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                June 30, 1999
                                 -------------


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 June 30, 1999
--------------------------     ----------------------------
Common Stock, $1 par value                118,530,802
                        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...............  5
      (1) Comprehensive Income...............................  6
      (2) Income Taxes.......................................  7
      (3) Capitalization and Fair Value of Financial
            Instruments...................................... 10
      (4) Commitments and Contingencies...................... 14
      (5) Segment Information................................ 16
      (6) Energy Trading and Risk Management Activities...... 18
    Report of Independent Accountants on Review of Interim
      Financial Information.................................. 20

  Item 2. - Management's Discussion and Analysis of Consolidated
             Results of Operations and Financial Condition
    General.................................................. 21
    Safe Harbor Statements................................... 22
    Utility
      Results of Operations.................................. 24
        Year 2000 Readiness Disclosure....................... 26
      Capital Resources and Liquidity........................ 29
    Nonutility Subsidiary
      General................................................ 29
      Results of Operations.................................. 30
        Year 2000 Readiness Disclosure....................... 35
      Capital Resources and Liquidity........................ 35

  Item 3. - Quantitative and Qualitative Disclosures About
              Market Risk.................................... 36
PART II - Other Information
  Item 1. - Legal Proceedings................................ 37
  Item 5. - Other Information
    Other Financing Arrangements............................. 37
    Base Rate Proceedings.................................... 37
    Restructuring of the Bulk Power Market................... 38
    Competition.............................................. 38
    Peak Load, Sales, Conservation, and Construction and
      Generating Capacity.................................... 38
    Selected Nonutility Subsidiary Financial Information..... 41
    Statistical Data......................................... 43
  Item 6. - Exhibits and Reports on Form 8-K................. 44
  Signatures................................................. 45
  Computation of Ratios - Parent Company Only................ 46
  Computation of Ratios - Consolidated....................... 47
  Independent Accountants Awareness Letter................... 48

                              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      Six Months Ended       Twelve Months Ended
                                                              June 30,                June 30,               June 30,
                                                         ------------------     -------------------    --------------------
                                                            1999      1998         1999      1998         1999       1998
                                                         --------  --------     --------- ---------    ---------  ---------
                                                                        (In Millions, except Per Share Data)
<S>                                                      <C>       <C>          <C>       <C>          <C>        <C>
Revenue
  Sales of electricity                                   $  481.1  $  476.9     $  871.0  $  843.2     $ 1,900.5  $ 1,835.4
  Other electric revenue                                      3.2       2.5          7.9       6.0          15.2       10.6
                                                         --------  --------     --------  --------     ---------  ---------
    Total Operating Revenue                                 484.3     479.4        878.9     849.2       1,915.7    1,846.0
  Interchange deliveries                                     60.3      49.1         94.7      59.7         212.9       86.4
                                                         --------  --------     --------  --------     ---------  ---------
    Total Revenue                                           544.6     528.5        973.6     908.9       2,128.6    1,932.4
                                                         --------  --------     --------  --------     ---------  ---------
Operating Expenses
  Fuel                                                       92.3      92.7        173.4     174.7         378.9      337.7
  Purchased energy                                           80.5      73.6        143.7     114.0         299.5      219.1
  Capacity purchase payments                                 55.7      38.6        109.2      78.6         186.3      156.8
  Other operation                                            55.9      57.4        109.1     113.4         233.5      228.5
  Maintenance                                                21.2      24.3         44.6      44.3          91.8       94.4
                                                         --------  --------     --------  --------     ---------  ---------
    Total Operation and Maintenance                         305.6     286.6        580.0     525.0       1,190.0    1,036.5
  Depreciation and amortization                              60.9      58.9        122.1     117.7         244.2      235.3
  Income taxes                                               33.7      35.8         38.7      37.3         131.9      122.0
  Other taxes                                                50.6      51.5         94.7      97.3         201.8      204.4
                                                         --------  --------     --------  --------     ---------  ---------
    Total Operating Expenses                                450.8     432.8        835.5     777.3       1,767.9    1,598.2
                                                         --------  --------     --------  --------     ---------  ---------
Operating Income                                             93.8      95.7        138.1     131.6         360.7      334.2
                                                         --------  --------     --------  --------     ---------  ---------
Other Income (Loss)
  Nonutility Subsidiary
    Income                                                   52.4      37.3        108.2      73.3         178.3      130.0
    Expenses, including interest
      and income taxes                                      (33.4)    (31.2)       (84.7)    (60.8)       (152.1)    (115.4)
                                                         --------  --------     --------  --------     ---------  ---------
      Net earnings from nonutility
        subsidiary                                           19.0       6.1         23.5      12.5          26.2       14.6
  Allowance for other funds used during
    construction and capital cost recovery factor             0.5       0.2          0.7       0.5           1.5        3.8
  Contract termination fee                                      -         -         23.2         -          23.2          -
  Write-off of merger costs                                     -         -            -         -             -      (52.5)
  Other, net                                                  0.6       1.3         (7.7)      2.0          (6.4)      23.7
                                                         --------  --------     --------  --------     ---------  ---------
    Total Other Income (Loss)                                20.1       7.6         39.7      15.0          44.5      (10.4)
                                                         --------  --------     --------  --------     ---------  ---------
Income Before Utility Interest Charges                      113.9     103.3        177.8     146.6         405.2      323.8
                                                         --------  --------     --------  --------     ---------  ---------
Utility Interest Charges
  Long-term debt                                             35.7      34.2         69.9      68.6         138.2      135.3
  Distributions on preferred securities of
    subsidiary company                                        2.3       1.1          4.6       1.1           9.2        1.1
  Other                                                       1.4       3.2          3.7       5.7           7.2       11.3
  Allowance for borrowed funds used during
    construction and capital cost recovery factor            (0.8)     (1.2)        (1.7)     (2.3)         (3.6)      (6.1)
                                                         --------  --------     --------  --------     ---------  ---------
      Net Utility Interest Charges                           38.6      37.3         76.5      73.1         151.0      141.6
                                                         --------  --------     --------  --------     ---------  ---------
Net Income                                                   75.3      66.0        101.3      73.5         254.2      182.2
Dividends on preferred stock                                  2.0       3.4          4.0       7.5           7.9       15.8
Redemption premium on preferred stock                           -       6.6            -       6.6           0.1        6.6
                                                         --------  --------     --------  --------     ---------  ---------
Earnings for Common Stock                                    73.3      56.0         97.3      59.4         246.2      159.8

Retained Income at Beginning of Period                      721.9     690.2        747.3     734.3         696.6      728.2
Dividends on Common Stock                                   (49.2)    (49.2)       (98.3)    (98.3)       (196.7)    (196.6)
Subsidiary Marketable Securities, Net
  Unrealized (Loss) Gain, Net of Tax                         (1.6)     (0.4)        (1.9)      1.2          (1.7)       5.2
                                                         --------  --------     --------  --------     ---------  ---------
Retained Income at End of Period                         $  744.4  $  696.6     $  744.4  $  696.6     $   744.4  $   696.6
                                                         ========  ========     ========  ========     =========  =========
Basic Average Common Shares
  Outstanding                                               118.5     118.5        118.5     118.5         118.5      118.5
Basic Earnings Per Common Share                             $0.62     $0.47        $0.82     $0.50         $2.08      $1.35
Diluted Average Common Shares
  Outstanding                                               122.4     124.2        123.3     118.5         123.8      124.3
Diluted Earnings Per Common Share                           $0.61     $0.46        $0.81     $0.50         $2.04      $1.34
Cash Dividends Per Common Share                            $0.415    $0.415        $0.83     $0.83         $1.66      $1.66
Book Value Per Share                                                                                      $15.81     $15.41
Dividend Payout Ratio                                                                                       79.8%     123.0%
Effective Federal Income Tax Rate                                                                           26.6%      30.0%

                                                                   2
</TABLE>

<TABLE>
                                        POTOMAC ELECTRIC POWER COMPANY
                                          Consolidated Balance Sheets
                                    (Unaudited at June 30, 1999 and 1998)
                                    -------------------------------------

<CAPTION>

                                                                 June 30,      December 31,      June 30,
                  ASSETS                                           1999            1998            1998
                  ------                                        ----------     ------------     ----------
                                                                           (Millions of Dollars)
<S>                                                             <C>            <C>              <C>
Property and Plant - at original cost
  Electric plant in service                                     $  6,600.6     $    6,539.9     $  6,471.5
  Construction work in progress                                       91.1             73.2           65.0
  Electric plant held for future use                                   2.2              4.3            4.3
  Nonoperating property                                               22.5             40.4           40.7
                                                                ----------     ------------     ----------
                                                                   6,716.4          6,657.8        6,581.5
  Accumulated depreciation                                        (2,203.0)        (2,136.6)      (2,073.6)
                                                                ----------     ------------     ----------
      Net Property and Plant                                       4,513.4          4,521.2        4,507.9
                                                                ----------     ------------     ----------
Current Assets
  Cash and cash equivalents                                           10.9              6.4           13.2
  Deposits with mortgage trustee                                      19.7                -              -
  Customer accounts receivable, less allowance
    for uncollectible accounts of $2.5, $2.4 and $2.3                139.1            114.9          149.7
  Other accounts receivable, less allowance for
    uncollectible accounts of $.3                                     51.7             44.8           41.0
  Accrued unbilled revenue                                           122.9             65.6          122.2
  Prepaid taxes                                                        1.2             34.7            1.3
  Other prepaid expenses                                               5.2              3.3            7.7
  Material and supplies - at average cost
    Fuel                                                              57.5             53.3           46.7
    Emission allowances                                               13.0                -            0.1
    Construction and maintenance                                      69.1             68.7           68.9
                                                                ----------     ------------     ----------
      Total Current Assets                                           490.3            391.7          450.8
                                                                ----------     ------------     ----------
Deferred Charges
  Income taxes recoverable through future rates, net                 230.4            232.5          236.4
  Conservation costs, net                                            177.3            197.5          212.3
  Unamortized debt reacquisition costs                                51.1             49.9           51.3
  Other                                                              201.1            175.6          160.7
                                                                ----------     ------------     ----------
      Total Deferred Charges                                         659.9            655.5          660.7
                                                                ----------     ------------     ----------
Nonutility Subsidiary Assets
  Cash and cash equivalents                                          116.2             79.6            3.2
  Marketable securities                                              227.1            231.1          240.8
  Investment in finance leases                                       435.3            399.2          442.9
  Operating lease equipment, net of accumulated
    depreciation of $131.4, $120.1 and $108.9                        114.7            122.6          114.0
  Receivables, less allowance for uncollectible
    accounts of $4.6, $5.0 and $6.0                                   64.9             55.6           39.6
  Other investments                                                  155.0            120.6          169.9
  Other assets                                                        21.5             23.1           13.5
  Deferred income taxes                                               59.5             25.6           64.5
                                                                ----------     ------------     ----------
      Total Nonutility Subsidiary Assets                           1,194.2          1,057.4        1,088.4
                                                                ----------     ------------     ----------
      Total Assets                                              $  6,857.8     $    6,625.8     $  6,707.8
                                                                ==========     ============     ==========

