<PAGE>

                          Page 1 of 14
                                
                                
                                
                            FORM 10-Q
                                
                                
                                
               SECURITIES AND EXCHANGE COMMISSION
                     WASHINGTON, D.C.  20549
                                
                                
                                
                                
                                
           Quarterly Report under Section 13 or 15(d)
             of the Securities Exchange Act of 1934




For Quarter Ended September 30, 1997


Commission File Number 1-3376-2





                   THE POTOMAC EDISON COMPANY
     (Exact name of registrant as specified in its charter)




  Maryland and Virginia                         13-5323955
(State of Incorporation)           (I.R.S. Employer Identification No.)



     10435 Downsville Pike, Hagerstown, Maryland  21740-1766
                 Telephone Number - 301-790-3400





        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 and (2) has been subject to
such filing requirements for the past 90 days.

        At November 13, 1997, 22,385,000 shares of the Common
Stock (no par value) of the registrant were outstanding, all of
which are held by Allegheny Energy, Inc., the Company's parent.

<PAGE>



                              - 2 -
                                
                                
                                
                   THE POTOMAC EDISON COMPANY
                                
         Form 10-Q for Quarter Ended September 30, 1997
                                
                                
                                
                              Index
                                
                                
                                
                                                        
                                                        Page
                                                         No.

PART I--FINANCIAL INFORMATION:

  Statement of income - Three and nine months ended
    September 30, 1997 and 1996                           3


  Balance sheet - September 30, 1997
    and December 31, 1996                                 4
                                                          

  Statement of cash flows - Nine months ended
    September 30, 1997 and 1996                           5


  Notes to financial statements                          6-8


  Management's discussion and analysis of financial
    condition and results of operations                  9-13



PART II--OTHER INFORMATION                               14

<PAGE>



                                                        - 3 -

                                               THE POTOMAC EDISON COMPANY
                                                   Statement of Income

<TABLE>
<CAPTION>




                                                    Three Months Ended             Nine Months Ended
                                                       September 30                  September 30
                                                    1997         1996            1997              1996
                                                               (Thousands of Dollars)

    ELECTRIC OPERATING REVENUES:
       <S>                                       <C>          <C>             <C>               <C>
       Residential                               $  69,337    $  68,053       $ 227,156         $ 244,339
       Commercial                                   38,963       36,575         110,826           109,234
       Industrial                                   50,006       48,880         146,777           144,910
       Wholesale and other, including affiliates     9,733        8,212          29,207            26,590
       Bulk power transactions, net                  7,425        5,607          18,593            19,173
         Total Operating Revenues                  175,464      167,327         532,559           544,246


    OPERATING EXPENSES:
      Operation:
       Fuel                                         35,737       33,756         104,606           104,514
       Purchased power and exchanges, net           32,845       32,608         102,489           103,695
       Deferred power costs, net                       571       (1,416)           (419)            5,268
       Other                                        21,176       23,378          62,675            66,098
      Maintenance                                   14,523       15,541          45,427            43,777
      Restructuring charges                           -           2,326            -               18,586
      Depreciation                                  18,375       17,748          55,126            53,159
      Taxes other than income taxes                 11,281       11,633          36,211            34,953
      Federal and state income taxes                10,568        6,726          32,100            27,270
              Total Operating Expenses             145,076      142,300         438,215           457,320
              Operating Income                      30,388       25,027          94,344            86,926

    OTHER INCOME AND DEDUCTIONS:
      Allowance for other than borrowed funds
       used during construction                        643          422           1,367               933
      Other income, net                              6,423        3,084          12,204             8,791
              Total Other Income and Deductions      7,066        3,506          13,571             9,724

              Income Before Interest Charges        37,454       28,533         107,915            96,650

    INTEREST CHARGES:
      Interest on long-term debt                    11,919       11,904          35,746            36,069
      Other interest                                   458          506           1,661             1,682
      Allowance for borrowed funds used during
       construction                                   (219)        (258)           (887)             (716)

              Total Interest Charges                12,158       12,152          36,520            37,035


    NET INCOME                                   $  25,296    $  16,381       $  71,395         $  59,615

</TABLE>


    See accompanying notes to financial statements.

