|
|

|Exhibit 13                                                                                        
|--------------------------------------------------------------------------------------------------
|Consolidated Financial Information                                                                
|Potomac Electric Power Company                                                                    
|Contents                                                                                          
|2000 Highlights                                                                                   
|Management's Discussion and Analysis of Consolidated Results of
Operations and Financial Condition
|Report of Independent Accountants                                                                 
|Consolidated Statements of Earnings                                                               
|Consolidated Balance Sheets                                                                       
|Consolidated Statements of Shareholders' Equity and Comprehensive
Income                          
|Consolidated Statements of Cash Flows                                                             
|Notes to Consolidated Financial Statements                                                        
|Quarterly Financial Summary (Unaudited)                                                           
|Stock Market Information                                                                          



|2000 Highlights                                                                |      |         |       |         |        |           |       
|------------------------------------------------------------------------------ | ---- | ------- | ----- | ------- | ------ | --------- | ------
|                                                                               |      |         |       |         |        |           |       
|Consolidated Financial Information (Millions ofDollars, except Per Share Data) | 2000 |         | 1999  |         | Change | % Change 
|                                                                               |      |         |       |         |        |           |       
|Total Operating Revenue                                                        | $    | 3,047.7 |       | 2,476.0 |        | 571.7     | 23.1  
|Total Operating Expenses                                                       | $    | 2,328.2 |       | 2,095.6 |        | 232.6     | 11.1  
|Loss from Equity Investments, Principally
     Telecommunication Entities      | $    | (17.1)  |       | (9.6)   |        | (7.5)     | (78.1)
|Operating Income                                                               | $    | 702.4   |       | 370.8   |        | 331.6     | 89.4  
|Net Income                                                                     | $    | 352.0   |       | 247.1   |        | 104.9     | 42.5  
|Earnings Available for Common Stock                                            | $    | 346.5   |       | 238.2   |        | 108.3     | 45.5  
|Basic Earnings (Loss) Per Share of Common Stock                                |      |         |       |         |        |           |       
|Utility:                                                                       |      |         |       |         |        |           |       
|Continuing Operations                                                          | $    | 1.61    |       | 1.85    |        | (.24)     | (13.0)
|Divestiture Gain                                                               |      | 1.58    |       | -       |        | 1.58      | -     
|Impairment Loss                                                                |      | (.20)   |       | -       |        | (.20)     | -     
|Total Utility                                                                  |      | 2.99    |       | 1.85    |        | 1.14      | 61.6  
|PCI                                                                            |      | .12     |       | 0.22    |        | (.10)     | (45.5)
|Pepco Energy Services                                                          |      | (.08)   |       | (.06)   |        | (.02)     | (33.3)
|PepMarket                                                                      |      | (.01)   |       | -       |        | (.01)     | -     
|Pepco Consolidated                                                             | $    | 3.02    |       | 2.01    |        | 1.01      | 50.2  
|Cash Dividends Per Common Share                                                | $    | 1.66    |       | 1.66    |        | -         | -     
|                                                                               |      |         |       |         |        |           |       
|Utility - Operating                                                            |      |         |       |         |        |           |       
|Electrical Sales (000s Megawatt-hours)                                         |      | 27,442  |       | 26,970  |        | 472       | 1.8   
|Total Investment in Property and Plant (In Millions)                           | $    | 4,284.7 |       | 6,784.3 |        | (2,499.6) | (36.8)
|Number of Electric Service Customers at Year-End                               |      | 719,687 |       | 700,611 |        | 19,076    | 2.7   
|Average Price Per Kilowatt-hour                                                |      | 6.96    | Cents | 7.11    | Cents  | (.15)     | (2.1) 
|                                                                               |      |         |       |         |        |           |       
|Potomac Capital Investment Corporation (PCI) -Asset Mix (Millions of Dollars)  |      |         |       |         |        |           |       
|Energy Leveraged Leases                                                        | $    | 469.3   |       | 433.3   |        | 36.0      | 8.3   
|Marketable Securities                                                          | $    | 231.4   |       | 203.2   |        | 28.2      | 13.9  
|Aircraft Leases                                                                | $    | 118.5   |       | 251.3   |        | (132.8)   | (52.8)
|Telecommunications                                                             | $    | 118.2   |       | 39.6    |        | 78.6      | 100.0 
|Real Estate                                                                    | $    | 102.8   |       | 78.8    |        | 24.0      | 30.5  
|Other (primarily investments and receivables)                                  | $    | 368.6   |       | 277.2   |        | 91.4      | 33.0  
|                                                                               |      |         |       |         |        |           |       
|PCI - Telecommunications                                                       |      |         |       |         |        |           |       
|Cumulative Authorized Cable Households                                         |      | 900,000 |       | 550,000 |        | 350,000   | 63.6  
|Cumulative Constructed Households                                              |      | 175,000 |       | 70,000  |        | 105,000   | 100.0+
|Customer Services                                                              |      |         |       |         |        |           |       
|On-network                                                                     |      | 35,000  |       | 15,000  |        | 20,000    | 100.0+
|Off-network                                                                    |      | 240,000 |       | 265,000 |        | (25,000)  | (9.4) 
|Total Customer Services                                                        |      | 275,000 |       | 280,000 |        | (5,000)   | (1.8) 
|                                                                               |      |         |       |         |        |           |       
|Pepco Energy Services, Inc.                                                    |      |         |       |         |        |           |       
|Electrical Sales (000s Megawatt-hours)                                         |      | 640     |       | 118     |        | 522       | 100.0+
|Gas Sales (in millions of dekatherms)                                          |      | 54.4    |       | 46.3    |        | 8.1       | 17.5  
|Number of Gas and Electric Service Customers at
    Year-End                   |      | 32,100  |       | 6,900   |        | 25,200    | 100.0+
|Service Revenues (in millions)                                                 | $    | 32.5    |       | 27.7    |        | 4.8       | 17.3  
|Gas and Electric Revenues (in millions)                                        | $    | 202.5   |       | 105.5   |        | 97.0      | 91.9  



MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED RESULTS OF
OPERATIONS AND FINANCIAL CONDITION

COMPANY OVERVIEW
        Potomac Electric Power Company (Pepco or the Company) is engaged in three principal 
lines of business.  These business lines consist of (1) the provision of regulated electric utility 
transmission and distribution services in the Washington, D.C. (D.C.) metropolitan area, (2) the 
supply of telecommunications services including local and long distance telephone, high-speed 
Internet and cable television, and (3) the supply of energy products and services in competitive 
retail markets.  The Company's regulated electric utility activities are referred to herein as the 
"Utility" or "Utility Operations," and its telecommunications services and competitive energy 
activities are referred to herein as its "Competitive Operations."  Additionally, the Company has 
a wholly owned Delaware statutory business trust, Potomac Electric Power Company Trust I, 
which is referred to herein as the "Trust" and a wholly owned Delaware Investment Holding 
Company, Edison Capital Reserves Corporation, which is referred to herein as "Edison."
        In 2000, the generating segment of the electric utility industry continued to transition from a 
regulatory to a competitive environment, and in response to this transition, the Utility executed 
its business plan to exit the electricity generating business by completing the divestiture of 
substantially all of its generation assets in December 2000.  Additionally, the Company's 
comprehensive plans to implement customer choice were completed as Maryland and D.C. 
customers began to have their choice of electricity suppliers on July 1, 2000, and January 1, 
2001, respectively. An overview of the Company's business activities is provided below.
UTILITY OPERATIONS
        On June 7, 2000, the Company entered into an agreement (the Agreement) with Mirant 
Corp., formerly Southern Energy Inc. (Southern Energy) to sell total capacity of 5,154 
megawatts in four generating stations located in Maryland and Virginia, and six purchased 
capacity contracts totaling 735 megawatts (the Generation Assets).  Southern Energy paid a total 
of  $2.74 billion (including other related generation assets sold to Southern Energy).  The 
Agreement was reached after Southern Energy was selected by the Company as the winning 
bidder in its auction process that was held to select the buyer of its Generation Assets.  The 
divestiture closed on December 19, 2000, and resulted in the Company's recognition of a pre-tax 
gain of  $423.8 million ($182 million net of income tax or $1.58 per share).  Additionally, in 
December 2000, the Company transferred its Benning Road and Buzzard Point generating plants, 
which were not included in the Generation Assets divested to Southern Energy, to a subsidiary of 
Pepco Energy Services, Inc. (Pepco Energy Services).  These power plants are located in D.C. 
and have a total installed capacity of 806 megawatts.  These stations will function as exempt 
wholesale generators and be operated and maintained by Southern Energy pursuant to an initial 
three-year contract with Pepco Energy Services.  As discussed in the "Impairment Loss" section 
herein, these stations were determined to be impaired and were written down to their fair value 
by recognizing a pre-tax impairment loss of $40.3 million in the fourth quarter of 2000 ($24.1 
million net of income tax or 20 cents per share).
        In a separate transaction, on May 19, 2000, the Company reached an agreement with PPL 
Global, Inc., and Allegheny Energy Supply Company, LLC, to sell its 9.72 percent interest in the 
Conemaugh Generating Station (Conemaugh) for approximately $156 million. Conemaugh is 
located near Johnstown, Pennsylvania, and consists of two baseload units totaling approximately 
1,700 megawatts of capacity.  The Conemaugh sale closed on January 8, 2001, and resulted in 
the recognition of a pre-tax gain of approximately $39 million, which will be recorded in the first 
quarter of 2001.  In accordance with the terms of agreements approved by the Maryland Public Service 
Commission (Maryland Commission) in 1999, retail access to a competitive market for 
generation services was made available to all Maryland customers on July 1, 2000.  Also under 
these agreements, Maryland customers who are unable to receive generation services from 
another supplier, or who do not select another supplier, are entitled to receive services (default 
services) from the Company until July 1, 2004, at a rate for the applicable customer class that is 
no higher than the bundled rate in effect on June 30, 2000, but subject to adjustment for tax law 
changes enacted by the Maryland General Assembly relating to its authorization of electric 
industry restructuring.  Thereafter, the Company will provide default services using power 
obtained through a competitive bidding process at regulated tariff rates determined on a pass-
through basis and including an allowance for the costs incurred by the Company in providing the 
services.  In D.C., customers began to have their choice of electricity suppliers on January 1, 
2001.  The Company has a full requirements contract with Southern Energy to fulfill these 
obligations.
        A summary of the Utility's Results of Operations for the years ended December 31, 2000, 
1999, and 1998 follows.  Refer to the Consolidated Results of Operations section for a discussion 
of the impact of the Utility's operations on the Company's consolidated operations.

|Utility Operations                                                | 2000                  | 1999                                    | 1998                                       
|----------------------------------------------------------------- | --------------------- | --------------------------------------- | -------------------------------------------
|                                                                  | (Millions of Dollars)
|Revenues
Gain on Divestiture of Generation Assets
Impairment Loss | $2,237.5
423.8
(40.3) | $ 2,219.3
             -
             - | $ 2,068.9
               -
               -
|Expenses                                                          | (2,272.1)             | (1,991.3)                               | (1,857.7)                                  
|Net Income                                                        | $  348.9              | $   228.0                               | $   211.2                                  
|                                                                  |                       |                                         |                                            



|PCI Asset Mix                                                   
|----------------------------------------------------------------
|                                                                
|Energy leveraged leases                                         
|Marketable securities                                           
|Aircraft leases                                                 
|Telecommunications                                              
|Real estate                                                     
|Other investments (primarily investments
       and receivables)
|Total Assets                                                    

The long-standing objective of PCI's financial investment portfolio is to provide a 
significant contribution to current earnings and to add to the long-term value of the Company.  
Consistent with this strategy, PCI entered into the following significant transactions during 2000:

|- | Additional equity investments of approximately $100 million in Starpower were made.
This brings PCI's cumulative investment in Starpower to $162 million at December 31,
 2000.                                                                                                                                                                                                                           
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|- | Construction continued on a new 10-story 360,000 square foot office building in 
downtown D.C., which will be leased to Pepco as its new corporate headquarters.  The 
estimated cost of the office building, which is expected to be completed in mid-2001,
is $92 million.  As of December 31, 2000, PCI has invested $56.3 million related to 
the acquisition of land and development of the building.
|- | The sale of five aircraft for a total of $88.2 million in cash, resulting in an after-tax 
loss of $5.4 million.  These sales further reduced the size and increased the overall 
credit quality of PCI's leasing portfolio.  In addition, an after-tax charge of $3.5 
million was recorded to reflect revised assumptions relating to the recoverability of 
two additional aircraft.                   
|- | The sale of its 50% interest in the Federal Energy Regulatory Commission (FERC) 
regulated Cove Point liquefied natural gas storage facility and pipeline to Columbia 
Energy Group for total proceeds of $40.7 million, which resulted in an after-tax gain 
of approximately $11.8 million.                                                                                                             
|- | Received a $150 million contribution from the Utility to fund the build-out of 
Starpower's network.                                                                                                                                                                                                                                                                                                      

PCI's utility industry products and services are provided through various operating interests.  
Its underground cable services company, W. A. Chester, provides construction, installation and 
maintenance services to utilities and to other customers throughout the United States.  During 
2000, PCI acquired Severn Cable, a growing telecommunications contractor in the Washington, 
D.C. metropolitan area that specializes in the installation of strand, fiber-optic and coaxial cable.  
Additionally, in 1999, PCI launched Pepco Technologies, Inc., a new business strategy that is 
focused on bringing new technologies to the electric utility industry as it deregulates.
        A summary of PCI's Results of Operations for the years ended December 31, 2000, 1999, 
and 1998 follows.  Refer to the Consolidated Results of Operations section for a discussion of 
the impact of PCI's operations on the Company's consolidated operations.

|PCI Operations                                                                | 2000                  | 1999   | 1998  
|----------------------------------------------------------------------------- | --------------------- | ------ | ------
|                                                                              | (Millions of Dollars)
|Revenues                                                                      | $149.9                | $123.4 | $123.9
|Loss from Equity Investments,
         Principally Telecommunication Entities | (20.2)                | (10.4) | (8.5) 
|Expenses                                                                      | (116.4)               | (86.3) | (99.1)
|Net Income                                                                    | $  13.3               | $ 26.7 | $ 16.3

Competitive Energy Products and Services
        In 2000, Pepco Energy Services' marketing, operating, and support staffs were increased 
and business systems and infrastructure were selected to support its operations, including the 
sourcing and procurement of natural gas and electricity to serve customers in competitive retail 
markets.  Pepco Energy Services currently provides nonregulated energy and energy-related 
products and services in the mid-Atlantic region.  Its products include electricity, natural gas, 
energy-efficiency contracting, equipment operation and maintenance, fuel management, and 
appliance warranties.  These products and services are sold either in bundles or individually to 
commercial, industrial, and residential customers.  In addition, with the transfer of the Benning 
Road and Buzzard Point generating plants from the Utility to Pepco Energy Services in 
December 2000, its operations now also include the generation and sale of electricity in the 
wholesale market.  Pepco Energy Services' revenue grew by over $100 million from $133.3 
million in 1999 to $236.4 million in 2000, principally from increased sales of electricity and 
natural gas in competitive retail markets and from energy services contracting.
        Pepco Energy Services business operations included the following significant transactions 
during 2000:

|- | In December 2000, Pepco Energy Services entered into an agreement with MCI
Center in D.C. to provide electricity, natural gas, and other energy services.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|- | In March 2000, the Apartment and Office Building Association (AOBA) announced 
that it had selected Pepco Energy Services to supply electricity and energy 
management services, energy information services, and fuel management services 
(including assistance in the procurement and use of electricity, natural gas, and fuel 
oil) to its members.  AOBA is the D.C. area federated chapter of the Building Owners 
and Managers Association and the National Apartment Association.  The agreement 
will permit AOBA members in Maryland and D.C. to benefit from lower energy costs.                                                                                                                                      
|- | In March 2000, Pepco Energy Services reached an agreement with the National 
Institutes of Health (NIH) for the construction, operation and maintenance of a 23-
megawatt co-generation plant to supply steam and electricity on NIH's main campus in 
Maryland.  The construction and operation and maintenance portions of this project 
are expected to produce over $50 million in revenue over 10 years.  Financing for this 
project has been obtained and construction has begun.  The ability to achieve the 
estimated revenues on the NIH project is subject to uncertainties and risks associated 
with projects of this type, including termination for convenience, weather conditions, 
and plant operational risks.
|- | Revenues from the sale of natural gas increased from $101.2 million in 1999 to $155.2 
million in 2000.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|- | Entered the competitive retail electricity market in Pennsylvania and Maryland.  By 
year-end 2000, Pepco Energy Services entered into contracts for the supply of 
approximately 280 megawatts.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|- | Signed a four-year agreement which commenced January 2001, to provide full-
requirements energy to Southern Maryland Electric Cooperative, Inc. (SMECO) 
(approximately 600 megawatts of peak load).  Revenues from this transaction are 
expected to be approximately $400 million (approximately $100 million per year).  
Through December 2000, this electricity was supplied at wholesale by the Utility.  
The ability to achieve the estimated revenues on the SMECO agreement is subject to 
uncertainties and risks including weather conditions, population growth rate and 
demographic patterns, competition for retail customers and other market 
developments.                                                     
|- | Signed contracts with over 38,500 residential customers to supply electricity, natural gas, and household energy services.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|- | Purchased an electrical testing company, a building automation and control company, 
and a heating, ventilation and air conditioning service company.  Pepco Energy 
Services anticipates that these three companies will provide annual revenue of 
approximately $17 million in 2001.  The ability to achieve these estimated revenues is 
subject to uncertainties and risks including success in marketing services, changes in 
and compliance with environmental and safety laws and policies, population growth 
rate and demographic patterns, and other market developments.                                                                                                                                             

A summary of Pepco Energy Services' Results of Operations for the years ended December 
31, 2000, 1999, and 1998 follows.  Refer to the Consolidated Results of Operations section for a 
discussion of the impact of Pepco Energy Services' operations on the Company's consolidated 
operations.

|Pepco Energy Services' Operations | 2000                  | 1999      | 1998    
|--------------------------------- | --------------------- | --------- | --------
|                                  | (Millions of Dollars)
|Revenues                          | $236.4                | $133.3    | $ 28.0  
|Income from Equity Investment     | 3.1                   | .8        | -       
|Expenses                          | (248.3)               | (141.7)   | (29.2)  
|Net Loss                          | $   (8.8)             | $   (7.6) | $  (1.2)
|                                  |                       |           |         

