UNITED
STATES SECURITIES AND EXCHANGE COMMISSION


Washington,
D. C.  20549





FORM
10-Q/A





Amendment
No. 1





(Mark
One)


[X]  QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE


SECURITIES
EXCHANGE ACT OF 1934





For
the quarterly period ended March 31, 2008





OR





[  ]  TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE


SECURITIES
EXCHANGE ACT OF 1934





For
      the transition period from
            
            to





Commission
            Registrant;
      State of Incorporation;
            I.R.S.
      EmployerFile
      Number
            Address; and Telephone
      Number
            Identification
      No.1-2578
            OHIO
      EDISON COMPANY
            34-0437786(An
      Ohio Corporation)c/o
      FirstEnergy Corp.76
      South Main StreetAkron,
      OH  44308Telephone (800)736-34021-2323
            THE
      CLEVELAND ELECTRIC ILLUMINATING COMPANY
            34-0150020(An
      Ohio Corporation)c/o
      FirstEnergy Corp.76
      South Main StreetAkron,
      OH  44308Telephone (800)736-34021-3583
            THE
      TOLEDO EDISON COMPANY
            34-4375005(An
      Ohio Corporation)c/o
      FirstEnergy Corp.76
      South Main StreetAkron,
      OH  44308Telephone (800)736-34021-3522
            PENNSYLVANIA
      ELECTRIC COMPANY
            25-0718085(A
      Pennsylvania Corporation)c/o
      FirstEnergy Corp.76
      South Main StreetAkron,
      OH  44308Telephone (800)736-3402

















Indicate by check
mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.





Yes (X)  No (  )
            Ohio Edison
      Company and Pennsylvania Electric CompanyYes (  )  No (X)
            The Cleveland
      Electric Illuminating Company and The Toledo Edison
  Company





Indicate by check
mark whether the registrant is a large accelerated filer, an accelerated filer,
a non-accelerated filer, or a smaller reporting company. See the definitions of
"large accelerated filer,” “accelerated filer” and “smaller reporting company"
in Rule 12b-2 of the Exchange Act.





Large
      Accelerated Filer
              (  )
            N/AAccelerated
      Filer
              (  )
            N/ANon-accelerated
      Filer (Do not check if a smaller reporting company)
              (X)
            Ohio Edison
      Company, The Cleveland Electric Illuminating Company, The Toledo Edison
      Company and Pennsylvania Electric
Company





Smaller
      Reporting Company
              (  )
            N/A





Indicate by check
mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Act).





Yes (  )No (X)
            Ohio Edison
      Company, The Cleveland Electric Illuminating Company, The Toledo Edison
      Company and Pennsylvania Electric
Company





Indicate the number
of shares outstanding of each of the issuer’s classes of common stock, as of the
latest practicable date:





OUTSTANDINGCLASS
            AS
      OF MAY 8, 2008Ohio Edison
      Company, no par value
            60The Cleveland
      Electric Illuminating Company, no par value
            67,930,743The Toledo
      Edison Company, $5 par value
            29,402,054Pennsylvania
      Electric Company, $20 par value
            4,427,577





This combined Form
10-Q/A is separately filed by Ohio Edison Company, The Cleveland Electric
Illuminating Company, The Toledo Edison Company and Pennsylvania Electric
Company. Information contained herein relating to any individual registrant is
filed by such registrant on its own behalf.





OMISSION OF CERTAIN
INFORMATION





Ohio Edison Company,
The Cleveland Electric Illuminating Company, The Toledo Edison Company and
Pennsylvania Electric Company meet the conditions set forth in General
Instruction H(1)(a) and (b) of Form 10-Q and are therefore filing this Form
10-Q/A with the reduced disclosure format specified in General Instruction H(2)
to Form 10-Q.











Forward-Looking Statements:
This Form 10-Q/A includes forward-looking statements based on information
currently available to management. Such statements are subject to certain risks
and uncertainties. These statements include declarations regarding management’s
intents, beliefs and current expectations. These statements typically contain,
but are not limited to, the terms “anticipate,” “potential,” “expect,”
“believe,” “estimate” and similar words. Forward-looking statements involve
estimates, assumptions, known and unknown risks, uncertainties and other factors
that may cause actual results, performance or achievements to be materially
different from any future results, performance or achievements expressed or
implied by such forward-looking statements.





Actual results may
differ materially due to:


·
            the speed and
      nature of increased competition in the electric utility industry and
      legislative and regulatory changes affecting how generation rates will be
      determined following the expiration of existing rate plans in Ohio and
      Pennsylvania,


·
            the impact of
      the PUCO’s rulemaking process on the Ohio Companies’ ESP and MRO
      filings,


·
            economic or
      weather conditions affecting future sales and
  margins,


·
            changes in
      markets for energy services,


·
            changing
      energy and commodity market prices and
  availability,


·
            replacement
      power costs being higher than anticipated or inadequately
      hedged,


·
            the continued
      ability of FirstEnergy’s regulated utilities to collect transition and
      other charges or to recover increased transmission
  costs,


·
            maintenance
      costs being higher than
anticipated,


·
            other
      legislative and regulatory changes, revised environmental requirements,
      including possible GHG emission
regulations,


·
            the impact of
      the U.S. Court of Appeals’ July 11, 2008 decision to vacate the CAIR
      rules and the scope of any laws, rules or regulations that may ultimately
      take their place,


·
            the
      uncertainty of the timing and amounts of the capital expenditures needed
      to, among other things, implement the Air Quality Compliance Plan
      (including that such amounts could be higher than anticipated) or levels
      of emission reductions related to the Consent Decree resolving the NSR
      litigation or other potential regulatory
  initiatives,


·
            adverse
      regulatory or legal decisions and outcomes (including, but not limited to,
      the revocation of necessary licenses or operating permits and oversight)
      by the NRC (including, but not limited to, the Demand for Information
      issued to FENOC on May 14,
2007),


·
            the timing and
      outcome of various proceedings before the PUCO (including, but not limited
      to, the ESP and MRO proceedings as well as the distribution rate cases and
      the generation supply plan filing for the Ohio Companies and the
      successful resolution of the issues remanded to the PUCO by the Ohio
      Supreme Court regarding the RSP and RCP, including the recovery of
      deferred fuel costs),


·
            Met-Ed’s and
      Penelec’s transmission service charge filings with the PPUC as well as the
      resolution of the Petitions for Review filed with the Commonwealth Court
      of Pennsylvania with respect to the transition rate plan for Met-Ed and
      Penelec,


·
            the continuing
      availability of generating units and their ability to operate at or near
      full capacity,


·
            the ability to
      comply with applicable state and federal reliability
      standards,


·
            the ability to
      accomplish or realize anticipated benefits from strategic goals (including
      employee workforce initiatives),


·
            the ability to
      improve electric commodity margins and to experience growth in the
      distribution business,


·
            the changing
      market conditions that could affect the value of assets held in the
      registrants’ nuclear decommissioning trusts, pension trusts and other
      trust funds, and cause FirstEnergy to make additional contributions
      sooner, or in an amount that is larger than currently
      anticipated,


·
            the ability to
      access the public securities and other capital and credit markets in
      accordance with FirstEnergy’s financing plan and the cost of such
      capital,


·
            changes in
      general economic conditions affecting the
  registrants,


·
            the state of
      the capital and credit markets affecting the registrants,
    and


·
            the risks and
      other factors discussed from time to time in the registrants’ SEC filings,
      and other similar factors.





The foregoing review
of factors should not be construed as exhaustive. New factors emerge from time
to time, and it is not possible for management to predict all such factors, nor
assess the impact of any such factor on the registrants’ business or the extent
to which any factor, or combination of factors, may cause results to differ
materially from those contained in any forward-looking statements. Also, a
security rating is not a recommendation to buy, sell or hold securities, and it
may be subject to revision or withdrawal at any time and each such rating should
be evaluated independently of any other rating. The registrants expressly
disclaim any current intention to update any forward-looking statements
contained herein as a result of new information, future events or
otherwise.























EXPLANATORY
NOTE





This combined
Amendment No. 1 on Form 10-Q/A for the quarter ended March 31, 2008 is being
filed by Ohio Edison Company, The Cleveland Electric Illuminating Company, The
Toledo Edison Company and Pennsylvania Electric Company (the “registrants”) to
correct common stock dividend payments reported in their respective consolidated
statements of cash flows for the three months ended March 31, 2008, contained in
Part I, Item 1, Consolidated Financial Statements. This correction does not
affect the respective registrants’ previously reported consolidated statements
of income and comprehensive income for the three months ended March 31, 2008 and
consolidated balance sheets as of March 31, 2008 contained in the combined
Form 10-Q for the quarter ended March 31, 2008, as originally filed on
May 8, 2008 (the “original Form 10-Q”). Except for Part I, Items 1 and 4T
and certain exhibits under Part II, Item 6, no other information included in the
Form 10-Q as originally filed is being revised by, or repeated in this
amendment.
 
 As discussed under
“Restatement of the Consolidated Statements of Cash Flows” in Note 1 to the
revised Combined Notes Consolidated Financial Statements of the registrants
included in the Form 10-Q/A, the registrants have restated their respective
consolidated statements of cash flows to correct common stock dividend payments
reported in cash flows from financing activities. The consolidated statements of
cash flows for those registrants, as originally filed, erroneously did not
reflect the payment of common stock dividends in the first quarter of 2008,
which were declared in the third quarter of 2007. The corrections resulted in a
corresponding change in operating liabilities - accounts payable, included in
cash flows from operating activities.
 
 The original Form
10-Q was a combined Form 10-Q representing separate filings by each of the
registrants and their affiliates, FirstEnergy Corp., FirstEnergy Solutions
Corp., Jersey Central Power & Light Company, Metropolitan Edison Company
(the “affiliates”). However, this Form 10-Q/A constitutes an amendment only to
Part I, Items 1 and 4T and Part II, Item 6 of the Original Form 10-Q filed by
each registrant. In addition, information contained herein relating to any
individual registrant is filed by such registrant on its own behalf and no
registrant makes any representation as to information contained herein relating
to any other registrant or any of the affiliates, including, but not limited to,
any such information contained in the revised Combined Notes to Consolidated
Financial Statements included herein.
 
 Please note that the
information contained in this Amendment No. 1, including the consolidated
financial statements and notes thereto, does not reflect events occurring after
the date of the original Form 10-Q filing on May 8, 2008, except to the extent
described above.











TABLE
OF CONTENTS











PagesGlossary of Terms
            ii-ivPart
      I.     Financial InformationItem 1. Financial
      Statements.
            1Ohio Edison
    CompanyReport of
      Independent Registered Public Accounting Firm
            2Consolidated
      Statements of Income and Comprehensive Income
            3Consolidated
      Balance Sheets
            4Consolidated
      Statements of Cash Flows
            5The Cleveland Electric
      Illuminating CompanyReport of
      Independent Registered Public Accounting Firm
            6Consolidated
      Statements of Income and Comprehensive Income
            7Consolidated
      Balance Sheets
            8Consolidated
      Statements of Cash Flows
            9The Toledo Edison
      CompanyReport of
      Independent Registered Public Accounting Firm
            10Consolidated
      Statements of Income and Comprehensive Income
            11Consolidated
      Balance Sheets
            12Consolidated
      Statements of Cash Flows
            13Pennsylvania Electric
      CompanyReport of
      Independent Registered Public Accounting Firm
            14Consolidated
      Statements of Income and Comprehensive Income
            15Consolidated
      Balance Sheets
            16Consolidated
      Statements of Cash Flows
            17Combined Notes to Consolidated
      Financial Statements
            18-50Item
      4T.   Controls and Procedures – OE, CEI, TE and
      Penelec.
            51Part
      II.    Other InformationItem 6.    
      Exhibits.
            52

















i





GLOSSARY
OF TERMS








The
following abbreviations and acronyms are used in this report to identify
FirstEnergy Corp. and its current and former subsidiaries:





ATSI
            American
      Transmission Systems, Inc., owns and operates transmission
      facilitiesCEI
            The Cleveland
      Electric Illuminating Company, an Ohio electric utility operating
      subsidiaryCompanies
            OE, CEI, TE,
      JCP&L, Met-Ed and PenelecFENOC
            FirstEnergy
      Nuclear Operating Company, operates nuclear generating
      facilitiesFES
            FirstEnergy
      Solutions Corp., provides energy-related products and
    servicesFESC
            FirstEnergy
      Service Company, provides legal, financial and other corporate support
      servicesFGCO
            FirstEnergy
      Generation Corp., owns and operates non-nuclear generating
      facilitiesFirstEnergy
            FirstEnergy
      Corp., a public utility holding companyGPU
            GPU, Inc.,
      former parent of JCP&L, Met-Ed and Penelec, which merged with
      FirstEnergy on
              November 7,
      2001JCP&L
            Jersey Central
      Power & Light Company, a New Jersey electric utility operating
      subsidiaryJCP&L
      Transition
              Funding
            JCP&L
      Transition Funding LLC, a Delaware limited liability company and issuer of
      transition
              bondsJCP&L
      Transition
              Funding
      II
            JCP&L
      Transition Funding II LLC, a Delaware limited liability company and issuer
      of transition bondsMet-Ed
            Metropolitan
      Edison Company, a Pennsylvania electric utility operating
      subsidiaryNGC
            FirstEnergy
      Nuclear Generation Corp., owns nuclear generating
    facilitiesOE
            Ohio Edison
      Company, an Ohio electric utility operating subsidiaryOhio
      Companies
            CEI, OE and
      TEPenelec
            Pennsylvania
      Electric Company, a Pennsylvania electric utility operating
      subsidiaryPenn
            Pennsylvania
      Power Company, a Pennsylvania electric utility operating subsidiary of
      OEPennsylvania
      Companies
            Met-Ed,
      Penelec and PennPNBV
            PNBV Capital
      Trust, a special purpose entity created by OE in 1996Shippingport
            Shippingport
      Capital Trust, a special purpose entity created by CEI and TE in
      1997TE
            The Toledo
      Edison Company, an Ohio electric utility operating
    subsidiaryTEBSA
            Termobarranquila
      S.A. Empresa de Servicios PublicosThe following
      abbreviations and acronyms are used to identify frequently used terms in
      this report:AEP
            American
      Electric Power Company, Inc.AOCL
            Accumulated
      Other Comprehensive LossAQC
            Air Quality
      ControlARB
            Accounting
      Research BulletinARO
            Asset
      Retirement ObligationASM
            Ancillary
      Services MarketBGS
            Basic
      Generation ServiceBPJ
            Best
      Professional JudgmentCAA
            Clean Air
      ActCAIR
            Clean Air
      Interstate RuleCAMR
            Clean Air
      Mercury RuleCBP
            Competitive
      Bid ProcessCO2
            Carbon
      DioxideDFI
            Demand for
      InformationDOJ
            United States
      Department of JusticeDRA
            Division of
      Ratepayer AdvocateEIS
            Energy
      Independence StrategyEITF
            Emerging
      Issues Task ForceEMP
            Energy Master
      PlanEPA
            United States
      Environmental Protection AgencyEPACT
            Energy Policy
      Act of 2005ESP
            Electric
      Security PlanFASB
            Financial
      Accounting Standards BoardFERC
            Federal Energy
      Regulatory CommissionFIN
            FASB
      InterpretationFIN
      46R
            FIN 46
      (revised December 2003), "Consolidation of Variable Interest
      Entities"





ii





GLOSSARY
OF TERMS, Cont’d.








FIN
      47
            FIN 47,
      "Accounting for Conditional Asset Retirement Obligations - an
      interpretation of FASB
              Statement No. 143"FIN
      48
            FIN 48,
      “Accounting for Uncertainty in Income Taxes - an interpretation of FASB
      Statement
              No. 109”FirstCom
            First
      Communications, Inc.FMB
            First Mortgage
      BondsFSP
            FASB Staff
      PositionFSP FAS
      157-2
            FSP FAS 157-2,
      “Effective Date of  FASB Statement No. 157”FTR
            Financial
      Transmission RightsGAAP
            Accounting
      Principles Generally Accepted in the United StatesGHG
            Greenhouse
      GasesICE
            Intercontinental
      ExchangeIRS
            Internal
      Revenue ServiceISO
            Independent
      System OperatorkV
            KilovoltKWH
            Kilowatt-hoursLIBOR
            London
      Interbank Offered RateLOC
            Letter of
      CreditMEIUG
            Met-Ed
      Industrial Users GroupMISO
            Midwest
      Independent Transmission System Operator, Inc.Moody’s
            Moody’s
      Investors ServiceMRO
            Market Rate
      OfferMW
            MegawattsNAAQS
            National
      Ambient Air Quality StandardsNERC
            North American
      Electric Reliability CorporationNJBPU
            New Jersey
      Board of Public UtilitiesNOPR
            Notice of
      Proposed RulemakingNOV
            Notice of
      ViolationNOX
            Nitrogen
      OxideNRC
            Nuclear
      Regulatory CommissionNSR
            New Source
      ReviewNUG
            Non-Utility
      GenerationNUGC
            Non-Utility
      Generation ChargeNYMEX
            New York
      Mercantile ExchangeOCA
            Office of
      Consumer AdvocateOTC
            Over the
      CounterOVEC
            Ohio Valley
      Electric CorporationPCRB
            Pollution
      Control Revenue BondPICA
            Penelec
      Industrial Customer AlliancePJM
            PJM
      Interconnection L. L. C.PLR
            Provider of
      Last ResortPPUC
            Pennsylvania
      Public Utility CommissionPRP
            Potentially
      Responsible PartyPSA
            Power Supply
      AgreementPUCO
            Public
      Utilities Commission of OhioPUHCA
            Public Utility
      Holding Company Act of 1935RCP
            Rate Certainty
      PlanRECB
            Regional
      Expansion Criteria and BenefitsRFP
            Request for
      ProposalRPM
            Reliability
      Pricing ModelRSP
            Rate
      Stabilization PlanRTO
            Regional
      Transmission OrganizationS&P
            Standard &
      Poor’s Ratings ServiceSBC
            Societal
      Benefits ChargeSEC
            U.S.
      Securities and Exchange CommissionSECA
            Seams
      Elimination Cost AdjustmentSFAS
            Statement of
      Financial Accounting StandardsSFAS
      109
            SFAS No. 109,
      “Accounting for Income Taxes”SFAS
      123(R)
            SFAS No.
      123(R), "Share-Based Payment"SFAS
      133
            SFAS No. 133,
      “Accounting for Derivative Instruments and Hedging
    Activities”





iii





GLOSSARY
OF TERMS, Cont’d.








SFAS
      141(R)
            SFAS No
      141(R), “Business Combinations”SFAS
      143
            SFAS No. 143,
      “Accounting for Asset Retirement Obligations”SFAS
      157
            SFAS No. 157,
      “Fair Value Measurements”SFAS
      159
            SFAS No. 159,
      “The Fair Value Option for Financial Assets and Financial Liabilities –
      Including an
              Amendment of FASB Statement No. 115”SFAS
      160
            SFAS No. 160,
      “Noncontrolling Interests in Consolidated Financial Statements – an
      Amendment
              of
      ARB No. 51”SFAS
      161
            SFAS No 161,
      “Disclosure about Derivative Instruments and Hedging Activities – an
      Amendment
              of FASB Statement No. 133”SIP
            State
      Implementation Plan(s) Under the Clean Air ActSNCR
            Selective
      Non-Catalytic ReductionSO2
            Sulfur
      DioxideTBC
            Transition
      Bond ChargeTMI-1
            Three Mile
      Island Unit 1TMI-2
            Three Mile
      Island Unit 2TSC
            Transmission
      Service ChargeVIE
            Variable
      Interest Entity





iv





PART I. FINANCIAL
INFORMATION





ITEM
1. FINANCIAL STATEMENTS.











