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                                                                      Exhibit 10.1
<B><FONT SIZE=4><P><BR>
<BR>
<BR>
                              SEVERANCE AGREEMENT</B></FONT><BR>
<BR>
<BR>
          This Agreement is made the 21<SUP>st</SUP> day of July, 1999, by and between Potomac <BR>
Electric Power Company (the "Company") and William J. Sim (the "Executive").<BR>
<BR>
          WHEREAS, the Company desires to establish a severance benefit for the <BR>
Executive when a Change in Control (as hereinafter defined) occurs, to avoid the loss or <BR>
the serious distraction of the Executive to the detriment of the Company and its <BR>
stockholders during periods when the Executive's undivided attention and commitment to <BR>
the needs of the Company would be particularly important; and<BR>
<BR>
          WHEREAS, the Executive desires to devote his time and energy for the benefit of <BR>
the Company and its stockholders and not to be distracted during any potential change in <BR>
control.<BR>
<BR>
          NOW, THEREFORE, the parties agree as follows:<BR>
<BR>
          1.     <B>Definitions.</B><BR>
<BR>
                  1.1     <U>Change in Control</U>.   Change in Control shall be deemed to have <BR>
occurred as of the first day that any one or more of the following conditions shall have <BR>
been satisfied:<BR>
<BR>
                            (a)     Any "Person" (other than (i) those Persons in control
of the <BR>
Company as of the Effective Date, (ii) any person or persons acting on behalf of the <BR>
Company in a distribution of stock to the public, (iii) any trustee or other fiduciary <BR>
holding securities under any employee benefit plan of the Company, or (iv) a corporation <BR>
owned directly or indirectly by the stockholders (immediately prior to such transaction) <BR>
of the Company in substantially the same proportions as their ownership of stock of the <BR>
Company) becomes a beneficial owner, directly or indirectly, of securities of the <BR>
Company representing thirty percent (30%) or more of the combined voting power of the <BR>
Company's then outstanding securities; or<BR>
<BR>
                           (b)     (i) a complete or substantial liquidation of the
Company; or (ii) the <BR>
sale or disposition of all or substantially all the Company's assets; or (iii) the sale or <BR>
disposition of all or substantially all the Company's assets attributable to the operating <BR>
area or division through which the Executive performs the majority of his services; or (iv) <BR>
a merger, consolidation, or reorganization of the Company with or involving any other <BR>
corporation or entity, other than a merger, consolidation, or reorganization that would <BR>
result in the voting securities of the Company outstanding immediately prior thereto<BR>
<BR>
<BR>
<BR>
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</FONT>continuing to represent (either by remaining outstanding or by being converted into <BR>
voting securities of the surviving entity) at least seventy percent (70%) of the combined <BR>
voting power of the voting securities of the Company (or such surviving entity) <BR>
outstanding immediately after such merger, consolidation or reorganization.<BR>
<BR>
                  In no event shall a Change in Control be deemed to have occurred, with <BR>
respect to the Executive, if the Executive is part of a purchasing group which <BR>
consummates the Change in Control transaction.  The Executive shall be deemed "part of <BR>
the purchasing group" for purposes of the preceding sentence if the Executive is an equity <BR>
Executive in the purchasing company or group (except for:  (i) passive ownership of less <BR>
than one percent (1%) of the stock of the purchasing company; or (ii) ownership of equity <BR>
participation in the purchasing company or group which is otherwise not significant, as <BR>
determined prior to the Change in Control by a majority of the nonemployee continuing <BR>
directors of the Company).<BR>
<BR>
                  1.2    <U>Qualifying Termination</U>.<BR>
<BR>
                           (a)     The occurrence of any one or more of the following events
within <BR>
twenty-four (24) calendar months after a Change in Control of the Company shall <BR>
constitute a "Qualifying Termination":<BR>
<BR>
                                     (i)     
The Company's involuntary termination of the Executive's <BR>
employment without Cause (as defined in Section 1.4);<BR>
