AMENDMENT NO. 2

                                                            TO

                   ASSET PURCHASE AND SALE AGREEMENT

                                           DATED JUNE 7, 2000

                                            BY AND BETWEEN

                      POTOMAC ELECTRIC POWER COMPANY

                                                         AND

                                      SOUTHERN ENERGY, INC.

                                                    AMENDMENT NO. 2
                                                                     TO
                                 ASSET PURCHASE AND SALE AGREEMENT

          THIS AMENDMENT NO. 2 TO ASSET PURCHASE AND SALE AGREEMENT (this
"Amendment") is dated December __, 2000 and is by and between POTOMAC ELECTRIC
POWER COMPANY, a District of Columbia and Virginia corporation ("Seller"), and
SOUTHERN ENERGY, INC., a Delaware corporation ("Buyer," collectively with
Seller, the
"Parties").

          WHEREAS, Buyer has agreed to purchase and assume, and Seller has
agreed to sell and
assign, the Auctioned Assets (as defined in the Purchase Agreement) and certain
associated
liabilities, on the terms and conditions set forth in that certain Asset
Purchase and Sale
Agreement, dated June 7, 2000, as amended by Amendment No. 1 to Asset Purchase
and Sale
Agreement, dated September 18, 2000 (the "Purchase Agreement");

          WHEREAS, pursuant to the side letter dated June 7, 2000, Buyer and
Seller agreed to
modify the schedules to the Purchase Agreement to correct scrivener's errors and
omissions or
erroneous inclusions therein; and

          WHEREAS, the parties hereto desire to amend the Purchase Agreement and
the exhibits
and schedules relating thereto as set forth herein.

          NOW, THEREFORE, in consideration of the mutual covenants and
agreements herein set
forth and other good and valuable consideration, the receipt and sufficiency of
which is hereby
acknowledged, Buyer and Seller agree as follows:

          1.     Defined Terms. Defined terms used in this Amendment and not
defined herein shall
have the meanings ascribed to them in the Purchase Agreement.

          2.     Amendment to Article IX.

                    (a)     Section 9.1(a) is hereby amended by inserting the
following sentence
          at the end thereof:

                           "Notwithstanding the foregoing, the term Transferred
Union Employee
                    shall not include any Union Employee who, on or before the
Closing Date, has
                    given written notice to Seller of his or her intent to
retire from active employment
                    with Seller, and who actually retires under the terms of the
Seller's Pension Plan
                    effective January 1, 2001."

                    (b)     The fourth sentence of Section 9.3 is hereby deleted
in its entirety and
replaced with the following:

                           "Each Transferred Savings Employee shall be afforded
the option of transferring
                    his or her account balance into the Buyer's Savings Plan,
including any outstanding
                    loan balances attributable to such accounts; provided,
however, that if Seller is able
                    to obtain a favorable ruling from the Internal Revenue
Service to the effect that (or
                    determines on the basis of rulings by the Internal Revenue
Service that) the
                    consummation of the transactions contemplated hereby shall
constitute a sale of
                    substantially all of the assets used in a trade or business
within the meaning of
                    Section 401(k)(10) of the Code, or that there has been a
separation from service as a
                    non-continuation of the same trade or business within the
meaning of Section
                    401(k)(2)(B)(i)(I) of the Code, each Transferred Savings
Employee shall be afforded
                    the option of maintaining his or her account balance under
Seller's Savings Plan,
                    transferring his or her account balance into Buyer's Savings
Plan, including any
                    outstanding loan balances attributable to such account,
rolling over his or her
                    account balance, including any outstanding loan balances
attributable to such
                    accounts into the Buyer's Savings Plan, rolling over his or
her account balance into
                    an individual retirement account or cashing in his or her
account balance (subject to
                    applicable withholding taxes and penalties)."

                    (c)     The seventh sentence of Section 9.3 is hereby
deleted in its entirety and
replaced with the following:

                           "In the event that a Transferred Savings Employee
shall elect to leave his or her
                    account balance in Seller's Savings Plans, Seller shall
allow the Transferred
                    Employee to repay any outstanding loan attributable to such
account balance
                    through repayment coupons that the Seller shall provide to
the Transferred
                    Employee prior to the Closing Date."

          4.     Amendment to Section 12.4. The address for Troutman Sanders LLP
in Section 12.4
of the Purchase Agreement is hereby deleted and replaced with the following
address:

                              Troutman Sanders LLP
                              401 9th Street N.W.
                              Suite 1000
                              Washington, D.C. 20004
                              Telecopier: (202) 274-2994
                              Attention: Benjamin L. Israel, Esq .

          5.     Amendments to Schedules.

                 5.1      Amendment to Schedule 2.2(a)(iii). Schedule
2.2(a)(iii) is hereby deleted
          in its entirety and replaced with the Schedule 2.2(a)(iii) attached
hereto as Attachment
          A.

                 5.3      Amendment to Schedule 2.2(a)(v). Schedule 2.2(a)(v) is
hereby deleted in its
          entirety and replaced with the Schedule 2.2(a)(v) attached hereto as
Attachment B.

