shares of Common
Stock, which amounts are deemed reinvested in additional Common Stock
equivalents. Common Stock equivalents have no voting rights. A director
alternatively may be paid in cash or elect to defer under the Deferred
Compensation Plan the portion of his or her annual retainer and meeting fee
payments not required to be invested in Common Stock or Common Stock
equivalents. Such deferrals are credited, at the election of the director, to
accounts with a return equal to the prime rate or a return on a specified
group of funds or a combination of both. Account balances under the Deferred
Compensation Plan, including Common Stock equivalent balances, are paid out in
cash, in either a lump sum or installments, commencing at a time elected by
the Director.
On May 1 of each year starting May 1, 1998, each non-employee director will
be granted an option to purchase 1,000 shares of the Company's Common Stock.
Each option will have an exercise price equal to the market price of the
Common Stock on the date of grant. Each option becomes exercisable at the
earlier of (i) four years after date of grant or (ii) fifty percent upon
attainment of a target price and the remaining fifty percent upon attainment
of a higher target price. Upon a "change in control," all options become
immediately exercisable. Options expire ten years after the date of grant or
at such earlier date as specified by the Plan in the event of retirement,
death, disability or after termination of service.
The Company also provides directors with travel accident insurance for
Company-related travel and directors' and officers' liability insurance
coverage.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of February 25, 1999, for each director,
the five executive officers named in the Summary Compensation Table on page 10
and all directors and executive officers as a group (i) the number of shares
of Common Stock beneficially owned, (ii) the number of shares acquirable
within 60 days pursuant to exercise of stock options, (iii) credited Common
Stock equivalents and (iv) the total stock-based holdings. None of such
persons beneficially own shares of any other class of equity securities of the
Company. Each of the individuals listed, as well as all directors and
executive officers as a group, beneficially owned less than 1% of the
Company's outstanding Common Stock. The following table also sets forth, as of
February 25, 1999, the number and percentage of shares of Common Stock
beneficially owned by all persons known by the Company to own 5% or more of
the Common Stock.
8
<PAGE>
<TABLE>
<CAPTION>
Deferred
Shares of Common Stock Common Stock Total
Common Stock Acquirable Equivalents Stock-Based
Name of Beneficial Owner Owned /1/ Within 60 Days /2/ Holdings /3/
------------------------ ------------ -------------- ------------ ------------
<S> <C> <C> <C> <C>
Roger R. Blunt, Sr........... 355 500 386 1,241
Edmund B. Cronin, Jr......... 1,000 500 1,281 2,781
John M. Derrick, Jr.......... 40,441 54,192 0 94,633
Terence C. Golden............ 1,942 0 405 2,347
David O. Maxwell............. 500 500 386 1,386
Judith A. McHale............. 744 0 0 744
Floretta D. McKenzie......... 1,540 500 0 2,040
Edward F. Mitchell........... 70,651 500 386 71,537
Peter F. O'Malley............ 1,828 500 386 2,714
William J. Sim............... 13,463 6,967 0 20,430
Louis A. Simpson............. 2,000 500 876 3,376
William T. Torgerson......... 18,148 10,921 0 29,069
Andrew W. Williams........... 22,507 6,967 0 29,474
Dennis R. Wraase............. 26,521 10,921 0 37,442
A. Thomas Young.............. 1,000 500 1,632 3,132
All Directors and Executive
Officers as a Group (24
Individuals)................ 293,926 107,902 5,738 407,566
<CAPTION>
Shares of Percent of
Name and address of Common Stock Common Stock
Beneficial Owner Owned Outstanding
------------------- ------------ --------------
<S> <C> <C> <C> <C>
Franklin Resources, Inc...... 11,774,970/4/ 9.9%
777 Mariners Island Boulevard
San Mateo, CA 94404
</TABLE>
(1) Includes shares held under the Company's Dividend Reinvestment Plan and
the Employee Savings Plan. Also includes shares awarded under the
Company's Long-Term Incentive Plan which will vest over time.
(2) Consists of Common Stock equivalents acquired under the Directors'
Deferred Compensation Plan.
(3) Consists of the sum of the three preceding columns.
(4) This information was obtained from a Schedule 13G, dated January 29, 1999,
jointly filed with the Securities and Exchange Commission by Franklin
Resources, Inc., Templeton Global Advisors Limited, a subsidiary of
Franklin Resources, Inc., and Charles B. Johnson and Rupert H. Johnson,
Jr., each a principal shareholder of Franklin Resources, Inc. The Common
Stock is beneficially owned by one or more open or closed-end investment
companies or other managed accounts which are advised by direct and
indirect advisory subsidiaries of Franklin Resources, Inc. The sole power
to vote or to direct the vote of the Common Stock is as follows: Templeton
Global Advisors Limited: 8,863,380; Franklin Advisers, Inc.: 2,400,000;
Templeton Investment Management Limited: 450,668; and Templeton Investment
Counsel, Inc.: 42,408. The sole power to dispose or to direct the
disposition of the Common Stock is as follows: Templeton Global Advisors
Limited: 8,881,894; Franklin Advisers, Inc.: 2,400,000; Templeton
Investment Management Limited: 450,668; and Templeton Investment Counsel,
Inc.: 42,408.
