SECURITIES AND EXCHANGE COMMISSION
                     WASHINGTON, D.C.  20549
                            FORM 10-Q


Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
                        

For Quarter Ended                March 31, 1997 
                                 --------------


Commission file number               1-1072
                                     ------


                  Potomac Electric Power Company                
----------------------------------------------------------------  
    (Exact name of registrant as specified in its charter)



     District of Columbia and Virginia            53-0127880     
----------------------------------------------------------------  
   (State or other jurisdiction of          (I.R.S. Employer 
      incorporation or organization)       Identification No.)



     1900 Pennsylvania Avenue, N.W., Washington, D.C.   20068
----------------------------------------------------------------  
     (Address of principal executive office)         (Zip Code) 


                           (202) 872-2000
----------------------------------------------------------------  
      (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
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.

            Class              Outstanding at March 31, 1997 
--------------------------     -----------------------------  
Common Stock, $1 par value               118,497,098



                        TABLE OF CONTENTS


PART I - Financial Information                               Page

  Item 1 - Consolidated Financial Statements                      
         
    Consolidated Statements of Earnings and Retained Income..  2 
    Consolidated Balance Sheets..............................  3
    Consolidated Statements of Cash Flows....................  4
    Notes to Consolidated Financial Statements
      (1) Summary of Significant Accounting Policies.........  5
      (2) Income Taxes....................................... 10 
      (3) Capitalization..................................... 13
      (4) Fair Value of Financial Instruments................ 15 
      (5) Marketable Securities.............................. 17 
      (6) Commitments and Contingencies...................... 18 
    Report of Independent Accountants on Review of Interim
      Financial Information.................................. 25
  
  Item 2 - Management's Discussion and Analysis of Consolidated
             Results of Operations and Financial Condition
    Utility
      Proposed Merger Update................................. 26
      Results of Operations.................................. 28 
      Capital Resources and Liquidity........................ 30 
      New Accounting Standards............................... 31
    Nonutility Subsidiary
      Results of Operations.................................. 31 
      Capital Resources and Liquidity........................ 34 

PART II - Other Information

  Item 1 - Legal Proceedings................................. 35
  Item 5 - Other Information
    Other Financing Arrangements............................. 35 
    Base Rate Proceedings.................................... 35 
    Restructuring of the Bulk Power Market................... 38
    Competition.............................................. 40
    Peak Load, Sales, Conservation, and Construction and
      Generating Capacity.................................... 41
    Selected Nonutility Subsidiary Financial Information..... 44
    Statistical Data......................................... 46
    Unaudited Pro Forma Combined Condensed Financial
      Information............................................ 47
  Item 6 - Exhibits and Reports on Form 8-K.................. 55
  Signatures................................................. 56
  Computations of Earnings Per Common Share.................. 57
  Computation of Ratios - Parent Company Only................ 58
  Computation of Ratios - Fully Consolidated................. 59
  Independent Accountants Awareness Letter................... 60


                              1





<TABLE>
Part I  FINANCIAL INFORMATION
------  ---------------------
Item 1  CONSOLIDATED FINANCIAL STATEMENTS
------  ---------------------------------



                                    POTOMAC ELECTRIC POWER COMPANY
                        Consolidated Statements of Earnings and Retained Income
                                              (Unaudited)
                        -------------------------------------------------------

<CAPTION>

                                                      Three Months Ended        Twelve Months Ended
                                                           March 31,                 March 31,
                                                     --------------------     ----------------------
                                                        1997       1996           1997        1996
                                                     ---------  ---------     ----------  ----------
                                                                 (Thousands of Dollars)
<S>                                                  <C>        <C>           <C>         <C>
Revenue
  Sales of electricity                               $ 369,653  $ 382,576     $1,811,818  $1,835,195
  Other electric revenue                                 4,833      2,696         12,252       9,076
                                                     ---------  ---------     ----------  ----------
    Total Operating Revenue                            374,486    385,272      1,824,070   1,844,271
  Interchange deliveries                                14,574     51,321        138,708     103,514
                                                     ---------  ---------     ----------  ----------
    Total Revenue                                      389,060    436,593      1,962,778   1,947,785
                                                     ---------  ---------     ----------  ----------
Operating Expenses
  Fuel                                                  78,507     92,713        313,586     364,626
  Purchased energy                                      51,074     81,302        305,751     232,254
  Capacity purchase payments                            35,944     32,278        129,452     125,586
  Other operation                                       51,836     55,719        219,443     221,513
  Maintenance                                           21,173     21,427         91,270      91,459
                                                     ---------  ---------     ----------  ----------
    Total Operation and Maintenance                    238,534    283,439      1,059,502   1,035,438
  Depreciation and amortization                         57,600     55,401        225,215     213,232
  Income taxes                                           5,295      8,171        131,208     137,051
  Other taxes                                           45,409     45,555        200,219     201,114
                                                     ---------  ---------     ----------  ----------
    Total Operating Expenses                           346,838    392,566      1,616,144   1,586,835
                                                     ---------  ---------     ----------  ----------
Operating Income                                        42,222     44,027        346,634     360,950
                                                     ---------  ---------     ----------  ----------
Other Income (Loss)
  Nonutility Subsidiary
    Income                                              39,807     17,313        137,460     117,919
    Loss on assets held for disposal                         -    (12,320)          (424)   (182,398)
    Expenses, including interest
      and income taxes                                 (26,357)    (2,525)      (109,160)    (53,076)
                                                     ---------  ---------     ----------  ----------
      Net earnings (loss) from nonutility
        subsidiary                                      13,450      2,468         27,876    (117,555)
  Allowance for other funds used during
    construction and capital cost recovery factor        1,660      1,737          6,495       6,484
  Other, net                                               686      1,755          3,388       1,344
                                                     ---------  ---------     ----------  ----------
    Total Other Income (Loss)                           15,796      5,960         37,759    (109,727)
                                                     ---------  ---------     ----------  ----------
Income Before Utility Interest Charges                  58,018     49,987        384,393     251,223
                                                     ---------  ---------     ----------  ----------
Utility Interest Charges
  Long-term debt                                        34,744     33,434        134,416     132,748
  Other                                                  2,098      3,787         12,144      15,426
  Allowance for borrowed funds used during
    construction and capital cost recovery factor       (1,806)    (1,968)        (7,375)    (10,048)
                                                     ---------  ---------     ----------  ----------
      Net Utility Interest Charges                      35,036     35,253        139,185     138,126
                                                     ---------  ---------     ----------  ----------
Net Income                                              22,982     14,734        245,208     113,097
Dividends on Preferred Stock                             4,145      4,160         16,590      16,769
                                                     ---------  ---------     ----------  ----------
Earnings for Common Stock                               18,837     10,574        228,618      96,328

Retained Income at Beginning of Period                 760,285    742,296        695,521     785,792
Dividends on Common Stock                              (49,148)   (49,152)      (196,607)   (196,576)
Subsidiary Marketable Securities Net
  Unrealized Gain (Loss), Net of Tax                       223     (8,197)         2,665       9,977
                                                     ---------  ---------     ----------  ----------
Retained Income at End of Period                     $ 730,197  $ 695,521     $  730,197  $  695,521
                                                     =========  =========     ==========  ==========
Average Common Shares
  Outstanding (000's)                                  118,499    118,495        118,498     118,473
Earnings Per Common Share                                $0.16      $0.09          $1.93       $0.81
Cash Dividends Per Common Share                         $0.415     $0.415          $1.66       $1.66
Book Value Per Share                                                              $15.69      $15.40



                                                      2
</TABLE>

<TABLE>
                                         POTOMAC ELECTRIC POWER COMPANY
                                           Consolidated Balance Sheets
                                     (Unaudited at March 31, 1997 and 1996)
                                     --------------------------------------

<CAPTION>

                                                                   March 31,      December 31,        March 31,
                  ASSETS                                             1997             1996              1996
                  ------                                        -------------    -------------     -------------
                                                                             (Thousands of Dollars)
<S>                                                             <C>              <C>               <C>
Property and Plant - at original cost
  Electric plant in service                                     $   6,244,707    $   6,232,049     $   6,069,071
  Construction work in progress                                        74,292           62,469           103,015
  Electric plant held for future use                                    4,170            4,152             4,096
  Nonoperating property                                                22,976           22,921            22,771
                                                                -------------    -------------     -------------
                                                                    6,346,145        6,321,591         6,198,953
  Accumulated depreciation                                         (1,920,609)      (1,898,342)       (1,800,460)
                                                                -------------    -------------     -------------
      Net Property and Plant                                        4,425,536        4,423,249         4,398,493
                                                                -------------    -------------     -------------
Current Assets
  Cash and cash equivalents                                             1,263            2,174            11,400
  Customer accounts receivable, less allowance
    for uncollectible accounts of $673, $1,298
    and $1,482                                                        119,047          128,600           133,053
  Other accounts receivable, less allowance for
    uncollectible accounts of $300                                     30,491           38,490            37,810
  Accrued unbilled revenue                                             62,976           70,214            63,015
  Prepaid taxes                                                        18,004           34,202            27,489
  Other prepaid expenses                                                3,599            4,613             4,200
  Material and supplies - at average cost
    Fuel                                                               74,243           68,232            66,222
    Construction and maintenance                                       69,026           69,541            70,513
                                                                -------------    -------------     -------------
      Total Current Assets                                            378,649          416,066           413,702
                                                                -------------    -------------     -------------
Deferred Charges
  Income taxes recoverable through future rates, net                  238,517          238,467           240,320
  Conservation costs, net                                             229,684          233,793           234,460
  Unamortized debt reacquisition costs                                 54,851           55,552            57,658
  Other                                                               168,268          159,139           149,024
                                                                -------------    -------------     -------------
      Total Deferred Charges                                          691,320          686,951           681,462
                                                                -------------    -------------     -------------
Nonutility Subsidiary Assets
  Cash and cash equivalents                                            53,280              804             3,545
  Marketable securities                                               310,473          377,237           417,377
  Investment in finance leases                                        493,761          484,972           476,879
  Operating lease equipment, net of accumulated
    depreciation of $127,856, $117,705 and $89,629                    188,974          199,124           262,025
  Assets held for disposal                                              5,900           10,300            28,300
  Receivables, less allowance for uncollectible
    accounts of $6,000                                                 66,622           87,745            63,004
  Other investments                                                   185,880          193,002           156,481
  Other assets                                                         16,133           12,436            15,416
                                                                -------------    -------------     -------------
      Total Nonutility Subsidiary Assets                            1,321,023        1,365,620         1,423,027
                                                                -------------    -------------     -------------
      Total Assets                                              $   6,816,528    $   6,891,886     $   6,916,684
                                                                =============    =============     =============

CAPITALIZATION AND LIABILITIES
------------------------------
Capitalization
  Common stock                                                  $     118,497    $     118,500     $     118,495
  Other common equity                                               1,740,630        1,770,692         1,706,011
  Serial preferred stock                                              125,297          125,298           125,319
  Redeemable serial preferred stock                                   142,500          142,500           143,485
  Long-term debt                                                    1,718,310        1,767,598         1,817,727
                                                                -------------    -------------     -------------
      Total Capitalization                                          3,845,234        3,924,588         3,911,037
                                                                -------------    -------------     -------------
Other Noncurrent Liabilities
  Capital lease obligations                                           162,322          162,936           164,677
                                                                -------------    -------------     -------------
      Total Other Noncurrent Liabilities                              162,322          162,936           164,677
                                                                -------------    -------------     -------------
Current Liabilities
  Long-term debt and preferred stock
    redemption due within one year                                    200,985          152,445            25,000
  Short-term debt                                                     173,540          131,390           286,940
  Accounts payable and accrued expenses                               143,565          179,289           163,481
  Capital lease obligations due within one year                        20,772           20,772            20,772
  Other                                                                79,939           83,135            77,527
                                                                -------------    -------------     -------------
      Total Current Liabilities                                       618,801          567,031           573,720
                                                                -------------    -------------     -------------
Deferred Credits
  Income taxes                                                        986,453          973,642           896,258
  Investment tax credits                                               60,045           60,958            63,695
  Other                                                                39,398           35,658            36,193
                                                                -------------    -------------     -------------
      Total Deferred Credits                                        1,085,896        1,070,258           996,146
                                                                -------------    -------------     -------------
Nonutility Subsidiary Liabilities
  Long-term debt                                                      989,480          996,232         1,066,688
  Short-term notes payable                                              1,000           51,650            73,230
  Deferred taxes and other                                            113,795          119,191           131,186
                                                                -------------    -------------     -------------
      Total Nonutility Subsidiary Liabilities                       1,104,275        1,167,073         1,271,104
                                                                -------------    -------------     -------------
      Total Capitalization and Liabilities                      $   6,816,528    $   6,891,886     $   6,916,684
                                                                =============    =============     =============

                                                     3

</TABLE>


<TABLE>
                                            POTOMAC ELECTRIC POWER COMPANY
                                        Consolidated Statements of Cash Flows
                                                     (Unaudited)
                                        -------------------------------------

<CAPTION>

                                                                        Three Months Ended       Twelve Months Ended
                                                                            March 31,                 March 31,
                                                                     -----------------------   -----------------------
                                                                       1997           1996        1997         1996
                                                                     ---------     ---------   ---------     ---------
                                                                                   (Thousands of Dollars)
<S>                                                                  <C>           <C>         <C>           <C>
Operating Activities
  Income from utility operations                                     $   9,532     $  12,266   $ 217,332     $ 230,652
  Adjustments to reconcile income to net
    cash from operating activities:
    Depreciation and amortization                                       57,600        55,401     225,215       213,232
    Deferred income taxes and investment tax credits                    12,275            (5)     93,775        39,629
    Allowance for funds used during construction
      and capital cost recovery factor                                  (3,466)       (3,705)    (13,870)      (16,532)
    Changes in materials and supplies                                   (5,496)       (3,035)     (6,534)       (3,775)
    Changes in accounts receivable and accrued unbilled revenue         24,790        13,965      21,364       (38,537)
    Changes in accounts payable                                        (21,180)        9,850     (17,406)       10,146
    Changes in other current assets and liabilities                     (1,165)        1,526       3,168          (940)
    Changes in deferred conservation costs                              (7,644)      (15,829)    (41,219)      (95,115)
    Net other operating activities                                      (9,870)       (7,705)    (50,840)      (37,718)
  Nonutility subsidiary:
    Net earnings (loss)                                                 13,450         2,468      27,876      (117,555)
    Deferred income taxes                                              (21,738)      (34,724)    (23,412)      (81,890)
    Loss on assets held for disposal                                         -        12,320         424       182,398
    Changes in other assets and net other operating activities          28,565        33,778      31,045        98,944
                                                                     ---------     ---------   ---------     ---------
Net Cash From Operating Activities                                      75,653        76,571     466,918       382,939
                                                                     ---------     ---------   ---------     ---------

Investing Activities
  Total investment in property and plant                               (42,609)      (41,538)   (195,108)     (207,802)
  Allowance for funds used during construction
    and capital cost recovery factor                                     3,466         3,705      13,870        16,532
                                                                     ---------     ---------   ---------     ---------
    Net investment in property and plant                               (39,143)      (37,833)   (181,238)     (191,270)
  Nonutility subsidiary:
    Purchase of marketable securities                                  (23,133)      (11,252)    (31,561)      (44,404)
    Proceeds from sale or redemption of marketable securities           95,502       113,177     149,853       134,701
    Investment in leased equipment                                      (7,480)            -     (10,536)     (148,148)
    Proceeds from sale or disposition of leased equipment                    -             -       3,658        24,500
    Proceeds from assets held for disposal                                   -             -       9,654             -
    Proceeds from sale of assets                                         1,600        24,785       1,315         6,251
    Purchase of other investments                                      (15,963)         (932)    (38,029)       (4,153)
    Proceeds from sale or distribution of other investments              4,723         1,385      37,205         5,978
    Investment in promissory notes                                         (12)       (2,593)     (1,664)      (10,548)
    Proceeds from promissory notes                                      30,019         1,980      44,714         8,288
                                                                     ---------     ---------   ---------     ---------
Net Cash From (Used by) Investing Activities                            46,113        88,717     (16,629)     (218,805)
                                                                     ---------     ---------   ---------     ---------

Financing Activities
  Dividends on common stock                                            (49,148)      (49,152)   (196,607)     (196,576)
  Dividends on preferred stock                                          (4,145)       (4,160)    (16,590)      (16,769)
  Issuance of common stock                                                   -             -           -         2,685
  Redemption of preferred stock                                              -             -           -           (78)
  Issuance of long-term debt                                                 -             -      99,500       172,754
  Reacquisition and retirement of long-term debt                        (1,460)       (1,300)    (26,480)     (101,282)
  Short-term debt, net                                                  42,150        28,475    (113,400)       49,415
  Other financing activities                                              (196)         (728)     (4,823)      (20,343)
  Nonutility subsidiary:
    Issuance of long-term debt                                               -        78,000     105,000       185,000
    Repayment of long-term debt                                         (6,752)      (58,796)   (185,058)     (272,065)
    Short-term debt, net                                               (50,650)     (150,120)    (72,233)       45,830
                                                                     ---------     ---------   ---------     ---------
Net Cash Used By Financing Activities                                  (70,201)     (157,781)   (410,691)     (151,429)
                                                                     ---------     ---------   ---------     ---------
Net Increase in Cash and Cash Equivalents                               51,565         7,507      39,598        12,705
Cash and Cash Equivalents at Beginning of Period                         2,978         7,438      14,945         2,240
                                                                     ---------     ---------   ---------     ---------
Cash and Cash Equivalents at End of Period                           $  54,543     $  14,945   $  54,543     $  14,945
                                                                     =========     =========   =========     =========

Cash paid for interest (net of capitalized interest) and income taxes:
  Interest (including nonutility subsidiary
    interest of $31,331, $34,800, $79,920 and $86,803)               $  73,246     $  78,791   $ 211,421     $ 218,675
  Income taxes                                                       $   1,761     $   2,559   $  27,732     $  44,638

                                                          4




</TABLE>



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------

(1)  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
     ------------------------------------------

     The Company is engaged in the generation, transmission,
distribution and sale of electric energy in the Washington, D.C.
metropolitan area.  The Company's retail service territory
includes all of the District of Columbia and major portions of
Montgomery and Prince George's counties in suburban Maryland.