<BR>
                                     (ii)    The
Executive's voluntary employment termination for Good <BR>
Reason (as defined in Section 1.3);<BR>
<BR>
                                     (iii)   Failure or
refusal by a successor company to assume the <BR>
Company's obligations under this Agreement in its entirety, as required by Section 9 <BR>
herein; or<BR>
<BR>
                                     (iv)   Commission
by the Company, or any successor company, of <BR>
a material breach of any of the provisions of this Agreement.<BR>
<BR>
                           (b)     A Qualifying Termination also shall include an involuntary <BR>

termination of the Executive, without Cause, "in contemplation of," but prior to, a <BR>
Change in Control of the Company.  An involuntary termination shall be deemed to be <BR>
"in contemplation of," a Change in Control if it occurs at any time subsequent to (but in <BR>
no event after) an actual Change in Control;<BR>
<BR>
                                     (i)     
The Board of Directors accepting, or recommending to the <BR>
Company's shareholders the acceptance of, an offer from any Person (other than those <BR>
Persons in control of the Company as of the Effective Date, or other than a trustee or <BR>
other fiduciary holding securities under an employee benefit plan of the Company, or a<BR>
<BR>
<BR>
<BR>
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</FONT>corporation owned directly or indirectly by the stockholders of the Company <BR>
(immediately prior to such transaction) in substantially the same proportions as their <BR>
ownership of stock of the Company) to become the beneficial owner, directly or <BR>
indirectly, of securities of the Company representing thirty percent (30%) or more of the <BR>
combined voting power of the Company's then outstanding securities; or<BR>
<BR>
                                     (ii)    The
Board of Directors approving, or recommending to the <BR>
Company's shareholders for approval:  (a) a plan of complete or substantial liquidation of <BR>
the Company; or (b) an agreement for the sale or disposition of all or substantially all of <BR>
the Company's assets attributable to the operating area or division through which the <BR>
Executive performs a majority of his services; or (c) a merger, consolidation, or <BR>
reorganization of the Company with or involving any other corporation or entity, other <BR>
than a merger, consolidation or reorganization that would result in the voting securities of <BR>
the Company outstanding immediately prior thereto continuing to represent (either by <BR>
remaining outstanding or by being converted to voting securities of the surviving entity), <BR>
at least seventy percent (70%) of the combined voting power of the voting securities of <BR>
the Company (or such surviving entity) outstanding immediately after such merger, <BR>
consolidation, or reorganization.<BR>
<BR>
                           (c)     A Qualifying Termination shall not include a termination of <BR>
employment by reason of death, disability, or voluntary normal retirement (as such term <BR>
is defined under the then-established rules of the company's tax-qualified retirement <BR>
plan), the Executive's voluntary termination without Good Reason, or the Company's <BR>
involuntary termination of the Executive's employment for Cause.<BR>
<BR>
                 1.3.    <U>Good Reason</U>.  Good Reason means, without the Executive's express <BR>
written consent, the occurrence after or in contemplation of a Change in Control of the <BR>
Company, of any one or more of the following:<BR>
<BR>
                           (a)     The assignment to the Executive of duties materially
inconsistent <BR>
with the Executive's authorities, duties, responsibilities, and status (including offices, title <BR>
and reporting relationships) as an executive and/or officer of the Company, or a material <BR>
reduction or alteration in the nature or status of the Executive's authorities, duties, or <BR>
responsibilities from those in effect as of ninety (90) days prior to the Change in Control <BR>
(or, in the case of a termination in contemplation of a Change in Control, 90 days prior to <BR>
the occurrence described in Section 1.2(b)(i) or (ii) above), unless such act is remedied by <BR>
the Company within 10 business days after receipt of written notice thereof given by the <BR>
Executive, except that in the first 180 days after the Change in Control, as long as the <BR>
