5


                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549
                                    FORM 10-Q

           [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

            For the quarterly period ended...March 31, 1998..........

                                       OR

          [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

          For the transition period from.........to...................

       Commission file number..................1-1401...................

        .......................PECO Energy Company.......................
             (Exact name of registrant as specified in its charter)

         ..........Pennsylvania................ 23-0970240................
         (State or other jurisdiction of     (I.R.S. Employer
         incorporation or organization)      Identification No.)

         ....2301 Market Street, Philadelphia, PA..........19103..........
         (Address of principal executive offices)       (Zip Code)

               ........................(215)841-4000............................
         (Registrant's telephone number, including area code)


         Indicate by check mark whether the registrant (1) has filed all reports
         required to be filed by Section 13 or 15(d) of the Securities  Exchange
         Act of 1934 during the preceding 12 months (or for such shorter  period
         that the  registrant  was required to file such  reports),  and (2) has
         been subject to such filing requirements for the past 90 days.

                                 Yes    X            No   ____
                                      -----              -

         Indicate  the  number of  shares  outstanding  of each of the  issuer's
         classes of common stock as of the latest practicable date:

        The Company had 222,546,562 shares of common stock outstanding on
        March 31, 1998.


<PAGE>



<TABLE>
                          PART I. FINANCIAL INFORMATION
                          ITEM 1. FINANCIAL STATEMENTS
                  PECO ENERGY COMPANY AND SUBSIDIARY COMPANIES
                   CONDENSED CONSOLIDATED STATEMENTS OF INCOME
                                   (Unaudited)
                              (Millions of Dollars)


<CAPTION>
                                                                             3 Months Ended
                                                                                  March 31,
                                                                         ----------------------
                                                                           1998         1997
                                                                       ---------     ---------
OPERATING REVENUES
<S>                                                                    <C>            <C>     
     Electric                                                          $  995.3       $  970.5
     Gas                                                                  177.8          192.9
                                                                       ---------      --------
     TOTAL OPERATING REVENUES                                           1,173.1        1,163.4
                                                                       ---------      --------
OPERATING EXPENSES
     Fuel and Energy Interchange                                          369.7          334.0
     Operating and Maintenance                                            282.0          301.9
     Depreciation                                                         154.7          142.5
     Taxes Other Than Income Taxes                                         82.1           83.0
                                                                       ---------      --------
     TOTAL OPERATING EXPENSES                                             888.5          861.4
                                                                       ---------      --------
OPERATING INCOME                                                          284.6          302.0
                                                                       ---------      --------
OTHER INCOME AND DEDUCTIONS
     Interest Expense                                                     (87.2)         (92.8)
     Company Obligated Mandatorily Redeemable
       Preferred Securities of a Partnership                               (7.7)          (6.7)
     Allowance for Funds Used During Construction                           2.8            4.6
     Other, Net                                                           (10.2)          (2.4)
                                                                       ---------      --------
     TOTAL OTHER INCOME AND DEDUCTIONS                                   (102.3)         (97.3)
                                                                       ---------      --------
INCOME BEFORE INCOME TAXES                                                182.3          204.7
                                                                       ---------      --------
INCOME TAXES                                                               68.7           91.7
                                                                       ---------      --------
NET INCOME                                                                113.6          113.0

PREFERRED STOCK DIVIDENDS                                                   3.3            4.5
                                                                       ---------      --------
EARNINGS APPLICABLE TO COMMON STOCK                                    $  110.3       $  108.5
                                                                       =========      ========

AVERAGE SHARES OF COMMON STOCK
     OUTSTANDING  (Millions)                                              222.5          222.5

BASIC AND DILUTIVE EARNINGS PER AVERAGE
COMMON SHARE (Dollars)                                                 $   0.50       $   0.49

DIVIDENDS PER AVERAGE COMMON SHARE (Dollars)                           $   0.25       $   0.45

BOOK VALUE PER COMMON SHARE (Dollars)                                  $  12.49       $  20.92


            See Notes to Condensed Consolidated Financial Statements.

</TABLE>

<PAGE>




<TABLE>
                  PECO ENERGY COMPANY AND SUBSIDIARY COMPANIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                              (Millions of Dollars)


<CAPTION>
                                                                            March 31,         December 31,
                                                                              1998                1997
                                                                          ------------        ------------
                                                                           (Unaudited)
ASSETS

UTILITY PLANT
<S>                                                                         <C>                 <C>       
Electric - Transmission & Distribution                                      $  3,644.9          $  3,617.7
Electric - Generation                                                          1,423.8             1,434.9
Gas                                                                            1,085.8             1,071.8
Common                                                                           309.4               302.7
                                                                            ----------          ----------
                                                                               6,463.9             6,427.1
Less Accumulated Provision for Depreciation                                    2,737.5             2,690.8
                                                                            ----------          ----------
                                                                               3,726.4             3,736.3
Nuclear Fuel, net                                                                176.8               147.4
Construction Work in Progress                                                    644.2               611.2
Leased Property, net                                                             167.9               175.9
                                                                            ----------          ----------
                                                                               4,715.3             4,670.8
                                                                            ----------          ----------


