SECURITIES AND EXCHANGE COMMISSION

                         Washington, D. C.  20549

                               FORM 8-K

                          CURRENT REPORT

                PURSUANT TO SECTION 13 OR 15(d) OF THE
                   SECURITIES EXCHANGE ACT OF 1934






Date of Report (Date of earliest event reported) February 13, 1998






               The Cleveland Electric Illuminating Company
          (Exact name of Registrant as specified in its charter)



         Ohio                    1-2323            34-0150020
(State or other juris-         (Commission      (I.R.S. Employer
diction of incorporation)      File Number)    Identification No.)

              c/o FirstEnergy Corp.
         76 South Main Street, Akron, Ohio        44308
    (Address of principal executive offices)    (Zip Code)


Registrant's telephone number, including area code: (800)736-3402
















Item 5.  Other Events

            Ohio Edison Company reports audited consolidated 
financial statements for the year ended December 31, 1997 and 
related matters. Such financial statements and related matters 
consist of the following:

            1)  Consolidated Statements of Income

            2)  Consolidated Balance Sheets

            3)  Consolidated Statements of Capitalization

            4)  Consolidated Statements of Retained Earnings

            5)  Consolidated Statements of Capital Stock and  
Other Paid-In Capital

            6)  Consolidated Statements of Cash Flows

            7)  Consolidated Statements of Taxes

            8)  Notes to Consolidated Financial Statements

            9)  Report of Independent Public Accountants

           10)  Management's Discussion and Analysis of Results  
of Operations and Financial Condition

           11)  Consent of Independent Public Accountants

Item 7.  Exhibits

Exhibit
Number
-------

  24   Consent of Independent Public Accountants.


                                - 1 -



<TABLE>
                             THE CLEVELAND ELECTRIC ILLUMINATING COMPANY

                                  CONSOLIDATED STATEMENTS OF INCOME
<CAPTION>
                                           Nov. 8 -  |   Jan. 1 -  For the Years Ended December 31,
                                                     |              --------------------------------
                                       Dec. 31, 1997 |  Nov. 7, 1997       1996            1995
-----------------------------------------------------|----------------------------------------------
                                                     |             (In thousands)
<S>                                       <C>        |   <C>             <C>             <C>
OPERATING REVENUES                        $253,963   |   $1,529,014      $1,789,961      $1,768,737
                                          --------   |   ----------      ----------      ----------
OPERATING EXPENSES AND TAXES:                        |
  Fuel and purchased power                  51,381   |      359,048         407,632         413,391
  Nuclear operating costs                   15,465   |       77,228          96,150          95,791
  Other operating costs                     61,036   |      303,558         385,853         377,720
                                          --------   |   ----------      ----------      ----------
    Total operation and maintenance                  |
     expenses                              127,882   |      739,834         889,635         886,902
  Provision for depreciation and                     |
   amortization                             28,111   |      189,937         218,539         208,812
  Amortization (deferral) of net                     |
   regulatory assets                         3,867   |       21,890          26,076         (36,148)
  General taxes                             33,912   |      194,400         229,856         229,962
  Income taxes                              10,689   |       75,621          67,235          81,310
                                          --------   |   ----------      ----------      ----------
    Total operating expenses and taxes     204,461   |    1,221,682       1,431,341       1,370,838
                                          --------   |   ----------      ----------      ----------
                                                     |
OPERATING INCOME                            49,502   |      307,332         358,620         397,899
                                                     |
OTHER INCOME (LOSS)                          4,572   |       (2,476)         (2,089)         31,298
                                          --------   |   ----------      ----------      ----------
                                                     |
INCOME BEFORE NET INTEREST CHARGES          54,074   |      304,856         356,531         429,197
                                          --------   |   ----------      ----------      ----------
                                                     | 
NET INTEREST CHARGES:                                |
  Interest on long-term debt                35,300   |      197,323         229,491         238,684
  Allowance for borrowed funds used                  |
   during construction                        (631)  |       (1,928)         (2,110)         (2,701)
  Other interest expense                       115   |       14,270          12,597           9,495
                                          --------   |   ----------      ----------      ----------
    Net interest                            34,784   |      209,665         239,978         245,478
                                          --------   |   ----------      ----------      ----------

INCOME BEFORE EXTRAORDINARY ITEM            19,290   |       95,191         116,553         183,719
                                                     |   
EXTRAORDINARY ITEM (NET OF INCOME                    |
  TAXES) (Note 1)                                -   |     (324,438)              -               -
                                          --------   |   ----------      ----------      ----------
                                                     |    
NET INCOME (LOSS)                           19,290   |     (229,247)        116,553         183,719
                                                     |  
PREFERRED STOCK DIVIDEND                             | 
  REQUIREMENTS                                   -   |       45,029          38,743          42,444
                                          --------   |   ----------      ----------      ----------
                                                     |   
EARNINGS (LOSS) ON COMMON STOCK           $ 19,290   |   $ (274,276)     $   77,810      $  141,275
                                          ========   |   ==========      ==========      ==========
<FN>

The accompanying Notes to Consolidated Financial Statements are an 
integral part of these statements.

</TABLE>

                                                      - 2 -  

<TABLE>

                               THE CLEVELAND ELECTRIC ILLUMINATING COMPANY


                                     CONSOLIDATED BALANCE SHEETS

<CAPTION>
At December 31,                                                      1997           1996
--------------------------------------------------------------------------------------------
                                                                     (In thousands)
<S>                                                              <C>             <C>
                   ASSETS                                                     |  
UTILITY PLANT:                                                                |    
  In service                                                     $4,578,649   |   $7,330,963
  Less--Accumulated provision for depreciation                    1,470,084   |    2,415,226
                                                                 ----------   |   ----------
                                                                  3,108,565   |    4,915,737
                                                                 ----------   |   ----------
                                                                              | 
  Construction work in progress--                                             |  
    Electric plant                                                   41,261   |       56,853
    Nuclear fuel                                                      6,833   |       10,629
                                                                 ----------   |   ----------
                                                                     48,094   |       67,482
                                                                 ----------   |   ----------
                                                                  3,156,659   |    4,983,219
                                                                 ----------   |   ----------
                                                                              |  
OTHER PROPERTY AND INVESTMENTS:                                               |      
  Shippingport Capital Trust (Note 3)                               575,084   |            -
  Nuclear plant decommissioning trusts                              105,334   |       75,573
  Other                                                              21,482   |       20,805
                                                                 ----------   |   ----------
                                                                    701,900   |       96,378
                                                                 ----------   |   ----------
                                                                              |   
CURRENT ASSETS:                                                               |   
  Cash and cash equivalents                                          33,775   |       30,273
  Receivables--                                                               |    
    Customers                                                        29,759   |        4,339
    Associated companies                                              8,695   |        5,634
    Other                                                            98,077   |      170,736
  Materials and supplies, at average cost--                                   |  
    Owned                                                            47,489   |       51,686
    Under consignment                                                25,411   |       23,655
  Prepayments and other                                              57,763   |       58,235
                                                                 ----------   |   ----------
                                                                    300,969   |      344,558
                                                                 ----------   |   ----------
DEFERRED CHARGES:                                                             |  
  Regulatory assets                                                 579,711   |    1,349,694
  Goodwill                                                        1,552,483   |            -
  Property taxes                                                    125,204   |      129,048
  Other                                                              23,358   |       59,400
                                                                 ----------   |   ----------
                                                                  2,280,756   |    1,538,142
                                                                 ----------   |   ----------
                                                                 $6,440,284   |   $6,962,297
                                                                 ==========   |   ==========
           CAPITALIZATION AND LIABILITIES                                     |  
                                                                              |     
CAPITALIZATION (See Consolidated Statements of Capitalization):               | 
  Common stockholder's equity                                    $  950,904   |   $1,044,283
  Preferred stock--                                                           |  
    Not subject to mandatory redemption                             238,325   |      238,325
    Subject to mandatory redemption                                 183,174   |      186,118
  Long-term debt                                                  3,189,590   |    2,523,030
                                                                 ----------   |   ----------
                                                                  4,561,993   |    3,991,756
                                                                 ----------   |   ----------
                                                                              |   
CURRENT LIABILITIES:                                                          |    
  Currently payable long-term debt and preferred stock              121,965   |      196,260
  Accounts payable--                                                          |    
    Associated companies                                             56,109   |       59,815
    Other                                                            90,737   |       82,693
  Notes payable to associated companies                              56,802   |      111,618
  Accrued taxes                                                     194,394   |      183,998
  Accrued interest                                                   67,896   |       52,487
  Other                                                              52,297   |       58,900
                                                                 ----------   |   ----------
                                                                    640,200   |      745,771
                                                                 ----------   |   ----------
DEFERRED CREDITS:                                                             |    
  Accumulated deferred income taxes                                 496,437   |    1,305,601
  Accumulated deferred investment tax credits                        96,131   |      183,026
  Pensions and other postretirement benefits                        198,642   |       72,843
  Other                                                             446,881   |      663,300
                                                                 ----------   |   ----------
                                                                  1,238,091   |    2,224,770
                                                                 ----------   |   ----------
COMMITMENTS, GUARANTEES AND CONTINGENCIES                                     |
  (Notes 3 and 6 )                                               ----------   |   ----------
                                                                 $6,440,284   |   $6,962,297
                                                                 ==========   |   ==========
<FN>

The accompanying Notes to Consolidated Financial Statements are an 
integral part of these balance sheets.

</TABLE>


                                                      - 3 -

<TABLE>
                                 THE CLEVELAND ELECTRIC ILLUMINATING COMPANY

                                  CONSOLIDATED STATEMENTS OF CAPITALIZATION
<CAPTION>
At December 31,                                                                   1997   |     1996 
---------------------------------------------------------------------------------------- |-----------
                           (Dollars in thousands, except per share amounts)              | 
<S>                                                                           <C>        | <C>
COMMON STOCKHOLDER'S EQUITY:                                                             | 
  Common stock, without par value, authorized 105,000,000 shares--                       |
   79,590,689 shares outstanding                                              $  931,614 |$1,241,287
  Other paid-in capital                                                                - |    79,454
  Retained earnings (deficit) (Note 4A)                                           19,290 |  (276,458)
                                                                              ---------- |----------
    Total common stockholder's equity                                            950,904 | 1,044,283
                                                                              ---------- |----------
                                                                                         | 
                                                                                         | 
                                    Number of Shares         Optional                    |
                                      Outstanding        Redemption Price                |
                                    ----------------   ---------------------             |
                                     1997     1996     Per Share   Aggregate             |
                                     ----     ----     ---------   ---------             |
<S>                                <C>       <C>      <C>          <C>                   |
PREFERRED STOCK (Note 4B):                                                               |
Without par value, authorized                                                            |
  4,000,000 shares                                                                       |
  Not Subject to Mandatory                                                               |
   Redemption:                                                                           |
    $ 7.40  Series A               500,000   500,000  $  101.00    $  50,500      50,000 |    50,000
    $ 7.56  Series B               450,000   450,000     102.26       46,017      45,071 |    45,071
 Adjustable Series L               474,000   474,000     100.00       47,400      46,404 |    46,404
    $42.40  Series T               200,000   200,000     500.00      100,000      96,850 |    96,850
                                 --------- ---------               ---------   --------- |----------
                                 1,624,000 1,624,000               $ 243,917     238,325 |   238,325
                                 ========= =========               =========   --------- |----------
  Subject to Mandatory                                                                   |
   Redemption (Note 4C):                                                                 |
    $ 7.35  Series C.              110,000   120,000  $  101.00    $  11,110      11,110 |    12,000
    $88.00  Series E                 9,000    12,000   1,007.65        9,069       9,000 |    12,000
    $ 9.125 Series N                     -   150,000          -            -           - |    14,794
    $91.50  Series Q                42,858    53,572   1,000.00       42,858      42,858 |    53,572
    $88.00  Series R                50,000    50,000          -            -      55,000 |    50,000
    $90.00  Series S                74,000    74,000          -            -      79,920 |    73,260
    Redemption within one year                                                   (14,714)|   (29,508)
                                 --------- ---------                --------   --------- |----------
                                   285,858   459,572                $ 63,037     183,174 |   186,118
                                 ========= =========                ========   --------- |----------
LONG-TERM DEBT (Note 4D):                                                                |   
  First mortgage bonds:                                                                  | 
    7.625% due 2002                                                              195,000 |   195,000
    7.375% due 2003                                                              100,000 |   100,000
    8.750% due 2005                                                               75,000 |    75,000
    9.500% due 2005                                                              300,000 |   300,000
    9.250% due 2009                                                                    - |    50,000
    8.375% due 2011                                                              125,000 |   125,000
    8.375% due 2012                                                               75,000 |    75,000
    9.375% due 2017                                                                    - |   300,000
   10.000% due 2020                                                                    - |   100,000
    9.000% due 2023                                                              150,000 |   150,000
                                                                              ---------- |----------
       Total first mortgage bonds                                              1,020,000 | 1,470,000
                                                                              ---------- |----------
                                                                                         | 
  Unsecured notes:                                                                       |
    5.500% due 1997                                                                    - |       110
    6.700% due 2006                                                               19,500 |    20,000
    5.700% due 2008                                                                7,300 |     7,600
    6.700% due 2011                                                                5,500 |     5,500
    5.875% due 2012                                                               14,300 |    14,300
                                                                              ---------- |----------
       Total unsecured notes                                                      46,600 |    47,510


