content: UNITED STATES
                         SECURITIES AND EXCHANGE COMMISSION
                                Washington, DC 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, 1997..........
  
                                         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 222,542,087 shares of common stock outstanding on September
       30, 1997.
  <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,
                                                          1997           1996           1997            1996
  OPERATING REVENUES
  <S>                                                  <C>             <C>            <C>             <C>     
       Electric                                        $1,232.2        $1,069.1       $3,146.1        $2,958.2
       Gas                                                 46.0            41.1          327.8           311.9
                                                      ---------      ----------      ---------      ----------
       TOTAL OPERATING REVENUES                         1,278.2         1,110.2        3,473.9         3,270.1
                                                      ---------      ----------      ---------      ----------
  OPERATING EXPENSES
       Fuel and Energy Interchange                        354.1           226.0          954.2           736.8
       Operation                                          243.0           268.6          690.5           730.1
       Maintenance                                         70.8            79.5          221.5           254.6
       Depreciation                                       143.5           113.7          433.6           346.8
       Income Taxes                                       129.4            98.0          296.0           273.2
       Other Taxes                                         78.7            75.8          234.3           230.8
                                                      ---------      ----------      ---------      ----------
       TOTAL OPERATING EXPENSES                         1,019.5           861.6        2,830.1         2,572.3
                                                      ---------      ----------      ---------      ----------
  OPERATING INCOME                                        258.7           248.6          643.8           697.8
                                                      ---------      ----------      ---------      ----------
  OTHER INCOME AND DEDUCTIONS
       Allowance for Other Funds Used
         During Construction                                2.2             1.8            9.7             7.8
       Salem Litigation Settlement                           --              --           69.8              --
       Income Taxes                                         1.4             1.8          (23.3)            2.0
       Other, Net                                          (5.2)           (3.2)         (14.3)           (6.4)
                                                      ---------      ----------      ---------      ----------
       TOTAL OTHER INCOME AND DEDUCTIONS                   (1.6)            0.4           41.9             3.4
                                                      ---------      ----------      ---------      ----------
  INCOME BEFORE INTEREST CHARGES                          257.1           249.0          685.7           701.2
                                                      ---------      ----------      ---------      ----------
  INTEREST CHARGES
       Long-Term Debt                                      79.6            80.6          239.3           250.7
       Company Obligated Mandatorily Redeemable
         Preferred Securities of a Partnership              7.7             6.6           21.3            20.0
       Other Interest                                      13.6            13.9           40.0            38.9
                                                      ---------      ----------      ---------      ----------
       TOTAL INTEREST CHARGES                             100.9           101.1          300.6           309.6
       Allowance for Borrowed Funds
         Used During Construction                          (1.8)           (1.9)          (8.7)           (7.3)
                                                      ---------      ----------      ---------      ----------
       NET INTEREST CHARGES                                99.1            99.2          291.9           302.3
  
  NET INCOME                                              158.0           149.8          393.8           398.9
  PREFERRED STOCK DIVIDENDS                                 4.5             4.5           13.5            13.5
                                                      ---------      ----------      ---------      ----------
  EARNINGS APPLICABLE TO COMMON STOCK                    $153.5          $145.3         $380.3          $385.4
                                                      =========      ==========      =========      ==========
  
  AVERAGE SHARES OF COMMON STOCK
       OUTSTANDING  (Millions)                            222.5           222.5          222.5           222.5
  
  EARNINGS PER AVERAGE COMMON
       SHARE  (Dollars)                                   $0.69           $0.65          $1.71           $1.73
  
  DIVIDENDS PER COMMON SHARE  (Dollars)                   $0.45          $0.435          $1.35          $1.305
  </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,
                                                              1997         1996
                                                          (Unaudited)
  ASSETS
  
  UTILITY PLANT
  <S>                                                      <C>           <C>      
  Plant at Original Cost                                   $15,280.7     $14,945.0
  Less Accumulated Provision for Depreciation                5,404.0       5,047.0
                                                           ---------     ---------
                                                             9,876.7       9,898.0
  Nuclear Fuel, net                                            153.4         199.6
  Construction Work in Progress                                609.6         661.8
  Leased Property, net                                         186.7         182.1
                                                           ---------     ---------
                                                            10,826.4      10,941.5
                                                           ---------     ---------
  CURRENT ASSETS
  Cash and Temporary Cash Investments                           67.7          29.2
  Accounts Receivable, net
       Customer                                                 38.2          19.2
       Other                                                   155.5          74.4
  Inventories, at average cost
       Fossil Fuel                                              79.9          84.6
       Materials and Supplies                                  112.8         119.8
  Deferred Energy Costs - Gas                                   15.2          30.0
  Other                                                        120.0          63.2
                                                           ---------     ---------
                                                               589.3         420.4
                                                           ---------     ---------
  DEFERRED DEBITS AND OTHER ASSETS
  Recoverable Deferred Income Taxes                          2,324.4       2,325.7
  Deferred Limerick Costs                                      324.4         361.8
  Deferred Non-Pension Postretirement Benefits Costs           222.5         233.5
  Deferred Energy Costs - Electric                              93.9          92.0
  Investments                                                  536.7         432.6
  Loss on Reacquired Debt                                      266.3         283.8
  Other                                                        181.3         169.3
                                                           ---------     ---------
                                                             3,949.5       3,898.7
                                                           ---------     ---------
  TOTAL                                                    $15,365.2     $15,260.6
                                                           =========     =========
  </TABLE>
  
              See Notes to Condensed Consolidated Financial Statements.
  
                              (continued on next page)
  
                                         3
  <PAGE>
  
                    PECO ENERGY COMPANY AND SUBSIDIARY COMPANIES
                        CONDENSED CONSOLIDATED BALANCE SHEETS
                                (Millions of Dollars)
                                     (continued)
  <TABLE>
  <CAPTION>
  
                                                      September 30,  December 31,
                                                          1997          1996
  CAPITALIZATION AND LIABILITIES                                            
                                                       (Unaudited)
  <S>                                                   <C>           <C>     
  CAPITALIZATION
  Common Shareholders' Equity
       Common Stock (No Par)                            $3,517.6      $3,517.6
       Other Paid-In Capital                                 1.2           1.3
       Retained Earnings                                 1,204.9       1,127.0
  Preferred and Preference Stock
       Without Mandatory Redemption                        199.4         199.4
       With Mandatory Redemption                            92.7          92.7
  Company Obligated Mandatorily Redeemable
       Preferred Securities of a Partnership               352.1         302.2
  Long-Term Debt                                         3,713.5       3,935.5
                                                       ---------     ---------
                                                         9,081.4       9,175.7
                                                       ---------     ---------
  CURRENT LIABILITIES
  Notes Payable, Bank                                      157.5         287.5
  Long-Term Debt Due Within One Year                       491.5         283.3
  Capital Lease Obligations Due Within One Year             55.8          49.4
  Accounts Payable                                         217.0         213.0
  Taxes Accrued                                            139.2          71.5
  Interest Accrued                                          86.5          82.0
  Dividends Payable                                         27.7          22.4
  Other                                                    113.0          94.3
                                                       ---------     ---------
                                                         1,288.2       1,103.4
                                                       ---------     ---------
  DEFERRED CREDITS AND OTHER LIABILITIES
  Capital Lease Obligations                                130.9         132.7
  Deferred Income Taxes                                  3,740.6       3,745.2
  Unamortized Investment Tax Credits                       322.6         336.1
  Pension Obligation                                       224.5         224.5
  Non-Pension Postretirement Benefits Obligation           344.3         315.1
  Other                                                    232.7         227.9
                                                       ---------     ---------
                                                         4,995.6       4,981.5
                                                       ---------     ---------
  COMMITMENTS AND CONTINGENCIES (NOTE 8)
                                                       ---------     ---------
  
  TOTAL                                                $15,365.2     $15,260.6
                                                       =========     =========
  </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)
  
                                                                9 Months Ended
                                                                 September 30,
                                                               1997        1996
  
  CASH FLOWS FROM OPERATING ACTIVITIES
  
  NET INCOME                                                  $393.8      $398.9
  Adjustments to Reconcile Net Income to Net Cash
       Provided by Operating Activities:
  Depreciation and Amortization                                494.4       404.2
  Deferred Income Taxes                                         (1.0)      106.9
  Deferred Energy Costs                                         12.9       (22.6)
  Salem Litigation Settlement                                  (69.8)        --
  Changes in Working Capital:
       Accounts Receivable                                     (30.3)       39.8
       Inventories                                              11.7         4.5
       Accounts Payable                                          4.0      (119.9)
       Other Current Assets and Liabilities                     34.1       (54.6)
  Other Items Affecting Operations                              42.0        53.0
                                                              ------      ------
  
  NET CASH FLOWS PROVIDED BY OPERATING ACTIVITIES              891.8       810.2
                                                              ------      ------
  
  CASH FLOWS FROM INVESTING ACTIVITIES
  
  Investment in Plant                                         (362.1)     (331.6)
  Increase in Investments                                     (104.1)      (91.1)
                                                              ------      ------
  
  NET CASH FLOWS USED BY INVESTING ACTIVITIES                 (466.2)     (422.7)
                                                              ------      ------
  
  CASH FLOWS FROM FINANCING ACTIVITIES
  
  Change in Short-Term Debt                                   (130.0)      281.7
  Issuance of Common Stock                                        --        11.2
  Issuance of Long-Term Debt                                    17.2        35.6
  Retirement of Long-Term Debt                                 (33.3)     (397.5)
  Loss on Reacquired Debt                                       17.5        18.8
  Issuance of Company Obligated Mandatorily
       Redeemable Preferred Securities of a Partnership         50.0        (0.1)
  Dividends on Preferred and Common Stock                     (314.0)     (306.9)
  Change in Dividends Payable                                    5.3         9.6
  Other Items Affecting Financing                                0.2         0.3
                                                              ------      ------
  NET CASH FLOWS USED BY FINANCING ACTIVITIES                 (387.1)     (347.3)
                                                              ------      ------
  INCREASE IN CASH AND CASH EQUIVALENTS                         38.5        40.2
                                                              ------      ------
  CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD              29.2        20.6
                                                              ------      ------
  CASH AND CASH EQUIVALENTS AT END OF PERIOD                   $67.7       $60.8
                                                              ======      ======
  
              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 as of
  September 30, 1997 and for the three and nine months then ended 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 the settlement of the litigation
  against Public Service Electric and Gas Company (PSE&G) with respect to the
  shutdown of Salem Generating Station (Salem) described in note 2. 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 prior-year 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 1996 Annual Report to
  Shareholders, which are incorporated by reference in the Company's Annual Report
  on Form 10-K for the year ended December 31, 1996.
  
  2.       SHUTDOWN OF SALEM GENERATING STATION
           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 in the second quarter of
  1995. On August 30, 1997, PSE&G informed the Company that Unit No. 2 returned to
  commercial operation. PSE&G expects that Unit No. 1 will return to service in
  the first quarter of 1998. Because the timing of Unit No. 1's restart is subject
  to satisfactory completion of the restart plan requirements, as determined by
  PSE&G and the Nuclear Regulatory Commission, no assurance can be given that the
  projected restart date will be met.
  