CAPITALIZATION AND LIABILITIES
------------------------------
Capitalization
  Common stock                                                  $    118.5     $      118.5     $    118.5
  Other common equity                                              1,756.0          1,758.9        1,708.2
  Serial preferred stock                                             100.0            100.0          100.0
  Redeemable serial preferred stock                                   50.0             50.0           50.0
  Company obligated mandatorily redeemable preferred
    securities of subsidiary trust which holds solely
    parent junior subordinated debentures                            125.0            125.0          125.0
  Long-term debt                                                   1,966.5          1,859.0        1,857.9
                                                                ----------     ------------     ----------
      Total Capitalization                                         4,116.0          4,011.4        3,959.6
                                                                ----------     ------------     ----------
Other Non-Current Liabilities
  Capital lease obligations                                          156.1            157.6          159.0
                                                                ----------     ------------     ----------
Current Liabilities
  Long-term debt and preferred stock redemption                          -             45.2           45.0
  Short-term debt                                                    171.6            191.7          245.4
  Accounts payable and accrued expenses                              224.0            193.2          221.3
  Capital lease obligations due within one year                       20.8             20.8           20.8
  Other                                                               97.4             95.8           90.7
                                                                ----------     ------------     ----------
      Total Current Liabilities                                      513.8            546.7          623.2
                                                                ----------     ------------     ----------
Deferred Credits
  Income taxes                                                     1,055.9          1,049.2        1,037.5
  Investment tax credits                                              51.8             53.7           55.5
  Other                                                               23.4             24.6           22.5
                                                                ----------     ------------     ----------
      Total Deferred Credits                                       1,131.1          1,127.5        1,115.5
                                                                ----------     ------------     ----------
Nonutility Subsidiary Liabilities
  Long-term debt                                                     675.4            716.9          574.1
  Short-term notes payable                                           146.7                -          186.8
  Other                                                              118.7             65.7           89.6
                                                                ----------     ------------     ----------
      Total Nonutility Subsidiary Liabilities                        940.8            782.6          850.5
                                                                ----------     ------------     ----------
      Total Capitalization and Liabilities                      $  6,857.8     $    6,625.8     $  6,707.8
                                                                ==========     ============     ==========


                                                         3
</TABLE>

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

<CAPTION>

                                                                       Six Months Ended         Twelve Months Ended
                                                                           June 30,                   June 30,
                                                                     ---------------------      -------------------
                                                                       1999         1998           1999       1998
                                                                     -------     -------        -------     -------
                                                                                   (Millions of Dollars)
<S>                                                                  <C>         <C>            <C>         <C>
Operating Activities
  Income from utility operations                                     $  77.8     $  61.0        $ 228.0     $ 167.6
  Adjustments to reconcile income to net
    cash from operating activities:
    Depreciation and amortization                                      122.1       117.7          244.2       235.3
    Deferred income taxes and investment tax credits                     6.0         7.4           21.7        42.6
    Deferred conservation costs                                         (4.2)      (13.5)         (14.9)      (30.3)
    Allowance for funds used during construction
      and capital cost recovery factor                                  (2.4)       (2.8)          (5.1)       (9.9)
    Changes in materials and supplies                                  (17.6)       11.9          (23.9)       16.1
    Changes in accounts receivable and accrued unbilled revenue        (88.3)      (94.8)          (0.8)      (24.3)
    Changes in contract termination fee receivable                     (23.8)          -          (23.8)          -
    Changes in accounts payable                                         21.7       (18.1)          27.2        10.0
    Changes in other current assets and liabilities                     23.2        85.2          (36.1)       51.8
    Changes in deferred merger costs                                       -           -              -        37.1
    Net other operating activities                                       7.3       (14.6)          (6.9)      (51.5)
  Nonutility subsidiary:
    Net earnings                                                        23.5        12.5           26.2        14.6
    Deferred income taxes                                              (33.0)      (65.4)           5.9      (103.5)
    Changes in other assets and net other operating activities          42.6        34.2           10.0        66.0
                                                                     -------     -------        -------     -------
Net Cash From Operating Activities                                     154.9       120.7          451.7       421.6
                                                                     -------     -------        -------     -------

Investing Activities
  Total investment in property and plant                               (97.0)     (104.8)        (203.8)     (237.0)
  Allowance for funds used during construction
    and capital cost recovery factor                                     2.4         2.8            5.1         9.9
                                                                     -------     -------        -------     -------
    Net investment in property and plant                               (94.6)     (102.0)        (198.7)     (227.1)
  Nonutility subsidiary:
    Purchase of marketable securities                                   (9.2)       (0.5)          (9.7)      (12.5)
    Proceeds from sale or redemption of marketable securities           10.7        65.9           21.3        71.5
    Proceeds from sale or disposition of leased equipment and assets       -        61.3           44.6        92.2
    Purchase of other investments                                      (37.9)      (16.3)         (46.7)      (17.6)
    Proceeds from sale or distribution of other investments              1.5         3.1           32.8        16.3
    Net proceeds from promissory notes                                     -           -              -        11.1
    Net proceeds from liquidation of partnership                         8.4           -            8.4           -
    Net gain upon liquidation of partnership                            (9.5)          -           (9.5)          -
                                                                     -------     -------        -------     -------
Net Cash (Used By) From Investing Activities                          (130.6)       11.5         (157.5)      (66.1)
                                                                     -------     -------        -------     -------

Financing Activities
  Dividends on common stock                                            (98.3)      (98.3)        (196.7)     (196.6)
  Dividends on preferred stock                                          (4.0)       (7.5)          (7.9)      (15.8)
  Redemption of preferred stock                                            -      (123.6)          (0.1)     (123.6)
  Issuance of mandatorily redeemable preferred securities                  -       125.0              -       125.0
  Issuance of long-term debt                                           266.6           -          266.6       174.2
  Reacquisition and retirement of long-term debt                      (207.7)      (51.1)        (207.7)     (101.1)
  Short-term debt, net                                                 (20.2)      114.0          (73.9)      (66.2)
  Other financing activities                                            (2.3)       (3.0)          (2.5)       (9.8)
  Nonutility subsidiary:
    Issuance of long-term debt                                          36.2        23.0          233.3        63.0
    Repayment of long-term debt                                       (100.2)     (279.4)        (154.5)     (401.7)
    Short-term debt, net                                               146.7       179.1          (40.1)      186.8
                                                                     -------     -------        -------     -------
Net Cash From (Used By) Financing Activities                            16.8      (121.8)        (183.5)     (365.8)
                                                                     -------     -------        -------     -------
Net Increase (Decrease) in Cash and Cash Equivalents                    41.1        10.4          110.7       (10.3)
Cash and Cash Equivalents at Beginning of Period                        86.0         6.0           16.4        26.7
                                                                     -------     -------        -------     -------
Cash and Cash Equivalents at End of Period                           $ 127.1     $  16.4        $ 127.1     $  16.4
                                                                     =======     =======        =======     =======

Cash paid for interest (net of capitalized interest of $.4,
  $.3, $.7 and $.6) and income taxes
    Interest (including nonutility subsidiary interest of
      $23.2, $33.5, $48.2 and $67.7)                                 $  98.9     $ 101.6        $ 196.0     $ 200.6
    Income taxes (including nonutility subsidiary)                   $  13.6     $  11.1        $  71.3     $   9.9


                                                          4




</TABLE>


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

Organization
------------

     Potomac Electric Power Company (the Company, or the Utility)
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.  In addition, the Company
supplies electricity, at wholesale, under a full-requirements
agreement with Southern Maryland Electric Cooperative, Inc.
(SMECO).  The Company also delivers economy energy to the
Pennsylvania-New Jersey-Maryland Interconnection LLC (PJM) of
which the Company is a member.  PJM is composed of more than 100
electric utilities, independent power producers, power marketers,
cooperatives and municipals that operate on a fully integrated
basis.

     On May 21, 1999, the Company reorganized its nonregulated
subsidiaries into two major operating groups to compete for
market share in deregulated markets. As part of the
reorganization, a new unregulated company, Pepco Holdings, Inc.
(PHI, or the Nonutility Subsidiary), was created as the parent
company of Potomac Capital Investment Corp. (PCI) and Pepco
Energy Services, Inc. (PES).  PCI will continue to manage its
diversified portfolio of financial investments and grow its new
operating businesses that provide telecommunication products and
services and utility related services.  PES provides a bundle of
nonregulated energy products and services to commercial,
industrial, and residential customers.  These products and
services include electricity, natural gas, energy efficiency
contracting, including equipment retrofits and operations and
maintenance services, and appliance warranties.

     Potomac Electric Power Company Trust I (Trust), a Delaware
statutory business trust and a wholly owned subsidiary of the
Company, was established in April 1998.  The Trust exists for the
exclusive purposes of (i) issuing Trust Securities representing
undivided beneficial interests in the assets of the Trust, (ii)
investing the gross proceeds from the sale of the Trust
Securities in Junior Subordinated Deferrable Interest Debentures
issued by the Company, and (iii) engaging only in other
activities as necessary or incidental to the foregoing.



                              5



Basis of Presentation
---------------------

     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 for 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 1998
Annual Report to the Securities and Exchange Commission on Form
10-K.

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

(1)  Comprehensive Income
     --------------------

     The components of comprehensive income are net income, and
unrealized gains and losses on marketable securities.
Comprehensive income totaled $73.7 million, $99.4 million, and
$252.5 million for the three, six and twelve months ended June
30, 1999, compared to $65.6 million, $74.7 million, and $187.4
million in the corresponding periods ended June 30, 1998.







                              6


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


<CAPTION>

                                                        Three Months Ended       Six Months Ended        Twelve Months Ended
                                                              June 30,               June 30,                 June 30,
                                                      --------------------     --------------------     --------------------
                                                        1999        1998         1999        1998         1999        1998
                                                      --------    --------     --------    --------     --------    --------
                                                                              (Millions of Dollars)
<S>                                                   <C>         <C>          <C>         <C>          <C>         <C>
Utility current tax expense
  Federal                                             $   29.7    $   31.2     $   37.2    $   27.7     $  105.3    $   53.3
  State and local                                          3.7         3.6          4.8         2.5         14.4         6.2
                                                      --------    --------     --------    --------     --------    --------
Total utility current tax expense                         33.4        34.8         42.0        30.2        119.7        59.5
                                                      --------    --------     --------    --------     --------    --------
Utility deferred tax expense
  Federal                                                  0.8         1.0          6.3         6.6         22.1        39.4
  State and local                                          0.7         1.0          1.6         2.6          3.3         6.9
  Investment tax credits                                  (0.9)       (0.9)        (1.9)       (1.8)        (3.7)       (3.7)
                                                      --------    --------     --------    --------     --------    --------
Total utility deferred tax expense                         0.6         1.1          6.0         7.4         21.7        42.6
                                                      --------    --------     --------    --------     --------    --------

Total utility income tax expense                          34.0        35.9         48.0        37.6        141.4       102.1
                                                      --------    --------     --------    --------     --------    --------

Nonutility subsidiary current tax expense
  Federal                                                 (4.1)       13.9          4.0        28.1         (8.7)       55.4

Nonutility subsidiary deferred tax expense
  Federal                                                (17.8)      (13.3)       (26.8)      (28.0)       (22.9)      (66.2)
                                                      --------    --------     --------    --------     --------    --------
Total nonutility subsidiary income tax (benefit)
  expense                                                (21.9)        0.6        (22.8)        0.1        (31.6)      (10.8)
                                                      --------    --------     --------    --------     --------    --------

Total consolidated income tax expense                     12.1        36.5         25.2        37.7        109.8        91.3
Income taxes included in other income                    (21.6)        0.7        (13.5)        0.4        (22.1)      (30.7)
                                                      --------    --------     --------    --------     --------    --------
Income taxes included in utility operating expenses   $   33.7    $   35.8     $   38.7    $   37.3     $  131.9    $  122.0
                                                      ========    ========     ========    ========     ========    ========







                                                                7
</TABLE>

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


<CAPTION>

                                                        Three Months Ended       Six Months Ended        Twelve Months Ended
                                                              June 30,               June 30,                 June 30,
                                                      --------------------     --------------------     --------------------
                                                        1999        1998         1999        1998         1999        1998
                                                      --------    --------     --------    --------     --------    --------
                                                                              (Millions of Dollars)
<S>                                                   <C>         <C>          <C>         <C>          <C>         <C>
Income before income taxes                            $   87.4    $  102.5     $  126.5    $  111.2     $  364.0    $  273.5
                                                      ========    ========     ========    ========     ========    ========

