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, 1997 
                                 -------------


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


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



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



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


                           (202) 872-2000
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      (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, 1997 
--------------------------     ----------------------------  
Common Stock, $1 par value               118,500,614
                        TABLE OF CONTENTS


PART I - Financial Information                               Page

  Item 1 - Consolidated Financial Statements
        
    Consolidated Statements of Earnings and Retained Income..  2 
    Consolidated Balance Sheets..............................  3
    Consolidated Statements of Cash Flows....................  4
    Notes to Consolidated Financial Statements
      (1) Summary of Significant Accounting Policies.........  5
      (2) Income Taxes....................................... 10 
      (3) Capitalization..................................... 13
      (4) Fair Value of Financial Instruments................ 15 
      (5) Marketable Securities.............................. 17 
      (6) Commitments and Contingencies...................... 18 
    Report of Independent Accountants on Review of Interim
      Financial Information.................................. 26
  
  Item 2 - Management's Discussion and Analysis of Consolidated
             Results of Operations and Financial Condition
    Utility
      Proposed Merger Update................................. 27
      Results of Operations.................................. 29 
      Capital Resources and Liquidity........................ 31 
      New Accounting Standards............................... 32
    Nonutility Subsidiary
      Results of Operations.................................. 32 
      Capital Resources and Liquidity........................ 35 

PART II - Other Information

  Item 1 - Legal Proceedings................................. 36
  Item 5 - Other Information
    Other Financing Arrangements............................. 36 
    Base Rate Proceedings.................................... 36 
    Restructuring of the Bulk Power Market................... 40
    Competition.............................................. 41
    Peak Load, Sales, Conservation, and Construction and
      Generating Capacity.................................... 43
    Selected Nonutility Subsidiary Financial Information..... 45
    Statistical Data......................................... 48
    Unaudited Pro Forma Combined Condensed Financial
      Information............................................ 49
  Item 6 - Exhibits and Reports on Form 8-K.................. 57
  Signatures................................................. 58
  Computations of Earnings Per Common Share.................. 59
  Computation of Ratios - Parent Company Only................ 60
  Computation of Ratios - Fully Consolidated................. 61
  Independent Accountants Awareness Letter................... 62


                              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,
                                                     --------------------    
--------------------     ----------------------
                                                        1997       1996        
 1997       1996           1997        1996
                                                     ---------  ---------    
---------  ---------     ---------- -----------
                                                                            
(Thousands of Dollars)
<S>                                                  <C>        <C>           <C> 
      <C>           <C>         <C>
Revenue
  Sales of electricity                               $ 437,924  $ 461,002     $
807,577  $ 843,578     $1,788,739  $1,857,355
  Other electric revenue                                 1,631      1,703      
  6,464      4,399         12,182       9,166
                                                     ---------  ---------    
---------  ---------     ----------  ----------
    Total Operating Revenue                            439,555    462,705      
814,041    847,977      1,800,921   1,866,521
  Interchange deliveries                                11,416     39,075      
 25,990     90,396        111,048     137,686
                                                     ---------  ---------    
---------  ---------     ----------  ----------
    Total Revenue                                      450,971    501,780      
840,031    938,373      1,911,969   2,004,207
                                                     ---------  ---------    
---------  ---------     ----------  ----------
Operating Expenses
  Fuel                                                  78,195     74,805      
156,702    167,518        316,976     369,801
  Purchased energy                                      44,376     79,195      
 95,450    160,497        270,932     266,059
  Capacity purchase payments                            36,781     32,583      
 72,725     64,861        133,649     126,085
  Other operation                                       53,296     56,263      
105,132    111,982        216,476     224,577
  Maintenance                                           23,907     21,267      
 45,080     42,694         93,910      91,680
                                                     ---------  ---------    
---------  ---------     ----------  ----------
    Total Operation and Maintenance                    236,555    264,113      
475,089    547,552      1,031,943   1,078,202
  Depreciation and amortization                         56,801     54,675      
114,401    110,076        227,340     219,474
  Income taxes                                          27,763     37,808      
 33,058     45,979        121,164     140,044
  Other taxes                                           49,232     49,841      
 94,641     95,396        199,611     201,433
                                                     ---------  ---------    
---------  ---------     ----------  ----------
    Total Operating Expenses                           370,351    406,437      
717,189    799,003      1,580,058   1,639,153
                                                     ---------  ---------    
---------  ---------     ----------  ----------
Operating Income                                        80,620     95,343      
122,842    139,370        331,911     365,054
                                                     ---------  ---------    
---------  ---------     ----------  ----------
Other Income
  Nonutility Subsidiary
    Income                                              28,665     31,783      
 68,472     49,096        134,342     117,038
    Loss on assets held for disposal                         -          -      
      -    (12,320)          (424)    (12,320)
    Expenses, including interest
      and income taxes                                 (27,209)   (22,736)     
(53,566)   (25,261)      (113,633)    (97,726)
                                                     ---------  ---------    
---------  ---------     ----------  ----------
      Net earnings from nonutility
        subsidiary                                       1,456      9,047      
 14,906     11,515         20,285       6,992
  Allowance for other funds used during
    construction and capital cost recovery factor        1,681      1,660      
  3,341      3,397          6,516       6,657
  Other, net                                             1,638      1,613      
  2,324      3,368          3,414       2,334
                                                     ---------  ---------    
---------  ---------     ----------  ----------
    Total Other Income                                   4,775     12,320      
 20,571     18,280         30,215      15,983
                                                     ---------  ---------    
---------  ---------     ----------  ----------
Income Before Utility Interest Charges                  85,395    107,663      
143,413    157,650        362,126     381,037
                                                     ---------  ---------    
---------  ---------     ----------  ----------
Utility Interest Charges
  Long-term debt                                        34,104     33,291      
 68,847     66,725        135,228     133,687
  Other                                                  3,406      4,102      
  5,505      7,889         11,448      14,382
  Allowance for borrowed funds used during
    construction and capital cost recovery factor       (2,239)    (1,983)     
 (4,045)    (3,951)        (7,630)     (9,220)
                                                     ---------  ---------    
---------  ---------     ----------  ----------
      Net Utility Interest Charges                      35,271     35,410      
 70,307     70,663        139,046     138,849
                                                     ---------  ---------    
---------  ---------     ----------  ----------
Net Income                                              50,124     72,253      
 73,106     86,987        223,080     242,188
Dividends on Preferred Stock                             4,137      4,137      
  8,282      8,297         16,590      16,673
                                                     ---------  ---------    
---------  ---------     ----------  ----------
Earnings for Common Stock                               45,987     68,116      
 64,824     78,690        206,490     225,515

Retained Income at Beginning of Period                 730,197    695,521      
760,285    742,296        711,726     689,475
Dividends on Common Stock                              (49,156)   (49,153)     
(98,304)   (98,305)      (196,610)   (196,610)
Subsidiary Marketable Securities Net
  Unrealized Gain (Loss), Net of Tax                     1,213     (2,758)     
  1,436    (10,955)         6,635      (6,654)
                                                     ---------  ---------    
---------  ---------     ----------  ----------
Retained Income at End of Period                     $ 728,241  $ 711,726     $
728,241  $ 711,726     $  728,241  $  711,726
                                                     =========  =========    
=========  =========     ==========  ==========
Average Common Shares
  Outstanding (000's)                                  118,500    118,496      
118,500    118,496        118,499     118,493
Earnings Per Common Share                                $0.39      $0.57      
  $0.55      $0.66          $1.74       $1.90
Cash Dividends Per Common Share                         $0.415     $0.415      
  $0.83      $0.83          $1.66       $1.66
Book Value Per Share                                                           
                           $15.67      $15.53
Dividend Payout Ratio                                                          
                             95.4%       87.4%
Effective Federal Income Tax Rate                                              
                             25.2%       22.1%


                                                               2
</TABLE>

<TABLE>
                                         POTOMAC ELECTRIC POWER COMPANY
                                           Consolidated Balance Sheets
                                      (Unaudited at June 30, 1997 and 1996)
                                   ------------------------------------------

<CAPTION>

                                                                   June 30,    
  December 31,        June 30,
                  ASSETS                                             1997      
      1996              1996
                  ------                                        -------------  
 -------------     -------------
                                                                            
(Thousands of Dollars)
<S>                                                             <C>            
 <C>               <C>
Property and Plant - at original cost
  Electric plant in service                                     $   6,299,044  
 $   6,232,049     $   6,141,899
  Construction work in progress                                        78,450  
        62,469            69,035
  Electric plant held for future use                                    4,190  
         4,152             4,115
  Nonoperating property                                                22,976  
        22,921            22,771
                                                                -------------  
 -------------     -------------
                                                                    6,404,660  
     6,321,591         6,237,820
  Accumulated depreciation                                         (1,961,519) 
    (1,898,342)       (1,829,828)
                                                                -------------  
 -------------     -------------
      Net Property and Plant                                        4,443,141  
     4,423,249         4,407,992
                                                                -------------  
 -------------     -------------
Current Assets
  Cash and cash equivalents                                             7,640  
         2,174             6,312
  Customer accounts receivable, less allowance
    for uncollectible accounts of $661, $1,298
    and $1,443                                                        164,006  
       128,600           163,924
  Other accounts receivable, less allowance for
    uncollectible accounts of $300                                     29,633  
        38,490            37,015
  Accrued unbilled revenue                                             94,973  
        70,214           121,915
  Prepaid taxes                                                           105  
        34,202             3,427
  Other prepaid expenses                                                6,892  
         4,613            11,535
  Material and supplies - at average cost
    Fuel                                                               63,834  
        68,232            80,254
    Construction and maintenance                                       67,931  
        69,541            69,852
                                                                -------------  
 -------------     -------------
      Total Current Assets                                            435,014  
       416,066           494,234
                                                                -------------  
 -------------     -------------
Deferred Charges
  Income taxes recoverable through future rates, net                  239,435  
       238,467           239,806
  Conservation costs, net                                             229,010  
       233,793           234,869
  Unamortized debt reacquisition costs                                 54,149  
        55,552            56,956
  Other                                                               171,758  
       159,139           118,899
                                                                -------------  
 -------------     -------------
      Total Deferred Charges                                          694,352  
       686,951           650,530
                                                                -------------  
 -------------     -------------
Nonutility Subsidiary Assets
  Cash and cash equivalents                                            19,111  
           804                 -
  Marketable securities                                               289,293  
       377,237           409,194
  Investment in finance leases                                        486,049  
       484,972           477,813
  Operating lease equipment, net of accumulated
    depreciation of $137,492, $117,705 and $99,257                    179,337  
       199,124           252,197
  Assets held for disposal                                              3,700  
        10,300            20,200
  Receivables, less allowance for uncollectible
    accounts of $6,000                                                 47,981  
        87,745            77,631
  Other investments                                                   186,906  
       193,002           187,201
  Other assets                                                         14,280  
        12,436            15,599
                                                                -------------  
 -------------     -------------
      Total Nonutility Subsidiary Assets                            1,226,657  
     1,365,620         1,439,835
                                                                -------------  
 -------------     -------------
      Total Assets                                              $   6,799,164  
 $   6,891,886     $   6,992,591
                                                                =============  
 =============     =============

CAPITALIZATION AND LIABILITIES
------------------------------
Capitalization
  Common stock                                                  $     118,501  
 $     118,500     $     118,497
  Other common equity                                               1,738,619  
     1,770,692         1,722,167
  Serial preferred stock                                              125,293  
       125,298           125,307
  Redeemable serial preferred stock                                   141,000  
       142,500           142,500
  Long-term debt                                                    1,727,065  
     1,767,598         1,718,361
                                                                -------------  
 -------------     -------------
      Total Capitalization                                          3,850,478  
     3,924,588         3,826,832
                                                                -------------  
 -------------     -------------
Other Non-Current Liabilities
  Capital lease obligations                                           161,702  
       162,936           164,113
                                                                -------------  
 -------------     -------------
      Total Other Non-Current Liabilities                             161,702  
       162,936           164,113
                                                                -------------  
 -------------     -------------
Current Liabilities
  Long-term debt and preferred stock
    redemption due within one year                                    100,985  
       152,445           100,985
  Short-term debt                                                     311,600  
       131,390           327,515
  Accounts payable and accrued expenses                               158,846  
       179,289           188,622
  Capital lease obligations due within one year                        20,772  
        20,772            20,772
  Other                                                                81,710  
        83,135            82,675
                                                                -------------  
 -------------     -------------
      Total Current Liabilities                                       673,913  
       567,031           720,569
                                                                -------------  
 -------------     -------------
Deferred Credits
  Income taxes                                                      1,001,460  
       973,642           907,032
  Investment tax credits                                               59,133  
        60,958            62,782
  Other                                                                40,561  
        35,658            37,026
                                                                -------------  
 -------------     -------------
      Total Deferred Credits                                        1,101,154  
     1,070,258         1,006,840
                                                                -------------  
 -------------     -------------
Nonutility Subsidiary Liabilities
  Long-term debt                                                      912,709  
       996,232           978,911
  Short-term notes payable                                                  -  
        51,650           159,330
  Deferred taxes and other                                             99,208  
       119,191           135,996
                                                                -------------  
 -------------     -------------
      Total Nonutility Subsidiary Liabilities                       1,011,917  
     1,167,073         1,274,237
                                                                -------------  
 -------------     -------------
      Total Capitalization and Liabilities                      $   6,799,164  
 $   6,891,886     $   6,992,591
                                                                =============  
 =============     =============
                                                     3


</TABLE>

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

<CAPTION>

                                                                        Six
Months Ended         Twelve Months Ended
                                                                            June
30,                  June 30,
                                                                    
-----------------------   -----------------------
                                                                       1997    
     1996        1997          1996
                                                                     --------- 
   ---------   ---------     ---------
                                                                               
   (Thousands of Dollars)
<S>                                                                  <C>       
   <C>         <C>           <C>
Operating Activities
  Income from utility operations                                     $  58,200 
   $  75,472   $ 202,795     $ 235,196
  Adjustments to reconcile income to net
    cash from operating activities:
    Depreciation and amortization                                      114,401 
     110,076     227,340       219,474
    Deferred income taxes and investment tax credits                    25,350 
      11,492      95,354        43,508
    Deferred conservation costs                                        (17,752) 
    (26,965)    (40,191)      (69,667)
    Allowance for funds used during construction
      and capital cost recovery factor                                  (7,386) 
     (7,348)    (14,146)      (15,877)
    Changes in materials and supplies                                    6,008 
     (16,406)     18,341        (8,995)
    Changes in accounts receivable and accrued unbilled revenue        (51,308) 
    (75,011)     34,242       (42,099)
    Changes in accounts payable                                        (20,405) 
     15,675     (22,456)       20,175
    Changes in other current assets and liabilities                     29,630 
      41,222      (5,734)        2,472
    Net other operating activities                                     (17,860) 
     (6,856)    (59,678)      (35,808)
  Nonutility subsidiary:
    Net earnings                                                        14,906 
      11,515      20,285         6,992
    Deferred income taxes                                              (25,612) 
    (36,287)    (25,723)      (15,282)
    Loss on assets held for disposal                                         - 
      12,320         424        12,320
    Changes in other assets and net other operating activities          33,866 
      34,483      35,641        63,746
                                                                     --------- 
   ---------   ---------     ---------
Net Cash From Operating Activities                                     142,038 
     143,382     466,494       416,155
                                                                     --------- 
   ---------   ---------     ---------