     Potomac Capital Investment Corporation (PCI), the Company's
wholly owned subsidiary, was formed in 1983 to provide a
permanent vehicle for the conduct of the Company's ongoing
nonutility investment programs.  Effective April 30, 1996, the
Company reorganized its nonutility subsidiaries whereby PEPCO
Enterprises, Inc. (PEI) became a subsidiary of PCI.  PCI's
principal investments have been in aircraft and power generation
equipment, equipment leasing and marketable securities, primarily
preferred stock with mandatory redemption features.  PCI is also
involved with activities, through PEI, which provide utility-
related telecommunication and energy services.  In addition, PCI
has investments in real estate properties in the Washington, D.C.
metropolitan area.

     The Company's utility operations are regulated by the
Maryland and District of Columbia Public Service Commissions and
its wholesale business by the Federal Energy Regulatory
Commission (FERC).  The Company complies with the Uniform System
of Accounts prescribed by the FERC and adopted by the Maryland
and District of Columbia regulatory commissions.  Based upon the
regulatory framework in which it operates, the Company currently
applies the provisions of Statement of Financial Accounting
Standards (SFAS) No. 71 entitled "Accounting for the Effects of
Certain Types of Regulation" in accounting for certain deferred
charges and credits to be recognized in future customer billings
pursuant to regulatory authorization, principally deferred income
taxes, unamortized conservation costs and unamortized debt
reacquisition costs.  
 
     The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenue and expenses during the reporting
period.  Actual results could differ from those estimates and
assumptions.


                              5


     Certain 1996 amounts have been reclassified to conform to
the current year presentation.

     A description of significant accounting policies follows.

Principles of Consolidation
---------------------------

     The consolidated financial statements combine the financial
results of the Company and PCI.  All material intercompany
balances and transactions have been eliminated.

Total Revenue
-------------

     Revenue is accrued for service rendered but unbilled as of
the end of each month.  The Company includes in revenue the
amounts received for sales of energy, and resales of purchased
energy, to other utilities and to power marketers.  Amounts
received for such interchange deliveries are a component of the
Company's fuel rates.

     In each jurisdiction, the Company's rate schedules include
fuel rates.  The fuel rate provisions are designed to provide for
separately stated fuel billings which cover applicable net fuel
and interchange costs, purchased capacity in the District of
Columbia, and emission allowance costs in the Company's retail
jurisdictions, or changes in the applicable costs from levels
incorporated in base rates.  Differences between applicable net
costs incurred and fuel rate revenue billed in any given period
are accounted for as other current assets or other current
liabilities in those cases where specific provision has been made
by the appropriate regulatory commission for the resolution of
such differences within one year.  Where no such provision has
been made, the differences are accounted for as other deferred
charges or other deferred credits pending regulatory
determination.

     In the District of Columbia, pre-July 1993 conservation
costs receive rate base treatment.  Conservation expenditures for
the period July 1993 to December 1994 are recovered through a
surcharge mechanism which initially became effective July 11,
1995, and which is scheduled to be updated annually on June 1 to
recover 1995 and subsequent conservation expenditures, including
a capital cost recovery factor (CCRF), which is a mechanism that
enables the Company to earn a return on certain costs,
principally unamortized Demand Side Management (DSM) costs not in
rate base.  A procedure has been established to consider lost
revenue without the need for base rate proceedings.  In Maryland,
conservation costs are recovered through a surcharge rate which
reflects amortization of program costs, including costs in the
year during which the surcharge commences, a CCRF, incentives, 


                              6


applicable taxes and estimated lost revenue.  The surcharge is
established annually in a collaborative process with the recovery
of lost revenue subject to an earnings test performed on a
quarterly basis.

Leasing Transactions
--------------------

     Income from PCI investments in direct finance and leveraged
lease transactions, in which PCI is an equity participant, is
reported using the financing method.  In accordance with the
financing method, investments in leased property are recorded as
a receivable from the lessee to be recovered through the
collection of future rentals.  For direct finance leases,
unearned income is amortized to income over the lease term at a
constant rate of return on the net investment.  Income, including
investment tax credits on leveraged equipment leases, is
recognized over the life of the lease at a level rate of return
on the positive net investment.

     PCI investments in equipment under operating leases are
stated at cost less accumulated depreciation, except that assets
held for disposal are carried at estimated fair value less
estimated costs to sell.  Depreciation is recorded on a straight
line basis over the equipment's estimated useful life.  No
depreciation is taken on assets held for disposal.

Property and Plant
------------------

     The cost of additions to, and replacements or betterments
of, retirement units of property and plant is capitalized.  Such
cost includes material, labor, the capitalization of an Allowance
for Funds Used During Construction (AFUDC) and applicable
indirect costs, including engineering, supervision, payroll taxes
and employee benefits.  The original cost of depreciable units of
plant retired, together with the cost of removal, net of salvage,
is charged to accumulated depreciation.  Routine repairs and
maintenance are charged to operating expenses as incurred.

     The Company uses separate depreciation rates for each
electric plant account.  The rates, which vary from jurisdiction
to jurisdiction, were equivalent to a system-wide composite
depreciation rate of approximately 3.1% for 1997, 1996 and 1995.


                              7

Conservation 
------------

     In general, the Company accounts for conservation
expenditures in connection with its DSM program as a deferred
charge, and amortizes the costs over five years in Maryland and
10 years in the District of Columbia.  At March 31, 1997,
unamortized conservation costs totaled $91.7 million in Maryland
and $138 million in the District of Columbia.  

Allowance for Funds Used During Construction and Capital Cost 
-------------------------------------------------------------
  Recovery Factor
  ---------------

     In general, the Company capitalizes AFUDC with respect to
investments in Construction Work in Progress with the exception
of expenditures required to comply with federal, state or local
environmental regulations (pollution control projects), which are
included in rate base without capitalization of AFUDC.  The
jurisdictional AFUDC capitalization rates are determined as
prescribed by the FERC.  The effective capitalization rates were
approximately 7.3%, compounded semiannually, for the three months
ended March 31, 1997, and approximately 7.4% in 1996 and 7.9% in
1995, compounded semiannually.

     In Maryland, the Company accrues a CCRF on the retail
jurisdictional portion of certain pollution control expenditures
related to compliance with the Clean Air Act (CAA).  The base for
calculating this return is the amount by which the Maryland
jurisdictional CAA expenditure balance exceeds the CAA balance
being recovered in base rates.  The CCRF rate for Maryland is
9.46%.  In the District of Columbia, the carrying costs of CAA
expenditures not in rate base are recovered through a base rate
surcharge.  


Amortization of Debt Issuance and Reacquisition Costs
-----------------------------------------------------

     The Company defers and amortizes expenses incurred in
connection with the issuance of long-term debt, including
premiums and discounts associated with such debt, over the lives
of the respective issues.  Costs associated with the
reacquisition of debt are also deferred and amortized over the
lives of the new issues.



                              8



Cash and Cash Equivalents
-------------------------

     For purposes of the consolidated financial statements, cash
and cash equivalents include cash on hand, money market funds and
commercial paper with original maturities of three months or
less.

New Accounting Standards
------------------------

     In October 1996, the American Institute of Certified Public
Accountants issued Statement of Position (SOP) 96-1 entitled
"Environmental Remediation Liabilities," which became effective
January 1, 1997.  SOP 96-1 provides authoritative guidance for
recognition, measurement, display and disclosure of environmental
remediation liabilities in financial statements.  Adoption of
this pronouncement did not have an effect on the Company's
financial statements.

     In February 1997, the Financial Accounting Standards Board
issued SFAS No. 128 and 129 entitled "Earnings Per Share" and
"Disclosure of Information about Capital Structure,"
respectively.  SFAS No. 128 simplifies the earnings per share
(EPS) computation and replaces the presentation of primary EPS
with a presentation of basic EPS.  This statement also requires
dual presentation of basic and diluted EPS on the face of the
income statement for entities with a complex capital structure
and requires a reconciliation of the numerator and denominator
used for the basic and diluted EPS computation.  SFAS No. 128 is
required to be implemented in the fourth quarter of 1997 and will
not have a significant impact on the calculation of the Company's
EPS.  SFAS No. 129, which is also effective for calendar year
1997 financial statements, essentially consolidates disclosures
required by several other pronouncements.  The Company's
disclosures are already in compliance with such pronouncements
and, accordingly, SFAS No. 129 will not require any change to
existing disclosures.

Nonutility Subsidiary Receivables
---------------------------------

     PCI, the Company's nonutility subsidiary, continuously
monitors its receivables and establishes an allowance for
doubtful accounts against its notes receivable, when deemed
appropriate, on a specific identification basis.  The direct
write-off method is used when trade receivables are deemed
uncollectible. 


                              9   


<TABLE>
(2) INCOME TAXES
----------------
Provision for Income Taxes
--------------------------


<CAPTION>

                                                              Three Months Ended         Twelve Months Ended
                                                                   March 31,                  March 31,
                                                             ---------------------     ----------------------
                                                               1997         1996         1997         1996
                                                             --------     --------     --------     ---------
                                                                        (Thousands of Dollars)
<S>                                                          <C>          <C>          <C>          <C>
Utility current tax expense
  Federal                                                    $ (6,443)    $  8,519     $ 32,273     $  88,408
  State and local                                                (851)         777        4,653        11,402
                                                             --------     --------     --------     ---------
Total utility current tax expense                              (7,294)       9,296       36,926        99,810
                                                             --------     --------     --------     ---------
Utility deferred tax expense
  Federal                                                      11,403          279       85,885        37,149
  State and local                                               1,784          628       11,539         6,129
  Investment tax credits                                         (912)        (912)      (3,649)       (3,649)
                                                             --------     --------     --------     ---------
Total utility deferred tax expense                             12,275           (5)      93,775        39,629
                                                             --------     --------     --------     ---------

Total utility income tax expense                                4,981        9,291      130,701       139,439
                                                             --------     --------     --------     ---------

Nonutility subsidiary current tax expense
  Federal                                                       7,206       (4,034)      (7,012)      (36,392)
                                                             --------     --------     --------     ---------

Nonutility subsidiary deferred tax expense
  Federal                                                     (20,188)     (34,728)     (21,833)      (81,789)
  State and local                                                   -            -            -             -
                                                             --------     --------     --------     ---------
Total nonutility subsidiary deferred tax expense              (20,188)     (34,728)     (21,833)      (81,789)
                                                             --------     --------     --------     ---------

Total nonutility subsidiary income tax expense                (12,982)     (38,762)     (28,845)     (118,181)
                                                             --------     --------     --------     ---------

Total consolidated income tax expense                          (8,001)     (29,471)     101,856        21,258
Income taxes included in other income                         (13,296)     (37,642)     (29,352)     (115,793)
                                                             --------     --------     --------     ---------
Income taxes included in utility operating expenses          $  5,295     $  8,171     $131,208     $ 137,051
                                                             ========     ========     ========     =========



                                                             10
</TABLE>

<TABLE>
Reconciliation of Consolidated Income Tax Expense
-------------------------------------------------


<CAPTION>

                                                               Three Months Ended        Twelve Months Ended
                                                                    March 31,                 March 31,
                                                             ----------------------    ----------------------
                                                               1997         1996         1997         1996
                                                             --------     --------     --------     --------
                                                                          (Thousands of Dollars)
<S>                                                          <C>          <C>          <C>          <C>
Income (loss) before income taxes                            $ 14,981     $(14,737)    $347,064     $ 134,355
                                                             ========     ========     ========     =========

Utility income tax at federal
  statutory rate                                             $  5,079     $  7,545     $121,811     $ 129,532
    Increases (decreases) resulting from
      Depreciation                                              2,522        2,542        9,847         9,467
      Removal costs                                            (1,392)        (308)      (4,658)       (6,281)
      Allowance for funds used during
        construction                                              205          134          762           564
      Other                                                    (1,128)        (541)      (3,705)       (1,117)
      State income taxes, net of federal effect                   607          831       10,525        11,313
      Tax credits                                                (912)        (912)      (3,881)       (4,039)
                                                             --------     --------     --------     ---------
Total utility income tax expense                                4,981        9,291      130,701       139,439
                                                             --------     --------     --------     ---------

Nonutility subsidiary income tax at federal
  statutory rate                                                  164      (12,703)        (339)      (82,508)
    Increases (decreases) resulting from
      Dividends received deduction                             (1,522)      (1,636)      (7,000)       (7,959)
      Reversal of previously accrued deferred taxes           (10,125)     (23,506)     (17,423)      (23,506)
      Other                                                    (1,499)        (917)      (4,083)       (4,208)
                                                             --------     --------     --------     ---------
Total nonutility subsidiary income tax credit                 (12,982)     (38,762)     (28,845)     (118,181)
                                                             --------     --------     --------     ---------

Total consolidated income tax expense                          (8,001)     (29,471)     101,856        21,258
Income taxes, included in other income                        (13,296)     (37,642)     (29,352)     (115,793)
                                                             --------     --------     --------     ---------
Income taxes included in utility operating expenses          $  5,295     $  8,171     $131,208     $ 137,051
                                                             ========     ========     ========     =========



                                                             11



</TABLE>

<TABLE>
Components of Consolidated Deferred Tax Liabilities (Assets)
------------------------------------------------------------


<CAPTION>


                                                              Mar. 31,     Dec. 31,     Mar. 31,
                                                               1997          1996         1996
                                                             ---------    ---------    ---------
                                                                   (Thousands of Dollars)
<S>                                                          <C>          <C>          <C>
Utility deferred tax liabilities (assets)
  Depreciation and other book to tax
    basis differences                                        $832,877     $821,656     $787,327
  Rapid amortization of certified pollution
    control facilities                                         24,426       24,816       26,147
  Deferred taxes on amounts to be collected
    through future rates                                       90,302       90,284       90,985
  Property taxes                                               12,878       12,664       11,969
  Deferred fuel                                               (14,855)     (14,663)     (12,621)
  Prepayment premium on debt retirement                        20,759       21,025       21,809
  Deferred investment tax credit                              (22,733)     (23,079)     (24,115)
  Contributions in aid of construction                        (28,811)     (28,719)     (27,325)
  Contributions to pension plan                                16,170       16,170       11,329
  Conservation costs (demand side management)                  43,435       41,106            -
  Other                                                        21,701       21,653       15,023
                                                             --------     --------     --------
Total utility deferred tax liabilities (net)                  996,149      982,913      900,528
Current portion of utility deferred tax liabilities
  (included in Other Current Liabilities)                       9,696        9,271        4,270
                                                             --------     --------     --------
Total utility deferred tax liabilities (net) - noncurrent    $986,453     $973,642     $896,258
                                                             ========     ========     ========

Nonutility subsidiary deferred tax liabilities (assets)
  Finance leases                                             $142,572     $144,667     $119,384
  Operating leases                                             39,192       57,006       65,872
  Alternative minimum tax                                     (97,109)     (97,109)     (80,933)
  Other                                                       (45,204)     (43,496)     (40,501)
                                                             --------     --------     --------
Total nonutility subsidiary deferred tax liabilities
  (net), (included in Deferred taxes and other)              $ 39,451     $ 61,068     $ 63,822
                                                             ========     ========     ========


                                              12
</TABLE>


(3)  CAPITALIZATION
     --------------

Common Equity
-------------

     At March 31, 1997, 118,497,098 shares of the Company's $1
par value Common Stock were outstanding.  A total of 200 million
shares is authorized.  As of March 31, 1997, 2,324,721 shares
were reserved for issuance under the Shareholder Dividend
Reinvestment Plan; 1,221,624 shares were reserved for issuance
under the Employee Savings Plans; and 2,769,412 and 3,392,500
shares were reserved for conversion of the 7% and 5% Convertible
Debentures, respectively.  Under the Stock Option Agreement with
Baltimore Gas and Electric Company, 23,579,900 shares could
become issuable, contingent upon specific events associated with
termination of the Merger Agreement.  (See Note 6 - Commitments
and Contingencies for additional information.)

Serial Preferred, Redeemable Serial Preferred and Preference 
------------------------------------------------------------
   Stock and Long-Term Debt
   ------------------------
 
     At March 31, 1997, the Company had outstanding 5,375,642
shares of its $50 par value Serial Preferred Stock, including the
Redeemable Serial Preferred Stock.  A total of 11,125,649 shares
is authorized.  At March 31, 1997, the aggregate annual dividend
requirements on the Serial Preferred Stock and the Redeemable
Serial Preferred Stock were approximately $6.3 million and $10.2
million, respectively.  Also, the Company has a total of
8,800,000 shares of cumulative, $25 par value, Preference Stock
authorized and unissued.