                                                      - 4 -


</TABLE>
<TABLE>
                               THE CLEVELAND ELECTRIC ILLUMINATING COMPANY

                             CONSOLIDATED STATEMENTS OF CAPITALIZATION (Cont.)
<CAPTION>
At December 31,                                                                   1997      1996 
---------------------------------------------------------------------------------------------------
                                                                                  (In thousands) 
<S>                                                                                <C>       <C>
LONG-TERM DEBT: (Cont.)
  Secured notes:
    9.450% due 1997                                                                    - |    43,000
    8.150% due 1998                                                                7,500 |     7,500
    8.160% due 1998                                                                5,000 |     5,000
    8.170% due 1998                                                               11,000 |    11,000
    8.260% due 1998                                                                2,500 |     2,500
    8.330% due 1998                                                               25,000 |    25,000
    8.870% due 1998                                                               10,000 |    10,000
    9.000% due 1998                                                                5,000 |     5,000
    7.250% due 1999                                                               12,000 |    12,000
    7.670% due 1999                                                                3,000 |     3,000
    7.770% due 1999                                                               17,000 |    17,000
    7.850% due 1999                                                               25,000 |    25,000
    8.290% due 1999                                                               10,000 |    10,000
    9.250% due 1999                                                               52,500 |    52,500
    9.300% due 1999                                                               25,000 |    25,000
    7.190% due 2000                                                              175,000 |         -
    7.420% due 2001                                                               10,000 |    10,000
    8.540% due 2001                                                                3,000 |     3,000
    8.550% due 2001                                                                5,000 |     5,000
    8.560% due 2001                                                                3,500 |     3,500
    8.680% due 2001                                                               15,000 |    15,000
    9.050% due 2001                                                                5,000 |     5,000
    9.200% due 2001                                                               15,000 |    15,000
    7.850% due 2002                                                                5,000 |     5,000
    8.130% due 2002                                                               28,000 |    28,000
    7.750% due 2003                                                               15,000 |    15,000
    7.670% due 2004                                                              280,000 |         -
    7.000% due 2006-2009                                                           1,910 |    64,500
    7.130% due 2007                                                              120,000 |         -
    7.430% due 2009                                                              150,000 |         -
    6.000% due 2011*                                                               5,650 |     5,650
    6.000% due 2011*                                                               1,700 |     1,700
    6.200% due 2013                                                                    - |    47,500
    8.000% due 2013                                                               78,700 |    78,700
    3.786% due 2015*                                                              39,835 |    39,835
    6.000% due 2017*                                                               1,285 |     1,285
    7.880% due 2017                                                              300,000 |         -
    3.771% due 2018*                                                              72,795 |    72,795
    3.800% due 2020*                                                              47,500 |         -
    6.000% due 2020*                                                              40,900 |    40,900
    6.000% due 2020*                                                               9,100 |     9,100
    6.000% due 2020                                                               62,560 |         -
    6.100% due 2020                                                               70,500 |         -
    9.520% due 2021                                                                7,500 |     7,500
    9.750% due 2022                                                                    - |    70,500
    6.850% due 2023                                                               30,000 |    30,000
    8.000% due 2023                                                               73,800 |    73,800
    7.625% due 2025                                                               53,900 |    53,900
    7.700% due 2025                                                               43,800 |    43,800
    7.750% due 2025                                                               45,150 |    45,150
                                                                              ---------- |----------
       Total secured notes                                                     2,026,585 | 1,044,615
                                                                              ---------- |----------
                                                                                         | 
Capital lease obligations (Note 3)                                                98,504 |   133,407
                                                                              ---------- |----------
Net unamortized premium (discount) on debt                                       105,152 |    (5,750)
                                                                              ---------- |----------
Long-term debt due within one year                                              (107,251)|  (166,752)
                                                                              ---------- |----------
       Total long-term debt                                                    3,189,590 | 2,523,030
                                                                              ---------- |----------
TOTAL CAPITALIZATION                                                          $4,561,993 |$3,991,756
                                                                              ========== |==========
<FN>
 *Denotes variable rate issue with December 31, 1997 interest rate shown.

The accompanying Notes to Consolidated Financial Statements are an 
integral part of these statements.

</TABLE>
                                                      - 5 -

<TABLE>
                              THE CLEVELAND ELECTRIC ILLUMINATING COMPANY

                              CONSOLIDATED STATEMENTS OF RETAINED EARNINGS

<CAPTION>
                                           Nov. 8 -  |   Jan. 1 -  For the Years Ended December 31,
                                                     |              --------------------------------
                                       Dec. 31, 1997 |  Nov. 7, 1997       1996            1995
-----------------------------------------------------|----------------------------------------------
                                                     |             (In thousands)
<S>                                       <C>        |  <C>               <C>            <C>
Balance at beginning of period            $     -    |  $(276,458)        $(193,146)     $(261,521)
Net income (loss)                          19,290    |   (229,247)          116,553        183,719
                                          -------    |  ---------         ---------      ---------
                                           19,290    |   (505,705)          (76,593)       (77,802)
-----------------------------------------------------|--------------------------------------------
Cash dividends on preferred stock               -    |     35,848            38,734         40,694
Cash dividends on common stock                  -    |    123,602           160,816         74,213
Purchase accounting fair value                       |
 adjustment                                     -    |   (665,387)                -              -
Other, primarily preferred stock                     |
 redemption expenses                            -    |        232               315            437
                                          -------    |  ---------         ---------      ---------
                                                -    |   (505,705)          199,865        115,344
                                          -------    |  ---------         ---------      ---------
Balance at end of period (Note 4A)        $19,290    |  $       -         $(276,458)     $(193,146)
=================================================================================================



                CONSOLIDATED STATEMENTS OF CAPITAL STOCK AND OTHER PAID-IN CAPITAL


                                                                       Preferred Stock  
                                                          ------------------------------------------
                                                            Not Subject to          Subject to
                                Common Stock              Mandatory Redemption  Mandatory Redemption
                          ------------------------------  -------------------- ---------------------
                                                   Other
                             Number    Carrying   Paid-In   Number   Carrying    Number    Carrying
                           of Shares    Value     Capital  of Shares  Value     of Shares   Value
                           ---------   --------   -------  --------- --------   ---------  --------
                                         (Dollars in thousands)
<S>                        <C>         <C>         <C>      <C>        <C>       <C>       <C>
Balance, January 1, 1995   79,590,689  $1,241,087  $78,624  1,650,000  $240,871  868,766   $281,562
  Redemptions--
  $ 7.35  Series C                                                               (10,000)    (1,000)
  $ 88.00  Series E                                                               (3,000)    (3,000)
Adjustable Series M                                                             (100,000)    (9,800)
  $ 9.125  Series N                            35                               (110,766)   (10,924)
  $ 91.50  Series Q                            51                                (10,714)   (10,714)
  $ 90.00  Series S                           111                                 (1,000)      (990)
---------------------------------------------------------------------------------------------------
Balance, December 31, 1995 79,590,689   1,241,284   78,624  1,650,000   240,871  633,286    245,134
  Reclassification of
  $90.00  Series S Gain                      (111)     111
  Unrealized loss on
   securities                                           (6)
  Redemptions--
Adjustable Series L                             7      725    (26,000)   (2,546)
  $ 7.35   Series C                                                              (10,000)    (1,000)
  $ 88.00  Series E                                                               (3,000)    (3,000)
  $ 9.125  Series N                            25                               (150,000)   (14,794)
  $ 91.50  Series Q                            82                                (10,714)   (10,714)
Balance, December 31, 1996 79,590,689   1,241,287   79,454  1,624,000   238,325  459,572    215,626
  Equity contributions 
   from parent                                       4,500
Redemptions--
  $  7.35  Series C                                                              (10,000)    (1,000)
  $ 88.00  Series E                                                               (3,000)    (3,000)
  $ 9.125  Series N                            25                               (150,000)   (14,794)
  $ 91.50  Series Q                                                              (10,714)   (10,714)
___________________________________________________________________________________________________
  Purchase accounting
   fair value adjustments--
    Common Stock                         (309,698) (83,954)        
  $  7.35  Series C                                                                             110
  $ 88.00  Series R                                                                           5,000
  $ 90.00  Series S                                                                           6,660
---------------------------------------------------------------------------------------------------
Balance, December 31, 1997 79,590,689  $  931,614  $     -  1,624,000 $238,325   285,858   $197,888
===================================================================================================

<FN>
The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.