1







Report
of Independent Registered Public Accounting Firm
































To the Stockholder
and Board of


Directors of Ohio
Edison Company:
 
 We have reviewed the
accompanying consolidated balance sheet of Ohio Edison Company and its
subsidiaries as of March 31, 2008 and the related consolidated statements
of income, comprehensive income and cash flows for each of the three-month
periods ended March 31, 2008 and 2007. These interim financial statements are
the responsibility of the Company’s management.
 
 We conducted our
review in accordance with the standards of the Public Company Accounting
Oversight Board (United States). A review of interim financial information
consists principally of applying analytical procedures and making inquiries of
persons responsible for financial and accounting matters. It is substantially
less in scope than an audit conducted in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the objective of
which is the expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an opinion.
 
 Based on our review,
we are not aware of any material modifications that should be made to the
accompanying consolidated interim financial statements for them to be in
conformity with accounting principles generally accepted in the United States of
America.
 
 We previously
audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheet as of December
31, 2007, and the related consolidated statements of income, capitalization,
common stockholders’ equity, and cash flows for the year then ended (not
presented herein), and in our report dated February 28, 2008, except as to the
error correction described in Note 1, which is as of November 24, 2008, we
expressed an unqualified opinion on those consolidated financial statements. In
our opinion, the information set forth in the accompanying consolidated balance
sheet information as of December 31, 2007, is fairly stated in all material
respects in relation to the consolidated balance sheet from which it has been
derived.
 
 As discussed in Note
1 to the consolidated financial statements, the Company has restated its 2008
financial statements to correct an error.
 
 PricewaterhouseCoopers
      LLP
                Cleveland,
      Ohio
                May 7, 2008,
      except as to the error correction described in Note 1,
                which is as of
      November 24, 2008.








2


OHIO
      EDISON COMPANYCONSOLIDATED
      STATEMENTS
      OF INCOME AND COMPREHENSIVE INCOME(Unaudited)Three
      Months EndedMarch
      31,2008
                  
                  
                  2007(In
      thousands)REVENUES:Electric
      sales
                  
                  $
                  622,271
                  
                  
                  $
                  594,344Excise tax
      collections
                  
                  
                  30,378
                  
                  
                  
                  31,254Total
      revenues
                  
                  
                  652,649
                  
                  
                  
                  625,598EXPENSES:Fuel
                  
                  
                  3,170
                  
                  
                  
                  3,015Purchased
      power
                  
                  
                  340,186
                  
                  
                  
                  349,852Nuclear
      operating costs
                  
                  
                  43,021
                  
                  
                  
                  41,514Other
      operating costs
                  
                  
                  94,135
                  
                  
                  
                  88,486Provision for
      depreciation
                  
                  
                  21,493
                  
                  
                  
                  18,848Amortization
      of regulatory assets
                  
                  
                  48,538
                  
                  
                  
                  45,417Deferral of
      new regulatory assets
                  
                  
                  (25,411
                  )
                  
                  
                  (36,649
                  )General
      taxes
                  
                  
                  50,453
                  
                  
                  
                  49,745Total
      expenses
                  
                  
                  575,585
                  
                  
                  
                  560,228OPERATING
      INCOME
                  
                  
                  77,064
                  
                  
                  
                  65,370OTHER
      INCOME (EXPENSE):Investment
      income
                  
                  
                  15,055
                  
                  
                  
                  26,630Miscellaneous
      income (expense)
                  
                  
                  (3,806
                  )
                  
                  
                  373Interest
      expense
                  
                  
                  (17,641
                  )
                  
                  
                  (21,022
                  )Capitalized
      interest
                  
                  
                  110
                  
                  
                  
                  110Total other
      income (expense)
                  
                  
                  (6,282
                  )
                  
                  
                  6,091INCOME
      BEFORE INCOME TAXES
                  
                  
                  70,782
                  
                  
                  
                  71,461INCOME
      TAXES
                  
                  
                  26,873
                  
                  
                  
                  17,426NET
      INCOME
                  
                  
                  43,909
                  
                  
                  
                  54,035OTHER
      COMPREHENSIVE INCOME (LOSS):Pension and
      other postretirement benefits
                  
                  
                  (3,994
                  )
                  
                  
                  (3,423
                  )Change in
      unrealized gain on available-for-sale securities
                  
                  
                  (7,571
                  )
                  
                  
                  (126
                  )Other
      comprehensive loss
                  
                  
                  (11,565
                  )
                  
                  
                  (3,549
                  )Income tax
      benefit related to other comprehensive loss
                  
                  
                  (4,262
                  )
                  
                  
                  (1,503
                  )Other
      comprehensive loss, net of tax
                  
                  
                  (7,303
                  )
                  
                  
                  (2,046
                  )TOTAL
      COMPREHENSIVE INCOME
                  
                  $
                  36,606
                  
                  
                  $
                  51,989The
      accompanying Notes to Consolidated Financial Statements as they relate to
      Ohio Edison Company are an integral partof these
      statements.
  3
 OHIO
      EDISON COMPANYCONSOLIDATED
      BALANCE SHEETS(Unaudited)March
      31,
                
                
                December
      31,2008
                
                
                2007(In
      thousands)ASSETSCURRENT
      ASSETS:Cash and cash
      equivalents
                
                $
                732
                
                
                $
                732Receivables-Customers
      (less accumulated provisions of $7,870,000 and $8,032,000,respectively,
      for uncollectible accounts)
                
                
                266,360
                
                
                
                248,990Associated
      companies
                
                
                179,875
                
                
                
                185,437Other (less
      accumulated provisions of $5,638,000 and $5,639,000,respectively,
      for uncollectible accounts)
                
                
                16,474
                
                
                
                12,395Notes
      receivable from associated companies
                
                
                589,790
                
                
                
                595,859Prepayments
      and other
                
                
                17,785
                
                
                
                10,3411,071,016
                
                
                
                1,053,754UTILITY
      PLANT:In
      service
                
                
                2,804,505
                
                
                
                2,769,880Less -
      Accumulated provision for depreciation
                
                
                1,106,174
                
                
                
                1,090,8621,698,331
                
                
                
                1,679,018Construction
      work in progress
                
                
                60,617
                
                
                
                50,0611,758,948
                
                
                
                1,729,079OTHER
      PROPERTY AND INVESTMENTS:Long-term
      notes receivable from associated companies
                
                
                258,405
                
                
                
                258,870Investment in
      lease obligation bonds
                
                
                253,747
                
                
                
                253,894Nuclear plant
      decommissioning trusts
                
                
                119,948
                
                
                
                127,252Other
                
                
                33,014
                
                
                
                36,037665,114
                
                
                
                676,053DEFERRED
      CHARGES AND OTHER ASSETS:Regulatory
      assets
                
                
                709,969
                
                
                
                737,326Pension
      assets
                
                
                235,933
                
                
                
                228,518Property
      taxes
                
                
                65,520
                
                
                
                65,520Unamortized
      sale and leaseback costs
                
                
                43,882
                
                
                
                45,133Other
                
                
                44,640
                
                
                
                48,0751,099,944
                
                
                
                1,124,572$
                4,595,022
                
                
                $
                4,583,458LIABILITIES
      AND CAPITALIZATIONCURRENT
      LIABILITIES:Currently
      payable long-term debt
                
                $
                334,656
                
                
                $
                333,224Short-term
      borrowings-Associated
      companies
                
                
                50,692
                
                
                
                50,692Other
                
                
                2,609
                
                
                
                2,609Accounts
      payable-Associated
      companies
                
                
                155,654
                
                
                
                174,088Other
                
                
                19,376
                
                
                
                19,881Accrued
      taxes
                
                
                93,390
                
                
                
                89,571Accrued
      interest
                
                
                16,459
                
                
                
                22,378Other
                
                
                99,532
                
                
                
                65,163772,368
                
                
                
                757,606CAPITALIZATION:Common
      stockholder's equity-Common stock,
      without par value, authorized 175,000,000 shares -60 shares
      outstanding
                
                
                1,220,368
                
                
                
                1,220,512Accumulated
      other comprehensive income
                
                
                41,083
                
                
                
                48,386Retained
      earnings
                
                
                351,186
                
                
                
                307,277Total common
      stockholder's equity
                
                
                1,612,637
                
                
                
                1,576,175Long-term debt
      and other long-term obligations
                
                
                839,107
                
                
                
                840,5912,451,744
                
                
                
                2,416,766NONCURRENT
      LIABILITIES:Accumulated
      deferred income taxes
                
                
                783,777
                
                
                
                781,012Accumulated
      deferred investment tax credits
                
                
                15,990
                
                
                
                16,964Asset
      retirement obligations
                
                
                95,009
                
                
                
                93,571Retirement
      benefits
                
                
                176,597
                
                
                
                178,343Deferred
      revenues - electric service programs
                
                
                36,821
                
                
                
                46,849Other
                
                
                262,716
                
                
                
                292,3471,370,910
                
                
                
                1,409,086COMMITMENTS
      AND CONTINGENCIES (Note 10)$
                4,595,022
                
                
                $
                4,583,458The
      accompanying Notes to Consolidated Financial Statements as they relate to
      Ohio Edison Company are an integral partof these
      balance sheets.
 
 4
  OHIO
      EDISON COMPANYCONSOLIDATED
      STATEMENTS OF CASH FLOWS(Unaudited)Three
      Months Ended
                  March
      31,Restated2008
                
                
                2007(In
      thousands)CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      income
                
                $
                43,909
                
                
                $
                54,035Adjustments to
      reconcile net income to net cash from operating
activities-Provision for
      depreciation
                
                
                21,493
                
                
                
                18,848Amortization
      of regulatory assets
                
                
                48,538
                
                
                
                45,417Deferral of
      new regulatory assets
                
                
                (25,411
                )
                
                
                (36,649
                )Amortization
      of lease costs
                
                
                32,934
                
                
                
                32,934Deferred
      income taxes and investment tax credits, net
                
                
                6,866
                
                
                
                (3,992
                )Accrued
      compensation and retirement benefits
                
                
                (19,482
                )
                
                
                (16,794
                )Pension trust
      contribution
                
                
                -
                
                
                
                (20,261
                )Increase in
      operating assets-Receivables
                
                
                (27,496
                )
                
                
                (102,469
                )Prepayments
      and other current assets
                
                
                (7,451
                )
                
                
                (6,339
                )Increase
      (decrease) in operating liabilities-Accounts
      payable
                
                
                (3,939
                )
                
                
                42,095Accrued
      taxes
                
                
                2,991
                
                
                
                (46,791
                )Accrued
      interest
                
                
                (5,919
                )
                
                
                (6,812
                )Electric
      service prepayment programs
                
                
                (10,028
                )
                
                
                (9,053
                )Other
                
                
                (2,066
                )
                
                
                (3,283
                )Net cash
      provided from (used for) operating activities
                
                
                54,939
                
                
                
                (59,114
                )CASH
      FLOWS FROM FINANCING ACTIVITIES:New
      Financing-Short-term
      borrowings, net
                
                
                -
                
                
                
                77,473Redemptions
      and Repayments-Common
      stock
                
                
                -
                
                
                
                (500,000
                )Long-term
      debt
                
                
                (80
                )
                
                
                (72
                )Dividend
      Payments-Common
      stock
                
                
                (15,000
                )
                
                
                -Net cash
      used for financing activities
                
                
                (15,080
                )
                
                
                (422,599
                )CASH
      FLOWS FROM INVESTING ACTIVITIES:Property
      additions
                
                
                (49,011
                )
                
                
                (29,888
                )Sales of
      investment securities held in trusts
                
                
                62,344
                
                
                
                12,951Purchases of
      investment securities held in trusts
                
                
                (63,797
                )
                
                
                (13,805
                )Loan
      repayments from associated companies, net
                
                
                6,534
                
                
                
                511,082Cash
      investments
                
                
                147
                
                
                
                168Other
                
                
                3,924
                
                
                
                1,187Net cash
      provided from (used for) investing activities
                
                
                (39,859
                )
                
                
                481,695Net change in
      cash and cash equivalents
                
                
                -
                
                
                
                (18
                )Cash and cash
      equivalents at beginning of period
                
                
                732
                
                
                
                712Cash and cash
      equivalents at end of period
                
                $
                732
                
                
                $
                694The
      accompanying Notes to Consolidated Financial Statements as they relate to
      Ohio Edison Company are an integral partof these
      statements.
   5
  Report
of Independent Registered Public Accounting Firm





























To the Stockholder
and Board of Directors of


The Cleveland
Electric Illuminating Company:
 
 We have reviewed the
accompanying consolidated balance sheet of The Cleveland Electric Illuminating
Company and its subsidiaries as of March 31, 2008 and the related consolidated
statements of income, comprehensive income and cash flows for each of the
three-month periods ended March 31, 2008 and 2007. These interim financial
statements are the responsibility of the Company’s management.
 
 We conducted our
review in accordance with the standards of the Public Company Accounting
Oversight Board (United States). A review of interim financial information
consists principally of applying analytical procedures and making inquiries of
persons responsible for financial and accounting matters. It is substantially
less in scope than an audit conducted in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the objective of
which is the expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an opinion.
 
 Based on our review,
we are not aware of any material modifications that should be made to the
accompanying consolidated interim financial statements for them to be in
conformity with accounting principles generally accepted in the United States of
America.
 
 We previously
audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheet as of December
31, 2007, and the related consolidated statements of income, capitalization,
common stockholders’ equity, and cash flows for the year then ended (not
presented herein), and in our report dated February 28, 2008, except as to the
error correction described in Note 1, which is as of November 24, 2008, we
expressed an unqualified opinion on those consolidated financial statements. In
our opinion, the information set forth in the accompanying consolidated balance
sheet information as of December 31, 2007, is fairly stated in all material
respects in relation to the consolidated balance sheet from which it has been
derived.
 
 As discussed in Note
1 to the consolidated financial statements, the Company has restated its 2008
financial statements to correct an error.
  
 PricewaterhouseCoopers
      LLP
                Cleveland,
      Ohio
                May 7, 2008,
      except as to the error correction described in Note 1,
                which is as of
      November 24, 2008.





6


THE
      CLEVELAND ELECTRIC ILLUMINATING COMPANYCONSOLIDATED
      STATEMENTS OF INCOME AND COMPREHENSIVE INCOME(Unaudited)Three
      Months EndedMarch
      31,2008
              
              
              2007(In
      thousands)REVENUES:Electric
      sales
              
              $
              418,708
              
              
              $
              422,805Excise tax
      collections
              
              
              18,600
              
              
              
              18,027Total
      revenues
              
              
              437,308
              
              
              
              440,832EXPENSES:Fuel
              
              
              -
              
              
              
              13,191Purchased
      power
              
              
              193,244
              
              
              
              180,657Other
      operating costs
              
              
              65,118
              
              
              
              74,951Provision for
      depreciation
              
              
              19,076
              
              
              
              18,468Amortization
      of regulatory assets
              
              
              38,256
              
              
              
              33,129Deferral of
      new regulatory assets
              
              
              (29,248
              )
              
              
              (33,957
              )General
      taxes
              
              
              40,083
              
              
              
              38,894Total
      expenses
              
              
              326,529
              
              
              
              325,333OPERATING
      INCOME
              
              
              110,779
              
              
              
              115,499OTHER
      INCOME (EXPENSE):Investment
      income
              
              
              9,188
              
              
              
              17,687Miscellaneous
      income
              
              
              534
              
              
              
              731Interest
      expense
              
              
              (32,520
              )
              
              
              (35,740
              )Capitalized
      interest
              
              
              196
              
              
              
              205Total other
      expense
              
              
              (22,602
              )
              
              
              (17,117
              )INCOME
      BEFORE INCOME TAXES
              
              
              88,177
              
              
              
              98,382INCOME
      TAXES
              
              
              30,326
              
              
              
              34,833NET
      INCOME
              
              
              57,851
              
              
              
              63,549OTHER
      COMPREHENSIVE INCOME (LOSS):Pension and
      other postretirement benefits
              
              
              (213
              )
              
              
              1,202Income tax
      expense related to other comprehensive income
              
              
              281
              
              
              
              355Other
      comprehensive income (loss), net of tax
              
              
              (494
              )
              
              
              847TOTAL
      COMPREHENSIVE INCOME
              
              $
              57,357
              
              
              $
              64,396The
      accompanying Notes to Consolidated Financial Statements as they relate to
      The Cleveland Electric IlluminatingCompany are an
      integral part of these statements.
 
