(Washington, D.C. 3:30 p.m.), Pepco today proposed to Maryland lawmakers a rate stabilization plan for its Maryland residential customers. The plan is designed to allow customers time to absorb the impact of the increase in electric rates triggered by rising fuel costs.

In recent years, the cost of fuel used to generate electricity has escalated dramatically. These costs have resulted in substantial increases in the cost of electricity. Pepco recently conducted its third annual round of competitive bids under the regulatory oversight of the Maryland Public Service Commission to secure electricity supply for its Maryland customers and announced that the bids would result in average annual price increases for residential customers in the range of 39 percent.

"While the prices our customers would pay with the increase compare favorably to those that will be paid by customers elsewhere in Maryland and in neighboring states, we recognize the difficulty an increase of this magnitude may create for customers, coming all at once" said Thomas Graham, Regional President, Pepco. "For this reason we are suggesting an optional phase-in of the new rates for residential customers. Starting June 1, 2006, customers will have the option to defer any rate increase exceeding 21 percent of their total bill. The 21 percent limitation will remain in effect until February 28, 2007. Beginning March 1, 2007, the deferral will end and customers will pay the market rate."

Under the plan, customers who choose to participate in the Deferral Program will pay the deferred amount, spread over 15 months, until May 31, 2008.

Pepco will borrow approximately $51 million to implement this deferral. Customers will not be charged any more than what it costs Pepco to borrow the money, (currently about 4.6%). After taking into account tax effects, and assuming no change in interest rates, this will produce an effective interest rate to customers of approximately 3 percent.

"We will be contacting residential customers directly with information about the proposal and the points to consider when they are deciding whether or not to participate in the deferral," Graham said. "The goal of the stabilization plan is to provide a phase-in option for those customers who need time to adjust to the new rates."

The proposed rate increases, announced on March 7, are due to significant increases in the cost of fuels used to generate electricity. Without the deferral, the average monthly electric bill for Maryland residential customers will increase by about 38.5 percent, or $39.00, later this year.

Between 1999 and 2005, fuels used to generate electricity have increased significantly in price. Natural gas prices rose a total of 400 percent; fuel oil prices rose 300 percent; and coal prices rose 150 percent. In just one year, 2005, the price of fuel oil rose 76 percent and of natural gas, 67 percent¹.

¹ U.S. DOE/Energy Information Agency; U.S. DOL/Bureau of Labor Statistics

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Pepco, a subsidiary of Pepco Holdings, Inc. (NYSE: POM), delivers safe, reliable and affordable electric service to more than 745,000 customers in Maryland and the District of Columbia.