</TABLE>
                                                      - 6 -

<TABLE>
                              THE CLEVELAND ELECTRIC ILLUMINATING COMPANY

                                 CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
                                          Nov. 8 -   |   Jan. 1 -  For the Years Ended December 31,
                                                     |              --------------------------------
                                       Dec. 31, 1997 |  Nov. 7, 1997       1996            1995
-----------------------------------------------------|----------------------------------------------
                                                     |             (In thousands)
<S>                                         <C>      |  <C>              <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES:                |  
Net Income (Loss)                           $ 19,290 |  $(229,247)       $116,553        $183,719
Adjustments to reconcile net income to net           | 
  cash from operating activities:                    |  
    Provision for depreciation and                   |  
     amortization                             28,111 |    189,937         218,539         208,812
    Nuclear fuel and lease amortization        7,393 |     42,577          45,987          70,745
    Other amortization, net                    3,867 |     21,890          26,076         (64,641)
    Deferred income taxes, net                 7,723 |   (126,693)         24,973          56,063
    Investment tax credits, net                 (822)|     (6,670)         (7,992)        (12,566)
    Allowance for equity funds used                  |
     during construction                        (140)|     (1,647)         (2,014)         (2,173)
    Extraordinary loss                             - |    499,135              -                -
    Receivables                               51,213 |     (3,974)            586         (12,927)
    Net proceeds from accounts                       | 
    receivable securitization                      - |          -          64,891               -
    Materials and supplies                    (3,922)|      6,363          25,589           9,818
    Accounts payable                            (777)|     (7,938)         (6,344)          1,084
    Other                                     18,839 |     (2,566)         10,992          (7,996)
                                            -------- |   --------        --------        --------
      Net cash provided from operating               | 
       activities                            130,775 |    381,167         517,836         429,938
                                            -------- |   --------        --------        --------
CASH FLOWS FROM FINANCING ACTIVITIES:                |  
New Financing--                                      |   
  Long-term debt                                   - |  1,176,781            (307)        432,052
  Short-term borrowings, net                     703 |          -         106,618               -
Redemptions and Repayments--                         | 
  Preferred stock                                  - |     29,714          31,528          36,670
  Long-term debt                              43,500 |    701,843         310,177         481,426
  Short-term borrowings, net                       - |     55,519               -          53,100
Dividend Payments--                                  |  
  Common stock                                34,785 |     88,816         160,816          74,213
  Preferred stock                              7,191 |     29,311          39,325          42,951
                                            -------- |  ---------        --------        --------
    Net cash provided from (used for)
     financing activities                    (84,773)|    271,578        (435,535)       (256,308)
                                            -------- |  ---------        --------        --------
                                                     |   
CASH FLOWS FROM INVESTING ACTIVITIES:                |    
Property additions                            17,943 |    104,230         105,588         151,038
Capital trust investments                     16,248 |    558,836               -               -
Other                                         (4,288)|      2,276          16,210          18,465
                                            -------- |  ---------        --------        --------
  Net cash used for investing activities      29,903 |    665,342         121,798         169,503
                                            -------- |  ---------        --------        --------
Net increase (decrease) in cash and cash             |
 equivalents                                  16,099 |    (12,597)        (39,497)          4,127
Cash and cash equivalents at beginning               | 
 of period                                    17,676 |     30,273          69,770          65,643
                                            -------- |  ---------        --------        --------
Cash and cash equivalents at end of                  |
 period                                     $ 33,775 |  $  17,676        $ 30,273        $ 69,770
                                            ======== |  =========        ========        ========
                                                     | 
SUPPLEMENTAL CASH FLOWS INFORMATION:                 |
Cash Paid During the Period--                        |
  Interest (net of amounts capitalized)     $ 36,000 |  $ 188,000        $237,000        $214,000
                                            ======== |  =========        ========        ========
  Income taxes                              $  9,000 |  $  26,300        $ 29,732        $ 65,900
                                            ======== |  =========        ========        ========

<FN>
The accompanying Notes to Consolidated Financial Statements are an 
integral part of these statements.

</TABLE>
                                                      - 7 -

<TABLE>
                              THE CLEVELAND ELECTRIC ILLUMINATING COMPANY

                                   CONSOLIDATED STATEMENTS OF TAXES
<CAPTION>
                                           Nov. 8 -  |   Jan. 1 -  For the Years Ended December 31,
                                                     |              --------------------------------
                                       Dec. 31, 1997 |  Nov. 7, 1997       1996            1995
-----------------------------------------------------|----------------------------------------------
                                                     |             (In thousands)
<S>                                       <S>        |  <S>            <S>            <S>
GENERAL TAXES:                                       |
Real and personal property                $ 17,707   |  $ 114,393      $  132,582     $  134,346
State gross receipts                        13,302   |     65,966          78,109         76,806
Social security and unemployment             1,548   |      6,296           9,127          9,145
Other                                        1,355   |      7,745          10,038          9,665
                                          --------   |  ---------      ----------     ----------
    Total general taxes                   $ 33,912   |  $ 194,400      $  229,856     $  229,962
                                          ========   |  =========      ==========     ==========
PROVISION FOR INCOME TAXES:                          |
Currently payable-                                   |
  Federal                                 $  6,969   |  $  37,605      $   44,147     $   39,499
  State (1)                                    159   |          -               -              -
                                          --------   |  ---------      ----------     ----------
                                             7,128   |     37,605          44,147         39,499
                                          --------   |  ---------      ----------     ----------
Deferred, net-                                       |    
  Federal                                    7,617   |   (126,693)         24,973         56,063
  State (1)                                    106   |          -               -              -
                                          --------   |  ---------      ----------     ----------
                                             7,723   |   (126,693)         24,973         56,063
                                          --------   |  ---------      ----------     ----------
Investment tax credit amortization            (822)  |     (6,670)         (7,992)       (12,566)
                                          --------   |  ---------      ----------     ----------
    Total provision for income taxes      $ 14,029   |  $ (95,758)     $   61,128     $   82,996
                                          ========   |  =========      ==========     ==========
INCOME STATEMENT CLASSIFICATION                      |
OF PROVISION FOR INCOME TAXES:                       |
Operating income                          $  10,689  |  $  75,621      $   67,235     $   81,310
Other income                                  3,340  |      3,318          (6,107)         1,686
Extraordinary item                                -  |   (174,697)             -              -
                                          ---------  |  ---------      ----------     ----------
    Total provision for income taxes      $  14,029  |  $ (95,758)     $   61,128     $   82,996
                                          =========  |  =========      ==========     ==========
                                                     |       
RECONCILIATION OF FEDERAL INCOME TAX                 |
EXPENSE AT STATUTORY RATE TO TOTAL                   |
PROVISION FOR INCOME TAXES:                          |
Book income before provision for                     |
 income taxes                             $  33,319  |  $(325,005)     $  177,681     $  266,715
                                          =========  |  =========      ==========     ==========
Federal income tax expense at                        |
 statutory rate                           $  11,662  |  $(113,752)     $   62,188     $   93,350
Increases (reductions) in taxes                      |     
 resulting from-                                     |
  Amortization of investment tax credits       (822) |     (6,670)         (7,992)       (12,566)
  Depreciation                                    -  |     14,780           7,853          7,915
  Other, net                                  3,189  |      9,884            (921)        (5,703)
                                          ---------  |  ---------      ----------     ----------
    Total provision for income taxes      $  14,029  |  $ (95,758)     $   61,128     $   82,996
                                          =========  |  =========      ==========     ==========
ACCUMULATED DEFERRED INCOME TAXES AT                 |
DECEMBER 31:                                         |
Property basis differences                $ 676,853  |                 $1,482,000     $1,468,000
Deferred nuclear expense                    133,281  |                    134,000        139,000
Deferred sale and leaseback costs          (118,611) |                   (121,000)      (123,000)
Unamortized investment tax credits          (42,743) |                    (95,000)       (99,000)
Unused alternative minimum tax credits     (133,442) |                   (173,733)      (132,647)
Other                                       (18,901) |                     79,334         45,907
                                          ---------  |                 ----------     ----------
    Net deferred income tax liability     $ 496,437  |                 $1,305,601     $1,298,260
                                          =========  |                 ==========     ==========
                                                     | 
<FN>
(1)  For periods prior to November 8, 1997, state income taxes
     are included in the General Taxes section above. These amounts are
     not material and no restatement was made.


The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.

</TABLE>
                                                      - 8 -


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

          The consolidated financial statements include The 
Cleveland Electric Illuminating Company (Company) and its wholly 
owned subsidiary, Centerior Funding Corporation (Centerior 
Funding). The subsidiary was formed in 1995 to serve as the 
transferor in connection with an accounts receivable 
securitization completed in 1996. All significant intercompany 
transactions have been eliminated. The Company is a wholly owned 
subsidiary of FirstEnergy Corp. (FirstEnergy). Prior to the 
merger in November 1997 (see Note 2), the Company and The Toledo 
Edison Company (TE) were the principal operating subsidiaries of 
Centerior Energy Corporation (Centerior). The merger was 
accounted for using the purchase method of accounting in 
accordance with generally accepted accounting principles, and the 
applicable effects were reflected on the separate financial 
statements of Centerior's direct subsidiaries as of the merger 
date. Accordingly, the post-merger financial statements reflect a 
new basis of accounting, and pre-merger period and post-merger 
period financial results (separated by a heavy black line) are 
presented. The Company follows the accounting policies and 
practices prescribed by The Public Utilities Commission of Ohio 
(PUCO) and the Federal Energy Regulatory Commission (FERC). The 
preparation of financial statements in conformity with generally 
accepted accounting principles requires management to make 
periodic estimates and assumptions that affect the reported 
amounts of assets, liabilities, revenues and expenses. Certain 
prior year amounts have been reclassified to conform with the 
current year presentation.

    REVENUES-

          The Company's principal business is providing electric 
service to customers in northeastern Ohio. The Company's retail 
customers are metered on a cycle basis.  Revenue is recognized 
for unbilled electric service through the end of the year.

          Receivables from customers include sales to 
residential, commercial and industrial customers located in the 
Company's service area and sales to wholesale customers. There 
was no material concentration of receivables at December 31, 1997 
or 1996, with respect to any particular segment of the Company's 
customers.

          In May 1996, the Company and TE began to sell on a 
daily basis substantially all of their retail customer accounts 
receivable to Centerior Funding under an asset-backed 
securitization agreement which expires in 2001. In July 1996, 
Centerior Funding completed a public sale of $150 million of 
receivables-backed investor certificates in a transaction that 
qualified for sale accounting treatment.

    REGULATORY PLAN-

          FirstEnergy's Rate Reduction and Economic Development 
Plan for the Company was approved in January 1997, to become
effective upon consummation of the merger. The regulatory 
plan initially maintains current base electric rates for the 
Company through December 31, 2005. At the end of the regulatory 
plan period, the Company's base rates will be reduced by $217 

                          - 9 -


million (approximately 15 percent below current levels). The 
regulatory plan also revised the Company's fuel cost recovery 
method. The Company formerly recovered fuel-related costs not 
otherwise included in base rates from retail customers through a 
separate energy rate. In accordance with the regulatory plan, the 
Company's fuel rate will be frozen through the regulatory plan 
period, subject to limited periodic adjustments. As part of the 
regulatory plan, transition rate credits were implemented for 
customers, which are expected to reduce operating revenues for 
the Company by approximately $280 million during the regulatory 
plan period.

          All of the Company's regulatory assets related to its 
nonnuclear operations are being recovered under provisions of the 
regulatory plan (see Regulatory Assets). The Company recognized
a fair value purchase accounting adjustment to reduce nuclear plant
by $1.71 billion in connection with the FirstEnergy merger (see
Note 2); that fair value adjustment recognized for financial reporting
purposes will ultimately satisfy the $1.4 billion asset reduction
commitment contained in the regulatory plan. For regulatory purposes,
the Company will recognize the $1.4 billion of accelerated
amortization over the rate plan period.

    UTILITY PLANT AND DEPRECIATION-

          Utility plant reflects the original cost of 
construction (except for the Company's nuclear generating units 
which were adjusted to fair value in 1997), including payroll and 
related costs such as taxes, employee benefits, administrative 
and general costs and financing costs (including allowance for 
funds used during construction).

          The Company provides for depreciation on a straight-
line basis at various rates over the estimated lives of property 
included in plant in service. In its April 1996 rate order, the 
PUCO approved depreciation rates for the Company of 2.88% for 
nuclear property and 3.23 % for nonnuclear property. The 
annualized composite rate was approximately 2.8% for the post-
merger period.

          Annual depreciation expense includes approximately 
$11.7 million for future decommissioning costs applicable to the 
Company's ownership interests in three nuclear generating units.  
The Company's share of the future obligation to decommission 
these units is approximately $406 million in current dollars and 
(using a 3.5% escalation rate) approximately $987 million in 
future dollars. The estimated obligation and the escalation rate 
were developed based on site-specific studies. Payments for 
decommissioning are expected to begin in 2016, when actual 
decommissioning work begins. The Company has recovered 
approximately $99 million for decommissioning through its 
electric rates from customers through December 31, 1997. If the 
actual costs of decommissioning the units exceed the funds 
accumulated from investing amounts recovered from customers, the 
Company expects that additional amount to be recoverable from its 
customers. The Company has approximately $105.3 million invested 
in external decommissioning trust funds as of December 31, 1997. 
Earnings on these funds are reinvested with a corresponding 
increase to the decommissioning liability. The Company has also 
recognized an estimated liability of approximately $11.2 million 
at December 31, 1997 related to decontamination and 
decommissioning of nuclear enrichment facilities operated by the 
United States Department of Energy (DOE), as required by the 
Energy Policy Act of 1992.
                                - 10 -


          The Financial Accounting Standards Board (FASB) issued 
a proposed accounting standard for nuclear decommissioning trusts 
in February 1996. If the standard is adopted as proposed: (1) 
annual provisions for decommissioning could increase; (2) the net 
present value of estimated decommissioning costs could be 
recorded as a liability; and (3) income from the external 
decommissioning trusts could be reported as investment income. 
The FASB indicated in October 1997 that it plans to continue work 
on the proposal in 1998.