     The Company's $2.44 Convertible Preferred Stock, 1966 Series
(5,946 shares outstanding at March 31, 1997) is convertible into
Common Stock at $8.51 per share.

     At March 31, 1997, the Company had outstanding one million
shares of its Serial Preferred Stock, Auction Series A.  The
annual dividend rate is 3.92% ($1.96) for the period March 1,
1997, through May 31, 1997.  For the period December 1, 1996,
through February 28, 1997, the annual dividend rate was 4.20%
($2.10).  The average rate at which dividends were paid during
the 12 months ended March 31, 1997, was 4.12% ($2.06).

     At March 31, 1997, the Company had outstanding three series
of $50 par value Redeemable Serial Preferred Stock.  There are
one million shares of the $3.89 (7.78%) Series of 1991 on which
the sinking fund requirement commences June 1, 2001; one million
shares of the $3.40 (6.80%) Series of 1992 on which the sinking
fund requirement commences September 1, 2002; and 869,696 shares 


                              13


of the $3.37 (6.74%) Series of 1987 on which the sinking fund
requires redemption, beginning June 1993, at par, of not less
than 30,000 nor more than 60,000 shares annually.  Sinking fund
requirements through 2001 with respect to the three series of
Redeemable Serial Preferred Stock are $1 million in 1997, $1.5
million in 1998 through 2000 and $9.8 million in 2001.

     The Company's Long-Term Debt at March 31, 1997, is
summarized below:

                                           (Thousands of Dollars)
               
          First Mortgage Bonds                    $1,341,800
          Convertible Debentures                     178,907
          Notes Payable                              425,000
          Net Unamortized Discount                   (27,397)
          Current Portion                           (200,000)
                                                  ----------
          Net Utility Long-Term Debt              $1,718,310  
                                                  ==========

          Nonutility Subsidiary Long-Term Debt    $  989,480   
                                                  ========== 

     At March 31, 1997, the aggregate annual interest requirement
on the Company's long-term debt, including debt due within one
year, was $132.9 million; and the aggregate amounts of long-term
debt maturities are $150 million in 1997, $50 million in 1998,
$45 million in 1999, $100 million in 2000 and $165 million in
2001.  At March 31, 1997, long-term debt due within one year
consisted of $100 million of 6.66% - 6.73% Medium-Term Notes, $50
million of 9.08% Medium-Term Notes and $50 million of 4-3/8%
First Mortgage Bonds.

Nonutility Subsidiary Long-Term Debt
------------------------------------

     Long-term debt at March 31, 1997, consisted primarily of
unsecured borrowings from institutional lenders maturing at
various dates between 1997 and 2003.  The interest rates of such
borrowings ranged from 5% to 10.1%.  The weighted average
effective interest rate was 7.45% at March 31, 1997, 7.44% at
December 31, 1996, and 7.51% at March 31, 1996.  Annual aggregate
principal repayments on these borrowings are $189 million in
1997, $300.7 million in 1998, $170 million in 1999, $115 million
in 2000, $54 million in 2001 and $98.5 million thereafter.  Also
included in long-term debt is $62.2 million of non-recourse debt
which is due in monthly installments with final maturities in
2001, 2002 and 2011. 


                              14   

<TABLE>

(4) FAIR VALUE OF FINANCIAL INSTRUMENTS
---------------------------------------

The estimated fair values of the Company's financial instruments at
March 31, 1997, December 31, 1996, and March 31, 1996, are shown below.

<CAPTION>


                                         March 31,                   December 31,                    March 31,
                                           1997                          1996                          1996
                                --------------------------     -------------------------     -------------------------
                                  Carrying        Fair          Carrying        Fair          Carrying        Fair
                                   Amount         Value          Amount         Value          Amount         Value
                                -----------     ----------     ----------     ----------     ----------     ----------
                                                                (Thousands of Dollars)
<S>                             <C>             <C>            <C>            <C>            <C>            <C>
Utility
  Capitalization and Liabilities
    Serial preferred stock      $  125,297        112,171        125,298        113,285        125,319        110,261
                                ==========      =========      =========      =========      =========      =========
    Redeemable serial
      preferred stock           $  142,500        142,131        142,500        146,491        143,485        148,612
                                ==========      =========      =========      =========      =========      =========
    Long-term debt
      First mortgage bonds      $1,277,596      1,229,691      1,327,389      1,319,976      1,326,767      1,305,270
      Medium-term notes         $  272,879        263,457        272,788        274,242        323,081        324,542
      Convertible debentures    $  167,835        169,771        167,421        171,880        167,879        171,906
                                ----------      ---------      ---------      ---------      ---------      ---------
        Total long-term debt    $1,718,310      1,662,919      1,767,598      1,766,098      1,817,727      1,801,718
                                ==========      =========      =========      =========      =========      =========
Nonutility Subsidiary
  Assets
    Marketable securities       $  310,473        310,473        377,237        377,237        417,377        417,377
                                ==========      =========      =========      =========      =========      =========
    Notes receivable            $   57,226         58,029         72,251         71,593         63,515         60,575
                                ==========      =========      =========      =========      =========      =========
  Liabilities
    Long-term debt              $  989,480        994,462        996,232      1,011,814      1,066,688      1,089,373
                                ==========      =========      =========      =========      =========      =========



                                                               15


</TABLE>



     The methods and assumptions below were used to estimate, at
March 31, 1997, December 31, 1996, and March 31, 1996, the fair
value of each class of financial instruments shown above for
which it is practicable to estimate that value.

     The fair value of the Company's long-term debt, which
includes First Mortgage Bonds, Medium-Term Notes and Convertible
Debentures, excluding amounts due within one year, was based on
the current market price, or for issues with no market price
available, was based on discounted cash flows using current rates
for similar issues with similar terms and remaining maturities.

     The fair value of the Company's Serial Preferred Stock,
including Redeemable Serial Preferred Stock, excluding amounts
due within one year, was based on quoted market prices or
discounted cash flows using current rates of preferred stock with
similar terms.

     The fair value of PCI's Marketable Securities was based on
quoted market prices.

     The fair value of PCI's Notes Receivable was based on
discounted future cash flows using current rates and similar
terms.

     The fair value of PCI's long-term debt, including non-
recourse debt, was based on current rates offered to similar
companies for debt with similar remaining maturities.

     The carrying amounts of all other financial instruments
approximate fair value.


                              16


(5)  MARKETABLE SECURITIES 
     ---------------------

     PCI's marketable securities are classified as available-for-
sale for financial reporting purposes.  Investment grade
preferred stocks with mandatory redemption features made up 94%
of the portfolio at March 31, 1997.  Net unrealized gains or
losses on such securities are reflected, net of tax, in
stockholder's equity.  The net unrealized gains (losses) are
shown below:

                                 As of March 31, 1997            
                        -------------------------------------
                                                     Net 
                                       Market     Unrealized
                           Cost        Value         Gain    
                        ---------    ---------    -----------
                                 (Thousands of Dollars)
Mandatory redeemable
  preferred stock       $ 308,490    $ 310,473     $   1,983
                        =========    =========     =========
 

                               As of December 31, 1996        
                        -------------------------------------
                                                      Net 
                                       Market     Unrealized
                           Cost        Value      Gain (Loss) 
                        ---------    ---------    -----------
                                 (Thousands of Dollars)
Mandatory redeemable
  preferred stock       $ 375,595    $ 377,237     $   1,642 
Equity securities               3            -            (3) 
                        ---------    ---------     ---------
  Total                 $ 375,598    $ 377,237     $   1,639  
                        =========    =========     =========


                                As of March 31, 1996 
                        -------------------------------------
                                                      Net 
                                       Market      Unrealized
                           Cost        Value          Loss
                        ---------    ---------    -----------
                                 (Thousands of Dollars)
Mandatory redeemable
  preferred stock       $ 419,153    $ 417,112     $  (2,041)
Equity securities             341          265           (76) 
                        ---------    ---------     ---------
  Total                 $ 419,494    $ 417,377     $  (2,117)
                        ==========   =========     =========



                              17


     Included in net unrealized gains and losses are gross
unrealized gains of $7.7 million and gross unrealized losses of
$5.7 million at March 31, 1997; gross unrealized gains of $9.9
million and gross unrealized losses of $8.3 million at December
31, 1996; and gross unrealized gains of $8.1 million and gross
unrealized losses of $10.2 million at March 31, 1996. 

     At March 31, 1997, the contractual maturities for mandatory
redeemable preferred stock are $26 million within one year, $91
million from one to five years, $77.7 million from five to 10
years and $113.8 million for over 10 years. 

     In determining gross realized gains and losses on sales or
calls of securities, specific identification is used.  A summary
of realized gains and losses is shown below.

                       Three Months Ended     Three Months Ended
                         March 31, 1997         March 31, 1996 
                       ------------------     ------------------
                                 (Thousands of Dollars)
  Gross realized
    gains                  $   5,884              $    2,261 
  Gross realized
    losses                      (623)                   (671)
                           ---------              ----------
    Net gain               $   5,261              $    1,590
                           =========              ==========

(6)  COMMITMENTS AND CONTINGENCIES
     -----------------------------

Proposed Merger
---------------

     The Company entered into an Agreement and Plan of Merger
with Baltimore Gas and Electric Company (BGE) in September 1995. 
This Agreement provides for a strategic business combination in
which each company will merge into Constellation Energy
Corporation (Constellation Energy), a newly formed company, to
create an integrated, non-holding company structure (the Merger). 
Each outstanding share of the Company's common stock will be
converted into the right to receive .997 of a share of common
stock of Constellation Energy and each outstanding share of BGE
common stock will be converted into the right to receive one
share of Constellation Energy's common stock.  This transaction
is expected to qualify as a tax-free exchange of shares for the
holders of each company's common stock and as a pooling of
interests for accounting purposes.  Constellation Energy will
serve a population of approximately 4.5 million with
approximately 1.8 million electric customers and over 557,000
natural gas customers.  Preliminary estimates indicate that
savings from the combined utility systems will approximate $1.3
billion over 10 years following the Merger.  These savings are


                              18


net of costs to achieve, which are presently estimated to be
approximately $150 million.  Approximately two-thirds of the
projected savings are expected to result from reduced labor
costs, with the remaining savings split between nonfuel
purchasing and corporate and administrative programs.  The
allocation of the net savings between customers and shareholders
of Constellation Energy will be determined in regulatory
proceedings.  The applications for approval of the Merger, filed
with the various regulatory commissions, set forth the proposed
plans for Constellation Energy to share the benefits of the
Merger with customers in the District of Columbia and Maryland. 
The proposal included:  1) a freeze on base electric rates until
at least January 1, 2000, 2) a unique bill credit for all
customers if Constellation Energy achieves certain financial
targets, 3) an array of economic development incentives and 4)
programs to address the energy needs of low-income customers. 
The development of estimated savings resulting from the Merger
was based upon assumptions which involve judgments with respect
to, among other things, future national and regional economic and
competitive conditions, inflation rates, regulatory treatment,
weather conditions, financial market conditions, interest rates,
future business decisions and other uncertainties, all of which
are difficult to predict and many of which are beyond the control
of the Company and BGE.  Accordingly, while the Company believes
that such assumptions are reasonable for purposes of the
development of estimates of potential savings, there can be no
assurance that such assumptions will approximate actual
experience or that all such savings will be realized.  At March
31, 1997, the Company had deferred $33.6 million in costs related
to the Merger.  If the Merger is not completed, certain Merger
related costs would be written off as a charge against the
Company's results of operations.

     Shareholders of the Company and BGE, at separate special
meetings during March 1996, approved the Merger Agreement.  The
Company and BGE filed a joint Application for Authorization and
Approval of the Merger with the FERC on January 11, 1996, and
with the Maryland and District of Columbia Public Service
Commissions on April 8, 1996.

     On April 16, 1997, FERC announced its finding that the
proposed Merger would be in the public interest and approved the
transaction without conditions.  FERC held that the Merger would
not adversely affect competition in the long- or short-term
wholesale capacity markets.  In addition, FERC indicated that
evaluation of the effect of the Merger on retail markets would be
left to the Maryland and District of Columbia Public Service
Commissions.

     Also on April 16, 1997, the Maryland Public Service
Commission unanimously approved the proposed Merger and ordered
Constellation Energy to reduce rates by $56 million ($44 million
for BGE and $12 million for PEPCO), beginning on the effective 


                              19


date of the Merger, with base rates to be frozen for three years
thereafter.  The reductions are premised on an 11.4% return on
equity (ROE).  In addition, the Commission ordered that 50% of
earnings above an 11.4% ROE be used to further reduce customer
rates.

     The Company and BGE believe that the Maryland Order contains
elements that must be revised for the Merger to take place.  The
two companies proposed a regulatory plan designed to share Merger
benefits equitably between shareholders and customers.  In
addition to ordering the rate decrease, the Order also denies the
two companies the opportunity to recover the full costs for
purchased power contracts previously approved by the Commission. 
The Maryland Order would put in place a plan that would eliminate
any reasonable opportunity for shareholders to share in the
benefits.  

     On May 2, 1997, the companies filed a request for
reconsideration of the Maryland Order.  In the request, the
companies detailed areas of the Order that need to be revised for
the Merger to proceed and proposed a modified plan to address
these concerns.  Highlights of this modified plan include:  (1) a
$26 million rate reduction for Constellation Energy's Maryland
customers upon completion of the Merger, followed by a four-year
base-rate freeze; (2) a comprehensive surcharge that permits full
cost recovery of power purchase contracts the Commission had
previously approved; (3) a synergy sharing mechanism premised on
an 11.9% ROE that splits Merger benefits on a 50/50 basis between
customers and investors, allowing further customer rate
reductions if the new company's operations result in additional
savings; and (4) an opportunity for recovery of Merger costs over
the four-year, base-rate freeze period via the synergy sharing
mechanism.  Under this proposal, Constellation Energy would write
off Merger costs in the year the Merger is consummated.  There
can be no assurance that the Commission will grant the request
for reconsideration or that the Commission's Order will be
changed.  On May 1, 1997, the International Brotherhood of
Electrical Workers, Local 1900, filed an appeal of the Maryland
Commission's decision with the Circuit Court of Baltimore County. 
The District of Columbia Commission conducted hearings on the
proposed Merger in February and March 1997.  The case was placed
before the District of Columbia Commission for decision in March
1997.  

     The Company is unable to predict when final decisions will
be reached by the Maryland and District of Columbia Public
Service Commissions or the Circuit Court of Baltimore County. 
The Merger will not proceed unless the regulatory approvals
conform to the fundamental requirement that shareholders have a
reasonable opportunity to share in the expected benefits of the
Merger.  


                              20


     The waiting period under the Hart-Scott-Rodino Antitrust
Improvements Act was terminated on January 29, 1997.  The Nuclear
Regulatory Commission has approved the transfer of BGE's
ownership interest in the operating licenses for the two
generating units at the Calvert Cliffs Nuclear Power Plant to
Constellation Energy at the effective time of the Merger.  In
addition, the State Corporation Commission in Virginia has
approved the Merger.  The Merger also requires approval from the
Pennsylvania Public Utility Commission.  

     If the Merger Agreement is terminated by either the Company
or BGE due to a material breach by the other party, the breaching
party must pay the non-breaching party, as liquidated damages,
$10 million in cash in respect of out-of-pocket expenses.  The
Merger Agreement also requires payment of a termination fee of
$75 million in cash, plus $10 million in cash in respect of out-
of-pocket expenses, by one party to the other if the Merger
Agreement is terminated under certain circumstances including, if
either the Company or BGE terminates the Merger Agreement after
the Board of Directors of the other party withdraws or adversely
modifies its recommendation of the transaction.  The termination
fees payable by the Company under these provisions and the
aggregate amount which could be payable by the Company upon a
required repurchase of an option (or shares of common stock
issued pursuant to the exercise of the option) granted by the
Company to BGE in connection with entry into the Merger Agreement
may not exceed $125 million in the aggregate.
 
     The Company has approved, in conjunction with the Merger
with BGE, a severance plan for all exempt and non-bargaining unit
employees who are not offered a position in Constellation Energy. 
Such employees will receive two weeks of pay per year of service,
with a minimum payment of eight weeks of pay.  In addition,
employees will receive company-sponsored health and dental
insurance for two weeks per year of service, with a minimum of
eight weeks of insurance coverage; employees will also not be 
obligated to reimburse the Company for tuition payments made by
the Company on their behalf within two years of termination.

     An extension of the current 1993 Labor Agreement between the
Company and Local 1900 of the International Brotherhood of
Electrical Workers was ratified by the Union members in December
1995.  The 1995 Agreement extends the 1993 Agreement, which was
due to expire on June 1, 1996, for two years or until the
effective date of the Merger with BGE, whichever occurs first. 
This Agreement provides severance benefits, previously approved
by the Company for exempt and non-bargaining unit employees, for
all union members and provided for a lump-sum payment of 2% of
base pay on January 5, 1996, a lump-sum payment of 1% of base pay
on June 7, 1996, and a lump-sum payment of 3% of base pay on June
6, 1997, or the effective date of the Merger, whichever occurs
first.


                              21


     On March 31, 1997, the Company signed a contract to purchase
land in downtown Washington, D.C. to build a $90 million regional
headquarters for Constellation Energy.

