content: UNITED STATES
                         SECURITIES AND EXCHANGE COMMISSION
                               Washington, D.C. 20549
                                     FORM 10-Q
  
            [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                          SECURITIES EXCHANGE ACT OF 1934
          For the quarterly period ended...September 30, 1995............
  
                                         OR
  
            [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                          SECURITIES EXCHANGE ACT OF 1934
  
            For the transition period from............to................
  
                  Commission file number..........1-1401..........
  
           .....................PECO Energy Company.....................
               (Exact name of registrant as specified in its charter)
  
           ............Pennsylvania.................... 23-0970240......
             (State or other jurisdiction of        (I.R.S. Employer
              incorporation or organization)       Identification No.)
  
           ...2301 Market Street, Philadelphia, PA..........19103.......
            (Address of principal executive offices)     (Zip Code)
  
            .....................(215) 841-4000........................
                (Registrant's telephone number, including area code)
  
  Indicate by check mark whether the registrant (1) has filed all reports required
  to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
  the preceding 12 months (or for such shorter period that the registrant was
  required to file such reports), and (2) has been subject to such filing
  requirements for the past 90 days.
  
                           Yes __X__            No ____
  
  Indicate the number of shares outstanding of each of the issuer's classes of
  common stock as of the latest practicable date. The Company had 221,976,072
  shares of common stock outstanding on October 31, 1995.
  
  
  
  
  <PAGE>
  
                           PART I. FINANCIAL INFORMATION
                            ITEM 1. FINANCIAL STATEMENTS
                    PECO ENERGY COMPANY AND SUBSIDIARY COMPANIES
                    CONDENSED CONSOLIDATED STATEMENTS OF INCOME
                                    (Unaudited)
                               (Millions of Dollars)
  
  <TABLE>
  <CAPTION>
                                                     3 Months Ended               9 Months Ended
                                                      September 30,                September 30,
                                                 ----------------------      -----------------------
                                                   1995          1994          1995           1994
                                                 --------       -------      --------        -------
  <S>                                           <C>           <C>           <C>           <C>
  OPERATING REVENUES
  Electric                                       $1,087.7      $1,000.5      $2,856.6      $2,807.5
  Gas                                                37.5          40.6         285.8         313.6
                                                 --------      --------      --------      --------
  
  TOTAL OPERATING REVENUES                        1,125.2       1,041.1       3,142.4       3,121.1
                                                 --------      --------      --------      --------
  OPERATING EXPENSES
  Fuel and Energy Interchange                       198.0         146.7         564.9         568.0
  Other Operating                                   242.5         240.8         687.3         714.4
  Early Retirement and Separation Programs            --          254.1           --          254.1
  Maintenance                                        73.6          76.9         229.0         253.5
  Depreciation                                      113.5         110.6         337.6         328.6
  Income Taxes                                      126.0           5.3         309.6         177.7
  Other Taxes                                        80.0          78.2         233.1         233.2
                                                 --------      --------      --------      --------
  TOTAL OPERATING EXPENSES                          833.6         912.6       2,361.5       2,529.5
  
  OPERATING INCOME                                  291.6         128.5         780.9         591.6
                                                 --------      --------      --------      --------
  OTHER INCOME AND DEDUCTIONS
  Allowance for Other Funds Used
       During Construction                            3.2           2.6          10.7           7.6
  Gain on Sale of Subsidiary, Net                     --            --           27.1           --
  Income Taxes                                       (0.3)         (0.5)         (2.6)        (11.9)
  Other, Net                                         (2.5)         (1.5)         (0.2)         22.6
                                                 --------      --------      --------      --------
  TOTAL OTHER INCOME AND DEDUCTIONS                   0.4           0.6          35.0          18.3
                                                 --------      --------      --------      --------
  INCOME BEFORE INTEREST CHARGES                    292.0         129.1         815.9         609.9
                                                 --------      --------      --------      --------
  INTEREST CHARGES
  Long-Term Debt                                     95.6          96.5         291.7         288.5
  Company Obligated Mandatorily Redeemable
       Preferred Securities of a Partnership,
       Which Holds Solely Subordinated
       Debentures of the Company                      4.9           3.6          14.9           3.6
  Short-Term Debt                                     9.8          10.1          29.1          28.9
                                                 --------      --------      --------      --------
  TOTAL INTEREST CHARGES                            110.3         110.2         335.7         321.0
  Allowance for Borrowed Funds
       Used During Construction                      (2.6)         (3.3)         (9.7)         (8.7)
                                                 --------      --------      --------      --------
  NET INTEREST CHARGES                              107.7         106.9         326.0         312.3
                                                 --------      --------      --------      --------
  NET INCOME                                        184.3          22.2         489.9         297.6
  Preferred Stock Dividends                           6.1           9.6          18.2          31.2
                                                 --------      --------      --------      --------
  EARNINGS APPLICABLE TO COMMON STOCK            $  178.2      $   12.6      $  471.7      $  266.4
                                                 ========      ========      ========      ========
  AVERAGE SHARES OF COMMON STOCK
  OUTSTANDING (Millions)                            221.9         221.6         221.8         221.5
  EARNINGS PER AVERAGE COMMON
      SHARE (Dollars)                            $   0.80     $    0.06     $    2.13     $    1.20
  DIVIDENDS PER COMMON SHARE (Dollars)           $  0.405     $    0.38     $   1.215     $    1.14
  </TABLE>
  
              See Notes to Condensed Consolidated Financial Statements
  
                                         2
  <PAGE>
  
  
                    PECO ENERGY COMPANY AND SUBSIDIARY COMPANIES
                       CONDENSED CONSOLIDATED BALANCE SHEETS
                               (Millions of Dollars)
  
  <TABLE>
  <CAPTION>
                                                                      September 30,  December 31,
                                                                           1995          1994
                                                                       (UNAUDITED)
                                                                       ------------  -----------
  <S>                                                                <C>           <C>
  ASSETS
  UTILITY PLANT
  Plant at Original Cost                                                $14,614.4     $14,414.6
  Less Accumulated Provision for Depreciation                             4,503.8       4,242.6
                                                                        ---------     ---------
                                                                         10,110.6      10,172.0
  Nuclear Fuel, Net                                                         155.8         184.2
  Construction Work in Progress                                             417.0         472.5
  Leased Property, Net                                                      180.2         174.6
                                                                        ---------     ---------
                                                                         10,863.6      11,003.3
                                                                        ---------     ---------
  CURRENT ASSETS
  Cash and Temporary Cash Investments                                       198.6          47.0
  Accounts Receivable, Net
    Customer                                                                111.2          97.0
    Other                                                                    53.5          49.8
  Inventories, at Average Cost
    Fossil Fuel                                                             116.0          72.8
    Materials and Supplies                                                  119.9         118.2
  Deferred Energy Costs                                                      20.2         (15.5)
  Other                                                                     210.0          58.0
                                                                        ---------     ---------
                                                                            829.4         427.3
                                                                        ---------     ---------
  DEFERRED DEBITS AND OTHER ASSETS
  Recoverable Deferred Income Taxes                                       2,077.5       2,138.1
  Deferred Limerick Costs                                                   395.8         413.9
  Deferred Non-Pension Postretirement Benefits Costs                        250.4         261.9
  Investments                                                               259.8         236.6
  Loss on Reacquired Debt                                                   306.4         320.9
  Other                                                                     232.4         263.3
                                                                        ---------     ---------
                                                                          3,522.3       3,634.7
                                                                        ---------     ---------
  TOTAL                                                                 $15,215.3     $15,065.3
                                                                        =========     =========
  CAPITALIZATION AND LIABILITIES
  CAPITALIZATION
  Common Shareholders' Equity
    Common Stock (No Par)                                               $ 3,499.4     $ 3,490.7
    Other Paid-In Capital                                                     1.3           1.3
    Retained Earnings                                                     1,011.5         810.5
  Preferred and Preference Stock
    Without Mandatory Redemption                                            277.4         277.4
    With Mandatory Redemption                                                92.7          92.7
  Company Obligated Mandatorily Redeemable Preferred Securities of a
     Partnership, Which Holds Solely Subordinated Debentures
     of the Company                                                         221.3         221.3
  Long-Term Debt                                                          4,313.9       4,785.6
                                                                        ---------     ---------
                                                                          9,417.5       9,679.5
                                                                        ---------     ---------
  CURRENT LIABILITIES
  Notes Payable, Bank                                                         --           11.5
  Long-Term Debt Due Within One Year                                        492.0         201.2
  Capital Lease Obligations Due Within One Year                              60.4          60.5
  Accounts Payable                                                          232.8         308.8
  Taxes Accrued                                                             258.7          87.2
  Deferred Income Taxes                                                       3.9         (12.0)
  Interest Accrued                                                          100.6          93.2
  Dividends Payable                                                          27.5          15.1
  Other                                                                      95.2          85.6
                                                                        ---------     ---------
                                                                          1,271.1         851.1
                                                                        =========     =========
  </TABLE>
  
                              (continued on next page)
  
                                         3
  
  
  
  <PAGE>
  
  
                            (continued from prior page)
  
  <TABLE>
  <S>                                                                <C>            <C>
  DEFERRED CREDITS AND OTHER LIABILITIES
  Capital Lease Obligations                                                 119.8         114.1
  Deferred Income Taxes                                                   3,239.3       3,225.9
  Unamortized Investment Tax Credits                                        352.3         374.1
  Pension Obligation for Early Retirement Plans                             238.3         238.3
  Non-Pension Postretirement Benefits Obligation                            347.0         354.5
  Other                                                                     230.0         227.8
                                                                        ---------     ---------
                                                                          4,526.7       4,534.7
                                                                        ---------     ---------
  COMMITMENTS AND CONTINGENCIES (Note 8)
                                                                        ---------     ---------
  TOTAL                                                                 $15,215.3     $15,065.3
                                                                        =========     =========
  </TABLE>
  
  
              See Notes to Condensed Consolidated Financial Statements
  
                                         4
  <PAGE>
  
  
                    PECO ENERGY COMPANY AND SUBSIDIARY COMPANIES
                  CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                    (Unaudited)
                               (Millions of Dollars)
  
  <TABLE>
  <CAPTION>
                                                             9 Months Ended
                                                               September 30,
                                                          ---------------------
                                                            1995          1994
                                                          --------      -------
       CASH FLOWS FROM OPERATING ACTIVITIES
  <S>                                                    <C>          <C>
  NET INCOME                                              $ 489.9      $ 297.6
  Adjustments to Reconcile Net Income to Net Cash
    Provided by Operating Activities:
  Depreciation and Amortization                             390.1        386.2
  Deferred Income Taxes                                     109.0        (24.4)
  Gain on Sale of Subsidiary                                (58.7)         --
  Deferred Energy Costs                                     (35.4)       (13.0)
  Changes in Working Capital:
   Accounts Receivable                                      (25.3)       (12.9)
   Inventories                                              (45.1)         1.1
   Accounts Payable                                         (71.9)        49.9
   Other Current Assets and Liabilities                      36.3         (1.6)
  Other Items Affecting Operations                           35.1        194.4
                                                          -------      -------
  NET CASH FLOWS PROVIDED BY OPERATING ACTIVITIES           824.0        877.3
                                                          -------      -------
  
  CASH FLOWS FROM INVESTING ACTIVITIES
  Investment in Plant                                      (353.2)      (328.4)
  Proceeds from Sale of Subsidiary                          150.0          --
  Increase in Investments                                   (23.4)       (19.5)
                                                          -------      -------
  NET CASH FLOWS USED BY INVESTING ACTIVITIES              (226.6)      (347.9)
                                                          -------      -------
  CASH FLOWS FROM FINANCING ACTIVITIES
  Change in Short-Term Debt                                 (11.5)       (39.3)
  Issuance of Common Stock                                    8.7          1.9
  Retirement of Preferred Stock                              (0.1)      (238.8)
  Issuance of Company Obligated Mandatorily Redeemable
    Preferred Securities of a Partnership, Which Holds
    Solely Subordinated Debentures of the Company             --         221.3
  Issuance of Long-Term Debt                                  --         145.1
  Retirement of Long-Term Debt                             (184.7)      (352.8)
  Loss on Reacquired Debt                                    14.5         15.2
  Dividends on Preferred and Common Stock                  (287.7)      (281.5)
  Change in Dividends Payable                                12.4          8.7
  Other Items Affecting Financing                             2.6         (9.5)
                                                          -------      -------
  NET CASH FLOWS USED BY FINANCING ACTIVITIES              (445.8)      (529.7)
                                                          -------      -------
  INCREASE IN CASH AND CASH EQUIVALENTS                     151.6         (0.3)
                                                          -------      -------
  CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD           47.0         46.9
                                                          -------      -------
  CASH AND CASH EQUIVALENTS AT END OF PERIOD              $ 198.6      $  46.6
                                                          =======      =======
  </TABLE>
  
              See Notes to Condensed Consolidated Financial Statements
  
                                         5
  <PAGE>
  
  
                    PECO ENERGY COMPANY AND SUBSIDIARY COMPANIES
                NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
  
  1.   BASIS OF PRESENTATION
  
       The accompanying condensed consolidated financial statements are unaudited,
  but include all adjustments that PECO Energy Company (Company) considers
  necessary for a fair presentation of such financial statements. All adjustments
  are of a normal, recurring nature except for the recognition of a one-time gain
  of $58.7 million ($27.1 million net of taxes) in the second quarter of 1995
  relating to the Company's sale of its Maryland retail electric subsidiary,
  Conowingo Power Company, described in note 3. The year-end condensed
  consolidated balance sheet data were derived from audited financial statements
  but do not include all disclosures required by generally accepted accounting
  principles. Certain year-end amounts have been reclassified for comparative
  purposes.
  