<PAGE>

                                                       - 4 -

                                          THE POTOMAC EDISON COMPANY
                                                 Balance Sheet

<TABLE>
<CAPTION>



                                                                 September 30,            December 31,
                                                                    1997                      1996
    ASSETS:                                                            (Thousands of Dollars)
      Property, Plant, and Equipment:
         <S>                                                   <C>                      <C> 
         At original cost, including $55,115,000
           and $60,082,000 under construction                  $  2,166,804             $   2,124,956
         Accumulated depreciation                                  (847,462)                 (791,257)
                                                                  1,319,342                 1,333,699
      Investments:
         Allegheny Generating Company - common stock at equity       55,774                    56,827
         Other                                                          556                       642
                                                                     56,330                    57,469
      Current Assets:
         Cash                                                           137                     1,444
         Accounts receivable:
            Electric service, net of $505,000 and $1,580,000
               uncollectible allowance                               81,939                    95,215
            Affiliated and other                                      8,180                     2,968
         Notes receivable from affiliates                            39,200                    -
         Materials and supplies - at average cost:
            Operating and construction                               23,518                    23,775
            Fuel                                                     18,632                    15,019
         Prepaid taxes                                               16,276                    17,648
         Other                                                        5,325                     7,764
                                                                    193,207                   163,833
      Deferred Charges:
         Regulatory assets                                           88,008                    94,919
         Unamortized loss on reacquired debt                         17,323                    18,010
         Other                                                       12,577                     9,956
                                                                    117,908                   122,885

                Total Assets                                   $  1,686,787             $   1,677,886

    CAPITALIZATION AND LIABILITIES:
      Capitalization:
         Common stock                                          $    447,700             $     447,700
         Other paid-in capital                                        2,690                     2,690
         Retained earnings                                          251,947                   227,726
                                                                    702,337                   678,116
         Preferred stock                                             16,378                    16,378
         Long-term debt and QUIDS                                   627,916                   628,431
                                                                  1,346,631                 1,322,925
      Current Liabilities:
         Short-term debt                                              -                         7,497
         Long-term debt due within one year                             800                       800
         Accounts payable                                            24,993                    33,152
         Accounts payable to affiliates                              23,243                    17,896
         Taxes accrued:
            Federal and state income                                    623                       123
            Other                                                    17,148                    11,542
         Interest accrued                                            13,762                     9,412
         Customer deposits                                            4,527                     6,121
         Restructuring liability                                      1,325                    14,970
         Other                                                        7,546                     7,603
                                                                     93,967                   109,116
      Deferred Credits and Other Liabilities:
         Unamortized investment credit                               22,008                    23,622
         Deferred income taxes                                      183,796                   183,727
         Regulatory liabilities                                      12,836                    13,907
         Other                                                       27,549                    24,589
                                                                    246,189                   245,845

                Total Capitalization and Liabilities           $  1,686,787             $   1,677,886

</TABLE>



      See accompanying notes to financial statements

<PAGE>


                                               - 5 -


                                     THE POTOMAC EDISON COMPANY
                                       Statement of Cash Flows

<TABLE>
<CAPTION>


                                                                          Nine Months Ended
                                                                             September 30
                                                                        1997               1996
                                                                         (Thousands of Dollars)

    CASH FLOWS FROM OPERATIONS:
         <S>                                                         <C>                <C>
         Net income                                                  $  71,395          $  59,615
         Depreciation                                                   55,126             53,159
         Deferred investment credit and income taxes, net                6,782             (2,963)
         Deferred power costs, net                                        (419)             5,268
         Unconsolidated subsidiaries' dividends in excess of earnings    1,107              1,193
         Allowance for other than borrowed funds used
             during construction                                        (1,367)              (933)
         Restructuring liability                                       (13,645)            12,845
         Changes in certain current assets and
             liabilities:
                Accounts receivable, net                                 8,064              5,181
                Materials and supplies                                  (3,356)             6,305
                Accounts payable                                        (2,812)            (3,625)
                Taxes accrued                                            6,106              7,927
                Interest accrued                                         4,350              3,998
         Other, net                                                      5,664              5,972
                                                                       136,995            153,942

    CASH FLOWS FROM INVESTING:
         Construction expenditures (less allowance for
            equity funds used during construction)                     (43,631)           (51,363)



