content: UNITED STATES
                         SECURITIES AND EXCHANGE COMMISSION
                               Washington, D.C. 20549
                                      FORM 10-Q
  
  
             [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                           SECURITIES EXCHANGE ACT OF 1934
            For the quarterly period ended...September 30, 1996..........
                                         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 222,538,087 shares of common stock outstanding on
            October 31, 1996.
  
  
  
  
  <PAGE>
  
                            PART I. FINANCIAL INFORMATION
                            ITEM 1. FINANCIAL STATEMENTS
                    PECO ENERGY COMPANY AND SUBSIDIARY COMPANIES
                     CONDENSED CONSOLIDATED STATEMENTS OF INCOME
                                     (Unaudited)
                                (Millions of Dollars)
  
  
  <PAGE>
  
  
                    PECO ENERGY COMPANY AND SUBSIDIARY COMPANIES
                        CONDENSED CONSOLIDATED BALANCE SHEETS
                                (MILLIONS OF DOLLARS)
  
  <TABLE>
  <CAPTION>
                                                          September 30,  December 31,
                                                             1996           1995
                                                          (Unaudited)
  <S>                                                      <C>           <C>      
  ASSETS
  UTILITY PLANT
  Plant at Original Cost                                   $14,895.2     $14,696.0
  Less Accumulated Provision for Depreciation                4,975.9       4,623.7
                                                           ---------     ---------
                                                             9,919.3      10,072.3
  Nuclear Fuel, Net                                            163.7         191.1
  Construction Work in Progress                                611.2         494.2
  Leased Property, Net                                         189.1         180.4
                                                           ---------     ---------
                                                            10,883.3      10,938.0
                                                           ---------     ---------
  CURRENT ASSETS
  Cash and Temporary Cash Investments                           60.8          20.6
  Accounts Receivable, Net
    Customer                                                    51.2          75.2
    Other                                                       56.2          72.0
  Inventories, at Average Cost
    Fossil Fuel                                                 78.4          78.3
    Materials and Supplies                                     118.8         123.4
  Deferred Energy Costs                                         78.5          55.9
  Other                                                        117.6          60.8
                                                           ---------     ---------
                                                               561.5         486.2
                                                           ---------     ---------
  DEFERRED DEBITS AND OTHER ASSETS
  Recoverable Deferred Income Taxes                          1,988.4       2,077.4
  Deferred Limerick Costs                                      374.2         390.4
  Deferred Non-Pension Postretirement Benefits Costs           237.1         248.1
  Investments                                                  409.5         318.4
  Loss on Reacquired Debt                                      289.8         308.6
  Other                                                        158.1         193.5
                                                           ---------     ---------
                                                             3,457.1       3,536.4
                                                           ---------     ---------
  TOTAL                                                    $14,901.9     $14,960.6
                                                           =========     =========
  </TABLE>
  
  
              See Notes to Condensed Consolidated Financial Statements
  
  
  <PAGE>
  
                    PECO ENERGY COMPANY AND SUBSIDIARY COMPANIES
                        CONDENSED CONSOLIDATED BALANCE SHEETS
                                (MILLIONS OF DOLLARS)
                                    (Continued)
  
  <PAGE>
  
                    PECO ENERGY COMPANY AND SUBSIDIARY COMPANIES
                   CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
                                    (Unaudited)
                                (MILLIONS OF DOLLARS)
  
  
  <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, 1996 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. 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 1995 Annual Report to Shareholders, which are
  incorporated by reference in the Company's 1995 Annual Report on Form 10-K for
  the year ended December 31, 1995 (1995 Form 10-K).
  
  2.   SHUTDOWN OF SALEM GENERATING STATION (SALEM)
  
       Public Service Electric and Gas Company (PSE&G), the operator of Salem
  Units No. 1 and No. 2 which are 42.59% owned by the Company, removed the units
  from service on May 16, 1995 and June 7, 1995, respectively. Immediately
  following the shutdown of Unit No. 2, PSE&G informed the Nuclear Regulatory
  Commission (NRC) that it had determined to keep the Salem units shut down
  pending review and resolution of certain equipment and management issues and NRC
  agreement that each unit is sufficiently prepared to restart. PSE&G has informed
  the Company that due to degradation of a significant number of tubes in the Unit
  No. 1 steam generator, the co-owners will purchase unused steam generators from
  the unfinished Seabrook Generating Station Unit No. 2 to replace the Salem Unit
  
                                        -6-
  
  <PAGE>
  
  No. 1 steam generators. For additional information regarding the Unit No. 1
  steam generators, see "PART II. OTHER INFORMATION ITEM 5. OTHER INFORMATION" in
  this quarterly report on Form 10-Q. In addition, PSE&G indicated that Unit No. 2
  is not expected to return to service until early in the first quarter of 1997.
  PSE&G estimates the projected restart of Unit No. 1 to be mid-1997. For
  additional information regarding the shutdown of Salem, see "PART II. OTHER
  INFORMATION. ITEM 5. OTHER INFORMATION" in this Quarterly Report on Form 10-Q.
  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 as Maintenance $14 and $45
  million, respectively, of maintenance costs relating to the shutdown of Salem.
  For the year ended December 31, 1996, the Company expects to incur and expense
  approximately $170 million for increased costs related to the shutdown,
  including $15 million of restart-related expenses incurred in 1995 but expensed
  in 1996. Of these costs, approximately $10 million are expected to be offset by
  adjustments to deferred fuel resulting from a Pennsylvania Public Utility
  Commission (PUC) approved settlement of the Company's Energy Cost Adjustment.
  
  3.   SALES OF ACCOUNTS RECEIVABLE
  
       The Company is party to an agreement with a financial institution under
  which it sold with limited recourse an undivided interest, adjusted daily, in up
  to $425 million of designated accounts receivable through November 14, 2000. At
  September 30, 1996, 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, 1996, the average annual
  service-charge rate, computed on a daily basis on the portion of the accounts
  receivable sold but not yet collected, was 5.42%.
  
       By terms of this agreement, under certain circumstances, a portion of
  Limerick Generating Station (Limerick) deferred costs may be included in 
  
  
                                        -7-
  <PAGE>
  
       the pool of eligible receivables. At September 30, 1996, $24.6 million of
       Deferred Limerick Costs were included in the pool of eligible receivables.
  
  4.   DECLARATORY ACCOUNTING ORDER
  
       On February 22, 1996, the PUC approved the Company's petition for a
  declaratory accounting order regarding changes in the estimated depreciable
  lives of certain of the Company's electric plant. As a result of this order,
  effective October 1, 1996, 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. Rates charged to customers are not affected by the order.
  
  5.   COMMITMENTS AND CONTINGENCIES
  
       Except as described below, the information regarding the Company's
  construction expenditures, nuclear insurance, nuclear decommissioning and spent
  fuel storage, energy purchases, environmental issues and litigation at September
  30, 1996 is substantially the same as described in note 4 of Notes to
  Consolidated Financial Statements which is incorporated by reference in the
  Company's 1995 Form 10-K, the Quarterly Report on Form 10-Q for the period ended
  March 31, 1996 (March 31, 1996 Form 10-Q)and the Quarterly Report on Form 10-Q
  for the period ended June 30, 1996 (June 30, 1996 Form 10-Q).
  
       As previously reported, the Company has identified 26 sites where former
  manufactured gas plant (MGP) activities have or may have resulted in actual site
  contamination. As of September 30, 1996, the Company had accrued $29 million for
  environmental investigation and remediation costs, including $16 million for MGP
  investigation and remediation. The Company believes that it could incur
  additional liabilities with respect to MGP sites, which cannot be reasonably
  estimated at this time. 
  
                                      * * * *
  
                                        -8-
  <PAGE>
  
  
  ITEM 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
            CONDITION AND RESULTS OF OPERATIONS 
  
  FINANCIAL CONDITION
  
       The Company's construction program is currently estimated to require
  expenditures of approximately $538 million for 1996 and $1.6 billion for 1997 to
  2000, all of which are expected to be funded from internal sources. The
  estimated expenditures do not include the Company's share of the expenditures
  relating to the replacement of Unit No. 1 steam generators at Salem Generating
  Station (Salem), currently estimated to be approximately $73 to $81 million. For
  additional information, see "PART II. OTHER INFORMATION. ITEM 5. OTHER
  INFORMATION" in this Quarterly Report on Form 10-Q.
  