       These notes should be read in conjunction with the Notes to Consolidated
  Financial Statements in the Company's Annual Report on Form 10-K for the year
  ended December 31, 1994 (1994 Form 10-K).
  
  2.   SHUTDOWN OF SALEM GENERATING STATION (SALEM)
  
       Public Service Electric and Gas Company (PSE&G), the operator of Salem
  Units No. 1 and No. 2, which are 42.59% owned by the Company, removed the units
  from service on May 16, 1995 and June 7, 1995, respectively. PSE&G informed the
  Nuclear Regulatory Commission (NRC) at that time that it had determined to keep
  the Salem units shut down pending review and resolution of certain equipment and
  management issues, and NRC agreement that each unit is sufficiently prepared to
  restart. PSE&G has informed the Company that Salem Units No. 1 and No. 2 are
  expected to be out of
  
                                         6
  <PAGE>
  
  service until the second quarter of 1996. As a result of the shutdown, the
  Company is incurring replacement power costs of approximately $6 million per
  month. As of September 30, 1995, the Company had incurred and expensed $24
  million of replacement power costs which are recorded as Fuel and Energy
  Interchange in the accompanying statements of income for the three and nine
  months ended September 30, 1995.
  
  3.   SALE OF SUBSIDIARY COMPANY COMPLETED
  
       On June 19, 1995, the Company completed the sale of Conowingo Power Company
  to Delmarva Power & Light Company (Delmarva) for $150 million. The transaction
  also included a 10-year contract for the Company to sell power to Delmarva.
  
       The Company's gain on the sale of $58.7 million ($27.1 million net of
  taxes) was recorded in the second quarter of 1995. The sale did not involve the
  Conowingo Hydroelectric Project, which is owned by two Company subsidiaries,
  PECO Energy Power Company and Susquehanna Power Company.
  
  4.   SALES OF ACCOUNTS RECEIVABLE
  
       The Company is party to an agreement with a financial institution under
  which it can sell on a daily basis and with limited recourse an undivided
  interest in up to $325 million of designated accounts receivable through January
  24, 1996. At September 30, 1995, the Company had sold a $325 million interest in
  accounts receivable under this agreement. The Company retains the servicing
  responsibility for these receivables. At September 30, 1995, the average annual
  service-charge rate, computed on a daily basis on the portion of the accounts
  receivable sold but not yet collected, was 5.9%.
  
                                         7
  <PAGE>
  
       By terms of this agreement, under certain circumstances, a portion of
  Deferred Limerick Generating Station (Limerick) Costs may be included in the
  pool of eligible receivables. At September 30, 1995, $31 million of Deferred
  Limerick Costs were included in the pool of eligible receivables.
  
  5.   NEW ACCOUNTING PRONOUNCEMENTS
  
       In March 1995, the Financial Accounting Standards Board (FASB) issued
  Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the
  Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,"
  which requires that long-lived assets and certain identifiable intangibles held
  and used by an entity be reviewed for impairment whenever events or changes in
  circumstances indicate that the carrying amount of an asset may not be
  recoverable. The new standard is effective for fiscal years beginning after
  December 15, 1995. The Company does not expect the adoption of SFAS No. 121 to
  have a material effect upon the Company's financial condition or results of
  operations.
  
       In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
  Compensation," which encourages entities to recognize compensation costs for
  stock-based employee compensation plans using the fair value based method of
  accounting defined in SFAS No. 123, but allows for the continued use of the
  intrinsic value based method of accounting prescribed by Accounting Principles
  Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees." Entities
  electing to continue using the accounting prescribed by APB Opinion No. 25 are
  required to disclose pro forma net income and earnings per share as if the fair
  value based method of accounting had been applied. The new standard is effective
  for 
  
                                         8
  <PAGE>
  
  fiscal years beginning after December 15, 1995. The Company currently accounts
  for its stock-based employee compensation plan in accordance with APB Opinion
  No. 25 and is evaluating the impact of SFAS No. 123, but does not expect it to
  have a material effect upon the Company's financial condition or results of
  operations.
  
  6.   PETITION FOR DECLARATORY ACCOUNTING ORDER
  
       On October 27, 1995, the Company filed a petition for a declaratory
  accounting order with the Pennsylvania Public Utility Commission (PUC)
  requesting approval to increase Limerick-related depreciation and amortization
  by $100 million per year, effective October 1, 1996. The requested order would
  not affect customer rates. The $100 million consists of $72 million of increased
  depreciation and $28 million of increased amortization of Limerick plant-related
  regulatory assets. The filing was made to reflect the results of a recent study
  of the estimated accounting life of Limerick. The Company expects, but cannot
  assure, that the increased depreciation and amortization will be offset by
  savings from the Company's ongoing cost reduction program.
  
  7.   SUBSEQUENT FINANCING
  
       On October 27, 1995, the Company entered into a $175 million term loan
  agreement with a group of banks and redeemed a like amount outstanding under an
  existing $525 million revolving credit and term loan agreement.
  
  8.   COMMITMENTS AND CONTINGENCIES
  
       The Price-Anderson Act, as amended (Price-Anderson Act), sets the limit of
  liability of approximately $8.9 billion for claims that could arise from an
  incident involving any licensed nuclear facility in the nation. The limit is
  subject to change to reflect
  
                                         9
  <PAGE>
  
  the effects of inflation and changes in the number of licensed reactors. All
  utilities with nuclear generating units, including the Company, have obtained
  coverage for these potential claims through a combination of private insurances
  of $200 million and mandatory participation in a financial protection pool.
  Under the Price-Anderson Act, all nuclear reactor licensees can be assessed up
  to $76 million per reactor per incident, payable at no more than $10 million per
  reactor per incident per year. This assessment is subject to inflation, state
  premium taxes and an additional surcharge of 5% if the total amount of claims
  and legal costs exceeds the basic assessment. If the damages from an incident at
  a licensed nuclear facility exceed $8.9 billion, the President of the United
  States is to submit to Congress a plan for providing additional compensation to
  the injured parties. Congress could impose further revenue-raising measures on
  the nuclear industry to pay claims. The Price-Anderson Act and the extensive
  regulation of nuclear safety by the NRC do not preempt claims under state law
  for personal, property or punitive damages related to radiation hazards.
  
       Although the NRC requires the maintenance of property insurance on nuclear
  power plants in the amount of $1.06 billion or the amount available from private
  sources, whichever is less, the Company maintains coverage in the amount of its
  $2.75 billion proportionate share for each station. The Company's insurance
  policies provide coverage for decontamination liability expense, premature
  decommissioning and loss or damage to its nuclear facilities. These policies
  require insurance proceeds first be applied to assure that, following an
  accident, the facility is in a
  
                                         10
  <PAGE>
  
  safe and stable condition and can be maintained in such condition. Within 30
  days of stabilizing the reactor, the licensee must submit a report to the NRC
  which provides a clean-up plan, including the identification of all clean-up
  operations necessary to decontaminate the reactor to permit either the
  resumption of operations or decommissioning of the facility. Under the Company's
  insurance policies, proceeds not already expended to place the reactor in a
  stable condition must be used to decontaminate the facility. If the decision is
  made to decommission the facility, a portion of the insurance proceeds will be
  allocated to a fund which the Company is required by the NRC to maintain to
  provide funds for decommissioning the facility. These proceeds would be paid to
  the fund to make up any difference between the amount of money in the fund at
  the time of the early decommissioning and the amount that would have been in the
  fund if contributions had been made over the normal life of the facility. The
  Company is unable to predict what effect these requirements may have on the
  timing of the availability of insurance proceeds to the Company for the
  Company's bondholders and the amount of such proceeds which would be available.
  Under the terms of the various insurance agreements, the Company could be
  assessed up to $48 million for losses incurred at any plant insured by the
  insurance companies. The Company is self-insured to the extent that any losses
  may exceed the amount of insurance maintained. Any such losses, if not recovered
  through the ratemaking process, could have a material adverse effect on the
  Company's financial condition or results of operations.
  
                                         11
  <PAGE>
  
       The Company is a member of an industry mutual insurance company which
  provides replacement power cost insurance in the event of a major accidental
  outage at a nuclear station. The policy contains a 21-week waiting period before
  recovery of costs can commence. The premium for this coverage is subject to
  assessment for adverse loss experience. The Company's maximum share of any
  assessment is $14 million per year.
  
                                      * * * *
  
       On April 11, 1991, 33 former employees of the Company filed an amended
  class action suit against the Company in the United States District Court for
  the Eastern District of Pennsylvania (Eastern District Court) on behalf of
  approximately 141 persons who retired from the Company between January and April
  1990. The lawsuit, filed under the Employee Retirement Income Security Act
  (ERISA), alleged that the Company fraudulently and/or negligently misrepresented
  or concealed facts concerning the Company's 1990 Early Retirement Plan and thus
  induced the plaintiffs to retire or not to defer retirement immediately before
  the initiation of the 1990 Early Retirement Plan, thereby depriving the
  plaintiffs of substantial pension and salary benefits. In June 1991, the
  plaintiffs filed amended complaints adding additional plaintiffs. The lawsuit
  named the Company, the Company's Service Annuity Plan (SAP) and two Company
  officers as defendants. On May 13, 1994, the Eastern District Court issued a
  decision, finding the Company liable to all plaintiffs who made inquiries about
  any early retirement plan after March 12, 1990 and retired prior to April 1990.
  In an order dated August 23, 1995, the Eastern District
  
                                         12
  <PAGE>
  
  Court awarded the plaintiffs $1.5 million. The Company has filed appeals from
  the order and has accrued the amount of the award.
  
                                      * * * *
  
       On May 2, 1991, 37 former employees of the Company filed an amended class
  action suit against the Company, the SAP and three former Company officers in
  the Eastern District Court on behalf of 147 former employees who retired from
  the Company between January and June 1987. The lawsuit was filed under ERISA and
  concerned the August 1, 1987 amendment to the SAP. The plaintiffs claimed that
  the Company concealed or misrepresented the fact that an amendment to the SAP
  was planned to increase retirement benefits and, as a consequence, they retired
  prior to the amendment to the SAP and were deprived of significant retirement
  benefits. On May 13, 1994, the Eastern District Court issued a decision, finding
  the Company liable to all plaintiffs who made inquiries about any pension
  improvement after March 1, 1987 and retired prior to June 1987. In an order
  dated August 23, 1995, the Eastern District Court awarded the plaintiffs $1.8
  million. The Company has filed appeals from the order and has accrued the amount
  of the award.
  