Utility income tax at federal
  statutory rate                                      $   31.6    $   33.5     $   44.0    $   34.5     $  129.3    $   94.4
    Increases (decreases) resulting from
      Depreciation                                         2.8         2.8          5.5         5.5         10.9        11.3
      Removal costs                                       (2.1)       (2.0)        (3.4)       (3.3)        (6.1)       (6.0)
      Allowance for funds used during
        construction                                       0.1         0.2          0.4         0.4          0.4         0.9
      Other                                               (0.4)       (0.7)        (0.8)       (1.1)        (0.6)       (3.2)
      State income taxes, net of federal effect            2.9         3.0          4.2         3.4         11.5         8.6
      Tax credits                                         (0.9)       (0.9)        (1.9)       (1.8)        (4.0)       (3.9)
                                                      --------    --------     --------    --------     --------    --------
Total utility income tax expense                          34.0        35.9         48.0        37.6        141.4       102.1
                                                      --------    --------     --------    --------     --------    --------

Nonutility subsidiary income tax at federal
  statutory rate                                          (1.0)        2.4          0.3         4.4         (1.9)        1.3
    Decreases resulting from
      Dividends received deduction                        (1.0)       (1.1)        (2.0)       (2.4)        (4.0)       (5.0)
      Reversal of previously accrued deferred taxes          -           -            -           -         (1.0)          -
      Partnership restructuring                          (18.7)          -        (18.7)          -        (18.7)          -
      Other                                               (1.2)       (0.7)        (2.4)       (1.9)        (6.0)       (7.1)
                                                      --------    --------     --------    --------     --------    --------
Total nonutility subsidiary income tax (benefit)
  expense                                                (21.9)        0.6        (22.8)        0.1        (31.6)      (10.8)
                                                      --------    --------     --------    --------     --------    --------

Total consolidated income tax expense                     12.1        36.5         25.2        37.7        109.8        91.3
Income taxes included in other income                    (21.6)        0.7        (13.5)        0.4        (22.1)      (30.7)
                                                      --------    --------     --------    --------     --------    --------
Income taxes included in utility operating expenses   $   33.7    $   35.8     $   38.7    $   37.3     $  131.9    $  122.0
                                                      ========    ========     ========    ========     ========    ========








                                                                8




</TABLE>

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


<CAPTION>


                                                                  June 30,     Dec. 31,    June 30,
                                                                    1999         1998        1998
                                                                  --------     --------    --------
                                                                        (Millions of Dollars)
<S>                                                               <C>          <C>         <C>
Utility deferred tax liabilities (assets)
  Depreciation and other book to tax
    basis differences                                             $  905.1     $  891.6    $  886.6
  Rapid amortization of certified pollution
    control facilities                                                26.4         27.2        25.0
  Deferred taxes on amounts to be collected
    through future rates                                              87.2         88.0        89.5
  Property taxes                                                      13.0         12.9        13.6
  Deferred fuel                                                      (10.4)        (9.7)       (8.1)
  Prepayment premium on debt retirement                               18.4         18.9        19.4
  Deferred investment tax credit                                     (19.6)       (20.3)      (21.0)
  Contributions in aid of construction                               (32.9)       (32.0)      (30.4)
  Contributions to pension plan                                       22.1         22.1        18.2
  Conservation costs (demand side management)                         48.1         49.4        46.2
  Other                                                               16.2         19.7        15.2
                                                                  --------     --------    --------
Total utility deferred tax liabilities, net                        1,073.6      1,067.8     1,054.2
Current portion of utility deferred tax liabilities
  (included in Other Current Liabilities)                             17.7         18.6        16.7
                                                                  --------     --------    --------
Total utility deferred tax liabilities, net - non-current         $1,055.9     $1,049.2    $1,037.5
                                                                  ========     ========    ========

Nonutility subsidiary deferred tax liabilities (assets)
  Finance leases                                                  $  132.9     $  134.3    $  115.2
  Operating leases                                                   (14.8)         5.0        10.3
  Alternative minimum tax                                            (43.6)       (43.6)      (97.1)
  Assets with a tax basis greater than book basis                    (47.0)       (46.0)      (39.1)
  Other                                                              (87.0)       (75.3)      (53.8)
                                                                  --------     --------    --------
Total nonutility subsidiary deferred tax assets, net              $  (59.5)    $  (25.6)   $  (64.5)
                                                                  ========     ========    ========







                                                                9
</TABLE>



(3)  Capitalization and Fair Value of Financial Instruments
     ------------------------------------------------------

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

     At June 30, 1999, 118,530,802 shares of the Company's $1 par
value Common Stock were outstanding.  A total of 200 million
shares is authorized.  As of June 30, 1999, 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 3,392,500 shares were reserved for
conversion of the 5% Convertible Debentures.

Serial Preferred, Redeemable Serial Preferred and Preference
------------------------------------------------------------
   Stock, Company Obligated Mandatorily Redeemable Preferred
   ---------------------------------------------------------
   Securities and Long-Term Debt
   -----------------------------

     At June 30, 1999, the Company had outstanding 3,000,000
shares of its $50 par value Serial Preferred Stock, including the
Redeemable Serial Preferred Stock.  A total of 8,750,000 shares
is authorized.  At June 30, 1999, the aggregate annual dividend
requirements on the Serial Preferred Stock and the Redeemable
Serial Preferred Stock were approximately $4.5 million and $3.4
million, respectively.  Also, the Company has a total of
8,800,000 shares of cumulative, $25 par value, Preference Stock
authorized and unissued.

     At June 30, 1999, the Company had outstanding 1,000,000
shares of its Serial Preferred Stock, Auction Series A.  The
annual dividend rate is 4.2% ($2.10) for the period June 1, 1999,
through August 31, 1999.  For the period March 1, 1999 through
May 31, 1999, the annual dividend rate was 4.625% ($2.3125).  The
average rate at which dividends were paid during the twelve
months ended June 30, 1999, was 4.25% ($2.12).

     At June 30, 1999, the Company had outstanding 1,000,000
shares of Redeemable Serial Preferred Stock, $3.40 (6.80%) Series
of 1992, on which the sinking fund requirement commences
September 1, 2002.  The sinking fund requirement in 2002 and 2003
with respect to this series is $2.5 million.

     At June 30, 1999, the aggregate annual interest requirement
on the Company's long-term debt and Company obligated mandatorily
redeemable preferred securities of subsidiary trust, was $139.7
million; and the aggregate amounts of long-term debt maturities
are zero in 2000, $165 million in 2001, $190 million in 2002, and
$90 million in 2003.


                              10
     On May 15, 1999, the Company redeemed, at maturity, $45
million of 4-1/2% First Mortgage Bonds.  Also, on April 28, 1999,
the Company redeemed $100 million in outstanding principal amount
of First Mortgage Bonds, 9% Series due 2000.  In addition, on
April 19, 1999, the Company redeemed at 101% of par the entire
$62.5 million outstanding principal amount of the 7% Convertible
Debentures due 2018.

     The estimated fair values of the Company's financial
instruments at June 30, 1999, are summarized below:

                                           Carrying      Fair
                                            Amount       Value
                                          ----------   ----------
                                           (Millions of Dollars)
Utility
-------
  Capitalization and Liabilities
    Serial preferred stock                 $  100.0     $   87.4
                                           ========     ========
    Redeemable serial preferred stock      $   50.0     $   53.6
                                           ========     ========
    Company obligated mandatorily
      redeemable preferred securities
      of subsidiary trust which holds
      solely parent junior subordinated
      debentures                           $  125.0     $  123.8
                                           ========     ========

    Long-term debt
      First mortgage bonds (net of
        unamortized premium and
        discount of $16)                   $1,575.8     $1,562.7
      Medium-term notes (net of
        unamortized discount of $1.7)         281.4        281.6
      Convertible debentures (net of
        unamortized discount of $5.7)         109.3        112.1
                                           --------     --------
        Total long-term debt               $1,966.5     $1,956.4
                                           ========     ========

Nonutility Subsidiary
---------------------
  Assets
    Marketable securities (primarily
      mandatorily redeemable preferred
      stock)                               $  227.1     $  227.1
                                           ========     ========
    Notes receivable                       $   24.9     $   18.4
                                           ========     ========
  Liabilities
    Long-term debt                         $  675.4     $  683.0
                                           ========     ========


                              11


     The following methods and assumptions were used to estimate,
at June 30, 1999, the fair value of each class of financial
instrument for which it is practicable to estimate that value.

     The fair values of the Company's Serial preferred stock,
Redeemable serial preferred stock and Trust Originated Preferred
Securities were based on quoted market prices or discounted cash
flows using current rates of preferred stock with similar terms.

     The fair values of the Company's Long-term debt, which
includes First mortgage bonds, Medium-term notes and Convertible
debentures, were based on current market price, or for issues
with no market price available, were based on discounted cash
flows using current rates for similar issues with similar terms
and remaining maturities.

     The fair value of PHI's Marketable securities was based on
quoted market prices.

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

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

     The fair value of PHI's interest rate swap agreements is
discussed in Note (6) of the accompanying Notes to Consolidated
Financial Statements, Energy Trading and Risk Management
Activities.

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






                              12


<TABLE>
Calculations of Earnings Per Share
----------------------------------

     Reconciliations of the numerator and denominator for basic and diluted earnings per common share
are shown below.
<CAPTION>


                                             Three Months Ended       Six Months Ended        Twelve Months Ended
                                                  June 30,                June 30,                 June 30,
                                             ------------------      ------------------      --------------------
                                              1999         1998       1999         1998       1999          1998
                                             -----        -----      -----        -----      ------        ------
                                                             (Millions except Per Share Data)
<S>                                          <C>          <C>        <C>          <C>        <C>           <C>
Income (Numerator):

Earnings applicable to common stock          $73.3        $56.0      $97.3        $59.4      $246.2        $159.8

Add:  Interest paid or accrued on
        Convertible Debentures,
        net of related taxes                   1.0          1.6        2.6            - <F1>    5.8           6.4
                                             -----        -----      -----        -----      ------        ------
Earnings applicable to common stock,
  assuming conversion of convertible
  securities                                 $74.3        $57.6      $99.9        $59.4      $252.0        $166.2
                                             =====        =====      =====        =====      ======        ======
Shares (Denominator):

Average shares outstanding for
  computation of basic earnings
  per common share                           118.5        118.5      118.5        118.5       118.5         118.5
                                             =====        =====      =====        =====      ======        ======
Average shares outstanding for
  diluted computation:

  Average shares outstanding                 118.5        118.5      118.5        118.5       118.5         118.5

  Additional shares resulting from:
    Conversion of 7% Convertible
      Debentures                               0.5          2.3        1.4            - <F1>    1.9           2.4
    Conversion of 5% Convertible
      Debentures                               3.4          3.4        3.4            - <F1>    3.4           3.4
                                             -----        -----      -----        -----      ------        ------
Average shares outstanding for
  computation of diluted
  earnings per common share                  122.4        124.2      123.3        118.5       123.8         124.3
                                             =====        =====      =====        =====      ======        ======

Basic earnings per common share              $0.62        $0.47      $0.82        $0.50       $2.08         $1.35

Diluted earnings per common share            $0.61        $0.46      $0.81        $0.50       $2.04         $1.34
<FN>

<F1>  These amounts are not reflected in the computation of diluted EPS because the effects are
      antidilutive and would increase diluted EPS.




</FN>


                                                          13
</TABLE>


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

     Long-term debt at June 30, 1999, consisted primarily of
unsecured borrowings from institutional lenders.  The interest
rates of such borrowings ranged from 5% to 9.7%.  The weighted
average effective interest rate was 7.16% at June 30, 1999, 7.35%
at December 31, 1998, and 7.69% at June 30, 1998.  Annual
aggregate principal repayments on these borrowings are $219.5
million in 2000, $88.5 million in 2001, $93 million in 2002,
$134.5 million in 2003, $36 million in 2004, and $86.8 million
thereafter.  Also included in long-term debt is $17.1 million of
non-recourse debt which is due in monthly installments with final
maturities in 2002 and 2011.

Nonutility Subsidiary Contractual Maturities
--------------------------------------------

     At June 30, 1999, the contractual maturities for mandatorily
redeemable preferred stock are $46 million within one year, $54.9
million from one to five years, $97 million from five to 10
years, and $19.1 million for over 10 years.