           In accordance with a May 9, 1997 settlement agreement, PSE&G has agreed
  to pay the Company $69.8 million on December 31, 1997 to settle a suit filed on
  March 5, 1996 against PSE&G concerning the shutdown of Salem. During June 1997,
  the Company recorded into income $69.8 million ($41.0 million net of income
  taxes) to reflect the settlement. In addition, the settlement agreement provides
  that if the outage exceeds 64 reactor unit months PSE&G will pay the Company
  $1.1 million per reactor unit month. A reactor unit month is a month during the
  current outage in which a unit is off-line. As of September 30, 1997, the Salem
  outage totaled 55 reactor unit months.
  
           For the three and nine months ended September 30, 1997, the Company
  recorded in the accompanying Statements of Income as Fuel and Energy Interchange
  $27 and $84 million, respectively, of replacement power costs and recorded as
  Maintenance $12 and $39 million, respectively, of maintenance costs relating to
  the shutdown of Salem. For the three and nine months ended September 30, 1996,
  the Company recorded in the accompanying Statements of Income as Fuel and Energy
  Interchange $27 and $65 million, respectively, of replacement power costs and
  recorded as Maintenance $14 and $45 million, respectively, of maintenance costs
  relating to the shutdown of Salem. For the year ending December 31, 1997, the
  Company expects to incur and expense approximately $155 million of costs related
  to the shutdown.
  
                                         6
  <PAGE>
  
  3.       RATE MATTERS
           On April 1, 1997, the Company filed with the Pennsylvania Public
  Utility Commission (PUC) a comprehensive restructuring plan detailing its
  proposal to implement full customer choice of electric generation supplier. The
  filing is required under the provisions of the Pennsylvania Electricity
  Generation Consumer Choice and Competition Act (Competition Act), which requires
  the unbundling of electric services into separate generation, transmission and
  distribution services with open retail competition for generation. The filing
  proposed, among other things: procedures to implement direct customer access,
  beginning in 1999, to all licensed electric generation suppliers; unbundled
  rates for generation, transmission, distribution and other services; and the
  recovery of all of the Company's estimated net transition and stranded costs
  through a Competitive Transition Charge (CTC) and/or Intangible Transition
  Charge (ITC).
  
           On August 27, 1997, the Company and various intervenors in the
  Company's restructuring proceeding filed with the PUC a Joint Petition for
  Partial Settlement (Pennsylvania Plan) in the Company's restructuring
  proceeding. The Pennsylvania Plan proposes, among other things: the recovery and
  amortization of $5.5 billion in stranded assets and costs through a CTC or an
  ITC over a period commencing with the approval of the Pennsylvania Plan by the
  PUC until December 31, 2008; a write-off of at least $2 billion of stranded
  costs; PUC approval to securitize up to $4 billion of authorized stranded costs;
  separation of the ownership and operation of the Company's generation facilities
  by establishment of a separate corporate entity or entities; a rate reduction of
  10% for all customers effective September 1, 1998 and guaranteed through
  December 31, 2000; a rate cap on generation rates through December 31, 2008; and
  customer choice of electric generation supply phased in for all customers in
  three steps: one-third of the peak load of each customer class on January 1,
  1999, one-third on January 2, 1999 (one day later) and the remainder on January
  2, 2000.
  
           On October 7, 1997, an affiliate of an out-of-state,
  Pennsylvania-licensed electric supplier, which is opposing the Pennsylvania
  Plan, requested that the PUC consider an alternative plan to implement
  competition in the Company's service territory. On October 9, 1997, the PUC
  granted the Motion to Consolidate in order to take into account this alternative
  plan in deciding whether to approve the Pennsylvania Plan. The Company will
  oppose the alternative plan. For additional information, see "PART II. OTHER
  INFORMATION. ITEM 5. OTHER INFORMATION" in this Quarterly Report on Form 10-Q.
  
           If the Pennsylvania Plan is approved by the PUC without modification,
  the Company will discontinue accounting for the generation portion of its
  business under Statement of Financial Accounting Standards (SFAS) No. 71,
  "Accounting for the Effects of Certain Types of Regulation," and expects to take
  an extraordinary charge of at least $2.1 billion representing stranded
  regulatory assets that will not be recoverable through the CTC or ITC.
  
           The Company cannot predict what decision the PUC will ultimately reach
  in the Company's restructuring proceeding or what impact that decision will
  ultimately have on the Company's future financial condition, results of
  operations or the common stock dividend. If the Pennsylvania Plan is not
  
                                         7
  <PAGE>
  
  approved by the PUC without modification, the Company will reassert its request
  for full recovery of its net transition and stranded costs, including regulatory
  assets, which the Company currently estimates will be $7.5 billion. If the PUC
  does not approve the Pennsylvania Plan, the Company believes that it will be
  given the opportunity to seek full recovery of its retail electric stranded
  costs and that recovery of its regulatory assets is probable under the
  provisions of the Competition Act. The Company's financial condition and results
  of operations could be materially affected to the extent the Company is not
  ultimately permitted to recover its retail electric stranded costs, as a charge
  against earnings will be recognized. The PUC is scheduled to issue a decision on
  the Pennsylvania Plan in December 1997.
  
           On January 22, 1997, the Company filed with the PUC an application
  under the Competition Act to securitize $3.6 billion of stranded costs. On May
  22, 1997, the PUC issued an order authorizing the Company to securitize $1.1
  billion of its stranded and related transaction and use of proceeds costs.
  Thirteen intervenors subsequently appealed the PUC's decision. If the
  Pennsylvania Plan is approved without modification, the Company will be
  permitted to securitize up to a total of $4 billion of stranded costs. Issuance
  of transition bonds by the Company will depend on the resolution of all pending
  appeals and the satisfactory issuance of a pending ruling by the Internal
  Revenue Service.
  
           For additional information regarding the Competition Act and the
  Company's securitization filing, see note 3 of Notes to Consolidated Financial
  Statements for the year ended December 31, 1996.
  
  4.       SALES OF ACCOUNTS RECEIVABLE
           The Company is party to an agreement with a financial institution under
  which it can sell with limited recourse an undivided interest, adjusted daily,
  in up to $425 million of designated accounts receivable through November 14,
  2000. At September 30, 1997, the Company had sold a $425 million interest in
  accounts receivable under this agreement. The Company retains the servicing
  responsibility for these receivables. At September 30, 1997, the average annual
  service-charge rate, computed on a daily basis on the portion of the accounts
  receivable sold but not yet collected, was 5.61%.
  
           By terms of this agreement, under certain circumstances, a portion of
  Limerick Generating Station (Limerick) deferred costs may be included in the
  pool of eligible receivables. At September 30, 1997, $17.7 million of Deferred
  Limerick Costs were included in the pool of eligible receivables.
  
  5.       DECLARATORY ACCOUNTING ORDER
           On October 1, 1996, the Company implemented changes approved by the PUC
  to the estimated depreciable lives of certain of the Company's electric plant.
  As a result, depreciation and amortization on certain assets associated with
  Limerick increased by approximately $100 million per year while depreciation and
  amortization on certain other Company assets decreased by approximately $10
  million per year, for a net increase of approximately $90 million per year. For
  the three and nine months ended September 30, 1997, the Company expensed an
  additional $23 and $70 million, respectively, for increased depreciation and
  amortization related to this order.
  
                                         8
  <PAGE>
  
  6.       STOCK REPURCHASE
           During 1997, the Company's Board of Directors authorized the repurchase
  of up to 25 million shares of its common stock from time to time through
  open-market, privately negotiated and/or other types of transactions in
  conformity with the rules of the Securities and Exchange Commission.
  
           Pursuant to these authorizations, the Company has entered into forward
  purchase agreements to be settled from time to time, at the Company's election,
  on either a physical, net share or net cash basis. The amount at which these
  agreements can be settled is dependent principally upon the market price of the
  Company's common stock as compared to the forward purchase price per share and
  the number of shares to be settled. If these agreements were settled on a net
  share basis at September 30, 1997, the Company would have received approximately
  910,000 shares of Company common stock.
  
  7.       SUBSEQUENT FINANCINGS
           On October 1, 1997, the Company redeemed at par all $61.9 million
  outstanding $7.96 Series Cumulative Preferred Stock. The shares were redeemed
  primarily with the proceeds from the $50 million of Trust Receipts, representing
  8% Company Obligated Mandatorily Redeemable Preferred Securities of a
  Partnership, Series C, issued through PECO Energy Capital Trust II in June 1997.
  
           On October 7, 1997, the Company entered into a $900 million unsecured
  credit facility with a group of banks and terminated an existing $400 million
  unsecured revolving credit facility with a group of banks and formal and
  informal lines of bank credit aggregating $110 million. The credit facility is
  composed of a $450 million 364-day credit agreement and a $450 million
  three-year revolving credit agreement. The Company plans to use the credit
  facility principally to support the Company's commercial paper program which was
  expanded from $300 million to $600 million.
  
  8.       COMMITMENTS AND CONTINGENCIES
           Except as described below, the information regarding the Company's
  capital commitments, nuclear insurance, nuclear decommissioning and spent fuel
  storage, energy purchases, environmental issues and litigation at September 30,
  1997 is substantially the same as described in note 4 of Notes to Consolidated
  Financial Statements for the year ended December 31, 1996.
  
           As previously reported, the Company has identified 27 sites where
  former manufactured gas plant (MGP) activities have or may have resulted in
  actual site contamination. As of September 30, 1997, the Company had accrued $28
  million for environmental investigation and remediation costs, including $15
  million for MGP investigation and remediation that currently can be reasonably
  estimated. The Company cannot 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 from third parties.
  
                                         9
  <PAGE>
  
           The Company periodically reviews its investments to determine that they
  are properly valued in its financial statements. Due to circumstances involved
  in the Federal Communication Commission's auctioning of the personal
  communications systems "C-block" licenses, the Company continues to closely
  monitor the value of its telecommunications investments. The Company believes
  that these investments are not impaired, but will continue to assess
  developments in this area.
  
                                         10
  <PAGE>
  
              ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                      CONDITION AND RESULTS OF OPERATIONS
  
  FINANCIAL CONDITION
           The Company's future financial condition and its future operating
  results are substantially dependent upon the effects of the Pennsylvania
  Electricity Generation Consumer Choice and Competition Act (Competition Act) and
  other competitive initiatives. Under the provisions of the Competition Act, the
  Company's unbundled charges for transmission- and distribution-related services
  will be capped for 4-1/2 years from December 31, 1996; until recovery of the
  Company's net stranded and transition costs, the Company will be subject to a
  rate cap (which cannot extend beyond December 31, 2005) in which the total
  charges to customers for generation cannot exceed rates in place as of December
  31, 1996, subject to certain exceptions.
  
           On April 1, 1997, the Company filed with the Pennsylvania Public
  Utility Commission (PUC) a comprehensive restructuring plan detailing its
  proposal to implement full customer choice of electric generation supplier,
  including the recovery of all of the Company's estimated net transition and
  stranded costs. The Company's filing proposed to collect the net transition and
  stranded costs over a period of up to ten years through annual Competitive
  Transition Charges (CTC) and/or Intangible Transition Charges (ITC).
  