Environmental Contingencies
---------------------------

     As discussed in the 1996 Form 10-K, the Company received
notice in December 1995 from the U.S. Environmental Protection
Agency (EPA) that it is a Potentially Responsible Party (PRP)
under the Comprehensive Environmental Response Compensation and
Liability Act (CERCLA or Superfund) with respect to the release
or threatened release of radioactive and mixed radioactive and
hazardous wastes at a site in Denver, Colorado, operated by RAMP
Industries, Inc.  Evidence indicates that the Company's
connection to the site arises from an agreement with a vendor to
package, transport and dispose of two laboratory instruments
containing small amounts of radioactive material at a Nevada
facility.  While the Company cannot predict its liability at this
site, the Company believes that it will not have a material
adverse effect on its financial position or results of
operations.

     As discussed in the 1996 Form 10-K, the Company received
notice from the EPA in October 1995 that it, along with several
hundred other companies, may be a PRP in connection with the
Spectron Superfund Site located in Elkton, Maryland.  The site
was operated as a hazardous waste disposal, recycling, and
processing facility from 1961 to 1988.  A group of PRPs allege,
based on records they have collected, that the Company's share of
liability at this site is .0042%.  The EPA has also indicated
that a de minimis settlement is likely to be appropriate for this
site.  While the outcome of negotiations and the ultimate
liability with respect to this site cannot be predicted, the 
Company believes that its liability at this site will not have a
material adverse effect on its financial position or results of
operations.

     As also discussed in the 1996 Form 10-K, a Remedial
Investigation/Feasibility Study (RI/FS) report was submitted to
the EPA in October 1994, with respect to a site in Philadelphia,
Pennsylvania.  Pursuant to an agreement among the PRPs, the
Company is responsible for 12% of the costs of the RI/FS.  Total
costs of the RI/FS and associated activities prior to the
issuance of a Record of Decision (ROD) by  the EPA, including
legal fees, are currently estimated to be $7.5 million.  The
Company has paid $.9 million as of March 31, 1997. The report
included a number of possible remedies, the estimated costs of
which range from $2 million to $90 million.  In July 1995, the
EPA announced its proposed remedial action plan for the site and
indicated it will accept comments on the plan from any interested
parties.  The EPA's estimate of the costs associated with
implementation of the plan is approximately $17 million.  The 


                              22


Company cannot predict whether the EPA will include the plan in
its ROD as proposed or make changes as a result of comments
received.  In addition, the Company cannot estimate the total
extent of the EPA's administrative and oversight costs.  To date,
the Company has accrued $1.7 million for its share of this
contingency.  

     As also discussed in the 1996 Form 10-K, during 1993 the
Company was served with Amended Complaints filed in three
jurisdictions (Prince George's County, Baltimore City and
Baltimore County), in separate ongoing, consolidated proceedings
each denominated "In re:  Personal Injury Asbestos Case."  The
Company (and other defendants) were brought into these cases on a
theory of premises liability under which plaintiffs argue that
the Company was negligent in not providing a safe work
environment for employees   of its contractors who allegedly were
exposed to asbestos while working on the Company's property. 
Initially, a total of approximately 448 individual plaintiffs
added the Company to their Complaints.  While the pleadings are
not entirely clear, it appears that each plaintiff seeks $2
million in compensatory damages and $4 million in punitive
damages from each defendant.  

     In a related proceeding in the Baltimore City case, the
Company was served, in September 1993, with a third party
complaint by Owens Corning Fiberglass, Inc. (Owens Corning)
alleging that Owens Corning was in the process of settling
approximately 700 individual asbestos-related cases and seeking a
judgment for contribution against the Company on the same theory
of alleged negligence set forth above in the plaintiffs' case. 
Subsequently, Pittsburgh Corning Corp. (Pittsburgh Corning) filed
a third-party complaint against the Company, seeking contribution
for the same plaintiffs involved in the Owens Corning third-party
complaint.  Since the initial filings in 1993, approximately 50
individual suits have been filed against the Company.  The third
party complaints involving Pittsburgh Corning and Owens Corning
were dismissed by the Baltimore City Court during 1994 without
any payment by the Company.  In 1995 and 1996, approximately 400
of the individual plaintiffs have dismissed their claims against
the Company.  No payments were made by the Company in connection
with the dismissals.  While the aggregate amount specified in the
remaining suits would exceed $400 million, the Company believes
the amounts are greatly exaggerated as were the claims already
disposed of.  The amount of total liability, if any, and any
related insurance recovery cannot be precisely determined at this 
time; however, based on information and relevant circumstances
known at this time, the Company does not believe these suits will
have a material adverse effect on its financial position. 
However, an unfavorable decision rendered against the Company
could have a material adverse effect on results of operations in
the fiscal year in which a decision is rendered.


                              23

     The Company is involved in other legal and administrative
(including environmental) proceedings before various courts and
agencies with respect to matters arising in the ordinary course
of business.  Management is of the opinion that the final
disposition of these proceedings will not have a material adverse
effect on the Company's financial position or results of          
operations.

* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *

     The information furnished in the accompanying Consolidated
Statements of Earnings and Retained Income, Consolidated Balance
Sheets and Consolidated Statements of Cash Flows reflects all
adjustments (which consist only of normal recurring accruals)
which are, in the opinion of management, necessary to a fair
presentation of the results of operations for the interim
periods.  The accompanying consolidated financial statements and
notes thereto should be read in conjunction with the consolidated
financial statements and notes included in the Company's 1996
Annual Report to the Securities and Exchange Commission on Form
10-K.

* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *

     This Quarterly Report on Form 10-Q, including the report of
Price Waterhouse LLP (on page 25) will automatically be
incorporated by reference in the Prospectuses constituting part
of the Company's Registration Statements on Forms S-3
(Registration Nos. 33-58810 and 33-61379) and Forms S-8
(Registration Nos. 33-36798, 33-53685 and 33-54197), in the Joint
Proxy Statement/Prospectus constituting part of the Registration
Statement on Form S-4 (Number 33-64799) of Constellation Energy
Corporation and in the Prospectuses constituting parts of the
Registration Statements on Form S-3 (333-24705 and 333-24855) of
Constellation Energy Corporation filed under the Securities Act
of 1933.  Such report of Price Waterhouse LLP, however, is not a
"report" or "part of the Registration Statement" within the
meaning of Sections 7 and 11 of the Securities Act of 1933 and
the liability provisions of Section 11(a) of such Act do not
apply.



                              24


REPORT OF INDEPENDENT ACCOUNTANTS 



To the Board of Directors
and Shareholders of
Potomac Electric Power Company

We have reviewed the accompanying consolidated balance sheets of
Potomac Electric Power Company and consolidated subsidiaries (the
Company) at March 31, 1997 and 1996, and the related consolidated
statements of earnings and retained income for the three and
twelve month periods then ended and the consolidated statements
of cash flows for the three and twelve month periods then ended. 
These financial statements are the responsibility of the
Company's management.

We conducted our review in accordance with standards established
by the American Institute of Certified Public Accountants.  A
review of interim financial information consists principally of
applying analytical procedures to financial data and making
inquiries of persons responsible for financial and accounting
matters.  It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing
standards, the objective of which is the expression of an opinion
regarding the financial statements taken as a whole. 
Accordingly, we do not express such an opinion.  

Based on our review, we are not aware of any material
modifications that should be made to the accompanying financial
information for it to be in conformity with generally accepted
accounting principles.

We have previously audited, in accordance with generally accepted
auditing standards, the consolidated balance sheet as of December
31, 1996, and the related consolidated statement of earnings and
consolidated statement of cash flows for the year then ended (not
presented herein); and in our report dated January 17, 1997, we
expressed an unqualified opinion on those consolidated financial
statements.  In our opinion, the information set forth in the
accompanying consolidated balance sheet information as of
December 31, 1996, is fairly stated, in all material respects, in
relation to the consolidated balance sheet from which it has been
derived.




/s/ Price Waterhouse LLP
Price Waterhouse LLP
Washington, D.C.
May 14, 1997 

                              25


Part I  FINANCIAL INFORMATION
------  ---------------------
Item 2  MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED
------  ----------------------------------------------------
          RESULTS OF OPERATIONS AND FINANCIAL CONDITION
          ---------------------------------------------
UTILITY
-------

PROPOSED MERGER UPDATE
----------------------

     Shareholders of the Company and BGE, at separate special
meetings during March 1996, approved the Merger to form
Constellation Energy.  

     On April 16, 1997, FERC announced its finding that the
proposed Merger would be in the public interest and approved the
transaction without conditions.  FERC held that the Merger would
not adversely affect competition in the long- or short-term
wholesale capacity markets.  In addition, FERC indicated that
evaluation of the effect of the Merger on retail markets would be
left to the Maryland and District of Columbia Public Service
Commissions.  

     Also on April 16, 1997, the Maryland Public Service
Commission unanimously approved  the proposed Merger and ordered
Constellation Energy to reduce rates by $56 million ($44 million
for BGE and $12 million for PEPCO), beginning on the effective
date of the Merger, with base rates to be frozen for three years
thereafter.  The reductions are premised on an 11.4% return on
equity (ROE).  In addition, the Commission ordered that 50% of
earnings above an 11.4% ROE be used to further reduce customer
rates.  

     The Company and BGE believe that the Maryland Order contains
elements that must be revised for the Merger to take place.  The
two companies proposed a regulatory plan designed to share Merger
benefits equitably between shareholders and customers.  In
addition to ordering the rate decrease, the Order also denies the
two companies the opportunity to recover the full costs for
purchased power contracts previously approved by the Commission. 
The Maryland Order would put in place a plan that would eliminate
any reasonable opportunity for shareholders to share in the
benefits.  

     On May 2, 1997, the companies filed a request for
reconsideration of the Maryland Order.  In the request, the
companies detailed areas of the Order that need to be revised for
the Merger to proceed and proposed a modified plan to address
these concerns.  Highlights of this modified plan include:  (1) a
$26 million rate reduction for Constellation Energy's Maryland
customers upon completion of the Merger, followed by a four-year 


                              26


base-rate freeze; (2) a comprehensive surcharge that permits full
cost recovery of power purchase contracts the Commission had
previously approved; (3) a synergy sharing mechanism premised on
an 11.9% ROE that splits Merger benefits on a 50/50 basis between
customers and investors, allowing further customer rate
reductions if the new company's operations result in additional
savings; and (4) an opportunity for recovery of Merger costs over
the four-year, base-rate freeze period via the synergy sharing
mechanism.  Under this proposal, Constellation Energy would write
off Merger costs in the year the Merger is consummated.  There
can be no assurance that the Commission will grant the request
for reconsideration or that the Commission's Order will be
changed.  On May 1, 1997, the International Brotherhood of
Electrical Workers, Local 1900, filed an appeal of the Maryland
Commission's decision with the Circuit Court of Baltimore County. 
The District of Columbia Commission conducted hearings on the
proposed Merger in February and March 1997.  The case was placed
before the District of Columbia Commission for decision in March
1997.

     The Company is unable to predict when final decisions will
be reached by the Maryland and District of Columbia Public
Service Commissions or the Circuit Court of Baltimore County. 
The Merger will not proceed unless the regulatory approvals
conform to the fundamental requirement that shareholders have a
reasonable opportunity to share in the expected benefits of the
Merger.  

     The waiting period under the Hart-Scott-Rodino Antitrust
Improvements Act was terminated on January 29, 1997.  The Nuclear
Regulatory Commission has approved the transfer of BGE's
ownership interest in the operating licenses for the two
generating units at the Calvert Cliffs Nuclear Power Plant to
Constellation Energy at the effective time of the Merger.  In
addition, the State Corporation  Commission of Virginia has
approved the Merger.  The Merger also requires approval from the
Pennsylvania Public Utility Commission.  At March 31, 1997, the
Company has deferred $33.6 million in costs related to the
Merger.  If the Merger is not completed, certain Merger related
costs would be written off as a charge against the Company's
results of operations.

     See Part I, Item 1, Notes to Consolidated Financial
Statements, (6) Commitments and Contingencies, for additional
information.


                              27


RESULTS OF OPERATIONS
---------------------

TOTAL REVENUE

     Total revenue decreased for the three months ended March 31,
1997, as compared to the corresponding period in 1996.  The
decrease in revenue from sales of electricity for the three
months ended March 31, 1997, was primarily due to a 4.7% decrease
in kilowatt-hour sales from the corresponding period in 1996. 
The decrease in kilowatt-hour sales for the three months ended
March 31, 1997, was primarily attributable to milder than average
winter weather in the first quarter of 1997, as compared to
frigid temperatures during the blizzard-like conditions in the
corresponding period in 1996, which brought a record amount of
snowfall to the Washington, D.C. area.  Heating degree days for
the three months ended March 31, 1997, were 22% below the
corresponding period in 1996 and were 15% below the 20-year
average for this period.  

     Total revenue increased slightly for the twelve months ended
March 31, 1997, as compared to the corresponding period in 1996. 
Revenue from sales of electricity for the twelve months ended
March 31, 1997, decreased primarily due to a 2.9% decrease in
kilowatt-hour sales, partially offset by the continued effects of
the August 1996 increase in the DSM surcharge tariff rate in
Maryland and the July 1995 base rate increase in the District of
Columbia.  Pursuant to the surcharge tariff, an incentive
provision of $8.9 million was recorded in August 1996 for
achieving specific 1995 energy conservation goals.  An incentive  
provision of $8.7 million was recorded in June 1995 for achieving
specific 1994 goals.  The decrease in kilowatt-hour sales for the
twelve months ended March 31, 1997, was primarily attributable to
the effects of milder than average winter weather during the
first quarter of 1997 and cooler than average summer weather
during 1996.  Cooling degree hours for the twelve months ended
March 31, 1997, were 19% below the corresponding period ended in
1996 and 17% below the 20-year average for this period.  Also,
heating degree days for the twelve months ended March 31, 1997,
were 16% below the corresponding period in 1996 and 6% below the
20-year average for this period.

     Interchange deliveries decreased for the three months and
increased for the twelve months ended March 31, 1997.  These
changes principally reflected changes in the level of activity in
purchase-for-resale agreements under the Company's wholesale
power sales tariff.  Beginning in January 1997, and pursuant to
FERC's Order No. 888, the Company implemented an open access
transmission tariff and terminated the purchase-for-resale
agreements.  Under the new open access transmission tariff, the
Company is receiving revenue from service agreements, classified
as "Other electric revenue", which in the three and twelve months
ended March 31, 1997, aggregated $1.4 million.  The benefits 


                              28


derived from interchange deliveries and revenue under the open
access transmission tariff are passed through to the Company's
customers through a fuel adjustment clause.

     Recent rate orders received by the Company provided for
changes in annual base rate revenue as shown in the table below:

                            Rate  
                         (Decrease)
                          Increase       %          Effective
Regulatory Jurisdiction    ($000)      Change          Date
-----------------------  ----------    -------    ---------------
Federal - Wholesale       $(2,000)      (1.7)%    January 1996
District of Columbia       27,900        3.8      July 1995
Federal - Wholesale         2,300        1.8      January 1995


OPERATING EXPENSES

     Fuel and purchased energy decreased for the three months
ended and increased for the twelve months ended March 31, 1997,
as compared to the corresponding periods ended March 31, 1996. 
Fuel expense decreased for the three and twelve months ended
March 31, 1997, as compared to the corresponding periods in 1996,
primarily as the result of decreases of 17.7% and 14.9%,
respectively, in net generation; partially offset by increases in
the system average fuel cost.  The decrease in purchased energy
for the three months ended and increase for the twelve months
ended March 31, 1997, reflects changes in levels and prices of
energy purchased from PJM and other utilities, primarily the
purchases related to the power sales tariff interchange
transactions.

     The unit fuel costs for the comparative periods ended March
31, were as follows:

                             Three                 Twelve
                          Months Ended          Months Ended
                            March 31,             March 31,
                          ------------          ------------
                          1997    1996          1997    1996
                          ----    ----          ----    ----
System Average 
  Fuel Cost per MBTU     $1.83   $1.82         $1.80   $1.74


     System average unit fuel cost increased for the three and
twelve months ended March 31, 1997, as compared to the
corresponding periods in 1996.  The increases were primarily
attributable to an increase in the cost of coal, partially offset
by a decrease in the usage of higher-cost residual oil.  


                              29


     For the twelve month periods ended March 31, 1997 and 1996,
the Company obtained 90% and 86%, respectively, of its system
generation from coal based upon percentage of Btus.  The
Company's major cycling and certain peaking units can burn either
natural gas or oil, adding flexibility in selecting the most
cost-effective fuel mix.

     Capacity purchase payments increased for the three and
twelve months ended March 31, 1997, as compared to the
corresponding periods in 1996.  These increases reflect capacity
payments made under the Panda contract, which commenced January
1, 1997, and increases in fixed operating and maintenance expense
associated with the capacity agreements with Ohio Edison and
Allegheny Power System (APS).