Section 16(a) Beneficial Ownership Reporting Compliance
The rules of the Securities and Exchange Commission require that the Company
disclose late filing of reports of stock ownership (and changes in stock
ownership) by its directors and executive officers. To the best of the
Company's knowledge, all of the filings by the Company's directors and
executive officers were made on a timely basis in 1998.
9
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Long-Term Incentive Plan
--------------------------------- -------------------------
Awards
------------------------------------
Name and Principal Other Annual Restricted Incentive Plan All Other
Position Year Salary Bonus Compensation/1/ Stock/2/ Options/3/ Payouts/4/ Compensation/5/
------------------ ---- -------- -------- --------------- ---------- ---------- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
John M. Derrick, Jr. 1998 $471,666 $143,419 $16,251 $125,692 108,385 $184,692 $55,536
President and 1997 410,000 0 13,773 - - 103,615 54,444
Chief Executive Officer 1996 373,333 152,152 11,672 - - 44,261 36,867
Dennis R. Wraase 1998 $288,333 $ 87,673 $ 4,039 $ 65,360 21,843 $ 84,753 $30,010
Senior Vice President
and 1997 250,833 0 3,512 - - 51,408 28,793
Chief Financial Officer 1996 222,667 84,350 3,054 - - 21,953 24,568
William T. Torgerson 1998 $255,000 $ 77,537 $ 3,391 $ 60,332 21,843 $ 83,135 $27,499
Senior Vice President
and 1997 231,667 0 2,949 - - 28,669 26,579
General Counsel 1996 210,667 74,300 2,565 - - - 23,030
Andrew W. Williams 1998 $208,333 $ 48,729 $ 0 $ 40,221 13,934 $ - $23,187
Group Vice President 1997 193,333 0 0 - - - 22,834
1996 182,333 53,351 0 - - - 20,420
William J. Sim 1998 $198,333 $ 49,396 $ 0 $ 40,221 13,934 $ - $23,610
Group Vice President 1997 191,333 0 0 - - - 24,431
1996 180,333 50,881 0 - - - 22,705
</TABLE>
(1) Other Annual Compensation
Amounts in this column for each year represent above-market earnings on
deferred compensation funded by Company owned life insurance policies held in
trust, assuming the expected retirement at age 65. The amounts are reduced if
the executive terminates employment prior to age 62 for any reason other than
death, total or permanent disability or a change in control of the Company. In
the event of a change in control and termination of the participant's
employment, a lump sum payment will be made equal to the net present value of
the expected payments at age 65 discounted using the Pension Benefit Guaranty
Corporation immediate payment interest rate plus one-half of one percent. The
Company has purchased such policies on participating individuals under a
program designed so that if assumptions as to mortality experience, policy
return and other factors are realized, the compensation deferred and the death
benefits payable to the Company under such insurance policies will cover all
premium payments and benefit payments projected under this program, plus a
factor for the use of Company funds.
(2) Restricted Stock
Amounts in this column for each year represent the aggregate market price on
the grant date of restricted shares of Common Stock . These shares vest over a
four-year period: 20% vest on the first anniversary of the grant date, 20%
vest on the second anniversary of the grant date, 20% vest on the third
anniversary of the grant date, and the remaining 40% vest on the fourth
anniversary of the grant date. The market price does not reflect that the
shares are restricted. Dividends are paid on the restricted shares. Dollar
amounts shown are for executives who received restricted shares of Common
Stock in the years indicated. The number and aggregate market value of the
non-vested restricted shares of Common Stock at December 31, 1998 for the five
named executives are: 5,000 shares, $130,469 for Mr. Derrick; 2,600 shares,
$67,844 for Mr. Wraase; 2,400 shares, $62,625 for Mr. Torgerson; 1,600 shares,
$41,750 for Mr. Williams; and 1,600 shares, $41,750 for Mr. Sim.
(3) Options
Amounts in this column represent the number of stock options granted for
each year. The shareholders approved the Long-Term Incentive Plan in April
1998 and options were granted for the first time in May 1998. Fifty percent of
these options became exercisable on October 9, 1998.