           On August 27, 1997, the Company and various intervenors in the
  Company's restructuring proceeding filed with the PUC a Joint Petition for
  Partial Settlement (Pennsylvania Plan) in the Company's restructuring
  proceeding. The Pennsylvania Plan proposes, among other things: the recovery and
  amortization of $5.5 billion in stranded assets and costs through a CTC or an
  ITC commencing with the approval of the Pennsylvania Plan by the PUC until
  December 31, 2008; a write-off of at least $2 billion of stranded costs; PUC
  approval to securitize up to $4 billion of authorized stranded costs; separation
  of the ownership and operation of the Company's generation facilities by
  establishment of a separate corporate entity or entities; a rate reduction of
  10% for all customers effective September 1, 1998 and guaranteed through
  December 31, 2000; a rate cap on transmission and distribution rates through
  December 31, 2003; a rate cap on generation rates through December 31, 2008; and
  customer choice of electric generation supply phased in for all customers in
  three steps: one-third of the peak load of each customer class on January 1,
  1999, one-third on January 2, 1999 (one day later) and the remainder on January
  2, 2000. The Pennsylvania Plan must be approved by the PUC without modification
  to become effective. The PUC is scheduled to issue a decision on the
  Pennsylvania Plan in December 1997.
  
           On October 7, 1997, an affiliate of an out-of-state,
  Pennsylvania-licensed electric supplier, which is opposing the Pennsylvania
  Plan, requested that the PUC consider an alternative plan to implement
  competition in the Company's service territory. On October 9, 1997, the PUC
  granted the Motion to Consolidate in order to take into account this alternative
  plan in deciding whether to approve the Pennsylvania Plan. The Company will
  oppose the alternative plan. For additional information, see "PART II. OTHER
  INFORMATION. ITEM 5. OTHER INFORMATION" in this Quarterly Report on Form 10-Q.
  
                                         11
  <PAGE>
  
           If the Pennsylvania Plan is approved by the PUC, the Company will not
  fully recover its retail electric stranded costs and will take an extraordinary
  charge of at least $2.1 billion representing stranded regulatory assets. If the
  Pennsylvania Plan is not approved without modification by the PUC, the Company
  will reassert its request for full recovery of its net transition and stranded
  costs, including regulatory assets, which the Company currently estimates to be
  $7.5 billion. The amount of recovery is subject to the decision of the PUC in
  the Company's restructuring proceeding. If the PUC does not approve the
  Pennsylvania Plan without modification, the Company believes that it will be
  given the opportunity to seek full recovery of its retail electric stranded
  costs and that recovery of its regulatory assets is probable under the
  provisions of the Competition Act. The Company's financial condition and results
  of operations could be materially affected to the extent the Company does not
  ultimately recover its retail electric stranded costs, as a charge against
  earnings will be recognized.
  
           The Company expects that its future liquidity and capital resources
  will be reduced as a result of the Competition Act. The Company is pursuing a
  strategy to reduce its stranded costs and the associated capitalization, which
  would reduce the Company's liquidity and capital resource requirements. The
  Company cannot predict the level of stranded-cost recovery that will be
  permitted under the Competition Act, the impact of any such recovery on the
  Company's capitalization or whether internally generated cash will continue to
  meet or exceed the Company's capital requirements and dividend payments. For
  further information, see note 3 of Notes to Condensed Consolidated Financial
  Statements in this Quarterly Report on Form 10-Q under "PART I. FINANCIAL
  INFORMATION. ITEM 1. FINANCIAL STATEMENTS" and the Company's Current Report on
  Form 8-K dated August 27, 1997.
  
                                       * * * *
  
           Total construction expenditures, primarily for utility plant, are
  estimated to be $560 million for 1997 and $1.6 billion for the period 1998
  through 2001. The estimated expenditures include the Company's share of the
  remaining expenditures relating to the replacement of Salem Generating Station
  (Salem) Unit No. 1 steam generators, including installation and the cost of
  disposal of the four old steam generators.
  
           The Company's construction program is subject to periodic review and
  revision to reflect changes in economic conditions 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.
  
           For the period 1997 through 2000, the Company also plans to invest
  approximately $200 to $300 million in new ventures, principally for its
  Telecommunications Group.
  
                                       * * * *
  
           For a discussion of commitments and contingencies relating to
  environmental matters, see note 4 of Notes to Consolidated Financial 
  
                                         12
  <PAGE>
  
  Statements for the year ended December 31, 1996 and 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 the year ended  December  31,  1997,  the Company  expects to incur
  replacement power and additional maintenance costs of approximately $155 million
  as a result of the Salem shutdown. See note 2 of Notes to Condensed Consolidated
  Financial  Statements  in this  Quarterly  Report  on Form 10-Q  under  "PART I.
  FINANCIAL  INFORMATION.  ITEM 1.  FINANCIAL  STATEMENTS"  and  "PART  II.  OTHER
  INFORMATION. ITEM 5. OTHER INFORMATION."
  
                                       * * * *
  
           The Company has and will continue to make modifications to its computer
  software systems and applications to ensure that year 2000 transactions can be
  processed. Expenditures for these modifications will be expensed as incurred and
  are not expected to have a material impact on the Company's results of
  operations or financial position.
  
                                       * * * *
  
           On October 1, 1997, the Company redeemed at par all $61.9 million
  outstanding $7.96 Series Cumulative Preferred Stock. The shares were redeemed
  primarily with the proceeds from the $50 million of Trust Receipts, representing
  8% Company Obligated Mandatorily Redeemable Preferred Securities of a
  Partnership, Series C, issued through PECO Energy Capital Trust II in June 1997.
  
                                       * * * *
  
           At September 30, 1997, the Company and its subsidiaries had outstanding
  $158 million of notes payable, including $70 million of commercial paper. At
  September 30, 1997, the Company had formal and informal lines of bank credit
  aggregating $110 million. At September 30, 1997, the Company and its
  subsidiaries had no short-term investments.
  
                                       * * * *
  
           On October 7, 1997, the Company terminated a $400 million unsecured
  revolving credit facility with a group of banks and formal and informal lines of
  bank credit aggregating $110 million and entered into a $900 million unsecured
  credit facility with a group of banks. This credit facility is composed of a
  $450 million 364-day credit agreement and a $450 million revolving three-year
  credit agreement. The Company plans to use the credit facility principally to
  support the Company's commercial paper program which was expanded from $300
  million to $600 million.
  
                                       * * * *
  
           The Company's Ratio of Earnings to Fixed Charges (Mortgage Method) for
  the twelve months ended September 30, 1997 was 4.52 times compared to 4.47 times
  for the corresponding period in 1996. The Company's Ratio of 
  
                                         13
  <PAGE>
  
  Earnings to Combined Fixed Charges and Preferred  Stock  Dividends  (Articles of
  Incorporation  Method) for the twelve months ended  September 30, 1997, was 2.49
  times compared to 2.53 times for the corresponding  period in 1996. For the nine
  months  ended  September  30,  1997,  the  Company's  Ratio of Earnings to Fixed
  Charges  (SEC  Method)  (Exhibit  12-1) and Ratio of Earnings to Combined  Fixed
  Charges and Preferred  Stock  Dividends  (SEC Method)  (Exhibit  12-2) were 3.58
  times and 3.29  times,  respectively,  compared  to 3.35  times and 3.31  times,
  respectively,  for the  corresponding  period in 1996. See the Company's  Annual
  Report on Form 10-K for the year ended  December 31, 1996 (1996 Form 10-K) under
  "PART I. ITEM 1. BUSINESS-Capital  Requirements and Financing Activities," for a
  discussion of the ratio methods.
  
                                       * * * *
  
           As previously disclosed, the Company's Board of Directors authorized
  the repurchase of up to 25 million shares of its common stock from time to time
  through open market, privately negotiated and/or other types of transactions in
  conformity with the rules of the Securities and Exchange Commission (SEC).
  
           The Company has entered into forward purchase agreements to be settled
  from time to time, at the Company's election, on either a physical, net share or
  net cash basis. The amount at which these agreements can be settled is dependent
  principally upon the market price of the Company's common stock as compared to
  the forward purchase price per share and the number of shares to be settled. If
  these agreements were settled on a net share basis at September 30, 1997, the
  Company would have received approximately 910,000 shares of Company common
  stock.
  
                                       * * * *
  
           Except for the historical information contained herein, certain of the
  matters discussed in this Quarterly Report on Form 10-Q (Report) are
  forward-looking statements which are subject to risks and uncertainties. The
  factors that could cause actual results to differ materially include those
  discussed herein as well as those listed in notes 2, 3 and 8 of Notes to
  Condensed Consolidated Financial Statements and other factors discussed in the
  Company's filings with the SEC. Readers are cautioned not to place undue
  reliance on these forward-looking statements, which speak only as of the date of
  this Report. The Company undertakes no obligation to publicly release any
  revision to these forward-looking statements to reflect events or circumstances
  after the date of this Report.
  
                                       * * * *
  
                                         14
  <PAGE>
  
  RESULTS OF OPERATIONS
  EARNINGS
           Earnings per average common share outstanding for the three and nine
  months ended September 30, 1997 were $0.69 and $1.71 per share, respectively,
  compared to $0.65 and $1.73 per share for the corresponding periods in 1996. The
  increase in third quarter 1997 earnings was due to higher electric revenues net
  of fuel of $0.10 per share primarily due to sales to other utilities, and from
  lower operating and maintenance costs of $0.08 per share. Offsetting these
  benefits was increased depreciation of $0.12 per share resulting primarily from
  the increased depreciation and amortization of assets associated with Limerick
  Generating Station (Limerick) and related deferred tax impacts.
  
           The decrease in earnings for the nine months ended September 30, 1997
  was primarily due to increased depreciation of $0.35 per share resulting
  primarily from the increased depreciation and amortization of assets associated
  with Limerick and related deferred tax impacts and milder weather of $0.12 per
  share in 1997. These decreases were partially offset by the recognition of
  income from the Salem litigation settlement of $0.18 per share; lower operating
  and maintenance costs of $0.17 per share; higher electric revenues net of fuel
  of $0.09 per share primarily due to sales to other utilities; and lower interest
  expense due to the Company's program to refinance higher interest rate debt,
  which added $0.03 per share.
  
                                       * * * *
  
  OPERATING REVENUES
           Electric revenues increased 15% and 6% for the three and nine months
  ended September 30, 1997, respectively, compared to the corresponding periods in
  1996 primarily due to higher sales to other utilities.
  
           Gas revenues increased 12% and 5% for the three and nine months ended
  September 30, 1997, respectively, compared to the corresponding periods in 1996.
  The increase was primarily due to higher revenues from sales to commercial,
  house heating and residential customers due to higher purchased gas-clause
  revenues charged in 1997 compared to 1996, partially offset by lower sales due
  primarily to milder weather conditions in 1997. For the nine months ended
  September 30, 1997, this increase was partially offset by reduced sales to
  interruptible customers as they switched to transportation service.
  