     Operating expenses other than fuel, purchased energy and
capacity purchase payments decreased for the three months and
increased for the twelve months ended March 31, 1997, as compared
to the corresponding periods in 1996.  The decrease for the three
months ended March 31, 1997, was principally due to a decline in
other operating expenses resulting from lower labor costs,
including the effect of the $1.8 million paid to union members on
January 5, 1996, as part of the 1995 Labor Agreement between the
Company and Local 1900 of the International Brotherhood of
Electrical Workers and decreased income taxes due to lower
taxable income, partially offset by increased depreciation and
amortization expense due to additional investment in property and
plant and amortization of increased amounts of conservation costs
associated with the Company's DSM program.  The increase for the
twelve months ended March 31, 1997, was principally due to
increased depreciation and amortization expense due to additional
investment in property and plant and amortization of increased
amounts of conservation costs associated with the Company's DSM
program, partially offset by a reduction in other operating
expenses resulting from lower labor costs and a decrease in
income taxes due to lower taxable income.  

CAPITAL RESOURCES AND LIQUIDITY
-------------------------------

     The Company's investment in property and plant, at original
cost before accumulated depreciation, was $6.3 billion at March
31, 1997, an increase of $24.6 million from the investment at
December 31, 1996, and an increase of $147.2 million from the
investment at March 31, 1996.  Cash invested in property and
plant construction, excluding AFUDC and CCRF, amounted to $39.1
million for the three months ended March 31, 1997, and $181.2
million for the twelve months then ended. 



                              30


     At March 31, 1997, the Company's capital structure,
excluding short-term debt, long-term debt and serial preferred
stock redemption due within one year, and nonutility subsidiary
debt, consisted of 44.7% long-term debt, 3.3% serial preferred
stock, 3.7% redeemable serial preferred stock and 48.3% common
equity.

     Cash from utility operations, after dividends, was $2.1
million for the three months ended March 31, 1997, and $217.8
million for the twelve months then ended as compared with $9.4
million and $87.7 million, respectively, for the same periods
ended March 31, 1996.

     Outstanding utility short-term debt totaled $173.5 million
at March 31, 1997, an increase of $42.1 million from the $131.4
million outstanding at December 31, 1996, and an decrease of
$113.4 million from the $286.9 million outstanding at March 31,
1996.  See the discussion included in Note (3) of the Notes to
Consolidated Financial Statements, Capitalization, for additional
information.

NEW ACCOUNTING STANDARDS
------------------------

     See the discussion included in Note (1) of the Notes to
Consolidated Financial Statements, Summary of Significant
Accounting Policies.

NONUTILITY SUBSIDIARY
---------------------

RESULTS OF OPERATIONS 
---------------------

     PCI's earnings for the first quarter of 1997 were $13.5
million ($.11 per share) compared to earnings of $2.5 million
($.02 per share) for the same period in 1996.  PCI's earnings of
$27.9 million ($.24 per share) for the twelve months ended March
31, 1997, compared to a net loss of $117.6 million ($.99 per
share) for the twelve months ended March 31, 1996.  The
improvement in earnings for the three month period ended March
31, 1997, over the corresponding period in 1996 was primarily as
a result of first quarter 1996 writedowns of aircraft held for
disposal and other investments.  The improvement in PCI's
earnings for the twelve months ended March 31, 1997, over the
twelve months ended March 31, 1996, was primarily a result of
noncash after-tax charges of $121 million associated with the
implementation of PCI's 1995 plan with respect to the aircraft
leasing business.  During the first quarter of 1997, two L-1011
airframes were sold, at book value, from the joint venture which
was formed in the fourth quarter of 1995 to assist PCI with the
disposition and management of certain aircraft.  As a result of
joint venture operations for the three months ended March 31, 


                              31


1997, PCI's obligation for previously accrued deferred income
taxes was reduced, resulting in after-tax earnings of $7.4
million after the provision for transaction costs.  The remaining
portfolio of assets held for disposal at March 31, 1997, was $5.9
million.  In April 1997, PCI sold an additional L-1011 aircraft
from its portfolio of assets held for disposal at its approximate
book value.  First quarter results also include capital gains
totaling $3.4 million after-tax related primarily to tender
offers accepted by PCI which reduced the cost basis of its
preferred stock marketable securities portfolio by $90.2 million. 
Purchases of preferred stock during the quarter totaled $23.1
million.  The cost basis of the marketable securities portfolio
at March 31, 1997, was $308.5 million and market value was $310.5
million.

     On December 1, 1996, Canadian Airlines (Canadian)
unilaterally announced a three month suspension of lease payments
to its operating lessors citing an anticipated temporary cash
deficiency in early 1997.  PCI has two aircraft on operating
lease to Canadian with a combined book value of $42.2 million at
March 31, 1997.  Canadian resumed lease payments to PCI as
scheduled on March 1, 1997.  It is expected that Canadian will
repay deferred rents of $1.3 million with accrued interest at the
higher of the prime rate plus 1% or 8.56% be repaid to PCI in six
installments with the final installment due at the time of the
lease terminations in April 2000.

     PCI has limited partnership interests in five 30-megawatt
SEGS projects in the Mojave Desert in California and owns 22%,
10%, 19%, 31% and 25% of SEGS projects III through VII,
respectively.  During 1996, the lenders to SEGS III and SEGS IV
filed suit against the SEGS III and IV partnerships to restrain
them from making distributions of 1996 profits.  Due to the
uncertainty associated with the litigation and the lack of
success in reaching a negotiated settlement with the lenders, PCI
wrote off its investments in SEGS III and IV at year end 1996.  A
decision was reached by the Court in late January 1997 in favor
of the partnerships.  Thereafter, the lenders immediately issued
new default notices based on alleged maintenance deficiencies,
again delaying the ability of the partners to distribute 1996
partnership profits.  The partnerships continue to work toward a
negotiated settlement with the lenders.  PCI's current
projections of future distributions from SEGS V, VI and VII
indicate a recovery of its remaining March 31, 1997 investment
balance of $26.7 million.

     PCI generates income primarily from its leasing activities
and securities investments.  Income from leasing activity, which
includes rental income, gains on asset sales, interest income and
fees totaled $21.1 million and $88.9 million for the three and
twelve months ended March 31, 1997, respectively, compared to
$23.9 million and $104 million for the corresponding periods in
1996.  The decrease for the three month period ended March 31, 


                              32


1997, over the corresponding period in 1996 was primarily due to
reduced rental income and the decrease for the twelve month
period ended March 31, 1997, over the corresponding period in
1996 was primarily due to reduced fee income in 1997.  PCI's
marketable securities portfolio contributed pretax income of
$11.7 million and $35.4 million for the three and twelve months
ended March 31, 1997, respectively, compared to $10.1 million and
$37 million for the same periods in 1996, which results include
net realized gains of $5.3 million and $7.3 million for the three
and twelve months ended March 31, 1997, compared to $1.6 million
and $1.9 million for the three and twelve months ended March 31,
1996, respectively.

     Other income increased by $23.6 million and $36.3 million
for the three and twelve months ended March 31, 1997,
respectively, compared to the same periods in 1996.  The increase
is primarily the result of the first quarter 1996 writedowns of
PCI's investments in SEGS, real estate and oil and natural gas. 
Included in the twelve months ended March 31, 1997, results is an
$8.8 million gain ($6.7 million after-tax) related to the sale of
PCI's $2.8 million (20%) interest in a Florida-based technology
company during the fourth quarter of 1996.  During the three
months ended March 31, 1997, PCI earned $.6 million in net income
from investments made by Pepco Enterprises, Inc. (PEI), a wholly
owned subsidiary with business interests that include
telecommunications, liquefied natural gas storage facilities,
underground cable construction and maintenance services and an
energy management services company.  Other income for the three
months ended March 31, 1997, includes $5.3 million in revenue
from PEI activities, and expenses, including income taxes,
includes $4.7 million in PEI related expenses, of which $.5
million is income tax expense. 

     Expenses, before income taxes, which include interest,
depreciation and operating, and administrative and general
expenses totaled $39.3 million and $138.4 million for the three
and twelve months ended March 31, 1997, respectively, compared to
$53.6 million and $353.7 million for the same periods in 1996. 
The decreases during the three and twelve months ended March 31,
1997, compared to the same periods in 1996 were primarily due to
the $12.3 million pretax first quarter 1996 writedown of assets
held for disposal and the second quarter 1995 pretax writedown of
$170.1 million related to the implementation of the plan with
respect to the aircraft leasing business.  Interest expense
decreased for the three and twelve months ended March 31, 1997, 
over the corresponding periods in 1996 as a result of reduced
debt as proceeds from sales of aircraft and marketable securities
have been used to pay down debt.  Depreciation and operating
expenses decreased by $25.4 million for the twelve months ended
March 31, 1997, as a result of previously accrued repair and
maintenance expenses during the twelve months ended March 31,
1996.   

                              33


     PCI had income tax credits of $13 million and $28.8 million
for the three and twelve months ended March 31, 1997,
respectively, and $38.8 million and $118.2 million for the
corresponding periods in 1996.  The decrease in income tax
credits for the three month period 1997 over 1996 was primarily
the result of the deferred tax reversal of $10.1 million during
the first quarter of 1997 compared to $23.5 million in the first
quarter of 1996.  The decrease in income tax credits for the
twelve month period ended March 31, 1997, over 1996 was primarily
due to the pretax charge to earnings during the second quarter of
1995 associated with the implementation of PCI's plan with
respect to the aircraft leasing business. 

CAPITAL RESOURCES AND LIQUIDITY
-------------------------------

     A $310.5 million securities portfolio at March 31, 1997,
consisting primarily of investment grade preferred stocks,
provides PCI with liquidity and investment flexibility.  During
the first quarter of 1997, PCI reduced the cost basis of its
marketable securities portfolio by $67.1 million as the result of
calls and acceptance of tender offers ($90.2 million) offset by
purchases of $23.1 million.  PCI's fixed rate portfolio is
sensitive to fluctuations in interest rates.  The reduced size of
the preferred stock portfolio lessens the impact of future
fluctuations in interest rates, while still maintaining a
substantial portfolio for liquidity purposes.  The proceeds from
the securities activity during the first quarter were used to pay
down short-term debt and acquire short-term investments.  During
the first quarter of 1997, PCI received $25.7 million in cash
proceeds from the sale of notes receivable from World Airways
(World) and recorded an after-tax charge to earnings of $.4
million.  The sale of the notes further reduces PCI's exposure to
the ongoing credit risk associated with the airline industry as
well as the inherent uncertainty regarding the future value of
the aircraft which secured the repayment of the notes.

     PCI's outstanding short-term debt totaled $1 million at
March 31, 1997, a decrease of $50.7 million from the $51.7
million outstanding at December 31, 1996, and a decrease of $72.2
million from the $73.2 million outstanding at March 31, 1996. 
During the three and twelve months ended March 31, 1997, long-
term debt repayments totaled $6.8 million and $185.1 million,
respectively.  At March 31, 1997, PCI had $236.3 million
available under its Medium-Term Note Program and $400 million of
unused short-term bank credit lines.


                              34


Part II   OTHER INFORMATION
-------   -----------------
Item 1    LEGAL PROCEEDINGS
------    -----------------

     See Part I, Item 1, Notes to Consolidated Financial
Statements, (6) Commitments and Contingencies, for information on
various legal proceedings.

Item 5   OTHER INFORMATION
------   -----------------

OTHER FINANCING ARRANGEMENTS - Credit Agreements
------------------------------------------------

     The Company and PCI satisfy their short-term financing
requirements through the sale of commercial promissory notes. 
The Company and PCI maintain minimum 100 percent lines of credit
back-up for their outstanding commercial promissory notes.  These
lines of credit were unused during 1997 and 1996.

BASE RATE PROCEEDINGS
---------------------

Maryland
--------

     Effective August 27, 1996, the Maryland DSM surcharge tariff
was increased, providing approximately $18 million annually in
increased revenue.  The surcharge includes provisions for the
recovery of lost revenue, amortization of pre-1996 actual program
expenditures plus the initial amortization of 1996 projected
program costs, a CCRF of 9.46% on unamortized balances and an
incentive of $8.9 million awarded for exceeding 1995 energy
saving goals.  Previously, an incentive of $8.7 million was
awarded for exceeding 1994 energy saving goals.  Maryland DSM
program goals for 1996 have been reduced to reflect lower DSM
expenditures.  Consequently, the performance bonus in 1997 is
expected to be significantly lower than amounts awarded for
performance in prior years.

     On November 8, 1996, the Company filed a request with the
Maryland Public Service Commission for approval of a purchased
capacity surcharge, which is designed to recover changes in the
level of purchased capacity costs from levels included in base
rates.  The filing was made to recover capacity payments under a
contract with Panda Brandywine L.P. (Panda) for a 230-megawatt
gas-fueled combined-cycle cogeneration project in Prince George's
County, Maryland.  Capacity payments commenced in January 1997
and are estimated to total approximately $20 million for the
year, of which the Maryland portion is $10.5 million.  In
connection with its Order approving the proposed Merger, the
Maryland Commission denied the surcharge.  As stated previously, 


                              35


on May 2, 1997, the Company and BGE filed a request for
reconsideration of the Order in which the denial of the recovery
of the costs associated with Panda capacity was included.  (See
Part I, Item 1, Notes to Consolidated Financial Statements, (6)
Commitments and Contingencies, for additional information.)  The
rate of return on common stock equity most recently determined
for the Company in a fully litigated rate case was 12.75%
established by the Commission in a June 1991 rate increase order.

District of Columbia
--------------------

     In Formal Case No. 939, the Commission, in June 1995,
authorized a $27.9 million, or 3.8%, increase in base rate
revenue effective July 1995.  The authorized rates are based on a
9.09% rate of return on average rate base, including an 11.1%
return on common stock equity and a capital structure which
excludes short-term debt.  In addition, the Commission approved
the Company's Least-Cost Plan filed in June 1994.  A four-year
DSM spending cap for the period 1995-1998 was approved,
consistent with the Company's proposal to narrow the scope of DSM
activities by discontinuing operation of certain DSM programs and
by reducing expenditures on the remaining programs.  This will
enable the Company to implement cost-effective DSM programs while
limiting the impact of such programs on the price of electricity. 
An Environmental Cost Recovery Rider (ECRR) was approved to
provide for full cost recovery of actual DSM program
expenditures, through a billing surcharge.  Costs will be
amortized over 10 years, with a return on unamortized amounts by
means of a CCRF computed at the authorized rate of return.  The
initial rate, which reflects actual costs expended from July 1993
through December 1994, resulted in additional annual revenue of
approximately $15 million.  Although the Commission denied the
Company's request to recover "lost revenue" due to DSM programs,
through a surcharge, a process has been established whereby the
Company can seek recovery of lost revenue in a separate
proceeding.  The Commission also increased the time period for
filing Least-Cost Planning cases from two to three years.  The
Company, in June 1996, filed an Application for Authority with
the Commission to revise its ECRR.  The proposed rate, which
reflects actual costs expended during 1995, is expected to
increase annual revenue by approximately $8 million.  No action
has been taken by the District of Columbia Public Service
Commission on the revised ECRR.  Subsequent rate updates are
scheduled to be filed annually on June 1 to reflect the prior
year's actual costs, subject to the annual surcharge recovery
limit within the four-year spending cap for the period 1995-1998
(amounts spent in excess of the annual surcharge recovery limit,
but within the four-year spending cap, are deferred for future
recovery).  Remaining allowable expenditures under the spending
cap totaled $14.2 million at March 31, 1997.  Pre-July 1993 DSM
costs receive base rate treatment.


                              36


Federal - Wholesale
-------------------

     The Company has a 10-year full service power supply contract
with Southern Maryland Electric Cooperative, Inc. (SMECO), a
wholesale customer.  The contract period is to be extended for an
additional year on January 1 of each year, unless notice is given
by either party of termination of the contract at the end of the
10-year period.  The full service obligation can be reduced by
SMECO by up to 20% of its annual requirements with a five-year
advance notice for each such reduction.

     Pursuant to an agreement for the years 1996 through 1998,
SMECO rates were reduced by $2 million effective January 1, 1996,
with an additional $2.5 million rate reduction scheduled to
become effective January 1, 1998.  SMECO has agreed not to give
the Company a notice of reduction or termination of service prior
to December 15, 1998.    

Federal - Interchange and Purchased Energy
------------------------------------------

     The Company's generating and transmission facilities are
interconnected with those of other members of the Pennsylvania-
New Jersey-Maryland Interconnection Association (PJM) power pool
and other utilities.  Historically, the pricing of most PJM-
dispatched internal economy energy transactions was based upon
"split savings" whereby such energy was priced halfway between
the cost that the purchaser would incur if the energy were
supplied by its own sources and the cost of production to the
company actually supplying the energy.  On April 1, 1997, PJM
members implemented an interim restructuring plan which provides
for poolwide transmission service under a pool tariff and a bid-
price based energy market whereby all energy that clears through
the market will be priced at the margin.  Prior to this plan, the
Company, since July 1996, was providing transmission service with
its open access tariff in compliance with FERC Order No. 888.  On
February 28, 1997, the FERC ordered the PJM member companies to
implement a poolwide open access transmission tariff based on a
proposal made by PJM supporting companies in December 1996.  From
this point forward, all transmission service in PJM would be
administered by the PJM Interconnection Office.  In the initial
phase of this plan, bids would be based on cost.  Bilateral
transactions would also be permitted.  The restructured PJM is
now a Limited Liability Corporation governed by an independent
board of directors with membership open to eligible entities.