CURRENT ASSETS
Cash and Temporary Cash Investments                                               55.0                33.4
Accounts Receivable, net
     Customer                                                                    156.0               173.3
     Other                                                                       132.4               140.0
Inventories, at average cost
     Fossil Fuel                                                                  64.5                84.9
     Materials and Supplies                                                       93.6                90.9
Deferred Generation Costs Recoverable in Current Rates                           312.9               424.5
Deferred Energy Costs - Gas                                                       16.7                35.7
Other                                                                            137.6                20.1
                                                                            ----------          ----------
                                                                                 968.7             1,002.8
                                                                            ----------          ----------
DEFERRED DEBITS AND OTHER ASSETS
Competitive Transition Charge                                                  5,274.6             5,274.6
Recoverable Deferred Income Taxes                                                594.9               590.3
Deferred Non-Pension Postretirement Benefits Costs                                95.8                97.4
Investments                                                                      516.0               515.8
Loss on Reacquired Debt                                                           82.1                83.9
Other                                                                            110.2               121.0
                                                                            ----------          ----------
                                                                               6,673.6             6,683.0
                                                                            ----------          ----------
TOTAL                                                                       $ 12,357.6          $ 12,356.6
                                                                            ==========          ==========










            See Notes to Condensed Consolidated Financial Statements.

                            (continued on next page)
</TABLE>


<PAGE>



<TABLE>
                  PECO ENERGY COMPANY AND SUBSIDIARY COMPANIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                              (Millions of Dollars)
                                   (continued)


<CAPTION>
                                                                               Three Months Ended
                                                                                     March 31,
                                                                               1998                1997
                                                                          ------------        ------------
                                                                           (Unaudited)
CAPITALIZATION AND LIABILITIES

CAPITALIZATION
Common Shareholders' Equity
<S>                                                                         <C>                 <C>       
     Common Stock (No Par)                                                  $  3,517.7          $  3,517.7
     Other Paid-In Capital                                                         1.2                 1.2
     Retained Deficit                                                           (740.6)             (792.2)
Preferred and Preference Stock
     Without Mandatory Redemption                                                137.5               137.5
     With Mandatory Redemption                                                    92.7                92.7
Company Obligated Mandatorily Redeemable
     Preferred Securities of a Partnership                                       352.1               352.1
Long-Term Debt                                                                 3,597.4             3,853.1
                                                                            ----------          ----------
                                                                               6,958.0             7,162.1
                                                                            ----------          ----------
CURRENT LIABILITIES
Notes Payable, Bank                                                              384.5               401.5
Long-Term Debt Due Within One Year                                               498.0               247.1
Capital Lease Obligations Due Within One Year                                     77.1                55.8
Accounts Payable  233.4                                                          306.9
Taxes Accrued                                                                    117.9                66.4
Interest Accrued  83.2                                                            77.9
Dividends Payable 16.1                                                            17.0
Deferred Income Taxes                                                            130.8               185.7
Other                                                                            275.6               260.4
                                                                            ----------          ----------
                                                                               1,816.6             1,618.7
                                                                            ----------          ----------
DEFERRED CREDITS AND OTHER LIABILITIES
Capital Lease Obligations                                                         90.8               120.1
Deferred Income Taxes                                                          2,321.8             2,297.1
Unamortized Investment Tax Credits                                               313.6               318.1
Pension Obligation                                                               211.6               211.6
Non-Pension Postretirement Benefits Obligation                                   333.4               324.8
Other                                                                            311.8               304.1
                                                                            ----------          ----------
                                                                               3,583.0             3,575.8
                                                                            ----------          ----------
COMMITMENTS AND CONTINGENCIES (NOTE 6)

TOTAL                                                                       $ 12,357.6          $ 12,356.6
                                                                            ==========          ==========


            See Notes to Condensed Consolidated Financial Statements.
</TABLE>


<PAGE>





<TABLE>
                  PECO ENERGY COMPANY AND SUBSIDIARY COMPANIES
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)
                              (Millions of Dollars)

<CAPTION>
                                                                                        3 Months Ended
                                                                                           March 31,
                                                                                    ---------------------------------
                                                                                   1998                      1997
                                                                                ----------                 ----------

CASH FLOWS FROM OPERATING ACTIVITIES

<S>                                                                             <C>                      <C>      
NET INCOME                                                                      $   113.6                $   113.0
Adjustments to Reconcile Net Income to Net Cash
     Provided by Operating Activities:
Depreciation and Amortization                                                       170.9                    149.9
Deferred Income Taxes                                                                (6.8)                    (4.7)
Deferred Energy Costs                                                                19.0                      6.4
Changes in Working Capital:
     Accounts Receivable                                                             24.9                    (13.6)
     Inventories                                                                     17.7                     33.4
     Accounts Payable                                                               (73.5)                   (86.7)
     Other Current Assets and Liabilities                                           (45.5)                     5.5
Other Items Affecting Operations                                                     11.7                     18.0
                                                                                ----------                ---------

NET CASH FLOWS PROVIDED BY OPERATING ACTIVITIES                                     232.0                    221.2
                                                                                ----------                ---------

