EX-3

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By-Laws

of

POTOMAC ELECTRIC POWER COMPANY

WASHINGTON, D. C.

As amended through

January 25, 2001

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                                 POTOMAC ELECTRIC POWER COMPANY


                                                                     BY-LAWS


                                                                        ______
   

                                                                    ARTICLE I

SECTION 1. The annual meeting of the stockholders of the Company shall be held on such
day, at such time and place within or without the District of Columbia as the Board of Directors or
the Executive Committee shall designate for the purpose of electing directors and of transacting such
other business as may properly be brought before the meeting.

At an annual meeting of the stockholders, only such business shall be conducted as shall
have been properly brought before the meeting. To be properly brought before an annual meeting,
business must be specified in the notice of meeting (or any supplement thereto) given by or at the
direction of the Board, otherwise properly brought before the meeting by or at the direction of the
Board, or otherwise properly brought before the meeting by a stockholder. In addition to any other
applicable requirements, for business to be properly brought before an annual meeting by a
stockholder, the stockholder must have given timely notice thereof in writing to the Secretary of
Potomac Electric Power Company. To be timely, a stockholder's notice must be received at the
principal executive offices of the Company not less than 60 days nor more than 85 days prior to the
meeting; provided, however, that in the event that less than 65 days' notice or prior public disclosure
of the date of the meeting is given or made to stockholders, notice by the stockholder to be timely
must be so received not later than the close of business on the fifteenth day following the day on
which such notice of the date of the annual meeting was mailed or such public disclosure was made,
whichever first occurs. A stockholder's notice to the Secretary shall set forth (i) a brief description
of the business desired to be brought before the annual meeting and the reasons for conducting such
business at the annual meeting, (ii) the name and record address of the stockholder proposing such
business, (iii) the class and number of shares of the Company that are beneficially owned by the
stockholder, and (iv) any material interest of the stockholder in such business.

Notwithstanding anything in the By-Laws to the contrary, no business shall be conducted
at the annual meeting except in accordance with the procedures set forth in this Article I, Section 1;
provided, however, that nothing in this Article I, Section 1 shall be deemed to preclude discussion
by any stockholder of any business properly brought before the annual meeting in accordance with
such procedures.

The Chairman of an annual meeting shall, if the facts warrant, determine that business was
not properly brought before the meeting in accordance with the provisions of this Article I, Section
1, and if he should so determine, he shall so declare to the meeting and any such business not
properly brought before the meeting shall not be transacted.

SECTION 2. Special meetings of the stockholders, when called, shall be held at such time
and place within or without the District of Columbia and may be called by the Board of Directors,
or the Executive Committee, or the holders of record of not less than one-fifth of all the outstanding
shares entitled to vote at the meeting, or, if the meeting is for the purpose of enabling the holders of
the Serial Preferred Stock of the Company to elect directors upon the conditions set forth in the
Articles of Incorporation of the Company, such meeting shall be called as therein provided.

SECTION 3. Written notice stating the place, day and hour of each meeting of the
stockholders and the purpose or purposes for which the meeting is called shall be given not less than
ten days (or such longer period as may be prescribed by law) and not more than fifty days before the
date of the meeting to each stockholder of record entitled to vote at the meeting, by depositing such
notice in the United States mail addressed to the respective stockholders at their addresses as they
appear on the records of the Company, with postage thereon prepaid.

In connection with the first election of a portion of the members of the Board of Directors
by the holders of the Serial Preferred Stock upon accrual of such right, as provided in the Articles
of Incorporation of the Company, the Company shall prepare and mail to the holders of the Serial
Preferred Stock entitled to vote thereon such proxy forms, communications and documents as may
be deemed appropriate for the purpose of soliciting proxies for the election of directors by the
holders of the Serial Preferred Stock.

The Secretary or an Assistant Secretary of the Company shall cause to be made, at least ten
days before each meeting of stockholders, a complete list of the stockholders entitled to vote at such
meeting or any adjournment thereof, with the address of and the number of shares held by each.
Such list, for a period of ten days prior to such meeting, shall be kept on file at the principal place
of business of the Company and shall be subject to inspection for any proper purpose by any
stockholder at any time during usual business hours. Such list shall also be produced and kept open
at the time and place of the meeting and shall be subject to the inspection for any proper purpose of
any stockholder during the whole time of the meeting.

SECTION 4. At each meeting of stockholders the holders of record of a majority of the
outstanding shares entitled to vote at such meeting, represented in person or by proxy, shall
constitute a quorum, except as otherwise provided by law or by the Articles of Incorporation of the
Company. The affirmative vote of the holders of a majority of the shares represented at a duly
organized meeting at which a quorum was present at the time of organization, and entitled to vote
on the subject matter, shall be the act of the stockholders, unless the vote of the holders of a greater
number, or voting by classes, is required by law or by the Articles of Incorporation of the Company
and except that in elections of directors those receiving the greatest numbers of votes shall be
deemed elected even though not receiving a majority. If a meeting cannot be organized because a
quorum has not attended, the holders of a majority of the shares represented at the meeting may
adjourn the meeting from time to time, without notice other than announcement at the meeting, until
a quorum shall have been obtained, when any business may be transacted which might have been
transacted at the meeting as first convened had there been a quorum.

SECTION 5. Meetings of the stockholders shall be presided over by the Chairman of the
Board or, if he is not present, by the President or, if neither is present, by a Vice Chairman or, if no
such officer is present, by a chairman to be chosen at the meeting. The Secretary of the Company
or, if he is not present, an Assistant Secretary of the Company or, if neither is present, a secretary
to be chosen at the meeting, shall act as Secretary of the meeting.

SECTION 6. Each stockholder entitled to vote at any meeting may so vote either in person
or by proxy executed in writing by the stockholder or by his duly authorized attorney-in-fact and
shall be entitled to one vote on each matter submitted to a vote for each share of stock of the
Company having voting power thereon registered in his name at the date fixed for the determination
of the stockholders entitled to vote at the meeting.

SECTION 7. At all elections of directors the voting shall be by ballot. At all such
elections, the Chairman of the meeting shall appoint two inspectors of election, unless such
appointment shall be unanimously waived by the stockholders present in person or represented by
proxy at the meeting and entitled to vote for the election of directors. No director or candidate for
the office of director shall be appointed as such inspector. The inspectors, before entering upon the
discharge of their duties, shall take and subscribe an oath or affirmation faithfully to execute the
duties of inspector at such meeting with strict impartiality and according to the best of their ability,
and shall take charge of the polls and after the balloting shall make a certificate of the result of the
vote taken.

SECTION 8. In order to determine who are stockholders of the Company for any proper
purpose, the Board of Directors either may close the stock transfer books or, in lieu thereof, may fix
in advance a date as the record date for such determination, such date in any case to be not more than
fifty days (and, in the case of a meeting of stockholders, not less than ten days or such longer period
as may be required by law) prior to the date on which the particular action, requiring such
determination, is to be taken. When such a record date has been so fixed for the determination of
stockholders entitled to vote at a meeting, such determination shall apply to any adjournment thereof.

                                                                    ARTICLE II

                                                        BOARD OF DIRECTORS

SECTION 1. The Board of Directors of the Company shall consist of eleven persons, each
of whom shall be a stockholder of the Company. The directors shall be divided into three classes,
designated Class I, Class II, and Class III. Each of Classes I and III shall have four directors. Class
II shall have three directors. At each annual meeting of stockholders, successors to the class of
directors whose term expires at that annual meeting shall be elected for a three-year term. Except
as otherwise provided in the Articles of Incorporation of the Company and in these By-Laws, the
directors shall hold office until the annual meeting of the stockholders for the year in which their
respective terms expire and until their respective successors shall have been elected and qualified.
No person shall be eligible for election as a director after he shall have attained his seventieth
birthday, and no person shall be eligible to serve as a director beyond the next annual meeting after
he shall have attained his seventieth birthday. No director who is a full time employee of the
Company shall be eligible to serve as a director beyond the next annual meeting after termination
of his employment with the Company, provided, that (a) this provision shall not apply to a director
who is serving or has served as Chief Executive Officer and (b) a director serving at the time of
termination of employment as Vice Chairman shall be permitted to continue as director until the
expiration of his three-year term. Six members of the Board shall constitute a quorum for the
transaction of business, but if any meeting of the Board cannot be organized because a quorum has
not attended, a majority of those present may adjourn the meeting from time to time, without notice
other than announcement at the meeting, until a quorum shall have been obtained, when any business
may be transacted which might have been transacted at the meeting as first convened had there been
a quorum. The acts of a majority of the directors present at a meeting at which a quorum is present
shall, except as otherwise provided by law, by the Articles of Incorporation of the Company, or by
these By-Laws, be the acts of the Board of Directors.

Only persons who are nominated in accordance with the following procedures shall be
eligible for election as Directors. Nominations of persons for election to the Board of the Company
may be made at the annual meeting of stockholders by or at the direction of the Board of Directors,
by any nominating committee or person appointed by the Board, or by any stockholder of the
Company entitled to vote for the election of Directors at the meeting who complies with the notice
procedures set forth in this Article II, Section 1. Such nominations, other than those made by or at
the direction of the Board or by a nominating committee or person appointed by the Board, shall be
made pursuant to timely notice in writing to the Secretary of Potomac Electric Power Company. To
be timely, a stockholder's notice shall be received at the principal executive offices of the Company
not less than 60 days nor more than 85 days prior to the meeting; provided, however, that in the
event that less than 65 days' notice or prior public disclosure of the date of the meeting is given or
made to stockholders, notice by the stockholder to be timely must be so received not later than the
close of business on the fifteenth day following the day on which such notice of the date of the
meeting was mailed or such public disclosure was made, whichever first occurs. Such stockholder's
notice to the Secretary shall set forth (a) as to each person whom the stockholder proposes to
nominate for election or reelection as a Director, (i) the name, age, business address and residence
address of the person, (ii) the principal occupation or employment of the person, (iii) the class and
number of shares of capital stock of the Company that are beneficially owned by the person and (iv)
any other information relating to the person that is required to be disclosed in solicitations for
proxies for election of Directors pursuant to Section 14(a) of the Securities Exchange Act of 1934,
as amended; and (b) as to the stockholder giving the notice (i) the name and record address of the
stockholder and (ii) the class and number of shares of capital stock of the Company that are
beneficially owned by the stockholder. The Company may require any proposed nominee to furnish
such other information as may reasonably be required by the Company to determine the eligibility
of such proposed nominee to serve as Director of the Company. No person shall be eligible for
election as a Director of the Company unless nominated in accordance with the procedures set forth
herein.

The Chairman of the meeting shall, if the facts warrant, determine that a nomination was not
made in accordance with the foregoing procedure, and if he should so determine, he shall so declare
to the meeting and the defective nomination shall be disregarded.

The Board of Directors, as soon as is reasonably practicable after the initial election of
Directors by the stockholders in each year, shall elect one of its number Chairman of the Board, who
may be, but is not required to be, an officer and employee of the Company.

SECTION 2. Any vacancy, from any cause other than an increase in the number of
Directors, occurring among the directors shall be filled without undue delay by a majority of the
remaining directors who were elected, or whose predecessors in office were elected, by the same
class of stockholders as that which elected the last incumbent of the vacant directorship. The term
of any director elected by the remaining directors to fill a vacancy (other than one caused by an
increase in the number of directors) shall expire at the next stockholders' meeting at which directors
are elected.

SECTION 3. Regular meetings of the Board of Directors shall be held at the office of the
Company in the District of Columbia (unless otherwise fixed by resolution of the Board) at such
time as may from time to time be fixed by resolution of the Board. Special meetings of the Board
may be held upon call of the Executive Committee, or the Chairman of the Board, or the President,
or a Vice Chairman, by oral, telegraphic or written notice, setting forth the time and place (either
within or without the District of Columbia) of the meeting, duly served on or sent or mailed to each
director not less than two days before the meeting. A meeting of the Board may be held without
notice, immediately after, and at the same place as, the annual meeting of the stockholders. A waiver
in writing of any notice, signed by a director, whether before or after the time stated therein, shall
be deemed equivalent to the giving of such notice to such director. Neither the business to be
transacted at, nor the purpose of, any regular or special meeting of the Board need be specified in
any notice, or waiver of notice, of such meeting.

SECTION 4. Meetings of the Board of Directors shall be presided over by the Chairman
of the Board or, if he is not present, by the President or, if neither is present, by a Vice Chairman or,
if no such officer is present, by a chairman to be chosen at the meeting. The Secretary of the
Company or, if he is not present, an Assistant Secretary of the Company or, if neither is present, a
secretary to be chosen at the meeting, shall act as secretary of the meeting.

SECTION 5. The Board of Directors may, by resolution or resolutions adopted by not less
than the number of directors necessary to constitute a quorum of the Board, designate an Executive
Committee consisting of not less than three nor more than seven directors. Except as otherwise
provided by law, the Executive Committee shall have and may exercise, when the Board is not in
session, all of the powers of the Board in the management of the property, business and affairs of
the Company; but the Executive Committee shall not have power to fill vacancies in the Board, or
to change the membership of, or to fill vacancies in, the Executive Committee, or to adopt, alter,
amend, or repeal by-laws of the Company. The Board shall have the power at any time to fill
vacancies in, to change the membership of, or to dissolve, the Executive Committee. The Executive
Committee may make rules for the conduct of its business and fix the time and place of its meetings,
and may appoint such committees and assistants as it shall from time to time deem necessary. A
majority of the members of the Executive Committee shall constitute a quorum, and the acts of a
majority of the members of the Committee present at a meeting at which a quorum is present shall
be the acts of said Committee. All action taken by the Executive Committee shall be reported to the
Board at its regular meeting next succeeding the taking of such action.

SECTION 6. The Board of Directors may also, by resolution or resolutions adopted by not
less than the number of directors necessary to constitute a quorum of the Board, designate one or
more other committees, each such committee to consist of such number of directors as the Board
may from time to time determine, which, to the extent provided in said resolution or resolutions,
shall have and may exercise such limited authority as the Board may authorize. Such committee or
committees shall have such name or names as the Board may from time to time determine. The
Board shall have the power at any time to fill vacancies in, to change the membership of, or to
dissolve, any such committee. A majority, or such other number as the Board may designate, of the
members of any such committee shall constitute a quorum. Each such committee may make rules
for the conduct of its business and fix the time and place of its meetings unless the Board shall
otherwise provide. All action taken by any such committee shall be reported to the Board at its
regular meeting next succeeding the taking of such action, unless otherwise directed.

SECTION 7. The Board of Directors shall fix the compensation to be paid to each director
who is not a salaried employee of the Company for serving as a director and for attendance at
meetings of the Board and committees thereof, and may authorize the payment to directors of
expenses incurred in attending any such meeting or otherwise incurred in connection with the
business of the Company. This By-Law shall not be construed to preclude any Director from serving
the Company in any other capacity and receiving compensation therefor.

SECTION 8. At a special meeting called expressly for such purpose (i) any director elected
by the holders of the Serial Preferred Stock, or elected by directors to fill a vacancy among the
directors elected by the holders of such stock, may be removed, only for cause, by a vote of the
holders of a majority of the shares of Serial Preferred Stock, and the resulting vacancy may be filled,
for the unexpired term of the director so removed, by a vote of the holders of such Stock; and (ii)
any director elected by the holders of the Common Stock, or elected by directors to fill a vacancy
among the directors elected by the holders of such stock, may be removed, only for cause, by a vote
of the holders of a majority of the shares of Common Stock, and the resulting vacancy may be filled,
for the unexpired term of the director so removed, by a vote of the holders of such Stock.

SECTION 9. With respect to a Company officer, director, or employee, the Company shall
indemnify, and with respect to any other individual the Company may indemnify, any person who
was or is a party or is threatened to be made a party to any threatened, pending or completed action,
suit or proceeding (an "Action"), whether civil, criminal, administrative, arbitrative or investigative
(including an Action by or in the right of the Company) by reason of the fact that he is or was a
director, officer, employee or agent of the Company, or is or was serving at the request of the
Company as a director, officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts
paid in settlement actually and reasonably incurred by him in connection with such Action; except
in relation to matters as to which he shall be finally adjudged in such Action to have knowingly
violated the criminal law or be liable for willful misconduct in the performance of his duty to the
Company. The termination of any Action by judgment, order, settlement, conviction, or upon a plea
of nolo contendere or its equivalent, shall not of itself create a presumption that the person was guilty
of willful misconduct.

Any indemnification (unless ordered by a court) shall be made by the Company only as
authorized in the specific case upon a determination that indemnification of the director, officer,
employee or agent is proper in the circumstances because he has met the applicable standard of
conduct set forth above. In the case of any director, such determination shall be made: (1) by the
Board of Directors by a majority vote of a quorum consisting of directors who were not parties to
such Action; or (2) if such a quorum is not obtainable, by majority vote of a committee duly
designated by the Board of Directors (in which designation directors who are parties may participate)
consisting solely of two or more directors not at the time parties to the proceeding; or (3) by special
legal counsel selected by the Board of Directors or its committee in the manner prescribed by clause
(1) or (2) of this paragraph, or if such a quorum is not obtainable and such a committee cannot be
designated, by majority vote of the Board of Directors, in which selection directors who are parties
may participate; or (4) by vote of the shareholders, in which vote shares owned by or voted under
the control of directors, officers and employees who are at the time parties to the Action may not be
voted. In the case of any officer, employee, or agent other than a director, such determination may
be made (i) by the Board of Directors or a committee thereof; (ii) by the Chairman of the Board of
the Company or, if the Chairman is a party to such Action, the President of the Company, or (iii)
such other officer of the Company, not a party to such Action, as such person specified in clause (i)
or (ii) of this paragraph may designate. Authorization of indemnification and evaluation as to
reasonableness of expenses shall be made in the same manner as the determination that
indemnification is permissible, except that if the determination is made by special legal counsel,
authorization of indemnification and evaluation as to reasonableness of expenses shall be made by
those entitled hereunder to select such legal counsel.

Expenses incurred in defending an Action for which indemnification may be available
hereunder shall be paid by the Company in advance of the final disposition of such Action as
authorized in the manner provided in the preceding paragraph, subject to execution by the person
being indemnified of a written undertaking to repay such amount if and to the extent that it shall
ultimately be determined by a court that such indemnification by the Company is not permitted
under applicable law.

It is the intention of the Company that the indemnification set forth in this Section 9 of
Article II, shall be applied to no less extent than the maximum indemnification permitted by law.
In the event that any right to indemnification or other right hereunder may be deemed to be
unenforceable or invalid, in whole or in part, such unenforceability or invalidity shall not affect any
other right hereunder, or any right to the extent that it is not deemed to be unenforceable. The
indemnification provided herein shall be in addition to, and not exclusive of, any other rights to
which those indemnified may be entitled under any by-law, agreement, vote of stockholders, or
otherwise, and shall continue as to a person who has ceased to be a director, officer, employee, or
agent and inure to the benefit of such person's heirs, executors, and administrators.

SECTION 10. The Board of Directors may, in its discretion, at any time elect one or more
persons to the position of Advisory Director, to serve as such during the pleasure of the Board, but,
except for a director who has served as Chief Executive Officer, no person shall be eligible to serve
as an Advisory Director beyond the next annual meeting after he shall have attained his
seventy-second birthday. Advisory Directors so elected by the Board shall be entitled to attend, and
take part in discussions at, meetings of the Board of Directors, but shall not be considered members
of the Board for quorum or voting purposes. Advisory Directors shall receive the same
compensation as members of the Board.

SECTION 11. In any proceeding brought by a stockholder in the right of the Company or
brought by or on behalf of the stockholders of the Company, no monetary damages shall be assessed
against an officer or director. The liability of an officer or director shall not be limited as provided
in this section if the officer or director engaged in willful misconduct or a knowing violation of the
criminal law.

                                                                          ARTICLE III

                                                                             OFFICERS

SECTION 1. The Board of Directors, as soon as reasonably practicable after the initial
election of directors by stockholders in each year, may elect a Chairman of the Board as an officer
of the Company, shall elect a President, may elect one or more Vice Chairmen and shall elect one
or more Vice Presidents (who may be given such other descriptive titles as the Board may specify),
a Secretary, a Treasurer and a Comptroller, and from time to time may elect such Assistant
Secretaries, Assistant Treasurers, Assistant Comptrollers and other officers, and appoint such other
agents, as it may deem desirable. Any two or more offices may be held by the same person, except
the offices of President and Secretary. The Board of Directors shall elect the Chairman of the Board
or one of the above officers Chief Executive Officer of the Company.

SECTION 2. The term of office of all officers shall be until the next succeeding annual
election of officers and until their respective successors shall have been elected and qualified; but
any officer or agent elected or appointed by the Board of Directors may be removed, with or without
cause, by the affirmative vote of a majority of the members of the Board whenever in their judgment
the best interests of the Company will be served thereby. Such removal shall be without prejudice
to contract rights, if any, of the person so removed. Election or appointment of an officer or agent
shall not of itself create contract rights. Unless specifically authorized by resolution of the Board
of Directors, no agreement for the employment of any officer for a period longer than one year shall
be made.

SECTION 3. Subject to such limitations as the Board of Directors or the Executive
Committee may from time to time prescribe, the officers of the Company shall each have such
authority and perform such duties in the management of the property, business and affairs of the
Company as by custom generally pertain to their respective offices, as well as such authority and
duties as from time to time may be conferred by the Board of Directors, the Executive Committee
or the Chief Executive Officer.

SECTION 4. The salaries of all officers, employees and agents of the Company shall be
determined and fixed by the Board of Directors, or pursuant to such authority as the Board may from
time to time prescribe.

                                                                    ARTICLE IV

                                                      CERTIFICATES OF STOCK

SECTION 1. The shares of the capital stock of the Company shall be represented by
certificates, provided that the Board of Directors of the Company may provide by resolution that
some or all of the shares of any or all of its classes or series of capital stock may be uncertificated
shares. Except as otherwise expressly provided by law, the rights and obligations of the holders of
uncertificated shares and the rights and obligations of the holders of certificates representing shares
of the same class and series shall be identical. Shares of the capital stock of the Company that are
evidenced by certificates shall be in such form as the Board of Directors may from time to time
prescribe. Such certificates shall be signed by the President or a Vice President and by the Secretary
or an Assistant Secretary, shall be sealed with the seal of the Company, or a facsimile thereof, shall
be countersigned and registered in such manner, if any, as the Board may by resolution prescribe.
Where such a certificate is countersigned by a transfer agent (other than the Company or an
employee of the Company), or by a transfer clerk and registered by a registrar, the signatures thereon
of the President or Vice President and the Secretary or Assistant Secretary may be facsimiles. In
case any officer who has signed or whose facsimile signature has been placed upon any such
certificate shall have ceased to be such officer before such certificate is issued, it may be issued by
the Company with the same effect as if such officer had not ceased to hold such office at the date
of its issue.

SECTION 2. The shares of the capital stock of the Company shall be transferable on the
books of the Company by the holders thereof in person or by duly authorized attorney, and, if
represented by certificates, upon surrender and cancellation of the certificates evidencing such
shares, with duly executed assignment and power of transfer endorsed thereon or attached thereto,
and with such proof of the authenticity of the signatures as the Company or its agents may
reasonably require and, if uncertificated, upon receipt of appropriate instructions.

SECTION 3. No certificate evidencing shares of the capital stock of the Company shall be
issued in place of any certificate alleged to have been lost, stolen, or destroyed, except upon
production of such evidence of the loss, theft or destruction, and upon such indemnification of the
Company and its agents by such person or persons and in such manner, as the Board of Directors
may from time to time prescribe.

                                                                   ARTICLE V

                                            CHECKS, NOTES, CONTRACTS, ETC.

All checks and drafts on the Company's bank accounts, bills of exchange, promissory notes,
acceptances, obligations, other instruments for the payment of money, and endorsements other than
for deposit in a bank account of the Company shall be signed by the Treasurer or an Assistant
Treasurer and shall be countersigned by the Chief Executive Officer, the President, a Vice Chairman
or a Vice President, unless otherwise authorized by the Board of Directors; provided that checks
drawn on the Company's dividend and/or special accounts may bear the manual signature, or the
facsimile signature, affixed thereto by a mechanical device, of such officer or agent as the Board of
Directors shall authorize.

All contracts, bonds and other agreements and undertakings of the Company shall be
executed by the Chief Executive Officer, the President, a Vice Chairman or a Vice President and by
such other officer or officers, if any, as may be designated, from time to time, by the Board of
Directors and, in the case of any such document required to be under seal, the corporate seal shall
be affixed thereto and attested by the Secretary or an Assistant Secretary.

Whenever any instrument is required by this Article to be signed by more than one officer
of the Company, no person shall so sign in more than one capacity.

                                                                   ARTICLE VI

                                                                  FISCAL YEAR

The fiscal year of the Company shall begin on the first day of January in each year and shall
end on the thirty-first day of December following.

                                                                  ARTICLE VII

                                                                     OFFICES

The principal office of the Company shall be situated in the District of Columbia. The
registered office of the Company in Virginia shall be situated in the County of Fairfax. The
Company may have such other offices at such places, within the District of Columbia, the
Commonwealth of Virginia, or elsewhere, as shall be determined from time to time by the Board of
Directors or by the Chief Executive Officer.

                                                                 ARTICLE VIII

                                                               AMENDMENTS

Except as otherwise provided by law, the Board of Directors may alter, amend, or repeal the
By-Laws of the Company, or adopt new By-Laws, at any meeting of the Board, by the affirmative
vote of not less than the number of directors necessary to constitute a quorum of the Board.

EX-13

Exhibit 13
Consolidated Financial Information
Potomac Electric Power Company
Contents
2000 Highlights	2
Management's Discussion and Analysis of Consolidated Results of Operations and Financial Condition	3
Report of Independent Accountants	33
Consolidated Statements of Earnings	34
Consolidated Balance Sheets	35
Consolidated Statements of Shareholders' Equity and Comprehensive Income	37
Consolidated Statements of Cash Flows	38
Notes to Consolidated Financial Statements	39
Quarterly Financial Summary (Unaudited)	75
Stock Market Information	77

2000 Highlights
Consolidated Financial Information (Millions of      Dollars, except Per Share Data)		2000		1999		Change	% Change
Total Operating Revenue	$	3,047.7		2,476.0		571.7	23.1
Total Operating Expenses	$	2,328.2		2,095.6		232.6	11.1
Loss from Equity Investments, Principally      Telecommunication Entities	$	(17.1)		(9.6)		(7.5)	(78.1)
Operating Income	$	702.4		370.8		331.6	89.4
Net Income	$	352.0		247.1		104.9	42.5
Earnings Available for Common Stock	$	346.5		238.2		108.3	45.5
Basic Earnings (Loss) Per Share of Common Stock
Utility:
Continuing Operations	$	1.61		1.85		(.24)	(13.0)
Divestiture Gain		1.58		-		1.58	-
Impairment Loss		(.20)		-		(.20)	-
Total Utility		2.99		1.85		1.14	61.6
PCI		.12		0.22		(.10)	(45.5)
Pepco Energy Services		(.08)		(.06)		(.02)	(33.3)
PepMarket		(.01)		-		(.01)	-
Pepco Consolidated	$	3.02		2.01		1.01	50.2
Cash Dividends Per Common Share	$	1.66		1.66		-	-
Utility - Operating
Electrical Sales (000s Megawatt-hours)		27,442		26,970		472	1.8
Total Investment in Property and Plant (In Millions)	$	4,284.7		6,784.3		(2,499.6)	(36.8)
Number of Electric Service Customers at Year-End		719,687		700,611		19,076	2.7
Average Price Per Kilowatt-hour		6.96	Cents	7.11	Cents	(.15)	(2.1)
Potomac Capital Investment Corporation (PCI) -      Asset Mix (Millions of Dollars)
Energy Leveraged Leases	$	469.3		433.3		36.0	8.3
Marketable Securities	$	231.4		203.2		28.2	13.9
Aircraft Leases	$	118.5		251.3		(132.8)	(52.8)
Telecommunications	$	118.2		39.6		78.6	100.0
Real Estate	$	102.8		78.8		24.0	30.5
Other (primarily investments and receivables)	$	368.6		277.2		91.4	33.0
PCI - Telecommunications
Cumulative Authorized Cable Households		900,000		550,000		350,000	63.6
Cumulative Constructed Households		175,000		70,000		105,000	100.0+
Customer Services
On-network		35,000		15,000		20,000	100.0+
Off-network		240,000		265,000		(25,000)	(9.4)
Total Customer Services		275,000		280,000		(5,000)	(1.8)
Pepco Energy Services, Inc.
Electrical Sales (000s Megawatt-hours)		640		118		522	100.0+
Gas Sales (in millions of dekatherms)		54.4		46.3		8.1	17.5
Number of Gas and Electric Service Customers at     Year-End		32,100		6,900		25,200	100.0+
Service Revenues (in millions)	$	32.5		27.7		4.8	17.3
Gas and Electric Revenues (in millions)	$	202.5		105.5		97.0	91.9

MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED RESULTS OF
OPERATIONS AND FINANCIAL CONDITION

COMPANY OVERVIEW

        Potomac Electric Power Company (Pepco or the Company) is engaged in three principal
lines of business. These business lines consist of (1) the provision of regulated electric utility
transmission and distribution services in the Washington, D.C. (D.C.) metropolitan area, (2) the
supply of telecommunications services including local and long distance telephone, high-speed
Internet and cable television, and (3) the supply of energy products and services in competitive
retail markets. The Company's regulated electric utility activities are referred to herein as the
"Utility" or "Utility Operations," and its telecommunications services and competitive energy
activities are referred to herein as its "Competitive Operations." Additionally, the Company has
a wholly owned Delaware statutory business trust, Potomac Electric Power Company Trust I,
which is referred to herein as the "Trust" and a wholly owned Delaware Investment Holding
Company, Edison Capital Reserves Corporation, which is referred to herein as "Edison."

        In 2000, the generating segment of the electric utility industry continued to transition from a
regulatory to a competitive environment, and in response to this transition, the Utility executed
its business plan to exit the electricity generating business by completing the divestiture of
substantially all of its generation assets in December 2000. Additionally, the Company's
comprehensive plans to implement customer choice were completed as Maryland and D.C.
customers began to have their choice of electricity suppliers on July 1, 2000, and January 1,
2001, respectively. An overview of the Company's business activities is provided below.

UTILITY OPERATIONS

        On June 7, 2000, the Company entered into an agreement (the Agreement) with Mirant
Corp., formerly Southern Energy Inc. (Southern Energy) to sell total capacity of 5,154
megawatts in four generating stations located in Maryland and Virginia, and six purchased
capacity contracts totaling 735 megawatts (the Generation Assets). Southern Energy paid a total
of $2.74 billion (including other related generation assets sold to Southern Energy). The
Agreement was reached after Southern Energy was selected by the Company as the winning
bidder in its auction process that was held to select the buyer of its Generation Assets. The
divestiture closed on December 19, 2000, and resulted in the Company's recognition of a pre-tax
gain of $423.8 million ($182 million net of income tax or $1.58 per share). Additionally, in
December 2000, the Company transferred its Benning Road and Buzzard Point generating plants,
which were not included in the Generation Assets divested to Southern Energy, to a subsidiary of
Pepco Energy Services, Inc. (Pepco Energy Services). These power plants are located in D.C.
and have a total installed capacity of 806 megawatts. These stations will function as exempt
wholesale generators and be operated and maintained by Southern Energy pursuant to an initial
three-year contract with Pepco Energy Services. As discussed in the "Impairment Loss" section
herein, these stations were determined to be impaired and were written down to their fair value
by recognizing a pre-tax impairment loss of $40.3 million in the fourth quarter of 2000 ($24.1
million net of income tax or 20 cents per share).