Business-to-Business Procurement
        On December 1, 2000, PepMarket began its business operations.  As of December 31, 2000, 
Pepco invested $11 million in PepMarket.  From inception through December 31, 2000, 
PepMarket produced revenues of $.1 million and incurred expenses of $1.5 million, which 
resulted in a net loss of $1.4 million.  The future success of PepMarket will depend upon its 
ability to achieve its commercial objectives and is subject to a number of uncertainties and risks, 
including, but not limited to, the overall success of marketing services; the growth of suppliers; 
the intensity of competition; the effect of government planning and regulation; and the possible 
development of alternative technologies.  Statements concerning the activities of PepMarket that 
constitute forward-looking statements are subject to the foregoing risks and uncertainties.SAFE HARBOR STATEMENT
        In accordance with the safe harbor provisions of the Private Securities Litigation Reform 
Act of 1995 (Reform Act), the Company hereby makes the following cautionary statements 
identifying important factors that could cause its actual results to differ materially from those 
projected in forward-looking statements (as such term is defined in the Reform Act) made by the 
Company in this Annual Report to Shareholders.  Any statements that express, or involve 
discussions as to expectations, beliefs, plans, objectives, assumptions or future events or 
performance are not statements of historical facts and may be forward-looking.
        Forward-looking statements involve estimates, assumptions and uncertainties and are 
qualified in their entirety by reference to, and are accompanied by, the following important 
factors, which are difficult to predict, contain uncertainties, are beyond the control of the 
Company and may cause actual results to differ materially from those contained in forward-
looking statements:

|- | Prevailing governmental policies and regulatory actions, including those of the FERC 
and the Maryland and D.C. Commissions with respect to allowed rates of return, 
industry and rate structure, acquisition and disposal of assets and facilities, operation 
and construction of plant facilities, recovery of purchased power, and present or 
prospective wholesale and retail competition (including but not limited to retail 
wheeling and transmission costs);
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|- | Changes in and compliance with environmental and safety laws and policies;                                                                                                                                                                                                                                                                                                                                                                                              
|- | Weather conditions;                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|- | Population growth rates and demographic patterns;                                                                                                                                                                                                                                                                                                                                                                                                                       
|- | Competition for retail and wholesale customers;                                                                                                                                                                                                                                                                                                                                                                                                                         
|- | Competition in the highly competitive business-to-business procurement marketplace;                                                                                                                                                                                                                                                                                                                                                                                     
|- | Growth in demand, sales and capacity to fulfill demand;                                                                                                                                                                                                                                                                                                                                                                                                                 
|- | Changes in tax rates or policies or in rates of inflation;                                                                                                                                                                                                                                                                                                                                                                                                              
|- | Changes in project costs;                                                                                                                                                                                                                                                                                                                                                                                                                                               
|- | Unanticipated changes in operating expenses and capital expenditures;                                                                                                                                                                                                                                                                                                                                                                                                   
|- | Capital market conditions;                                                                                                                                                                                                                                                                                                                                                                                                                                              
|- | Competition for new energy development opportunities and other opportunities;                                                                                                                                                                                                                                                                                                                                                                                           
|- | Legal and administrative proceedings (whether civil or criminal) and settlements that 
influence the business and profitability of the Company;                                                                                                                                                                                                                                                                                                                         
|- | Pace of entry into new markets;                                                                                                                                                                                                                                                                                                                                                                                                                                         
|- | Time and expense required for building out the planned Starpower network;                                                                                                                                                                                                                                                                                                                                                                                               
|- | Success in marketing services;                                                                                                                                                                                                                                                                                                                                                                                                                                          
|- | Possible development of alternative telecommunication technologies;                                                                                                                                                                                                                                                                                                                                                                                                     
|- | The ability to secure electric and natural gas supply to fulfill sales commitments at 
favorable prices; and                                                                                                                                                                                                                                                                                                                                                            
|- | The cost of fuel.                                                                                                                                                                                                                                                                                                                                                                                                                                                       

Any forward-looking statements speak only as of January 19, 2001, and the Company 
undertakes no obligation to update any forward-looking statement to reflect events or 
circumstances after the date on which such statement is made or to reflect the occurrence of 
unanticipated events.  New factors emerge from time to time and it is not possible for 
management to predict all of such factors, nor can it assess the impact of any such factor on the 
business or the extent to which any factor, or combination of factors, may cause results to differ 
materially from those contained in any forward-looking statement.CONSOLIDATED RESULTS OF OPERATIONS
OPERATING REVENUE
        The Company classifies its operating revenue as Utility and Competitive Operations.   
Utility revenue is derived from the Utility's operations, the Trust, and Edison, while Competitive 
Operations revenue is derived from the operations of its competitive subsidiaries.  Additionally, 
the gain that was realized from the divestiture of the Company's Generation Assets is classified 
as "Gain on Divestiture of Generation Assets" in the consolidated statements of earnings.  Utility Revenue
        The components of Utility revenue are as follows.

|Utility Revenue                                                                             | 2000                  | 1999     | 1998    
|------------------------------------------------------------------------------------------- | --------------------- | -------- | --------
|                                                                                            | (Millions of Dollars)
|Base rate revenue                                                                           | $1,359.1              | $1,397.8 | $1,354.6
|Fuel rate revenue to cover cost of fuel and
     interchange and capacity purchase payments | 550.8                 | 518.9    | 518.1   
|Interchange deliveries                                                                      | 291.6                 | 258.7    | 177.8   
|Other utility revenue, including SMECO contract
     termination fee recorded in 1999       | 36.0                  | 43.9     | 18.4    
|Total Utility Revenue                                                                       | $2,237.5              | $2,219.3 | $2,068.9

Base Rate Revenue
        The decrease in 2000 base rate revenue reflects the impact of base rate reductions in 
January 2000 of 2% and 3.5% for D.C. residential and commercial customers, respectively, 
associated with the termination of the conservation portion of the Environmental Cost Recovery 
Rider.  (A portion of the proceeds from the divestiture of the Generation Assets were designated 
for the recovery of unamortized conservation expenditures.)  The decrease in 2000 base rate 
revenues also reflects additional base reductions in July 2000 of 1.5% for D.C. customers and 
approximately 3% for Maryland customers.
        The increase in 1999 base rate revenue reflects a $19 million increase in Maryland base 
rates (pursuant to a December 1998 settlement agreement) and a $9 million increase in the 
District of Columbia Demand Side Management (DSM) surcharge tariff (effective September 
1998).
        The following is a summary of Pepco's delivered kilowatt-hour sales.

|                                                |        |        |        | 2000  | 1999
|----------------------------------------------- | ------ | ------ | ------ | ----- | ----
|                                                |        |        |        | Vs.   | vs. 
|Utility KWH Sales                               | 2000   | 1999   | 1998   | 1999  | 1998
|(Millions of KWHs)                             
|By Customer Type                                |        |        |        |       |     
|Residential                                     | 6,991  | 7,014  | 6,757  | (.3)% | 3.8%
|General service                                 | 16,227 | 15,890 | 15,591 | 2.1   | 1.9 
|Large power service (a)                         | 712    | 701    | 686    | 1.6   | 2.2 
|Street lighting                                 | 173    | 167    | 164    | 3.6   | 1.8 
|Wholesale (SMECO)                               | 2,881  | 2,760  | 2,678  | 4.4   | 3.1 
|Metro                                           | 458    | 438    | 422    | 4.6   | 3.8 
|Total Energy Sales                              | 27,442 | 26,970 | 26,298 | 1.8   | 2.6 
|Interchange                                     |        |        |        |       |     
|Energy deliveries                               | 2,483  | 2,276  | 2,246  | 9.1   | 1.3 
|By Geographic Area                              |        |        |        |       |     
|Maryland, including wholesale                   | 16,826 | 16,552 | 16,017 | 1.7   | 3.3 
|District of Columbia                            | 10,616 | 10,418 | 10,281 | 1.9   | 1.3 
|Total Energy Sales
(a) Served at 66Kv or higher | 27,442 | 26,970 | 26,298 | 1.8   | 2.6 

Kilowatt-hour sales increased in 2000 due to a 2.2% increase in delivery customers, and 
winter temperatures that were 10% colder, as measured in heating degree days, than 1999.  
Summer temperatures, as measured in cooling degree hours, were 31% milder than 1999 and 
22% milder than the 20-year average, which had an unfavorable effect on kilowatt-hour sales. 
        Kilowatt-hour sales increased in 1999 as the result of increases in cooling degree hours and 
heating degree days of 6% and 11%, respectively, from 1998.  Summer temperatures were 16% 
hotter, as measured in cooling degree hours, than the 20-year average.  In addition, a .9% 
increase in utility customers produced a favorable impact on kilowatt-hour sales. Fuel Rate Revenue
        The Maryland fuel clause was terminated effective July 1, 2000 (the date of commencement 
of customer choice).  In D. C.  the fuel clause will be terminated effective February 9, 2001 (one 
month after the completion of the sale of the Company's interest in Conemaugh).  Now that 
generation services have been deregulated in both Maryland and D.C., and the Utility has exited 
the generation business, the Utility will no longer incur fuel costs or engage in interchange 
transactions.  Standard Offer Services will be provided through energy purchased from Southern 
Energy.
        	As part of the agreement with Southern Energy to divest its Generation Assets, the 
Company also signed a Transition Power Agreement (TPA) with Southern Energy.  This TPA 
was necessary because the Company will continue to be obligated, as the incumbent electric 
utility, to supply the electric power needs of all of its current Maryland and D.C. customers that 
cannot or do not choose an alternate electric power service provider during a four-year transition 
period to retail access.  This service, called Standard Offer Service, is required by settlement 
agreements approved by both the Maryland and D.C. Public Service Commissions as part of the 
deregulation of electric power generation and the initiation of customer choice.
        Under the TPA, the Company has the option of acquiring all of the energy and capacity that 
is needed for Standard Offer Service from Southern Energy at prices that are below the 
Company's current cost-based billing rates for Standard Offer Service, thereby providing the 
Company with a built-in profit margin on all Standard Offer Service sales that the Company 
acquires from Southern Energy.  Under the settlement agreements mentioned above, the 
Company will share such profit amounts with customers on an annual cycle basis, beginning 
with the period July 1, 2000, to June 30, 2001, in Maryland and from February 9, 2001, to 
February 8, 2002, in D.C. (the Generation Procurement Credit or "GPC").
        In both jurisdictions, amounts shared with customers each year are determined only after the 
Company recovers certain guaranteed annual reductions to customer rates.  In addition, because 
the annual cycle for the GPC in Maryland began on July 1, 2000, the Company supplied 
Standard Offer Service from its traditional sources until the Generation Assets were sold and, 
thus, recorded losses on Standard Offer Service sales during this period, mostly because of 
higher summer generating costs.  Therefore, profit from Standard Offer Service sales in 
Maryland between January 8, 2001 and June 30, 2001 will be recorded as income to the 
Company until both the guaranteed rate reduction amount and the Standard Offer Service losses 
incurred in 2000 are recovered.  Once such amounts are recovered, profit is shared with 
customers in Maryland generally on a 50/50 basis.
        Fluctuations in fuel and purchased power costs throughout 1999 and 1998 resulted in four 
revisions to the Company's Maryland fuel rate.  The Company increased its Maryland fuel rate 
by 10.5% effective March 1, 1998.  Subsequently, on August 14, 1998, the Company filed for a 
5.3% reduction in the Maryland fuel rate, which became effective beginning the billing month of 
September 1998.  Also, on October 19, 1998, the Company filed for an additional 6.3% 
reduction in the Maryland fuel rate, which became effective beginning the billing month of 
November 1998, and on November 23, 1999, the Company filed for a 5.5% reduction in the 
Maryland fuel rate, which became effective beginning the billing month of December 1999.Interchange Deliveries
         The increases in interchange deliveries in 2000 and 1999 reflect changes in prices and 
levels of energy delivered to PJM and changes in prices and levels of bilateral energy sales under 
the Company's wholesale power sales tariff.  Interchange transactions were subject to cost-based 
ratemaking regulations based on formulas prescribed by the FERC, but during 2000, the 
Company made a significant effort to move the sales of energy and capacity under its FERC 
approved Market based pricing tariff.  Interchange deliveries also include revenue from sales of 
short-term generating capacity.  Revenues from capacity transactions totaled $1.2 million, $6 
million, and $4.4 million in 2000, 1999, and 1998, respectively.  The benefits derived from 
interchange deliveries, the allocated amounts of capacity sales in D.C. (approximately 40%), and 
revenue under the Open Access Transmission Tariff (OATT) have historically been passed 
through to the Company's customers through fuel adjustment clauses.  However, as discussed in 
Note (2) of the Notes to Consolidated Financial Statements, Summary of Significant 
Accounting Policies, effective July 1, 2000 in Maryland (the date of commencement of customer 
choice) the fuel clause was terminated.  Effective February 9, 2001 (one month after the 
completion of the sale of the Company's interest in Conemaugh), the fuel clause in D.C. will be 
terminated.Other Utility Revenue
        The decrease in other Utility revenue in 2000 results from the effect in 1999 of $23.2 
million in income associated with the payment (to be received in January 2001) related to the 
revision of SMECO's full-requirements power supply contract. This transaction is discussed in 
detail in Note (12) of the Notes to Consolidated Financial Statements, SMECO Agreement.
        The increase in other utility revenue in 1999 is also related to the revision of SMECO's full-
requirements contract.Competitive Operations Revenue
        A summary of the components of Competitive Operations revenue is as follows.

|Competitive Operations Revenue                                                                                                    | 2000                        | 1999                 | 1998                
|--------------------------------------------------------------------------------------------------------------------------------- | --------------------------- | -------------------- | --------------------
|                                                                                                                                  | (Millions of Dollars)      
|Financial Investments
        Leased assets
        Marketable securities
        Real estate
        Other financial investments | $   59.7  
17.2  
8.2  16.7 | $  62.5
15.8
3.323.4 | $  73.3
19.3
15.14.4
|Total Financial Investments                                                                                                       | 101.8                       | 105.0                | 112.1               
|Energy Services                                                                                                                   |                             |                      |                     
|Energy-efficiency services                                                                                                        | 22.3                        | 21.5                 | 14.7                
|Electricity sales                                                                                                                 | 47.3                        | 4.3                  | -                   
|Natural gas sales                                                                                                                 | 155.2                       | 101.2                | 13.3                
|Building services and Other                                                                                                       | 11.6                        | 6.3                  | -                   
|Total Energy Services                                                                                                             | 236.4                       | 133.3                | 28.0                
|Utility Industry Services                                                                                                         | 48.2                        | 18.4                 | 11.8                
|Total Competitive Operations Revenue                                                                                              | $386.4                      | $256.7               | $151.9              



|                                                                                                                                                                                                                  | 2000                                       | 1999                                         | 1998                                
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | -------------------------------------------- | ------------------------------------
|                                                                                                                                                                                                                  | (Millions of Dollars)                     
|Utility
        Fuel expense
        Capacity purchase payments
        Purchased energy
             PJM
             Other
                    Total purchased energy
        Utility Fuel and Purchased Energy | $  357.7
    205.7254.8196.5
 451.31,014.7 | $  396.4213.9
181.1130.3
    311.4
    921.7 | $ 380.2155.7
146.3123.5
  269.8805.7
|Pepco Energy Services                                                                                                                                                                                             |                                            |                                             
|Electricity and natural gas                                                                                                                                                                                       | 191.5                                      | 104.1                                        | 13.1                                
|Consolidated Fuel and Purchased Energy                                                                                                                                                                            | $1,206.2                                   | $1,025.8                                     | $818.8                              

Utility Fuel and Purchased Energy
        The Company divested its Generation Assets on December 19, 2000, and its interest in 
Conemaugh on January 8, 2001.  For additional information about the divestitures and their 
impact on the TPA and GPC, refer to Note (1) Organization, Divestiture, and Segment 
Information and the "Fuel Rate Revenue" section herein, respectively.  The Utility's net system 
generation and purchased energy in kilowatt-hours were as follows.

|                      | 2000                         | 1999   | 1998  
|--------------------- | ---------------------------- | ------ | ------
|                      | (Millions of Kilowatt-hours)
|Net system generation | 18,834                       | 22,807 | 21,715
|Purchased energy      | 13,045                       | 7,772  | 8,204 

The 2000 decrease in fuel expense compared to 1999 reflects a decrease of 17.4% in net 
system generation, partially offset by an increase in the system average unit fuel cost.  The 
increase in 1999 fuel expense compared to 1998 reflects an increase of 5% in net system 
generation, partially offset by a decrease in the system average unit fuel cost. 
        The unit costs of fuel burned and the percentages of system fuel requirements obtained from 
coal, oil and natural gas are shown in the following table.

|Percent of Fuel Burned | Unit Cost of Fuel Burned
|---------------------- | ------------------------
|                       | Coal                    
|                       |                         
|2000                   | 83.7                    
|1999                   | 81.4                    
|1998                   | 84.5                    
|                       |                         