CASH FLOWS FROM INVESTING ACTIVITIES

Investment in Plant                                                                (116.5)                  (101.4)
Increase in Investments                                                             (11.1)                   (33.1)
                                                                                ----------                ---------

NET CASH FLOWS USED BY INVESTING ACTIVITIES                                        (127.6)                  (134.5)
                                                                                ----------                ---------

CASH FLOWS FROM FINANCING ACTIVITIES

Change in Short-Term Debt                                                           (17.0)                    15.0
Retirement of Long-Term Debt                                                         (5.5)                     -
Loss on Reacquired Debt                                                               1.8                      5.9
Dividends on Preferred and Common Stock                                             (58.9)                  (104.7)
Change in Dividends Payable                                                          (0.9)                     7.4
Other Items Affecting Financing                                                      (2.3)                     0.2
                                                                                ----------                 ---------
NET CASH FLOWS USED BY FINANCING ACTIVITIES                                         (82.8)                   (76.2)
                                                                                ----------                 ---------
INCREASE IN CASH AND CASH EQUIVALENTS                                                21.6                     10.5
                                                                                ----------                 ---------
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                                     33.4                     29.2
                                                                                ----------                 ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD                                      $    55.0                 $   39.7
                                                                                ==========                 =========


            See Notes to Condensed Consolidated Financial Statements.
</TABLE>


<PAGE>





15



                  PECO ENERGY COMPANY AND SUBSIDIARY COMPANIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.       BASIS OF PRESENTATION
         The  accompanying  condensed  consolidated  financial  statements as of
March 31, 1998 and for the three  months then ended are  unaudited,  but include
all adjustments  that PECO Energy Company  (Company)  considers  necessary for a
fair presentation of such financial statements. All adjustments are of a normal,
recurring nature.  The year-end condensed  consolidated  balance sheet data were
derived from audited  financial  statements  but do not include all  disclosures
required by generally accepted accounting principles. Certain prior-year amounts
have been reclassified for comparative  purposes.  These notes should be read in
conjunction with the Notes to Consolidated Financial Statements in the Company's
1997 Annual Report to  Shareholders,  which are incorporated by reference in the
Company's  Annual Report on Form 10-K for the year ended December 31, 1997 (1997
Form 10-K).

2.       RATE MATTERS
         As  previously  reported  in the 1997  Form  10-K,  the  Company  filed
complaints  in  federal  and  state  courts   relating  to  the  orders  of  the
Pennsylvania  Public  Utility  Commission  (PUC)  issued in December  1997,  and
January and  February  1998,  deregulating  the  Company's  electric  generation
operations (PUC Restructuring  Order). In addition,  numerous other parties have
filed appeals and cross appeals of the PUC  Restructuring  Order.  Most of these
parties,  including the Company, have entered into settlement  discussions.  The
Company cannot predict the outcome of such  discussions or appeals.  At December
31, 1997,  the Company  discontinued  the use of  regulatory  accounting  in its
financial statements for its electric generation operations.

     3. RESTART OF SALEM GENERATING  STATION (SALEM) Public Service Electric and
Gas  Company  (PSE&G),  the  operator  of Salem Units No. 1 and No. 2, which are
42.59%  owned by the  Company,  removed  the units  from  service  in the second
quarter  of 1995.  Unit No. 2  returned  to  commercial  operation  in the third
quarter of 1997 and Unit No. 1 returned  to  commercial  operation  on April 17,
1998.

         For the three  months  ended  March  31,  1998 and  1997,  the  Company
recorded in the accompanying Statements of Income as Fuel and Energy Interchange
$16 and $29 million,  respectively,  of replacement  power costs and recorded as
Operating and Maintenance $8 and $13 million, respectively, of maintenance costs
relating to the shutdown of Salem.  For the year ending  December 31, 1998,  the
Company expects to incur and expense  approximately $35 million of costs related
to the shutdown.

4.       SALES OF ACCOUNTS RECEIVABLE
         The  Company is party to an  agreement  with a  financial  institution,
under which it can sell or finance with limited recourse an undivided  interest,
adjusted daily, in up to $425 million of designated  accounts  receivable  until
November 2000. At March 31, 1998,  the Company had sold a $425 million  interest
in  accounts  receivable,  consisting  of a $296  million  interest  in accounts
receivable which the Company accounts for as a sale under Statement of Financial
Accounting  Standards (SFAS) No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishment of Liabilities," and a $129 million interest
in special agreement accounts receivable which were accounted for as a long-term
note  payable.  The  Company  retains  the  servicing  responsibility  for these
receivables.  The  agreement  requires  the Company to maintain its $425 million
interest,  which if not met,  requires  the Company to deposit  cash in order to
satisfy  such  requirements.  The Company was required to deposit $37 million of
cash,  which is  restricted  from the  Company's  use,  under  the  terms of the
agreement  at  March  31,  1998.   At  March  31,  1998,   the  average   annual
service-charge  rate,  computed on a daily basis on the portion of the  accounts
receivable sold but not yet collected, was 5.59%.

5.       STOCK REPURCHASE
         During 1997, the Company's Board of Directors authorized the repurchase
of up to 25  million  shares  of its  common  stock  from  time to time  through
open-market,   privately  negotiated  and/or  other  types  of  transactions  in
conformity with the rules of the Securities and Exchange Commission.