Investing Activities
  Total investment in property and plant                               (99,554) 
    (91,932)   (201,658)     (202,721)
  Allowance for funds used during construction
    and capital cost recovery factor                                     7,386 
       7,348      14,146        15,877
                                                                     --------- 
   ---------   ---------     ---------
    Net investment in property and plant                               (92,168) 
    (84,584)   (187,512)     (186,844)
  Nonutility subsidiary:
    Purchase of marketable securities                                  (23,133) 
    (11,252)    (31,561)      (35,152)
    Proceeds from sale or redemption of marketable securities          119,472 
     117,242     169,758       129,638
    Investment in leased equipment                                      (7,480) 
     (3,056)     (7,480)     (150,462)
    Proceeds from sale or disposition of leased equipment                    - 
       3,658           -         3,658
    Proceeds from assets held for disposal                               2,200 
      29,354       7,000        29,354
    Proceeds from sale of assets                                         2,700 
         285       2,415         6,251
    Purchase of other investments                                      (19,293) 
     (1,996)    (40,295)       (3,251)
    Proceeds from sale or distribution of other investments              5,559 
       1,604      37,822         2,319
    Investment in promissory notes                                         (12) 
     (4,388)        131        (8,922)
    Proceeds from promissory notes                                      52,992 
       7,643      62,024        12,079
                                                                     --------- 
   ---------   ---------     ---------
Net Cash From (Used by) Investing Activities                            40,837 
      54,510      12,302      (201,332)
                                                                     --------- 
   ---------   ---------     ---------

Financing Activities
  Dividends on common stock                                            (98,304) 
    (98,305)   (196,610)     (196,610)
  Dividends on preferred stock                                          (8,282) 
     (8,297)    (16,590)      (16,673)
  Redemption of preferred stock                                         (1,500) 
          -      (1,500)            -
  Issuance of long-term debt                                             8,090 
           -     107,590       172,754
  Reacquisition and retirement of long-term debt                      (101,460) 
    (26,300)   (101,480)     (126,217)
  Short-term debt, net                                                 180,210 
      69,050     (15,915)      (26,485)
  Other financing activities                                            (2,683) 
     (2,573)     (5,467)      (13,757)
  Nonutility subsidiary:
    Issuance of long-term debt                                               - 
      78,000     105,000       185,000
    Repayment of long-term debt                                        (83,523) 
   (146,573)   (174,052)     (244,142)
    Short-term debt, net                                               (51,650) 
    (64,020)   (159,333)       23,330
                                                                     --------- 
   ---------   ---------     ---------
Net Cash Used By Financing Activities                                 (159,102) 
   (199,018)   (458,357)     (242,800)
                                                                     --------- 
   ---------   ---------     ---------
Net Increase (Decrease) in Cash and Cash Equivalents                    23,773 
      (1,126)     20,439       (27,977)
Cash and Cash Equivalents at Beginning of Period                         2,978 
       7,438       6,312        34,289
                                                                     --------- 
   ---------   ---------     ---------
Cash and Cash Equivalents at End of Period                           $  26,751 
   $   6,312   $  26,751     $   6,312
                                                                     ========= 
   =========   =========     =========

Cash paid for interest (net of capitalized interest) and income taxes:
  Interest (including nonutility subsidiary
    interest of $37,275, $43,682, $76,982 and $96,982)               $ 103,712 
   $ 111,887   $ 208,791     $ 230,954
  Income taxes                                                       $   1,826 
   $   2,559   $  27,750     $  44,594

                                                          4


</TABLE>


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

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

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

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

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


                              5


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

     A description of significant accounting policies follows.

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

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

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

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

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

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

                              6

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

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

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

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

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

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

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


                              7

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

     In general, the Company accounts for conservation
expenditures in connection with its DSM program as a deferred
charge, and amortizes the costs over five years in Maryland and
ten years in the District of Columbia.  At June 30, 1997,
unamortized conservation costs totaled $90.3 million in Maryland
and $138.7 million in the District of Columbia.  

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

     In general, the Company capitalizes AFUDC with respect to
investments in Construction Work in Progress with the exception
of expenditures required to comply with federal, state or local
environmental regulations (pollution control projects), which are
included in rate base without capitalization of AFUDC.  The
jurisdictional AFUDC capitalization rates are determined as
prescribed by the FERC.  The effective capitalization rates were
approximately 7.5%, compounded semiannually, for the six months
ended June 30, 1997, and approximately 7.4% in 1996 and 7.9% in
1995, compounded semiannually.

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


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

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



                              8

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

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

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

     On June 30, 1997, the Financial Accounting Standards Board
issued Statements of Financial Accounting Standards Nos. 130 and
131 entitled "Reporting Comprehensive Income" and "Disclosures
about Segments of an Enterprise and Related Information",
respectively.  Both of these statements will become effective for
calendar year 1998 financial statements.  The Company is
evaluating these statements to determine the impact on its
reporting and disclosure requirements.

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

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


                              9

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


<CAPTION>

                                                         Three Months Ended    
     Six Months Ended         Twelve Months Ended  
                                                              June 30,         
        June 30,                   June 30, 
                                                        ---------------------- 
  -----------------------    ----------------------
                                                           1997         1996   
     1997         1996          1997         1996
                                                        ----------   --------- 
  ---------    ---------     ---------    ---------
                                                                               
  (Thousands of Dollars)
<S>                                                     <C>          <C>       
  <C>          <C>           <C>          <C>
Utility current tax expense
  Federal                                               $   13,125   $  23,234 
  $   6,683    $  31,753     $  22,166    $  87,294
  State and local                                            1,802       3,569 
        952        4,346         2,886       12,090
                                                        ----------   --------- 
  ---------    ---------     ---------    ---------
Total utility current tax expense                           14,927      26,803 
      7,635       36,099        25,052       99,384
                                                        ----------   --------- 
  ---------    ---------     ---------    ---------
Utility deferred tax expense
  Federal                                                   12,123      11,208 
     23,525       11,487        86,799       41,391
  State and local                                            1,866       1,202 
      3,650        1,830        12,204        5,767
  Investment tax credits                                      (912)       (913) 
    (1,825)      (1,825)       (3,649)      (3,650)
                                                        ----------   --------- 
  ---------    ---------     ---------    ---------
Total utility deferred tax expense                          13,077      11,497 
     25,350       11,492        95,354       43,508
                                                        ----------   --------- 
  ---------    ---------     ---------    ---------

Total utility income tax expense                            28,004      38,300 
     32,985       47,591       120,406      142,892
                                                        ----------   --------- 
  ---------    ---------     ---------    ---------

Nonutility subsidiary current tax expense
  Federal                                                   (4,055)     (5,005) 
     3,151       (9,039)       (6,062)     (36,691)
                                                        ----------   --------- 
  ---------    ---------     ---------    ---------

Nonutility subsidiary deferred tax expense
  Federal                                                   (3,880)     (1,561) 
   (24,068)     (36,289)      (24,152)     (19,744)
                                                        ----------   --------- 
  ---------    ---------     ---------    ---------

Total nonutility subsidiary income tax credit               (7,935)     (6,566) 
   (20,917)     (45,328)      (30,214)     (56,435)
                                                        ----------   --------- 
  ---------    ---------     ---------    ---------

Total consolidated income tax expense                       20,069      31,734 
     12,068        2,263        90,192       86,457
Income taxes included in other income                       (7,694)     (6,074) 
   (20,990)     (43,716)      (30,972)     (53,587)
                                                        ----------   --------- 
  ---------    ---------     ---------    ---------
Income taxes included in utility operating expenses     $   27,763   $  37,808 
  $  33,058    $  45,979     $ 121,164    $ 140,044
                                                        ==========   ========= 
  =========    =========     =========    =========


                                                                10


</TABLE>

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


<CAPTION>

                                                         Three Months Ended    
     Six Months Ended         Twelve Months Ended
                                                              June 30,         
         June 30,                   June 30,
                                                        ---------------------- 
  -----------------------    ----------------------
                                                           1997         1996   
     1997         1996          1997         1996
                                                        ----------    -------- 
  ---------    ---------     ---------    ---------
                                                                               
  (Thousands of Dollars)
<S>                                                     <C>          <C>       
  <C>          <C>           <C>          <C>
Income before income taxes                              $   70,193   $ 103,987 
  $  85,174    $  89,250     $ 313,272    $ 328,645
                                                        ==========   ========= 
  =========    =========     =========    =========

Utility income tax at federal 
  statutory rate                                        $   26,836      35,527 
  $  31,915    $  43,072     $ 113,120    $ 132,331
    Increases (decreases) resulting from
      Depreciation                                           2,522       2,543 
      5,044        5,085         9,826        9,761
      Removal costs                                         (1,794)     (1,170) 
    (3,186)      (1,478)       (5,282)      (5,783)
      Allowance for funds used during 
        construction                                           160         146 
        365          280           776          548
      Other                                                 (1,192)       (934) 
    (2,319)      (1,475)       (3,961)      (1,449)
      State income taxes, net of federal effect              2,384       3,101 
      2,991        3,932         9,808       11,524
      Tax credits                                             (912)       (913) 
    (1,825)      (1,825)       (3,881)      (4,040)
                                                        ----------   --------- 
  ---------    ---------     ---------    ---------
Total utility income tax expense                            28,004      38,300 
     32,985       47,591       120,406      142,892
                                                        ----------   --------- 
  ---------    ---------     ---------    ---------

Nonutility subsidiary income tax at federal
  statutory rate                                            (2,268)        868 
     (2,104)     (11,835)       (3,475)     (17,305)
    Increases (decreases) resulting from
      Dividends received deduction                          (1,196)     (4,408) 
    (2,718)      (6,044)       (3,788)     (10,255)
      Reversal of previously accrued deferred taxes              -      (5,193) 
   (10,125)     (28,699)      (12,230)     (28,699)
      Other                                                 (4,471)      2,167 
     (5,970)       1,250       (10,721)        (176)
                                                        ----------   --------- 
  ---------    ---------     ---------    ---------
Total nonutility subsidiary income tax credit               (7,935)     (6,566) 
   (20,917)     (45,328)      (30,214)     (56,435)
                                                        ----------   --------- 
  ---------    ---------     ---------    ---------

Total consolidated income tax expense                       20,069      31,734 
     12,068        2,263        90,192       86,457
Income taxes included in other income                       (7,694)     (6,074) 
   (20,990)     (43,716)      (30,972)     (53,587)
                                                        ----------   --------- 
  ---------    ---------     ---------    ---------
Income taxes included in utility operating expenses     $   27,763   $  37,808 
  $  33,058    $  45,979     $ 121,164    $ 140,044
                                                        ==========   ========= 
  =========    =========     =========    =========


                                                                11


</TABLE>

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


<CAPTION>


                                                         June 30,     Dec. 31, 
   June 30,
                                                           1997         1996   
     1996
                                                        ----------   ---------- 
 ----------
                                                             (Thousands of
Dollars)
<S>                                                     <C>          <C>       
  <C>
Utility deferred tax liabilities (assets)
  Depreciation and other book to tax
    basis differences                                   $  845,159   $ 821,656 
  $ 794,312
  Rapid amortization of certified pollution
    control facilities                                      24,036      24,816 
     26,068
  Deferred taxes on amounts to be collected 
    through future rates                                    90,650      90,284 
     90,790
  Property taxes                                            13,094      12,664 
     12,132
  Deferred fuel                                            (14,964)    (14,663) 
   (12,954)
  Prepayment premium on debt retirement                     20,493      21,025 
     21,543
  Deferred investment tax credit                           (22,388)    (23,079) 
   (23,769)
  Contributions in aid of construction                     (29,176)    (28,719) 
   (27,551)
  Contributions to pension plan                             16,170      16,170 
     11,803
  Conservation costs (demand side management)               45,764      41,106 
          -
  Other                                                     22,218      21,653 
     20,050
                                                        ----------   --------- 
  --------
Total utility deferred tax liabilities (net)             1,011,056     982,913 
    912,424
Current portion of utility deferred tax liabilities
  (included in Other Current Liabilities)                    9,596       9,271 
      5,392
                                                        ----------   --------- 
  ---------
Total utility deferred tax liabilities
  (net) - non-current                                   $1,001,460   $ 973,642 
  $ 907,032
                                                        ==========   ========= 
  =========

Nonutility subsidiary deferred tax liabilities (assets)
  Finance leases                                        $  140,216   $ 144,667 
  $ 161,744
  Operating leases                                          39,861      57,006 
     31,682
  Alternative minimum tax                                  (97,109)    (97,109) 
   (88,664)
  Other                                                    (46,739)    (43,496) 
   (43,987)
                                                        ----------   --------- 
  ---------
Total nonutility subsidiary deferred tax liabilities 
  (net), (included in Deferred taxes and other)         $   36,229   $  61,068 
  $  60,775
                                                        ==========   ========= 
  =========


                                                12
</TABLE>


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

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

     At June 30, 1997, 118,500,614 shares of the Company's $1 par
value Common Stock were outstanding.  A total of 200 million
shares is authorized.  As of June 30, 1997, 2,324,721 shares were
reserved for issuance under the Shareholder Dividend Reinvestment
Plan; 1,221,624 shares were reserved for issuance under the
Employee Savings Plans; and 2,769,412 and 3,392,500 shares were
reserved for conversion of the 7% and 5% Convertible Debentures,
respectively.  Under the Stock Option Agreement with Baltimore
Gas and Electric Company, 23,579,900 shares could become
issuable, contingent upon specific events associated with
termination of the Merger Agreement.  (See Note 6 - Commitments
and Contingencies for additional information.)

Serial Preferred, Redeemable Serial Preferred and Preference 
------------------------------------------------------------
   Stock and Long-Term Debt
   ------------------------
 
     At June 30, 1997, the Company had outstanding 5,345,547
shares of its $50 par value Serial Preferred Stock, including the
Redeemable Serial Preferred Stock.  A total of 11,125,649 shares
is authorized.  At June 30, 1997, the aggregate annual dividend
requirements on the Serial Preferred Stock and the Redeemable
Serial Preferred Stock were approximately $6.6 million and $10.1
million, respectively.  Also, the Company has a total of
8,800,000 shares of cumulative, $25 par value, Preference Stock
authorized and unissued.

     The Company's $2.44 Convertible Preferred Stock, 1966 Series
(5,851 shares outstanding at June 30, 1997) is convertible into
Common Stock at $8.51 per share.

     At June 30, 1997, the Company had outstanding one million
shares of its Serial Preferred Stock, Auction Series A.  The
annual dividend rate is 4.5% ($2.25) for the period June 1, 1997,
through August 31, 1997.  For the period March 1, 1997, through
May 31, 1997, the annual dividend rate was 3.92% ($1.96).  The
average rate at which dividends were paid during the twelve
months ended June 30, 1997, was 4.14% ($2.07).