    COMMON OWNERSHIP OF GENERATING FACILITIES-

          The Company, TE, Duquesne Light Company, Ohio Edison 
Company (OE) and its wholly owned subsidiary, Pennsylvania Power 
Company (Penn), constitute the Central Area Power Coordination 
Group (CAPCO). The CAPCO Companies own and/or lease, as tenants 
in common, various power generating facilities. Each of the 
companies is obligated to pay a share of the costs associated 
with any jointly owned facility in the same proportion as its 
interest. The Company's portion of operating expenses associated 
with jointly owned facilities is included in the corresponding 
operating expenses on the Consolidated Statements of Income. The 
amounts reflected on the Consolidated Balance Sheet under utility 
plant at December 31, 1997 include the following:

                         Utility   Accumulated   Construction   Ownership/
                           Plant   Provision for   Work in      Leasehold
Generating Units       in Service  Depreciation    Progress     Interest
--------------------------------------------------------------------------
                                     (In millions)
Bruce Mansfield
  Units 1, 2, and 3    $   62.0        $ 18.1       $  .6         19.92%
Beaver Valley Unit 2      342.4           3.5         1.2         24.47%
Davis-Besse               200.1             -         3.6         51.38%
Perry                     521.6             -         3.3         31.11%
Eastlake Unit 5           159.9          94.6          .3         68.80%
Seneca                     64.9          24.3          .1         80.00%
--------------------------------------------------------------------------
  Total                $1,350.9        $140.5       $ 9.1       
==========================================================================

          The Bruce Mansfield Plant is being leased through a 
sale and leaseback transaction (see Note 3) and the above related 
amounts represent construction expenditures subsequent to the 
transaction. The Seneca Unit is jointly owned by the Company and 
a non-CAPCO company.

    NUCLEAR FUEL-

          The Company leases its nuclear fuel and pays for the 
fuel as it is consumed (see Note 3). The Company amortizes the 
cost of nuclear fuel based on the rate of consumption. The 
Company's electric rates include amounts for the future disposal 
of spent nuclear fuel based upon the payments to the DOE.

    INCOME TAXES-

          Details of the total provision for income taxes are 
shown on the Consolidated Statements of Taxes. Deferred income 
taxes result from timing differences in the recognition of 
revenues and expenses for tax and accounting purposes. Investment 
tax credits, which were deferred when utilized, are being 
amortized over the recovery period of the related property. The 

                                - 11 -


liability method is used to account for deferred income taxes. 
Deferred income tax liabilities related to tax and accounting 
basis differences are recognized at the statutory income tax 
rates in effect when the liabilities are expected to be paid. 
Alternative minimum tax credits of $133 million, which may be 
carried forward indefinitely, are available to reduce future 
federal income taxes.

    RETIREMENT BENEFITS-

          Centerior had sponsored jointly with the Company, TE 
and Centerior Service Company (Service Company) a noncontributing 
pension plan (Centerior Pension Plan) which covered all employee 
groups. Upon retirement, employees receive a monthly pension 
generally based on the length of service. Under certain 
circumstances, benefits can begin as early as age 55. The funding 
policy was to comply with the Employee Retirement Income Security 
Act of 1974 guidelines. In December 1997, the Centerior Pension 
Plan was merged into the FirstEnergy pension plans. In connection
with the merger, the Company recorded fair value purchase accounting
adjustments to recognize the net gain, prior service cost, and net
transition asset (obligation) associated with the pension and post
retirement benefit plans.

          The following sets forth the funded status of the 
former Centerior Pension Plan. The Company's share of the former 
Centerior Pension Plan's total projected benefit obligation 
approximates 70% at December 31, 1997.

At December 31,                                1997      1996
---------------------------------------------------------------
                                                 (In millions)
Actuarial present value of benefit                   |
 obligations:                                        |
  Vested benefits                             $418.9 |  $325.8
  Nonvested benefits                            30.5 |    15.8
-----------------------------------------------------|--------
Accumulated benefit obligation                $449.4 |  $341.6
=====================================================|========
Plan assets at fair value                     $461.9 |  $420.8
Actuarial present value of                           |  
  projected benefit obligation                 533.4 |   395.0
-----------------------------------------------------|--------
Projected benefit obligation in excess of            |
  plan assets                                   71.5 |   (25.8)
Unrecognized net gain (loss)                    (3.0)|    55.0
Unrecognized prior service cost                    - |   (14.2)
Unrecognized net transition asset                  - |    32.3
-----------------------------------------------------|--------
    Net pension liability                    $  68.5 | $  47.3
==============================================================

          The assets of the Centerior Pension Plan consisted 
primarily of investments in common stock, bonds, guaranteed 
investment contracts, cash equivalent securities and real estate. 
Net pension costs for the three years ended December 31, 1997 
were computed as follows:

                                - 12 -


<TABLE>
<CAPTION>
                                        Nov. 8 -    |     Jan. 1 -
                                     Dec. 31, 1997  |  Nov. 7, 1997      1996      1995
----------------------------------------------------|-----------------------------------
                                                    |     (In millions) 
<S>                                      <C>        |    <C>           <C>       <C>
Service cost-benefits earned                        |
  during the period                      $  2.3     |    $ 11.1        $ 12.6    $  9.8
Interest on projected benefit                       |
  obligation                                6.1     |      25.4          27.9      25.8
Return on plan assets                      (7.7)    |     (38.0)        (49.7)    (52.8)
Net deferral (amortization)                   -     |      (2.4)          1.8       9.2
Voluntary early retirement                          |
  program expense                          23.0     |       4.8             -         - 
----------------------------------------------------|----------------------------------
    Net pension cost                     $ 23.7     |    $  0.9       $  (7.4)   $ (8.0)
====================================================|==================================
Company's share, including pro                      |  
  rata share of the Service                         |
  Company's costs                        $  16.5    |    $ (2.5)      $  (5.0)   $ (5.2)
---------------------------------------------------------------------------------------

</TABLE>

                                                      - 13 -


          A September 30 measurement date was used for 1996 
reporting. The assumed discount rates used in determining the 
actuarial present value of the projected benefit obligation were 
7.25% in 1997, 7.75% in 1996 and 8.0% in 1995. The assumed rate 
of increase in future compensation levels used to measure this 
obligation was 4.0% in 1997. The rate of annual compensation 
increase assumption in 1996 was 3.5% for 1997 and 4.0% 
thereafter. The rate of annual compensation increase assumption 
in 1995 was 3.5% for 1996 and 1997 and 4.0% thereafter. Expected 
long-term rates of return on plan assets were assumed to be 10% 
in 1997 and 11% in 1996 and 1995. At December 31, 1997, the 
Company's net pension liability included in Pensions and Other 
Postretirement Benefits on the Consolidated Balance Sheet was 
$49.2 million. At December 31, 1996, the Company's net prepaid 
pension cost included in Deferred Charges -- Other on the 
Consolidated Balance Sheet was $15.4 million (see Note 2).

          Centerior had sponsored jointly with its former 
subsidiaries a postretirement benefit plan which provided all 
employee groups certain health care, death and other 
postretirement benefits other than pensions. The plan was 
contributory, with retiree contributions adjusted annually. The 
plan was not funded.

          The accumulated postretirement benefit obligation and 
accrued postretirement benefit cost for the Centerior 
postretirement benefit plan are as follows:

At December 31,                              1997      1996
--------------------------------------------------------------
                                              (In millions)
                                                    |
Accumulated postretirement benefit                  |
  obligation allocation:                            |
    Retirees                                 $209.8 |  $ 177.1
    Fully eligible active plan participants     9.8 |      3.9
    Other active plan participants             46.9 |     30.9
----------------------------------------------------|---------
Accumulated postretirement benefit                  |
  obligation                                  266.5 |    211.9
Unrecognized transition obligation                - |   (120.1)
Unrecognized net gain                             - |     44.4
----------------------------------------------------|---------
  Net postretirement benefit liability       $266.5 |  $ 136.2

          Net periodic postretirement benefit costs for the three 
years ended December 31, 1997 were computed as follows:

                                - 14 -




<TABLE>
<CAPTION>
                                             Nov. 8 -    |     Jan. 1 -
                                          Dec. 31, 1997  |  Nov. 7, 1997      1996      1995
---------------------------------------------------------|-----------------------------------
                                                         |     (In millions) 
<S>                                           <C>        |     <C>           <C>
Service cost-benefits                                    |    
  attributed to the period                    $0.5       |     $ 1.8         $ 2.1     $ 1.7
Interest cost on accumulated                             |
  benefit obligation                           2.8       |      13.5          17.8      17.9
Amortization of transition obligation            -       |       6.4           7.5       7.5
Amortization of gain                             -       |      (0.9)            -      (0.6)
---------------------------------------------------------|----------------------------------
  Net periodic postretirement                            | 
    benefit cost                              $3.3       |     $20.8         $27.4     $26.5
=========================================================|==================================
Company's share, including pro rata                      | 
  share of the Service Company's costs        $2.6       |     $11.4         $18.4     $16.0
---------------------------------------------------------------------------------------------

</TABLE>

                                                      - 15 -



          The Consolidated Balance Sheet classification of 
Pensions and Other Postretirement Benefits at December 31, 1997 
and 1996 includes the Company's share of the accrued 
postretirement benefit liability of $149.5 million and $72.8 
million, respectively (see Note 2).

          The health care trend rate assumption is approximately 
6.0% in the first year gradually decreasing to approximately 4.0% 
for the year 2008 and later. The discount rates used to compute 
the accumulated postretirement benefit obligation were 7.25% in 
1997, 7.75% in 1996 and 8.0% in 1995. An increase in the health 
care trend rate assumption by one percentage point in all years 
would increase the accumulated postretirement benefit obligation 
by approximately $7.7 million and the aggregate annual service 
and interest costs by approximately $0.5 million. A September 30 
measurement date was used for 1996 reporting.

    TRANSACTIONS WITH AFFILIATED COMPANIES-

          Operating revenues, operating expenses and interest 
charges include amounts for transactions with affiliated 
companies in the ordinary course of business operations.

          The Company's transactions with TE and the other 
FirstEnergy operating subsidiaries (OE and Penn) from the 
November 8, 1997 merger date are primarily for firm power, 
interchange power, transmission line rentals and jointly owned 
power plant operations and construction. (See Note 2.) Beginning 
in May 1996, Centerior Funding began serving as the transferor in 
connection with the accounts receivable securitization for the 
Company and TE.

          The Service Company (formerly a wholly owned subsidiary 
of Centerior and now a wholly owned subsidiary of FirstEnergy) 
provides support services at cost to the Company and other 
affiliated companies. The Service Company billed the Company 
$34.1 million, $130.8 million, $148.6 million and $141.1 million 
in the November 8-December 31, 1997, the January 1-November 7, 
1997 period, 1996 and 1995, respectively, for such services.

          Fuel and purchased power expenses on the Consolidated 
Statements of Income include the cost of power purchased from TE 
of $17.7 million, $98.5 million, $105.0 million and $102.1 
million in the November 8-December 31, 1997 period, the January 
1-November 7, 1997 period, 1996 and 1995, respectively.

SUPPLEMENTAL CASH FLOWS INFORMATION-

          All temporary cash investments purchased with an 
initial maturity of three months or less are reported as cash 
equivalents on the Consolidated Balance Sheets. The Company 
reflects temporary cash investments at cost, which approximates 
their market value. Noncash financing and investing activities 
included capital lease transactions amounting to $16 million, $37 
million and $19 million for the years 1997, 1996 and 1995, 
respectively.

