• Auction of Power Plants One Step Closer
• Customer Choice Provisions Pending City Council Actions

For Immediate Release
November 9, 1999

Potomac Electric Power Company (NYSE: POM) today announced it has reached a non-unanimous agreement to settle a case before the District of Columbia Public Service Commission that would pave the way for the sale of its power plants. Under the agreement, which must be approved by the commission, Pepco would sell its generating assets and purchase-power contracts in an open auction sale next year. Similar agreements are pending before the Maryland Public Service Commission.

Electric rates would be reduced and all District of Columbia customers would share in the proceeds from the sale of the power plants if the proceeds exceed the sum of the book value of the plants, plus regulatory assets and other above market purchase-power agreements. Under the proposed settlement agreements in Maryland, customers have similar rate reductions.

Dennis R. Wraase, Pepco`s Executive Vice President and Chief Financial Officer, said, "Our customers will benefit from a decrease in their already below-average electric rates, reliability will be protected and Pepco will preserve its financial strength. Customers also will be able to shop for lower-priced alternative energy suppliers, assuming the city enacts customer choice legislation in a timely manner."

In filing the proposed agreement, Pepco asked the District PSC to schedule a hearing Nov. 19 with additional testimony to be received by Nov. 15.

Wraase said the agreement provides that the company will recover all of its stranded costs through the auction sale. These costs include the company`s costs for power plants and other facilities that regulators had approved over the years as necessary to provide reliable service.

Of Pepco`s six wholly owned electric generating plants, three are located in Maryland, one in Alexandria, Va., and two in the District. Pepco`s 10 percent share in a plant in Pennsylvania is also available for sale. The company had previously committed to retain ownership of the two plants located in the District which supply about 1 percent of Washington`s energy needs.

Under the proposed agreement, residential customers in the District would receive a 7 percent reduction in rates, beginning with a 2 percent reduction Jan.1, 2000, an additional 1.5 percent effective July 1, 2000, and an additional 3.5 percent one month after the closing on the sale of the power plants.

Rate reductions for commercial customers in the District would total 6.5 percent, beginning with a 3.5 percent cut Jan. 1, 2000, and an additional 1.5 percent on both July 1, 2000, and one month after the sale closing.

The initial rate reductions reflect the elimination of the current Demand Side Management (DSM) surcharge for customer conservation programs. The July 1, 2000 rate cuts reflect reductions of about $12 million in the company`s cost of service since its last base rate case in 1995. The rate reductions following the closing are guaranteed but may be recouped by Pepco if it is able to purchase power at lower rates on the wholesale market. Once the rate reductions are completed, rates for both residential and commercial customers would then be capped for four years.

The 7 percent reduction in residential rates would reduce the average monthly electric bill of $48 for the typical residential customer in the District by $3.50. A typical residential customer uses 621 kilowatt-hours per month.

Pepco`s customers in the District and Maryland 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; and
• the customers` own success at switching to alternate energy suppliers if the city allows customer choice for energy suppliers.

Customer choice for residential customers could begin with a pilot program no later than Jan. 1, 2001, provided the Council of the District of Columbia enacts the necessary tax and enabling legislation by March 31, 2000. All commercial customers would have a choice of energy suppliers beginning Jan. 1, 2001, under the legislation.

Pepco serves nearly 220,000 customers in the District of Columbia and 472,000 in the Maryland suburbs.