         Pursuant to these authorizations,  the Company has entered into forward
purchase  agreements to be settled from time to time, at the Company's election,
on either a  physical,  net share or net cash  basis.  The amount at which these
agreements can be settled is dependent  principally upon the market price of the
Company's  common stock as compared to the forward  purchase price per share and
the number of shares to be settled.  If these  agreements  had been settled on a
net share basis at March 31, 1998,  based on the closing  price of the Company's
common stock on that date, the Company would have received approximately 476,000
shares of Company common stock.

6.       COMMITMENTS AND CONTINGENCIES
         For information  regarding the Company's capital  commitments,  nuclear
insurance,  nuclear  decommissioning and spent fuel storage, energy commitments,
environmental issues,  telecommunications and litigation, see note 5 of Notes to
Consolidated Financial Statements for the year ended December 31, 1997.

         As  previously  reported,  the  Company has  identified  27 sites where
former  manufactured  gas plant (MGP)  activities  have or may have  resulted in
actual site  contamination.  As of March 31,  1998,  the Company had accrued $63
million for  environmental  investigation and remediation  costs,  including $35
million for MGP  investigation  and remediation that currently can be reasonably
estimated.  The Company cannot predict  whether it will incur other  significant
liabilities  for  additional  investigation  and  remediation  costs at these or
additional sites identified by the Company, environmental agencies or others, or
whether all such costs will be recoverable from third parties.

         The Company periodically reviews its investments to determine that they
are  properly  valued in its  financial  statements.  Due to the  changes in the
electric deregulation  environment  throughout the United States, the Company is
specifically  evaluating its investment in EnergyOne.  As of March 31, 1998, the
Company had a net investment of $10 million in EnergyOne.


7.       ACCOUNTING MATTERS
         In February  1998,  the  Financial  Accounting  Standards  Board (FASB)
issued  SFAS  No.  132,   "Employers'   Disclosures  about  Pensions  and  Other
Postretirement Benefits," to revise and standardize employers' disclosures about
pension  and  other  postretirement  benefit  plans  required  by SFAS  No.  87,
"Employers'  Accounting for Pensions," SFAS No. 88,  "Employers'  Accounting for
Settlements   and   Curtailments  of  Defined  Benefit  Pension  Plans  and  for
Termination   Benefits,"   and  SFAS  No.  106,   "Employers'   Accounting   for
Postretirement   Benefits  Other  Than   Pensions,"  but  does  not  change  the
measurement  or  recognition  of those plans.  The new standard is effective for
fiscal years  beginning after December 15, 1997. The Company will adopt SFAS No.
132 in 1998.  Adoption of SFAS No. 132 will not affect the  Company's  financial
condition or results of operations.

8.       SUBSEQUENT FINANCINGS
         On April 6, 1998,  PECO Energy  Capital  Trust III  (Trust)  issued $78
million  of  Trust  Receipts,   each  representing  a  7.38%  Company  Obligated
Mandatorily Redeemable Preferred Securities of a Partnership (COMRPS), Series D,
representing  limited  partnership  interests.  The sole assets of the Trust are
7.38% COMRPS, Series D, issued by PECO Energy Capital,  L.P., a Delaware limited
partnership  of which a  wholly  owned  subsidiary  of the  Company  is the sole
general partner. The COMPRS, Series D are supported by a series of the Company's
deferrable interest subordinated  debentures.  Each holder of the Trust Receipts
is entitled to withdraw the corresponding number of 7.38% COMRPS, Series D, from
the Trust in exchange for the Trust Receipts so held. Proceeds from the issuance
will be used by the Company in connection with its redemption,  on May 15, 1998,
of $78 million aggregate  liquidation  value of the Company's  outstanding Trust
Receipts,  each  representing a 8.72% COMRPS,  Series B, of PECO Energy Capital,
L.P.



<PAGE>


     ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                             RESULTS OF OPERATIONS

GENERAL
         The  Electricity   Generation   Customer  Choice  and  Competition  Act
(Competition  Act) was enacted in December 1996 providing for the  restructuring
of the electric utility industry in Pennsylvania,  including retail  competition
for  generation  beginning in 1999.  Pursuant to the  Competition  Act, in April
1997, the Company filed with the Pennsylvania  Public Utility Commission (PUC) a
comprehensive  restructuring  plan  detailing  its  proposal to  implement  full
customer choice of electric  generation  supplier.  The Company's  restructuring
plan  identified  $7.5 billion of retail  electric  generation-related  stranded
costs.  In  December  1997,  the PUC  entered an Opinion  and Order,  revised in
January and February  1998 (PUC  Restructuring  Order),  which  deregulates  the
Company's electric  generation  operations and authorizes the Company to recover
stranded costs of $4.9 billion on a discounted  basis, or $5.3 billion on a book
value basis,  over 8-1/2 years  beginning in 1999. The Company has filed appeals
of the PUC Restructuring  Order with federal and state courts. The Company is in
settlement discussions related to its and other appeals of the PUC Restructuring
Order. For additional  information  concerning the PUC Restructuring  Order, see
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations" in the Company's  Annual Report to  Shareholders  for the year 1997;
the Company's  Annual  Report on Form 10-K for the year ended  December 31, 1997
(1997 Form 10-K) under "PART I. ITEM 1. BUSINESS-Deregulation and Rate Matters";
and "PART II. ITEM 5. OTHER  INFORMATION" of this Quarterly  Report on Form 10-Q
(Report).