(4)  Commitments and Contingencies
     -----------------------------

Competition
-----------

     For additional information refer to Note (5) of the Notes to
the Consolidated Financial Statements, Commitments and
Contingencies, of the Company's March 31, 1999 Form 10-Q and
Item 5. Other Information of the Company's March 31, 1999 Form
10-Q.  Also refer to Item 7. Management's Discussion and Analysis
of Financial Condition and Results of Operations of the Company's
1998 Form 10-K.

Proposed Sale of Generating Assets
----------------------------------

     The Maryland Public Service Commission (Maryland Commission)
will begin a hearing on September 7, 1999, to consider certain
rate aspects of the Agreement of Stipulation and Settlement (the
Agreement) and the proposed introduction, as of July 1, 2000, of
customer choice for all of the Company's customers in Maryland.
Under the Agreement, the Company is obligated to make a good
faith effort to close the sale of its generation assets by July
1, 2000.  The Agreement by its terms will terminate if all
required regulatory approvals are not obtained by January 1,
2000.  The sale of the generation assets to an unaffiliated third
party does not require the approval of the Maryland Commission.


                            14


     On March 16, 1999, the Company filed an application with the
District of Columbia Public Service Commission (D.C. Commission),
which must approve the Company's sale of the generation assets.
The D.C. Commission has indicated its intention to hold five days
of hearings during the period September 20 - October 4, 1999.

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

     In addition to the updated information disclosed below,
refer to Note (5) of the Notes to the Consolidated Financial
Statements, Commitments and Contingencies, of the Company's March
31, 1999 Form 10-Q and Item 5. Other Information of the Company's
March 31, 1999 Form 10-Q.  Also refer to Item 8. Financial
Statements and Supplementary Data of the Company's 1998
Form 10-K.

     The Company's generating stations operate under National
Pollutant Discharge Eliminating System (NPDES) permits.  An NPDES
renewal application submitted in July 1993 for the Benning
station is pending.  NPDES permits were issued for the Potomac
River station in February 1994, the Morgantown station in
February 1995, the Dickerson station in August 1996 and the Chalk
Point station in September 1996.  An NPDES renewal application
was submitted for the Potomac River station in August 1998.  At
June 30, 1999, resolution of the renewal application is pending.

Leveraged Lease Transaction
---------------------------

     In July 1999, PCI entered into a $724 million leveraged
lease transaction with four Dutch Municipal owned entities.  This
transaction involved the purchase and leaseback of 21 gas
transmission and distribution networks, located throughout the
Netherlands, over base lease terms of approximately 25 years.
The transaction was financed with approximately $607 million of
third-party, non-recourse debt through two banks at commercial
rates for a period of approximately 25 years.  PCI's net
investment in these finance leases was approximately $117 million
and was funded primarily through the Medium Term Note program.



                              15




(5) Segment Information
    -------------------

     The Company has identified its operations (Utility Segment)
and its Nonutility Subsidiary's operations (Nonutility Segment)
as its two reportable segments.  The factors used to identify
these segments are that the Company organizes its business around
differences in products, services, and regulatory environments
and that the operating results for each segment are regularly
reviewed by the Company's chief operating decision-maker in order
to make decisions about resources and assess performance.

     Revenues for the Utility Segment are derived from the
generation, transmission, distribution and sale of electric
energy.  The Nonutility Segment, which consists of the operations
of PHI, derives its revenue from financial investments, energy
services, utility industry services, and telecommunications
services.

     The following table presents information about the Company's
reportable segments for the three, six and twelve months ended
June 30, 1999 and 1998, respectively.  There are no differences
in the basis of segmentation or in the basis of measurement of
segment profit or loss as outlined in Item 8. Financial
Statements and Supplementary Data of the Company's 1998 Form
10-K.

                                      Segment
                         -----------------------------------
                         Utility     Nonutility      Total
                         -------     ----------    ---------
Three Months Ended:             (Millions of Dollars)
------------------

June 30, 1999
   Revenues              $  544.6      $ 52.4      $  597.0
   Net Income                56.3        19.0          75.3
   Net Income (Loss)
     Before Income Taxes     90.3        (2.9)         87.4
   Income Tax Expense
     (Benefit)               34.0       (21.9)         12.1

June 30, 1998
   Revenues              $  528.5      $ 37.3      $  565.8
   Net Income                59.9         6.1          66.0
   Net Income Before
     Income Taxes            95.8         6.7         102.5
   Income Tax Expense        35.9          .6          36.5





                              16


                                      Segment
                         -----------------------------------
                         Utility     Nonutility      Total
                         -------     ----------    ---------
Six Months Ended:               (Millions of Dollars)
----------------

June 30, 1999
   Revenues              $  973.6      $108.2      $1,081.8
   Net Income                77.8        23.5         101.3
   Net Income Before
     Income Taxes           125.8          .6         126.4
   Income Tax Expense
     (Benefit)               48.0       (22.9)         25.1

June 30, 1998
   Revenues              $  908.9      $ 73.3      $  982.2
   Net Income                61.0        12.5          73.5
   Net Income Before
     Income Taxes            98.6        12.6         111.2
   Income Tax Expense        37.6          .1          37.7


Twelve Months Ended:
-------------------

June 30, 1999
   Revenues              $2,128.6      $178.3      $2,306.9
   Net Income               228.0        26.2         254.2
   Net Income (Loss)
     Before Income Taxes    369.4        (5.4)        364.0
   Income Tax Expense
     (Benefit)              141.4       (31.6)        109.8

June 30, 1998
   Revenues              $1,932.4      $130.0      $2,062.4
   Net Income               167.6        14.6         182.2
   Net Income Before
     Income Taxes           269.7         3.8         273.5
   Income Tax Expense
     (Benefit)              102.1       (10.8)         91.3


     Revenues are earned primarily within the United States and
there were no material transactions between the segments.



                              17



(6)  Energy Trading and Risk Management Activities
     ---------------------------------------------

The Company
-----------

     The Company enters into forward and option agreements for
the purchase and sale of power.  The intent of these agreements
is to either secure power for retail customers at advantageous
prices or to obtain profitable prices for power generated by the
Utility's facilities.

PCI and PES
-----------

     PES enters into agreements to sell electricity and natural
gas to customers and matches these sales with offsetting forward
agreements to purchase electricity and natural gas.

     All agreements provide for the sale and delivery of energy.
Under the agreements, PES receives or makes payments based on
prices established by fixed price contracts.

     Additionally, PCI has entered into interest rate swap
agreements to fix certain variable rate debt under the Medium-
Term Notes program, to reduce the Company's exposure to interest
rate fluctuations.  These agreements have a notional amount of
$44 million at June 30, 1999.  The interest rate differential to
be paid or received on interest rate swap agreements is accrued
as interest rates change and is recognized as an adjustment to
interest expense.  As of June 30, 1999, the interest rate swap
agreements have an average life of 3.5 years with a fixed rate of
6.69% and variable rate of 6.26%.  The fair value of these
interest rate swap agreements, based on quoted market prices,
approximates the notional amount.

Accounting Treatment
--------------------

     The Company's, PCI's, and PES's agreements are not used for
trading purposes and are accounted for under Statement of
Financial Accounting Standards No. 80 (SFAS 80), "Accounting for
Futures Contracts."  In accordance with SFAS 80, the financial
agreements that represent hedges are not included on the balance
sheets and the gains and losses are recognized in the income
statement at the time of the transaction.  There were no deferred
gains or losses at June 30, 1999.



                              18



     The accounting treatment outlined in Emerging Issues Task
Force Issue 98-10 (EITF 98-10) "Accounting for Energy Trading and
Risk Management Activities," does not apply to the Company's,
PCI's, and PES's agreements since the agreements are not entered
into for trading purposes as defined by EITF 98-10.
Additionally, the Company, PCI, and PES are in the process of
determining the impact, if any, that Statement of Financial
Accounting Standards No. 133 (SFAS No. 133) "Accounting for
Derivative Instruments and Hedging Activities," will have on its
financial statements and disclosures.  The effective date of SFAS
No. 133 has been delayed and will become effective for the
Company's 2001 calendar year financial statements.


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


     This Quarterly Report on Form 10-Q, including the report of
PricewaterhouseCoopers LLP (on page 20) will automatically be
incorporated by reference in the Prospectuses constituting parts
of the Company's Registration Statements on Forms S-3 (Numbers
33-58810, 33-61379 and 333-33495) and Forms S-8 (Numbers
33-36798, 33-53685, 33-54197, 333-56683 and 333-57221), filed
under the Securities Act of 1933.  Such report of
PricewaterhouseCoopers 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.



                              19



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 its consolidated subsidiaries
(the Company) at June 30, 1999 and 1998, and the related
consolidated statements of earnings and retained income for the
three, six and twelve month periods then ended and the
consolidated statements of cash flows for the six 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, 1998, and the related consolidated statements of
earnings and consolidated statement of cash flows for the year
then ended (not presented herein); and in our report dated
January 25, 1999, 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, 1998, is fairly stated, in
all material respects, in relation to the consolidated balance
sheet from which it has been derived.




/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Washington, D.C.
August 10, 1999

                              20



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

GENERAL
-------

     As an investor-owned electric utility, Potomac Electric
Power Company (the Company, or the Utility) is capital intensive,
with a gross investment in property and plant of approximately $3
for each $1 of annual total revenue.  The costs associated with
property and plant investment amounted to 47% and 46% of the
Company's total revenue for the twelve months ended June 30, 1999
and December 31, 1998, respectively.  Additionally, fuel and
purchased energy, capacity purchase payments and other operating
expenses were 53% and 54% of total revenue for the twelve months
ended June 30, 1999 and December 31, 1998, respectively.

     On May 21, 1999, the Company reorganized its nonregulated
subsidiaries into two major operating groups to compete for
market share in deregulated markets.  As part of the
reorganization, a new unregulated company, Pepco Holdings, Inc.
(PHI, or the Nonutility Subsidiary), was created as the parent
company of Potomac Capital Investment Corp. (PCI) and Pepco
Energy Services, Inc. (PES).  PCI will continue to manage its
diversified portfolio of financial investments and grow its new
operating businesses that provide telecommunication products and
services and utility related services.  PES provides a bundle of
nonregulated energy products and services to commercial,
industrial, and residential customers.  These products and
services include electricity, natural gas, energy efficiency
contracting, including equipment retrofits and operations and
maintenance services, and appliance warranties.

     Potomac Electric Power Company Trust I (Trust) was
established in April 1998 for the purposes of issuing Trust
Securities representing undivided beneficial interests in the
assets of the Trust, and investing the gross proceeds from the
sale of the Trust Securities in Junior Subordinated Debentures of
the Company.

     The Company has identified its operations (Utility Segment)
and its Nonutility Subsidiary's operations (Nonutility Segment)
as its two reportable segments.  The Utility Segment derives its
revenue from the generation, transmission, distribution and sale
of electric energy, while the Nonutility Segment, which consists
of the operations of PHI, derives its revenue from financial
investments, energy services, utility industry services, and


                              21


telecommunications services.  See Note (5) of the Notes to
Consolidated Financial Statements, Segment Information, for the
Company's segment disclosure.

Safe Harbor Statements
----------------------

In connection with the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995 (Reform Act), the
Company and its Nonutility Subsidiary are hereby filing
cautionary statements identifying important factors that could
cause actual results to differ materially from those projected in
forward-looking statements (as such term is defined in the Reform
Act) made in this report on Form 10-Q.  Any statements that
express, or involve discussions as to expectations, beliefs,
plans, objectives, assumptions or future events or performance
are not statements of historical facts and may be forward-
looking.