        In a separate transaction, on May 19, 2000, the Company reached an agreement with PPL
Global, Inc., and Allegheny Energy Supply Company, LLC, to sell its 9.72 percent interest in the
Conemaugh Generating Station (Conemaugh) for approximately $156 million. Conemaugh is
located near Johnstown, Pennsylvania, and consists of two baseload units totaling approximately
1,700 megawatts of capacity. The Conemaugh sale closed on January 8, 2001, and resulted in
the recognition of a pre-tax gain of approximately $39 million, which will be recorded in the first
quarter of 2001.

        In accordance with the terms of agreements approved by the Maryland Public Service
Commission (Maryland Commission) in 1999, retail access to a competitive market for
generation services was made available to all Maryland customers on July 1, 2000. Also under
these agreements, Maryland customers who are unable to receive generation services from
another supplier, or who do not select another supplier, are entitled to receive services (default
services) from the Company until July 1, 2004, at a rate for the applicable customer class that is
no higher than the bundled rate in effect on June 30, 2000, but subject to adjustment for tax law
changes enacted by the Maryland General Assembly relating to its authorization of electric
industry restructuring. Thereafter, the Company will provide default services using power
obtained through a competitive bidding process at regulated tariff rates determined on a pass-
through basis and including an allowance for the costs incurred by the Company in providing the
services. In D.C., customers began to have their choice of electricity suppliers on January 1,
2001. The Company has a full requirements contract with Southern Energy to fulfill these
obligations.

        A summary of the Utility's Results of Operations for the years ended December 31, 2000,
1999, and 1998 follows. Refer to the Consolidated Results of Operations section for a discussion
of the impact of the Utility's operations on the Company's consolidated operations.

Utility Operations	2000	1999	1998
	(Millions of Dollars)
Revenues Gain on Divestiture of Generation Assets Impairment Loss	$2,237.5 423.8 (40.3)	$ 2,219.3              -              -	$ 2,068.9                -                -
Expenses	(2,272.1)	(1,991.3)	(1,857.7)
Net Income	$  348.9	$   228.0	$   211.2

COMPETITIVE OPERATIONS

        Over the past few years, with the passage of the Telecommunications Act of 1996, and the
deregulation of the natural gas and electric industries also under way, the focus of Pepco's
Competitive Operations has been expanded to include new telecommunications and energy
businesses. To facilitate this expansion, in May 1999, Pepco created a new unregulated
company, Pepco Holdings, Inc. (PHI), as the parent company of two wholly owned subsidiaries,
Potomac Capital Investment Corporation (PCI) and Pepco Energy Services. The Company's
telecommunications services are provided by PCI and its competitive energy products and
services are provided by Pepco Energy Services. Additionally, in September 2000,
PepMarket.com, LLC, (PepMarket) was organized as a third direct, wholly owned subsidiary of
PHI to offer internet-based procurement services to businesses and institutional customers.
Additional information about the Company's competitive telecommunications services and
financial investments, its competitive energy products and services, and its business-to-business
procurement operations is provided below.

Competitive Telecommunications Services and Financial Investments

         Pepco supplies bundled residential telecommunications products and services through
PCI's operations in the D.C. and Northern Virginia metropolitan areas. PCI also manages a
financial investments portfolio intended to provide additional earnings and cash flow.

        PCI's telecommunications products and services are provided through Starpower
Communications (Starpower), which was formed in 1997 by wholly owned subsidiaries of PCI
and RCN Corporation (RCN). Starpower is currently the only regional company providing cable
television, local and long distance telephone, dial-up and high-speed Internet services in a
competitively priced, bundled package for residential consumers, over an advanced fiber-optic
network. During 2000, Starpower built sufficient advanced fiber-optic network to cumulatively
reach approximately 175,000 households as compared to approximately 70,000 households at
December 31, 1999. The customer subscriber services base is composed of customers served by
Starpower's advanced fiber-optic network (On-network) and off of other networks ahead of
Starpower's build-out (Off-network). The On-network customer subscriber services include
cable television, local and long distance telephone and high-speed Internet and totaled
approximately 35,000 as of December 31, 2000, compared to approximately 15,000 at December
31, 1999. The Off-network customer subscriber services include dial-up Internet and resale local
and long distance telephone and totaled approximately 240,000 as of December 31, 2000,
compared to approximately 265,000 at December 31, 1999. Total customer subscriber services
including cable television, local and long distance telephone, and Internet customers were
approximately 275,000 as of December 31, 2000, compared to approximately 280,000 customers
as of December 31, 1999. The decline in total customer subscriber services during 2000 is
principally due to the loss of dial-up Internet customers due to competition from free dial-up
Internet service providers.

        During 2000, Starpower received approval from the Prince George's County Council to
provide competitive cable television, phone, and high-speed Internet services to the more than
240,000 households in Prince George's County, Maryland. This coupled with the earlier
approval in August 2000 from the Arlington County Board of Supervisors to provide similar
services to the more than 90,000 households of Arlington County, Virginia means that Starpower
now has the authority to offer its advanced network services to approximately 900,000
households in the D.C. metropolitan area, which includes D.C.; Montgomery County, Maryland;
Gaithersburg, Maryland; Prince George's County, Maryland; Arlington County, Virginia; and
Falls Church, Virginia. The approximately 900,000 households at December 31, 2000 represents
a significant increase from approximately 550,000 authorized cable households at December 31,
1999.

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

        Beginning in the mid-1990s, PCI began redirecting its business operations by reducing its
involvement in investments that are not related to the energy or telecommunications industries.
Significant progress has been made in reducing PCI's previous concentration of investments in
the aircraft industry and recent investments have expanded PCI's portfolio of electric generating
and natural gas transmission and distribution equipment leases. The following table summarizes
PCI's asset mix, in millions of dollars, as of December 31, for each year presented.

PCI Asset Mix
	2000		1999
Energy leveraged leases	$  469.3	33%	$  433.3	34%
Marketable securities	231.4	17	203.2	16
Aircraft leases	118.5	8	251.3	20
Telecommunications	118.2	8	39.6	3
Real estate	102.8	7	78.8	6
Other investments (primarily investments        and receivables)	368.6	27	277.2	21
Total Assets	$1,408.8	100%	$1,283.4	100%

        The long-standing objective of PCI's financial investment portfolio is to provide a
significant contribution to current earnings and to add to the long-term value of the Company.
Consistent with this strategy, PCI entered into the following significant transactions during 2000:

        PCI's utility industry products and services are provided through various operating interests.
Its underground cable services company, W. A. Chester, provides construction, installation and
maintenance services to utilities and to other customers throughout the United States. During
2000, PCI acquired Severn Cable, a growing telecommunications contractor in the Washington,
D.C. metropolitan area that specializes in the installation of strand, fiber-optic and coaxial cable.
Additionally, in 1999, PCI launched Pepco Technologies, Inc., a new business strategy that is
focused on bringing new technologies to the electric utility industry as it deregulates.

        A summary of PCI's Results of Operations for the years ended December 31, 2000, 1999,
and 1998 follows. Refer to the Consolidated Results of Operations section for a discussion of
the impact of PCI's operations on the Company's consolidated operations.

PCI Operations	2000	1999	1998
	(Millions of Dollars)
Revenues	$149.9	$123.4	$123.9
Loss from Equity Investments,          Principally Telecommunication Entities	(20.2)	(10.4)	(8.5)
Expenses	(116.4)	(86.3)	(99.1)
Net Income	$  13.3	$ 26.7	$ 16.3

Competitive Energy Products and Services

        In 2000, Pepco Energy Services' marketing, operating, and support staffs were increased
and business systems and infrastructure were selected to support its operations, including the
sourcing and procurement of natural gas and electricity to serve customers in competitive retail
markets. Pepco Energy Services currently provides nonregulated energy and energy-related
products and services in the mid-Atlantic region. Its products include electricity, natural gas,
energy-efficiency contracting, equipment operation and maintenance, fuel management, and
appliance warranties. These products and services are sold either in bundles or individually to
commercial, industrial, and residential customers. In addition, with the transfer of the Benning
Road and Buzzard Point generating plants from the Utility to Pepco Energy Services in
December 2000, its operations now also include the generation and sale of electricity in the
wholesale market. Pepco Energy Services' revenue grew by over $100 million from $133.3
million in 1999 to $236.4 million in 2000, principally from increased sales of electricity and
natural gas in competitive retail markets and from energy services contracting.

        Pepco Energy Services business operations included the following significant transactions
during 2000:

        A summary of Pepco Energy Services' Results of Operations for the years ended December
31, 2000, 1999, and 1998 follows. Refer to the Consolidated Results of Operations section for a
discussion of the impact of Pepco Energy Services' operations on the Company's consolidated
operations.

Pepco Energy Services' Operations	2000	1999	1998
	(Millions of Dollars)
Revenues	$236.4	$133.3	$ 28.0
Income from Equity Investment	3.1	.8	-
Expenses	(248.3)	(141.7)	(29.2)
Net Loss	$   (8.8)	$   (7.6)	$  (1.2)

Business-to-Business Procurement

        On December 1, 2000, PepMarket began its business operations.  As of December 31, 2000,
Pepco invested $11 million in PepMarket. From inception through December 31, 2000,
PepMarket produced revenues of $.1 million and incurred expenses of $1.5 million, which
resulted in a net loss of $1.4 million. The future success of PepMarket will depend upon its
ability to achieve its commercial objectives and is subject to a number of uncertainties and risks,
including, but not limited to, the overall success of marketing services; the growth of suppliers;
the intensity of competition; the effect of government planning and regulation; and the possible
development of alternative technologies. Statements concerning the activities of PepMarket that
constitute forward-looking statements are subject to the foregoing risks and uncertainties.

SAFE HARBOR STATEMENT

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

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

        Any forward-looking statements speak only as of January 19, 2001, and the Company
undertakes no obligation to update any forward-looking statement to reflect events or
circumstances after the date on which such statement is made or to reflect the occurrence of
unanticipated events. New factors emerge from time to time and it is not possible for
management to predict all of such factors, nor can it assess the impact of any such factor on the
business or the extent to which any factor, or combination of factors, may cause results to differ
materially from those contained in any forward-looking statement.

CONSOLIDATED RESULTS OF OPERATIONS

OPERATING REVENUE

        The Company classifies its operating revenue as Utility and Competitive Operations.
Utility revenue is derived from the Utility's operations, the Trust, and Edison, while Competitive
Operations revenue is derived from the operations of its competitive subsidiaries. Additionally,
the gain that was realized from the divestiture of the Company's Generation Assets is classified
as "Gain on Divestiture of Generation Assets" in the consolidated statements of earnings.

Utility Revenue

        The components of Utility revenue are as follows.

Utility Revenue	2000	1999	1998
	(Millions of Dollars)
Base rate revenue	$1,359.1	$1,397.8	$1,354.6
Fuel rate revenue to cover cost of fuel and      interchange and capacity purchase payments	550.8	518.9	518.1
Interchange deliveries	291.6	258.7	177.8
Other utility revenue, including SMECO contract      termination fee recorded in 1999	36.0	43.9	18.4
Total Utility Revenue	$2,237.5	$2,219.3	$2,068.9

Base Rate Revenue

        The decrease in 2000 base rate revenue reflects the impact of base rate reductions in
January 2000 of 2% and 3.5% for D.C. residential and commercial customers, respectively,
associated with the termination of the conservation portion of the Environmental Cost Recovery
Rider. (A portion of the proceeds from the divestiture of the Generation Assets were designated
for the recovery of unamortized conservation expenditures.) The decrease in 2000 base rate
revenues also reflects additional base reductions in July 2000 of 1.5% for D.C. customers and
approximately 3% for Maryland customers.

        The increase in 1999 base rate revenue reflects a $19 million increase in Maryland base
rates (pursuant to a December 1998 settlement agreement) and a $9 million increase in the
District of Columbia Demand Side Management (DSM) surcharge tariff (effective September
1998).

        The following is a summary of Pepco's delivered kilowatt-hour sales.

				2000	1999
				Vs.	vs.
Utility KWH Sales	2000	1999	1998	1999	1998
(Millions of KWHs)
By Customer Type
Residential	6,991	7,014	6,757	(.3)%	3.8%
General service	16,227	15,890	15,591	2.1	1.9
Large power service (a)	712	701	686	1.6	2.2
Street lighting	173	167	164	3.6	1.8
Wholesale (SMECO)	2,881	2,760	2,678	4.4	3.1
Metro	458	438	422	4.6	3.8
Total Energy Sales	27,442	26,970	26,298	1.8	2.6
Interchange
Energy deliveries	2,483	2,276	2,246	9.1	1.3
By Geographic Area
Maryland, including wholesale	16,826	16,552	16,017	1.7	3.3
District of Columbia	10,616	10,418	10,281	1.9	1.3
Total Energy Sales (a) Served at 66Kv or higher	27,442	26,970	26,298	1.8	2.6

        Kilowatt-hour sales increased in 2000 due to a 2.2% increase in delivery customers, and
winter temperatures that were 10% colder, as measured in heating degree days, than 1999.
Summer temperatures, as measured in cooling degree hours, were 31% milder than 1999 and
22% milder than the 20-year average, which had an unfavorable effect on kilowatt-hour sales.

        Kilowatt-hour sales increased in 1999 as the result of increases in cooling degree hours and
heating degree days of 6% and 11%, respectively, from 1998. Summer temperatures were 16%
hotter, as measured in cooling degree hours, than the 20-year average. In addition, a .9%
increase in utility customers produced a favorable impact on kilowatt-hour sales.

Fuel Rate Revenue

        The Maryland fuel clause was terminated effective July 1, 2000 (the date of commencement
of customer choice). In D. C. the fuel clause will be terminated effective February 9, 2001 (one
month after the completion of the sale of the Company's interest in Conemaugh). Now that
generation services have been deregulated in both Maryland and D.C., and the Utility has exited
the generation business, the Utility will no longer incur fuel costs or engage in interchange
transactions. Standard Offer Services will be provided through energy purchased from Southern
Energy.

         As part of the agreement with Southern Energy to divest its Generation Assets, the
Company also signed a Transition Power Agreement (TPA) with Southern Energy. This TPA
was necessary because the Company will continue to be obligated, as the incumbent electric
utility, to supply the electric power needs of all of its current Maryland and D.C. customers that
cannot or do not choose an alternate electric power service provider during a four-year transition
period to retail access. This service, called Standard Offer Service, is required by settlement
agreements approved by both the Maryland and D.C. Public Service Commissions as part of the
deregulation of electric power generation and the initiation of customer choice.

        Under the TPA, the Company has the option of acquiring all of the energy and capacity that
is needed for Standard Offer Service from Southern Energy at prices that are below the
Company's current cost-based billing rates for Standard Offer Service, thereby providing the
Company with a built-in profit margin on all Standard Offer Service sales that the Company
acquires from Southern Energy. Under the settlement agreements mentioned above, the
Company will share such profit amounts with customers on an annual cycle basis, beginning
with the period July 1, 2000, to June 30, 2001, in Maryland and from February 9, 2001, to
February 8, 2002, in D.C. (the Generation Procurement Credit or "GPC").

        In both jurisdictions, amounts shared with customers each year are determined only after the
Company recovers certain guaranteed annual reductions to customer rates. In addition, because
the annual cycle for the GPC in Maryland began on July 1, 2000, the Company supplied
Standard Offer Service from its traditional sources until the Generation Assets were sold and,
thus, recorded losses on Standard Offer Service sales during this period, mostly because of
higher summer generating costs. Therefore, profit from Standard Offer Service sales in
Maryland between January 8, 2001 and June 30, 2001 will be recorded as income to the
Company until both the guaranteed rate reduction amount and the Standard Offer Service losses
incurred in 2000 are recovered. Once such amounts are recovered, profit is shared with
customers in Maryland generally on a 50/50 basis.

        Fluctuations in fuel and purchased power costs throughout 1999 and 1998 resulted in four
revisions to the Company's Maryland fuel rate. The Company increased its Maryland fuel rate
by 10.5% effective March 1, 1998. Subsequently, on August 14, 1998, the Company filed for a
5.3% reduction in the Maryland fuel rate, which became effective beginning the billing month of
September 1998. Also, on October 19, 1998, the Company filed for an additional 6.3%
reduction in the Maryland fuel rate, which became effective beginning the billing month of
November 1998, and on November 23, 1999, the Company filed for a 5.5% reduction in the
Maryland fuel rate, which became effective beginning the billing month of December 1999.

Interchange Deliveries

         The increases in interchange deliveries in 2000 and 1999 reflect changes in prices and
levels of energy delivered to PJM and changes in prices and levels of bilateral energy sales under
the Company's wholesale power sales tariff. Interchange transactions were subject to cost-based
ratemaking regulations based on formulas prescribed by the FERC, but during 2000, the
Company made a significant effort to move the sales of energy and capacity under its FERC
approved Market based pricing tariff. Interchange deliveries also include revenue from sales of
short-term generating capacity. Revenues from capacity transactions totaled $1.2 million, $6
million, and $4.4 million in 2000, 1999, and 1998, respectively. The benefits derived from
interchange deliveries, the allocated amounts of capacity sales in D.C. (approximately 40%), and
revenue under the Open Access Transmission Tariff (OATT) have historically been passed
through to the Company's customers through fuel adjustment clauses. However, as discussed in
Note (2) of the Notes to Consolidated Financial Statements, Summary of Significant
Accounting Policies, effective July 1, 2000 in Maryland (the date of commencement of customer
choice) the fuel clause was terminated. Effective February 9, 2001 (one month after the
completion of the sale of the Company's interest in Conemaugh), the fuel clause in D.C. will be
terminated.

Other Utility Revenue

        The decrease in other Utility revenue in 2000 results from the effect in 1999 of $23.2
million in income associated with the payment (to be received in January 2001) related to the
revision of SMECO's full-requirements power supply contract. This transaction is discussed in
detail in Note (12) of the Notes to Consolidated Financial Statements, SMECO Agreement.

        The increase in other utility revenue in 1999 is also related to the revision of SMECO's full-
requirements contract.

Competitive Operations Revenue

        A summary of the components of Competitive Operations revenue is as follows.

Competitive Operations Revenue	2000	1999	1998
	(Millions of Dollars)
Financial Investments         Leased assets         Marketable securities         Real estate         Other financial investments	$   59.7   17.2   8.2       16.7	$  62.5 15.8 3.3     23.4	$  73.3 19.3 15.1       4.4
Total Financial Investments	101.8	105.0	112.1
Energy Services
Energy-efficiency services	22.3	21.5	14.7
Electricity sales	47.3	4.3	-
Natural gas sales	155.2	101.2	13.3
Building services and Other	11.6	6.3	-
Total Energy Services	236.4	133.3	28.0
Utility Industry Services	48.2	18.4	11.8
Total Competitive Operations Revenue	$386.4	$256.7	$151.9

Financial Investments

        Revenue from financial investments was $101.8 million in 2000, $105 million in 1999 and
$112.1 million in 1998. Financial investments revenue primarily consists of income derived
from leased assets (electric power plants, gas transmission and distribution networks, aircraft,
and other assets) and marketable securities (primarily fixed-rate, utility preferred stocks).
Additionally, transactions involving real estate holdings and other financial investments are
classified as financial investments revenue. The basis for the overall decrease in financial
investments revenue for 2000 compared to 1999 is described below.

        Leased assets revenue decreased in 2000 primarily as the result of aircraft sales in 1999 and
in 2000 that resulted in less rental income earned in 2000 and due to pretax losses of $8.2 million
($5.4 million after-tax) related to the sale of aircraft that were recorded in 2000. This decrease
was partially offset by a full year of revenue generated from two similar leveraged lease
transactions with eight Dutch Municipal owned entities that were entered into in 1999. Leased
assets revenue decreased in 1999 primarily as the result of aircraft sales throughout 1998 that
resulted in less rental income earned in 1999 and due to a pre-tax loss of $3 million ($1.9 million
after-tax) that was recorded in 1999 related to the sale of two aircraft. This decrease was offset
by revenue generated from two similar leveraged lease transactions with eight Dutch Municipal
owned entities that were entered into during 1999. Additional information regarding these leases
is disclosed in Note (3) of the Notes to Consolidated Financial Statements, Leasing Activities.

        Marketable securities revenue increased in 2000 primarily due to reduced losses on the
sale of securities during the year compared to the prior year. Marketable securities revenue
decreased in 1999 primarily due to a reduction in dividend income as a result of the downsizing
of the preferred stock portfolio from 1997 through 1999. Marketable securities revenue included
a net realized loss of $.3 million in 2000, a net realized loss of $1.6 million in 1999, and a net
realized gain of $2.2 million in 1998.

        The increase in real estate revenue in 2000 primarily results from pre-tax gains of
$2.2 million ($1.4 million after-tax) on the sale of properties within PCI's real estate portfolio.
The decrease in real estate revenue in 1999, results from 1998 real estate sales that resulted in
pre-tax gains of $12.2 million ($7.9 million after-tax).

        Revenue from other financial investments decreased in 2000 as a result of one-time gains
recorded in 1999 related to the liquidation of a partnership, which resulted in a pre-tax gain of
approximately $9.5 million ($5.9 million after-tax), and from the sale of an investment that
resulted in a pre-tax gain of approximately $9.9 million ($6.4 million after-tax). The decrease
was partially offset by increased revenues received from existing investments. Revenue from
other financial investments increased in 1999 over 1998 due to the one-time gain transactions
noted above.

Energy Services

        Revenue from energy and energy services was $236.4 million in 2000, $133.3 million in
1999, and $28 million in 1998. Energy services revenue primarily consists of energy-efficiency
services and natural gas and electricity sales in competitive retail markets. During 2000, Pepco
Energy Services had electricity sales of 640,131 megawatt-hours compared with 118,253
megawatt-hours in 1999. Pepco Energy Services had natural gas sales of approximately 54.4
million dekatherms in 2000, compared with approximately 46.3 million dekatherms in 1999.
This component of revenue is primarily transaction driven.

        Pepco Energy Services revenue increased in 2000 primarily due to continued growth of its
natural gas business and a full year of retail electric revenues. Also, Pepco Energy Services
started its wholesale electric business during 2000. Pepco Energy Services revenue increased in
1999 due to the recognition of a full year of operations in 1999 from acquisitions that were made
in 1998.

        In the fourth quarter of 1999, Pepco Energy Services began to market energy products and
services to residential customers in Maryland and Pennsylvania. As of December 31, 2000 and
1999, Pepco Energy Services had approximately 32,100 and 6,900 gas and electric service
customers, respectively.

Utility Industry Services

        The increase in utility industry services revenue during 2000 primarily results from the
pre-tax gain of approximately $19.7 million ($11.8 million after-tax) recorded by PCI for the sale
of its 50% interest in the Cove Point liquefied natural gas storage facility. The increase was also
partially related to the growth of this portion of PCI's business and additional revenues from
Severn Cable, acquired by PCI during 2000. The increase in utility industry services revenue
during 1999 results from the growth of this portion of PCI's business.

Gain on Divestiture of Generation Assets

        On December 19, 2000, the Company completed the sale of its Generation Assets to
Southern Energy (including other related generation assets) for $2.74 billion. This resulted in a
pre-tax gain of $423.8 million ($182 million net of income tax or $1.58 per share) that was
recorded in the fourth quarter of 2000. The amount of the pre-tax gain reflects a net book value
of electric power plants and other generating assets transferred to Southern Energy of
approximately $1.8 billion. Additionally, under the provisions of settlement agreements
approved by both the Maryland and D.C. Public Service Commissions, approximately $32.6
million and $46 million of transition and transaction costs, respectively, were reflected as
reductions in the calculation of the gain. Commitments for customer gain sharing of $243.8
million, as well as stranded regulatory assets such as conservation costs and unamortized debt
reacquisition costs were reflected as reductions in the calculation of the gain.

OPERATING EXPENSES

Total Fuel and Purchased Energy

        A summary of the Company's fuel and purchased energy is as follows.

	2000	1999	1998
	(Millions of Dollars)
Utility         Fuel expense         Capacity purchase payments         Purchased energy              PJM              Other                     Total purchased energy         Utility Fuel and Purchased Energy	$  357.7     205.7 254.8     196.5       451.3   1,014.7	$  396.4     213.9 181.1     130.3     311.4     921.7	$ 380.2   155.7 146.3   123.5   269.8   805.7
Pepco Energy Services
Electricity and natural gas	191.5	104.1	13.1
Consolidated Fuel and Purchased Energy	$1,206.2	$1,025.8	$818.8

Utility Fuel and Purchased Energy

        The Company divested its Generation Assets on December 19, 2000, and its interest in
Conemaugh on January 8, 2001. For additional information about the divestitures and their
impact on the TPA and GPC, refer to Note (1) Organization, Divestiture, and Segment
Information and the "Fuel Rate Revenue" section herein, respectively. The Utility's net system
generation and purchased energy in kilowatt-hours were as follows.

	2000	1999	1998
	(Millions of Kilowatt-hours)
Net system generation	18,834	22,807	21,715
Purchased energy	13,045	7,772	8,204

        The 2000 decrease in fuel expense compared to 1999 reflects a decrease of 17.4% in net
system generation, partially offset by an increase in the system average unit fuel cost. The
increase in 1999 fuel expense compared to 1998 reflects an increase of 5% in net system
generation, partially offset by a decrease in the system average unit fuel cost.

        The unit costs of fuel burned and the percentages of system fuel requirements obtained from
coal, oil and natural gas are shown in the following table.

Percent of Fuel Burned				Unit Cost of Fuel Burned
	Coal	Oil	Gas	Coal	Oil	Gas	System Average
				(Per Million Btu)
2000	83.7	5.8	10.5	$1.41	$3.93	$4.62	$1.90
1999	81.4	13.4	5.2	1.46	2.56	2.83	1.68
1998	84.5	12.7	2.8	1.55	2.71	2.63	1.72

        The 2000 system average unit fuel cost increased by 13% compared to 1999, principally
due to increases in the cost of natural gas. The 1999 system average unit fuel cost decreased by
2.3% compared to 1998, principally due to decreases in the costs of coal and oil. Prior to the
divestitures, the Company's major cycling and certain peaking units burned either natural gas or
oil, which provided protection against possible supply disruptions, and added flexibility in
selecting the most cost-effective fuel mix. The use of coal, oil and natural gas depended upon
the availability of generating units, energy and demand requirements of interconnected utilities,
regulatory requirements, weather conditions, and fuel supply constraints, if any.

        Effective July 1, 2000, in Maryland (the date of the commencement of customer choice) the
fuel clause was terminated, and therefore, fuel costs began to be expensed as incurred and fuel
rate revenue billed in any given period is no longer deferred for recovery from or repayment to
customers. Effective February 9, 2001 (one month after the completion of the sale of the
Company's interest in Conemaugh), the fuel clause in D.C. will be terminated. For the year
ended December 31, 2000, the discontinuance of the fuel clause had an unfavorable impact on
the Company's earnings as fuel costs exceeded fuel revenues by approximately $24 million (pre-
tax). Now that the Company has divested its Generation Assets, it will no longer incur losses
through provision of Standard Offer Service (refer to the Fuel Rate Revenue Section, herein).

        The Utility's transmission facilities are interconnected with those of other transmission
owners in the PJM power pool and other utilities, providing economic energy and reliability
benefits by facilitating the Company's participation in the federally regulated wholesale energy
market. This market has enabled the Company to purchase energy at costs lower than those
required to self-generate, and to sell energy at favorable prices to other market participants.

        Presently, all transmission service within the PJM power pool is administered by the PJM
Office of the Interconnection. Since April 1998, PJM has operated a "locational marginal
pricing" system designed to economically control transmission system congestion. Because of
the Company's pre-divestiture generation availability and peak load characteristics, the Company
generally was able to sell into the PJM market during high price peak load periods and buy from
the market during low price periods. (Also see the Restructuring of the Bulk Power Market
discussion below).

        In addition to interchange within PJM, prior to the divestiture of the Generation Assets in
December 2000, the Company actively participated in the bilateral energy sales marketplace.
The Company's FERC-approved wholesale power sales tariff allowed both sales from Company-
owned generation and sales of energy purchased by the Company from other market participants.
Numerous utilities and marketers executed service agreements allowing them to arrange
purchases under this tariff, and the Company executed service agreements allowing it to
purchase energy under other market participants' power sales tariffs.

        The Company purchases energy from FirstEnergy Corp. (FirstEnergy, formerly Ohio
Edison) under a long-term capacity purchase agreement with FirstEnergy and Allegheny Energy,
Inc. (AEI). Pursuant to this agreement, the Company is required to purchase 450 megawatts of
capacity and associated energy through the year 2005. As of December 19, 2000, the Company
resells the energy and capacity to Southern Company Energy Marketing L.P. (SCEM), an
affiliate of Southern Energy. The Company also resells to SCEM the energy and capacity it
purchases under the short-term, cost-based purchase agreement for 50 megawatts of capacity and
related energy from the Northeast Maryland Waste Disposal Authority.

        The Company will continue to purchase energy from the Panda-Brandywine, L.P. (Panda)
facility pursuant to a 25-year power purchase agreement for 230 megawatts of capacity supplied
by a gas-fueled combined-cycle cogenerator; capacity payments under this agreement
commenced in January 1997. As of December 19, 2000, the Company resells this capacity and
energy to SCEM. Capacity expenses under this agreement were $41.3 million for 2000,
$43.7 million for 1999, and $27.6 million for 1998. The increases since 1997 reflect contractual
escalations under existing purchase capacity contracts. These costs are reflected in rates in D.C.
through a fuel adjustment clause on a dollar-for-dollar basis and in Maryland through base rate
proceedings. Under the terms of the Company's asset sale agreement with Southern Energy,
resales of energy and capacity purchased by the Company under the foregoing power purchase
agreements are at prices equal to the Company's payment obligations under such agreements.
The Company continues to be liable for the obligation to Panda but is reimbursed by Southern
Energy for the amount it pays.

        The Company's facility and capacity agreement with SMECO, through 2015, with respect
to the 84 megawatt combustion turbine installed and owned by SMECO at the Chalk Point
Generating Station has been assigned to Southern Energy Peaker LLP (SEP), an affiliate of
Southern Energy. The Company remains liable to SMECO for the performance of the contract
and is indemnified by Southern Energy for any such liability. The capacity payment to SMECO
was approximately $5.5 million per year.

        All of SCEM's and SEP's obligations to the Company have been guaranteed by Southern
Energy.

Pepco Energy Services' Fuel and Purchased Energy

        Pepco Energy Services enters into agreements for the future delivery of natural gas and
electricity to its customers and generally operates to secure firm, fixed-price supply
commitments to meet its fixed-price sales obligations. Earnings are dependent upon the
origination and execution of transactions which may be affected by market, credit, weather,
regulatory, and other conditions. Natural gas and electricity expense for Pepco Energy Services
increased in 2000 over 1999 due to increased volumes of retail sales of natural gas and electricity
and as a result of rising fuel prices. Natural gas and electricity expense increased in 1999 over
1998 due to the recognition of a full year of operations of Pepco Gas Services along with the
initiation of electricity sales in 1999.

        In January 1999, Pepco Energy Services signed a contract with SMECO to supply
SMECO's full-requirements for power (approximately 600 MW of peak load) during the four-
year period starting January 1, 2001. A firm commitment has been secured from a third party for
the delivery of power sufficient to serve SMECO's full requirements. Both the sales
commitment to SMECO and the third-party purchase agreement are at fixed prices that do not
vary with future changes in market conditions.

Other Operation and Maintenance

        The increase in other operation and maintenance expense in both 2000 and 1999 primarily
resulted from the growth of Pepco Energy Services' business operations during the year. The
1999 increase was partially offset by reductions in labor and benefits costs associated with the
success of Pepco's Targeted Severance Plan (the Plan). The Plan offered severance pay and
subsidized health and dental benefits, at amounts dependent upon years of service, to employees
who lost employment due to corporate restructuring and/or job consolidations. Under the Plan,
no changes were made to eligible pensions or benefits under the retirement program.