The 2000 system average unit fuel cost increased by 13% compared to 1999, principally 
due to increases in the cost of natural gas.  The 1999 system average unit fuel cost decreased by 
2.3% compared to 1998, principally due to decreases in the costs of coal and oil.  Prior to the 
divestitures, the Company's major cycling and certain peaking units burned either natural gas or 
oil, which provided protection against possible supply disruptions, and added flexibility in 
selecting the most cost-effective fuel mix.  The use of coal, oil and natural gas depended upon 
the availability of generating units, energy and demand requirements of interconnected utilities, 
regulatory requirements, weather conditions, and fuel supply constraints, if any.
        Effective July 1, 2000, in Maryland (the date of the commencement of customer choice) the 
fuel clause was terminated, and therefore, fuel costs began to be expensed as incurred and fuel 
rate revenue billed in any given period is no longer deferred for recovery from or repayment to 
customers.  Effective February 9, 2001 (one month after the completion of the sale of the 
Company's interest in Conemaugh), the fuel clause in D.C. will be terminated.  For the year 
ended December 31, 2000, the discontinuance of the fuel clause had an unfavorable impact on 
the Company's earnings as fuel costs exceeded fuel revenues by approximately $24 million (pre-
tax).  Now that the Company has divested its Generation Assets, it will no longer incur losses 
through provision of Standard Offer Service (refer to the Fuel Rate Revenue Section, herein). 
        The Utility's transmission facilities are interconnected with those of other transmission 
owners in the PJM power pool and other utilities, providing economic energy and reliability 
benefits by facilitating the Company's participation in the federally regulated wholesale energy 
market.  This market has enabled the Company to purchase energy at costs lower than those 
required to self-generate, and to sell energy at favorable prices to other market participants.
        Presently, all transmission service within the PJM power pool is administered by the PJM 
Office of the Interconnection.  Since April 1998, PJM has operated a "locational marginal 
pricing" system designed to economically control transmission system congestion.  Because of 
the Company's pre-divestiture generation availability and peak load characteristics, the Company 
generally was able to sell into the PJM market during high price peak load periods and buy from 
the market during low price periods.  (Also see the Restructuring of the Bulk Power Market 
discussion below).
        In addition to interchange within PJM, prior to the divestiture of the Generation Assets in 
December 2000, the Company actively participated in the bilateral energy sales marketplace.  
The Company's FERC-approved wholesale power sales tariff allowed both sales from Company- 
owned generation and sales of energy purchased by the Company from other market participants.  
Numerous utilities and marketers executed service agreements allowing them to arrange 
purchases under this tariff, and the Company executed service agreements allowing it to 
purchase energy under other market participants' power sales tariffs.
        The Company purchases energy from FirstEnergy Corp. (FirstEnergy, formerly Ohio 
Edison) under a long-term capacity purchase agreement with FirstEnergy and Allegheny Energy, 
Inc. (AEI).  Pursuant to this agreement, the Company is required to purchase 450 megawatts of 
capacity and associated energy through the year 2005.  As of December 19, 2000, the Company 
resells the energy and capacity to Southern Company Energy Marketing L.P. (SCEM), an 
affiliate of Southern Energy.  The Company also resells to SCEM the energy and capacity it 
purchases under the short-term, cost-based purchase agreement for 50 megawatts of capacity and 
related energy from the Northeast Maryland Waste Disposal Authority.
        The Company will continue to purchase energy from the Panda-Brandywine, L.P. (Panda) 
facility pursuant to a 25-year power purchase agreement for 230 megawatts of capacity supplied 
by a gas-fueled combined-cycle cogenerator; capacity payments under this agreement 
commenced in January 1997.  As of December 19, 2000, the Company resells this capacity and 
energy to SCEM.   Capacity expenses under this agreement were $41.3 million for 2000, 
$43.7 million for 1999, and $27.6 million for 1998.  The increases since 1997 reflect contractual 
escalations under existing purchase capacity contracts.  These costs are reflected in rates in D.C. 
through a fuel adjustment clause on a dollar-for-dollar basis and in Maryland through base rate 
proceedings.  Under the terms of the Company's asset sale agreement with Southern Energy, 
resales of energy and capacity purchased by the Company under the foregoing power purchase 
agreements are at prices equal to the Company's payment obligations under such agreements.  
The Company continues to be liable for the obligation to Panda but is reimbursed by Southern 
Energy for the amount it pays.
        The Company's facility and capacity agreement with SMECO, through 2015, with respect 
to the 84 megawatt combustion turbine installed and owned by SMECO at the Chalk Point 
Generating Station has been assigned to Southern Energy Peaker LLP (SEP), an affiliate of 
Southern Energy.  The Company remains liable to SMECO for the performance of the contract 
and is indemnified by Southern Energy for any such liability.  The capacity payment to SMECO 
was approximately $5.5 million per year. 
        All of SCEM's and SEP's obligations to the Company have been guaranteed by Southern 
Energy.Pepco Energy Services' Fuel and Purchased Energy
        Pepco Energy Services enters into agreements for the future delivery of natural gas and 
electricity to its customers and generally operates to secure firm, fixed-price supply 
commitments to meet its fixed-price sales obligations.  Earnings are dependent upon the 
origination and execution of transactions which may be affected by market, credit, weather, 
regulatory, and other conditions.  Natural gas and electricity expense for Pepco Energy Services 
increased in 2000 over 1999 due to increased volumes of retail sales of natural gas and electricity 
and as a result of rising fuel prices.  Natural gas and electricity expense increased in 1999 over 
1998 due to the recognition of a full year of operations of Pepco Gas Services along with the 
initiation of electricity sales in 1999.  
        In January 1999, Pepco Energy Services signed a contract with SMECO to supply 
SMECO's full-requirements for power (approximately 600 MW of peak load) during the four-
year period starting January 1, 2001.  A firm commitment has been secured from a third party for 
the delivery of power sufficient to serve SMECO's full requirements.  Both the sales 
commitment to SMECO and the third-party purchase agreement are at fixed prices that do not 
vary with future changes in market conditions.  Other Operation and Maintenance
        The increase in other operation and maintenance expense in both 2000 and 1999 primarily 
resulted from the growth of Pepco Energy Services' business operations during the year.  The 
1999 increase was partially offset by reductions in labor and benefits costs associated with the 
success of Pepco's Targeted Severance Plan (the Plan). The Plan offered severance pay and 
subsidized health and dental benefits, at amounts dependent upon years of service, to employees 
who lost employment due to corporate restructuring and/or job consolidations.  Under the Plan, 
no changes were made to eligible pensions or benefits under the retirement program. Depreciation and Amortization Expense 
        Depreciation and amortization expense decreased in 2000 due to reductions in the 
amortization of conservation expenditures concurrently with the termination of the Maryland and 
D.C. conservation surcharges.  These expenses increased in 1999 due to the Company's 
additional investment in utility property and plant and increased amortization of conservation 
expenditures.Other Taxes
        Other taxes increased in 2000 as a result of the Right of Way Fee in D.C. and the Universal 
Service Charge in Maryland, both of which commenced in 2000.  Other taxes decreased in 1999 
due to a decrease in the level of gross receipts taxes collected from customers in the District of 
Columbia.Interest Expense
        The components of interest expense were relatively stable during the three-year period 1998 
through 2000.  Short-term borrowing costs have remained relatively low.  The average cost of 
outstanding long-term Utility debt decreased from 7.33% at the beginning of 1998 to 7.1% at the 
end of 2000.  Distributions on preferred securities of the Trust established in April 1998 totaled 
$9.2 million in 2000 and 1999.  Interest expense is offset by the debt components of an 
Allowance for Funds Used During Construction (AFUDC) and Clean Air Act Capital Cost 
Recovery Factor, which totaled $5.4 million in 2000, $3.4 million in 1999 and $4.2 million in 
1998.Impairment Loss
        During the fourth quarter of 2000, the Company closed on the divestiture of its Generation 
Assets and transferred its Benning Road and Buzzard Point generating stations, which were not 
included in the divestiture, to a subsidiary of Pepco Energy Services.  As a result of the 
divestiture and the transfer of the stations, as well as the volatility of energy prices and the 
availability of current financial information derived from the completion of the Company's 2001 
budgeting cycle, the Company determined that it was necessary to reassess whether the carrying 
amounts of these generating stations were recoverable.  Based on this assessment, the stations 
were determined to be impaired and were written down to their fair value by recognizing a pre-
tax impairment loss of $40.3 in the fourth quarter of 2000 ($24.1 million net of income tax or 
20 cents per share).  The fair value of approximately $33 million was determined using the 
present value of their estimated expected future cash flows.
        	Additionally, this line item on the Company's consolidated statements of earnings for the 
year ended December 31, 2000, includes PCI's impairment loss of $5.4 million ($3.5 million net 
of income tax or 3 cents per share) related to its aircraft portfolio.
LOSS FROM EQUITY INVESTMENTS, PRINCIPALLY TELECOMMUNICATION 
ENTITIES
        This amount represents the Company's share of pre-tax loss from the entities in which it has 
a 20% to 50% equity investment.  The Company's most significant equity investment is PCI's 
joint venture in Starpower.  The increases in the loss from 2000 over 1999 and from 1999 over 
1998 primarily result from costs incurred from expanding the Starpower fiber-optic network.  
For additional information about the Company's equity investments, see Note (5) of the Notes to 
Consolidated Financial Statements, Loss from Equity Investments, Principally 
Telecommunication Entities.
INCOME TAX EXPENSE
        The increase in income tax expense in 2000 is primarily due to increases in federal and state 
income taxes associated with the gain on the divestiture of the Generation Assets.  The decrease 
in income tax expense in 1999 is primarily the result of PHI's recognition of $18.7 million in tax 
benefits during 1999 associated with the completion of a restructuring transaction related to a 
partnership.  Additionally, the fluctuations in income tax expense reflect changes in the levels of 
the Company's taxable income.CAPITAL RESOURCES AND LIQUIDITY
USE OF PROCEEDS FROM THE DIVESTITURE
        The Company received cash proceeds of $2.74 billion from the sale of its electric plants and 
other generating assets to Southern Energy.  A portion of the proceeds has been used to retire 
$525 million of the Company's long-term debt.  Additionally, approximately $200 million was 
used to repay loans entered into in connection with the Company's treasury stock reacquisition 
completed in October 2000; approximately $800 million will be used to pay income taxes due on 
the sale; and $150 million was used to fund a capital contribution to PHI for use in its 
telecommunication business.  Additionally, approximately $244 million will be paid to meet the 
Company's commitment for customer gain sharing.  The Company intends to use the remaining 
proceeds to further its business strategies and/or to fund additional capital structure reductions, 
including additional repurchases by the Company of its common stock which could be 
accompanied by a change in the dividend.
        For the year ended December 31, 2000, the Company recorded approximately $2.6 million 
in net interest income related to proceeds from the divestiture that were invested by Edison, 
which represented 13 days of interest.
ADDITIONAL SOURCES OF LIQUIDITY
        The Utility also obtains its capital resources from internally generated cash from its 
operations and the sale of First Mortgage Bonds, Medium-Term Notes, and Trust Originated 
Preferred Securities (TOPrS).  Interim financing is provided principally through the issuance of 
Short-Term Commercial Promissory Notes.  Pepco maintains 100% line of credit back-up in the 
amount of $350 million, for its outstanding Commercial Promissory Notes, which was unused 
during 2000, 1999, and 1998.
        PCI obtains its capital resources from the issuance of Short-Term and Medium-Term Notes 
under its own, separately rated Commercial Paper and Medium-Term Note programs.  On July 7, 
2000, PCI completed a new series Medium-Term Note facility providing up to $900 million of 
future debt issuances.  The notes will bear interest at fixed or floating rates and will have 
maturity dates varying from nine months and one day from the date of issue through November 
30, 2009.  As of December 31, 2000, PCI had approximately $900 million available under its 
Medium-Term Note credit facility.
        Additionally, PCI's $231.4 million securities portfolio, which consists primarily of Fixed-
Rate Electric Utility Preferred Stocks, provides additional liquidity and investment flexibility.
        On September 21, 2000, Moody's Investor Services announced that it upgraded PCI's senior 
unsecured debt rating from Baa1 to A3.  This senior unsecured debt is currently rated BBB+ by 
Standard & Poors and the Fitch Rating Agency.        Pepco Energy Services obtains its capital resources primarily through equity contributions 
from PHI and third-party financing.
        The Company's capitalization ratios at December 31, 2000, are presented below.

|                                             | Excluding
   Amounts Due
  In One Year | Including
   Amounts Due
  In One Year
|-------------------------------------------- | -------------------------------------- | --------------------------------------
|Short-term debt                              | -%                                     | 22.8%                                 
|Long-term debt and capital lease obligations | 47.2                                   | 36.4                                  
|Trust originated preferred securities        | 3.2                                    | 2.5                                   
|Serial preferred stock                       | 1.0                                    | .8                                    
|Redeemable serial preferred stock            | 1.3                                    | 1.0                                   
|Shareholders' equity                         | 47.3                                   | 36.5                                  
|Total Capitalization                         | 100.0%                                 | 100.0%                                

DIVIDENDS ON COMMON AND PREFERRED STOCK
        Dividends on common stock were $190.4 million in 2000, and $196.6 million in 1999 and 
1998.  The Company's annual dividend rate on its common stock is determined by the 
Company's Board of Directors on a quarterly basis.  In view of the divestiture of the Company's 
Generation Assets and the competitive environment in which the Company's future operations 
will take place, the Board of Directors believes that the high payout ratio represented by the 
current annual dividend rate of $1.66 per share will not be consistent with the Company's future 
utility and telecommunications operations.  Accordingly, the Board is continuing to evaluate the 
current rate with a view to changing the rate in the future.
        Dividends on preferred stock were $5.5 million in 2000, $7.9 million in 1999, and $11.4 
million in 1998.  The embedded cost of preferred stock was 6.67% at December 31, 2000, 6.62% 
at December 31, 1999, and 5.74% at December 31, 1998.
        Total annualized interest cost for all outstanding long-term debt and preferred securities of 
the Trust was $190.8 million at December 31, 2000, $205.4 million at December 31, 1999, and 
$191.7 million at December 31, 1998, respectively.
CONSERVATION
        Historically, the Company has recovered the costs of its Maryland and D.C. conservation 
programs through base rate surcharges.  In general, these surcharges have allowed the Company 
to recover the unamortized costs of DSM and energy use management programs that have 
successfully increased the efficiency of energy usage throughout the Company's service territory.
        Under provisions of the D.C. and Maryland agreements approving the divestiture of the 
Generation Assets, the conservation related portion of the D.C. Environmental Cost Recovery 
Rider was terminated, effective January 1, 2000, and the Maryland DSM surcharge was 
discontinued effective July 1, 2000.  In addition, the Company was allowed to offset unrecovered 
DSM and conservation costs, including an estimate of additional DSM expenditures to be 
incurred during a three-year transition period, against the proceeds from the sale of Generation 
Assets.  A total of $138.1 million was offset against the proceeds. 
CONSTRUCTION AND CAPACITY
       The Company completed the divestiture of its Generation Assets to Southern Energy on 
December 19, 2000.  Utility construction expenditures, excluding AFUDC and Capital Cost 
Recovery Factor (CCRF), totaled $225.5 million in 2000, which included $75.2 million related 
to its divested Generation Assets.  For the five-year period 2001 through 2005, expenditures for 
transmission and distribution related Utility plant are projected to total $770.5 million.  The 
Company plans to finance its Utility construction program primarily through funds provided 
from operations.
        The Company had a facility and capacity agreement with SMECO, which expires in 2015, 
for 84 megawatts of generating capacity supplied by a combustion turbine installed and owned 
by SMECO at the Chalk Point Generating Station.  This agreement has been assumed and 
assigned to SEP, an affiliate of Southern Energy.  Additionally, the Company purchases 450 
megawatts of generating capacity and associated energy from FirstEnergy under a long-term 
capacity purchase agreement with FirstEnergy and AEI.  The Company also resells to SCEM the 
energy and capacity it purchases under the short-term, cost-based purchase agreement for 50 
megawatts of capacity and related energy from the  Northeast Maryland Waste Disposal 
Authority.
        The Company will continue to purchase energy from Panda pursuant to a 25-year capacity 
purchase agreement for 230 megawatts of capacity from a gas-fueled combined-cycle 
cogenerator in Prince George's County, Maryland.  As of December 19, 2000, the Company 
resells this capacity and energy to SCEM.  Under the terms of the Company's asset sale 
agreement with Southern Energy, resales of energy and capacity purchased by the Company 
under the foregoing power purchase agreements are at prices equal to the Company's payment 
obligations under such agreements.  The Company continues to be liable for the obligation to 
Panda but is reimbursed by Southern Energy for the amount it pays.BASE RATE PROCEEDINGS
        The Utility is subject to rate regulation based upon the historical costs of plant investment, 
using recent test years to measure the cost of providing service.  The rate-making process does 
not give recognition to the current cost of replacing plant and the impact of inflation.  Changes in 
industry structure and regulation may affect the extent to which future rates are based upon 
current costs of providing service.  Historically, the Company's regulatory commissions have 
authorized fuel rates, which provide for billing customers on a timely basis for the actual cost of 
fuel and interchange and for emission allowance costs and, in the District of Columbia, for 
purchased capacity.  The Maryland fuel clause terminated effective July 1, 2000, and will be 
terminated on February 9, 2001 in D.C.
        Annual base rate increases (decreases) that became effective during the periods 1998 
through 2000 are shown below.

|Year | Total                 | Maryland | District of
            Columbia | Wholesale
|---- | --------------------- | -------- | -------------------------------- | ---------
|     | (Millions of Dollars)
|2000 | $(24.3)               | $(13.0)  | $(11.3)                          | $    -   
|1999 | -                     | -        | -                                | -        
|1998 | 16.5                  | 19.0     | -                                | (2.5)    
|     | $ (7.8)               | $   6.0  | $(11.3)                          | $(2.5)   
|     |                       |          |                                  |          



|CONSOLIDATED STATEMENTS OF EARNINGS                                                                                        
|---------------------------------------------------------------------------------------------------------------------------
|                                                                                                                           
|POTOMAC ELECTRIC POWER COMPANY AND SUBSIDIARIES                                                                            
|                                                                                                                           
|For the Year Ended December 31,                                                                                            
|(Millions of Dollars, except per share data)                                                                               
|                                                                                                                           
|Operating Revenue                                                                                                          
|Utility                                                                                                                    
|Competitive operations                                                                                                     
|Gain on divestiture of generation assets                                                                                   
|Total Operating Revenue                                                                                                    
|                                                                                                                           
|Operating Expenses                                                                                                         
|Fuel and purchased energy                                                                                                  
|Other operation and maintenance                                                                                            
|Depreciation and amortization                                                                                              
|Other taxes                                                                                                                
|Interest                                                                                                                   
|Impairment loss                                                                                                            
|Total Operating Expenses                                                                                                   
|                                                                                                                           
|Loss from Equity Investments, Principally
      Telecommunication Entities                                                 
|Operating Income                                                                                                           
|Distributions on Preferred Securities of Subsidiary Trust                                                                  
|Income Tax Expense                                                                                                         
|Net Income                                                                                                                 
|Dividends on Preferred Stock                                                                                               
|Redemption Premium/Expenses on Preferred Stock                                                                             
|Earnings Available for Common Stock                                                                                        
|Earnings Per Share of Common Stock                                                                                         
|Basic                                                                                                                      
|Diluted                                                                                                                    
|Cash Dividends Per Share of Common Stock                                                                                   
|                                                                                                                           
|The accompanying Notes to Consolidated Financial Statements are an integral part of these Consolidated Financial Statements

|CONSOLIDATED BALANCE SHEETS                                                                                                
|---------------------------------------------------------------------------------------------------------------------------
|                                                                                                                           
|POTOMAC ELECTRIC POWER COMPANY AND SUBSIDIARIES                                                                            
|Assets                                                                                                                     
|(Millions of Dollars)                                                                                                      
|                                                                                                                           
|CURRENT ASSETS                                                                                                             
|Cash and cash equivalents                                                                                                  
|Marketable securities                                                                                                      
|Accounts receivable, less allowance for uncollectible 
         accounts of $9.1 and $8.0                                  
|Fuel, materials and supplies - at average cost                                                                             
|Prepaid expenses                                                                                                           
|Total Current Assets                                                                                                       
|                                                                                                                           
|                                                                                                                           
|INVESTMENTS AND OTHER ASSETS                                                                                               
|Investment in financing leases                                                                                             
|Operating lease equipment - net of accumulated
          depreciation of $135.4 and $113.9                                 
|Regulatory assets, net                                                                                                     
|Other                                                                                                                      
|Total Investments and Other Assets                                                                                         
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|PROPERTY, PLANT AND EQUIPMENT                                                                                              
|Property, plant and equipment                                                                                              
|Accumulated depreciation                                                                                                   
|Net Property, Plant and Equipment                                                                                          
|Total Assets                                                                                                               
|                                                                                                                           
|                                                                                                                           
|The accompanying Notes to Consolidated Financial Statements are an integral part of these Consolidated Financial Statements

|CONSOLIDATED BALANCE SHEETS                                                                                                                       
|--------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                  
|                                                                                                                                                  
|POTOMAC ELECTRIC POWER COMPANY AND SUBSIDIARIES                                                                                                   
|Liabilities and Shareholders' Equity                                                                                                              
|(Millions of Dollars)                                                                                                                             
|                                                                                                                                                  
|CURRENT LIABILITIES                                                                                                                               
|Short-term debt                                                                                                                                   
|Accounts payable and accrued payroll                                                                                                              
|Capital lease obligations due within one year                                                                                                     
|Interest and taxes accrued                                                                                                                        
|Other                                                                                                                                             
|Total Current Liabilities                                                                                                                         
|                                                                                                                                                  
|DEFERRED CREDITS                                                                                                                                  
|Regulatory liabilities, net                                                                                                                       
|Income taxes                                                                                                                                      
|Investment tax credits                                                                                                                            
|Other                                                                                                                                             
|Total Deferred Credits                                                                                                                            
|                                                                                                                                                  
|LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS                                                                                                      
|                                                                                                                                                  
|COMPANY OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES     OF SUBSIDIARY TRUST WHICH HOLDS SOLELY PARENT JUNIOR     SUBORDINATED DEBENTURES
|                                                                                                                                                  
|PREFERRED STOCK                                                                                                                                   
|Serial preferred stock                                                                                                                            
|Redeemable serial preferred stock                                                                                                                 
|Total Preferred Stock                                                                                                                             
|                                                                                                                                                  
|COMMITMENTS AND CONTINGENCIES                                                                                                                     
|                                                                                                                                                  
|SHAREHOLDERS' EQUITY                                                                                                                              
|Common stock, $1 par value - authorized 200,000,000 shares,
         issued 118,544,736 and 118,530,802 shares, respectively                      
|Premium on stock and other capital contributions                                                                                                  
|Capital stock expense                                                                                                                             
|Accumulated other comprehensive loss                                                                                                              
|Retained income                                                                                                                                   
|                                                                                                                                                  
|Less cost of shares of common stock in treasury                                                                                                   
|(7,792,907 and zero shares, respectively)                                                                                                         
|Total Shareholders' Equity                                                                                                                        
|Total Liabilities and Shareholders' Equity                                                                                                        
|                                                                                                                                                  
|The accompanying Notes to Consolidated Financial Statements are an integral part of these Consolidated Financial
Statements                       



|CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME
|------------------------------------------------------------------------
|POTOMAC ELECTRIC POWER COMPANY AND SUBSIDIARIES                         