     At June 30, 1997, the Company had outstanding three series
of $50 par value Redeemable Serial Preferred Stock.  There are
one million shares of the $3.89 (7.78%) Series of 1991 on which
the sinking fund requirement commences June 1, 2001; one million
shares of the $3.40 (6.80%) Series of 1992 on which the sinking
fund requirement commences September 1, 2002; and 839,696 shares
of the $3.37 (6.74%) Series of 1987 on which the sinking fund 

                              13

requires redemption, beginning June 1993, at par, of not less
than 30,000 nor more than 60,000 shares annually.  Sinking fund
requirements through 2001 with respect to the three series of
Redeemable Serial Preferred Stock are $1 million in 1998, $1.5
million in 1999 through 2000 and $9.8 million in 2001.

     The Company's Long-Term Debt at June 30, 1997, is summarized
below:

                                           (Thousands of Dollars)
               
          First Mortgage Bonds                    $1,341,800 
          Convertible Debentures                     178,907
          Notes Payable                              333,090 
          Net Unamortized Discount                   (26,732)
          Current Portion                           (100,000)  
                                                  ----------
          Net Utility Long-Term Debt              $1,727,065  
                                                  ==========

          Nonutility Subsidiary Long-Term Debt    $  912,709    
                                                  ========== 

     At June 30, 1997, the aggregate annual interest requirement
on the Company's long-term debt, including debt due within one
year, was $126.5 million; and the aggregate amounts of long-term
debt maturities are $50 million in 1997, $50 million in 1998, $45
million in 1999, $100 million in 2000 and $165 million in 2001. 
At June 30, 1997, long-term debt due within one year consisted of
$50 million of 9.08% Medium-Term Notes and $50 million of 4-3/8%
First Mortgage Bonds.

     On May 26 and May 28, 1997, the Company redeemed, at
maturity, $100 million of 6.66% - 6.73% Medium-Term Notes.

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

     Long-term debt at June 30, 1997, consisted primarily of
unsecured borrowings from institutional lenders maturing at
various dates between 1997 and 2003.  The interest rates of such
borrowings ranged from 5% to 10.1%.  The weighted average
effective interest rate was 7.44% at June 30, 1997, 7.44% at
December 31, 1996, and 7.29% at June 30, 1996.  Annual aggregate
principal repayments on these borrowings are $114 million in
1997, $300.7 million in 1998, $170 million in 1999, $115 million
in 2000, $54 million in 2001 and $98.5 million thereafter.  Also
included in long-term debt is $60.5 million of non-recourse debt
which is due in monthly installments with final maturities in
1999, 2001, 2002 and 2011. 


                              14   

<TABLE>
(4) FAIR VALUE OF FINANCIAL INSTRUMENTS
---------------------------------------

The estimated fair values of the Company's financial instruments at 
June 30, 1997, December 31, 1996, and June 30, 1996, are shown below.

<CAPTION>


                                         June 30,                    December 31, 
                  June 30,
                                           1997                          1996  
                       1996
                                --------------------------    
-------------------------     -------------------------
                                  Carrying        Fair          Carrying       
Fair          Carrying        Fair
                                   Amount         Value          Amount        
Value          Amount         Value
                                -----------     ----------     ----------    
----------     ----------     ----------
                                                                (Thousands of
Dollars)
<S>                             <C>             <C>            <C>            <C> 
          <C>            <C>
Utility
  Capitalization and Liabilities
    Serial preferred stock      $  125,293        119,468        125,298       
113,285        125,307        110,157
                                ==========      =========      =========     
=========      =========      =========
    Redeemable serial
      preferred stock           $  141,000        142,901        142,500       
146,491        142,500        143,496
                                ==========      =========      =========     
=========      =========      =========
    Long-term debt
      First mortgage bonds      $1,277,803      1,262,424      1,327,389     
1,319,976      1,326,975      1,291,083
      Medium-term notes         $  281,050        278,457        272,788       
274,242        223,152        216,888
      Convertible debentures    $  168,212        171,368        167,421       
171,880        168,234        170,092
                                ----------      ---------      ---------     
---------      ---------      ---------
        Total long-term debt    $1,727,065      1,712,249      1,767,598     
1,766,098      1,718,361      1,678,063
                                ==========      =========      =========     
=========      =========      =========
Nonutility Subsidiary
  Assets
    Marketable securities       $  289,293        289,293        377,237       
377,237        409,194        409,194
                                ==========      =========      =========     
=========      =========      =========
    Notes receivable            $   34,253         29,734         72,251       
 71,593         64,298         62,168
                                ==========      =========      =========     
=========      =========      =========
  Liabilities
    Long-term debt              $  912,709        916,229        996,232     
1,011,814        978,911        993,426
                                ==========      =========      =========     
=========      =========      =========


                                                       15

</TABLE>


     The methods and assumptions below were used to estimate, at
June 30, 1997, December 31, 1996, and June 30, 1996, the fair
value of each class of financial instruments shown above for
which it is practicable to estimate that value.

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

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

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

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

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

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


                              16

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

     PCI's marketable securities are classified as available-for-
sale for financial reporting purposes.  Investment grade
preferred stocks with mandatory redemption features made up 86%
of the portfolio at June 30, 1997.  Net unrealized gains or
losses on such securities are reflected, net of tax, in
stockholders' equity.  The net unrealized gains (losses) are
shown below:

                                 As of June 30, 1997            
                        -------------------------------------
                                                     Net 
                                       Market     Unrealized
                           Cost        Value         Gain    
                        ---------    ---------    -----------
                                 (Thousands of Dollars)
Mandatory redeemable
  preferred stock       $ 285,443    $ 289,293     $   3,850
                        =========    =========     =========
 

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


                                As of June 30, 1996 
                        -------------------------------------
                                                      Net 
                                       Market      Unrealized
                           Cost        Value          Loss
                        ---------    ---------    -----------
                                 (Thousands of Dollars)
Mandatory redeemable
  preferred stock       $ 415,550    $ 409,194     $  (6,356)
Equity securities               3            -            (3) 
                        ---------    ---------     ---------
  Total                 $ 415,553    $ 409,194     $  (6,359)
                        ==========   =========     =========


                              17

     Included in net unrealized gains and losses are gross
unrealized gains of $9 million and gross unrealized losses of
$5.1 million at June 30, 1997; gross unrealized gains of $9.9
million and gross unrealized losses of $8.3 million at
December 31, 1996; and gross unrealized gains of $6.1 million and
gross unrealized losses of $12.5 million at June 30, 1996. 

     At June 30, 1997, the contractual maturities for mandatory
redeemable preferred stock are $4.8 million within one year,
$90.6 million from one to five years, $88.2 million from five to
10 years and $101.8 million for over 10 years. 

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

                 Three Months      Six Months     Twelve Months
                    Ended            Ended            Ended
                   June 30,         June 30,         June 30,  
                --------------   --------------   --------------
                 1997    1996     1997    1996     1997    1996
                ------  ------   ------  ------   ------  ------
                            (Thousands of Dollars)

Gross realized
  gains         $  928  $  244   $6,812  $2,505   $8,973  $2,911
Gross realized
  losses             -    (121)    (623)   (792)    (882)   (956)
                ------  ------   ------  ------   ------  ------
  Net gain      $  928  $  123   $6,189  $1,713   $8,091  $1,955
                ======  ======   ======  ======   ======  ====== 


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

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

     The Company entered into an Agreement and Plan of Merger
with Baltimore Gas and Electric Company (BGE) in September 1995. 
This Agreement provides for a strategic business combination in
which each company will merge into Constellation Energy
Corporation (Constellation Energy), a newly formed company, to
create an integrated, non-holding company structure (the Merger). 
Each outstanding share of the Company's common stock will be
converted into the right to receive .997 of a share of common
stock of Constellation Energy and each outstanding share of BGE
common stock will be converted into the right to receive one
share of Constellation Energy's common stock.  This transaction
is expected to qualify as a tax-free exchange of shares for the
holders of each company's common stock and as a pooling of
interests for accounting purposes.  Constellation Energy will 


                              18

serve a population of approximately 4.5 million with 
approximately 1.8 million electric customers and over 557,000
natural gas customers.  Preliminary estimates indicate that
savings from the combined utility systems will approximate $1.3
billion over 10 years following the Merger.  These savings are
net of costs to achieve, which are presently estimated to be
approximately $150 million.  Approximately two-thirds of the
projected savings are expected to result from reduced labor
costs, with the remaining savings split between nonfuel
purchasing and corporate and administrative programs.  The
allocation of the net savings between customers and shareholders
of Constellation Energy will be determined in regulatory
proceedings.  The applications for approval of the Merger, filed
with the various regulatory commissions, set forth the proposed
plans for Constellation Energy to share the benefits of the
Merger with customers in the District of Columbia and Maryland. 
The proposal included:  1) a freeze on base electric rates until
at least January 1, 2000, 2) a unique bill credit for all
customers if Constellation Energy achieves certain financial
targets, 3) an array of economic development incentives, and 4)
programs to address the energy needs of low-income customers. 
The development of estimated savings resulting from the Merger
was based upon assumptions which involve judgments with respect
to, among other things, future national and regional economic and
competitive conditions, inflation rates, regulatory treatment,
weather conditions, financial market conditions, interest rates,
future business decisions and other uncertainties, all of which
are difficult to predict and many of which are beyond the control
of the Company and BGE.  Accordingly, while the Company believes
that such assumptions are reasonable for purposes of the
development of estimates of potential savings, there can be no
assurance that such assumptions will approximate actual
experience or that all such savings will be realized.  If the
Merger is not completed, a substantial portion of Merger related
costs would be written off as a charge against the Company's
results of operations.  At June 30, 1997, the Company had
deferred $37.1 million in costs related to the Merger.  

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

     The District of Columbia Commission conducted hearings on
the proposed Merger in February and March 1997.  The case was
placed before the District of Columbia Commission for decision in
March 1997.  

     On April 16, 1997, FERC announced its finding that the
proposed Merger would be in the public interest and approved the
transaction without conditions.  FERC held that the Merger would  

                            19


not adversely affect competition in the long- or short-term
wholesale capacity markets.  In addition, FERC indicated that
evaluation of the effect of the Merger on retail markets would be
left to the Maryland and District of Columbia Public Service
Commissions.

     Also on April 16, 1997, the Maryland Public Service
Commission unanimously approved the proposed Merger and ordered
Constellation Energy to reduce rates by $56 million ($44 million
for BGE and $12 million for PEPCO), beginning on the effective
date of the Merger, with base rates to be frozen for three years
thereafter.  The reductions are premised on an 11.4% return on
equity (ROE).  In addition, the Commission ordered that 50% of
earnings above an 11.4% ROE be used to further reduce customer
rates.  The Company and BGE believe that the Maryland Order
contains elements that must be revised for the Merger to take
place.  The two companies proposed a regulatory plan designed to
share Merger benefits equitably between shareholders and
customers.  In addition to ordering the rate decrease, the Order
also denies the two companies the opportunity to recover the full
costs for purchased power contracts previously approved by the
Commission.  The Maryland Order would put in place a plan that
would eliminate any reasonable opportunity for shareholders to
share in the benefits.  

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

     On May 1, 1997, the International Brotherhood of Electrical
Workers (IBEW) Local 1900 filed an appeal of the Maryland
Commission's decision with the Circuit Court of Baltimore County. 
In view of the Commission's conclusion that, under Maryland law,
the IBEW's appeal divested it of authority to consider the
Application for Rehearing, the joint applicants filed a motion
requesting the Circuit Court to remand the case to the 


                              20


Commission.  On July 8, 1997, the Circuit Court of Baltimore
County decided to hold its ruling on the motion for remand until
July 28, 1997 while the Maryland Commission corrected a
computational error contained in its April 16, 1997 Order.  On
July 14, 1997, the Company's and BGE's Chief Executive Officers
filed sworn affidavits in the Court stating that the Merger
cannot proceed unless other aspects of the Commission's Order
were modified.  The affidavits stated that even if adjusted for
the computational error, the original order does not provide an
adequate financial basis upon which the companies could proceed
to consummate the Merger.  On July 28, 1997, the Circuit Court
accepted the correction of the computational error, denied the
motion for rehearing and established a procedural schedule for
consideration of the IBEW's appeal, which culminates in a hearing
on October 20, 1997.

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

     The waiting period under the Hart-Scott-Rodino Antitrust
Improvements Act was terminated on January 29, 1997.  If the
Merger is not completed by January 28, 1998, a new Hart-Scott-
Rodino filing would be required.  The Nuclear Regulatory
Commission has approved the transfer of BGE's ownership interest
in the operating licenses for the two generating units at the
Calvert Cliffs Nuclear Power Plant to Constellation Energy at the
effective time of the Merger.  In addition, the Merger has been
approved by the State Corporation Commission of Virginia and the
Pennsylvania Public Utility Commission.  

     If the Merger Agreement is terminated by either the Company
or BGE due to a material breach by the other party, the breaching
party must pay the non-breaching party, as liquidated damages,
$10 million in cash in respect of out-of-pocket expenses.  The
Merger Agreement also requires payment of a termination fee of
$75 million in cash, plus $10 million in cash in respect of out-
of-pocket expenses, by one party to the other if the Merger
Agreement is terminated under certain circumstances including, if
either the Company or BGE terminates the Merger Agreement after
the Board of Directors of the other party withdraws or adversely
modifies its recommendation of the transaction.  The termination
fees payable by the Company under these provisions and the
aggregate amount which could be payable by the Company upon a
required repurchase of an option (or shares of common stock
issued pursuant to the exercise of the option) granted by the
Company to BGE in connection with entry into the Merger Agreement
may not exceed $125 million in the aggregate.

                              21

     The Company has approved, in conjunction with the Merger
with BGE, a severance plan for all exempt and non-bargaining unit
employees who are not offered a position in Constellation Energy. 
Such employees will receive two weeks of pay per year of service,
with a minimum payment of eight weeks of pay.  In addition,
employees will receive company-sponsored health and dental
insurance for two weeks per year of service, with a minimum of
eight weeks of insurance coverage; employees will also not be
obligated to reimburse the Company for tuition payments made by
the Company on their behalf within two years of termination.

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

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

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

     As discussed in the March 31, 1997 Form 10-Q, the Company
received notice in December 1995 from the U.S. Environmental
Protection Agency (EPA) that it is a Potentially Responsible
Party (PRP) under the Comprehensive Environmental Response
Compensation and Liability Act (CERCLA or Superfund) with respect
to the release or threatened release of radioactive and mixed
radioactive and hazardous wastes at a site in Denver, Colorado,
operated by RAMP Industries, Inc.  Evidence indicates that the
Company's connection to the site arises from an agreement with a
vendor to package, transport and dispose of two laboratory
instruments containing small amounts of radioactive material at a
Nevada facility.  While the Company cannot predict its liability
at this site, the Company believes that it will not have a
material adverse effect on its financial position or results of
operations.

     As discussed in the March 31, 1997 Form 10-Q, the Company
received notice from the EPA in October 1995 that it, along with
several hundred other companies, may be a PRP in connection with
the Spectron Superfund Site located in Elkton, Maryland.  The
site was operated as a hazardous waste disposal, recycling, and
processing facility from 1961 to 1988.  A group of PRPs allege,
based on records they have collected, that the Company's share of 


                             22


liability at this site is .0042%.  The EPA has also indicated
that a de minimis settlement is likely to be appropriate for this
site.  While the outcome of negotiations and the ultimate
liability with respect to this site cannot be predicted, the
Company believes that its liability at this site will not have a
material adverse effect on its financial position or results of
operations.