       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 1996 through 2000, the Company also plans to invest
  approximately $150 million in joint ventures and other telecommunications
  opportunities through its Telecommunications Group, all of which are expected to
  be funded through internally generated funds. The Company's telecommunications
  joint ventures are accounted for under the equity method of accounting.
  
                                       * * * *
  
       See note 4 of Notes to Consolidated Financial Statements for the year ended
  December 31, 1995 for a discussion of commitments and contingencies relating to
  environmental matters and note 5 of Notes to Condensed Consolidated Financial
  Statements in this Quarterly Report on Form 10-Q under "PART 1. FINANCIAL
  INFORMATION. ITEM 1. FINANCIAL STATEMENTS." 
  
                                      * * * *
  
                                        -9-
  
  <PAGE>
  
       The Company's future financial condition or results of operations may be
  affected by increased competition among utilities and non-utility generators in
  the power generation market and regulatory changes designed to encourage such
  competition. Due to the Company's substantial investment in plant, particularly
  Limerick Generating Station (Limerick), and regulatory assets, any regulatory
  changes which do not provide for recovery of these amounts could result in a
  substantial write-down of assets. For additional information concerning
  competition, see the Company's Annual Report on Form 10-K for the year ended
  December 31, 1995 (1995 Form 10-K), the Company's Current Report on Form 8-K
  dated July 3, 1996 and "PART II. OTHER INFORMATION ITEM 5. OTHER INFORMATION" of
  this Quarterly Report on Form 10-Q.
  
                                       * * * *
  
       On February 22, 1996, the Pennsylvania Public Utility Commission (PUC)
  approved the Company's petition for a declaratory accounting order regarding
  changes in the estimated depreciable lives of certain of the Company's electric
  plant. As a result of the order, effective October 1, 1996, 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. Rates charged to
  customers are not affected by the order; accordingly, the Company expects
  results of operations for the remainder of 1996 to be negatively impacted. In
  addition, to the extent that offsetting benefits from the Company's Competitive
  Breakthrough Strategy are not achieved in 1997, the Company's future results of
  operations will also be negatively impacted. See note 3 of Notes to Consolidated
  Financial Statements for the year ended December 31, 1995 and note 4 of Notes to
  Condensed Consolidated Financial Statements of this Quarterly Report on Form
  10-Q under "PART I. FINANCIAL INFORMATION. ITEM 1. FINANCIAL STATEMENTS."
  
                                       * * * *
  
                                        -10-
  <PAGE>
  
       For the year ended December 31, 1996, the Company expects to incur
  replacement power and additional maintenance costs of approximately $160 million
  as a result of the Salem shutdown. See note 2 of Notes to Condensed Consolidated
  Financial Statements of 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."
  
                                       * * * *
  
       At September 30, 1996, the Company and its subsidiaries had outstanding
  $282 million of short-term borrowings, including $149 million of commercial
  paper. The Company has formal and informal lines of bank credit aggregating $275
  million. At September 30, 1996, the Company and its subsidiaries had no
  short-term investments. 
  
                                      * * * *
  
       The Company's Ratio of Earnings to Fixed Charges (Mortgage Method) for the
  twelve months ended September 30, 1996 was 4.47 times compared to 4.76 times for
  the corresponding period in 1995. The Company's Ratio of Earnings to Combined
  Fixed Charges and Preferred Stock Dividends (Articles of Incorporation Method)
  for the twelve months ended September 30, 1996, was 2.53 times compared to 2.62
  times for the corresponding period in 1995. For the nine months ended September
  30, 1996, the Company's Ratio of Earnings to Fixed Charges (SEC Method) and
  Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends (SEC
  Method) were 3.35 times and 3.10 times, respectively, compared to 3.64 times and
  3.32 times, respectively, for the corresponding period in 1995. See the
  Company's 1995 Form 10-K under "PART I. ITEM 1. BUSINESS-Capital Requirements
  and Financing Activities," for a discussion of the ratio methods.
  
                                       * * * *
  
  RESULTS OF OPERATIONS
  EARNINGS
  
       Earnings per average common share outstanding for the three and nine months
  ended September 30, 1996 were $0.65 and $1.73 per share, respectively, compared
  to $0.80 and $2.13 per share for the corresponding 
  
  
                                        -11-
  
  <PAGE>
  
  periods in 1995. The decrease in 1996 third quarter earnings was primarily due
  to lower electric revenues from retail sales resulting from cooler weather
  conditions, partially offset by increased sales to others which together reduced
  earnings by $0.11 per share. Also contributing to the decrease in earnings were
  higher expenses including customer expenses of $0.06 per share and Salem outage
  replacement power and maintenance costs of $0.04 per share. Savings resulting
  from the Company's ongoing debt and preferred stock refunding and refinancing
  program increased earnings by $0.03 per share.
  
       The decrease in earnings for the nine months ended September 30, 1996 was
  primarily due to higher Salem outage replacement power and maintenance costs
  which reduced earnings by $0.23 per share, lower electric revenues due to cooler
  weather conditions compared to last year which reduced earnings by $0.13 per
  share, the gain on the sale of Conowingo Power Company (COPCO) which increased
  1995 earnings by $0.12 per share, and higher customer expenses which reduced
  earnings by $0.09 per share. These decreases were partially offset by higher
  revenues due to increased sales to other utilities which benefited earnings by
  $0.13 per share and savings resulting from the Company's ongoing debt and
  preferred stock refunding and refinancing program which benefited earnings by
  $0.07 per share.
  
                                       * * * *
  
  OPERATING REVENUES
  
       Electric revenues decreased 2% and increased 4% for the three and nine
  months ended September 30, 1996, respectively, compared to the corresponding
  periods in 1995. The decrease in electric revenues for the three months ended
  September 30, 1996 was primarily due to lower retail sales resulting from
  unfavorable weather conditions compared to the prior year, which was partially
  offset by increased sales to other utilities. The increase in electric revenues
  for the nine months ended September 30, 1996 was primarily due to increased
  sales to other utilities, which was partially offset by decreased retail sales
  due to unfavorable weather conditions compared to the prior year.
  
                                        -12-
  
  <PAGE>
  
       Gas revenues increased 10% and 9% for the three and nine months ended
  September 30, 1996, respectively, compared to the corresponding periods in 1995.
  The increase for the three months ended September 30, 1996 was primarily due to
  an increase in the number of house heating customers and higher levels of firm
  sales resulting from customers switching from transportation service to firm
  service. This increase was partially offset by lower rates. The increase for the
  nine months ended September 30, 1996 was primarily due to increased sales to
  retail customers from more favorable weather conditions in the first half of
  1996 compared to the prior year and higher levels of firm sales resulting from
  customers switching from transportation service to firm service.
  
                                       * * * *
  
  FUEL AND ENERGY INTERCHANGE EXPENSES
  
       Fuel and energy interchange expenses increased 14% and 30% for the three
  and nine months ended September 30, 1996, respectively, compared to the
  corresponding periods in 1995 primarily due to interchange purchases needed for
  increased sales to other utilities. In addition, for the nine months ended
  September 30, 1996, the increase was due to higher replacement power costs
  resulting from the shutdown of Salem and a net credit to expense in 1995 from
  certain energy sales to other utilities.
  
                                       * * * *
  
  OPERATING AND MAINTENANCE EXPENSES
  
       Operating and maintenance expenses increased 7% and 6% for the three and
  nine months ended September 30, 1996, respectively, compared to the
  corresponding periods in 1995. The increases were primarily due to higher
  uncollectible charges, higher customer service expenses related to process
  improvements, higher contractor costs and higher nuclear generating station
  charges resulting from the shutdown of Salem. These increases were partially
  offset by lower operating costs at the Company-operated nuclear generating
  stations and lower administrative and general expenses.
  
                                       * * * *
  
                                        -13-
  
  <PAGE>
  
  DEPRECIATION
  
       Depreciation expense was substantially unchanged for the three months ended
  September 30, 1996, and increased 3% for the nine months ended September 30,
  1996, compared to the corresponding periods in 1995 primarily due to additions
  to plant in service.
  
