1999 General Memorandum of Understanding

Whereas, the Potomac Electric Power Company (the "Company" or
"Pepco") and Local 1900 of the International Brotherhood of
Electrical Workers (the "Union") by mutual agreement conducted
early negotiations to establish a successor Collective Bargaining
Agreement to the 1998 Collective Bargaining Agreement and,

Whereas, the Company and the Union have agreed to a successor
Collective Bargaining Agreement (hereinafter referred to as the
"Agreement" or "CBA"), whose terms are set forth below;

It is, therefore, further agreed and understood between the
Company and Union that:

I.   Contract Duration
     The 1999 Agreement shall be effective upon ratification
     except as provided otherwise in this Agreement.  The term of
     this Agreement shall be to and including May 31, 2003 and it
     shall thereafter continue in full force and effect for
     succeeding periods of 12 calendar months each, unless either
     party, prior to April 1, 2003, or April 1 of any year
     thereafter, shall serve written notice upon the other party
     of its desire to amend and/or terminate the Agreement as of
     the following June 1.  The Contract shall read as set forth
     in the 1993 Collective Bargaining Agreement except to the
     extent modified herein or modified through other written
     agreements between the parties.  The Annex shall be modified
     consistent with written agreements between the parties since
     the signing of the 1993 Collective Bargaining Agreement.

II.  General Wage Increases
     A.   The Company shall provide a general wage increases
          (GWI) of 3% in 1999, 3% in 2000, and 3% in 2001 to
          eligible employees.  In 2002, there will also be a 3%
          increase unless either party, for any reason, provides
          60-days notice prior to June 1, 2002 of its intention
          to reopen the contact.  Any such reopener will be
          limited to wages and benefits.  If no agreement is
          reached regarding wages and benefits by June 1, 2002,
          either party may terminate the agreement at any time
          by giving 48 hours written notice thereof to the other
          party.

     B.   The 1999 increase shall be effective as soon as
          practicable after ratification.  If the Agreement is
          ratified in December 1998, the Company shall endeavor
          to place the GWI in effect by the payroll period
          beginning February 14, 1999.  The Company further
          agrees that if the Agreement is ratified in December
          1998, each employee employed in the bargaining unit
          from January 3, 1999, to the beginning of payroll
          period in which the 1999 GWI takes effect will receive
          a lump-sum payment of 3% of the employee's regular rate
          for a normal workweek (40 hours for hourly employees;
          38-3/4 for weekly employees) for the period between
          January

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             1999 General Memorandum of Understanding


          3, 1999, and the beginning of the payroll period in
          which the 1999 GWI goes into effect.  The 2000 increase
          shall be effective the payroll period beginning
          June 4, 2000.  The 2001 increase shall be effective the
          payroll period beginning June 3, 2001.  Unless either
          party requests a reopener, the 2002 increase shall be
          effective the payroll period beginning June 2, 2002. 
          If a reopener is requested, the time and amount of any
          increase shall be subject to negotiations in 2002.

III. Divestiture Issues
     The industry is in the midst of a major restructuring, with
     the possibility that it may be either necessary or prudent,
     in the Company's sole judgment, to sell generation or other
     corporate assets or operations to a third party or to
     transfer assets or operations to a subsidiary, pursuant to a
     joint venture or other business combination(s). In such
     cases, employees who are offered employment by the new
     employer shall have their employment at Pepco terminated on
     the closing or transfer date and shall have no future rights
     under the collective bargaining agreement (hereinafter
     "CBA") with respect to Pepco.  Nothing in CBA shall require
     a different result.  The Company shall bargain with the
     Union regarding the effects of any such transaction on
     bargaining-unit employees and has already conducted effects
     bargaining with respect to the possible divestiture of
     generation assets (see IV, immediate below).

IV.  The Company and Union have conducted "effects bargaining"
     regarding the possible divestiture of generation assets and
     agree as follows:

     A.   With respect to the divestiture of generation assets,
          the Company agrees that as a condition of divestiture,
          the Company will:

          1.   Require any Buyer to offer employment from and
               after the closing to all affected bargaining-unit
               employees, including employees absent from active
               service due to illness or leave of absence,
               whether paid or unpaid (excluding employees on LTD
               as of the closing date who will remain as Pepco
               employees).  It is anticipated that the all
               bargaining-unit employees in the Generation
               Business Unit will be affected as well as some
               employees in areas that directly support
               Generation. In the event that some, but not all,
               employees in an occupational group are affected,
               the Company will initially solicit volunteers,
               with the most senior employees getting the first
               opportunity to elect whether to stay at Pepco or
               go with a Buyer.  If there are insufficient
               volunteers, the least senior employees will be
               offered employment with the Buyer.


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             1999 General Memorandum of Understanding


          2.   Require any Buyer to recognize the Union as the
               exclusive bargaining representative of affected
               bargaining-unit employees ("affected bargaining-
               unit employees" are employees who are offered
               employment by any Buyer).

          3.   Subject to paragraph B. below, require any Buyer
               to assume the 1999 CBA for those affected
               bargaining-unit employees who transfer to the
               Buyer.