 7
 
  THE
      CLEVELAND ELECTRIC ILLUMINATING COMPANYCONSOLIDATED
      BALANCE SHEETS(Unaudited)March
      31,
                
                
                December
      31,2008
                
                
                2007(In
      thousands)ASSETSCURRENT
      ASSETS:Cash and cash
      equivalents
                
                $
                241
                
                
                $
                232Receivables-Customers
      (less accumulated provisions of $7,224,000 and $7,540,000,
                
                
                266,701
                
                
                
                251,000respectively,
      for uncollectible accounts)Associated
      companies
                
                
                70,727
                
                
                
                166,587Other
                
                
                3,643
                
                
                
                12,184Notes
      receivable from associated companies
                
                
                54,679
                
                
                
                52,306Prepayments
      and other
                
                
                1,728
                
                
                
                2,327397,719
                
                
                
                484,636UTILITY
      PLANT:In
      service
                
                
                2,142,458
                
                
                
                2,256,956Less -
      Accumulated provision for depreciation
                
                
                827,160
                
                
                
                872,8011,315,298
                
                
                
                1,384,155Construction
      work in progress
                
                
                40,834
                
                
                
                41,1631,356,132
                
                
                
                1,425,318OTHER
      PROPERTY AND INVESTMENTS:Investment in
      lessor notes
                
                
                425,722
                
                
                
                463,431Other
                
                
                10,275
                
                
                
                10,285435,997
                
                
                
                473,716DEFERRED
      CHARGES AND OTHER ASSETS:Goodwill
                
                
                1,688,521
                
                
                
                1,688,521Regulatory
      assets
                
                
                853,716
                
                
                
                870,695Pension
      assets
                
                
                64,497
                
                
                
                62,471Property
      taxes
                
                
                76,000
                
                
                
                76,000Other
                
                
                32,735
                
                
                
                32,9872,715,469
                
                
                
                2,730,674$
                4,905,317
                
                
                $
                5,114,344LIABILITIES
      AND CAPITALIZATIONCURRENT
      LIABILITIES:Currently
      payable long-term debt
                
                $
                207,281
                
                
                $
                207,266Short-term
      borrowings-Associated
      companies
                
                
                365,816
                
                
                
                531,943Accounts
      payable-Associated
      companies
                
                
                139,423
                
                
                
                169,187Other
                
                
                6,169
                
                
                
                5,295Accrued
      taxes
                
                
                118,102
                
                
                
                94,991Accrued
      interest
                
                
                37,726
                
                
                
                13,895Other
                
                
                35,044
                
                
                
                34,350909,561
                
                
                
                1,056,927CAPITALIZATION:Common
      stockholder's equityCommon stock,
      without par value, authorized 105,000,000 shares -67,930,743
      shares outstanding
                
                
                873,353
                
                
                
                873,536Accumulated
      other comprehensive loss
                
                
                (69,623
                )
                
                
                (69,129
                )Retained
      earnings
                
                
                743,278
                
                
                
                685,428Total common
      stockholder's equity
                
                
                1,547,008
                
                
                
                1,489,835Long-term debt
      and other long-term obligations
                
                
                1,447,980
                
                
                
                1,459,9392,994,988
                
                
                
                2,949,774NONCURRENT
      LIABILITIES:Accumulated
      deferred income taxes
                
                
                719,938
                
                
                
                725,523Accumulated
      deferred investment tax credits
                
                
                18,102
                
                
                
                18,567Retirement
      benefits
                
                
                94,322
                
                
                
                93,456Deferred
      revenues - electric service programs
                
                
                21,297
                
                
                
                27,145Lease
      assignment payable to associated companies
                
                
                38,420
                
                
                
                131,773Other
                
                
                108,689
                
                
                
                111,1791,000,768
                
                
                
                1,107,643COMMITMENTS
      AND CONTINGENCIES (Note 10)$
                4,905,317
                
                
                $
                5,114,344The
      accompanying Notes to Consolidated Financial Statements as they relate to
      The Cleveland Electric IlluminatingCompany are an
      integral part of these balance sheets.
  8
  THE
      CLEVELAND ELECTRIC ILLUMINATING COMPANYCONSOLIDATED
      STATEMENTS OF CASH FLOWS(Unaudited)Three
      Months EndedMarch
      31,Restated2008
                
                
                2007(In
      thousands)CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      income
                
                $
                57,851
                
                
                $
                63,549Adjustments to
      reconcile net income to net cash from operating
activities-Provision for
      depreciation
                
                
                19,076
                
                
                
                18,468Amortization
      of regulatory assets
                
                
                38,256
                
                
                
                33,129Deferral of
      new regulatory assets
                
                
                (29,248
                )
                
                
                (33,957
                )Deferred rents
      and lease market valuation liability
                
                
                -
                
                
                
                (46,528
                )Deferred
      income taxes and investment tax credits, net
                
                
                (4,965
                )
                
                
                (5,453
                )Accrued
      compensation and retirement benefits
                
                
                (3,507
                )
                
                
                (890
                )Pension trust
      contribution
                
                
                -
                
                
                
                (24,800
                )Decrease in
      operating assets-Receivables
                
                
                90,280
                
                
                
                224,011Prepayments
      and other current assets
                
                
                604
                
                
                
                592Increase
      (decrease) in operating liabilities-Accounts
      payable
                
                
                1,111
                
                
                
                (256,808
                )Accrued
      taxes
                
                
                23,196
                
                
                
                13,959Accrued
      interest
                
                
                23,831
                
                
                
                18,122Electric
      service prepayment programs
                
                
                (5,847
                )
                
                
                (5,313
                )Other
                
                
                (63
                )
                
                
                (167
                )Net cash
      provided from (used for) operating activities
                
                
                210,575
                
                
                
                (2,086
                )CASH
      FLOWS FROM FINANCING ACTIVITIES:New
      Financing-Long-term
      debt
                
                
                -
                
                
                
                247,715Redemptions
      and Repayments-Long-term
      debt
                
                
                (165
                )
                
                
                (150
                )Short-term
      borrowings, net
                
                
                (177,960
                )
                
                
                (130,585
                )Dividend
      Payments-Common
      stock
                
                
                (30,000
                )
                
                
                (24,000
                )Net cash
      provided from (used for) financing activities
                
                
                (208,125
                )
                
                
                92,980CASH
      FLOWS FROM INVESTING ACTIVITIES:Property
      additions
                
                
                (37,203
                )
                
                
                (36,682
                )Loans to
      associated companies, net
                
                
                (2,373
                )
                
                
                (231,907
                )Collection of
      principal on long-term notes receivable
                
                
                -
                
                
                
                133,341Redemptions of
      lessor notes
                
                
                37,709
                
                
                
                35,614Other
                
                
                (574
                )
                
                
                9,294Net cash used
      for investing activities
                
                
                (2,441
                )
                
                
                (90,340
                )Net increase
      in cash and cash equivalents
                
                
                9
                
                
                
                554Cash and cash
      equivalents at beginning of period
                
                
                232
                
                
                
                221Cash and cash
      equivalents at end of period
                
                $
                241
                
                
                $
                775The
      accompanying Notes to Consolidated Financial Statements as they relate to
      The Cleveland Electric IlluminatingCompany are an
      integral part of these statements.
   9


Report
of Independent Registered Public Accounting Firm






























To the Stockholder
and Board of
 Directors of The
Toledo Edison Company:
 
 We have reviewed the
accompanying consolidated balance sheet of The Toledo Edison Company and its
subsidiary as of March 31, 2008 and the related consolidated statements of
income, comprehensive income and cash flows for each of the three-month periods
ended March 31, 2008 and 2007. These interim financial statements are the
responsibility of the Company’s management.
 
 We conducted our
review in accordance with the standards of the Public Company Accounting
Oversight Board (United States). A review of interim financial information
consists principally of applying analytical procedures and making inquiries of
persons responsible for financial and accounting matters. It is substantially
less in scope than an audit conducted in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the objective of
which is the expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an opinion.
 
 Based on our review,
we are not aware of any material modifications that should be made to the
accompanying consolidated interim financial statements for them to be in
conformity with accounting principles generally accepted in the United States of
America.
 
 We previously
audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheet as of December
31, 2007, and the related consolidated statements of income, capitalization,
common stockholders’ equity, and cash flows for the year then ended (not
presented herein), and in our report dated February 28, 2008, except as to the
error correction described in Note 1, which is as of November 24, 2008, we
expressed an unqualified opinion on those consolidated financial statements. In
our opinion, the information set forth in the accompanying consolidated balance
sheet information as of December 31, 2007, is fairly stated in all material
respects in relation to the consolidated balance sheet from which it has been
derived.
 
 As discussed in Note
1 to the consolidated financial statements, the Company has restated its 2008
financial statements to correct an error.
 
 PricewaterhouseCoopers
      LLP
                Cleveland,
      Ohio
                May 7, 2008,
      except as to the error correction described in Note 1,
                which is as of
      November 24, 2008.







10








THE
      TOLEDO EDISON COMPANYCONSOLIDATED
      STATEMENTS OF INCOME AND COMPREHENSIVE INCOME(Unaudited)Three
      Months EndedMarch
      31,2008
                
                
                2007(In
      thousands)REVENUES:Electric
      sales
                
                $
                203,669
                
                
                $
                233,056Excise tax
      collections
                
                
                8,025
                
                
                
                7,400Total
      revenues
                
                
                211,694
                
                
                
                240,456EXPENSES:Fuel
                
                
                1,482
                
                
                
                10,147Purchased
      power
                
                
                101,298
                
                
                
                96,169Nuclear
      operating costs
                
                
                10,457
                
                
                
                17,721Other
      operating costs
                
                
                33,390
                
                
                
                42,921Provision for
      depreciation
                
                
                9,025
                
                
                
                9,117Amortization
      of regulatory assets
                
                
                25,025
                
                
                
                23,876Deferral of
      new regulatory assets
                
                
                (9,494
                )
                
                
                (13,481
                )General
      taxes
                
                
                14,377
                
                
                
                13,734Total
      expenses
                
                
                185,560
                
                
                
                200,204OPERATING
      INCOME
                
                
                26,134
                
                
                
                40,252OTHER
      INCOME (EXPENSE):Investment
      income
                
                
                6,481
                
                
                
                7,225Miscellaneous
      expense
                
                
                (1,514
                )
                
                
                (3,100
                )Interest
      expense
                
                
                (6,035
                )
                
                
                (7,503
                )Capitalized
      interest
                
                
                37
                
                
                
                83Total other
      expense
                
                
                (1,031
                )
                
                
                (3,295
                )INCOME
      BEFORE INCOME TAXES
                
                
                25,103
                
                
                
                36,957INCOME
      TAXES
                
                
                8,088
                
                
                
                11,097NET
      INCOME
                
                
                17,015
                
                
                
                25,860OTHER
      COMPREHENSIVE INCOME (LOSS):Pension and
      other postretirement benefits
                
                
                (63
                )
                
                
                573Change in
      unrealized gain on available-for-sale securities
                
                
                1,961
                
                
                
                379Other
      comprehensive income
                
                
                1,898
                
                
                
                952Income tax
      expense related to other comprehensive income
                
                
                728
                
                
                
                334Other
      comprehensive income, net of tax
                
                
                1,170
                
                
                
                618TOTAL
      COMPREHENSIVE INCOME
                
                $
                18,185
                
                
                $
                26,478The
      accompanying Notes to Consolidated Financial Statements as they relate to
      The Toledo Edison Companyare an
      integral part of these statements.
  11
  
 THE
      TOLEDO EDISON COMPANYCONSOLIDATED
      BALANCE SHEETS(Unaudited)March
      31,
                
                
                December
      31,2008
                
                
                2007(In
      thousands)ASSETSCURRENT
      ASSETS:Cash and cash
      equivalents
                
                $
                213
                
                
                $
                22Receivables-Customers
                
                
                966
                
                
                
                449Associated
      companies
                
                
                42,232
                
                
                
                88,796Other (less
      accumulated provisions of $471,000 and $615,000,respectively,
      for uncollectible accounts)
                
                
                4,241
                
                
                
                3,116Notes
      receivable from associated companies
                
                
                107,664
                
                
                
                154,380Prepayments
      and other
                
                
                684
                
                
                
                865156,000
                
                
                
                247,628UTILITY
      PLANT:In
      service
                
                
                854,457
                
                
                
                931,263Less -
      Accumulated provision for depreciation
                
                
                397,670
                
                
                
                420,445456,787
                
                
                
                510,818Construction
      work in progress
                
                
                28,735
                
                
                
                19,740485,522
                
                
                
                530,558OTHER
      PROPERTY AND INVESTMENTS:Investment in
      lessor notes
                
                
                142,657
                
                
                
                154,646Long-term
      notes receivable from associated companies
                
                
                37,457
                
                
                
                37,530Nuclear plant
      decommissioning trusts
                
                
                69,491
                
                
                
                66,759Other
                
                
                1,734
                
                
                
                1,756251,339
                
                
                
                260,691DEFERRED
      CHARGES AND OTHER ASSETS:Goodwill
                
                
                500,576
                
                
                
                500,576Regulatory
      assets
                
                
                187,579
                
                
                
                203,719Pension
      assets
                
                
                29,420
                
                
                
                28,601Property
      taxes
                
                
                21,010
                
                
                
                21,010Other
                
                
                28,959
                
                
                
                20,496767,544
                
                
                
                774,402$
                1,660,405
                
                
                $
                1,813,279LIABILITIES
      AND CAPITALIZATIONCURRENT
      LIABILITIES:Currently
      payable long-term debt
                
                $
                34
                
                
                $
                34Accounts
      payable-Associated
      companies
                
                
                56,448
                
                
                
                245,215Other
                
                
                3,973
                
                
                
                4,449Notes payable
      to associated companies
                
                
                66,217
                
                
                
                13,396Accrued
      taxes
                
                
                37,085
                
                
                
                30,245Lease market
      valuation liability
                
                
                36,900
                
                
                
                36,900Other
                
                
                51,563
                
                
                
                22,747252,220
                
                
                
                352,986CAPITALIZATION:Common
      stockholder's equity-Common stock,
      $5 par value, authorized 60,000,000 shares -29,402,054
      shares outstanding
                
                
                147,010
                
                
                
                147,010Other paid-in
      capital
                
                
                173,141
                
                
                
                173,169Accumulated
      other comprehensive loss
                
                
                (9,436
                )
                
                
                (10,606
                )Retained
      earnings
                
                
                192,633
                
                
                
                175,618Total common
      stockholder's equity
                
                
                503,348
                
                
                
                485,191Long-term debt
      and other long-term obligations
                
                
                303,392
                
                
                
                303,397806,740
                
                
                
                788,588NONCURRENT
      LIABILITIES:Accumulated
      deferred income taxes
                
                
                99,732
                
                
                
                103,463Accumulated
      deferred investment tax credits
                
                
                9,967
                
                
                
                10,180Lease market
      valuation liability
                
                
                300,775
                
                
                
                310,000Retirement
      benefits
                
                
                64,422
                
                
                
                63,215Asset
      retirement obligations
                
                
                28,744
                
                
                
                28,366Deferred
      revenues - electric service programs
                
                
                9,969
                
                
                
                12,639Lease
      assignment payable to associated companies
                
                
                28,835
                
                
                
                83,485Other
                
                
                59,001
                
                
                
                60,357601,445
                
                
                
                671,705COMMITMENTS
      AND CONTINGENCIES (Note 10)$
                1,660,405
                
                
                $
                1,813,279The
      accompanying Notes to Consolidated Financial Statements as they relate to
      The Toledo Edison Companyare an
      integral part of these balance sheets.
 
 12
  THE
      TOLEDO EDISON COMPANYCONSOLIDATED
      STATEMENTS OF CASH FLOWS(Unaudited)Three
      Months EndedMarch
      31,Restated2008
                  
                  
                  2007(In
      thousands)CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      income
                  
                  $
                  17,015
                  
                  
                  $
                  25,860Adjustments to
      reconcile net income to net cash from operating
activities-Provision for
      depreciation
                  
                  
                  9,025
                  
                  
                  
                  9,117Amortization
      of regulatory assets
                  
                  
                  25,025
                  
                  
                  
                  23,876Deferral of
      new regulatory assets
                  
                  
                  (9,494
                  )
                  
                  
                  (13,481
                  )Deferred rents
      and lease market valuation liability
                  
                  
                  6,099
                  
                  
                  
                  (10,891
                  )Deferred
      income taxes and investment tax credits, net
                  
                  
                  (3,404
                  )
                  
                  
                  (3,639
                  )Accrued
      compensation and retirement benefits
                  
                  
                  (1,813
                  )
                  
                  
                  (756
                  )Pension trust
      contribution
                  
                  
                  -
                  
                  
                  
                  (7,659
                  )Decrease in
      operating assets-Receivables
                  
                  
                  45,738
                  
                  
                  
                  158Prepayments
      and other current assets
                  
                  
                  181
                  
                  
                  
                  312Increase
      (decrease) in operating liabilities-Accounts
      payable
                  
                  
                  (174,243
                  )
                  
                  
                  (17,533
                  )Accrued
      taxes
                  
                  
                  6,840
                  
                  
                  
                  9,379Accrued
      interest
                  
                  
                  4,663
                  
                  
                  
                  3,951Electric
      service prepayment programs
                  
                  
                  (2,670
                  )
                  
                  
                  (2,616
                  )Other
                  
                  
                  991
                  
                  
                  
                  (541
                  )Net cash
      provided from (used for) operating activities
                  
                  
                  (76,047
                  )
                  
                  
                  15,537CASH
      FLOWS FROM FINANCING ACTIVITIES:New
      Financing-Short-term
      borrowings, net
                  
                  
                  52,821
                  
                  
                  
                  -Redemptions
      and Repayments-Long-term
      debt
                  
                  
                  (9
                  )
                  
                  
                  -Short-term
      borrowings, net
                  
                  
                  -
                  
                  
                  
                  (46,518
                  )Dividend
      Payments-Common
      stock
                  
                  
                  (15,000
                  )
                  
                  
                  -Net cash
      provided from (used for) financing activities
                  
                  
                  37,812
                  
                  
                  
                  (46,518
                  )CASH
      FLOWS FROM INVESTING ACTIVITIES:Property
      additions
                  
                  
                  (19,435
                  )
                  
                  
                  (6,064
                  )Loans
      repayments from (loans to) associated companies, net
                  
                  
                  46,789
                  
                  
                  
                  (8,583
                  )Collection of
      principal on long-term notes receivable
                  
                  
                  -
                  
                  
                  
                  32,202Redemption of
      lessor notes
                  
                  
                  11,989
                  
                  
                  
                  14,804Sales of
      investment securities held in trusts
                  
                  
                  3,908
                  
                  
                  
                  16,863Purchases of
      investment securities held in trusts
                  
                  
                  (4,715
                  )
                  
                  
                  (17,642
                  )Other
                  
                  
                  (110
                  )
                  
                  
                  (420
                  )Net cash
      provided from investing activities
                  
                  
                  38,426
                  
                  
                  
                  31,160Net increase
      in cash and cash equivalents
                  
                  
                  191
                  
                  
                  
                  179Cash and cash
      equivalents at beginning of period
                  
                  
                  22
                  
                  
                  
                  22Cash and cash
      equivalents at end of period
                  
                  $
                  213
                  
                  
                  $
                  201The
      accompanying Notes to Consolidated Financial Statements as they relate to
      The Toledo Edison Company are anintegral part
      of these statements.
  
 13







Report
of Independent Registered Public Accounting Firm






























To the Stockholder
and Board of
 Directors of
Pennsylvania Electric Company:
 
 We have reviewed the
accompanying consolidated balance sheet of Pennsylvania Electric Company and its
subsidiaries as of March 31, 2008 and the related consolidated statements of
income, comprehensive income and cash flows for each of the three-month periods
ended March 31, 2008 and 2007. These interim financial statements are the
responsibility of the Company’s management.
 
 We conducted our
review in accordance with the standards of the Public Company Accounting
Oversight Board (United States). A review of interim financial information
consists principally of applying analytical procedures and making inquiries of
persons responsible for financial and accounting matters. It is substantially
less in scope than an audit conducted in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the objective of
which is the expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an opinion.
 
 Based on our review,
we are not aware of any material modifications that should be made to the
accompanying consolidated interim financial statements for them to be in
conformity with accounting principles generally accepted in the United States of
America.
 
 We previously
audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheet as of December
31, 2007, and the related consolidated statements of income, capitalization,
common stockholders’ equity, and cash flows for the year then ended (not
presented herein), and in our report dated February 28, 2008, except as to the
error correction described in Note 1, which is as of November 24, 2008, we
expressed an unqualified opinion on those consolidated financial statements. In
our opinion, the information set forth in the accompanying consolidated balance
sheet information as of December 31, 2007, is fairly stated in all material
respects in relation to the consolidated balance sheet from which it has been
derived.
 
 As discussed in Note
1 to the consolidated financial statements, the Company has restated its 2008
financial statements to correct an error.
 
 PricewaterhouseCoopers
      LLP
                Cleveland,
      Ohio
                May 7, 2008,
      except as to the error correction described in Note 1,
                which is as of
      November 24, 2008.