Executive's base salary is not reduced in a manner which gives rise to a right to invoke <BR>
paragraph (b), below, the Company shall have the right to assign the Executive to duties <BR>
and responsibilities not commensurate with those in effect as of ninety days prior to <BR>
Change in Control.<BR>
<BR>
                           (b)     A reduction by the Company of the Executive's base salary in
<BR>
effect on the effective date of a Change in Control, or as the same shall be increased from <BR>
time to time, unless such reduction is less than 10 percent (10% and is either (i)<BR>
<BR>
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</FONT>replaced by an incentive opportunity equal in value, or is (ii) consistent and proportional <BR>
with an overall reduction in management compensation due to extraordinary business <BR>
conditions, including but not limited to reduced profitability and other financial stress <BR>
(i.e., the base salary of the Executive will not be singled out for reduction in a manner <BR>
inconsistent to a reduction imposed on other executives of the Company);<BR>
<BR>
                          (c)      The relocation of the Executive's office more than 50 miles
from <BR>
the Executive's office on the effective date of the Change in Control.<BR>
<BR>
                                     The Executive's right to
terminate employment for Good Reason <BR>
shall not be affected by the Executive's incapacity due to physical or mental illness.  The <BR>
Executive's continued employment shall not constitute consent to, or a waiver of rights <BR>
with respect to, any circumstance constituting Good Reason herein.<BR>
<BR>
                 1.4     <U>Cause</U>.  Cause shall mean the occurrence of any one or more of the <BR>
following:<BR>
<BR>
                           (a)     The Executive is convicted of a felony involving moral
turpitude; <BR>
or<BR>
<BR>
                           (b)     The Executive engages in conduct or activities that
constitutes <BR>
disloyalty to the Company and such conduct or activities are materially damaging to the <BR>
property, business or reputation of the Company; or<BR>
<BR>
                           (c)     The Executive persistently fails or refuses to comply with any
 <BR>
written direction of an authorized representative of the Company other than a directive <BR>
constituting an assignment described in Section 1.3(a); or<BR>
<BR>
                           (d)     The Executive embezzles or knowingly, and with intent, <BR>
misappropriates property of the Company, or unlawfully appropriates any corporate <BR>
opportunity of the Company.<BR>
<BR>
                 1.5     <U>Annual Bonus Amount</U>.  Annual Bonus Amount means the average of <BR>
the annual target bonuses applicable to the Executive during the three calendar years <BR>
preceding the calendar year in which the Qualifying Termination occurs.<BR>
<BR>
          2.     <B>Severance Payments.</B><BR>
<BR>
                           (a)     Upon the occurrence of the Qualifying Termination with
respect to <BR>
the Executive, the Company shall pay to the Executive an amount equal to two times the <BR>
Executive's annual base salary (as in effect on the date of the Qualifying Termination, not <BR>
reduced by any reduction described in Section 1.3(b) above) and two times the Annual <BR>
Bonus Amount.  The payment shall be made in twenty-four (24) equal monthly <BR>
installments beginning on the first day of the month following Qualifying Termination.<BR>
<BR>
<BR>
<BR>
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</FONT><P>                          (b)      Upon the occurrence of a Qualifying Termination
with respect to <BR>
the Executive, the Executive shall be entitled to receive pursuant to this Agreement <BR>
supplemental benefit payments equal to the positive difference, if any, between (i) the <BR>
amount which would be payable  to the Executive under the terms of the Long Term <BR>
Incentive Plan, Supplemental Executive Retirement Plan, Executive Performance <BR>
Supplemental Retirement Plan, and Executive Split Dollar Life Insurance Plan <BR>
(hereinafter collectively referred to as "the Plans") in the event that the Executive's <BR>
termination of employment triggered a payment under the Change in Control provisions <BR>
of such Plans and (ii) any amount actually payable to the Executive with respect to such <BR>
Plans.<BR>
<BR>
          3.     <B>Severance Health Benefits.</B>  Upon the occurrence of the Qualifying <BR>