|                                                | Common StockShares       Par Value | Premiumon Stock | ComprehensiveIncome | Accumulated
    Other
ComprehensiveIncome (Loss) | RetainedIncome
|----------------------------------------------- | ---------------------------------- | --------------- | ------------------- | ------------------------------------------------ | --------------
|(Dollar Amounts in Millions)                    |                                    |                 |                     |                                                  |               
|                                                |                                    |                 |                     |                                                  |               
|BALANCE, DECEMBER 31, 1997                      | 118,500,891                        | $118.5          | $1,025.2            |                                                  | $6.5          
|                                                |                                    |                 |                     |                                                  |               
|Net Income                                      | -                                  | -               | -                   | $226.3                                           | -             
|Other comprehensive income:                     |                                    |                 |                     |                                                  |               
|Add:  Unrealized gain on marketable securities  | -                                  | -               | -                   | 4.2                                              | 4.2           
|Less: Gain included in net income               | -                                  | -               | -                   | 2.2                                              | 2.2           
|Income tax expense                              | -                                  | -               | -                   | 0.7                                              | 0.7           
|Total comprehensive income                      | -                                  | -               | -                   | $227.6                                           |               
|Dividends:                                      |                                    |                 |                     |                                                  |               
|Preferred stock                                 | -                                  | -               | -                   |                                                  | -             
|Common stock                                    | -                                  | -               | -                   |                                                  | -             
|Conversion of preferred stock                   | 26,396                             | -               | 0.1                 |                                                  | -             
|Redemption premium on preferred stock           | -                                  | -               | -                   |                                                  | -             
|BALANCE, DECEMBER 31, 1998                      | 118,527,287                        | $118.5          | $1,025.3            |                                                  | $7.8          
|                                                |                                    |                 |                     |                                                  |               
|Net Income                                      | -                                  | -               | -                   | $247.1                                           | -             
|Other comprehensive income:                     |                                    |                 |                     |                                                  |               
|Add:   Loss included in net income              | -                                  | -               | -                   | 1.6                                              | 1.6           
|Income tax benefit                              | -                                  | -               | -                   | 5.1                                              | 5.1           
|Less:  Unrealized loss on marketable securities | -                                  | -               | -                   | 16.3                                             | 16.3          
|Total comprehensive income                      | -                                  | -               | -                   | $237.5                                           | -             
|Dividends:                                      |                                    |                 |                     |                                                  |               
|Preferred stock                                 | -                                  | -               | -                   |                                                  | -             
|Common stock                                    | -                                  | -               | -                   |                                                  | -             
|Conversion of debentures                        | 3,515                              | -               | 0.1                 |                                                  | -             
|Redemption expense on preferred stock           | -                                  | -               | -                   |                                                  | -             
|BALANCE, DECEMBER 31, 1999                      | 118,530,802                        | $118.5          | $1,025.4            |                                                  | ($1.8)        
|                                                |                                    |                 |                     |                                                  |               
|Net Income                                      | -                                  | -               | -                   | $352.0                                           | -             
|Other comprehensive income:                     |                                    |                 |                     |                                                  |               
|Add:   Loss included in net income              | -                                  | -               | -                   | 0.3                                              | 0.3           
|Income tax benefit                              | -                                  | -               | -                   | 3.1                                              | 3.1           
|Less:  Unrealized loss on marketable securities | -                                  | -               | -                   | 9.1                                              | 9.1           
|Total comprehensive income                      | -                                  | -               | -                   | $346.3                                           |               
|Dividends:                                      |                                    |                 |                     |                                                  |               
|Preferred stock                                 | -                                  | -               | -                   |                                                  | -             
|Common stock                                    | -                                  | -               | -                   |                                                  | -             
|Conversion of stock options                     | 13,934                             | -               | 0.3                 |                                                  | -             
|Gain on acquisition of preferred stock          | -                                  | -               | 1.6                 |                                                  | -             
|BALANCE, DECEMBER 31, 2000                      | 118,544,736                        | $118.5          | $1,027.3            |                                                  | ($7.5)        
|                                                |                                    |                 |                     |                                                  |               

|CONSOLIDATED STATEMENTS OF CASH FLOWS                                                                                      
|---------------------------------------------------------------------------------------------------------------------------
|                                                                                                                           
|POTOMAC ELECTRIC POWER COMPANY AND SUBSIDIARIES                                                                            
|For the Year Ended December 31,                                                                                            
|(Millions of Dollars)                                                                                                      
|OPERATING ACTIVITIES                                                                                                       
|Net income                                                                                                                 
|Adjustments to reconcile net income to net cash
     (used by) from operating activities:                                  
|Gain on divestiture of generation assets                                                                                   
|Impairment loss                                                                                                            
|Depreciation and amortization                                                                                              
|Changes in:                                                                                                                
|Accounts receivable and unbilled revenue                                                                                   
|Fuel, materials and supplies                                                                                               
|Regulatory liabilities/assets                                                                                              
|Contract termination fee                                                                                                   
|Accounts payable                                                                                                           
|Net other operating activities                                                                                             
|Net Cash (Used by) From Operating Activities                                                                               
|                                                                                                                           
|INVESTING ACTIVITIES                                                                                                       
|Net investment in property, plant and equipment                                                                            
|Proceeds from:                                                                                                             
|Divestiture of generation assets                                                                                           
|Sale of aircraft                                                                                                           
|Sale or redemption of marketable securities, net of purchases                                                              
|Sale of leased equipment, net of additions                                                                                 
|Sale or distribution of other investments, net of purchases                                                                
|Purchase of leveraged leases                                                                                               
|Gain from liquidation of partnership, net of proceeds                                                                      
|Net other investing activities                                                                                             
|Net Cash From (Used by) Investing Activities                                                                               
|                                                                                                                           
|FINANCING ACTIVITIES                                                                                                       
|Dividends on preferred and common stock                                                                                    
|Redemption of preferred stock                                                                                              
|Issuance of mandatorily redeemable preferred securities                                                                    
|Reacquisition of long-term debt, net of issuances                                                                          
|Repurchase of common stock                                                                                                 
|Issuance of short-term debt, net of repayments                                                                             
|Other financing activities                                                                                                 
|Net Cash (Used by) From Financing Activities                                                                               
|                                                                                                                           
|Net Increase In Cash and Cash Equivalents                                                                                  
|Cash and Cash Equivalents at Beginning of Year                                                                             
|                                                                                                                           
|CASH AND CASH EQUIVALENTS AT END OF YEAR                                                                                   
|                                                                                                                           
|SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION                                                                           
|Cash paid for interest (net of capitalized interest of $3.4,
      $1.8, and $.7) and income taxes:                        
|Interest                                                                                                                   
|Income taxes                                                                                                               
|                                                                                                                           
|SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING ACTIVITY                                                                      
|Transfer of Benning and Buzzard Point Stations to Pepco Energy Services                                                    
|The accompanying Notes to Consolidated Financial Statements are an integral part of these Consolidated Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1)    ORGANIZATION, DIVESTITURE, AND SEGMENT INFORMATION
ORGANIZATION
        Potomac Electric Power Company (Pepco or the Company) is engaged in the transmission 
and distribution of electric energy in the Washington, D.C. (D.C.), metropolitan area (the Utility 
or Utility Operations).  The Company is also engaged in the sale of electricity, natural gas, and 
telecommunications in markets throughout the mid-Atlantic region through its wholly owned 
nonregulated subsidiary, Pepco Holdings, Inc. (PHI).  Potomac Electric Power Company Trust I 
(the Trust) and Edison Capital Reserves Corporation (Edison), are also wholly owned 
subsidiaries of the Company. 
        In May 1999, Pepco reorganized its nonregulated subsidiaries into two major operating 
groups to compete for market share in deregulated markets.  As part of the reorganization, a new 
unregulated company, PHI, was created in 1999 as the parent company of its two wholly owned 
subsidiaries, Potomac Capital Investment Corporation (PCI) and Pepco Energy Services, Inc. 
(Pepco Energy Services).  Additionally, in September 2000, PepMarket.com, LLC, (PepMarket) 
was organized as a third direct, wholly owned subsidiary of PHI. 
        PCI will continue to manage its diversified portfolio of financial investments and grow its 
new operating businesses that provide telecommunication services and utility industry-related 
services.  As discussed in Note (5) of the Notes to Consolidated Financial Statements, Loss from 
Equity Investments, Principally Telecommunication Entities, PCI's telecommunication products 
and services are provided through its wholly owned subsidiary's 50% equity interest in a joint 
venture, formed in December 1997, known as Starpower Communications, LLC (Starpower).
        Pepco Energy Services provides nonregulated energy and energy related services in the 
mid-Atlantic region.  Its products include electricity, natural gas, energy efficiency contracting 
equipment retrofits, fuel management, equipment operation and maintenance and appliance 
warranties.  These products are sold in bundles or individually to large commercial and industrial 
customers and to residential customers.
         PepMarket, which began operations on December 1, 2000, will earn fee income by offering 
Internet-based procurement services to businesses and institutional clients in the D.C./Baltimore 
metropolitan region.  As of December 31, 2000, Pepco has invested $11 million in Pepmarket.
        The Trust, a Delaware statutory business trust and a wholly owned subsidiary of the 
Company, was established in April 1998.  The Trust exists for the exclusive purposes of (i) 
issuing Trust securities representing undivided beneficial interests in the assets of the Trust, (ii) 
investing the gross proceeds from the sale of the Trust Securities in Junior Subordinated 
Deferrable Interest Debentures issued by the Company, and (iii) engaging only in other activities 
as necessary or incidental to the foregoing.  See Note (10) of the Notes to Consolidated Financial 
Statements, Company Obligated Mandatorily Redeemable Preferred Securities of Subsidiary 
Trust, for additional information.
        Edison, a Delaware Investment Holding Company and wholly owned subsidiary of the 
Company, was established in November 2000.  Edison exists for the purpose of managing and 
investing a significant portion of the proceeds received from the divestiture.
DIVESTITURE
        On June 7, 2000, the Company entered into an agreement (the Agreement) with Mirant 
Corp., formerly Southern Energy Inc. (Southern Energy) to sell total capacity of 5,154 
megawatts in four generating stations located in Maryland and Virginia, and six purchased 
capacity contracts totaling 735 megawatts (the Generation Assets) for $2.74 billion (including 
other related generation assets).  The Agreement was reached after Southern Energy was selected 
by the Company as the winning bidder in its auction process that was held to select the buyer of 
its Generation Assets.  The divestiture closed on December 19, 2000 and resulted in the 
Company's recognition of a pre-tax gain of approximately $423.8 million ($182 million net of 
income tax or $1.58 per share).  Concurrently, the Company transferred its Benning Road and 
Buzzard Point generating plants, which were not included in the Generation Assets divested to 
Southern Energy, to Pepco Energy Services.  These power plants are located in D.C. and have a 
total installed capacity of 806 megawatts.  These stations will function as exempt wholesale 
generators and will be operated and maintained by Southern Energy pursuant to an initial
three-year contract with Pepco Energy Services.
        As a result of the divestiture and the transfer of its Benning Road and Buzzard Point 
stations, as well as the volatility of energy prices and the availability of current financial 
information derived from the completion of the Company's 2001 budgeting cycle, the Company 
determined that it was necessary to assess whether the carrying amounts of these generating 
stations were recoverable.  Based on this assessment, the stations were determined to be impaired 
and were written down to their fair value by recognizing a pre-tax impairment loss of $40.3 
million in the fourth quarter of 2000 ($24.1 million net of income tax or 20 cents per share).  The 
fair value of approximately $33 million was determined using the present value of their 
estimated expected future cash flows.
        In a separate transaction, on May 19, 2000, the Company reached an agreement with PPL 
Global, Inc., and Allegheny Energy Supply Company, LLC, to sell its 9.72 percent interest in the 
Conemaugh Generating Station (Conemaugh) for approximately $156 million. Conemaugh is 
located near Johnstown, Pennsylvania, and consists of two baseload units totaling approximately 
1,700 megawatts of capacity.  The Conemaugh sale closed on January 8, 2001, and resulted in 
the recognition of a pre-tax gain of approximately $39 million, which will be recorded in the first 
quarter of 2001.  Additionally, as the utility industry continued its transition to a competitive 
environment, retail access for generation services was made available to all Maryland customers 
on July 1, 2000, and to D.C. customers on January 1, 2001.
 
        As part of the agreement with Southern Energy to divest its generation assets, the Company 
also signed a Transition Power Agreement (TPA) with Southern Energy.  This TPA was 
necessary because the Company will continue to be obligated, as the incumbent electric utility, to 
supply the electric power needs of all of its current Maryland and D.C. customers that cannot or 
do not choose an alternate electric power service provider during a four-year transition period to 
retail access.  This service, called Standard Offer Service, is required by settlement agreements 
approved by both the Maryland and D.C. Public Service Commissions as part of the deregulation 
of electric power generation and the initiation of customer choice.
        Under the TPA, the Company has the option of acquiring all of the energy and capacity that 
is needed for Standard Offer Service from Southern Energy at prices that are below the 
Company's current cost-based billing rates for Standard Offer Service, thereby providing the 
Company with a built-in profit margin on all Standard Offer Service sales that the Company 
acquires from Southern Energy.  Under the settlement agreements mentioned above, the 
Company will share such profit amounts with customers on an annual cycle basis, beginning 
with the period July 1, 2000 to June 30, 2001 in Maryland and from February 9, 2001 to 
February 8, 2002 in D.C. (the Generation Procurement Credit or "GPC").
        In both jurisdictions, amounts shared with customers each year are determined only after the 
Company recovers certain guaranteed annual reductions to customer rates.  In addition, because 
the annual cycle for the GPC in Maryland began on July 1, 2000, the Company supplied 
Standard Offer Service from its traditional sources until the Generation Assets were sold and, 
thus, recorded losses on Standard Offer Services sales during this period, mostly because of 
higher summer generating costs.  Therefore, profit from Standard Offer Service sales in 
Maryland between January 8, 2001 and June 30, 2001 will be recorded as income to the 
Company until both the guaranteed rate reduction amount and the Standard Offer Service losses 
incurred in 2000 are recovered.  Once such amounts are recovered, profit is shared with 
customers in Maryland generally on a 50/50 basis.
SEGMENT INFORMATION
        The Company has identified the Utility's operations, the Trust, and Edison (Utility 
Segment) and PHI's operations (Competitive Segment) as its two reportable segments.  The 
following table presents information about the Company's reportable segments (in millions of 
dollars, except per share amounts).

|For the year ended December 31,                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |                 |   |                     |   |                      |   |           |   |            |   |             
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | - | --------------- | - | ------------------- | - | -------------------- | - | --------- | - | ---------- | - | ------------
|2000                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |                 |   |                     |   |                      |   |           |   |            |   |             
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |                 |   | Competitive Segment |   |                      |   |          
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   | Utility Segment |   | PCI                 |   | Pepco EnergyServices |   | PepMarket |   | Total
 PHI |   | Consolidated
|Revenue:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |                 |   |                     |   |                      |   |           |   |            |   |             
|Utility                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               | $ | 2,237.5         | $ | -                   | $ | -                    | $ | -         | $ | -          | $ | 2,237.5     
|Gain on divestiture of generation assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   | 423.8           |   | -                   |   | -                    |   | -         |   | -          |   | 423.8       
|Financial investments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   | -               |   | 101.8               |   | -                    |   | -         |   | 101.8      |   | 101.8       
|Energy services                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   | -               |   | -                   |   | 236.4                |   | -         |   | 236.4      |   | 236.4       
|Utility industry services                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   | -               |   | 48.1                |   | -                    |   | -         |   | 48.1       |   | 48.1        
|Other                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   | -               |   | -                   |   | -                    |   | 0.1       |   | 0.1        |   | 0.1         
|Total Revenue                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   | 2,661.3         |   | 149.9               |   | 236.4                |   | 0.1       |   | 386.4      |   | 3,047.7     
|Expenses:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |                 |   |                     |   |                      |   |           |   |            |   |             
|Fuel and purchased energy                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   | 1,014.7         |   | -                   |   | 191.5                |   | -         |   | 191.5      |   | 1,206.2     
|Operating expenses and other                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   | 515.9           |   | 41.3                |   | 57.8                 |   | 2.2       |   | 101.3      |   | 617.2       
|Depreciation and amortization                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   | 223.9           |   | 21.5                |   | 2.1                  |   | 0.1       |   | 23.7       |   | 247.6       
|Interest                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   | 155.5           |   | 54.4                |   | 1.6                  |   | -         |   | 56.0       |   | 211.5       
|Income tax expense (benefit)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   | 352.9           |   | (6.2)               |   | (4.7)                |   | (0.8)     |   | (11.7)     |   | 341.2       
|Distributions on preferred securities of subsidiary Trust                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   | 9.2             |   | -                   |   | -                    |   | -         |   | -          |   | 9.2         
|Impairment loss                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   | 40.3            |   | 5.4                 |   | -                    |   | -         |   | 5.4        |   | 45.7        
|Total Expenses                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   | 2,312.4         |   | 116.4               |   | 248.3                |   | 1.5       |   | 366.2      |   | 2,678.6     
|(Loss) Income from Equity Investments,
    Principally Telecommunication Entities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   | -               |   | (20.2)              |   | 3.1                  |   | -         |   | (17.1)     |   | (17.1)      
|Net Income (Loss)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     | $ | 348.9           | $ | 13.3                | $ | (8.8)                | $ | (1.4)     | $ | 3.1        | $ | 352.0       
|Earnings (Loss) Per Share                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | $ | 2.99            | $ | 0.12                | $ | (0.08)               | $ | (0.01)    | $ | 0.03       | $ | 3.02        
|Total Assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          | $ | 6,163.4         | $ | 1,232.7             | $ | 163.1                | $ | 13.0      | $ | 1,408.8    | $ | 7,572.2     
|Expenditures for Assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               | $ | 225.5           | $ | 1.8                 | $ | 14.8                 | $ | 8.9       | $ | 25.5       | $ | 251.0       
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |                 |   |                     |   |                      |   |           |   |            |   |             
|1999                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |                 |   |                     |   |                      |   |           |   |            |   |             
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |                 |   | Competitive Segment |   |                      |   |          
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   | UtilitySegment  |   | PCI                 |   | Pepco EnergyServices |   | PepMarket |   | TotalPHI   |   | Consolidated
|Revenue:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |                 |   |                     |   |                      |   |           |   |            |   |             
|Utility                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               | $ | 2,219.3         | $ | -                   | $ | -                    |   |           | $ | -          | $ | 2,219.3     
|Financial investments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   | -               |   | 105.0               |   | -                    |   | -         |   | 105.0      |   | 105.0       
|Energy services                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   | -               |   | -                   |   | 133.3                |   | -         |   | 133.3      |   | 133.3       
|Utility industry services                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   | -               |   | 18.4                |   | -                    |   | -         |   | 18.4       |   | 18.4        
|Total Revenue                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   | 2,219.3         |   | 123.4               |   | 133.3                |   | -         |   | 256.7      |   | 2,476.0     
|Expenses:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |                 |   |                     |   |                      |   |           |   |            |   |             
|Fuel and purchased energy                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   | 921.7           |   | -                   |   | 104.1                |   | -         |   | 104.1      |   | 1,025.8     
|Operating expenses and other                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   | 526.9           |   | 36.1                |   | 38.7                 |   | -         |   | 74.8       |   | 601.7       
|Depreciation and amortization                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   | 247.5           |   | 24.0                |   | 1.3                  |   | -         |   | 25.3       |   | 272.8       
|Interest                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   | 143.4           |   | 50.3                |   | 1.6                  |   | -         |   | 51.9       |   | 195.3       
|Income tax expense (benefit)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   | 142.6           |   | (24.1)              |   | (4.0)                |   | -         |   | (28.1)     |   | 114.5       
|Distributions on preferred securities of subsidiary Trust                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   | 9.2             |   | -                   |   | -                    |   | -         |   | -          |   | 9.2         
|Total Expenses                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   | 1,991.3         |   | 86.3                |   | 141.7                |   | -         |   | 228.0      |   | 2,219.3     
|(Loss) Income from Equity Investments, Principally Telecommunication Entities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   | -               |   | (10.4)              |   | .8                   |   | -         |   | (9.6)      |   | (9.6)       
|Net Income (Loss)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     | $ | 228.0           | $ | 26.7                | $ | (7.6)                |   | -         | $ | 19.1       | $ | 247.1       
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |                 |   |                     |   |                      |   |           |   |            |   |             
|Earnings (Loss) Per Share                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | $ | 1.85            | $ | .22                 | $ | (.06)                | $ | -         | $ | .16        | $ | 2.01        
|Total Assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          | $ | 5,902.8         | $ | 1,238.8             | $ | 44.6                 | $ | -         | $ | 1,283.4    | $ | 7,186.2     
|Expenditures for Assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               | $ | 200.3           | $ | 0.4                 | $ | 2.4                  | $ | -         | $ | 2.8        | $ | 203.1       
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |                 |   |                     |   |                      |   |           |   |            |   |             
|1998                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |                 |   |                     |   |                      |   |           |   |            |   |             
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |                 |   | Competitive Segment |   |                      |   |          
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   | Utility Segment |   | PCI                 |   | Pepco EnergyServices |   | PepMarket |   | TotalPHI   |   | Consolidated
|Revenue:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |                 |   |                     |   |                      |   |           |   |            |   |             
|Utility                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               | $ | 2,068.9         | $ | -                   | $ | -                    |   | -         | $ | -          | $ | 2,068.9     
|Financial investments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   | -               |   | 112.1               |   | -                    |   | -         |   | 112.1      |   | 112.1       
|Energy services                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   | -               |   | -                   |   | 28.0                 |   | -         |   | 28.0       |   | 28.0        
|Utility industry services                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   | -               |   | 11.8                |   | -                    |   | -         |   | 11.8       |   | 11.8        
|Total Revenue                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   | 2,068.9         |   | 123.9               |   | 28.0                 |   | -         |   | 151.9      |   | 2,220.8     
|Expenses:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |                 |   |                     |   |                      |   |           |   |            |   |             
|Fuel and purchased energy                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   | 805.7           |   | -                   |   | 13.1                 |   | -         |   | 13.1       |   | 818.8       
|Operating expenses and other                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   | 533.6           |   | 27.2                |   | 16.4                 |   | -         |   | 43.6       |   | 577.2       
|Depreciation and amortization                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   | 239.8           |   | 24.1                |   | -                    |   | -         |   | 24.1       |   | 263.9       
|Interest                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   | 141.9           |   | 55.9                |   | 0.3                  |   | -         |   | 56.2       |   | 198.1       
|Income tax expense (benefit)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   | 131.0           |   | (8.1)               |   | (0.6)                |   |           |   | (8.7)      |   | 122.3       
|Distributions on preferred securities of subsidiary Trust                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   | 5.7             |   | -                   |   | -                    |   | -         |   | -          |   | 5.7         
|Total Expenses                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   | 1,857.7         |   | 99.1                |   | 29.2                 |   | -         |   | 128.3      |   | 1,986.0     
|Loss from Equity Investments, Principally Telecommunication Entities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   | -               |   | (8.5)               |   | -                    |   | -         |   | (8.5)      |   | (8.5)       
|Net Income (Loss)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     | $ | 211.2           | $ | 16.3                | $ | (1.2)                |   | -         | $ | 15.1       | $ | 226.3       
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |                 |   |                     |   |                      |   |           |   |            |   |             
|Earnings (Loss) Per Share                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | $ | 1.63            | $ | .14                 | $ | (.01)                | $ | -         | $ | .13        | $ | 1.76        
|Total Assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          | $ | 5,817.1         | $ | 1,000.8             | $ | 31.0                 | $ | -         | $ | 1,031.8    | $ | 6,848.9     
|Expenditures for Assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               | $ | 206.2           | $ | 0.3                 | $ | 2.5                  | $ | -         | $ | 2.8        | $ | 209.0       
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |                 |   |                     |   |                      |   |           |   |            |   |             
|The Company's revenues from external customers are earned primarily within the United States and principally all of the Company's long-lived assets are held in the United States.  In addition, there were no material transactions between
segments.                                                                                                                                                                                                                                                                                                                               
|Total segment assets of $7,572.2 million, $7,186.2 million, and $6,848.9 million, as of December 31, 2000, 1999, and 1998, respectively, include $510.1 million, $252.9 million, and $243.4 million, representing the utility segment's
investment in PHI and $34.8 million, $22.7 million, and $31.4 million, of intersegment net receivables.  As of December 31, 2000, 1999, and 1998, respectively, these amounts are eliminated in consolidation and therefore they are not reflected in the
Company's total assets as recorded on the accompanying Consolidated Balance Sheets.

