FOR IMMEDIATE RELEASE

February 3, 1999

• Pepco's Maryland Customers Could Choose Energy Suppliers in 2000
• Pepco Would Recover Stranded Costs

Potomac Electric Power Company (Pepco; NYSE: POM) today announced it had reached a partial agreement to settle a case before the Maryland Public Service Commission that would usher in customer choice of electricity suppliers. Under the agreement, which must be approved by the Maryland Public Service
Commission, Pepco would sell its generating assets and power purchase contracts in an open auction sale.

This agreement provides that the Company will recover 100 percent of its "stranded costs."

          [Stranded costs include the Company's costs for power plants and other facilities that regulators approved as prudent to provide reliable service. While customers are currently paying for these costs spread out over many years, Pepco may not be able to recover these costs in a competitive market. If customers choose other suppliers, the costs are left "stranded."]

Pepco also must obtain approval to sell its generating assets from the District of Columbia Public Service Commission, and the agreement is conditioned on the Maryland General Assembly passing legislation that enables competition and revises the utility tax structure.

All of Pepco's Maryland customers would be able to choose their energy suppliers starting in July 2000, rather than phasing in competition over a three-year period as set forth by the PSC. At the same time, Pepco would continue to provide electricity service--to those customers who want it--at regulated rates frozen for three years starting July 1, 2000.

"The proposed agreement jumpstarts competition for all Pepco's Maryland customers; ensures reliable low-cost energy; and preserves our financial strength," said John M. Derrick, Jr., President and Chief Executive Officer of Pepco.

The parties to the proposed settlement include: the Maryland People's Counsel, which represents the interests of residential customers; the Public Service Commission's Staff; the Maryland Energy Administration, which represents other agencies of state government; the U.S. General Services Administration, which represents federal customers; the Washington Metropolitan Area Transit Authority; and the Mid-Atlantic Power Supply Association that includes such companies as Shell Oil, Enron and Statoil.

The company will share with its customers any proceeds from the sale that exceed the book value of its generating assets and other deferred costs.

Pepco wholly owns six fossil-fuel power plants in the region and partially owns a Pennsylvania plant, totaling more than 6,000 megawatts (MW), and has power purchase agreements totaling 764 MW. The three largest plants are in Maryland, two are in the District of Columbia and one in Virginia. Under the agreement, any
purchaser of the plants would be subject to the same environmental rules and regulations as Pepco now follows, added Derrick.

Pepco and the International Brotherhood of Electrical Workers, which represents most power plant employees, last year signed on a contract providing various employee protections in the event of a power plant divestiture.

                         Summary of the Proposed Settlement Agreement

The settlement agreement contains the following elements:

• Pepco will divest its generating assets by auction and the sale is expected to close prior to July 1, 2000.
• Pepco will provide service to any customer who does not wish to choose an alternative supplier during a transition period ending July 1, 2003. During this time the rates would be no higher than Pepco's rates in effect at June 30, 2000.
• Retail access to competitive energy suppliers will be available to 100 percent of Pepco's Maryland customers on July 1, 2000.
• A plan on how to use the proceeds from the sale of generating assets and power contracts.

             1. Pepco would use proceeds above the book value of the assets to cover other stranded costs such as deferred taxes and transition costs.
             2. If Pepco does not receive book value, the Company would be allowed to recover 100 percent of its stranded costs.
             3.  If Pepco covers more than its stranded costs from the sale, it will share the benefits with its customers.