14








PENNSYLVANIA
      ELECTRIC COMPANYCONSOLIDATED
      STATEMENTS OF INCOME AND COMPREHENSIVE INCOME(Unaudited)Three
      Months EndedMarch
      31,2008
                
                
                2007(In
      thousands)REVENUES:Electric
      sales
                
                $
                376,028
                
                
                $
                339,226Gross receipts
      tax collections
                
                
                19,464
                
                
                
                16,680Total
      revenues
                
                
                395,492
                
                
                
                355,906EXPENSES:Purchased
      power
                
                
                221,234
                
                
                
                200,842Other
      operating costs
                
                
                71,077
                
                
                
                59,461Provision for
      depreciation
                
                
                12,516
                
                
                
                11,777Amortization
      of regulatory assets
                
                
                16,346
                
                
                
                15,394Deferral of
      new regulatory assets
                
                
                (3,526
                )
                
                
                (17,088
                )General
      taxes
                
                
                21,855
                
                
                
                19,851Total
      expenses
                
                
                339,502
                
                
                
                290,237OPERATING
      INCOME
                
                
                55,990
                
                
                
                65,669OTHER
      INCOME (EXPENSE):Miscellaneous
      income (expense)
                
                
                (191
                )
                
                
                1,417Interest
      expense
                
                
                (15,322
                )
                
                
                (11,337
                )Capitalized
      interest
                
                
                (806
                )
                
                
                258Total other
      expense
                
                
                (16,319
                )
                
                
                (9,662
                )INCOME
      BEFORE INCOME TAXES
                
                
                39,671
                
                
                
                56,007INCOME
      TAXES
                
                
                18,279
                
                
                
                24,263NET
      INCOME
                
                
                21,392
                
                
                
                31,744OTHER
      COMPREHENSIVE INCOME (LOSS):Pension and
      other postretirement benefits
                
                
                (3,473
                )
                
                
                (2,825
                )Unrealized
      gain on derivative hedges
                
                
                16
                
                
                
                16Change in
      unrealized gain on available-for-sale securities
                
                
                11
                
                
                
                (3
                )Other
      comprehensive loss
                
                
                (3,446
                )
                
                
                (2,812
                )Income tax
      benefit related to other comprehensive loss
                
                
                (1,506
                )
                
                
                (1,298
                )Other
      comprehensive loss, net of tax
                
                
                (1,940
                )
                
                
                (1,514
                )TOTAL
      COMPREHENSIVE INCOME
                
                $
                19,452
                
                
                $
                30,230The
      accompanying Notes to Consolidated Financial Statements as they relate to
      Pennsylvania Electric Companyare an
      integral part of these statements.
  15
 PENNSYLVANIA
      ELECTRIC COMPANYCONSOLIDATED
      BALANCE SHEETS(Unaudited)March
      31,
                
                
                December
      31,2008
                
                
                2007(In
      thousands)ASSETSCURRENT
      ASSETS:Cash and cash
      equivalents
                
                $
                43
                
                
                $
                46Receivables-Customers
      (less accumulated provisions of $4,201,000 and $3,905,000,respectively,
      for uncollectible accounts)
                
                
                141,316
                
                
                
                137,455Associated
      companies
                
                
                23,396
                
                
                
                22,014Other
                
                
                28,833
                
                
                
                19,529Notes
      receivable from associated companies
                
                
                16,923
                
                
                
                16,313Prepaid gross
      receipts taxes
                
                
                41,242
                
                
                
                -Other
                
                
                2,426
                
                
                
                3,077254,179
                
                
                
                198,434UTILITY
      PLANT:In
      service
                
                
                2,230,667
                
                
                
                2,219,002Less -
      Accumulated provision for depreciation
                
                
                843,500
                
                
                
                838,6211,387,167
                
                
                
                1,380,381Construction
      work in progress
                
                
                33,727
                
                
                
                24,2511,420,894
                
                
                
                1,404,632OTHER
      PROPERTY AND INVESTMENTS:Nuclear plant
      decommissioning trusts
                
                
                132,152
                
                
                
                137,859Non-utility
      generation trusts
                
                
                113,958
                
                
                
                112,670Other
                
                
                536
                
                
                
                531246,646
                
                
                
                251,060DEFERRED
      CHARGES AND OTHER ASSETS:Goodwill
                
                
                777,616
                
                
                
                777,904Pension
      assets
                
                
                69,405
                
                
                
                66,111Other
                
                
                29,770
                
                
                
                33,893876,791
                
                
                
                877,908$
                2,798,510
                
                
                $
                2,732,034LIABILITIES
      AND CAPITALIZATIONCURRENT
      LIABILITIES:Short-term
      borrowings-Associated
      companies
                
                $
                183,102
                
                
                $
                214,893Other
                
                
                150,000
                
                
                
                -Accounts
      payable-Associated
      companies
                
                
                61,476
                
                
                
                83,359Other
                
                
                50,516
                
                
                
                51,777Accrued
      taxes
                
                
                9,302
                
                
                
                15,111Accrued
      interest
                
                
                13,677
                
                
                
                13,167Other
                
                
                23,330
                
                
                
                25,311491,403
                
                
                
                403,618CAPITALIZATION:Common
      stockholder's equity-Common stock,
      $20 par value, authorized 5,400,000 shares-4,427,577
      shares outstanding
                
                
                88,552
                
                
                
                88,552Other paid-in
      capital
                
                
                920,265
                
                
                
                920,616Accumulated
      other comprehensive income
                
                
                3,006
                
                
                
                4,946Retained
      earnings
                
                
                79,336
                
                
                
                57,943Total common
      stockholder's equity
                
                
                1,091,159
                
                
                
                1,072,057Long-term debt
      and other long-term obligations
                
                
                732,465
                
                
                
                777,2431,823,624
                
                
                
                1,849,300NONCURRENT
      LIABILITIES:Regulatory
      liabilities
                
                
                67,347
                
                
                
                73,559Accumulated
      deferred income taxes
                
                
                220,500
                
                
                
                210,776Retirement
      benefits
                
                
                41,644
                
                
                
                41,298Asset
      retirement obligations
                
                
                83,129
                
                
                
                81,849Other
                
                
                70,863
                
                
                
                71,634483,483
                
                
                
                479,116COMMITMENTS
      AND CONTINGENCIES (Note 10)$
                2,798,510
                
                
                $
                2,732,034The
      accompanying Notes to Consolidated Financial Statements as they relate to
      Pennsylvania Electric Company are anintegral part
      of these balance sheets.
  16
   PENNSYLVANIA
      ELECTRIC COMPANYCONSOLIDATED
      STATEMENTS OF CASH FLOWS(Unaudited)Three
      Months EndedMarch
      31,Restated2008
                
                
                2007(In
      thousands)CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      income
                
                $
                21,392
                
                
                $
                31,744Adjustments to
      reconcile net income to net cash from operating
activities-Provision for
      depreciation
                
                
                12,516
                
                
                
                11,777Amortization
      of regulatory assets
                
                
                16,346
                
                
                
                15,394Deferral of
      new regulatory assets
                
                
                (3,526
                )
                
                
                (17,088
                )Deferred costs
      recoverable as regulatory assets
                
                
                (8,403
                )
                
                
                (18,433
                )Deferred
      income taxes and investment tax credits, net
                
                
                10,541
                
                
                
                13,366Accrued
      compensation and retirement benefits
                
                
                (10,488
                )
                
                
                (8,786
                )Cash
      collateral
                
                
                301
                
                
                
                1,450Pension trust
      contribution
                
                
                -
                
                
                
                (13,436
                )Increase in
      operating assets-Receivables
                
                
                (13,701
                )
                
                
                (30,050
                )Prepayments
      and other current assets
                
                
                (40,591
                )
                
                
                (36,225
                )Increase
      (Decrease) in operating liabilities-Accounts
      payable
                
                
                (3,144
                )
                
                
                (46,168
                )Accrued
      taxes
                
                
                (5,809
                )
                
                
                (9,152
                )Accrued
      interest
                
                
                510
                
                
                
                5,518Other
                
                
                4,991
                
                
                
                3,920Net cash used
      for operating activities
                
                
                (19,065
                )
                
                
                (96,169
                )CASH
      FLOWS FROM FINANCING ACTIVITIES:New
      Financing-Short-term
      borrowings, net
                
                
                118,209
                
                
                
                119,361Redemptions
      and RepaymentsLong-term
      debt
                
                
                (45,112
                )
                
                
                -Dividend
      Payments-Common
      stock
                
                
                (20,000
                )
                
                
                -Net cash
      provided from financing activities
                
                
                53,097
                
                
                
                119,361CASH
      FLOWS FROM INVESTING ACTIVITIES:Property
      additions
                
                
                (28,902
                )
                
                
                (20,404
                )Sales of
      investment securities held in trusts
                
                
                24,407
                
                
                
                12,758Purchases of
      investment securities held in trusts
                
                
                (29,083
                )
                
                
                (15,509
                )Loan
      repayments from (loans to) associated companies, net
                
                
                (610
                )
                
                
                708Other
                
                
                153
                
                
                
                (747
                )Net cash used
      for investing activities
                
                
                (34,035
                )
                
                
                (23,194
                )Net decrease
      in cash and cash equivalents
                
                
                (3
                )
                
                
                (2
                )Cash and cash
      equivalents at beginning of period
                
                
                46
                
                
                
                44Cash and cash
      equivalents at end of period
                
                $
                43
                
                
                $
                42The
      accompanying Notes to Consolidated Financial Statements as they relate to
      Pennsylvania Electric Company arean integral
      part of these statements.
   17








COMBINED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(UNAUDITED)








1.   
 ORGANIZATION AND BASIS OF PRESENTATION





FirstEnergy is a
diversified energy company that holds, directly or indirectly, all of the
outstanding common stock of its principal subsidiaries: OE, CEI, TE, Penn (a
wholly owned subsidiary of OE), ATSI, JCP&L, Met-Ed, Penelec, FENOC, FES and
its subsidiaries FGCO and NGC, and FESC.





FirstEnergy and its
subsidiaries follow GAAP and comply with the regulations, orders, policies and
practices prescribed by the SEC, the FERC and, as applicable, the PUCO, the PPUC
and the NJBPU. The preparation of financial statements in conformity with GAAP
requires management to make periodic estimates and assumptions that affect the
reported amounts of assets, liabilities, revenues and expenses and disclosure of
contingent assets and liabilities. Actual results could differ from these
estimates. The reported results of operations are not indicative of results of
operations for any future period.





These statements
should be read in conjunction with the financial statements and notes included
in the combined Annual Report on Form 10-K for the year ended December 31,
2007 for FirstEnergy, FES and the Companies. The consolidated unaudited
financial statements of FirstEnergy, FES and each of the Companies reflect all
normal recurring adjustments that, in the opinion of management, are necessary
to fairly present results of operations for the interim periods. Certain prior
year amounts have been reclassified to conform to the current year presentation.
Unless otherwise indicated, defined terms used herein have the meanings set
forth in the accompanying Glossary of Terms.





FirstEnergy and its
subsidiaries consolidate all majority-owned subsidiaries over which they
exercise control and, when applicable, entities for which they have a
controlling financial interest. Intercompany transactions and balances are
eliminated in consolidation. FirstEnergy consolidates a VIE (see Note 8)
when it is determined to be the VIE's primary beneficiary. Investments in
non-consolidated affiliates over which FirstEnergy and its subsidiaries have the
ability to exercise significant influence, but not control (20-50% owned
companies, joint ventures and partnerships) follow the equity method of
accounting. Under the equity method, the interest in the entity is reported as
an investment in the Consolidated Balance Sheets and the percentage share of the
entity’s earnings is reported in the Consolidated Statements of
Income.





The consolidated
financial statements as of March 31, 2008 and for the three-month periods
ended March 31, 2008 and 2007 have been reviewed by PricewaterhouseCoopers
LLP, an independent registered public accounting firm. Their report (dated
May 7, 2008, except as to the error correction described in Note 1, which
is as of November 24, 2008) is included herein. The report of
PricewaterhouseCoopers LLP states that they did not audit and they do not
express an opinion on that unaudited financial information. Accordingly, the
degree of reliance on their report on such information should be restricted in
light of the limited nature of the review procedures applied.
PricewaterhouseCoopers LLP is not subject to the liability provisions of Section
11 of the Securities Act of 1933 for their report on the unaudited financial
information because that report is not a “report” or a “part” of a registration
statement prepared or certified by PricewaterhouseCoopers LLP within the meaning
of Sections 7 and 11 of the Securities Act of 1933.


Restatement
of the Consolidated Statements of Cash Flows





OE, CEI, TE and
Penelec are restating their respective Consolidated Statements of Cash Flows for
the three months ended March 31, 2008, to correct common stock dividend payments
reported in cash flows from financing activities. The consolidated statements of
cash flows for those registrants, as originally filed, erroneously did not
reflect the payment of common stock dividends in the first quarter of 2008,
which were declared in the third quarter of 2007.  The corrections
resulted in a corresponding change in operating liabilities - accounts payable,
included in cash flows from operating activities.





This correction does
not affect the respective registrants’ previously reported consolidated
statements of income and comprehensive income for the three months ended March
31, 2008 and consolidated balance sheets as of March 31, 2008 contained in the
combined Form 10-Q for the quarter ended March 31, 2008, as originally filed on
May 8, 2008.




The effects of the
corrections on OE’s, CEI’s, TE’s and Penelec’s Consolidated Statements of Cash
Flows for the three months ended March 31, 2008 are as
follows:





18





OEThree
      MonthsEnded
      March 31, 2008As
      Previously
                
                
                AsReported
                
                
                Restated(In
      thousands)CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      income
                
                $
                43,909
                
                
                $
                43,909Adjustments to
      reconcile net income to net cash from operating
activities-Provision for
      depreciation
                
                
                21,493
                
                
                
                21,493Amortization
      of regulatory assets
                
                
                48,538
                
                
                
                48,538Deferral of
      new regulatory assets
                
                
                (25,411
                )
                
                
                (25,411
                )Amortization
      of lease costs
                
                
                32,934
                
                
                
                32,934Deferred
      income taxes and investment tax credits, net
                
                
                6,866
                
                
                
                6,866Accrued
      compensation and retirement benefits
                
                
                (19,482
                )
                
                
                (19,482
                )Increase in
      operating assets-Receivables
                
                
                (27,496
                )
                
                
                (27,496
                )Prepayments
      and other current assets
                
                
                (7,451
                )
                
                
                (7,451
                )Increase
      (decrease) in operating liabilities-Accounts
      payable
                
                
                (18,939
                )
                
                
                (3,939
                )Accrued
      taxes
                
                
                2,991
                
                
                
                2,991Accrued
      interest
                
                
                (5,919
                )
                
                
                (5,919
                )Electric
      service prepayment programs
                
                
                (10,028
                )
                
                
                (10,028
                )Other
                
                
                (2,066
                )
                
                
                (2,066
                )Net cash
      provided from operating activities
                
                
                39,939
                
                
                
                54,939CASH
      FLOWS FROM FINANCING ACTIVITIES:Redemptions
      and Repayments-Long-term
      debt
                
                
                (80
                )
                
                
                (80
                )Dividend
      Payments-Common
      stock
                
                
                -
                
                
                
                (15,000
                )Net cash used
      for financing activities
                
                
                (80
                )
                
                
                (15,080
                )CASH
      FLOWS FROM INVESTING ACTIVITIES:Property
      additions
                
                
                (49,011
                )
                
                
                (49,011
                )Sales of
      investment securities held in trusts
                
                
                62,344
                
                
                
                62,344Purchases of
      investment securities held in trusts
                
                
                (63,797
                )
                
                
                (63,797
                )Loan
      repayments from associated companies, net
                
                
                6,534
                
                
                
                6,534Cash
      investments
                
                
                147
                
                
                
                1473,924
                
                
                
                3,924Net cash used
      for investing activities
                
                
                (39,859
                )
                
                
                (39,859
                )Net change in
      cash and cash equivalents
                
                $
                -
                
                
                $
                -
   19
  CEIThree
      MonthsEnded
      March 31, 2008As
      Previously
                
                
                AsReported
                
                
                Restated(In
      thousands)CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      income
                
                $
                57,851
                
                
                $
                57,851Adjustments to
      reconcile net income to net cash from operating
activities-Provision for
      depreciation
                
                
                19,076
                
                
                
                19,076Amortization
      of regulatory assets
                
                
                38,256
                
                
                
                38,256Deferral of
      new regulatory assets
                
                
                (29,248
                )
                
                
                (29,248
                )Deferred rents
      and lease market valuation liability
                
                
                -
                
                
                
                -Deferred
      income taxes and investment tax credits, net
                
                
                (4,965
                )
                
                
                (4,965
                )Accrued
      compensation and retirement benefits
                
                
                (3,507
                )
                
                
                (3,507
                )Decrease in
      operating assets-Receivables
                
                
                90,280
                
                
                
                90,280Prepayments
      and other current assets
                
                
                604
                
                
                
                604Increase
      (decrease) in operating liabilities-Accounts
      payable
                
                
                (28,889
                )
                
                
                1,111Accrued
      taxes
                
                
                23,196
                
                
                
                23,196Accrued
      interest
                
                
                23,831
                
                
                
                23,831Electric
      service prepayment programs
                
                
                (5,847
                )
                
                
                (5,847
                )Other
                
                
                (63
                )
                
                
                (63
                )Net cash
      provided from operating activities
                
                
                180,575
                
                
                
                210,575CASH
      FLOWS FROM FINANCING ACTIVITIES:Redemptions
      and Repayments-Long-term
      debt
                
                
                (165
                )
                
                
                (165
                )Short-term
      borrowings, net
                
                
                (177,960
                )
                
                
                (177,960
                )Dividend
      Payments-Common
      stock
                
                
                -
                
                
                
                (30,000
                )Net cash used
      for financing activities
                
                
                (178,125
                )
                
                
                (208,125
                )CASH
      FLOWS FROM INVESTING ACTIVITIES:Property
      additions
                
                
                (37,203
                )
                
                
                (37,203
                )Loans to
      associated companies, net
                
                
                (2,373
                )
                
                
                (2,373
                )Redemptions of
      lessor notes
                
                
                37,709
                
                
                
                37,709Other
                
                
                (574
                )
                
                
                (574
                )Net cash used
      for investing activities
                
                
                (2,441
                )
                
                
                (2,441
                )Net increase
      in cash and cash equivalents
                
                $
                9
                
                
                $
                9
   20
  TEThree
      MonthsEnded
      March 31, 2008As
      Previously
                
                
                AsReported
                
                
                Restated(In
      thousands)CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      income
                
                $
                17,015
                
                
                $
                17,015Adjustments to
      reconcile net income to net cash from operating
activities-Provision for
      depreciation
                
                
                9,025
                
                
                
                9,025Amortization
      of regulatory assets
                
                
                25,025
                
                
                
                25,025Deferral of
      new regulatory assets
                
                
                (9,494
                )
                
                
                (9,494
                )Deferred rents
      and lease market valuation liability
                
                
                6,099
                
                
                
                6,099Deferred
      income taxes and investment tax credits, net
                
                
                (3,404
                )
                
                
                (3,404
                )Accrued
      compensation and retirement benefits
                
                
                (1,813
                )
                
                
                (1,813
                )Decrease in
      operating assets-Receivables
                
                
                45,738
                
                
                
                45,738Prepayments
      and other current assets
                
                
                181
                
                
                
                181Increase
      (decrease) in operating liabilities-Accounts
      payable
                
                
                (189,243
                )
                
                
                (174,243
                )Accrued
      taxes
                
                
                6,840
                
                
                
                6,840Accrued
      interest
                
                
                4,663
                
                
                
                4,663Electric
      service prepayment programs
                
                
                (2,670
                )
                
                
                (2,670
                )Other
                
                
                991
                
                
                
                991Net cash used
      for operating activities
                
                
                (91,047
                )
                
                
                (76,047
                )CASH
      FLOWS FROM FINANCING ACTIVITIES:New
      Financing-Short-term
      borrowings, net
                
                
                52,821
                
                
                
                52,821Redemptions
      and Repayments-Long-term
      debt
                
                
                (9
                )
                
                
                (9
                )Dividend
      Payments-Common
      stock
                
                
                -
                
                
                
                (15,000
                )Net cash
      provided from financing activities
                
                
                52,812
                
                
                
                37,812CASH
      FLOWS FROM INVESTING ACTIVITIES:Property
      additions
                
                
                (19,435
                )
                
                
                (19,435
                )Loans
      repayments from (loans to) associated companies, net
                
                
                46,789
                
                
                