     In addition to interchange with PJM, the Company is actively
participating in the emerging bilateral energy sales marketplace. 
The Company's wholesale power sales tariff allows both sales from
Company-owned generation and sales of energy purchased by the
Company from other market participants.  Over 40 utilities and 
marketers have executed service agreements allowing them to 


                              37


arrange purchases under this tariff.  The Company has also
executed service agreements allowing it to purchase energy under
other market participants' power sales tariffs.  These agreements
greatly expand the opportunities for economic transactions. 
During the first quarter of 1997, the Company entered into
purchases and sales producing approximately $1.5 million in
savings that were passed along to customers.

     The Company continues to purchase energy from Ohio Edison
under the Company's 1987 long-term capacity purchase agreements
with Ohio Edison and APS, and from the Northeast Maryland Waste
Disposal Authority under an avoided cost-based purchase agreement 
for a 32-megawatt Montgomery County Resource Recovery Facility. 
Pursuant to the Company's long-term capacity purchase agreements
with Ohio Edison and APS, the Company is purchasing 450 megawatts
of capacity and associated energy through the year 2005. 
Capacity payments for the Montgomery County Resource Recovery
facility are not expected to commence until after the year 2000. 
In August 1996, the Company began purchasing energy from the
Panda facility, pursuant to a 25-year power purchase agreement
for 230 megawatts of capacity supplied by a gas-fueled combined-  
cycle cogenerator.  The Panda facility achieved full commercial
operation in October 1996.  Capacity payments under this
agreement commenced in January 1997.  The capacity expense under
these agreements, including an allocation of a portion of Ohio
Edison's fixed operating and maintenance costs, was $34.6 million
for the three months ended March 31, 1997, and is estimated at
$141 million in 1997.  Commitments under these agreements are
estimated at $139 million in 1998, $200 million in 1999 and 2000,
$211 million in 2001 and $212 million in 2002.

     The Company has a purchase agreement with Southern Maryland
Electric Cooperative, Inc. (SMECO), through 2015, for 84
megawatts of capacity supplied by a combustion turbine installed
and owned by SMECO at the Company's Chalk Point Generating
Station.  The Company is responsible for all costs associated
with operating and maintaining the facility.  The capacity
payment to SMECO is approximately $5.5 million per year.  The
Company is also selling capacity to PECO Energy (PECO) in the
amount of 100 megawatts per month for the period of January
through May 1997.  In addition, on April 24, 1997, the Company
signed an agreement to sell capacity to Delmarva Power & Light
Co. in the amount of 100 megawatts per month for the period June
1, 1997, through May 31, 1998.  

RESTRUCTURING OF THE BULK POWER MARKET
--------------------------------------

     In April 1996, the FERC issued its Final Rulemaking Orders
No. 888 and No. 889.  Both rulemakings address achieving greater
competition in the wholesale energy market.  Order No. 888
required utilities to file open access transmission tariffs by
July 9, 1996.  Such filing was made by the Company and was 


                              38


accepted by the FERC.  Order No. 889 requires utilities to
establish or participate in an Open Access Same-Time Information
System (OASIS) which requires transmission owners to post certain
transmission availability, pricing and service information on an
open-access communications medium such as the Internet.  On
January 3, 1997, the Company's OASIS became operational and is
accessible through the PJM OASIS on the Internet.  Order No. 889
also required the Company to establish a code of conduct that
complies with FERC's prescribed standards in order to separate
utilities' transmission system operations and wholesale marketing
functions.  The Company's filed code of conduct became effective
on January 3, 1997.

     PJM has many years of experience in providing economically
efficient transmission and generation services throughout the
mid-Atlantic region, and has achieved for its members, including
the Company, significant cost savings through shared generating
reserves and integrated operations.  In order to meet the FERC's
goals, the PJM members plan to implement significant market-
oriented changes in 1997, which will support broader market
participation and achieve even greater efficiencies.  The PJM
members are working to transform today's coordinated cost-based
pool dispatch into a vigorous price-based regional energy market
operating under a standard of transmission service comparability. 

     On July 24, 1996, nine of the 10 PJM member companies (the
Supporting Companies), excluding PECO, filed, with the FERC, a
comprehensive proposal including the contracts and tariff that
would establish an Independent System Operator (ISO) to
administer transmission service under a PJM control area
transmission tariff and operate the energy market in a manner
that assures comparable treatment for all participants.  Under
the Supporting Companies' proposal, reliability of the pool will
be maintained under an installed capacity obligation.  The ISO
will administer a bid-priced energy spot market that will also
accommodate bilateral transactions, and the ISO will provide
transmission service on a poolwide basis.  In early August 1996,
PECO filed a competing plan opposing certain key features of the
Supporting Companies' proposal.  

     On November 13, 1996, the FERC found that it could not
accept either the Supporting Companies' proposal or PECO's
opposing proposal.  Consequently, FERC ordered the PJM members to
amend its proposals to comport with Order No. 888 on ISOs and to
attempt to reach a consensus with other stakeholders.  At a
minimum, FERC ordered that PJM file a poolwide pro forma open
access transmission tariff by December 31, 1996, and amend
existing PJM pooling agreements for compatibility with the Order. 
On December 31, 1996, the PJM member companies filed a joint
response to FERC's Order.  This compliance filing established a
single poolwide transmission tariff and modified the membership
and governance provisions of the PJM Agreement.  The PJM members 


                              39


noted areas of disagreement in the filing and indicated that the
compliance filing was an interim solution until a more
comprehensive proposal could be developed.

     On February 28, 1997, the FERC ruled on areas of
disagreement between the PJM members and ordered that PJM
implement an open access transmission tariff and a bid-based
energy market by March 1, 1997.  A new PJM Operating Agreement
was filed on March 31, 1997 superseding the original PJM
Agreement.  This Agreement opens PJM's membership to eligible
entities.  PJM formed a Limited Liability Corporation on 
March 31, 1997.  The members elected an independent board of
directors to govern the PJM Interconnection Office.  The PJM
members subsequently moved the implementation date to April 1,
1997.  Through mid-1997, the PJM stakeholders are expected to
continue development of an Independent System Operator.  These
changes are not expected to have a material effect on the
operating results of the Company. 

COMPETITION
-----------

     The electric utility industry is subject to increasing
competitive pressures, stemming from a combination of increasing
independent power production and regulatory and legislative
initiatives intended to increase bulk power competition,
including the Energy Policy Act of 1992.  Since the early 1980s,
the Company has pursued strategies which achieve financial
flexibility through conservation and energy use management
programs, extension of the useful life of generating equipment,
cost-effective purchases of capacity and energy and preservation
of scheduling flexibility to add new generating capacity in
relatively small increments.  The Company serves a unique and
stable service territory and is a low-cost energy producer with
customer prices which compare favorably with regional and
national averages.

     Pursuant to an August 1995 order in a generic proceeding
dealing with electric industry structure and the advent of
competition, the Maryland Public Service Commission found that
competition at the wholesale level holds the greatest potential
for producing significant benefits, while competition at the
retail level would carry many potential problems and difficult-
to-find solutions.  The Commission stated that it was intrigued
by a restructuring concept suggested by the Company, which calls
for functionally dividing the utility into generation and
transmission/distribution segments.  The Commission encouraged
the Company to develop the concept further and suggested that
other electric utilities in the state develop similar proposals
specific to their competitive positions.  In October 1996, the
Maryland Commission reopened a generic proceeding to review
regulatory and competitive issues affecting the electricity 


                              40


industry.  The Commission cited the evolving nature of the
electric industry as the basis for continuing its investigation. 
As part of this investigation, the Commission directed its Staff
to submit a report on or before May 31, 1997, containing, among
other things, recommendations regarding regulatory and
competitive issues facing the electric industry in Maryland.  The
Commission also directed the four major electric utilities in
Maryland to prepare unbundled cost studies and model unbundled
retail service tariffs prior to August 1, 1997.  The District of
Columbia Public Service Commission initiated a proceeding to
investigate issues regarding electricity industry structure and
competition in late 1995.  In September 1996, the Commission
issued an order designating the issues to be examined in the
proceeding.  Initial comments regarding the designated issues
were filed with the Commission in January 1997, and reply
comments were filed in March 1997.

PEAK LOAD, SALES, CONSERVATION, AND CONSTRUCTION
------------------------------------------------
  AND GENERATING CAPACITY
  -----------------------

Peak Load and Sales Data
------------------------
     
     Kilowatt-hour sales decreased 4.7% and 2.9%, for the three
and twelve months ended March 31, 1997, respectively, as compared
to sales for the corresponding periods in 1996.  The decreases in
sales were primarily attributable to milder than average winter
weather in the first quarter of 1997, as compared to the
blizzard-like conditions in the corresponding period in 1996. 
The decline in sales for the twelve months ended March 31, 1997,
was also affected by cooler than average summer weather in 1996. 
Heating degree days for the three and twelve months ended March
31, 1997, were 22% and 16%, respectively, below the corresponding
period in 1996 and 15% and 6%, respectively, below the 20-year
averages.  Assuming future weather conditions approximate
historical averages, the Company expects its compound annual
growth in kilowatt-hour sales to range between 1% and 2% over the
next decade.

     The 1996 summer peak demand of 5,288 megawatts occurred on
June 17, 1996.  This compares with the 1995 summer peak demand of
5,732 megawatts, and the all-time summer peak demand of 5,769
megawatts which occurred in July 1991.  The Company's present
generation capability, including capacity purchase contracts, is
6,716 megawatts.  To meet the 1996 summer peak demand, the
Company had approximately 265 megawatts available from its
dispatchable energy use management programs.  Based on average
weather conditions, the Company estimates that its peak demand
will grow at a compound annual rate of approximately 1.5%,
reflecting continuing success with demand side management (DSM)
and energy use management (EUM) programs and anticipated service  


                              41


area growth trends. The 1996-1997 winter season peak demand of
4,632 megawatts was 7.5% below the all-time winter peak demand of
5,010 megawatts which was established in January 1994.

Conservation
------------

     The Company's DSM and EUM programs are designed to curb
growth in demand in order to defer the need for construction of
additional generating capacity and to cost-effectively increase
the efficiency of energy use.  To reduce the near-term upward
pressure on customer rates and bills, the Company has, since
1994, phased out several conservation programs and reduced rebate 
levels for others.  By narrowing its conservation offerings and
limiting conservation spending, the Company expects to continue
to encourage its customers to use energy efficiently without
significantly increasing electricity prices.
                              
     In Maryland, the Company invested approximately $5.5 million
and $28.5 million in DSM programs for the three and twelve months
ended March 31, 1997, respectively.  The Company recovers the
costs of Maryland DSM programs through a base rate surcharge
which amortizes costs over a five-year period and permits the
Company to earn a return on its conservation investment while
receiving compensation for lost revenue.  In addition, when the
Company's performance exceeds its annual goals, the Company earns
a performance bonus.  The Company was awarded a bonus of $8.9
million in 1996, based on 1995 performance, which followed a
bonus of $8.7 million in 1995, based on 1994 performance. 
Maryland DSM program goals for 1996 were reduced to reflect lower
DSM expenditures.  Consequently, the performance bonus in 1997 is
expected to be significantly lower than amounts awarded for
performance in prior years.  Investment in District of Columbia
DSM programs totaled approximately $.8 million and $11.8 million
for the three and twelve months ended March 31, 1997,
respectively.  These DSM costs are amortized over 10 years with
an accrued return on unamortized costs.

     It is estimated that peak load reductions of over 700
megawatts have been achieved to date from DSM and EUM programs
and that additional peak load reductions of approximately 400
megawatts will be achieved in the next five years.  The Company
also estimates that, in 1996, energy savings of more than 1.6
billion kilowatt-hours were realized through operation of its DSM
and EUM programs.  See the discussions included in Summary of
Significant Accounting Policies, Total Revenue, and Base Rate
Proceedings, for additional information.


                              42 


Construction and Generating Capacity
------------------------------------

     Construction expenditures, excluding AFUDC and CCRF, are
projected to total $1.2 billion for the five-year period 1997
through 2001, which includes $18 million of estimated Clean Air
Act (CAA) expenditures.  In 1997, construction expenditures are
projected to total $215 million, which includes $4 million of
estimated CAA expenditures.  The Company plans to finance its
construction program primarily through funds provided by
operations.  Actual construction expenditures during the period
1997 through 2001 may vary from projections once the Merger with
BGE becomes effective.

     The Company has implemented cost-effective plans for
complying with Phase I of the Acid Rain portion of the CAA which
requires the reduction of sulfur dioxide and nitrogen oxides
emissions to achieve prescribed standards.  Boiler burner
equipment for nitrogen oxides emissions control has been replaced 
and the use of lower-sulfur coal has been instituted at the
Company's Phase I affected stations, Chalk Point and Morgantown. 
Anticipated capital expenditures for complying with the second
phase of the CAA total $18 million over the next five years. 
Plans for complying with the second phase of the CAA are being
reviewed in anticipation of the pending Merger with BGE.  If
economical, continued use of lower-sulfur coal, cofiring with
natural gas and the purchase of sulfur dioxide (SO2) emission
allowances is expected.  Nitrogen oxides emissions reductions
will be achieved by installing control equipment in the most
cost-effective manner after considering the characteristics of
each of the merged company's boilers.  In addition to the Acid
Rain portion of the CAA, the State of Maryland and District of
Columbia are required, by Title I of the CAA, to achieve
compliance with ambient air quality standards for ground-level
ozone.  This provision is likely to result in further nitrogen
oxides emissions reductions from the Company's boilers; however,
the extent of reductions and associated cost cannot be estimated
at this time.

     A 32-megawatt municipally financed resource recovery
facility in Montgomery County, Maryland, began commercial
operation in August 1995.  The Company has been purchasing energy
under the agreement covering this project without capacity
payment obligations, which are not expected to commence until
after the year 2000.  In addition, the Company has a 25-year
agreement with Panda for a 230-megawatt gas-fueled combined-cycle
cogeneration project in Prince George's County, Maryland.  The
Panda facility achieved full commercial operation in October
1996.  The Company projects that existing contracts for
nonutility generation and the Company's commitment to
conservation will provide adequate reserve margins to meet
customers' needs well beyond the year 2000.  In 1995, the
Maryland Public Service Commission issued an order that requires  


                              43


electric utilities to competitively procure future capacity
resources.  The Company believes that completion of the first
combined-cycle unit at its Station H facility in Dickerson,
Maryland, currently scheduled for 2004, is likely to be the most
cost-effective alternative for the next increment of capacity. 
This will add a steam cycle to the two existing combustion
turbine units.

SELECTED NONUTILITY SUBSIDIARY FINANCIAL INFORMATION
----------------------------------------------------

     The Company's wholly owned nonutility subsidiary, Potomac
Capital Investment Corporation (PCI), was organized in late 1983
to provide a permanent vehicle for ongoing nonutility investment
business.  The principal assets of PCI are portfolios of
securities and equipment leases, and to a lesser extent real
estate and other investments.  The $310.5 million securities
portfolio, consisting primarily of investment grade preferred
stocks, provides PCI with significant liquidity and flexibility
to participate in additional investment opportunities.  The
Company's equity investment in PCI was $210.2 million, $196.3
million and $162.7 million, at March 31, 1997, December 31, 1996,
and March 31, 1996, respectively.


                              44

<TABLE>
Consolidated Statements of Earnings:
-----------------------------------


<CAPTION>


                                             Three                      Twelve
                                          Months Ended               Months Ended
                                            March 31,                  March 31,
                                     ----------------------     ----------------------
                                       1997         1996          1997         1996
                                     --------     ---------     --------     ---------

                                                  (Thousands of Dollars)
<S>                                  <C>          <C>           <C>          <C>
Income
  Leasing activities                 $ 21,115     $  23,917     $ 88,859     $ 103,956
  Marketable securities                11,742        10,058       35,374        37,035
  Other                                 6,950       (16,662)      13,227       (23,072)
                                     --------     ---------     --------     ---------
                                       39,807        17,313      137,460       117,919
                                     --------     ---------     --------     ---------

Expenses
  Interest                             19,026        22,129       80,339        91,454
  Administrative and general            6,354         5,363       16,520        13,208
  Depreciation and operating           13,959        13,795       41,146        66,595
  Loss on assets held for
    disposal                                -        12,320          424       182,398
  Income tax credit                   (12,982)      (38,762)     (28,845)     (118,181)
                                     --------     ---------     --------     ---------
                                       26,357        14,845      109,584       235,474
                                     --------     ---------     --------     ---------
Net earnings (loss) from
  nonutility subsidiary              $ 13,450     $   2,468     $ 27,876     $(117,555)<F1>
                                     ========     =========     ========     =========

Per share contribution
  (reduction) to earnings
  of the Company                        $ .11         $ .02        $ .24         $(.99)<F1>
                                        =====         =====        =====         =====
<FN>
<F1>Reflects non-recurring, noncash, after-tax charges of $121 million
    ($1.03 per share) related to the 1995 plan to dispose of certain
    aircraft in its equipment leasing business.