          All borrowings with initial maturities of less than one 
year are defined as financial instruments under generally 
accepted accounting principles and are reported on the 
Consolidated Balance Sheets at cost, which approximates their 
fair market value. The following sets forth the approximate fair 
value and related carrying amounts of all other long-term debt, 

                                - 16 -


preferred stock subject to mandatory redemption and investments 
other than cash and cash equivalents as of December 31:

                                     1997           1996    
                               --------------  ---------------
                               Carrying  Fair  Carrying  Fair
                                 Value   Value   Value   Value
--------------------------------------------------------------
                                         (In Millions)
Long-term debt                  $3,198  $3,238|$2,562  $2,630
Preferred stock                 $  198  $  198|$  216  $  220
Investments other than cash                   |
 and cash equivalents:                        |
  Debt securities                             |
   - (Maturing in more than                   |
    10 years)                   $  565  $  553|$    -  $    -
  Equity securities                 10      10|     -       -
  All other                        105     104|    75      75
----------------------------------------------|--------------
                                $  680  $  667|$   75  $   75
=============================================================

          The carrying values of long-term debt and preferred 
stock subject to mandatory redemption were adjusted to fair value 
in connection with the merger and reflect the present value of 
the cash outflows relating to those securities based on the 
current call price, the yield to maturity or the yield to call, 
as deemed appropriate at the end of each respective year. The 
yields assumed were based on securities with similar 
characteristics offered by a corporation with credit ratings 
similar to the Company's ratings.

          The fair value of investments other than cash and cash 
equivalents represent cost (which approximates fair value) or the 
present value of the cash inflows based on the yield to maturity. 
The yields assumed were based on financial instruments with 
similar characteristics and terms. Investments other than cash 
and cash equivalents include decommissioning trusts investments. 
Unrealized gains and losses applicable to the decommissioning 
trusts have been recognized in the trust investments with a 
corresponding change to the decommissioning liability. In 1996, 
the Company and TE transferred most of their investment assets in 
existing trusts into Centerior pooled trust funds for the two 
companies. The amounts in the table represent the Company's pro 
rata share of the fair value of such noncash investments. The 
debt and equity securities referred to above are in the held-to-
maturity category. The Company has no securities held for trading 
purposes.

    REGULATORY ASSETS-

          The Company recognizes, as regulatory assets, costs 
which the FERC and PUCO have authorized for recovery from 
customers in future periods. Without such authorization, the 
costs would have been charged to income as incurred. All 
regulatory assets related to nonnuclear operations are being 
recovered from customers under the Company's regulatory plan. 
Based on the regulatory plan, at this time, the Company believes 
it will continue to be able to bill and collect cost-based rates 
(with the exception of the Company's nuclear operations as 
discussed below); accordingly, it is appropriate that the Company 
continue the application of SFAS No. 71, "Accounting for the 

                                - 17 -

Effects of Certain Types of Regulation" (SFAS 71), in the 
foreseeable future for its nonnuclear operations.

          The Company discontinued the application of SFAS 71 for 
its nuclear operations in October 1997 when implementation of the 
regulatory plan became probable. The regulatory plan does not 
provide for full recovery of the Company's nuclear operations. In 
accordance with SFAS No. 101, "Regulated Enterprises -- 
Accounting for the Discontinuation of Application of SFAS 71," 
the Company was required to remove from its balance sheet all 
regulatory assets and liabilities related to the portion of its 
business for which SFAS 71 was discontinued and to assess all 
other assets for impairment. Regulatory assets attributable to 
nuclear operations of $499.1 million ($324.4 million after taxes) 
were written off as an extraordinary item in October 1997. The 
regulatory assets attributable to nuclear operations written off 
represent the net amounts due from customers for future federal 
income taxes when the taxes become payable, which, under the 
regulatory plan, are no longer recoverable from customers. The 
remainder of the Company's business continues to comply with the 
provisions of SFAS 71. All remaining regulatory assets of the 
Company will continue to be recovered through rates set for the 
nonnuclear portion of its business. For financial reporting 
purposes, the net book value of the nuclear generating units was 
not impaired as a result of the regulatory plan.

        Net regulatory assets on the Consolidated Balance Sheets 
are comprised of the following:

At December 31,                              1997      1996
--------------------------------------------------------------
                                              (In millions)

Nuclear unit expenses                     $ 309.0     $  320.0
Customer receivables for future
 income taxes                               143.0        633.6
Rate stabilization program deferrals        288.1        300.3
Gain from Bruce Mansfield Plant sale*      (274.4)           -
Loss on reacquired debt                      80.9         57.8
Other                                        33.1         38.0
--------------------------------------------------------------
  Total                                   $ 579.7     $1,349.7
===============================================================

* The Gain from the Bruce Mansfield Plant sale was reclassified as
  a regulatory liability in connection with the purchase accounting
  adjustments, consistent with the ratemaking treatment.

2.  OHIO EDISON-CENTERIOR MERGER:

          FirstEnergy was formed on November 8, 1997 by the 
merger of OE and Centerior. FirstEnergy holds directly all of the 
issued and outstanding common shares of OE and all of the issued 
and outstanding common shares of Centerior's former direct 
subsidiaries, which include, among others, the Company and TE. As 
a result of the merger, the former common shareholders of OE and 
Centerior now own all of the outstanding shares of FirstEnergy 
Common Stock. All other classes of capital stock of OE and its 
subsidiaries and of the subsidiaries of Centerior are unaffected 
by the Merger and remain outstanding.

          The merger was accounted for as a purchase of 
Centerior's net assets with 77,637,704 shares of FirstEnergy 
Common Stock through the conversion of each outstanding Centerior 
Common Stock share into 0.525 of a share of FirstEnergy Common 
Stock (fractional shares were paid in cash). Based on an imputed 
value of $20.125 per share, the purchase price was approximately 

                                - 18 -


$1.582 billion which also included approximately $20 million of 
merger related costs. Goodwill of approximately $2.1 billion was 
recognized by FirstEnergy (to be amortized on a straight-line 
basis over forty years), which represented the excess of the 
purchase price over Centerior's net assets after fair value 
adjustments. Such amount may be adjusted if additional 
information produces changed assumptions over the twelve months 
following the merger as FirstEnergy continues to integrate 
operations and evaluate options with respect to its generation 
portfolio.

          The Company's merger purchase accounting adjustments, 
which were recorded in the records of Centerior's direct 
subsidiaries, primarily consist of (1) revaluation of the 
Company's nuclear generating units to fair value ($1.0 billion), 
based upon the results of an independent appraisal and estimated 
discounted future cash flows expected to be generated by its 
nuclear generating units (the estimated cash flows are based upon 
management's current view of the likely cost recovery associated 
with the nuclear units); (2) adjusting by $119 million its 
preferred stock subject to mandatory redemption and long-term 
debt to estimated fair value; (3) recognizing additional 
obligations related to retirement benefits (pension liability - 
$50 million and postretirement obligation - $71 million); (4) 
recognizing the Company's estimated severance and other 
compensation liabilities ($56 million); and (5) adjusting the 
Company's common equity by $272 million. The nuclear assets 
revaluation does not include decommissioning since that 
obligation is expected to be recovered with the cash flows 
provided by the regulated portion of the business. Other assets 
and liabilities were not adjusted since they remain subject to 
rate regulation on a historical cost basis. See Note 8.

3.  LEASES:

          The Company leases certain generating facilities, 
nuclear fuel, certain transmission facilities, office space and 
other property and equipment under cancelable and noncancelable 
leases.

          The Company and TE sold their ownership interests in 
Bruce Mansfield Units 1, 2 and 3 and TE sold a portion of its 
ownership interest in Beaver Valley Unit 2. In connection with 
these sales, which were completed in 1987, the Company and TE 
entered into operating leases for lease terms of approximately 30 
years as co-lessees. During the terms of the leases, the Company 
and TE continue to be responsible, to the extent of their 
combined ownership and leasehold interest, for costs associated 
with the units including construction expenditures, operation and 
maintenance expenses, insurance, nuclear fuel, property taxes and 
decommissioning. The Company and TE have the right, at the end of 
the respective basic lease terms, to renew the leases. The 
Company and TE also have the right to purchase the facilities at 
the expiration of the basic lease term or renewal term (if 
elected) at a price equal to the fair market value of the 
facilities.

          As co-lessee with TE, the Company is also obligated for 
TE's lease payments. If TE is unable to make its payments under 
the Beaver Valley Unit 2 and Bruce Mansfield Plant leases, the 
Company would be obligated to make such payments. No such 
payments have been made on behalf of TE. (TE's minimum lease
payments as of December 31, 1997 were $1.7 billion).

                                - 19 -


          The Company is buying 150 megawatts of TE's Beaver 
Valley Unit 2 leased capacity entitlement. Purchased power 
expense for this transaction was $16.8 million, $87.4 million, 
$99.4 million and $97.6 million in the November 8-December 31, 
1997, the January 1-November 7, 1997 period, 1996 and 1995, 
respectively. This purchase is expected to continue through the 
end of the lease period. The future minimum lease payments 
through 2017 associated with Beaver Valley Unit 2 are 
approximately $1.2 billion.

          Nuclear fuel is currently financed for the Company and 
TE through leases with a special-purpose corporation. As of 
December 31, 1997, $157 million of nuclear fuel ($93 million for 
the Company) was financed under a lease financing arrangement 
totaling $190 million ($90 million of intermediate-term notes and 
$100 million from bank credit arrangements). The notes mature 
from 1998 through 2000 and the bank credit arrangements expire in 
October 1998. Lease rates are based on intermediate-term note 
rates, bank rates and commercial paper rates.

          Consistent with the regulatory treatment, the rentals 
for capital and operating leases are charged to operating 
expenses on the Consolidated Statements of Income. Such costs for 
the three years ended December 31, 1997 are summarized as 
follows:
                                - 20 -


<TABLE>
<CAPTION>
                                        Nov. 8 -    |     Jan. 1 -
                                     Dec. 31, 1997  |  Nov. 7, 1997      1996      1995
----------------------------------------------------|------------------------------------
                                                    |     (In millions) 
<S>                                     <C>         |    <C>           <C>        <C>
Operating leases                                    |  
  Interest element                      $10.6       |    $  56.0       $  58.1    $  58.1 
  Other                                   8.4       |       18.3           4.8        4.8
Capital leases                                      |      
  Interest element                        1.5       |        8.5          10.1       10.7
  Other                                   7.5       |       43.4          51.7       58.4
----------------------------------------------------|------------------------------------
    Total rentals                       $28.0       |     $126.2        $124.7     $132.0
=========================================================================================

The future minimum lease payments as of December 31, 1997 are:

                                                                Capital
                                        Capital    Operating     Trust
                                         Leases     Leases       Income     Net
--------------------------------------------------------------------------------
                                                       (In millions)
<S>                                     <C>        <C>           <C>       <C>
1998                                    $ 47.0     $   65.3      $ 40.1    $ 25.2
1999                                      33.4         69.3        38.2      31.1
2000                                      18.9         66.6        36.3      30.3
2001                                       8.5         71.7        35.0      36.7
2002                                       4.1         76.4        32.9      43.5
Years thereafter                          10.8        853.7       227.7     626.0
---------------------------------------------------------------------------------
Total minimum lease payments             122.7     $1,203.0      $410.2    $792.8
                                                   ========      ======    ======
Interest portion                          24.2
----------------------------------------------
Present value of net minimum
 lease payments                           98.5
Less current portion                      40.4
----------------------------------------------
Noncurrent portion                      $ 58.1

</TABLE>
                                                      - 21 -


          The Company and TE refinanced high-cost fixed 
obligations related to their 1987 sale and leaseback transaction 
for the Bruce Mansfield Plant through a lower cost transaction in 
June and July 1997. In a June 1997 offering (Offering), the two 
companies pledged $720 million aggregate principal amount ($575 
million for the Company and $145 million for TE) of first 
mortgage bonds due in 2000, 2004 and 2007 to a trust as security 
for the issuance of a like principal amount of secured notes due 
in 2000, 2004 and 2007. The obligations of the two companies 
under these secured notes are joint and several. Using available 
cash, short-term borrowings and the net proceeds from the 
Offering, the two companies invested $906.5 million ($569.4 
million for the Company and  $337.1 million for TE) in a business 
trust, in June 1997. The trust used these funds in July 1997 to 
purchase lease notes and redeem all $873.2 million aggregate 
principal amount of 10-1/4% and 11-1/8% secured lease obligation 
bonds (SLOBs) due 2003 and 2016. The SLOBs were issued by a 
special-purpose funding corporation in 1988 on behalf of lessors 
in the two companies' 1987 sale and leaseback transaction. As 
noted in the table above, the trust income, which is included in 
Other Income in the Consolidated Statements of Income, 
effectively reduce lease costs related to that transaction.