10
<PAGE>
(4) Incentive Plan Payouts
All amounts in this column represent the value of vested Common Stock under
the Company's Executive Restricted Stock Performance Award Program. The amount
shown for 1998 consists of 50% of the Common Stock award from the performance
cycle ended December 31, 1997 (the "1997 Cycle") and 50% of the Common Stock
award from the performance cycle ended December 31, 1996 (the "1996 Cycle"),
that vested on January 1, 1999. The amount shown for 1997 consists of 50% of
the Common Stock award for the 1996 Cycle and 50% of the Common Stock award
for the performance cycle ended December 31, 1995 (the "1995 Cycle"), that
vested on January 1, 1998. The amount shown for 1996 consists of 50% of the
Common Stock award for the 1995 Cycle and 50% of the Common Stock award for
the performance cycle ended December 31, 1994, that vested on January 1, 1997.
The value of the vested Common Stock was calculated based on the market price
of the Common Stock on the day preceding the vesting date. Dollar amounts
shown are for executives who were eligible to participate in the Executive
Restricted Stock Performance Award Program in the years indicated.
(5) All Other Compensation
Amounts in this column for 1998 consist of (i) Company contributions to the
Savings Plan for Exempt Employees of $7,450 for Messrs. Derrick, Wraase and
Torgerson, respectively, $3,981 for Mr. Williams and $5,267 for Mr. Sim, (ii)
Company contributions to the Executive Deferred Compensation Plan due to
Internal Revenue Service limitations on maximum contributions to the Savings
Plan for Exempt Employees of $12,338, $5,126, $4,275, $5,354 and $3,791 for
Messrs. Derrick, Wraase, Torgerson, Williams and Sim, respectively, (iii) the
term life insurance portion of life insurance written on a split-dollar basis
of $3,367, $1,673, $1,607, $869 and $1,308 for Messrs. Derrick, Wraase,
Torgerson, Williams and Sim, respectively, and (iv) the interest on employer
paid premiums for split-dollar life insurance of $32,381, $15,761, $14,167,
$12,983 and $13,244 for Messrs. Derrick, Wraase, Torgerson, Williams and Sim,
respectively. The split-dollar life insurance contract provides death benefits
to the executive's beneficiaries of approximately three times the executive's
annual salary. The split-dollar program is designed so that, if the
assumptions made as to mortality experience, policy return and other factors
are realized, the Company will recover all plan costs, including a factor for
the use of Company funds. The split-dollar policy provides a cash surrender
value to each participant in excess of any premiums paid.
11
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Individual Grants/1/
--------------------
Percent
of Total
Options
Number of Granted
Securities to Exercise Grant
Underlying Employees or Base Date
Options in Fiscal Price Expiration Present
Name Granted Year ($/Sh) Date Value/2/
- ---- ---------- --------- -------- -------------- --------
<S> <C> <C> <C> <C> <C>
John M. Derrick, Jr. ..... 108,385 46.0% $24.3125 April 30, 2008 $278,549
Dennis R. Wraase.......... 21,843 9.3% $24.3125 April 30, 2008 $ 56,137
William T. Torgerson...... 21,843 9.3% $24.3125 April 30, 2008 $ 56,137
Andrew W. Williams........ 13,934 5.9% $24.3125 April 30, 2008 $ 35,810
William J. Sim............ 13,934 5.9% $24.3125 April 30, 2008 $ 35,810
</TABLE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Shares Number of Shares
Acquired Underlying Unexercised Value of Unexercised In-
on Value Options at the-Money Options at
Exercise Realized End of Fiscal Year End of Fiscal Year/3/
Name # ($) Exercisable Unexercisable Exercisable Unexercisable
- ---- -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
John M.
Derrick,
Jr....... 0 0 54,192 54,193 $96,530 $96,532
Dennis R.
Wraase... 0 0 10,921 10,922 $19,453 $19,455
William T.
Torgerson. 0 0 10,921 10,922 $19,453 $19,455
Andrew W.
Williams. 0 0 6,967 6,967 $12,410 $12,410
William J.
Sim...... 0 0 6,967 6,967 $12,410 $12,410
</TABLE>
(1) Individual Grants
The exercise price of each of the options is the market price of the Common
Stock on the grant date. The options become exercisable on a specified date
or, earlier, upon the Common Stock attaining a target market price. Fifty
percent of the options became exercisable on October 9, 1998 on the earlier
attainment of the target price of $27. The remaining fifty percent of the
options will become exercisable on May 1, 2002, or the earlier attainment of
the target price of $30.
(2) Grant Date Present Value
The values in this column were determined based on the Black-Scholes option
pricing model and are calculated at the time of grant. The following
assumptions were used in the calculation: (a) expected price volatility -
twenty percent (20%), (b) options will be exercised in the tenth year, (c) an
interest rate based upon the corresponding yield of a U.S. Treasury note
maturing ten years from the date of grant, (d) dividends at the rate in effect
on the date of grant and (e) no adjustments for nontransferability. The fact
that the Company used the Black-Scholes model does not necessarily mean that
the Company believes or acknowledges that the model can accurately determine
the value of the options. The ultimate value of the option, if any, will
depend on the future market price of the Company's Common Stock and the
optionee's individual investment decisions, neither of which can be predicted
with any degree of certainty.