</FN>



                                                   45

</TABLE>



<TABLE>
STATISTICAL DATA
----------------

<CAPTION>

                                             Three Months Ended                  Twelve Months Ended
                                                  March 31,                           March 31,
                                      ---------------------------------    -------------------------------------
                                        1997       1996        % Change       1997         1996         % Change
                                      --------   --------      --------    ----------   ----------      --------
  <S>                                 <C>        <C>             <C>       <C>          <C>                <C>
  Revenue from Sales
  ------------------
    of Electricity
    --------------
  (Thousands of Dollars)

    Residential                       $113,809   $126,567        (10.1)    $  536,389   $  558,555         (4.0)
    General Service                    208,359    204,728          1.8      1,080,233    1,078,041          0.2
    Large Power Service <F1>             7,342      7,194          2.1         35,815       36,088         (0.8)
    Street Lighting                      3,281      3,190          2.9         12,560       12,403          1.3
    Rapid Transit                        6,553      6,691         (2.1)        28,569       28,583            -
    Wholesale                           30,309     34,206        (11.4)       118,252      121,525         (2.7)
                                      --------   --------                  ----------   ----------
      System                          $369,653   $382,576         (3.4)    $1,811,818   $1,835,195         (1.3)
                                      ========   ========                  ==========   ==========

  Energy Sales
  ------------
  (Millions of KWH)

    Residential                          1,729      1,987        (13.0)         6,624        6,994         (5.3)
    General Service                      3,655      3,657         (0.1)        15,183       15,522         (2.2)
    Large Power Service <F1>               176        176            -            687          708         (3.0)
    Street Lighting                         46         45          2.2            165          164          0.6
    Rapid Transit                          100        103         (2.9)           409          415         (1.4)
    Wholesale                              683        738         (7.5)         2,515        2,557         (1.6)
                                      --------   --------                  ----------   ----------
      System                             6,389      6,706         (4.7)        25,583       26,360         (2.9)
                                      ========   ========                  ==========   ==========

  Average System Revenue
  ----------------------
    per KWH (cents per KWH)               5.79       5.70          1.6           7.08         6.96          1.7
    -----------------------

  System Peak Demand <F2>
  ------------------
  (Thousands of KW)

    Summer                                   -          -                       5,288        5,732
    Winter                                   -          -                       4,632        4,831

  Net Generation
  --------------
  (Millions of KWH)                      4,333      5,265                      17,109       20,104

  Fuel Mix (% of Btu)
  -------------------
    Coal (%)                                92         89                          90           86
    Oil (%)                                  7         11                           6            7
    Gas (%)                                  1          -                           4            7

  Fuel Cost per MBtu
  ------------------
    System Average                       $1.83      $1.82                       $1.80        $1.74

  Weather Data
  ------------
    Heating Degree Days                  1,925      2,466                       3,809        4,525
    20 Year Average                      2,252                                  4,033
    Cooling Degree Hours                     -          -                       9,247       11,459
    20 Year Average                         11                                 11,109

     Heating Degree Days - The daily difference in degrees by which
     the mean temperature is below 65 degrees Fahrenheit (dry bulb).

     Cooling Degree Hours - The daily sum of the differences, by hours, by
     which the temperature (effective temperature) for each hour
     exceeds 71 degrees Fahrenheit (effective temperature).


<FN>
<F1> Large Power Service customers are served at a voltage of 66KV or
     higher.
<F2> At March 31, 1997, the generation capability, including capacity
     purchase contracts, was 6,716 MW.

</FN>

                                                      46
</TABLE>


UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION
------------------------------------------------------------

     The following unaudited pro forma condensed information
combines the historical consolidated balance sheets and
statements of income of Potomac Electric Power Company (PEPCO)
and Baltimore Gas and Electric Company (BGE), including their
respective subsidiaries, after giving effect to the proposed
merger (the Merger) of the two companies into Constellation
Energy Corporation.  As previously disclosed, the Merger is
expected to close as soon as all necessary regulatory approvals,
on terms satisfactory to PEPCO and BGE, are obtained.  As of the
date of this filing, the Merger has not closed.  The unaudited
pro forma combined condensed balance sheet at March 31, 1997,
gives effect to the Merger as if it had occurred at March 31,
1997.  The unaudited pro forma combined condensed statement of
income for the three months ended March 31, 1997, gives effect to
the Merger as if it had occurred at January 1, 1997.  These
statements are prepared on the basis of accounting for the Merger
as a pooling of interests and are based on the assumptions set
forth in the notes thereto.  The registrant, Constellation Energy
Corporation, was formed September 22, 1995, and has no assets or
operations.  Therefore, the registrant has no financial
statements and, in turn, there has been no audit of such
statements.

     The following pro forma financial information has been
prepared from, and should be read in conjunction with, the
historical consolidated financial statements and related notes
thereto of PEPCO and BGE, which are contained in their respective
1934 Act reports for prior periods.  The following information is
not necessarily indicative of the financial position or operating
results that would have occurred if the Merger had been
consummated on the dates, or at the beginning of the periods, for
which the Merger is being given effect nor is it necessarily
indicative of future financial position or operating results.

     The following unaudited pro forma combined condensed
financial information of Constellation Energy Corporation is set
forth below:

     Balance Sheet as of March 31, 1997
     Income Statement for the Three Months Ended March 31, 1997
     Notes to Consolidated Financial Statements

     The following PEPCO financial information is also set forth
below:

     Reclassifying Balance Sheet as of March 31, 1997
     Reclassifying Income Statement for the Three Months Ended
        March 31, 1997


                              47


Other Information
-----------------

     Both PEPCO and BGE file annual and quarterly reports with
the Securities and Exchange Commission (SEC).  These are
available at the SEC's public reference rooms in Washington, D.C.
and New York, New York (call 1-800-SEC-0330 for more
information); and at the SEC's web site at http://www.sec.gov.  





                              48


<TABLE>
                                       CONSTELLATION ENERGY CORPORATION
                             UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
                                                  MARCH 31, 1997
                                                  (IN THOUSANDS)
                             ----------------------------------------------------

<CAPTION>
                                                                  PEPCO
                                                BGE         (As Reclassified)    Pro Forma      Pro Forma
                                            (As Reported)      (See Note 1)     Adjustments     Combined
                                            --------------  -----------------  -------------  -------------
<S>                                         <C>             <C>                <C>            <C>
ASSETS
Current Assets
  Cash and Cash Equivalents                 $      69,946   $         54,543   $          -   $    124,489
  Accounts Receivable - net                       419,719            221,910              -        641,629
  Materials and Supplies                          153,645            143,269              -        296,914
  Prepayments and Other                           175,964             21,603              -        197,567
                                            -------------   ----------------   ------------   ------------
    Total Current Assets                          819,274            441,325              -      1,260,599
                                            -------------   ----------------   ------------   ------------

Investments and Other Assets
  Notes Receivable                                      -             57,226              -         57,226
  Real Estate Projects                            519,688             72,476              -        592,164
  Power Generation Systems                        397,815                847              -        398,662
  Financial Instruments                           127,511                  -              -        127,511
  Marketable Securities                            36,943            310,473              -        347,416
  Investment in Finance Leases                     29,135            493,761              -        522,896
  Operating Lease Equipment - net                       -            188,974              -        188,974
  Assets Held for Disposal                              -              5,900              -          5,900
  Other Investments                               373,501            112,557              -        486,058
                                            -------------   ----------------   ------------   ------------
    Total Investments and Other Assets          1,484,593          1,242,214              -      2,726,807
                                            -------------   ----------------   ------------   ------------

Utility Plant
  Plant in Service
    Electric                                    6,598,858          6,244,707              -     12,843,565
    Gas                                           798,645                  -              -        798,645
    Common                                        545,019                  -              -        545,019
                                            -------------   ----------------   ------------   ------------
    Total Plant in Service                      7,942,522          6,244,707              -     14,187,229
  Accumulated Depreciation                     (2,653,844)        (1,919,736)             -     (4,573,580)
                                            -------------   ----------------   ------------   ------------
  Net Plant in Service                          5,288,678          4,324,971              -      9,613,649
  Construction Work in Progress                   141,813             74,292              -        216,105
  Nuclear Fuel - net                              123,521                  -              -        123,521
  Other Plant - net                                25,470             26,273              -         51,743
                                            -------------   ----------------   ------------   ------------
    Net Utility Plant                           5,579,482          4,425,536              -     10,005,018
                                            -------------   ----------------   ------------   ------------

Deferred Charges
  Regulatory Assets                               488,249            465,953              -        954,202
  Other                                            98,331            181,455              -        279,786
                                            -------------   ----------------   ------------   ------------
    Total Deferred Charges                        586,580            647,408              -      1,233,988
                                            -------------   ----------------   ------------   ------------

Total Assets                                $   8,469,929   $      6,756,483   $          -   $ 15,226,412
                                            =============   ================   ============   ============

LIABILITIES AND CAPITALIZATION
Current Liabilities
  Short-term Borrowings                     $     145,685   $        174,540   $          -   $    320,225
  Current Portion of Long-term Debt,
    Preferred Stock and Preference Stock          272,954            533,807              -        806,761
  Accounts Payable                                155,012            211,451              -        366,463
  Other                                           258,629            100,711              -        359,340
                                            -------------   ----------------   ------------   ------------
    Total Current Liabilities                     832,280          1,020,509              -      1,852,789
                                            -------------   ----------------   ------------   ------------

Deferred Credits and Other Liabilities
  Deferred Income Taxes                         1,291,898          1,025,904              -      2,317,802
  Capital Lease Obligations                             -            162,322              -        162,322
  Pension and Postemployment Benefits             176,852                  -              -        176,852
  Other                                           101,851             45,856              -        147,707
                                            -------------   ----------------   ------------   ------------
    Total Deferred Credits and Other
      Liabilities                               1,570,601          1,234,082              -      2,804,683
                                            -------------   ----------------   ------------   ------------
Capitalization
  Long-term Debt                                2,862,277          2,374,968              -      5,237,245
  Preferred Stock                                       -            267,797              -        267,797
  Preference Stock                                344,500                  -              -        344,500
  Common Shareholders' Equity                   2,860,271          1,859,127              -      4,719,398
                                            -------------   ----------------   ------------   ------------
    Total Capitalization                        6,067,048          4,501,892              -     10,568,940
                                            -------------   ----------------   ------------   ------------

Total Liabilities and Capitalization        $   8,469,929   $      6,756,483   $          -   $ 15,226,412
                                            =============   ================   ============   ============

<FN>

See accompanying Notes to Unaudited Pro Forma Combined
Condensed Financial Statements.
</FN>

                                                          49
</TABLE>

<TABLE>
                                         CONSTELLATION ENERGY CORPORATION
                             UNAUDITED PRO FORMA COMBINED CONDENSED INCOME STATEMENT
                                         THREE MONTHS ENDED MARCH 31, 1997
                                      (In thousands, except per share amounts)
                             -------------------------------------------------------

<CAPTION>

                                                                      PEPCO
                                                    BGE         (As Reclassified)      Pro Forma         Pro Forma
                                               (As Reported)       (See Note 5)       Adjustments        Combined
                                               -------------    -----------------     ------------    -------------

<S>                                            <C>              <C>                   <C>             <C>
Revenue
  Electric                                     $    517,297     $         389,060     $         -     $    906,357
  Gas                                               213,708                     -               -          213,708
  Diversified businesses                            156,681                39,807               -          196,488
                                               ------------     -----------------     -----------     ------------
    Total Revenue                                   887,686               428,867               -        1,316,553
                                               ------------     -----------------     -----------     ------------

Operating Expenses
  Electric fuel and purchased energy                135,173               165,525               -          300,698
  Gas purchased for resale                          133,254                     -               -          133,254
  Operations                                        131,874                51,836               -          183,710
  Maintenance                                        39,545                21,173               -           60,718
  Diversified business expenses                     140,080                20,313               -          160,393
  Depreciation and amortization                      85,599                57,600               -          143,199
  Taxes other than income taxes                      58,245                45,409               -          103,654
                                               ------------     -----------------     -----------     ------------
    Total Operating Expenses                        723,770               361,856               -        1,085,626
                                               ------------     -----------------     -----------     ------------

Income from Operations                              163,916                67,011               -          230,927

Total Other Income                                      963                 2,032               -            2,995
                                               ------------     -----------------     -----------     ------------

Income Before Interest and Income Taxes             164,879                69,043               -          233,922

Net Interest Expense                                 53,350                54,062               -          107,412
                                               ------------     -----------------     -----------     ------------

Income Before Income Taxes                          111,529                14,981               -          126,510

Income Taxes                                         39,418                (8,001)              -           31,417
                                               ------------     -----------------     -----------     ------------

Net Income                                           72,111                22,982               -           95,093

Preferred and Preference Stock Dividends              7,884                 4,145               -           12,029
                                               ------------     -----------------     -----------     ------------
Earnings Applicable to Common Stock            $     64,227     $          18,837     $         -     $     83,064
                                               ============     =================     ===========     ============

Average Shares of Common Stock Outstanding          147,667               118,499                          265,811

Earnings Per Share of Common Stock                    $0.43                 $0.16                            $0.31


<FN>

See accompanying Notes to Unaudited Pro Forma Combined
Condensed Financial Statements.
</FN>
                                                            50

</TABLE>

Notes to Unaudited Pro Forma Combined Condensed Financial 
---------------------------------------------------------
Statements
----------

1.  The revenue, expenses, assets, and liabilities of PEPCO's
    nonregulated subsidiaries have been reclassified to conform
    with the presentation used by BGE.  The effect of accounting
    policy differences are immaterial and have not been adjusted
    in the pro forma combined condensed financial statements.

2.  Pro forma per common share amounts give effect to the
    conversion of each share of PEPCO and BGE Common Stock into
    .997 share and 1 share, respectively, of Constellation Energy
    Corporation Common Stock.  The pro forma combined condensed
    financial statements are presented as if the companies were
    combined during all periods included therein.

3.  The allocation between PEPCO and BGE and their customers of
    the estimated cost savings resulting from the Merger, net of
    the costs incurred to achieve such savings, will be subject
    to regulatory review and approval.  None of these estimated
    cost savings, the costs to achieve such savings, or
    transaction costs have been reflected in the pro forma
    combined condensed financial statements.

4.  Intercompany transactions between PEPCO and BGE during the
    periods presented were not material and, accordingly, no pro
    forma adjustments were made to eliminate such transactions.

5.  The PEPCO reclassifying information reflects the
    reclassifying entries necessary to adjust PEPCO's
    consolidated balance sheet and statement of income
    presentation to be consistent with the presentation expected
    to be used by Constellation Energy Corporation.



                              51     



<TABLE>
                                          POTOMAC ELECTRIC POWER COMPANY
                                            RECLASSIFYING BALANCE SHEET
                                                 MARCH 31, 1997
                                                 (In Thousands)
                                          ------------------------------
<CAPTION>


                                                          PEPCO             PEPCO              PEPCO
                                                      (As Reported)      (Reclasses)     (As Reclassified)
                                                     --------------    --------------    -----------------
<S>                                                  <C>               <C>               <C>
ASSETS
Current Assets
  Cash and Cash Equivalents                          $       1,263     $      53,280     $         54,543
  Accounts Receivable - net                                      -           221,910              221,910
  Customer Accounts Receivable - net                       119,047          (119,047)                   -
  Other Accounts Receivable - net                           30,491           (30,491)                   -
  Accrued Unbilled Revenue                                  62,976           (62,976)                   -
  Materials and Supplies                                         -           143,269              143,269
    Fuel                                                    74,243           (74,243)                   -
    Construction and Maintenance                            69,026           (69,026)                   -
  Prepayments and Other                                          -            21,603               21,603
  Prepaid Taxes                                             18,004           (18,004)                   -
  Other Prepaid Expenses                                     3,599            (3,599)                   -
                                                     -------------     -------------     ----------------
                Total Current Assets                       378,649            62,676              441,325
                                                     -------------     -------------     ----------------

Investments and Other Assets
  Notes Receivable                                               -            57,226               57,226
  Real Estate Projects                                           -            72,476               72,476
  Power Generation Systems                                       -               847                  847
  Marketable Securities                                          -           310,473              310,473
  Investment in Finance Leases                                   -           493,761              493,761
  Operating Lease Equipment - net                                -           188,974              188,974
  Assets Held for Disposal                                       -             5,900                5,900
  Other Investments                                              -           112,557              112,557
                                                     -------------     -------------     ----------------
    Total Investments and Other Assets                           -         1,242,214            1,242,214
                                                     -------------     -------------     ----------------

Utility Plant
  Plant in Service
    Electric                                             6,244,707                 -            6,244,707
    Construction Work in Progress                           74,292           (74,292)                   -
    Electric Plant Held for Future Use                       4,170            (4,170)                   -
    Nonoperating Property                                   22,976           (22,976)                   -
                                                     -------------     -------------     ----------------

                Total Plant in Service                   6,346,145          (101,438)           6,244,707
  Accumulated Depreciation                              (1,920,609)              873           (1,919,736)
  Construction Work in Progress                                  -            74,292               74,292
  Other Plant - net                                              -            26,273               26,273
                                                     -------------     -------------     ----------------
                Net Utility Plant                        4,425,536                 -            4,425,536
                                                     -------------     -------------     ----------------

Deferred Charges
  Regulatory Assets                                              -           465,953              465,953
  Income Taxes Recoverable through Future Rates, net       238,517          (238,517)                   -
  Conservation Costs, net                                  229,684          (229,684)                   -
  Unamortized Debt Reacquisition Costs                      54,851           (54,851)                   -
  Other                                                    168,268            13,187              181,455
                                                     -------------     -------------     ----------------
    Total Deferred Charges                                 691,320           (43,912)             647,408
                                                     -------------     -------------     ----------------