     As also discussed in the March 31, 1997 Form 10-Q, a
Remedial Investigation/Feasibility Study (RI/FS) report was
submitted to the EPA in October 1994, with respect to a site in
Philadelphia, Pennsylvania.  Pursuant to an agreement among the
PRPs, the Company is responsible for 12% of the costs of the
RI/FS.  Total costs of the RI/FS and associated activities prior
to the issuance of a Record of Decision (ROD) by  the EPA,
including legal fees, are currently estimated to be $7.5 million. 
The Company has paid $.9 million as of June 30, 1997.  The report
included a number of possible remedies, the estimated costs of
which range from $2 million to $90 million.  In July 1995, the
EPA announced its proposed remedial action plan for the site and
indicated it will accept comments on the plan from any interested
parties.  The EPA's estimate of the costs associated with
implementation of the plan is approximately $17 million.  The
Company cannot predict whether the EPA will include the plan in
its ROD as proposed or make changes as a result of comments
received.  In addition, the Company cannot estimate the total
extent of the EPA's administrative and oversight costs.  To date,
the Company has accrued $1.7 million for its share of this
contingency.  

     As also discussed in the March 31, 1997 Form 10-Q, during
1993 the Company was served with Amended Complaints filed in
three jurisdictions (Prince George's County, Baltimore City and
Baltimore County), in separate ongoing, consolidated proceedings
each denominated "In re:  Personal Injury Asbestos Case."  The
Company (and other defendants) were brought into these cases on a
theory of premises liability under which plaintiffs argue that
the Company was negligent in not providing a safe work
environment for employees of its contractors who allegedly were
exposed to asbestos while working on the Company's property. 
Initially, a total of approximately 448 individual plaintiffs
added the Company to their Complaints.  While the pleadings are
not entirely clear, it appears that each plaintiff seeks $2
million in compensatory damages and $4 million in punitive
damages from each defendant.  

     In a related proceeding in the Baltimore City case, the
Company was served, in September 1993, with a third party
complaint by Owens Corning Fiberglass, Inc. (Owens Corning)
alleging that Owens Corning was in the process of settling
approximately 700 individual asbestos-related cases and seeking a
judgment for contribution against the Company on the same theory
of alleged negligence set forth above in the plaintiffs' case.  


                              23


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

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

                              24    

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

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

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

     This Quarterly Report on Form 10-Q, including the report of
Price Waterhouse LLP (on page 26) will automatically be
incorporated by reference in the Prospectuses constituting part
of the Company's Registration Statements on Form S-3
(Registration Nos. 33-58810 and 33-61379) and Form S-8
(Registration Nos. 33-36798, 33-53685 and 33-54197), in the Joint
Proxy Statement/Prospectus constituting part of the Registration
Statement on Form S-4 (Registration No. 33-64799) of
Constellation Energy Corporation and in the Prospectuses
constituting parts of the Registration Statements on Form S-3
(Registration Nos. 333-24705 and 333-24855) of Constellation
Energy Corporation filed under the Securities Act of 1933.  Such
report of Price Waterhouse LLP, however, is not a "report" or
"part of the Registration Statement" within the meaning of
Sections 7 and 11 of the Securities Act of 1933 and the liability
provisions of Section 11(a) of such Act do not apply.


                              25


REPORT OF INDEPENDENT ACCOUNTANTS 



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

We have reviewed the accompanying consolidated balance sheets of
Potomac Electric Power Company and consolidated subsidiaries (the
Company) at June 30, 1997 and 1996, 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, 1996, and the related consolidated statement of earnings and
consolidated statement of cash flows for the year then ended (not
presented herein); and in our report dated January 17, 1997, we
expressed an unqualified opinion on those consolidated financial
statements.  In our opinion, the information set forth in the
accompanying consolidated balance sheet information as of
December 31, 1996, is fairly stated, in all material respects, in
relation to the consolidated balance sheet from which it has been
derived.




/s/ Price Waterhouse LLP
Price Waterhouse LLP
Washington, D.C.
August 13, 1997 


                              26


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

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

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

     The District of Columbia Commission conducted hearings on
the proposed Merger in February and March 1997.  The case was
placed before the District of Columbia Commission for decision in
March 1997.

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

     Also on April 16, 1997, the Maryland Public Service
Commission unanimously approved  the proposed Merger and ordered
Constellation Energy to reduce rates by $56 million ($44 million
for BGE and $12 million for PEPCO), beginning on the effective
date of the Merger, with base rates to be frozen for three years
thereafter.  The reductions are premised on an 11.4% return on
equity (ROE).  In addition, the Commission ordered that 50% of
earnings above an 11.4% ROE be used to further reduce customer
rates.  The Company and BGE believe that the Maryland Order
contains elements that must be revised for the Merger to take
place.  The two companies proposed a regulatory plan designed to
share Merger benefits equitably between shareholders and
customers.  In addition to ordering the rate decrease, the Order
also denies the two companies the opportunity to recover the full
costs for purchased power contracts previously approved by the
Commission.  The Maryland Order would put in place a plan that
would eliminate any reasonable opportunity for shareholders to
share in the benefits.  

     On May 2, 1997, the companies filed a request for
reconsideration of the Maryland Order.  In the request, the
companies detailed areas of the Order that need to be revised for
the Merger to proceed and proposed a modified plan to address 


                              27


these concerns.  Highlights of this modified plan include:  1) a
$26 million rate reduction for Constellation Energy's Maryland
customers upon completion of the Merger, followed by a four-year
base-rate freeze, 2) a comprehensive surcharge that permits full
cost recovery of power purchase contracts the Commission had
previously approved, 3) a synergy sharing mechanism premised on
an 11.9% ROE that splits Merger benefits on a 50/50 basis between
customers and investors, allowing further customer rate
reductions if the new company's operations result in additional
savings, and (4) an opportunity for recovery of Merger costs over
the four-year, base-rate freeze period via the synergy sharing
mechanism.  Under this proposal, Constellation Energy would write
off Merger costs in the year the Merger is consummated.  There
can be no assurance that the Commission will grant the request
for reconsideration or that the Commission's Order will be
changed.

     On May 1, 1997, IBEW Local 1900 filed an appeal of the
Maryland Commission's decision with the Circuit Court of
Baltimore County.  In view of the Commission's conclusion that,
under Maryland law, the IBEW's appeal divested it of authority to
consider the Application for Rehearing, the joint applicants
filed a motion requesting the Circuit Court to remand the case to
the Commission.  On July 8, 1997, the Circuit Court of Baltimore
County decided to hold its ruling on the motion for remand until
July 28, 1997 while the Maryland Commission corrected a
computational error contained in its April 16, 1997 Order.  On
July 14, 1997, the Company's and BGE's Chief Executive Officers
filed sworn affidavits in the Court stating that the Merger
cannot proceed unless other aspects of the Commission's Order
were modified.  The affidavits stated that even if adjusted for
the computational error, the original order does not provide an
adequate financial basis upon which the companies could proceed
to consummate the Merger.  On July 28, 1997, the Circuit Court
accepted the correction of the computational error, denied the
motion for rehearing and established a procedural schedule for
consideration of the IBEW's appeal, which culminates in a hearing
on October 20, 1997.

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

     The waiting period under the Hart-Scott-Rodino Antitrust
Improvements Act was terminated on January 29, 1997.  If the
Merger is not completed by January 28, 1998, a new Hart-Scott-
Rodino filing would be required.  The Nuclear Regulatory
Commission has approved the transfer of BGE's ownership interest
in the operating licenses for the two generating units at the 


                              28


Calvert Cliffs Nuclear Power Plant to Constellation Energy at the
effective time of the Merger.  In addition, the Merger has been
approved by the State Corporation Commission of Virginia and the
Pennsylvania Public Utility Commission.  If the Merger is not
completed, a substantial portion of Merger related costs would be
written off as a charge against the Company's results of
operations.  At June 30, 1997, the Company has deferred $37.1
million in costs related to the Merger.  

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

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

TOTAL REVENUE

     Total revenue decreased for the three, six and twelve months
ended June 30, 1997, as compared to the corresponding periods in
1996.  The decrease in revenue from sales of electricity for the
three, six and twelve months ended June 30, 1997, was primarily
due to decreases in kilowatt-hour sales of 3.9%, 4.3% and 4.8%
from the corresponding periods ended June 30, 1996.  The decline
in sales reflects milder than average weather in each calendar
quarter in the twelve months ended June 30, 1997.  The weather in
the corresponding quarters in the prior twelve months was more
severe than average in the third quarter of 1995 as well as the
first and second quarters of 1996.  

     Total revenue also reflects the effects of the Maryland
Demand Side Management (DSM) surcharge tariff.  Effective June 6,
1997, the surcharge tariff rate was lowered, which will reduce
annual revenue by approximately $17 million, reflecting the
Company's efforts to narrow conservation program offerings and
limit conservation spending.  In the second quarter of 1997, the
Company recorded a $1.6 million bonus, which was awarded for
exceeding 1996 energy saving goals under the conservation
incentive provision of the tariff.  In the third quarter of 1996,
the Company recorded an $8.9 million bonus, which was awarded for
exceeding 1995 energy saving goals.  

     Interchange deliveries decreased for the three, six and
twelve months ended June 30, 1997.  These decreases principally
reflect changes in the levels of activity in purchase-for-resale
agreements under the Company's wholesale power sales tariff. 
Beginning in January 1997 through March 1997, and pursuant to
FERC's Order No. 888, the Company implemented an open access
transmission tariff and terminated the purchase-for-resale
agreements.  Under the open access transmission tariff, the
Company received revenue from service agreements, classified as
"Other electric revenue", which totaled $1.4 million in the six
and twelve months ended June 30, 1997.  In addition, interchange


                              29


deliveries include revenue from bilateral energy transactions and
the sale of short-term generating capacity, which totaled
approximately $.9 million and $6.7 million for the three and six
months ended June 30, 1997, respectively.  The benefits derived
from interchange deliveries and revenue under the open access
transmission tariff are passed through to the Company's customers
through a fuel adjustment clause.

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

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


OPERATING EXPENSES

     Fuel and purchased energy decreased for the three, six and
twelve months ended June 30, 1997, as compared to the
corresponding periods ended June 30, 1996.  Fuel expenses
increased for the three months ended June 30, 1997, as compared
to the corresponding period in 1996, due to an increase in the
system average fuel cost; partially offset by a 2.5% decrease in
net generation.  Fuel expense decreased for the six and twelve
months ended June 30, 1997, as compared to the corresponding
periods in 1996, primarily due to decreases of 11% and 16.5%,
respectively, in net generation; partially offset by increases in
the system average fuel cost.  The decrease in purchased energy
for the three and six months ended and increase for the twelve
months ended June 30, 1997, reflect changes in levels and prices
of energy purchased from the Pennsylvania-New Jersey-Maryland
Interconnection Association (PJM) and other utilities, primarily
the purchases related to the power sales tariff interchange
transactions.

     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,
                       ------------   ------------   ------------
                       1997    1996   1997    1996   1997    1996
                       ----    ----   ----    ----   ----    ----
System Average 
  Fuel Cost per MBTU  $1.89   $1.78  $1.86   $1.80  $1.82   $1.77



                              30


     System average unit fuel cost increased for the three, six
and twelve months ended June 30, 1997, as compared to the
corresponding periods in 1996.  The increases were primarily
attributable to an increase in the cost of coal, partially offset
by a decrease in the usage of higher-cost residual oil.  

     For the twelve month periods ended June 30, 1997 and 1996,
the Company obtained 90% and 86%, respectively, of its system
generation from coal based upon percentage of Btus.  The
Company's major cycling and certain peaking units can burn either
natural gas or oil, adding flexibility in selecting the most
cost-effective fuel mix.

     Capacity purchase payments increased for the three, six and
twelve months ended June 30, 1997, as compared to the
corresponding periods in 1996.  These increases reflect capacity
payments made under the Panda contract, which commenced January
1, 1997; partially offset by a slight decrease in fixed operating
and maintenance expense associated with the capacity agreements
with Ohio Edison and Allegheny Power System (APS).

     Operating expenses other than fuel, purchased energy and
capacity purchase payments decreased for the three, six and
twelve months ended June 30, 1997, as compared to the
corresponding periods in 1996.  The decreases were principally
due to a decline in other operation expenses resulting from lower
labor and benefits costs, and decreased income taxes due to lower
taxable income; partially offset by increased depreciation and
amortization expense primarily due to additional investment in
property and plant.  

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

     The Company's investment in property and plant, at original
cost before accumulated depreciation, was $6.4 billion at 
June 30, 1997, an increase of $83.1 million from the investment
at December 31, 1996, and an increase of $166.8 million from the
investment at June 30, 1996.  Cash invested in property and plant
construction, excluding AFUDC and CCRF, amounted to $92.2 million
for the six months ended June 30, 1997, and $187.5 million for
the twelve months then ended. 

     At June 30, 1997, the Company's capital structure, excluding
short-term debt, long-term debt and serial preferred stock
redemption due within one year, and nonutility subsidiary debt,
consisted of 44.9% long-term debt, 3.2% serial preferred stock,
3.7% redeemable serial preferred stock and 48.2% common equity.


                              31


     Cash from utility operations, after dividends, was $12.3
million for the six months ended June 30, 1997, and $222.7
million for the twelve months then ended as compared with $14.7
million and $135.1 million, respectively, for the corresponding
periods ended June 30, 1996.

     Outstanding utility short-term debt totaled $311.6 million
at June 30, 1997, an increase of $180.2 million from the $131.4
million outstanding at December 31, 1996, and a decrease of $15.9
million from the $327.5 million outstanding at June 30, 1996. 
See the discussion included in Note (3) of the Notes to
Consolidated Financial Statements, Capitalization, for additional
information.

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

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

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

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

     PCI's earnings for the three, six and twelve months ended
June 30, 1997 were $1.5 million ($.01 per share), $14.9 million
($.13 per share) and $20.3 million ($.17 per share),
respectively, compared with $9 million ($.07 per share), $11.5
million ($.10 per share) and $7 million ($.06 per share) for the
corresponding periods ended June 30, 1996.  Net earnings for the
three months ended June 30, 1997, were less than the
corresponding period in the prior year primarily as a result of a
second quarter 1996 $6.5 million pretax ($4.2 million after-tax)
reversal of previously accrued repair and maintenance expense
related to aircraft placed on a long-term, net lease.  Rental
income from operating leases also decreased for the three months
ended June 30, 1997, as compared to the corresponding period in
1996.  The improvement in net earnings for the six and twelve
months ended June 30, 1997, over the corresponding periods in
1996 was primarily the result of first quarter 1996 writedowns of
aircraft held for disposal and other investments.  During the
first six months of 1997, two L-1011 airframes and one L-1011
aircraft were sold, at book value, from the joint venture which
was formed in the fourth quarter of 1995 to assist PCI with the
disposition and management of certain aircraft.  As a result of
joint venture operations for the six months ended June 30, 1997,
PCI's obligation for previously accrued deferred income taxes was
reduced, resulting in after-tax earnings of $7.4 million after
the provision for transaction costs.  The remaining portfolio of
assets held for disposal at June 30, 1997, was $3.7 million.  