Termination, and for the thirty-six (36) month period thereafter, the Company shall <BR>
provide to the Executive and Executive's family medical, accidental death and <BR>
dismemberment, disability and death benefits as provided to other executive officers who <BR>
remain employed by the Company (or a surviving entity other than the Company).  The <BR>
Executive shall be required to make payments for such coverage in the same amount as is <BR>
required of executive officers who remain employed by the Company or a successor.<BR>
<BR>
          4.     <B>Code Section 280G.</B><BR>
<BR>
                  4.1    <U>Limitations</U>.  Notwithstanding Sections 2 and 3, in the event that a <BR>
Change in Control occurs and the independent public accountants for the Company (the <BR>
"Accountants") determine that if the benefits to be provided under Sections 2 and 3 <BR>
(together with any other benefits payable to the Executive under any applicable plan <BR>
maintained by the Company) were paid to the Executive:<BR>
<BR>
                          (a)       the Executive would incur an excise tax under Section 4999 of the
<BR>
Internal Revenue Code of 1986, as amended (the "Code"), and the Company would be <BR>
denied a deduction under Section 280G of the Code of all or some of such amounts to be <BR>
paid to the Executive; and<BR>
<BR>
                          (b)       the net after tax benefits to the Executive
attributable to payments <BR>
under Sections 2 and 3 hereof would not be at least $10,000 greater than the net after tax <BR>
benefits which would accrue to the Executive if the amounts which would otherwise <BR>
cause the Executive to be subject to this excise tax were not paid, the amounts payable to <BR>
the Executive pursuant to Sections 2 and 3 (or pursuant to such other plans maintained by <BR>
the Company) shall be reduced so that the amount payable to the Executive hereunder is <BR>
the greatest amount (as determined by the Accountants) that may be paid by the <BR>
Company to the Executive without any such amount being subject to an excise tax under <BR>
Section 4999 or being nondeductible for the Company pursuant to Section 280G.<BR>
<BR>
<BR>
<BR>
<BR>
<BR>
<BR>
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</FONT><P>                 4.2     <U>Executive's Election</U>.  If the amounts to be paid to the Executive are to <BR>
be reduced under paragraph 4.1 of this Section, the Executive shall be given the <BR>
opportunity to designate which benefits or payments shall be reduced and in what order <BR>
of priority.<BR>
<BR>
                 4.3     <U>Later Adjustments</U>.<BR>
<BR>
                           (a)      If the Executive receives reduced payments or benefits pursuant to <BR>

Section 4.1, or if it had been determined that no such reduction was required, but it <BR>
nonetheless is established pursuant to the final determination of a court or an Internal <BR>
Revenue Service proceeding that, notwithstanding the good faith of the Executive and the <BR>
Company in applying the terms of this Section, the aggregate amount paid to the <BR>
Executive or for his benefit would result in any amount being treated as an "excess <BR>
parachute payment" for purposes of Sections 280G and 4999 of the Code, then an amount <BR>
equal to the amount that would be an "excess parachute payment" shall be deemed for all <BR>
purposes a loan to the Executive made on the date of the receipt of such excess amount, <BR>
which the Executive shall have an obligation to repay to the Company on demand, <BR>
together with interest on such amount at the applicable Federal rate (as defined in Section <BR>
1274(d) of the Code) from the date of the Executive's receipt of such excess until the date <BR>
of such repayment.<BR>
<BR>
                           (b)      In the event that it is determined for any reason that
the amount of <BR>
"excess parachute payments" are less than originally calculated, the Company shall <BR>
promptly pay to the Executive the amount necessary so that, after such adjustment, the <BR>
Executive will have received or be entitled to receive the maximum payments payable <BR>
under this Section without any of such payments constituting an "excess parachute <BR>
payment," together with interest on such amount at the applicable Federal rate (as defined <BR>
in Section 1274(d) of the Code).<BR>
<BR>
          5.     <B>Termination of Agreement.</B>  This Agreement shall continue until and <BR>