    CASH FLOWS FROM FINANCING:
         Retirement of long-term debt                                     (800)           (18,700)
         Short-term debt, net                                           (7,497)           (21,637)
         Notes receivable from affiliates                              (39,200)           (11,850)
         Dividends on capital stock:
            Preferred stock                                               (613)              (613)
            Common stock                                               (46,561)           (49,140)
                                                                       (94,671)          (101,940)


    NET CHANGE IN CASH                                                  (1,307)               639
    Cash at January 1                                                    1,444              2,953
    Cash at September 30                                             $     137          $   3,592


    SUPPLEMENTAL CASH FLOW INFORMATION:
         Cash paid during the period for:
             Interest (net of amount capitalized)                      $31,657            $31,734
             Income taxes                                               23,005             27,800

</TABLE>




    See accompanying notes to financial statements.

<PAGE>

                              - 6 -
                                
                                
                   THE POTOMAC EDISON COMPANY
                                
                  Notes to Financial Statements


1. The Company's Notes to Financial Statements in the Allegheny
   Power System companies' combined Annual Report on Form 10-K
   for the year ended December 31, 1996, should be read with the
   accompanying financial statements and the following notes.
   With the exception of the December 31, 1996, balance sheet in
   the aforementioned annual report on Form 10-K, the
   accompanying financial statements appearing on pages 3
   through 5 and these notes to financial statements are
   unaudited.  In the opinion of the Company, such financial
   statements together with these notes, contain all adjustments
   (which consist only of normal recurring adjustments)
   necessary to present fairly the Company's financial position
   as of September 30, 1997, the results of operations for the
   three and nine months ended September 30, 1997 and 1996, and
   cash flows for the nine months ended September 30, 1997 and
   1996.


2. The Statement of Income reflects the results of past
   operations and is not intended as any representation as to
   future results.  For purposes of the Balance Sheet and
   Statement of Cash Flows, temporary cash investments with
   original maturities of three months or less, generally in the
   form of commercial paper, certificates of deposit, and
   repurchase agreements, are considered to be the equivalent of
   cash.


3. The Company owns 28% of the common stock of Allegheny
   Generating Company (AGC), and affiliates of the Company own
   the remainder.  AGC owns an undivided 40% interest, 840 MW,
   in the 2,100-MW pumped-storage hydroelectric station in Bath
   County, Virginia, operated by the 60% owner, Virginia
   Electric and Power Company, a nonaffiliated utility.
   Following is a summary of income statement information for
   AGC:

                                  Three Months Ended        Nine Months Ended
                                     September 30             September 30
                                   1997        1996          1997       1996
                                             (Thousands of Dollars)
                                                                      
Electric operating revenues      $19,664     $20,825       $60,288    $62,757
                                                                     
Operation & maintenance expense      856       1,299         3,612      3,633
Depreciation                       4,284       4,290        12,852     12,870
Taxes other than income taxes      1,185       1,174         3,581      3,582
Federal income taxes               3,109       3,296         9,374     10,002
Interest charges                   3,888       4,081        11,765     12,490
Other income, net                 (9,054)         (1)       (9,055)        (4)
    Net income                   $15,396     $ 6,686       $28,159    $20,184


   The Company's share of the equity in earnings above was $4.3
   million and $1.9 million for the three months ended September
   30, 1997 and 1996, respectively, and $7.9 million and $5.7
   million for the nine months ended September 30, 1997 and
   1996, respectively, and was included in other income, net,

<PAGE>

                              - 7 -


   on the Statement of Income.  The increases in other income, net,
   and the resulting increases in net income for the 1997 periods
   was due to an interest refund on a tax-related contract settlement.


4. On April 7, 1997, Allegheny Power System, Inc. (Allegheny
   Power) and DQE, Inc. (DQE), parent company of Duquesne Light
   Company in Pittsburgh, Pennsylvania, announced that they have
   agreed to merge in a tax-free, stock-for-stock transaction.
   The combined company will be called Allegheny Energy, Inc.
   (Allegheny Energy).  It is expected that Allegheny Energy
   will continue to be operated as an integrated electric
   utility holding company and that the regulated electric
   utility companies will continue to exist as separate legal
   entities, including the Company and Duquesne Light Company.

