Potomac Electric Power Co. (Pepco) earlier this week reached amajor settlement to auction off its power generation assets andflow back much of the profits to Maryland customers as part of itsplan to begin offering customer choice beginning July 2000.
The agreement, which is subject to the approval of the MarylandPublic Service Commission (PSC), accomplishes several things. Itwould: resolve Pepco’s claims of $640 million in stranded costs byauctioning off its generation assets; require the utility to sharewith customers proceeds from the auctions that exceed the bookvalue of the generating assets; set July 1, 2000 as the start datefor competition on Pepco’s system for all customers (rather thanphasing it in); and impose a three-year rate cap starting July 2000for customers who stay with Pepco. The deal is contingent on theMaryland General Assembly approving legislation that opens up thestate’s electric market to competition and revises the utility taxstructure.
“The proposed agreement jump-starts competition for Pepco’sMaryland customers; ensures reliable low-cost energy; and preservesour financial strength,” said Pepco President and CEO John M.Derrick Jr.
The settlement calls for Pepco to auction off six fossil-fuelplants in Maryland, Washington DC and Virginia with a combinedcapacity of 5,605 MW. They include its Benning facility (oil) 550MW; 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 Morgantownplant (coal and oil) 1,412 MW. Additionally, the company will beselling its 10% interest in a Conemaugh, PA, plant and long-termcontracts to purchase 680 MW. This brings the total capacity to beauctioned off to 6,806 MW. Pepco must solicit bids for the assetauction by July 1 of this year and complete the sale by July 2000,according to the terms of the settlement. In addition to theMaryland commission, the utility must obtain the approval of theDistrict of Columbia Public Service Commission for the assetauctions.
“Based on sales of similar electric generation plants in othereastern states, which have resulted in large profits, we feel thatPepco will likely sell its plants and other assets for a largeenough profit so that a significant amount of money can be returnedto ratepayers,” said Maryland Peoples’ Counsel Michael J. Travieso.”If this happens, the company and its shareholders benefit bymaking a profit and consumers are compensated as well with a ratereduction instead of a ‘stranded cost’ surcharge.”
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