                              32


Results for the first six months ended June 30, 1997, also
include capital gains totaling $4 million net of taxes, related
primarily to tender offers accepted by PCI that reduced the cost
basis of its preferred stock marketable securities portfolio by
$113.3 million.  Purchases of preferred stock during the six
months ended June 30, 1997, totaled $23.1 million.  The cost
basis of the marketable securities portfolio at June 30, 1997,
was $285.4 million and market value was $289.3 million.

     On July 31, 1997, an aircraft owned by PCI and on long-term
leveraged lease to Federal Express Corporation crash-landed at
Newark International Airport.  Based on information provided by
Federal Express, there was no loss of life or serious injury
resulting from the accident; however, the aircraft is a total
loss.  The aircraft, which has a book value of $28.4 million at
June 30, 1997, is fully insured and PCI expects full recovery of
its investment.

     On August 6, 1997, PCI announced an agreement with RCN
Telecom Services, Inc. (RCN) of Princeton, New Jersey to form a
joint venture that will provide Washington, D.C. area residents
and businesses a package of local and long distance telephone,
cable television, Internet and other telecommunications services
from a single source.  PCI and RCN each intend to invest up to
$150 million over a three-year period in order to serve customers
over an advanced fiber optic network.  The joint venture will be
equally owned and managed by PCI and RCN.  This agreement is
subject to the satisfaction of a number of conditions, including
the receipt of certain regulatory approvals and the execution of
mutually satisfactory definitive agreements.  No assurances can
be given that the transaction will be consummated.
 
     For the three, six and twelve months ended June 30, 1997,
PCI generated income primarily from its leasing activities and
securities investments.  Income from leasing activity, which
includes rental income, gains on asset sales, interest income and
fees totaled $14.6 million, $35.8 million and $80.4 million for
the three, six and twelve months ended June 30, 1997,
respectively, compared to $23.1 million, $47.1 million and $101.8
million for the corresponding periods in 1996.  The decrease for
all three periods ending June 30, compared to the corresponding
periods in 1996, was primarily due to reduced rental income from
operating leases.  PCI's marketable securities portfolio
contributed pretax income of $6.1 million, $17.9 million and $34
million for the three, six and twelve months ended June 30, 1997,
respectively, compared to $7.5 million, $17.5 million and $35.1
million for the corresponding periods in 1996, which results
include net realized gains of $.9 million, $6.2 million and $8.1
million for the three, six and twelve months ended June 30, 1997,
compared to $.1 million, $1.7 million and $2 million for the
three, six and twelve months ended June 30, 1996, respectively.


                              33

     Other income was $7.9 million, $14.8 million and $19.9
million for the three, six and twelve months ended June 30, 1997,
respectively, compared to $1.2 million, a loss of $15.5 million
and a loss of $19.8 million for the corresponding periods ending
June 30, 1996.  The increase in other income for the three months
ended June 30, 1997, over the corresponding three months ended
June 30, 1996, was primarily the result of revenue earned from
investments made by Pepco Enterprises, Inc. (PEI), a wholly owned
subsidiary, which the Company contributed to PCI in the second
quarter of 1996.  PEI has business interests that include
telecommunications, liquefied natural gas storage facilities,
underground cable construction and maintenance services and an
energy management services company.  Other income for the three,
six and twelve months ended June 30, 1997, includes $6.4 million,
$11.8 million and $12.6 million, respectively, in revenue from
PEI activities.  Net income from PEI for the three, six and
twelve months ended June 30, 1997, was $.1 million, $.7 million
and $1.5 million, respectively.  In addition to the favorable
impact from PEI revenue, the increase in other income for the six
and twelve month periods in 1997 over the same periods in 1996 is
primarily the result of the first quarter 1996 writedowns of
PCI's investments in solar electric generating systems (SEGS),
real estate and oil and natural gas.  Included in the twelve
months ended June 30, 1997 results is a $8.8 million pretax gain
($6.7 million after-tax) related to the sale of PCI's $2.8
million (20%) interest in a Florida-based technology company
during the fourth quarter of 1996.

     Expenses, before income taxes, which include interest,
depreciation and operating, and administrative and general
expenses totaled $35.1 million, $74.5 million and $144.3 million
for the three, six and twelve months ended June 30, 1997,
respectively, compared to $29.3 million, $82.9 million and $166.5
million for the corresponding periods in 1996.  The increase in
expenses, before income taxes for the three months ended June 30,
1997, over the corresponding period in 1996 was primarily the
result of the second quarter 1996 reversal of previously accrued
repair and maintenance expense totaling $6.5 million, and three
months ended June 30, 1997 operating expenses of PEI totaling
$6.2 million.  Despite an increase resulting from inclusion of
PEI operating expenses of $10.7 million for the six and twelve
months ended June 30, 1997, total expenses before income taxes
decreased during the six and twelve months ended June 30, 1997,
compared to the same periods in 1996, primarily due to the $12.3
million pretax first quarter 1996 writedown of assets held for
disposal.  Interest expense also decreased for the three, six and
twelve months ended June 30, 1997, over the corresponding periods
in 1996 as a result of reduced debt, as proceeds from sales of
marketable securities and aircraft have been used to pay down
debt.


                              34


     PCI had income tax credits of $7.9 million, $20.9 million
and $30.2 million for the three, six and twelve months ended June
30, 1997, respectively, and $6.6 million, $45.3 million and $56.4
million for the corresponding periods ending June 30, 1996.  The
increase in income tax credits for the three months ended June
30, 1997, over the three months ended June 30, 1996, was
primarily due to a pretax loss in 1997.  The decrease in income
tax credits for the six and twelve month periods ended June 30,
1997, over the corresponding periods in 1996, was primarily the
result of deferred tax reversals of $23.5 million and $5.2
million during the first and second quarters of 1996,
respectively, compared to $10.1 million in the first quarter and
no reversal in the second quarter of 1997.

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

     A $289.3 million securities portfolio at June 30, 1997,
consisting primarily of investment grade preferred stocks,
provides PCI with liquidity and investment flexibility.  During
the first six months of 1997, PCI reduced the cost basis of its
marketable securities portfolio by $90.2 million as the result of
calls and acceptance of tender offers (approximately $113.3
million) offset by purchases of $23.1 million.  PCI's fixed rate
portfolio is sensitive to fluctuations in interest rates.  The
reduced size of the preferred stock portfolio lessens the impact
of future fluctuations in interest rates, while still maintaining
a substantial portfolio for liquidity purposes.  The proceeds
from the securities activity during the first six months were
used primarily to pay down short-term debt and acquire short-term
investments.  During the first quarter of 1997, PCI received
$25.8 million in cash proceeds from the sale of notes receivable
from World Airways (World) and recorded an after-tax charge to
earnings of $.4 million.  PCI also received $15.7 million in cash
proceeds during the second quarter of 1997 for the early
redemption of a note receivable related to a 1996 sale of an
aircraft engine leasing subsidiary.  The sale and early
redemption of the notes further reduces PCI's exposure to the
ongoing credit risk associated with the airline industry as well
as the inherent uncertainty regarding the future value of the
aircraft and engines which secured the repayment of the notes.

     PCI had no short-term debt outstanding at June 30, 1997,
compared to the $51.7 million outstanding at December 31, 1996,
and the $159.3 million outstanding at June 30, 1996.  During the
three, six and twelve months ended June 30, 1997, PCI issued no
medium-term notes, and debt repayments totaled $76.8 million,
$83.5 million and $174.1 million, respectively.  At June 30,
1997, PCI had $236.3 million available under its Medium-Term Note
Program and $400 million of unused bank credit lines.


                              35


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

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

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

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

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

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

Maryland
--------

     Effective June 6, 1997, the Maryland Demand Side Management
surcharge tariff rate was reduced.  The new surcharge tariff rate
will reduce annual revenue by approximately $17 million,
reflecting the Company's efforts to narrow conservation program
offerings and limit conservation spending.  The surcharge
includes provisions for the recovery of lost revenue,
amortization of pre-1997 actual program expenditures plus the
initial amortization of 1997 projected program expenditures, a
CCRF of 9.46% on unamortized balances and an incentive bonus for
exceeding energy saving goals.  In the second quarter of 1997,
the Company recorded a $1.6 million bonus, awarded for exceeding
1996 energy saving goals.  In the third quarter of 1996, the
Company recorded an $8.9 million bonus for exceeding 1995 energy
saving goals.

     On May 16, 1997, the Company filed a request for rehearing
of the Maryland Public Service Commission's denial, in connection
with its Order approving the Merger, of a purchased capacity
surcharge designed to recover changes in the level of purchased
capacity costs under Commission-approved contracts from levels
included in base rates.  The filing seeks recovery of capacity
payments associated with a 25-year agreement with Panda-
Brandywine, L.P. (Panda) for a 230-megawatt gas-fueled combined-
cycle cogeneration project, as well as future increases in both
the Panda and Ohio Edison purchased power contracts.  Capacity
payments to Panda commenced in January 1997, and are estimated to


                              36


total approximately $20 million in 1997.  The estimated Maryland
portion of these payments is $10.5 million.  (See Part I, Item I,
Notes to Consolidated Financial Statements, (6) Commitments and
Contingencies, for additional information).

     The rate of return on common stock equity most recently
determined for the Company in a fully litigated rate case was
12.75% established by the Commission in a June 1991 rate increase
order.

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

     In Formal Case No. 939, the District of Columbia Public
Service Commission, in June 1995, authorized a $27.9 million, or
3.8%, increase in base rate revenue effective July 1995.  The
authorized rates are based on a 9.09% rate of return on average
rate base, including an 11.1% return on common stock equity and a
capital structure which excludes short-term debt.  In addition,
the Commission approved the Company's Least-Cost Plan filed in
June 1994.  A four-year DSM spending cap for the period 1995-1998
was approved, consistent with the Company's proposal to narrow
the scope of DSM activities by discontinuing operation of certain
DSM programs and by reducing expenditures on the remaining
programs.  This will enable the Company to implement cost-
effective DSM programs while limiting the impact of such programs
on the price of electricity.  An Environmental Cost Recovery
Rider (ECRR) was approved to provide for full cost recovery of
actual DSM program expenditures, through a billing surcharge. 
Costs will be amortized over 10 years, with a return on
unamortized amounts by means of a CCRF computed at the authorized
rate of return.  The initial rate, which reflects actual costs
expended from July 1993 through December 1994, resulted in
additional annual revenue of approximately $15 million.  Although
the Commission denied the Company's request to recover "lost
revenue" due to DSM programs, through a surcharge, a process has
been established whereby the Company can seek recovery of lost
revenue in a separate proceeding.  The Commission also increased  
the time period for filing Least-Cost Planning cases from two to
three years.  In June 1996 and June 1997, the Company filed
Applications for Authority with the Commission to revise its
ECRR.  The latest proposed rate seeks recovery of actual costs
expended during 1995 and 1996, and is expected to increase annual
revenue by approximately $9 million.  No action has been taken by
the Commission on the revised ECRR.  Subsequent rate updates are
scheduled to be filed annually on June 1 to reflect the prior
year's actual costs, subject to the annual surcharge recovery
limit within the four-year spending cap for the period 1995-1998
(amounts spent in excess of the annual surcharge recovery limit,
but within the four-year spending cap, are deferred for future
recovery).  Remaining allowable expenditures under the spending
cap totaled $12.8 million at June 30, 1997.  Pre-July 1993 DSM
costs receive base rate treatment.


                              37


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

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

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

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

     The Company participates in wholesale capacity, energy and
transmission purchases and sales transactions, the savings from
which are passed along to customers.  In compliance with FERC
Order No. 888, the Company provided transmission service with its
open access tariff from January 1, 1997 until April 1, 1997.  On
February 28, 1997, the FERC ordered the PJM member companies to
implement a poolwide open access transmission tariff based on a
proposal made by PJM supporting companies in December 1996. 
Since April 1, 1997, all transmission service in PJM has been
administered by the PJM Interconnection Office.  Revenue from
transmission sales during January through March 1997 totaled
approximately $1.4 million and there have been no sales since
April 1, 1997.  

     The Company's generating and transmission facilities are
interconnected with those of other members of the PJM power pool
and other utilities.  Historically, the pricing of most PJM-
dispatched internal economy energy transactions was based upon
"split savings" whereby such energy was priced halfway between
the cost that the purchaser would incur if the energy were
supplied by its own sources and the cost of production to the
company actually supplying the energy.  On April 1, 1997, PJM
members implemented an interim restructuring plan which provides
for poolwide transmission service under a pool tariff and a bid-
price based energy market whereby all energy that clears through
the market is priced at the margin.  In the initial phase of 
this plan, bids are being based on cost.  Bilateral transactions
are also permitted.  The restructured PJM is now a Limited
Liability Corporation governed by an independent board of
directors with membership open to eligible entities.

                              38  

     In addition to interchange with PJM, the Company is actively
participating in the emerging bilateral energy sales marketplace. 
The Company's wholesale power sales tariff allows both sales from
Company-owned generation and sales of energy purchased by the
Company from other market participants.  Over 40 utilities and
marketers have executed service agreements allowing them to
arrange purchases under this tariff.  The Company has also
executed service agreements allowing it to purchase energy under
other market participants' power sales tariffs.  These agreements
greatly expand the opportunities for economic transactions.  The
Company's Power Sales Tariff also allows for the sale of
generating capacity on a short-term basis.  The Company sold
capacity to PECO Energy (PECO) in the amount of 150 megawatts
during January 1997 and 100 megawatts per month for the period of
February through May 1997.  In addition, on April 24, 1997, the
Company signed an agreement to sell capacity to Delmarva Power &
Light Co. in the amount of 100 megawatts per month for the period
June 1, 1997, through May 31, 1998.  Revenue from capacity and
energy transactions totaled approximately $.9 million and $6.7
million for the three and six months ended June 30, 1997,
respectively, and are included as components of interchange
deliveries. 

     The Company continues to purchase energy from Ohio Edison
under the Company's 1987 long-term capacity purchase agreements
with Ohio Edison and APS, and from the Northeast Maryland Waste
Disposal Authority under an avoided cost-based purchase agreement 
for a 32-megawatt Montgomery County Resource Recovery Facility. 
Pursuant to the Company's long-term capacity purchase agreements
with Ohio Edison and APS, the Company is purchasing 450 megawatts
of capacity and associated energy through the year 2005. 
Capacity payments for the Montgomery County Resource Recovery
facility are not expected to commence until after the year 2000. 
In August 1996, the Company began purchasing energy from the
Panda facility, pursuant to a 25-year power purchase agreement
for 230 megawatts of capacity supplied by a gas-fueled combined-  
cycle cogenerator.  The Panda facility achieved full commercial
operation in October 1996.  Capacity payments under this
agreement commenced in January 1997.  The capacity expense under
these agreements, including an allocation of a portion of Ohio
Edison's fixed operating and maintenance costs, was $35.4 million
and $70 million for the three and six months ended June 30, 1997,
and is estimated at $141 million for 1997.  Commitments under
these agreements are estimated at $139 million for 1998, $200
million for 1999 and 2000, $211 million for 2001 and $212 million
for 2002.