         At December 31, 1997,  the Company  discontinued  the use of regulatory
accounting in its financial  statements for its electric  generation  operations
resulting  in an  extraordinary  charge  against  income of $3.1  billion  ($1.8
billion   net  of   income   taxes)  to   reflect   the   amount   of   electric
generation-related assets that will not be recovered from customers either prior
to the  commencement of competition or under the PUC  Restructuring  Order.  For
additional  discussion on the discontinuance of the use of regulatory accounting
for the  Company's  electric  generation  operations,  see  note 4 of  Notes  to
Consolidated Financial Statements for the year ended December 31, 1997.

         Although  the Company  cannot  predict the  ultimate  effect of the PUC
Restructuring  Order and  competition  for  electric  generation  services,  the
Company believes that its future  financial  condition and results of operations
will be adversely affected.

         On January 26,  1998,  the  Company's  Board of  Directors  reduced the
quarterly  common  stock  dividend  from  $0.45 per  share to $0.25  per  share,
effective  with the dividend  payable on March 31, 1998.  The Board of Directors
concluded that,  given the impact of the PUC  Restructuring  Order, the dividend
reduction was  necessary to provide the Company with the  financial  flexibility
needed to meet the demands of competition.

         The  Company  is  continuing  its cost  management  efforts  through  a
Competitive Cost Review (CCR). The objective of this review is to achieve a best
in class cost  structure  while  maintaining  high  quality  service  through an
in-depth analysis and assessment of all Company expenses,  capital expenditures,
programs,  processes and personnel.  CCR's goal is to enable the Company to be a
low  cost  energy  provider  while  not   compromising   its  service   quality,
reliability, safety or overall performance levels.

         The Company's Local Distribution  Company (LDC), a business unit of the
Company,   provides  customers  with  electric   transmission  and  distribution
services,  gas  services and other energy  products and  services.  On March 31,
1998, the LDC announced a workforce reduction of approximately 700 employees and
150  contractors to take place over the next twelve to eighteen  months in order
to improve  productivity  and  efficiency  and to implement  new  processes  and
technology.

         On April 8, 1998, the Board of Directors  authorized the implementation
of a retirement  incentive program and an enhanced  severance benefit program to
achieve targeted  workforce  reductions.  The retirement  incentive program will
allow employees age 50 and older,  who have been designated as excess or who are
in job  classifications  facing  reduction,  to  retire  from the  Company.  The
enhanced  severance benefit program will provide  non-retiring  excess employees
with less than ten years of  service,  severance  benefits  of two weeks pay per
year of  service.  Non-retiring  excess  employees  with  more than ten years of
service will receive severance benefits of three weeks pay per year of service.

         The Company cannot currently predict the magnitude of the impact of the
CCR, the LDC  workforce  reduction,  the  retirement  incentive  program and the
enhanced severance benefit program on its future financial condition and results
of operations.

RESULTS OF OPERATIONS
EARNINGS
         Basic and  dilutive  earnings  per average  common  share for the three
months ended March 31, 1998 were $0.50 per share  compared to $0.49 per share in
1997.  Earnings  for the first  quarter of 1998  improved  due to an increase in
wholesale electric revenues net of fuel and energy interchange,  lower operating
and maintenance expense, and lower income tax expense. The earnings increase was
partially offset by lower total revenues net of fuel and energy interchange, due
to milder weather conditions and the effects of lower margins on retail electric
sales, and increased depreciation expense.

OPERATING REVENUES
         Electric  revenues  increased  3% for the three  months ended March 31,
1998 compared to 1997  primarily due to higher  wholesale  electric  sales.  The
increase was partially  offset by milder weather  conditions in 1998 compared to
1997 and lower average rates as a result of the customer choice pilot program.

         Gas  revenues  decreased  8% for the three  months ended March 31, 1998
compared  to 1997  primarily  due to a decrease  in sales  volume as a result of
milder weather conditions.

FUEL AND ENERGY INTERCHANGE
         Fuel and energy interchange  expense increased 11% for the three months
ended March 31, 1998 compared to 1997  primarily  due to additional  interchange
purchases needed for increased wholesale electric sales.

OPERATING AND MAINTENANCE
         Operating  and  maintenance  expense  decreased 7% for the three months
ended March 31, 1998  compared to 1997.  The decrease was primarily due to lower
electric  transmission and distribution  system expenses and lower uncollectible
accounts  expenses.  The decrease was  partially  offset by an increase in other
administrative and general expenses.

DEPRECIATION EXPENSE
         Depreciation  expense increased 9% for the three months ended March 31,
1998 compared to 1997 primarily due to the  amortization of Deferred  Generation
Costs  Recoverable  in  Current  Rates  during  1998,  preceding  the  Company's
transition to market-based pricing of electric generation in 1999.