                                      * * * *
  
       As disclosed in note 3 of Notes to Consolidated Financial Statements for
  the year ended December 31, 1994, the Company's share of the current estimated
  cost for decommissioning nuclear generating stations, based on site-specific
  studies approved for ratemaking purposes by the PUC, is $643 million expressed
  in 1990 dollars. Under current rates, the Company collects approximately $20
  million annually from customers for decommissioning the Company's nuclear units.
  At September 30, 1995, the Company held
  
                                         13
  <PAGE>
  
  $196 million in trust accounts, representing amounts recovered from customers
  and realized investment earnings thereon, to fund future decommissioning costs.
  The Company's most recent estimate of its share of the cost to decommission its
  nuclear units is $900 million in 1994 dollars. Any increase in the 1990
  decommissioning cost estimate being recovered in base rates is to be recoverable
  in the Company's next base rate case. As a result, the Company expects to
  receive recovery of a higher level of decommissioning expense in its next base
  rate proceeding. The staff of the Securities and Exchange Commission has
  questioned the electric utility industry accounting practices regarding the
  recognition, measurement and classification of decommissioning costs for nuclear
  generating stations in financial statements. The FASB is currently reviewing the
  accounting for liabilities associated with the closure and removal of long-lived
  assets, including, but not limited to, nuclear- and fossil-generating stations,
  and transmission and distribution equipment.
  
       As disclosed in note 3 of Notes to Consolidated Financial Statements for
  the year ended December 31, 1994, the Company recorded an estimated liability
  and related regulatory asset of $59 million ($54 million as of September 30,
  1995), reflecting the Company's share of the costs of decommissioning and
  decontamination of the United States Department of Energy's nuclear enrichment
  facilities which the Company is required to pay under the National Energy Policy
  Act of 1992 (Energy Act). The Company is paying its share of such costs on an
  installment basis through 2006 and is currently recovering these costs in rates
  through the Energy Cost Adjustment clause.
  
                                         14
  <PAGE>
  
       The Company believes that the ultimate costs of decommissioning and
  decontamination of its nuclear generating stations and any assessment under the
  Energy Act will continue to be recoverable through rates, although such recovery
  is not assured.
  
                                      * * * *
  
       The Company's operations have in the past and may in the future require
  substantial capital expenditures in order to comply with environmental laws.
  Additionally, under federal and state environmental laws, the Company is
  generally liable for the costs of remediating environmental contamination of
  property now or formerly owned by the Company or of property contaminated by
  hazardous substances generated by the Company. The Company owns or leases a
  substantial number of real estate parcels, including parcels on which its
  operations or the operations of others may have resulted in contamination by
  substances which are considered hazardous under environmental laws. The Company
  is currently involved in a number of proceedings relating to sites where
  hazardous substances have been deposited and may be subject to additional
  proceedings in the future. An evaluation of all Company sites for potential
  environmental clean-up liability is in progress, including approximately 20
  sites where manufactured gas plant activities may have resulted in site
  contamination. Past activities at several sites have resulted in actual site
  contamination. The Company is presently engaged in performing detailed
  evaluations of these sites to define the nature and extent of the contamination,
  to determine the necessity of remediation and to identify possible remediation
  alternatives. At September 30, 
  
                                         15
  <PAGE>
  
  1995, the Company had accrued $22 million for various investigation and
  remediation costs that currently can be reasonably estimated. The Company cannot
  currently predict whether it will incur other significant liabilities for
  additional investigation and remediation costs at these or additional sites
  identified by the Company, environmental agencies or others, or whether all such
  costs will be recoverable through rates or from third parties.
  
                                      * * * *
  
       The Company is involved in various other litigation matters, the ultimate
  outcomes of which, while uncertain, are not expected to have a material adverse
  effect on the Company's financial condition or results of operations.
  
                                      * * * *
  
                                         16
  <PAGE>
  
  
             ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                        CONDITION AND RESULTS OF OPERATIONS
  
  FINANCIAL CONDITION
  
       The Company's construction program is currently estimated to require
  expenditures of approximately $495 million for 1995 and $1.8 billion from 1996
  to 1999, all of which are expected to be financed from internal sources. The
  Company's construction program is subject to periodic review and revision to
  reflect changes in economic conditions, revised load forecasts and other
  appropriate factors. Certain facilities under construction and to be constructed
  may require permits and licenses which the Company has no assurance will be
  granted.
  
                                      * * * *
  
       See note 8 of Notes to Condensed Consolidated Financial Statements in this
  Quarterly Report on Form 10-Q under "PART I. FINANCIAL INFORMATION, ITEM 1.
  FINANCIAL STATEMENTS," for a discussion of commitments and contingencies
  relating to environmental matters.
  
                                      * * * *
  
       The Company's future financial condition or results of operations may be
  affected by increased competition among utilities and non-utility generators in
  the power generation market and regulatory changes designed to encourage such
  competition. To date, the Company's electric business, particularly sales to
  large industrial customers and off-system sales, has been affected by increased
  competition. The Company has responded to increased competition for
  larger-volume industrial customers through the use of interruptible rates and
  long-term contracts with cost-based rates. In the wholesale market, the Company
  has increased its off-
  
                                         17
  <PAGE>
  
  system sales but increased competition has reduced the Company's margin for
  these sales.
  
       For information concerning initiatives by the Federal Energy Regulatory
  Commission to encourage competition in the power generation market, see the
  Company's Quarterly Report on Form 10-Q for the period ended March 31, 1995
  (March 31, 1995 Form 10-Q)and for the period ended June 30, 1995 (June 30, 1995
  Form 10-Q)under "PART II. OTHER INFORMATION, ITEM 5. OTHER INFORMATION." In
  addition, see "PART II. OTHER INFORMATION, ITEM 5. OTHER INFORMATION," in this
  Quarterly Report on Form 10-Q for a discussion of the investigation by the
  Pennsylvania Public Utility Commission (PUC) into electric power competition
  issues.
  
                                      * * * *
  
       For a discussion of the Company's petition for a declaratory accounting
  order regarding Limerick Generating Station (Limerick) related depreciation and
  amortization, see note 6 of Notes to Condensed Consolidated Financial Statements
  in this Quarterly Report on Form 10-Q under "PART I. FINANCIAL INFORMATION, ITEM
  1. FINANCIAL STATEMENTS." To the extent that offsetting savings from the
  Company's ongoing cost reduction program are not achieved, the Company's future
  results of operations will be negatively impacted.
  
                                      * * * *
  
           As a result of the Salem Generating Station (Salem) shutdown, the
  Company expects to incur in 1995 replacement power and additional operating and
  maintenance costs of approximately $64 million relating to the shutdown. See
  note 2 of Notes to Condensed Consolidated Financial Statements of this Quarterly
  Report on Form 
  
                                         18
  <PAGE>
  
  10-Q under "PART I. FINANCIAL INFORMATION. ITEM 1. FINANCIAL STATEMENTS."
  
                                      * * * *
  
       On October 15, 1995, the Company redeemed all $71 million outstanding First
  and Refunding Mortgage Bonds, 10% Series due 2019 at a price of 106.53%.
  
                                      * * * *
  
       On October 23, 1995, the Board of Directors of the Company voted to
  increase the Company's quarterly common stock dividend from $0.405 per share to
  $0.435 per share. The higher dividend will be payable December 20, 1995 to
  shareholders of record on November 11, 1995. The new annual common stock
  dividend level will be $1.74 per share.
  
                                      * * * *
  
       On October 27, 1995, the Company entered into a $175 million term loan
  agreement with a group of banks and redeemed a like amount outstanding under an
  existing $525 million revolving credit and term loan agreement.
  
                                      * * * *
  
       At September 30, 1995, the Company and its subsidiaries had no short-term
  borrowings outstanding. The Company has formal and informal lines of bank credit
  aggregating $352 million. At September 30, 1995, the Company and its
  subsidiaries had $168 million of short-term investments.
  
                                      * * * *
  
       The Company's Ratio of Earnings to Fixed Charges (Mortgage Method) for the
  twelve months ended September 30, 1995 was 4.76 times compared to 3.47 times for
  the corresponding period ended 
  
                                         19
  <PAGE>
  
  September 30, 1994. The Company's Ratio of Earnings to Combined Fixed Charges
  and Preferred Stock Dividends (Articles of Incorporation Method) for the twelve
  months ended September 30, 1995, was 2.62 times compared to 2.40 times for the
  corresponding period ended September 30, 1994. For the nine months ended
  September 30, 1995, the Company's Ratio of Earnings to Fixed Charges (SEC
  Method) and Ratio of Earnings to Combined Fixed Charges and Preferred Stock
  Dividends (SEC Method) were 3.64 times and 3.32 times, respectively. See the
  Company's Annual Report on Form 10-K for the year ended December 31, 1994 (1994
  Form 10-K) under "PART I. ITEM 1. BUSINESS-Capital Requirements and Financing
  Activities," for a discussion of the ratio methods.
  
                                      * * * *
  
  RESULTS OF OPERATIONS
  EARNINGS
  
       Common stock earnings for the three and nine months ended September 30,
  1995 were $0.80 and $2.13 per share, respectively, compared to $0.06 and $1.20
  per share for the corresponding periods ended September 30, 1994.
  
       The increase in earnings for the three months ended September 30, 1995 was
  primarily attributable to the one-time charge in 1994 of $0.66 per share
  associated with the Company's voluntary retirement and separation programs.
  Earnings also increased by $0.10 per share due to higher electric sales
  resulting primarily from warmer weather conditions in August 1995 and by $0.05
  per share due to increased sales to other utilities. These increases were
  partially offset by $0.06 per share due to the replacement power costs required
  by the shutdown of Salem. See note 2 of Notes 
  
                                         20
  <PAGE>
  
  to Condensed Consolidated Financial Statements of this Quarterly Report on Form
  10-Q under "PART I. FINANCIAL INFORMATION, ITEM 1. FINANCIAL STATEMENTS."
  
       The earnings increase for the nine months ended September 30, 1995 was
  primarily due to the $0.66 per share one-time charge in the third quarter of
  1994 associated with the Company's voluntary retirement and separation programs.
  Earnings also increased by $0.15 per share due to lower non-fuel operating and
  maintenance expenses primarily attributable to the Company's ongoing emphasis on
  cost control and savings associated with the voluntary retirement and separation
  programs, by $0.12 per share due to the June 1995 gain on the sale of Conowingo
  Power Company (COPCO), by $0.08 per share due to fuel-related revenues
  associated with sales to other utilities, by $0.04 per share from the retention
  by the Company of a share of the energy savings resulting from the operation of
  Limerick as provided by the 1991 Limerick Settlement Agreement and by $0.03 per
  share due to the Company's ongoing debt and preferred stock refinancing program.
  These increases were partially offset by $0.06 per share due to the replacement
  power costs required by the shutdown of Salem, by $0.06 per share related to a
  reduction in other income due to revenues recorded in 1994 from the receipt of
  nuclear fuel from Shoreham Nuclear Power Station (Shoreham) and by $0.03 per
  share due to milder weather conditions for the nine months ended September 30,
  1995 as compared to the corresponding period ended September 30, 1994.
  
                                      * * * *
  
                                         21
  <PAGE>
  
  OPERATING REVENUES
  
       Electric revenues increased 8.7% and 1.7% for the three and nine months
  ended September 30, 1995, respectively, compared to the corresponding periods
  ended September 30, 1994. The increase for the three months ended September 30,
  1995 was primarily due to increased sales to other utilities and higher retail
  sales in August 1995 due to warmer weather conditions. The increase for the nine
  months ended September 30, 1995 was primarily due to increased sales to other
  utilities and small commercial customers.
  
       Gas revenues decreased 7.6% and 8.9% for the three and nine months ended
  September 30, 1995, respectively, compared to the corresponding periods ended
  September 30, 1994. The decrease for the three months ended September 30, 1995
  was primarily due to decreased sales to retail customers and lower fuel-clause
  revenues. These decreases were partially offset by increased gas transported for
  others and an increase in gas being used by the Company's electric generating
  stations. The decrease for the nine months ended September 30, 1995 was
  primarily due to decreased retail and small commercial sales resulting from
  milder weather conditions in 1995. This decrease was partially offset by
  increased gas transported for others and an increase in gas being used by the
  Company's electric generating stations.
  
                                      * * * *
  
  FUEL AND ENERGY INTERCHANGE EXPENSES
  
           Fuel and energy interchange expenses increased 35.0% and decreased 0.5%
  for the three and nine months ended September 30,
  
                                         22
  <PAGE>
  
  1995, respectively, compared to the corresponding periods ended September 30,
  1994. The increase for the three months ended September 30, 1995 was primarily
  due to increased sales to other utilities and the replacement power costs
  required by the shutdown of Salem. The decrease for the nine months ended
  September 30, 1995 was primarily due to decreased gas sendout resulting from
  milder weather conditions, and net credits to expense from the retention by the
  Company of a share of the energy savings resulting from the operation of
  Limerick and from certain energy sales to other utilities. These decreases were
  partially offset by increased sales to other utilities and the replacement power
  costs required by the shutdown of Salem.
  