     Forward-looking statements involve estimates, assumptions
and uncertainties and are qualified in their entirety by
reference to, and are accompanied by, the following important
factors, which are difficult to predict, contain uncertainties,
are beyond the control of the Company and its Nonutility
Subsidiary and may cause actual results to differ materially from
those contained in forward-looking statements:

     - prevailing governmental policies and regulatory actions,
       including those of the Federal Energy Regulatory
       Commission (FERC), with respect to allowed rates of
       return, industry and rate structure, acquisition and
       disposal of assets and facilities, operation and
       construction of plant facilities, recovery of purchased
       power, and present or prospective wholesale and retail
       competition (including but not limited to retail wheeling
       and transmission costs);

     - economic and geographic factors including political and
       economic risks;

     - changes in and compliance with environmental and safety
       laws and policies;

     - weather conditions;

     - population growth rates and demographic patterns;

     - competition for retail and wholesale customers;



                              22


     - Year 2000 issues;

          delays or changes in costs of Year 2000 compliance;

          failure of major suppliers, customers or others with
          whom the Company does business to resolve their own
          Year 2000 issues on a timely basis;

     - growth in demand, sales and capacity to fulfill demand;

     - changes in tax rates or policies or in rates of inflation;

     - changes in project costs;

     - unanticipated changes in operating expenses and capital
       expenditures;

     - capital market conditions;

     - competition for new energy development opportunities and
       other opportunities;

     - legal and administrative proceedings (whether civil or
       criminal) and settlements that influence the business and
       profitability of the Company;

     - pace of entry into new markets;

     - time and expense required for building out the planned
       Starpower network;

     - success in marketing services;

     - possible development of alternative technologies; and

     - the ability to secure electric and gas supply to fulfill
       sales commitments at favorable prices.


     Any forward-looking statements speak only as of August 10,
1999, and the Company and its Nonutility Subsidiary undertake no
obligation to update any forward-looking statement to reflect
events or circumstances after the date on which such statement is
made or to reflect the occurrence of unanticipated events.  New
factors emerge from time to time and it is not possible for
management to predict all of such factors, nor can it assess the
impact of any such factor on the business or the extent to which
any factor, or combination of factors, may cause results to
differ materially from those contained in any forward-looking
statement.



                              23


UTILITY
-------

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

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

     Total revenue increased for the three, six and twelve months
ended June 30, 1999, as compared to the corresponding periods in
1998.  The increases in revenue from sales of electricity for the
periods ending June 30, 1999, resulted primarily from increases
in kilowatt-hour sales of .4%, 2.6% and 2.7% over the
corresponding periods in 1998.  The increases in sales for the
six and twelve months ended June 30, 1999, reflect temperatures
in the first quarter of 1999 that were 15% colder, as measured in
heating degree days, than the corresponding period in 1998.
Temperatures during each quarter of the twelve months ended
June 30, 1999, remained milder than their corresponding 20-year
averages.

     The increases in base rate revenue in the three and six
months ended June 30, 1999, compared to the corresponding periods
in 1998, reflect the effects of a $19 million increase in
Maryland base rates (pursuant to a December 1998 settlement
agreement) and a $9 million increase in the District of Columbia
Demand Side Management (DSM) surcharge tariff effective September
1998.  In addition, the increase in base rate revenue in the
twelve months ended June 30, 1999, reflects the effects of a $24
million increase in Maryland base rates pursuant to a November
1997 settlement agreement.

     Interchange deliveries increased for the three, six and
twelve months ended June 30, 1999, as compared to the
corresponding periods in 1998.  The increases for the periods
reflect changes in levels and prices of energy delivered to the
Pennsylvania-New Jersey-Maryland Interconnection LLC (PJM) and
increases in the levels of bilateral energy transactions under
the Company's wholesale power sales tariff.

     The Company receives point-to-point transmission service
revenue, pursuant to the PJM open access transmission tariff.
Such revenues are classified as "Other electric revenue," and
totaled $1.5 million, $2.6 million and $5.8 million for the
three, six and twelve months ended June 30, 1999, and $.6
million, $.8 million and $1.6 million for the corresponding
periods in 1998.  The benefits derived from interchange
deliveries, capacity sales in the District of Columbia and
revenue under the open access transmission tariff are passed
through to the Company's customers through fuel adjustment
clauses.

                              24



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

                            Rate
                          Increase
                         (Decrease)      %          Effective
Regulatory Jurisdiction    ($000)      Change          Date
-----------------------  ----------    -------    ---------------
Maryland                  $19,000        2.0 %    December 1998
Federal - Wholesale        (2,500)      (1.8)     January 1998
Maryland                   24,000        2.6      November 1997

See Part II, Item 5, Base Rate Proceedings, for additional
information.

     As discussed in Note (1) of the Notes to the Consolidated
Financial Statements, SMECO Agreement, of the Company's March 31,
1999 Form 10-Q, the Company has a new full-requirements agreement
with SMECO, effective January 1, 1999.

Operating Expenses
------------------

     Fuel expense increased for the twelve months ended June 30,
1999, as compared to the corresponding period in 1998, primarily
due to an increase of 13.1% in net generation; partially offset
by a decrease in the system average unit cost of fuel discussed
below.  Fuel expense in the three and six month periods ended
June 30, 1999 remained relatively unchanged from the
corresponding periods in 1998.  The increases in purchased energy
for the three, six and twelve months ended June 30, 1999, reflect
changes in levels and prices of energy purchased from PJM and
other utilities and power marketers.

     The unit fuel costs for the comparative periods ended June
30, were as follows:

                          Three           Six           Twelve
                       Months Ended   Months Ended   Months Ended
                         June 30,       June 30,       June 30,
                       ------------   -------------  ------------
                       1999   1998    1999    1998   1999   1998
                       -----  -----   -----   -----  -----  -----
System Average
  Fuel Cost per MBtu   $1.75  $1.75   $1.69   $1.77  $1.69  $1.80


     System average unit fuel cost decreased for the six and
twelve months ended June 30, 1999, as compared to the
corresponding periods in 1998, primarily due to decreases in the
costs of coal, residual oil and natural gas.


                              25


     For the twelve month periods ended June 30, 1999 and 1998,
the Company obtained 81% and 88%, 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, six and
twelve months ended June 30, 1999, as compared to the corre-
sponding periods in 1998.  These increases reflect contractual
escalations under existing purchase capacity contracts with
FirstEnergy and Panda-Brandywine (Panda).  The increases are
reflected in rates in the District of Columbia through a fuel
adjustment clause on a dollar-for-dollar basis and in Maryland
through a rate settlement in December 1998.  The Maryland rates,
however, are seasonal, which results in lower recovery in the
winter and higher recovery in the summer.

     Operating expenses other than fuel, purchased energy and
capacity purchase payments decreased for the three months ended
June 30, 1999, as compared to the corresponding period in 1998,
primarily due to decreases in other operation and maintenance
expenses associated with reduced labor and benefits costs, and
decreases in income taxes resulting from decreased taxable
operating income; partially offset by increases in depreciation
and amortization expense associated with additional investment in
property and plant.  Increases in the twelve months ended June
30, 1999, reflect increases in income taxes resulting from
increased taxable operating income and increases in depreciation
and amortization expense associated with additional investment in
property and plant.  In the six months ended June 30, 1999, these
expenses remained relatively unchanged.

                 Year 2000 Readiness Disclosure
                 ------------------------------

     For a discussion of the Company's Year 2000 Readiness
Disclosure at December 31, 1998, refer to Part II., Item 7.,
Management's Discussion and Analysis of Financial Condition and
Results of Operations of the Company's 1998 Form 10-K.  The
status of the Company's Year 2000 efforts at June 30, 1999 is as
follows.

     On June 23, 1999, the Company reported to the North American
Electric Reliability Council (NERC) that the Company was 100
percent complete with the inventory, assessment and remediation
phases of the Company's Year 2000 project for all mission-
critical facilities and information technology (IT) business
systems.  No exceptions were reported.  All identified Year 2000
impacted processing components have been upgraded, modified or
otherwise made Year 2000 ready.


                              26


     The NERC Year 2000 Electric System Readiness Assessment
contains 50 separate categories that NERC defines as mission-
critical facilities and IT business systems.  These categories
cover generating units, EMS (energy management system), SCADA
(supervisory control and data acquisition), telecommunications,
substation controls, system protection, distribution, and various
business systems.  The Company has now remediated and tested all
of the items in these categories.

     A total of 14 of the Company's 16 major generating units
were either upgraded or had new distributed control systems
installed.  The remaining two units are handled via analog
controls and required no upgrades.  All combustion turbines were
also tested, and two were upgraded.  The remaining units either
had no Year 2000 implications or were made Year 2000 ready via
workaround solutions.

     On June 3, 1999, the Company began operating with Year 2000
ready EMS software, staggering the installation of both its
primary and back-up computer systems to provide electric system
reliability.  The EMS is the central control point of the
Company's electric system, gathering data from various points and
controlling the operation of the electric system.

     All of the Company's corporate IT systems have been tested
in the Company's mainframe and local area network (LAN).  Both
the mainframe and LAN have been configured as "time machines" to
simulate multiple date changes.  Testing of the IT systems, the
EMS, and the Company's other major systems, involved setting the
date forward to make certain that these systems processed the
rollover from December 31, 1999 to January 1, 2000 correctly.
The testing protocol encompassed not only the January 1, 2000
date but many other key dates as well, including the leap year
date of February 29, 2000.

     The Company also reported to NERC on June 23, 1999 that it
has completed and drilled what NERC refers to as "Year 2000
special operating procedures and plans."  These are the Company's
business continuity plans (BCP) that manage potential Year 2000
contingency situations.  Sixty teams from all business units
participated in designing plans to deal with approximately 175
potential disruption to operations scenarios including potential
Year 2000 problems.

     The Company continues to participate in community
coordination and drills.  For example, Company representatives
made presentations regarding the Year 2000 program at the Year
2000 Workshop Program on May 15, 1999 sponsored by the District
of Columbia Year 2000 Project, and at three Montgomery County
Year 2000 Town Meetings.  The Company participated in the
President's Year 2000 Council's briefing announcing the Community
Conversations Program.  The Company is investigating


                              27


opportunities for a Community Conversation event and is
coordinating its effort with other local businesses and
organizations.

     The Company participated in the NERC Year 2000 communica-
ions disruption drill on April 9, 1999, and will also participate
in the nationwide "dress rehearsal" drill scheduled for September
8-9, 1999.  As a result of the April 9, 1999 communications
disruption drill, the Company determined that it has adequate
backup communications capability.

     The Company has established a range of communications to
keep customers and the public informed of Year 2000 efforts.
Bill inserts have been used to advise customers of Year 2000
activities.  Future bill inserts will be used as needed.  A
brochure is being distributed to customers who inquire about the
Company's Year 2000 efforts.  The information included in the
brochure has been posted on the Company's web site on the
Internet.  The brochure and web site have been updated and will
continue to be updated periodically with the latest Year 2000
status information.  Members of the Year 2000 project team
continue to meet with large customers and community groups to
review the Company's Year 2000 readiness efforts.  Three Year
2000 update briefings for large commercial accounts were held in
May and June 1999.  The Company's Corporate Ambassadors and
participants in the Company's Speaker's Bureau, have been briefed
on the Year 2000 program, and make presentations to civic and
church groups upon request.

     In March 1999, follow-up letters were sent via certified
mail to the 110 suppliers of critical services and/or products
who had not replied to previous letters requesting Year 2000
readiness information.  All critical suppliers have now responded
positively.  The review of critical generation fuel and
transportation supplier responses has been completed.  All of the
Company's major fuel suppliers and providers of transportation
have advised that they are either Year 2000 ready or are well on
their way to becoming Year 2000 ready within an acceptable time
frame.

     The cost or consequences of a material incomplete or
untimely resolution of the Year 2000 problem could adversely
affect the future operations, financial results or financial
condition of the Company.

     The cost of expected modifications will be approximately $12
million, and will be charged to expense as incurred.  This
estimate may change as additional evaluations are completed and
remediation and testing progresses.  Through June 30, 1999, $9.2
million has been charged to expense; the remaining costs will be
expensed in 1999.  Approximately $1.2 million, $2.3 million, and
$5.8 million of the total expected cost, were expensed in the
three, six and twelve months ended June 30, 1999, respectively.


                              28



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

     The Company's investment in property and plant, at original
cost before accumulated depreciation, was $6.7 billion at June
30, 1999, an increase of $58.6 million from the investment at
December 31, 1998, and an increase of $134.9 million from the
investment at June 30, 1998.  Cash invested in property and plant
construction, excluding Allowance for Funds Used During
Construction and Capital Cost Recovery Factor, amounted to $94.6
million and $198.7 million for the six and twelve months ended
June 30, 1999, and $102 million and $227.1 million for the
corresponding periods in 1998.