                46,789Redemption of
      lessor notes
                
                
                11,989
                
                
                
                11,989Sales of
      investment securities held in trusts
                
                
                3,908
                
                
                
                3,908Purchases of
      investment securities held in trusts
                
                
                (4,715
                )
                
                
                (4,715
                )Other
                
                
                (110
                )
                
                
                (110
                )Net cash
      provided from investing activities
                
                
                38,426
                
                
                
                38,426Net increase
      in cash and cash equivalents
                
                $
                191
                
                
                $
                191
   21
   PENELECThree
      MonthsEnded
      March 31, 2008As
      Previously
                
                
                AsReported
                
                
                Restated(In
      thousands)CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      income
                
                $
                21,392
                
                
                $
                21,392Adjustments to
      reconcile net income to net cash from operating
activities-Provision for
      depreciation
                
                
                12,516
                
                
                
                12,516Amortization
      of regulatory assets
                
                
                16,346
                
                
                
                16,346Deferral of
      new regulatory assets
                
                
                (3,526
                )
                
                
                (3,526
                )Deferred costs
      recoverable as regulatory assets
                
                
                (8,403
                )
                
                
                (8,403
                )Deferred
      income taxes and investment tax credits, net
                
                
                10,541
                
                
                
                10,541Accrued
      compensation and retirement benefits
                
                
                (10,488
                )
                
                
                (10,488
                )Cash
      collateral
                
                
                301
                
                
                
                301Increase in
      operating assets-Receivables
                
                
                (13,701
                )
                
                
                (13,701
                )Prepayments
      and other current assets
                
                
                (40,591
                )
                
                
                (40,591
                )Increase
      (Decrease) in operating liabilities-Accounts
      payable
                
                
                (23,144
                )
                
                
                (3,144
                )Accrued
      taxes
                
                
                (5,809
                )
                
                
                (5,809
                )Accrued
      interest
                
                
                510
                
                
                
                510Other
                
                
                4,991
                
                
                
                4,991Net cash used
      for operating activities
                
                
                (39,065
                )
                
                
                (19,065
                )CASH
      FLOWS FROM FINANCING ACTIVITIES:New
      Financing-Short-term
      borrowings, net
                
                
                118,209
                
                
                
                118,209Redemptions
      and RepaymentsLong-term
      debt
                
                
                (45,112
                )
                
                
                (45,112
                )Dividend
      Payments-Common
      stock
                
                
                -
                
                
                
                (20,000
                )Net cash
      provided from financing activities
                
                
                73,097
                
                
                
                53,097CASH
      FLOWS FROM INVESTING ACTIVITIES:Property
      additions
                
                
                (28,902
                )
                
                
                (28,902
                )Sales of
      investment securities held in trusts
                
                
                24,407
                
                
                
                24,407Purchases of
      investment securities held in trusts
                
                
                (29,083
                )
                
                
                (29,083
                )Loans to
      associated companies, net
                
                
                (610
                )
                
                
                (610
                )Other
                
                
                153
                
                
                
                153Net cash used
      for investing activities
                
                
                (34,035
                )
                
                
                (34,035
                )Net decrease
      in cash and cash equivalents
                
                $
                (3
                )
                
                $
                (3
                )
   22




2.  EARNINGS
PER SHARE
 
 Basic earnings per
share of common stock is computed using the weighted average of actual common
shares outstanding during the respective period as the denominator. The
denominator for diluted earnings per share of common stock reflects the weighted
average of common shares outstanding plus the potential additional common shares
that could result if dilutive securities and other agreements to issue common
stock were exercised. The pool of stock-based compensation tax benefits is
calculated in accordance with SFAS 123(R). On March 2, 2007, FirstEnergy
repurchased approximately 14.4 million shares, or 4.5%, of its outstanding
common stock through an accelerated share repurchase program at an initial price
of approximately $900 million. A final purchase price adjustment of
$51 million was settled in cash on December 13, 2007. The following
table reconciles basic and diluted earnings per share of common
stock:
 
 Reconciliation
      of Basic and Diluted
                
                Three
      Months Ended
                  March
      31,Earnings
      per Share of Common Stock
                
                2008
                
                2007(In
      millions, except
                  per
      share amounts)Net
      income
                
                $
                276
                
                $
                290Average shares
      of common stock outstanding – Basic
                
                
                304
                
                
                314Assumed
      exercise of dilutive stock options and awards
                
                
                3
                
                
                2Average shares
      of common stock outstanding – Dilutive
                
                
                307
                
                
                316Basic earnings
      per share of common stock
                
                $
                0.91
                
                $
                0.92Diluted
      earnings per share of common stock
                
                $
                0.90
                
                $
                0.92
 
 3.  DIVESTITURES
AND DISCONTINUED OPERATIONS
 
 On March 7, 2008,
FirstEnergy sold certain telecommunication assets, resulting in a net after-tax
gain of $19.3 million. As a result of the sale, FirstEnergy adjusted
goodwill by $1 million for the former GPU companies due to the realization of
tax benefits that had been reserved in purchase accounting. The sale of assets
did not meet the criteria for classification as discontinued operations as of
March 31, 2008.
 
 4.  FAIR
VALUE MEASURES
 
 Effective January 1,
2008, FirstEnergy adopted SFAS 157, which provides a framework for measuring
fair value under GAAP and, among other things, requires enhanced disclosures
about assets and liabilities recognized at fair value. FirstEnergy also adopted
SFAS 159 on January 1, 2008, which provides the option to measure certain
financial assets and financial liabilities at fair value. FirstEnergy has
analyzed its financial assets and financial liabilities within the scope of
SFAS 159 and, as of March 31, 2008, has elected not to record eligible
assets and liabilities at fair value.
 
 As defined in SFAS
157, fair value is the price that would be received for an asset or paid to
transfer a liability (exit price) in the principal or most advantageous market
for the asset or liability in an orderly transaction between willing market
participants on the measurement date. SFAS 157 establishes a fair value
hierarchy that prioritizes the inputs used to measure fair value. The hierarchy
gives the highest priority to unadjusted quoted market prices in active markets
for identical assets or liabilities (Level 1) and the lowest priority to
unobservable inputs (Level 3). The three levels of the fair value hierarchy
defined by SFAS 157 are as follows:
 
 Level 1 – Quoted
prices are available in active markets for identical assets or liabilities as of
the reporting date. Active markets are those where transactions for the asset or
liability occur in sufficient frequency and volume to provide pricing
information on an ongoing basis. FirstEnergy’s Level 1 assets and liabilities
primarily consist of exchange-traded derivatives and equity securities listed on
active exchanges that are held in various trusts.
 
 Level 2 – Pricing
inputs are either directly or indirectly observable in the market as of the
reporting date, other than quoted prices in active markets included in Level 1.
FirstEnergy’s Level 2 consists primarily of investments in debt securities held
in various trusts and commodity forwards. Additionally, Level 2 includes those
financial instruments that are valued using models or other valuation
methodologies based on assumptions that are observable in the marketplace
throughout the full term of the instrument, can be derived from observable data
or are supported by observable levels at which transactions are executed in the
marketplace. These models are primarily industry-standard models that consider
various assumptions, including quoted forward prices for commodities, time
value, volatility factors, and current market and contractual prices for the
underlying instruments, as well as other relevant economic measures. Instruments
in this category include non-exchange-traded derivatives such as forwards and
certain interest rate swaps.
   23
 
 Level 3 – Pricing
inputs include inputs that are generally less observable from objective sources.
These inputs may be used with internally developed methodologies that result in
management’s best estimate of fair value. FirstEnergy develops its view of the
future market price of key commodities through a combination of market
observation and assessment (generally for the short term) and fundamental
modeling (generally for the longer term). Key fundamental electricity model
inputs are generally directly observable in the market or derived from publicly
available historic and forecast data. Some key inputs reflect forecasts
published by industry leading consultants who generally employ similar
fundamental modeling approaches. Fundamental model inputs and results, as well
as the selection of consultants, reflect the consensus of appropriate
FirstEnergy management. Level 3 instruments include those that may be more
structured or otherwise tailored to customers’ needs. FirstEnergy’s Level 3
instruments consist of NUG contracts.
 
 FirstEnergy utilizes
market data and assumptions that market participants would use in pricing the
asset or liability, including assumptions about risk and the risks inherent in
the inputs to the valuation technique. These inputs can be readily observable,
market corroborated, or generally unobservable. FirstEnergy primarily applies
the market approach for recurring fair value measurements using the best
information available. Accordingly, FirstEnergy maximizes the use of observable
inputs and minimizes the use of unobservable inputs.
 
 The following table
sets forth FirstEnergy’s financial assets and financial liabilities that are
accounted for at fair value by level within the fair value hierarchy as of March
31, 2008. As required by SFAS 157, assets and liabilities are classified in
their entirety based on the lowest level of input that is significant to the
fair value measurement. FirstEnergy’s assessment of the significance of a
particular input to the fair value measurement requires judgment and may affect
the valuation of fair value assets and liabilities and their placement within
the fair value hierarchy levels.
  March
      31, 2008Recurring
      Fair Value Measures
              
              Level
      1
              
              Level
      2
              
              Level
      3
              
              Total(In
      millions)Assets:Derivatives
              
              $
              4
              
              $
              98
              
              $
              -
              
              $
              102Nuclear
      decommissioning trusts(1)
              
              
              1,070
              
              
              953
              
              
              -
              
              
              2,023Other
      investments(2)
              
              
              21
              
              
              303
              
              
              -
              
              
              324Total
              
              $
              1,095
              
              $
              1,354
              
              $
              -
              
              $
              2,449Liabilities:Derivatives
              
              $
              -
              
              $
              98
              
              $
              -
              
              $
              98NUG
      contracts(3)
              
              
              -
              
              
              -
              
              
              682
              
              
              682Total
              
              $
              -
              
              $
              98
              
              $
              682
              
              $
              780
 
 (1)
              Balance
      excludes $2 million of receivables, payables and accrued
      income.
 (2)
              Excludes
      $318 million of the cash surrender value of life insurance
      contracts.
 (3)
              NUG contracts
      are completely offset by regulatory
assets.
 
 The determination of
the above fair value measures takes into consideration various factors required
under SFAS 157. These factors include the credit standing of the
counterparties involved, the impact of credit enhancements (such as cash
deposits, LOCs and priority interests) and the impact of nonperformance
risk.
 
 Exchange-traded
derivative contracts, which include some futures and options, are generally
based on unadjusted quoted market prices in active markets and are classified
within Level 1. Forwards, options and swap contracts that are not
exchange-traded are classified as Level 2 as the fair values of these items are
based on ICE quotes or market transactions in the OTC markets. In addition,
complex or longer term structured transactions can introduce the need for
internally-developed model inputs that may not be observable in or corroborated
by the market. When such inputs have a significant impact on the measurement of
fair value, the instrument is classified as Level 3.
 
 Nuclear
decommissioning trusts consist of equity securities listed on active exchanges
classified as Level 1 and various debt securities and collective trusts
classified as Level 2. Other investments represent the NUG trusts, spent nuclear
fuel trusts and rabbi trust investments, which primarily consist of various debt
securities and collective trusts classified as Level 2.
   24
 
 The following table
sets forth a reconciliation of changes in the fair value of NUG contracts
classified as Level 3 in the fair value hierarchy for the three months ended
March 31, 2008 (in millions):
 
 Balance as of
      January 1, 2008
              
              $
              750Realized
      and unrealized gains (losses)(1)
              
              
              (58
              )Purchases,
      sales, issuances and settlements, net(1)
              
              
              (10
              )Net
      transfers to (from) Level 3
              
              
              -Balance as of
      March 31, 2008
              
              $
              682Change in
      unrealized gains (losses) relating toinstruments
      held as of March 31, 2008
              
              $
              (58
              )(1)Changes in the
      fair value of NUG contracts are completely offset by regulatory
                assets and do not impact earnings.
 
 Under FSP FAS 157-2,
FirstEnergy has elected to defer, for one year, the election of SFAS 157 for
financial assets and financial liabilities measured at fair value on a
non-recurring basis. FirstEnergy is currently evaluating the impact of
FAS 157 on those financial assets and financial liabilities measured at
fair value on a non-recurring basis.
 
 5.  DERIVATIVE
INSTRUMENTS
 
 FirstEnergy is
exposed to financial risks resulting from the fluctuation of interest rates and
commodity prices, including prices for electricity, natural gas, coal and energy
transmission. To manage the volatility relating to these exposures, FirstEnergy
uses a variety of derivative instruments, including forward contracts, options,
futures contracts and swaps. The derivatives are used principally for hedging
purposes. FirstEnergy's Risk Policy Committee, comprised of members of senior
management, provides general management oversight for risk management activities
throughout FirstEnergy. They are responsible for promoting the effective design
and implementation of sound risk management programs. They also oversee
compliance with corporate risk management policies and established risk
management practices.
 
 FirstEnergy accounts
for derivative instruments on its Consolidated Balance Sheet at their fair value
unless they meet the normal purchases and normal sales criteria. Derivatives
that meet those criteria are accounted for at cost. The changes in the fair
value of derivative instruments that do not meet the normal purchases and normal
sales criteria are recorded as other expense, as AOCL, or as part of the value
of the hedged item, depending on whether or not it is designated as part of a
hedge transaction, the nature of the hedge transaction and hedge effectiveness.
FirstEnergy does not offset fair value for the right to reclaim collateral or
the obligation to return collateral.
 
 FirstEnergy hedges
anticipated transactions using cash flow hedges. Such transactions include
hedges of anticipated electricity and natural gas purchases and anticipated
interest payments associated with future debt issues. The effective portion of
such hedges are initially recorded in equity as other comprehensive income or
loss and are subsequently included in net income as the underlying hedged
commodities are delivered or interest payments are made. Gains and losses from
any ineffective portion of cash flow hedges are included directly in
earnings.
 
 The net deferred
losses of $84 million included in AOCL as of March 31, 2008, for
derivative hedging activity, as compared to $75 million as of
December 31, 2007, resulted from a net $21 million increase related to
current hedging activity and a $12 million decrease due to net hedge losses
reclassified to earnings during the three months ended March 31, 2008.
Based on current estimates, approximately $19 million (after tax) of the
net deferred losses on derivative instruments in AOCL as of March 31, 2008
are expected to be reclassified to earnings during the next twelve months as
hedged transactions occur. The fair value of these derivative instruments
fluctuate from period to period based on various market factors.
 
 FirstEnergy has
entered into swaps that have been designated as fair value hedges of fixed-rate,
long-term debt issues to protect against the risk of changes in the fair value
of fixed-rate debt instruments due to lower interest rates. Swap maturities,
call options, fixed interest rates received, and interest payment dates match
those of the underlying debt obligations. As of March 31, 2008, FirstEnergy
had interest rate swaps with an aggregate notional value of $250 million
and a fair value of $5 million.
   25
 
 During 2007 and the
first three months of 2008, FirstEnergy entered into several forward starting
swap agreements (forward swaps) in order to hedge a portion of the consolidated
interest rate risk associated with the anticipated issuance of variable-rate,
short-term debt and fixed-rate, long-term debt securities by one or more of its
subsidiaries as outstanding debt matures during 2008 and 2009. These derivatives
are treated as cash flow hedges, protecting against the risk of changes in
future interest payments resulting from changes in benchmark U.S. Treasury and
LIBOR rates between the date of hedge inception and the date of the debt
issuance. During the first three months of 2008, FirstEnergy terminated swaps
with a notional value of $300 million and entered into swaps with a
notional value of $500 million. FirstEnergy paid $18 million related
to the terminations, $1 million of which was deemed ineffective and
recognized in current period earnings. FirstEnergy will recognize the remaining
$17 million loss over the life of the associated future debt. As of
March 31, 2008, FirstEnergy had forward swaps with an aggregate notional
amount of $600 million and a fair value of $(8) million.
 
 6.  ASSET
RETIREMENT OBLIGATIONS
 
 FirstEnergy has
recognized applicable legal obligations under SFAS 143 for nuclear power plant
decommissioning, reclamation of a sludge disposal pond and closure of two coal
ash disposal sites. In addition, FirstEnergy has recognized conditional
retirement obligations (primarily for asbestos remediation) in accordance with
FIN 47.
 
 The ARO liability of
$1.3 billion as of March 31, 2008 is primarily related to the future
nuclear decommissioning of the Beaver Valley, Davis-Besse, Perry and TMI-2
nuclear generating facilities. FirstEnergy utilized an expected cash flow
approach to measure the fair value of the nuclear decommissioning
ARO.
 
 FirstEnergy
maintains nuclear decommissioning trust funds that are legally restricted for
purposes of settling the nuclear decommissioning ARO. As of March 31, 2008,
the fair value of the decommissioning trust assets was approximately
$2.0 billion.
 
 The following tables
analyze changes to the ARO balance during the first quarters of 2008 and 2007,
respectively.
 
 ARO
      Reconciliation
              
              FirstEnergy
              
              FES
              
              OE
              
              CEI
              
              TE
              
              JCP&L
              
              Met-Ed
              
              Penelec(In
      millions)Balance,
      January 1, 2008
              
              $
              1,267
              
              $
              810
              
              $
              94
              
              $
              2
              
              $
              28
              
              $
              90
              
              $
              161
              
              $
              82Liabilities
      incurred
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Liabilities
      settled
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Accretion
              
              
              20
              
              
              14
              
              
              1
              
              
              -
              
              
              1
              
              
              1
              
              
              2
              
              
              1Revisions in
      estimated cash flows
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Balance, March
      31, 2008
              
              $
              1,287
              
              $
              824
              
              $
              95
              
              $
              2
              
              $
              29
              
              $
              91
              
              $
              163
              
              $
              83Balance,
      January 1, 2007
              
              $
              1,190
              
              $
              760
              
              $
              88
              
              $
              2
              
              $
              27
              
              $
              84
              
              $
              151
              
              $
              77Liabilities
      incurred
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Liabilities
      settled
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Accretion
              
              
              18
              
              
              12
              
              
              1
              
              
              -
              
              
              -
              
              
              2
              
              
              2
              
              
              1Revisions in
      estimated cash flows
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Balance, March
      31, 2007
              
              $
              1,208
              
              $
              772
              
              $
              89
              
              $
              2
              
              $
              27
              
              $
              86
              
              $
              153
              
              $
              78
 
 
 7.  PENSION
AND OTHER POSTRETIREMENT BENEFITS
 
 FirstEnergy provides
noncontributory defined benefit pension plans that cover substantially all of
its employees and those of its subsidiaries. The trusteed plans provide defined
benefits based on years of service and compensation levels. FirstEnergy’s
funding policy is based on actuarial computations using the projected unit
credit method. FirstEnergy uses a December 31 measurement date for its
pension and other postretirement benefit plans. The fair value of the plan
assets represents the actual market value as of December 31, 2007.
FirstEnergy also provides a minimum amount of noncontributory life insurance to
retired employees in addition to optional contributory insurance. Health care
benefits, which include certain employee contributions, deductibles and
co-payments, are available upon retirement to employees hired prior to
January 1, 2005, their dependents and, under certain circumstances, their
survivors. FirstEnergy recognizes the expected cost of providing pension
benefits and other postretirement benefits from the time employees are hired
until they become eligible to receive those benefits. In addition, FirstEnergy
has obligations to former or inactive employees after employment, but before
retirement, for disability-related benefits.
   26
 
 The components of
FirstEnergy's net periodic pension cost and other postretirement benefit cost
(including amounts capitalized) for the three months ended March 31, 2008 and
2007, consisted of the following:
 
 Pension
      Benefits
              
              Other
      Postretirement Benefits2008
              
              2007
              
              2008
              
              2007(In
      millions)Service
      cost
              
              $
              21
              
              $
              21
              
              $
              5
              
              $
              5Interest
      cost
              
              
              72
              
              
              71
              
              
              18
              
              
              17Expected
      return on plan assets
              
              
              (115
              )
              
              (112
              )
              
              (13
              )
              
              (13
              )Amortization
      of prior service cost
              
              
              2
              
              
              2
              
              
              (37
              )
              
              (37
              )Recognized net
      actuarial loss
              
              
              1
              
              
              10
              
              
              12
              
              
              12Net periodic
      cost (credit)
              
              $
              (19
              )
              $
              (8)
              
              $
              (15
              )
              $
              (16
              )
 
 Pension and
postretirement benefit obligations are allocated to FirstEnergy’s subsidiaries
employing the plan participants. The Companies capitalize employee benefits
related to construction projects. The net periodic pension costs and net
periodic postretirement benefit costs (including amounts capitalized) recognized
by each of the Companies for the three months ended March 31, 2008 and 2007
were as follows:
 
 Pension
      Benefit Cost (Credit)
              
              Other
      Postretirement
                Benefit
      Cost (Credit)2008
              
              2007
              
              2008
              
              2007(In
      millions)FES
              
              $
              4
              
              $
              -
              
              $
              (2
              )
              $
              -OE
              
              
              (7
              )
              
              (4
              )
              
              (2
              )
              
              (3
              )CEI
              
              
              (1
              )
              
              -
              
              
              1
              
              
              1TE
              
              
              (1
              )
              
              -
              
              
              1
              
              
              1JCP&L
              
              
              (4
              )
              
              (2
              )
              
              (4
              )
              
              (4
              )Met-Ed
              
              
              (3
              )
              
              (2
              )
              
              (3
              )
              
              (2
              )Penelec
              
              
              (3
              )
              
              (3
              )
              
              (3
              )
              
              (3
              )Other
      FirstEnergy
                  subsidiaries
              
              
              (4
              )
              
              3
              
              
              (3
              )
              
              (6
              )$
              (19
              )
              $
              (8
              )
              $
              (15
              )
              $
              (16
              )
 
 8.  VARIABLE
INTEREST ENTITIES
 
 FIN 46R addresses
the consolidation of VIEs, including special-purpose entities, that are not
controlled through voting interests or in which the equity investors do not bear
the entity's residual economic risks and rewards. FirstEnergy and its
subsidiaries consolidate VIEs when they are determined to be the VIE's primary
beneficiary as defined by FIN 46R.
 