terminate three (3) years from the date first set forth above; provided, however, that this <BR>
Agreement shall be renewed automatically for subsequent three-year periods unless <BR>
notified by the Chief Executive Officer at least six (6) months prior to the end of the first <BR>
three-year period or of any subsequent three-year period, that this Agreement shall not be <BR>
renewed.  Further, if a Change in Control occurs during the term of this Agreement, the <BR>
Agreement shall continue until the Company or its successor shall have fully performed <BR>
all of its obligations thereunder with respect to the Executive, with no future performance <BR>
being possible.<BR>
<BR>
          6.     <B>Amendment of Agreement.</B>   Subject to the provisions of Section 5, this <BR>
Agreement may not be amended in any manner which has a significant adverse effect on <BR>
the rights of the Executive without the written consent of such Executive.  <BR>
Notwithstanding the foregoing, upon the occurrence of a Change in Control, this <BR>
Agreement may not be amended in any respect without the written consent of the <BR>
Executive.<BR>
<BR>
<BR>
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</FONT><P>          7.     <B>Construction.</B>   Wherever any words are used herein in the masculine gender <BR>
they shall be construed as though they were also used in the feminine gender in all cases <BR>
where they would so apply, and wherever any words are used herein in the singular form, <BR>
they shall be construed as though they were also used in the plural form in all cases <BR>
where they would so apply.<BR>
<BR>
          8.     <B>Governing Law.</B>   This Agreement shall be governed by the laws of the <BR>
District of Columbia.<BR>
<BR>
          9.     <B>Successors and Assigns.</B>  This Agreement shall be binding upon the <BR>
Company and any assignee or successor in interest to the Company.<BR>
<BR>
        10.     <B>Dispute Resolution and Notice.</B><BR>
<BR>
                 10.1. <U>Dispute Resolution</U>.<BR>
<BR>
                          (a)  Any good faith dispute or controversy arising under or in connection <BR>
with this Agreement shall be settled by binding arbitration.  Such proceeding shall be <BR>
conducted by final and binding arbitration before a single arbitrator mutually acceptable <BR>
to both the Company and the Executive, in accordance with the rules of, and under the <BR>
administration of the Center for Public Resources, in New York.<BR>
<BR>
                           (b)  All reasonable costs and expenses arising out of such arbitration <BR>
proceedings shall be borne by the Company.  The Company shall in all events also pay its <BR>
own costs (including its attorneys' fees) incurred in connection with such arbitration and, <BR>
if Executive shall prevail on any issue that is material to the resolution of the dispute <BR>
before the arbitrator, the Company shall also pay or reimburse Executive for his expenses <BR>
incurred in connection with the arbitration (including, without limitation, his reasonable <BR>
attorneys' fees).<BR>
<BR>
                 10.2  <U>Notice</U>.  Any notices, requests, demands, or other communications <BR>
provided for by this Agreement shall be sufficient if in writing and if sent by registered or <BR>
certified mail to the Executive at the last address he has filed in writing with the <BR>
Company, or in the case of the Company, to its principal offices.<BR>
<BR>
<BR>
<BR>
<BR>
<BR>
<BR>
<BR>
<BR>
<BR>
<BR>
<BR>
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<BR>
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</FONT><P>        11.     <B>Prior Agreement.</B>  This Agreement shall supersede the Agreement between <BR>
the Company and the Executive made on August 1, 1995.<BR>
<BR>
<BR>
</P>
<TABLE CELLSPACING=0 BORDER=0 CELLPADDING=7 WIDTH=590>
<TR><TD WIDTH="39%" VALIGN="TOP">
<P>                                          
         <BR>
</TD>
<TD WIDTH="61%" VALIGN="TOP">
<B><P>POTOMAC ELECTRIC POWER COMPANY</B><BR>
<BR>
By:  <U>               JOHN M. DERRICK                      
  </U><BR>
<BR>
   Its <U>                President and CEO                  
         </U><BR>
                          <B>"COMPANY"</B><BR>
<BR>
       <U>                 WILLIAM J. SIM               
             </U><BR>
                          William J. Sim<BR>
                         <B>"EXECUTIVE"</B></TD>
</TR>
</TABLE>

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