     The Company has a purchase agreement with Southern Maryland
Electric Cooperative, Inc. (SMECO), through 2015, for 84
megawatts of capacity supplied by a combustion turbine installed
and owned by SMECO at the Company's Chalk Point Generating
Station.  The Company is responsible for all costs associated 

                              39 


with operating and maintaining the facility.  The capacity
payment to SMECO is approximately $5.5 million per year.  

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

     In April 1996, the FERC issued its Final Rulemaking Orders
No. 888 and No. 889.  Both rulemakings address achieving greater
competition in the wholesale energy market.  Order No. 888
required utilities to file open access transmission tariffs by
July 9, 1996.  Such filing was made by the Company and was
accepted by the FERC.  Order No. 889 required utilities to
establish or participate in an Open Access Same-Time Information
System (OASIS) which requires transmission owners to post certain
transmission availability, pricing and service information on an
open-access communications medium such as the Internet.  On
January 3, 1997, the Company's OASIS became operational. 
Subsequently, on April 1, 1997, PJM implemented an OASIS on
behalf of the PJM transmission owners which replaced the
Company's OASIS.  Order No. 889 also required the Company to
establish a code of conduct that complies with FERC's prescribed
standards in order to separate utilities' transmission system
operations and wholesale marketing functions.  The Company's
filed code of conduct became effective on January 3, 1997.

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

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

                              40


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

     On February 28, 1997, the FERC ruled on areas of
disagreement between the PJM members and ordered that PJM
implement an open access transmission tariff and a bid-based
energy market by March 1, 1997.  A new PJM Operating Agreement
was filed on March 31, 1997, superseding the original PJM
Agreement.  This Agreement opens PJM's membership to eligible
entities.  PJM formed a Limited Liability Corporation on March
31, 1997, and the members have elected an independent board of
directors to govern the PJM Interconnection Office.  The PJM
members subsequently moved the implementation date to April 1,
1997.  PJM stakeholders continued to meet until the end of May,
1997 in order to develop an Independent System Operator.  In
early June 1997, the Supporting Companies and PECO each filed
with the FERC separate proposals for the development of an
Independent System Operator.  

     PJM has many years of experience in providing economically
efficient transmission and generation services throughout the
mid-Atlantic region, and has achieved for its members, including
the Company, significant cost savings through shared generating
reserves and integrated operations.  The PJM members are working
to transform today's coordinated cost-based pool dispatch into a
priced-based regional energy market operating under a standard of
transmission service comparability.  These changes are not
expected to have a material effect on the operating results of
the Company.

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

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

     Pursuant to an August 1995 order in a generic proceeding
dealing with electric industry structure and the advent of
competition, the Maryland Public Service Commission found that
competition at the wholesale level holds the greatest potential 


                              41


for producing significant benefits, while competition at the
retail level would carry many potential problems with difficult-
to-find solutions.  The Commission stated that it was intrigued
by a restructuring concept suggested by the Company, which calls
for functionally dividing the utility into generation and
transmission/distribution segments.  The Commission encouraged
the Company to develop the concept further and suggested that
other electric utilities in the state develop similar proposals
specific to their competitive positions.  In October 1996, the
Maryland Commission reopened the generic proceeding to review
regulatory and competitive issues affecting the electricity
industry.  The Commission cited the evolving nature of the
electric industry as the basis for continuing its investigation. 
As part of this investigation, the Commission directed its Staff
to submit a report on or before May 31, 1997, containing, among
other things, recommendations regarding regulatory and
competitive issues facing the electric industry in Maryland.  The
Commission also directed the four major electric utilities in
Maryland to prepare unbundled cost studies and model unbundled
retail service tariffs prior to August 1, 1997.  

     On May 30, 1997, the Commission Staff issued its report,
recommending that all Maryland customers be given a choice of
electricity suppliers beginning April, 2001.  The Staff
recommends a three step process for implementing customer choice. 
Starting in April 1998, all investor-owned utilities in Maryland
would begin sending customers bills that itemize the costs of
specific services such as generation, transmission and delivery
of electricity.  Next, up to 20 percent of the utilities'
customers would be offered the option of enrolling in one of two
pilot customer choice programs starting at the end of 1998 and
1999, respectively.  Lastly, all customers of Maryland investor-
owned utilities would have the option to choose their supplier of
electricity, with service beginning April 2, 2001.  Under the
plan, one of the choices available to customers would be a
regulated power supplier.  For now, existing utilities would
continue to provide customers with distribution-related services
such as billing and metering, at prices regulated by the Maryland
Commission.  Further unbundling would be considered later.  The
Staff also recommended that utilities be permitted to recover
prudently incurred stranded costs.  In comments provided to the
Commission on the Staff report, the Company reaffirmed its full
support for customer choice for Maryland electric customers and
provided key principles that should be used as guidelines for the
effective introduction of electric customer choice.  The
principles include the concept that Maryland companies should not
be put at a competitive disadvantage by customer choice, that
competition should not be regulated, and that the benefits of
customer choice should not be oversold.  Hearings are scheduled
to begin in August 1997, following which certain actions must be
taken by the Maryland legislature and the Public Service
Commission before the recommendations can take effect.

                              42


     The District of Columbia Public Service Commission initiated
a proceeding to investigate issues regarding electricity industry
structure and competition in late 1995.  In September 1996, the
Commission issued an order designating the issues to be examined
in the proceeding.  Initial comments regarding the designated
issues were filed with the Commission in January 1997, and reply
comments were filed in March 1997.

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

Peak Load and Sales Data
------------------------
     
     Kilowatt-hour sales decreased 3.9%, 4.3% and 4.8%, for the
three, six and twelve months ended June 30, 1997, respectively,
as compared to sales for the corresponding periods in 1996.  The
decline in sales reflects milder than average weather in each
calendar quarter in the twelve months ended June 30, 1997.  The
weather in the corresponding quarters in the prior twelve months
was more severe than average in the third quarter of 1995 as well
as the first and second quarters of 1996.  Assuming future
weather conditions approximate historical averages, the Company
expects its compound annual growth in kilowatt-hour sales to
range between 1% and 2% over the next decade.

     Through August 11, 1997, the 1997 summer peak demand was
5,689 megawatts.  This compares with the 1996 summer peak demand
of 5,288 megawatts, and the all-time summer peak demand of 5,769
megawatts which occurred in July 1991.  The Company's present
generation capability, including capacity purchase contracts, is
6,706 megawatts.  To meet the 1997 summer peak demand, the
Company had approximately 265 megawatts available from its
dispatchable energy use management programs.  Based on average
weather conditions, the Company estimates that its peak demand
will grow at a compound annual rate of approximately 1.5%,
reflecting continuing success with demand side management (DSM)
and energy use management (EUM) programs and anticipated service  
area growth trends. The 1996-1997 winter season peak demand of
4,632 megawatts was 7.5% below the all-time winter peak demand of
5,010 megawatts which was established in January 1994.

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

     The Company's DSM and EUM programs are designed to curb
growth in demand in order to defer the need for construction of
additional generating capacity and to cost-effectively increase
the efficiency of energy use.  To reduce the near-term upward
pressure on customer rates and bills, the Company has, since
1994, phased out several conservation programs and reduced rebate 


                              43

levels for others.  By narrowing its conservation offerings and
limiting conservation spending, the Company expects to continue
to encourage its customers to use energy efficiently without
significantly increasing electricity prices.
                              
     In Maryland, the Company invested approximately $12.8
million and $28.7 million in DSM programs for the six and twelve
months ended June 30, 1997, respectively.  The Company recovers
the costs of Maryland DSM programs through a base rate surcharge
which amortizes costs over a five-year period and permits the
Company to earn a return on its conservation investment while
receiving compensation for lost revenue.  In addition, when the
Company's performance exceeds its annual goals, the Company earns
a performance bonus.  The Company was awarded a bonus of $1.6
million in 1997, based on 1996 performance, which followed a
bonus of $8.9 million in 1996, based on 1995 performance.  As
expected, the performance bonus in 1997 was significantly lower
than amounts awarded in prior years, reflecting reduced DSM
program expenditures.  Investment in District of Columbia DSM
programs totaled approximately $2.1 million and $9.6 million for
the six and twelve months ended June 30, 1997, respectively. 
These DSM costs are amortized over ten years with an accrued
return on unamortized costs.

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

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

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

     The Company has implemented cost-effective plans for
complying with Phase I of the Acid Rain portion of the CAA which
requires the reduction of sulfur dioxide and nitrogen oxides
emissions to achieve prescribed standards.  Boiler burner
equipment for nitrogen oxides emissions control has been replaced 


                              44


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

     A 32-megawatt municipally financed resource recovery
facility in Montgomery County, Maryland, began commercial
operation in August 1995.  The Company has been purchasing energy
under the agreement covering this project without capacity
payment obligations, which are not expected to commence until
after the year 2000.  In addition, the Company has a 25-year
agreement with Panda for a 230-megawatt gas-fueled combined-cycle
cogeneration project in Prince George's County, Maryland.  The
Panda facility achieved full commercial operation in October
1996.  The Company projects that existing contracts for
nonutility generation and the Company's commitment to
conservation will provide adequate reserve margins to meet
customers' needs well beyond the year 2000.  In 1995, the
Maryland Public Service Commission issued an order that requires
electric utilities to competitively procure future capacity
resources.  The Company believes that completion of the first
combined-cycle unit at its Station H facility in Dickerson,
Maryland, currently scheduled for 2004, is likely to be the most
cost-effective alternative for the next increment of capacity. 
This will add a steam cycle to the two existing combustion
turbine units.

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

     The Company's wholly owned nonutility subsidiary, Potomac
Capital Investment Corporation (PCI), was organized in late 1983
to provide a vehicle to conduct the Company's ongoing nonutility
businesses.  The principal assets of PCI are portfolios of
securities and equipment leases, and to a lesser extent real
estate and other investments.  The $289.3 million securities
portfolio, consisting primarily of investment grade preferred
stocks, provides PCI with significant liquidity and flexibility  


                              45


to participate in additional investment opportunities.  The
Company's equity investment in PCI was $215.2 million, $196.3
million and $183.1 million, at June 30, 1997, December 31, 1996,
and June 30, 1996, respectively.

     On August 6, 1997, PCI announced an agreement with RCN
Telecom Services, Inc. (RCN) of Princeton, New Jersey to form a
joint venture to provide local and long-distance telephone, cable
television, Internet and other telecommunications services to
Washington, D.C. area residents and businesses.  PCI and RCN each
intend to invest up to $150 million to provide these services
over an advanced fiber optic network.  

     See Item 2 (Management's Discussion and Analysis of
Consolidated Results of Operations) for additional information.


                              46

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

<CAPTION>


                                         Three                       Six       
               Twelve
                                      Months Ended               Months Ended  
            Months Ended
                                        June 30,                   June 30,    
              June 30,
                                 ----------------------    
----------------------     ----------------------
                                   1997         1996          1997         1996 
        1997         1996
                                 --------     ---------     --------    
---------     --------     ---------
                                                            (Thousands of
Dollars)

<S>                              <C>          <C>           <C>          <C>   
       <C>          <C>
Income
  Leasing activities             $ 14,646     $  23,138     $ 35,761     $ 
47,055     $ 80,367     $ 101,764
  Marketable securities             6,132         7,466       17,874       
17,524       34,040        35,077
  Other                             7,887         1,179       14,837      
(15,483)      19,935       (19,803)
                                 --------     ---------     --------    
---------     --------     ---------
                                   28,665        31,783       68,472       
49,096      134,342       117,038
                                 --------     ---------     --------    
---------     --------     ---------

Expenses
  Interest                         17,523        20,844       36,549       
42,973       77,018        89,491
  Administrative and general        2,356         3,677        8,710        
9,040       15,199        14,090
  Depreciation and
    operating                      15,265         4,781       29,224       
18,576       51,630        50,580
  Loss on assets held for
    disposal                            -             -            -       
12,320          424        12,320
  Income tax credit                (7,935)       (6,566)     (20,917)     
(45,328)     (30,214)      (56,435)
                                 --------     ---------     --------    
---------     --------     ---------
                                   27,209        22,736       53,566       
37,581      114,057       110,046
                                 --------     ---------     --------    
---------     --------     ---------
Net earnings from 
  nonutility subsidiary          $  1,456     $   9,047     $ 14,906     $ 
11,515     $ 20,285     $   6,992 <F1>
                                 ========     =========     ========    
=========     ========     =========

Per share contribution 
  to earnings of the
  Company                           $ .01         $ .07        $ .13         $
 .10        $ .17         $ .06 <F1>
                                    =====         =====        =====        
=====        =====         =====
<FN>

<F1> Reflects non-recurring, noncash, after-tax charges of $5.2 million ($.04 per
share) 
     for the twelve months ended June 30, 1996, related to the 1995 plan with
respect to the
     aircraft equipment leasing business.


</FN>

                                                         47


</TABLE>
<TABLE>

STATISTICAL DATA
----------------
<CAPTION>

                                             Three Months Ended                
 Twelve Months Ended
                                                  June 30,                     
      June 30,
                                      ---------------------------------   
-------------------------------------
                                        1997       1996        % Change      
1997         1996         % Change
                                      --------   --------      --------   
----------   ----------      --------
  <S>                                 <C>        <C>              <C>      <C> 
        <C>                <C>
  Revenue from Sales
  ------------------
    of Electricity
    --------------
  (Thousands of Dollars)

    Residential                       $119,812   $131,305         (8.8)    $ 
524,896   $  566,870         (7.4)
    General Service                    270,804    282,848         (4.3)    
1,068,188    1,089,205         (1.9)
    Large Power Service <F1>             8,990      9,391         (4.3)       
35,414       36,431         (2.8)
    Street Lighting                      2,910      2,827          2.9        
12,643       12,322          2.6
    Rapid Transit                        7,038      6,917          1.7        
28,690       28,712         (0.1)
    Wholesale                           28,370     27,714          2.4       
118,908      123,815         (4.0)
                                      --------   --------                 
----------   ----------
      System                          $437,924   $461,002         (5.0)   
$1,788,739   $1,857,355         (3.7)
                                      ========   ========                 
==========   ==========

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

    Residential                          1,390      1,521         (8.6)        
6,493        7,121         (8.8)
    General Service                      3,688      3,772         (2.2)       
15,100       15,586         (3.1)
    Large Power Service <F1>               160        172         (7.0)        
  675          716         (5.7)
    Street Lighting                         34         35         (2.9)        
  164          165         (0.6)
    Rapid Transit                           99         99            -         
  408          415         (1.7)
    Wholesale                              558        569         (1.9)        
2,504        2,609         (4.0)
                                      --------   --------                 
----------   ----------
      System                             5,929      6,168         (3.9)       
25,344       26,612         (4.8)
                                      ========   ========                 
==========   ==========

  Average System Revenue
  ----------------------
    per KWH (cents per KWH)               7.39       7.47         (1.1)        
 7.06         6.98          1.1
    -----------------------

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

    Summer                                   -          -                      
5,689        5,732
    Winter                                   -          -                      
4,632        4,831

  Net Generation
  --------------
  (Millions of KWH)                      4,042      4,146                     
17,005       20,373

  Fuel Mix (% of Btu)
  -------------------
    Coal (%)                                86         90                      
   90           86
    Oil (%)                                  5          6                      
    5            7
    Gas (%)                                  9          4                      
    5            7

  Fuel Cost per MBtu
  ------------------
    System Average                       $1.89      $1.78                      
$1.82        $1.77

  Weather Data
  ------------
    Heating Degree Days                    462        399                      
3,871        4,591
    20 Year Average                        325                                 
4,036
    Cooling Degree Hours                 1,988      3,446                      
7,789       13,072
    20 Year Average                      2,656                                
11,130

     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, 1997, the generation capability, including capacity purchase
contracts,
     was 6,706 MW.
</FN>

                                                      48
</TABLE>

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

     The following unaudited pro forma condensed information
combines the historical consolidated balance sheets and
statements of income of Potomac Electric Power Company and
Baltimore Gas and Electric Company, including their respective
subsidiaries, after giving effect to the proposed Merger of the
two companies into Constellation Energy Corporation.  As
previously disclosed, the Merger is expected to close as soon as
all necessary regulatory approvals, on terms satisfactory to
PEPCO and BGE, are obtained.  As of the date of this filing, the
Merger has not closed.  The unaudited pro forma combined
condensed balance sheet at June 30, 1997, gives effect to the
Merger as if it had occurred at June 30, 1997.  The unaudited pro
forma combined condensed statement of income for the six months
ended June 30, 1997, gives effect to the Merger as if it had
occurred at January 1, 1997.  These statements are prepared on
the basis of accounting for the Merger as a pooling of interests
and are based on the assumptions set forth in the notes thereto. 
Constellation Energy Corporation was formed September 22, 1995,
and has no assets or operations.  Therefore, Constellation Energy
Corporation has no financial statements and, in turn, there has
been no audit of such statements.