 Trusts
 
 FirstEnergy’s
consolidated financial statements include PNBV and Shippingport, VIEs created in
1996 and 1997, respectively, to refinance debt originally issued in connection
with sale and leaseback transactions. PNBV and Shippingport financial data are
included in the consolidated financial statements of OE and CEI,
respectively.
 
 PNBV was established
to purchase a portion of the lease obligation bonds issued in connection with
OE’s 1987 sale and leaseback of its interests in the Perry Plant and Beaver
Valley Unit 2. OE used debt and available funds to purchase the notes issued by
PNBV. Ownership of PNBV includes a 3% equity interest by an unaffiliated third
party and a 3% equity interest held by OES Ventures, a wholly owned subsidiary
of OE. Shippingport was established to purchase all of the lease obligation
bonds issued in connection with CEI’s and TE’s Bruce Mansfield Plant sale and
leaseback transaction in 1987. CEI and TE used debt and available funds to
purchase the notes issued by Shippingport.
 
 Loss
Contingencies
 
 FES and the Ohio
Companies are exposed to losses under their applicable sale-leaseback agreements
upon the occurrence of certain contingent events that each company considers
unlikely to occur. The maximum exposure under these provisions represents the
net amount of casualty value payments due upon the occurrence of specified
casualty events that render the applicable plant worthless. Net discounted lease
payments would not be payable if the casualty loss payments are made. The
following table shows each company’s net exposure to loss based upon the
casualty value provisions mentioned above as of March 31, 2008:
   27
 
 Maximum
      Exposure
              
              Discounted
                Lease
                Payments,
      net
              
              Net
                Exposure(in
      millions)FES
              
              $
              1,364
              
              $
              1,216
              
              $
              148OE
              
              819
              
              628
              
              191CEI
              
              782
              
              77
              
              705TE
              
              782
              
              457
              
              325
 
 In
October 2007, CEI and TE assigned their leasehold interests in the Bruce
Mansfield Plant to FGCO. FGCO assumed all of CEI’s and TE’s obligations arising
under those leases. FGCO subsequently transferred the Unit 1 portion of these
leasehold interests, as well as FGCO’s leasehold interests under its
July 2007 Bruce Mansfield Unit 1 sale and leaseback transaction to a newly
formed wholly-owned subsidiary in December 2007. The subsidiary assumed all
of the lessee obligations associated with the assigned interests. However, CEI
and TE will remain primarily liable on the 1987 leases and related agreements as
to the lessors and other parties to the agreements. FGCO remains primarily
liable on the 2007 leases and related agreements, and FES remains primarily
liable as a guarantor under the related 2007 guarantees, as to the lessors and
other parties to the respective agreements. These assignments terminate
automatically upon the termination of the underlying leases.
 
 On March 3, 2008,
notice was given to the nine owner trusts that are lessors under sale and
leaseback transactions, originally entered into by TE in 1987, that NGC would
acquire the related 18.26% undivided interest in Beaver Valley Unit 2 through
the exercise of the periodic purchase option provided for in the applicable
facility leases. The purchase price to be paid by NGC for the undivided interest
will be equal to the higher of a specified casualty value under the applicable
facility leases (approximately $239 million in the aggregate for the equity
portion of all nine facility leases) and the fair market sales value of such
undivided interests. Determination of the fair market sales value may become
subject to an appraisal procedure provided for in the lease documentation. An
additional payment of approximately $236 million would be required to
prepay in full the outstanding principal of, and accrued but unpaid interest on,
the lessor notes of the nine owner trusts. Alternatively, this amount would not
be paid as part of the aggregate purchase price if the lessor notes are instead
assumed at the time of the exercise of the option. If NGC determines to prepay
the notes, it is possible that the proceeds from such prepayment may not be
sufficient to pay the principal of, and interest on, the bonds as they become
due. If that is the case, NGC would provide a mechanism to address any such
potential shortfall in a timely manner.
 
 Power Purchase Agreements
 
 In accordance with
FIN 46R, FirstEnergy evaluated its power purchase agreements and determined that
certain NUG entities may be VIEs to the extent they own a plant that sells
substantially all of its output to the Companies and the contract price for
power is correlated with the plant’s variable costs of production. FirstEnergy,
through its subsidiaries JCP&L, Met-Ed and Penelec, maintains approximately
30 long-term power purchase agreements with NUG entities. The agreements were
entered into pursuant to the Public Utility Regulatory Policies Act of 1978.
FirstEnergy was not involved in the creation of, and has no equity or debt
invested in, these entities.
 
 FirstEnergy has
determined that for all but eight of these entities, neither JCP&L, Met-Ed
nor Penelec have variable interests in the entities or the entities are
governmental or not-for-profit organizations not within the scope of
FIN 46R. JCP&L, Met-Ed or Penelec may hold variable interests in the
remaining eight entities, which sell their output at variable prices that
correlate to some extent with the operating costs of the plants. As required by
FIN 46R, FirstEnergy periodically requests from these eight entities the
information necessary to determine whether they are VIEs or whether JCP&L,
Met-Ed or Penelec is the primary beneficiary. FirstEnergy has been unable to
obtain the requested information, which in most cases was deemed by the
requested entity to be proprietary. As such, FirstEnergy applied the scope
exception that exempts enterprises unable to obtain the necessary information to
evaluate entities under FIN 46R.
 
 Since FirstEnergy
has no equity or debt interests in the NUG entities, its maximum exposure to
loss relates primarily to the above-market costs it may incur for power.
FirstEnergy expects any above-market costs it incurs to be recovered from
customers. Purchased power costs from these entities during the three months
ended March 31, 2008 and 2007 are shown in the following
table:
 
 Three
      Months EndedMarch
      31,2008
              
              2007(In
      millions)JCP&L
              
              $
              19
              
              $
              20Met-Ed
              
              
              16
              
              
              15Penelec
              
              
              8
              
              
              8$
              43
              
              $
              43
   28
 
 Transition Bonds
 
 The consolidated
financial statements of FirstEnergy and JCP&L include the results of
JCP&L Transition Funding and JCP&L Transition Funding II, wholly owned
limited liability companies of JCP&L. In June 2002, JCP&L Transition
Funding sold $320 million of transition bonds to securitize the recovery of
JCP&L's bondable stranded costs associated with the previously divested
Oyster Creek Nuclear Generating Station. In August 2006, JCP&L Transition
Funding II sold $182 million of transition bonds to securitize the recovery
of deferred costs associated with JCP&L’s supply of BGS.
 
 JCP&L did not
purchase and does not own any of the transition bonds, which are included as
long-term debt on FirstEnergy's and JCP&L's Consolidated Balance Sheets. As
of March 31, 2008, $391 million of the transition bonds were
outstanding. The transition bonds are the sole obligations of JCP&L
Transition Funding and JCP&L Transition Funding II and are collateralized by
each company’s equity and assets, which consists primarily of bondable
transition property.
 
 Bondable transition
property represents the irrevocable right under New Jersey law of a utility
company to charge, collect and receive from its customers, through a
non-bypassable TBC, the principal amount and interest on transition bonds and
other fees and expenses associated with their issuance. JCP&L sold its
bondable transition property to JCP&L Transition Funding and JCP&L
Transition Funding II and, as servicer, manages and administers the bondable
transition property, including the billing, collection and remittance of the
TBC, pursuant to separate servicing agreements with JCP&L Transition Funding
and JCP&L Transition Funding II. For the two series of transition bonds,
JCP&L is entitled to aggregate quarterly servicing fees of $157,000 payable
from TBC collections.
 
 9.  INCOME
TAXES
 
 On January 1, 2007,
FirstEnergy adopted FIN 48, which provides guidance for accounting for
uncertainty in income taxes recognized in a company’s financial statements in
accordance with SFAS 109. This interpretation prescribes a recognition
threshold and measurement attribute for financial statement recognition and
measurement of tax positions taken or expected to be taken on a company’s tax
return. FIN 48 also provides guidance on derecognition, classification,
interest, penalties, accounting in interim periods, disclosure and transition.
The evaluation of a tax position in accordance with this interpretation is a
two-step process. The first step is to determine if it is more likely than not
that a tax position will be sustained upon examination, based on the merits of
the position, and should therefore be recognized. The second step is to measure
a tax position that meets the more likely than not recognition threshold to
determine the amount of income tax benefit to recognize in the financial
statements.
 
 As of January 1,
2007, the total amount of FirstEnergy’s unrecognized tax benefits was
$268 million. FirstEnergy recorded a $2.7 million cumulative effect
adjustment to the January 1, 2007 balance of retained earnings to increase
reserves for uncertain tax positions. Of the total amount of unrecognized income
tax benefits, $92 million would favorably affect FirstEnergy’s effective tax
rate upon recognition. The majority of items that would not have affected the
effective tax rate would be purchase accounting adjustments to goodwill upon
recognition. During the first three months of 2008 and 2007, there were no
material changes to FirstEnergy’s unrecognized tax benefits. As of
March 31, 2008, FirstEnergy expects that it is reasonably possible that
$8 million of the unrecognized benefits will be resolved within the next
twelve months and is included in the caption “accrued taxes,” with the remaining
$263 million included in the caption “other non-current liabilities” on the
Consolidated Balance Sheets.
 
 FIN 48 also requires
companies to recognize interest expense or income related to uncertain tax
positions. That amount is computed by applying the applicable statutory interest
rate to the difference between the tax position recognized in accordance with
FIN 48 and the amount previously taken or expected to be taken on the tax
return. FirstEnergy includes net interest and penalties in the provision for
income taxes, consistent with its policy prior to implementing FIN 48. The
net amount of interest accrued as of March 31, 2008 was $57 million,
as compared to $53 million as of December 31, 2007. During the first
three months of 2008 and 2007, there were no material changes to the amount of
interest accrued.
 
 FirstEnergy has tax
returns that are under review at the audit or appeals level by the IRS and state
tax authorities. All state jurisdictions are open from 2001-2007. The IRS began
reviewing returns for the years 2001-2003 in July 2004 and several items are
under appeal. The federal audits for the years 2004-2006 are expected to close
before December 2008, but management anticipates certain items to be under
appeal. The IRS began auditing the year 2007 in February 2007 and year 2008 in
February 2008 under its Compliance Assurance Process experimental program.
Neither audit is expected to close before December 2008. Management believes
that adequate reserves have been recognized and final settlement of these audits
is not expected to have a material adverse effect on FirstEnergy’s financial
condition or results of operations.
   29
 
 10.  COMMITMENTS,
GUARANTEES AND CONTINGENCIES
 
 (A)    GUARANTEES
AND OTHER ASSURANCES
 
 As part of normal
business activities, FirstEnergy enters into various agreements on behalf of its
subsidiaries to provide financial or performance assurances to third parties.
These agreements include contract guarantees, surety bonds and LOCs. As of
March 31, 2008, outstanding guarantees and other assurances aggregated
approximately $4.4 billion, consisting of parental guarantees -
$0.9 billion, subsidiaries’ guarantees - $2.7 billion, surety bonds -
$0.1 billion and LOCs - $0.7 billion.
 
 FirstEnergy
guarantees energy and energy-related payments of its subsidiaries involved in
energy commodity activities principally to facilitate normal physical
transactions involving electricity, gas, emission allowances and coal.
FirstEnergy also provides guarantees to various providers of credit support for
the financing or refinancing by subsidiaries of costs related to the acquisition
of property, plant and equipment. These agreements legally obligate FirstEnergy
to fulfill the obligations of those subsidiaries directly involved in energy and
energy-related transactions or financing where the law might otherwise limit the
counterparties' claims. If demands of a counterparty were to exceed the ability
of a subsidiary to satisfy existing obligations, FirstEnergy's guarantee enables
the counterparty's legal claim to be satisfied by other FirstEnergy assets. The
likelihood is remote that such parental guarantees of $0.4 billion
(included in the $0.9 billion discussed above) as of March 31, 2008
would increase amounts otherwise payable by FirstEnergy to meet its obligations
incurred in connection with financings and ongoing energy and energy-related
activities.
 
 While these types of
guarantees are normally parental commitments for the future payment of
subsidiary obligations, subsequent to the occurrence of a credit rating
downgrade or “material adverse event,” the immediate posting of cash collateral
or provision of an LOC may be required of the subsidiary. As of March 31,
2008, FirstEnergy's maximum exposure under these collateral provisions was
$440 million.
 
 Most of
FirstEnergy's surety bonds are backed by various indemnities common within the
insurance industry. Surety bonds and related guarantees of $66 million
provide additional assurance to outside parties that contractual and statutory
obligations will be met in a number of areas including construction contracts,
environmental commitments and various retail transactions.
 
 FirstEnergy has also
guaranteed the obligations of the operators of the TEBSA project, up to a
maximum of $2 million (subject to escalation) under the project's
operations and maintenance agreement. In connection with the sale of TEBSA in
January 2004, the purchaser indemnified FirstEnergy against any loss under this
guarantee. FirstEnergy has also provided an LOC ($19 million as of
March 31, 2008), which is renewable and declines yearly based upon the
senior outstanding debt of TEBSA.
 
 In July 2007,
FGCO completed a sale and leaseback transaction for its 93.825% undivided
interest in Bruce Mansfield Unit 1. FES has unconditionally and irrevocably
guaranteed all of FGCO’s obligations under each of the leases. The related
lessor notes and pass through certificates are not guaranteed by FES or FGCO,
but the notes are secured by, among other things, each lessor trust’s undivided
interest in Unit 1, rights and interests under the applicable lease and rights
and interests under other related agreements, including FES’ lease
guaranty.
 
 (B)
              ENVIRONMENTAL
      MATTERS
 
 Various federal,
state and local authorities regulate FirstEnergy with regard to air and water
quality and other environmental matters. The effects of compliance on
FirstEnergy with regard to environmental matters could have a material adverse
effect on FirstEnergy's earnings and competitive position to the extent that it
competes with companies that are not subject to such regulations and, therefore,
do not bear the risk of costs associated with compliance, or failure to comply,
with such regulations. FirstEnergy estimates capital expenditures for
environmental compliance of approximately $1.4 billion for the period
2008-2012.
 
 FirstEnergy accrues
environmental liabilities only when it concludes that it is probable that it has
an obligation for such costs and can reasonably estimate the amount of such
costs. Unasserted claims are reflected in FirstEnergy’s determination of
environmental liabilities and are accrued in the period that they become both
probable and reasonably estimable.
   30
 
 Clean Air Act Compliance
 
 FirstEnergy is
required to meet federally-approved SO2 emissions
regulations. Violations of such regulations can result in the shutdown of the
generating unit involved and/or civil or criminal penalties of up to $32,500 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. FirstEnergy believes it is currently in compliance with this policy, but
cannot predict what action the EPA may take in the future with respect to the
interim enforcement policy.
 
 The EPA Region 5
issued a Finding of Violation and NOV to the Bay Shore Power Plant dated June
15, 2006, alleging violations to various sections of the CAA. FirstEnergy has
disputed those alleged violations based on its CAA permit, the Ohio SIP and
other information provided to the EPA at an August 2006 meeting with the EPA.
The EPA has several enforcement options (administrative compliance order,
administrative penalty order, and/or judicial, civil or criminal action) and has
indicated that such option may depend on the time needed to achieve and
demonstrate compliance with the rules alleged to have been violated. On
June 5, 2007, the EPA requested another meeting to discuss “an appropriate
compliance program” and a disagreement regarding the opacity limit applicable to
the common stack for Bay Shore Units 2, 3 and 4.
 
 FirstEnergy complies
with SO2 reduction
requirements under the Clean Air Act Amendments of 1990 by burning lower-sulfur
fuel, generating more electricity from lower-emitting plants, and/or using
emission allowances. NOX reductions
required by the 1990 Amendments are being achieved through combustion controls
and the generation of more electricity at lower-emitting plants. In September
1998, the EPA finalized regulations requiring additional NOX reductions
at FirstEnergy's facilities. The EPA's NOX Transport
Rule imposes uniform reductions of NOX emissions
(an approximate 85% reduction in utility plant NOX emissions
from projected 2007 emissions) across a region of nineteen states (including
Michigan, New Jersey, Ohio and Pennsylvania) and the District of Columbia based
on a conclusion that such NOX emissions
are contributing significantly to ozone levels in the eastern United States.
FirstEnergy believes its facilities are also complying with the NOX budgets
established under SIPs through combustion controls and post-combustion controls,
including Selective Catalytic Reduction and SNCR systems, and/or using emission
allowances.
 
 On May 22, 2007,
FirstEnergy and FGCO received a notice letter, required 60 days prior to the
filing of a citizen suit under the federal CAA, alleging violations of air
pollution laws at the Bruce Mansfield Plant, including opacity limitations.
Prior to the receipt of this notice, the Plant was subject to a Consent Order
and Agreement with the Pennsylvania Department of Environmental Protection
concerning opacity emissions under which efforts to achieve compliance with the
applicable laws will continue. On October 18, 2007, PennFuture filed a
complaint, joined by three of its members, in the United States District Court
for the Western District of Pennsylvania. On January 11, 2008, FirstEnergy filed
a motion to dismiss claims alleging a public nuisance. On April 24, 2008, the
Court denied the motion to dismiss, but also ruled that monetary damages could
not be recovered under the public nuisance claim.
 