   The merger is conditioned, among other things, upon the
   approval of each company's shareholders, the Pennsylvania
   Public Utility Commission (PUC), the Securities and Exchange
   Commission (SEC), the Federal Energy Regulatory Commission
   (FERC), the Nuclear Regulatory Commission (NRC), and the
   Department of Justice/Federal Trade Commission under the
   Hart, Scott, Rudino legislation.  Additionally, Allegheny
   Power has requested the Maryland Public Service Commission
   (PSC) to indicate its approval of the issuance of additional
   Allegheny Power stock to accomplish the transaction.  The
   companies have established a schedule to obtain all
   regulatory approvals by June 1, 1998.  On May 2, 1997,
   Allegheny Power filed a registration statement with the SEC
   on Form S-4 containing a joint proxy statement/prospectus
   with DQE concerning the merger and the transactions
   contemplated thereby.  In late June, the S-4 became effective
   allowing Allegheny Power and DQE to pursue shareholder
   approval for the proposed merger that would create Allegheny
   Energy.  Allegheny Power and DQE each held a separate
   shareholder meeting on August 7, 1997, at which the
   combination of the two companies was decisively approved by
   the shareholders of both companies.  At Allegheny Power's
   meeting, the shareholders also decisively approved the change
   in Allegheny Power's name to Allegheny Energy, Inc.
   (Allegheny Energy).

   On August 1, 1997, Allegheny Power and DQE jointly filed
   requests for merger approval with the PUC and FERC, DQE filed
   the necessary approval requests with the NRC, and Allegheny
   Power filed its request with the PSC for approval to issue
   Allegheny Power stock.  The PUC has established a schedule of
   proceedings which is expected to result in an approval order
   by the end of May 1998.  The FERC has not scheduled hearings.
   Absent such hearings, Allegheny Energy expects a FERC order
   on or before the end of May 1998.  The PSC instituted a
   proceeding against the Company to examine the effect of the
   merger on Maryland customers for which a final determination
   is expected by May 1, 1998.

   On September 16, 1997, Allegheny Power officially changed its
   name to Allegheny Energy, Inc. by filing the appropriate
   papers in Maryland.  Allegheny Energy began trading on the
   New York Stock Exchange under its new symbol, AYE, on October
   1, 1997.

<PAGE>

                              - 8 -


   On September 29, 1997, the City of Pittsburgh filed an
   antitrust and conspiracy lawsuit in Federal District Court
   for the Western District of Pennsylvania against Allegheny
   Power, the Company's Pennsylvania affiliate, West Penn Power
   Company (West Penn), DQE, and Duquesne Light Company.  The
   verified complaint alleges eight counts, two of which are
   claimed violations of the federal antitrust statutes and six
   are state law claims.  The relief sought includes a request
   that the proposed merger between Allegheny Power and DQE be
   stopped, and a request for unspecified monetary damages
   relating to alleged collusion by the two companies in their
   actions dealing with proposals to provide electric service to
   the city's redevelopment zones.  On October 27, 1997,
   Allegheny Power, West Penn, DQE, and Duquesne Light Company
   filed motions to dismiss the complaint.  While Allegheny
   Energy cannot predict the outcome of this action, it believes
   the suit is without merit.
   

5. On August 1, 1997, in combination with Allegheny Power's
   merger approval filing, the Company's Pennsylvania affiliate,
   West Penn, filed with the PUC a comprehensive stand-alone
   restructuring plan to implement full customer choice of
   electric generation suppliers as required by the Customer
   Choice Act.  The filing included an unbundling of West Penn's
   electric service rates into their generation, transmission
   and distribution components, a plan for eventual replacement
   of the existing Power Supply Agreement (PSA) under which the
   Company and its existing two utility affiliates share
   capacity, energy, capacity reserves and transmission
   resources with a more efficient structure, and a plan for
   recovery of stranded costs through a Competitive Transition
   Charge (CTC).


6. Restructuring charges in the first nine months of 1996 ($11.7
   million, net of tax) include expenses associated with a
   reorganization, which is essentially complete.


