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DELMARVA POWER RECOMMENDS AGAINST LONG-TERM CONTRACTS

Thursday, February 22, 2007

Analysis Shows Potential Cost to Customers Could be Billions More

Newark, DE--In a filing with the Delaware Public Service Commission, Delmarva Power announced it opposes moving forward with any of the proposals to sell the company power under a long-term contract, because they are not in its customers’ best interest.  Analysis shows that none of the three proposals offer customers any savings or price stability and all carry substantial costs and risks.

Delmarva Power Regional President Gary Stockbridge said, “Based on our analysis of the bids and the substantial risks inherent in long-term contracts, we think that rejecting all of the proposals is the best option for our customers and Delaware as a whole.”

Legislation passed in April, 2006 required Delmarva Power to seek bids for long-term contracts from power plants located in Delaware.  The company received proposals from NRG Energy for a 20 to 25-year contract for 400MW from a 600MW coal plant, from Bluewater Wind for a 20 to 25-year contract for electricity from a 600MW wind park, and from Conectiv Energy, its affiliate, for a 10-year contract for 180MW from a natural gas facility. (One MW [megawatt] provides enough electricity to power approximately 1,000 homes.)

In the filing, the company ranked the three bids that it received based on a “point system” designed to measure the relative merits of each bid in terms of price, price stability, environmental impact, and other factors such as experience building power plants. Based on the point system, approved by the Delaware Public Service Commission and the Delaware Energy Office, Delmarva Power and the Delaware Public Service Commission’s Independent Consultant have each ranked the bids in the following order: Conectiv Energy, Bluewater Wind, and NRG Energy.

Stockbridge said, “Even though our affiliate, Conectiv Energy, scores best under the system, we do not favor signing a long-term contract.  All of the objectives of the legislation can be met by other means without any of the risks that come with long-term contracts.”

Stockbridge said that the company’s analysis predicts that NRG’s bid would cost Delmarva Power’s customers $4 to $5 billion more than buying the power from the wholesale market, which is made up of other power plants across the region.  Bluewater Wind’s proposal would result in customers paying prices $2 billion over Delmarva Power’s market forecast.  Conectiv Energy’s proposal offers no savings over the market forecast.  It is largely on the strength of its relative price ranking that the Conectiv Energy proposal was ranked the highest of the three bids.

The company’s analysis showed that all bids failed to deliver significant price stability benefits.  The proposed contracts are not fixed price bids.  They include price escalation clauses that would cause the price of NRG and Conectiv Energy’s contracts to increase if the prices of coal or natural gas increase.  Bluewater Wind’s generation output, the level of energy produced, varies considerably as the output is dependent on wind levels.

While there are environmental benefits associated with each of the projects, the company believes that there are other, more cost-effective ways to achieve those benefits.  Stockbridge noted, for example, that Delmarva Power evaluated the proposal using the same assumptions used in the “integrated resource plan” the legislation also required the company to file. 

Stockbridge said, “In our integrated resource plan, we said that the best way to meet our customers’ long-term energy supply needs is through a combination of energy efficiency programs, purchases from the wholesale market, enhancements to our transmission system, and targeted purchases of renewable resources.  Our analysis of these bids shows that such a combination of steps remains the best option for our customers.”

Stockbridge said, “We understand and support the desire of the General Assembly, the Governor’s office, the Public Service Commission, and other state agencies to look at options that can save customers money on energy, provide price stability, and offer environmental benefits.  However, after a careful analysis, we conclude that these proposals are not the best means to achieve those objectives.”

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Delmarva Power, a public utility owned by Pepco Holdings, Inc. (NYSE: POM), provides safe and reliable energy to more than 500,000 electric delivery customers in Delaware, Maryland and Virginia and over 118,000 natural gas delivery customers in northern Delaware.