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

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

     Balance Sheet as of June 30, 1997
     Income Statement for the Six Months Ended June 30, 1997
     Notes to Unaudited Pro Forma Combined Condensed Financial
        Statements

     The following PEPCO financial information is also set forth
below:

     Reclassifying Balance Sheet as of June 30, 1997
     Reclassifying Income Statement for the Six Months Ended 
        June 30, 1997


                              49

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

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





                              50


<TABLE>
                                       CONSTELLATION ENERGY CORPORATION
                             UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
                                                  JUNE 30, 1997
                                                  (IN THOUSANDS)
                             ----------------------------------------------------

<CAPTION>
                                                                  PEPCO
                                                BGE         (As Reclassified)  
 Pro Forma      Pro Forma
                                            (As Reported)      (See Note 1)    
Adjustments     Combined
                                            --------------  ----------------- 
-------------  -------------
<S>                                         <C>             <C>               
<C>            <C>
ASSETS
Current Assets
  Cash and Cash Equivalents                 $     271,212   $         26,751  
$          -   $    297,963
  Accounts Receivable - net                       400,483            302,340   
          -        702,823
  Materials and Supplies                          166,320            131,765   
          -        298,085
  Prepayments and Other                           207,229              6,997   
          -        214,226
                                            -------------   ----------------  
------------   ------------
    Total Current Assets                        1,045,244            467,853   
          -      1,513,097
                                            -------------   ----------------  
------------   ------------

Investments and Other Assets
  Notes Receivable                                      -             34,253   
          -         34,253
  Real Estate Projects                            440,846             72,627   
          -        513,473
  Power Generation Systems                        404,868                968   
          -        405,836
  Financial Instruments                           127,980                  -   
          -        127,980
  Marketable Securities                            40,679            289,293   
          -        329,972
  Investment in Finance Leases                     29,378            486,049   
          -        515,427
  Operating Lease Equipment - net                       -            179,337   
          -        179,337
  Assets Held for Disposal                              -              3,700   
          -          3,700
  Other Investments                               405,327            113,311   
          -        518,638
                                            -------------   ----------------  
------------   ------------
    Total Investments and Other Assets          1,449,078          1,179,538   
          -      2,628,616
                                            -------------   ----------------  
------------   ------------

Utility Plant
  Plant in Service
    Electric                                    6,644,436          6,299,044   
          -     12,943,480
    Gas                                           813,672                  -   
          -        813,672
    Common                                        544,790                  -   
          -        544,790
                                            -------------   ----------------  
------------   ------------
    Total Plant in Service                      8,002,898          6,299,044   
          -     14,301,942
  Accumulated Depreciation                     (2,715,425)        (1,960,616)  
          -     (4,676,041)
                                            -------------   ----------------  
------------   ------------
  Net Plant in Service                          5,287,473          4,338,428   
          -      9,625,901
  Construction Work in Progress                   158,600             78,450   
          -        237,050
  Nuclear Fuel - net                              128,427                  -   
          -        128,427
  Other Plant - net                                25,470             26,263   
          -         51,733
                                            -------------   ----------------  
------------   ------------
    Net Utility Plant                           5,599,970          4,443,141   
          -     10,043,111
                                            -------------   ----------------  
------------   ------------

Deferred Charges
  Regulatory Assets                               464,514            466,376   
          -        930,890
  Other                                           108,475            183,123   
          -        291,598
                                            -------------   ----------------  
------------   ------------
    Total Deferred Charges                        572,989            649,499   
          -      1,222,488
                                            -------------   ----------------  
------------   ------------

Total Assets                                $   8,667,281   $      6,740,031  
$          -   $ 15,407,312
                                            =============   ================  
============   ============

LIABILITIES AND CAPITALIZATION
Current Liabilities
  Short-term Borrowings                     $     116,900   $        311,600  
$          -   $    428,500
  Current Portion of Long-term Debt,
    Preferred Stock and Preference Stock          324,783            478,485   
          -        803,268
  Accounts Payable                                147,536            209,781   
          -        357,317
  Other                                           223,782            102,482   
          -        326,264
                                            -------------   ----------------  
------------   ------------
    Total Current Liabilities                     813,001          1,102,348   
          -      1,915,349
                                            -------------   ----------------  
------------   ------------

Deferred Credits and Other Liabilities
  Deferred Income Taxes                         1,276,242          1,037,690   
          -      2,313,932
  Capital Lease Obligations                             -            161,702   
          -        161,702
  Pension and Postemployment Benefits             180,530                  -   
          -        180,530
  Other                                           103,141             52,604   
          -        155,745
                                            -------------   ----------------  
------------   ------------
    Total Deferred Credits and Other
      Liabilities                               1,559,913          1,251,996   
          -      2,811,909
                                            -------------   ----------------  
------------   ------------
Capitalization
  Long-term Debt                                3,162,147          2,262,274   
          -      5,424,421
  Preferred Stock                                       -            266,293   
          -        266,293
  Preference Stock                                323,000                  -   
          -        323,000
  Common Shareholders' Equity                   2,809,220          1,857,120   
          -      4,666,340
                                            -------------   ----------------  
------------   ------------
    Total Capitalization                        6,294,367          4,385,687   
          -     10,680,054
                                            -------------   ----------------  
------------   ------------

Total Liabilities and Capitalization        $   8,667,281   $      6,740,031  
$          -   $ 15,407,312
                                            =============   ================  
============   ============

<FN>

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


                                                          51
</TABLE>

<TABLE>
                                         CONSTELLATION ENERGY CORPORATION
                             UNAUDITED PRO FORMA COMBINED CONDENSED INCOME
STATEMENT
                                          SIX MONTHS ENDED JUNE 30, 1997
                                      (In thousands, except per share amounts)
                            
-------------------------------------------------------

<CAPTION>

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

<S>                                            <C>              <C>            
      <C>             <C>
Revenue
  Electric                                     $  1,015,362     $         840,031 
   $         -     $  1,855,393
  Gas                                               306,046                    
-               -          306,046
  Diversified businesses                            312,714                68,472 
             -          381,186
                                               ------------     ----------------- 
   -----------     ------------
    Total Revenue                                 1,634,122               908,503 
             -        2,542,625
                                               ------------     ----------------- 
   -----------     ------------

Operating Expenses
  Electric fuel and purchased energy                248,008               324,877 
             -          572,885
  Gas purchased for resale                          181,421                    
-               -          181,421
  Operations                                        265,031               105,132 
             -          370,163
  Maintenance                                       102,195                45,080 
             -          147,275
  Diversified business expenses                     316,643                37,934 
             -          354,577
  Depreciation and amortization                     170,786               114,401 
             -          285,187
  Taxes other than income taxes                     107,323                94,641 
             -          201,964
                                               ------------     ----------------- 
   -----------     ------------
    Total Operating Expenses                      1,391,407               722,065 
             -        2,113,472
                                               ------------     ----------------- 
   -----------     ------------

Income from Operations                              242,715               186,438 
             -          429,153

Total Other Income                                    2,016                 5,592 
             -            7,608
                                               ------------     ----------------- 
   -----------     ------------

Income Before Interest and Income Taxes             244,731               192,030 
             -          436,761

Net Interest Expense                                110,784               106,856 
             -          217,640
                                               ------------     ----------------- 
   -----------     ------------

Income Before Income Taxes                          133,947                85,174 
             -          219,121

Income Taxes                                         46,866                12,068 
             -           58,934
                                               ------------     ----------------- 
   -----------     ------------

Net Income                                           87,081                73,106 
             -          160,187

Preferred and Preference Stock Dividends             15,758                 8,282 
             -           24,040
                                               ------------     ----------------- 
   -----------     ------------
Earnings Applicable to Common Stock            $     71,323     $          64,824 
   $         -     $    136,147
                                               ============     ================= 
   ===========     ============

Average Shares of Common Stock Outstanding          147,667               118,500 
                        265,812

Earnings Per Share of Common Stock                    $0.48                 $0.55 
                          $0.51


<FN>

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




                                                            52
</TABLE>

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

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

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

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

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

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



                              53     


<TABLE>
                                          POTOMAC ELECTRIC POWER COMPANY
                                            RECLASSIFYING BALANCE SHEET
                                                  JUNE 30, 1997
                                                  (In Thousands)
                                          ------------------------------
<CAPTION>


                                                          PEPCO             PEPCO 
            PEPCO
                                                      (As Reported)     
(Reclasses)     (As Reclassified)
                                                     --------------   
--------------    -----------------
<S>                                                  <C>               <C>     
         <C>
ASSETS
Current Assets
  Cash and Cash Equivalents                          $       7,640     $     
19,111     $         26,751
  Accounts Receivable - net                                      -          
302,340              302,340
  Customer Accounts Receivable - net                       164,006         
(164,006)                   -
  Other Accounts Receivable - net                           29,633          
(29,633)                   -
  Accrued Unbilled Revenue                                  94,973          
(94,973)                   -
  Materials and Supplies                                         -          
131,765              131,765
    Fuel                                                    63,834          
(63,834)                   -
    Construction and Maintenance                            67,931          
(67,931)                   -
  Prepayments and Other                                          -            
6,997                6,997
  Prepaid Taxes                                                105             
(105)                   -
  Other Prepaid Expenses                                     6,892           
(6,892)                   -
                                                     -------------    
-------------     ----------------
                Total Current Assets                       435,014           
32,839              467,853
                                                     -------------    
-------------     ----------------

Investments and Other Assets
  Notes Receivable                                               -           
34,253               34,253
  Real Estate Projects                                           -           
72,627               72,627
  Power Generation Systems                                       -             
 968                  968
  Marketable Securities                                          -          
289,293              289,293
  Investment in Finance Leases                                   -          
486,049              486,049
  Operating Lease Equipment - net                                -          
179,337              179,337
  Assets Held for Disposal                                       -            
3,700                3,700
  Other Investments                                              -          
113,311              113,311
                                                     -------------    
-------------     ----------------
    Total Investments and Other Assets                           -        
1,179,538            1,179,538
                                                     -------------    
-------------     ----------------

Utility Plant
  Plant in Service
    Electric                                             6,299,044             
   -            6,299,044
    Construction Work in Progress                           78,450          
(78,450)                   -
    Electric Plant Held for Future Use                       4,190           
(4,190)                   -
    Nonoperating Property                                   22,976          
(22,976)                   -
                                                     -------------    
-------------     ----------------

                Total Plant in Service                   6,404,660         
(105,616)           6,299,044
  Accumulated Depreciation                              (1,961,519)            
 903           (1,960,616)
  Construction Work in Progress                                  -           
78,450               78,450
  Other Plant - net                                              -           
26,263               26,263
                                                     -------------    
-------------     ----------------
                Net Utility Plant                        4,443,141             
   -            4,443,141
                                                     -------------    
-------------     ----------------

Deferred Charges
  Regulatory Assets                                              -          
466,376              466,376
  Income Taxes Recoverable through Future Rates, net       239,435         
(239,435)                   -
  Conservation Costs, net                                  229,010         
(229,010)                   -
  Unamortized Debt Reacquisition Costs                      54,149          
(54,149)                   -
  Other                                                    171,758           
11,365              183,123
                                                     -------------    
-------------     ----------------
    Total Deferred Charges                                 694,352          
(44,853)             649,499
                                                     -------------    
-------------     ----------------

Nonutility Subsidiary Assets
  Cash and Cash Equivalents                                 19,111          
(19,111)                   -
  Marketable Securities                                    289,293         
(289,293)                   -
  Investment in Finance Leases                             486,049         
(486,049)                   -
  Operating Lease Equipment - net                          179,337         
(179,337)                   -
  Assets Held for Disposal                                   3,700           
(3,700)                   -
  Receivables - net                                         47,981          
(47,981)                   -
  Other Investments                                        186,906         
(186,906)                   -
  Other Assets                                              14,280          
(14,280)                   -
                                                     -------------    
-------------     ----------------
    Total Nonutility Subsidiary Assets                   1,226,657       
(1,226,657)                   -
                                                     -------------    
-------------     ----------------

Total Assets                                         $   6,799,164     $    
(59,133)    $      6,740,031
                                                     =============    
=============     ================



                                                      54

</TABLE>

<TABLE>
                                       POTOMAC ELECTRIC POWER COMPANY
                                        RECLASSIFYING BALANCE SHEET
                                                JUNE 30, 1997
                                                (In Thousands)
                                       ------------------------------

<CAPTION>

                                                              PEPCO           
PEPCO             PEPCO
                                                          (As Reported)    
(Reclasses)    (As Reclassified)
                                                         --------------   
------------    -----------------
<S>                                                      <C>               <C> 
           <C>
LIABILITIES AND CAPITALIZATION
Current Liabilities
  Short-term Borrowings                                  $     311,600     $   
     -     $        311,600
  Current Portion of Long-term Debt and Preferred Stock        100,985        
377,500              478,485
  Accounts Payable and Accrued Expenses                        158,846         
50,935              209,781
  Capital Lease Obligations Due within One Year                 20,772        
(20,772)                   -
  Other                                                         81,710         
20,772              102,482
                                                         -------------    
-----------     ----------------
    Total Current Liabilities                                  673,913        
428,435            1,102,348
                                                         -------------    
-----------     ----------------

Deferred Credits and Other Liabilities
  Deferred Income Taxes                                      1,001,460         
36,230            1,037,690
  Deferred Investment Tax Credits                               59,133        
(59,133)                   -
  Capital Lease Obligations                                          -        
161,702              161,702
  Other                                                         40,561         
12,043               52,604
                                                         -------------    
-----------     ----------------
    Total Deferred Credits and Other Liabilities             1,101,154        
150,842            1,251,996
                                                         -------------    
-----------     ----------------