(2)	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GENERAL
        The Utility's transmission and distribution operations are regulated by the Maryland Public 
Service Commission (Maryland Commission) and the D.C. Public Service Commission (D.C. 
Commission) and its wholesale business is regulated by the Federal Energy Regulatory 
Commission (FERC).  The Company complies with the Uniform System of Accounts prescribed 
by FERC and adopted by the Maryland and D.C. Commissions.
        The preparation of these consolidated financial statements in conformity with generally 
accepted accounting principles requires management to make estimates and assumptions that 
affect the reported amounts of assets and liabilities, the disclosure of contingent assets and 
liabilities at the date of the financial statements, and the reported amounts of revenue and 
expenses during the reporting period.  Actual results could differ from those estimates and 
assumptions.  Certain prior year amounts have been reclassified in order to conform to the 
current year presentation.
PRINCIPLES OF CONSOLIDATION
        The accompanying consolidated financial statements present the financial results of the 
Company and its wholly owned subsidiaries.  All intercompany balances and transactions have 
been eliminated.
        Investments in entities in which the Company has a 20% to 50% interest are accounted for 
using the equity method.  Under the equity method, investments are carried at cost and adjusted 
for the Company's proportionate share of the investments' undistributed earnings or losses.  Refer 
to Note (5) of the Notes to Consolidated Financial Statements, Loss from Equity Investments, 
Principally Telecommunication Entities for additional information.
REVENUE
        The Company classifies its revenue as Utility and Competitive Operations.  Utility revenue 
consists of the Utility's operations, the Trust, and Edison, and Competitive Operations revenue 
consists of PHI's operations.
        The Utility's revenue for services rendered but unbilled as of the end of each month is 
accrued.  At December 31, 2000 and 1999, $85.6 million and $77.2 million in accrued unbilled 
revenue, respectively, was recorded.  These amounts are included in the accounts receivable 
balance on the accompanying consolidated balance sheets.  The amounts received for the sale of 
energy and resales of purchased energy to other utilities and to power marketers is included in 
Utility revenue.  Amounts received, through July 1, 2000 in Maryland and December 31, 2000 in 
D.C., for such interchange deliveries were components of the Company's fuel rates.
        Interchange deliveries include transactions in the bilateral energy sales marketplace, where 
wholesale power sales tariffs allow both sales from Company-owned generation and sales of 
energy purchased from other market participants.  As discussed in Note (1) Organization, 
Divestiture, and Segment Information, on December 19, 2000, the Company divested its 
Generation Assets.
        Revenue from Pepco Energy Services' energy services contracts and from PCI's utility 
industry services contracts is recognized using the percentage-of-completion method of revenue 
recognition, which recognizes revenue as work progresses on the contract.  Revenue from Pepco 
Energy Services' electric and gas marketing businesses and from PepMarket's business is 
recognized as services are rendered.
ENVIRONMENTAL REMEDIATION COSTS
          The Company accrues environmental remediation costs at the time that management 
determines that it is probable that an asset has been impaired or that a liability has been incurred 
and the amount of the loss can be reasonably estimated.  Environmental remediation costs are 
charged as an operating expense unless the costs extend the life of an asset or prevent 
environmental contamination that has yet to occur, in which case the costs are capitalized.  
Amounts that the Company has determined are probable of recovery from third parties, such as 
insurance carriers, are netted against the operating expense line item.  The amount that is 
probable of recovery from third parties and the anticipated liability for environmental 
remediation costs are separately recorded.  Amounts accrued for probable environmental 
remediation costs that may be incurred in the future are not measured on a discounted basis.
CASH AND CASH EQUIVALENTS
        Cash and cash equivalents include cash on hand, money market funds and commercial 
paper with original maturities of three months or less.  The cash and cash equivalents balance at 
December 31, 2000 includes approximately $1.8 billion in proceeds from the divestiture of the 
Generation Assets that have been invested by Edison.
MARKETABLE SECURITIES
        Marketable securities consist primarily of preferred stocks with mandatory redemption 
features, which are classified as "available for sale" for financial reporting purposes.  Net 
unrealized gains or losses on such securities are reflected, net of tax, in shareholders' equity.
        Included in net unrealized gains and losses are gross unrealized gains of $.3 million and 
gross unrealized losses of $11.8 million at December 31, 2000 and gross unrealized gains of $2 
million and gross unrealized losses of $4.7 million at December 31, 1999.
        In determining gross realized gains and losses on sales or maturities of securities, specific 
identification is used.  Gross realized gains were $1.1 million, $.6 million, and $4.7 million in 
2000, 1999, and 1998, respectively.  Gross realized losses were $1.4 million, $2.2 million, and 
$2.5 million in 2000, 1999, and 1998, respectively.
At December 31, 2000, the contractual maturities for mandatorily redeemable preferred stock are 
$99.6 million within one year, $37.1 million from one to five years, $89.7 million from five to 10 
years and $15.8 million for over 10 years.
LEASING ACTIVITIES
        Income from investments in direct financing leases and leveraged lease transactions, in 
which the Company is an equity participant, is accounted for using the financing method.  In 
accordance with the financing method, investments in leased property are recorded as a 
receivable from the lessee to be recovered through the collection of future rentals.  For direct 
financing leases, unearned income is amortized to income over the lease term at a constant rate 
of return on the net investment.  Income including investment tax credits, on leveraged 
equipment leases, is recognized over the life of the lease at a constant rate of return on the 
positive net investment.
        Investments in equipment under operating leases are stated at cost, less accumulated 
depreciation.  Depreciation is recorded on a straight-line basis over the equipment's estimated 
useful life.
OTHER ASSETS
        The other assets balance principally consists of real estate under development, equity and 
other investments, prepaid benefit costs, and the SMECO contract termination fee which is 
discussed in Note (12) of the Notes to Consolidated Financial Statements, SMECO Agreement.
SHORT-TERM DEBT
        Short-term financing requirements have been principally satisfied through the sale of 
commercial promissory notes.  Interest rates for short-term financing during 2000 ranged from 
5.77% to 6.63%.  Additionally, a minimum 100% line of credit back-up for outstanding 
commercial promissory notes is maintained.  This line of credit was unused during 2000, 1999, 
and 1998.
AMORTIZATION OF DEBT ISSUANCE AND REACQUISITION COSTS
        Expenses incurred in connection with the issuance of long-term debt, including premiums 
and discounts associated with such debt, are deferred and amortized over the lives of the 
respective issues.  Costs associated with the reacquisition of debt are also deferred and amortized 
over the lives of the new issues.
FUEL COSTS
        The Maryland fuel clause was terminated effective July 1, 2000 (the date of commencement 
of customer choice).  In D. C., the fuel clause will be terminated effective February 9, 2001 (one 
month after the completion of the sale of the Company's interest in Conemaugh).  For a 
discussion of the Company's TPA and GPC refer to Note (1) Organization, Divestiture, and 
Segment Information.
TREASURY STOCK
          The Company uses the cost method of accounting for treasury stock.  Under the cost 
method, the Company records the total cost of the treasury stock as a reduction to its 
shareholders' equity on the face of its consolidated balance sheets.  Additionally, stock held in 
treasury is not considered outstanding for the purposes of computing the Company's earnings per 
share.
NEW ACCOUNTING STANDARDS
        In June 1998, the Financial Accounting Standards Board issued Statement of Financial 
Accounting Standards No. 133 (SFAS 133) entitled, "Accounting for Derivative Instruments and 
Hedging Activities."  SFAS 133 establishes accounting and reporting standards for derivative 
instruments and hedging activities.  The effective date of SFAS No. 133 has been delayed and 
will become effective for the Company's 2001 calendar year financial statements.  Accordingly, 
the Company adopted SFAS 133 on January 1, 2001.  At that date, the cumulative effect of the 
implementation of SFAS 133 did not have a material impact on the Company's consolidated 
results of operations, financial position, or cash flows.(3)    LEASING ACTIVITIES
        The investment in financing leases was comprised of the following at December 31:

|                        | 2000                  | 1999  
|----------------------- | --------------------- | ------
|                        | (Millions of Dollars)
|Energy leveraged leases | $469.3                | $433.3
|Aircraft leases         | 63.9                  | 173.4 
|Other                   | 56.3                  | 57.6  
|Total                   | $589.5                | $664.3

The components of the net investment in finance leases at December 31, 2000, and 1999 are 
summarized below:

|At December 31, 2000:                                          | LeveragedLeases       | Direct 
FinanceLeases | Total
      Finance
      Leases
|-------------------------------------------------------------- | --------------------- | --------------------- | --------------------------------
|                                                               | (Millions of Dollars)
|Rents receivable                                               | $  345.1              | $  95.8               | $  440.9                        
|Debt service payable from proceeds
     of residual value, net | (1,503.7)             | -                     | (1,503.7)                       
|Estimated residual value                                       | 2,145.8               | 30.6                  | 2,176.4                         
|Less:   Unearned and deferred income                           | (485.7)               | (38.4)                | (524.1)                         
|Investment in finance leases                                   | 501.5                 | 88.0                  | 589.5                           
|Less:   Deferred taxes                                         | (191.3)               | (43.9)                | (235.2)                         
|Net Investment in Finance Leases                               | $  310.2              | $  44.1               | $  354.3                        
|At December 31, 1999:                                          |                       |                       |                                 
|Rents receivable                                               | $   354.7             | $ 206.2               | $  560.9                        
|Debt service payable from proceeds of
    residual value, net  | (1,503.7)             | -                     | (1,503.7)                       
|Estimated residual value                                       | 2,149.3               | 60.9                  | 2,210.2                         
|Less:   Unearned and deferred income                           | (525.1)               | (78.0)                | (603.1)                         
|Investment in finance leases                                   | 475.2                 | 189.1                 | 664.3                           
|Less:   Deferred taxes                                         | (150.9)               | (35.8)                | (186.7)                         
|Net Investment in Finance Leases                               | $   324.3             | $ 153.3               | $  477.6                        

Income recognized from leveraged leases was comprised of the following:

|For the Year Ended December 31,                                    | 2000                  | 1999  | 1998 
|------------------------------------------------------------------ | --------------------- | ----- | -----
|                                                                   | (Millions of Dollars)
|Pre-tax earnings from leveraged leases                             | $37.5                 | $20.5 | $13.4
|Investment tax credit recognized                                   | .8                    | .9    | .8   
|Income from leveraged leases, including
     investment tax credit | 38.3                  | 21.4  | 14.2 
|Income tax expense (credit)                                        | 7.5                   | 2.3   | (.5) 
|Net Income from Leveraged Leases                                   | $30.8                 | $19.1 | $14.7

Rents receivable from leveraged leases are net of non-recourse debt.  Minimum lease 
payments receivable from finance leases, for each of the years 2001 through 2005 and thereafter, 
are $20.8 million, $19.1 million, $11.3 million, $9.2 million, $8.4 million, and $520.7 million, 
respectively.
        In July and November 1999, PCI entered into two similar leveraged lease transactions with 
eight Dutch Municipal owned entities, for a total of $1.3 billion.  These transactions involved the 
purchase and leaseback of 38 gas transmission and distribution networks, located throughout the 
Netherlands, over base lease terms approximating 25 years.  These transactions were financed 
with approximately $1.1 billion of third-party, non-recourse debt at commercial rates for a period 
of approximately 25 years.  PCI's net investment in these finance leases was approximately $193 
million and was funded primarily through the Medium-Term Note program.(4)    PROPERTY, PLANT AND EQUIPMENT
        As discussed in Note (1) of the Notes to Consolidated Financial Statements, Organization, 
Divestiture, and Segment Information, the Company divested its Generation Assets in December 
2000 and divested its interest in Conemaugh in January 2001.
        Property, plant and equipment is comprised of the following.

|At December 31, 2000          | OriginalCost          | Accumulated
 Depreciation | Net      
 Book Value
|----------------------------- | --------------------- | ------------------------- | ---------------------
|                              | (Millions of Dollars)
|Generation                    | $    92.0             | $    19.0                 | $    73.0            
|Distribution                  | 3,046.1               | 1,142.1                   | 1,904.0              
|Transmission                  | 698.2                 | 226.3                     | 471.9                
|General                       | 304.3                 | 174.9                     | 129.4                
|Construction work in progress | 57.7                  | -                         | 57.7                 
|Nonoperating property         | 86.4                  | .6                        | 85.8                 
|Total                         | $4,284.7              | $1,562.9                  | $2,721.8             
|At December 31, 1999         
|Generation                    | $2,650.0              | $  805.6                  | $1,844.4             
|Distribution                  | 2,943.1               | 1,059.6                   | 1,883.5              
|Transmission                  | 719.4                 | 225.2                     | 494.2                
|General                       | 360.4                 | 169.0                     | 191.4                
|Construction work in progress | 86.7                  | -                         | 86.7                 
|Nonoperating property         | 24.7                  | .5                        | 24.2                 
|Total                         | $6,784.3              | $2,259.9                  | $4,524.4             

The nonoperating property amounts include balances for electric plant held for future use.
        Property, plant and equipment includes regulatory assets of $41 million and $44 million at 
December 31, 2000 and 1999, respectively, which are accounted for pursuant to Statement of 
Financial Accounting Standards No. 71 (SFAS 71) "Accounting for the Effects of Certain Types 
of Regulation." 
        The cost of additions to, and replacements or betterments of, retirement units of property 
and plant is capitalized.  Such costs include material, labor, the capitalization of an Allowance 
for Funds Used During Construction (AFUDC) and applicable indirect costs, including 
engineering, supervision, payroll taxes and employee benefits.  The original cost of depreciable 
units of plant retired, together with the cost of removal, net of salvage, is charged to accumulated 
depreciation.  Routine repairs and maintenance are charged to operating expenses as incurred.
        The Company uses separate depreciation rates for each electric plant account.  The rates, 
which vary from jurisdiction to jurisdiction, were equivalent to a system-wide composite 
depreciation rate of approximately 3.5% for the Company's transmission and distribution system 
property in 2000, 1999 and 1998.(5)     LOSS FROM EQUITY INVESTMENTS, PRINCIPALLY 
         TELECOMMUNICATION ENTITIES
        PCI and Pepco Energy Services have investments ranging from 20% to 50% in certain 
businesses, which are accounted for using the equity method.  The most significant equity 
investment is PCI's joint venture in Starpower which is discussed in detail below.  Investments 
that are accounted for using the equity method are as follows.