OTHER INCOME AND DEDUCTIONS
         Other  income  and  deductions  excluding  interest  charges  decreased
substantially  for the three months ended March 31, 1998  compared to 1997.  The
decrease was primarily due to increased losses from investments in subsidiaries.

INTEREST CHARGES
         Interest charges decreased 6% for the three months ended March 31, 1998
compared to 1997 primarily as a result of lower amortization  expense due to the
write-off of electric generation-related debt discounts at December 31, 1997 and
the Company's  ongoing  program to reduce and refinance  higher-cost,  long-term
debt.  These decreases were partially  offset by higher average  short-term debt
balances  compared to 1997 and the replacement of $62 million of preferred stock
with  Company  Obligated  Mandatorily   Redeemable  Preferred  Securities  of  a
Partnership (COMRPS) in the third quarter of 1997.

INCOME TAXES
         Total income taxes  decreased  25% for the three months ended March 31,
1998 compared to 1997. The decrease was primarily due to full  normalization  of
deferred taxes associated with generation plant and lower pre-tax income.

PREFERRED STOCK DIVIDENDS
     Preferred  stock  dividends  decreased 27% for the three months ended March
31, 1998  compared to 1997  primarily due to the  replacement  of $62 million of
preferred stock with COMRPS in the third quarter of 1997.

DISCUSSION OF LIQUIDITY AND CAPITAL RESOURCES
         Total  construction  expenditures,  primarily  for utility  plant,  are
estimated  to be $600  million  for 1998.  The  estimated  expenditures  include
approximately   $150  million  for  new   ventures,   principally   through  the
Telecommunications  Group.  Due to  the  expected  adverse  impact  of  the  PUC
Restructuring  Order and  competition  for electric  generating  services on its
future  capital  resources,  the  Company is  currently  evaluating  its capital
commitments for 1999 and beyond. Certain facilities under construction and to be
constructed  may require permits and licenses which the Company has no assurance
will be granted.

         At March 31, 1998,  the Company and its  subsidiaries  had  outstanding
$385 million of notes payable,  including $297 million of commercial  paper.  At
March 31,  1998,  the  Company  had formal  and  informal  lines of bank  credit
aggregating  $100 million.  At March 31, 1998, the Company and its  subsidiaries
had no short-term investments.

         As a result of the  extraordinary  charge to earnings in December 1997,
the Company did not meet the earnings  test under the Mortgage  required for the
issuance of additional  bonds against  property  additions for the twelve months
ended March 31,  1998.  In  addition,  the  Company  does not expect to meet the
earnings  test under the Mortgage for any  twelve-month  period  ending prior to
December  31,  1998.  At March 31,  1998,  the  Company  was  entitled  to issue
approximately  $3.6 billion of mortgage bonds without regard to the earnings and
property additions tests against previously retired mortgage bonds.

         As a result of the  extraordinary  charge to earnings in December 1997,
the Company did not meet the earnings test of the Company's Amended and Restated
Articles of  Incorporation  (Articles),  required for the issuance of additional
preferred stock without an affirmative  vote of the holders of two-thirds of all
preferred  shares  outstanding,  for the twelve  months ended March 31, 1998. In
addition,  the  Company  does not  expect to meet the  earnings  test  under the
Articles for any twelve-month period ending prior to December 31, 1998.

         For the three  months  ended March 31,  1998,  the  Company's  Ratio of
Earnings to Fixed Charges (SEC Method)  (Exhibit  12-1) and Ratio of Earnings to
Combined Fixed Charges and Preferred Stock Dividends (SEC Method) (Exhibit 12-2)
were 3.12 times and 2.94  times,  respectively,  compared to 3.24 times and 2.97
times, respectively, for the corresponding period in 1997.

         See the  1997  Form  10-K  under  "PART  I.  ITEM  1.  BUSINESS-Capital
Requirements and Financing Activities," for a discussion of the ratio methods.

         As previously  disclosed,  the Company's Board of Directors  authorized
the  repurchase of up to 25 million shares of its common stock from time to time
through open market,  privately negotiated and/or other types of transactions in
conformity with the rules of the Securities and Exchange Commission (SEC).

         The Company has entered into forward purchase  agreements to be settled
from time to time, at the Company's election, on either a physical, net share or
net cash basis. The amount at which these agreements can be settled is dependent
principally  upon the market price of the Company's  common stock as compared to
the forward purchase price per share and the number of shares to be settled.  If
these  agreements had been settled on a net share basis at March 31, 1998, based
on the closing  price of the  Company's  Common Stock on that date,  the Company
would have received approximately 476,000 shares of Company common stock.

         On April 6, 1998,  PECO Energy  Capital  Trust III  (Trust)  issued $78
million  of  Trust  Receipts,  each  representing  a  7.38%  COMRPS,  Series  D,
representing  limited  partnership  interests.  The sole assets of the Trust are
7.38% COMRPS, Series D, issued by PECO Energy Capital,  L.P., a Delaware limited
partnership  of which a  wholly  owned  subsidiary  of the  Company  is the sole
general partner. The COMPRS, Series D are supported by a series of the Company's
deferrable interest subordinated  debentures.  Each holder of the Trust Receipts
is entitled to withdraw the corresponding number of 7.38% COMRPS, Series D, from
the Trust in exchange for the Trust Receipts so held. Proceeds from the issuance
will be used by the Company in connection with its redemption,  on May 15, 1998,
of $78 million aggregate  liquidation  value of the Company's  outstanding Trust
Receipts,  each  representing a 8.72% COMRPS,  Series B, of PECO Energy Capital,
L.P.

