UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the quarter ended June 30, 2004

Commission
File Number

Name of Registrant, State of
Incorporation, Address of
Principal Executive Offices,
    and Telephone Number    

I.R.S. Employer
Identification Number

001-31403

PEPCO HOLDINGS, INC.
(Pepco Holdings or PHI), a
  Delaware corporation
701 Ninth Street, N.W.
Washington, D.C. 20068
Telephone: (202)872-2000

52-2297449

001-01072

POTOMAC ELECTRIC POWER COMPANY
(Pepco), a District of
  Columbia and Virginia
  corporation
701 Ninth Street, N.W.
Washington, D.C. 20068
Telephone: (202)872-2000

53-0127880

001-01405

DELMARVA POWER & LIGHT COMPANY
(DPL), a Delaware and
  Virginia corporation
800 King Street, P.O. Box 231
Wilmington, Delaware 19899
Telephone: (202)872-2000

51-0084283

001-03559

ATLANTIC CITY ELECTRIC COMPANY
(ACE), a New Jersey
  corporation
800 King Street, P.O. Box 231
Wilmington, Delaware 19899
Telephone: (202)872-2000

21-0398280

333-59558

ATLANTIC CITY ELECTRIC
  TRANSITION FUNDING LLC
(ACE Funding), a Delaware
  limited liability company
P.O. Box 15597
Wilmington, Delaware 19850
Telephone: (202)872-2000

51-0408521

Continued
________________________________________________________________________________

Securities registered pursuant to Section 12(b) of the Act:

Registrant

Title of Each Class

Name of Each Exchange on Which Registered  

Pepco Holdings

Common Stock, $.01 par value

   New York Stock
   Exchange

Securities registered pursuant to Section 12(g) of the Act:

Pepco

Serial Preferred Stock, $50 par value

     Indicate by check mark whether each of the registrants (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes X . No    .

     Indicate by check mark whether Pepco Holdings is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes   X  .    No      .

     Pepco, DPL, ACE, and ACE Funding are not accelerated filers.

     DPL, ACE and ACE Funding meet the conditions set forth in General Instruction H(1)(a) and (b) of Form 10-Q and are therefore filing this Form 10-Q with reduced disclosure format specified in General Instruction H(2) of Form 10-Q.

Registrant

Number of Shares of Common Stock of the Registrant Outstanding at June 30, 2004

Pepco Holdings

172,611,414 ($.01 par value)

Pepco

100 ($.01 par value) (a)

DPL

1,000 ($2.25 par value) (b)

ACE

8,546,017 ($3 par value)(b)

ACE Funding

None (c)

(a)

All voting and non-voting common equity is owned by Pepco Holdings.

(b)

All voting and non-voting common equity is owned by Conectiv, a wholly owned subsidiary of Pepco Holdings.

(c)

All voting and non-voting common equity is owned by ACE.

     THIS COMBINED FORM 10-Q IS SEPARATELY FILED BY PEPCO HOLDINGS, PEPCO, DPL, ACE, AND ACE FUNDING. INFORMATION CONTAINED HEREIN RELATING TO ANY INDIVIDUAL REGISTRANT IS FILED BY SUCH REGISTRANT ON ITS OWN BEHALF. EACH REGISTRANT MAKES NO REPRESENTATION AS TO INFORMATION RELATING TO THE OTHER REGISTRANTS.

________________________________________________________________________________

TABLE OF CONTENTS

Page

Glossary of Terms

i

PART I

FINANCIAL INFORMATION

1

  Item 1.

-

Financial Statements

1

  Item 2.

-

Management's Discussion and Analysis of
   Financial Condition and Results of
   Operations

71

  Item 3.

-

Quantitative and Qualitative Disclosures
   About Market Risk

118

  Item 4.

-

Controls and Procedures

120

PART II

OTHER INFORMATION

122

  Item 1.

-

Legal Proceedings

122

  Item 2.

-

Changes in Securities, Use of Proceeds and
  Issuer Purchases of Equity Securities

124

  Item 3.

