Potomac Electric Power Co. yesterday proposed a 7 percent cut in Maryland residential customers' basic rates, beginning in July 2000, as part of a plan that would permit the company to sell its Maryland power plants and shift its focus to buying and selling electricity.

Under the plan, which must be voted on by the Maryland Public Service Commission, Pepco's 428,000 residential customers in Maryland would first get a 3 percent reduction in "basic" utility charges over four years. The reduction would be applied to about one-third of the typical residential bill which covers the company's electricity distribution costs, said Dannie R. Wraase, Pepco chief financial officer. (The rest of customers' bills covers the costs of Pepco's fuel and power plant operations.)

Pepco said the 3 percent reduction would save residential users about $10 million a year. The plan, which was endorsed yesterday by the Maryland People's Counsel on behalf of the state's consumers, permits Pepco to recover the $10 million if it can purchase electric power from other suppliers at below current fuel costs.

In addition, basic rates for Pepco's residential and commercial customers in Maryland would be cut by 4 percent as the company eliminates a surcharge it has imposed over the past decade to cover energy conservation programs. No dollar value of that rate cut was provided.

Pepco's proposal is part of the company's plan to make the transition from electricity producer to broker in a new era of deregulation. After July 2000, Maryland businesses and households may purchase electricity from suppliers of their choice. Pepco will also become a purchaser of electric power.

The proposed rate cuts are guaranteed over the four years covered by the plan, no matter what Pepco has to pay to purchase power, Wraase said. Maryland customers' electricity rates will decline, he said, unless they choose a supplier from outside the area with higher charges.

Facing intensifying competition from much larger electric power suppliers throughout the country, Pepco decided in February to abandon the power generating business, sell its power plants and concentrate on delivering electricity to customers.

Maryland regulators earlier this year approved Pepco's plan to auction its power plants. But in the District, where the company owns two plants, the strategy encountered opposition from D.C. Council members who wanted more time to evaluate the impact of deregulation.

The plan announced yesterday permits Pepco to sell its Maryland plants while holding on to its District plants, at Benning Road and Buzzard Point, until the council acts.

The two District plants provide about 1 percent of Pepco's electricity and are used primarily to deal with peak power demands.

Hearings on the Pepco plan are scheduled to begin Monday before the D.C. Public Service Commission. Public Service Commission approval of the plan would remove all obstacles to deregulation for Pepco in Maryland, Wraase said.