|Entity                               | Ownership
 Interest | Share of
(Loss)Income | Net
Investment
|------------------------------------ | ------------------- | --------------------- | --------------
|                                     | 2000                | 1999                  | 1998          
|                                    
|Starpower                            | 50%                 | $(20.2)               | $(12.2)       
|Metricom D.C., LLC
     (Metricom)   | 20%                 | -                     | (.8)          
|Cove Point LNG, LP
     (Cove Point) | 50%                 | -                     | 2.6           
|Viron/Pepco Services, Inc.           | 50%                 | 3.1                   | .8            
|Total                                |                     | $ (17.1)              | $  (9.6)      

The total (loss)/income shown above is presented prior to the recognition of PHI's tax 
expense/benefit.
        In October 1999, a subsidiary of PHI sold its 20% equity interest in Metricom.  The sale 
resulted in the recognition of an after-tax gain of approximately $1.7 million.  On January 11, 
2000, PCI sold its 50% interest in Cove Point to Columbia Energy Group for total proceeds of 
$40.7 million.  This transaction resulted in an after-tax gain of $11.8 million, which was 
recorded during the first quarter of 2000.  The 50% investment in Viron/Pepco Services, Inc. was 
created in 1999 to provide energy-savings performance contracting services to the Military 
District of Washington.
STARPOWER
        PCI's telecommunication products and services are provided through Starpower, which was 
formed in 1997 by wholly-owned subsidiaries of PCI and RCN Corporation. Each Starpower 
partner initially committed to contribute a total of $150 million of equity to the joint venture over 
a three-year period (1998-2000).  This initial commitment was fulfilled by each partner during 
the fourth quarter of 2000.  Additionally, during the fourth quarter of 2000, each partner agreed 
to contribute an additional $18 million to fund capital requirements until the capital requirements 
budget for 2001 is finalized.  As of December 31, 2000, PCI has invested a total of $162 million 
of its $168 million commitment to Starpower.
        During the first quarter of 1998, RCN acquired Erols Internet (Erols).  The majority of Erols 
customers (approximately 197,000 out of a total of 316,000 in February 1998) were located in 
Starpower's target market.  These customer accounts, as well as certain associated network assets 
and related liabilities, have been contributed by RCN to Starpower.  Starpower has agreed to pay 
$51.9 million ($78.6 million in assets, primarily goodwill, net of $26.7 million of unearned 
revenue) through a ratable reduction of RCN's committed future capital contributions.  As a 
result of this transaction, Starpower is amortizing the acquisition premium principally over a 
three-to-five year period, which commenced in February 1998.
        A summary of Starpower's financial information is as follows.

|                                                                                        | As of December 31,             
|--------------------------------------------------------------------------------------- | -------------------------------
|Balance Sheets                                                                          | 2000                           
|                                                                                        | (Millions of Dollars)          
|Assets                                                                                  |                                
|Current assets                                                                          | $ 98.1                         
|Intangible assets, net of accumulated amortization of
     $47.9 and $31.7              | 20.4                           
|Property, plant and equipment, net of
     accumulated depreciation of  $28.2 and $16.3 | 229.7                          
|Total Assets                                                                            | $348.2                         
|Liabilities and Partners' Equity                                                        |                                
|Current liabilities                                                                     | $108.0                         
|Noncurrent liabilities                                                                  | 1.9                            
|Accumulated deficit                                                                     | (85.7)                         
|Partners' equity                                                                        | 324.0                          
|Total Liabilities and Partners' Equity                                                  | $348.2                         
|                                                                                        | For the Year Ended December 31,
|Income Statements                                                                       | 2000                           
|                                                                                        | (Millions of Dollars)          
|Total revenue                                                                           | $73.5                          
|Cost of sales                                                                           | 22.2                           
|Gross margin                                                                            | 51.3                           
|Operating expense                                                                       | 64.5                           
|(Loss) Earnings before interest, depreciation
     and amortization                     | (13.2)                         
|Depreciation and amortization                                                           | 28.2                           
|Interest income                                                                         | 1.0                            
|Loss                                                                                    | $40.4                          
|PCI's Portion of Loss                                                                   | $20.2                          

(6)    PENSIONS AND OTHER POSTRETIREMENT AND POSTEMPLOYMENT 
        BENEFITS
        As discussed in Note (1) Organization, Divestiture, and Segment Information, on December 
19, 2000, the Company divested its Generation Assets, including other related assets, to Southern 
Energy.  In accordance with the terms of the divestiture, with respect to generation employees 
transferred between the Company and Southern Energy, the Company will only be responsible 
for the portion of transferred employees' pensions that relate to service with the Company. 
        As a result of the divestiture, in December 2000 the Company recognized a curtailment 
charge of approximately $8.7 million.  Since this charge is the direct result of the divestiture, it 
was considered to be a transaction cost and was netted against the gain on divestiture of 
Generation Assets on the Company's accompanying statements of earnings.
        The Company's General Retirement Program (Program), a noncontributory defined benefit 
program, covers substantially all full-time employees of the Company.  The Program provides 
for benefits to be paid to eligible employees at retirement based primarily upon years of service 
with the Company and their compensation rates for the three years preceding retirement.  Annual 
provisions for accrued pension cost are based upon independent actuarial valuations.  The 
Company's policy is to fund accrued pension costs.
        In addition to providing pension benefits, the Company provides certain health care and life 
insurance benefits for retired employees and inactive employees covered by disability plans.  
Health maintenance organization arrangements are available, or a health care plan pays stated 
percentages of most necessary medical expenses incurred by these employees, after subtracting 
payments by Medicare or other providers and after a stated deductible has been met.  The life 
insurance plan pays benefits based on base salary at the time of retirement and age at the date of 
death.  Participants become eligible for the benefits of these plans if they retire under the 
provisions of the Company's Program with 10 years of service or become inactive employees 
under the Company's disability plans.  The Company is amortizing the unrecognized transition 
obligation measured at January 1, 1993, over a 20-year period.
        Pension expense included in net income was $3 million in 2000, $8.7 million in 1999 and 
$9.3 million in 1998.  Postretirement benefit expense included in net income was $18 million, 
$15.8 million and $12.6 million in 2000, 1999, and 1998, respectively.  The components of net 
periodic benefit cost were computed as follows.

|                                                                                                                                                                                          | Pension Benefits            
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------
|                                                                                                                                                                                          | 2000                        
|                                                                                                                                                                                          | (Millions of Dollars)       
|Components of Net Periodic Benefit Cost
Service cost 
Interest cost 
Expected return on plan assets 
Amortization of prior service cost
Recognized actuarial loss
Net Period Benefit Cost | $12.8
37.2
(48.7)
1.4.3$ 3.0

|                                                                                                                                                       | Other Benefits         
|------------------------------------------------------------------------------------------------------------------------------------------------------ | -----------------------
|                                                                                                                                                       | 2000                   
|                                                                                                                                                       | (Millions of Dollars)  
|Components of Net Periodic Benefit Cost
Service cost 
Interest cost 
Expected return on plan assets 
Recognized actuarial loss
Net Period Benefit Cost | $ 5.8
8.2
(1.9)5.9$18.0

Assumed health care cost trend rates have a significant effect on the amounts reported for 
the health care plans.  The assumed health care cost trend rate used to measure the expected cost 
benefits covered by the plan is 7.5%.  This rate is expected to decline to 5.5% over the next four-
year period.  A one percentage point change in the assumed health care cost trend rate would 
have the following effects for fiscal year 2000.

|                                                              | 1-Percentage-Point    | 1-Percentage-Point
|------------------------------------------------------------- | --------------------- | ------------------
|                                                              | Increase              | Decrease          
|                                                              | (Millions of Dollars)
|Effect on total of service and 
     interest cost components | $1.3                  | $(1.1)            
|Effect on postretirement benefit
     obligation              | $7.8                  | $(6.7)            

Pension program assets are stated at fair value and are composed of approximately 41% and 
35% of cash equivalents and fixed income investments with the balance in equity investments. 
        The following table sets forth the Program's funded status and amounts included in 
Investments and Other Assets - Other on the Consolidated Balance Sheets.

|                                                     | Pension Benefits     
|---------------------------------------------------- | ---------------------
|                                                     | 2000                 
|                                                     | (Millions of Dollars)
|Funded status                                        | $  44.6              
|Unrecognized actuarial loss                          | 71.8                 
|Unrecognized prior service cost
Prepaid Benefit Cost | 7.1 $123.5           
|Weighted average assumptions as of 
     December 31 |                      
|Discount rate                                        | 7.0%                 
|Expected return on plan assets                       | 9.0%                 
|Rate of compensation increase                        | 4.0%                 
|                                                     | Other Benefits       
|                                                     | 2000                 
|                                                     | (Millions of Dollars)
|Funded status                                        | $(92.4)              
|Unrecognized actuarial loss                          | 49.6                 
|Unrecognized initial net obligation                  | 18.9                 
|Accrued Benefit Cost                                 | $(23.9)              
|Weighted average assumptions as of 
     December 31 |                      
|Discount rate                                        | 7.0%                 
|Expected return on plan assets                       | 9.0%                 
|Rate of compensation increase                        | 4.0%                 

The changes in benefit obligation and fair value of plan assets are presented in the following 
table.

|                                               | Pension Benefits     
|---------------------------------------------- | ---------------------
|                                               | 2000                 
|                                               | (Millions of Dollars)
|Change in Benefit Obligation                   |                      
|Benefit obligation at beginning of year        | $533.2               
|Service cost                                   | 12.8                 
|Interest cost                                  | 37.2                 
|Actuarial gain                                 | (18.8)               
|Benefits paid                                  | (32.1)               
|Benefit Obligation at End of Year              | $532.3               
|Accumulated Benefit Obligation at December 31  | $471.9               
|Change in Fair Value of Plan Assets            |                      
|Fair value of plan assets at beginning of year | $554.7               
|Actual return on plan assets                   | 3.4                  
|Company contributions                          | 50.0                 
|Benefits paid                                  | (31.2)               
|Fair Value of Plan Assets at End of Year       | $576.9               

|                                               | Other Benefits       
|---------------------------------------------- | ---------------------
|                                               | 2000                 
|                                               | (Millions of Dollars)
|Change in Benefit Obligation                   |                      
|Benefit obligation at beginning of year        | $ 105.6              
|Service cost                                   | 5.8                  
|Interest cost                                  | 8.2                  
|Actuarial loss                                 | 2.8                  
|Benefits paid                                  | (9.0)                
|Benefit Obligation at End of Year              | $113.4               
|Change in Fair Value of Plan Assets            |                      
|Fair value of plan assets at beginning of year | $18.6                
|Actual return on plan assets                   | .6                   
|Company contributions                          | 7.0                  
|Benefits paid                                  | (5.2)                
|Fair Value of Plan Assets at End of Year       | $21.0                

The Company also sponsors defined contribution savings plans covering all eligible 
employees.  Under these plans, the Company makes contributions on behalf of participants.  
Company contributions to the plans totaled $5 million in 2000, $5.6 million in 1999, and $5.8 
million in 1998.
        In February 2000 and 1999, the Company funded the 2000 and 1999 portions of its 
estimated liability for postretirement medical and life insurance costs through the use of an 
Internal Revenue Code (IRC) 401 (h) account, within the Company's pension plan, and an IRC 
501 (c) (9) Voluntary Employee Beneficiary Association (VEBA).  The Company plans to fund 
the 401(h) account and the VEBA annually.  In February 2001, the 2001 portion of the 
Company's estimated liability will be funded.  Assets are composed of cash equivalents, fixed 
income investments and equity investments.

|(7)  Long-Term Debt and Capital Lease Obligations                               |                    |   |                       |   |        
|------------------------------------------------------------------------------- | ------------------ | - | --------------------- | - | -------
|                                                                                |                    |   |                       |   |        
|The components of long-term debt and capital lease obligations are shown below.
|                                                                                |                    |   | At December 31,      
|Interest Rate                                                                   | Maturity           |   | 2000                  |   | 1999   
|                                                                                |                    |   |                       |   |        
|                                                                                |                    |   | (Millions of Dollars)
|First Mortgage Bonds                                                            |                    |   |                       |   |        
|Fixed Rate Series:                                                              |                    |   |                       |   |        
|5-1/8%                                                                          | April 1, 2001      | $ | 15.0                  | $ | 15.0   
|5-7/8%                                                                          | May 1, 2002        |   | 35.0                  |   | 35.0   
|6-5/8%                                                                          | February 15, 2003  |   | 40.0                  |   | 40.0   
|5-5/8%                                                                          | October 15, 2003   |   | 50.0                  |   | 50.0   
|6-1/2%                                                                          | September 15, 2005 |   | 100.0                 |   | 100.0  
|6%                                                                              | April 1, 2004      |   | 270.0                 |   | 270.0  
|6-1/4%                                                                          | October 15, 2007;  |   |                       |   |        
|                                                                                | PUT date           |   |                       |   |        
|                                                                                | October 15, 2004   |   | 175.0                 |   | 175.0  
|6-1/2%                                                                          | March 15, 2008     |   | 78.0                  |   | 78.0   
|5-7/8%                                                                          | October 15, 2008   |   | 50.0                  |   | 50.0   
|5-3/4%                                                                          | March 15, 2010     |   | 16.0                  |   | 16.0   
|9%                                                                              | June 1, 2021       |   | 100.0                 |   | 100.0  
|6%                                                                              | September 1, 2022  |   | 30.0                  |   | 30.0   
|6-3/8%                                                                          | January 15, 2023   |   | 37.0                  |   | 37.0   
|7-1/4%                                                                          | July 1, 2023       |   | 100.0                 |   | 100.0  
|6-7/8%                                                                          | September 1, 2023  |   | 100.0                 |   | 100.0  
|5-3/8%                                                                          | February 15, 2024  |   | 42.5                  |   | 42.5   
|5-3/8%                                                                          | February 15, 2024  |   | 38.3                  |   | 38.3   
|6-7/8%                                                                          | October 15, 2024   |   | 75.0                  |   | 75.0   
|7-3/8%                                                                          | September 15, 2025 |   | 75.0                  |   | 75.0   
|8-1/2%                                                                          | May 15, 2027       |   | 75.0                  |   | 75.0   
|7-1/2%                                                                          | March 15, 2028     |   | 40.0                  |   | 40.0   
|Variable Rate Series:                                                           |                    |   |                       |   |        
|Adjustable rate                                                                 | December 1, 2001   |   | 50.0                  |   | 50.0   
|Total First Mortgage Bonds                                                      |                    |   | 1,591.8               |   | 1,591.8
|                                                                                |                    |   |                       |   |        
|Convertible Debentures                                                          |                    |   |                       |   |        
|5%                                                                              | September 1, 2002  |   | 115.0                 |   | 115.0  
|                                                                                |                    |   |                       |   |        
|Medium-Term Notes                                                               |                    |   |                       |   |        
|Fixed Rate Series:                                                              |                    |   |                       |   |        
|6.53%                                                                           | December 17, 2001  |   | 100.0                 |   | 100.0  
|7.46% to 7.60%                                                                  | January 2002       |   | 40.0                  |   | 40.0   
|7.64%                                                                           | January 17, 2007   |   | 35.0                  |   | 35.0   
|6.25%                                                                           | January 20, 2009   |   | 50.0                  |   | 50.0   
|7%                                                                              | January 15, 2024   |   | 50.0                  |   | 50.0   
|Variable Rate Series:
Adjustable rate                                           | June 1, 2027       |   | 8.1                   |   | 8.1    
|                                                                                |                    |   |                       |   |        
|Recourse Debt                                                                   |                    |   |                       |   |        
|5.00% - 5.99%                                                                   | 2001-2003          |   | 1.0                   |   | 1.0    
|6.00% - 6.99%                                                                   | 2001-2005          |   | 282.3                 |   | 361.6  
|7.00% - 8.99%                                                                   | 2001-2004          |   | 377.5                 |   | 414.4  
|9.00% - 9.70%                                                                   | 2001               |   | 6.0                   |   | 62.0   
|                                                                                |                    |   |                       |   |        
|Nonrecourse debt                                                                |                    |   | 31.0                  |   | 52.8   
|                                                                                |                    |   |                       |   |        
|Net unamortized discount                                                        |                    |   | (12.9)                |   | (21.7) 
|Current portion                                                                 |                    |   | (938.5)               |   | (147.5)
|                                                                                |                    |   |                       |   |        
|Net Long-Term Debt                                                              |                    |   | 1,736.3               |   | 2,712.5
|                                                                                |                    |   |                       |   |        
|Capital Lease Obligations                                                       |                    |   | 123.3                 |   | 154.5  
|                                                                                |                    |   |                       |   |        
|Long -Term Debt and 
    Capital Lease Obligations                              |                    | $ | 1,859.6               | $ | 2,867.0

The outstanding First Mortgage Bonds are secured by a lien on substantially all of the 
Company's property, plant and equipment. Additional bonds may be issued under the mortgage 
as amended and supplemented in compliance with the provisions of the indenture.  As discussed 
in Note (1) of the Notes to Consolidated Financial Statements, Organization, Divestiture, and 
Segment Information, on December 19, 2000 the Company divested its Generation Assets to 
Southern Energy.  As a result of the divestiture the following First Mortgage Bonds will be 
redeemed during January 2001:  $15 million 5-1/8% Series due 2001, $35 million 5-7/8% Series 
due 2002, $40 million 6-5/8% Series due 2003, $270 million 6% Series due 2004, and $50 
million  Adjustable Rate Series due 2001.  This debt is classified as short-term on the 
accompanying consolidated balance sheets at December 31, 2000.
        The interest rate on the $50 million Adjustable Rate series First Mortgage Bonds (to be 
redeemed in January 2001) is adjusted annually on December 1, based upon the 10-year 
"constant maturity" United States Treasury bond rate for the preceding three-month period ended 
October 31, plus a market-based adjustment factor.  Effective December 1, 2000, the applicable 
interest rate is 6.99%.  The applicable interest rate was 7.19% at December 1, 1999 and 6.09% at 
December 1, 1998.
        The 5% Convertible Debentures are convertible into shares of common stock at a 
conversion rate of 29-1/2 shares for each $1,000 principal amount.  In December 2000, this 
series was called for early redemption on February 1, 2001.
        The $666.8 million of recourse debt is primarily from institutional lenders maturing at 
various dates between 2001 and 2005.  The interest rates of such borrowings ranged from 5% to 
9.7%.  The weighted average interest rate was 7.30% at December 31, 2000 and December 31, 
1999.
        Long-term debt also includes $31 million of non-recourse debt, $3.2 million of which is 
secured by aircraft currently under operating leases.  The debt is payable in monthly installments 
at rates of LIBOR (London Interbank Offered Rate) plus 1.25% with final maturity on August 
15, 2001.  In addition, non-recourse debt includes $21 million associated with a direct finance 
lease which is due to mature in 2018.  The remaining non-recourse debt of $6.8 million is related 
to majority-owned real estate partnerships and is payable in monthly installments at a fixed rate 
of interest of 9.66%, with final maturity on October 1, 2011.
        The aggregate amounts of maturities for utility long-term debt outstanding at December 31, 
2000, are $625 million in 2001, $40 million in 2002, $50 million in 2003, zero in 2004, $100 
million in 2005, and $1,175 million thereafter.
        Refer to Note (13) of the Notes to Consolidated Financial Statements, Commitments and 
Contingencies, for a discussion of the Company's capital lease obligations.