Depreciation and Amortization Expense

        Depreciation and amortization expense decreased in 2000 due to reductions in the
amortization of conservation expenditures concurrently with the termination of the Maryland and
D.C. conservation surcharges. These expenses increased in 1999 due to the Company's
additional investment in utility property and plant and increased amortization of conservation
expenditures.

Other Taxes

        Other taxes increased in 2000 as a result of the Right of Way Fee in D.C. and the Universal
Service Charge in Maryland, both of which commenced in 2000. Other taxes decreased in 1999
due to a decrease in the level of gross receipts taxes collected from customers in the District of
Columbia.

Interest Expense

        The components of interest expense were relatively stable during the three-year period 1998
through 2000. Short-term borrowing costs have remained relatively low. The average cost of
outstanding long-term Utility debt decreased from 7.33% at the beginning of 1998 to 7.1% at the
end of 2000. Distributions on preferred securities of the Trust established in April 1998 totaled
$9.2 million in 2000 and 1999. Interest expense is offset by the debt components of an
Allowance for Funds Used During Construction (AFUDC) and Clean Air Act Capital Cost
Recovery Factor, which totaled $5.4 million in 2000, $3.4 million in 1999 and $4.2 million in
1998.

Impairment Loss

        During the fourth quarter of 2000, the Company closed on the divestiture of its Generation
Assets and transferred its Benning Road and Buzzard Point generating stations, which were not
included in the divestiture, to a subsidiary of Pepco Energy Services. As a result of the
divestiture and the transfer of the stations, as well as the volatility of energy prices and the
availability of current financial information derived from the completion of the Company's 2001
budgeting cycle, the Company determined that it was necessary to reassess whether the carrying
amounts of these generating stations were recoverable. Based on this assessment, the stations
were determined to be impaired and were written down to their fair value by recognizing a pre-
tax impairment loss of $40.3 in the fourth quarter of 2000 ($24.1 million net of income tax or
20 cents per share). The fair value of approximately $33 million was determined using the
present value of their estimated expected future cash flows.

         Additionally, this line item on the Company's consolidated statements of earnings for the
year ended December 31, 2000, includes PCI's impairment loss of $5.4 million ($3.5 million net
of income tax or 3 cents per share) related to its aircraft portfolio.

LOSS FROM EQUITY INVESTMENTS, PRINCIPALLY TELECOMMUNICATION
ENTITIES

        This amount represents the Company's share of pre-tax loss from the entities in which it has
a 20% to 50% equity investment. The Company's most significant equity investment is PCI's
joint venture in Starpower. The increases in the loss from 2000 over 1999 and from 1999 over
1998 primarily result from costs incurred from expanding the Starpower fiber-optic network.
For additional information about the Company's equity investments, see Note (5) of the Notes to
Consolidated Financial Statements, Loss from Equity Investments, Principally
Telecommunication Entities.

INCOME TAX EXPENSE

        The increase in income tax expense in 2000 is primarily due to increases in federal and state
income taxes associated with the gain on the divestiture of the Generation Assets. The decrease
in income tax expense in 1999 is primarily the result of PHI's recognition of $18.7 million in tax
benefits during 1999 associated with the completion of a restructuring transaction related to a
partnership. Additionally, the fluctuations in income tax expense reflect changes in the levels of
the Company's taxable income.

CAPITAL RESOURCES AND LIQUIDITY

USE OF PROCEEDS FROM THE DIVESTITURE

        The Company received cash proceeds of $2.74 billion from the sale of its electric plants and
other generating assets to Southern Energy. A portion of the proceeds has been used to retire
$525 million of the Company's long-term debt. Additionally, approximately $200 million was
used to repay loans entered into in connection with the Company's treasury stock reacquisition
completed in October 2000; approximately $800 million will be used to pay income taxes due on
the sale; and $150 million was used to fund a capital contribution to PHI for use in its
telecommunication business. Additionally, approximately $244 million will be paid to meet the
Company's commitment for customer gain sharing. The Company intends to use the remaining
proceeds to further its business strategies and/or to fund additional capital structure reductions,
including additional repurchases by the Company of its common stock which could be
accompanied by a change in the dividend.

        For the year ended December 31, 2000, the Company recorded approximately $2.6 million
in net interest income related to proceeds from the divestiture that were invested by Edison,
which represented 13 days of interest.

ADDITIONAL SOURCES OF LIQUIDITY

        The Utility also obtains its capital resources from internally generated cash from its
operations and the sale of First Mortgage Bonds, Medium-Term Notes, and Trust Originated
Preferred Securities (TOPrS). Interim financing is provided principally through the issuance of
Short-Term Commercial Promissory Notes. Pepco maintains 100% line of credit back-up in the
amount of $350 million, for its outstanding Commercial Promissory Notes, which was unused
during 2000, 1999, and 1998.

        PCI obtains its capital resources from the issuance of Short-Term and Medium-Term Notes
under its own, separately rated Commercial Paper and Medium-Term Note programs. On July 7,
2000, PCI completed a new series Medium-Term Note facility providing up to $900 million of
future debt issuances. The notes will bear interest at fixed or floating rates and will have
maturity dates varying from nine months and one day from the date of issue through November
30, 2009. As of December 31, 2000, PCI had approximately $900 million available under its
Medium-Term Note credit facility.

        Additionally, PCI's $231.4 million securities portfolio, which consists primarily of Fixed-
Rate Electric Utility Preferred Stocks, provides additional liquidity and investment flexibility.

        On September 21, 2000, Moody's Investor Services announced that it upgraded PCI's senior
unsecured debt rating from Baa1 to A3. This senior unsecured debt is currently rated BBB+ by
Standard & Poors and the Fitch Rating Agency.
        Pepco Energy Services obtains its capital resources primarily through equity contributions
from PHI and third-party financing.

        The Company's capitalization ratios at December 31, 2000, are presented below.

	Excluding    Amounts Due     In One Year	Including    Amounts Due     In One Year
Short-term debt	-%	22.8%
Long-term debt and capital lease obligations	47.2	36.4
Trust originated preferred securities	3.2	2.5
Serial preferred stock	1.0	.8
Redeemable serial preferred stock	1.3	1.0
Shareholders' equity	47.3	36.5
Total Capitalization	100.0%	100.0%

DIVIDENDS ON COMMON AND PREFERRED STOCK

        Dividends on common stock were $190.4 million in 2000, and $196.6 million in 1999 and
1998. The Company's annual dividend rate on its common stock is determined by the
Company's Board of Directors on a quarterly basis. In view of the divestiture of the Company's
Generation Assets and the competitive environment in which the Company's future operations
will take place, the Board of Directors believes that the high payout ratio represented by the
current annual dividend rate of $1.66 per share will not be consistent with the Company's future
utility and telecommunications operations. Accordingly, the Board is continuing to evaluate the
current rate with a view to changing the rate in the future.

        Dividends on preferred stock were $5.5 million in 2000, $7.9 million in 1999, and $11.4
million in 1998. The embedded cost of preferred stock was 6.67% at December 31, 2000, 6.62%
at December 31, 1999, and 5.74% at December 31, 1998.

        Total annualized interest cost for all outstanding long-term debt and preferred securities of
the Trust was $190.8 million at December 31, 2000, $205.4 million at December 31, 1999, and
$191.7 million at December 31, 1998, respectively.

CONSERVATION

        Historically, the Company has recovered the costs of its Maryland and D.C. conservation
programs through base rate surcharges. In general, these surcharges have allowed the Company
to recover the unamortized costs of DSM and energy use management programs that have
successfully increased the efficiency of energy usage throughout the Company's service territory.

        Under provisions of the D.C. and Maryland agreements approving the divestiture of the
Generation Assets, the conservation related portion of the D.C. Environmental Cost Recovery
Rider was terminated, effective January 1, 2000, and the Maryland DSM surcharge was
discontinued effective July 1, 2000. In addition, the Company was allowed to offset unrecovered
DSM and conservation costs, including an estimate of additional DSM expenditures to be
incurred during a three-year transition period, against the proceeds from the sale of Generation
Assets. A total of $138.1 million was offset against the proceeds.

CONSTRUCTION AND CAPACITY

       The Company completed the divestiture of its Generation Assets to Southern Energy on
December 19, 2000. Utility construction expenditures, excluding AFUDC and Capital Cost
Recovery Factor (CCRF), totaled $225.5 million in 2000, which included $75.2 million related
to its divested Generation Assets. For the five-year period 2001 through 2005, expenditures for
transmission and distribution related Utility plant are projected to total $770.5 million. The
Company plans to finance its Utility construction program primarily through funds provided
from operations.

        The Company had a facility and capacity agreement with SMECO, which expires in 2015,
for 84 megawatts of generating capacity supplied by a combustion turbine installed and owned
by SMECO at the Chalk Point Generating Station. This agreement has been assumed and
assigned to SEP, an affiliate of Southern Energy. Additionally, the Company purchases 450
megawatts of generating capacity and associated energy from FirstEnergy under a long-term
capacity purchase agreement with FirstEnergy and AEI. The Company also resells to SCEM the
energy and capacity it purchases under the short-term, cost-based purchase agreement for 50
megawatts of capacity and related energy from the Northeast Maryland Waste Disposal
Authority.

        The Company will continue to purchase energy from Panda pursuant to a 25-year capacity
purchase agreement for 230 megawatts of capacity from a gas-fueled combined-cycle
cogenerator in Prince George's County, Maryland. As of December 19, 2000, the Company
resells this capacity and energy to SCEM. Under the terms of the Company's asset sale
agreement with Southern Energy, resales of energy and capacity purchased by the Company
under the foregoing power purchase agreements are at prices equal to the Company's payment
obligations under such agreements. The Company continues to be liable for the obligation to
Panda but is reimbursed by Southern Energy for the amount it pays.

BASE RATE PROCEEDINGS

        The Utility is subject to rate regulation based upon the historical costs of plant investment,
using recent test years to measure the cost of providing service. The rate-making process does
not give recognition to the current cost of replacing plant and the impact of inflation. Changes in
industry structure and regulation may affect the extent to which future rates are based upon
current costs of providing service. Historically, the Company's regulatory commissions have
authorized fuel rates, which provide for billing customers on a timely basis for the actual cost of
fuel and interchange and for emission allowance costs and, in the District of Columbia, for
purchased capacity. The Maryland fuel clause terminated effective July 1, 2000, and will be
terminated on February 9, 2001 in D.C.

        Annual base rate increases (decreases) that became effective during the periods 1998
through 2000 are shown below.

Year	Total	Maryland	District of             Columbia	Wholesale
	(Millions of Dollars)
2000	$(24.3)	$(13.0)	$(11.3)	$    -
1999	-	-	-	-
1998	16.5	19.0	-	(2.5)
	$ (7.8)	$   6.0	$(11.3)	$(2.5)

MARYLAND

        On September 23, 1999, the Company filed an amendment to its divestiture filing in
Maryland (the Maryland Amendment), which was approved by the Maryland Commission on
December 22, 1999. The Maryland Amendment provides residential customers with a 3% base
rate reduction, or approximately $10 million in revenue per year, which the Company may
recover through future potential generation procurement savings, effective December 19, 2000,
(the Company's closing of the divestiture of the Generation Assets). As discussed in the "Fuel
Rate Revenue" section herein, the Company has a four-year TPA with Southern Energy
containing fixed costs that on average are lower than its capped production rate, which may give
rise to generation procurement savings during the rate-capped period.

        Also on September 23, 1999, the Company filed an Agreement of Stipulation and
Settlement Regarding Unbundled Rate Issues (the Maryland Phase II Settlement Agreement),
which was approved by the Maryland Commission on December 22, 1999. This agreement was
the result of negotiations conducted among representatives of the parties to the Company's
original divestiture filing as well as other parties. The Maryland Phase II Settlement Agreement
creates reductions in rates for all customers. Although the amount of the reduction will vary
somewhat by class of customer, the estimated overall net effect will be reductions for all
customers equivalent to approximately 4% of base rates, or approximately $29 million in
revenue per year. This decrease is being achieved through the elimination of the DSM surcharge
rate, effective July 1, 2000, made possible because DSM costs were substantially recovered as of
July 1, 2000. Unamortized DSM costs totaling $16.4 million were offset against the proceeds
from the divestiture of the Generation Assets. An Electric Universal Service Program surcharge
has been implemented to assist low-income customers in paying energy bills, and allows the
Company to recover approximately $7 million in annual charges for Universal Service that have
been imposed by the Maryland legislature. The Maryland Phase II Settlement Agreement also
extends the term of the Company's transitional Standard Offer Service rate cap by one year. The
Company will not file for a base rate increase prior to December 2003.

        In November 1998, pursuant to a settlement agreement, the Maryland Commission
authorized a $19 million, or 2%, increase in base rate revenue effective with service rendered on
and after December 1, 1998. In June 1998, the Company had filed a request to increase its base
rates to recover contractual escalations in existing Commission-approved purchased capacity
contracts, costs related to the 1998 Targeted Severance Plan, Year 2000 compliance costs, tax
normalization of pre-1981 plant removal costs, and certain other costs associated with prior rate-
making determinations. The settlement's rate increase was distributed among rate classes in a
manner that will continue movement toward equalized rates of return among rate classes, and
provided for a lessening of the Company's summer-winter rate differential. The settlement was
comprehensive and did not include specific determinations regarding an authorized rate of
return; however, a rate of return of 8.8% has been used by the Company for purposes of
calculating AFUDC and CCRF. Previously, pursuant to a November 1997 settlement agreement,
the Commission authorized a $24 million, or 2.6%, increase in base rate revenue effective with
bills rendered on and after November 30, 1997.

DISTRICT OF COLUMBIA

        On November 8, 1999, the Company filed a Non-Unanimous Agreement of Stipulation and
Full Settlement (the D.C. Agreement), which was approved by the D.C. Commission on
December 22, 1999. Under the terms of the D.C. Agreement, the rates for service to residential
customers in D.C. would be reduced by a total of 7% as follows: 2% effective January 1, 2000,
an additional 1-1/2% effective July 1, 2000, and an additional 3-1/2% effective one month after
the closing on the sale of the generation assets. The corresponding rate reductions for
commercial customers in D.C. total 6-1/2% as follows: 3-1/2% on January 1, 2000, 1-1/2% on
July 1, 2000, and 1-1/2% one month after the closing of the sale of the generation assets. The
January 1, 2000 rate reductions approximate $25 million annually and reflect the termination of
the DSM surcharge. Unamortized DSM costs totaling $121.7 million were offset against the
proceeds from the divestiture of the Generation Assets. The July 1, 2000 rate reductions
approximate $12 million annually, and reflect reductions in the Company's cost of service since
its last D.C. base rate case, which was decided on June 30, 1995. The post-closing rate
reductions of approximately $15 million annually represent the guaranteed reductions through
the operation of the Generation Procurement Credit and are guaranteed, but may be recouped by
the Company if it is able to purchase electricity at a lower cost than its frozen production rate
during the period the Company's rates are capped. As mentioned, the Company has a four-year
Transition Power Agreement with Southern Energy. The rates will be capped at the levels in
effect one month after the closing of the sale of the assets for a period of six years for Residential
Aid Discount low-income customers and four years for other customers. The period during
which the caps will be in effect will begin one month following the date of the closing on the
sale of the assets. The capped rates will include rates in effect one month after the closing of the
asset sale, the average level of fuel costs for the 12 months prior to the date of the closing, plus
the CAA portion of the Environmental Cost Recovery Rider in effect one month after the
closing.

WHOLESALE

        The Utility's full-service power supply requirements contract with SMECO, the Utility's
principal wholesale customer with a peak load of approximately 600 megawatts, which
represents approximately 10% of the Utility's total kilowatt-hour sales, expired on December
31, 2000, and was replaced by a full-requirements supply contract with Pepco Energy Services.
The four-year agreement between SMECO and Pepco Energy Services was awarded pursuant to
competitive bidding and commenced January 1, 2001. See Note (12) of the Notes to
Consolidated Financial Statements, SMECO Agreement, for additional information.

COMPETITION

       During 1999 and 2000, the generating segment of the electric utility industry continued to
transition from a regulatory to a competitive environment. The Company exited the electricity
generating business by divesting substantially all of its generation assets on December 19, 2000.
The Utility's operations now consist of its transmission and distribution service. On July 1, 2000
in Maryland and January 1, 2001 in D.C., Pepco's customers began to have their choice of
electricity suppliers.

        In the area of transmission, which remains under federal regulation, the Company believes
it has certain strengths and skills. The Company intends to continue to evaluate the cost-
effectiveness of its transmission system with a view to expanding profit potential. In the area of
distribution, which continues to be regulated at the local level, the Company believes it has
valuable assets and skills and intends to continue to enhance its profitability.

        The Company is pursuing operating strategies through PHI that provide for earnings
contributions to the Company and build shareholder value through the launching of new
businesses, particularly those in the competitive markets for deregulated electricity, natural gas,
and telecommunications products and services throughout the mid-Atlantic region. In the future,
increased competition, regulatory actions, and changing economic conditions may impact PHI's
operations.

RESTRUCTURING OF THE BULK POWER MARKET

        FERC issued an Order in 1997 approving the establishment of PJM as an Independent
System Operator (ISO) to administer transmission service under a poolwide transmission tariff
and provide open access transmission service on a poolwide basis. The ISO began operation in
January 1998 and is responsible for system operations and regional transmission planning. In
addition, the Commission decided that the independent body that operates the ISO may also
operate the PJM power exchange. The Commission approved the power pool's use of single,
non-pancaked transmission rates to access the eight transmission systems that make up PJM.
Pursuant to a rate design in effect since April 1997, each transmission owner within PJM has its
own transmission rate, whereby the transmission customer will pay a single rate based on the
cost of the transmission system where the generating capacity is delivered. The Commission
also approved, effective April 1998, locational marginal pricing for managing scarce
transmission capability. This method is based on price differences in energy at the various
locations on the transmission system. In March 1999, the FERC approved market-based rates for
pricing sales through the PJM energy market and a market monitoring plan.

        In December 1999 and February 2000, the FERC issued its landmark Orders No. 2000 and
2000-A. Order 2000 requires all public utilities to join or form a regional transmission
organization (RTO) in furtherance of the FERC's goal to increase competition in the wholesale
generation market. The qualifications to become certified as an RTO expand on the
independence, scope, transmission service, ratemaking, and expansion planning elements needed
to achieve approval as an ISO. Since PJM is already a FERC-approved ISO and because it
exceeds all the requirements of an RTO, the Company does not anticipate any difficulties in PJM
achieving this certification.

        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 have transformed the previous coordinated cost-based
pool dispatch into a bid-based regional energy market operating under a standard of transmission
service comparability. Irrespective of the Company's divestiture of its Generation Assets and the
availability of customer choice, the Company continues to be a transmission-owning member of
PJM.

ENVIRONMENTAL MATTERS

OIL SPILL AT THE CHALK POINT GENERATING STATION

          As discussed in Note (13) of the Notes to Consolidated Financial Statements,
Commitments and Contingencies, on April 7, 2000, approximately 139,000 gallons of oil leaked
from a pipeline at a generation station which was owned by the Company at Chalk Point in
Aquasco, Maryland. As of December 31, 2000, approximately $66 million in clean-up costs had
been incurred in connection with the oil spill; and it is currently anticipated that total costs
(excluding liability claims against the Company and fines or other monetary penalties, if any)
may be in the range of $70 million to $75 million. These costs, which have continued to be
incurred beyond December 31, 2000, consist principally of the costs to clean up the oil spill such
as labor, supplies, repair work on damaged properties, and the rental of equipment.

          In addition, as a result of the oil spill, nine class action lawsuits and one lawsuit on behalf
of two individuals have been filed against the Company. At this early stage, no determination
has been made as to the merits of the claims. The Company has indicated its willingness to settle
appropriate claims arising from the oil spill. Otherwise, the Company intends to vigorously
contest the lawsuits. Fines or penalties, if any, assessed by government authorities are not
expected to be recoverable from the Company's insurance carrier. The Company does not
believe that fines or penalties assessed, if any, will have a material adverse effect on its financial
position; however, such fines or penalties, if any, could have a material adverse effect on the
Company's results of operations in the fiscal quarter in which they are assessed. On December
20, 2000, the Office of Pipeline Safety of the Department of Transportation (DOT) issued a
Notice of Probable Violation and proposed a civil penalty in the amount of approximately
$674,000. The Company plans to contest certain facts and findings by the DOT.

          For the year ended December 31, 2000, the Company recorded the net amount of $1
million in operating expense as a result of the oil spill. This amount represents an accrual of $75
million in total oil spill related clean-up costs, net of $5 million in insurance proceeds received
through June 30, 2000 (the date the amount was recorded by the Company) and an additional
$69 million in probable recoveries from its insurance carriers. Through December 31, 2000,
$35.8 million has been received from the carriers. However, no assurances can be given that the
remaining amount due from the carriers will actually be received. The aggregate insurance
coverage available under the Company's general liability insurance policy with respect to this
event is $100 million. The Company will continue to assess the status of the oil spill clean-up
efforts, as necessary, for any significant changes in the estimated costs of completing the
remediation.

OTHER ENVIRONMENTAL MATTERS

         The Company is subject to federal, state and local legislation and regulation with respect
to environmental matters, including water quality and the handling of solid and hazardous waste.
As a result, the Company is subject to environmental contingencies, principally related to
possible obligations to remove or mitigate the effects on the environment of the disposal,
effected in accordance with applicable laws at the time, of certain substances at various sites.
During 2000, the Company participated in environmental assessments and clean-ups under these
laws at four federal Superfund sites and a private party site as a result of litigation. While the
total cost of remediation at these sites may be substantial, the Company shares liability with
other partially responsible parties. Based on the information known to the Company at this time,
management is of the opinion that resolution of these matters will not have a material effect on
the Company's financial position or results of operations.

        Environmental liabilities in connection with violations of or noncompliance with
environmental laws and related to any asset sold to Southern Energy, arising prior to, on or after
the sale's December 19, 2000 closing date, have been assumed by Southern Energy, except for
any monetary fines or penalties imposed by a Governmental Authority to the extent arising out
of or relating to acts or omissions of the Company in respect to any asset sold to Southern
Energy. Liabilities arising in connection with the release, threatened release or cleanup of
hazardous substances, arising prior to, on or after the sale's closing date, have also been assumed
by Southern Energy, except for any environmental liability of the Company arising out of or in
connection with the disposal by, or on behalf of, the Company and release or threatened release,
prior to the sale's closing date of hazardous substances at any off-site location. Any
environmental liability arising out of, related to, or otherwise associated with the release of fuel
oil from the Ryceville-Piney Point Pipeline, as discussed in Note (13) of the Notes to
Consolidated Financial Statements, Commitments and Contingencies, will be retained and
discharged by the Company.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

MARKET RISK

        Market risk represents the potential loss arising from adverse changes in market rates and
prices. Certain of the Company's financial instruments are exposed to market risk in the form of
interest rate risk, equity price risk, and credit and nonperformance risk. The Company manages
its market risk in accordance with its established policies.

INTEREST RATE RISK

        The carrying value of the Company's long-term debt, which consists of first mortgage
bonds, medium-term notes, convertible debentures, recourse debt from institutional lenders, and
certain non-recourse debt was $1,736.3 million at December 31, 2000. The fair value of this
long-term debt, based mainly on current market prices or discounted cash flows using current
rates for similar issues with similar terms and remaining maturities, was $1,730.9 million at
December 31, 2000. The interest rate risk related to this debt was estimated as the potential
$100.1 million increase in fair value at December 31, 2000, that resulted from a hypothetical
10% decrease in the prevailing interest rates.

        PCI uses interest rate swap agreements to minimize its interest rate risk. The fair value of
these agreements at December 31, 2000, was approximately $29 million. The potential loss in
fair value from these agreements resulting from a hypothetical 10% adverse movement in base
interest rates was estimated at $.6 million at December 31, 2000.

EQUITY PRICE RISK

        The carrying value of the Company's marketable securities, which consist primarily of
preferred stocks with mandatory redemption features, was $231.4 million (including net
unrealized losses of $11.5 million) at December 31, 2000. The fair value of marketable
securities, based on quoted market prices, is equivalent to its carrying value at December 31,
2000. The equity price risk related to these securities was estimated as the potential $23.1
million decrease in fair value at December 31, 2000, that resulted from a hypothetical 10%
decrease in the quoted market prices. The Company's marketable securities balance includes
preferred stock issued by two California utilities with a carrying value of $20.3 million
(including net unrealized losses of $8 million) at December 31, 2000. Subsequently, the market
value of such preferred stock has continued to decline.

CREDIT AND NONPERFORMANCE RISK

        The Company's forward agreements may be subject to credit losses and nonperformance by
the counterparties to the agreements. However, the Company anticipates that the counterparties
will be able to fully satisfy their obligations under the agreements. The Company does not
obtain collateral or other securities to support financial instruments subject to credit risk, but
monitors the credit standing of the counterparties.

NEW ACCOUNTING STANDARDS

        Refer to Note (2) of the Notes to Consolidated Financial Statements, Summary of
Significant Accounting Policies.


Report of Independent Accountants



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


In our opinion, the accompanying consolidated balance sheets and the related consolidated
statements of earnings and shareholders' equity and comprehensive income, and of cash flows
present fairly, in all material respects, the financial position of Potomac Electric Power Company
and its subsidiaries at December 31, 2000 and 1999, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 2000, in conformity with
accounting principles generally accepted in the United States of America. These financial
statements are the responsibility of the Company's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally accepted in the United States of
America, which require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.




PricewaterhouseCoopers LLP
Washington, D.C.
January 19, 2001

CONSOLIDATED STATEMENTS OF EARNINGS
POTOMAC ELECTRIC POWER COMPANY AND SUBSIDIARIES
For the Year Ended December 31,	2000	1999	1998
(Millions of Dollars, except per share data)
Operating Revenue
Utility	$2,237.5	$2,219.3	$2,068.9
Competitive operations	386.4	256.7	151.9
Gain on divestiture of generation assets	423.8	-	-
Total Operating Revenue	3,047.7	2,476.0	2,220.8
Operating Expenses
Fuel and purchased energy	1,206.2	1,025.8	818.8
Other operation and maintenance	409.8	400.6	372.8
Depreciation and amortization	247.6	272.8	263.9
Other taxes	207.4	201.1	204.4
Interest	211.5	195.3	198.1
Impairment loss	45.7	-	-
Total Operating Expenses	2,328.2	2,095.6	1,858.0
Loss from Equity Investments, Principally Telecommunication Entities	(17.1)	(9.6)	(8.5)
Operating Income	702.4	370.8	354.3
Distributions on Preferred Securities of Subsidiary Trust	9.2	9.2	5.7
Income Tax Expense	341.2	114.5	122.3
Net Income	352.0	247.1	226.3
Dividends on Preferred Stock	5.5	7.9	11.4
Redemption Premium/Expenses on Preferred Stock	-	1.0	6.6
Earnings Available for Common Stock	$346.5	$238.2	$208.3
Earnings Per Share of Common Stock
Basic	$3.02	$2.01	$1.76
Diluted	$2.96	$1.98	$1.73
Cash Dividends Per Share of Common Stock	$1.66	$1.66	$1.66
The accompanying Notes to Consolidated Financial Statements are an integral part of these Consolidated Financial Statements

CONSOLIDATED BALANCE SHEETS
POTOMAC ELECTRIC POWER COMPANY AND SUBSIDIARIES
Assets	December 31,                   2000                       1999
(Millions of Dollars)
CURRENT ASSETS
Cash and cash equivalents	$1,864.6	$98.7
Marketable securities	231.4	203.2
Accounts receivable, less allowance for uncollectible          accounts of $9.1 and $8.0	478.4	295.0
Fuel, materials and supplies - at average cost	36.4	192.0
Prepaid expenses	413.6	35.9
Total Current Assets	3,024.4	824.8
INVESTMENTS AND OTHER ASSETS
Investment in financing leases	589.5	664.3
Operating lease equipment - net of accumulated           depreciation of $135.4 and $113.9	54.6	77.9
Regulatory assets, net	-	411.7
Other	637.0	407.5
Total Investments and Other Assets	1,281.1	1,561.4
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment	4,284.7	6,784.3
Accumulated depreciation	(1,562.9)	(2,259.9)
Net Property, Plant and Equipment	2,721.8	4,524.4
Total Assets	$7,027.3	$6,910.6
The accompanying Notes to Consolidated Financial Statements are an integral part of these Consolidated Financial Statements

CONSOLIDATED BALANCE SHEETS
POTOMAC ELECTRIC POWER COMPANY AND SUBSIDIARIES
Liabilities and Shareholders' Equity	December 31,                   2000                       1999
(Millions of Dollars)
CURRENT LIABILITIES
Short-term debt	$1,150.1	$347.0
Accounts payable and accrued payroll	273.8	239.0
Capital lease obligations due within one year	15.2	20.8
Interest and taxes accrued	814.4	85.1
Other	181.9	91.6
Total Current Liabilities	2,435.4	783.5
DEFERRED CREDITS
Regulatory liabilities, net	186.1	-
Income taxes	418.7	1,052.8
Investment tax credits	28.3	50.0
Other	21.4	22.0
Total Deferred Credits	654.5	1,124.8
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS	1,859.6	2,867.0
COMPANY OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES      OF SUBSIDIARY TRUST WHICH HOLDS SOLELY PARENT JUNIOR      SUBORDINATED DEBENTURES	125.0	125.0
PREFERRED STOCK
Serial preferred stock	40.8	50.0
Redeemable serial preferred stock	49.5	50.0
Total Preferred Stock	90.3	100.0
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Common stock, $1 par value - authorized 200,000,000 shares,          issued 118,544,736 and 118,530,802 shares, respectively	118.5	118.5
Premium on stock and other capital contributions	1,027.3	1,025.4
Capital stock expense	(13.0)	(12.9)
Accumulated other comprehensive loss	(7.5)	(1.8)
Retained income	937.2	781.1
	2,062.5	1,910.3
Less cost of shares of common stock in treasury
(7,792,907 and zero shares, respectively)	(200.0)	-
Total Shareholders' Equity	1,862.5	1,910.3
Total Liabilities and Shareholders' Equity	$7,027.3	$6,910.6
The accompanying Notes to Consolidated Financial Statements are an integral part of these Consolidated Financial Statements

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME

POTOMAC ELECTRIC POWER COMPANY AND SUBSIDIARIES

	Common Stock Shares       Par Value		Premium on Stock	Comprehensive     Income	Accumulated     Other Comprehensive  Income (Loss)	Retained  Income
(Dollar Amounts in Millions)
BALANCE, DECEMBER 31, 1997	118,500,891	$118.5	$1,025.2		$6.5	$727.8
Net Income	-	-	-	$226.3	-	226.3
Other comprehensive income:
Add: Unrealized gain on marketable securities	-	-	-	4.2	4.2	-
Less: Gain included in net income	-	-	-	2.2	2.2	-
Income tax expense	-	-	-	0.7	0.7	-
Total comprehensive income	-	-	-	$227.6		-
Dividends:
Preferred stock	-	-	-		-	(11.4)
Common stock	-	-	-		-	(196.6)
Conversion of preferred stock	26,396	-	0.1		-	-
Redemption premium on preferred stock	-	-	-		-	(6.6)
BALANCE, DECEMBER 31, 1998	118,527,287	$118.5	$1,025.3		$7.8	$739.5
Net Income	-	-	-	$247.1	-	$247.1
Other comprehensive income:
Add: Loss included in net income	-	-	-	1.6	1.6	-
Income tax benefit	-	-	-	5.1	5.1
Less: Unrealized loss on marketable securities	-	-	-	16.3	16.3	-
Total comprehensive income	-	-	-	$237.5	-	-
Dividends:
Preferred stock	-	-	-		-	(7.9)
Common stock	-	-	-		-	(196.6)
Conversion of debentures	3,515	-	0.1		-	-
Redemption expense on preferred stock	-	-	-		-	(1.0)
BALANCE, DECEMBER 31, 1999	118,530,802	$118.5	$1,025.4		($1.8)	$781.1
Net Income	-	-	-	$352.0	-	$352.0
Other comprehensive income:
Add: Loss included in net income	-	-	-	0.3	0.3	-
Income tax benefit	-	-	-	3.1	3.1	-
Less: Unrealized loss on marketable securities	-	-	-	9.1	9.1	-
Total comprehensive income	-	-	-	$346.3		-
Dividends:
Preferred stock	-	-	-		-	(5.5)
Common stock	-	-	-		-	(190.4)
Conversion of stock options	13,934	-	0.3		-	-
Gain on acquisition of preferred stock	-	-	1.6		-	-
BALANCE, DECEMBER 31, 2000	118,544,736	$118.5	$1,027.3		($7.5)	$937.2

CONSOLIDATED STATEMENTS OF CASH FLOWS
POTOMAC ELECTRIC POWER COMPANY AND SUBSIDIARIES
For the Year Ended December 31,	2000	1999	1998
(Millions of Dollars)
OPERATING ACTIVITIES
Net income	$352.0	$247.1	$226.3
Adjustments to reconcile net income to net cash      (used by) from operating activities:
Gain on divestiture of generation assets	(423.8)	-	-
Impairment loss	45.7	-	-
Depreciation and amortization	247.6	272.8	263.9
Changes in:
Accounts receivable and unbilled revenue	(184.5)	(46.1)	5.7
Fuel, materials and supplies	155.6	(70.0)	5.5
Regulatory liabilities/assets	(227.0)	(6.8)	(13.1)
Contract termination fee	(1.5)	(24.5)	-
Accounts payable	34.8	43.6	(20.9)
Net other operating activities	(20.3)	23.9	(50.2)
Net Cash (Used by) From Operating Activities	(21.4)	440.0	417.2
INVESTING ACTIVITIES
Net investment in property, plant and equipment	(225.5)	(200.3)	(206.2)
Proceeds from:
Divestiture of generation assets	2,741.0	-	-
Sale of aircraft	87.1	-	-
Sale or redemption of marketable securities, net of purchases	(38.2)	11.6	75.6
Sale of leased equipment, net of additions	-	19.4	105.9
Sale or distribution of other investments, net of purchases	(78.5)	(59.6)	9.3
Purchase of leveraged leases	-	(205.9)	-
Gain from liquidation of partnership, net of proceeds	-	(1.1)	-
Net other investing activities	(90.5)	-	-
Net Cash From (Used by) Investing Activities	2,395.4	(435.9)	(15.4)
FINANCING ACTIVITIES
Dividends on preferred and common stock	(195.9)	(204.5)	(208.0)
Redemption of preferred stock	(9.7)	(51.0)	(123.7)
Issuance of mandatorily redeemable preferred securities	-	-	125.0
Reacquisition of long-term debt, net of issuances	(1,007.4)	257.1	(158.7)
Repurchase of common stock	(200.0)	-	-
Issuance of short-term debt, net of repayments	803.1	7.8	46.7
Other financing activities	1.8	(0.8)	(3.1)
Net Cash (Used by) From Financing Activities	(608.1)	8.6	(321.8)
Net Increase In Cash and Cash Equivalents	1,765.9	12.7	80.0
Cash and Cash Equivalents at Beginning of Year	98.7	86.0	6.0
CASH AND CASH EQUIVALENTS AT END OF YEAR	$1,864.6	$98.7	$86.0
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest (net of capitalized interest of $3.4,       $1.8, and $.7) and income taxes:
Interest	$108.4	$194.0	$198.6
Income taxes	$45.8	$(20.7)	$68.9
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING ACTIVITY
Transfer of Benning and Buzzard Point Stations to Pepco Energy Services	$53.6	$-	$-
The accompanying Notes to Consolidated Financial Statements are an integral part of these Consolidated Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1)    ORGANIZATION, DIVESTITURE, AND SEGMENT INFORMATION

ORGANIZATION

        Potomac Electric Power Company (Pepco or the Company) is engaged in the transmission
and distribution of electric energy in the Washington, D.C. (D.C.), metropolitan area (the Utility
or Utility Operations). The Company is also engaged in the sale of electricity, natural gas, and
telecommunications in markets throughout the mid-Atlantic region through its wholly owned
nonregulated subsidiary, Pepco Holdings, Inc. (PHI). Potomac Electric Power Company Trust I
(the Trust) and Edison Capital Reserves Corporation (Edison), are also wholly owned
subsidiaries of the Company.