     At June 30, 1999, the Company's capital structure, excluding
short-term debt and nonutility subsidiary debt, consisted of
47.8% long-term debt, 2.4% serial preferred stock, 1.2%
redeemable serial preferred stock, 3% Company obligated
redeemable preferred securities of subsidiary trust and 45.6%
common equity.

     Cash from utility operations, after dividends, was $19.5
million and $205 million for the six and twelve months ended June
30, 1999, and $33.6 million and $232.1 million for the
corresponding periods in 1998.

     The Company's current annual dividend on common stock is
$1.66 per share.  The dividend rate is determined by the
Company's Board of Directors and takes into consideration, among
other factors, current and possible future developments which may
affect the Company's income and cash flow levels.  The Company
has no current plans to change the dividend; however, there can
be no assurance that the $1.66 dividend rate will be in effect in
the future.

     Outstanding utility short-term debt totaled $171.6 million
at June 30, 1999, compared to $191.7 million and $245.4 million
outstanding at December 31, 1998 and June 30, 1998, respectively.

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

GENERAL
-------

      Over the past few years, with the passage of the
Telecommunications Act of 1996 and the deregulation of the
natural gas and electric industries also underway, the focus of
the Company's nonutility subsidiaries has been significantly
expanded to include new competitive telecommunications and energy
businesses.  To facilitate this expansion, on May 21, 1999, the
Company reorganized its nonregulated subsidiaries into two major
operating groups to compete for market share in deregulated


                              29


markets.  As part of the reorganization, a new unregulated
company, PHI, was created as the parent company of PCI and PES.

     PCI will continue to manage its diversified portfolio of
financial investments and grow its new operating businesses that
provide telecommunication products and services and utility-
related services.  PCI's telecommunication products and services
are primarily provided through its 50% equity interest in a joint
venture known as Starpower Communications, LLC (Starpower).  Both
partners in the joint venture have committed to initially
contribute up to $150 million of equity to the joint venture over
a three-year period (1998   2000) to build an advanced, high-
bandwidth fiber-optic network for consumers in the Washington,
Baltimore, and Northern Virginia metropolitan region.  Over this
"Last Mile" fiber-optic link, Starpower provides a consumer
package of telecommunication services including cable television,
local and long distance telephone, dial up and high-speed
Internet services.  As of June 30, 1999, PCI has invested $35.7
million of its total $150 million commitment.

     PES provides nonregulated energy and energy-related services
in competitive retail markets in the mid-Atlantic region from
Pennsylvania to Georgia.  In addition to its principal office in
Washington, D.C., PES has offices in Pittsburgh, Pennsylvania;
Philadelphia, Pennsylvania; Columbia, Maryland; Virginia Beach,
Virginia; and Savannah, Georgia.  Its products include
electricity, natural gas, energy efficiency contracting,
equipment operation and maintenance, fuel management, and
appliance warranties.  These products and services are sold in
bundles or individually to large commercial and industrial
customers and to residential customers.

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

     Refer to Part II., Item 5. - Other Information - Selected
Nonutility Subsidiary Financial Information, for PHI's
Consolidated Statements of Earnings for the three, six and twelve
months ended June 30, 1999 and 1998.

INCOME
------

Financial Investments

     Financial investments income consists primarily of income
derived from leased assets (electric power plants, aircraft and
other assets) and marketable securities (primarily fixed-rate,
utility preferred stocks).  Additionally, transactions involving
real estate holdings and structured finance transactions
contribute to financial investments income.  The overall decrease


                              30


in financial investments income for all periods in 1999, compared
with the corresponding periods in 1998, is described below.  In
general, the timing of the recognition of financial investments
income is transaction driven.

     The leased assets component of financial investments income,
which primarily includes rental income and interest income,
decreased for all periods in 1999, compared with the
corresponding periods in 1998, due to the disposition of aircraft
and reduction in the size of PCI's aircraft portfolio.  PCI's
remaining aircraft portfolio, with a net book value of $292.8
million and $313.7 million at June 30, 1999 and December 31,
1998, respectively, is being managed with the objective of
identifying further opportunities for its sale or other
disposition on economic terms.  Leased assets contributed income
of $14.2 million, $30.9 million and $60.3 million for the three,
six and twelve months ended June 30, 1999, respectively, compared
to $22.1 million, $43.8 million and $83.7 million for the
corresponding periods in 1998.

     The marketable securities component of financial investments
income decreased for all periods in 1999, compared with the
corresponding periods in 1998, due to decreases in dividend
income as a result of reductions in the size of the portfolio
during 1998.  The marketable securities portfolio contributed
pre-tax income, including net realized gains, of $4.2 million,
$8 million and $16.2 million for the three, six and twelve months
ended June 30, 1999, respectively, compared to $6.4 million,
$11 million and $21.8 million for the corresponding periods in
1998.

     The component of financial investments income that was
realized from gains on the sale of aircraft and real estate
assets for the three, six and twelve months ended June 30, 1999
was $3.3 million, $15.4 million and $27 million, respectively,
compared to $3 million, $8.3 million and $3.5 million for the
corresponding periods in 1998.

     PCI is in the process of building, owning and financing a
new ten-story, 329,000 square foot commercial office building for
the Utility at an estimated cost of $92 million.  The new
building is expected to be completed in mid-2001.  The Utility
will lease the majority of the office space from PCI.  Through
June 30, 1999, PCI has invested $23 million related to the
acquisition of land and development of the new facility.

     In July 1999, PCI entered into a $724 million leveraged
lease transaction with four Dutch Municipal owned entities.  This
transaction involved the purchase and leaseback of 21 gas
transmission and distribution networks, located throughout the
Netherlands, over base lease terms of approximately 25 years.


                              31


The transaction was financed with approximately $607 million of
third-party, non-recourse debt through two banks at commercial
rates for a period of approximately 25 years.  PCI's net
investment in these finance leases was approximately $117 million
and was funded primarily through the Medium Term Note program.

Energy Services

     Energy services income represents income derived from the
operations of PES.  The increase in energy services income for
all periods in 1999, compared with the corresponding periods in
1998, results principally from a significant increase in the
volume of energy efficiency business and from the acquisition of
Gaslantic Corporation (Gaslantic) in September 1998.  Typical of
gas marketing operations, Gaslantic's purchase of energy to
fulfill client contract requirements is a high-volume and
relatively low-margin business.

     In June 1999, the Department of Defense awarded the federal
government's largest energy-saving performance contract ever to a
50/50 partnership between a wholly owned subsidiary of PES and
another contractor.  Under the $214 million contract, executed on
June 29, 1999, the partnership will implement energy-savings
measures for five military bases in the Military District of
Washington.  The partnership will invest $67 million over the
next 30 months in infrastructure improvements.  Thereafter, the
partnership will maintain, operate, and monitor the equipment for
15 years.  The energy-savings measures will cover a wide range of
technologies, including lighting, building envelope, building
automation systems, chillers, controls, HVAC, boilers and water
conservation.  PES's income will be tied to the amount of energy
savings achieved and will be recognized over the term of the
contract.

     A wholly owned subsidiary of PES has signed a four-year
agreement commencing in January 2001, to provide full
requirements energy to SMECO (approximately 600 MW of peak load).
The PES subsidiary has secured a firm commitment from a third
party sufficient to serve SMECO's full requirements.  Both the
sales commitment to SMECO and the third-party purchase agreement
are at fixed prices that do not vary with future changes in
market conditions.  The revenues from this contract are expected
to be approximately $100 million per year.  Including this
contract and energy supply contracts with commercial and
residential customers in Pennsylvania, PES has supply contracts
for approximately 650 MW of load.

     PES has significantly increased its commercial energy
services in 1999.  PES recognized revenue of $50.2 million during
the six months ended June 30, 1999, compared with revenue of $28
million and $6.3 million for the years ended December 31, 1998
and 1997, respectively.

                              32


     In total, during the first half of 1999, PES signed
contracts for the delivery of energy and energy services valued
at approximately $500 million of revenues.  Commodity revenues
are recognized upon delivery to the customer while construction
energy contract revenues are recognized using the percentage of
completion method.

Utility Industry Services

     The increase in utility industry services income for all
periods in 1999, compared with the corresponding periods in 1998,
results from the growth of this portion of the business.  During
the past six years, the Company has acquired ownership and
operating interests in a natural gas pipeline, liquefied natural
gas storage facilities, and an underground cable services
company, all of which profitably provide products and services to
utilities and to other customers.   Additionally, in 1999, the
Company launched a new business strategy that is targeted at
bringing new electrical technologies to the utility industry as
it deregulates.

Telecommunications Services

     The losses from telecommunications services represent PCI's
share of losses from its equity investments, principally
Starpower.  PCI expects that its investment in Starpower will
continue to incur losses for the remainder of 1999 and 2000 as it
develops and expands its network and customer base.  However,
Starpower had positive earnings from its operations before
interest, taxes, depreciation and amortization in 1998, two years
ahead of schedule, and anticipates having positive cash flow
again in 1999, principally as the result of its Internet
operations.

     During 1999, Starpower expects to build sufficient advanced
fiber-optic network to add in excess of 60,000 marketable, on-
network households to its network.  Starpower anticipates that
additional cable regulatory approvals will be achieved in 1999.
Starpower's total customer subscriber connections including
cable, phone and Internet customers exceeded 260,000 at June 30,
1999, from a level of 237,000 at year-end 1998.  Starpower is
currently the only regional company to provide cable television,
local and long distance telephone, dial-up and high speed
Internet services on an a-la-carte basis, or combined into one
bundled, competitively priced package, over an advanced fiber-
optic network.  At June 30, 1999, cable agreements allowed
Starpower to build its network to approximately 250,000
households.



                              33


     On July 7, 1999, Starpower announced a strategic portal
alliance with Lycos, one of the leading Internet portal companies
in the United States.  This agreement provides Lycos' portal to
Starpower's current dial-up Internet customer base and includes a
strategic alliance to build a high-speed Lycos portal known as
"Lycos Lightening" for Starpower's customers served from its
high-speed advanced fiber-optic network.

     On August 3, 1999, Starpower won approval from Montgomery
County, Maryland to offer competitive cable television services
to more than 240,000 households in Montgomery County.  The
Montgomery County Council awarded a 15-year franchise to
Starpower to compete for customers against the county's existing
cable provider.  The franchise will enable Starpower to serve
more than 80 percent of the 308,000 households in the county,
which is the nation's eighth wealthiest and the largest in
Maryland with a population of 850,000.  This agreement increases
the number of authorized cable households for Starpower in the
Washington metropolitan area to approximately 500,000.

     On August 10, 1999, Starpower entered the Northern Virginia
suburbs for the first time by signing a long-term agreement with
the City of Falls Church, Virginia, to build an advanced fiber-
optic network.  Starpower intends to start construction of the
network immediately and expects to begin to offer a bundle of
advanced communication services, including digital cable
television, local and long distance telephone service, and high-
speed Internet service, during 2000.

     The success of Starpower will depend upon the ability of
Starpower to achieve its commercial objectives and is subject to
a number of uncertainties and risks, including the pace of entry
into new markets; the time and expense required for building out
the planned network; success in marketing services; the intensity
of competition; the effect of regulatory developments; and the
possible development of alternative technologies.  Statements
concerning the activities of Starpower that constitute forward-
looking statements are subject to the foregoing risks and
uncertainties.

EXPENSES
--------

Operating and Administrative & General

     The increase in operating and administrative and general
expenses for all periods in 1999, compared with the corresponding
periods in 1998, mainly results from the increase in PES's
business activities.  Purchases of gas and electricity to fulfill
sales commitments aggregated $19.8 million, $36.9 million, and
$50 million for the three, six and twelve months ended June 30,
1999.  There were no gas and electricity purchases for the
corresponding periods in 1998.