4.  CAPITALIZATION:

   (A)  RETAINED EARNINGS-

          There are no restrictions on retained earnings for 
payment of cash dividends on the Company's common stock. The 
merger purchase accounting adjustments included resetting the 
retained earnings balance at zero at the November 8, 1997 merger 
date.

   (B)  PREFERRED AND PREFERENCE STOCK-

          The Company's $42.40 Series T and $88.00 Series R 
preferred stock are not redeemable before June 1998 and December 
2001, respectively, and its $90.00 Series S has no optional 
redemption provision. All other preferred stock may be redeemed 
by the Company in whole, or in part, with 30-90 days' notice.

          The preferred dividend rate on the Company's Series L 
fluctuates based on prevailing interest rates and market 
conditions. The dividend rate for this issue was 7% in 1997.

          Preference stock authorized for the Company is 
3,000,000 shares without par value. No preference shares are 
currently outstanding.

   (C)  PREFERRED STOCK SUBJECT TO MANDATORY REDEMPTION-

          Annual sinking fund provisions for preferred stock are 
as follows:

                                - 22 -


                  Redemption    
                  Price Per
Series    Shares    Share     Date    Beginning
-----------------------------------------------
$ 7.35 C   10,000  $  100                (i)
 88.00 E    3,000   1,000                (i)
 91.50 Q   10,714   1,000                (i)
 90.00 S   18,750   1,000   November 1   1999
 88.00 R   50,000   1,000   December 1   2001
-----------------------------------------------
            
i) Sinking fund provisions are in effect.

          Annual sinking fund requirements for the next five 
years are $14.7 million in 1998, $33.5 million in each year 1999 
and 2000, $80.5 million in 2001 and $18.8 million in 2002. A 
liability of $14 million was included in the Company's net assets 
as of the merger date for preferred dividends declared 
attributable to the post-merger period. Accordingly, no accrual 
for preferred stock dividend requirements is included on the 
Company's November 8, 1997 to December 31, 1997 Consolidated 
Statement of Income.

   (D)  LONG-TERM DEBT-

          The first mortgage indenture and its supplements, which 
secure all of the Company's first mortgage bonds, serve as direct 
first mortgage liens on substantially all property and 
franchises, other than specifically excepted property, owned by 
the Company.

          Sinking fund requirements for first mortgage bonds and 
maturing long-term debt (excluding capital leases) for the next 
five years are:

                           (In millions)     
--------------------------------------------------------------
                      1998              $ 66.8
                      1999               145.5
                      2000               176.0
                      2001                57.5
                      2002               229.3
--------------------------------------------------------------

          The Company's obligations to repay certain pollution 
control revenue bonds are secured by several series of first 
mortgage bonds. One pollution control revenue bond issue is 
entitled to the benefit of an irrevocable bank letter of credit 
of $48.1 million. To the extent that drawings are made under this 
letter of credit to pay principal of, or interest on, the 
pollution control revenue bonds, the Company is entitled to a 
credit against its obligation to repay those bonds. The Company 
pays an annual fee of 1.1% of the amount of the letter of credit 
to the issuing bank and is obligated to reimburse the bank for 
any drawings thereunder.

          The Company and TE have letters of credit of 
approximately $225 million in connection with the sale and 
leaseback of Beaver Valley Unit 2 that expire in June 1999. The 
letters of credit are secured by first mortgage bonds of the 
Company and TE in the proportion of 40% and 60%, respectively 
(see Note 3).

                                - 23 -


5.  SHORT-TERM BORROWINGS:

          FirstEnergy has a $125 million revolving credit 
facility that expires in May 1998. FirstEnergy and the Service 
Company may borrow under the facility, with all borrowings 
jointly and severally guaranteed by the Company and TE. 
FirstEnergy plans to transfer any of its borrowed funds to the 
Company and TE. The credit agreement is secured with first 
mortgage bonds of the Company and TE in the proportion of 40% and 
60%, respectively. The credit agreement also provides the 
participating banks with a subordinate mortgage security interest 
on the properties of the Company and TE. The banks' fee is 0.625% 
per annum payable quarterly in addition to interest on any 
borrowings. There were no borrowings under the facility at 
December 31, 1997. Also, the Company may borrow from its 
affiliates on a short-term basis. At December 31, 1997, the 
Company had total short-term borrowings of $56.8 million from its 
affiliates with a weighted average interest rate of approximately 
6%.

6.  COMMITMENTS, GUARANTEES AND CONTINGENCIES:

    CAPITAL EXPENDITURES-

          The Company's current forecast reflects expenditures of 
approximately $430 million for property additions and 
improvements from 1998-2002, of which approximately $105 million 
is applicable to 1998. Investments for additional nuclear fuel 
during the 1998-2002 period are estimated to be approximately 
$172 million, of which approximately $32 million applies to 1998. 
During the same periods, the Company's nuclear fuel investments 
are expected to be reduced by approximately $113 million and $42 
million, respectively, as the nuclear fuel is consumed.

    NUCLEAR INSURANCE-

          The Price-Anderson Act limits the public liability 
relative to a single incident at a nuclear power plant to $8.92 
billion. The amount is covered by a combination of private 
insurance and an industry retrospective rating plan. Based on its 
present ownership and leasehold interests in Beaver Valley Unit 
2, the Davis-Besse Nuclear Power Station (Davis-Besse) and the 
Perry Nuclear Power Plant (Perry), the Company's maximum 
potential assessment under the industry retrospective rating plan 
(assuming the other CAPCO companies were to contribute their 
proportionate share of any assessments under the retrospective 
rating plan) would be $84 million per incident but not more than 
$10.7 million in any one year for each incident.

          The Company is also insured as to its respective 
interests in Beaver Valley Unit 2, Davis-Besse and Perry under 
policies issued to the operating company for each plant. Under 
these policies, up to $2.75 billion is provided for property 
damage and decontamination and decommissioning costs. The Company 
has also obtained approximately $316 million of insurance 
coverage for replacement power costs for its respective interests 
in Beaver Valley Unit 2, Davis-Besse and Perry. Under these 
policies, the Company can be assessed a maximum of approximately 
$13 million for incidents at any covered nuclear facility 
occurring during a policy year which are in excess of accumulated 
funds available to the insurer for paying losses.

                                - 24 -


          The Company intends to maintain insurance against 
nuclear risks as described above as long as it is available. To 
the extent that replacement power, property damage, 
decontamination, decommissioning, repair and replacement costs 
and other such costs arising from a nuclear incident at any of 
the Company's plants exceed the policy limits of the insurance in 
effect with respect to that plant, to the extent a nuclear 
incident is determined not to be covered by the Company's 
insurance policies, or to the extent such insurance becomes 
unavailable in the future, the Company would remain at risk for 
such costs.

    GUARANTEE-

          The Company, together with the other CAPCO companies, 
has severally guaranteed certain debt and lease obligations in 
connection with a coal supply contract for the Bruce Mansfield 
Plant. As of December 31, 1997, the Company's share of the 
guarantee (which approximates fair market value) was $14.3 
million. The price under the coal supply contract, which includes 
certain minimum payments, has been determined to be sufficient to 
satisfy the debt and lease obligations. The Company's total 
payments under the coal supply contract were $51.2 million, $47.0 
million and $38.6 million during 1997, 1996 and 1995, 
respectively. The Company's minimum annual payments are 
approximately $14 million under the contract, which expires 
December 31, 1999.

    ENVIRONMENTAL MATTERS-

          Various federal, state and local authorities regulate 
the Company with regard to air and water quality and other 
environmental matters. The Company has estimated additional 
capital expenditures for environmental compliance of 
approximately $12 million, which is included in the construction 
forecast provided under "Capital Expenditures" for 1998 through 
2002.

          The Company is in compliance with the current sulfur 
dioxide (SO2) and nitrogen oxides (NOX) reduction requirements 
under the Clean Air Act Amendments of 1990. SO2 reductions 
through the year 1999 will be achieved by burning lower-sulfur 
fuel, generating more electricity from lower-emitting plants, 
and/or purchasing emission allowances. Plans for complying with 
reductions required for the year 2000 and thereafter have not 
been finalized. The Environmental Protection Agency (EPA) is 
conducting additional studies which could indicate the need for 
additional NOX  reductions from the Bruce Mansfield Plant by the 
year 2003. In addition, the EPA is also considering the need for 
additional NOX reductions from the Company's Ohio facilities. On 
November 7, 1997, the EPA proposed uniform reductions of NOX 
emissions across a region of twenty-two states, including Ohio 
and the District of Columbia (NOX Transport Rule) after 
determining that such NOX emissions are contributing 
significantly to ozone pollution in the eastern United States. In 
a separate but related action, eight states filed petitions with 
the EPA under Section 126 of the Clean Air Act seeking reductions 
of NOX emissions which are alleged to contribute to ozone 
pollution in the eight petitioning states. A December 1997 EPA 
Memorandum of Agreement proposes to finalize the NOX Transport 
Rule by September 30, 1998 and establishes a schedule for EPA 

                                - 25 -


action on the Section 126 petitions. The cost of NOX reductions, 
if required, may be substantial. The Company continues to 
evaluate its compliance plans and other compliance options.

          The Company is required to meet federally approved SO2 
regulations. Violations of such regulations can result in 
shutdown of the generating unit involved and/or civil or criminal 
penalties of up to $25,000 for each day the unit is in violation. 
The EPA has an interim enforcement policy for SO2 regulations in 
Ohio that allows for compliance based on a 30-day averaging 
period. The Company cannot predict what action the EPA may take 
in the future with respect to proposed regulations or the interim 
enforcement policy.

          The Company is aware of its potential involvement in 
the cleanup of three hazardous waste disposal sites listed on the 
Superfund National Priorities List and several other sites. The 
Company has accrued a liability totaling $4.8 million at December 
31, 1997 based on estimates of the costs of cleanup and its 
proportionate responsibility for such costs. The Company believes 
that the ultimate outcome of these matters will not have a 
material adverse effect on the its financial condition, cash 
flows or results of operations.

          Legislative, administrative and judicial actions will 
continue to change the way that the Company must operate in order 
to comply with environmental laws and regulations. With respect 
to any such changes and to the environmental matters described 
above, the Company expects that any resulting additional capital 
costs which may be required, as well as any required increase in 
operating costs, would ultimately be recovered from its 
customers.

7.  SUMMARY OF QUARTERLY FINANCIAL DATA (UNAUDITED):

          The following summarizes certain consolidated operating 
results by quarter for 1997 and 1996.