                                       * * * *
  
  FUEL AND ENERGY INTERCHANGE
           Fuel and energy interchange expenses increased 57% and 30% for the
  three and nine months ended September 30, 1997, respectively, compared to the
  corresponding periods in 1996 primarily due to additional interchange purchases
  needed for increased sales to other utilities. Also contributing to the
  nine-month increase was a one-time billing credit in 1996 from a non-utility
  generator and higher replacement power costs resulting from the shutdown of
  Salem.
  
                                       * * * *
  
                                         15
  <PAGE>
  
  
  OPERATING AND MAINTENANCE
           Operating and maintenance expenses decreased 10% and 7% for the three
  and nine months ended September 30, 1997, respectively, compared to the
  corresponding periods in 1996. The decreases were primarily due to lower
  electric distribution system expenses, lower uncollectibles and lower other
  administrative and general expenses. Also contributing to the decrease for the
  nine months ended September 30, 1997 were lower nuclear generating station
  expenses.
  
                                       * * * *
  
  DEPRECIATION
           Depreciation expense increased 26% and 25% for the three and nine
  months ended September 30, 1997, respectively, compared to the corresponding
  periods in 1996 primarily due to increased depreciation and amortization of
  assets associated with Limerick.
  
                                       * * * *
  
  INCOME TAXES
           Income taxes charged to operating expenses increased 32% and 8% for the
  three and nine months ended September 30, 1997 compared to the corresponding
  periods in 1996. The increase for the three months ended September 30, 1997 was
  primarily due to higher pre-tax income and reduced tax depreciation benefits
  from plant and regulatory assets which are not fully normalized for ratemaking
  purposes. The increase for the nine months ended September 30, 1997 was
  primarily due to reduced tax depreciation benefits from plant and regulatory
  assets which are not fully normalized for ratemaking purposes, partially offset
  by a decrease in pre-tax income.
  
                                       * * * *
  
  OTHER TAXES
           Other taxes charged to operating expenses increased 4% and 2% for the
  three and nine months ended September 30, 1997 compared to the corresponding
  periods in 1996. The increase for the three months ended September 30, 1997 was
  primarily due to increased real estate and gross receipts taxes. The increase
  for the nine months ended September 30, 1997 was primarily due to increased
  capital stock and gross receipts taxes.
  
                                       * * * *
  
  OTHER INCOME AND DEDUCTIONS
           Other income and deductions was substantially unchanged for the three
  months ended September 30, 1997 and increased substantially for the nine months
  ended September 30, 1997 compared to the corresponding periods in 1996. The
  increase for the nine months ended September 30, 1997 was primarily due to the
  settlement reached with Public Service Electric and Gas Company (PSE&G) in the
  second quarter of 1997 related to the shutdown of Salem.
  
                                       * * * *
  
                                         16
  <PAGE>
  
  NET INTEREST CHARGES
           Net interest charges were substantially unchanged for the three months
  ended September 30, 1997 and decreased 3% for the nine months ended September
  30, 1997 compared to the corresponding periods in 1996. The decrease for the
  nine months ended September 30, 1997 was primarily due to the Company's ongoing
  program to reduce and refinance higher-cost, long-term debt.
  
                                       * * * *
  
  PREFERRED DIVIDENDS
       Preferred stock dividends were unchanged for the three and nine months
  ended September 30, 1997 compared to the corresponding periods in 1996.
  
                                       * * * *
  
                                         17
  <PAGE>
  
                             PART II - OTHER INFORMATION
  
  ITEM 1.  LEGAL PROCEEDINGS
           As previously reported in the Quarterly Report on Form 10-Q for the
  quarter ended June 30, 1997, on July 31, 1997, the plaintiffs in the class
  action suit against the Company involving the 1987 amendment to the Company's
  Service Annuity Plan filed a petition for review with the United States Supreme
  Court of the decision by the United States Court of Appeals for the Third
  Circuit. On October 14, 1997, the Supreme Court denied the plaintiffs' petition.
  
                                       * * * *
  
           As previously reported in the 1996 Form 10-K, the Company and the three
  other co-owners of Salem filed suit in February 1996 in the United States
  District Court for the District of New Jersey against Westinghouse Electric
  Corporation seeking damages to recover the cost of replacing the steam
  generators at Salem Units No. 1 and No. 2. In accordance with the court's
  schedule, Westinghouse filed a motion for summary judgment on October 1, 1997.
  
                                       * * * *
  
  ITEM 5.  OTHER INFORMATION
           As previously reported in the 1996 Form 10-K, the Company was scheduled
  to meet with the Nuclear Regulatory Commission (NRC) regarding the Company's
  plans for the resolution of the Thermo-Lag issue. The Company met with the NRC
  on August 5, 1997. As a result of the meeting, the NRC staff concluded that the
  Company is making reasonable progress toward resolving the Thermo-Lag issue.
  
                                       * * * *
  
           As  previously  disclosed,  Salem  Units No. 1 and No. 2,  operated  by
  PSE&G,  were taken out of service in the second  quarter of 1995.  On August 30,
  1997,  PSE&G  informed  the  Company  that  Unit No. 2  returned  to  commercial
  operation.  PSE&G  expects  that Unit No. 1 will  return to service in the first
  quarter  of 1998.  Because  the  timing of Unit No.  1's  restart  is subject to
  satisfactory completion of the restart plan requirements, as determined by PSE&G
  and the NRC, no assurance can be given that the  projected  restart date will be
  met.  The  inability  to  successfully  return  Unit No. 1 to  continuous,  safe
  operation  could  have a  material  adverse  effect on the  Company's  financial
  condition and results of operations.
  
                                       * * * *
  
           The Company has been informed by PSE&G that, on July 8, 1997, a
  predecisional enforcement conference was held with the NRC to discuss apparent
  violations at Salem. These apparent violations were identified in May and June
  1997, and concern emergency core cooling system switchover and related residual
  heat removal system (RHR) flow issues, and Appendix R (fire protection) issues.
  In a letter dated October 8, 1997, the NRC informed PSE&G that a Level III
  violation was cited for the issues surrounding the RHR system and Level IV
  violations were cited for the two
  
                                         18
  <PAGE>
  
           Appendix R issues. There was no civil penalty issued by the NRC.
  
                                       * * * *
  
           The Company has been informed by PSE&G that a predecisional enforcement
  conference has been scheduled for December 9, 1997 to discuss allegations
  concerning security program issues which occurred at Salem in 1996. PSE&G cannot
  predict what other actions, if any, the NRC may take in this matter.
  
                                       * * * *
  
           On October 7, 1997, Enron Energy Services Power, Inc. (Enron), an
  affiliate of an out-of-state, Pennsylvania-licensed electric supplier which is
  opposing the Pennsylvania Plan, requested that the PUC consider an alternative
  plan to implement competition in the Company's service territory. The
  alternative plan proposes, among other things; a larger initial rate cut than
  proposed in the Pennsylvania Plan; energy and capacity initially priced at 3.48
  cents per kilowatthour (kWh); the Company's issuance of $5.5 billion in
  transition bonds and the sale to Enron or its designee at a 9.66% coupon rate;
  the appointment of Enron as default service-provider in the Company's service
  territory; and a long-term purchased power agreement between Enron and the
  Company. On October 9, 1997, the PUC granted the Motion to Consolidate in order
  to take into account this alternative plan in deciding whether to approve the
  Pennsylvania Plan. The Company and other supporters of the Pennsylvania Plan
  will vigorously oppose the alternative plan on the grounds that it is seriously
  flawed, procedurally inappropriate and not in the best interests of
  Pennsylvania.
  
                                       * * * *
  
           On August 29, 1997, the PUC issued a final order outlining the
  guidelines for Retail Access Pilot Programs (Pilot Programs) in Pennsylvania.
  Among other things, these Pilot Programs guidelines provide for: participation
  of 5% of the peak load of each customer class; residential and commercial
  customers to be given a $0.03/kWh energy credit and a 13% reduction in the
  regulated portion of their bills; industrial customers to be given a $0.027/kWh
  energy credit and a 10% reduction in the regulated portion of their bills; an
  open enrollment period for all customers in each rate class interested in
  participating in the Pilot Programs from September 15, 1997 through September
  29, 1997; PUC-approved electric generation suppliers to begin marketing to
  potential customers immediately and complete marketing to potential customers by
  October 25, 1997; Pilot Programs' service to begin on November 1, 1997 and last
  through December 31, 1998.
  
           Approximately 400,000 customers applied to participate in the Pilot
  Program. In a lottery held by an independent third party, approximately 75,000
  customers were chosen to participate in the Company's Pilot Program.
  
                                       * * * *
  
           By letter dated August 5, 1997, the Company was notified by the NRC of
  the issuance of a Notice of Violation and Proposed Imposition of Civil 
  
                                         19
  <PAGE>
  
  Penalty in the amount of  $80,000  relating  to  falsification  of  surveillance
  records at Limerick in 1996. These incidents were identified and investigated by
  the Company and the  findings  were  provided to the NRC.  The Company has taken
  corrective actions and, on September 4, 1997, paid the fine.
  
                                       * * * *
  
           On August 1, 1997, the Company reached a settlement on all outstanding
  issues regarding its Purchase Gas Cost (PGC) No. 14 rates for the period
  December 1, 1997 to November 30, 1998, which reflects a $0.0731 per thousand
  cubic feet (mcf) decrease in natural gas sales rates. PGC No. 14 will become
  effective December 1, 1997, subject to PUC approval.
  
                                       * * * *
  
           On June 2, 1997 and June 9, 1997, in response to requests from the
  Federal Energy Regulatory Commission, the other utility members of the PJM
  Interconnection L.L.C. (PJM) and the Company, respectively, filed separate
  restructuring proposals regarding PJM.
  
                                       * * * *
  
  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 10, 1997, reporting information under "ITEM 5.
                    OTHER EVENTS" relating to the Company's decision to terminate
                    an offer to purchase an interest in River Bend Nuclear
                    Station.
  
           Report,  dated July 18, 1997, reporting information under "ITEM 5.
                    OTHER EVENTS" regarding the Company's filing of rebuttal
                    testimony with the Pennsylvania Public Utility Commission
                    supporting its comprehensive restructuring plan to implement
                    full customer choice of electric generation supply.
  
           Report,  dated July 30, 1997, reporting information under "ITEM 5.
                    OTHER EVENTS" regarding a motion filed with the Pennsylvania
                    Public Utility Commission for a continuance of hearings in the
                    Company's restructuring proceeding.
  
           Report,  dated August 13, 1997, reporting information under "ITEM 5.
                    OTHER EVENTS" regarding a motion filed with the Pennsylvania
                    Public Utility Commission for a Suspension of the
                    Administrative Schedule in the Company's restructuring
                    proceeding.
  
           Report,  dated August 27, 1997, reporting information under "ITEM 5.
                    OTHER EVENTS" regarding a Joint Petition for Partial
                    Settlement 
  
                                         20
  <PAGE>
  
                    filed with the Pennsylvania  Public Utility  Commission in the
                    Company's restructuring proceeding.
  