FORWARD-LOOKING STATEMENTS
         Except for the historical  information contained herein, certain of the
matters  discussed  in this  Report  are  forward-looking  statements  which are
subject to risks and uncertainties.  The factors that could cause actual results
to differ  materially  include those discussed herein as well as those listed in
notes 2, 3 and 6 of Notes to Condensed  Consolidated  Financial  Statements  and
other  factors  discussed in the  Company's  filings  with the SEC.  Readers are
cautioned not to place undue reliance on these forward-looking statements, which
speak only as of the date of this Report.  The Company  undertakes no obligation
to publicly release any revision to these forward-looking  statements to reflect
events or circumstances after the date of this Report.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
         None.


<PAGE>


                           PART II - OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS
         On March 10, 1998, the Grays Ferry  Cogeneration  Partnership  sued the
Company  in the  United  States  District  Court  for the  Eastern  District  of
Pennsylvania (Eastern District Court) to enjoin the Company's termination of the
power  purchase  agreements  relating  to the Grays Ferry  Cogeneration  Project
(Project). In addition to specific enforcement of the agreements,  the plaintiff
claimed damages in excess of $200 million. The Company claimed that, as a result
of  the  elimination  of  the  Energy  Cost  Adjustment  through  statutory  and
regulatory  changes and the resulting  inability of the Company to recover these
costs from  customers,  the  contract  contingency  had been  triggered  and the
agreements  were no longer in effect.  On March 19, 1998,  the Eastern  District
Court dismissed the suit for lack of  subject-matter  jurisdiction.  On April 9,
1998,  the plaintiff  filed an action  asserting  similar claims in the Court of
Common  Pleas in  Philadelphia  County  against  the  Company  and the PUC. In a
separate action, on March 18, 1998, The Chase Manhattan Bank, the lender for the
Project,  filed an action in the  Eastern  District  Court  against  the Company
alleging breach of the letter agreement  relating to the Project's  credit.  The
Company cannot predict the outcome of these matters.


ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
         On  April  8,  1998,  the  Company  held its  1998  Annual  Meeting  of
Shareholders.

         The  following  Class II directors of the Company were  re-elected  for
terms expiring in 2001:

                                    Votes For                     Votes Withheld
Susan W. Catherwood                 180,415,786                        4,931,865
G. Fred DiBona, Jr.                 180,197,956                        5,149,695
R. Keith Elliott                    180,300,452                        5,047,199
John M. Palms                       180,437,426                        4,910,225
Joseph F. Paquette, Jr.             180,337,084                        5,010,567

     The incumbent  Class I directors,  with terms expiring in 2000, are Richard
H. Glanton,  Rosemarie B. Greco,  Corbin A. McNeill,  Jr. and Robert Subin.  The
incumbent  Class III  directors,  with  terms  expiring  in 1999,  are Daniel L.
Cooper, M. Walter D'Alessio, Kinnaird R. McKee and Ronald Rubin.

         Other items voted on by holders of common  stock at the Annual  Meeting
were as follows:

    (1)           The  appointment  of the firm of  Coopers  &  Lybrand  L.L.P.,
                  independent  certified public accountants,  as auditors of the
                  Company for 1998, was approved with 181,224,591  common shares
                  (81.43% of common shares  outstanding)  voting for;  2,483,519
                  common  shares  (1.12% of common  shares  outstanding)  voting
                  against;  and 1,639,541  common shares (0.74% of common shares
                  outstanding) abstaining;

    (2)           A shareholder proposal requiring lawyers deriving compensation
                  from a law firm providing legal services to the Company not be
                  selected for the slate of endorsed candidates for director was
                  defeated  with  22,338,397  common  shares  (10.04%  of common
                  shares  outstanding)  voting for;  134,437,011  common  shares
                  (60.41%  of  common  shares   outstanding)   voting   against;
                  7,716,446  common shares (3.47% of common shares  outstanding)
                  abstaining;  and  20,855,797  common  shares  (9.37% of common
                  shares outstanding) broker non-votes; and

    (3)           A shareholder  proposal  requesting the Company to establish a
                  firm policy to refuse to use mixed-oxide fuel in the Company's
                  nuclear  reactors was defeated  with  9,467,258  common shares
                  (4.25% of common shares outstanding)  voting for;  142,219,309
                  common  shares  (63.91% of common shares  outstanding)  voting
                  against;  12,805,379  common  shares  (5.75% of common  shares
                  outstanding)  abstaining;  and 20,855,705 common shares (9.37%
                  of common shares outstanding) broker non-votes.


