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Pepco Agrees to Sell Generation Assets

Pepco Agrees to Sell Generation Assets

Potomac Electric Power Co. (Pepco) earlier this week reached a major settlement to auction off its power generation assets and flow back much of the profits to Maryland customers as part of its plan to begin offering customer choice beginning July 2000.

The agreement, which is subject to the approval of the Maryland Public Service Commission (PSC), accomplishes several things. It would: resolve Pepco's claims of $640 million in stranded costs by auctioning off its generation assets; require the utility to share with customers proceeds from the auctions that exceed the book value of the generating assets; set July 1, 2000 as the start date for competition on Pepco's system for all customers (rather than phasing it in); and impose a three-year rate cap starting July 2000 for customers who stay with Pepco. The deal is contingent on the Maryland General Assembly approving legislation that opens up the state's electric market to competition and revises the utility tax structure.

"The proposed agreement jump-starts competition for Pepco's Maryland customers; ensures reliable low-cost energy; and preserves our financial strength," said Pepco President and CEO John M. Derrick Jr.

The settlement calls for Pepco to auction off six fossil-fuel plants in Maryland, Washington DC and Virginia with a combined capacity of 5,605 MW. They include its Benning facility (oil) 550 MW; Buzzard Point plant (oil) 256 MW; Dickerson generation plant (coal, oil and gas) 482 MW; Potomac River plant (coal) 482 MW; Chalk Point facility (coal, oil and gas) 2,423 MW; and Morgantown plant (coal and oil) 1,412 MW. Additionally, the company will be selling its 10% interest in a Conemaugh, PA, plant and long-term contracts to purchase 680 MW. This brings the total capacity to be auctioned off to 6,806 MW. Pepco must solicit bids for the asset auction by July 1 of this year and complete the sale by July 2000, according to the terms of the settlement. In addition to the Maryland commission, the utility must obtain the approval of the District of Columbia Public Service Commission for the asset auctions.

"Based on sales of similar electric generation plants in other eastern states, which have resulted in large profits, we feel that Pepco will likely sell its plants and other assets for a large enough profit so that a significant amount of money can be returned to ratepayers," said Maryland Peoples' Counsel Michael J. Travieso. "If this happens, the company and its shareholders benefit by making a profit and consumers are compensated as well with a rate reduction instead of a 'stranded cost' surcharge."

Susan Parker

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