                                       * * * *
  
  INCOME TAXES
  
       Income taxes charged to operating expenses decreased 22% and 12% for the
  three and nine months ended September 30, 1996 compared to the corresponding
  periods in 1995, respectively, primarily due to a decrease in pre-tax income.
  The decrease was partially offset by reduced tax depreciation benefits from
  plant assets which are not fully normalized for ratemaking.
  
                                       * * * *
  
  OTHER TAXES
  
       Other taxes charged to operating expenses decreased 5% and 1% for the three
  and nine months ended September 30, 1996, compared to the corresponding periods
  in 1995 primarily due to decreased gross receipts taxes resulting from lower
  retail revenue and lower real estate taxes. These decreases were partially
  offset by increased capital stock and payroll taxes.
  
                                       * * * *
  
  OTHER INCOME AND DEDUCTIONS
  
       Other income and deductions was substantially unchanged for the three
  months ended September 30, 1996, and decreased 90% for the nine months ended
  September 30, 1996 compared to the corresponding periods in 1995. The decrease
  for the nine months ended September 30, 1996 is primarily due to the June 1995
  gain on the sale of COPCO.
  
                                       * * * *
  
                                        -14-
  <PAGE>
  
  
  TOTAL INTEREST CHARGES
  
       Total interest charges decreased 8% for the three and nine months ended
  September 30, 1996, compared to the corresponding periods in 1995 primarily due
  to the Company's ongoing program to reduce and refinance higher-cost, long-term
  debt, partially offset by the replacement of preferred stock with Company
  Obligated Mandatorily Redeemable Preferred Securities in the fourth quarter of
  1995.
  
                                       * * * *
  
  PREFERRED DIVIDENDS
  
       Preferred stock dividends decreased 26% for the three and nine months ended
  September 30, 1996, compared to the corresponding periods in 1995 due to the
  replacement of preferred stock with Company Obligated Mandatorily Redeemable
  Preferred Securities in the fourth quarter of 1995.
  
                                       * * * *
  
                                        -15-
  
  <PAGE>
  
  
                               PART II - OTHER INFORMATION
  
  ITEM 1.  LEGAL PROCEEDINGS
  
       As previously reported in the 1995 Form 10-K, the Company filed appeals
  from the May 13, 1994 United States District Court for the Eastern District of
  Pennsylvania (Eastern District Court) decision and subsequent August 23, 1995
  order which found the Company liable to a class of plaintiffs who made inquiries
  about early retirement in or about April 1990 and awarded damages to these
  plaintiffs in the amount of $1.5 million. On October 1, 1996, the United States
  Circuit Court of Appeals for the Third Circuit (Third Circuit Court of Appeals)
  reversed the Eastern District Court decision and held for the Company.
  Plaintiffs have until December 30, 1996 to file an appeal.
  
                                       * * * *
  
       As previously reported in the 1995 Form 10-K, the Company filed appeals
  from the May 13, 1994 Eastern District Court decision and subsequent August 23,
  1995 order which found the Company liable to a class of plaintiffs who made
  inquiries about early retirement in or about June 1987 and awarded damages to
  these plaintiffs in the amount of $1.8 million. On October 1, 1996, the Third
  Circuit Court of Appeals reversed the Eastern District Court decision and held
  for the Company. Plaintiffs have until December 30, 1996 to file an appeal.
  
                                       * * * *
  
       As previously reported, the Court of Common Pleas of Philadelphia County
  (Court of Common Pleas) denied the Company's petition to terminate the
  consolidated shareholder derivative lawsuits relating to the Company's past
  credit and collection practices. On June 20, 1996, the Company filed a petition
  with the Supreme Court of Pennsylvania (Pennsylvania Supreme Court)for
  extraordinary relief. On October 15, 1996, the Pennsylvania Supreme Court
  granted the Company's petition and agreed to accept for review the issue of
  whether the business judgment rule permits the boards of directors of a
  Pennsylvania corporation to terminate derivative lawsuits brought by minority
  shareholders. Pending resolution of this issue by the 
  
  
                                        -16-
  
  <PAGE>
  
  Pennsylvania Supreme Court, all matters in the lower courts related to the suits
  are suspended. The Company cannot predict when or how the Supreme Court of
  Pennsylvania will decide on this issue.
  
                                       * * * *
  
  ITEM 5.  OTHER INFORMATION
  
       As previously reported, the Company has been informed by Public Service
  Electric and Gas Company (PSE&G) that the cost relating to the replacement of
  the steam generators of Unit No. 1 at Salem with steam generators from Seabrook
  Generating Station Unit No. 2 will be approximately $170 to $190 million, of
  which the Company's share will be approximately $73 to $81 million.
  
       In addition, the Company has been informed by PSE&G that, given the
  additional scope of work and the delay of the restart of Salem Unit No. 2, Unit
  No. 1 restart activities (excluding the steam generator replacement) and various
  initiatives in progress, it is expected that the Company's share of
  restart-related maintenance expenditures will be approximately $75 million for
  1996, including $15 million of restart-related expenses incurred in 1995 but
  expensed in 1996.
  
       The latest estimate of the cost of replacement power for the year ended
  1996 is $95 million, which includes approximately $5 million per unit per month
  for the remainder of 1996. Of these costs, approximately $10 million are
  expected to be offset by adjustments to deferred fuel resulting from a
  PUC-approved settlement of the Energy Cost Adjustment. Additionally, the Company
  estimates replacement power costs to be $5 million per unit per month during
  1997.
  
       The Company has been informed by PSE&G that it now expects Salem Unit No. 2
  to return to service early in the first quarter of 1997. PSE&G expects Unit No.
  1 to return to service by mid-1997.
  
                                       * * * *
  
       As previously reported, PSE&G and the Company announced the commissioning
  of a study to identify and evaluate alternatives to their separate nuclear power
  plant operations. In particular, the study will 
  
                                        -17-
  
  <PAGE>
  
  evaluate strategies to reduce nuclear operation and maintenance costs for both
  companies and increase the efficiencies of operations. A preliminary draft of
  the study indicates opportunities for risk diversification, performance
  improvement and cost savings. Further review will take place during the fourth
  quarter of 1996.
  
                                       * * * *
  
       On October 28, 1996, the Board of Directors of the Company increased the
  Company's quarterly common stock dividend 3.4% from $0.435 per share to $0.45
  per share. The higher dividend will be payable December 20, 1996 to common stock
  shareholders of record on November 15, 1996. The new annual common stock
  dividend will be $1.80 per share.
  
                                       * * * *
  
       In a letter dated October 9, 1996, the NRC informed the Company that an
  enforcement conference would be scheduled to discuss an alleged violation of NRC
  regulations at Peach Bottom relating to preventative maintenance procedures for
  several critical station systems and components. This conference is scheduled to
  be held on November 15, 1996.
  
       In a letter dated October 10, 1996, the NRC informed the Company that a
  separate enforcement conference would be scheduled to discuss an alleged
  violation of NRC regulations at Peach Bottom relating to station modifications
  associated with emergency diesel generators. This conference is scheduled to be
  held on December 11, 1996.
  
       The NRC is expected to make a decision following each of these conferences
  which potentially could include the imposition of a civil penalty.
  
                                       * * * *
  
       As previously reported, in response to a 1990 recommendation by General
  Electric Company (GE) to all owners of GE Boiling Water Reactors (BWRs) that
  interim corrective actions be taken for possible cracking in or near the seam
  welds of BWR core shroud assemblies, the Company initiated a series of visual
  inspections of the accessible areas of the core shroud seam welds of each of the
  reactors at Limerick and Peach Bottom Atomic 
  
                                        -18
  
  
  <PAGE>
  
  Power Station (Peach Bottom). Although prior inspections performed during the
  planned refueling outages for these reactors have revealed crack indications in
  the seam welds of the core shroud assemblies, the Company concluded and the
  Nuclear Regulatory Commission (NRC) agreed, in each case, that the extent of
  cracking identified was minimal and within industry-established guidelines.
  Peach Bottom Unit No. 2 was reinspected in September 1996, and although
  additional minor flaw indications were discovered, the Company concluded and the
  NRC concurred that neither repair nor modification to the core shroud was
  necessary prior to restarting the reactor.
  