        In May 1999, Pepco reorganized its nonregulated subsidiaries into two major operating
groups to compete for market share in deregulated markets. As part of the reorganization, a new
unregulated company, PHI, was created in 1999 as the parent company of its two wholly owned
subsidiaries, Potomac Capital Investment Corporation (PCI) and Pepco Energy Services, Inc.
(Pepco Energy Services). Additionally, in September 2000, PepMarket.com, LLC, (PepMarket)
was organized as a third direct, wholly owned subsidiary of PHI.

        PCI will continue to manage its diversified portfolio of financial investments and grow its
new operating businesses that provide telecommunication services and utility industry-related
services. As discussed in Note (5) of the Notes to Consolidated Financial Statements, Loss from
Equity Investments, Principally Telecommunication Entities, PCI's telecommunication products
and services are provided through its wholly owned subsidiary's 50% equity interest in a joint
venture, formed in December 1997, known as Starpower Communications, LLC (Starpower).

        Pepco Energy Services provides nonregulated energy and energy related services in the
mid-Atlantic region. Its products include electricity, natural gas, energy efficiency contracting
equipment retrofits, fuel management, equipment operation and maintenance and appliance
warranties. These products are sold in bundles or individually to large commercial and industrial
customers and to residential customers.

         PepMarket, which began operations on December 1, 2000, will earn fee income by offering
Internet-based procurement services to businesses and institutional clients in the D.C./Baltimore
metropolitan region. As of December 31, 2000, Pepco has invested $11 million in Pepmarket.

        The Trust, a Delaware statutory business trust and a wholly owned subsidiary of the
Company, was established in April 1998. The Trust exists for the exclusive purposes of (i)
issuing Trust securities representing undivided beneficial interests in the assets of the Trust, (ii)
investing the gross proceeds from the sale of the Trust Securities in Junior Subordinated
Deferrable Interest Debentures issued by the Company, and (iii) engaging only in other activities
as necessary or incidental to the foregoing. See Note (10) of the Notes to Consolidated Financial
Statements, Company Obligated Mandatorily Redeemable Preferred Securities of Subsidiary
Trust, for additional information.

        Edison, a Delaware Investment Holding Company and wholly owned subsidiary of the
Company, was established in November 2000. Edison exists for the purpose of managing and
investing a significant portion of the proceeds received from the divestiture.

DIVESTITURE

        On June 7, 2000, the Company entered into an agreement (the Agreement) with Mirant
Corp., formerly Southern Energy Inc. (Southern Energy) to sell total capacity of 5,154
megawatts in four generating stations located in Maryland and Virginia, and six purchased
capacity contracts totaling 735 megawatts (the Generation Assets) for $2.74 billion (including
other related generation assets). The Agreement was reached after Southern Energy was selected
by the Company as the winning bidder in its auction process that was held to select the buyer of
its Generation Assets. The divestiture closed on December 19, 2000 and resulted in the
Company's recognition of a pre-tax gain of approximately $423.8 million ($182 million net of
income tax or $1.58 per share). Concurrently, the Company transferred its Benning Road and
Buzzard Point generating plants, which were not included in the Generation Assets divested to
Southern Energy, to Pepco Energy Services. These power plants are located in D.C. and have a
total installed capacity of 806 megawatts. These stations will function as exempt wholesale
generators and will be operated and maintained by Southern Energy pursuant to an initial
three-year contract with Pepco Energy Services.

        As a result of the divestiture and the transfer of its Benning Road and Buzzard Point
stations, as well as the volatility of energy prices and the availability of current financial
information derived from the completion of the Company's 2001 budgeting cycle, the Company
determined that it was necessary to assess whether the carrying amounts of these generating
stations were recoverable. Based on this assessment, the stations were determined to be impaired
and were written down to their fair value by recognizing a pre-tax impairment loss of $40.3
million in the fourth quarter of 2000 ($24.1 million net of income tax or 20 cents per share). The
fair value of approximately $33 million was determined using the present value of their
estimated expected future cash flows.

        In a separate transaction, on May 19, 2000, the Company reached an agreement with PPL
Global, Inc., and Allegheny Energy Supply Company, LLC, to sell its 9.72 percent interest in the
Conemaugh Generating Station (Conemaugh) for approximately $156 million. Conemaugh is
located near Johnstown, Pennsylvania, and consists of two baseload units totaling approximately
1,700 megawatts of capacity. The Conemaugh sale closed on January 8, 2001, and resulted in
the recognition of a pre-tax gain of approximately $39 million, which will be recorded in the first
quarter of 2001. Additionally, as the utility industry continued its transition to a competitive
environment, retail access for generation services was made available to all Maryland customers
on July 1, 2000, and to D.C. customers on January 1, 2001.
 
        As part of the agreement with Southern Energy to divest its generation assets, the Company
also signed a Transition Power Agreement (TPA) with Southern Energy. This TPA was
necessary because the Company will continue to be obligated, as the incumbent electric utility, to
supply the electric power needs of all of its current Maryland and D.C. customers that cannot or
do not choose an alternate electric power service provider during a four-year transition period to
retail access. This service, called Standard Offer Service, is required by settlement agreements
approved by both the Maryland and D.C. Public Service Commissions as part of the deregulation
of electric power generation and the initiation of customer choice.

        Under the TPA, the Company has the option of acquiring all of the energy and capacity that
is needed for Standard Offer Service from Southern Energy at prices that are below the
Company's current cost-based billing rates for Standard Offer Service, thereby providing the
Company with a built-in profit margin on all Standard Offer Service sales that the Company
acquires from Southern Energy. Under the settlement agreements mentioned above, the
Company will share such profit amounts with customers on an annual cycle basis, beginning
with the period July 1, 2000 to June 30, 2001 in Maryland and from February 9, 2001 to
February 8, 2002 in D.C. (the Generation Procurement Credit or "GPC").

        In both jurisdictions, amounts shared with customers each year are determined only after the
Company recovers certain guaranteed annual reductions to customer rates. In addition, because
the annual cycle for the GPC in Maryland began on July 1, 2000, the Company supplied
Standard Offer Service from its traditional sources until the Generation Assets were sold and,
thus, recorded losses on Standard Offer Services sales during this period, mostly because of
higher summer generating costs. Therefore, profit from Standard Offer Service sales in
Maryland between January 8, 2001 and June 30, 2001 will be recorded as income to the
Company until both the guaranteed rate reduction amount and the Standard Offer Service losses
incurred in 2000 are recovered. Once such amounts are recovered, profit is shared with
customers in Maryland generally on a 50/50 basis.

SEGMENT INFORMATION

        The Company has identified the Utility's operations, the Trust, and Edison (Utility
Segment) and PHI's operations (Competitive Segment) as its two reportable segments. The
following table presents information about the Company's reportable segments (in millions of
dollars, except per share amounts).

For the year ended December 31,
2000
				Competitive Segment
		Utility Segment		PCI		Pepco Energy    Services		PepMarket		Total  PHI		Consolidated
Revenue:
Utility	$	2,237.5	$	-	$	-	$	-	$	-	$	2,237.5
Gain on divestiture of generation assets		423.8		-		-		-		-		423.8
Financial investments		-		101.8		-		-		101.8		101.8
Energy services		-		-		236.4		-		236.4		236.4
Utility industry services		-		48.1		-		-		48.1		48.1
Other		-		-		-		0.1		0.1		0.1
Total Revenue		2,661.3		149.9		236.4		0.1		386.4		3,047.7
Expenses:
Fuel and purchased energy		1,014.7		-		191.5		-		191.5		1,206.2
Operating expenses and other		515.9		41.3		57.8		2.2		101.3		617.2
Depreciation and amortization		223.9		21.5		2.1		0.1		23.7		247.6
Interest		155.5		54.4		1.6		-		56.0		211.5
Income tax expense (benefit)		352.9		(6.2)		(4.7)		(0.8)		(11.7)		341.2
Distributions on preferred securities of subsidiary Trust		9.2		-		-		-		-		9.2
Impairment loss		40.3		5.4		-		-		5.4		45.7
Total Expenses		2,312.4		116.4		248.3		1.5		366.2		2,678.6
(Loss) Income from Equity Investments,     Principally Telecommunication Entities		-		(20.2)		3.1		-		(17.1)		(17.1)
Net Income (Loss)	$	348.9	$	13.3	$	(8.8)	$	(1.4)	$	3.1	$	352.0
Earnings (Loss) Per Share	$	2.99	$	0.12	$	(0.08)	$	(0.01)	$	0.03	$	3.02
Total Assets	$	6,163.4	$	1,232.7	$	163.1	$	13.0	$	1,408.8	$	7,572.2
Expenditures for Assets	$	225.5	$	1.8	$	14.8	$	8.9	$	25.5	$	251.0
1999
				Competitive Segment
		Utility Segment		PCI		Pepco Energy    Services		PepMarket		Total PHI		Consolidated
Revenue:
Utility	$	2,219.3	$	-	$	-			$	-	$	2,219.3
Financial investments		-		105.0		-		-		105.0		105.0
Energy services		-		-		133.3		-		133.3		133.3
Utility industry services		-		18.4		-		-		18.4		18.4
Total Revenue		2,219.3		123.4		133.3		-		256.7		2,476.0
Expenses:
Fuel and purchased energy		921.7		-		104.1		-		104.1		1,025.8
Operating expenses and other		526.9		36.1		38.7		-		74.8		601.7
Depreciation and amortization		247.5		24.0		1.3		-		25.3		272.8
Interest		143.4		50.3		1.6		-		51.9		195.3
Income tax expense (benefit)		142.6		(24.1)		(4.0)		-		(28.1)		114.5
Distributions on preferred securities of subsidiary Trust		9.2		-		-		-		-		9.2
Total Expenses		1,991.3		86.3		141.7		-		228.0		2,219.3
(Loss) Income from Equity Investments, Principally Telecommunication Entities		-		(10.4)		.8		-		(9.6)		(9.6)
Net Income (Loss)	$	228.0	$	26.7	$	(7.6)		-	$	19.1	$	247.1
Earnings (Loss) Per Share	$	1.85	$	.22	$	(.06)	$	-	$	.16	$	2.01
Total Assets	$	5,902.8	$	1,238.8	$	44.6	$	-	$	1,283.4	$	7,186.2
Expenditures for Assets	$	200.3	$	0.4	$	2.4	$	-	$	2.8	$	203.1
1998
				Competitive Segment
		Utility Segment		PCI		Pepco Energy    Services		PepMarket		Total  PHI		Consolidated
Revenue:
Utility	$	2,068.9	$	-	$	-		-	$	-	$	2,068.9
Financial investments		-		112.1		-		-		112.1		112.1
Energy services		-		-		28.0		-		28.0		28.0
Utility industry services		-		11.8		-		-		11.8		11.8
Total Revenue		2,068.9		123.9		28.0		-		151.9		2,220.8
Expenses:
Fuel and purchased energy		805.7		-		13.1		-		13.1		818.8
Operating expenses and other		533.6		27.2		16.4		-		43.6		577.2
Depreciation and amortization		239.8		24.1		-		-		24.1		263.9
Interest		141.9		55.9		0.3		-		56.2		198.1
Income tax expense (benefit)		131.0		(8.1)		(0.6)				(8.7)		122.3
Distributions on preferred securities of subsidiary Trust		5.7		-		-		-		-		5.7
Total Expenses		1,857.7		99.1		29.2		-		128.3		1,986.0
Loss from Equity Investments, Principally Telecommunication Entities		-		(8.5)		-		-		(8.5)		(8.5)
Net Income (Loss)	$	211.2	$	16.3	$	(1.2)		-	$	15.1	$	226.3
Earnings (Loss) Per Share	$	1.63	$	.14	$	(.01)	$	-	$	.13	$	1.76
Total Assets	$	5,817.1	$	1,000.8	$	31.0	$	-	$	1,031.8	$	6,848.9
Expenditures for Assets	$	206.2	$	0.3	$	2.5	$	-	$	2.8	$	209.0
The Company's revenues from external customers are earned primarily within the United States and principally all of the Company's long-lived assets are held in the United States. In addition, there were no material transactions between segments.
Total segment assets of $7,572.2 million, $7,186.2 million, and $6,848.9 million, as of December 31, 2000, 1999, and 1998, respectively, include $510.1 million, $252.9 million, and $243.4 million, representing the utility segment's investment in PHI and $34.8 million, $22.7 million, and $31.4 million, of intersegment net receivables. As of December 31, 2000, 1999, and 1998, respectively, these amounts are eliminated in consolidation and therefore they are not reflected in the Company's total assets as recorded on the accompanying Consolidated Balance Sheets.

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

GENERAL

        The Utility's transmission and distribution operations are regulated by the Maryland Public
Service Commission (Maryland Commission) and the D.C. Public Service Commission (D.C.
Commission) and its wholesale business is regulated by the Federal Energy Regulatory
Commission (FERC). The Company complies with the Uniform System of Accounts prescribed
by FERC and adopted by the Maryland and D.C. Commissions.

        The preparation of these consolidated 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, the 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. Certain prior year amounts have been reclassified in order to conform to the
current year presentation.

PRINCIPLES OF CONSOLIDATION

        The accompanying consolidated financial statements present the financial results of the
Company and its wholly owned subsidiaries. All intercompany balances and transactions have
been eliminated.

        Investments in entities in which the Company has a 20% to 50% interest are accounted for
using the equity method. Under the equity method, investments are carried at cost and adjusted
for the Company's proportionate share of the investments' undistributed earnings or losses. Refer
to Note (5) of the Notes to Consolidated Financial Statements, Loss from Equity Investments,
Principally Telecommunication Entities for additional information.

REVENUE

        The Company classifies its revenue as Utility and Competitive Operations. Utility revenue
consists of the Utility's operations, the Trust, and Edison, and Competitive Operations revenue
consists of PHI's operations.

        The Utility's revenue for services rendered but unbilled as of the end of each month is
accrued. At December 31, 2000 and 1999, $85.6 million and $77.2 million in accrued unbilled
revenue, respectively, was recorded. These amounts are included in the accounts receivable
balance on the accompanying consolidated balance sheets. The amounts received for the sale of
energy and resales of purchased energy to other utilities and to power marketers is included in
Utility revenue. Amounts received, through July 1, 2000 in Maryland and December 31, 2000 in
D.C., for such interchange deliveries were components of the Company's fuel rates.

        Interchange deliveries include transactions in the bilateral energy sales marketplace, where
wholesale power sales tariffs allow both sales from Company-owned generation and sales of
energy purchased from other market participants. As discussed in Note (1) Organization,
Divestiture, and Segment Information, on December 19, 2000, the Company divested its
Generation Assets.

        Revenue from Pepco Energy Services' energy services contracts and from PCI's utility
industry services contracts is recognized using the percentage-of-completion method of revenue
recognition, which recognizes revenue as work progresses on the contract. Revenue from Pepco
Energy Services' electric and gas marketing businesses and from PepMarket's business is
recognized as services are rendered.

ENVIRONMENTAL REMEDIATION COSTS

          The Company accrues environmental remediation costs at the time that management
determines that it is probable that an asset has been impaired or that a liability has been incurred
and the amount of the loss can be reasonably estimated. Environmental remediation costs are
charged as an operating expense unless the costs extend the life of an asset or prevent
environmental contamination that has yet to occur, in which case the costs are capitalized.
Amounts that the Company has determined are probable of recovery from third parties, such as
insurance carriers, are netted against the operating expense line item. The amount that is
probable of recovery from third parties and the anticipated liability for environmental
remediation costs are separately recorded. Amounts accrued for probable environmental
remediation costs that may be incurred in the future are not measured on a discounted basis.

CASH AND CASH EQUIVALENTS

        Cash and cash equivalents include cash on hand, money market funds and commercial
paper with original maturities of three months or less. The cash and cash equivalents balance at
December 31, 2000 includes approximately $1.8 billion in proceeds from the divestiture of the
Generation Assets that have been invested by Edison.

MARKETABLE SECURITIES

        Marketable securities consist primarily of preferred stocks with mandatory redemption
features, which are classified as "available for sale" for financial reporting purposes. Net
unrealized gains or losses on such securities are reflected, net of tax, in shareholders' equity.

        Included in net unrealized gains and losses are gross unrealized gains of $.3 million and
gross unrealized losses of $11.8 million at December 31, 2000 and gross unrealized gains of $2
million and gross unrealized losses of $4.7 million at December 31, 1999.

        In determining gross realized gains and losses on sales or maturities of securities, specific
identification is used. Gross realized gains were $1.1 million, $.6 million, and $4.7 million in
2000, 1999, and 1998, respectively. Gross realized losses were $1.4 million, $2.2 million, and
$2.5 million in 2000, 1999, and 1998, respectively.

At December 31, 2000, the contractual maturities for mandatorily redeemable preferred stock are
$99.6 million within one year, $37.1 million from one to five years, $89.7 million from five to 10
years and $15.8 million for over 10 years.

LEASING ACTIVITIES

        Income from investments in direct financing leases and leveraged lease transactions, in
which the Company is an equity participant, is accounted for 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
financing 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 constant rate of return on the
positive net investment.

        Investments in equipment under operating leases are stated at cost, less accumulated
depreciation. Depreciation is recorded on a straight-line basis over the equipment's estimated
useful life.

OTHER ASSETS

        The other assets balance principally consists of real estate under development, equity and
other investments, prepaid benefit costs, and the SMECO contract termination fee which is
discussed in Note (12) of the Notes to Consolidated Financial Statements, SMECO Agreement.

SHORT-TERM DEBT

        Short-term financing requirements have been principally satisfied through the sale of
commercial promissory notes. Interest rates for short-term financing during 2000 ranged from
5.77% to 6.63%. Additionally, a minimum 100% line of credit back-up for outstanding
commercial promissory notes is maintained. This line of credit was unused during 2000, 1999,
and 1998.

AMORTIZATION OF DEBT ISSUANCE AND REACQUISITION COSTS

        Expenses incurred in connection with the issuance of long-term debt, including premiums
and discounts associated with such debt, are deferred and amortized 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.

FUEL COSTS

        The Maryland fuel clause was terminated effective July 1, 2000 (the date of commencement
of customer choice). In D. C., the fuel clause will be terminated effective February 9, 2001 (one
month after the completion of the sale of the Company's interest in Conemaugh). For a
discussion of the Company's TPA and GPC refer to Note (1) Organization, Divestiture, and
Segment Information.

TREASURY STOCK

          The Company uses the cost method of accounting for treasury stock. Under the cost
method, the Company records the total cost of the treasury stock as a reduction to its
shareholders' equity on the face of its consolidated balance sheets. Additionally, stock held in
treasury is not considered outstanding for the purposes of computing the Company's earnings per
share.

NEW ACCOUNTING STANDARDS

        In June 1998, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 133 (SFAS 133) entitled, "Accounting for Derivative Instruments and
Hedging Activities." SFAS 133 establishes accounting and reporting standards for derivative
instruments and hedging activities. The effective date of SFAS No. 133 has been delayed and
will become effective for the Company's 2001 calendar year financial statements. Accordingly,
the Company adopted SFAS 133 on January 1, 2001. At that date, the cumulative effect of the
implementation of SFAS 133 did not have a material impact on the Company's consolidated
results of operations, financial position, or cash flows.

(3)    LEASING ACTIVITIES

        The investment in financing leases was comprised of the following at December 31:

	2000	1999
	(Millions of Dollars)
Energy leveraged leases	$469.3	$433.3
Aircraft leases	63.9	173.4
Other	56.3	57.6
Total	$589.5	$664.3

        The components of the net investment in finance leases at December 31, 2000, and 1999 are
summarized below:

At December 31, 2000:	Leveraged     Leases	Direct  Finance  Leases	Total       Finance        Leases
	(Millions of Dollars)
Rents receivable	$  345.1	$  95.8	$  440.9
Debt service payable from proceeds      of residual value, net	(1,503.7)	- -	(1,503.7)
Estimated residual value	2,145.8	30.6	2,176.4
Less:   Unearned and deferred income	(485.7)	(38.4)	(524.1)
Investment in finance leases	501.5	88.0	589.5
Less:   Deferred taxes	(191.3)	(43.9)	(235.2)
Net Investment in Finance Leases	$  310.2	$  44.1	$  354.3
At December 31, 1999:
Rents receivable	$   354.7	$ 206.2	$  560.9
Debt service payable from proceeds of     residual value, net	(1,503.7)	- -	(1,503.7)
Estimated residual value	2,149.3	60.9	2,210.2
Less:   Unearned and deferred income	(525.1)	(78.0)	(603.1)
Investment in finance leases	475.2	189.1	664.3
Less:   Deferred taxes	(150.9)	(35.8)	(186.7)
Net Investment in Finance Leases	$   324.3	$ 153.3	$  477.6

        Income recognized from leveraged leases was comprised of the following:

For the Year Ended December 31,	2000	1999	1998
	(Millions of Dollars)
Pre-tax earnings from leveraged leases	$37.5	$20.5	$13.4
Investment tax credit recognized	.8	.9	.8
Income from leveraged leases, including      investment tax credit	38.3	21.4	14.2
Income tax expense (credit)	7.5	2.3	(.5)
Net Income from Leveraged Leases	$30.8	$19.1	$14.7

        Rents receivable from leveraged leases are net of non-recourse debt. Minimum lease
payments receivable from finance leases, for each of the years 2001 through 2005 and thereafter,
are $20.8 million, $19.1 million, $11.3 million, $9.2 million, $8.4 million, and $520.7 million,
respectively.

        In July and November 1999, PCI entered into two similar leveraged lease transactions with
eight Dutch Municipal owned entities, for a total of $1.3 billion. These transactions involved the
purchase and leaseback of 38 gas transmission and distribution networks, located throughout the
Netherlands, over base lease terms approximating 25 years. These transactions were financed
with approximately $1.1 billion of third-party, non-recourse debt at commercial rates for a period
of approximately 25 years. PCI's net investment in these finance leases was approximately $193
million and was funded primarily through the Medium-Term Note program.

(4)    PROPERTY, PLANT AND EQUIPMENT

        As discussed in Note (1) of the Notes to Consolidated Financial Statements, Organization,
Divestiture, and Segment Information, the Company divested its Generation Assets in December
2000 and divested its interest in Conemaugh in January 2001.

        Property, plant and equipment is comprised of the following.

At December 31, 2000	Original      Cost	Accumulated  Depreciation	Net        Book Value
	(Millions of Dollars)
Generation	$ 92.0	$   19.0	$ 73.0
Distribution	3,046.1	1,142.1	1,904.0
Transmission	698.2	226.3	471.9
General	304.3	174.9	129.4
Construction work in progress	57.7	-	57.7
Nonoperating property	86.4	.6	85.8
Total	$4,284.7	$1,562.9	$2,721.8
At December 31, 1999
Generation	$2,650.0	$  805.6	$1,844.4
Distribution	2,943.1	1,059.6	1,883.5
Transmission	719.4	225.2	494.2
General	360.4	169.0	191.4
Construction work in progress	86.7	-	86.7
Nonoperating property	24.7	.5	24.2
Total	$6,784.3	$2,259.9	$4,524.4

        The nonoperating property amounts include balances for electric plant held for future use.

        Property, plant and equipment includes regulatory assets of $41 million and $44 million at
December 31, 2000 and 1999, respectively, which are accounted for pursuant to Statement of
Financial Accounting Standards No. 71 (SFAS 71) "Accounting for the Effects of Certain Types
of Regulation."

        The cost of additions to, and replacements or betterments of, retirement units of property
and plant is capitalized. Such costs include 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 3.5% for the Company's transmission and distribution system
property in 2000, 1999 and 1998.

(5)     LOSS FROM EQUITY INVESTMENTS, PRINCIPALLY
         TELECOMMUNICATION ENTITIES

        PCI and Pepco Energy Services have investments ranging from 20% to 50% in certain
businesses, which are accounted for using the equity method. The most significant equity
investment is PCI's joint venture in Starpower which is discussed in detail below. Investments
that are accounted for using the equity method are as follows.

Entity	Ownership    Interest	Share of (Loss)Income			Net Investment
		2000	1999	1998		2000	1999
Starpower	50%	$(20.2)	$(12.2)	$(10.4)		$118.2	$39.6
Metricom D.C., LLC      (Metricom)	20%	- -	(.8)	(.8)		- -	- -
Cove Point LNG, LP      (Cove Point)	50%	- -	2.6	2.7		- -	10.4
Viron/Pepco Services, Inc.	50%	3.1	.8	-		1.8	.8
Total		$ (17.1)	$  (9.6)	$ (8.5)		$120.0	$50.8

        The total (loss)/income shown above is presented prior to the recognition of PHI's tax
expense/benefit.

        In October 1999, a subsidiary of PHI sold its 20% equity interest in Metricom. The sale
resulted in the recognition of an after-tax gain of approximately $1.7 million. On January 11,
2000, PCI sold its 50% interest in Cove Point to Columbia Energy Group for total proceeds of
$40.7 million. This transaction resulted in an after-tax gain of $11.8 million, which was
recorded during the first quarter of 2000. The 50% investment in Viron/Pepco Services, Inc. was
created in 1999 to provide energy-savings performance contracting services to the Military
District of Washington.

STARPOWER

        PCI's telecommunication products and services are provided through Starpower, which was
formed in 1997 by wholly-owned subsidiaries of PCI and RCN Corporation. Each Starpower
partner initially committed to contribute a total of $150 million of equity to the joint venture over
a three-year period (1998-2000). This initial commitment was fulfilled by each partner during
the fourth quarter of 2000. Additionally, during the fourth quarter of 2000, each partner agreed
to contribute an additional $18 million to fund capital requirements until the capital requirements
budget for 2001 is finalized. As of December 31, 2000, PCI has invested a total of $162 million
of its $168 million commitment to Starpower.

        During the first quarter of 1998, RCN acquired Erols Internet (Erols). The majority of Erols
customers (approximately 197,000 out of a total of 316,000 in February 1998) were located in
Starpower's target market. These customer accounts, as well as certain associated network assets
and related liabilities, have been contributed by RCN to Starpower. Starpower has agreed to pay
$51.9 million ($78.6 million in assets, primarily goodwill, net of $26.7 million of unearned
revenue) through a ratable reduction of RCN's committed future capital contributions. As a
result of this transaction, Starpower is amortizing the acquisition premium principally over a
three-to-five year period, which commenced in February 1998.

A summary of Starpower's financial information is as follows.

			As of December 31,
Balance Sheets			2000	1999
			(Millions of Dollars)
Assets
Current assets			$ 98.1	$  32.6
Intangible assets, net of accumulated amortization of      $47.9 and $31.7			20.4	35.5
Property, plant and equipment, net of      accumulated depreciation of $28.2 and $16.3			229.7	112.3
Total Assets			$348.2	$180.4
Liabilities and Partners' Equity
Current liabilities			$108.0	$  61.5
Noncurrent liabilities			1.9	4.5
Accumulated deficit			(85.7)	(45.3)
Partners' equity			324.0	159.7
Total Liabilities and Partners' Equity			$348.2	$180.4
	For the Year Ended December 31,
Income Statements		2000	1999	1998
		(Millions of Dollars)
Total revenue		$73.5	$60.3	$34.2
Cost of sales		22.2	16.0	10.1
Gross margin		51.3	44.3	24.1
Operating expense		64.5	45.4	21.2
(Loss) Earnings before interest, depreciation      and amortization		(13.2)	(1.)	2.9
Depreciation and amortization		28.2	23.7	24.3
Interest income		1.0	.4	.7
Loss		$40.4	$24.4	$20.7
PCI's Portion of Loss		$20.2	$12.2	$10.4

(6)    PENSIONS AND OTHER POSTRETIREMENT AND POSTEMPLOYMENT
        BENEFITS

        As discussed in Note (1) Organization, Divestiture, and Segment Information, on December
19, 2000, the Company divested its Generation Assets, including other related assets, to Southern
Energy. In accordance with the terms of the divestiture, with respect to generation employees
transferred between the Company and Southern Energy, the Company will only be responsible
for the portion of transferred employees' pensions that relate to service with the Company.