(3) Value of Unexercised In-the-Money Options at End of Fiscal Year
The value of unexercised in-the-money options at December 31, 1998 is
calculated by multiplying the number of shares by the amount by which the
closing price of the Common Stock on the last trading day of 1998, as reported
by the New York Stock Exchange, exceeds the option exercise price.
12
<PAGE>
LONG-TERM PERFORMANCE SHARE INCENTIVE PLAN-
AWARDS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Performance or
Other Period Threshold
Until Maturation Minimum Number Maximum
Name or Payout Number of Shares of Shares Number of Shares
- ---- ---------------- ---------------- --------- ----------------
<S> <C> <C> <C> <C>
John M. Derrick, Jr..... January 1, 1999 0 3,000 9,000
January 1, 2000 0 3,000 9,000
Dennis R. Wraase........ January 1, 1999 0 2,000 6,000
January 1, 2000 0 2,000 6,000
William T. Torgerson.... January 1, 1999 0 2,000 6,000
January 1, 2000 0 2,000 6,000
Andrew W. Williams...... January 1, 1999 0 1,000 3,000
January 1, 2000 0 1,000 3,000
William J. Sim.......... January 1, 1999 0 1,000 3,000
January 1, 2000 0 1,000 3,000
</TABLE>
The preceding table reflects the share awards available under the Company's
new Executive Restricted Stock Performance Award Program established under the
Company's Long-Term Incentive Plan. The awards shown are for two performance
periods. The first is for the eight-month performance cycle beginning May 1,
1998. The second is for the calendar year 1999. Two awards were made in 1998
because the new Program became effective on May 1, 1998. Subsequent
performance cycles will be awarded once annually and will be measured over
one-year periods commencing January 1 and ending December 31 of each year. The
Plan provides for the award of performance shares based on the achievement of
a participant's performance objectives. Performance objectives may vary from
participant to participant and will be based upon such performance criteria or
combination of factors as the Board of Directors deems appropriate, which may
include, but are not be limited to, the performance of the participant, the
Company, one or more subsidiaries, or any combination thereof. If, during the
course of a performance period, a significant event occurs, as determined in
the sole discretion of the Board of Directors, which the Board of Directors
expects to have a substantial effect on a performance objective during the
period, the Board of Directors may revise such objective.
Under the Program, a target performance award is established. Each such
award provides that, following the completion of the performance period, the
participant will be eligible to receive a number of restricted shares of
Common Stock ranging from 50% to 150% of the target performance award to the
extent to which the participant's specific performance objectives are
achieved. The shares of restricted stock earned by a participant generally
will vest at the rate of 33-1/3% per year following the date that the earned
performance award is earned.
13
<PAGE>
PENSION PLAN TABLE
<TABLE>
<CAPTION>
Annual Retirement Benefits
-----------------------------------------------------
Average Annual
Salary
in Final Three Years in Plan
Years -----------------------------------------------------
of Employment 15 20 25 30 35 40
-------------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
$150,000................. $ 39,000 $ 53,000 $ 66,000 $ 79,000 $ 92,000 $105,000
$250,000................. $ 66,000 $ 88,000 $109,000 $131,000 $153,000 $175,000
$350,000................. $ 92,000 $123,000 $153,000 $184,000 $214,000 $245,000
$450,000................. $118,000 $158,000 $197,000 $236,000 $276,000 $315,000
$550,000................. $144,000 $193,000 $241,000 $289,000 $337,000 $385,000
$650,000................. $171,000 $228,000 $284,000 $341,000 $398,000 $455,000
</TABLE>
The Company's General Retirement Plan provides participants benefits after
five years of service based on the average salary (the term salary being equal
to the amounts contained in the Salary column of the Summary Compensation
Table) for the final three years of employment and years of credited service
under the Plan at time of retirement. Normal retirement under the Plan is at
age 65. Plan benefits are subject to an offset for any Social Security
benefits. Benefits under the Plan may be reduced under certain provisions of
the Internal Revenue Code, as amended, and by salary deferrals under the
Company's deferred compensation plans (other than CODA contributions made
under the Savings Plan). Where any such limitations occur, the Company will
pay a supplemental retirement benefit to eligible executives designed to
maintain total retirement benefits at the formula level of the Plan. In
addition, for executives who retire under the terms of the General Retirement
Plan and are at least 59 years of age, their retirement benefit will be
calculated on the basis of average salary, plus the average of the highest
three annual incentive awards in the last five consecutive years. The annual
incentive amounts are equal to the amounts shown in the Bonus column of the
Summary Compensation Table. The current age, years of credited service and
compensation used to determine retirement benefits (including supplemental
benefits) for the above-named officers are as follows: Mr. Derrick, 58 and 37
years of credit, $580,394; Mr. Wraase, 54 and 29 years of credit, $341,483;
Mr. Torgerson, 54 and 29 years of credit, $312,478; Mr. Williams, 49 and 24
years of credit, $249,033; and Mr. Sim, 54 and 29 years of credit, $241,090.