 On December 18,
2007, the state of New Jersey filed a CAA citizen suit alleging NSR violations
at the Portland Generation Station against Reliant (the current owner and
operator), Sithe Energy (the purchaser of the Portland Station from Met-Ed in
1999), GPU, Inc. and Met-Ed.  Specifically, New Jersey alleges that
"modifications" at Portland Units 1 and 2 occurred between 1980 and 1995 without
preconstruction NSR or permitting under the CAA's prevention of significant
deterioration program, and seeks injunctive relief, penalties, attorney fees and
mitigation of the harm caused by excess emissions. On March 14, 2008, Met-Ed
filed a motion to dismiss the citizen suit claims against it and a stipulation
in which the parties agreed that GPU, Inc. should be dismissed from this case.
On March 26, 2008, GPU, Inc. was dismissed by the Court. Although it remains
liable for civil or criminal penalties and fines that may be assessed relating
to events prior to the sale of the Portland Station in 1999, Met-Ed is
indemnified by Sithe Energy against any other liability arising under the CAA
whether it arises out of pre-1999 or post-1999 events.
 
 National Ambient Air Quality
Standards
 
 In March 2005,
the EPA finalized the CAIR covering a total of 28 states (including Michigan,
New Jersey, Ohio and Pennsylvania) and the District of Columbia based on
proposed findings that air emissions from 28 eastern states and the District of
Columbia significantly contribute to non-attainment of the NAAQS for fine
particles and/or the "8-hour" ozone NAAQS in other states. CAIR requires
reductions of NOX and
SO2
emissions in two phases (Phase I in 2009 for NOX, 2010 for
SO2
and Phase II in 2015 for both NOX and
SO2).
FirstEnergy's Michigan, Ohio and Pennsylvania fossil generation facilities will
be subject to caps on SO2 and
NOX
emissions, whereas its New Jersey fossil generation facility will be subject to
only a cap on NOX emissions.
According to the EPA, SO2 emissions
will be reduced by 45% (from 2003 levels) by 2010 across the states covered by
the rule, with reductions reaching 73% (from 2003 levels) by 2015, capping
SO2
emissions in affected states to just 2.5 million tons annually. NOX emissions
will be reduced by 53% (from 2003 levels) by 2009 across the states covered by
the rule, with reductions reaching 61% (from 2003 levels) by 2015, achieving a
regional NOX cap of 1.3
million tons annually. CAIR has been challenged in the United States Court of
Appeals for the District of Columbia. The future cost of compliance with these
regulations may be substantial and may depend on the outcome of this litigation
and how CAIR is ultimately implemented.
   31
 
 Mercury Emissions
 
 In December 2000,
the EPA announced it would proceed with the development of regulations regarding
hazardous air pollutants from electric power plants, identifying mercury as the
hazardous air pollutant of greatest concern. In March 2005, the EPA finalized
the CAMR, which provides a cap-and-trade program to reduce mercury emissions
from coal-fired power plants in two phases; initially, capping national mercury
emissions at 38 tons by 2010 (as a "co-benefit" from implementation of
SO2
and NOX emission
caps under the EPA's CAIR program) and 15 tons per year by 2018. Several states
and environmental groups appealed the CAMR to the United States Court of Appeals
for the District of Columbia. On February 8, 2008, the court vacated the
CAMR ruling that the EPA failed to take the necessary steps to “de-list”
coal-fired power plants from its hazardous air pollutant program and, therefore,
could not promulgate a cap-and-trade program. The EPA must now seek further
judicial review of that ruling or take regulatory action to promulgate new
mercury emission standards for coal-fired power plants. FGCO’s future cost of
compliance with mercury regulations may be substantial and will depend on the
action taken by the EPA and on how they are ultimately implemented.
 
 Pennsylvania has
submitted a new mercury rule for EPA approval that does not provide a
cap-and-trade approach as in the CAMR, but rather follows a command-and-control
approach imposing emission limits on individual sources. It is anticipated that
compliance with these regulations, if approved by the EPA and implemented, would
not require the addition of mercury controls at the Bruce Mansfield Plant,
FirstEnergy’s only Pennsylvania coal-fired power plant, until 2015, if at
all.
 
 W. H. Sammis Plant
 
 In 1999 and 2000,
the EPA issued an NOV and the DOJ filed a civil complaint against OE and Penn
based on operation and maintenance of the W.H. Sammis Plant (Sammis NSR
Litigation) and filed similar complaints involving 44 other U.S. power plants.
This case, along with seven other similar cases, are referred to as the NSR
cases.
 
 On March 18, 2005,
OE and Penn announced that they had reached a settlement with the EPA, the DOJ
and three states (Connecticut, New Jersey and New York) that resolved all issues
related to the Sammis NSR litigation. This settlement agreement, which is in the
form of a consent decree, was approved by the court on July 11, 2005, and
requires reductions of NOX and
SO2
emissions at the Sammis, Burger, Eastlake and Mansfield coal-fired plants
through the installation of pollution control devices and provides for
stipulated penalties for failure to install and operate such pollution controls
in accordance with that agreement. Consequently, if FirstEnergy fails to install
such pollution control devices, for any reason, including, but not limited to,
the failure of any third-party contractor to timely meet its delivery
obligations for such devices, FirstEnergy could be exposed to penalties under
the Sammis NSR Litigation consent decree. Capital expenditures necessary to
complete requirements of the Sammis NSR Litigation consent decree are currently
estimated to be $1.3 billion for 2008-2012 ($650 million of which is
expected to be spent during 2008, with the largest portion of the remaining
$650 million expected to be spent in 2009). This amount is included in the
estimated capital expenditures for environmental compliance referenced
above.
 
 On April 2,
2007, the United States Supreme Court ruled that changes in annual emissions (in
tons/year) rather than changes in hourly emissions rate (in kilograms/hour) must
be used to determine whether an emissions increase triggers NSR. Subsequently,
on May 8, 2007, the EPA proposed to revise the NSR regulations to utilize
changes in the hourly emission rate (in kilograms/hour) to determine whether an
emissions increase triggers NSR.   The EPA has not yet issued a
final regulation. FGCO’s future cost of compliance with those regulations may be
substantial and will depend on how they are ultimately implemented.
 
 Climate Change
 
 In December 1997,
delegates to the United Nations' climate summit in Japan adopted an agreement,
the Kyoto Protocol, to address global warming by reducing the amount of man-made
GHG emitted by developed countries by 2012. The United States signed the Kyoto
Protocol in 1998 but it failed to receive the two-thirds vote required for
ratification by the United States Senate. However, the Bush administration has
committed the United States to a voluntary climate change strategy to reduce
domestic GHG intensity – the ratio of emissions to economic output – by 18%
through 2012. Also, in an April 16, 2008 speech, President Bush set a
policy goal of stopping the growth of GHG emissions by 2025, as the next step
beyond the 2012 strategy. In addition, the EPACT established a Committee on
Climate Change Technology to coordinate federal climate change activities and
promote the development and deployment of GHG reducing
technologies.
 
 There are a number
of initiatives to reduce GHG emissions under consideration at the federal, state
and international level.  At the international level, efforts to reach
a new global agreement to reduce GHG emissions post-2012 have begun with the
Bali Roadmap, which outlines a two-year process designed to lead to an agreement
in 2009. At the federal level, members of Congress have introduced several bills
seeking to reduce emissions of GHG in the United States, and the Senate
Environmental and Public Works Committees have passed one such bill. State
activities, primarily the northeastern states participating in the Regional
Greenhouse Gas Initiative and western states led by California, have coordinated
efforts to develop regional strategies to control emissions of certain
GHGs.
   32
 
 On April 2, 2007,
the United States Supreme Court found that the EPA has the authority to regulate
CO2
emissions from automobiles as “air pollutants” under the CAA. Although this
decision did not address CO2 emissions
from electric generating plants, the EPA has similar authority under the CAA to
regulate “air pollutants” from those and other facilities.
 
 FirstEnergy cannot
currently estimate the financial impact of climate change policies, although
potential legislative or regulatory programs restricting CO2 emissions
could require significant capital and other expenditures. The CO2 emissions
per KWH of electricity generated by FirstEnergy is lower than many regional
competitors due to its diversified generation sources, which include low or
non-CO2 emitting
gas-fired and nuclear generators.
 
 Clean Water Act
 
 Various water
quality regulations, the majority of which are the result of the federal Clean
Water Act and its amendments, apply to FirstEnergy's plants. In addition, Ohio,
New Jersey and Pennsylvania have water quality standards applicable to
FirstEnergy's operations. As provided in the Clean Water Act, authority to grant
federal National Pollutant Discharge Elimination System water discharge permits
can be assumed by a state. Ohio, New Jersey and Pennsylvania have assumed such
authority.
 
 On September 7,
2004, the EPA established new performance standards under Section 316(b) of the
Clean Water Act for reducing impacts on fish and shellfish from cooling water
intake structures at certain existing large electric generating plants. The
regulations call for reductions in impingement mortality (when aquatic organisms
are pinned against screens or other parts of a cooling water intake system) and
entrainment (which occurs when aquatic life is drawn into a facility's cooling
water system). On January 26, 2007, the United States Court of Appeals for the
Second Circuit remanded portions of the rulemaking dealing with impingement
mortality and entrainment back to the EPA for further rulemaking and eliminated
the restoration option from the EPA’s regulations. On July 9, 2007, the EPA
suspended this rule, noting that until further rulemaking occurs, permitting
authorities should continue the existing practice of applying their best
professional judgment (BPJ) to minimize impacts on fish and shellfish from
cooling water intake structures. On April 14, 2008, the Supreme Court of
the United States granted a petition for a writ of certiorari to review certain
aspects of the Second Circuit’s decision. FirstEnergy is studying various
control options and their costs and effectiveness. Depending on the results of
such studies, the outcome of the Supreme Court’s review of the Second Circuit’s
decision, the EPA’s further rulemaking and any action taken by the states
exercising BPJ, the future costs of compliance with these standards may require
material capital expenditures.
 
 Regulation of Hazardous
Waste
 
 As a result of the
Resource Conservation and Recovery Act of 1976, as amended, and the Toxic
Substances Control Act of 1976, federal and state hazardous waste regulations
have been promulgated. Certain fossil-fuel combustion waste products, such as
coal ash, were exempted from hazardous waste disposal requirements pending the
EPA's evaluation of the need for future regulation. The EPA subsequently
determined that regulation of coal ash as a hazardous waste is unnecessary. In
April 2000, the EPA announced that it will develop national standards regulating
disposal of coal ash under its authority to regulate non-hazardous
waste.
 
 Under NRC
regulations, FirstEnergy must ensure that adequate funds will be available to
decommission its nuclear facilities.  As of March 31, 2008,
FirstEnergy had approximately $2.0 billion invested in external trusts to
be used for the decommissioning and environmental remediation of Davis-Besse,
Beaver Valley, Perry and TMI-2. As part of the application to the NRC to
transfer the ownership of Davis-Besse, Beaver Valley and Perry to NGC in 2005,
FirstEnergy agreed to contribute another $80 million to these trusts by 2010.
Consistent with NRC guidance, utilizing a “real” rate of return on these funds
of approximately 2% over inflation, these trusts are expected to exceed the
minimum decommissioning funding requirements set by the NRC. Conservatively,
these estimates do not include any rate of return that the trusts may earn over
the 20-year plant useful life extensions that FirstEnergy (and Exelon for TMI-1
as it relates to the timing of the decommissioning of TMI-2) seeks for these
facilities.
 
 The Companies have
been named as PRPs at waste disposal sites, which may require cleanup under the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980.
Allegations of disposal of hazardous substances at historical sites and the
liability involved are often unsubstantiated and subject to dispute; however,
federal law provides that all PRPs for a particular site may be liable on a
joint and several basis. Therefore, environmental liabilities that are
considered probable have been recognized on the Consolidated Balance Sheet as of
March 31, 2008, based on estimates of the total costs of cleanup, the Companies'
proportionate responsibility for such costs and the financial ability of other
unaffiliated entities to pay. Total liabilities of approximately
$92 million (JCP&L - $65 million, TE - $1 million, CEI -
$1 million and FirstEnergy Corp. - $25 million) have been accrued
through March 31, 2008. Included in the total for JCP&L are accrued
liabilities of approximately $56 million for environmental remediation of
former manufactured gas plants in New Jersey; which are being recovered by
JCP&L through a non-bypassable SBC.
   33
 
 (C)   OTHER LEGAL
PROCEEDINGS
 
 Power Outages and Related
Litigation
 
 In July 1999, the
Mid-Atlantic States experienced a severe heat wave, which resulted in power
outages throughout the service territories of many electric utilities, including
JCP&L's territory. In an investigation into the causes of the outages and
the reliability of the transmission and distribution systems of all four of New
Jersey’s electric utilities, the NJBPU concluded that there was not a prima
facie case demonstrating that, overall, JCP&L provided unsafe, inadequate or
improper service to its customers. Two class action lawsuits (subsequently
consolidated into a single proceeding) were filed in New Jersey Superior Court
in July 1999 against JCP&L, GPU and other GPU companies, seeking
compensatory and punitive damages arising from the July 1999 service
interruptions in the JCP&L territory.
 
 In August 2002, the
trial court granted partial summary judgment to JCP&L and dismissed the
plaintiffs' claims for consumer fraud, common law fraud, negligent
misrepresentation, and strict product liability. In November 2003, the trial
court granted JCP&L's motion to decertify the class and denied plaintiffs'
motion to permit into evidence their class-wide damage model indicating damages
in excess of $50 million. These class decertification and damage rulings were
appealed to the Appellate Division. The Appellate Division issued a decision in
July 2004, affirming the decertification of the originally certified class, but
remanding for certification of a class limited to those customers directly
impacted by the outages of JCP&L transformers in Red Bank, NJ, based on a
common incident involving the failure of the bushings of two large transformers
in the Red Bank substation resulting in planned and unplanned outages in the
area during a 2-3 day period. In 2005, JCP&L renewed its motion to decertify
the class based on a very limited number of class members who incurred damages
and also filed a motion for summary judgment on the remaining plaintiffs’ claims
for negligence, breach of contract and punitive damages. In July 2006, the New
Jersey Superior Court dismissed the punitive damage claim and again decertified
the class based on the fact that a vast majority of the class members did not
suffer damages and those that did would be more appropriately addressed in
individual actions. Plaintiffs appealed this ruling to the New Jersey Appellate
Division which, in March 2007, reversed the decertification of the Red Bank
class and remanded this matter back to the Trial Court to allow plaintiffs
sufficient time to establish a damage model or individual proof of damages.
JCP&L filed a petition for allowance of an appeal of the Appellate Division
ruling to the New Jersey Supreme Court which was denied in May
2007.  Proceedings are continuing in the Superior Court and a case
management conference with the presiding Judge is scheduled for June 13,
2008.  FirstEnergy is defending this class action but is unable to
predict the outcome of this matter.  No liability has been accrued as
of March 31, 2008.
 
 Nuclear Plant Matters
 
 On May 14, 2007, the
Office of Enforcement of the NRC issued a DFI to FENOC, following FENOC’s reply
to an April 2, 2007 NRC request for information, about two reports prepared by
expert witnesses for an insurance arbitration (the insurance claim was
subsequently withdrawn by FirstEnergy in December 2007) related to Davis-Besse.
The NRC indicated that this information was needed for the NRC “to determine
whether an Order or other action should be taken pursuant to 10 CFR 2.202, to
provide reasonable assurance that FENOC will continue to operate its licensed
facilities in accordance with the terms of its licenses and the Commission’s
regulations.” FENOC was directed to submit the information to the NRC within 30
days. On June 13, 2007, FENOC filed a response to the NRC’s DFI reaffirming that
it accepts full responsibility for the mistakes and omissions leading up to the
damage to the reactor vessel head and that it remains committed to operating
Davis-Besse and FirstEnergy’s other nuclear plants safely and responsibly. FENOC
submitted a supplemental response clarifying certain aspects of the DFI response
to the NRC on July 16, 2007. On August 15, 2007, the NRC issued a
confirmatory order imposing these commitments. FENOC must inform the NRC’s
Office of Enforcement after it completes the key commitments embodied in the
NRC’s order. FENOC’s compliance with these commitments is subject to future NRC
review.
 
 Other Legal Matters
 
 There are various
lawsuits, claims (including claims for asbestos exposure) and proceedings
related to FirstEnergy's normal business operations pending against FirstEnergy
and its subsidiaries. The other potentially material items not otherwise
discussed above are described below.
   34
 
 On August 22, 2005,
a class action complaint was filed against OE in Jefferson County, Ohio Common
Pleas Court, seeking compensatory and punitive damages to be determined at trial
based on claims of negligence and eight other tort counts alleging damages from
W.H. Sammis Plant air emissions. The two named plaintiffs are also seeking
injunctive relief to eliminate harmful emissions and repair property damage and
the institution of a medical monitoring program for class members. On
April 5, 2007, the Court rejected the plaintiffs’ request to certify this
case as a class action and, accordingly, did not appoint the plaintiffs as class
representatives or their counsel as class counsel. On July 30, 2007,
plaintiffs’ counsel voluntarily withdrew their request for reconsideration of
the April 5, 2007 Court order denying class certification and the Court
heard oral argument on the plaintiffs’ motion to amend their complaint which OE
opposed. On August 2, 2007, the Court denied the plaintiffs’ motion to
amend their complaint. The plaintiffs have appealed the Court’s denial of the
motion for certification as a class action and motion to amend their
complaint.
 
 JCP&L's
bargaining unit employees filed a grievance challenging JCP&L's 2002
call-out procedure that required bargaining unit employees to respond to
emergency power outages. On May 20, 2004, an arbitration panel concluded
that the call-out procedure violated the parties' collective bargaining
agreement. At the conclusion of the June 1, 2005 hearing, the arbitration
panel decided not to hear testimony on damages and closed the proceedings. On
September 9, 2005, the arbitration panel issued an opinion to award
approximately $16 million to the bargaining unit employees. On February 6,
2006, a federal district court granted a union motion to dismiss, as premature,
a JCP&L appeal of the award filed on October 18, 2005. A final order
identifying the individual damage amounts was issued on October 31, 2007.
The award appeal process was initiated. The union filed a motion with the
federal court to confirm the award and JCP&L filed its answer and
counterclaim to vacate the award on December 31, 2007. The court held a
scheduling conference in April 2008 where it set a briefing schedule with all
briefs to be concluded by July 2008. JCP&L recognized a liability for the
potential $16 million award in 2005.
 
 The union employees
at the Bruce Mansfield Plant have been working without a labor contract since
February 15, 2008. The parties are continuing to bargain with the
assistance of a federal mediator. FirstEnergy has a strike mitigation plan ready
in the event of a strike.
 
 FirstEnergy accrues
legal liabilities only when it concludes that it is probable that it has an
obligation for such costs and can reasonably estimate the amount of such costs.
If it were ultimately determined that FirstEnergy or its subsidiaries have legal
liability or are otherwise made subject to liability based on the above matters,
it could have a material adverse effect on FirstEnergy's or its subsidiaries'
financial condition, results of operations and cash flows.
 