7. For the most part, regulatory assets and liabilities are not
   included in rate base.  Income tax regulatory
   assets/(liabilities), net of $58 million at September 30,
   1997, are primarily related to investments in electric
   facilities and, under a continuing regulated environment,
   would be recovered over a period of from 20 to 40 years.  The
   remaining recovery period for items other than income taxes,
   is from three to seven years.  See page 13 for information
   concerning activity in the states of Maryland, Virginia, and
   West Virginia concerning activity related to electric utility
   restructuring and competition.


8. The Company has spent considerable time and effort over the
   past several years on the issue of the year 2000 software
   compliance, and the effort is continuing.  Certain software
   has already been made year 2000 compliant by upgrades and
   replacement, and analysis is continuing on others, in
   accordance with a schedule planned to permit the Company to
   process information in the year 2000 and beyond without
   significant problems.  Expenditures for the software
   modifications and upgrades are not expected to have a
   material impact on the Company's results of operations or
   financial position.

<PAGE>


                              - 9 -


                   THE POTOMAC EDISON COMPANY
                                
   Management's Discussion and Analysis of Financial Condition
                    and Results of Operations


 COMPARISON OF THIRD QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 1997
     WITH THIRD QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 1996


Review of Operations

NET INCOME

        Net income for the third quarter and first nine months
of 1997 and 1996, and the after-tax restructuring charges
included in the 1996 periods are shown below.

                                           Net Income
                             Three Months Ended    Nine Months Ended
                                September 30         September 30
                              1997        1996      1997       1996
                                     (Millions of Dollars)     
                                                           
Net Income as Reported       $25.3       $16.4     $71.4      $59.6
                                                           
Restructuring Charges          -           1.4       -         11.7
                                                                
Net Income Adjusted          $25.3       $17.8     $71.4      $71.3


        The increase in third quarter net income, before
restructuring charges, was primarily due to a 2% increase in
kilowatt-hour (kWh) sales to retail customers, a reduction of
expenses achieved through restructuring efforts and other cost
controls, and an interest refund on a tax-related contract
settlement by the Company's 28% owned subsidiary, Allegheny
Generating Company (AGC), recorded in other income as increased
equity in earnings of AGC.  See Note 3 to Financial Statements
for additional information.

        The year-to-date net income, before restructuring
charges, remains about the same as the previous period.  The year-
to-date period reflects increased kWh sales to commercial and
industrial customers of 2% and 1%, respectively, a reduction of
expenses achieved through restructuring efforts and other cost
controls, and increased equity in earnings from AGC, offset in
part by decreased residential kWh sales.  Residential kWh sales
decreased 6% due to mild first quarter winter weather (heating
degree days 12% below normal and 22% below the first quarter of
1996).


SALES AND REVENUES

        Retail kWh sales in the third quarter to residential,
commercial, and industrial customers increased 3%, 6%, and .4%,
respectively, for a net increase of 2%.  In the first nine
months, kWh sales to residential customers decreased 6%, and to
commercial and industrial customers increased 2% and 1%,
respectively, for a net decrease of 1%.  Increased kWh sales to
residential customers in the third quarter was primarily due to

<PAGE>

                             - 10 -


growth in the number of customers.  As discussed above,
residential kWh sales, which are more weather sensitive than the
commercial and industrial classes, decreased in the first nine
months due to the mild weather.  Commercial kWh sales increased
in the third quarter and first nine months of 1997 due to growth
in the number of customers, and in the quarter also due to
increased usage.  Industrial kWh sales increased for the third
quarter and first nine months of 1997 due primarily to increased
sales to the paper, printing, rubber, and plastics products
customer groups.

        The change in revenues from sales to residential,
commercial, and industrial customers resulted from the following:

                                              Change from Prior Periods
                                              Quarter       Nine Months
                                                (Millions of Dollars)
                                                         
Fuel and energy cost adjustment clauses*       $ .9            $ (8.0)
Increased (decreased) kWh sales                 3.4              (7.8)
Other                                            .5               2.1
    Change in retail revenues                  $4.8            $(13.7)


  *Changes in revenues from fuel and energy cost adjustment
   clauses have little effect on net income.  Changes in the
   costs of fuel, purchased power, and certain other costs, and
   changes in revenues from sales to other utilities, including
   transmission services, have had little effect on net income
   because such changes have been passed on to customers by
   adjustment of customer bills through fuel and energy cost
   adjustment clauses.