           Reports on Form 8-K filed subsequent to the reporting period:
           None
  
  
                                         21
  <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/ Michael J. Egan
                                          --------------------------
                                          Michael J. Egan
                                          Senior Vice President and
                                          Chief Financial Officer
                                          (Principal Financial and
                                          Accounting Officer)
  
  Date:  October 31, 1997
  
  
  
  
  
                                         22
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text: UNITED STATES
                         SECURITIES AND EXCHANGE COMMISSION
                                Washington, DC 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, 1997..........
  
                                         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 222,542,087 shares of common stock outstanding on September
       30, 1997.
  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,
                                                          1997           1996           1997            1996
  OPERATING REVENUES
  Electric                                        $1,232.2        $1,069.1       $3,146.1        $2,958.2
       Gas                                                 46.0            41.1          327.8           311.9
                                                      ---------      ----------      ---------      ----------
       TOTAL OPERATING REVENUES                         1,278.2         1,110.2        3,473.9         3,270.1
                                                      ---------      ----------      ---------      ----------
  OPERATING EXPENSES
       Fuel and Energy Interchange                        354.1           226.0          954.2           736.8
       Operation                                          243.0           268.6          690.5           730.1
       Maintenance                                         70.8            79.5          221.5           254.6
       Depreciation                                       143.5           113.7          433.6           346.8
       Income Taxes                                       129.4            98.0          296.0           273.2
       Other Taxes                                         78.7            75.8          234.3           230.8
                                                      ---------      ----------      ---------      ----------
       TOTAL OPERATING EXPENSES                         1,019.5           861.6        2,830.1         2,572.3
                                                      ---------      ----------      ---------      ----------
  OPERATING INCOME                                        258.7           248.6          643.8           697.8
                                                      ---------      ----------      ---------      ----------
  OTHER INCOME AND DEDUCTIONS
       Allowance for Other Funds Used
         During Construction                                2.2             1.8            9.7             7.8
       Salem Litigation Settlement                           --              --           69.8              --
       Income Taxes                                         1.4             1.8          (23.3)            2.0
       Other, Net                                          (5.2)           (3.2)         (14.3)           (6.4)
                                                      ---------      ----------      ---------      ----------
       TOTAL OTHER INCOME AND DEDUCTIONS                   (1.6)            0.4           41.9             3.4
                                                      ---------      ----------      ---------      ----------
  INCOME BEFORE INTEREST CHARGES                          257.1           249.0          685.7           701.2
                                                      ---------      ----------      ---------      ----------
  INTEREST CHARGES
       Long-Term Debt                                      79.6            80.6          239.3           250.7
       Company Obligated Mandatorily Redeemable
         Preferred Securities of a Partnership              7.7             6.6           21.3            20.0
       Other Interest                                      13.6            13.9           40.0            38.9
                                                      ---------      ----------      ---------      ----------
       TOTAL INTEREST CHARGES                             100.9           101.1          300.6           309.6
       Allowance for Borrowed Funds
         Used During Construction                          (1.8)           (1.9)          (8.7)           (7.3)
                                                      ---------      ----------      ---------      ----------
       NET INTEREST CHARGES                                99.1            99.2          291.9           302.3
  
  NET INCOME                                              158.0           149.8          393.8           398.9
  PREFERRED STOCK DIVIDENDS                                 4.5             4.5           13.5            13.5
                                                      ---------      ----------      ---------      ----------
  EARNINGS APPLICABLE TO COMMON STOCK                    $153.5          $145.3         $380.3          $385.4
                                                      =========      ==========      =========      ==========
  
  AVERAGE SHARES OF COMMON STOCK
       OUTSTANDING  (Millions)                            222.5           222.5          222.5           222.5
  
  EARNINGS PER AVERAGE COMMON
       SHARE  (Dollars)                                   $0.69           $0.65          $1.71           $1.73
  
  DIVIDENDS PER COMMON SHARE  (Dollars)                   $0.45          $0.435          $1.35          $1.305
  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,
                                                              1997         1996
                                                          (Unaudited)
  ASSETS
  
  UTILITY PLANT
  Plant at Original Cost                                   $15,280.7     $14,945.0
  Less Accumulated Provision for Depreciation                5,404.0       5,047.0
                                                           ---------     ---------
                                                             9,876.7       9,898.0
  Nuclear Fuel, net                                            153.4         199.6
  Construction Work in Progress                                609.6         661.8
  Leased Property, net                                         186.7         182.1
                                                           ---------     ---------
                                                            10,826.4      10,941.5
                                                           ---------     ---------
  CURRENT ASSETS
  Cash and Temporary Cash Investments                           67.7          29.2
  Accounts Receivable, net
       Customer                                                 38.2          19.2
       Other                                                   155.5          74.4
  Inventories, at average cost
       Fossil Fuel                                              79.9          84.6
       Materials and Supplies                                  112.8         119.8
  Deferred Energy Costs - Gas                                   15.2          30.0
  Other                                                        120.0          63.2
                                                           ---------     ---------
                                                               589.3         420.4
                                                           ---------     ---------
  DEFERRED DEBITS AND OTHER ASSETS
  Recoverable Deferred Income Taxes                          2,324.4       2,325.7
  Deferred Limerick Costs                                      324.4         361.8
  Deferred Non-Pension Postretirement Benefits Costs           222.5         233.5
  Deferred Energy Costs - Electric                              93.9          92.0
  Investments                                                  536.7         432.6
  Loss on Reacquired Debt                                      266.3         283.8
  Other                                                        181.3         169.3
                                                           ---------     ---------
                                                             3,949.5       3,898.7
                                                           ---------     ---------
  TOTAL                                                    $15,365.2     $15,260.6
                                                           =========     =========
  See Notes to Condensed Consolidated Financial Statements.
  
                              (continued on next page)
  
                                         3
  PECO ENERGY COMPANY AND SUBSIDIARY COMPANIES
                        CONDENSED CONSOLIDATED BALANCE SHEETS
                                (Millions of Dollars)
                                     (continued)
  September 30,  December 31,
                                                          1997          1996
  CAPITALIZATION AND LIABILITIES                                            
                                                       (Unaudited)
  CAPITALIZATION
  Common Shareholders' Equity
       Common Stock (No Par)                            $3,517.6      $3,517.6
       Other Paid-In Capital                                 1.2           1.3
       Retained Earnings                                 1,204.9       1,127.0
  Preferred and Preference Stock
       Without Mandatory Redemption                        199.4         199.4
       With Mandatory Redemption                            92.7          92.7
  Company Obligated Mandatorily Redeemable
       Preferred Securities of a Partnership               352.1         302.2
  Long-Term Debt                                         3,713.5       3,935.5
                                                       ---------     ---------
                                                         9,081.4       9,175.7
                                                       ---------     ---------
  CURRENT LIABILITIES
  Notes Payable, Bank                                      157.5         287.5
  Long-Term Debt Due Within One Year                       491.5         283.3
  Capital Lease Obligations Due Within One Year             55.8          49.4
  Accounts Payable                                         217.0         213.0
  Taxes Accrued                                            139.2          71.5
  Interest Accrued                                          86.5          82.0
  Dividends Payable                                         27.7          22.4
  Other                                                    113.0          94.3
                                                       ---------     ---------
                                                         1,288.2       1,103.4
                                                       ---------     ---------
  DEFERRED CREDITS AND OTHER LIABILITIES
  Capital Lease Obligations                                130.9         132.7
  Deferred Income Taxes                                  3,740.6       3,745.2
  Unamortized Investment Tax Credits                       322.6         336.1
  Pension Obligation                                       224.5         224.5
  Non-Pension Postretirement Benefits Obligation           344.3         315.1
  Other                                                    232.7         227.9
                                                       ---------     ---------
                                                         4,995.6       4,981.5
                                                       ---------     ---------
  COMMITMENTS AND CONTINGENCIES (NOTE 8)
                                                       ---------     ---------
  
  TOTAL                                                $15,365.2     $15,260.6
                                                       =========     =========
  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,
                                                               1997        1996
  
  CASH FLOWS FROM OPERATING ACTIVITIES
  
  NET INCOME                                                  $393.8      $398.9
  Adjustments to Reconcile Net Income to Net Cash
       Provided by Operating Activities:
  Depreciation and Amortization                                494.4       404.2
  Deferred Income Taxes                                         (1.0)      106.9
  Deferred Energy Costs                                         12.9       (22.6)
  Salem Litigation Settlement                                  (69.8)        --
  Changes in Working Capital:
       Accounts Receivable                                     (30.3)       39.8
       Inventories                                              11.7         4.5
       Accounts Payable                                          4.0      (119.9)
       Other Current Assets and Liabilities                     34.1       (54.6)
  Other Items Affecting Operations                              42.0        53.0
                                                              ------      ------
  
  NET CASH FLOWS PROVIDED BY OPERATING ACTIVITIES              891.8       810.2
                                                              ------      ------
  
  CASH FLOWS FROM INVESTING ACTIVITIES
  
  Investment in Plant                                         (362.1)     (331.6)
  Increase in Investments                                     (104.1)      (91.1)
                                                              ------      ------
  
  NET CASH FLOWS USED BY INVESTING ACTIVITIES                 (466.2)     (422.7)
                                                              ------      ------
  
  CASH FLOWS FROM FINANCING ACTIVITIES
  
  Change in Short-Term Debt                                   (130.0)      281.7
  Issuance of Common Stock                                        --        11.2
  Issuance of Long-Term Debt                                    17.2        35.6
  Retirement of Long-Term Debt                                 (33.3)     (397.5)
  Loss on Reacquired Debt                                       17.5        18.8
  Issuance of Company Obligated Mandatorily
       Redeemable Preferred Securities of a Partnership         50.0        (0.1)
  Dividends on Preferred and Common Stock                     (314.0)     (306.9)
  Change in Dividends Payable                                    5.3         9.6
  Other Items Affecting Financing                                0.2         0.3
                                                              ------      ------
  NET CASH FLOWS USED BY FINANCING ACTIVITIES                 (387.1)     (347.3)
                                                              ------      ------
  INCREASE IN CASH AND CASH EQUIVALENTS                         38.5        40.2
                                                              ------      ------
  CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD              29.2        20.6
                                                              ------      ------
  CASH AND CASH EQUIVALENTS AT END OF PERIOD                   $67.7       $60.8
                                                              ======      ======
  
              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 as of
  September 30, 1997 and for the three and nine months then ended 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 the settlement of the litigation
  against Public Service Electric and Gas Company (PSE&G) with respect to the
  shutdown of Salem Generating Station (Salem) described in note 2. 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 prior-year 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 1996 Annual Report to
  Shareholders, which are incorporated by reference in the Company's Annual Report
  on Form 10-K for the year ended December 31, 1996.
  
  2.       SHUTDOWN OF SALEM GENERATING STATION
           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 in the second quarter of
  1995. On August 30, 1997, PSE&G informed the Company that Unit No. 2 returned to
  commercial operation. PSE&G expects that Unit No. 1 will return to service in
  the first quarter of 1998. Because the timing of Unit No. 1's restart is subject
  to satisfactory completion of the restart plan requirements, as determined by
  PSE&G and the Nuclear Regulatory Commission, no assurance can be given that the
  projected restart date will be met.
  