                                       * * * *
  
       As previously reported, three bills have been introduced in the
  Pennsylvania General Assembly that would require the PUC to adopt a plan to
  restructure the electric utility industry and would also require customers and
  utility company shareholders to share stranded investment costs resulting from
  such restructuring. At the direction of the Governor of Pennsylvania, and under
  the leadership of the Chairman of the PUC, a two-month collaborative effort was
  undertaken to reach a consensus on legislation to implement retail customer
  choice of generation supplier in Pennsylvania (Consensus Bill). The
  collaborative effort included representatives from electric utilities, large
  industrial customers, consumer advocates, organized labor, legislators,
  environmental interests, and others (Consensus Group). Some entities, including
  environmental groups and citizen action groups, have expressed public opposition
  to the Consensus Bill.
  
       The Consensus Bill proposes the restructuring of the electric industry in
  Pennsylvania to provide for the unbundling of electric services and open-retail
  competition for generation. Retail access pilot programs would begin on April 1,
  1997 and direct generation access for all customers would be phased in three
  steps over a two-year period beginning January 1, 1999. By April 1, 1997, each
  electric utility would be required to submit to the PUC its restructuring plan,
  including the utility's "stranded costs" which 
  
                                        -19-
  
  <PAGE>
  
  will result from competition. These stranded costs would include regulatory
  assets and nuclear decommissioning costs, for which full recovery would be
  allowed; non-utility generation buyout costs, for which full recovery would be
  allowed, and other costs, including investment in nuclear plants, spent fuel
  disposal, long-term purchase power commitments, retirements costs and
  reorganization costs, for which an opportunity for recovery would be allowed in
  an amount determined by the PUC as just and reasonable. These costs, after
  mitigation by the utility, would be recoverable through a "competitive
  transition charge" approved by the PUC and collected from distribution customers
  for up to nine years (or for an alternative period determined by the PUC for
  good cause shown). During that period, the utility would be subject to a rate
  cap providing that total charges to customers could not exceed rates in place as
  of the effective date of the bill, subject to certain exceptions. The bill also
  provides a mechanism for reducing the utility's stranded investment and related
  capitalization through the issuance of "Transition Bonds." The Transition Bonds
  would be repaid through the imposition of "intangible transition charges" which
  would be collected in lieu of competitive transition charges. The maximum
  maturity of the Transition Bonds would be ten years. The current legislative
  session ends November 30, 1996 with the new session beginning January 7, 1997.
  The Company cannot predict whether the Consensus Bill, any of the pending bills,
  or new bills will be brought before the General Assembly for a vote, or whether
  any of these bills will be enacted into law.
  
                                       * * * *
  
       As previously reported, on April 24, 1996 the Federal Energy Regulatory
  Commission (FERC) issued a final rule (Order No. 888) that became effective July
  9, 1996, which requires all public utilities to file non-discriminatory
  open-access tariffs that offer others the same wholesale transmission service
  they provide to themselves. FERC Order No. 888 also requires that power pools
  file and begin taking service under joint pool-wide open access transmission
  tariffs by December 31, 1996, which deadline 
  
                                        -20-
  
  <PAGE>
  
  was subsequently extended by the FERC to March 1, 1997 in a subsequent order.
  
       On July 5, 1996, the Company filed with the FERC a revised transmission
  tariff reflecting the final pro forma terms and conditions required by Order No.
  888.
  
                                       * * * *
  
       On November 1, 1996, the Company filed with the FERC certain revisions to
  its wholesale electric tariffs in compliance with the FERC's requirement,
  pursuant to FERC Order No. 888, that utilities unbundle their generation and
  transmission costs for wholesale market transactions. Included among the
  revisions was a proposal to eliminate the existing cost-based cap on prices
  charged for power which is purchased by the Company in anticipation of later
  resale in the wholesale market (so-called "buy-for-resale" transactions) and
  certain changes regarding the terms of buy-for-resale agreements.
  
       In an order dated September 20, 1996 relating to the Pennsylvania-New
  Jersey-Maryland Interconnection Association (PJM) restructuring filings, the
  FERC commented that neither of the competing restructuring proposals would be
  evaluated until the FERC addressed the related applications by the PJM-member
  companies to transfer operational control over their transmission facilities to
  an Independent System Operator (ISO). On November 13, 1996, the FERC issued an
  order providing guidance to the PJM members in connection with PJM-pool
  restructuring. The FERC concluded that neither of the competing proposals, as
  currently structured, satisfied either the ISO or tariff comparability
  requirements of Order No. 888. The FERC directed the PJM members to revise and
  re-file their proposals by December 31, 1996. The Company cannot predict how or
  when the FERC will act on the PJM restructuring issue.
  
                                       * * * *
  
       As previously reported, the Company was named as a third-party defendant in
  a suit commenced by the New Jersey Department of Environmental Protection and
  Energy (NJDEPE) for certain clean-up costs at the Gloucester 
  
  
                                        -21-
  
  <PAGE>
  
  Environmental Management Services, Inc. (GEMS) site located in New Jersey based
  on information which suggested that wastes generated by the Company were
  disposed of at the site by a third party. On July 9, 1996, the Company signed a
  Consent Decree in which it agreed to pay NJDEPE $238,452 to settle its potential
  liability at the site.
  
                                       * * * *
  
       As previously reported, the Company was named as a third-party defendant in
  a suit commenced by the NJDEPE for clean-up costs at the Helen Kramer landfill
  located in New Jersey. The Company, together with a number of other direct and
  third-party defendants, has agreed to participate in a proposed de minimis
  settlement which would allow the Company to settle its potential liability at
  the site for approximately $40,000.
  
                                       * * * *
  
       As previously reported, the Company has been identified as a potentially
  responsible party at the Bridgeport Rental and Oil Services (BROS) Superfund
  Site in New Jersey and, while not named in the pending litigation regarding
  clean-up of the site, had been participating in informal settlement negotiations
  involving the United States Environmental Protection Agency, the direct and
  third-party defendants and several other parties which have yet to be joined in
  the suit. On September 25, 1996, the Company agreed to a settlement with the
  parties which provides that the Company would pay $375,000 to settle its
  potential liability at the site. Not covered by the settlement were possible
  natural resource damage and private party claims.
  
                                       * * * *
  
       As previously reported, in response to a 1989 Notice of Violation issued by
  the Pennsylvania Department of Environmental Protection (PDEP) for soil
  contamination at one of the Company's maintenance facilities, the Company had
  undertaken a PDEP-approved remedial clean-up plan pursuant to which the Company
  spent $1.3 million. On September 20, 1996, PDEP notified the Company that it was
  satisfied that the site had been sufficiently 
  
                                        -22-
  
  <PAGE>
  
  remediated within state guidelines and that no further investigation, monitoring
  or remediation is necessary at the facility.
  
                                       * * * *
  
  
  
                                        -23-
  <PAGE>
  
  
  
  ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K
  
  (a)      Exhibits:
  
           12-1     -        Statement regarding computation of ratio of
                             earnings to fixed charges.
  
           12-2     -        Statement regarding computation of ratio of
                             earnings to combined fixed charges and preferred
                             stock dividends.
  
           27       -        Financial Data Schedule.
  
  (b)      Reports on Form 8-K (filed during the reporting period):
  
            Report, dated July 3, 1996, reporting information under "ITEM 5. OTHER
            EVENTS" relating to the report and recommendation by the PUC. Report,
            dated July 22, 1996, reporting information under "ITEM 5. OTHER
            EVENTS" relating to Salem Generating Station.
  
            Reports on Form 8-K (filed subsequent to the reporting period):
  
            None
  
  
                                        -24-
  
  <PAGE>
  
  
                                     Signatures
  
       Pursuant to requirements of the Securities Exchange Act of 1934, the
  registrant has duly caused this report to be signed on its behalf by the
  undersigned thereunto duly authorized.
  