                                      * * * *
  
  OPERATING AND MAINTENANCE EXPENSES
  
       Operating and maintenance expenses decreased 44.7% and 25.0% for the three
  and nine months ended September 30, 1995, respectively, compared to the
  corresponding periods ended September 30, 1994 primarily due to the one-time
  charge in the third quarter of 1994 associated with the Company's voluntary
  retirement and separation programs and other continuing cost-control efforts. In
  addition, for the nine months ended September 30, 1995, operating and
  maintenance costs decreased due to the Company's continuing cost-control
  efforts, including the savings associated with the Company's 1994 voluntary
  retirement and separation programs as well as lower nuclear generating station
  charges resulting from shorter refueling and maintenance outages at
  Company-operated nuclear generation units. In addition, inventory and
  environmental charges
  
                                         23
  <PAGE>
  
  were lower in 1995 as compared to the prior year. These decreases were partially
  offset by increased process reengineering costs.
  
                                      * * * *
  
  DEPRECIATION
  
       Depreciation expense increased 2.6% and 2.7% for the three and nine months
  ended September 30, 1995, respectively, compared to the corresponding periods
  ended September 30, 1994 primarily due to additions to plant in service.
  
                                      * * * *
  
  INCOME TAXES
  
       Income taxes charged to operating expenses increased substantially for the
  three and nine months ended September 30, 1995 compared to the corresponding
  periods ended September 30, 1994 primarily due to higher operating income.
  
                                      * * * *
  
  OTHER TAXES
  
       Other taxes charged to operating expenses increased by 2.3% and were
  substantially unchanged for the three and nine months ended September 30, 1995,
  respectively, compared to the corresponding periods ended September 30, 1994.
  The increase for the three months ended September 30, 1995 was primarily due to
  increased Pennsylvania gross receipts tax resulting from higher operating
  revenues and higher real estate taxes.
  
                                      * * * *
  
  OTHER INCOME AND DEDUCTIONS
  
       Other income and deductions were substantially unchanged and increased
  substantially for the three and nine months ended September 30, 1995,
  respectively, compared to the corresponding
  
                                         24
  <PAGE>
  
  periods ended September 30, 1994. The increase for the nine months ended
  September 30, 1995, was primarily due to the gain recognized on the sale of
  COPCO in June 1995 and decreased income taxes on other income, partially offset
  by revenues recorded in 1994 from the receipt of nuclear fuel from Shoreham.
  
                                      * * * *
  
  TOTAL INTEREST CHARGES
  
       Total interest charges increased 0.7% and 4.4% for the three and nine
  months ended September 30, 1995, respectively, compared to the corresponding
  periods ended September 30, 1994 primarily due to the July 1994 issuance of
  Monthly Income Preferred Securities (recorded in the financial statements as
  Company Obligated Mandatorily Redeemable Preferred Securities of a Partnership,
  Which Holds Solely Subordinated Debentures of the Company).
  
                                      * * * *
  
  PREFERRED DIVIDENDS
  
       Preferred stock dividends decreased 36.5% and 41.7% for the three and nine
  months ended September 30, 1995 compared to the corresponding periods ended
  September 30, 1994 due to redemptions of preferred stock in the third quarter of
  1994 with the proceeds from the issuance of Monthly Income Preferred Securities.
  
                                      * * * *
  
                                         25
  
  <PAGE>
  
  
                            PART II - OTHER INFORMATION
  
  ITEM 1.  LEGAL PROCEEDINGS
  
       As previously reported in the 1994 Form 10-K, on May 13, 1994, the United
  States District Court for the Eastern District of Pennsylvania (Eastern District
  Court) issued a decision, finding the Company liable to certain plaintiffs in a
  class action suit against the Company involving the Company's 1990 Early
  Retirement Plan. In an order dated August 23, 1995, the Eastern District Court
  awarded the plaintiffs $1.5 million. The Company has filed appeals from the
  order.
  
                                      * * * *
  
       As previously reported in the 1994 Form 10-K, on May 13, 1994, the Eastern
  District Court issued a decision, finding the Company liable to certain
  plaintiffs in a class action suit against the Company involving the Company's
  1987 amendment to the Company's Service Annuity Plan. In an order dated August
  23, 1995, the Eastern District Court awarded the plaintiffs $1.8 million. The
  Company has filed appeals from the order.
  
                                      * * * *
  
       As previously reported in the June 30, 1995 Form 10-Q, on June 29, 1995,
  the Court of Common Pleas of Philadelphia County (Court of Common Pleas) denied
  the Company's motion for summary judgment seeking the termination of the July
  26, 1993 shareholder derivative suit regarding the Company's credit and
  collections practices. On July 28, 1995, the Company filed a motion requesting
  the court to, among other things, reconsider its decision. On August 28, 1995,
  an order was entered certifying the case to the Superior Court of Pennsylvania
  (Superior Court) and staying trial. On September 27,
  
                                         26
  <PAGE>
  
  1995, the Company filed a petition in the Superior Court for allowance of appeal
  on the legal issues certified by the trial court.
  
       On August 15, 1995, attorneys on behalf of the shareholders who had sent
  the May 23, 1993 demand to the Company's Board of Directors, which was refused
  on March 14, 1994, filed a derivative action in the Court of Common Pleas
  asserting the same claims against several present and former officers regarding
  the Company's credit and collections practice which are asserted in the July 26,
  1993 shareholder derivative suit. On September 1, 1995, the Company filed
  preliminary objections to the complaint. The plaintiffs subsequently amended
  their complaint. The Company filed preliminary objections to the amended
  complaint on September 29, 1995. On September 5, 1995, the Court ordered that
  the suit be consolidated with the July 26, 1993 shareholder derivative suit for
  discovery purposes only.
  
                                      * * * *
  
  ITEM 5.  OTHER INFORMATION
  
       As previously reported in the 1994 Form 10-K, the Company finalized an
  agreement in 1994 to sell 140 megawatts of energy and capacity to Baltimore Gas
  and Electric Company for a 25-year term beginning in 1997. In an order issued
  September 19, 1995, the Federal Energy Regulatory Commission approved the
  contract.
  
                                      * * * *
  
       As previously reported in the June 30, 1995 Form 10-Q, on August 2, 1995,
  the United States Nuclear Regulatory Commission (NRC) held an enforcement
  conference regarding three alleged violations identified by the NRC at Peach
  Bottom Atomic Power 
  
                                         27
  <PAGE>
  
  Station. In a letter dated August 17, 1995, the NRC stated that the inadequate
  design control and testing which led to the degradation of emergency diesel
  generator capabilities constituted a violation; however, because the Company
  identified the issues, conducted a detailed root-cause evaluation and took
  appropriate corrective actions, no civil penalty was proposed.
  
                                      * * * *
  
       The Company has been informed by PSE&G that, on October 5, 1995, plant
  operators at Salem Unit No. 1 declared an alert because the overhead annunciator
  panels located in the control room stopped functioning. On-site facilities and
  the emergency news center were staffed and activated during the alert.
  Contractors on site at the time were asked to leave the site. The panels were
  declared fully operable after testing later that day, and the alert was
  terminated and access to the site was fully restored. PSE&G and the NRC are
  continuing to investigate this event. PSE&G cannot predict what action, if any,
  the NRC may take on this matter.
  
                                      * * * *
  
       On September 22, 1995, the Company's Board of Directors created a new
  strategic business unit, the Telecommunications Group, which is participating in
  several joint ventures in newly emerging wireless personal communications
  services businesses and other competitive telecommunications opportunities.
  
                                      * * * *
  
           As previously reported in the June 30, 1995 Form 10-Q, on August 4,
  1995, the PUC released a report on electric power competition prepared by the
  PUC's Bureau of Conservation, Economics and Energy Planning and the PUC's Law
  Bureau. On September 27, 
  
                                         28
  <PAGE>
  
  1995, the PUC issued an order setting forth a procedural schedule for the second
  phase of its investigation into electric power competition issues. The PUC
  directed that pre-filed testimony addressing the Staff's report, certain
  questions attached to its order, and other issues be filed by November 6, 1995,
  with hearings in December and January. Following the hearings, the PUC will
  issue a final report to the Governor and Pennsylvania General Assembly. The PUC
  expects to issue its report by April 1996.
  
                                      * * * *
  
       As previously reported in the June 30, 1995 Form 10-Q, the Company filed
  Purchased Gas Cost No. 12 rates effective December 1, 1995 reflecting a $0.80
  per thousand cubic feet (Mcf) reduction in natural gas rates. The Company has
  settled with the principal parties on a $0.88 per Mcf reduction, which is
  expected to result in a $44 million reduction in annual revenues. The settlement
  is pending before the PUC. Beginning in 1996, the Company will adjust its
  natural gas rates on a quarterly basis to report differences between projected
  costs and actual costs.
  
                                      * * * *
  
       As previously reported in the 1994 Form 10-K and the June 30, 1995 Form
  10-Q, on March 6, 1995, the Commonwealth Court of Pennsylvania (Commonwealth
  Court) denied the Applications for Reargument filed by the PUC and other parties
  of the incentive and "lost revenue" portion of the Commonwealth Court's decision
  on Demand-Side Management. On April 6, 1995, the PUC appealed the
  
                                         29
  <PAGE>
  
  decision to the Supreme Court of Pennsylvania. On September 12, 1995, the
  Supreme Court of Pennsylvania accepted the appeal and set a briefing schedule
  for the fourth quarter of 1995.
  
                                      * * * *
  
       As previously reported in the 1994 Form 10-K and the June 30, 1995 Form
  10-Q, on July 19, 1995, the United States Environmental Protection Agency (EPA)
  issued a proposed plan for remediation of the Metal Bank of America site which
  involves removal of contaminated soil, sediment and groundwater and which the
  EPA estimates would cost approximately $17 million to implement. On October 18,
  1995, the potentially responsible parties (PRPs) provided comments to the EPA on
  the proposed plan which identified several inadequacies with the plan, including
  substantial underestimations of the cost of implementation. The Company has
  recorded $9 million for its share of the cost to implement the plan.
  
                                      * * * *
  
       As previously reported in the 1994 Form 10-K and the June 30, 1995 Form
  10-Q, the Company entered into a settlement agreement with the EPA with respect
  to a site (Jack's Creek/Sitkin Smelting Facility) located in Mifflin County,
  Pennsylvania. The Company paid $6,000 to settle this matter.
  
                                      * * * *
  
                                         30
  <PAGE>
  
       As previously reported in the 1994 Form 10-K, the Company has been notified
  by a group of PRPs that the Company has been identified as having sent hazardous
  substances to the Spectron site in Elkton, Maryland. On October 5, 1995, the
  Company, along with over 500 other companies, received a General Notice from the
  EPA requesting the companies to conduct a Remedial Investigation and Feasibility
  Study at the site. The Company had previously been identified as a de minimis
  PRP and paid $2,000 to settle an earlier phase.
  
                                      * * * *
  
                                         31
  
  <PAGE>
  
  
  ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K
  
  (a)      Exhibits:
  
            12-1 - Statement regarding computation of ratio of earnings to fixed
                   charges.
  
            12-2 - Statement regarding computation of ratio of earnings to
                   combined fixed charges and preferred stock dividends.
  
            27   - Financial Data Schedule.
  
  (b)      Reports on Form 8-K (filed during the reporting period):
  
                 Report, dated July 25, 1995, reporting information under "ITEM 5.
                 OTHER EVENTS" relating to Salem Nuclear Generating Station.
  
                 Report, dated August 14, 1995, reporting information under "ITEM
                 5. OTHER EVENTS" relating to the Company's proposal to merge with
                 PP&L Resources, Inc.
  
           Reports  on Form 8-K (filed subsequent to the reporting period):
  
                 Report, dated October 17, 1995, reporting information under "ITEM
                 5. OTHER EVENTS" relating to Salem Nuclear Generating Station.
  
                 Report, dated October 23, 1995, reporting information under "ITEM
                 5. OTHER EVENTS" relating to the Company's proposal to merge with
                 PP&L Resources, Inc.
  