           In accordance with a May 9, 1997 settlement agreement, PSE&G has agreed
  to pay the Company $69.8 million on December 31, 1997 to settle a suit filed on
  March 5, 1996 against PSE&G concerning the shutdown of Salem. During June 1997,
  the Company recorded into income $69.8 million ($41.0 million net of income
  taxes) to reflect the settlement. In addition, the settlement agreement provides
  that if the outage exceeds 64 reactor unit months PSE&G will pay the Company
  $1.1 million per reactor unit month. A reactor unit month is a month during the
  current outage in which a unit is off-line. As of September 30, 1997, the Salem
  outage totaled 55 reactor unit months.
  
           For the three and nine months ended September 30, 1997, the Company
  recorded in the accompanying Statements of Income as Fuel and Energy Interchange
  $27 and $84 million, respectively, of replacement power costs and recorded as
  Maintenance $12 and $39 million, respectively, of maintenance costs relating to
  the shutdown of Salem. For the three and nine months ended September 30, 1996,
  the Company recorded in the accompanying Statements of Income as Fuel and Energy
  Interchange $27 and $65 million, respectively, of replacement power costs and
  recorded as Maintenance $14 and $45 million, respectively, of maintenance costs
  relating to the shutdown of Salem. For the year ending December 31, 1997, the
  Company expects to incur and expense approximately $155 million of costs related
  to the shutdown.
  
                                         6
  3.       RATE MATTERS
           On April 1, 1997, the Company filed with the Pennsylvania Public
  Utility Commission (PUC) a comprehensive restructuring plan detailing its
  proposal to implement full customer choice of electric generation supplier. The
  filing is required under the provisions of the Pennsylvania Electricity
  Generation Consumer Choice and Competition Act (Competition Act), which requires
  the unbundling of electric services into separate generation, transmission and
  distribution services with open retail competition for generation. The filing
  proposed, among other things: procedures to implement direct customer access,
  beginning in 1999, to all licensed electric generation suppliers; unbundled
  rates for generation, transmission, distribution and other services; and the
  recovery of all of the Company's estimated net transition and stranded costs
  through a Competitive Transition Charge (CTC) and/or Intangible Transition
  Charge (ITC).
  
           On August 27, 1997, the Company and various intervenors in the
  Company's restructuring proceeding filed with the PUC a Joint Petition for
  Partial Settlement (Pennsylvania Plan) in the Company's restructuring
  proceeding. The Pennsylvania Plan proposes, among other things: the recovery and
  amortization of $5.5 billion in stranded assets and costs through a CTC or an
  ITC over a period commencing with the approval of the Pennsylvania Plan by the
  PUC until December 31, 2008; a write-off of at least $2 billion of stranded
  costs; PUC approval to securitize up to $4 billion of authorized stranded costs;
  separation of the ownership and operation of the Company's generation facilities
  by establishment of a separate corporate entity or entities; a rate reduction of
  10% for all customers effective September 1, 1998 and guaranteed through
  December 31, 2000; a rate cap on generation rates through December 31, 2008; and
  customer choice of electric generation supply phased in for all customers in
  three steps: one-third of the peak load of each customer class on January 1,
  1999, one-third on January 2, 1999 (one day later) and the remainder on January
  2, 2000.
  
           On October 7, 1997, an affiliate of an out-of-state,
  Pennsylvania-licensed electric supplier, which is opposing the Pennsylvania
  Plan, requested that the PUC consider an alternative plan to implement
  competition in the Company's service territory. On October 9, 1997, the PUC
  granted the Motion to Consolidate in order to take into account this alternative
  plan in deciding whether to approve the Pennsylvania Plan. The Company will
  oppose the alternative plan. For additional information, see "PART II. OTHER
  INFORMATION. ITEM 5. OTHER INFORMATION" in this Quarterly Report on Form 10-Q.
  
           If the Pennsylvania Plan is approved by the PUC without modification,
  the Company will discontinue accounting for the generation portion of its
  business under Statement of Financial Accounting Standards (SFAS) No. 71,
  "Accounting for the Effects of Certain Types of Regulation," and expects to take
  an extraordinary charge of at least $2.1 billion representing stranded
  regulatory assets that will not be recoverable through the CTC or ITC.
  
           The Company cannot predict what decision the PUC will ultimately reach
  in the Company's restructuring proceeding or what impact that decision will
  ultimately have on the Company's future financial condition, results of
  operations or the common stock dividend. If the Pennsylvania Plan is not
  
                                         7
  approved by the PUC without modification, the Company will reassert its request
  for full recovery of its net transition and stranded costs, including regulatory
  assets, which the Company currently estimates will be $7.5 billion. If the PUC
  does not approve the Pennsylvania Plan, the Company believes that it will be
  given the opportunity to seek full recovery of its retail electric stranded
  costs and that recovery of its regulatory assets is probable under the
  provisions of the Competition Act. The Company's financial condition and results
  of operations could be materially affected to the extent the Company is not
  ultimately permitted to recover its retail electric stranded costs, as a charge
  against earnings will be recognized. The PUC is scheduled to issue a decision on
  the Pennsylvania Plan in December 1997.
  
           On January 22, 1997, the Company filed with the PUC an application
  under the Competition Act to securitize $3.6 billion of stranded costs. On May
  22, 1997, the PUC issued an order authorizing the Company to securitize $1.1
  billion of its stranded and related transaction and use of proceeds costs.
  Thirteen intervenors subsequently appealed the PUC's decision. If the
  Pennsylvania Plan is approved without modification, the Company will be
  permitted to securitize up to a total of $4 billion of stranded costs. Issuance
  of transition bonds by the Company will depend on the resolution of all pending
  appeals and the satisfactory issuance of a pending ruling by the Internal
  Revenue Service.
  
           For additional information regarding the Competition Act and the
  Company's securitization filing, see note 3 of Notes to Consolidated Financial
  Statements for the year ended December 31, 1996.
  
  4.       SALES OF ACCOUNTS RECEIVABLE
           The Company is party to an agreement with a financial institution under
  which it can sell with limited recourse an undivided interest, adjusted daily,
  in up to $425 million of designated accounts receivable through November 14,
  2000. At September 30, 1997, the Company had sold a $425 million interest in
  accounts receivable under this agreement. The Company retains the servicing
  responsibility for these receivables. At September 30, 1997, the average annual
  service-charge rate, computed on a daily basis on the portion of the accounts
  receivable sold but not yet collected, was 5.61%.
  
           By terms of this agreement, under certain circumstances, a portion of
  Limerick Generating Station (Limerick) deferred costs may be included in the
  pool of eligible receivables. At September 30, 1997, $17.7 million of Deferred
  Limerick Costs were included in the pool of eligible receivables.
  
  5.       DECLARATORY ACCOUNTING ORDER
           On October 1, 1996, the Company implemented changes approved by the PUC
  to the estimated depreciable lives of certain of the Company's electric plant.
  As a result, depreciation and amortization on certain assets associated with
  Limerick increased by approximately $100 million per year while depreciation and
  amortization on certain other Company assets decreased by approximately $10
  million per year, for a net increase of approximately $90 million per year. For
  the three and nine months ended September 30, 1997, the Company expensed an
  additional $23 and $70 million, respectively, for increased depreciation and
  amortization related to this order.
  
                                         8
  6.       STOCK REPURCHASE
           During 1997, the Company's Board of Directors authorized the repurchase
  of up to 25 million shares of its common stock from time to time through
  open-market, privately negotiated and/or other types of transactions in
  conformity with the rules of the Securities and Exchange Commission.
  
           Pursuant to these authorizations, the Company has entered into forward
  purchase agreements to be settled from time to time, at the Company's election,
  on either a physical, net share or net cash basis. The amount at which these
  agreements can be settled is dependent principally upon the market price of the
  Company's common stock as compared to the forward purchase price per share and
  the number of shares to be settled. If these agreements were settled on a net
  share basis at September 30, 1997, the Company would have received approximately
  910,000 shares of Company common stock.
  
  7.       SUBSEQUENT FINANCINGS
           On October 1, 1997, the Company redeemed at par all $61.9 million
  outstanding $7.96 Series Cumulative Preferred Stock. The shares were redeemed
  primarily with the proceeds from the $50 million of Trust Receipts, representing
  8% Company Obligated Mandatorily Redeemable Preferred Securities of a
  Partnership, Series C, issued through PECO Energy Capital Trust II in June 1997.
  
           On October 7, 1997, the Company entered into a $900 million unsecured
  credit facility with a group of banks and terminated an existing $400 million
  unsecured revolving credit facility with a group of banks and formal and
  informal lines of bank credit aggregating $110 million. The credit facility is
  composed of a $450 million 364-day credit agreement and a $450 million
  three-year revolving credit agreement. The Company plans to use the credit
  facility principally to support the Company's commercial paper program which was
  expanded from $300 million to $600 million.
  
  8.       COMMITMENTS AND CONTINGENCIES
           Except as described below, the information regarding the Company's
  capital commitments, nuclear insurance, nuclear decommissioning and spent fuel
  storage, energy purchases, environmental issues and litigation at September 30,
  1997 is substantially the same as described in note 4 of Notes to Consolidated
  Financial Statements for the year ended December 31, 1996.
  
           As previously reported, the Company has identified 27 sites where
  former manufactured gas plant (MGP) activities have or may have resulted in
  actual site contamination. As of September 30, 1997, the Company had accrued $28
  million for environmental investigation and remediation costs, including $15
  million for MGP investigation and remediation that currently can be reasonably
  estimated. The Company cannot 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 from third parties.
  
                                         9
  The Company periodically reviews its investments to determine that they
  are properly valued in its financial statements. Due to circumstances involved
  in the Federal Communication Commission's auctioning of the personal
  communications systems "C-block" licenses, the Company continues to closely
  monitor the value of its telecommunications investments. The Company believes
  that these investments are not impaired, but will continue to assess
  developments in this area.
  
                                         10
  ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                      CONDITION AND RESULTS OF OPERATIONS
  
  FINANCIAL CONDITION
           The Company's future financial condition and its future operating
  results are substantially dependent upon the effects of the Pennsylvania
  Electricity Generation Consumer Choice and Competition Act (Competition Act) and
  other competitive initiatives. Under the provisions of the Competition Act, the
  Company's unbundled charges for transmission- and distribution-related services
  will be capped for 4-1/2 years from December 31, 1996; until recovery of the
  Company's net stranded and transition costs, the Company will be subject to a
  rate cap (which cannot extend beyond December 31, 2005) in which the total
  charges to customers for generation cannot exceed rates in place as of December
  31, 1996, subject to certain exceptions.
  
           On April 1, 1997, the Company filed with the Pennsylvania Public
  Utility Commission (PUC) a comprehensive restructuring plan detailing its
  proposal to implement full customer choice of electric generation supplier,
  including the recovery of all of the Company's estimated net transition and
  stranded costs. The Company's filing proposed to collect the net transition and
  stranded costs over a period of up to ten years through annual Competitive
  Transition Charges (CTC) and/or Intangible Transition Charges (ITC).
  