                                - 26 -




<TABLE>
<CAPTION>
                                                Three Months Ended     
                                         --------------------------------
                                         Mar. 31,    June 30,    Sept. 30,    Oct. 1 -    |     Nov. 8 -  
                                           1997       1997         1997     Nov. 7, 1997  |  Dec. 31, 1997
------------------------------------------------------------------------------------------|---------------
                                                                (In millions)             |
<S>                                      <C>         <C>          <C>          <C>        |     <C> 
Operating Revenues                       $431.6      $428.2       $499.5       $169.7     |     $254.0
Operating Expenses and Taxes              351.6       350.8        368.0        151.3     |      204.5
------------------------------------------------------------------------------------------|------------
Operating Income                           80.0        77.4        131.5         18.4     |       49.5
Other Income (Loss)                        (3.7)       (5.2)         7.5         (1.2)    |        4.6
Net Interest Charges                       56.1        58.2         71.3         24.0     |       34.8
------------------------------------------------------------------------------------------|------------
Income (Loss) Before Extraordinary Item    20.2        14.0         67.7         (6.8)    |       19.3
Extraordinary Item (Net of Income Taxes)                                                  |
  (Note 1)                                    -           -            -       (324.4)    |          -
------------------------------------------------------------------------------------------|------------
Net Income (Loss)                        $ 20.2      $ 14.0       $ 67.7      $(331.2)    |     $ 19.3
------------------------------------------------------------------------------------------|------------
Earnings (Loss) on Common Stock          $ 10.9      $  4.9       $ 58.9      $(348.9)    |     $ 19.3
------------------------------------------------------------------------------------------|------------

<CAPTION>
                                 March 31,    June 30,    September 30,    December 31,
Three Months Ended                 1996         1996          1996            1996    
---------------------------------------------------------------------------------------
                                                  (In millions)
<S>                               <C>         <C>            <C>              <C>
Operating Revenues                $427.5      $434.0         $506.5           $421.9
Operating Expenses and Taxes       351.7       348.1          385.8            345.7
------------------------------------------------------------------------------------
Operating Income                    75.8        85.9          120.7             76.2
Other Income (Loss)                  1.3          .7           (2.7)            (1.4)
Net Interest Charges                60.3        61.4           59.3             59.0
------------------------------------------------------------------------------------
Net Income                        $ 16.8      $ 25.2         $ 58.7           $ 15.8
------------------------------------------------------------------------------------
Earnings on Common Stock          $  6.8      $ 15.3         $ 49.2           $  6.5
------------------------------------------------------------------------------------
</TABLE

                                                      - 27 -



          Earnings for the quarter ended September 30, 1996 were 
decreased by $10.8 million as a result of a $16.6 million charge 
for the disposition of materials and supplies inventory as part 
of the reengineering of the supply chain process.

8.  PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME UNAUDITED):

          The following pro forma statements of income for the 
Company give effect to the OE-Centerior merger as if it had been 
consummated on January 1, 1996, with the purchase accounting 
adjustments actually recognized in the business combination.

                                         Year Ended December 31,
                                         ----------------------
                                           1997         1996 
----------------------------------------------------------------
                                            (In millions)

Operating Revenues                        $1,783       $1,790
Operating Expenses and Taxes               1,418        1,424
                                          ------       ------
Operating Income                             365          366
Other Income                                  15            2
Net Interest Charges                         232          227
                                          ------       ------
Net Income                                $  148       $  141
=============================================================

Pro forma adjustments reflected above include: (1) adjusting the 
Company's nuclear generating units to fair value based upon 
independent appraisals and estimated discounted future cash flows 
based on management's current view of cost recovery; (2) the 
effect of discontinuing SFAS 71 for the Company's nuclear 
operations; (3) amortization of the fair value adjustment for 
long-term debt; (4) goodwill recognized representing the excess 
of the Company's portion of the purchase price over the Company's 
adjusted net assets; (4) the elimination of merger costs; and (5) 
adjustments for estimated tax effects of the above adjustments. 
See Note 2.

9.  PENDING MERGER OF TE INTO THE COMPANY:

          In March 1994, Centerior announced a plan to merge TE 
into the Company. All necessary regulatory approvals have been
obtained, except the approval of the Nuclear Regulatory Commission
(NRC). This application was withdrawn at the NRC's request pending
the decision whether to complete this merger. No final decision
regarding the proposed merger has been reached.

          In June 1995, TE's preferred stockholders approved the 
merger and the Company's preferred stockholders approved the 
authorization of additional shares of preferred stock. If and 
when the merger becomes effective, TE's preferred stockholders 
will exchange their shares for preferred stock shares of the 
Company having substantially the same terms. Debt holders of the 
merging companies will become debt holders of the Company.

                                - 28 -


          For the merging companies, the combined pro forma 
operating revenues were $2.527 billion, $2.554 billion and $2.516 
billion and the combined pro forma net income was $220 million 
(excluding the extraordinary item discussed in Note 1 and a 
similar item for TE), $218 million and $281 million for the years 
1997, 1996 and 1995, respectively. The pro forma data is based on 
accounting for the merger of the Company and TE on a method 
similar to a pooling of interests and for 1997 and 1996 includes 
pro forma adjustments to reflect the effect of the OE and 
Centerior merger (see Note 8). The pro forma data is not 
necessarily indicative of the results of operations which would 
have been reported had the merger been in effect during those 
years or which may be reported in the future. The pro forma data 
should be read in conjunction with the audited financial 
statements of both the Company and TE. 

                                - 29 -



Report of Independent Public Accountants

To the Stockholders and Board of Directors of The Cleveland 
Electric Illuminating Company:

We have audited the accompanying consolidated balance sheets and 
consolidated statements of capitalization of  The Cleveland 
Electric Illuminating Company (an Ohio corporation and wholly 
owned subsidiary of FirstEnergy Corp.) and subsidiary as of 
December 31, 1997 (post-merger) and 1996 (pre-merger), and the 
related consolidated statements of income, retained earnings, 
capital stock and other paid-in capital, cash flows and taxes for 
the years ended December 31, 1996 and 1995 and the period from 
January 1, 1997 to November 7, 1997 (pre-merger), and the period 
from November 8, 1997 to December 31, 1997 (post-merger). These 
financial statements are the responsibility of the Company's 
management. Our responsibility is to express an opinion on these 
financial statements based on our audits.

We conducted our audits in accordance with generally accepted 
auditing standards. Those standards require that we plan and 
perform the audit to obtain reasonable assurance about whether 
the financial statements are free of material misstatement. An 
audit includes examining, on a test basis, evidence supporting 
the amounts and disclosures in the financial statements. An audit 
also includes assessing the accounting principles used and 
significant estimates made by management, as well as evaluating 
the overall financial statement presentation. We believe that our 
audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above 
present fairly, in all material respects, the financial position 
of The Cleveland Electric Illuminating Company and subsidiary as 
of December 31, 1997 (post-merger) and 1996 (pre-merger), and the 
results of their operations and their cash flows for the years 
ended December 31, 1996 and 1995 and the period from January 1, 
1997 to November 7, 1997 (pre-merger), and the period from 
November 8, 1997 to December 31, 1997 (post-merger), in 
conformity with generally accepted accounting principles.






ARTHUR ANDERSEN LLP


Cleveland, Ohio
February 13, 1998

                                - 30 -



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


          This discussion includes forward looking statements based 
on information currently available to management. Such statements 
are subject to certain risks and uncertainties. These statements 
typically contain, but are not limited to, the terms "anticipate", 
"potential", "expect", "believe", "estimate" and similar words. 
Actual results may differ materially due to the speed and nature of 
increased competition and deregulation in the electric utility 
industry, economic or weather conditions affecting future sales and 
margins, changes in markets for energy services, changing energy 
market prices, legislative and regulatory changes (including 
revised environmental requirements), availability and cost of 
capital and other similar factors.

RESULTS OF OPERATIONS

          We continued to make significant progress in 1997 as we 
prepare for a more competitive environment in the electric utility 
industry.

          The most significant event during the year was the 
approval by the Federal Energy Regulatory Commission (FERC) of the 
merger of our former parent company, Centerior Energy Corporation, 
with Ohio Edison Company to form FirstEnergy Corp., which came into 
existence on November 8, 1997. We expect the merger to produce a 
minimum of $1 billion in savings for FirstEnergy Corp. during the 
first ten years of joint operations through the elimination of 
duplicative activities, improved operating efficiencies, lower 
capital expenditures, accelerated debt reduction, the coordination 
of the companies' work forces and enhanced purchasing power.

        The merger was accounted for using the purchase method of 
accounting in accordance with generally accepted accounting 
principles (see Note 2), and the applicable effects were "pushed 
down," or reflected on the separate financial statements of 
Centerior's direct subsidiaries as of the merger date. As a result, 
we recorded purchase accounting fair value adjustments to: (1) 
revalue our nuclear generating units to fair value, (2) adjust 
preferred stock and long-term debt to fair value, (3) recognize 
additional retirement and severance benefit liabilities, and (4) 
record goodwill. Accordingly, the post-merger financial statements 
reflect a new basis of accounting, and separate financial 
statements are presented for the pre-merger and post-merger 
periods. For the remainder of this discussion, for categories 
substantially unaffected by the merger and with no significant pre-
merger or post-merger accounting events, we have combined the 1997 
pre-merger and post-merger periods and have compared the total to 
1996.

        Earnings on common stock in the 1997 pre-merger period were 
adversely affected by an extraordinary item resulting from the 
October 1997 write-off of certain regulatory assets discussed 
below. Excluding this write-off, pre-merger 1997 earnings on common 
stock were $50.2 million. Earnings on common stock for the 1997 
post-merger period were $19.3 million. In 1996, earnings on common 

                                - 31 -


stock were $77.8 million which was lower than 1995 due primarily to 
the delay in implementing our 1996 rate increase and the end of
certain regulatory accounting deferrals in November 1995.

          Operating revenues were down $7.0 million in 1997 from 
1996 levels following a $21.2 million increase in 1996 compared to 
1995. A significant factor contributing to lower operating revenues 
was the cancellation of a generating plant lease agreement for 
which revenues were recorded in 1996; a related refund was 
recognized in the 1997 first quarter which reduced other operating 
revenue. The following table summarizes the sources of changes in 
operating revenues for 1997 and 1996 as compared to the previous 
year:

                                            1997           1996
                                            ----           ----
                                              (In millions)

Reduced retail kilowatt-hour sales        $ (9.8)        $(40.7)
  Change in average retail price            (4.8)          42.2
  Sales to utilities                        18.6           14.6
  Other                                    (11.0)           5.1
                                          ------         ------
  Net Change                              $ (7.0)        $ 21.2
                                          ======         ======

          Total kilowatt-hour sales were at a new high for the 
second consecutive year with 22.3 billion kilowatt-hours sold. 
Sales to other utilities increased 38.4% in 1997. This followed a 
27.2% increase from the previous year resulting from greater 
availability of our generating units and an aggressive bulk power 
marketing effort. Retail sales totaled 19.3 billion kilowatt-hours 
in 1997, a decline of 0.4% from the prior year level. Residential 
sales decreased 2.2% in 1997 following a 2.1% decline the previous 
year. Commercial sales were down 0.4% and 0.6% in 1997 and 1996, 
respectively. Industrial sales increased slightly in 1997, 
following a small decline the previous year. Overall, there was a 
3.5% increase in total kilowatt-hour sales following a 1.3% 
increase in 1996 based on the strength of wholesale sales.

                               - 32 -


          We spent more on fuel and purchased power during 1997, as 
higher purchased power expense was partially offset by lower fuel 
expense. An increase in the mix of nuclear generation to coal-fired 
generation contributed to the lower fuel costs. Lower nuclear 
expenses in 1997 resulted from lower operating costs at the Perry 
and Davis-Besse plants offset in part by increased operating costs 
at the Beaver Valley Plant. The decrease in other operating costs 
in 1997 resulted from ongoing cost cutting and the effect of work 
force reductions. Also, other operation and maintenance expenses in 
1996 included an $11.9 million charge for the disposal of obsolete 
materials and supplies. The 1997 decrease in other operating costs 
was offset in part by a fourth quarter, pre-merger charge for 
estimated severance expenses totaling $9.9 million. 