                              34


Interest and Depreciation

     The decrease in interest expense for all periods in 1999,
compared with the corresponding periods in 1998, results from
reduced borrowings in 1998 and for the first five months of 1999
and lower effective interest rates.  Additionally, the decrease
in depreciation expense for all periods in 1999, compared with
the corresponding periods in 1998, results from the disposition
of aircraft.

Income Tax (Benefit) Expense

     The increase in PHI's income tax benefit for all periods in
1999, compared with the corresponding periods in 1998, reflects
the recognition of $18.7 million in tax benefits in June 1999
associated with the completion of a restructuring transaction
related to a partnership.  This restructuring has allowed PCI to
consolidate the majority of its aircraft assets under one
umbrella company, and by doing so, facilitates the management and
disposition of its aircraft portfolio.

                 Year 2000 Readiness Disclosure
                 ------------------------------

     For a discussion of PHI's Year 2000 Readiness Disclosure at
December 31, 1998, refer to Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations of the
Company's 1998 Form 10-K.  The status of PHI's Year 2000 efforts
at June 30, 1999 is as follows.

     PHI is continuing to work closely with the Corporate Year
2000 Task Force in connection with its Year 2000 remediation
efforts.  PHI has nearly completed the first three phases of its
Year 2000 remediation plan by identifying items requiring
remediation, correcting any problems that have been identified,
and completing the compliance testing for all critical systems.
PHI is currently addressing the final element of its Year 2000
remediation plan which is the preparation of a contingency plan
in the event that remediation efforts are not successfully
completed in a timely fashion.

     The cost or consequences of a material incomplete or
untimely resolution of the Year 2000 problem could adversely
affect the future operations, financial results or financial
condition of PHI.

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

     At June 30, 1999, PCI had a $227.1 million marketable
securities portfolio, consisting primarily of fixed-rate, utility
preferred stocks.  During the first six months of 1999, the cost
basis of PCI's marketable securities portfolio decreased by $1.2


                              35


million, primarily as a result of calls and acceptance of tender
offers of approximately $10.7 million, offset by security
purchases of $9.3 million and realized net gains of $.2 million.

     PHI had short-term debt outstanding of $146.7 million as of
June 30, 1999, compared to $186.8 million as of June 30, 1998.
During the three, six and twelve months ended June 30, 1999, PHI
issued $.1 million, $36.2 million and $233.3 million in long-term
debt, including non-recourse debt, and debt repayments totaled
$2.1 million, $100.2 million and $154.5 million, respectively.
The weighted-average effective interest rate of long-term debt
was 7.16% at June 30, 1999, 7.35% at December 31, 1998, and 7.69%
at June 30, 1998.  At June 30, 1999, PHI had $467 million
available under its Medium-Term Notes Program and $400 million of
unused bank credit lines.

     PHI expects that based on its cash on hand, as well as
credit facilities available, it has sufficient available funds to
meet normal working capital requirements, capital expenditures,
scheduled debt repayments and acquisitions, if necessary.

     During June 1999, PCI invested $7.9 million and assumed
$22.4 million in existing third-party debt to acquire 471 rail-
cars through a 20 year direct finance lease.  The lease expires
on July 5, 2018 and rent is payable semi-annually throughout the
lease term.  Renewal and purchase options are part of the lease
and may be exercised at fair market value.

Item 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
-------   -----------------------------------------------------
            RISK
            ----

     For information other than the updated disclosures contained
below, refer to Item 7A. Quantitative and Qualitative Disclosures
About Market Risk of the Company's 1998 Form 10-K.

     As discussed in Note (6) of the Notes to the Consolidated
Financial Statements, Energy Trading and Risk Management
Activities, PCI uses interest rate swap agreements to minimize
its interest rate risk.  The fair value of these agreements at
June 30, 1999 was approximately $44 million.  The potential loss
in fair value from these agreements resulting from a hypothetical
10% adverse movement in base interest rates is estimated at
$1 million at June 30, 1999.

     Additionally, as a result of the forward agreements
discussed in Note (6) of the Notes to the Consolidated Financial
Statements, Energy Trading and Risk Management Activities, the
Company and PES may be subject to credit losses and
nonperformance by the counter parties to the agreements, but
anticipate that the counter parties will be able to fully satisfy


                              36


their obligations under the agreements.  The Company and PES do
not obtain collateral or other securities to support financial
instruments subject to credit risk, but monitor the credit
standing of the counter parties.

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

     Refer to Note (4) of the accompanying Notes to Consolidated
Financial Statements, Commitments and Contingencies.  Also, refer
to the discussion of Environmental Matters under Item 1. Business
and Item 3. Legal Proceedings of the Company's 1998 Form 10-K.

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

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

     The Company and PHI satisfy their short-term financing
requirements through the sale of commercial promissory notes.
The Company and PHI maintain minimum 100 percent lines of credit
back-up, in the amounts of $225 million and $400 million,
respectively, for their outstanding commercial promissory notes.
These lines of credit were unused during 1999 and 1998.

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

     See the discussion of Maryland and the District of Columbia
Base Rate Proceedings under Item 5. Other Information - Base Rate
Proceedings of the Company's March 31, 1999 Form 10-Q and Item 1.
Business of the Company's 1998 Form 10-K.

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

     The Company participates in wholesale capacity, energy and
transmission purchases and sales transactions, the savings from
which are passed along to customers.  Presently, all transmission
service in PJM is administered by the PJM Office of the
Interconnection.  In addition to interchange with PJM, the
Company is actively participating in the bilateral energy sales
marketplace; numerous utilities and marketers have executed
service agreements allowing them to arrange purchases under the
Company's wholesale power sales tariff, and the Company has
executed service agreements allowing it to purchase energy under
other market participants' power sales tariffs.  The Company's
power sales tariff also allows for the sale of generating
capacity on a short-term basis.  Presently, the Company has
agreements for installed capacity sales through December 31,


                              37


1999, totaling 150 megawatts.  Revenues from capacity and
bilateral energy transactions totaled approximately $18.6
million, $23.8 million, and $64.9 million for the three, six and
twelve months ended June 30, 1999, respectively, and $15.5
million, $19.1 million, and $23.6 million for the corresponding
periods in 1998, and are included as components of interchange
deliveries.

     Also see the discussion under Item 5. Other Information -
Federal - Interchange and Purchased Energy of the Company's March
31, 1999 Form 10-Q.

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

     In addition to the updated information disclosed below,
refer to the discussion of the Restructuring of the Bulk Power
Market under Item 1. Business of the Company's 1998 Form 10-K.

     On March 10, 1999, the FERC approved market-based rates for
pricing energy sales through the PJM energy market and a market
monitoring plan.

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

     For a discussion of Competition refer to Item 5. Other
Information - Competition of the Company's March 31, 1999 Form
10-Q.  Also refer to Item 3. Legal Proceedings and Item 7.
Management's Discussion and Analysis of Financial Condition and
Results of Operations - Subsequent Events of the Company's 1998
Form 10-K.

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

Peak Load and Sales Data
------------------------

     Kilowatt-hour sales increased .4%, 2.6%, and 2.7% for the
three, six and twelve months ended June 30, 1999, compared to
sales in the corresponding periods of 1998.  The increases in
sales for the six and twelve months ended June 30, 1999 reflect
temperatures in the first quarter of 1999 that were 15% colder,
as measured in heating degree days, than the corresponding period
in 1998.  Temperatures during each quarter of the twelve months
ended June 30, 1999, remained milder than their corresponding 20-
year averages. Assuming future weather conditions approximate
historical averages, the Company expects its compound annual
growth in retail kilowatt-hour sales to be approximately 2% over
the next decade.


                              38


     On July 6, 1999, the Company established an all-time summer
peak demand of 5,927 megawatts.  This compares with the prior
all-time summer peak of 5,807 megawatts which occurred in June
1998.  Based on average weather conditions, the Company estimates
that its retail peak demand will grow at a compound annual rate
of approximately 2%, reflecting anticipated service area growth
trends.  The 1998-1999 winter season peak demand of 4,631
megawatts was 7.6% below the all-time winter peak demand of 5,010
megawatts which was established in January 1994.

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

     For additional information refer to Item 5. Other
Information - Conservation of the Company's March 31, 1999 Form
10-Q.

     On April 7, 1999, the Maryland Public Service Commission
approved the discontinuation of the Company's High Efficiency Air
Conditioner and Heat Pump Rebate Program.  Acceptance of
applications for rebate payments under this program was suspended
on July 15, 1999.  This action will further reduce the Company's
Maryland annual conservation expenditures.  On April 7, 1999, the
Maryland Commission approved a program whereby the Company would
reimburse the Maryland Weatherization Assistance Program for
installing conservation measures in the residences of low income
customers in the Company's Maryland service territory.
Reimbursements, limited to $500,000 annually, are scheduled to
begin on August 1, 1999.

     In September 1998, the Company received permission from the
Maryland Commission to decrease the DSM surcharge; the reduction
reflects a decline in the costs and scale of Maryland DSM
programs.  The Company invested approximately $1.1 million, $2.5
million and $7.9 million in Maryland DSM programs for the three,
six and twelve months ended June 30, 1999, respectively, and $4.9
million, $9.9 million and $21.2 million for corresponding periods
in 1998.

     On June 1, 1999, the Company submitted an application to the
District of Columbia Public Service Commission to revise the
conservation component of the Environmental Cost Recovery Rider
(ECRR) and requested that the Company's October 1998 application
be withdrawn.  In the June 1, 1999 application, the Company
proposed maintaining the conservation component of the ECRR at
its existing level until such time that all unrecovered DSM
expenditures are fully recovered.  Freezing the current rates
will permit the Company to recover its DSM expenditures somewhat
more quickly than if the rates were adjusted annually.  If the
Commission approves the Company's June 1999 proposal, all
residential DSM expenditures are expected to be fully recovered
by 2005 and all nonresidential expenditures by 2008.  A proposal


                              39


by the Company to eliminate DSM programs operated within the
District of Columbia was filed with the Commission in March 1998,
and as of June 30, 1999, a decision is pending.

     Investment in District of Columbia DSM programs totaled
approximately $.4 million, $.8 million, and $4.7 million for the
three, six and twelve months ended June 30, 1999, respectively,
and $.5 million, $1.3 million, and $4.3 million for the
corresponding periods in 1998.

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

     The Company incurred construction expenditures, excluding
AFUDC and CCRF, of $94.6 million for the six months ended June
30, 1999 ($52.9 million related to Generation).  These
expenditures are projected to total $865 million ($389 million
related to Generation) for the five-year period 1999 through
2003, which includes approximately $132 million of estimated
Clean Air Act (CAA) expenditures.  In 1999, construction
expenditures are projected to total $185 million ($79 million
related to Generation) which includes $22 million of estimated
CAA expenditures.  The Company plans to finance its construction
program primarily through funds provided by operations.

     The Company's present generation resource mix consists of
4,815 megawatts of steam generating capacity and 1,227 megawatts
from 31 combustion turbine units owned by the Company, including
166 megawatts of capacity from the Company's 9.72% undivided
interest in the Conemaugh Generating Station located in western
Pennsylvania.

     The Company has a purchase agreement with 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 continues to purchase 450 megawatts of capacity
and associated energy from FirstEnergy under a 1987 long-term
capacity purchase agreement with FirstEnergy and Allegheny
Energy, Inc. (AEI).  The Company also has a 25-year capacity
purchase agreement with Panda for 230 megawatts of capacity from
a gas-fueled combined-cycle cogenerator in Prince George's
County, Maryland.  In addition, the Company continues to purchase
capacity and associated energy from a 50-megawatt municipally
financed resource recovery facility in Montgomery County,
Maryland.  The capacity expense under these agreements, including
an allocation of a portion of FirstEnergy's fixed operating and
maintenance costs, was $54.2 million, $106.3 million, and $180.4
million for the three, six and twelve months ended June 30, 1999,


                              40


respectively, compared to $37.2 million, $75.8 million, and
$151.1 million for the three, six and twelve months ended June
30, 1998, respectively.