        As a result of the divestiture, in December 2000 the Company recognized a curtailment
charge of approximately $8.7 million. Since this charge is the direct result of the divestiture, it
was considered to be a transaction cost and was netted against the gain on divestiture of
Generation Assets on the Company's accompanying statements of earnings.
        The Company's General Retirement Program (Program), a noncontributory defined benefit
program, covers substantially all full-time employees of the Company. The Program provides
for benefits to be paid to eligible employees at retirement based primarily upon years of service
with the Company and their compensation rates for the three years preceding retirement. Annual
provisions for accrued pension cost are based upon independent actuarial valuations. The
Company's policy is to fund accrued pension costs.

        In addition to providing pension benefits, the Company provides certain health care and life
insurance benefits for retired employees and inactive employees covered by disability plans.
Health maintenance organization arrangements are available, or a health care plan pays stated
percentages of most necessary medical expenses incurred by these employees, after subtracting
payments by Medicare or other providers and after a stated deductible has been met. The life
insurance plan pays benefits based on base salary at the time of retirement and age at the date of
death. Participants become eligible for the benefits of these plans if they retire under the
provisions of the Company's Program with 10 years of service or become inactive employees
under the Company's disability plans. The Company is amortizing the unrecognized transition
obligation measured at January 1, 1993, over a 20-year period.

        Pension expense included in net income was $3 million in 2000, $8.7 million in 1999 and
$9.3 million in 1998. Postretirement benefit expense included in net income was $18 million,
$15.8 million and $12.6 million in 2000, 1999, and 1998, respectively. The components of net
periodic benefit cost were computed as follows.

	Pension Benefits
	2000	1999	1998
	(Millions of Dollars)
Components of Net Periodic Benefit Cost Service cost Interest cost Expected return on plan assets Amortization of prior service cost Recognized actuarial loss Net Period Benefit Cost	$12.8 37.2 (48.7) 1.4      .3 $ 3.0	$ 13.2 34.9 (44.7) 1.4     3.9 $  8.7	$  13.0 33.9 (41.2) 1.4       2.2 $   9.3

	Other Benefits
		2000	1999	1998
		(Millions of Dollars)
Components of Net Periodic Benefit Cost Service cost Interest cost Expected return on plan assets Recognized actuarial loss Net Period Benefit Cost		$ 5.8 8.2 (1.9)     5.9 $18.0	$  5.4 6.6 (1.6)     5.4 $15.8	$  4.0 5.8 (1.5)      4.3 $12.6

        Assumed health care cost trend rates have a significant effect on the amounts reported for
the health care plans. The assumed health care cost trend rate used to measure the expected cost
benefits covered by the plan is 7.5%. This rate is expected to decline to 5.5% over the next four-
year period. A one percentage point change in the assumed health care cost trend rate would
have the following effects for fiscal year 2000.

	1-Percentage-Point	1-Percentage-Point
	Increase	Decrease
	(Millions of Dollars)
Effect on total of service and      interest cost components	$1.3	$(1.1)
Effect on postretirement benefit      obligation	$7.8	$(6.7)

        Pension program assets are stated at fair value and are composed of approximately 41% and
35% of cash equivalents and fixed income investments with the balance in equity investments.

        The following table sets forth the Program's funded status and amounts included in
Investments and Other Assets - Other on the Consolidated Balance Sheets.

	Pension Benefits
	2000	1999
	(Millions of Dollars)
Funded status	$  44.6	$21.5
Unrecognized actuarial loss	71.8	45.6
Unrecognized prior service cost Prepaid Benefit Cost	7.1  $123.5	10.8 $77.9
Weighted average assumptions as of      December 31
Discount rate	7.0%	7.0%
Expected return on plan assets	9.0%	9.0%
Rate of compensation increase	4.0%	4.0%
	Other Benefits
	2000	1999
	(Millions of Dollars)
Funded status	$(92.4)	$(87.0)
Unrecognized actuarial loss	49.6	49.3
Unrecognized initial net obligation	18.9	27.4
Accrued Benefit Cost	$(23.9)	$(10.3)
Weighted average assumptions as of      December 31
Discount rate	7.0%	7.0%
Expected return on plan assets	9.0%	9.0%
Rate of compensation increase	4.0%	4.0%

        The changes in benefit obligation and fair value of plan assets are presented in the following
table.

	Pension Benefits
	2000	1999
	(Millions of Dollars)
Change in Benefit Obligation
Benefit obligation at beginning of year	$533.2	$541.6
Service cost	12.8	13.3
Interest cost	37.2	34.9
Actuarial gain	(18.8)	(27.0)
Benefits paid	(32.1)	(29.6)
Benefit Obligation at End of Year	$532.3	$533.2
Accumulated Benefit Obligation at December 31	$471.9	$453.9
Change in Fair Value of Plan Assets
Fair value of plan assets at beginning of year	$554.7	$510.2
Actual return on plan assets	3.4	64.7
Company contributions	50.0	10.0
Benefits paid	(31.2)	(30.2)
Fair Value of Plan Assets at End of Year	$576.9	$554.7

	Other Benefits
	2000	1999
	(Millions of Dollars)
Change in Benefit Obligation
Benefit obligation at beginning of year	$ 105.6	$  93.4
Service cost	5.8	5.4
Interest cost	8.2	6.7
Actuarial loss	2.8	7.7
Benefits paid	(9.0)	(7.6)
Benefit Obligation at End of Year	$113.4	$105.6
Change in Fair Value of Plan Assets
Fair value of plan assets at beginning of year	$18.6	$15.6
Actual return on plan assets	.6	2.8
Company contributions	7.0	5.8
Benefits paid	(5.2)	(5.6)
Fair Value of Plan Assets at End of Year	$21.0	$18.6

        The Company also sponsors defined contribution savings plans covering all eligible
employees. Under these plans, the Company makes contributions on behalf of participants.
Company contributions to the plans totaled $5 million in 2000, $5.6 million in 1999, and $5.8
million in 1998.

        In February 2000 and 1999, the Company funded the 2000 and 1999 portions of its
estimated liability for postretirement medical and life insurance costs through the use of an
Internal Revenue Code (IRC) 401 (h) account, within the Company's pension plan, and an IRC
501 (c) (9) Voluntary Employee Beneficiary Association (VEBA). The Company plans to fund
the 401(h) account and the VEBA annually. In February 2001, the 2001 portion of the
Company's estimated liability will be funded. Assets are composed of cash equivalents, fixed
income investments and equity investments.

(7) Long-Term Debt and Capital Lease Obligations
The components of long-term debt and capital lease obligations are shown below.
			At December 31,
Interest Rate	Maturity		2000		1999
			(Millions of Dollars)
First Mortgage Bonds
Fixed Rate Series:
5-1/8%	April 1, 2001	$	15.0	$	15.0
5-7/8%	May 1, 2002		35.0		35.0
6-5/8%	February 15, 2003		40.0		40.0
5-5/8%	October 15, 2003		50.0		50.0
6-1/2%	September 15, 2005		100.0		100.0
6%	April 1, 2004		270.0		270.0
6-1/4%	October 15, 2007;
	PUT date
	October 15, 2004		175.0		175.0
6-1/2%	March 15, 2008		78.0		78.0
5-7/8%	October 15, 2008		50.0		50.0
5-3/4%	March 15, 2010		16.0		16.0
9%	June 1, 2021		100.0		100.0
6%	September 1, 2022		30.0		30.0
6-3/8%	January 15, 2023		37.0		37.0
7-1/4%	July 1, 2023		100.0		100.0
6-7/8%	September 1, 2023		100.0		100.0
5-3/8%	February 15, 2024		42.5		42.5
5-3/8%	February 15, 2024		38.3		38.3
6-7/8%	October 15, 2024		75.0		75.0
7-3/8%	September 15, 2025		75.0		75.0
8-1/2%	May 15, 2027		75.0		75.0
7-1/2%	March 15, 2028		40.0		40.0
Variable Rate Series:
Adjustable rate	December 1, 2001		50.0		50.0
Total First Mortgage Bonds			1,591.8		1,591.8
Convertible Debentures
5%	September 1, 2002		115.0		115.0
Medium-Term Notes
Fixed Rate Series:
6.53%	December 17, 2001		100.0		100.0
7.46% to 7.60%	January 2002		40.0		40.0
7.64%	January 17, 2007		35.0		35.0
6.25%	January 20, 2009		50.0		50.0
7%	January 15, 2024		50.0		50.0
Variable Rate Series: Adjustable rate	June 1, 2027		8.1		8.1
Recourse Debt
5.00% - 5.99%	2001-2003		1.0		1.0
6.00% - 6.99%	2001-2005		282.3		361.6
7.00% - 8.99%	2001-2004		377.5		414.4
9.00% - 9.70%	2001		6.0		62.0
Nonrecourse debt			31.0		52.8
Net unamortized discount			(12.9)		(21.7)
Current portion			(938.5)		(147.5)
Net Long-Term Debt			1,736.3		2,712.5
Capital Lease Obligations			123.3		154.5
Long -Term Debt and     Capital Lease Obligations		$	1,859.6	$	2,867.0

        The outstanding First Mortgage Bonds are secured by a lien on substantially all of the
Company's property, plant and equipment. Additional bonds may be issued under the mortgage
as amended and supplemented in compliance with the provisions of the indenture. As discussed
in Note (1) of the Notes to Consolidated Financial Statements, Organization, Divestiture, and
Segment Information, on December 19, 2000 the Company divested its Generation Assets to
Southern Energy. As a result of the divestiture the following First Mortgage Bonds will be
redeemed during January 2001: $15 million 5-1/8% Series due 2001, $35 million 5-7/8% Series
due 2002, $40 million 6-5/8% Series due 2003, $270 million 6% Series due 2004, and $50
million Adjustable Rate Series due 2001. This debt is classified as short-term on the
accompanying consolidated balance sheets at December 31, 2000.

        The interest rate on the $50 million Adjustable Rate series First Mortgage Bonds (to be
redeemed in January 2001) is adjusted annually on December 1, based upon the 10-year
"constant maturity" United States Treasury bond rate for the preceding three-month period ended
October 31, plus a market-based adjustment factor. Effective December 1, 2000, the applicable
interest rate is 6.99%. The applicable interest rate was 7.19% at December 1, 1999 and 6.09% at
December 1, 1998.

        The 5% Convertible Debentures are convertible into shares of common stock at a
conversion rate of 29-1/2 shares for each $1,000 principal amount. In December 2000, this
series was called for early redemption on February 1, 2001.

        The $666.8 million of recourse debt is primarily from institutional lenders maturing at
various dates between 2001 and 2005. The interest rates of such borrowings ranged from 5% to
9.7%. The weighted average interest rate was 7.30% at December 31, 2000 and December 31,
1999.

        Long-term debt also includes $31 million of non-recourse debt, $3.2 million of which is
secured by aircraft currently under operating leases. The debt is payable in monthly installments
at rates of LIBOR (London Interbank Offered Rate) plus 1.25% with final maturity on August
15, 2001. In addition, non-recourse debt includes $21 million associated with a direct finance
lease which is due to mature in 2018. The remaining non-recourse debt of $6.8 million is related
to majority-owned real estate partnerships and is payable in monthly installments at a fixed rate
of interest of 9.66%, with final maturity on October 1, 2011.

        The aggregate amounts of maturities for utility long-term debt outstanding at December 31,
2000, are $625 million in 2001, $40 million in 2002, $50 million in 2003, zero in 2004, $100
million in 2005, and $1,175 million thereafter.

        Refer to Note (13) of the Notes to Consolidated Financial Statements, Commitments and
Contingencies, for a discussion of the Company's capital lease obligations.

(8) Income Taxes
The provision for income taxes, reconciliation of consolidated income tax expense, and components of consolidated deferred tax liabilities (assets) are shown below.
Provision for Income Taxes
		For the Year Ended December 31,
		2000		1999		1998
		(Millions of Dollars)
Current Tax Expense
Federal	$	465.8	$	57.2	$	111.2
State and local		114.9		16.9		12.1
Total Current Tax Expense		580.7		74.1		123.3
Deferred Tax Expense
Federal		(247.2)		42.8		(1.7)
State and local		(19.6)		1.2		4.3
Investment tax credits		27.3		(3.6)		(3.6)
Total Deferred Tax Expense		(239.5)		40.4		(1.0)
Total Income Tax Expense	$	341.2	$	114.5	$	122.3
Reconciliation of Consolidated Income Tax Expense
		For the Year Ended December 31,
		2000		1999		1998
		(Millions of Dollars)
Income Before Income Taxes	$	693.2	$	361.6	$	348.6
Income tax at federal statutory rate	$	242.6	$	126.5	$	122.0
Increases (decreases) resulting from
Depreciation		11.7		11.5		10.9
Removal costs		(5.6)		(5.0)		(6.0)
Allowance for funds used during construction		0.9		0.3		0.5
State income taxes, net of federal effect		63.3		11.8		10.7
Tax credits		(4.8)		(4.7)		(4.0)
Dividends received deduction		(3.4)		(4.1)		(4.4)
Reversal of previously accrued deferred taxes		(2.1)		-		(1.0)
Taxes related to divestitures at non-statutory rates		48.3		-		-
Other		(9.7)		(21.8)		(6.4)
Total Income Tax Expense	$	341.2	$	114.5	$	122.3

Components of Consolidated Deferred Tax Liabilities (Assets)
		At December 31,
		2000		1999
		(Millions of Dollars)
Deferred Tax Liabilities (Assets)
Depreciation and other book to tax basis differences	$	500.8	$	903.9
Rapid amortization of certified pollution control        facilities and prepayment premium on debt retirement		4.9		45.0
Deferred taxes on amounts to be collected through        future rates		17.5		85.5
Deferred investment tax credit		(17.5)		(18.9)
Contributions in aid of construction		(42.4)		(34.3)
Conservation costs (demand side management)		-		42.5
Finance and operating leases		122.2		96.4
Alternative minimum tax		-		(27.6)
Assets with a tax basis greater than book basis		(23.8)		(28.5)
Customer Sharing		(98.1)		-
Transition Costs		(13.1)		-
Property taxes, contributions to pension plan, and other		(8.9)		4.8
Total Deferred Tax Liabilities, Net		441.6		1,068.8
Current portion of deferred tax liabilities      (included in Other Current Liabilities)		22.9		16.0
Total Deferred Tax Liabilities, Net - Non-Current	$	418.7	$	1,052.8

        The net deferred tax liability represents the tax effect, at presently enacted tax rates, of
temporary differences between the financial statement and tax bases of assets and liabilities.
The portion of the net deferred tax liability applicable to Pepco's operations, which has not been
reflected in current service rates, represents income taxes recoverable through future rates, net
and is recorded as a regulatory asset on the balance sheet. No valuation allowance for deferred
tax assets was required or recorded at December 31, 2000 and 1999.

        The Tax Reform Act of 1986 repealed the Investment Tax Credit (ITC) for property placed
in service after December 31, 1985, except for certain transition property. ITC previously earned
on Pepco's property continues to be normalized over the remaining service lives of the related
assets.

        The Company files a consolidated federal income tax return. The Company's federal
income tax liabilities for all years through 1995 have been determined. The Company is of the
opinion that the final settlement of its federal income tax liabilities for subsequent years will not
have a material adverse effect on its financial position or results of operations.

OTHER TAXES

        Taxes, other than income taxes, charged to operating expense for each period are shown
below.

	2000	1999	1998
	(Millions of Dollars)
Gross receipts	$  90.1	$  91.8	$  98.4
Property	67.7	72.7	71.0
Payroll	9.7	9.7	10.9
County fuel-energy	16.8	16.4	15.8
Environmental, use and other	23.1	10.5	8.3
	$207.4	$201.1	$204.4

(9)    SERIAL PREFERRED STOCK AND REDEEMABLE PREFERRED STOCK

        The Company has authorized 7,750,000 shares of cumulative $50 par value Serial Preferred
Stock. At December 31, 2000 and 1999, there were 1,806,543 shares and 2,000,000 shares
outstanding, respectively. The various series of Preferred Stock outstanding and the per share
redemption price at which each series may be called by the Company are as follows.

	Redemption       Price	December 31,    2000              1999
		(Millions of Dollars)
$2.44 Series of 1957, 275,041 and 300,000 shares	$51.00	$13.7	$15.0
$2.46 Series of 1958, 213,942 and 300,000 shares	$51.00	10.7	15.0
$2.28 Series of 1965, 327,560 and 400,000 shares	$51.00	16.4	20.0
		$40.8	$50.0
$3.40 Series of 1992, 990,000 and 1,000,000 shares		$49.5	$50.0

        During March 2000, the Company repurchased the following Preferred Stock: 1,570 shares
of $2.44 series of 1957 at $37.50 per share; 5,028 shares of $2.46 series of 1958 at $37.50 per
share; 33,118 shares of $2.28 series of 1965 at $38.625 per share; 23,389 shares of $2.44 series
of 1957 at $41.50 per share; and 46,030 shares of $2.46 series of 1958 at $41.72 per share. The
repurchase totaled approximately $4.4 million.

        In May 2000, the Company repurchased 10,000 shares of Redeemable Preferred Stock,
$3.40 Series of 1992, at $49.50 per share. The repurchase totaled approximately $.5 million.

        In December 2000, the Company repurchased 39,322 shares of Serial Preferred Stock,
$2.28 series of 1965, at $37.875 per share and 35,000 shares of $2.46 series of 1958, at $38.90
per share. The repurchases totaled $1.5 million and $1.4 million, respectively.

        The shares of the $3.40 (6.80%) Series are subject to mandatory redemption, at par, through
the operation of a sinking fund that will redeem 50,000 shares annually, beginning September 1,
2002, with the remaining shares redeemed on September 1, 2007. The shares are not redeemable
prior to September 1, 2002; thereafter, the shares are redeemable at par. The sinking fund
requirements through 2004 with respect to the Redeemable Serial Preferred Stock are $2 million
in 2002, and $2.5 million in 2003 and 2004.

        In the event of default with respect to dividends, or sinking fund or other redemption
requirements relating to the serial preferred stock, no dividends may be paid, nor any other
distribution made, on common stock. Payments of dividends on all series of serial preferred or
preference stock, including series that are redeemable, must be made concurrently.

(10)   COMPANY OBLIGATED MANDATORILY REDEEMABLE PREFERRED
          SECURITIES OF SUBSIDIARY TRUST

        In May 1998, the Trust issued $125 million of 7-3/8% Trust Originated Preferred Securities
(TOPrS). The proceeds from the sale of the TOPrS to the public and from the sale of the
common securities of the Trust to the Company were used by the Trust to purchase from the
Company $128.9 million of 7-3/8% Junior Subordinated Deferrable Interest Debentures, due
June 1, 2038 (Junior Subordinated Debentures). The sole assets of the Trust are the Junior
Subordinated Debentures. The Trust will use interest payments received on the Junior
Subordinated Debentures to make quarterly cash distributions on the TOPrS. Accrued and
unpaid distributions on the TOPrS, as well as payment of the redemption price upon the
redemption and of the liquidation amount upon the voluntary or involuntary dissolution, winding
up or termination of the Trust, to the extent such funds are held by the Trust, are guaranteed by
the Company (Guarantee). The Guarantee, when taken together with the Company's obligation
under the Junior Subordinated Debentures and the Indenture for the Junior Subordinated
Debentures, and the Company's obligations under the declaration of Trust for the TOPrS,
including its obligations to pay costs, expenses, debts and liabilities of the Trust, provides a full
and unconditional guarantee by the Company on a subordinated basis of the Trust obligations.
Proceeds from the sale of the Junior Subordinated Debentures to the Trust were used to redeem
three series of preferred stock in June 1998.

(11) TREASURY STOCK TRANSACTIONS AND CALCULATIONS OF EARNINGS
         PER SHARE OF COMMON STOCK

TREASURY STOCK TRANSACTIONS

        In April 2000, following the indicative bid stage of the auction process used to divest its
Generation Assets, Pepco announced its Board-approved plan to repurchase $200 million of its
common stock as a preliminary use of the proceeds to be received from the divestiture. As part of
this plan the Company acquired 7,792,907 shares of its common stock, resulting in 110,751,829
shares outstanding at December 31, 2000. The total cost of the Company's treasury shares of
approximately $200 million at December 31, 2000, is reflected as a reduction to shareholders'
equity on the accompanying consolidated balance sheets. These treasury shares are no longer
"outstanding" and therefore are not included in the Company's calculation of average common
shares outstanding for purposes of computing earnings per share for the period the shares are
held in treasury. Accordingly, the Company's average common shares outstanding for the year
ended December 31, 2000, decreased in comparison to the year ended 1999. Approximately
$181.5 million of the total cost of the treasury shares of $200 million was funded by short-term
loans, which were paid off using proceeds from the divestiture.

Calculations of Earnings Per Share of Common Stock
Reconciliations of the numerator and denominator for basic and diluted earnings per common share are shown below.
		For the Year Ended December 31,
		2000		1999		1998
(Millions, except Per Share Data)
Income (Numerator):
Earnings applicable to common stock	$	346.5	$	238.2	$	208.3
Add:  Interest paid or accrued on Convertible Debentures,      net of related taxes		3.6		4.4		6.3
Earnings Applicable to Common Stock, Assuming      Conversion of Convertible Securities	$	350.1	$	242.6	$	214.6
Shares (Denominator):
Average shares outstanding for computation of basic      earnings per share of common stock		114.9		118.5		118.5
Average shares outstanding for diluted computation:
Average shares outstanding		114.9		118.5		118.5
Additional shares resulting from:      Conversion of Convertible Debentures		3.4		4.1		5.7
Average Shares Outstanding for Computation of Diluted      Earnings Per Share of Common Stock		118.3		122.6		124.2
Basic earnings per share of common stock		$3.02		$2.01		$1.76
Diluted earnings per share of common stock		$2.96		$1.98		$1.73

        The Company's Shareholder Dividend Reinvestment Plan (DRP) provides that shares of
common stock purchased through the plan may be original issue shares or, at the option of the
Company, shares purchased in the open market. The DRP permits additional cash investments
by plan participants limited to one investment per month of not less than $25 and not more than
$5,000.

        As of December 31, 2000, 3,392,500 shares of common stock were reserved for issuance
upon the conversion of the 5% convertible debentures, 2,324,721 shares were reserved for
issuance under the DRP and 1,221,624 shares were reserved for issuance under the Employee
Savings Plans.

        Certain provisions of the Company's corporate charter, relating to preferred and preference
stock, would impose restrictions on the payment of dividends under certain circumstances. No
portion of retained income was restricted at December 31, 2000.

(12)  SMECO AGREEMENT

        In February 1999, FERC accepted a new full-requirements agreement between SMECO and
the Utility that superseded their previous rolling 10-year power supply contract. The agreement,
which became effective as of January 1, 1999, continued the total rate for electricity, but with a
non-varying fuel component. The agreement expired on December 31, 2000, and SMECO made
a one-time termination payment to the Company of $26 million on January 16, 2001. This
payment compensates the Company for future earnings it would otherwise have received under
the 10-year contract. Accordingly, during the first quarter of 1999, the Company recorded pre-
tax income of $23.2 million. This amount is classified as "Accounts Receivable" as of
December 31, 2000 in the accompanying Consolidated Balance Sheets. In accordance with
Accounting Principles Board Opinion No. 21 "Interest on Receivables and Payables," the amount
owed by SMECO required the imputation of interest and therefore the Company amortized a
$2.8 million difference between the present value of the termination payment and its face amount
($26 million) through December 31, 2000 using the effective interest method at a 6% interest
rate. The 6% interest rate approximated the rate the Company could have earned on a two-year
treasury instrument.

        In January 1999, Pepco Energy Services signed a contract with SMECO to supply
SMECO's full-requirements for power (approximately 600 MW of peak load) during the four-
year period starting January 1, 2001. A firm commitment has been secured from a third party for
the delivery of power sufficient to serve SMECO's full requirements. Both the sales
commitment to SMECO and the third-party purchase agreement are at fixed prices that do not
vary with future changes in market conditions.

(13)  COMMITMENTS AND CONTINGENCIES

OIL SPILL AT THE CHALK POINT GENERATING STATION

        On April 7, 2000, approximately 139,000 gallons of oil leaked from a pipeline at a
generation station which was owned by the Company at Chalk Point in Aquasco, Maryland. The
pipeline is operated by Support Terminals Services Operating Partnership LP, an unaffiliated
pipeline management company. The oil spread from Swanson Creek to the Patuxent River and
several of its tributaries. The area affected covers portions of 17 miles of shoreline along the
Patuxent River and approximately 45 acres of marshland adjacent to the Chalk Point property.
Clean-up operations have been under way under the direction of the Environmental Protection
Agency since the leak was discovered. The Company has been joined in the clean-up effort by
officials from other federal, state, county and local government agencies. The 51-mile pipeline,
which transports oil to the plants at Chalk Point and Morgantown, has been shut down by the
Office of Pipeline Safety, a unit of the federal government's Department of Transportation
(DOT), until a plan of corrective measures to prevent a reoccurrence of the spill is approved.
However, the plants remain fully operational and are being operated using coal and natural gas.
The pipeline and the plants were sold to Southern Energy as part of the Generation Asset
divestiture. As of December 31, 2000, approximately $66 million in clean-up costs had been
incurred in connection with the oil spill; and it is currently anticipated that total costs (excluding
liability claims against the Company and fines or other monetary penalties, if any) may be in the
range of $70 million to $75 million. These costs, which have continued to be incurred beyond
December 31, 2000, consist principally of the costs to clean up the oil spill such as labor,
supplies, repair work on damaged properties, and the rental of equipment.

        In addition, as a result of the oil spill, nine class action lawsuits and two additional lawsuits
on behalf of a number of Southern Maryland residents have been filed against the Company. At
this early stage, no determination has been made as to the merits of the claims. The Company
has indicated its willingness to settle appropriate claims arising from the oil spill. Otherwise, the
Company intends to vigorously contest the lawsuits. Fines or penalties, if any, assessed by
government authorities are not expected to be recoverable from the Company's insurance carrier.
The Company does not believe that fines or penalties assessed, if any, will have a material
adverse effect on its financial position; however, such fines or penalties, if any, could have a
material adverse effect on the Company's results of operations in the fiscal quarter in which they
are assessed. On December 20, 2000, the Office of Pipeline Safety of the DOT issued a Notice
of Probable Violation and proposed a civil penalty in the amount of approximately $674,000.
The Company plans to contest certain facts and findings by the DOT.

        For the year ended December 31, 2000, the Company recorded the net amount of $1 million
in operating expense as a result of the oil spill. This amount, which is included in the "Fuel and
Purchased Energy" line item on the Company's consolidated statements of earnings, represents
an accrual of $75 million in total oil spill related clean-up costs, net of $5 million in insurance
proceeds received through June 30, 2000 (the date the amount was recorded by the Company)
and an additional $69 million in probable recoveries from its insurance carriers. Through
December 31, 2000, $35.8 million has been received from the carriers. However, no assurances
can be given that the remaining amount due from the carriers will actually be received. The
aggregate insurance coverage available under the Company's general liability insurance policy
with respect to this event is $100 million. The Company will continue to assess the status of the
oil spill clean-up efforts, as necessary, for any significant changes in the estimated costs of
completing the remediation.

ACCOUNTING FOR CERTAIN TYPES OF REGULATION

        Based on the regulatory framework in which it has operated, the Company has historically
applied the provisions of SFAS 71, "Accounting for the Effects of Certain Types of Regulation."
SFAS 71 allows regulated entities, in appropriate circumstances, to establish regulatory assets
and to defer the income statement impact of certain costs that are expected to be recovered in
future rates.

        The components of the Company's regulatory (liability)/asset balances at December 31,
2000 and 1999 are as follows:

	2000	1999
	(Millions of Dollars)
Income taxes recoverable through future rates, net Customer sharing commitment	$   43.5   (243.8)	$226.0          -
Conservation costs, net	-	163.2
Unamortized debt reacquisition costs	26.7	49.4
Deferred fuel liability, net	(13.7)	(40.4)
Other	1.2	13.5
Net Regulatory (Liability)/Asset	$(186.1)	$411.7

        The Company's Generation Assets (divested to Southern Energy on December 19, 2000)
were deregulated as of December 31, 1999, and the application of SFAS 71 was discontinued for
this portion of the Company's business. Under the terms of the Maryland and D.C. Agreements,
all stranded costs, including future costs related to plant removal associated with divested
generation facilities, plus all above-market costs associated with purchased power obligations,
regulatory assets and obligations, and related expenses incurred by the Company in preparation
for the implementation of retail competition were offset against the proceeds from the sale of the
Generation Assets.

LEASES

        The Company leases its general office building and certain data processing and duplicating
equipment, motor vehicles, communication system and construction equipment under long-term
lease agreements. The lease of the general office building expires in 2002, and leases of
equipment extend for periods of up to six years. Charges under such leases are accounted for as
operating expenses or construction expenditures, as appropriate.

        PCI is in the process of building, owning and financing a new 10-story, 360,000 square foot
commercial office building at an estimated cost of $92 million. The new building is expected to
be completed in mid-2001. The Utility will lease the majority of the office space from PCI. As
of December 31, 2000, PCI has invested $56.3 million related to the acquisition of land and
development of the new building.

        Rents, including property taxes and insurance, net of rental income from subleases,
aggregated approximately $18.6 million in 2000, $18.7 million in 1999, and $18.4 million in
1998. The approximate annual commitments under all operating leases, reduced by rentals to be
received under subleases, are $9.7 million for 2001, $4.9 million for 2002, $1.5 million for 2003,
$.7 million for 2004, $.4 million for 2005, and a total of $4.8 million for the years thereafter.

        The Utility leases its consolidated control center, an integrated energy management center
used by the Utility's power dispatchers to centrally control the operation of the Utility's
transmission and distribution systems. The lease is accounted for as a capital lease and was
recorded at the present value of future lease payments, which totaled $152 million. The lease
requires semi-annual payments of $7.6 million over a 25-year period and provides for transfer of
ownership of the system to the Utility for $1 at the end of the lease term. Under SFAS 71, the
amortization of leased assets is modified so that the total of interest on the obligation and
amortization of the leased asset is equal to the rental expense allowed for rate-making purposes.
This lease has been treated as an operating lease for rate-making purposes. Accordingly, the
Company has recorded a regulatory asset of approximately $41 million and $35 million at
December 31, 2000 and 1999, respectively.

OTHER ENVIRONMENTAL CONTINGENCIES

        The Company is subject to contingencies associated with environmental matters, principally
related to possible obligations to remove or mitigate the effects on the environment of the
disposal of certain substances at the sites discussed below.

