1. 1 NARUC/FERC Collaborative on Demand Response Pepco and Delmarva Power Blueprint for the Future Filings J. Mack Wathen July 15, 2007

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3. 3 Motivation for Pepco and Delmarva Blueprint Filings Higher Regional Energy Costs – Blueprint can help reduce and stabilize electricity costs Impact of Energy Use on the Environment

4. 4 Our Customers tell us they want… Reasonable energy costs Reduced volatility in price Reliable service Environmental stewardship Information to make choices

5. 5 PHI Blueprint Filings Delaware Delmarva Power Filing -- February 9, 2007 –Commission Established Working Group Process Maryland Delmarva Power Filing – March 21, 2007 –Commission Established Working Group Process Maryland Pepco Filing – March 21, 2007 –Commission Established Working Group Process

6. 6 PHI Blueprint Filings (continued) District of Columbia Pepco Filing – April 4, 2007 –Commission Established Regulatory Case –“PowerCents DC” Smart metering pilot underway Each Blueprint Plan Includes: –AMI Universal Deployment for all PHI Electric/Gas Distribution Customers –Utility Provided Energy Efficiency Programs –Utility Provided Demand Response Programs –Each Plan Specific to Each Jurisdiction New Jersey Atlantic City Electric Filing – Planned for later in 2007 Other components of Blueprint include Distribution System Automation; conversion of our 2000+ vehicle fleet to alternative fuels including hybrids, bio-diesel and other technologies; “Energy Know How” tools

7. 7 Key PHI Blueprint Initiatives Energy Efficiency/Conservation Programs –Reduce Annual Electricity Use Demand Response Programs –Reduce Summer Peak Electricity Demand Advanced Metering Infrastructure –Improve Distribution System Operation –Improve Customer Service –Provide Interval Consumption Data through Remote Readings –Support Demand Response through Dynamic Pricing and Direct Load Control Technology Capability –Support Small Renewable Generation/Plug-In Vehicles

8. 8 DSM Program Selection Process Commercially Available DSM Measure Applicable to Mid-Atlantic Market Screened for Cost-Effectiveness using All Ratepayers Test (ART) –Avoided Energy Prices Derived from MD SOS Prices –Avoided Capacity Prices Derived from Cost of New Generation Entry and Regional Transmission Constraints Approx. 370 DSM Measures Screened for Cost-Effectiveness –65% Projected to be Cost-Effective Under ART Additional Measures Would Pass if Societal Test Used and Value of Reduced Negative Externalities Estimated Pepco/Delmarva Power DSM Programs Intended to be a Starting Point for Utility Specific Collaboratives –Measures Expected to be Cost-Effective Packaged into Programs

9. 9 Delmarva Power/Pepco Recommended Utility DSM Programs General Awareness Campaign – Customer DSM Education/Marketing Effort Residential Programs –Home Performance w/Energy Star: Home Audit Based Program –HVAC Efficiency: High Efficiency Central AC/HP and Training Program –Lighting/Window AC Program: Compact Florescent Lighting and High Efficiency Window Units Program –Smart Stat: Remotely Controllable Programmable T-stat Central AC/HP Program

10. 10 Delmarva Power/Pepco Recommended Utility DSM Programs (continued) Non-Residential Programs –Building Commissioning and O&M: Consulting/Engineering Services to Improve Efficiency of Buildings –HVAC Efficiency: High Efficiency HVAC Equip. up to 30 Tons and Contractor Training –Prescriptive: Energy Efficiency Measure Incentives for Electric Motors and Lighting –Custom Incentive: Site Specific Efficiency Measures –Smart Stat: Remotely Controllable Program T-Stat Program –Internet Platform: Web-based Platform to Facilitate Participation in PJM Demand Response Market

11. 11 Pepco and Delmarva Power DSM Forecast Impact After Three Year Initial Implementation Residential –85.8 MW Peak Demand Reduction –135,906 MWh Annual Energy Reduction –265,459 Participants –1,245,648 DSM Measures Non-Residential –234.5 MW Peak Demand Reduction –433,124 MWh Annual Energy Reduction –37,032 Participants –5,429,706 DSM Measures

12. 12 AMI Benefits Include… Remote Meter Reading –Eliminates Need for Meter Reader and improves accuracy –Supports Enhanced Customer Service Capabilities –Customer Specific Load Research Data Demand Response –Communicates w/Demand Response Enabling Technology –Supports Dynamic Pricing Options –Enhances Customer Control Over Monthly Bills through Detailed Consumption Data Distribution System Monitoring –Improves Distribution System Design, Reliability, and Performance Distribution System Asset Management –Outage Reporting –Increased Accuracy of Repair Crew Dispatch Remote Service Disconnect –Reduces Utility Service Visits

13. 13 Proposed Cost Recovery Bill Stabilization Adjustment –Distribution Rate Decoupling Mechanism Removes Utility Financial Disincentive to Offer/Support DSM –Only Applicable to Distribution Portion of Bill –Proposed in Delmarva Power/Pepco Current Distribution Base Rate Cases DSM Surcharge –Non-Bypassable Distribution Surcharge –Rate Class Differentiated –5 Year Recovery of DSM Costs –Interest on Unrecovered Costs at Utility Allowed Rate of Return –Similar to Maryland DSM Surcharge in Existence During the 1990s Proposed AMI regulatory approach –Timely Recovery of AMI Capital Costs Over 15 Year Period to Reflect Expected Equipment Life –Accelerated Cost Recovery of Existing Meters Over 3 to 5 Year Period –Recovery of Demand Response Smart Thermostat Capital Cost Over 15 Year Period

14. 14 Blueprint Path Forward Pepco and Delmarva Power are Prepared to Begin the Implementation of their Blueprint Plan Now The Plan Will: –Help Customers Manage Higher Energy Costs –Help Reduce Overall Regional Wholesale Electricity Market Prices –Lessen Burden on Increasingly Constrained Regional Transmission –Reduce Future Power Plant Air Emissions –Improve Distribution System Operations –Improve Utility Customer Service –Take Advantage of New Technologies Implementation Delay will Lengthen the Period Before these Benefits are Available to Consumers