Annual benefits at age 65 (including the effect of the Social Security offset)
are illustrated in the table above.
Employment Agreements and Severance Agreements
Messrs. Derrick, Torgerson and Wraase have entered into employment
agreements with the Company that provide for each executive's employment
through August 1, 2000, and that automatically extend for successive periods
of five years thereafter unless the Company or the executive has given one
year's prior notice that it shall not be so extended. Each of the employment
agreements provides that the executive (i) will receive an annual base salary
in an amount not less than his salary in effect as of August 1, 1995, and
incentive compensation as determined by the Company's Board and (ii) will be
entitled to participate in retirement and other benefit plans, and receive
fringe benefits, on the same basis as other senior executives of the Company.
Under each of the employment agreements, the executive is entitled to
certain benefits if his employment is terminated prior to the expiration of
the initial term of the agreement (or as extended) either (i) by the Company
other than for cause, death or disability or (ii) by the executive if his
salary is reduced, he is not in good faith considered for incentive awards,
the Company fails to provide him with retirement, other benefit plans and
fringe benefits provided to other similarly situated executives, he is
required to relocate by more than 50 miles from
14
<PAGE>
Washington, D.C., or he is demoted from a senior management position. These
benefits include a lump sum payment in cash equal to the sum of (i) the
greater of (A) the present value of the executive's annual base salary (the
highest base salary in effect during the three-year period preceding
termination) and annual cash incentive awards (calculated based on the highest
annual incentive target award during the three-year period preceding
termination) through the remainder of the agreement (not to exceed three
years) or (B) two times the executive's annual salary and target annual
incentive award as in effect at the time of termination, (ii) the executive's
annual cash incentive award for the year preceding termination of employment,
if not yet paid, and (iii) a pro rata portion of the executive's annual cash
incentive award for the year in which the executive's employment terminates.
In addition, the executive will be entitled to receive certain supplemental
retirement benefits under existing plans of the Company, the same benefits
that a retiree who has attained age 55 and has completed 30 years of service
is entitled to receive, and a continuation of premium payments under the
Company's split dollar life insurance policy.
Messrs. Williams and Sim have entered into severance agreements with the
Company. Each severance agreement provides for the payment of severance
benefits to the executive if, within two years following a change in control
of the Company, any of the following events occur: (i) termination of the
employment of the executive by the Company (or a successor company), other
than for cause, death, disability or voluntary normal retirement; (ii)
termination of employment by the executive for "good reason," defined as the
assignment of duties materially inconsistent with the executive's duties prior
to the change in control or a material reduction or alteration of his duties,
a reduction in the executive's salary or relocation of the executive by more
than 50 miles; (iii) the failure or refusal by a successor company to assume
the Company's obligations under the agreement; or (iv) a material breach of
the agreement by the Company (or a successor company). The executive also is
entitled to severance benefits upon (i) the termination of the executive's
employment without cause in contemplation of, but prior to, a change in
control or (ii) the occurrence of an event, in contemplation of, but prior to
a change in control, constituting "good reason" followed by the executive's
voluntary termination of employment within two years after a change in
control. The severance benefits consist of: (i) an amount equal to two times
the executive's annual base salary (in effect at the time of termination) and
annual bonus (average of annual target bonuses during the three years prior to
termination) paid in 24 equal monthly installments and (ii) certain welfare
benefits for a three-year period after the date of termination.
Human Resources Committee Report on Executive Compensation
The Human Resources Committee of the Board of Directors is composed entirely
of independent, non-employee directors. The Committee's role includes review
of the performance of elected officers and other executives in connection with
executive compensation programs designed to provide a strong and direct link
between compensation, executive performance and the current and long-term
level of Company performance. The Committee recommends specific officer
salaries to the Board of Directors. The Committee also establishes and
recommends to the Board performance guidelines under the Executive Incentive
Compensation Plan, approves payments made pursuant to that Plan and recommends
the structure of compensation and amounts of awards under the Long-Term
Incentive Plan approved by the shareholders effective May 1, 1998. The
Committee also reviews other elements of compensation and benefits, making
recommendations to the Board as appropriate. The Committee carries out these
responsibilities with assistance from consulting firms and with such input
from the Chief Executive Officer and management as it deems appropriate.