|(8) Income Taxes                                                                                                                                                     |   |                                 |   |        |   |      
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------- | - | ------------------------------- | - | ------ | - | -----
|The provision for income taxes, reconciliation of consolidated income tax expense, and components of consolidated deferred tax liabilities (assets) are shown below.
|                                                                                                                                                                     |   |                                 |   |        |   |      
|Provision for Income Taxes                                                                                                                                           |   |                                 |   |        |   |      
|                                                                                                                                                                     |   | For the Year Ended December 31,
|                                                                                                                                                                     |   | 2000                            |   | 1999   |   | 1998 
|                                                                                                                                                                     |   | (Millions of Dollars)          
|Current Tax Expense                                                                                                                                                  |   |                                 |   |        |   |      
|Federal                                                                                                                                                              | $ | 465.8                           | $ | 57.2   | $ | 111.2
|State and local                                                                                                                                                      |   | 114.9                           |   | 16.9   |   | 12.1 
|Total Current Tax Expense                                                                                                                                            |   | 580.7                           |   | 74.1   |   | 123.3
|Deferred Tax Expense                                                                                                                                                 |   |                                 |   |        |   |      
|Federal                                                                                                                                                              |   | (247.2)                         |   | 42.8   |   | (1.7)
|State and local                                                                                                                                                      |   | (19.6)                          |   | 1.2    |   | 4.3  
|Investment tax credits                                                                                                                                               |   | 27.3                            |   | (3.6)  |   | (3.6)
|Total Deferred Tax Expense                                                                                                                                           |   | (239.5)                         |   | 40.4   |   | (1.0)
|                                                                                                                                                                     |   |                                 |   |        |   |      
|Total Income Tax Expense                                                                                                                                             | $ | 341.2                           | $ | 114.5  | $ | 122.3
|                                                                                                                                                                     |   |                                 |   |        |   |      
|                                                                                                                                                                     |   |                                 |   |        |   |      
|Reconciliation of Consolidated Income Tax Expense                                                                                                                    |   |                                 |   |        |   |      
|                                                                                                                                                                     |   | For the Year Ended December 31,
|                                                                                                                                                                     |   | 2000                            |   | 1999   |   | 1998 
|                                                                                                                                                                     |   | (Millions of Dollars)          
|Income Before Income Taxes                                                                                                                                           | $ | 693.2                           | $ | 361.6  | $ | 348.6
|Income tax at federal statutory rate                                                                                                                                 | $ | 242.6                           | $ | 126.5  | $ | 122.0
|Increases (decreases) resulting from                                                                                                                                 |   |                                 |   |        |   |      
|Depreciation                                                                                                                                                         |   | 11.7                            |   | 11.5   |   | 10.9 
|Removal costs                                                                                                                                                        |   | (5.6)                           |   | (5.0)  |   | (6.0)
|Allowance for funds used during construction                                                                                                                         |   | 0.9                             |   | 0.3    |   | 0.5  
|State income taxes, net of federal effect                                                                                                                            |   | 63.3                            |   | 11.8   |   | 10.7 
|Tax credits                                                                                                                                                          |   | (4.8)                           |   | (4.7)  |   | (4.0)
|Dividends received deduction                                                                                                                                         |   | (3.4)                           |   | (4.1)  |   | (4.4)
|Reversal of previously accrued deferred taxes                                                                                                                        |   | (2.1)                           |   | -      |   | (1.0)
|Taxes related to divestitures at non-statutory rates                                                                                                                 |   | 48.3                            |   | -      |   | -    
|Other                                                                                                                                                                |   | (9.7)                           |   | (21.8) |   | (6.4)
|                                                                                                                                                                     |   |                                 |   |        |   |      
|Total Income Tax Expense                                                                                                                                             | $ | 341.2                           | $ | 114.5  | $ | 122.3

|Components of Consolidated Deferred Tax Liabilities (Assets)                                                  |   |                       |   |         |  | 
|------------------------------------------------------------------------------------------------------------- | - | --------------------- | - | ------- |  | 
|                                                                                                              |   | At December 31,       |   |        
|                                                                                                              |   | 2000                  |   | 1999    |  | 
|                                                                                                              |   | (Millions of Dollars) |   |        
|Deferred Tax Liabilities (Assets)                                                                             |   |                       |   |         |  | 
|Depreciation and other book to tax basis differences                                                          | $ | 500.8                 | $ | 903.9   |  | 
|Rapid amortization of certified pollution control
       facilities and prepayment premium on debt retirement |   | 4.9                   |   | 45.0    |  | 
|Deferred taxes on amounts to be collected through
       future rates                                         |   | 17.5                  |   | 85.5    |  | 
|Deferred investment tax credit                                                                                |   | (17.5)                |   | (18.9)  |  | 
|Contributions in aid of construction                                                                          |   | (42.4)                |   | (34.3)  |  | 
|Conservation costs (demand side management)                                                                   |   | -                     |   | 42.5    |  | 
|Finance and operating leases                                                                                  |   | 122.2                 |   | 96.4    |  | 
|Alternative minimum tax                                                                                       |   | -                     |   | (27.6)  |  | 
|Assets with a tax basis greater than book basis                                                               |   | (23.8)                |   | (28.5)  |  | 
|Customer Sharing                                                                                              |   | (98.1)                |   | -       |  | 
|Transition Costs                                                                                              |   | (13.1)                |   | -       |  | 
|Property taxes, contributions to pension plan, and other                                                      |   | (8.9)                 |   | 4.8     |  | 
|                                                                                                              |   |                       |   |         |  | 
|Total Deferred Tax Liabilities, Net                                                                           |   | 441.6                 |   | 1,068.8 |  | 
|Current portion of deferred tax liabilities
     (included in Other Current Liabilities)                      |   | 22.9                  |   | 16.0    |  | 
|                                                                                                              |   |                       |   |         |  | 
|Total Deferred Tax Liabilities, Net - Non-Current                                                             | $ | 418.7                 | $ | 1,052.8 |  | 

The net deferred tax liability represents the tax effect, at presently enacted tax rates, of 
temporary differences between the financial statement and tax bases of assets and liabilities.  
The portion of the net deferred tax liability applicable to Pepco's operations, which has not been 
reflected in current service rates, represents income taxes recoverable through future rates, net 
and is recorded as a regulatory asset on the balance sheet.  No valuation allowance for deferred 
tax assets was required or recorded at December 31, 2000 and 1999.
        The Tax Reform Act of 1986 repealed the Investment Tax Credit (ITC) for property placed 
in service after December 31, 1985, except for certain transition property.  ITC previously earned 
on Pepco's property continues to be normalized over the remaining service lives of the related 
assets.
        The Company files a consolidated federal income tax return.  The Company's federal 
income tax liabilities for all years through 1995 have been determined.  The Company is of the 
opinion that the final settlement of its federal income tax liabilities for subsequent years will not 
have a material adverse effect on its financial position or results of operations.
OTHER TAXES
        Taxes, other than income taxes, charged to operating expense for each period are shown 
below.

|                             | 2000                  | 1999    | 1998   
|---------------------------- | --------------------- | ------- | -------
|                             | (Millions of Dollars)
|Gross receipts               | $  90.1               | $  91.8 | $  98.4
|Property                     | 67.7                  | 72.7    | 71.0   
|Payroll                      | 9.7                   | 9.7     | 10.9   
|County fuel-energy           | 16.8                  | 16.4    | 15.8   
|Environmental, use and other | 23.1                  | 10.5    | 8.3    
|                             | $207.4                | $201.1  | $204.4 

(9)    SERIAL PREFERRED STOCK AND REDEEMABLE PREFERRED STOCK
        The Company has authorized 7,750,000 shares of cumulative $50 par value Serial Preferred 
Stock.  At December 31, 2000 and 1999, there were 1,806,543 shares and 2,000,000 shares 
outstanding, respectively.  The various series of Preferred Stock outstanding and the per share 
redemption price at which each series may be called by the Company are as follows.

|                                                   | RedemptionPrice | December 31,
   2000              1999
|-------------------------------------------------- | --------------- | --------------------------------------
|                                                   |                 | (Millions of Dollars)                 
|$2.44 Series of 1957, 275,041 and 300,000 shares   | $51.00          | $13.7                                 
|$2.46 Series of 1958, 213,942 and 300,000 shares   | $51.00          | 10.7                                  
|$2.28 Series of 1965, 327,560 and 400,000 shares   | $51.00          | 16.4                                  
|                                                   |                 |                                       
|                                                   |                 | $40.8                                 
|$3.40 Series of 1992, 990,000 and 1,000,000 shares |                 | $49.5                                 



|Calculations of Earnings Per Share of Common Stock                                                               
|-----------------------------------------------------------------------------------------------------------------
|                                                                                                                 
|Reconciliations of the numerator and denominator for basic and diluted earnings per common share are shown below.
|                                                                                                                 
|                                                                                                                 
|(Millions, except Per Share Data)                                                                                
|Income (Numerator):                                                                                              
|Earnings applicable to common stock                                                                              
|Add:  Interest paid or accrued on Convertible Debentures,
     net of related taxes                              
|Earnings Applicable to Common Stock, Assuming 
     Conversion of Convertible Securities                         
|Shares (Denominator):                                                                                            
|Average shares outstanding for computation of basic
     earnings per share of common stock                      
|Average shares outstanding for diluted computation:                                                              
|Average shares outstanding                                                                                       
|Additional shares resulting from:
     Conversion of Convertible Debentures                                      
|Average Shares Outstanding for Computation of Diluted
     Earnings Per Share of Common Stock                    
|                                                                                                                 
|Basic earnings per share of common stock                                                                         
|Diluted earnings per share of common stock                                                                       



|                                                                               | 2000                  | 1999             
|------------------------------------------------------------------------------ | --------------------- | -----------------
|                                                                               | (Millions of Dollars)
|Income taxes recoverable through future rates, net
Customer sharing commitment | $   43.5
  (243.8)    | $226.0
         -
|Conservation costs, net                                                        | -                     | 163.2            
|Unamortized debt reacquisition costs                                           | 26.7                  | 49.4             
|Deferred fuel liability, net                                                   | (13.7)                | (40.4)           
|Other                                                                          | 1.2                   | 13.5             
|Net Regulatory (Liability)/Asset                                               | $(186.1)              | $411.7           

The Company's Generation Assets (divested to Southern Energy on December 19, 2000) 
were deregulated as of December 31, 1999, and the application of SFAS 71 was discontinued for 
this portion of the Company's business.  Under the terms of the Maryland and D.C. Agreements, 
all stranded costs, including future costs related to plant removal associated with divested 
generation facilities, plus all above-market costs associated with purchased power obligations, 
regulatory assets and obligations, and related expenses incurred by the Company in preparation 
for the implementation of retail competition were offset against the proceeds from the sale of the 
Generation Assets. 
LEASES
        The Company leases its general office building and certain data processing and duplicating 
equipment, motor vehicles, communication system and construction equipment under long-term 
lease agreements.  The lease of the general office building expires in 2002, and leases of 
equipment extend for periods of up to six years.  Charges under such leases are accounted for as 
operating expenses or construction expenditures, as appropriate.
        PCI is in the process of building, owning and financing a new 10-story, 360,000 square foot 
commercial office building at an estimated cost of $92 million.  The new building is expected to 
be completed in mid-2001.  The Utility will lease the majority of the office space from PCI.  As 
of December 31, 2000, PCI has invested $56.3 million related to the acquisition of land and 
development of the new building.
        Rents, including property taxes and insurance, net of rental income from subleases, 
aggregated approximately $18.6 million in 2000, $18.7 million in 1999, and $18.4 million in 
1998.  The approximate annual commitments under all operating leases, reduced by rentals to be 
received under subleases, are $9.7 million for 2001, $4.9 million for 2002, $1.5 million for 2003, 
$.7 million for 2004, $.4 million for 2005, and a total of $4.8 million for the years thereafter.
        The Utility leases its consolidated control center, an integrated energy management center 
used by the Utility's power dispatchers to centrally control the operation of the Utility's 
transmission and distribution systems.  The lease is accounted for as a capital lease and was 
recorded at the present value of future lease payments, which totaled $152 million.  The lease 
requires semi-annual payments of $7.6 million over a 25-year period and provides for transfer of 
ownership of the system to the Utility for $1 at the end of the lease term.  Under SFAS 71, the 
amortization of leased assets is modified so that the total of interest on the obligation and 
amortization of the leased asset is equal to the rental expense allowed for rate-making purposes.  
This lease has been treated as an operating lease for rate-making purposes.  Accordingly, the 
Company has recorded a regulatory asset of approximately $41 million and $35 million at 
December 31, 2000 and 1999, respectively.
OTHER ENVIRONMENTAL CONTINGENCIES
        The Company is subject to contingencies associated with environmental matters, principally 
related to possible obligations to remove or mitigate the effects on the environment of the 
disposal of certain substances at the sites discussed below.
        On May 22, 1998, the State of Maryland issued final regulations entitled, "Post RACT 
Requirements for Nitrogen Oxides (NOx) Sources (NOx Budget Proposal)," requiring a 65% 
reduction in NOx emissions at the Company's Maryland generating units by May 1, 1999.  The 
regulations allow the purchase or trade of NOx emission allowances to fulfill this obligation.  
The Company appealed this regulation to the Circuit Court for Charles County, Maryland, in 
June 1998, on the basis that the regulation does not provide adequate time for the installation of 
NOx emission reduction technology and that there is no functioning NOx allowance market.  In 
July 1998, the case was moved to the Circuit Court for Baltimore City and consolidated with a 
similar appeal filed by Baltimore Gas and Electric Company.  On February 23, 1999, the Circuit 
Court for Baltimore City declared the Maryland NOx Budget Proposal to be invalid and 
remanded it to the Department of Environment.  On September 13, 1999, the Company reached 
agreement with the Maryland Department of Environment to meet the 65% NOx emission 
reduction requirement by May 1, 2001.  With the sale of its Generation Assets on December 19, 
2000, obligations associated with the NOx reduction agreement were transferred to Southern 
Energy.
        In October 1997, the Company received notice from the EPA that it, along with 68 other 
parties, may be a Potentially Responsible Party (PRP) under the Comprehensive Environmental 
Response Compensation and Liability Act (CERCLA or Superfund) at the Butler Mine Tunnel 
Superfund site in Pittstown Township, Luzerne County, Pennsylvania.  The site is a mine 
drainage tunnel with an outfall on the Susquehanna River where oil waste was disposed of via a 
borehole in the tunnel.  The letter notifying the Company of its potential liability also contained a 
request for a reimbursement of approximately $.8 million for response costs incurred by EPA at 
the site.  The letter requested that the Company submit a good faith proposal to conduct or 
finance the remedial action contained in a July 1996 Record of Decision (ROD).  The EPA 
estimated the cost of the remedial action to be $3.7 million.  The Company reached a settlement 
with a group of large PRPs wherein the Company paid a small share of the estimated remedial 
action cost and received in return indemnification for past, present and future liability associated 
with the conditions that gave rise to EPA's ROD.  While the agreement does not resolve the 
Company's liability with respect to claims brought by EPA or others not a party to the 
agreement, the Company believes that it is sufficiently protected by the indemnity agreement that 
any such liability will not have a material adverse effect on its financial position or results of 
operations.
        In December 1995, the Company received notice from the EPA that it is a PRP with respect 
to the release or threatened release of radioactive and mixed radioactive and hazardous wastes at 
a site in Denver, Colorado, operated by RAMP Industries, Inc.  Evidence indicates that the 
Company's connection to the site arises from an agreement with a vendor to package, transport 
and dispose of two laboratory instruments containing small amounts of radioactive material at a 
Nevada facility.  While the Company cannot predict its liability at this site, the Company 
believes that it will not have a material adverse effect on its financial position or results of 
operations.
        In October 1995, the Company received notice from the EPA that it, along with several 
hundred other companies, may be a PRP in connection with the Spectron Superfund Site located 
in Elkton, Maryland.  The site was operated as a hazardous waste disposal, recycling, and 
processing facility from 1961 to 1988.  A group of PRPs allege, based on records they have 
collected, that the Company's share of liability at this site is .0042%.  The EPA has also indicated 
that a de minimis settlement is likely to be appropriate for this site.  While the outcome of 
negotiations and the ultimate liability with respect to this site cannot be predicted, the Company 
believes that its liability at this site will not have a material adverse effect on its financial 
position or results of operations.
        In December 1987, the Company was notified by the EPA that it, along with several other 
utilities and nonutilities, is a PRP in connection with the polychlorinated biphenyl compounds 
(PCBs) contamination of a Philadelphia, Pennsylvania, site owned by a nonaffiliated company.  
In the early 1970s, the Company sold scrap transformers, some of which may have contained 
some level of PCBs, to a metal reclaimer operating at the site.  In October 1994, a Remedial 
Investigation/Feasibility Study (RI/FS) including a number of possible remedies was submitted 
to the EPA.  In December 1997, the EPA signed a ROD that set forth a selected remedial action 
plan with estimated implementation costs of approximately $17 million.  In June 1998, the EPA 
issued a unilateral Administrative Order to the Company and 12 other PRPs to conduct the 
design and actions called for in the ROD.  To date, the Company has accrued $1.7 million for its 
share of these costs.
        	The Company's Benning Service Center facility operates under a National Pollutant 
Discharge Elimination System (NPDES) permit.  The EPA issued an NPDES permit for this 
facility in November 2000.  The Company has filed a petition with the EPA Environmental 
Appeals Board seeking review and reconsideration of certain provisions of the EPA's permit 
determination.
LITIGATION
        During 1993, the Company was served with Amended Complaints filed in three 
jurisdictions (Prince George's County, Baltimore city and Baltimore County), in separate 
ongoing, consolidated proceedings each denominated, "In re: Personal Injury Asbestos Case."  
The Company (and other defendants) were brought into these cases on a theory of premises 
liability under which plaintiffs argue that the Company was negligent in not providing a safe 
work environment for employees of its contractors who allegedly were exposed to asbestos while 
working on the Company's property.  Initially, a total of approximate 448 individual plaintiffs 
added the Company to their Complaints.  While the pleadings are not entirely clear, it appears 
that each plaintiff seeks $2 million in compensatory damages and $4 million in punitive damages 
from each defendant.  In a related proceeding in the Baltimore City case, the Company was 
served, in September 1993, with a third-party complaint by Owens Corning Fiberglass, Inc., 
(Owens Corning) alleging that Owens Corning was in the process of settling approximately 700 
individual asbestos-related cases and seeking a judgment for contribution against the Company 
on the same theory of alleged negligence set forth above in the plaintiffs' case.  Subsequently, 
Pittsburgh Corning Corp. (Pittsburgh Corning) filed a third-party complaint against the 
Company, seeking contribution for the same plaintiffs involved in the Owens Corning third-party 
complaint.  Since the initial filings in 1993, approximately 90 additional individual suits have 
been filed against the Company.  The third-party complaints involving Pittsburgh Corning and 
Owens Corning were dismissed by the Baltimore City Court during 1994 without any payment 
by the Company.  Through December 31, 2000, approximately 400 of the individual plaintiffs 
have dismissed their claims against the Company.  While the aggregate amount specified in the 
remaining suits would exceed $400 million, the Company believes the amounts are greatly 
exaggerated, as were the claims already disposed of.  The amount of total liability, if any, and 
any related insurance recovery cannot be precisely determined at this time; however, based on 
information and relevant circumstances known at this time, the Company does not believe these 
suits will have a material adverse effect on its financial position.  However, an unfavorable 
decision rendered against the Company could have a material adverse effect on results of 
operations in the year in which a decision is rendered.
        The Company is involved in other legal and administrative (including environmental) 
proceedings before various courts and agencies with respect to matters arising in the ordinary 
course of business.  Management is of the opinion that the final disposition of these proceedings 
will not have a material adverse effect on the Company's financial position or results of 
operations.
LABOR AGREEMENT
        A four-year Agreement (Labor Agreement) between the Company and Local 1900 of the 
International Brotherhood of Electrical Workers (IBEW) was ratified on December 18, 1998, by 
Union members.  The Labor Agreement provides for a general wage increase of 3% each year in 
1999, 2000 and 2001, beginning February 14, 1999, and 3% increase in wages in the fourth year 
of the contract (2002) unless either party elects to reopen the Labor Agreement.  The Company 
also agreed to a 3% lump-sum payment for the period of January 3, 1999, to February 14, 1999.  
In addition, the Labor Agreement resolves important issues that will arise based on the 
Company's divestiture of its Generation Assets and establishes a framework for ongoing progress 
towards improving management and union relations with joint committees.  At December 31, 
2000, 1,475 of the Company's 2,566 employees were represented by the IBEW.