  
                                                      PECO ENERGY COMPANY
                                                    /s/ Kenneth G. Lawrence
                                                  --------------------------
                                                       Kenneth G. Lawrence
                                                    Senior Vice President and
                                                    Chief Financial Officer
                                                    (Principal Financial and
                                                      Accounting Officer)
  
  
  Date:  November 14, 1996
metadata_documents: [{"type": "10-Q", "sequence": "1", "secsgml_size_bytes": 42562}]
metadata_filer: {"company-data": {"conformed-name": "PECO ENERGY CO", "cik": "0000078100", "assigned-sic": "4931", "irs-number": "230970240", "state-of-incorporation": "PA", "fiscal-year-end": "1231"}, "filing-values": {"form-type": "10-Q", "act": "34", "file-number": "001-01401", "film-number": "96666754"}, "business-address": {"street1": "2301 MARKET ST", "street2": "P O BOX 8699", "city": "PHILADELPHIA", "state": "PA", "zip": "19103", "phone": "2158414000"}, "former-company": {"former-conformed-name": "PHILADELPHIA ELECTRIC CO", "date-changed": "19920703"}}
text: UNITED STATES
                         SECURITIES AND EXCHANGE COMMISSION
                               Washington, D.C. 20549
                                      FORM 10-Q
  
             [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                           SECURITIES EXCHANGE ACT OF 1934
            For the quarterly period ended...September 30, 1996..........
                                         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 222,538,087 shares of common stock outstanding on
            October 31, 1996.
  PART I. FINANCIAL INFORMATION
                            ITEM 1. FINANCIAL STATEMENTS
                    PECO ENERGY COMPANY AND SUBSIDIARY COMPANIES
                     CONDENSED CONSOLIDATED STATEMENTS OF INCOME
                                     (Unaudited)
                                (Millions of Dollars)
  PECO ENERGY COMPANY AND SUBSIDIARY COMPANIES
                        CONDENSED CONSOLIDATED BALANCE SHEETS
                                (MILLIONS OF DOLLARS)
  September 30,  December 31,
                                                             1996           1995
                                                          (Unaudited)
  ASSETS
  UTILITY PLANT
  Plant at Original Cost                                   $14,895.2     $14,696.0
  Less Accumulated Provision for Depreciation                4,975.9       4,623.7
                                                           ---------     ---------
                                                             9,919.3      10,072.3
  Nuclear Fuel, Net                                            163.7         191.1
  Construction Work in Progress                                611.2         494.2
  Leased Property, Net                                         189.1         180.4
                                                           ---------     ---------
                                                            10,883.3      10,938.0
                                                           ---------     ---------
  CURRENT ASSETS
  Cash and Temporary Cash Investments                           60.8          20.6
  Accounts Receivable, Net
    Customer                                                    51.2          75.2
    Other                                                       56.2          72.0
  Inventories, at Average Cost
    Fossil Fuel                                                 78.4          78.3
    Materials and Supplies                                     118.8         123.4
  Deferred Energy Costs                                         78.5          55.9
  Other                                                        117.6          60.8
                                                           ---------     ---------
                                                               561.5         486.2
                                                           ---------     ---------
  DEFERRED DEBITS AND OTHER ASSETS
  Recoverable Deferred Income Taxes                          1,988.4       2,077.4
  Deferred Limerick Costs                                      374.2         390.4
  Deferred Non-Pension Postretirement Benefits Costs           237.1         248.1
  Investments                                                  409.5         318.4
  Loss on Reacquired Debt                                      289.8         308.6
  Other                                                        158.1         193.5
                                                           ---------     ---------
                                                             3,457.1       3,536.4
                                                           ---------     ---------
  TOTAL                                                    $14,901.9     $14,960.6
                                                           =========     =========
  See Notes to Condensed Consolidated Financial Statements
  PECO ENERGY COMPANY AND SUBSIDIARY COMPANIES
                        CONDENSED CONSOLIDATED BALANCE SHEETS
                                (MILLIONS OF DOLLARS)
                                    (Continued)
  PECO ENERGY COMPANY AND SUBSIDIARY COMPANIES
                   CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
                                    (Unaudited)
                                (MILLIONS OF DOLLARS)
  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, 1996 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. 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 1995 Annual Report to Shareholders, which are
  incorporated by reference in the Company's 1995 Annual Report on Form 10-K for
  the year ended December 31, 1995 (1995 Form 10-K).
  
  2.   SHUTDOWN OF SALEM GENERATING STATION (SALEM)
  
       Public Service Electric and Gas Company (PSE&G), the operator of Salem
  Units No. 1 and No. 2 which are 42.59% owned by the Company, removed the units
  from service on May 16, 1995 and June 7, 1995, respectively. Immediately
  following the shutdown of Unit No. 2, PSE&G informed the Nuclear Regulatory
  Commission (NRC) that it had determined to keep the Salem units shut down
  pending review and resolution of certain equipment and management issues and NRC
  agreement that each unit is sufficiently prepared to restart. PSE&G has informed
  the Company that due to degradation of a significant number of tubes in the Unit
  No. 1 steam generator, the co-owners will purchase unused steam generators from
  the unfinished Seabrook Generating Station Unit No. 2 to replace the Salem Unit
  
                                        -6-
  No. 1 steam generators. For additional information regarding the Unit No. 1
  steam generators, see "PART II. OTHER INFORMATION ITEM 5. OTHER INFORMATION" in
  this quarterly report on Form 10-Q. In addition, PSE&G indicated that Unit No. 2
  is not expected to return to service until early in the first quarter of 1997.
  PSE&G estimates the projected restart of Unit No. 1 to be mid-1997. For
  additional information regarding the shutdown of Salem, see "PART II. OTHER
  INFORMATION. ITEM 5. OTHER INFORMATION" in this Quarterly Report on Form 10-Q.
  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 as Maintenance $14 and $45
  million, respectively, of maintenance costs relating to the shutdown of Salem.
  For the year ended December 31, 1996, the Company expects to incur and expense
  approximately $170 million for increased costs related to the shutdown,
  including $15 million of restart-related expenses incurred in 1995 but expensed
  in 1996. Of these costs, approximately $10 million are expected to be offset by
  adjustments to deferred fuel resulting from a Pennsylvania Public Utility
  Commission (PUC) approved settlement of the Company's Energy Cost Adjustment.
  
  3.   SALES OF ACCOUNTS RECEIVABLE
  
       The Company is party to an agreement with a financial institution under
  which it sold with limited recourse an undivided interest, adjusted daily, in up
  to $425 million of designated accounts receivable through November 14, 2000. At
  September 30, 1996, 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, 1996, the average annual
  service-charge rate, computed on a daily basis on the portion of the accounts
  receivable sold but not yet collected, was 5.42%.
  
       By terms of this agreement, under certain circumstances, a portion of
  Limerick Generating Station (Limerick) deferred costs may be included in 
  
                                        -7-
  the pool of eligible receivables. At September 30, 1996, $24.6 million of
       Deferred Limerick Costs were included in the pool of eligible receivables.
  
  4.   DECLARATORY ACCOUNTING ORDER
  
       On February 22, 1996, the PUC approved the Company's petition for a
  declaratory accounting order regarding changes in the estimated depreciable
  lives of certain of the Company's electric plant. As a result of this order,
  effective October 1, 1996, 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. Rates charged to customers are not affected by the order.
  
  5.   COMMITMENTS AND CONTINGENCIES
  
       Except as described below, the information regarding the Company's
  construction expenditures, nuclear insurance, nuclear decommissioning and spent
  fuel storage, energy purchases, environmental issues and litigation at September
  30, 1996 is substantially the same as described in note 4 of Notes to
  Consolidated Financial Statements which is incorporated by reference in the
  Company's 1995 Form 10-K, the Quarterly Report on Form 10-Q for the period ended
  March 31, 1996 (March 31, 1996 Form 10-Q)and the Quarterly Report on Form 10-Q
  for the period ended June 30, 1996 (June 30, 1996 Form 10-Q).
  
       As previously reported, the Company has identified 26 sites where former
  manufactured gas plant (MGP) activities have or may have resulted in actual site
  contamination. As of September 30, 1996, the Company had accrued $29 million for
  environmental investigation and remediation costs, including $16 million for MGP
  investigation and remediation. The Company believes that it could incur
  additional liabilities with respect to MGP sites, which cannot be reasonably
  estimated at this time. 
  