                 Report, dated November 1, 1995, reporting information under "ITEM
                 5. OTHER EVENTS" relating to the withdrawal of the Company's
                 merger proposal with PP&L Resources, Inc.
  
                                         32
  <PAGE>
                                     Signatures
  
  Pursuant to requirements of the Securities Exchange Act of 1934, the registrant
  has duly caused this report to be signed on its behalf by the undersigned
  thereunto duly authorized.
  
  
                                             PECO ENERGY COMPANY
  
                                             /s/ Kenneth G. Lawrence
                                              --------------------------
                                              Kenneth G. Lawrence
                                              Senior Vice President and
                                              Chief Financial Officer
                                              (Principal Financial and
                                               Accounting Officer)
  
  
  Date:    November 14, 1995
  
  
                                         33
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text: UNITED STATES
                         SECURITIES AND EXCHANGE COMMISSION
                               Washington, D.C. 20549
                                     FORM 10-Q
  
            [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                          SECURITIES EXCHANGE ACT OF 1934
          For the quarterly period ended...September 30, 1995............
  
                                         OR
  
            [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                          SECURITIES EXCHANGE ACT OF 1934
  
            For the transition period from............to................
  
                  Commission file number..........1-1401..........
  
           .....................PECO Energy Company.....................
               (Exact name of registrant as specified in its charter)
  
           ............Pennsylvania.................... 23-0970240......
             (State or other jurisdiction of        (I.R.S. Employer
              incorporation or organization)       Identification No.)
  
           ...2301 Market Street, Philadelphia, PA..........19103.......
            (Address of principal executive offices)     (Zip Code)
  
            .....................(215) 841-4000........................
                (Registrant's telephone number, including area code)
  
  Indicate by check mark whether the registrant (1) has filed all reports required
  to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
  the preceding 12 months (or for such shorter period that the registrant was
  required to file such reports), and (2) has been subject to such filing
  requirements for the past 90 days.
  
                           Yes __X__            No ____
  
  Indicate the number of shares outstanding of each of the issuer's classes of
  common stock as of the latest practicable date. The Company had 221,976,072
  shares of common stock outstanding on October 31, 1995.
  PART I. FINANCIAL INFORMATION
                            ITEM 1. FINANCIAL STATEMENTS
                    PECO ENERGY COMPANY AND SUBSIDIARY COMPANIES
                    CONDENSED CONSOLIDATED STATEMENTS OF INCOME
                                    (Unaudited)
                               (Millions of Dollars)
  3 Months Ended               9 Months Ended
                                                      September 30,                September 30,
                                                 ----------------------      -----------------------
                                                   1995          1994          1995           1994
                                                 --------       -------      --------        -------
  OPERATING REVENUES
  Electric                                       $1,087.7      $1,000.5      $2,856.6      $2,807.5
  Gas                                                37.5          40.6         285.8         313.6
                                                 --------      --------      --------      --------
  
  TOTAL OPERATING REVENUES                        1,125.2       1,041.1       3,142.4       3,121.1
                                                 --------      --------      --------      --------
  OPERATING EXPENSES
  Fuel and Energy Interchange                       198.0         146.7         564.9         568.0
  Other Operating                                   242.5         240.8         687.3         714.4
  Early Retirement and Separation Programs            --          254.1           --          254.1
  Maintenance                                        73.6          76.9         229.0         253.5
  Depreciation                                      113.5         110.6         337.6         328.6
  Income Taxes                                      126.0           5.3         309.6         177.7
  Other Taxes                                        80.0          78.2         233.1         233.2
                                                 --------      --------      --------      --------
  TOTAL OPERATING EXPENSES                          833.6         912.6       2,361.5       2,529.5
  
  OPERATING INCOME                                  291.6         128.5         780.9         591.6
                                                 --------      --------      --------      --------
  OTHER INCOME AND DEDUCTIONS
  Allowance for Other Funds Used
       During Construction                            3.2           2.6          10.7           7.6
  Gain on Sale of Subsidiary, Net                     --            --           27.1           --
  Income Taxes                                       (0.3)         (0.5)         (2.6)        (11.9)
  Other, Net                                         (2.5)         (1.5)         (0.2)         22.6
                                                 --------      --------      --------      --------
  TOTAL OTHER INCOME AND DEDUCTIONS                   0.4           0.6          35.0          18.3
                                                 --------      --------      --------      --------
  INCOME BEFORE INTEREST CHARGES                    292.0         129.1         815.9         609.9
                                                 --------      --------      --------      --------
  INTEREST CHARGES
  Long-Term Debt                                     95.6          96.5         291.7         288.5
  Company Obligated Mandatorily Redeemable
       Preferred Securities of a Partnership,
       Which Holds Solely Subordinated
       Debentures of the Company                      4.9           3.6          14.9           3.6
  Short-Term Debt                                     9.8          10.1          29.1          28.9
                                                 --------      --------      --------      --------
  TOTAL INTEREST CHARGES                            110.3         110.2         335.7         321.0
  Allowance for Borrowed Funds
       Used During Construction                      (2.6)         (3.3)         (9.7)         (8.7)
                                                 --------      --------      --------      --------
  NET INTEREST CHARGES                              107.7         106.9         326.0         312.3
                                                 --------      --------      --------      --------
  NET INCOME                                        184.3          22.2         489.9         297.6
  Preferred Stock Dividends                           6.1           9.6          18.2          31.2
                                                 --------      --------      --------      --------
  EARNINGS APPLICABLE TO COMMON STOCK            $  178.2      $   12.6      $  471.7      $  266.4
                                                 ========      ========      ========      ========
  AVERAGE SHARES OF COMMON STOCK
  OUTSTANDING (Millions)                            221.9         221.6         221.8         221.5
  EARNINGS PER AVERAGE COMMON
      SHARE (Dollars)                            $   0.80     $    0.06     $    2.13     $    1.20
  DIVIDENDS PER COMMON SHARE (Dollars)           $  0.405     $    0.38     $   1.215     $    1.14
  See Notes to Condensed Consolidated Financial Statements
  
                                         2
  PECO ENERGY COMPANY AND SUBSIDIARY COMPANIES
                       CONDENSED CONSOLIDATED BALANCE SHEETS
                               (Millions of Dollars)
  September 30,  December 31,
                                                                           1995          1994
                                                                       (UNAUDITED)
                                                                       ------------  -----------
  ASSETS
  UTILITY PLANT
  Plant at Original Cost                                                $14,614.4     $14,414.6
  Less Accumulated Provision for Depreciation                             4,503.8       4,242.6
                                                                        ---------     ---------
                                                                         10,110.6      10,172.0
  Nuclear Fuel, Net                                                         155.8         184.2
  Construction Work in Progress                                             417.0         472.5
  Leased Property, Net                                                      180.2         174.6
                                                                        ---------     ---------
                                                                         10,863.6      11,003.3
                                                                        ---------     ---------
  CURRENT ASSETS
  Cash and Temporary Cash Investments                                       198.6          47.0
  Accounts Receivable, Net
    Customer                                                                111.2          97.0
    Other                                                                    53.5          49.8
  Inventories, at Average Cost
    Fossil Fuel                                                             116.0          72.8
    Materials and Supplies                                                  119.9         118.2
  Deferred Energy Costs                                                      20.2         (15.5)
  Other                                                                     210.0          58.0
                                                                        ---------     ---------
                                                                            829.4         427.3
                                                                        ---------     ---------
  DEFERRED DEBITS AND OTHER ASSETS
  Recoverable Deferred Income Taxes                                       2,077.5       2,138.1
  Deferred Limerick Costs                                                   395.8         413.9
  Deferred Non-Pension Postretirement Benefits Costs                        250.4         261.9
  Investments                                                               259.8         236.6
  Loss on Reacquired Debt                                                   306.4         320.9
  Other                                                                     232.4         263.3
                                                                        ---------     ---------
                                                                          3,522.3       3,634.7
                                                                        ---------     ---------
  TOTAL                                                                 $15,215.3     $15,065.3
                                                                        =========     =========
  CAPITALIZATION AND LIABILITIES
  CAPITALIZATION
  Common Shareholders' Equity
    Common Stock (No Par)                                               $ 3,499.4     $ 3,490.7
    Other Paid-In Capital                                                     1.3           1.3
    Retained Earnings                                                     1,011.5         810.5
  Preferred and Preference Stock
    Without Mandatory Redemption                                            277.4         277.4
    With Mandatory Redemption                                                92.7          92.7
  Company Obligated Mandatorily Redeemable Preferred Securities of a
     Partnership, Which Holds Solely Subordinated Debentures
     of the Company                                                         221.3         221.3
  Long-Term Debt                                                          4,313.9       4,785.6
                                                                        ---------     ---------
                                                                          9,417.5       9,679.5
                                                                        ---------     ---------
  CURRENT LIABILITIES
  Notes Payable, Bank                                                         --           11.5
  Long-Term Debt Due Within One Year                                        492.0         201.2
  Capital Lease Obligations Due Within One Year                              60.4          60.5
  Accounts Payable                                                          232.8         308.8
  Taxes Accrued                                                             258.7          87.2
  Deferred Income Taxes                                                       3.9         (12.0)
  Interest Accrued                                                          100.6          93.2
  Dividends Payable                                                          27.5          15.1
  Other                                                                      95.2          85.6
                                                                        ---------     ---------
                                                                          1,271.1         851.1
                                                                        =========     =========
  (continued on next page)
  
                                         3
  (continued from prior page)
  DEFERRED CREDITS AND OTHER LIABILITIES
  Capital Lease Obligations                                                 119.8         114.1
  Deferred Income Taxes                                                   3,239.3       3,225.9
  Unamortized Investment Tax Credits                                        352.3         374.1
  Pension Obligation for Early Retirement Plans                             238.3         238.3
  Non-Pension Postretirement Benefits Obligation                            347.0         354.5
  Other                                                                     230.0         227.8
                                                                        ---------     ---------
                                                                          4,526.7       4,534.7
                                                                        ---------     ---------
  COMMITMENTS AND CONTINGENCIES (Note 8)
                                                                        ---------     ---------
  TOTAL                                                                 $15,215.3     $15,065.3
                                                                        =========     =========
  See Notes to Condensed Consolidated Financial Statements
  
                                         4
  PECO ENERGY COMPANY AND SUBSIDIARY COMPANIES
                  CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                    (Unaudited)
                               (Millions of Dollars)
  9 Months Ended
                                                               September 30,
                                                          ---------------------
                                                            1995          1994
                                                          --------      -------
       CASH FLOWS FROM OPERATING ACTIVITIES
  NET INCOME                                              $ 489.9      $ 297.6
  Adjustments to Reconcile Net Income to Net Cash
    Provided by Operating Activities:
  Depreciation and Amortization                             390.1        386.2
  Deferred Income Taxes                                     109.0        (24.4)
  Gain on Sale of Subsidiary                                (58.7)         --
  Deferred Energy Costs                                     (35.4)       (13.0)
  Changes in Working Capital:
   Accounts Receivable                                      (25.3)       (12.9)
   Inventories                                              (45.1)         1.1
   Accounts Payable                                         (71.9)        49.9
   Other Current Assets and Liabilities                      36.3         (1.6)
  Other Items Affecting Operations                           35.1        194.4
                                                          -------      -------
  NET CASH FLOWS PROVIDED BY OPERATING ACTIVITIES           824.0        877.3
                                                          -------      -------
  
  CASH FLOWS FROM INVESTING ACTIVITIES
  Investment in Plant                                      (353.2)      (328.4)
  Proceeds from Sale of Subsidiary                          150.0          --
  Increase in Investments                                   (23.4)       (19.5)
                                                          -------      -------
  NET CASH FLOWS USED BY INVESTING ACTIVITIES              (226.6)      (347.9)
                                                          -------      -------
  CASH FLOWS FROM FINANCING ACTIVITIES
  Change in Short-Term Debt                                 (11.5)       (39.3)
  Issuance of Common Stock                                    8.7          1.9
  Retirement of Preferred Stock                              (0.1)      (238.8)
  Issuance of Company Obligated Mandatorily Redeemable
    Preferred Securities of a Partnership, Which Holds
    Solely Subordinated Debentures of the Company             --         221.3
  Issuance of Long-Term Debt                                  --         145.1
  Retirement of Long-Term Debt                             (184.7)      (352.8)
  Loss on Reacquired Debt                                    14.5         15.2
  Dividends on Preferred and Common Stock                  (287.7)      (281.5)
  Change in Dividends Payable                                12.4          8.7
  Other Items Affecting Financing                             2.6         (9.5)
                                                          -------      -------
  NET CASH FLOWS USED BY FINANCING ACTIVITIES              (445.8)      (529.7)
                                                          -------      -------
  INCREASE IN CASH AND CASH EQUIVALENTS                     151.6         (0.3)
                                                          -------      -------
  CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD           47.0         46.9
                                                          -------      -------
  CASH AND CASH EQUIVALENTS AT END OF PERIOD              $ 198.6      $  46.6
                                                          =======      =======
  See Notes to Condensed Consolidated Financial Statements
  
                                         5
  PECO ENERGY COMPANY AND SUBSIDIARY COMPANIES
                NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
  
  1.   BASIS OF PRESENTATION
  
       The accompanying condensed consolidated financial statements are unaudited,
  but include all adjustments that PECO Energy Company (Company) considers
  necessary for a fair presentation of such financial statements. All adjustments
  are of a normal, recurring nature except for the recognition of a one-time gain
  of $58.7 million ($27.1 million net of taxes) in the second quarter of 1995
  relating to the Company's sale of its Maryland retail electric subsidiary,
  Conowingo Power Company, described in note 3. The year-end condensed
  consolidated balance sheet data were derived from audited financial statements
  but do not include all disclosures required by generally accepted accounting
  principles. Certain year-end amounts have been reclassified for comparative
  purposes.
  