           On August 27, 1997, the Company and various intervenors in the
  Company's restructuring proceeding filed with the PUC a Joint Petition for
  Partial Settlement (Pennsylvania Plan) in the Company's restructuring
  proceeding. The Pennsylvania Plan proposes, among other things: the recovery and
  amortization of $5.5 billion in stranded assets and costs through a CTC or an
  ITC commencing with the approval of the Pennsylvania Plan by the PUC until
  December 31, 2008; a write-off of at least $2 billion of stranded costs; PUC
  approval to securitize up to $4 billion of authorized stranded costs; separation
  of the ownership and operation of the Company's generation facilities by
  establishment of a separate corporate entity or entities; a rate reduction of
  10% for all customers effective September 1, 1998 and guaranteed through
  December 31, 2000; a rate cap on transmission and distribution rates through
  December 31, 2003; a rate cap on generation rates through December 31, 2008; and
  customer choice of electric generation supply phased in for all customers in
  three steps: one-third of the peak load of each customer class on January 1,
  1999, one-third on January 2, 1999 (one day later) and the remainder on January
  2, 2000. The Pennsylvania Plan must be approved by the PUC without modification
  to become effective. The PUC is scheduled to issue a decision on the
  Pennsylvania Plan in December 1997.
  
           On October 7, 1997, an affiliate of an out-of-state,
  Pennsylvania-licensed electric supplier, which is opposing the Pennsylvania
  Plan, requested that the PUC consider an alternative plan to implement
  competition in the Company's service territory. On October 9, 1997, the PUC
  granted the Motion to Consolidate in order to take into account this alternative
  plan in deciding whether to approve the Pennsylvania Plan. The Company will
  oppose the alternative plan. For additional information, see "PART II. OTHER
  INFORMATION. ITEM 5. OTHER INFORMATION" in this Quarterly Report on Form 10-Q.
  
                                         11
  If the Pennsylvania Plan is approved by the PUC, the Company will not
  fully recover its retail electric stranded costs and will take an extraordinary
  charge of at least $2.1 billion representing stranded regulatory assets. If the
  Pennsylvania Plan is not approved without modification by the PUC, the Company
  will reassert its request for full recovery of its net transition and stranded
  costs, including regulatory assets, which the Company currently estimates to be
  $7.5 billion. The amount of recovery is subject to the decision of the PUC in
  the Company's restructuring proceeding. If the PUC does not approve the
  Pennsylvania Plan without modification, the Company believes that it will be
  given the opportunity to seek full recovery of its retail electric stranded
  costs and that recovery of its regulatory assets is probable under the
  provisions of the Competition Act. The Company's financial condition and results
  of operations could be materially affected to the extent the Company does not
  ultimately recover its retail electric stranded costs, as a charge against
  earnings will be recognized.
  
           The Company expects that its future liquidity and capital resources
  will be reduced as a result of the Competition Act. The Company is pursuing a
  strategy to reduce its stranded costs and the associated capitalization, which
  would reduce the Company's liquidity and capital resource requirements. The
  Company cannot predict the level of stranded-cost recovery that will be
  permitted under the Competition Act, the impact of any such recovery on the
  Company's capitalization or whether internally generated cash will continue to
  meet or exceed the Company's capital requirements and dividend payments. For
  further information, see note 3 of Notes to Condensed Consolidated Financial
  Statements in this Quarterly Report on Form 10-Q under "PART I. FINANCIAL
  INFORMATION. ITEM 1. FINANCIAL STATEMENTS" and the Company's Current Report on
  Form 8-K dated August 27, 1997.
  
                                       * * * *
  
           Total construction expenditures, primarily for utility plant, are
  estimated to be $560 million for 1997 and $1.6 billion for the period 1998
  through 2001. The estimated expenditures include the Company's share of the
  remaining expenditures relating to the replacement of Salem Generating Station
  (Salem) Unit No. 1 steam generators, including installation and the cost of
  disposal of the four old steam generators.
  
           The Company's construction program is subject to periodic review and
  revision to reflect changes in economic conditions 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.
  
           For the period 1997 through 2000, the Company also plans to invest
  approximately $200 to $300 million in new ventures, principally for its
  Telecommunications Group.
  
                                       * * * *
  
           For a discussion of commitments and contingencies relating to
  environmental matters, see note 4 of Notes to Consolidated Financial 
  
                                         12
  Statements for the year ended December 31, 1996 and 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 the year ended  December  31,  1997,  the Company  expects to incur
  replacement power and additional maintenance costs of approximately $155 million
  as a result of the Salem shutdown. See note 2 of Notes to Condensed Consolidated
  Financial  Statements  in this  Quarterly  Report  on Form 10-Q  under  "PART I.
  FINANCIAL  INFORMATION.  ITEM 1.  FINANCIAL  STATEMENTS"  and  "PART  II.  OTHER
  INFORMATION. ITEM 5. OTHER INFORMATION."
  
                                       * * * *
  
           The Company has and will continue to make modifications to its computer
  software systems and applications to ensure that year 2000 transactions can be
  processed. Expenditures for these modifications will be expensed as incurred and
  are not expected to have a material impact on the Company's results of
  operations or financial position.
  
                                       * * * *
  
           On October 1, 1997, the Company redeemed at par all $61.9 million
  outstanding $7.96 Series Cumulative Preferred Stock. The shares were redeemed
  primarily with the proceeds from the $50 million of Trust Receipts, representing
  8% Company Obligated Mandatorily Redeemable Preferred Securities of a
  Partnership, Series C, issued through PECO Energy Capital Trust II in June 1997.
  
                                       * * * *
  
           At September 30, 1997, the Company and its subsidiaries had outstanding
  $158 million of notes payable, including $70 million of commercial paper. At
  September 30, 1997, the Company had formal and informal lines of bank credit
  aggregating $110 million. At September 30, 1997, the Company and its
  subsidiaries had no short-term investments.
  
                                       * * * *
  
           On October 7, 1997, the Company terminated a $400 million unsecured
  revolving credit facility with a group of banks and formal and informal lines of
  bank credit aggregating $110 million and entered into a $900 million unsecured
  credit facility with a group of banks. This credit facility is composed of a
  $450 million 364-day credit agreement and a $450 million revolving three-year
  credit agreement. The Company plans to use the credit facility principally to
  support the Company's commercial paper program which was expanded from $300
  million to $600 million.
  
                                       * * * *
  
           The Company's Ratio of Earnings to Fixed Charges (Mortgage Method) for
  the twelve months ended September 30, 1997 was 4.52 times compared to 4.47 times
  for the corresponding period in 1996. The Company's Ratio of 
  
                                         13
  Earnings to Combined Fixed Charges and Preferred  Stock  Dividends  (Articles of
  Incorporation  Method) for the twelve months ended  September 30, 1997, was 2.49
  times compared to 2.53 times for the corresponding  period in 1996. For the nine
  months  ended  September  30,  1997,  the  Company's  Ratio of Earnings to Fixed
  Charges  (SEC  Method)  (Exhibit  12-1) and Ratio of Earnings to Combined  Fixed
  Charges and Preferred  Stock  Dividends  (SEC Method)  (Exhibit  12-2) were 3.58
  times and 3.29  times,  respectively,  compared  to 3.35  times and 3.31  times,
  respectively,  for the  corresponding  period in 1996. See the Company's  Annual
  Report on Form 10-K for the year ended  December 31, 1996 (1996 Form 10-K) under
  "PART I. ITEM 1. BUSINESS-Capital  Requirements and Financing Activities," for a
  discussion of the ratio methods.
  
                                       * * * *
  
           As previously disclosed, the Company's Board of Directors authorized
  the repurchase of up to 25 million shares of its common stock from time to time
  through open market, privately negotiated and/or other types of transactions in
  conformity with the rules of the Securities and Exchange Commission (SEC).
  
           The Company has entered into forward purchase agreements to be settled
  from time to time, at the Company's election, on either a physical, net share or
  net cash basis. The amount at which these agreements can be settled is dependent
  principally upon the market price of the Company's common stock as compared to
  the forward purchase price per share and the number of shares to be settled. If
  these agreements were settled on a net share basis at September 30, 1997, the
  Company would have received approximately 910,000 shares of Company common
  stock.
  
                                       * * * *
  
           Except for the historical information contained herein, certain of the
  matters discussed in this Quarterly Report on Form 10-Q (Report) are
  forward-looking statements which are subject to risks and uncertainties. The
  factors that could cause actual results to differ materially include those
  discussed herein as well as those listed in notes 2, 3 and 8 of Notes to
  Condensed Consolidated Financial Statements and other factors discussed in the
  Company's filings with the SEC. Readers are cautioned not to place undue
  reliance on these forward-looking statements, which speak only as of the date of
  this Report. The Company undertakes no obligation to publicly release any
  revision to these forward-looking statements to reflect events or circumstances
  after the date of this Report.
  
                                       * * * *
  
                                         14
  RESULTS OF OPERATIONS
  EARNINGS
           Earnings per average common share outstanding for the three and nine
  months ended September 30, 1997 were $0.69 and $1.71 per share, respectively,
  compared to $0.65 and $1.73 per share for the corresponding periods in 1996. The
  increase in third quarter 1997 earnings was due to higher electric revenues net
  of fuel of $0.10 per share primarily due to sales to other utilities, and from
  lower operating and maintenance costs of $0.08 per share. Offsetting these
  benefits was increased depreciation of $0.12 per share resulting primarily from
  the increased depreciation and amortization of assets associated with Limerick
  Generating Station (Limerick) and related deferred tax impacts.
  
           The decrease in earnings for the nine months ended September 30, 1997
  was primarily due to increased depreciation of $0.35 per share resulting
  primarily from the increased depreciation and amortization of assets associated
  with Limerick and related deferred tax impacts and milder weather of $0.12 per
  share in 1997. These decreases were partially offset by the recognition of
  income from the Salem litigation settlement of $0.18 per share; lower operating
  and maintenance costs of $0.17 per share; higher electric revenues net of fuel
  of $0.09 per share primarily due to sales to other utilities; and lower interest
  expense due to the Company's program to refinance higher interest rate debt,
  which added $0.03 per share.
  
                                       * * * *
  
  OPERATING REVENUES
           Electric revenues increased 15% and 6% for the three and nine months
  ended September 30, 1997, respectively, compared to the corresponding periods in
  1996 primarily due to higher sales to other utilities.
  
           Gas revenues increased 12% and 5% for the three and nine months ended
  September 30, 1997, respectively, compared to the corresponding periods in 1996.
  The increase was primarily due to higher revenues from sales to commercial,
  house heating and residential customers due to higher purchased gas-clause
  revenues charged in 1997 compared to 1996, partially offset by lower sales due
  primarily to milder weather conditions in 1997. For the nine months ended
  September 30, 1997, this increase was partially offset by reduced sales to
  interruptible customers as they switched to transportation service.
  