|(14)  Fair Value of Financial Instruments                                                                                                 
|------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                          
|                                                                                                                                          
|The estimated fair values of the Company's financial instruments at December 31, 2000 and 1999 are shown below.                           
|                                                                                                                                          
|At December 31,                                                                                                                           
|                                                                                                                                          
|(Millions of Dollars)                                                                                                                     
|                                                                                                                                          
|                                                                                                                                          
|Assets                                                                                                                                    
|Marketable securities                                                                                                                     
|Notes receivable                                                                                                                          
|                                                                                                                                          
|Liabilities and Capitalization                                                                                                            
|Long-Term Debt                                                                                                                            
|First mortgage bonds                                                                                                                      
|Medium-term notes                                                                                                                         
|Convertible debentures                                                                                                                    
|Recourse and non-recourse debt                                                                                                            
|                                                                                                                                          
|Company Obligated Mandatorily Redeemable Preferred
Securities of Subsidiary Trust which holds Solely Parent
Junior Subordinated Debentures
|Serial Preferred Stock                                                                                                                    
|Redeemable Serial Preferred Stock                                                                                                         

The methods and assumptions below were used to estimate, at December 31, 2000 and 
1999, the fair value of each class of financial instruments shown above for which it is practicable 
to estimate that value.
        The fair value of the Marketable Securities was based on quoted market prices.
        The fair value of the Notes Receivable was based on discounted future cash flows using 
current rates and similar terms.
        The fair value of the Long-term Debt, which includes First Mortgage Bonds, Medium-Term 
Notes and Convertible Debentures, excluding amounts due within one year, was based on the 
current market prices or for issues with no market price available, was based on discounted cash 
flows using current rates for similar issues with similar terms and remaining maturities.  The fair 
value of the recourse and the non-recourse debt held by PHI, excluding amounts due within one 
year, was based on current rates offered to similar companies for debt with similar remaining 
maturities.
        The fair value of the Serial Preferred Stock, Redeemable Serial Preferred Stock and 
Company Obligated Mandatorily Redeemable Preferred Securities of Subsidiary Trust, 
excluding amounts due within one year, was based on quoted market prices or discounted cash 
flows using current rates of preferred stock with similar terms.
        The fair value of the interest rate swap agreements is discussed in Note (15) of the 
accompanying Notes to Consolidated Financial Statements, Risk Management Activities.
        The carrying amounts of all other financial instruments approximate fair value.(15)  RISK MANAGEMENT ACTIVITIES
UTILITY
        The Utility enters into forward and option agreements for the purchase and sale of power.  
The intent of these agreements is to either secure power for retail customers at advantageous 
prices or to obtain profitable prices for power generated by the Utility's facilities.
PCI AND PEPCO ENERGY SERVICES
        PCI has entered into interest rate swap agreements to fix certain variable rate debt under its 
Medium-Term Note program in order to reduce its exposure to interest rate fluctuations.  These 
agreements have a notional amount of approximately $29 million at December 31, 2000.  The 
interest rate differential to be paid or received on the swap agreements is accrued as interest rates 
change and is recognized as an adjustment to interest expense.  As of December 31, 2000, the 
interest rate swap agreements have an average life of approximately four years with a fixed rate 
of 6.42% and variable rate of 6.46%.  The fair value of these interest rate swap agreements, 
based on quoted market prices, was approximately $.1 million as of December 31, 2000.
        Pepco Energy Services enters into agreements to sell electricity and natural gas to 
customers and generally operates to secure firm, fixed-commitments to meet its fixed price sales 
obligations and to match floating price sales agreements with floating price supply agreements.
ACCOUNTING TREATMENT
        Pepco Energy Services manages its portfolio of energy purchases and sales to customers 
using a variety of instruments including forward contracts, swap agreements, option contracts 
and futures contracts.  Active portfolio management allows Pepco Energy Services to effectively 
manage and hedge the risk of its firm, fixed price supply commitments to meet its fixed price 
sales obligations.  Pepco Energy Services' management takes an active role in the risk 
management process and has developed policies and procedures that require specific 
administrative and business functions to assist in the identification, assessment and control of 
various risks.  Management reviews any open positions in accordance with strict policies in order 
to limit exposure to market risk.  Pepco Energy Services accounts for certain commodity 
transactions in accordance with guidance provided by Emerging Issues Task Force Issue 98-10.  
Unrealized gains and losses on such transactions are recorded as assets and liabilities at each 
reporting period.  The market prices used to value these transactions reflect the best estimate of 
market prices considering various factors including closing exchange and over-the-counter 
quotations and price.
        Additionally, the effective date of Statement of Financial Accounting Standards No. 133 
(SFAS 133), "Accounting for Derivative Instruments and Hedging Activities," was delayed and 
will become effective for the Company's 2001 calendar year financial statements.  Accordingly, 
the Company adopted SFAS 133 on January 1, 2001.  At that date, the cumulative effect of the 
implementation of SFAS 133 did not have a material impact on the Company's consolidated 
results of operations, financial position, or cash flows.

|(16)  Quarterly Financial Summary (Unaudited)                                                                                                                                                                                                                                                                                                                                                     |   |            |  |            |  |            |  |            |  |         |  | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | - | ---------- |  | ---------- |  | ---------- |  | ---------- |  | ------- |  | 
|                                                                                                                                                                                                                                                                                                                                                                                                  |   | 1stQuarter |  | 2ndQuarter |  | 3rdQuarter |  | 4thQuarter |  | Total   |  | 
|(Millions of Dollars, except Per Share Data)                                                                                                                                                                                                                                                                                                                                                      |   |            |  |            |  |            |  |            |  |         |  | 
|                                                                                                                                                                                                                                                                                                                                                                                                  |   |            |  |            |  |            |  |            |  |         |  | 
|2000                                                                                                                                                                                                                                                                                                                                                                                              |   |            |  |            |  |            |  |            |  |         |  | 
|Total Operating Revenue                                                                                                                                                                                                                                                                                                                                                                           | $ | 529.2      |  | 653.1      |  | 835.7      |  | 1029.7     |  | 3,047.7 |  | 
|Total Operating Expenses                                                                                                                                                                                                                                                                                                                                                                          | $ | 508.7      |  | 552.0      |  | 629.7      |  | 637.8      |  | 2,328.2 |  | 
|Loss from Equity Investments,                                                                                                                                                                                                                                                                                                                                                                     |   |            |  |            |  |            |  |            |  |         |  | 
|Principally Telecommunication Entities                                                                                                                                                                                                                                                                                                                                                            | $ | (3.9)      |  | (4.0)      |  | (3.2)      |  | (6.0)      |  | (17.1)  |  | 
|Operating Income                                                                                                                                                                                                                                                                                                                                                                                  | $ | 16.6       |  | 97.1       |  | 202.8      |  | 385.9      |  | 702.4   |  | 
|Net Income                                                                                                                                                                                                                                                                                                                                                                                        | $ | 9.7        |  | 58.0       |  | 120.8      |  | 163.5      |  | 352.0   |  | 
|Earnings Available for Common Stock                                                                                                                                                                                                                                                                                                                                                               | $ | 8.3        |  | 56.6       |  | 119.5      |  | 162.1      |  | 346.5   |  | 
|Basic Earnings Per Share of Common Stock                                                                                                                                                                                                                                                                                                                                                          | $ | .07        |  | .48        |  | 1.07       |  | 1.46       |  | 3.02    |  | 
|Diluted Earnings Per Share of Common Stock                                                                                                                                                                                                                                                                                                                                                        | $ | .07        |  | .47        |  | 1.04       |  | 1.43       |  | 2.96    |  | 
|Cash Dividends Per Common Share                                                                                                                                                                                                                                                                                                                                                                   | $ | .415       |  | .415       |  | .415       |  | .415       |  | 1.66    |  | 
|                                                                                                                                                                                                                                                                                                                                                                                                  |   |            |  |            |  |            |  |            |  |         |  | 
|1999                                                                                                                                                                                                                                                                                                                                                                                              |   |            |  |            |  |            |  |            |  |         |  | 
|Total Operating Revenue                                                                                                                                                                                                                                                                                                                                                                           | $ | 512.0      |  | 600.0      |  | 861.7      |  | 502.3      |  | 2,476.0 |  | 
|Total Operating Expenses                                                                                                                                                                                                                                                                                                                                                                          | $ | 467.6      |  | 508.6      |  | 610.8      |  | 507.8      |  | 2,095.6 |  | 
|Loss from Equity Investments,                                                                                                                                                                                                                                                                                                                                                                     |   |            |  |            |  |            |  |            |  |         |  | 
|Principally Telecommunication Entities                                                                                                                                                                                                                                                                                                                                                            | $ | (3.1)      |  | (1.7)      |  | (2.6)      |  | (2.8)      |  | (9.6)   |  | 
|Operating Income (Loss)                                                                                                                                                                                                                                                                                                                                                                           | $ | 41.3       |  | 89.7       |  | 248.3      |  | (8.6)      |  | 370.8   |  | 
|Net Income (Loss)                                                                                                                                                                                                                                                                                                                                                                                 | $ | 26.0       |  | 75.3       |  | 154.0      |  | (8.2)      |  | 247.1   |  | 
|Earnings (Loss) Available for Common Stock                                                                                                                                                                                                                                                                                                                                                        | $ | 24.0       |  | 73.3       |  | 151.9      |  | (11.1)     |  | 238.2   |  | 
|Basic Earnings (Loss) Per Share of Common Stock                                                                                                                                                                                                                                                                                                                                                   | $ | .20        |  | .62        |  | 1.28       |  | (.09)      |  | 2.01    |  | 
|Diluted Earnings (Loss) Per Share of Common Stock                                                                                                                                                                                                                                                                                                                                                 | $ | .20        |  | .61        |  | 1.25       |  | (.09)      |  | 1.98    |  | 
|Cash Dividends Per Common Share                                                                                                                                                                                                                                                                                                                                                                   | $ | .415       |  | .415       |  | .415       |  | .415       |  | 1.66    |  | 
|                                                                                                                                                                                                                                                                                                                                                                                                  |   |            |  |            |  |            |  |            |  |         |  | 
|1998                                                                                                                                                                                                                                                                                                                                                                                              |   |            |  |            |  |            |  |            |  |         |  | 
|Total Operating Revenue                                                                                                                                                                                                                                                                                                                                                                           | $ | 417.4      |  | 569.0      |  | 786.8      |  | 447.7      |  | 2,220.8 |  | 
|Total Operating Expenses                                                                                                                                                                                                                                                                                                                                                                          | $ | 409.0      |  | 463.8      |  | 537.0      |  | 448.2      |  | 1,858.0 |  | 
|Income (Loss) from Equity Investments,                                                                                                                                                                                                                                                                                                                                                            |   |            |  |            |  |            |  |            |  |         |  | 
|Principally Telecommunication Entities                                                                                                                                                                                                                                                                                                                                                            | $ | .1         |  | (1.0)      |  | (5.3)      |  | (2.3)      |  | (8.5)   |  | 
|Operating Income (Loss)                                                                                                                                                                                                                                                                                                                                                                           | $ | 8.5        |  | 104.2      |  | 244.5      |  | (2.8)      |  | 354.3   |  | 
|Net Income (Loss)                                                                                                                                                                                                                                                                                                                                                                                 | $ | 7.5        |  | 66.0       |  | 153.1      |  | (.3)       |  | 226.3   |  | 
|Earnings (Loss) Available for Common Stock                                                                                                                                                                                                                                                                                                                                                        | $ | 3.4        |  | 56.0       |  | 151.1      |  | (2.2)      |  | 208.3   |  | 
|Basic Earnings (Loss) Per Share of Common Stock                                                                                                                                                                                                                                                                                                                                                   | $ | .03        |  | .47        |  | 1.27       |  | (.02)      |  | 1.76    |  | 
|Diluted Earnings (Loss) Per Share of Common Stock                                                                                                                                                                                                                                                                                                                                                 | $ | .03        |  | .46        |  | 1.23       |  | (.02)      |  | 1.73    |  | 
|Cash Dividends Per Common Share                                                                                                                                                                                                                                                                                                                                                                   | $ | .415       |  | .415       |  | .415       |  | .415       |  | 1.66    |  | 
|                                                                                                                                                                                                                                                                                                                                                                                                  |   |            |  |            |  |            |  |            |  |         |  | 
|The Company's sales of electric energy are seasonal and, accordingly, comparisons by quarter within a year are not meaningful.                                                                                                                                                                                                                                                                    |  
|The totals of the four quarterly basic earnings per common share and diluted earnings per common share may not equal the basic 
earnings per common share and diluted earnings per common share for the year due to changes in the number of common shares 
outstanding during the year and, with respect to the diluted earnings per common share, changes in the amount of dilutive securities. |  

(17)  SUBSEQUENT EVENT (UNAUDITED)On February 12, 2001, the Company and Conectiv announced that its boards of directors 
approved an agreement for a strategic transaction whereby the Company will effectively acquire 
Conectiv for a combination of cash and stock valued at approximately $2.2 billion.  Both 
companies will become subsidiaries of a new holding company to be named at a later date.  The 
combination will be accounted for as a purchase and is expected to be completed in 
approximately 12 months.  Completion of the acquisition is subject to customary closing 
conditions, including stockholder approval by both companies, receipt of all regulatory approvals 
and making all necessary governmental filings.

|Stock Market Information                                                      |   |         |         |                |  |         |   |         |         |        
|----------------------------------------------------------------------------- | - | ------- | ------- | -------------- |  | ------- | - | ------- | ------- | -------
|2000                                                                          |   | High    | Low     | 1999           |  |         |   |         | High    | Low    
|1st Quarter                                                                   |   | $27.69  | $19.06  | 1st Quarter    |  |         |   |         | $26.50  | $23.00 
|2nd Quarter                                                                   |   | $27.88  | $20.94  | 2nd Quarter    |  |         |   |         | $31.75  | $23.13 
|3rd Quarter                                                                   |   | $27.44  | $23.63  | 3rd Quarter    |  |         |   |         | $31.31  | $25.06 
|4th Quarter                                                                   |   | $25.56  | $21.50  | 4th Quarter    |  |         |   |         | $28.06  | $21.25 
|(Close $24.71)                                                                |   |         |         | (Close $22.94) |  |         |   |        
|Shareholders at December 31, 2000: 61,151                                     |   |         |         |                |  |         |   |         |         |        
|                                                                              |   |         |         |                |  |         |   |         |         |        
|Selected Consolidated Financial Data                                          |   |         |         |                |  |         |   |         |         |        
|                                                                              |   | 2000    | 1999    | 1998           |  | 1997    |   | 1996    | 1995    | 1990   
|(In Millions, except Per Share Data)                                          |   |         |         |                |  |         |   |         |         |        
|Total Operating Revenue                                                       | $ | 3,047.7 | 2,476.0 | 2,220.8        |  | 1,997.1 |   | 2,141.2 | 2,019.2 | 1,616.5
|Total Operating Expenses                                                      | $ | 2,328.2 | 2,095.6 | 1,858.0        |  | 1,751.7 |   | 1,826.5 | 1,880.3 | 1,382.9
|Net Income                                                                    | $ | 352.0   | 247.1   | 226.3          |  | 181.8   |   | 237.0   | 94.4    | 170.2  
|Earnings Available for Common Stock                                           | $ | 346.5   | 238.2   | 208.3          |  | 165.3   |   | 220.4   | 77.5    | 159.6  
|Basic Common Shares Outstanding (Average)                                     |   | 114.9   | 118.5   | 118.5          |  | 118.5   |   | 118.5   | 118.4   | 98.6   
|Diluted Common Shares Outstanding (Average)                                   |   | 118.3   | 122.6   | 124.2          |  | 124.3   |   | 124.3   | 118.5   | 101.4  
|Basic Earnings (Loss) Per Share of Common Stock                               |   |         |         |                |  |         |   |         |         |        
|Utility:                                                                      |   |         |         |                |  |         |   |         |         |        
|Continuing Operations                                                         | $ | 1.61    | 1.85    | 1.63           |  | 1.25    | * | 1.72    | 1.70    | 1.57   
|Divestiture Gain                                                              |   | 1.58    | -       | -              |  | -       |   | -       | -       | -      
|Impairment Loss                                                               |   | (.20)   | -       | -              |  | -       |   | -       | -       | -      
|Total Utility                                                                 |   | 2.99    | 1.85    | 1.63           |  | 1.25    | * | 1.72    | 1.70    | 1.57   
|PCI                                                                           |   | .12     | .22     | .14            |  | .15     |   | .14     | (1.05)  | .05    
|Pepco Energy Services                                                         |   | (.08)   | (.06)   | (.01)          |  | (.01)   |   | -       | -       | -      
|PepMarket                                                                     |   | (.01)   | -       | -              |  | -       |   | -       | -       | -      
|Pepco Consolidated                                                            | $ | 3.02    | 2.01    | 1.76           |  | 1.39    | * | 1.86    | .65     | 1.62   
|Diluted Earnings (Loss) Per Share of Common Stock                             |   |         |         |                |  |         |   |         |         |        
|Utility:                                                                      |   |         |         |                |  |         |   |         |         |        
|Continuing Operations                                                         | $ | 1.59    | 1.82    | 1.61           |  | 1.24    | * | 1.69    | 1.70    | 1.56   
|Divestiture Gain                                                              |   | 1.54    | -       | -              |  | -       |   | -       | -       | -      
|Impairment Loss                                                               |   | (.20)   | -       | -              |  | -       |   | -       | -       | -      
|Total Utility                                                                 |   | 2.93    | 1.82    | 1.61           |  | 1.24    | * | 1.69    | 1.70    | 1.56   
|PCI                                                                           |   | .12     | .22     | .13            |  | .15     |   | .13     | (1.05)  | .05    
|Pepco Energy Services                                                         |   | (.08)   | (.06)   | (.01)          |  | (.01)   |   | -       | -       | -      
|PepMarket                                                                     |   | (.01)   | -       | -              |  | -       |   | -       | -       | -      
|Pepco Consolidated                                                            | $ | 2.96    | 1.98    | 1.73           |  | 1.38    | * | 1.82    | .65     | 1.61   
|Cash Dividends Per Share of Common Stock                                      | $ | 1.66    | 1.66    | 1.66           |  | 1.66    |   | 1.66    | 1.66    | 1.52   
|Investment in Property, Plant and Equipment                                   | $ | 4,284.7 | 6,784.3 | 6,657.8        |  | 6,514.1 |   | 6,321.6 | 6,161.1 | 4,696.0
|Net Investment in Property, Plant and Equipment                               | $ | 2,721.8 | 4,524.4 | 4,521.2        |  | 4,486.3 |   | 4,423.2 | 4,400.3 | 3,434.7
|Total Assets                                                                  | $ | 7,027.3 | 6,910.6 | 6,574.1        |  | 6,683.2 |   | 6,852.4 | 7,082.3 | 5,271.3
|Long-Term Obligations (including 
     redeemable preferred stock)            | $ | 2,034.1 | 3,042.0 | 2,738.5        |  | 3,033.4 |   | 3,069.2 | 3,173.3 | 1,516.1
|                                                                              |   |         |         |                |  |         |   |         |         |        
|* Includes ($.28) as the net effect of the write-off of merger-related costs.