        The increase in wholesale and other revenues for the
third quarter and first nine months of 1997 was due primarily to
the sale of transmission services to affiliated companies, offset
in part by second and third quarter decreased sales to a
wholesale customer related to the shutdown of a paper recycling
plant.  All of the Company's wholesale customers have signed
contracts to remain as customers for periods ranging from about
one year to four years.

        Revenues from bulk power transactions consist of the
following items:

                                      Three Months Ended     Nine Months Ended
                                         September 30          September 30
                                      1997          1996     1997         1996
                                               (Millions of Dollars)
                                                                   
Revenues:                                                          
  From transmission services          $3.2         $4.0     $10.3        $13.3
  From sales of Company generation     4.2          1.6       8.3          5.9
    Total                             $7.4         $5.6     $18.6        $19.2

<PAGE>


                             - 11 -


        Revenues from transmission services decreased primarily
due to reduced demand, primarily because of mild weather.  The
increases in sales of Company generation resulted primarily from
increased sales to brokers and power marketers.  About 95% of the
aggregate benefits from bulk power transactions are passed on to
retail customers through the fuel and energy adjustment clause
and had little effect on net income.


OPERATING EXPENSES

        Fuel expenses for the third quarter increased 6% due to
an increase in kWh generated due to increased bulk power sales
from Company generation to brokers and marketers and increased
sales to affiliates.  Fuel expenses for the first nine months of
1997 remained about the same.  Fuel expenses are primarily
subject to deferred power cost accounting procedures with the
result that changes in fuel expenses have little effect on net
income.

        "Purchased power and exchanges, net" represents power
purchases from and exchanges with nonaffiliated companies,
capacity charges paid to Allegheny Generating Company (AGC), an
affiliate partially owned by the Company, and other transactions
with affiliates made pursuant to a power supply agreement,
whereby each company uses the most economical generation
available in the Allegheny Energy System at any given time, and
consists of the following items:

                                  Three Months Ended     Nine Months Ended
                                     September 30          September 30
                                   1997        1996       1997       1996
                                          (Millions of Dollars)
        
Nonaffiliated transactions:                                 
  Purchased power                 $ 3.3       $ 2.4      $  8.4     $ 10.2
  Power exchanges, net              (.9)         .1         -          1.8
Affiliated transactions:                                              
  AGC capacity charges              5.7         6.7        19.0       20.2
  Other affiliated capacity                                            
    charges                        12.4        11.9        38.0       35.6
Energy and spinning reserve                                            
  charges                          12.4        11.5        37.1       35.9
    Purchased power and                                                
      exchanges, net              $32.9       $32.6      $102.5     $103.7


        Nonaffiliated purchased power decreased in the nine
months ended September 30, 1997 because of decreased demand due
to decreased sales to retail customers.  The cost of power
purchased from nonaffiliates for use by the Company, AGC capacity
charges in West Virginia, and affiliated energy and spinning
reserve charges are mostly recovered from customers currently
through the regular fuel and energy cost recovery procedures with
the result that changes in such costs have little effect on net
income.

        A Public Utility Regulatory Policies Act of 1978 (PURPA)
power station project in the Company's Maryland jurisdiction is
scheduled to commence generation in 1999.  This project will
significantly increase the costs of power purchases.

<PAGE>

                             - 12 -


        The decrease in other operation expense for the three
and nine months ended September 1997 resulted primarily from
decreases in salaries and wages achieved through restructuring
efforts.

        Maintenance expenses represent costs incurred to
maintain the power stations, the transmission and distribution
(T&D) system, and general plant, and reflect routine maintenance
of equipment and rights-of-way as well as planned major repairs
and unplanned expenditures, primarily from forced outages at the
power stations and periodic storm damage on the T&D system.
Variations in maintenance expense result primarily from unplanned
events and planned major projects, which vary in timing and
magnitude depending upon the length of time equipment has been in
service without a major overhaul and the amount of work found
necessary when the equipment is dismantled.  Maintenance expenses
for the third quarter decreased $1.0 million due primarily to
reduced expenses achieved through restructuring efforts and other
cost controls.  Maintenance expenses for the first nine months
increased $1.7 million reflecting an offset to expense reduction
efforts due to maintenance requirements determined to be
necessary during planned outages at the Harrison Power Station.

