The article presents an application of Prony’s method with some known components in the analysis of electric power quality. Modifications of the Prony algorithm broaden the scope of method application. Modification of the filter of known components enables more accurate analysis of the parameters of unknown components and components with known or assumed frequencies. This article presents a comparison of the results of analyses conducted with the proposed algorithm for simulated and real signals and the results obtained by means of a commercial electric power quality testing device, operating in class A and using the Fourier transform. The proposed method enables to estimate the levels of the harmonic components, the frequency of the fundamental signal and real parameters of the interharmonic components, which are grouped and averaged in the contemporary monitoring equipment. Knowledge of the individual parameters of the interharmonics has considerable diagnostic importance while removing causes of incorrect operation affecting sensitive equipment in some electric power systems. Additionally, the algorithm is capable of analyzing exponentially damped components and finds its application in analysis of disturbances, for example, transient oscillations.