For Immediate Release
September 24, 1999

Potomac Electric Power Company (NYSE: POM) has proposed that residential customers in Maryland would get a 7 percent rate reduction for four years with the July 1, 2000 start of customer choice of electricity suppliers. At the same time, non-residential customers would receive a

4 percent reduction. The proposal was part of two settlement agreements filed late yesterday with the state Public Service Commission (PSC) that resolve all issues related to Pepco's proposed sale of its generating assets and recovery of stranded costs.

Under the agreements, residential customers in Maryland first get a guaranteed 3 percent reduction in basic electric rates that would amount to a reduction in revenue to Pepco of about

$10 million per year. Pepco can make up the revenue lost from the rate reduction by reducing the residential portion of the shared savings the company hopes to achieve from buying lower-cost power in the wholesale market. Pepco previously agreed to equally share anticipated savings with customers.

All customers receive a 4 percent additional reduction in rates from the way Pepco has proposed recovering the remaining balance of the costs it incurred for implementing customer conservation programs. These costs, which were being recovered through a customer surcharge, will now be reduced significantly after July 1, 2000 and completely recovered by July 1, 2003.

The new rate levels will also permit Pepco to collect its share of a statewide "Universal Service Charge" as directed by the Maryland Electric Utility Industry Restructuring Act of 1999. The state fund was established to protect low-income customers and ensure electric service for everyone.

"If the two settlement agreements are approved by the Maryland PSC," said Dennis R. Wraase, Pepco's Executive Vice President and Chief Financial Officer, "all remaining obstacles to the introduction of customer choice in Maryland will be removed. At the same time, customers will receive rate reductions and the company preserves its ability to earn its authorized rate of return."

The net effect of all these changes will mean a total 7 percent reduction for residential customers and a 4 percent reduction for non-residential customers. Pepco's Maryland customers may achieve even lower bills depending on:

• the level of success of Pepco's proposed sale of its generating assets and proposed shared savings of the net proceeds between the customers and the company;
• reduced costs by Pepco's subsequent purchase of power at lower-cost wholesale prices; and
• the customers' own success at switching to alternate energy suppliers.

If the agreements are approved by the PSC, Pepco also would be authorized to exclude its two District of Columbia-based generating plants from the proposed auction sale of the company's other generating assets in Maryland and Virginia. The company's application to divest is pending before the District of Columbia Public Service Commission.