-

Defaults Upon Senior Securities

124

  Item 4.

-

Submission of Matters to a Vote of Security Holders

124

  Item 5.

-

Other Information

126

  Item 6.

-

Exhibits and Reports on Form 8-K

126

  Signatures

147

__________________________________________________________________________________

TABLE OF CONTENTS - EXHIBITS

Exh. No.

Registrant(s)

Description of Exhibit

Page

12.1

PHI

Statements Re: Computation of Ratios

128

12.2

Pepco

Statements Re: Computation of Ratios

129

12.3

DPL

Statements Re: Computation of Ratios

130

12.4

ACE

Statements Re: Computation of Ratios

131

31.1

PHI

Rule 13a-14(a)/15d-14(a) Certificate of Chief Executive Officer

132

31.2

PHI

Rule 13a-14(a)/15d-14(a) Certificate of Chief Financial Officer

133

31.3

Pepco

Rule 13a-14(a)/15d-14(a) Certificate of Chief Executive Officer

134

31.4

Pepco

Rule 13a-14(a)/15d-14(a) Certificate of Chief Financial Officer

135

31.5

DPL

Rule 13a-14(a)/15d-14(a) Certificate of Chief Executive Officer

136

31.6

DPL

Rule 13a-14(a)/15d-14(a) Certificate of Chief Financial Officer

137

31.7

ACE

Rule 13a-14(a)/15d-14(a) Certificate of Chief Executive Officer

138

31.8

ACE

Rule 13a-14(a)/15d-14(a) Certificate of Chief Financial Officer

139

31.9

ACE Funding

Rule 13a-14(d)/15d-14(d) Certificate of Chief Executive Officer

140

32.1

PHI

Certificate of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350

141

32.2

Pepco

Certificate of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350

142

32.3

DPL

Certificate of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350

143

32.4

ACE

Certificate of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350

144

32.5

ACE Funding

Certificate of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350

145

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           GLOSSARY OF TERMS

Term

Definition

ABO

Accumulated benefit obligation

ACE

Atlantic City Electric Company

ACE Funding

Atlantic City Electric Transition Funding LLC

Ancillary services

Generally, electricity generation reserves and reliability services

AOCI

Accumulated Other Comprehensive Income

APCA

New Jersey Air Pollution Control Act

Act

Medicare Prescription Drug, Improvement and Modernization Act of 2003

APB

Accounting Principles Board Opinion

APBO

Accumulated Post-Retirement Benefit Obligation

Asset Purchase and
  Sale Agreement

Asset Purchase and Sale Agreement, dated as of June 7, 2000 and subsequently amended, between Pepco and Mirant (formerly Southern Energy, Inc.) relating to the sale of Pepco's generation assets

Bankruptcy Court

Bankruptcy Court for the Northern District of Texas

BGS

Basic generation service (the supply of energy to customers in New Jersey who have not chosen a competitive supplier)

BTP

Bondable Transition Property

CAA

Clean Air Act

Competitive Energy
  Business

Consists of the business operations of Conectiv Energy and Pepco Energy Services

Conectiv

A wholly owned subsidiary of PHI which is a PUHCA holding company and the parent of DPL and ACE

Conectiv Energy

Conectiv Energy Holding Company and its subsidiaries

Conectiv Power
  Delivery (CPD)

The trade name under which DPL and ACE conduct their power delivery operations

CT

Combustion turbine

DCPSC

District of Columbia Public Service Commission

Debentures

Junior Subordinated Debentures

Delivery revenue

Revenue Pepco receives for delivering energy to its customers

District Court

U.S. District Court for the Northern District of Texas

DMEC

Delaware Municipal Electric Corporation

DPL

Delmarva Power & Light Company

DPSC

Delaware Public Service Commission

EDECA

New Jersey Electric Discount and Energy Competition Act

EITF

Emerging Issues Task Force

EPA

Environmental Protection Agency

ERISA

Employment Retirement Income Security Act of 1974

Exchange Act

Securities Exchange Act of 1934, as amended

FASB

Financial Accounting Standards Board

FERC

Federal Energy Regulatory Commission

FIN 45

FASB Interpretation No. 45, entitled "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others"