                                      * * * *
  
                                        -8-
  ITEM 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
            CONDITION AND RESULTS OF OPERATIONS 
  
  FINANCIAL CONDITION
  
       The Company's construction program is currently estimated to require
  expenditures of approximately $538 million for 1996 and $1.6 billion for 1997 to
  2000, all of which are expected to be funded from internal sources. The
  estimated expenditures do not include the Company's share of the expenditures
  relating to the replacement of Unit No. 1 steam generators at Salem Generating
  Station (Salem), currently estimated to be approximately $73 to $81 million. For
  additional information, see "PART II. OTHER INFORMATION. ITEM 5. OTHER
  INFORMATION" in this Quarterly Report on Form 10-Q.
  
       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 1996 through 2000, the Company also plans to invest
  approximately $150 million in joint ventures and other telecommunications
  opportunities through its Telecommunications Group, all of which are expected to
  be funded through internally generated funds. The Company's telecommunications
  joint ventures are accounted for under the equity method of accounting.
  
                                       * * * *
  
       See note 4 of Notes to Consolidated Financial Statements for the year ended
  December 31, 1995 for a discussion of commitments and contingencies relating to
  environmental matters and note 5 of Notes to Condensed Consolidated Financial
  Statements in this Quarterly Report on Form 10-Q under "PART 1. FINANCIAL
  INFORMATION. ITEM 1. FINANCIAL STATEMENTS." 
  
                                      * * * *
  
                                        -9-
  The Company's future financial condition or results of operations may be
  affected by increased competition among utilities and non-utility generators in
  the power generation market and regulatory changes designed to encourage such
  competition. Due to the Company's substantial investment in plant, particularly
  Limerick Generating Station (Limerick), and regulatory assets, any regulatory
  changes which do not provide for recovery of these amounts could result in a
  substantial write-down of assets. For additional information concerning
  competition, see the Company's Annual Report on Form 10-K for the year ended
  December 31, 1995 (1995 Form 10-K), the Company's Current Report on Form 8-K
  dated July 3, 1996 and "PART II. OTHER INFORMATION ITEM 5. OTHER INFORMATION" of
  this Quarterly Report on Form 10-Q.
  
                                       * * * *
  
       On February 22, 1996, the Pennsylvania Public Utility Commission (PUC)
  approved the Company's petition for a declaratory accounting order regarding
  changes in the estimated depreciable lives of certain of the Company's electric
  plant. As a result of the order, effective October 1, 1996, 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. Rates charged to
  customers are not affected by the order; accordingly, the Company expects
  results of operations for the remainder of 1996 to be negatively impacted. In
  addition, to the extent that offsetting benefits from the Company's Competitive
  Breakthrough Strategy are not achieved in 1997, the Company's future results of
  operations will also be negatively impacted. See note 3 of Notes to Consolidated
  Financial Statements for the year ended December 31, 1995 and note 4 of Notes to
  Condensed Consolidated Financial Statements of this Quarterly Report on Form
  10-Q under "PART I. FINANCIAL INFORMATION. ITEM 1. FINANCIAL STATEMENTS."
  
                                       * * * *
  
                                        -10-
  For the year ended December 31, 1996, the Company expects to incur
  replacement power and additional maintenance costs of approximately $160 million
  as a result of the Salem shutdown. See note 2 of Notes to Condensed Consolidated
  Financial Statements of 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."
  
                                       * * * *
  
       At September 30, 1996, the Company and its subsidiaries had outstanding
  $282 million of short-term borrowings, including $149 million of commercial
  paper. The Company has formal and informal lines of bank credit aggregating $275
  million. At September 30, 1996, the Company and its subsidiaries had no
  short-term investments. 
  
                                      * * * *
  
       The Company's Ratio of Earnings to Fixed Charges (Mortgage Method) for the
  twelve months ended September 30, 1996 was 4.47 times compared to 4.76 times for
  the corresponding period in 1995. The Company's Ratio of Earnings to Combined
  Fixed Charges and Preferred Stock Dividends (Articles of Incorporation Method)
  for the twelve months ended September 30, 1996, was 2.53 times compared to 2.62
  times for the corresponding period in 1995. For the nine months ended September
  30, 1996, the Company's Ratio of Earnings to Fixed Charges (SEC Method) and
  Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends (SEC
  Method) were 3.35 times and 3.10 times, respectively, compared to 3.64 times and
  3.32 times, respectively, for the corresponding period in 1995. See the
  Company's 1995 Form 10-K under "PART I. ITEM 1. BUSINESS-Capital Requirements
  and Financing Activities," for a discussion of the ratio methods.
  
                                       * * * *
  
  RESULTS OF OPERATIONS
  EARNINGS
  
       Earnings per average common share outstanding for the three and nine months
  ended September 30, 1996 were $0.65 and $1.73 per share, respectively, compared
  to $0.80 and $2.13 per share for the corresponding 
  
                                        -11-
  periods in 1995. The decrease in 1996 third quarter earnings was primarily due
  to lower electric revenues from retail sales resulting from cooler weather
  conditions, partially offset by increased sales to others which together reduced
  earnings by $0.11 per share. Also contributing to the decrease in earnings were
  higher expenses including customer expenses of $0.06 per share and Salem outage
  replacement power and maintenance costs of $0.04 per share. Savings resulting
  from the Company's ongoing debt and preferred stock refunding and refinancing
  program increased earnings by $0.03 per share.
  
       The decrease in earnings for the nine months ended September 30, 1996 was
  primarily due to higher Salem outage replacement power and maintenance costs
  which reduced earnings by $0.23 per share, lower electric revenues due to cooler
  weather conditions compared to last year which reduced earnings by $0.13 per
  share, the gain on the sale of Conowingo Power Company (COPCO) which increased
  1995 earnings by $0.12 per share, and higher customer expenses which reduced
  earnings by $0.09 per share. These decreases were partially offset by higher
  revenues due to increased sales to other utilities which benefited earnings by
  $0.13 per share and savings resulting from the Company's ongoing debt and
  preferred stock refunding and refinancing program which benefited earnings by
  $0.07 per share.
  
                                       * * * *
  
  OPERATING REVENUES
  
       Electric revenues decreased 2% and increased 4% for the three and nine
  months ended September 30, 1996, respectively, compared to the corresponding
  periods in 1995. The decrease in electric revenues for the three months ended
  September 30, 1996 was primarily due to lower retail sales resulting from
  unfavorable weather conditions compared to the prior year, which was partially
  offset by increased sales to other utilities. The increase in electric revenues
  for the nine months ended September 30, 1996 was primarily due to increased
  sales to other utilities, which was partially offset by decreased retail sales
  due to unfavorable weather conditions compared to the prior year.
  
                                        -12-
  Gas revenues increased 10% and 9% for the three and nine months ended
  September 30, 1996, respectively, compared to the corresponding periods in 1995.
  The increase for the three months ended September 30, 1996 was primarily due to
  an increase in the number of house heating customers and higher levels of firm
  sales resulting from customers switching from transportation service to firm
  service. This increase was partially offset by lower rates. The increase for the
  nine months ended September 30, 1996 was primarily due to increased sales to
  retail customers from more favorable weather conditions in the first half of
  1996 compared to the prior year and higher levels of firm sales resulting from
  customers switching from transportation service to firm service.
  
                                       * * * *
  
  FUEL AND ENERGY INTERCHANGE EXPENSES
  
       Fuel and energy interchange expenses increased 14% and 30% for the three
  and nine months ended September 30, 1996, respectively, compared to the
  corresponding periods in 1995 primarily due to interchange purchases needed for
  increased sales to other utilities. In addition, for the nine months ended
  September 30, 1996, the increase was due to higher replacement power costs
  resulting from the shutdown of Salem and a net credit to expense in 1995 from
  certain energy sales to other utilities.
  