Other Non-Current Liabilities
  Capital Lease Obligations                                    161,702       
(161,702)                   -
                                                         -------------    
-----------     ----------------
    Total Other Non-Current Liabilities                        161,702       
(161,702)                   -
                                                         -------------    
-----------     ----------------

Capitalization
  Long-term Debt                                             1,727,065        
535,209            2,262,274
  Preferred Stock                                                    -        
266,293              266,293
  Serial Preferred Stock                                       125,293       
(125,293)                   -
  Redeemable Serial Preferred Stock                            141,000       
(141,000)                   -
  Common Shareholders' Equity                                        -      
1,857,120            1,857,120
  Common Stock                                                 118,501       
(118,501)                   -
  Other Common Equity                                        1,738,619     
(1,738,619)                   -
                                                         -------------    
-----------     ----------------
    Total Capitalization                                     3,850,478        
535,209            4,385,687
                                                         -------------    
-----------     ----------------

Nonutility Subsidiary Liabilities
  Long-term Debt                                               912,709       
(912,709)                   -
  Deferred Taxes and Other                                      99,208        
(99,208)                   -
                                                         -------------    
-----------     ----------------
    Total Nonutility Subsidiary Liabilities                  1,011,917     
(1,011,917)                   -
                                                         -------------    
-----------     ----------------

Total Liabilities and Capitalization                     $   6,799,164     $  
(59,133)    $      6,740,031
                                                         =============    
===========     ================



                                                      55

</TABLE>

<TABLE>
                                             POTOMAC ELECTRIC POWER COMPANY
                                            RECLASSIFYING STATEMENT OF INCOME
                                             SIX MONTHS ENDED JUNE 30, 1997
                                        (In thousands, except per share amounts)
                                        ----------------------------------------


<CAPTION>                                                    PEPCO           
PEPCO              PEPCO
                                                         (As Reported)    
(Reclasses)     (As Reclassified)
                                                         -------------   
-------------    -----------------

<S>                                                      <C>              <C>  
           <C>
  Electric                                               $    840,031     $    
     -     $        840,031
  Diversified businesses                                            -          
68,472               68,472
                                                         ------------    
------------     ----------------
    Total Revenue                                             840,031          
68,472              908,503
                                                         ------------    
------------     ----------------

Operating Expenses
  Electric fuel and purchased energy                                -         
324,877              324,877
  Fuel                                                        156,702        
(156,702)                   -
  Purchased energy                                             95,450         
(95,450)                   -
  Capacity purchase payments                                   72,725         
(72,725)                   -
  Operations                                                  105,132          
     -              105,132
  Maintenance                                                  45,080          
     -               45,080
  Diversified business expenses                                     -          
37,934               37,934
  Depreciation and amortization                               114,401          
     -              114,401
  Income taxes                                                 33,058         
(33,058)                   -
  Taxes other than income taxes                                94,641          
     -               94,641
                                                         ------------    
------------     ----------------
    Total Operating Expenses                                  717,189          
 4,876              722,065
                                                         ------------    
------------     ----------------

Income from Operations                                        122,842          
63,596              186,438
                                                         ------------    
------------     ----------------
Other Income
  Nonutility Subsidiary Income                                 68,472         
(68,472)                   -
  Expenses, including interest and income taxes               (53,566)         
53,566                    -
                                                         ------------    
------------     ----------------
    Net earnings from nonutility subsidiary                    14,906         
(14,906)                   -
  Allowance for other funds used during construction
    and capital cost recovery factor                            3,341          
     -                3,341
  Other, net                                                    2,324          
   (73)               2,251
                                                         ------------    
------------     ----------------
    Total Other Income                                         20,571         
(14,979)               5,592
                                                         ------------    
------------     ----------------

Income Before Interest and Income Taxes                       143,413          
48,617              192,030
                                                         ------------    
------------     ----------------

Interest Expense
  Interest on debt                                             68,847          
     -               68,847
  Other                                                         5,505          
     -                5,505
  Subsidiary interest expense                                       -          
36,549               36,549
  Allowance for borrowed funds used during construction
    and capital cost recovery factor                           (4,045)         
     -               (4,045)
                                                         ------------    
------------     ----------------
    Net Interest Expense                                       70,307          
36,549              106,856
                                                         ------------    
------------     ----------------

Income before income taxes                                     73,106          
12,068               85,174
                                                         ------------    
------------     ----------------

Income taxes - Utility                                              -          
33,058               33,058
Income taxes - Nonoperating                                         -          
   (73)                 (73)
Income taxes - Subsidiary                                           -         
(20,917)             (20,917)
                                                         ------------    
------------     ----------------
  Total Income Taxes                                                -          
12,068               12,068
                                                         ------------    
------------     ----------------

Net Income                                                     73,106          
     -               73,106

Preferred Dividends                                             8,282          
     -                8,282
                                                         ------------    
------------     ----------------

Earnings Applicable to Common Stock                      $     64,824     $    
     -     $         64,824
                                                         ============    
============     ================

Average Shares of Common Stock Outstanding                    118,500          
                    118,500

Earnings Per Share of Common Stock                              $0.55          
                      $0.55



                                                          56
</TABLE>

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

         (a)  Exhibits

              Exhibit 3    -   By-Laws of the Company
    
              Exhibit 11   -   Computation of Earnings Per Common
                               Share - filed herewith.

              Exhibit 12   -   Computation of ratios - filed
                               herewith.

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

              Exhibit 27   -   Financial data schedule - filed
                               herewith.


         (b)  Reports on Form 8-K
 
              A Current Report on Form 8-K was filed by the
              Company on April 7, 1997, providing unaudited pro
              forma combined condensed financial information of
              Baltimore Gas and Electric Company (BGE) and
              Potomac Electric Power Company (PEPCO), after
              giving effect to the proposed Merger of the two
              companies into Constellation Energy Corporation. 
              The item reported on such Form 8-K was Item 5
              (Other Events).

              A Current Report on Form 8-K was filed by the
              Company on April 17, 1997, providing details on the
              Federal Energy Regulatory Commission's approval of
              the proposed Merger between the Company and BGE;
              and on the plan of the two companies to file a
              Request for Reconsideration of the Maryland Public
              Service Commission's Merger Order.  The item
              reported on such Form 8-K was Item 5 (Other
              Events).

              A Current Report on Form 8-K was filed by the
              Company on May 5, 1997, providing details of the
              Company's and BGE's Application for Rehearing of
              Maryland Public Service Commission's Merger Order. 
              The item reported on such Form 8-K was Item 5
              (Other Events). 



                              57     


                           SIGNATURES
                           ----------

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


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



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


August 13, 1997 
---------------
     DATE





                             58                            

<TABLE>
Exhibit 11         Computations of Earnings Per Common Share
----------         -----------------------------------------
     The following is the basis for the computation of primary and fully
diluted earnings per common share for the twelve months ended June 30, 1997,
and the twelve months ended December 31, 1996 and 1995:

<CAPTION>

                                             June 30,      December 31,   
December 31,
                                               1997            1996           
1995
                                           -------------   ------------   
------------
<S>                                        <C>             <C>              <C>
Average shares outstanding for
  computation of primary earnings
  per common share                          118,498,718     118,496,683    
118,412,478
                                           ============    ============   
============
Average shares outstanding for
  fully diluted computation:

  Average shares outstanding                118,498,718     118,496,683    
118,412,478

  Additional shares resulting from:

    Conversion of Serial Preferred
      Stock, $2.44 Convertible Series
      of 1966 (the "Convertible
      Preferred Stock")                          34,404          34,986        
 38,255

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

    Conversion of 5% Convertible
      Debentures                              3,392,500       3,392,500      
3,392,500
                                           ------------    ------------   
------------
Average shares outstanding for
  computation of fully diluted
  earnings per common share                 124,290,181     124,342,748    
124,312,872
                                           ============    ============   
============

Earnings applicable to common stock        $206,490,000    $220,356,000    
$77,540,000

Add:  Dividends paid or accrued on
        Convertible Preferred Stock              14,000          15,000        
 16,000

      Interest paid or accrued on
        Convertible Debentures,
        net of related taxes                  6,358,000       6,416,000      
6,475,000
                                           ------------    ------------   
------------
Earnings applicable to common stock,
  assuming conversion of convertible
  securities                               $212,862,000    $226,787,000    
$84,031,000
                                           ============    ============   
============

Primary earnings per common share                 $1.74           $1.86        
  $0.65

Fully diluted earnings per common share           $1.71           $1.82        
  $0.68
<FN>

The valuation is not required by footnote 2 to paragraph 14 of APB No. 15
for the the twelve months ended June 30, 1997 and December 31, 1996
because it results  in dilution of less than 3%.  In addition, this
calculation is submitted in  accordance with Regulation S-K item 601
(b)(11) although it is contrary to paragraph 40 of APB No. 15 because it
produces an antidilutive result for the  twelve months ended December 31,
1995.
</FN>
                                           59
</TABLE>


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

     The computations of the coverage of fixed charges, excluding the cumulative
effect of the 1992 accounting change, before income taxes, and the coverage of
combined fixed charges and preferred dividends for the twelve months ended June
30, 1997, and for each of the preceeding 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,   
                                                   1997      1996        1995  
     1994        1993        1992
                                              ---------   ---------   --------- 
 ---------   ---------   ---------
                                                                           
(Thousands of Dollars)
<S>                                            <C>         <C>         <C>     
   <C>         <C>         <C>
Net income before cumulative effect
  of accounting change                         $202,795    $220,066    $218,788 
  $208,074    $216,478    $172,599
Taxes based on income                           120,406     135,011     129,439 
   116,648     107,223      76,965
                                              ---------   ---------   --------- 
 ---------   ---------   ---------

Income before taxes and cumulative effect
  of accounting change                          323,201     355,077     348,227 
   324,722     323,701     249,564
                                              ---------   ---------   --------- 
 ---------   ---------   ---------

Fixed charges:
  Interest charges                              146,676     146,939     146,558 
   139,210     141,393     138,097
  Interest factor in rentals                     23,374      23,560      23,431 
     6,300       5,859       6,140
                                              ---------   ---------   --------- 
 ---------   ---------   ---------

Total fixed charges                             170,050     170,499     169,989 
   145,510     147,252     144,237
                                              ---------   ---------   --------- 
 ---------   ---------   ---------

Income before income taxes, cumulative
  effect of accounting change and
  fixed charges                                $493,251    $525,576    $518,216 
  $470,232    $470,953    $393,801
                                              =========   =========   ========= 
 =========   =========   =========

Coverage of fixed charges                          2.90        3.08        3.05 
      3.23        3.20        2.73
                                                   ====        ====        ==== 
      ====        ====        ====


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


Ratio of pre-tax income to net income              1.59        1.61        1.59 
      1.56        1.50        1.45
                                              ---------   ---------   --------- 
 ---------   ---------   ---------
 
Preferred dividend factor                       $26,378     $26,732     $26,793 
   $25,642     $24,383     $20,868
                                              ---------   ---------   --------- 
 ---------   ---------   ---------

Total fixed charges and preferred dividends    $196,428    $197,231    $196,782 
  $171,152    $171,635    $165,105
                                              =========   =========   ========= 
 =========   =========   =========
Coverage of combined fixed charges 
  and preferred dividends                          2.51        2.66        2.63 
      2.75        2.74        2.39
                                                   ====        ====        ==== 
      ====        ====        ====



</TABLE>
                                                     60

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

     The computations of the coverage of fixed charges, excluding the cumulative
effect of the 1992 accounting change, before income taxes, and the coverage of
combined fixed charges and preferred dividends for the twelve months ended June
30, 1997, and for each of the preceding five years on a fully consolidated
basis, are as follows.





<CAPTION>

                                                Twelve
                                                Months                  For The
Year Ended December 31,
                                                Ended    
---------------------------------------------------------
                                               June 30,
                                                   1997      1996        1995  
     1994        1993        1992
                                              ---------   ---------   --------- 
 ---------   ---------   ---------
                                                                           
(Thousands of Dollars)
<S>                                            <C>         <C>         <C>     
   <C>         <C>         <C>
Net income before cumulative effect
  of accounting change                         $223,080    $236,960     $94,391 
  $227,162    $241,579    $200,760
Taxes based on income                            90,192      80,386      43,731 
    93,953      62,145      79,481
                                              ---------   ---------   --------- 
 ---------   ---------   ---------

Income before taxes and cumulative effect
  of accounting change                          313,272     317,346     138,122 
   321,115     303,724     280,241
                                              ---------   ---------   --------- 
 ---------   ---------   ---------

Fixed charges:
  Interest charges                              224,243     231,029     238,724 
   224,514     221,312     226,453
  Interest factor in rentals                     23,515      23,943      26,685 
     9,938       9,257       6,599
                                              ---------   ---------   --------- 
 ---------   ---------   ---------

Total fixed charges                             247,758     254,972     265,409 
   234,452     230,569     233,052
                                              ---------   ---------   --------- 
 ---------   ---------   ---------

Nonutility subsidiary capitalized interest         (550)       (649)       (529) 
     (521)     (2,059)     (2,200)
                                              ---------   ---------   --------- 
 ---------   ---------   ---------
Income before income taxes, cumulative
  effect of accounting change and
  fixed charges                                $560,480    $571,669    $403,002 
  $555,046    $532,234    $511,093
                                               ========    ========    ======== 
  ========    ========    ========

Coverage of fixed charges                          2.26        2.24        1.52 
      2.37        2.31        2.19
                                                   ====        ====        ==== 
      ====        ====        ====


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


Ratio of pre-tax income to net income              1.40        1.34        1.46 
      1.41        1.26        1.40
                                              ---------   ---------   --------- 
 ---------   ---------   ---------
 
Preferred dividend factor                       $23,226     $22,249     $24,602 
   $23,176     $20,481     $20,149
                                              ---------   ---------   --------- 
 ---------   ---------   ---------

Total fixed charges and preferred dividends    $270,984    $277,221    $290,011 
  $257,628    $251,050    $253,201
                                               ========    ========    ======== 
  ========    ========    ========
Coverage of combined fixed charges 
  and preferred dividends                          2.07        2.06        1.39 
      2.15        2.12        2.02
                                                   ====        ====        ==== 
      ====        ====        ====



</TABLE>
                                                     61


                                                    Exhibit 15




August 13, 1997 






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

Ladies and Gentlemen:

We are aware that Potomac Electric Power Company has incorporated
by reference our report dated August 13, 1997, (issued pursuant
to the provisions of Statement on Auditing Standards No. 71) in
the Prospectuses constituting parts of the Registration
Statements (Registration Nos. 33-36798, 33-53685 and 33-54197) on
Form S-8 filed on September 12, 1990, May 18, 1994 and June 17,
1994, respectively, and (Registration Nos. 33-58810 and 33-61379)
on Form S-3 filed on February 26, 1993 and July 28, 1995,
respectively, in the Joint Proxy Statement/Prospectus
constituting part of the Registration Statement (Registration No.
33-64799) on Form S-4 of Constellation Energy Corporation filed
on December 7, 1995, and in the Prospectuses constituting parts
of the Registration Statements on Form S-3 (Registration Nos.
333-24705 and 333-24855) of Constellation Energy Corporation
filed on April 7, 1997, and April 9, 1997, respectively.  We are
also aware of our responsibilities under the Securities Act of
1933.




Very truly yours,



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



                              62