FIN 46

FASB Interpretation No. 46, entitled "Consolidation of Variable Interest Entities"

FIN 46R

FASB Interpretation No. 46 (revised December 2003), entitled "Consolidation of Variable Interest Entities"

FirstEnergy

FirstEnergy Corp., formerly Ohio Edison

FirstEnergy PPA

PPAs between Pepco and FirstEnergy Corp. and Allegheny Energy, Inc.

FSP

FASB Staff Position

i
________________________________________________________________________________

Term

Definition

FSP 106-2

FASB Staff Position 106-2, entitled "Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003"

GAAP

Accounting principles generally accepted in the United States of America

GCR

Gas Cost Recovery

GPC

Generation Procurement Credit

LTIP

Long-Term Incentive Plan

Mirant

Mirant Corporation and certain of its subsidiaries

Mirant Pre-Petition
  Obligations

Unpaid obligations of Mirant to Pepco existing at the time of filing of Mirant's bankruptcy petition consisting primarily of payments due Pepco in respect of the PPA-Related Obligations

MPSC

Maryland Public Service Commission

NERC

North American Electric Reliability Counsel

NJBPU

New Jersey Board of Public Utilities

NJBPU Financing Orders

Bondable stranded costs rate orders issued by the NJBPU

NJDEP

New Jersey Department of Environmental Protection

NOx

Nitrogen oxide emissions

OCI

Other Comprehensive Income

OPC

Maryland Office of the People's Counsel

Other energy
  commodity activities

The competitive energy segments' commodity risk management and other energy market activities

Panda

Panda-Brandywine, L.P.

Panda PPA

PPA between Pepco and Panda

PCI

Potomac Capital Investment Corporation and its subsidiaries

Pepco

Potomac Electric Power Company

Pepco Energy Services

Pepco Energy Services, Inc. and its subsidiaries

Pepco Holdings or PHI

Pepco Holdings, Inc.

Pepco TPA Claim

Pepco's $105 million allowed, pre-petition general unsecured claim against Mirant

Pepcom

Pepco Communications, Inc.

PJM

PJM Interconnection, LLC

POLR

Provider of Last Resort (the supply of energy to customers who have not chosen a competitive supplier)

PPA

Power Purchase Agreement

PPA-Related
  Obligations

Mirant's obligations to purchase from Pepco the capacity and energy that Pepco is obligated to purchase under the FirstEnergy PPA and the Panda PPA

Proprietary trading

Contracts entered into to take a view, capture market price changes, and/or put capital at risk

PSD

Prevention of Significant Deterioration provisions of the CAA

PUHCA

Public Utility Holding Company Act of 1935

RARC

Regulatory Asset Recovery Charge

RCN

RCN Corporation

Regulated electric
  revenues

Revenues for delivery (transmission and distribution) service and electricity supply service

SEC

Securities and Exchange Commission

Settlement Agreement

Amended Settlement Agreement and Release, dated as of October 24, 2003 between Pepco and the Mirant Parties

SFAS

Statement of Financial Accounting Standards

SFAS No. 5

Statement of Financial Accounting Standards No. 5, entitled "Accounting for Contingencies"

SFAS No. 123

Statement of Financial Accounting Standards No. 123, entitled "Accounting for Stock-Based Compensation"

ii
________________________________________________________________________________

Term

Definition

SFAS No. 131

Statement of Financial Accounting Standards No. 131, entitled "Disclosures About Segments of an Enterprise and Related Information"

SFAS No. 133

Statement of Financial Accounting Standards No. 133, entitled "Accounting for Derivative Instruments and Hedging Activities"

SFAS No. 148

Statement of Financial Accounting Standards No. 148 entitled "Accounting For Stock-Based Compensation - Transition and Disclosure"

SFAS No. 150

Statement of Financial Accounting Standards No. 150, entitled "Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity"

SMECO

Southern Maryland Electric Cooperative, Inc.