                                       * * * *
  
  OPERATING AND MAINTENANCE EXPENSES
  
       Operating and maintenance expenses increased 7% and 6% for the three and
  nine months ended September 30, 1996, respectively, compared to the
  corresponding periods in 1995. The increases were primarily due to higher
  uncollectible charges, higher customer service expenses related to process
  improvements, higher contractor costs and higher nuclear generating station
  charges resulting from the shutdown of Salem. These increases were partially
  offset by lower operating costs at the Company-operated nuclear generating
  stations and lower administrative and general expenses.
  
                                       * * * *
  
                                        -13-
  DEPRECIATION
  
       Depreciation expense was substantially unchanged for the three months ended
  September 30, 1996, and increased 3% for the nine months ended September 30,
  1996, compared to the corresponding periods in 1995 primarily due to additions
  to plant in service.
  
                                       * * * *
  
  INCOME TAXES
  
       Income taxes charged to operating expenses decreased 22% and 12% for the
  three and nine months ended September 30, 1996 compared to the corresponding
  periods in 1995, respectively, primarily due to a decrease in pre-tax income.
  The decrease was partially offset by reduced tax depreciation benefits from
  plant assets which are not fully normalized for ratemaking.
  
                                       * * * *
  
  OTHER TAXES
  
       Other taxes charged to operating expenses decreased 5% and 1% for the three
  and nine months ended September 30, 1996, compared to the corresponding periods
  in 1995 primarily due to decreased gross receipts taxes resulting from lower
  retail revenue and lower real estate taxes. These decreases were partially
  offset by increased capital stock and payroll taxes.
  
                                       * * * *
  
  OTHER INCOME AND DEDUCTIONS
  
       Other income and deductions was substantially unchanged for the three
  months ended September 30, 1996, and decreased 90% for the nine months ended
  September 30, 1996 compared to the corresponding periods in 1995. The decrease
  for the nine months ended September 30, 1996 is primarily due to the June 1995
  gain on the sale of COPCO.
  
                                       * * * *
  
                                        -14-
  TOTAL INTEREST CHARGES
  
       Total interest charges decreased 8% for the three and nine months ended
  September 30, 1996, compared to the corresponding periods in 1995 primarily due
  to the Company's ongoing program to reduce and refinance higher-cost, long-term
  debt, partially offset by the replacement of preferred stock with Company
  Obligated Mandatorily Redeemable Preferred Securities in the fourth quarter of
  1995.
  
                                       * * * *
  
  PREFERRED DIVIDENDS
  
       Preferred stock dividends decreased 26% for the three and nine months ended
  September 30, 1996, compared to the corresponding periods in 1995 due to the
  replacement of preferred stock with Company Obligated Mandatorily Redeemable
  Preferred Securities in the fourth quarter of 1995.
  
                                       * * * *
  
                                        -15-
  PART II - OTHER INFORMATION
  
  ITEM 1.  LEGAL PROCEEDINGS
  
       As previously reported in the 1995 Form 10-K, the Company filed appeals
  from the May 13, 1994 United States District Court for the Eastern District of
  Pennsylvania (Eastern District Court) decision and subsequent August 23, 1995
  order which found the Company liable to a class of plaintiffs who made inquiries
  about early retirement in or about April 1990 and awarded damages to these
  plaintiffs in the amount of $1.5 million. On October 1, 1996, the United States
  Circuit Court of Appeals for the Third Circuit (Third Circuit Court of Appeals)
  reversed the Eastern District Court decision and held for the Company.
  Plaintiffs have until December 30, 1996 to file an appeal.
  
                                       * * * *
  
       As previously reported in the 1995 Form 10-K, the Company filed appeals
  from the May 13, 1994 Eastern District Court decision and subsequent August 23,
  1995 order which found the Company liable to a class of plaintiffs who made
  inquiries about early retirement in or about June 1987 and awarded damages to
  these plaintiffs in the amount of $1.8 million. On October 1, 1996, the Third
  Circuit Court of Appeals reversed the Eastern District Court decision and held
  for the Company. Plaintiffs have until December 30, 1996 to file an appeal.
  
                                       * * * *
  
       As previously reported, the Court of Common Pleas of Philadelphia County
  (Court of Common Pleas) denied the Company's petition to terminate the
  consolidated shareholder derivative lawsuits relating to the Company's past
  credit and collection practices. On June 20, 1996, the Company filed a petition
  with the Supreme Court of Pennsylvania (Pennsylvania Supreme Court)for
  extraordinary relief. On October 15, 1996, the Pennsylvania Supreme Court
  granted the Company's petition and agreed to accept for review the issue of
  whether the business judgment rule permits the boards of directors of a
  Pennsylvania corporation to terminate derivative lawsuits brought by minority
  shareholders. Pending resolution of this issue by the 
  
                                        -16-
  Pennsylvania Supreme Court, all matters in the lower courts related to the suits
  are suspended. The Company cannot predict when or how the Supreme Court of
  Pennsylvania will decide on this issue.
  
                                       * * * *
  
  ITEM 5.  OTHER INFORMATION
  
       As previously reported, the Company has been informed by Public Service
  Electric and Gas Company (PSE&G) that the cost relating to the replacement of
  the steam generators of Unit No. 1 at Salem with steam generators from Seabrook
  Generating Station Unit No. 2 will be approximately $170 to $190 million, of
  which the Company's share will be approximately $73 to $81 million.
  
       In addition, the Company has been informed by PSE&G that, given the
  additional scope of work and the delay of the restart of Salem Unit No. 2, Unit
  No. 1 restart activities (excluding the steam generator replacement) and various
  initiatives in progress, it is expected that the Company's share of
  restart-related maintenance expenditures will be approximately $75 million for
  1996, including $15 million of restart-related expenses incurred in 1995 but
  expensed in 1996.
  
       The latest estimate of the cost of replacement power for the year ended
  1996 is $95 million, which includes approximately $5 million per unit per month
  for the remainder of 1996. Of these costs, approximately $10 million are
  expected to be offset by adjustments to deferred fuel resulting from a
  PUC-approved settlement of the Energy Cost Adjustment. Additionally, the Company
  estimates replacement power costs to be $5 million per unit per month during
  1997.
  
       The Company has been informed by PSE&G that it now expects Salem Unit No. 2
  to return to service early in the first quarter of 1997. PSE&G expects Unit No.
  1 to return to service by mid-1997.
  
                                       * * * *
  
       As previously reported, PSE&G and the Company announced the commissioning
  of a study to identify and evaluate alternatives to their separate nuclear power
  plant operations. In particular, the study will 
  
                                        -17-
  evaluate strategies to reduce nuclear operation and maintenance costs for both
  companies and increase the efficiencies of operations. A preliminary draft of
  the study indicates opportunities for risk diversification, performance
  improvement and cost savings. Further review will take place during the fourth
  quarter of 1996.
  
                                       * * * *
  
       On October 28, 1996, the Board of Directors of the Company increased the
  Company's quarterly common stock dividend 3.4% from $0.435 per share to $0.45
  per share. The higher dividend will be payable December 20, 1996 to common stock
  shareholders of record on November 15, 1996. The new annual common stock
  dividend will be $1.80 per share.
  
                                       * * * *
  
       In a letter dated October 9, 1996, the NRC informed the Company that an
  enforcement conference would be scheduled to discuss an alleged violation of NRC
  regulations at Peach Bottom relating to preventative maintenance procedures for
  several critical station systems and components. This conference is scheduled to
  be held on November 15, 1996.
  
       In a letter dated October 10, 1996, the NRC informed the Company that a
  separate enforcement conference would be scheduled to discuss an alleged
  violation of NRC regulations at Peach Bottom relating to station modifications
  associated with emergency diesel generators. This conference is scheduled to be
  held on December 11, 1996.
  
       The NRC is expected to make a decision following each of these conferences
  which potentially could include the imposition of a civil penalty.
  