        On May 22, 1998, the State of Maryland issued final regulations entitled, "Post RACT
Requirements for Nitrogen Oxides (NOx) Sources (NOx Budget Proposal)," requiring a 65%
reduction in NOx emissions at the Company's Maryland generating units by May 1, 1999. The
regulations allow the purchase or trade of NOx emission allowances to fulfill this obligation.
The Company appealed this regulation to the Circuit Court for Charles County, Maryland, in
June 1998, on the basis that the regulation does not provide adequate time for the installation of
NOx emission reduction technology and that there is no functioning NOx allowance market. In
July 1998, the case was moved to the Circuit Court for Baltimore City and consolidated with a
similar appeal filed by Baltimore Gas and Electric Company. On February 23, 1999, the Circuit
Court for Baltimore City declared the Maryland NOx Budget Proposal to be invalid and
remanded it to the Department of Environment. On September 13, 1999, the Company reached
agreement with the Maryland Department of Environment to meet the 65% NOx emission
reduction requirement by May 1, 2001. With the sale of its Generation Assets on December 19,
2000, obligations associated with the NOx reduction agreement were transferred to Southern
Energy.

        In October 1997, the Company received notice from the EPA that it, along with 68 other
parties, may be a Potentially Responsible Party (PRP) under the Comprehensive Environmental
Response Compensation and Liability Act (CERCLA or Superfund) at the Butler Mine Tunnel
Superfund site in Pittstown Township, Luzerne County, Pennsylvania. The site is a mine
drainage tunnel with an outfall on the Susquehanna River where oil waste was disposed of via a
borehole in the tunnel. The letter notifying the Company of its potential liability also contained a
request for a reimbursement of approximately $.8 million for response costs incurred by EPA at
the site. The letter requested that the Company submit a good faith proposal to conduct or
finance the remedial action contained in a July 1996 Record of Decision (ROD). The EPA
estimated the cost of the remedial action to be $3.7 million. The Company reached a settlement
with a group of large PRPs wherein the Company paid a small share of the estimated remedial
action cost and received in return indemnification for past, present and future liability associated
with the conditions that gave rise to EPA's ROD. While the agreement does not resolve the
Company's liability with respect to claims brought by EPA or others not a party to the
agreement, the Company believes that it is sufficiently protected by the indemnity agreement that
any such liability will not have a material adverse effect on its financial position or results of
operations.

        In December 1995, the Company received notice from the EPA that it is a PRP 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.

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

        In December 1987, the Company was notified by the EPA that it, along with several other
utilities and nonutilities, is a PRP in connection with the polychlorinated biphenyl compounds
(PCBs) contamination of a Philadelphia, Pennsylvania, site owned by a nonaffiliated company.
In the early 1970s, the Company sold scrap transformers, some of which may have contained
some level of PCBs, to a metal reclaimer operating at the site. In October 1994, a Remedial
Investigation/Feasibility Study (RI/FS) including a number of possible remedies was submitted
to the EPA. In December 1997, the EPA signed a ROD that set forth a selected remedial action
plan with estimated implementation costs of approximately $17 million. In June 1998, the EPA
issued a unilateral Administrative Order to the Company and 12 other PRPs to conduct the
design and actions called for in the ROD. To date, the Company has accrued $1.7 million for its
share of these costs.

         The Company's Benning Service Center facility operates under a National Pollutant
Discharge Elimination System (NPDES) permit. The EPA issued an NPDES permit for this
facility in November 2000. The Company has filed a petition with the EPA Environmental
Appeals Board seeking review and reconsideration of certain provisions of the EPA's permit
determination.

LITIGATION

        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 approximate 448 individual plaintiffs
added the Company to their Complaints. While the pleadings are not entirely clear, it appears
that each plaintiff seeks $2 million in compensatory damages and $4 million in punitive damages
from each defendant. In a related proceeding in the Baltimore City case, the Company was
served, in September 1993, with a third-party complaint by Owens Corning Fiberglass, Inc.,
(Owens Corning) alleging that Owens Corning was in the process of settling approximately 700
individual asbestos-related cases and seeking a judgment for contribution against the Company
on the same theory of alleged negligence set forth above in the plaintiffs' case. Subsequently,
Pittsburgh Corning Corp. (Pittsburgh Corning) filed a third-party complaint against the
Company, seeking contribution for the same plaintiffs involved in the Owens Corning third-party
complaint. Since the initial filings in 1993, approximately 90 additional 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. Through December 31, 2000, approximately 400 of the individual plaintiffs
have dismissed their claims against the Company. 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 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.

LABOR AGREEMENT

        A four-year Agreement (Labor Agreement) between the Company and Local 1900 of the
International Brotherhood of Electrical Workers (IBEW) was ratified on December 18, 1998, by
Union members. The Labor Agreement provides for a general wage increase of 3% each year in
1999, 2000 and 2001, beginning February 14, 1999, and 3% increase in wages in the fourth year
of the contract (2002) unless either party elects to reopen the Labor Agreement. The Company
also agreed to a 3% lump-sum payment for the period of January 3, 1999, to February 14, 1999.
In addition, the Labor Agreement resolves important issues that will arise based on the
Company's divestiture of its Generation Assets and establishes a framework for ongoing progress
towards improving management and union relations with joint committees. At December 31,
2000, 1,475 of the Company's 2,566 employees were represented by the IBEW.

(14) Fair Value of Financial Instruments
The estimated fair values of the Company's financial instruments at December 31, 2000 and 1999 are shown below.
At December 31,
		2000			1999
(Millions of Dollars)
	Carrying Amount		Fair Value	Carrying Amount		Fair Value
Assets
Marketable securities	$	231.4	231.4		203.2	203.2
Notes receivable	$	23.2	21.7		32.5	32.5
Liabilities and Capitalization
Long-Term Debt
First mortgage bonds	$	1,170.2	1,164.4		1,576.5	1,501.9
Medium-term notes	$	181.8	182.3		281.6	273.8
Convertible debentures	$	-	-		110.1	107.2
Recourse and non-recourse debt	$	384.3	384.2		744.3	707.5
Company Obligated Mandatorily Redeemable Preferred           Securities of Subsidiary Trust which holds Solely Parent           Junior Subordinated Debentures	$	125.0	123.7		125.0	106.9
Serial Preferred Stock	$	40.8	31.1		50.0	35.3
Redeemable Serial Preferred Stock	$	49.5	54.4		50.0	53.0

        The methods and assumptions below were used to estimate, at December 31, 2000 and
1999, 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 Marketable Securities was based on quoted market prices.

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

        The fair value of the 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 prices 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 recourse and the non-recourse debt held by PHI, excluding amounts due within one
year, was based on current rates offered to similar companies for debt with similar remaining
maturities.

        The fair value of the Serial Preferred Stock, Redeemable Serial Preferred Stock and
Company Obligated Mandatorily Redeemable Preferred Securities of Subsidiary Trust,
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 the interest rate swap agreements is discussed in Note (15) of the
accompanying Notes to Consolidated Financial Statements, Risk Management Activities.

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

(15)  RISK MANAGEMENT ACTIVITIES

UTILITY

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

PCI AND PEPCO ENERGY SERVICES

        PCI has entered into interest rate swap agreements to fix certain variable rate debt under its
Medium-Term Note program in order to reduce its exposure to interest rate fluctuations. These
agreements have a notional amount of approximately $29 million at December 31, 2000. The
interest rate differential to be paid or received on the swap agreements is accrued as interest rates
change and is recognized as an adjustment to interest expense. As of December 31, 2000, the
interest rate swap agreements have an average life of approximately four years with a fixed rate
of 6.42% and variable rate of 6.46%. The fair value of these interest rate swap agreements,
based on quoted market prices, was approximately $.1 million as of December 31, 2000.

        Pepco Energy Services enters into agreements to sell electricity and natural gas to
customers and generally operates to secure firm, fixed-commitments to meet its fixed price sales
obligations and to match floating price sales agreements with floating price supply agreements.

ACCOUNTING TREATMENT

        Pepco Energy Services manages its portfolio of energy purchases and sales to customers
using a variety of instruments including forward contracts, swap agreements, option contracts
and futures contracts. Active portfolio management allows Pepco Energy Services to effectively
manage and hedge the risk of its firm, fixed price supply commitments to meet its fixed price
sales obligations. Pepco Energy Services' management takes an active role in the risk
management process and has developed policies and procedures that require specific
administrative and business functions to assist in the identification, assessment and control of
various risks. Management reviews any open positions in accordance with strict policies in order
to limit exposure to market risk. Pepco Energy Services accounts for certain commodity
transactions in accordance with guidance provided by Emerging Issues Task Force Issue 98-10.
Unrealized gains and losses on such transactions are recorded as assets and liabilities at each
reporting period. The market prices used to value these transactions reflect the best estimate of
market prices considering various factors including closing exchange and over-the-counter
quotations and price.

        Additionally, the effective date of Statement of Financial Accounting Standards No. 133
(SFAS 133), "Accounting for Derivative Instruments and Hedging Activities," was delayed and
will become effective for the Company's 2001 calendar year financial statements. Accordingly,
the Company adopted SFAS 133 on January 1, 2001. At that date, the cumulative effect of the
implementation of SFAS 133 did not have a material impact on the Company's consolidated
results of operations, financial position, or cash flows.

(16) Quarterly Financial Summary (Unaudited)
		1st Quarter	2nd Quarter	3rd Quarter	4th Quarter	Total
(Millions of Dollars, except Per Share Data)
2000
Total Operating Revenue	$	529.2	653.1	835.7	1029.7	3,047.7
Total Operating Expenses	$	508.7	552.0	629.7	637.8	2,328.2
Loss from Equity Investments,
Principally Telecommunication Entities	$	(3.9)	(4.0)	(3.2)	(6.0)	(17.1)
Operating Income	$	16.6	97.1	202.8	385.9	702.4
Net Income	$	9.7	58.0	120.8	163.5	352.0
Earnings Available for Common Stock	$	8.3	56.6	119.5	162.1	346.5
Basic Earnings Per Share of Common Stock	$	.07	.48	1.07	1.46	3.02
Diluted Earnings Per Share of Common Stock	$	.07	.47	1.04	1.43	2.96
Cash Dividends Per Common Share	$	.415	.415	.415	.415	1.66
1999
Total Operating Revenue	$	512.0	600.0	861.7	502.3	2,476.0
Total Operating Expenses	$	467.6	508.6	610.8	507.8	2,095.6
Loss from Equity Investments,
Principally Telecommunication Entities	$	(3.1)	(1.7)	(2.6)	(2.8)	(9.6)
Operating Income (Loss)	$	41.3	89.7	248.3	(8.6)	370.8
Net Income (Loss)	$	26.0	75.3	154.0	(8.2)	247.1
Earnings (Loss) Available for Common Stock	$	24.0	73.3	151.9	(11.1)	238.2
Basic Earnings (Loss) Per Share of Common Stock	$	.20	.62	1.28	(.09)	2.01
Diluted Earnings (Loss) Per Share of Common Stock	$	.20	.61	1.25	(.09)	1.98
Cash Dividends Per Common Share	$	.415	.415	.415	.415	1.66
1998
Total Operating Revenue	$	417.4	569.0	786.8	447.7	2,220.8
Total Operating Expenses	$	409.0	463.8	537.0	448.2	1,858.0
Income (Loss) from Equity Investments,
Principally Telecommunication Entities	$	.1	(1.0)	(5.3)	(2.3)	(8.5)
Operating Income (Loss)	$	8.5	104.2	244.5	(2.8)	354.3
Net Income (Loss)	$	7.5	66.0	153.1	(.3)	226.3
Earnings (Loss) Available for Common Stock	$	3.4	56.0	151.1	(2.2)	208.3
Basic Earnings (Loss) Per Share of Common Stock	$	.03	.47	1.27	(.02)	1.76
Diluted Earnings (Loss) Per Share of Common Stock	$	.03	.46	1.23	(.02)	1.73
Cash Dividends Per Common Share	$	.415	.415	.415	.415	1.66
The Company's sales of electric energy are seasonal and, accordingly, comparisons by quarter within a year are not meaningful.
The totals of the four quarterly basic earnings per common share and diluted earnings per common share may not equal the basic earnings per common share and diluted earnings per common share for the year due to changes in the number of common shares outstanding during the year and, with respect to the diluted earnings per common share, changes in the amount of dilutive securities.

(17) SUBSEQUENT EVENT (UNAUDITED)

On February 12, 2001, the Company and Conectiv announced that its boards of directors
approved an agreement for a strategic transaction whereby the Company will effectively acquire
Conectiv for a combination of cash and stock valued at approximately $2.2 billion. Both
companies will become subsidiaries of a new holding company to be named at a later date. The
combination will be accounted for as a purchase and is expected to be completed in
approximately 12 months. Completion of the acquisition is subject to customary closing
conditions, including stockholder approval by both companies, receipt of all regulatory approvals
and making all necessary governmental filings.

Stock Market Information
2000		High	Low	1999				High	Low
1st Quarter		$27.69	$19.06	1st Quarter				$26.50	$23.00
2nd Quarter		$27.88	$20.94	2nd Quarter				$31.75	$23.13
3rd Quarter		$27.44	$23.63	3rd Quarter				$31.31	$25.06
4th Quarter		$25.56	$21.50	4th Quarter				$28.06	$21.25
(Close $24.71)				(Close $22.94)
Shareholders at December 31, 2000: 61,151
Selected Consolidated Financial Data
		2000	1999	1998	1997		1996	1995	1990
(In Millions, except Per Share Data)
Total Operating Revenue	$	3,047.7	2,476.0	2,220.8	1,997.1		2,141.2	2,019.2	1,616.5
Total Operating Expenses	$	2,328.2	2,095.6	1,858.0	1,751.7		1,826.5	1,880.3	1,382.9
Net Income	$	352.0	247.1	226.3	181.8		237.0	94.4	170.2
Earnings Available for Common Stock	$	346.5	238.2	208.3	165.3		220.4	77.5	159.6
Basic Common Shares Outstanding (Average)		114.9	118.5	118.5	118.5		118.5	118.4	98.6
Diluted Common Shares Outstanding (Average)		118.3	122.6	124.2	124.3		124.3	118.5	101.4
Basic Earnings (Loss) Per Share of Common Stock
Utility:
Continuing Operations	$	1.61	1.85	1.63	1.25	*	1.72	1.70	1.57
Divestiture Gain		1.58	-	-	-		-	-	-
Impairment Loss		(.20)	-	-	-		-	-	-
Total Utility		2.99	1.85	1.63	1.25	*	1.72	1.70	1.57
PCI		.12	.22	.14	.15		.14	(1.05)	.05
Pepco Energy Services		(.08)	(.06)	(.01)	(.01)		-	-	-
PepMarket		(.01)	-	-	-		-	-	-
Pepco Consolidated	$	3.02	2.01	1.76	1.39	*	1.86	.65	1.62
Diluted Earnings (Loss) Per Share of Common Stock
Utility:
Continuing Operations	$	1.59	1.82	1.61	1.24	*	1.69	1.70	1.56
Divestiture Gain		1.54	-	-	-		-	-	-
Impairment Loss		(.20)	-	-	-		-	-	-
Total Utility		2.93	1.82	1.61	1.24	*	1.69	1.70	1.56
PCI		.12	.22	.13	.15		.13	(1.05)	.05
Pepco Energy Services		(.08)	(.06)	(.01)	(.01)		-	-	-
PepMarket		(.01)	-	-	-		-	-	-
Pepco Consolidated	$	2.96	1.98	1.73	1.38	*	1.82	.65	1.61
Cash Dividends Per Share of Common Stock	$	1.66	1.66	1.66	1.66		1.66	1.66	1.52
Investment in Property, Plant and Equipment	$	4,284.7	6,784.3	6,657.8	6,514.1		6,321.6	6,161.1	4,696.0
Net Investment in Property, Plant and Equipment	$	2,721.8	4,524.4	4,521.2	4,486.3		4,423.2	4,400.3	3,434.7
Total Assets	$	7,027.3	6,910.6	6,574.1	6,683.2		6,852.4	7,082.3	5,271.3
Long-Term Obligations (including      redeemable preferred stock)	$	2,034.1	3,042.0	2,738.5	3,033.4		3,069.2	3,173.3	1,516.1
* Includes ($.28) as the net effect of the write-off of merger-related costs.

10-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549


Form 10-K


ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2000     Commission file number 1-1072



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


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


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


Registrant's telephone number, including area code (202) 872-2000   


Securities registered pursuant to Section 12(b) of the Act:

                                                   Name of each exchange on
           Title of each class                        which registered      

Common Stock, $1 par value               )      New York Stock Exchange, Inc.
Guarantee by Potomac Electric Power      )
  Company of the 7-3/8% Trust Originated )
  Preferred Securities issued by         )
  Potomac Electric Power Company Trust I )

Securities registered pursuant to Section 12(g) of the Act:

     None.

Continued

          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 by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K.    .

          As of March 19, 2001, Potomac Electric Power Company had
109,892,976 shares of its $1 par value Common Stock outstanding, and the
aggregate market value of these common shares (based upon the closing price
of these shares on the New York Stock Exchange on that date) held by
nonaffiliates was approximately $2.4 billion.

POTOMAC ELECTRIC POWER COMPANY Form 10-K - 2000 TABLE OF CONTENTS

PART I   Item 1.  - Business                General. . . . . . . . . . . . . . . . . . . . . . . . .                Sales. . . . . . . . . . . . . . . . . . . . . . . . . .                Fuel . . . . . . . . . . . . . . . . . . . . . . . . . .   Item 2.  - Properties . . . . . . . . . . . . . . . . . . . . . . . .   Item 3.  - Legal Proceedings . . . . . . . . . . . . . . . . . . . .   Item 4.  - Submission of Matters to a Vote of Security Holders . . . PART II   Item 5.  - Market for Registrant's Common Equity and Related                Stockholder Matters . . . . . . . . . . . . . . . . . .   Item 6.  - Selected Financial Data . . . . . . . . . . . . . . . . .   Item 7.  - Management's Discussion and Analysis of Financial                Condition and Results of Operations . . . . . . . . . .   Item 7A. - Quantitative and Qualitative Disclosures About Market                Risk . . . . . . . . . . . . . . . . . . . . . . . . . .   Item 8.  - Financial Statements and Supplementary Data . . . . . . .   Item 9.  - Changes in and Disagreements with Accountants on                Accounting and Financial Disclosure . . . . . . . . . .    PART III   Item 10. - Directors and Executive Officers of the Registrant . . . .   Item 11. - Executive Compensation . . . . . . . . . . . . . . . . . .   Item 12. - Security Ownership of Certain Beneficial Owners and                Management . . . . . . . . . . . . . . . . . . . . . . .   Item 13. - Certain Relationships and Related Transactions . . . . . . PART IV   Item 14. - Exhibits, Financial Statement Schedules, and Reports on                Form 8-K . . . . . . . . . . . . . . . . . . . . . . . .     Schedule II - Valuation and Qualifying Accounts . . . . . . . . . .     Exhibit 11 - Statements Re. Computation of Earnings Per Common                    Share . . . . . . . . . . . . . . . . . . . . . . .     Exhibit 12 - Statements Re. Computation of Ratios . . . . . . . . .     Exhibit 21 - Subsidiaries of the Registrant . . . . . . . . . . . .     Exhibit 23 - Consent of Independent Accountants . . . . . . . . . .     Report of Independent Accountants on Consolidated Financial       Statement Schedule . . . . . . . . . . . . . . . . . . . . . . .   Signatures  . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Page   5   6   7   8   9   9   9  10  10  12  12  12  13  17  24  25  25  33  34  35  37  39  40  41

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                            INTENTIONALLY

Part I

     Except for historical statements and discussions, statements in this
Form 10-K constitute "forward-looking statements" within the meaning of the
federal securities laws. These statements contain management's beliefs based
on information currently available to management and on various assumptions
concerning future events. Forward-looking statements are not a guarantee of
future performance or events. They are subject to a number of uncertainties
and other factors, many of which are outside the Company's control. In
connection with the transaction, additional important factors that could
cause actual results to differ materially from those in the forward-looking
statements herein include risks and uncertainties relating to delays in
obtaining or adverse conditions contained in, related regulatory approvals,
changes in economic conditions, availability and cost of capital, changes in
weather patterns, changes in laws, regulations or regulatory policies,
developments in legal or public policy doctrines, population growth rates and
demographic patterns, growth in demand and capacity to fill demand,
unanticipated changes in operating expenses and capital expenditures, capital
market conditions, and other presently unknown or unforeseen factors. These
uncertainties and factors could cause actual results to differ materially
from such statements. The Company disclaims any intention or obligation to
update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise. This information is presented
solely to provide additional information to further understand the Company's
results and prospects.

Item 1.    BUSINESS

GENERAL

     Additional information required by this Item, other than the information
disclosed below, is included in the "Management's Discussion and Analysis of
Consolidated Results of Operations and Financial Condition" section and the
"Notes to Consolidated Financial Statements," which are included in Exhibit 13.

     Potomac Electric Power Company (Pepco or the Company) is engaged in
three principal lines of business. These business lines consist of
(1) the provision of regulated electric utility transmission and distribution
services, (2) the supply of telecommunications services including local and
long distance telephone, high speed Internet and cable television, and
(3) the supply of energy products and services in competitive retail markets.
The Company's regulated electric utility activities are referred to herein as
the "Utility" or "Utility Operations," and its telecommunications services
and competitive energy activities are referred to herein as "Competitive
Operations." Competitive Operations are derived from Pepco Holdings, Inc.
(PHI), a wholly owned subsidiary of the Company, and PHI's wholly owned
subsidiaries, Potomac Capital Investment Corporation (PCI), Pepco Energy
Services, Inc. (Pepco Energy Services), and PepMarket.com, LLC (PepMarket).
Additionally, the Company has a wholly owned Delaware statutory business
trust, Potomac Electric Power Company Trust I (Trust) and a wholly owned
Delaware Investment Holding Company, Edison Capital Reserves Corporation
(Edison).

     The Utility successfully executed its business plan to exit the
electricity generating business by completing the divestiture of
substantially all of its generating assets on December 19, 2000 to Mirant
Corp., formerly Southern Energy Inc. (Southern Energy). The divestiture
resulted in the Company's recognition of a pre-tax gain of approximately
$423.8 million ($182 million net of income tax or $1.58 per share). Also in
December 2000, the Company recognized a pre-tax impairment loss of $40.3
million ($24.1 million net of income tax or 20 cents per share) on its
Benning Road and Buzzard Point generating stations, which were transferred to
a subsidiary of Pepco Energy Services in December 2000. The Company
determined that these stations were impaired when it performed an impairment
assessment in 2000. This impairment was warranted due to circumstances that
existed at the time, such as the divestiture of its generation assets as well
as the volatility of energy prices and the availability of current financial
information derived from the completion of the 2001 budgeting cycle. The
closing on the Company's sale of its 9.72% interest in the Conemaugh
Generating Station (Conemaugh) to PPL Global, Inc. and Allegheny Energy
Supply Company, LLC for $156 million took place on January 8, 2001, which
resulted in a pre-tax gain of approximately $39 million, which will be
recorded in the first quarter of 2001.

     On February 12, 2001, the Company and Conectiv announced that their
boards of directors approved an agreement for a strategic transaction whereby
the Company will effectively acquire Conectiv for a combination of cash and
stock valued at approximately $2.2 billion. See Item 7., Management's
Discussion and Analysis of Financial Condition and Results of Operations, for
additional information.

SALES

     The Utility's total kilowatt-hours delivered and electric revenue by
class of service for the periods 1998 through 2000 are presented below.

	2000	1999	1998
Electric Energy Sales	(Millions of Kilowatt-hours)
Kilowatt-hours Delivered - Total	27,442	26,970	26,298
By Class of Service -
Residential service	6,991	7,014	6,757
General service	16,227	15,890	15,591
Large power service (a)	712	701	686
Street lighting	173	167	164
Rapid transit	458	438	422
Wholesale (Primarily SMECO)	2,881	2,760	2,678
(a) Large power service customers are served at a voltage of 66KV or     higher.

	2000	1999	1998
Electric Revenue	(Millions of Dollars)
Sales of Electricity - Total (a)	$1,909.9	$1,916.7	$1,872.7
By Class of Service -
Residential service	$ 563.9	$  586.3	$  567.7
General service	1,135.3	1,121.3	1,102.9
Large power service (b)	32.3	36.2	35.0
Street lighting	14.5	13.6	13.2
Rapid transit	31.5	30.6	29.7
Wholesale (Primarily SMECO)	132.4	128.7	124.2
Exclusive of Other Electric Revenue of $327.6 million in 2000, $302.6 million in 1999, and, $196.2 million in 1998. Large power service customers are served at a voltage of 66KV or higher.

     The Utility's sales of electric energy are seasonal, and, accordingly,
rates have been designed to closely reflect the daily and seasonal variations
in the cost of producing or acquiring energy, in part by raising summer rates
and lowering winter rates. Mild weather during the summer billing months of
June through October, when base rates are higher to encourage customer
conservation and peak load shifting, has an adverse effect on revenue and net
income and, conversely, hot weather during these months has a favorable
effect.

FUEL

     The Maryland fuel clause was terminated effective July 1, 2000 (the date
of commencement of customer choice) and the D.C. fuel clause was terminated
on February 9, 2001 (one month after the completion of the sale of the
Company's interest in Conemaugh). Now that generation services have been
deregulated in both Maryland and D.C., and the Utility has exited the
generation business, the Utility will no longer incur fuel costs. Standard
Offer Services (SOS) will be provided through energy purchased from Southern
Energy. For additional information about SOS as well as the Transition Power
Agreement with Southern Energy, refer to the "Management's Discussion and
Analysis of Consolidated Results of Operations and Financial Condition"
section, which is included in Exhibit 13.

Part I
Item 2. Properties
The Company divested substantially all of its generation assets to Southern Energy on December 19, 2000. The Company divested its 9.72% interest in Conemaugh on January 8, 2001. For a discussion of the impact of the divestiture agreement with Southern Energy on items (5) and (6) below, refer to the Company's 2000 financial statements, which are included in Exhibit 13 herein.
		Megawatts of Net Capability at December 18, 2000
Generating Station	Location	Steam Generation Primary Fuel	Steam Generation	Combustion Turbine (1)		Net Megawatt - Hours Generated through December 18, 2000 (thousands)
Benning Road (2)	Benning Road and Anacostia River, N.E.    Washington, D.C.	No. 4 Oil	550	-		86
Buzzard Point (2)	1st and V Streets, S.W.    Washington, D.C.	-	-	256		11
Potomac River	Bashford Lane and Potomac River    Alexandria, Virginia	Coal	482	-		2,018
Dickerson	Potomac River, South of Little Monocacy    River, Dickerson, Maryland	Coal	546	291		2,762
Chalk Point	Patuxent River at Swanson Creek    Aquasco, Maryland	Coal/ Residual Oil/ Natural Gas	1,907	516	(3)	5,199
Morgantown	Potomac River, South of Route 301    Newburg, Maryland	Coal/ Residual Oil	1,164	248		7,568
Total - Wholly Owned Units			4,649	1,311		17,644
Conemaugh (4)	Indiana County, Pennsylvania	Coal	165	1		1,189
Total - All Stations Operated			4,814	1,312		18,833
Cogeneration			-	-		311
Purchased Capacity
First Energy (5)			450	-		3,539
Panda-Brandywine (6)			230	-		715
			680	-		4,254
Total System - excluding Short-    Term Capacity Transactions			5,494	1,312
Short-Term Capacity Transactions, net			(288)	-
Total System			5,206	1,312
(1)   Combustion turbines burned No. 2 fuel oil and certain units also burned natural gas.
(2)   These generating stations were transferred to Pepco Energy Services in December 2000.
(3)   Includes 84 megawatts supplied by a combustion turbine owned by SMECO and operated by the Company.
(4)   As stated, the Company sold its 9.72% undivided interest in this station on January 8, 2001.
(5)   Generating capacity under long-term agreements with FirstEnergy and Allegheny Energy, Inc.
(6)   Generating capacity under long-term agreement with Panda-Brandywine L.P.

Item 3.    LEGAL PROCEEDINGS

     The information required by this Item is included in Note 13 to the
"Notes to Consolidated Financial Statements," which is included in Exhibit 13.

Item 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

    None.


Part II

Item 5.    MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
           MATTERS

     The following table presents the dividends per share of Common Stock and
the high and low of the daily Common Stock transaction prices as reported in
The Wall Street Journal during each period. The New York Stock Exchange is
the principal market on which the Company's Common Stock is traded.

Period	Dividends     Per Share	Price Range    High         Low
2000:
First Quarter . . . . .	$.415	$27.69	$19.06
Second Quarter . . . .	.415	27.88	20.94
Third Quarter . . . . .	.415	27.44	23.63
Fourth Quarter . . . .	.415	25.56	21.50
	$1.66
1999:
First Quarter . . . . .	$.415	$26.50	$23.00
Second Quarter . . . .	.415	31.75	23.13
Third Quarter . . . . .	.415	31.31	25.06
Fourth Quarter . . . .	.415	28.06	21.25
	$1.66

The number of holders of Common Stock was 60,159 at March 19, 2001, and
61,151 at December 31, 2000.

     There were 109,892,976 shares of the Company's $1 par value Common Stock
outstanding at March 19, 2001, and 110,751,829 outstanding at December 31,
2000. A total of 200 million shares is authorized.

     In January 2001, a dividend of 41.5 cents per share was declared payable
March 30, 2001, to shareholders of record of the Company's common stock on
March 12, 2001. The Company's dividend rate on common stock is determined by
the Board of Directors and takes into consideration, among other factors,
current and possible future developments which may affect the Company's
income and cash flows. On February 12, 2001, the Company announced
that it will reduce its annual dividend to $1.00 per share from $1.66 per
share, effective with the June 2001 dividend. The Company also announced its
plans to repurchase up to $450 million of its common stock in the open market
or in privately negotiated transactions over the next 12 months. See
Item 7., Management's Discussion and Analysis of Financial Condition and
Results of Operations, for additional information.

Item 6.    SELECTED FINANCIAL DATA

     The information required by this Item is included in the "Selected
Consolidated Financial Data" section, which is included in Exhibit 13.

Item 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
           RESULTS OF OPERATIONS

     Additional information required by this Item, other than the information
disclosed below, is included in the "Management's Discussion and Analysis of
Consolidated Results of Operations and Financial Condition" section, which is
included in Exhibit 13.

     On February 12, 2001, Pepco, a corporation organized under the laws of
the District of Columbia and the Commonwealth of Virginia, and Conectiv, a
Delaware corporation, announced that they have entered into an Agreement and
Plan of Merger, dated as of February 9, 2001 (the Merger Agreement),
providing for a strategic transaction in which Pepco will effectively acquire
Conectiv for a combination of cash and stock (the Transaction). The Merger
Agreement provides that a new, as yet unnamed, holding company (HoldCo) will
be formed and that two wholly owned newly formed subsidiaries of HoldCo will
merge with and into Pepco and Conectiv such that Pepco and Conectiv will
become wholly owned subsidiaries of HoldCo. The common stockholders of Pepco
and Conectiv will together own all of the outstanding shares of common stock
of HoldCo, and each share of each other class of capital stock of Pepco and
Conectiv will be unaffected and remain outstanding. HoldCo will register
with the Securities and Exchange Commission under the Public Utility Holding
Company Act of 1935, as amended. In addition, Pepco announced that it will
reduce its annual dividend to $1.00 per share from $1.66 per share, effective
with the June 2001 dividend. The March 2001 dividend will remain at its
current level. Pepco has also authorized a share repurchase program of up to
$450 million and will repurchase its common stock in the open market or in
privately negotiated transactions from time to time over the next 12 months.
The actual amount of stock repurchased will be determined by management
depending on market conditions.