       These notes should be read in conjunction with the Notes to Consolidated
  Financial Statements in the Company's Annual Report on Form 10-K for the year
  ended December 31, 1994 (1994 Form 10-K).
  
  2.   SHUTDOWN OF SALEM GENERATING STATION (SALEM)
  
       Public Service Electric and Gas Company (PSE&G), the operator of Salem
  Units No. 1 and No. 2, which are 42.59% owned by the Company, removed the units
  from service on May 16, 1995 and June 7, 1995, respectively. PSE&G informed the
  Nuclear Regulatory Commission (NRC) at that time that it had determined to keep
  the Salem units shut down pending review and resolution of certain equipment and
  management issues, and NRC agreement that each unit is sufficiently prepared to
  restart. PSE&G has informed the Company that Salem Units No. 1 and No. 2 are
  expected to be out of
  
                                         6
  service until the second quarter of 1996. As a result of the shutdown, the
  Company is incurring replacement power costs of approximately $6 million per
  month. As of September 30, 1995, the Company had incurred and expensed $24
  million of replacement power costs which are recorded as Fuel and Energy
  Interchange in the accompanying statements of income for the three and nine
  months ended September 30, 1995.
  
  3.   SALE OF SUBSIDIARY COMPANY COMPLETED
  
       On June 19, 1995, the Company completed the sale of Conowingo Power Company
  to Delmarva Power & Light Company (Delmarva) for $150 million. The transaction
  also included a 10-year contract for the Company to sell power to Delmarva.
  
       The Company's gain on the sale of $58.7 million ($27.1 million net of
  taxes) was recorded in the second quarter of 1995. The sale did not involve the
  Conowingo Hydroelectric Project, which is owned by two Company subsidiaries,
  PECO Energy Power Company and Susquehanna Power Company.
  
  4.   SALES OF ACCOUNTS RECEIVABLE
  
       The Company is party to an agreement with a financial institution under
  which it can sell on a daily basis and with limited recourse an undivided
  interest in up to $325 million of designated accounts receivable through January
  24, 1996. At September 30, 1995, the Company had sold a $325 million interest in
  accounts receivable under this agreement. The Company retains the servicing
  responsibility for these receivables. At September 30, 1995, the average annual
  service-charge rate, computed on a daily basis on the portion of the accounts
  receivable sold but not yet collected, was 5.9%.
  
                                         7
  By terms of this agreement, under certain circumstances, a portion of
  Deferred Limerick Generating Station (Limerick) Costs may be included in the
  pool of eligible receivables. At September 30, 1995, $31 million of Deferred
  Limerick Costs were included in the pool of eligible receivables.
  
  5.   NEW ACCOUNTING PRONOUNCEMENTS
  
       In March 1995, the Financial Accounting Standards Board (FASB) issued
  Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the
  Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,"
  which requires that long-lived assets and certain identifiable intangibles held
  and used by an entity be reviewed for impairment whenever events or changes in
  circumstances indicate that the carrying amount of an asset may not be
  recoverable. The new standard is effective for fiscal years beginning after
  December 15, 1995. The Company does not expect the adoption of SFAS No. 121 to
  have a material effect upon the Company's financial condition or results of
  operations.
  
       In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
  Compensation," which encourages entities to recognize compensation costs for
  stock-based employee compensation plans using the fair value based method of
  accounting defined in SFAS No. 123, but allows for the continued use of the
  intrinsic value based method of accounting prescribed by Accounting Principles
  Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees." Entities
  electing to continue using the accounting prescribed by APB Opinion No. 25 are
  required to disclose pro forma net income and earnings per share as if the fair
  value based method of accounting had been applied. The new standard is effective
  for 
  
                                         8
  fiscal years beginning after December 15, 1995. The Company currently accounts
  for its stock-based employee compensation plan in accordance with APB Opinion
  No. 25 and is evaluating the impact of SFAS No. 123, but does not expect it to
  have a material effect upon the Company's financial condition or results of
  operations.
  
  6.   PETITION FOR DECLARATORY ACCOUNTING ORDER
  
       On October 27, 1995, the Company filed a petition for a declaratory
  accounting order with the Pennsylvania Public Utility Commission (PUC)
  requesting approval to increase Limerick-related depreciation and amortization
  by $100 million per year, effective October 1, 1996. The requested order would
  not affect customer rates. The $100 million consists of $72 million of increased
  depreciation and $28 million of increased amortization of Limerick plant-related
  regulatory assets. The filing was made to reflect the results of a recent study
  of the estimated accounting life of Limerick. The Company expects, but cannot
  assure, that the increased depreciation and amortization will be offset by
  savings from the Company's ongoing cost reduction program.
  
  7.   SUBSEQUENT FINANCING
  
       On October 27, 1995, the Company entered into a $175 million term loan
  agreement with a group of banks and redeemed a like amount outstanding under an
  existing $525 million revolving credit and term loan agreement.
  
  8.   COMMITMENTS AND CONTINGENCIES
  
       The Price-Anderson Act, as amended (Price-Anderson Act), sets the limit of
  liability of approximately $8.9 billion for claims that could arise from an
  incident involving any licensed nuclear facility in the nation. The limit is
  subject to change to reflect
  
                                         9
  the effects of inflation and changes in the number of licensed reactors. All
  utilities with nuclear generating units, including the Company, have obtained
  coverage for these potential claims through a combination of private insurances
  of $200 million and mandatory participation in a financial protection pool.
  Under the Price-Anderson Act, all nuclear reactor licensees can be assessed up
  to $76 million per reactor per incident, payable at no more than $10 million per
  reactor per incident per year. This assessment is subject to inflation, state
  premium taxes and an additional surcharge of 5% if the total amount of claims
  and legal costs exceeds the basic assessment. If the damages from an incident at
  a licensed nuclear facility exceed $8.9 billion, the President of the United
  States is to submit to Congress a plan for providing additional compensation to
  the injured parties. Congress could impose further revenue-raising measures on
  the nuclear industry to pay claims. The Price-Anderson Act and the extensive
  regulation of nuclear safety by the NRC do not preempt claims under state law
  for personal, property or punitive damages related to radiation hazards.
  
       Although the NRC requires the maintenance of property insurance on nuclear
  power plants in the amount of $1.06 billion or the amount available from private
  sources, whichever is less, the Company maintains coverage in the amount of its
  $2.75 billion proportionate share for each station. The Company's insurance
  policies provide coverage for decontamination liability expense, premature
  decommissioning and loss or damage to its nuclear facilities. These policies
  require insurance proceeds first be applied to assure that, following an
  accident, the facility is in a
  
                                         10
  safe and stable condition and can be maintained in such condition. Within 30
  days of stabilizing the reactor, the licensee must submit a report to the NRC
  which provides a clean-up plan, including the identification of all clean-up
  operations necessary to decontaminate the reactor to permit either the
  resumption of operations or decommissioning of the facility. Under the Company's
  insurance policies, proceeds not already expended to place the reactor in a
  stable condition must be used to decontaminate the facility. If the decision is
  made to decommission the facility, a portion of the insurance proceeds will be
  allocated to a fund which the Company is required by the NRC to maintain to
  provide funds for decommissioning the facility. These proceeds would be paid to
  the fund to make up any difference between the amount of money in the fund at
  the time of the early decommissioning and the amount that would have been in the
  fund if contributions had been made over the normal life of the facility. The
  Company is unable to predict what effect these requirements may have on the
  timing of the availability of insurance proceeds to the Company for the
  Company's bondholders and the amount of such proceeds which would be available.
  Under the terms of the various insurance agreements, the Company could be
  assessed up to $48 million for losses incurred at any plant insured by the
  insurance companies. The Company is self-insured to the extent that any losses
  may exceed the amount of insurance maintained. Any such losses, if not recovered
  through the ratemaking process, could have a material adverse effect on the
  Company's financial condition or results of operations.
  
                                         11
  The Company is a member of an industry mutual insurance company which
  provides replacement power cost insurance in the event of a major accidental
  outage at a nuclear station. The policy contains a 21-week waiting period before
  recovery of costs can commence. The premium for this coverage is subject to
  assessment for adverse loss experience. The Company's maximum share of any
  assessment is $14 million per year.
  
                                      * * * *
  
       On April 11, 1991, 33 former employees of the Company filed an amended
  class action suit against the Company in the United States District Court for
  the Eastern District of Pennsylvania (Eastern District Court) on behalf of
  approximately 141 persons who retired from the Company between January and April
  1990. The lawsuit, filed under the Employee Retirement Income Security Act
  (ERISA), alleged that the Company fraudulently and/or negligently misrepresented
  or concealed facts concerning the Company's 1990 Early Retirement Plan and thus
  induced the plaintiffs to retire or not to defer retirement immediately before
  the initiation of the 1990 Early Retirement Plan, thereby depriving the
  plaintiffs of substantial pension and salary benefits. In June 1991, the
  plaintiffs filed amended complaints adding additional plaintiffs. The lawsuit
  named the Company, the Company's Service Annuity Plan (SAP) and two Company
  officers as defendants. On May 13, 1994, the Eastern District Court issued a
  decision, finding the Company liable to all plaintiffs who made inquiries about
  any early retirement plan after March 12, 1990 and retired prior to April 1990.
  In an order dated August 23, 1995, the Eastern District
  
                                         12
  Court awarded the plaintiffs $1.5 million. The Company has filed appeals from
  the order and has accrued the amount of the award.
  
                                      * * * *
  
       On May 2, 1991, 37 former employees of the Company filed an amended class
  action suit against the Company, the SAP and three former Company officers in
  the Eastern District Court on behalf of 147 former employees who retired from
  the Company between January and June 1987. The lawsuit was filed under ERISA and
  concerned the August 1, 1987 amendment to the SAP. The plaintiffs claimed that
  the Company concealed or misrepresented the fact that an amendment to the SAP
  was planned to increase retirement benefits and, as a consequence, they retired
  prior to the amendment to the SAP and were deprived of significant retirement
  benefits. On May 13, 1994, the Eastern District Court issued a decision, finding
  the Company liable to all plaintiffs who made inquiries about any pension
  improvement after March 1, 1987 and retired prior to June 1987. In an order
  dated August 23, 1995, the Eastern District Court awarded the plaintiffs $1.8
  million. The Company has filed appeals from the order and has accrued the amount
  of the award.
  