Officer Compensation Philosophy
The Company's compensation philosophy reflects a commitment to attract and
retain key executives with a program which compensates executive officers
competitively with other companies in the industry while rewarding
15
<PAGE>
executives for achieving levels of operational excellence and financial
results which result in growth in shareholder value. The Company's
compensation policy is to provide a total compensation opportunity comparable
to the median compensation levels of the companies in the EEI 100 Index of
Investor-owned Electrics (the "Index"). The relationship between pay and
performance is reinforced by aligning the peer group used for compensation
comparison purposes with the same industry peer group used for purposes of
comparing total shareholder return.
The compensation program for officers consists of base salary, annual
incentive and, for senior officers, long-term incentive components. The
combination of these three elements balances short- and long-term business
performance goals and aligns officer financial rewards with Company operating
results and shareholder return. Total compensation for any specific year may,
of course, be above the median for the peer group in the event performance
exceeds goals, or below the median if performance falls short of goals.
Annual incentive awards are earned based on the Company's financial and
operational plans and results, including annual earnings. Long-term incentive
awards are in the form of (1) shares of Company stock (Restricted Shares)
which will be awarded at the end of each one-year period based upon meeting
pre-established goals and/or (2) stock options. Restricted stock awards are
based on pre-established performance criteria established by the Board of
Directors. Restricted Shares, if any, awarded under the long-term incentive
plan will vest with continued service (with provision for immediate vesting in
the event of death, disability or retirement). Stock option grants to senior
executives are based on current market surveys of long-term incentive
compensation. Options granted have an exercise price equal to the fair market
value of Company Common Stock on the date of grant and are typically
exercisable after four years. The senior officer compensation program is
structured so that between 42 and 48 percent of the total compensation
opportunity is composed of incentive compensation.
The Omnibus Budget Reconciliation Act of 1993 included a provision limiting
the deductibility of certain executive compensation. For 1998, all
compensation earned by the Company's five highest paid officers was completely
deductible. In the future the Committee will, considering the best interests
of the Company and its shareholders, use its best judgment to continue the
complete tax deductibility of the compensation paid to its officers.
Officer Salaries
The Committee determines base salary ranges for executive officers based
upon competitive pay practices. Officer salaries correspond to approximately
the median of the companies in the Index. Mr. Derrick, who was elected Chief
Executive Officer effective October 23, 1997, was awarded a 20.5% salary
increase effective May 1, 1998 after the Committee made a compensation
assessment within the framework and philosophy outlined above and in
consideration of his new responsibilities. Mr. Derrick did not receive a
salary adjustment at the time of his election to Chief Executive Officer.
Executive Incentive Compensation Plan
In 1983, the Board of Directors established the Executive Incentive
Compensation Plan for Company officers and senior executives. Under the plan
guidelines, awards for the President and Chief Executive Officer and Senior
Vice Presidents are based upon the Company's progress in achieving plan goals;
awards for other officers are based on a combination of corporate goals and
individual goals established at the beginning of the year. For awards paid in
January 1998 for performance during 1997, the equally weighted corporate goals
were (1) earnings relative to corporate plan, (2) achieving corporate goals
for operating and maintenance expense control and (3) capital cost
containment.
16
<PAGE>
For 1998 application of the plan formula for executives subject to utility
earnings goals resulted in an incentive award level of 92% of the target award
level. Under the plan guidelines, the 1998 corporate earnings goals for the
Chief Executive Officer and Senior Vice Presidents were based upon
consolidated earnings (rather than utility earnings), and the award paid to
the Chief Executive Officer in January 1999 was based upon 117% of target
award level.
Restricted Stock
The Committee recommended awards of restricted stock to senior executives in
1998 to recognize their performance during the previous period and to retain
the current executives during the restructuring of the Company resulting from
the Maryland and District of Columbia plans to introduce retail competition
for electric service in their respective jurisdictions. The stock will vest
with continued employment over a four-year period. Amounts awarded are shown
in the Summary Compensation Table herein.