     Under the Merger Agreement, Pepco stockholders will receive one share of
common stock of HoldCo for each share of Pepco common stock that they hold.
Each share of Pepco preferred stock will remain outstanding as Pepco
preferred stock after the Transaction. For each share of Conectiv common
stock, Conectiv stockholders will receive either $25.00 in cash ($21.69 for
the Class A common stock) or HoldCo common stock with a market value of
$25.00 ($21.69 for the Class A common stock) as long as the average market
value of Pepco's common stock for 20 selected trading days in the 30 trading
day period immediately prior to the closing of the Transaction is between
$19.50 and $24.50. However, if the market value of Pepco's common stock at
that time is below $19.50, the number of shares of HoldCo common stock
received for each share of Conectiv common stock will be fixed at 1.28205
(1.11227 for the Class A common stock) and if the market value of Pepco's
common stock is above $24.50, the number of shares of HoldCo common stock
received for each share of Conectiv common stock will be fixed at 1.02041
(.88528 for the Class A common stock). Additionally, 50 percent of the
consideration payable to Conectiv stockholders will be paid in cash and 50
percent in HoldCo common stock, giving Conectiv stockholders a right to elect
their consideration with an allocation and proration formula in the event
either cash or stock is oversubscribed. Fractional shares will still be
cashed out. Based on the number of common shares of Pepco and Conectiv
currently outstanding on a fully diluted basis, Pepco stockholders will own
approximately 67 percent of the common equity of HoldCo, and Conectiv
stockholders will own approximately 33 percent. The transaction is expected
to be tax-free to the extent that stockholders receive stock for their
shares.

     The Merger Agreement provides that the board of directors of HoldCo will
have 12 directors, at least two of whom will come from the current Conectiv
board. After the Transaction is completed, it is expected that John M.
Derrick, Jr., chairman and chief executive officer of Pepco, will be chairman
and chief executive officer of HoldCo, and Howard E. Cosgrove, chairman and
chief executive officer of Conectiv, will retire. In addition, HoldCo will
have its headquarters in Washington, D.C. while Conectiv will maintain its
headquarters in Wilmington, Delaware and will continue to have significant
operations in New Jersey and the Delmarva Peninsula. The Transaction is not
expected to result in significant workforce reductions and all union
contracts will be honored.

     The Transaction is subject to customary closing conditions, including,
without limitation, the receipt of required stockholder approvals of Pepco
and Conectiv, the receipt of all necessary governmental approvals and the
making of all necessary governmental filings. The Transaction is also
subject to the receipt of opinions of counsel that the Transaction will
qualify for treatment under Section 351 of the Internal Revenue Code of 1986.
In addition, the Transaction is conditioned upon the effectiveness of a joint
registration statement and proxy statement to be filed by Pepco, Conectiv and
HoldCo with the Securities and Exchange Commission with respect to shares of
HoldCo common stock to be issued in the Transaction and the stockholder
meetings, and upon the approval of HoldCo common stock for listing on the New
York Stock Exchange. The meetings of the stockholders of Pepco and Conectiv
to vote on the Transaction will be convened as soon as is practicable. The
companies anticipate that the transaction will be completed in approximately
12 months.

     The Merger Agreement may be terminated under certain circumstances,
including (1) by mutual consent of Pepco and Conectiv; (2) by either Pepco or
Conectiv if the Transaction is not consummated before the 18 month
anniversary of the date of the Merger Agreement (provided, however, that such
termination date shall be extended for an additional 6 months if any
statutory approvals that have not been obtained are being pursued diligently
and in good faith); (3) by either Pepco or Conectiv if either Pepco's or
Conectiv's stockholders vote against the Transaction or if any state or
federal law or court order prohibits the Transaction; (4) by either Pepco or
Conectiv if the Board of Directors of the other shall withdraw or adversely
modify its recommendation of the Transaction; (5) by a non-breaching party if
there exists a breach of any material representation, warranty or covenant
contained in the Merger Agreement which is not cured within 30 business days
after notice from the other party; or (6) by Conectiv, under certain
circumstances, as a result of a third-party tender offer or business
combination proposal which the Board of Directors of Conectiv in good faith
and pursuant to the exercise of its fiduciary duties determines to accept,
after Pepco has first been given an opportunity to make adjustments in the
terms of the Merger Agreement so as to enable the Transaction to proceed. In
addition, in the event that the market value of Pepco's common stock during
the pricing period discussed above is below $16.50, Conectiv may terminate
the Merger Agreement, provided that before such termination is effective,
Pepco will have the option to increase consideration to be paid to Conectiv
stockholders so that they will receive an amount equal to the amount they
would receive if the market value of Pepco's common stock is $16.50. If
Pepco exercises this option, the Merger Agreement will not be terminated and
the Transaction will proceed.

     The Merger Agreement requires payment of a termination fee of $60
million in cash, by Conectiv to Pepco if (i) the Merger Agreement is
terminated as a result of the acceptance by Conectiv of a third-party tender
offer or business combination proposal, or (ii) following a failure of the
stockholders of Conectiv to approve the Transaction if at the time prior to
the meeting of Conectiv's stockholders there shall have been a third-party
tender offer or business combination proposal made public and a definitive
agreement is entered into with respect thereto (and is subsequently
consummated) or such proposal is consummated within 12 months after the
termination. Pepco is required to pay to Conectiv a termination fee of $60
million if Pepco's stockholders fail to approve the Transaction and at the
time prior to the meeting of Pepco's stockholders there shall have been made
public a third-party tender offer or business combination proposal and a
definitive agreement is entered into with respect thereto (and is
subsequently consummated) or such proposal is consummated within 12 months
after the termination. In addition, if either Pepco or Conectiv terminates
the Merger Agreement after the Board of Directors of the other party
withdraws or adversely modifies its recommendation of the Transaction, a
termination fee of $60 million is payable to the party that terminates the
Merger Agreement.

Item 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     The information required by this Item is included in the "Management's
Discussion and Analysis of Consolidated Results of Operations and Financial
Condition" section, which is included in Exhibit 13.

Item 8.     FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     The consolidated financial statements, together with the report thereon
of PricewaterhouseCoopers LLP dated January 19, 2001, and supplementary data,
are included in Exhibit 13.

Item 9.     CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
            FINANCIAL DISCLOSURE

     None.

Part III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information with regard to the directors and executive officers of the registrant as of March 23, 2001 is as follows:
Directors
Name and Age	Principal Occupation and Business    Experience for Past Five Years	Director   Since
Roger R. Blunt, Sr. Age 70 (a)(b)(e)	Chairman of the Board, President and Chief Executive Officer of Blunt Enterprises, LLC (general contracting and construction management), a Washington-based holding company, that includes Essex Construction, LLC, of which he is Chairman of the Board, President and Chief Executive Officer, and Tyroc Construction, LLC, of which he is Chairman of the Board, President and Chief Executive Officer. Mr. Blunt has reached the mandatory age for retirement for directors and will retire in April 2001.	1984
Edmund B. Cronin, Jr. Age 63 (a)(c)(d)(f)	Chairman of the Board, President and Chief Executive Officer of Washington Real Estate Investment Trust, based in Rockville, Maryland, which owns income-producing real estate in the mid-Atlantic Region.	1998
John M. Derrick, Jr. Age 61 (b)	See Executive Officers Below.	1994
Terence C. Golden Age 56 (a)(c)(e)(f)	Chairman of Bailey Capital Corporation in Washington, D.C. Bailey Capital Corporation is a private investment company. From 1995 until 2000, Mr. Golden was President, Chief Executive Officer and a director of Host Marriott Corporation. He continues to serve as a director of Host Marriott Corporation. He is also a director of Cousins Properties, Inc., American Classic Voyages, Inc. and the Morris & Gwendolyn Cafritz Foundation.	1998
David O. Maxwell Age 70 (c)(d)(e)	Retired Chairman of the Board and Chief Executive Officer of Fannie Mae, a position he held from 1981-1991. He is a director of Financial Security Assurance Holdings Ltd. Mr. Maxwell has reached the mandatory age for retirement for directors and will retire in April 2001.	1993
Judith A. McHale Age 54 (a)(d)(e)(f)	President and Chief Operating Officer of Discovery Communications, Inc. (DCI), parent company of cable television's Discovery Channel, which is based in Bethesda, Maryland. She is a director of John Hancock Financial Services, Inc. and Polo Ralph Lauren Corporation.	1998
Floretta D. McKenzie Age 65 (a)(b)(d)(f)	Chairwoman and Chief Executive Officer of The McKenzie Group, Inc., a District of Columbia based educational consulting firm. Dr. McKenzie is a director of Marriott International, Inc.	1988
Edward F. Mitchell Age 69 (b)(c)(e)	Retired Chairman of the Board of the Company, a position he held from 1992-1999. He was Chief Executive Officer from 1989-1997.	1980
Lawrence C. Nussdorf Age 54	Since 1998 has been President and Chief Operating Officer of Clark Enterprises, Inc., a holding company based in Bethesda, Maryland, which includes The Clark Construction Group, a general contracting company, of which Mr. Nussdorf has been Vice President and Treasurer since 1977.	Nominee
Peter F. O'Malley Age 62 (c)(d)(e)	Of Counsel to O'Malley, Miles, Nylen & Gilmore, P.A., a law firm headquartered in Calverton, Maryland. Mr. O'Malley currently serves as the President of Aberdeen Creek Corp., a privately held company engaged in investment, business consulting and development activities. Mr. O'Malley is a director of Legg Mason, Inc. and FTI Consulting.	1982
Pauline A. Schneider Age 57	Joined the Washington office of the law firm of Hunton & Williams in 1985 and has been a partner there since 1987. In October 2000, Ms. Schneider was elected as Chair of the Board of MedStar Health, Inc., a community-based healthcare organization that includes seven major hospitals in the Washington, D.C./Baltimore area. Also, since 1998, she has chaired the Board of The Access Group, Inc., a not for profit student loan provider headquartered in Wilmington, Delaware.	Nominee
Dennis R. Wraase Age 57 (b)	See Executive Officers Below.	1998
A. Thomas Young Age 62 (a)(c)(d)(f)	Retired Executive Vice President of Lockheed Martin Corporation. From 1990 until 1995, he was President and Chief Operating Officer of Martin Marietta Corporation. He is a director of the B.F. Goodrich Company and Science Applications International Corporation.	1995

(a)	Mr. Blunt is Chairman of the Audit Committee. Messrs. Cronin, Golden and Young, Ms. McHale and Dr. McKenzie are members of the Committee.
(b)	Mr. Mitchell is Chairman of the Executive Committee. Messrs. Blunt, Derrick and Wraase and Dr. McKenzie are members of the Committee.
(c)	Messrs. Cronin, Golden, Maxwell, Mitchell, O'Malley and Young are members of the Finance Committee.
(d)	Mr. O'Malley is Chairman of the Corporate Governance Committee. Messrs. Cronin, Maxwell and Young, Ms. McHale and Dr. McKenzie are members of the Committee.
(e)	Mr. Maxwell is Chairman of the Human Resources Committee. Messrs. Blunt, Golden, Mitchell and O'Malley and Ms. McHale are members of the Committee.
(f)	Dr. McKenzie is Chairman of the Nominating Committee. Messrs. Cronin, Golden and Young and Ms. McHale are members of the Committee.

Executive Officers
Name	Position	Age	Served in such position   since
John M. Derrick, Jr.	Chairman of the Board and Chief Executive Officer	61	1999 (1)
Dennis R. Wraase	President and Chief Operating Officer and Director	57	2001 (2)
William T. Torgerson	Executive Vice President - External Affairs and General Counsel	56	2001 (3)
Andrew W. Williams	Senior Vice President and Chief Financial Officer	51	2001 (4)
William J. Sim	Senior Vice President - Power Delivery	56	2001 (5)
Robert C. Grantley	Group Vice President - Customer Care	52	1997 (6)
Earl K. Chism	Vice President and Comptroller	65	1994
Kenneth P. Cohn	Vice President and Chief Information Officer	53	1999 (7)
Kirk J. Emge	Vice President - Legal Services	51	1994
William R. Gee, Jr.	Vice President - System Planning	60	1991
Anthony J. Kamerick	Vice President, Finance and Treasurer	53	1994
Beverly L. Perry	Vice President - Government and Corporate Affairs	53	1999 (8)
James S. Potts	Vice President - Environment	55	1993

None of the above persons has a "family relationship" with any other officer listed or with any director.
The term of office for each of the above persons is from May 9, 2000, until the next succeeding Annual Meeting, and until their successors have been elected and qualified.
(1)	Mr. Derrick was elected to the position of Chairman of the Board on April 28, 1999 and Chief Executive Officer on October 23, 1997. From 1992 to May 2000, he also served as President and from 1992 to October 1997, he also served as Chief Operating Officer. Mr. Derrick is a director of Washington Real Estate Investment Trust.
(2)	From May 9, 2000 to December 31, 2000, Mr. Wraase served as President and Chief Financial Officer. From April 28, 1999 to May 9, 2000, he served as Executive Vice President and Chief Financial Officer. From April 24, 1996 to April 28, 1999, he served as Senior Vice President and Chief Financial Officer. From April 22, 1992 until April 24, 1996, he served as Senior Vice President, Finance and Accounting.
(3)	Mr. Torgerson served as Senior Vice President and General Counsel from April 27, 1994 until December 31, 2000. He served as Secretary from August 22, 1994 to April 24, 1996.
(4)	From 1997 until December 31, 2000, Mr. Williams held the position of Group Vice President, Transmission and Marketing and from 1994 until 1997, Mr. Williams held the position of Vice President, Energy and Market Policy and Development.
(5)	From 1997 until December 31, 2000, Mr. Sim held the position of Group Vice President, Generation and from 1994 until 1997, Mr. Sim held the position of Vice President, Power Supply and Delivery.
(6)	From 1997 until December 31, 2000, Mr. Grantley held the position of Group Vice President, Customer Service and Power Distribution and from 1994 until 1997, Mr. Grantley held the position of Vice President, Customers and Community Relations.
(7)	Mr. Cohn held the position of General Manager, Computer Services from March 1, 1997 to April 28, 1999 and Manager - Computer Services from May 1, 1987 to March 1, 1997.
()	Ms. Perry was General Manager - Government Relations from March 1, 1997 to April 28, 1999, and Manager - Government Relations from May 1, 1994 to 1997.

Section 16(a) Beneficial Ownership Reporting Compliance

     The rules of the Securities and Exchange Commission require that the
Company disclose any late filing of the reports of stock ownership (and
changes in stock ownership), and any known failure to file these reports, by
its directors and executive officers. Mary Sharpe-Hayes, former Vice
President, Strategic Planning, who became the indirect owner of 500 shares of
Common Stock of the Company when her spouse purchased these shares in
February 2000 inadvertently failed to file a Form 4 by the March 10, 2000
deadline. She filed the form on March 16, 2000. To the best of the
Company's knowledge, all other filings required to be made by the Company's
directors and executive officers were made on a timely basis in 2000.

Item 11. EXECUTIVE COMPENSATION

Director Compensation

     Each of the Company's non-employee directors is paid an annual retainer
of $26,000, plus a fee of $1,250 for each Board and Committee meeting
attended. Each director who is a Chairman of a Committee is paid an
additional retainer of $3,500.

     The Stock Compensation Plan for Directors requires each director who is
not an employee of the Company to receive half of his or her $26,000 annual
retainer either (i) in shares of Common Stock or (ii) as a Common Stock
equivalent deferral under the Company's Deferred Compensation Plan, the value
of which corresponds to the market price of the Company's Common Stock. A
director may elect to receive up to 100% of his or her retainer and meeting
fees in shares of Common Stock or Common Stock equivalents. Common Stock
equivalents are credited with additional amounts equal to the dividend payout
on the corresponding number of shares of Common Stock, which amounts are
deemed reinvested in additional Common Stock equivalents. Common Stock
equivalents have no voting rights. A director alternatively may elect to be
paid in cash or to defer under the Deferred Compensation Plan the portion of
his or her annual retainer and meeting fee payments not required to be
invested in Common Stock or Common Stock equivalents. Such deferrals are
credited, at the election of the director, with a return equal to the prime
rate, a return on a specified group of funds or a combination of both.
Balances under the Deferred Compensation Plan, including Common Stock
equivalent balances, are paid out in cash, in either a lump sum or
installments, commencing at a time selected by the director.

    On May 1 of each year, each non-employee director is granted an option to
purchase 1,000 shares of Common Stock. Each option has an exercise price
equal to the market price of the Common Stock on the date of grant. Options
granted prior to 2000 become exercisable at the earlier of (i) four years
after date of grant or (ii) fifty percent upon attainment of a target price
and the remaining fifty percent upon the attainment of a higher target price.
Options granted in 2000 become exercisable at the rate of twenty-five percent
on each of the first four anniversaries of the date of grant. Upon a "change
in control," all options become immediately exercisable. Options expire ten
years after the date of grant or at such earlier date as specified by the
Plan in the event of retirement, death, disability or after termination of
service of the director.

     The Company also provides directors with travel accident insurance for
Company-related travel and directors' and officers' liability insurance
coverage.

Executive Compensation

SUMMARY COMPENSATION TABLE
Annual Compensation						Long-Term              Incentive Plan Awards
Name and Principal Position	Year	Salary	Bonus	Other Annual Compensation (1)	Restricted Stock (2)		Options (3)	Incentive Plan   Payouts  (4)	All Other Compensation (5)
John M. Derrick, Jr. Chairman of the Board and   Chief Executive Officer	2000 1999 1998	$ 541,667 516,667 471,666	$ 255,171 191,732 143,419	$ 22,630   19,177   16,251	$        0          0 125,692		119,900 0 108,385	$137,165   288,930   184,692	$57,528  51,235  55,536
Dennis R. Wraase   President and   Chief Operating Officer	2000 1999 1998	$ 366,667 335,000 288,333	$ 172,731 124,317 87,673	$  5,341    4,644    4,039	$        0         0 65,360		48,000 0 21,843	$ 95,924   152,798    84,753	$36,390  37,711  30,010
William T. Torgerson   Executive Vice President   and General Counsel	2000 1999 1998	$ 298,667 281,667 255,000	$ 140,697 104,525 77,537	$  4,485    3,900    3,391	$        0         0 60,332		30,000 0 21,843	$ 93,527   145,688    83,135	$30,014  26,359  27,499
Andrew W. Williams   Senior Vice President and   Chief Financial Officer	2000 1999 1998	$ 237,333 225,000 208,333	$  91,202 63,108 48,729	$      0        0        0	$        0         0 40,221		10,300 0 13,934	$ 50,285    63,074         -	$23,598  24,556  23,187
William J. Sim   Senior Vice President	2000 1999 1998	$ 222,667 211,000 198,333	$  86,182 59,181 49,396	$      0        0        0	$        0        0 40,221		10,300 0 13,934	$ 48,481    60,938          -	$21,857  23,261  23,610

(1) Other Annual Compensation
    Amounts in this column for each year represent above-market earnings on
deferred compensation funded by Company-owned life insurance policies held
in trust, assuming the expected retirement at age 65. The amounts are
reduced if the executive terminates employment prior to age 62 for any
reason other than death, total or permanent disability or a change in
control of the Company. In the event of a change in control and termination
of the participant's employment, a lump sum payment will be made equal to
the net present value of the expected payments at age 65 discounted using
the Pension Benefit Guaranty Corporation immediate payment interest rate
plus one-half of one percent. The Company has purchased such policies on
participating individuals under a program designed so that if assumptions as
to mortality experience, policy return and other factors are realized, the
compensation deferred and the death benefits payable to the Company under
such insurance policies will cover all premium payments and benefit payments
projected under this program, plus a factor for the use of Company funds.

(2) Restricted Stock
    Amounts in this column for each year represent the aggregate market
price on the grant date of restricted shares of Common Stock. These shares
vest over a four-year period: 20% vested on the first anniversary of the
grant date, 20% vested on the second anniversary of the grant date, 20% vest
on the third anniversary of the grant date, and the remaining 40% vest on
the fourth anniversary of the grant date. The market price does not reflect
that the shares are restricted. Dividends are paid on the restricted
shares. Dollar amounts shown are for executives who received restricted
shares of Common Stock in the year indicated. The number and aggregate
market value of the non-vested restricted shares of Common Stock at
December 31, 2000 for the five named executives are: 3,000 shares, $74,130
for Mr. Derrick; 1,560 shares, $38,547 for Mr. Wraase; 1,440 shares, $35,582
for Mr. Torgerson; and 960 shares, $23,722 each for Messrs. Williams and
Sim.

(3) Options
    Amounts in this column represent the number of stock options granted for
each year. The shareholders approved the Long-Term Incentive Plan in April
1998 and options were granted for the first time in May 1998. Additional
options were granted in January 2000. Fifty percent of the options granted
in 1998 became exercisable on October 9, 1998 and the remaining 50% became
exercisable on June 11, 1999. Twenty-five percent of the options granted in
2000 became exercisable on January 1, 2001. The remaining options will
become exercisable at the rate of twenty-five percent on January 1 of each
year until January 1, 2004.

(4) Incentive Plan Payouts
    All amounts in this column represent the value of vested Common Stock
under the Company's Performance Restricted Stock Program. The amount shown
for 2000 consists of 33-1/3% of the Common Stock award from the one-year
performance cycle ended December 31, 1999, 33-1/3% of the Common Stock award
from the eight-month performance cycle ended December 31, 1999, and 50% of
the Common Stock award from the performance cycle ended December 31, 1998
(the "1998 Cycle"), that vested on January 1, 2001. The amounts shown for
1999 consist of 33-1/3% of the Common Stock award from the eight-month
performance cycle ended December 31, 1999, 50% of the Common Stock award
for the 1998 Cycle, and 50% of the Common Stock award from the performance
cycle ended December 31, 1997 (the "1997 Cycle"), that vested on January 1,
2000. For 1999, amounts also include cash awards for the Performance Share
Plan, which was applicable to the years 1997 through 1999 (the "1999
Cycle"). The cash amounts awarded for the 1999 Cycle for Messrs. Derrick,
Wraase, Torgerson, Williams and Sim were $119,722, $57,221, $53,482, $38,355
and $37,940, respectively. The amount shown for 1998 consists of 50% of the
Common Stock award for the 1997 Cycle and 50% of the Common Stock award for
the performance cycle ended December 31, 1996 (the "1996 Cycle"), that
vested on January 1, 1999. The value of the vested Common Stock was
calculated based on the market price of the Common Stock on the day
preceding the vesting date. Dollar amounts shown are for executives who were
eligible to participate in the Performance Restricted Stock Program in the
years indicated.

(5) All Other Compensation
    Amounts in this column for 2000 consist of (i) Company contributions to
the Savings Plan for Exempt Employees of $7,900, $7,804, $7,900, $4,232 and
$7,900 for Messrs. Derrick, Wraase, Torgerson, Williams and Sim,
respectively, (ii) Company contributions to the Executive Deferred
Compensation Plan due to Internal Revenue Service limitations on maximum
contributions to the Savings Plan for Exempt Employees of $13,069, $7,860,
$5,790, $5,732 and $1,766 for Messrs. Derrick, Wraase, Torgerson, Williams
and Sim, respectively, (iii) the term life insurance portion of life
insurance written on a split-dollar basis of $4,111, $2,398, $1,953, $1,040
and $1,517 for Messrs. Derrick, Wraase, Torgerson, Williams and Sim,
respectively, and (iv) the interest on employer paid premiums for split-
dollar life insurance of $32,448, $18,328, $14,371, $12,594 and $10,674 for
Messrs. Derrick, Wraase, Torgerson, Williams and Sim, respectively. The
split-dollar life insurance contract provides death benefits to the
executive's beneficiaries of approximately three times the executive's
annual salary. The split-dollar program is designed so that, if the
assumptions made as to mortality experience, policy return and other factors
are realized, the Company will recover all plan costs, including a factor
for the use of Company funds. The split-dollar policy provides a cash
surrender value to each participant in excess of any premiums paid.

OPTION GRANTS IN LAST FISCAL YEAR
	Individual Grants (1)
Name	Number of Securities Underlying Options      Granted	Percent of Total Options Granted to Employees    in Fiscal Year	Exercise of Base Price      ($/Share)	Expiration Date	Grant Date Present Value (2)
John M. Derrick, Jr.	119,900	33.6%	$22.4375	December 31, 2009	$285,362
Dennis R. Wraase	48,000	13.5%	$22.4375	December 31, 2009	$114,240
William T. Torgerson	30,000	8.4%	$22.4375	December 31, 2009	$ 71,400
Andrew W. Williams	10,300	2.9%	$22.4375	December 31, 2009	$ 25,514
William J. Sim	10,300	2.9%	$22.4375	December 31, 2009	$ 25,514

(1) Individual Grants
     The exercise price of options is the market price of the Common Stock on
the grant date (January 1, 2000). Twenty-five percent of the options became
exercisable on January 1, 2001. The remaining options will become
exercisable at the rate of twenty-five percent on January 1 of each year
until January 1, 2004.

(2) Grant Date Present Value
     The values in this column were determined based on the Black-Scholes
option pricing model and are calculated at the time of grant. The following
assumptions were used in the calculation: (a) expected price volatility -
twenty percent (20%), (b) options will be exercised in the tenth year, (c) an
interest rate based upon the corresponding yield of a U.S. Treasury note
maturing ten years from the date of grant, (d) dividends at the rate in
effect on the date of grant, and (e) no adjustments for transferability. The
fact that the Company used the Black-Scholes model does not necessarily mean
that the Company believes or acknowledges that the model can accurately
determine the value of options. The ultimate value of the option, if any,
will depend on the future market price of the Company's Common Stock and the
optionee's individual investment decisions, neither of which can be predicted
with any degree of certainty.

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
Name	Shares Acquired on Exercise     (#)	Value Realized    ($)	Number of Shares Underlying Unexercised Options at End of Fiscal Year Exercisable  Unexercisable		Value of Unexercised In-the-Money Options at End of Fiscal Year (3) Exercisable     Unexercisable
John M. Derrick, Jr.	0	0	108,385	119,900	$30,077	$258,085
Dennis R. Wraase	0	0	21,843	48,000	$ 6,061	$103,320
William T. Torgerson	0	0	21,843	30,000	$ 6,061	$ 64,575
Andrew W. Williams	0	0	13,934	10,300	$ 3,867	$ 22,171
William J. Sim	0	0	13,934	10,300	$ 3,867	$ 22,171

(3) Value of Unexercised In-the-Money Options at End of Fiscal Year
     The value of unexercised in-the-money options at December 29, 2000 is
calculated by multiplying the number of shares by the amount by which the
fair market value of the Common Stock on the last trading day of 2000, as
reported by the New York Stock Exchange, exceeds the option exercise price.

LONG-TERM INCENTIVE PLAN-- AWARDS IN LAST FISCAL YEAR
Name	Performance or Other Period Until Maturation or Payout	Threshold Number of Shares	Target Number of Shares	Maximum Number of Shares
John M. Derrick, Jr.	2001-2003	0	17,500	35,000
Dennis R. Wraase	2001-2003	0	7,000	14,000
William T. Torgerson	2001-2003	0	5,000	10,000
Andrew W. Williams	2001-2003	0	5,000	10,000
William J. Sim	2001-2003	0	5,000	10,000

     The preceding table reflects the share awards available under the
Company's Performance Restricted Stock Program established under the
Company's Long-Term Incentive Plan. Under the Program, performance cycles
will be measured over three-year periods commencing January 1 of each year.
The Program provides for the earning of Common Stock based on the Company's
total shareholder return compared to other companies in a peer group
comprised of 20 gas and electric distribution companies. If, during the
course of a performance period, a significant event occurs, as determined in
the sole discretion of the Board of Directors, which the Board of Directors
expects to have a substantial effect on total shareholder performance during
the period, the Board of Directors may revise such measures.

     Under the Program, a target performance is established. Each award
provides that, following completion of the performance period, the
participant will be eligible to earn a number of shares of Common Stock
ranging from 0% to 200% of the target performance award to the extent that
performance objectives are achieved. The shares of Common Stock earned
by a participant will vest immediately on the date that the performance award
is earned.

PENSION PLAN TABLE
Average Annual Salary in Final Three Years    of Employment	Annual Retirement Benefits                                               Years in Plan
	15	20		25	30			35	40
$250,000	$ 66,000	$ 88,000	$109,000			$131,000	$153,000			$175,000
$350,000	$ 92,000	$123,000	$153,000			$184,000	$214,000			$245,000
$450,000	$118,000	$158,000	$197,000			$236,000	$276,000			$315,000
$550,000	$144,000	$193,000	$241,000			$289,000	$337,000			$385,000
$650,000	$171,000	$228,000	$284,000			$341,000	$398,000			$455,000
$750,000	$197,000	$263,000	$328,000			$394,000	$459,000			$525,000
$850,000	$223,000	$298,000	$372,000			$446,000	$521,000			$595,000
$950,000	$249,000	$333,000	$416,000			$499,000	$582,000			$665,000

     The Company's General Retirement Plan provides participants benefits
after five years of service based on the average salary (the term salary
being equal to the amounts contained in the Salary column of the Summary
Compensation Table) for the final three years of employment and years of
credited service under the Plan at time of retirement. Normal retirement
under the Plan is at age 65. Plan benefits are subject to an offset for any
Social Security benefits. Benefits under the Plan may be reduced under
certain provisions of the Internal Revenue Code, as amended, and by salary
deferrals under the Company's deferred compensation plans (other than CODA
contributions made under the Savings Plan). Where any such limitations
occur, the Company will pay a supplemental retirement benefit to eligible
executives designed to maintain total retirement benefits at the formula
level of the Plan. In addition, for executives who retire under the terms of
the General Retirement Plan and are at least 59 years of age, their
retirement benefit will be calculated on the basis of average salary, plus
the average of the highest three annual incentive awards in the last five
consecutive years. The annual incentive amounts are equal to the amounts
shown in the Bonus column of the Summary Compensation Table. The current
age, years of credited service and compensation used to determine retirement
benefits (including supplemental benefits) for the above-named officers are
as follows: Mr. Derrick, 61 and 39 years of credit, $709,685; Mr. Wraase, 57
and 31 years of credit, $458,240; Mr. Torgerson, 56 and 31 years of credit,
$386,031; Mr. Williams, 51 and 26 years of credit, $292,776; and Mr. Sim, 56
and 31 years of credit, $275,864. Annual benefits at age 65 (including the
effect of the Social Security offset and the supplemental retirement benefit)
are illustrated in the table above.

Employment Agreements and Severance Agreements

     Messrs. Derrick, Wraase and Torgerson each have entered into employment
agreements with the Company that provide for his employment through
December 10, 2004, and that automatically extend for successive periods of
five years thereafter unless the Company or the executive has given notice
that it shall not be so extended. Each of the employment agreements provides
that the executive (i) will receive an annual base salary in an amount not
less than his salary in effect as of December 10, 1999, and incentive
compensation as determined by the Board of Directors and (ii) will be
entitled to participate in retirement and other benefit plans, and receive
fringe benefits on the same basis as other senior executives of the Company.

     Under each of the employment agreements, the executive is entitled to
certain benefits if his employment is terminated prior to the expiration of
the initial term of the agreement (or as extended) either (i) by the Company
other than for cause, death or disability or (ii) by the executive if his
salary is reduced, he is not in good faith considered for incentive awards,
the Company fails to provide him with retirement benefits and other benefits
provided to similarly situated executives, he is required to relocate by more
than 50 miles from Washington, D.C., or he is demoted from a senior
management position. These benefits include: (i) a lump sum payment in cash
equal to three times (x) the sum of the executive's highest base salary rate
in effect during the three-year period preceding termination and (y) the
higher of (1) the annual target bonus for the year in which the termination
of employment occurs or (2) the highest annual bonus received by the
executive in any of the three preceding calendar years and (ii) the
executive's annual cash incentive award for the year preceding termination of
employment, if not yet paid, and a pro rata portion of the executive's annual
incentive award for the year in which the executive's employment terminates.
In addition, any outstanding shares of restricted stock will become
immediately vested, and the executive will be entitled to receive unpaid
salary through the date of termination, certain supplemental retirement
benefits under existing plans of the Company, and a continuation of premium
payments under the Company's split-dollar life insurance policy. The
agreements also provide that each executive is entitled to receive a gross-up
payment equal to the amount of any federal excise taxes imposed upon
compensation payable upon termination and the additional taxes that result
from such payment.