          Depreciation and amortization increased in the 1997 pre-
merger period and in 1996 principally due to changes in 
depreciation rates approved in the April 1996 Public Utilities 
Commission of Ohio (PUCO) rate order. In the post-merger period 
depreciation and amortization was lower due to a fair value adjustment
which was recorded in connection with accounting for the merger.
Amortization of regulatory assets remained nearly unchanged in 1997
after a large increase in 1996 following cessation of the Rate
Stabilization Program deferrals and initiation of their amortization.
Income taxes increased in 1997, compared to 1996, as a function of taxable 
income. Income taxes decreased in 1996 from the prior year due to 
lower pretax operating income.

          Other income decreased in the 1997 pre-merger period and 
in 1996 principally due to merger-related expenses and costs 
associated with the accounts receivable securitization. In the 
post-merger period, other income increased primarily because of 
interest income on trust notes acquired in connection with the 
Bruce Mansfield Plant lease refinancing. Interest costs were higher 
overall in 1997 because new secured notes and short-term borrowings 
for the Bruce Mansfield Plant lease refinancing exceeded the 
expense reduction from the redemption and refinancing of debt 
securities in 1997 and 1996.

CAPITAL RESOURCES AND LIQUIDITY

          Our financial position has improved over the past five 
years. Cash generated from operations was 24% higher in 1997 than 
it was in 1992 due to higher revenues and aggressive cost controls. 
At the end of 1997 we had 1,300 fewer employees than five years ago 
as a result of our focus on becoming more competitive. The 
availability of additional cash generated from operations increased 
the Company's ability to redeem higher cost debt and preferred 
stock. We have also actively pursued refinancing activities which 
replace higher cost debt and preferred stock with lower cost 
issues. The merger has resulted in improved credit ratings which 
has lowered the cost of new issues. The following table summarizes 
changes in credit ratings resulting from the merger.

                                Pre-Merger          Post-Merger 
                         --------------------   ------------------
                  Standard    Moody's     Standard      Moody's
                  & Poor's    Investors   & Poor's     Investors
                Corporation Service, Inc. Corporation Service, Inc.
                ----------- ------------- ----------- ------------

First mortgage
  bonds              BB          Ba2          BB+          Ba1
Subordinated debt    B+          Ba3          BB-          Ba3
Preferred Stock      B           b2           BB-          b1

Excluding the effect of the Bruce Mansfield Plant lease refinancing 
described below, interest costs and preferred dividends have been 
reduced by approximately $22 million from 1996 levels. Through 
economic refinancings and redemption of higher cost debt we have 
reduced the average cost of outstanding debt from 8.90% in 1992 to 
8.15% in 1997. The Bruce Mansfield Plant lease refinancing is 
expected to provide an annual after tax savings of about $13 
million resulting from an increase in interest income and a 
decrease in rent expense offset in part by increased interest 
expense on secured notes issued as part of the transaction.

          Our cash requirements in 1998 for operating expenses, 
construction expenditures and scheduled debt maturities are 
expected to be met without issuing additional securities. We have 
cash requirements of approximately $856.1 million for the 1998-2002

                                - 33 -


period to meet scheduled maturities of long-term debt and preferred 
stock. Of that amount, approximately $81.5 million applies to 1998.

          We had about $33.8 million of cash and temporary 
investments and $56.8 million of short-term indebtedness to an 
associated company on December 31, 1997. Upon completion of the 
merger, application of purchase accounting reduced bondable 
property such that we are not able to issue a material amount of 
additional first mortgage bonds, except in connection with 
refinancings. As of December 31, 1997, we had unused borrowing 
capability of $125 million under a revolving line of credit.

          Our capital spending for the period 1998-2002 is expected 
to be about $430 million (excluding nuclear fuel), of which 
approximately $105 million applies to 1998. This spending level is 
over $300 million lower than actual capital outlays over the past 
five years. Investments for additional nuclear fuel during the 
1998-2002 period are estimated to be approximately $172 million, of 
which about $32 million applies to 1998. During the same periods, 
our nuclear fuel investments are expected to be reduced by 
approximately $113 million and $42 million, respectively, as the 
nuclear fuel is consumed. Also, we have operating lease commitments 
net of trust income of approximately $167 million for the 1998-2002 
period, of which approximately $25 million relates to 1998. We 
recover the cost of nuclear fuel consumed and operating leases 
through our electric rates.

OUTLOOK

          We face many competitive challenges in the years ahead as 
the electric utility industry undergoes significant changes, 
including changing regulation and the entrance of more energy 
suppliers into the marketplace. Retail wheeling, which would allow 
retail customers to purchase electricity from other energy 
producers, will be one of those challenges. The FirstEnergy Rate 
Reduction and Economic Development Plan provides the foundation to 
position us to meet the challenges we are facing by significantly 
reducing fixed costs and lowering rates to a more competitive 
level. The plan was approved by the PUCO in January 1997, and 
initially maintains current base electric rates through December 
31, 2005. The plan also revised our fuel recovery methods.

          As part of the regulatory plan, the base rate freeze is 
to be followed by a $217 million base rate reduction in 2006; 
interim reductions beginning in June 1998 of $3 per month will 
increase to $5 per month per residential customer by July 1, 2001. 
Total savings of $280 million are anticipated over the term of the 
plan for our customers. We have also committed $70 million for 
economic development and energy efficiency programs.

          We have been authorized by the PUCO to recognize 
additional depreciation related to our generating assets and 
additional amortization of regulatory assets during the regulatory 
plan period of at least $1.4 billion more than the amounts that 
would have been recognized if the regulatory plan was not in 
effect. For regulatory purposes these additional charges will be 
reflected over the rate plan period. Our regulatory plan does not 
provide for full recovery of nuclear operations. Accordingly, 
regulatory assets representing customer receivables for future 
income taxes related to nuclear assets of $499 million were written 
off ($324 net of tax impact) prior to consummation of the merger 

                                - 34 -


since we ceased application of Statement of Financial Accounting 
Standards No. 71 "Accounting for the Effects of Certain Types of 
Regulation" (SFAS 71) for our nuclear operations when 
implementation of the FirstEnergy regulatory plan became probable.

          Based on the regulatory environment we operate in today 
and our regulatory plan, we believe we will continue to be able to 
bill and collect cost-based rates relating to our nonnuclear 
operations; accordingly, it is appropriate that we continue the 
application of SFAS 71 for those operations. However, as discussed 
below, changes in the regulatory environment are on the horizon. 
The Ohio legislature is in the discussion stages of restructuring 
the electric utility industry within the State. We do not expect 
any changes in regulation to be effective within the next two years 
and we cannot assess what the ultimate impact may be.
 
          At the consummation of the merger in November 1997, we 
recognized a fair value purchase accounting adjustment which 
decreased the carrying value of our nuclear assets by approximately 
$1.7 billion based upon cash flow models. The fair value adjustment 
to nuclear plant recognized for financial reporting purposes will
ultimately satisfy the asset reduction commitment contained in our
regulatory plan over the regulatory plan period.

          On January 6, 1998, the co-chairs of the Ohio General 
Assembly's Joint Select Committee on Electric Industry Deregulation 
released their draft report of a plan which proposes to give 
customers a choice from whom they buy electricity beginning January 
1, 2000. No consensus has been reached by the full Committee; in 
the meantime, legislation consistent with the co-chairs' draft 
report may be introduced into the General Assembly by one or both 
of the co-chairs. We cannot predict when or if this legislation 
will be introduced and if it will be passed into law. We continue 
to study the potential effects that such legislation would have on 
our financial position and results of operations.

          The Financial Accounting Standards Board (FASB) issued a 
proposed accounting standard for nuclear decommissioning costs in 
February 1996. If the standard is adopted as proposed: (1) annual 
provisions for decommissioning could increase; (2) the net present 
value of estimated decommissioning costs could be recorded as a 
liability; and (3) income from the external decommissioning trusts 
could be reported as investment income. The FASB reported in 
October 1997 that it plans to continue working on the proposal in 
1998.

          The Clean Air Act Amendments of 1990, discussed in Note 
6, require additional emission reductions by 2000. We are pursuing 
cost-effective compliance strategies for meeting the reduction 
requirements that begin in 2000.

          We have been named as a "potentially responsible party" 
(PRP) for three sites listed on the Superfund National Priorities 
List and are aware of our potential involvement in the cleanup of 
several other sites. Allegations that we disposed of hazardous 
waste at these sites, and the amount involved are often 
unsubstantiated and subject to dispute. Federal law provides that 
all PRPs for a particular site be held liable on a joint and 
several basis. If we were held liable for 100% of the cleanup costs 
of all the sites referred to above, the cost could be as high as 

                                - 35 -


$212 million. However, we believe that the actual cleanup costs 
will be substantially lower than $212 million, that our share of 
any cleanup costs will be substantially less than 100% and that 
most of the other PRPs are financially able to contribute their 
share. We have accrued a $4.8 million liability as of December 31, 
1997, based on estimates of the costs of cleanup and our 
proportionate responsibility for such cost. We believe that the 
ultimate outcome of these matters will not have a material adverse 
effect on our financial condition, cash flows or results of 
operations.

Impact of the Year 2000 Issue
-----------------------------

          The Year 2000 Issue is the result of computer programs 
being written using two digits rather than four to identify the 
applicable year. Any of our programs that have date-sensitive 
software may recognize a date using "00" as the year 1900 rather 
than the year 2000. This could result in system failures or 
miscalculations.

          We currently believe that with modifications to existing 
software and conversions to new software, the Year 2000 Issue will 
pose no significant operational problems for our computer systems 
as so modified and converted. If these modifications and 
conversions are not made, or are not completed on a timely basis, 
the Year 2000 Issue could have a  material impact on our 
operations.

          We have initiated formal communications with many of our 
major suppliers to determine the extent to which we are vulnerable 
to those third parties' failure to resolve their own Year 2000 
problems. Our total Year 2000 project cost and estimates to 
complete are based on currently available information and do not 
include the estimated costs and time associated with the impact of 
a third party's Year 2000 issue. There can be no guarantee that the 
failure of other companies to resolve their own Year 2000 issues 
will not have material adverse effect on us.

          We are utilizing both internal and external resources to 
reprogram and/or replace and test the software for Year 2000 
modifications. Most of our Year 2000 problems will be resolved 
through system replacements. The different phases of our Year 2000 
project will be completed at various dates, most of which occur in 
1999. We plan to complete the entire Year 2000 project by mid-
December 1999. Of the total project cost, approximately $22 million 
will be capitalized since those costs are attributable to the 
purchase of new software for total system replacements (i.e., the 
Year 2000 solution comprises only a portion of the benefit 
resulting from the system replacements). The remaining $3 million 
will be expensed as incurred over the next two years. To date, we 
have incurred approximately $350,000 related to the assessment of, 
and preliminary efforts in connection with, our Year 2000 project 
and the development of a remediation plan.

          The costs of the project and the date on which we plan to 
complete the year 2000 modifications are based on management's best 
estimates, which were derived from numerous assumptions of future 
events including the continued availability of certain resources, 
and other factors. However, there can be no guarantee that this 

                                - 36 -


project will be completed as planned and actual results could 
differ materially from the estimates. Specific factors that might 
cause material differences include, but are not limited to, the 
availability and cost of trained personnel, the ability to locate 
and correct all relevant computer code, and similar uncertainties.


                                - 37 -








                               SIGNATURE







          Pursuant to the 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.




                              THE CLEVELAND ELECTRIC
                               ILLUMINATING COMPANY




                              /s/Harvey L. Wagner  
                              -----------------------
                                 Harvey L. Wagner
                                 Controller












Dated:  March 16, 1998


                                - 38 -




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