                                      * * * *
  
       As disclosed in note 3 of Notes to Consolidated Financial Statements for
  the year ended December 31, 1994, the Company's share of the current estimated
  cost for decommissioning nuclear generating stations, based on site-specific
  studies approved for ratemaking purposes by the PUC, is $643 million expressed
  in 1990 dollars. Under current rates, the Company collects approximately $20
  million annually from customers for decommissioning the Company's nuclear units.
  At September 30, 1995, the Company held
  
                                         13
  $196 million in trust accounts, representing amounts recovered from customers
  and realized investment earnings thereon, to fund future decommissioning costs.
  The Company's most recent estimate of its share of the cost to decommission its
  nuclear units is $900 million in 1994 dollars. Any increase in the 1990
  decommissioning cost estimate being recovered in base rates is to be recoverable
  in the Company's next base rate case. As a result, the Company expects to
  receive recovery of a higher level of decommissioning expense in its next base
  rate proceeding. The staff of the Securities and Exchange Commission has
  questioned the electric utility industry accounting practices regarding the
  recognition, measurement and classification of decommissioning costs for nuclear
  generating stations in financial statements. The FASB is currently reviewing the
  accounting for liabilities associated with the closure and removal of long-lived
  assets, including, but not limited to, nuclear- and fossil-generating stations,
  and transmission and distribution equipment.
  
       As disclosed in note 3 of Notes to Consolidated Financial Statements for
  the year ended December 31, 1994, the Company recorded an estimated liability
  and related regulatory asset of $59 million ($54 million as of September 30,
  1995), reflecting the Company's share of the costs of decommissioning and
  decontamination of the United States Department of Energy's nuclear enrichment
  facilities which the Company is required to pay under the National Energy Policy
  Act of 1992 (Energy Act). The Company is paying its share of such costs on an
  installment basis through 2006 and is currently recovering these costs in rates
  through the Energy Cost Adjustment clause.
  
                                         14
  The Company believes that the ultimate costs of decommissioning and
  decontamination of its nuclear generating stations and any assessment under the
  Energy Act will continue to be recoverable through rates, although such recovery
  is not assured.
  
                                      * * * *
  
       The Company's operations have in the past and may in the future require
  substantial capital expenditures in order to comply with environmental laws.
  Additionally, under federal and state environmental laws, the Company is
  generally liable for the costs of remediating environmental contamination of
  property now or formerly owned by the Company or of property contaminated by
  hazardous substances generated by the Company. The Company owns or leases a
  substantial number of real estate parcels, including parcels on which its
  operations or the operations of others may have resulted in contamination by
  substances which are considered hazardous under environmental laws. The Company
  is currently involved in a number of proceedings relating to sites where
  hazardous substances have been deposited and may be subject to additional
  proceedings in the future. An evaluation of all Company sites for potential
  environmental clean-up liability is in progress, including approximately 20
  sites where manufactured gas plant activities may have resulted in site
  contamination. Past activities at several sites have resulted in actual site
  contamination. The Company is presently engaged in performing detailed
  evaluations of these sites to define the nature and extent of the contamination,
  to determine the necessity of remediation and to identify possible remediation
  alternatives. At September 30, 
  
                                         15
  1995, the Company had accrued $22 million for various investigation and
  remediation costs that currently can be reasonably estimated. The Company cannot
  currently predict whether it will incur other significant liabilities for
  additional investigation and remediation costs at these or additional sites
  identified by the Company, environmental agencies or others, or whether all such
  costs will be recoverable through rates or from third parties.
  
                                      * * * *
  
       The Company is involved in various other litigation matters, the ultimate
  outcomes of which, while uncertain, are not expected to have a material adverse
  effect on the Company's financial condition or results of operations.
  
                                      * * * *
  
                                         16
  ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                        CONDITION AND RESULTS OF OPERATIONS
  
  FINANCIAL CONDITION
  
       The Company's construction program is currently estimated to require
  expenditures of approximately $495 million for 1995 and $1.8 billion from 1996
  to 1999, all of which are expected to be financed from internal sources. The
  Company's construction program is subject to periodic review and revision to
  reflect changes in economic conditions, revised load forecasts and other
  appropriate factors. Certain facilities under construction and to be constructed
  may require permits and licenses which the Company has no assurance will be
  granted.
  
                                      * * * *
  
       See note 8 of Notes to Condensed Consolidated Financial Statements in this
  Quarterly Report on Form 10-Q under "PART I. FINANCIAL INFORMATION, ITEM 1.
  FINANCIAL STATEMENTS," for a discussion of commitments and contingencies
  relating to environmental matters.
  
                                      * * * *
  
       The Company's future financial condition or results of operations may be
  affected by increased competition among utilities and non-utility generators in
  the power generation market and regulatory changes designed to encourage such
  competition. To date, the Company's electric business, particularly sales to
  large industrial customers and off-system sales, has been affected by increased
  competition. The Company has responded to increased competition for
  larger-volume industrial customers through the use of interruptible rates and
  long-term contracts with cost-based rates. In the wholesale market, the Company
  has increased its off-
  
                                         17
  system sales but increased competition has reduced the Company's margin for
  these sales.
  
       For information concerning initiatives by the Federal Energy Regulatory
  Commission to encourage competition in the power generation market, see the
  Company's Quarterly Report on Form 10-Q for the period ended March 31, 1995
  (March 31, 1995 Form 10-Q)and for the period ended June 30, 1995 (June 30, 1995
  Form 10-Q)under "PART II. OTHER INFORMATION, ITEM 5. OTHER INFORMATION." In
  addition, see "PART II. OTHER INFORMATION, ITEM 5. OTHER INFORMATION," in this
  Quarterly Report on Form 10-Q for a discussion of the investigation by the
  Pennsylvania Public Utility Commission (PUC) into electric power competition
  issues.
  
                                      * * * *
  
       For a discussion of the Company's petition for a declaratory accounting
  order regarding Limerick Generating Station (Limerick) related depreciation and
  amortization, see note 6 of Notes to Condensed Consolidated Financial Statements
  in this Quarterly Report on Form 10-Q under "PART I. FINANCIAL INFORMATION, ITEM
  1. FINANCIAL STATEMENTS." To the extent that offsetting savings from the
  Company's ongoing cost reduction program are not achieved, the Company's future
  results of operations will be negatively impacted.
  
                                      * * * *
  
           As a result of the Salem Generating Station (Salem) shutdown, the
  Company expects to incur in 1995 replacement power and additional operating and
  maintenance costs of approximately $64 million relating to the shutdown. See
  note 2 of Notes to Condensed Consolidated Financial Statements of this Quarterly
  Report on Form 
  
                                         18
  10-Q under "PART I. FINANCIAL INFORMATION. ITEM 1. FINANCIAL STATEMENTS."
  
                                      * * * *
  
       On October 15, 1995, the Company redeemed all $71 million outstanding First
  and Refunding Mortgage Bonds, 10% Series due 2019 at a price of 106.53%.
  
                                      * * * *
  
       On October 23, 1995, the Board of Directors of the Company voted to
  increase the Company's quarterly common stock dividend from $0.405 per share to
  $0.435 per share. The higher dividend will be payable December 20, 1995 to
  shareholders of record on November 11, 1995. The new annual common stock
  dividend level will be $1.74 per share.
  
                                      * * * *
  
       On October 27, 1995, the Company entered into a $175 million term loan
  agreement with a group of banks and redeemed a like amount outstanding under an
  existing $525 million revolving credit and term loan agreement.
  
                                      * * * *
  
       At September 30, 1995, the Company and its subsidiaries had no short-term
  borrowings outstanding. The Company has formal and informal lines of bank credit
  aggregating $352 million. At September 30, 1995, the Company and its
  subsidiaries had $168 million of short-term investments.
  
                                      * * * *
  
       The Company's Ratio of Earnings to Fixed Charges (Mortgage Method) for the
  twelve months ended September 30, 1995 was 4.76 times compared to 3.47 times for
  the corresponding period ended 
  
                                         19
  September 30, 1994. The Company's Ratio of Earnings to Combined Fixed Charges
  and Preferred Stock Dividends (Articles of Incorporation Method) for the twelve
  months ended September 30, 1995, was 2.62 times compared to 2.40 times for the
  corresponding period ended September 30, 1994. For the nine months ended
  September 30, 1995, the Company's Ratio of Earnings to Fixed Charges (SEC
  Method) and Ratio of Earnings to Combined Fixed Charges and Preferred Stock
  Dividends (SEC Method) were 3.64 times and 3.32 times, respectively. See the
  Company's Annual Report on Form 10-K for the year ended December 31, 1994 (1994
  Form 10-K) under "PART I. ITEM 1. BUSINESS-Capital Requirements and Financing
  Activities," for a discussion of the ratio methods.
  
                                      * * * *
  
  RESULTS OF OPERATIONS
  EARNINGS
  
       Common stock earnings for the three and nine months ended September 30,
  1995 were $0.80 and $2.13 per share, respectively, compared to $0.06 and $1.20
  per share for the corresponding periods ended September 30, 1994.
  
       The increase in earnings for the three months ended September 30, 1995 was
  primarily attributable to the one-time charge in 1994 of $0.66 per share
  associated with the Company's voluntary retirement and separation programs.
  Earnings also increased by $0.10 per share due to higher electric sales
  resulting primarily from warmer weather conditions in August 1995 and by $0.05
  per share due to increased sales to other utilities. These increases were
  partially offset by $0.06 per share due to the replacement power costs required
  by the shutdown of Salem. See note 2 of Notes 
  
                                         20
  to Condensed Consolidated Financial Statements of this Quarterly Report on Form
  10-Q under "PART I. FINANCIAL INFORMATION, ITEM 1. FINANCIAL STATEMENTS."
  
       The earnings increase for the nine months ended September 30, 1995 was
  primarily due to the $0.66 per share one-time charge in the third quarter of
  1994 associated with the Company's voluntary retirement and separation programs.
  Earnings also increased by $0.15 per share due to lower non-fuel operating and
  maintenance expenses primarily attributable to the Company's ongoing emphasis on
  cost control and savings associated with the voluntary retirement and separation
  programs, by $0.12 per share due to the June 1995 gain on the sale of Conowingo
  Power Company (COPCO), by $0.08 per share due to fuel-related revenues
  associated with sales to other utilities, by $0.04 per share from the retention
  by the Company of a share of the energy savings resulting from the operation of
  Limerick as provided by the 1991 Limerick Settlement Agreement and by $0.03 per
  share due to the Company's ongoing debt and preferred stock refinancing program.
  These increases were partially offset by $0.06 per share due to the replacement
  power costs required by the shutdown of Salem, by $0.06 per share related to a
  reduction in other income due to revenues recorded in 1994 from the receipt of
  nuclear fuel from Shoreham Nuclear Power Station (Shoreham) and by $0.03 per
  share due to milder weather conditions for the nine months ended September 30,
  1995 as compared to the corresponding period ended September 30, 1994.
  
                                      * * * *
  
                                         21
  OPERATING REVENUES
  
       Electric revenues increased 8.7% and 1.7% for the three and nine months
  ended September 30, 1995, respectively, compared to the corresponding periods
  ended September 30, 1994. The increase for the three months ended September 30,
  1995 was primarily due to increased sales to other utilities and higher retail
  sales in August 1995 due to warmer weather conditions. The increase for the nine
  months ended September 30, 1995 was primarily due to increased sales to other
  utilities and small commercial customers.
  
       Gas revenues decreased 7.6% and 8.9% for the three and nine months ended
  September 30, 1995, respectively, compared to the corresponding periods ended
  September 30, 1994. The decrease for the three months ended September 30, 1995
  was primarily due to decreased sales to retail customers and lower fuel-clause
  revenues. These decreases were partially offset by increased gas transported for
  others and an increase in gas being used by the Company's electric generating
  stations. The decrease for the nine months ended September 30, 1995 was
  primarily due to decreased retail and small commercial sales resulting from
  milder weather conditions in 1995. This decrease was partially offset by
  increased gas transported for others and an increase in gas being used by the
  Company's electric generating stations.
  
                                      * * * *
  
  FUEL AND ENERGY INTERCHANGE EXPENSES
  
           Fuel and energy interchange expenses increased 35.0% and decreased 0.5%
  for the three and nine months ended September 30,
  
                                         22
  1995, respectively, compared to the corresponding periods ended September 30,
  1994. The increase for the three months ended September 30, 1995 was primarily
  due to increased sales to other utilities and the replacement power costs
  required by the shutdown of Salem. The decrease for the nine months ended
  September 30, 1995 was primarily due to decreased gas sendout resulting from
  milder weather conditions, and net credits to expense from the retention by the
  Company of a share of the energy savings resulting from the operation of
  Limerick and from certain energy sales to other utilities. These decreases were
  partially offset by increased sales to other utilities and the replacement power
  costs required by the shutdown of Salem.
  