ITEM 5.  OTHER INFORMATION
         As  previously  reported  in the 1997  Form  10-K,  the  Company  filed
complaints in federal and state courts relating to the PUC Restructuring  Order.
In addition,  numerous other parties have filed appeals and cross appeals of the
PUC  Restructuring  Order.  Most of these parties,  including the Company,  have
entered into settlement  discussions.  The Company cannot predict the outcome of
such discussions or appeals.

         As previously reported in the 1997 Form 10-K, the Company had requested
that the Nuclear Regulatory  Commission (NRC) extend the deferral period for the
installation  of large  capacity  passive  strainers  at Unit No. 2 at  Limerick
Generating  Station  (Limerick)  until its scheduled  refueling  outage in April
1999. By letter dated March 6, 1998, the NRC approved the Company's request.

         As previously  reported in the 1997 Form 10-K,  the Company  planned to
remove from  service  Unit No. 3 at Peach Bottom  Atomic  Power  Station  (Peach
Bottom) to perform permanent repairs of cracks in several  recirculation  system
jet pump pipes within the reactor  vessel.  In March 1998,  the Company made the
repairs.

     Salem Generating Station Units No. 1 and No. 2 were taken out of service by
Public Service  Electric and Gas Company in the second quarter of 1995. Unit No.
2 returned to  commercial  operation  in the third  quarter of 1997.  Unit No. 1
returned to commercial operation on April 17, 1998.

         The Company is continuing its cost  management  efforts  through a CCR.
The objective of this review is to achieve a best in class cost structure  while
maintaining high quality service through an in-depth  analysis and assessment of
all Company expenses, capital expenditures,  programs,  processes and personnel.
CCR's goal is to enable the Company to be a low cost energy  provider  while not
compromising its service  quality,  reliability,  safety or overall  performance
levels.

         The Company's LDC, a business unit of the Company,  provides  customers
with electric  transmission  and distribution  services,  gas services and other
energy  products and services.  On March 31, 1998, the LDC announced a workforce
reduction of approximately  700 employees and 150 contractors to take place over
the  next  twelve  to  eighteen  months  in order to  improve  productivity  and
efficiency and to implement new processes and technology.

         On April 8, 1998, the Board of Directors  authorized the implementation
of a retirement  incentive program and an enhanced  severance benefit program to
achieve targeted  workforce  reductions.  The retirement  incentive program will
allow employees age 50 and older,  who have been designated as excess or who are
in job  classifications  facing  reduction,  to  retire  from the  Company.  The
enhanced  severance benefit program will provide  non-retiring  excess employees
with less than ten years of  service,  severance  benefits  of two weeks pay per
year of  service.  Non-retiring  excess  employees  with  more than ten years of
service will receive severance benefits of three weeks pay per year of service.

         The Company cannot currently predict the magnitude of the impact of the
CCR, the LDC  workforce  reduction,  the  retirement  incentive  program and the
enhanced severance benefit program on its future financial condition and results
of operations.


ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K
(a)      Exhibits:
         12-1     -        Statement regarding computation of ratio of
                           earnings to fixed charges.
         12-2     -        Statement regarding computation of ratio of
                           earnings to combined fixed charges and preferred
                           stock dividends.
         27       -        Financial Data Schedule.

(b)      Reports on Form 8-K filed during the reporting period:
         Report,  dated January 9, 1998,  reporting  information  under "ITEM 5.
                  OTHER EVENTS" regarding the Company's filing of a Petition for
                  Rehearing,  Reconsideration,  Clarification,  and Amendment to
                  the Pennsylvania Public Utility Commission's Opinion and Order
                  in the Company's restructuring proceeding.

         Report,  dated January 15, 1998,  reporting  information under "ITEM 5.
                  OTHER  EVENTS"  regarding  the  Pennsylvania   Public  Utility
                  Commission's  response to the  Company's  filing of a Petition
                  for Rehearing,  Reconsideration,  Clarification, and Amendment
                  to  the  Opinion  and  Order  in the  Company's  Restructuring
                  Proceeding.

         Report,  dated January 22, 1998,  reporting  information under "ITEM 5.
                  OTHER EVENTS"  regarding  the  Company's  filing of complaints
                  appealing  the   Pennsylvania   Public  Utility   Commission's
                  decision in its restructuring proceeding.

         Report,  dated January 23, 1998,  reporting  information under "ITEM 5.
                  OTHER EVENTS"  regarding  the  Company's  filing of complaints
                  appealing  the   Pennsylvania   Public  Utility   Commission's
                  decision in its restructuring proceeding.

         Report,  dated January 26, 1998,  reporting  information under "ITEM 5.
                  OTHER EVENTS"  regarding the Company's  decision to reduce the
                  Company's  quarterly  common stock dividend and reporting 1997
                  financial results.

         Reports on Form 8-K filed subsequent to the reporting period:
         None


<PAGE>



                                                     Signatures

         Pursuant to  requirements  of the Securities  Exchange Act of 1934, the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.




                                                             PECO ENERGY COMPANY
                                                             /s/ Michael J. Egan
                                                      --------------------------
                                                                 Michael J. Egan
                                                       Senior Vice President and
                                                         Chief Financial Officer
                                                        (Principal Financial and
                                                             Accounting Officer)

Date:  April 27, 1998


<PAGE>