     Messrs. Williams and Sim have entered into severance agreements with the
Company. Each severance agreement provides for the payment of severance
benefits to the executive if, within two years following a change in control,
which in the case of Mr. Sim includes a sale of all or substantially all of
the generation assets, of the Company, any of the following events occur:
(i) termination of the employment of the executive by the Company (or a
successor company), other than for cause, death, disability or voluntary
normal retirement; (ii) termination of employment by the executive for "good
reason," defined as the assignment of duties materially inconsistent with the
executive's duties prior to the change in control or a material reduction or
alteration of his duties, a reduction in the executive's salary or relocation
of the executive by more than 50 miles; (iii) the failure or refusal by a
successor company to assume the Company's obligations under the agreement; or
(iv) a material breach of the agreement by the Company (or a successor
company). The executive also is entitled to severance benefits upon (i) the
termination of the executive's employment without cause in contemplation of,
but prior to, a change in control or (ii) the occurrence of an event, in
contemplation of, but prior to a change in control, constituting "good
reason" followed by the executive's voluntary termination of employment
within two years after a change in control. The severance benefits consist
of: (i) an amount equal to two times the executive's annual base salary (in
effect at the time of termination) and annual bonus (average of annual target
bonuses during the three years prior to termination) paid in 24 equal monthly
installments and (ii) certain welfare benefits for a three-year period after
the date of termination. The agreements also provide that each executive is
entitled to receive a gross-up payment equal to the amount of any federal
excise taxes imposed upon compensation payable upon termination and the
additional taxes that result from such payment.

Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The following table sets forth, as of March 7, 2001, for each director,
the five executive officers named in the Summary Compensation Table on
page 18 and all directors and officers as a group (i) the number of shares of
Common Stock beneficially owned, (ii) the number of shares acquirable within
60 days pursuant to exercise of stock options, (iii) credited Common Stock
equivalents and (iv) the total stock-based holdings. None of such persons
beneficially owns shares of any other class of equity securities of the
Company. Each of the individuals, as well as all directors and executive
officers as a group, beneficially owned less than 1% of the Company's
outstanding Common Stock. The following table also sets forth, as of
March 7, 2001, the number and percentage of shares of Common Stock owned
by all persons known by the Company to own beneficially 5% or more of the
Common Stock.

Name of Beneficial Owner	Shares of Common Stock Owned (1)	Common Stock Acquirable Within 60 Days (2)	Deferred Common Stock Equivalents (3)	Total Stock-Based Holdings (4)
Roger R. Blunt, Sr.	378	1,000	1,252	2,630
Edmund B. Cronin, Jr.	1,123	1,000	5,450	7,573
John M. Derrick, Jr.	44,467	138,360	-	182,827
Terence C. Golden	1,942	-	4,577	6,519
David O. Maxwell	500	1,000	1,549	3,049
Judith A. McHale	4,683	-	-	4,683
Floretta D. McKenzie	2,696	1,000	-	3,696
Edward F. Mitchell	70,356	1,000	1,549	72,905
Lawrence C. Nussdorf	1,000	-	-	1,000
Peter F. O'Malley	1,828	1,000	1,549	4,377
Pauline A. Schneider	600	-	-	600
William J. Sim	15,423	16,509	-	31,932
William T. Torgerson	20,871	29,343	-	50,214
Andrew W. Williams	24,863	16,509	-	41,372
Dennis R. Wraase	29,633	33,843	-	63,476
A. Thomas Young	1,000	1,000	6,328	8,328
All Directors and   Executive Officers   as a Group (24 Individuals)	313,693	266,998	22,254	602,945
Name and Address of Beneficial Owner	Shares of Common Stock Owned (5)	Percent of Common Stock Outstanding
Franklin Resources, Inc. 777 Mariners Island Boulevard San Mateo, CA 94404	11,006,264	9.9%

(1) Includes shares held under the Company's Dividend Reinvestment Plan and
the Employee Savings Plan. Also includes shares awarded under the Company's
Long-Term Incentive Plan which will vest over time.

(2) Consists of Common Stock issuable upon the exercise of stock options.

(3) Consists of Common Stock equivalents acquired under the Directors'
Deferred Compensation Plan.

(4) Consists of the sum of the three preceding columns.

(5) According to a Schedule 13G, dated February 2, 2001, filed with the
Securities and Exchange Commission jointly by Franklin Resources, Inc.,
Templeton Global Advisors Limited, a subsidiary of Franklin Resources, Inc.,
and Charles B. Johnson and Rupert H. Johnson, Jr., each a principal
shareholder of Franklin Resources, Inc., the Common Stock is beneficially
owned by one or more open or closed-end investment companies or other managed
accounts that are advised by direct and indirect advisory subsidiaries of
Franklin Resources, Inc. Sole power to vote or to direct the voting of the
Common Stock is reported as follows: Templeton Global Advisors Limited:
8,457,369; Franklin Advisers, Inc.: 2,080,000; Franklin Templeton Investment
Management Limited: 413,853; and Templeton Investment Counsel, LLC: 42,362.
Sole power to dispose or to direct the disposition of the Common Stock is
reported as follows: Templeton Global Advisors Limited: 8,470,049; Franklin
Advisers, Inc.: 2,080,000; Franklin Templeton Investment Management Limited:
413,853; and Templeton Investment Counsel, LLC: 42,362.

Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The Clark Construction Group, Inc., of which Mr. Nussdorf, a nominee for
director, is Vice President and Treasurer, serves as the general contractor
with a joint venture partner for the base building and interior construction
of the Company's new headquarters in Washington, D.C.

     Pauline Schneider, a nominee for director, is a partner in the law firm
of Hunton & Williams. Hunton & Williams rendered legal services to the
Company and its subsidiaries in 2000 and is expected to render services to
the Company and its subsidiaries in 2001.

Part IV

Item 14.   EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a)  Documents List

1.   Financial Statements

     The following documents are included within this document as Exhibit 13
on the pages identified below:

	Page Reference
	Form 10-K  (Exhibit 13)
Consolidated Balance Sheets -   December 31, 2000 and 1999	35
Consolidated Statements of Earnings -   for the years ended December 31, 2000,   1999 and 1998	34
Consolidated Statements of Shareholders'   Equity and Comprehensive Income - for   the years ended December 31, 2000,   1999 and 1998	37
Consolidated Statements of Cash Flows -   for the years ended December 31, 2000,   1999 and 1998	38
Notes to Consolidated Financial Statements	39
Report of Independent Accountants	33

2.   Financial Statement Schedules

     Unaudited supplementary data entitled "Quarterly Financial Summary
(Unaudited)" is included herein in Exhibit 13 (included in "Notes to
Consolidated Financial Statements" as Note 16).

     Schedule II (Valuation and Qualifying Accounts) and the Report of
Independent Accountants on Consolidated Financial Statement Schedule are
submitted pursuant to Item 14(d).

All other schedules are omitted because they are not applicable, or the
required information is presented in the financial statements.


3.   Exhibits required by Securities and Exchange Commission Regulation S-K
     (summarized below).

Exhibit   No.	Description of Exhibit	Reference*
3.1	Charter of the Company. . . . . . . .	Exh. 3.1 to Form 10-K, 3/27/00.
3.2	By-Laws of the Company. . . . . . . .	Filed herewith.
4	Mortgage and Deed of Trust dated July 1, 1936, of the Company to The Bank of New York as Successor Trustee, securing First Mortgage Bonds of the Company, and Supplemental Indenture dated July 1, 1936. . . . . . . . . . . . .	Exh. B-4 to First Amendment, 6/19/36, to Registration Statement No. 2-2232.
	Supplemental Indentures, to the aforesaid Mortgage and Deed of Trust, dated - December 1, 1939 and December 10, 1939. . . . . . . . . . . . . . . . .	Exhs. A & B to Form 8-K, 1/3/40.
	August 1, 1940. . . . . . . . . . . .	Exh. A to Form 8-K, 9/25/40.
	July 15, 1942 and August 10, 1942. . . . . . . . . . . . . . . . .	Exh. B-1 to Amendment No. 2, 8/24/42, and B-3 to Post- Effective Amendment, 8/31/42, to Registration Statement No. 2-5032.
	August 1, 1942. . . . . . . . . . . .	Exh. B-4 to Form 8-A, 10/8/42.
	October 15, 1942. . . . . . . . . . .	Exh. A to Form 8-K, 12/7/42.
	October 15, 1947. . . . . . . . . . .	Exh. A to Form 8-K, 12/8/47.
Exhibit   No.	Description of Exhibit	Reference*
4 (cont.)	January 1, 1948 . . . . . . . . . . .	Exh. 7-B to Post-Effective Amendment No. 2, 1/28/48, to Registration Statement No. 2-7349.
	December 31, 1948 . . . . . . . . . .	Exh. A-2 to Form 10-K, 4/13/49.
	May 1, 1949 . . . . . . . . . . . . .	Exh. 7-B to Post-Effective Amendment No. 1, 5/10/49, to Registration Statement No. 2-7948.
	December 31, 1949 . . . . . . . . . .	Exh. (a)-1 to Form 8-K, 2/8/50.
	May 1, 1950 . . . . . . . . . . . . .	Exh. 7-B to Amendment No. 2, 5/8/50, to Registration Statement No. 2-8430.
	February 15, 1951 . . . . . . . . . .	Exh. (a) to Form 8-K, 3/9/51.
	March 1, 1952 . . . . . . . . . . . .	Exh. 4-C to Post-Effective Amendment No. 1, 3/12/52, to Registration Statement No. 2-9435.
	February 16, 1953 . . . . . . . . . .	Exh. (a)-1 to Form 8-K, 3/5/53.
	May 15, 1953. . . . . . . . . . . . .	Exh. 4-C to Post-Effective Amendment No. 1, 5/26/53, to Registration Statement No. 2-10246.
	March 15, 1954 and March 15, 1955. . . . . . . . . . . . . . . . .	Exh. 4-B to Registration Statement No. 2-11627, 5/2/55.
	May 16, 1955. . . . . . . . . . . . .	Exh. A to Form 8-K, 7/6/55.
	March 15, 1956. . . . . . . . . . . .	Exh. C to Form 10-K, 4/4/56.
	June 1, 1956. . . . . . . . . . . . .	Exh. A to Form 8-K, 7/2/56.
	April 1, 1957 . . . . . . . . . . . .	Exh. 4-B to Registration Statement No. 2-13884, 2/5/58.
	May 1, 1958 . . . . . . . . . . . . .	Exh. 2-B to Registration Statement No. 2-14518, 11/10/58.
	December 1, 1958. . . . . . . . . . .	Exh. A to Form 8-K, 1/2/59.
	May 1, 1959 . . . . . . . . . . . . .	Exh. 4-B to Amendment No. 1, 5/13/59, to Registration Statement No. 2-15027.
	November 16, 1959 . . . . . . . . . .	Exh. A to Form 8-K, 1/4/60.
	May 2, 1960 . . . . . . . . . . . . .	Exh. 2-B to Registration Statement No. 2-17286, 11/9/60.
	December 1, 1960 and April 3, 1961. . . . . . . . . . . . . . . . .	Exh. A-1 to Form 10-K, 4/24/61.
	May 1, 1962 . . . . . . . . . . . . .	Exh. 2-B to Registration Statement No. 2-21037, 1/25/63.
Exhibit   No.	Description of Exhibit	Reference*
4 (cont.)	February 15, 1963 . . . . . . . . . .	Exh. A to Form 8-K, 3/4/63.
	May 1, 1963 . . . . . . . . . . . . .	Exh. 4-B to Registration Statement No. 2-21961, 12/19/63.
	April 23, 1964. . . . . . . . . . . .	Exh. 2-B to Registration Statement No. 2-22344, 4/24/64.
	May 15, 1964. . . . . . . . . . . . .	Exh. A to Form 8-K, 6/2/64.
	May 3, 1965 . . . . . . . . . . . . .	Exh. 2-B to Registration Statement No. 2-24655, 3/16/66.
	April 1, 1966 . . . . . . . . . . . .	Exh. A to Form 10-K, 4/21/66.
	June 1, 1966. . . . . . . . . . . . .	Exh. 1 to Form 10-K, 4/11/67.
	April 28, 1967. . . . . . . . . . . .	Exh. 2-B to Post-Effective Amendment No. 1 to Registration Statement No. 2-26356, 5/3/67.
	May 1, 1967 . . . . . . . . . . . . .	Exh. A to Form 8-K, 6/1/67.
	July 3, 1967. . . . . . . . . . . . .	Exh. 2-B to Registration Statement No. 2-28080, 1/25/68.
	February 15, 1968 . . . . . . . . . .	Exh. II-I to Form 8-K, 3/7/68.
	May 1, 1968 . . . . . . . . . . . . .	Exh. 2-B to Registration Statement No. 2-31896, 2/28/69.
	March 15, 1969. . . . . . . . . . . .	Exh. A-2 to Form 8-K, 4/8/69.
	June 16, 1969 . . . . . . . . . . . .	Exh. 2-B to Registration Statement No. 2-36094, 1/27/70.
	February 15, 1970 . . . . . . . . . .	Exh. A-2 to Form 8-K, 3/9/70.
	May 15, 1970. . . . . . . . . . . . .	Exh. 2-B to Registration Statement No. 2-38038, 7/27/70.
	August 15, 1970 . . . . . . . . . . .	Exh. 2-D to Registration Statement No. 2-38038, 7/27/70.
	September 1, 1971 . . . . . . . . . .	Exh. 2-C to Registration Statement No. 2-45591, 9/1/72.
	September 15, 1972. . . . . . . . . .	Exh. 2-E to Registration Statement No. 2-45591, 9/1/72.
	April 1, 1973 . . . . . . . . . . . .	Exh. A to Form 8-K, 5/9/73.
	January 2, 1974 . . . . . . . . . . .	Exh. 2-D to Registration Statement No. 2-49803, 12/5/73.
Exhibit   No.	Description of Exhibit	Reference*
4. (cont.)	August 15, 1974 . . . . . . . . . . .	Exhs. 2-G and 2-H to Amendment No. 1 to Registration Statement No. 2-51698, 8/14/74.
	June 15, 1977 . . . . . . . . . . . .	Exh. 4-A to Form 10-K, 3/19/81.
	July 1, 1979. . . . . . . . . . . . .	Exh. 4-B to Form 10-K, 3/19/81.
	June 16, 1981 . . . . . . . . . . . .	Exh. 4-A to Form 10-K, 3/19/82.
	June 17, 1981 . . . . . . . . . . . .	Exh. 2 to Amendment No. 1, 6/18/81, to Form 8-A.
	December 1, 1981. . . . . . . . . . .	Exh. 4-C to Form 10-K, 3/19/82.
	August 1, 1982. . . . . . . . . . . .	Exh. 4-C to Amendment No. 1 to Registration Statement No. 2-78731, 8/17/82.
	October 1, 1982 . . . . . . . . . . .	Exh. 4 to Form 8-K, 11/8/82.
	April 15, 1983. . . . . . . . . . . .	Exh. 4 to Form 10-K, 3/23/84.
	November 1, 1985. . . . . . . . . . .	Exh. 2-B to Form 8-A, 11/1/85.
	March 1, 1986 . . . . . . . . . . . .	Exh. 4 to Form 10-K, 3/28/86.
	November 1, 1986. . . . . . . . . . .	Exh. 2-B to Form 8-A, 11/5/86.
	March 1, 1987 . . . . . . . . . . . .	Exh. 2-B to Form 8-A, 3/2/87.
	September 16, 1987. . . . . . . . . .	Exh. 4-B to Registration Statement No. 33-18229, 10/30/87.
	May 1, 1989 . . . . . . . . . . . . .	Exh. 4-C to Registration Statement No. 33-29382, 6/16/89.
	August 1, 1989. . . . . . . . . . . .	Exh. 4 to Form 10-K, 3/23/90.
	April 5, 1990 . . . . . . . . . . . .	Exh. 4 to Form 10-K, 3/29/91.
	May 21, 1991. . . . . . . . . . . . .	Exh. 4 to Form 10-K, 3/27/92.
	May 7, 1992 . . . . . . . . . . . . .	Exh. 4 to Form 10-K, 3/26/93.
	September 1, 1992 . . . . . . . . . .	Exh. 4 to Form 10-K, 3/26/93.
	November 1, 1992. . . . . . . . . . .	Exh. 4 to Form 10-K, 3/26/93.
	March 1, 1993 . . . . . . . . . . . .	Exh. 4 to Form 10-K, 3/26/93.
	March 2, 1993 . . . . . . . . . . . .	Exh. 4 to Form 10-K, 3/26/93.
	July 1, 1993. . . . . . . . . . . . .	Exh. 4.4 to Registration Statement No. 33-49973, 8/11/93.
Exhibit   No.	Description of Exhibit	Reference*
4 (cont.)	August 20, 1993 . . . . . . . . . . .	Exh. 4.4 to Registration Statement No. 33-50377, 9/23/93.
	September 29, 1993. . . . . . . . . .	Exh. 4 to Form 10-K, 3/25/94.
	September 30, 1993. . . . . . . . . .	Exh. 4 to Form 10-K, 3/25/94.
	October 1, 1993 . . . . . . . . . . .	Exh. 4 to Form 10-K, 3/25/94.
	February 10, 1994 . . . . . . . . . .	Exh. 4 to Form 10-K, 3/25/94.
	February 11, 1994 . . . . . . . . . .	Exh. 4 to Form 10-K, 3/25/94.
	March 10, 1995. . . . . . . . . . . .	Exh. 4.3 to Registration Statement No. 61379, 7/28/95.
	September 6, 1995 . . . . . . . . . .	Exh. 4 to Form 10-K, 4/1/96.
	September 7, 1995 . . . . . . . . . .	Exh. 4 to Form 10-K, 4/1/96.
	October 2, 1997 . . . . . . . . . . .	Exh. 4 to Form 10-K, 3/26/98.
	March 17, 1999. . . . . . . . . . . .	Exh. 4 to Form 10-K, 3/27/00.
4-A	Indenture, dated as of July 28, 1989, between the Company and The Bank of New York, Trustee, with respect to the Company's Medium-Term Note Program . . . . . . . . . . . . . . .	Exh. 4 to Form 8-K, 6/21/90.
10	Agreement, effective December 8, 1998, between the Company and the International Brotherhood of Electrical Workers (Local Union No. 1900). . . . . . . .	Exh. 10 to Form 10-K, 3/26/99.
10.1	Employment Agreement of   John M. Derrick, Jr.**. . . . . . .	Exh. 10.1 to Form 10-K, 3/27/00.
10.2	Employment Agreement of   Dennis R. Wraase**. . . . . . . . .	Exh. 10.2 to Form 10-K, 3/27/00.
10.3	Employment Agreement of   William T. Torgerson**. . . . . . .	Exh. 10.3 to Form 10-K, 3/27/00.
10.4	Severance Agreement of   Robert C. Grantley**. . . . . . . .	Exh. 10.4 to Form 10-K, 3/27/00.
10.5	Severance Agreement of   William J. Sim** . . . . . . . . .	Exh. 10.5 to Form 10-K, 3/27/00.
10.6	Severance Agreement of   Andrew W. Williams** . . . . . . .	Exh. 10.6 to Form 10-K, 3/27/00.
10.7	Severance Agreement of   Earl K. Chism** . . . . . . . . .	Exh. 10.7 to Form 10-K, 3/27/00.
Exhibit   No.	Description of Exhibit	Reference*
10.8	Severance Agreement of   Kenneth P. Cohn** . . . . . . . .	Exh. 10.8 to Form 10-K, 3/27/00.
10.9	Severance Agreement of   Kirk J. Emge** . . . . . . . . .	Exh. 10.9 to Form 10-K, 3/27/00.
10.11	Severance Agreement of   William R. Gee** . . . . . . . .	Exh. 10.11 to Form 10-K, 3/27/00.
10.12	Severance Agreement of   Anthony J. Kamerick** . . . . . . . .	Exh. 10.12 to Form 10-K, 3/27/00.
10.13	Severance Agreement of   Beverly L. Perry** . . . . . . . .	Exh. 10.13 to Form 10-K, 3/27/00.
10.14	Severance Agreement of   James S. Potts** . . . . . . . .	Exh. 10.14 to Form 10-K, 3/27/00.
10.16	1999 General Memorandum of Understanding, dated December 8, 1998 between the Company and the International Brotherhood of Electrical Workers (Local Union No. 1900) . . . . . . . . . . . . . .	Exh. 10.2 to Form 10-K, 3/26/99.
10.17	Potomac Electric Power Company Long-Term Incentive Plan** . . . . . . . .	Exh. 4 to Form S-8, 6/12/98
11	Statements Re. Computation of   Earnings Per Common Share . . . . .	Filed herewith.
12	Statements Re. Computation of   Ratios. . . . . . . . . . . . . . .	Filed herewith.
13	Financial Information Section of   Annual Report . . . . . . . . . . .	Filed herewith.
21	Subsidiaries of the Registrant. . . .	Filed herewith.
23	Consent of Independent Accountants. .	Filed herewith.

 *The exhibits referred to in this column by specific designations and date
  have heretofore been filed with the Securities and Exchange Commission
  under such designations and are hereby incorporated herein by reference.
  The Forms 8-A, 8-K and 10-K referred to were filed by the Company under the
  Commission's File No. 1-1072 and the Registration Statements referred to
  are registration statements of the Company.

**These exhibits are submitted pursuant to Item 14(c).

(b)  Reports on Form 8-K

     A Current Report on Form 8-K was filed by the Company on December 19,
2000, providing details on the completion of the divestiture of substantially
all of the Company's generation assets to Mirant Corp., formerly Southern
Energy Inc. The items reported on such Form 8-K were Item 2 (Acquisition or
Disposition of Assets) and Item 7 (Financial Statements and Exhibits).

Schedule II	Valuation and Qualifying Accounts
Col. A	Col. B	Col. C		Col. D	Col. E
		Additions
Description	Balance at Beginning of Period	Charged to Costs and Expenses	Charged to Other Accounts (a)	Deductions (b)	Balance at End of Period
	(Millions of Dollars)
Year Ended December 31, 2000
Allowance for uncollectible accounts -       customer and other accounts receivable	$8.0	$8.0	$1.5	($8.4)	$9.1
Year Ended December 31, 1999
Allowance for uncollectible accounts -       customer and other accounts receivable	$7.7	$8.0	$1.0	($8.7)	$8.0
Year Ended December 31, 1998
Allowance for uncollectible accounts -       customer and other accounts receivable	$8.4	$8.0	-	($8.7)	$7.7
(a) Collection of accounts previously written off.
(b) Uncollectible accounts written off.

(c)  Exhibit 11   Statements Re. Computation of Earnings Per Common Share

     The information required by this Exhibit is included in Note 11 of the
"Notes to Consolidated Financial Statements," which is included in Exhibit 13.

Exhibit 12 Statements Re: Computation of Ratios
The computations of the coverage of fixed charges before income taxes, and the coverage of combined fixed charges and preferred dividends for each of the years 2000 through 1996, on the basis of Utility operations only, are as follows:
	For the Year Ended December 31,
	2000	1999	1998	1997	1996
	(Dollar Amounts in Millions)
Net income	$348.9	$228.0	$211.2	$164.7	$220.1
Taxes based on income	352.9	142.6	131.0	97.5	135.0
Income before taxes	701.8	370.6	342.2	262.2	355.1
Fixed charges:
Interest charges	170.1	156.1	151.8	146.7	146.9
Interest factor in rentals	23.2	23.4	23.8	23.6	23.6
Total fixed charges	193.3	179.5	175.6	170.3	170.5
Income before income taxes and fixed charges	$895.1	$550.1	$517.8	$432.5	$525.6
Coverage of fixed charges	4.63	3.06	2.95	2.54	3.08
Preferred dividend requirements, including   redemption premium	$5.5	$8.9	$18.0	$16.5	$16.6
Ratio of pre-tax income to net income	2.01	1.63	1.62	1.59	1.61
Preferred dividend factor	$11.1	$14.5	$29.2	$26.2	$26.7
Total fixed charges and preferred dividends	$204.4	$194.0	$204.8	$196.5	$197.2
Coverage of combined fixed charges and   preferred dividends	4.38	2.84	2.53	2.20	2.66

Exhibit 12 Statements Re: Computation of Ratios
The computations of the coverage of fixed charges before income taxes, and the coverage of combined fixed charges and preferred dividends for each of the years 2000 through 1996, on a consolidated basis, are as follows:
	For the Year Ended December 31,
	2000	1999	1998	1997	1996
	(Dollar Amounts in Millions)
Net income	$352.0	$247.1	$226.3	$181.8	$237.0
Taxes based on income	341.2	114.5	122.3	65.6	80.4
Income before taxes	693.2	361.6	348.6	247.4	317.4
Fixed charges:
Interest charges	230.7	208.7	208.6	216.1	231.1
Interest factor in rentals	23.6	23.8	24.0	23.7	23.9
Total fixed charges	254.3	232.5	232.6	239.8	255.0
Competitive operations capitalized interest	(3.9)	(1.8)	(0.6)	(0.5)	(0.7)
Income before income taxes and fixed charges	$943.6	$592.3	$580.6	$486.7	$571.7
Coverage of fixed charges	3.71	2.55	2.50	2.03	2.24
Preferred dividend requirements, including   redemption premium	$5.5	$8.9	$18.0	$16.5	$16.6
Ratio of pre-tax income to net income	1.97	1.46	1.54	1.36	1.34
Preferred dividend factor	$10.9	$12.9	$27.7	$22.4	$22.2
Total fixed charges and preferred dividends	$265.2	$245.4	$260.3	$262.2	$277.2
Coverage of combined fixed charges and   preferred dividends	3.56	2.41	2.23	1.86	2.06

Exhibit 21    Subsidiaries of the Registrant                  Name	Jurisdiction of Incorporation
Aircraft International Management Company	Delaware
American Energy Corporation	Delaware
AMP Funding, LLC	Delaware
BCR/BT Ventures	Delaware
Edison Place, LLC	Delaware
Edison Capital Reserves Corporation	Delaware
Electro Ecology, Inc.	New York
Energy and Telecommunication Services, LLC	Delaware
59 M Street Associates, LLC	District of Columbia
Friendly Skies, Inc.	U.S. Virgin Islands
Harmons Building Associates	Maryland
Linpro Harmons Land Limited Partnership	Maryland
Met Electrical Testing Company, Inc.	Delaware
NLI/PLC-Maco III Associates	Delaware
PCI Air Management Corporation	Nevada
PCI Air Management Partners, LLC	Delaware
PCI/BT Ventures	Delaware
PCI Energy Corporation	Delaware
PCI Engine Trading, Ltd.	Bermuda
PCI Ever, Inc.	Delaware
PCI/Foxhall Investment LP	District of Columbia
PCI Holdings, Inc.	Delaware
PCI Netherlands Corporation	Nevada
PCI Nevada Investments	Delaware
PCI Queensland Corporation	Nevada
PCI-BT Investing, LLC	Delaware
Pepco Building Services, Inc.	Delaware
Pepco Communications, LLC	Delaware
Pepco Communications, Inc.	Delaware
Pepco Energy Company	Delaware
Pepco Energy Services, Inc.	Delaware
Pepco Enterprises, Inc.	Delaware
Pepco Holdings, Inc.	Delaware
Pepco Technologies, LLC	Delaware
PepMarket.com LLC	Delaware
PES Home Warranty Services of Virginia	Virginia
Potomac Aircraft Leasing Corporation	Nevada
Potomac Capital Investment Corporation	Delaware
Potomac Capital Joint Leasing Corporation	Delaware
Potomac Capital Markets Corporation	Delaware
Potomac Delaware Leasing Corporation	Delaware
Potomac Electric Power Company Trust I	Delaware
Potomac Equipment Leasing Corporation	Nevada
Potomac/Foxhall, LLC	District of Columbia
Potomac Harmans Corporation	Maryland
Potomac Land Corporation	Delaware
Potomac Leasing Associates, L.P.	Nevada
Potomac Nevada Corporation	Nevada
Potomac Nevada Investment, Inc.	Nevada
Potomac Nevada Leasing Corporation	Nevada
Potomac Power Resources, Inc.	Delaware
Ramp Investments, LLC	Delaware
21    Subsidiaries of the Registrant (Cont.)                  Name
Redland Tech Center, LLC	Delaware
Severn Cable, LLC	Delaware
Severn Construction, LLC	Delaware
Square 673 Associates, LLC	District of Columbia
Starpower Communications LLC	Delaware
Substation Test Company, Inc.	Delaware
30/60 M Street Limited Partnership	Delaware
Viron/Pepco Services Partnership	Delaware
W.A. Chester, LLC	Delaware
W. A. Chester Corporation	Delaware

Exhibit 23    Consent of Independent Accountants

We hereby consent to the incorporation by reference in the Registration
Statements on Forms S-8 (Numbers 33-36798, 33-53685 and 33-54197) and the
Registration Statements on Forms S-3 (Numbers 33-58810, 33-61379, 333-33495
and 333-66127) of Potomac Electric Power Company and in the Registration
Statement on Form S-4 (Number 333-57042) of New RC, Inc. of our report dated
January 19, 2001 relating to the financial statements on pages 34 to 77 of
Exhibit 13, which is included in the Annual Report on Form 10-K. We also
consent to the incorporation by reference of our report dated January 19,
2001, relating to the Consolidated Financial Statement Schedule, which
appears under Item 14(a)2. of this Form 10-K.


PRICEWATERHOUSECOOPERS LLP
Washington, D.C.
March 23, 2001

Report of Independent Accountants on Consolidated Financial Statement
Schedule


To the Board of Directors of
Potomac Electric Power Company


Our audits of the consolidated financial statements referred to in our report
dated January 19, 2001 appearing in the 2000 Annual Report to shareholders of
Potomac Electric Power Company (which report and consolidated financial
statements are included on pages 34 to 77 of Exhibit 13 in this Annual Report
on Form 10-K) also included an audit of the consolidated financial statement
schedule listed in Item 14(a)2. of this Form 10-K. In our opinion, this
consolidated financial statement schedule presents fairly, in all material
respects, the information set forth therein when read in conjunction with the
related consolidated financial statements.


PRICEWATERHOUSECOOPERS LLP
Washington, D.C.
January 19, 2001

                                    SIGNATURES


     Pursuant to the requirements of Section 13 or 15(d) 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, in the City of
Washington, District of Columbia, on the 23rd day of March, 2001.

                                   POTOMAC ELECTRIC POWER COMPANY
                                               (Registrant)


                                   By          John M. Derrick     
                                            (John M. Derrick, Jr.,
                                         Chairman of the Board and
                                           Chief Executive Officer)

     Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated:

	Signature	Title	Date
(i)	Principal Executive Officers      John M. Derrick         (John M. Derrick, Jr.)	Chairman of the Board   and Chief Executive   Officer
	D. R. Wraase           (Dennis R. Wraase)	President, Chief   Operating Officer   and Director
(ii),	Principal Financial Officer
(iii)	Principal Accounting Officer       A. W. Williams         (Andrew W. Williams)	Senior Vice President   and Chief Financial   Officer
(iv)	Directors:      Roger R. Blunt          (Roger R. Blunt, Sr.)	Director
	Edmund B. Cronin, Jr.     (Edmund B. Cronin, Jr.)	Director
			March 23, 2001
	Signature	Title	Date
(iv)	Directors (cont.):        T. C. Golden          (Terence C. Golden)	Director
	David O. Maxwell         (David O. Maxwell)	Director
	Judith A. McHale         (Judith A. McHale)	Director
	Floretta D. McKenzie      (Floretta D. McKenzie)	Director
	___________________________    (Edward F. Mitchell)	Director
	Peter F. O'Malley        (Peter F. O'Malley)	Director
	A. T. Young            (A. Thomas Young)	Director
			March 23, 2001