                                       * * * *
  
       As previously reported, in response to a 1990 recommendation by General
  Electric Company (GE) to all owners of GE Boiling Water Reactors (BWRs) that
  interim corrective actions be taken for possible cracking in or near the seam
  welds of BWR core shroud assemblies, the Company initiated a series of visual
  inspections of the accessible areas of the core shroud seam welds of each of the
  reactors at Limerick and Peach Bottom Atomic 
  
                                        -18
  Power Station (Peach Bottom). Although prior inspections performed during the
  planned refueling outages for these reactors have revealed crack indications in
  the seam welds of the core shroud assemblies, the Company concluded and the
  Nuclear Regulatory Commission (NRC) agreed, in each case, that the extent of
  cracking identified was minimal and within industry-established guidelines.
  Peach Bottom Unit No. 2 was reinspected in September 1996, and although
  additional minor flaw indications were discovered, the Company concluded and the
  NRC concurred that neither repair nor modification to the core shroud was
  necessary prior to restarting the reactor.
  
                                       * * * *
  
       As previously reported, three bills have been introduced in the
  Pennsylvania General Assembly that would require the PUC to adopt a plan to
  restructure the electric utility industry and would also require customers and
  utility company shareholders to share stranded investment costs resulting from
  such restructuring. At the direction of the Governor of Pennsylvania, and under
  the leadership of the Chairman of the PUC, a two-month collaborative effort was
  undertaken to reach a consensus on legislation to implement retail customer
  choice of generation supplier in Pennsylvania (Consensus Bill). The
  collaborative effort included representatives from electric utilities, large
  industrial customers, consumer advocates, organized labor, legislators,
  environmental interests, and others (Consensus Group). Some entities, including
  environmental groups and citizen action groups, have expressed public opposition
  to the Consensus Bill.
  
       The Consensus Bill proposes the restructuring of the electric industry in
  Pennsylvania to provide for the unbundling of electric services and open-retail
  competition for generation. Retail access pilot programs would begin on April 1,
  1997 and direct generation access for all customers would be phased in three
  steps over a two-year period beginning January 1, 1999. By April 1, 1997, each
  electric utility would be required to submit to the PUC its restructuring plan,
  including the utility's "stranded costs" which 
  
                                        -19-
  will result from competition. These stranded costs would include regulatory
  assets and nuclear decommissioning costs, for which full recovery would be
  allowed; non-utility generation buyout costs, for which full recovery would be
  allowed, and other costs, including investment in nuclear plants, spent fuel
  disposal, long-term purchase power commitments, retirements costs and
  reorganization costs, for which an opportunity for recovery would be allowed in
  an amount determined by the PUC as just and reasonable. These costs, after
  mitigation by the utility, would be recoverable through a "competitive
  transition charge" approved by the PUC and collected from distribution customers
  for up to nine years (or for an alternative period determined by the PUC for
  good cause shown). During that period, the utility would be subject to a rate
  cap providing that total charges to customers could not exceed rates in place as
  of the effective date of the bill, subject to certain exceptions. The bill also
  provides a mechanism for reducing the utility's stranded investment and related
  capitalization through the issuance of "Transition Bonds." The Transition Bonds
  would be repaid through the imposition of "intangible transition charges" which
  would be collected in lieu of competitive transition charges. The maximum
  maturity of the Transition Bonds would be ten years. The current legislative
  session ends November 30, 1996 with the new session beginning January 7, 1997.
  The Company cannot predict whether the Consensus Bill, any of the pending bills,
  or new bills will be brought before the General Assembly for a vote, or whether
  any of these bills will be enacted into law.
  
                                       * * * *
  
       As previously reported, on April 24, 1996 the Federal Energy Regulatory
  Commission (FERC) issued a final rule (Order No. 888) that became effective July
  9, 1996, which requires all public utilities to file non-discriminatory
  open-access tariffs that offer others the same wholesale transmission service
  they provide to themselves. FERC Order No. 888 also requires that power pools
  file and begin taking service under joint pool-wide open access transmission
  tariffs by December 31, 1996, which deadline 
  
                                        -20-
  was subsequently extended by the FERC to March 1, 1997 in a subsequent order.
  
       On July 5, 1996, the Company filed with the FERC a revised transmission
  tariff reflecting the final pro forma terms and conditions required by Order No.
  888.
  
                                       * * * *
  
       On November 1, 1996, the Company filed with the FERC certain revisions to
  its wholesale electric tariffs in compliance with the FERC's requirement,
  pursuant to FERC Order No. 888, that utilities unbundle their generation and
  transmission costs for wholesale market transactions. Included among the
  revisions was a proposal to eliminate the existing cost-based cap on prices
  charged for power which is purchased by the Company in anticipation of later
  resale in the wholesale market (so-called "buy-for-resale" transactions) and
  certain changes regarding the terms of buy-for-resale agreements.
  
       In an order dated September 20, 1996 relating to the Pennsylvania-New
  Jersey-Maryland Interconnection Association (PJM) restructuring filings, the
  FERC commented that neither of the competing restructuring proposals would be
  evaluated until the FERC addressed the related applications by the PJM-member
  companies to transfer operational control over their transmission facilities to
  an Independent System Operator (ISO). On November 13, 1996, the FERC issued an
  order providing guidance to the PJM members in connection with PJM-pool
  restructuring. The FERC concluded that neither of the competing proposals, as
  currently structured, satisfied either the ISO or tariff comparability
  requirements of Order No. 888. The FERC directed the PJM members to revise and
  re-file their proposals by December 31, 1996. The Company cannot predict how or
  when the FERC will act on the PJM restructuring issue.
  
                                       * * * *
  
       As previously reported, the Company was named as a third-party defendant in
  a suit commenced by the New Jersey Department of Environmental Protection and
  Energy (NJDEPE) for certain clean-up costs at the Gloucester 
  
                                        -21-
  Environmental Management Services, Inc. (GEMS) site located in New Jersey based
  on information which suggested that wastes generated by the Company were
  disposed of at the site by a third party. On July 9, 1996, the Company signed a
  Consent Decree in which it agreed to pay NJDEPE $238,452 to settle its potential
  liability at the site.
  
                                       * * * *
  
       As previously reported, the Company was named as a third-party defendant in
  a suit commenced by the NJDEPE for clean-up costs at the Helen Kramer landfill
  located in New Jersey. The Company, together with a number of other direct and
  third-party defendants, has agreed to participate in a proposed de minimis
  settlement which would allow the Company to settle its potential liability at
  the site for approximately $40,000.
  
                                       * * * *
  
       As previously reported, the Company has been identified as a potentially
  responsible party at the Bridgeport Rental and Oil Services (BROS) Superfund
  Site in New Jersey and, while not named in the pending litigation regarding
  clean-up of the site, had been participating in informal settlement negotiations
  involving the United States Environmental Protection Agency, the direct and
  third-party defendants and several other parties which have yet to be joined in
  the suit. On September 25, 1996, the Company agreed to a settlement with the
  parties which provides that the Company would pay $375,000 to settle its
  potential liability at the site. Not covered by the settlement were possible
  natural resource damage and private party claims.
  
                                       * * * *
  
       As previously reported, in response to a 1989 Notice of Violation issued by
  the Pennsylvania Department of Environmental Protection (PDEP) for soil
  contamination at one of the Company's maintenance facilities, the Company had
  undertaken a PDEP-approved remedial clean-up plan pursuant to which the Company
  spent $1.3 million. On September 20, 1996, PDEP notified the Company that it was
  satisfied that the site had been sufficiently 
  
                                        -22-
  remediated within state guidelines and that no further investigation, monitoring
  or remediation is necessary at the facility.
  
                                       * * * *
  
                                        -23-
  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 3, 1996, reporting information under "ITEM 5. OTHER
            EVENTS" relating to the report and recommendation by the PUC. Report,
            dated July 22, 1996, reporting information under "ITEM 5. OTHER
            EVENTS" relating to Salem Generating Station.
  
            Reports on Form 8-K (filed subsequent to the reporting period):
  
            None
  
                                        -24-
  Signatures
  
       Pursuant to requirements of the Securities Exchange Act of 1934, the
  registrant has duly caused this report to be signed on its behalf by the
  undersigned thereunto duly authorized.
  
                                                      PECO ENERGY COMPANY
                                                    /s/ Kenneth G. Lawrence
                                                  --------------------------
                                                       Kenneth G. Lawrence
                                                    Senior Vice President and
                                                    Chief Financial Officer
                                                    (Principal Financial and
                                                      Accounting Officer)
  
  Date:  November 14, 1996