                                       * * * *
  
  FUEL AND ENERGY INTERCHANGE
           Fuel and energy interchange expenses increased 57% and 30% for the
  three and nine months ended September 30, 1997, respectively, compared to the
  corresponding periods in 1996 primarily due to additional interchange purchases
  needed for increased sales to other utilities. Also contributing to the
  nine-month increase was a one-time billing credit in 1996 from a non-utility
  generator and higher replacement power costs resulting from the shutdown of
  Salem.
  
                                       * * * *
  
                                         15
  OPERATING AND MAINTENANCE
           Operating and maintenance expenses decreased 10% and 7% for the three
  and nine months ended September 30, 1997, respectively, compared to the
  corresponding periods in 1996. The decreases were primarily due to lower
  electric distribution system expenses, lower uncollectibles and lower other
  administrative and general expenses. Also contributing to the decrease for the
  nine months ended September 30, 1997 were lower nuclear generating station
  expenses.
  
                                       * * * *
  
  DEPRECIATION
           Depreciation expense increased 26% and 25% for the three and nine
  months ended September 30, 1997, respectively, compared to the corresponding
  periods in 1996 primarily due to increased depreciation and amortization of
  assets associated with Limerick.
  
                                       * * * *
  
  INCOME TAXES
           Income taxes charged to operating expenses increased 32% and 8% for the
  three and nine months ended September 30, 1997 compared to the corresponding
  periods in 1996. The increase for the three months ended September 30, 1997 was
  primarily due to higher pre-tax income and reduced tax depreciation benefits
  from plant and regulatory assets which are not fully normalized for ratemaking
  purposes. The increase for the nine months ended September 30, 1997 was
  primarily due to reduced tax depreciation benefits from plant and regulatory
  assets which are not fully normalized for ratemaking purposes, partially offset
  by a decrease in pre-tax income.
  
                                       * * * *
  
  OTHER TAXES
           Other taxes charged to operating expenses increased 4% and 2% for the
  three and nine months ended September 30, 1997 compared to the corresponding
  periods in 1996. The increase for the three months ended September 30, 1997 was
  primarily due to increased real estate and gross receipts taxes. The increase
  for the nine months ended September 30, 1997 was primarily due to increased
  capital stock and gross receipts taxes.
  
                                       * * * *
  
  OTHER INCOME AND DEDUCTIONS
           Other income and deductions was substantially unchanged for the three
  months ended September 30, 1997 and increased substantially for the nine months
  ended September 30, 1997 compared to the corresponding periods in 1996. The
  increase for the nine months ended September 30, 1997 was primarily due to the
  settlement reached with Public Service Electric and Gas Company (PSE&G) in the
  second quarter of 1997 related to the shutdown of Salem.
  
                                       * * * *
  
                                         16
  NET INTEREST CHARGES
           Net interest charges were substantially unchanged for the three months
  ended September 30, 1997 and decreased 3% for the nine months ended September
  30, 1997 compared to the corresponding periods in 1996. The decrease for the
  nine months ended September 30, 1997 was primarily due to the Company's ongoing
  program to reduce and refinance higher-cost, long-term debt.
  
                                       * * * *
  
  PREFERRED DIVIDENDS
       Preferred stock dividends were unchanged for the three and nine months
  ended September 30, 1997 compared to the corresponding periods in 1996.
  
                                       * * * *
  
                                         17
  PART II - OTHER INFORMATION
  
  ITEM 1.  LEGAL PROCEEDINGS
           As previously reported in the Quarterly Report on Form 10-Q for the
  quarter ended June 30, 1997, on July 31, 1997, the plaintiffs in the class
  action suit against the Company involving the 1987 amendment to the Company's
  Service Annuity Plan filed a petition for review with the United States Supreme
  Court of the decision by the United States Court of Appeals for the Third
  Circuit. On October 14, 1997, the Supreme Court denied the plaintiffs' petition.
  
                                       * * * *
  
           As previously reported in the 1996 Form 10-K, the Company and the three
  other co-owners of Salem filed suit in February 1996 in the United States
  District Court for the District of New Jersey against Westinghouse Electric
  Corporation seeking damages to recover the cost of replacing the steam
  generators at Salem Units No. 1 and No. 2. In accordance with the court's
  schedule, Westinghouse filed a motion for summary judgment on October 1, 1997.
  
                                       * * * *
  
  ITEM 5.  OTHER INFORMATION
           As previously reported in the 1996 Form 10-K, the Company was scheduled
  to meet with the Nuclear Regulatory Commission (NRC) regarding the Company's
  plans for the resolution of the Thermo-Lag issue. The Company met with the NRC
  on August 5, 1997. As a result of the meeting, the NRC staff concluded that the
  Company is making reasonable progress toward resolving the Thermo-Lag issue.
  
                                       * * * *
  
           As  previously  disclosed,  Salem  Units No. 1 and No. 2,  operated  by
  PSE&G,  were taken out of service in the second  quarter of 1995.  On August 30,
  1997,  PSE&G  informed  the  Company  that  Unit No. 2  returned  to  commercial
  operation.  PSE&G  expects  that Unit No. 1 will  return to service in the first
  quarter  of 1998.  Because  the  timing of Unit No.  1's  restart  is subject to
  satisfactory completion of the restart plan requirements, as determined by PSE&G
  and the NRC, no assurance can be given that the  projected  restart date will be
  met.  The  inability  to  successfully  return  Unit No. 1 to  continuous,  safe
  operation  could  have a  material  adverse  effect on the  Company's  financial
  condition and results of operations.
  
                                       * * * *
  
           The Company has been informed by PSE&G that, on July 8, 1997, a
  predecisional enforcement conference was held with the NRC to discuss apparent
  violations at Salem. These apparent violations were identified in May and June
  1997, and concern emergency core cooling system switchover and related residual
  heat removal system (RHR) flow issues, and Appendix R (fire protection) issues.
  In a letter dated October 8, 1997, the NRC informed PSE&G that a Level III
  violation was cited for the issues surrounding the RHR system and Level IV
  violations were cited for the two
  
                                         18
  Appendix R issues. There was no civil penalty issued by the NRC.
  
                                       * * * *
  
           The Company has been informed by PSE&G that a predecisional enforcement
  conference has been scheduled for December 9, 1997 to discuss allegations
  concerning security program issues which occurred at Salem in 1996. PSE&G cannot
  predict what other actions, if any, the NRC may take in this matter.
  
                                       * * * *
  
           On October 7, 1997, Enron Energy Services Power, Inc. (Enron), an
  affiliate of an out-of-state, Pennsylvania-licensed electric supplier which is
  opposing the Pennsylvania Plan, requested that the PUC consider an alternative
  plan to implement competition in the Company's service territory. The
  alternative plan proposes, among other things; a larger initial rate cut than
  proposed in the Pennsylvania Plan; energy and capacity initially priced at 3.48
  cents per kilowatthour (kWh); the Company's issuance of $5.5 billion in
  transition bonds and the sale to Enron or its designee at a 9.66% coupon rate;
  the appointment of Enron as default service-provider in the Company's service
  territory; and a long-term purchased power agreement between Enron and the
  Company. On October 9, 1997, the PUC granted the Motion to Consolidate in order
  to take into account this alternative plan in deciding whether to approve the
  Pennsylvania Plan. The Company and other supporters of the Pennsylvania Plan
  will vigorously oppose the alternative plan on the grounds that it is seriously
  flawed, procedurally inappropriate and not in the best interests of
  Pennsylvania.
  
                                       * * * *
  
           On August 29, 1997, the PUC issued a final order outlining the
  guidelines for Retail Access Pilot Programs (Pilot Programs) in Pennsylvania.
  Among other things, these Pilot Programs guidelines provide for: participation
  of 5% of the peak load of each customer class; residential and commercial
  customers to be given a $0.03/kWh energy credit and a 13% reduction in the
  regulated portion of their bills; industrial customers to be given a $0.027/kWh
  energy credit and a 10% reduction in the regulated portion of their bills; an
  open enrollment period for all customers in each rate class interested in
  participating in the Pilot Programs from September 15, 1997 through September
  29, 1997; PUC-approved electric generation suppliers to begin marketing to
  potential customers immediately and complete marketing to potential customers by
  October 25, 1997; Pilot Programs' service to begin on November 1, 1997 and last
  through December 31, 1998.
  
           Approximately 400,000 customers applied to participate in the Pilot
  Program. In a lottery held by an independent third party, approximately 75,000
  customers were chosen to participate in the Company's Pilot Program.
  
                                       * * * *
  
           By letter dated August 5, 1997, the Company was notified by the NRC of
  the issuance of a Notice of Violation and Proposed Imposition of Civil 
  
                                         19
  Penalty in the amount of  $80,000  relating  to  falsification  of  surveillance
  records at Limerick in 1996. These incidents were identified and investigated by
  the Company and the  findings  were  provided to the NRC.  The Company has taken
  corrective actions and, on September 4, 1997, paid the fine.
  
                                       * * * *
  
           On August 1, 1997, the Company reached a settlement on all outstanding
  issues regarding its Purchase Gas Cost (PGC) No. 14 rates for the period
  December 1, 1997 to November 30, 1998, which reflects a $0.0731 per thousand
  cubic feet (mcf) decrease in natural gas sales rates. PGC No. 14 will become
  effective December 1, 1997, subject to PUC approval.
  
                                       * * * *
  
           On June 2, 1997 and June 9, 1997, in response to requests from the
  Federal Energy Regulatory Commission, the other utility members of the PJM
  Interconnection L.L.C. (PJM) and the Company, respectively, filed separate
  restructuring proposals regarding PJM.
  
                                       * * * *
  
  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 10, 1997, reporting information under "ITEM 5.
                    OTHER EVENTS" relating to the Company's decision to terminate
                    an offer to purchase an interest in River Bend Nuclear
                    Station.
  
           Report,  dated July 18, 1997, reporting information under "ITEM 5.
                    OTHER EVENTS" regarding the Company's filing of rebuttal
                    testimony with the Pennsylvania Public Utility Commission
                    supporting its comprehensive restructuring plan to implement
                    full customer choice of electric generation supply.
  
           Report,  dated July 30, 1997, reporting information under "ITEM 5.
                    OTHER EVENTS" regarding a motion filed with the Pennsylvania
                    Public Utility Commission for a continuance of hearings in the
                    Company's restructuring proceeding.
  
           Report,  dated August 13, 1997, reporting information under "ITEM 5.
                    OTHER EVENTS" regarding a motion filed with the Pennsylvania
                    Public Utility Commission for a Suspension of the
                    Administrative Schedule in the Company's restructuring
                    proceeding.
  
           Report,  dated August 27, 1997, reporting information under "ITEM 5.
                    OTHER EVENTS" regarding a Joint Petition for Partial
                    Settlement 
  
                                         20
  filed with the Pennsylvania  Public Utility  Commission in the
                    Company's restructuring proceeding.
  
           Reports on Form 8-K filed subsequent to the reporting period:
           None
  
                                         21
  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/ Michael J. Egan
                                          --------------------------
                                          Michael J. Egan
                                          Senior Vice President and
                                          Chief Financial Officer
                                          (Principal Financial and
                                          Accounting Officer)
  
  Date:  October 31, 1997
  
                                         22