          4.   Require any Buyer to provide employees with full
               credit for service with Pepco, including retention
               of seniority under the provisions of the 1999 CBA.
               For example, if at time of closing employee X has
               15 years of service with Pepco, then he/she will
               be deemed to have 15 years of service with the
               Buyer under the 1999 CBA.

          5.   Require any Buyer to agree that, should any other
               business entity (regardless of relationship to the
               Buyer) acquire the generation assets from the
               Buyer prior to the expiration of the 1999 CBA, the
               Buyer will require this third party to assume the
               conditions set forth immediately above in 
               IV.A.1, 2, 3 and 4.

     B.   Employee Benefits
          The Company will further require any Buyer to provide
          benefits to affected bargaining-unit employees
          substantially equivalent to those provided under the
          CBA.  In doing so, the Buyer shall have the right to
          use different providers and to establish its own
          benefit plans or use its existing plans.  There shall
          be no duplication of benefits.  The Company shall
          require any Buyer to recognize service with Pepco for
          purposes of eligibility and vesting and benefit
          calculations in any benefit plan, program, or fringe
          benefit arrangement.

          1.   With respect to the General Retirement Plan (GRP),
               Pepco will coordinate information and efforts with
               the Buyer to enable the Buyer to provide affected
               employees no less than the GRP benefit with
               respect to their service with the Buyer during the
               term of the CBA as they would have received had
               they remained at Pepco.  More specifically, the
               Company shall require any Buyer to agree to credit
               all past service with the Company (subject to
               Pepco's General Retirement provisions) for
               eligibility for participation, vesting, early
               retirement subsidies and benefit accrual service. 
               The Company shall be responsible for affected
               employees' benefits accrued through the date of
               closing.  After the 


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             1999 General Memorandum of Understanding


               date of closing, the Buyer shall be responsible
               for benefits accrued during the remainder of the
               1999 CBA by such affected employees.  The Buyer's
               plan may offset the benefit it pays by the benefit
               paid by the Company's plan.

          2.   For purposes of health care coverage, the Company
               shall require any Buyer to waive all limitations
               regarding pre-existing condition exclusions,
               actively at work exclusions and waiting periods
               for employees who become employees of the Buyer. 
               Further, during the calendar year in which closing
               occurs, all health care expenses incurred by
               affected bargaining-unit employees that were
               qualified to be taken into account for purposes of
               satisfying any deductible or out-of-pocket limit
               under Pepco's health care plans shall be taken
               into account for purposes of satisfying any
               deductible or out-of-pocket limit under the
               Buyer's health care plans for such calendar year.

          3.   Any Buyer shall be required to give affected
               bargaining-unit employees full credit for all
               vacation, sick leave or comp time benefits accrued
               but not used as of the closing.

          4.   With respect to the Savings Plan, any Buyer shall
               be required to establish a 401(k) plan or add
               affected bargaining-unit employees to its existing
               plan provided that the employees' deferral options
               and employer match (except that matching
               contributions will not be made in Pepco stock) are
               no less favorable than those provided under
               Pepco's plan.  Any Buyer must accept rollovers
               from other qualified plans.  Any Buyer has the
               right to offer investment funds different from
               those offered under Pepco's plan. Employees going
               to a Buyer will, to the extent possible under
               applicable law, be considered terminations of
               employment and under Pepco's plan will have the
               option of leaving their account balance in the
               Pepco 401(k) plan, rolling the amount into the
               Buyer's plan, or an individual retirement account,
               or cashing in the account balance subject to tax
               withholding and penalties.

          5.   Employees offered employment by any Buyer shall
               not be eligible for severance pay or any other
               termination benefits from Pepco, except as may be
               required by law.

     C.   Transfer of Ownership

          Affected bargaining-unit employees will cease to be
          employees of the Company upon the transfer of ownership
          and will have no further bidding,


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             1999 General Memorandum of Understanding


          recall or other rights for positions in the Company. 
          The Union acknowledges that upon transfer of ownership,
          the Company is relieved of obligations and liabilities
          under the CBA and this Agreement or otherwise to all
          affected bargaining-unit employees or future employees
          of the Buyer(s) to the extent that those obligations or
          liabilities arise on or after the transfer of
          ownership.

     D.   Stranded-Cost Proceedings
          The Union agrees that it will not oppose Company
          settlement proposals at regulatory agencies, in
          the legislature and in the court regarding
          restructuring and stranded costs.  The Union further
          agrees to support, or at least not oppose, agreements
          (including settlements) between parties involved in the
          Company's stranded-cost efforts as reasonable and
          support the Company's position that the stranded costs
          it has identified are reasonable in amount and fully
          recoverable from customers.  The Company agrees it will
          provide the Union as much, and as timely, information
          as is reasonably practicable about its regulatory and
          legislative proposals.  The agreement set forth in this
          paragraph is not intended to limit legislative or
          regulatory actions on matters not reasonably related to
          the Company's restructuring and stranded-cost
          proposals.