                 5.4      Amendment to Schedule 2.2(a)(vi). Schedule 2.2(a)(vi)
is hereby deleted in
          its entirety and replaced with the Schedule 2.2(a)(vi) attached hereto
as Attachment C.

                 5.5     Amendment to Schedule 2.2(a)(vii). Schedule 2.2(a)(vii)
is hereby deleted in
          its entirety and replaced with the Schedule 2.2(a)(vii) attached
hereto as Attachment D.

                 5.5     Amendment to Schedule 2.2(b)(i). Schedule 2.2(b)(i) is
hereby deleted in its
          entirety and replaced with the Schedule 2.2(b)(i) attached hereto as
Attachment E.

                 5.6     Amendment to Schedule 2.3(a)(iv). Schedule 2.3(a)(iv)
is hereby deleted in its
          entirety and replaced with the Schedule 2.3(a)(iv) attached hereto as
Attachment F.

                 5.7     Amendment to Schedule 5.5(a). Schedule 5.5(a) is hereby
deleted in its
          entirety and replaced with the Schedule 5.5(a) attached hereto as
Attachment G.

                 5.8     Amendment to Schedule 5.5(b). Schedule 5.5(b) is hereby
deleted in its
          entirety and replaced with the Schedule 5.5(b) attached hereto as
Attachment H.

                 5.9     Amendment to Schedule 5.10(c). Exhibit A to Schedule
5.10(c) is hereby
          deleted in its entirety and replaced with the Exhibit A to Schedule
5.10(c) attached hereto
          as Attachment I.

          6.     Amendments to the Exhibits.

                 6.1     Amendment to Exhibit C-4. Section 2.1(f) of Exhibit
C-4, the Morgantown
          Easement Agreement, is hereby deleted in its entirety and replaced
with the following:

                           "(f) An easement of Access to, and the right to use,
the parking lots, access
                 roads, driveways and other such facilities located upon the
Generator's Real Property,
                 together with the right to use the railroad lines and railroad
spurs located upon the
                 Generator's Real Property (such railroad lines and railroad
spurs, "Generator's Rail
                 Facilities") for the transportation of machinery and/or similar
uses; provided, however,
                 that the easement of Access to Generator's Rail Facilities
shall require Generator's
                 prior consent, such consent not to be unreasonably withheld."

                 6.2     Amendment to Exhibit E-1. The second sentence of
Section 4.2.1(b) of Exhibit
          E-1, the Potomac River Interconnection Agreement, is hereby deleted in
its entirety and
          replaced with the following: "If applicable, the Generator shall test
the Station's black-start
          combustion-turbines annually to confirm that the black-start
combustion turbines will start
          without any external power supply."

                 6.3     Amendment to Exhibit E-3. Schedule C to Exhibit E-3,
the Dickerson
          Interconnection Agreement, is hereby deleted in its entirety and
replaced with the
          Schedule C attached hereto as Attachment J

                 6.4     Amendment to Exhibit E-4. Schedule C to Exhibit E-4,
the Chalk Point
          Interconnection Agreement, is hereby deleted in its entirety and
replaced with the
          Schedule C attached hereto as Attachment K.

          7.     Governing Law. This Amendment is governed by, and shall be
construed in
accordance with, the laws of the District of Columbia without regard to
principles of conflicts of
law.

          8.     Modifications and Amendments. This Amendment shall not be
modified or amended
except by a written instrument executed by both of the Parties.

          9.     Entire Agreement; Severability. This Amendment and the Purchase
Agreement
constitute the entire agreement and understanding between the parties hereto
with respect to the
subject matter hereof. In the event that any portion of this Amendment or the
Purchase
Agreement shall be determined to be invalid or unenforceable, such portion of
this Amendment
or Purchase Agreement shall be severable from the other provisions of this
Amendment or the
Purchase Agreement which provisions shall be valid, binding upon and enforceable
against the
Parties.

         10.     Effectiveness; Purchase Agreement. This Amendment shall be of
full force and
effect upon its execution and delivery by each of the Parties except that the
amendments to the
Interconnection Agreements contemplated in Sections 6.2, 6.3 and 6.4 above,
shall not be
effective until they are filed by Pepco with the Federal Energy Regulatory
Commission pursuant
to Section 205 of the Federal Power Act and such filing shall occur within two
Business Days of
the Closing Date. Except as amended by this Amendment, all other terms of the
Purchase
Agreement shall continue in full force and effect and unchanged and are hereby
confirmed in all
respects.

         11.     Counterparts. This Amendment may be executed in two
counterparts, each of which
shall be deemed an original, but both of which together shall constitute one and
the same
instrument.

          IN WITNESS WHEREOF, Buyer and Seller have signed and delivered this
Amendment
on the day and year set forth above.

SOUTHERN ENERGY, INC.                             POTOMAC ELECTRIC POWER COMPANY

By:      ELIZABETH B. CHANDLER                   By:              MARY
SHARPE-HAYES           
      Name:  Elizabeth B. Chandler                               Name:  Mary
Sharpe-Hayes
      Title:    VP                               
                             Title:   Vice President