Long-Term Incentive Plan
In 1991 the Board of Directors adopted an Executive Restricted Stock
Performance Award Program pursuant to the Long-Term Incentive Plan approved by
the Company's shareholders effective July 1, 1986. The fifth performance cycle
under the Executive Restricted Stock Performance Award Program covered the
three-year period 1996 through 1998. The maximum shares available for award
were determined at the beginning of the cycle, based upon the year-end 1995
market price of Company stock and each participant's salary at that date, and
provision was made for increasing such maximum available shares by the
addition of shares for the reinvestment of dividends on Company stock. In
January 1999 the Performance Cycle 5 award formula was applied. Pursuant to
the formula, shares awarded were based upon two equally weighted measures of
the Company's relative ranking among electric companies comprising the Index
over a three-year cycle: (1) total shareholder return and (2) market-to-book
ratio. For the three-year cycle the three-year total shareholder return was
54th for the 64 companies comprising the Index and no award was made for this
measure. For the same three-year cycle, the Company's average market-to-book
ratio was 32nd out of the 64 companies comprising the Index resulting in 51%
of the maximum award for this measure. As a result, pursuant to the Plan
formula the Chief Executive Officer was awarded 3,090 or 25.3% of his total
award potential. Subject to continued employment, 50% of the shares earned for
the 1996 through 1998 cycle will vest on January 1, 2000 and the remaining 50%
will vest on January 1, 2001.
In 1998, the Board of Directors adopted the Performance Share Incentive
Plan, pursuant to the Long-Term Incentive Plan adopted by the Company's
shareholders effective May 1, 1998. The Performance Share Incentive Plan
provides for the award of Restricted Shares which vest over three years in
equal installments based on a participant's performance related to specific
goals. Since individual performance against goals determines a participant's
award, awards for participants ranged from 100% to 115% depending upon their
respective attainment of goals. The Committee reviewed the performance of the
Chief Executive Officer and other senior executives and awarded the Chief
Executive Officer 100% of the target award or 4,020 shares for his performance
in 1998.
HUMAN RESOURCES COMMITTEE
Peter F. O'Malley, Chairman
Roger R. Blunt, Sr.
Terence C. Golden
David O. Maxwell
Judith A. McHale
Louis A. Simpson
17
<PAGE>
Performance Presentation
The following chart compares Pepco's five year cumulative total return to
shareholders consisting of the change in stock price and reinvestment of
dividends with the five year cumulative total return on the EEI 100 Index of
Investor-owned Electrics and the Dow Jones Utilities index.
COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURN
AMONG PEPCO, EEI 100 INDEX AND DOW JONES UTILITIES
PERFORMANCE GRAPH APPEARS HERE
<TABLE>
<CAPTION>
EEI DOW
Measurement Period 100 JONES
(Fiscal Year Covered) PEPCO INDEX UTILITIES
- --------------------- --------------- --------- ----------
<S> <C> <C> <C>
Measurement Pt-12/31/1993 $100 $100 $100
FYE 12/31/1994 $ 74 $ 88 $ 84
FYE 12/31/1995 $114 $115 $111
FYE 12/31/1996 $120 $117 $121
FYE 12/31/1997 $128 $149 $150
FYE 12/31/1998 $140 $170 $177
</TABLE>
Independent Public Accountants
The Board of Directors of the Company appointed PricewaterhouseCoopers LLP
as Independent Public Accountants for the Company for the year 1998 and, upon
recommendation of the Audit Committee of the Board, has reappointed the firm
for 1999. A representative of PricewaterhouseCoopers LLP is expected to attend
the Annual Meeting and will be given the opportunity to make a statement and
to respond to appropriate questions.
18
<PAGE>
2. SHAREHOLDER PROPOSAL
THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST ITEM 2.
Mrs. Evelyn Y. Davis, Watergate Office Building, Suite 215, 2600 Virginia
Avenue, N.W., Washington, D.C. 20037, who is the record holder of 200 shares
of the Company's Common Stock, has notified the Company of her intention to
present the following proposal for action at the meeting:
"RESOLVED: That the shareholders of Pepco recommend that the Board of
Directors take the necessary steps to reinstate the election of directors
ANNUALLY, instead of the staggered system which was recently adopted."
The following statement has been supplied by the shareholder submitting this
proposal:
"REASONS: Until recently, directors of Pepco were elected annually by all
shareholders."
"The great majority of New York Stock Exchange listed corporations elect all
their directors each year."
"This insures that ALL directors will be more accountable to ALL
shareholders each year and to a certain extent prevents the self-perpetuation
of the Board."
"Last year the owners of 28,275,236 shares, representing approximately 32.9%
of shares voting, voted FOR this proposal."
"If you AGREE, please mark your proxy FOR this resolution."
END OF SUPPORTING STATEMENT
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE AGAINST THE ADOPTION OF
THIS PROPOSAL, WHICH IS SET FORTH AS ITEM 2 ON THE PROXY CARD.
Mrs. Davis has submitted this proposal at each of the Company's last ten
Annual Meetings. In each instance, the proposal was defeated.
The Board of Directors believes that this proposal is not in the best
interests of the Company and its shareholders. The Board believes that the
present system which has been in place since 1987, providing for the election
of directors for three-year terms on a staggered basis, rather than one-year
terms, has enhanced the continuity and stability in the composition of and in
the policies formulated by the Company's Board of Directors. The Board also
believes that this, in turn, has permitted it to represent more effectively
the interests of all shareholders.