     E.   Any claim by the Union that any Buyer has failed to
          comply with its obligations under the CBA after the
          closing date shall be a matter strictly between the
          Union and the Buyer.

V.   Successorship
     The parties agree that Section 23.01 of the 1998 CBA shall be
     modified in the 1999 CBA to read as follows:  "The parties
     to this Agreement agree that it shall be binding upon them
     and their successors and assigns."

VI.  Union-Management Relations
     The Company and Union recognize that the industry is
     changing dramatically and that it is critical that the
     parties work together to ensure that employees are as
     productive as possible and that the Company be able to
     compete effectively in this new era.  To that end, the
     parties agree as follows:

     A.   The parties will establish an Executive Steering
          Committee (hereafter ESC) whose purpose shall be to
          oversee a joint committee process and to resolve
          disputes or issues as may be necessary.  The ESC shall
          be made up of two senior executives, a representative
          from Labor Relations, the Union president, and two
          additional Union representatives.  Each party shall
          designate its representatives.


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             1999 General Memorandum of Understanding


     B.   The parties will continue to establish joint committees
          as mutually agreed.

     C.   A new committee must identify its purpose and draft a
          mission statement for submission to the ESC for
          approval.

     D.   To improve the quality of committee discussions, the
          Company offers to provide facilitator training, as may
          be requested by various committees.

     E.   In the event the parties mutually agree that we need
          the assistance of a consultant to further advance the
          committee process, the Company shall pay the costs of
          the consultant.

     F.   The parties agree that no committee disputes are
          subject to the grievance or arbitration process.   This
          does not preclude the filing of a grievance over the
          application of the labor agreement to a matter being
          discussed by a committee.

     G.   After agreeing to extend the 1995 labor agreement, the
          parties set up a number of committees, both corporate
          and area, to consider a variety of issues.  The parties
          made substantial progress in many of the committees;
          however, much additional work needs to be done as we go
          forward in a restructured industry. For example, the
          Benefits Committee began reviewing how to develop a
          more modern and portable pension plan.  The parties
          agree to continue to work on coming up with a mutually acceptable
          way to implement such a plan.  The Superior Performance
          Committee began reviewing "peer review" for the
          Company.  The parties agree to conduct a pilot program
          on peer review and if successful, to consider further
          expansion of the concept.  Many area committees are
          working to create multi-skilled jobs to increase
          productivity and enhance employee skills.  The parties
          agree to continue to negotiate such agreements, which
          shall be voted upon by employees in affected areas
          prior to implementation; nothing, however, precludes
          the Company from exercising its rights under the
          Agreement to implement new or revised jobs on a
          unilateral basis.  In other matters directly affecting
          a specific work unit such as the creation of new jobs,
          special agreements on overtime, work rules or
          standards, the company and Union agree that only
          affected employees shall vote on such matters.

VII. Holidays
     In addition to the days set forth in Section 11.01 of the
     1993 Collective Bargaining Agreement, Thursday, December 23,
     1999, Tuesday, December 26, 2000, and Monday, December 24,
     2001 shall be observed as uniform and fixed holidays during
     the 1999 Agreement.  Further, the parties agree to observe
     New


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             1999 General Memorandum of Understanding

     Years Day 2000 on the date celebrated by the federal
     government, which may be either Friday, December 31, 1999 or
     Monday, January 3, 2000.  In 2001, it is the parties'
     understanding that Inauguration Day will occur on a
     Saturday.  When Inauguration Day occurs during a normal
     workday (Monday through Friday), it precludes employees from
     being able to work at the Thomas Edison Building, which has
     resulted in the Company's agreeing to provide the day off
     (as a holiday) for the entire Company. The parties agree
     that Saturday, January 20, 2001 will not be deemed a holiday
     that requires any employee to be paid a holiday allowance;
     however, the parties agree that any employee who actually
     works on Inauguration Day will receive the holiday premium
     of double time for each hour worked, though he/she will not
     receive a holiday allowance.

IN WITNESS WHEREOF, on this 8th day of December 1998, the parties
have caused their appropriate and duly authorized representatives
to sign this General Memorandum of Understanding, signifying
thereby their agreement hereon.  This Agreement is subject to
ratification by bargaining-unit members.

For the Union                      For the Company

/s/ James L. Hunter                /s/ A. S. Macerollo
______________________________     _____________________________
James L. Hunter                    Anthony S. Macerollo,
President/Financial Secretary/     Group Vice-President
Business Manager                   Corporate Services


/s/ Lionel R. Briscoe              /s/ William J. Wolverton
______________________________     _____________________________
Lionel R. Briscoe                  William J. Wolverton,
Recording Secretary/               Manager, Industrial Relations
Business Representative            & Employee Benefits


/s/ John A. Coleman                /s/ Michael J. Sullivan, Jr
______________________________     _____________________________
John A. Coleman                    Michael J. Sullivan, Jr,
Vice-President                     Supervisor, Labor Relations
Business Representative


/s/ John L. Holt
______________________________
John L. Holt
Business Representative




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