                                      * * * *
  
  OPERATING AND MAINTENANCE EXPENSES
  
       Operating and maintenance expenses decreased 44.7% and 25.0% for the three
  and nine months ended September 30, 1995, respectively, compared to the
  corresponding periods ended September 30, 1994 primarily due to the one-time
  charge in the third quarter of 1994 associated with the Company's voluntary
  retirement and separation programs and other continuing cost-control efforts. In
  addition, for the nine months ended September 30, 1995, operating and
  maintenance costs decreased due to the Company's continuing cost-control
  efforts, including the savings associated with the Company's 1994 voluntary
  retirement and separation programs as well as lower nuclear generating station
  charges resulting from shorter refueling and maintenance outages at
  Company-operated nuclear generation units. In addition, inventory and
  environmental charges
  
                                         23
  were lower in 1995 as compared to the prior year. These decreases were partially
  offset by increased process reengineering costs.
  
                                      * * * *
  
  DEPRECIATION
  
       Depreciation expense increased 2.6% and 2.7% for the three and nine months
  ended September 30, 1995, respectively, compared to the corresponding periods
  ended September 30, 1994 primarily due to additions to plant in service.
  
                                      * * * *
  
  INCOME TAXES
  
       Income taxes charged to operating expenses increased substantially for the
  three and nine months ended September 30, 1995 compared to the corresponding
  periods ended September 30, 1994 primarily due to higher operating income.
  
                                      * * * *
  
  OTHER TAXES
  
       Other taxes charged to operating expenses increased by 2.3% and were
  substantially unchanged for the three and nine months ended September 30, 1995,
  respectively, compared to the corresponding periods ended September 30, 1994.
  The increase for the three months ended September 30, 1995 was primarily due to
  increased Pennsylvania gross receipts tax resulting from higher operating
  revenues and higher real estate taxes.
  
                                      * * * *
  
  OTHER INCOME AND DEDUCTIONS
  
       Other income and deductions were substantially unchanged and increased
  substantially for the three and nine months ended September 30, 1995,
  respectively, compared to the corresponding
  
                                         24
  periods ended September 30, 1994. The increase for the nine months ended
  September 30, 1995, was primarily due to the gain recognized on the sale of
  COPCO in June 1995 and decreased income taxes on other income, partially offset
  by revenues recorded in 1994 from the receipt of nuclear fuel from Shoreham.
  
                                      * * * *
  
  TOTAL INTEREST CHARGES
  
       Total interest charges increased 0.7% and 4.4% for the three and nine
  months ended September 30, 1995, respectively, compared to the corresponding
  periods ended September 30, 1994 primarily due to the July 1994 issuance of
  Monthly Income Preferred Securities (recorded in the financial statements as
  Company Obligated Mandatorily Redeemable Preferred Securities of a Partnership,
  Which Holds Solely Subordinated Debentures of the Company).
  
                                      * * * *
  
  PREFERRED DIVIDENDS
  
       Preferred stock dividends decreased 36.5% and 41.7% for the three and nine
  months ended September 30, 1995 compared to the corresponding periods ended
  September 30, 1994 due to redemptions of preferred stock in the third quarter of
  1994 with the proceeds from the issuance of Monthly Income Preferred Securities.
  
                                      * * * *
  
                                         25
  PART II - OTHER INFORMATION
  
  ITEM 1.  LEGAL PROCEEDINGS
  
       As previously reported in the 1994 Form 10-K, on May 13, 1994, the United
  States District Court for the Eastern District of Pennsylvania (Eastern District
  Court) issued a decision, finding the Company liable to certain plaintiffs in a
  class action suit against the Company involving the Company's 1990 Early
  Retirement Plan. In an order dated August 23, 1995, the Eastern District Court
  awarded the plaintiffs $1.5 million. The Company has filed appeals from the
  order.
  
                                      * * * *
  
       As previously reported in the 1994 Form 10-K, on May 13, 1994, the Eastern
  District Court issued a decision, finding the Company liable to certain
  plaintiffs in a class action suit against the Company involving the Company's
  1987 amendment to the Company's Service Annuity Plan. In an order dated August
  23, 1995, the Eastern District Court awarded the plaintiffs $1.8 million. The
  Company has filed appeals from the order.
  
                                      * * * *
  
       As previously reported in the June 30, 1995 Form 10-Q, on June 29, 1995,
  the Court of Common Pleas of Philadelphia County (Court of Common Pleas) denied
  the Company's motion for summary judgment seeking the termination of the July
  26, 1993 shareholder derivative suit regarding the Company's credit and
  collections practices. On July 28, 1995, the Company filed a motion requesting
  the court to, among other things, reconsider its decision. On August 28, 1995,
  an order was entered certifying the case to the Superior Court of Pennsylvania
  (Superior Court) and staying trial. On September 27,
  
                                         26
  1995, the Company filed a petition in the Superior Court for allowance of appeal
  on the legal issues certified by the trial court.
  
       On August 15, 1995, attorneys on behalf of the shareholders who had sent
  the May 23, 1993 demand to the Company's Board of Directors, which was refused
  on March 14, 1994, filed a derivative action in the Court of Common Pleas
  asserting the same claims against several present and former officers regarding
  the Company's credit and collections practice which are asserted in the July 26,
  1993 shareholder derivative suit. On September 1, 1995, the Company filed
  preliminary objections to the complaint. The plaintiffs subsequently amended
  their complaint. The Company filed preliminary objections to the amended
  complaint on September 29, 1995. On September 5, 1995, the Court ordered that
  the suit be consolidated with the July 26, 1993 shareholder derivative suit for
  discovery purposes only.
  
                                      * * * *
  
  ITEM 5.  OTHER INFORMATION
  
       As previously reported in the 1994 Form 10-K, the Company finalized an
  agreement in 1994 to sell 140 megawatts of energy and capacity to Baltimore Gas
  and Electric Company for a 25-year term beginning in 1997. In an order issued
  September 19, 1995, the Federal Energy Regulatory Commission approved the
  contract.
  
                                      * * * *
  
       As previously reported in the June 30, 1995 Form 10-Q, on August 2, 1995,
  the United States Nuclear Regulatory Commission (NRC) held an enforcement
  conference regarding three alleged violations identified by the NRC at Peach
  Bottom Atomic Power 
  
                                         27
  Station. In a letter dated August 17, 1995, the NRC stated that the inadequate
  design control and testing which led to the degradation of emergency diesel
  generator capabilities constituted a violation; however, because the Company
  identified the issues, conducted a detailed root-cause evaluation and took
  appropriate corrective actions, no civil penalty was proposed.
  
                                      * * * *
  
       The Company has been informed by PSE&G that, on October 5, 1995, plant
  operators at Salem Unit No. 1 declared an alert because the overhead annunciator
  panels located in the control room stopped functioning. On-site facilities and
  the emergency news center were staffed and activated during the alert.
  Contractors on site at the time were asked to leave the site. The panels were
  declared fully operable after testing later that day, and the alert was
  terminated and access to the site was fully restored. PSE&G and the NRC are
  continuing to investigate this event. PSE&G cannot predict what action, if any,
  the NRC may take on this matter.
  
                                      * * * *
  
       On September 22, 1995, the Company's Board of Directors created a new
  strategic business unit, the Telecommunications Group, which is participating in
  several joint ventures in newly emerging wireless personal communications
  services businesses and other competitive telecommunications opportunities.
  
                                      * * * *
  
           As previously reported in the June 30, 1995 Form 10-Q, on August 4,
  1995, the PUC released a report on electric power competition prepared by the
  PUC's Bureau of Conservation, Economics and Energy Planning and the PUC's Law
  Bureau. On September 27, 
  
                                         28
  1995, the PUC issued an order setting forth a procedural schedule for the second
  phase of its investigation into electric power competition issues. The PUC
  directed that pre-filed testimony addressing the Staff's report, certain
  questions attached to its order, and other issues be filed by November 6, 1995,
  with hearings in December and January. Following the hearings, the PUC will
  issue a final report to the Governor and Pennsylvania General Assembly. The PUC
  expects to issue its report by April 1996.
  
                                      * * * *
  
       As previously reported in the June 30, 1995 Form 10-Q, the Company filed
  Purchased Gas Cost No. 12 rates effective December 1, 1995 reflecting a $0.80
  per thousand cubic feet (Mcf) reduction in natural gas rates. The Company has
  settled with the principal parties on a $0.88 per Mcf reduction, which is
  expected to result in a $44 million reduction in annual revenues. The settlement
  is pending before the PUC. Beginning in 1996, the Company will adjust its
  natural gas rates on a quarterly basis to report differences between projected
  costs and actual costs.
  
                                      * * * *
  
       As previously reported in the 1994 Form 10-K and the June 30, 1995 Form
  10-Q, on March 6, 1995, the Commonwealth Court of Pennsylvania (Commonwealth
  Court) denied the Applications for Reargument filed by the PUC and other parties
  of the incentive and "lost revenue" portion of the Commonwealth Court's decision
  on Demand-Side Management. On April 6, 1995, the PUC appealed the
  
                                         29
  decision to the Supreme Court of Pennsylvania. On September 12, 1995, the
  Supreme Court of Pennsylvania accepted the appeal and set a briefing schedule
  for the fourth quarter of 1995.
  
                                      * * * *
  
       As previously reported in the 1994 Form 10-K and the June 30, 1995 Form
  10-Q, on July 19, 1995, the United States Environmental Protection Agency (EPA)
  issued a proposed plan for remediation of the Metal Bank of America site which
  involves removal of contaminated soil, sediment and groundwater and which the
  EPA estimates would cost approximately $17 million to implement. On October 18,
  1995, the potentially responsible parties (PRPs) provided comments to the EPA on
  the proposed plan which identified several inadequacies with the plan, including
  substantial underestimations of the cost of implementation. The Company has
  recorded $9 million for its share of the cost to implement the plan.
  
                                      * * * *
  
       As previously reported in the 1994 Form 10-K and the June 30, 1995 Form
  10-Q, the Company entered into a settlement agreement with the EPA with respect
  to a site (Jack's Creek/Sitkin Smelting Facility) located in Mifflin County,
  Pennsylvania. The Company paid $6,000 to settle this matter.
  
                                      * * * *
  
                                         30
  As previously reported in the 1994 Form 10-K, the Company has been notified
  by a group of PRPs that the Company has been identified as having sent hazardous
  substances to the Spectron site in Elkton, Maryland. On October 5, 1995, the
  Company, along with over 500 other companies, received a General Notice from the
  EPA requesting the companies to conduct a Remedial Investigation and Feasibility
  Study at the site. The Company had previously been identified as a de minimis
  PRP and paid $2,000 to settle an earlier phase.
  
                                      * * * *
  
                                         31
  ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K
  
  (a)      Exhibits:
  
            12-1 - Statement regarding computation of ratio of earnings to fixed
                   charges.
  
            12-2 - Statement regarding computation of ratio of earnings to
                   combined fixed charges and preferred stock dividends.
  
            27   - Financial Data Schedule.
  
  (b)      Reports on Form 8-K (filed during the reporting period):
  
                 Report, dated July 25, 1995, reporting information under "ITEM 5.
                 OTHER EVENTS" relating to Salem Nuclear Generating Station.
  
                 Report, dated August 14, 1995, reporting information under "ITEM
                 5. OTHER EVENTS" relating to the Company's proposal to merge with
                 PP&L Resources, Inc.
  
           Reports  on Form 8-K (filed subsequent to the reporting period):
  
                 Report, dated October 17, 1995, reporting information under "ITEM
                 5. OTHER EVENTS" relating to Salem Nuclear Generating Station.
  
                 Report, dated October 23, 1995, reporting information under "ITEM
                 5. OTHER EVENTS" relating to the Company's proposal to merge with
                 PP&L Resources, Inc.
  
                 Report, dated November 1, 1995, reporting information under "ITEM
                 5. OTHER EVENTS" relating to the withdrawal of the Company's
                 merger proposal with PP&L Resources, Inc.
  
                                         32
  Signatures
  
  Pursuant to requirements of the Securities Exchange Act of 1934, the registrant
  has duly caused this report to be signed on its behalf by the undersigned
  thereunto duly authorized.
  
                                             PECO ENERGY COMPANY
  
                                             /s/ Kenneth G. Lawrence
                                              --------------------------
                                              Kenneth G. Lawrence
                                              Senior Vice President and
                                              Chief Financial Officer
                                              (Principal Financial and
                                               Accounting Officer)
  
  Date:    November 14, 1995
  
                                         33