19
<PAGE>
What vote is required to adopt this proposal?
Adoption of the shareholder proposal requires the affirmative vote of the
holders of a majority of the shares of Common Stock present and entitled to
vote at a meeting of shareholders at which a quorum is present.
How are the votes counted?
Abstentions will be deemed present and entitled to vote for the purpose of
determining whether the shareholder proposal is approved. Broker non-votes are
not considered present and entitled to vote. If no voting instructions are
given by a shareholder, a properly executed proxy will be voted against the
shareholder proposal.
RECEIPT OF SHAREHOLDER PROPOSALS
What is the deadline for submission of shareholder proposals for inclusion in
the Company's Proxy Statement for the 2000 Annual Meeting?
Shareholder proposals must be received by the Company by November 10, 1999
in order to be considered for inclusion in the Proxy Statement for next year's
Annual Meeting.
May a shareholder introduce a resolution for a vote at the Annual Meeting?
The Company's By-Laws contain an advance notice provision which requires
that for a shareholder to bring business properly before a future annual
meeting, the shareholder must give timely written notice to the Company's
Secretary at 1900 Pennsylvania Avenue, N.W., Washington, D.C. 20068, not less
than 60 nor more than 85 days prior to the meeting (or if the Company provides
less than 65 days notice of the meeting, then the written notice must be
received no later than the close of business on the fifteenth day following
the date of notice of the meeting). The shareholder's notice must set forth a
description of the business desired to be brought before the meeting and the
reasons for conducting the business at the annual meeting, the name and record
address of the shareholder, the class and number of shares owned by the
shareholder and any material interest of the shareholder in the proposed
business. The Company will announce the date of its 2000 Annual Meeting at a
later date.
3. OTHER MATTERS WHICH MAY COME BEFORE THE MEETING
Does the Board of Directors know of any additional matters to be acted upon at
the Annual Meeting?
The Board of Directors knows of no other matter to be brought before the
meeting.
If another matter does come before the meeting, how will my proxy be voted?
If any other matter should properly come before the meeting, your signed
proxy card gives discretionary authority to the individuals named to vote on
such matters in accordance with their best judgment.
----------------
How can proxies be solicited and who pays for the costs involved?
In addition to the use of the mails, proxies may be solicited by officers,
directors and regular employees of the Company personally, by telephone or by
facsimile. The Company will bear the cost of solicitation of proxies. The
Company will reimburse banks and brokers for certain costs incurred in
forwarding proxy materials to beneficial owners.
20
<PAGE>
[LOGO OF RECYCLE APPEARS HERE]
Printed on recycled paper.
<PAGE>
POTOMAC ELECTRIC POWER COMPANY
1900 Pennsylvania Avenue, N.W.
Washington, D.C. 20068
PEPCO Annual Meeting of Shareholders -- April 28, 1999 PROXY
The undersigned hereby appoints EDWARD F. MITCHELL, JOHN M. DERRICK, JR. and
DENNIS R. WRAASE and each of them, proxies of the undersigned, with power of
substitution, to attend the above Annual Meeting to be held on Wednesday, April
28, 1999 at 10 a.m. at The International Trade Center, 1300 Pennsylvania Ave.,
N.W., Washington, D.C., and all adjournments thereof, and thereat to vote all
shares of Common Stock of the Company that the undersigned would be entitled to
vote if personally present on matters set forth in the Proxy Statement and upon
such other matters as may properly come before the meeting. Unless indicated to
the contrary, this Proxy shall be deemed to grant authority to vote FOR Item 1
and AGAINST Item 2.
This Proxy is solicited on behalf of
the Board of Directors of Potomac Electric Power Company
Continued on reverse side
<PAGE>
[PEPCO LOGO] PROXY
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1.ELECTION OF DIRECTORS FOR all nominees listed below
(except as marked to the contrary
below)[ ]
WITHHOLD AUTHORITY to vote
for all nominees listed below[ ]
(To withhold authority for any individual nominee strike a line through
the nominee's name in the list below.)
Four to serve for three years
Roger R. Blunt, Sr. Edmund B. Cronin, Jr. Judith A. McHale
A. Thomas Young
One to serve for one year
Terence C. Golden
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The Board of Directors recommends a vote "AGAINST"
Item 2 below
FOR AGAINST ABSTAIN
2. Shareholder proposal relating to the election of
Directors........................................ [ ] [ ] [ ]
Sign here
as name X (L.S.)
appears ------------------------------------
above X (L.S.) Date , 1999
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Attorneys, executors, administrators, trustees and corporate officials
should indicate the capacity in which they are signing. Shares held in
the Shareholder Dividend Reinvestment Plan are voted on this Proxy.