Nonutility Subsidiary Assets
  Cash and Cash Equivalents                                 53,280           (53,280)                   -
  Marketable Securities                                    310,473          (310,473)                   -
  Investment in Finance Leases                             493,761          (493,761)                   -
  Operating Lease Equipment - net                          188,974          (188,974)                   -
  Assets Held for Disposal                                   5,900            (5,900)                   -
  Receivables - net                                         66,622           (66,622)                   -
  Other Investments                                        185,880          (185,880)                   -
  Other Assets                                              16,133           (16,133)                   -
                                                     -------------     -------------     ----------------
    Total Nonutility Subsidiary Assets                   1,321,023        (1,321,023)                   -
                                                     -------------     -------------     ----------------

Total Assets                                         $   6,816,528     $     (60,045)    $      6,756,483
                                                     =============     =============     ================



                                                      52

</TABLE>
<TABLE>
                                       POTOMAC ELECTRIC POWER COMPANY
                                        RECLASSIFYING BALANCE SHEET
                                               MARCH 31, 1997
                                               (In Thousands)
                                       ------------------------------

<CAPTION>

                                                              PEPCO            PEPCO             PEPCO
                                                          (As Reported)     (Reclasses)    (As Reclassified)
                                                         --------------    ------------    -----------------
<S>                                                      <C>               <C>             <C>
LIABILITIES AND CAPITALIZATION
Current Liabilities
  Short-term Borrowings                                  $     173,540     $     1,000     $        174,540
  Current Portion of Long-term Debt and Preferred Stock        200,985         332,822              533,807
  Accounts Payable and Accrued Expenses                        143,565          67,886              211,451
  Capital Lease Obligations Due within One Year                 20,772         (20,772)                   -
  Other                                                         79,939          20,772              100,711
                                                         -------------     -----------     ----------------
    Total Current Liabilities                                  618,801         401,708            1,020,509
                                                         -------------     -----------     ----------------

Deferred Credits and Other Liabilities
  Deferred Income Taxes                                        986,453          39,451            1,025,904
  Deferred Investment Tax Credits                               60,045         (60,045)                   -
  Capital Lease Obligations                                          -         162,322              162,322
  Other                                                         39,398           6,458               45,856
                                                         -------------     -----------     ----------------
    Total Deferred Credits and Other Liabilities             1,085,896         148,186            1,234,082
                                                         -------------     -----------     ----------------

Other Noncurrent Liabilities
  Capital Lease Obligations                                    162,322        (162,322)                   -
                                                         -------------     -----------     ----------------
    Total Other Noncurrent Liabilities                         162,322        (162,322)                   -
                                                         -------------     -----------     ----------------

Capitalization
  Long-term Debt                                             1,718,310         656,658            2,374,968
  Preferred Stock                                                    -         267,797              267,797
  Serial Preferred Stock                                       125,297        (125,297)                   -
  Redeemable Serial Preferred Stock                            142,500        (142,500)                   -
  Common Shareholders' Equity                                        -       1,859,127            1,859,127
  Common Stock                                                 118,497        (118,497)                   -
  Other Common Equity                                        1,740,630      (1,740,630)                   -
                                                         -------------     -----------     ----------------
    Total Capitalization                                     3,845,234         656,658            4,501,892
                                                         -------------     -----------     ----------------

Nonutility Subsidiary Liabilities
  Long-term Debt                                               989,480        (989,480)                   -
  Short-term Notes Payable                                       1,000          (1,000)                   -
  Deferred Taxes and Other                                     113,795        (113,795)                   -
                                                         -------------     -----------     ----------------
    Total Nonutility Subsidiary Liabilities                  1,104,275      (1,104,275)                   -
                                                         -------------     -----------     ----------------

Total Liabilities and Capitalization                     $   6,816,528     $   (60,045)    $      6,756,483
                                                         =============     ===========     ================




                                                          53

</TABLE>
<TABLE>
                                             POTOMAC ELECTRIC POWER COMPANY
                                            RECLASSIFYING STATEMENT OF INCOME
                                            THREE MONTHS ENDED MARCH 31, 1997
                                        (In thousands, except per share amounts)
                                        ----------------------------------------

<CAPTION>
                                                             PEPCO            PEPCO              PEPCO
                                                         (As Reported)     (Reclasses)     (As Reclassified)
                                                         -------------    -------------    -----------------
<S>                                                      <C>              <C>              <C>
Revenue
  Electric                                               $    389,060     $          -     $        389,060
  Gas                                                               -                -                    -
  Diversified businesses                                            -           39,807               39,807
                                                         ------------     ------------     ----------------
    Total Revenue                                             389,060           39,807              428,867
                                                         ------------     ------------     ----------------

Operating Expenses
  Electric fuel and purchased energy                                -          165,525              165,525
  Fuel                                                         78,507          (78,507)                   -
  Purchased energy                                             51,074          (51,074)                   -
  Capacity purchase payments                                   35,944          (35,944)                   -
  Gas purchased for resale                                          -                -                    -
  Operations                                                   51,836                -               51,836
  Maintenance                                                  21,173                -               21,173
  Diversified business expenses                                     -           20,313               20,313
  Loss on assets held for disposal                                  -                -                    -
  Depreciation and amortization                                57,600                -               57,600
  Income taxes                                                  5,295           (5,295)                   -
  Taxes other than income taxes                                45,409                -               45,409
                                                         ------------     ------------     ----------------
    Total Operating Expenses                                  346,838           15,018              361,856
                                                         ------------     ------------     ----------------

Income from Operations                                         42,222           24,789               67,011
                                                         ------------     ------------     ----------------
Other Income
  Nonutility Subsidiary Income                                 39,807          (39,807)                   -
  Loss on assets held for disposal                                  -                -                    -
  Expenses, including interest and income taxes               (26,357)          26,357                    -
                                                         ------------     ------------     ----------------
    Net earnings from nonutility subsidiary                    13,450          (13,450)                   -
  Allowance for other funds used during construction
    and capital cost recovery factor                            1,660                -                1,660
  Other, net                                                      686             (314)                 372
                                                         ------------     ------------     ----------------
    Total Other Income                                         15,796          (13,764)               2,032
                                                         ------------     ------------     ----------------

Income Before Interest and Income Taxes                        58,018           11,025               69,043
                                                         ------------     ------------     ----------------

Interest Expense
  Interest on debt                                             34,744                -               34,744
  Other                                                         2,098                -                2,098
  Subsidiary interest expense                                       -           19,026               19,026
  Allowance for borrowed funds used during construction
    and capital cost recovery factor                           (1,806)               -               (1,806)
                                                         ------------     ------------     ----------------
    Net Interest Expense                                       35,036           19,026               54,062
                                                         ------------     ------------     ----------------

Income before income taxes                                     22,982           (8,001)              14,981
                                                         ------------     ------------     ----------------

Income taxes - Utility                                              -            5,295                5,295
Income taxes - Nonoperating                                         -             (314)                (314)
Income taxes - Subsidiary                                           -          (12,982)             (12,982)
                                                         ------------     ------------     ----------------
  Total Income Taxes                                                -           (8,001)              (8,001)
                                                         ------------     ------------     ----------------

Net Income                                                     22,982                -               22,982

Preferred Dividends                                             4,145                                 4,145
                                                         ------------                      ----------------

Earnings Applicable to Common Stock                      $     18,837                      $         18,837
                                                         ============                      ================

Average Shares of Common Stock Outstanding                    118,499                               118,499

Earnings Per Share of Common Stock                              $0.16                                 $0.16


                                                         54
</TABLE>

Item 6   EXHIBITS AND REPORTS ON FORM 8-K
------   --------------------------------

         (a)  Exhibits
    
              Exhibit 11   -   Computation of Earnings Per Common
                               Share - filed herewith.

              Exhibit 12   -   Computation of ratios - filed
                               herewith.

              Exhibit 15   -   Letter re unaudited interim
                               financial information - filed  
                               herewith.

              Exhibit 27   -   Financial data schedule - filed
                               herewith.


         (b)  Reports on Form 8-K
 
              None.



                              55     


                           SIGNATURES
                           ----------

     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.


                             Potomac Electric Power Company
                             ------------------------------
                                      Registrant



                          By       /s/ D. R. Wraase      
                             ------------------------------
                                    (D. R. Wraase)
                                Senior Vice President and 
                                  Chief Financial Officer


 May 14, 1997 
--------------
    DATE





                              56                            


<TABLE>
Exhibit 11         Computations of Earnings Per Common Share
----------         -----------------------------------------
     The following is the basis for the computation of primary and fully
diluted earnings per common share for the twelve months ended March 31, 1997,
and the twelve months ended December 31, 1996 and 1995:

<CAPTION>

                                             March 31,     December 31,    December 31,
                                               1997            1996            1995
                                           -------------   ------------    ------------
<S>                                        <C>             <C>              <C>
Average shares outstanding for
  computation of primary earnings
  per common share                          118,497,650     118,496,683     118,412,478
                                           ============    ============    ============
Average shares outstanding for
  fully diluted computation:

  Average shares outstanding                118,497,650     118,496,683     118,412,478

  Additional shares resulting from:

    Conversion of Serial Preferred
      Stock, $2.44 Convertible Series
      of 1966 (the "Convertible
      Preferred Stock")                          34,962          34,986          38,255

    Conversion of 7% Convertible
      Debentures                              2,364,559       2,418,579       2,469,639

    Conversion of 5% Convertible
      Debentures                              3,392,500       3,392,500       3,392,500
                                           ------------    ------------    ------------
Average shares outstanding for
  computation of fully diluted
  earnings per common share                 124,289,671     124,342,748     124,312,872
                                           ============    ============    ============

Earnings applicable to common stock        $228,618,000    $220,356,000     $77,540,000

Add:  Dividends paid or accrued on
        Convertible Preferred Stock              15,000          15,000          16,000

      Interest paid or accrued on
        Convertible Debentures,
        net of related taxes                  6,358,000       6,416,000       6,475,000
                                           ------------    ------------    ------------
Earnings applicable to common stock,
  assuming conversion of convertible
  securities                               $234,991,000    $226,787,000     $84,031,000
                                           ============    ============    ============

Primary earnings per common share                 $1.93           $1.86           $0.65

Fully diluted earnings per common share           $1.89           $1.82           $0.68

<FN>
The valuation is not required by footnote 2 to paragraph
14 of APB No. 15 for the the twelve months ended March 31,
1997, and December 31, 1996, because it results  in
dilution of less than 3%.  In addition, this calculation
is submitted in  accordance with Regulation S-K item 601
(b)(11) although it is contrary to paragraph 40 of APB No.
15 because it produces an antidilutive result for the
twelve months ended December 31, 1995.
</FN>
                                           57
</TABLE>

<TABLE>
Exhibit 12    Computation of Ratios
----------    ---------------------

     The computations of the coverage of fixed charges, excluding the cumulative
effect of the 1992 accounting change, before income taxes, and the coverage of
combined fixed charges and preferred dividends for the twelve months ended March
31, 1997, and for each of the preceding five years  on the basis of parent
company operations only, are as follows.






<CAPTION>
                                                Twelve
                                                Months                  For The Year Ended December 31,
                                                Ended     ---------------------------------------------------------
                                               Mar. 31,   
                                                   1997      1996        1995        1994        1993        1992
                                              ---------   ---------   ---------   ---------   ---------   ---------
                                                                            (Thousands of Dollars)
<S>                                            <C>         <C>         <C>         <C>         <C>         <C>
Net income before cumulative effect
  of accounting change                         $217,332    $220,066    $218,788    $208,074    $216,478    $172,599
Taxes based on income                           130,701     135,011     129,439     116,648     107,223      76,965
                                              ---------   ---------   ---------   ---------   ---------   ---------

Income before taxes and cumulative effect
  of accounting change                          348,033     355,077     348,227     324,722     323,701     249,564
                                              ---------   ---------   ---------   ---------   ---------   ---------

Fixed charges:
  Interest charges                              146,560     146,939     146,558     139,210     141,393     138,097
  Interest factor in rentals                     23,409      23,560      23,431       6,300       5,859       6,140
                                              ---------   ---------   ---------   ---------   ---------   ---------

Total fixed charges                             169,969     170,499     169,989     145,510     147,252     144,237
                                              ---------   ---------   ---------   ---------   ---------   ---------

Income before income taxes, cumulative
  effect of accounting change and
  fixed charges                                $518,002    $525,576    $518,216    $470,232    $470,953    $393,801
                                              =========   =========   =========   =========   =========   =========

Coverage of fixed charges                          3.05        3.08        3.05        3.23        3.20        2.73
                                                   ====        ====        ====        ====        ====        ====


Preferred dividend requirements                 $16,590     $16,604     $16,851     $16,437     $16,255     $14,392
                                              ---------   ---------   ---------   ---------   ---------   ---------


Ratio of pre-tax income to net income              1.60        1.61        1.59        1.56        1.50        1.45
                                              ---------   ---------   ---------   ---------   ---------   ---------
 
Preferred dividend factor                       $26,544     $26,732     $26,793     $25,642     $24,383     $20,868
                                              ---------   ---------   ---------   ---------   ---------   ---------

Total fixed charges and preferred dividends    $196,513    $197,231    $196,782    $171,152    $171,635    $165,105
                                              =========   =========   =========   =========   =========   =========
Coverage of combined fixed charges 
  and preferred dividends                          2.64        2.66        2.63        2.75        2.74        2.39
                                                   ====        ====        ====        ====        ====        ====



                                                          58
</TABLE>

<TABLE>
Exhibit 12    Computation of Ratios
----------    ---------------------

     The computations of the coverage of fixed charges, excluding the cumulative
effect of the 1992 accounting change, before income taxes, and the coverage of
combined fixed charges and preferred dividends for the twelve months ended March
31, 1997, and for each of the preceding five years on a fully consolidated
basis, are as follows.





<CAPTION>

                                                Twelve
                                                Months                  For The Year Ended December 31,
                                                Ended     ---------------------------------------------------------
                                               Mar. 31,
                                                   1997      1996        1995        1994        1993        1992
                                              ---------   ---------   ---------   ---------   ---------   ---------
                                                                            (Thousands of Dollars)
<S>                                            <C>         <C>         <C>         <C>         <C>         <C>
Net income before cumulative effect
  of accounting change                         $245,208    $236,960     $94,391    $227,162    $241,579    $200,760
Taxes based on income                           101,856      80,386      43,731      93,953      62,145      79,481
                                              ---------   ---------   ---------   ---------   ---------   ---------

Income before taxes and cumulative effect
  of accounting change                          347,064     317,346     138,122     321,115     303,724     280,241
                                              ---------   ---------   ---------   ---------   ---------   ---------

Fixed charges:
  Interest charges                              227,500     231,029     238,724     224,514     221,312     226,453
  Interest factor in rentals                     23,669      23,943      26,685       9,938       9,257       6,599
                                              ---------   ---------   ---------   ---------   ---------   ---------

Total fixed charges                             251,169     254,972     265,409     234,452     230,569     233,052
                                              ---------   ---------   ---------   ---------   ---------   ---------

Nonutility subsidiary capitalized interest         (601)       (649)       (529)       (521)     (2,059)     (2,200)
                                              ---------   ---------   ---------   ---------   ---------   ---------
Income before income taxes, cumulative
  effect of accounting change and
  fixed charges                                $597,632    $571,669    $403,002    $555,046    $532,234    $511,093
                                               ========    ========    ========    ========    ========    ========

Coverage of fixed charges                          2.38        2.24        1.52        2.37        2.31        2.19
                                                   ====        ====        ====        ====        ====        ====


Preferred dividend requirements                 $16,590     $16,604     $16,851     $16,437     $16,255     $14,392
                                              ---------   ---------   ---------   ---------   ---------   ---------


Ratio of pre-tax income to net income              1.42        1.34        1.46        1.41        1.26        1.40
                                              ---------   ---------   ---------   ---------   ---------   ---------
 
Preferred dividend factor                       $23,558     $22,249     $24,602     $23,176     $20,481     $20,149
                                              ---------   ---------   ---------   ---------   ---------   ---------

Total fixed charges and preferred dividends    $274,727    $277,221    $290,011    $257,628    $251,050    $253,201
                                               ========    ========    ========    ========    ========    ========
Coverage of combined fixed charges 
  and preferred dividends                          2.18        2.06        1.39        2.15        2.12        2.02
                                                   ====        ====        ====        ====        ====        ====




                                                          59
</TABLE>



                                                    Exhibit 15




May 14, 1997 






Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C.  20549

Ladies and Gentlemen:

We are aware that Potomac Electric Power Company has incorporated
by reference our report dated May 14, 1997, (issued pursuant to
the provisions of Statement on Auditing Standards No. 71) in the
Prospectuses constituting parts of the Registration Statements
(Numbers 33-36798, 33-53685 and 33-54197) on Forms S-8 filed on
September 12, 1990, May 18, 1994 and June 17, 1994, respectively,
and (Numbers 33-58810 and 33-61379) on Forms S-3 filed on
February 26, 1993 and July 28, 1995, respectively, in the Joint
Proxy Statement/Prospectus constituting part of the Registration
Statement (Number 33-64799) on Form S-4 of Constellation Energy
Corporation filed on December 7, 1995, and in the Prospectuses
constituting parts of the Registration Statements on Form S-3
(333-24705 and 333-24855) of Constellation Energy Corporation
filed on April 7, 1997, and April 9, 1997, respectively.  We are
also aware of our responsibilities under the Securities Act of
1933.




Very truly yours,



/s/ Price Waterhouse LLP
Price Waterhouse LLP
Washington, D.C.




                                     60