NOTICE TO THE PUBLIC OF INVESTIGATION OF

NOTICE TO THE PUBLIC OF INVESTIGATION OF

APPROPRIATENESS OF FEDERAL RATE DESIGN

STANDARDS FOR POTOMAC EDISON COMPANY

The Public Utility Regulatory Policies Act of 1978 (the “Act”), requires that the State Corporation Commission give public notice and conduct a public hearing to determine whether the federal rate design standards established by Section 111 of the Act are appropriate to adopt with respect to Potomac Edison Company (“Potomac Edison”). Those standards which are determined to be appropriate for adoption for Potomac Edison may be implemented by the Commission in the context of later proceedings. The proposed standards to be considered are as follows:

(1) Cost of Service — Rates charged by Potomac Edison Company providing electric service to each class of electric consumers shall be designed, to the maximum extent practicable, to reflect the costs of providing electric service to such class, as determined in accordance with the following:

In the consideration of this standard, the costs of providing electric service to each class of electricuconsumers shall, to the maximum extent practicable, be determined on the basis of methods prescribed by the State Corporation Commission. Such methods shall to the maximum extent practicable —

/ (1) permit identification of differences in cost-incurrence, for each such class of electric consumer, attributable to daily and seasonal time of use of service and

(2) permit identification of differences in cost-incurrence attributable to differences in customer demand, and energy components of cost. In prescribing such methods, the State Corporation Commission shall take into account the extent to which total costs to Potomac Edison Company are likely to change if —

(A) additional capacity is added to meet peak demand relative to base demand;and

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(B) additional kilowa^t-bourg of^lfctryp energy are delivered to electric consumers.

(2) Declining Block Rates — The energy component of a rate, or the amount attributable to the energy component in a rate, charged by Potomac Edison Company for providing electric service during any period to any class of electric consumers may not decrease as kilowatt-hour consumption by such class increases during such period except to the extent that Potomac Edison Company demonstrates that the costs to Potomac Edison Company of providing electric service to such class, which costs are attributable to such energy component, decrease as such consumption increases during such period.

(3) Time-of-day Rates — The rates charged by Potomac Edison Company for providing electric service to each class of electric consumers shall be on a time-of-day basis which reflects the costs of providing electric service to such class of electric consumers at different times of the day unless such rates are not cost effective with respect to such class, as determined in accordance with the following:

i The consideration of this standard, a time-of-day rate charged by Potomac Edison Company for providing electric service to each class of electric consumers, shall be determined to be cost-effective with respect to each such class if the long-run benefits of such rate to Potomac Edison Company and its electric consumers in the class concerned are likely to exceed the metering costs and other costs associated with the use of such rates.

(4) Seasonal Rates — The ratescharged by Potomac Edison Company for providing electric service to each class of electric consumers shall be on a seasonal basis which reflects the costs of providing service to such class of consumers at different seasons of the year to the extent that such costs vary seasonally for Potomac Edison Company.

(5) Interruptible Rates — Potomac Edison Company shall offer each industrial and commercial electric consumer an interruptible rate which reflects the cost of providing interruptible service to the class of which such consumer is a member.

(6) Load Management Techniques — Potomac Edison Company shall offer to its electric consumers such load management techniques as the State Corporation Commission has determined will —

(A) be reliable,

(B) provide useful energy or capacity management advantages to the electric utility, and

(C) be practicable and cost effective, as determined in accordance with the following:

In the consideration of this standard a load management technique shall be determined by the State Corporation Commission to be cost-effective if —

(1) such technique is likely to reduce maximum kilowatt demand on Potomac Edison Company, and

(2) the long-run cost-savings to Potomac Edison Company of such reduction are likely to exceed the long-run costs to Potomac Edison Company associated with implementation of such technique.

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