     The Company projects that existing contracts for nonutility
generation and the emerging wholesale market for generation
resources will provide adequate reserve margins to meet
customers' needs beyond the year 2000.

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

     In May 1999, the Company reorganized its nonregulated
subsidiaries into two operating groups.  As part of the
reorganization, a new unregulated company, PHI, was created as
the parent of PCI and PES.

     The principal assets of PHI are a portfolio of marketable
securities and equipment leases, and to a lesser extent real
estate and other investments.  The $227.1 million marketable
securities portfolio, consisting primarily of fixed rate utility
preferred stocks, provides PCI with significant liquidity and
flexibility to participate in additional investment
opportunities.  Nonutility subsidiary equity totaled $265.1
million at June 30, 1999; $243.4 million at December 31, 1998;
and $240.6 million at June 30, 1998, which includes $88.5
million, $65 million, and $62.4 million of retained earnings,
respectively.


                              41


<TABLE>
Pepco Holdings, Inc. and Subsidiaries
Consolidated Statements of Earnings:
-------------------------------------
<CAPTION>


                                               Three                     Six                    Twelve
                                            Months Ended             Months Ended            Months Ended
                                              June 30,                 June 30,                June 30,
                                         ------------------      ------------------      -------------------
                                          1999        1998         1999        1998        1999         1998
                                         ------      ------      ------      ------      -------      -------
                                                     (Millions of Dollars except Per Share Amounts)
<S>                                      <C>         <C>         <C>         <C>         <C>          <C>
Income
  Financial Investments                  $ 21.7      $ 31.5      $ 54.3      $ 63.1      $ 103.5      $ 109.0
  Energy Services                          27.9         4.2        50.3         6.6         71.6         13.0
  Utility Industry Services                 5.1         3.3         9.7         5.9         18.4         10.3
  Telecommunications Services              (2.3)       (1.7)       (6.1)       (2.3)       (15.2)        (2.3)
                                         ------      --------    --------    --------    -------      -------
                                           52.4        37.3       108.2        73.3        178.3        130.0
                                         ------      --------    --------    --------    -------      -------
Expenses
  Operating                                30.2         6.3        55.7        10.7         83.5         20.5
  Interest                                 11.8        13.8        24.6        29.2         51.6         61.6
  Administrative and General                7.8         4.9        16.1         8.1         26.0         15.0
  Depreciation                              5.5         5.6        11.2        12.7         22.6         29.1
  Income Tax (Benefit) Expense            (21.9)        0.6       (22.9)        0.1        (31.6)       (10.8)
                                         ------      --------    --------    --------    -------      -------
                                           33.4        31.2        84.7        60.8        152.1        115.4
                                         ------      --------    --------    --------    -------      -------
Net Earnings from
  Nonutility Subsidiary                  $ 19.0      $  6.1      $ 23.5      $ 12.5      $  26.2      $  14.6
                                         ======      ======      ======      ======      =======      =======

Per Share Contribution (Reduction) to
  Earnings of the Company
    PCI                                   $ .17       $ .05       $ .22       $ .10        $ .25        $ .13
    PES                                    (.01)          -        (.02)          -         (.03)        (.01)
                                          -----       -----       -----       -----        -----        -----
    PHI Consolidated                      $ .16       $ .05       $ .20       $ .10        $ .22        $ .12
                                          =====       =====       =====       =====        =====        =====






                                                            42
</TABLE>

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

<CAPTION>

                                             Three Months Ended               Twelve Months Ended
                                                  June 30,                         June 30,
                                         -------------------------       -----------------------------
                                          1999     1998   % Change         1999       1998    % Change
                                         ------   ------  --------       --------   --------  --------
  <S>                                    <C>      <C>         <C>        <C>        <C>           <C>
  Revenue from Sales
  ------------------
    of Electricity
    --------------
  (Millions of Dollars)

    Residential                          $136.2   $136.1       0.1       $  577.5   $  542.1       6.5
    General Service                       295.8    291.8       1.4        1,117.0    1,091.8       2.3
    Large Power Service <F1>                9.0      9.3      (3.2)          34.9       35.4      (1.4)
    Street Lighting                         3.2      2.8      14.3           13.4       13.2       1.5
    Rapid Transit                           7.7      7.4       4.1           30.1       29.5       2.0
    Wholesale                              29.2     29.5      (1.0)         127.6      123.4       3.4
                                         -------  ------                 --------   --------
      System                             $481.1   $476.9       0.9       $1,900.5   $1,835.4       3.5
                                         ======   ======                 ========   ========

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

    Residential                           1,494    1,492       0.1          6,877      6,644       3.5
    General Service                       3,890    3,862       0.7         15,750     15,377       2.4
    Large Power Service <F1>                163      172      (5.2)           675        701      (3.7)
    Street Lighting                          35       33       6.1            165        165         -
    Rapid Transit                           104      104         -            425        418       1.7
    Wholesale                               607      602       0.8          2,729      2,614       4.4
                                         ------   ------                 --------   --------
      System                              6,293    6,265       0.4         26,621     25,919       2.7
                                         ======   ======                 ========   ========

  Average System Revenue
  ----------------------
    per KWH (cents per KWH)                7.65     7.61       0.5           7.14       7.08       0.8
    -----------------------

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

    Summer                                    -        -                    5,735      5,807
    Winter                                    -        -                    4,631      4,076

  Net Generation
  --------------
  (Millions of KWH)                       4,946    5,034                   22,271     19,689

  Fuel Mix (% of Btu)
  -------------------
    Coal (%)                                 74       84                       81         88
    Oil (%)                                  20       13                       15          9
    Gas (%)                                   6        3                        4          3

  Fuel Cost per MBtu
  ------------------
    System Average                        $1.75    $1.75                    $1.69      $1.80

  Weather Data
  ------------
    Heating Degree Days                     288      290                    3,637      3,681
    20 Year Average                         338                             3,978
    Cooling Degree Hours                  2,149    2,500                    9,735      9,395
    20 Year Average                       2,632                            10,978

     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 June 30, 1999, the net generation capability, excluding
     short-term capacity transactions, was 6,806 MW.
</FN>


                                                     43
</TABLE>



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

         (a)  Exhibits

              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.







                              44


                           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)
                              Executive Vice President and
                                Chief Financial Officer


August 10, 1999
---------------
      DATE





                              45



<TABLE>
Exhibit 12    Statements Re. Computation of Ratios
----------    ------------------------------------

     The computations of the coverage of fixed charges before income taxes, and
the coverage of combined fixed charges and preferred dividends for the twelve
months ended June 30, 1999, 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    -----------------------------------------------
                                                    June 30,
                                                      1999       1998      1997      1996      1995      1994
                                                    --------   -------   -------   -------   -------   -------
                                                                       (Millions of Dollars)
<S>                                                   <C>       <C>       <C>       <C>       <C>       <C>

Net income                                            $228.0    $211.2    $164.7    $220.1    $218.8    $208.1
Taxes based on income                                  141.4     131.0      97.5     135.0     129.4     116.6
                                                    --------   -------   -------   -------   -------   -------

Income before taxes                                    369.4     342.2     262.2     355.1     348.2     324.7
                                                    --------   -------   -------   -------   -------   -------

Fixed charges:
  Interest charges                                     154.6     151.8     146.7     146.9     146.6     139.2
  Interest factor in rentals                            23.7      23.8      23.6      23.6      23.4       6.3
                                                    --------   -------   -------   -------   -------   -------

Total fixed charges                                    178.3     175.6     170.3     170.5     170.0     145.5
                                                    --------   -------   -------   -------   -------   -------

Income before income taxes and fixed charges          $547.7    $517.8    $432.5    $525.6    $518.2    $470.2
                                                    ========   =======   =======   =======   =======   =======

Coverage of fixed charges                               3.07      2.95      2.54      3.08      3.05      3.23
                                                        ====      ====      ====      ====      ====      ====


Preferred dividend requirements                         $8.0     $18.0     $16.5     $16.6     $16.9     $16.5
                                                    --------   -------   -------   -------   -------   -------


Ratio of pre-tax income to net income                   1.62      1.62      1.59      1.61      1.59      1.56
                                                    --------   -------   -------   -------   -------   -------

Preferred dividend factor                              $13.0     $29.2     $26.2     $26.7     $26.9     $25.7
                                                    --------   -------   -------   -------   -------   -------

Total fixed charges and preferred dividends           $191.3    $204.8    $196.5    $197.2    $196.9    $171.2
                                                    ========   =======   =======   =======   =======   =======
Coverage of combined fixed charges
  and preferred dividends                               2.86      2.53      2.20      2.66      2.63      2.75
                                                        ====      ====      ====      ====      ====      ====




                                                         46





</TABLE>


<TABLE>
Exhibit 12    Statements Re. Computation of Ratios
----------    ------------------------------------

     The computations of the coverage of fixed charges before income taxes, and
the coverage of combined fixed charges and preferred dividends for the twelve
months ended June 30, 1999, and for each of the preceding five years, on a
consolidated basis, are as follows.






<CAPTION>

                                                     Twelve
                                                     Months            For the Year Ended December 31,
                                                      Ended    -----------------------------------------------
                                                    June 30,
                                                      1999       1998      1997      1996      1995      1994
                                                    --------   -------   -------   -------   -------   -------
                                                                       (Millions of Dollars)
<S>                                                   <C>       <C>       <C>       <C>        <C>      <C>

Net income                                            $254.2    $226.3    $181.8    $237.0     $94.4    $227.2
Taxes based on income                                  109.8     122.3      65.6      80.4      43.7      94.0
                                                    --------   -------   -------   -------   -------   -------

Income before taxes                                    364.0     348.6     247.4     317.4     138.1     321.2
                                                    --------   -------   -------   -------   -------   -------

Fixed charges:
  Interest charges                                     206.9     208.6     216.1     231.1     238.7     224.5
  Interest factor in rentals                            23.9      24.0      23.7      23.9      26.7       9.9
                                                    --------   -------   -------   -------   -------   -------

Total fixed charges                                    230.8     232.6     239.8     255.0     265.4     234.4
                                                    --------   -------   -------   -------   -------   -------

Nonutility subsidiary capitalized interest              (0.7)     (0.6)     (0.5)     (0.7)     (0.5)     (0.5)
                                                    --------   -------   -------   -------   -------   -------

Income before income taxes and fixed charges          $594.1    $580.6    $486.7    $571.7    $403.0    $555.1
                                                    ========   =======   =======   =======   =======   =======

Coverage of fixed charges                               2.57      2.50      2.03      2.24      1.52      2.37
                                                        ====      ====      ====      ====      ====      ====


Preferred dividend requirements                         $8.0     $18.0     $16.5     $16.6     $16.9     $16.5
                                                    --------   -------   -------   -------   -------   -------


Ratio of pre-tax income to net income                   1.43      1.54      1.36      1.34      1.46      1.41
                                                    --------   -------   -------   -------   -------   -------

Preferred dividend factor                              $11.4     $27.7     $22.4     $22.2     $24.7     $23.3
                                                    --------   -------   -------   -------   -------   -------

Total fixed charges and preferred dividends           $242.2    $260.3    $262.2    $277.2    $290.1    $257.7
                                                    ========   =======   =======   =======   =======   =======
Coverage of combined fixed charges
  and preferred dividends                               2.45      2.23      1.86      2.06      1.39      2.15
                                                        ====      ====      ====      ====      ====      ====







                                                         47




</TABLE>




                                                    Exhibit 15




August 10, 1999






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 August 10, 1999, (issued pursuant
to the provisions of Statement on Auditing Standards No. 71) in
the Prospectuses constituting parts of the Registration
Statements on Forms S-8 (Numbers 33-36798, 33-53685, 33-54197,
333-56683 and 333-57221) filed on September 12, 1990, May 18,
1994, June 17, 1994, June 12, 1998 and June 19, 1998,
respectively, and on Forms S-3 (Numbers 33-58810, 33-61379 and
333-33495) filed on February 26, 1993, July 28, 1995 and August
13, 1997, respectively.  We are also aware of our
responsibilities under the Securities Act of 1933.

Very truly yours,



/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Washington, D.C.









                              48