SMECO Agreement

Capacity purchase agreement between Pepco and SMECO

SO2

Sulfur dioxide emissions

SOS

Standard Offer Service (the supply of energy to customers in Maryland and the District of Columbia who have not chosen a competitive supplier)

Standard Offer Service
  revenue or SOS
  revenue

Revenue Pepco receives for the procurement of energy by Pepco for its SOS customers

Starpower

Starpower Communications, LLC

Stranded costs

Costs incurred by a utility in connection with providing service which would otherwise be unrecoverable in a competitive or restructured market. Such costs may include costs for generation assets, purchased power costs, and regulatory assets and liabilities, such as accumulated deferred income taxes.

TBC

Transition bond charge

TPAs

Transition Power Agreements for Maryland and the District of Columbia between Pepco and Mirant

Transition Bonds

Transition bonds issued by ACE Funding

Treasury lock

A hedging transaction that allows a company to "lock-in" a specific interest rate corresponding to the rate of a designated Treasury bond for a determined period of time

VaR

Value at Risk

VSCC

Virginia State Corporation Commission

iii
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PART I    FINANCIAL INFORMATION

Item 1.   FINANCIAL STATEMENTS

     Listed below is a table that sets forth, for each registrant, the page number where the information is contained herein.

                 Registrants             

Item

Pepco
Holdings

Pepco

DPL

ACE

ACE
Funding

Consolidated Statements
  of Earnings

3

32

46

56

67

Consolidated Statements of
  Comprehensive Income

4

N/A

N/A

N/A

N/A

Consolidated Balance Sheets

5

33

47

57

68

Consolidated Statements
  of Cash Flows

7

35

49

59

69

Notes to Consolidated
  Financial Statements

8

36

50

60

70

1
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THIS PAGE INTENTIONALLY LEFT BLANK.

2
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PEPCO HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)

Three Months Ended
June 30,

Six Months Ended
June 30,

2004

2003

2004

2003

(Millions of Dollars)

Net income

$ 90.4 

$ 43.0 

$141.6 

$ 18.1 

Other comprehensive loss, net of taxes

  Unrealized losses on commodity derivatives
    designated as cash flow hedges

    Unrealized holding (losses) gain
       arising during period

(28.2)

(3.7)

(6.3)

17.1 

    Less: reclassification adjustment for
           gains included in net earnings

.7 

13.6 

2.2 

23.5 

    Net unrealized losses on commodity derivatives

(28.9)

(17.3)

(8.5)

(6.4)

  Realized gain on Treasury lock

3.0 

2.9 

5.9 

5.9 

  Unrealized gains (losses) on interest rate swap
    agreements designated as cash flow hedges:

    Unrealized holding gains (losses) arising
      during period

4.7 

(5.4)

(4.3)

(5.8)

    Less: reclassification adjustment for
           (losses) included in net earnings

(2.3)

(2.8)

(2.7)

(1.3)

    Net unrealized gains (losses) on interest
      rate swaps

7.0 

(2.6)

(1.6)

(4.5)

  Unrealized (losses) gains on marketable
    securities:

    Unrealized holding (losses) gains arising
      during period

(3.9)

1.3 

(3.6)

1.9 

    Less: reclassification adjustment for gains
           included in net earnings

0.8 

- 

0.8 

- 

    Net unrealized (losses) gains on marketable
      securities

(4.7)

1.3 

(4.4)

1.9 

  Other comprehensive loss, before taxes

(23.6)

(15.7)

(8.6)

(3.1)

  Income tax (benefit) expense

(9.5)

(5.9)

(2.9)

.9 

    Other comprehensive loss, net of taxes

(14.1)

(9.8)

(5.7)

(4.0)

Comprehensive income

$ 76.3 

$ 33.2 

$135.9 

$ 14.1 

The accompanying Notes are an integral part of these Consolidated Financial Statements.

4
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