        Restructuring charges in the third quarter and the first
nine months of 1996 include expenses associated with a
reorganization, which is essentially complete.

        Depreciation expense increases resulted from additions
to electric plant.  Future depreciation expense increases are
expected to be less than historical increases because of reduced
levels of planned capital expenditures.

        Taxes other than income taxes increased $1.3 million for
the nine months ended September 1997 due to increased property
taxes and capital stock and franchise taxes related to an
increase in the assessment of property in Maryland.

        The net increases in federal and state income taxes in
the third quarter and in the nine months ended September 1997
resulted primarily from  increases in income before taxes.  The
nine months ended increase in income before taxes was primarily
related to restructuring charges recorded in 1996.

        The increases in other income, net, of $3.3 million and
$3.4 million for the third quarter and first nine months of 1997,
respectively, were primarily due to an interest refund on a tax-
related contract settlement received by the Company's subsidiary,
Allegheny Generating Company.


Financial Condition and Requirements

        The Company's discussion on Financial Condition and
Requirements and Competition in Core Business in the Allegheny
Power System companies' combined Annual Report on Form 10-K for
the year ended December 31, 1996, should be read with the
following information.

        In the normal course of business, the Company is subject
to various contingencies and uncertainties relating to its
operations and construction programs, including cost recovery in
the regulatory process, laws, regulations and uncertainties

<PAGE>

                             - 13 -


related to environmental matters, legal actions, restructuring
of the electric utility industry, and, as described in Note 4
to the Financial Statements, merger activities.

        The Company expects to use exchange-traded and over-the-
counter futures, options, and swap contracts both to hedge its
exposure to changes in electric power prices and for trading
purposes.  The risks to which the Company is exposed include
underlying price volatility, credit risk, and variations in cash
flows, among others.  The Company has implemented risk management
policies and procedures consistent with industry practices and
Company goals.

        The Company is working actively within its states to
advance customer choice.  However, the Company believes that
federal legislation is necessary to ensure that electric
restructuring is implemented consistently across state and
regional boundaries so that all electric customers have an equal
opportunity to benefit from competition and customer choice by a
date certain.  Federal legislation is also needed to remove
barriers to competition, including the Public Utility Holding
Company Act of 1935 (PUHCA) and the Public Utility Regulatory
Policies Act of 1978 (PURPA).

        This fall, in Maryland, a task force will examine issues
involved in retail electric competition and will include its
findings in a report to the General Assembly in mid-December.
The task force is looking at how the electric utility industry in
Maryland can be restructured to reduce energy costs and better
meet the needs of consumers.  The Company holds a seat on the
advisory group which is assisting the task force in its
deliberations.  Also, the Maryland Public Service Commission
(PSC) recently held hearings on the restructuring issue.  In
addition, the PSC has issued a report recommending that all
electric consumers in the state have the opportunity to choose
their electric supplier, with service beginning April 2, 2001.

        The West Virginia Public Service Commission also created
a task force to study electric utility restructuring and
competition.  On October 15, the group issued a final report
addressing various issues of competition and customer choice.
The task force, which includes the Company as a member, will
continue to further discuss issues relevant to electric utility
competition.

        In early November, the staff of the State Corporation
Commission of Virginia is expected to file recommendations on
competition and electric utility restructuring.  Five working
groups, which included representatives from the Company, have
been working with the staff to develop recommendations. In
addition, the Virginia General Assembly has established a Joint
Subcommittee to examine electric utility restructuring.

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                             - 14 -
                                
                                
                   THE POTOMAC EDISON COMPANY
                                
            Part II - Other Information to Form 10-Q
              for Quarter Ended September 30, 1997


ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

    (a) (27)  Financial Data Schedule

    (b) No reports on Form 8-K were filed on behalf of the
        Company for the quarter ended September 30, 1997.





                            Signature


        Pursuant to the 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.


                                        THE POTOMAC EDISON COMPANY



                                        /s/   THOMAS J. KLOC
                                              Thomas J. Kloc
                                                Controller
                                        (Chief Accounting Officer)



November 13, 1997