 11.  REGULATORY
MATTERS
 
 (A) RELIABILITY
INITIATIVES
 
 In late 2003 and
early 2004, a series of letters, reports and recommendations were issued from
various entities, including governmental, industry and ad hoc reliability
entities (PUCO, FERC, NERC and the U.S. – Canada Power System Outage Task Force)
regarding enhancements to regional reliability. The proposed enhancements were
divided into two groups:  enhancements that were to be completed in
2004; and enhancements that were to be completed after 2004.  In 2004,
FirstEnergy completed all of the enhancements that were recommended for
completion in 2004. FirstEnergy is also proceeding with the implementation of
the recommendations that were to be completed subsequent to 2004 and will
continue to periodically assess the FERC-ordered Reliability Study
recommendations for forecasted 2009 system conditions, recognizing revised load
forecasts and other changing system conditions which may impact the
recommendations. Thus far, implementation of the recommendations has not
required, nor is expected to require, substantial investment in new or material
upgrades to existing equipment. The FERC or other applicable government agencies
and reliability coordinators may, however, take a different view as to
recommended enhancements or may recommend additional enhancements in the future
that could require additional material expenditures.
 
 As a result of
outages experienced in JCP&L’s service area in 2002 and 2003, the NJBPU
performed a review of JCP&L’s service reliability. On June 9, 2004, the
NJBPU approved a stipulation that addresses a third-party consultant’s
recommendations on appropriate courses of action necessary to ensure system-wide
reliability. The stipulation incorporates the consultant’s focused audit of, and
recommendations regarding, JCP&L’s Planning and Operations and Maintenance
programs and practices. On June 1, 2005, the consultant completed his work and
issued his final report to the NJBPU. On July 14, 2006, JCP&L filed a
comprehensive response to the consultant’s report with the NJBPU. JCP&L will
complete the remaining substantive work described in the stipulation in
2008.  JCP&L continues to file compliance reports with the NJBPU
reflecting JCP&L’s activities associated with implementing the
stipulation.
   35
 
 In 2005, Congress
amended the Federal Power Act to provide for federally-enforceable mandatory
reliability standards. The mandatory reliability standards apply to the bulk
power system and impose certain operating, record-keeping and reporting
requirements on the Companies and ATSI. The NERC is charged with establishing
and enforcing these reliability standards, although it has delegated day-to-day
implementation and enforcement of its responsibilities to eight regional
entities, including the ReliabilityFirst
Corporation.  All of FirstEnergy’s facilities are located within the
ReliabilityFirst
region. FirstEnergy actively participates in the NERC and ReliabilityFirst stakeholder processes,
and otherwise monitors and manages its companies in response to the ongoing
development, implementation and enforcement of the reliability
standards.
 
 FirstEnergy believes
that it is in compliance with all currently-effective and enforceable
reliability standards.  Nevertheless, it is clear that NERC,
ReliabilityFirst and
the FERC will continue to refine existing reliability standards as well as to
develop and adopt new reliability standards. The financial impact of complying
with new or amended standards cannot be determined at this time. However, the
2005 amendments to the Federal Power Act provide that all prudent costs incurred
to comply with the new reliability standards be recovered in rates. Still, any
future inability on FirstEnergy’s part to comply with the reliability standards
for its bulk power system could have a material adverse effect on its financial
condition, results of operations and cash flows.
 
 In April 2007,
ReliabilityFirst
performed a routine compliance audit of FirstEnergy’s bulk-power system within
the Midwest ISO region and found it to be in full compliance with all audited
reliability standards.  Similarly, ReliabilityFirst has scheduled a
compliance audit of FirstEnergy’s bulk-power system within the PJM region in
2008. FirstEnergy currently does not expect any material adverse financial
impact as a result of these audits.
 
 (B) OHIO
 
 On January 4,
2006, the PUCO issued an order authorizing the Ohio Companies to recover certain
increased fuel costs through a fuel rider and to defer certain other increased
fuel costs to be incurred from January 1, 2006 through December 31,
2008, including interest on the deferred balances. The order also provided for
recovery of the deferred costs over a twenty-five-year period through
distribution rates. On August 29, 2007, the Supreme Court of Ohio concluded that
the PUCO violated a provision of the Ohio Revised Code by permitting the Ohio
Companies “to collect deferred increased fuel costs through future distribution
rate cases, or to alternatively use excess fuel-cost recovery to reduce deferred
distribution-related expenses” and remanded the matter to the PUCO for further
consideration. On September 10, 2007 the Ohio Companies filed an
application with the PUCO that requested the implementation of two
generation-related fuel cost riders to collect the increased fuel costs that
were previously authorized to be deferred. On January 9, 2008 the PUCO approved
the Ohio Companies’ proposed fuel cost rider to recover increased fuel costs to
be incurred in 2008 commencing January 1, 2008 through December 31, 2008, which
is expected to be approximately $189 million. In addition, the PUCO ordered
the Ohio Companies to file a separate application for an alternate recovery
mechanism to collect the 2006 and 2007 deferred fuel costs. On February 8,
2008, the Ohio Companies filed an application proposing to recover
$226 million of deferred fuel costs and carrying charges for 2006 and 2007
pursuant to a separate fuel rider, with alternative options for the recovery
period ranging from five to twenty-five years. This second application is
currently pending before the PUCO and a hearing has been set for July 15,
2008.
 
 The Ohio Companies
filed an application and rate request for an increase in electric distribution
rates with the PUCO on June 7, 2007. The requested increase is expected to
be more than offset by the elimination or reduction of transition charges at the
time the rates go into effect and would result in lowering the overall
non-generation portion of the average electric bill for most Ohio
customers.  The distribution rate increases reflect capital
expenditures since the Ohio Companies’ last distribution rate proceedings,
increases in operation and maintenance expenses and recovery of regulatory
assets that were authorized in prior cases. On August 6, 2007, the Ohio
Companies updated their filing supporting a distribution rate increase of
$332 million. On December 4, 2007, the PUCO Staff issued its Staff Reports
containing the results of their investigation into the distribution rate
request. In its reports, the PUCO Staff recommended a distribution rate increase
in the range of $161 million to $180 million, with $108 million to $127 million
for distribution revenue increases and $53 million for recovery of costs
deferred under prior cases. This amount excludes the recovery of deferred fuel
costs, whose recovery is now being sought in a separate proceeding before the
PUCO, discussed above. On January 3, 2008, the Ohio Companies and intervening
parties filed objections to the Staff Reports and on January 10, 2008, the Ohio
Companies filed supplemental testimony. Evidentiary hearings began on January
29, 2008 and continued through February 25, 2008. During the evidentiary
hearings, the PUCO Staff submitted testimony decreasing their recommended
revenue increase to a range of $114 million to $132 million.
Additionally, in testimony submitted on February 11, 2008, the PUCO Staff
adopted a position regarding interest deferred for RCP-related deferrals, line
extension deferrals and transition tax deferrals that, if upheld by the PUCO,
would result in the write-off of approximately $45 million of interest
costs deferred through March 31, 2008 ($0.09 per share of common stock).
The PUCO is expected to render its decision during the second or third quarter
of 2008. The new rates would become effective January 1, 2009 for OE and
TE, and approximately May 2009 for CEI.
   36
 
 On July 10, 2007,
the Ohio Companies filed an application with the PUCO requesting approval of a
comprehensive supply plan for providing retail generation service to customers
who do not purchase electricity from an alternative supplier, beginning
January 1, 2009. The proposed competitive bidding process would average the
results of multiple bidding sessions conducted at different times during the
year. The final price per KWH would reflect an average of the prices resulting
from all bids. In their filing, the Ohio Companies offered two alternatives for
structuring the bids, either by customer class or a “slice-of-system” approach.
A slice-of-system approach would require the successful bidder to be responsible
for supplying a fixed percentage of the utility’s total load notwithstanding the
customer’s classification. The proposal provides the PUCO with an option to
phase in generation price increases for residential tariff groups who would
experience a change in their average total price of 15 percent or more. The PUCO
held a technical conference on August 16, 2007 regarding the filing.
Initial and reply comments on the proposal were filed by various parties in
September and October 2007, respectively. The proposal is currently pending
before the PUCO.
 
 On April 22,
2008, an amended version of Substitute SB221 was passed by the Ohio House of
Representatives and sent back to the Ohio Senate for concurrence. On
April 23, 2008, the Ohio Senate approved the House's amendments to
Substitute SB221 and forwarded the bill to the Governor for signature, which he
signed on May 1, 2008. Amended Substitute SB221 requires all electric
distribution utilities to file an RSP, now called an ESP, with the PUCO. An
ESP is required to contain a proposal for the supply and pricing of retail
generation and may include proposals, without limitation, related to one or more
of the following:
 
 ·
              automatic
      recovery of prudently incurred fuel, purchased power, emission allowance
      costs and federally mandated energy
taxes;
 
 ·
              construction
      work in progress for costs of constructing an electric generating facility
      or environmental expenditure for any electric generating
      facility;
 
 ·
              costs of an
      electric generating facility;
 
 ·
              terms related
      to customer shopping, bypassability, standby, back-up and default
      service;
 
 ·
              accounting for
      deferrals related to stabilizing retail electric
  service;
 
 ·
              automatic
      increases or decreases in standard service offer
  price;
 
 ·
              phase-in and
      securitization;
 
 ·
              transmission
      service and related costs;
 
 ·
              distribution
      service and related costs; and
 
 ·
              economic
      development and energy efficiency.
 
 A utility could also
simultaneously file an MRO in which it would have to demonstrate the following
objective market criteria: The utility or its transmission service affiliate
belongs to a FERC-approved RTO having a market-monitor function and the ability
to mitigate market power, and a published source exists that identifies
information for traded electricity and energy products that are contracted for
delivery two years into the future. The PUCO would test the ESP and its pricing
and all other terms and conditions against the MRO and may only approve the ESP
if it is found to be more favorable to customers. As part of an ESP with a plan
period longer than three years, the PUCO shall prospectively determine every
fourth year of the plan whether it is substantially likely the plan will provide
the electric distribution utility a return on common equity significantly in
excess of the return likely to be earned by publicly traded companies, including
utilities, that face comparable business and financial risk (comparable
companies). If so, the PUCO may terminate the ESP. Annually under an ESP, the
PUCO shall determine whether an electric distribution utility's earned return on
common equity is significantly in excess of returns earned on common equity
during the same period by comparable companies, and if so, shall require the
utility to return such excess to customers by prospective adjustments. Amended
Substitute SB221 also includes provisions dealing with advanced and renewable
energy standards that contemplate 25% of electrical usage from these sources by
2025. Energy efficiency measures in the bill require energy savings in excess of
22% by 2025. Requirements are in place to meet annual benchmarks for renewable
energy resources and energy efficiency, subject to review by the PUCO.
FirstEnergy is currently evaluating this legislation and expects to file an ESP
in the second or third quarter of 2008.




37


(C) PENNSYLVANIA
 
 Met-Ed and Penelec
purchase a portion of their PLR and default service requirements from FES
through a fixed-price partial requirements wholesale power sales agreement. The
agreement allows Met-Ed and Penelec to sell the output of NUG energy to the
market and requires FES to provide energy at fixed prices to replace any NUG
energy sold to the extent needed for Met-Ed and Penelec to satisfy their PLR and
default service obligations. The fixed price under the agreement is expected to
remain below wholesale market prices during the term of the agreement. If Met-Ed
and Penelec were to replace the entire FES supply at current market power prices
without corresponding regulatory authorization to increase their generation
prices to customers, each company would likely incur a significant increase in
operating expenses and experience a material deterioration in credit quality
metrics. Under such a scenario, each company's credit profile would no longer be
expected to support an investment grade rating for their fixed income
securities. Based on the PPUC’s January 11, 2007 order described below, if
FES ultimately determines to terminate, reduce, or significantly modify the
agreement prior to the expiration of Met-Ed’s and Penelec’s generation rate caps
in 2010, timely regulatory relief is not likely to be granted by the
PPUC.
 
 Met-Ed and Penelec
made a comprehensive transition rate filing with the PPUC on April 10, 2006
to address a number of transmission, distribution and supply issues. If Met-Ed's
and Penelec's preferred approach involving accounting deferrals had been
approved, annual revenues would have increased by $216 million and
$157 million, respectively. That filing included, among other things, a
request to charge customers for an increasing amount of market-priced power
procured through a CBP as the amount of supply provided under the then existing
FES agreement was to be phased out. Met-Ed and Penelec also requested approval
of a January 12, 2005 petition for the deferral of transmission-related
costs incurred during 2006. In this rate filing, Met-Ed and Penelec requested
recovery of annual transmission and related costs incurred on or after
January 1, 2007, plus the amortized portion of 2006 costs over a ten-year
period, along with applicable carrying charges, through an adjustable rider.
Changes in the recovery of NUG expenses and the recovery of Met-Ed's non-NUG
stranded costs were also included in the filing. On May 4, 2006, the PPUC
consolidated the remand of the FirstEnergy and GPU merger proceeding, related to
the quantification and allocation of merger savings, with the comprehensive
transition rate filing case.
 
 The PPUC entered its
opinion and order in the comprehensive rate filing proceeding on
January 11, 2007. The order approved the recovery of transmission costs,
including the transmission-related deferral for January 1, 2006 through
January 10, 2007, and determined that no merger savings from prior years
should be considered in determining customers’ rates. The request for increases
in generation supply rates was denied as were the requested changes to NUG
expense recovery and Met-Ed’s non-NUG stranded costs. The order decreased
Met-Ed’s and Penelec’s distribution rates by $80 million and
$19 million, respectively. These decreases were offset by the increases
allowed for the recovery of transmission costs. Met-Ed’s and Penelec’s request
for recovery of Saxton decommissioning costs was granted and, in January 2007,
Met-Ed and Penelec recognized income of $15 million and $12 million,
respectively, to establish regulatory assets for those previously expensed
decommissioning costs. Overall rates increased by 5.0% for Met-Ed
($59 million) and 4.5% for Penelec ($50 million).
 
 On March 30, 2007,
MEIUG and PICA filed a Petition for Review with the Commonwealth Court of
Pennsylvania asking the court to review the PPUC’s determination on transmission
(including congestion) and the transmission deferral. Met-Ed and Penelec filed a
Petition for Review on April 13, 2007 on the issues of consolidated tax savings
and the requested generation rate increase. The OCA filed its Petition for
Review on April 13, 2007, on the issues of transmission (including
congestion) and recovery of universal service costs from only the residential
rate class. From June through October 2007, initial responsive and reply briefs
were filed by various parties. Oral arguments are scheduled to take place in
September 2008. If Met-Ed and Penelec do not prevail on the issue of congestion,
it could have a material adverse effect on the results of operations of Met-Ed,
Penelec and FirstEnergy.
 
 On April 14, 2008,
Met-Ed and Penelec filed annual updates to the TSC rider for the period
June 1, 2008, through May 31, 2009. The proposed TSCs include a
component for under-recovery of actual transmission costs incurred during the
prior period (Met-Ed - $144 million and Penelec - $4 million) and future
transmission cost projections for June 2008 through May 2009 (Met-Ed - $258
million and Penelec - $92 million). Met-Ed has proposed a transition
approach that would recover past under-recovered costs plus carrying charges
through the new TSC over thirty-one months and defer a portion of the projected
costs ($92 million) plus carrying charges for recovery through future TSCs
by December 31, 2010.
 
 On March 13, 2008,
the PPUC approved the residential procurement process in Penn’s Joint
Petition for Settlement. This RFP process calls for load-following,
full-requirements contracts for default service procurement for residential
customers for the period covering June 1, 2008 through May 31, 2011. The PPUC
had previously approved the default service procurement processes for
commercial and industrial customers. The default service procurement for small
commercial customers was conducted through multiple RFPs, while the default
service procurement for large commercial and industrial customers will utilize
hourly pricing. Bids in the two RFPs for small commercial load were approved by
the PPUC on February 22, 2008, and March 20, 2008. On March 28, 2008, Penn filed
compliance tariffs with the new default service generation rates based on the
approved RFP bids for small commercial customers which the PPUC then certified
on April 4, 2008. On April 14, 2008, the first RFP for residential
customers’ load was held consisting of tranches for both 12 and 24-month supply.
The PPUC approved the bids on April 16, 2008. The second RFP is scheduled to be
held on May 14, 2008, after which time the PPUC is expected to approve the
new rates to go into effect June 1, 2008.
 
 38
 
 On February 1, 2007,
the Governor of Pennsylvania proposed an EIS. The EIS includes four pieces of
proposed legislation that, according to the Governor, is designed to reduce
energy costs, promote energy independence and stimulate the economy. Elements of
the EIS include the installation of smart meters, funding for solar panels on
residences and small businesses, conservation and demand reduction programs to
meet energy growth, a requirement that electric distribution companies acquire
power that results in the “lowest reasonable rate on a long-term basis,” the
utilization of micro-grids and a three year phase-in of rate increases. On
July 17, 2007 the Governor signed into law two pieces of energy
legislation. The first amended the Alternative Energy Portfolio Standards Act of
2004 to, among other things, increase the percentage of solar energy that must
be supplied at the conclusion of an electric distribution company’s transition
period. The second law allows electric distribution companies, at their sole
discretion, to enter into long term contracts with large customers and to build
or acquire interests in electric generation facilities specifically to supply
long-term contracts with such customers. A special legislative session on energy
was convened in mid-September 2007 to consider other aspects of the EIS. The
Pennsylvania House and Senate on March 11, 2008 and December 12, 2007,
respectively, passed different versions of bills to fund the Governor’s EIS
proposal. Neither chamber has formally considered the other’s bill. On
February 12, 2008, the Pennsylvania House passed House Bill 2200 which
provides for energy efficiency and demand management programs and targets as
well as the installation of smart meters within ten years. Other legislation has
been introduced to address generation procurement, expiration of rate caps,
conservation and renewable energy. The final form of this pending legislation is
uncertain. Consequently, FirstEnergy is unable to predict what impact, if any,
such legislation may have on its operations.
 
 (D) NEW JERSEY
 
 JCP&L is
permitted to defer for future collection from customers the amounts by which its
costs of supplying BGS to non-shopping customers and costs incurred under NUG
agreements exceed amounts collected through BGS and NUGC rates and market sales
of NUG energy and capacity. As of March 31, 2008, the accumulated deferred cost
balance totaled approximately $264 million.
 
 In accordance with
an April 28, 2004 NJBPU order, JCP&L filed testimony on June 7,
2004 supporting continuation of the current level and duration of the funding of
TMI-2 decommissioning costs by New Jersey customers without a reduction,
termination or capping of the funding. On September 30, 2004, JCP&L
filed an updated TMI-2 decommissioning study. This study resulted in an updated
total decommissioning cost estimate of $729 million (in 2003 dollars)
compared to the estimated $528 million (in 2003 dollars) from the prior
1995 decommissioning study. The DRA filed comments on February 28, 2005
requesting that decommissioning funding be suspended. On March 18, 2005,
JCP&L filed a response to those comments. JCP&L responded to additional
NJBPU staff discovery requests in May and November 2007 and also submitted
comments in the proceeding in November 2007. A schedule for further NJBPU
proceedings has not yet been set.
 
 On August 1, 2005,
the NJBPU established a proceeding to determine whether additional ratepayer
protections are required at the state level in light of the repeal of the PUHCA
pursuant to the EPACT. The NJBPU approved regulations effective October 2,
2006 that prevent a holding company that owns a gas or electric public utility
from investing more than 25% of the combined assets of its utility and
utility-related subsidiaries into businesses unrelated to the utility industry.
These regulations are not expected to materially impact FirstEnergy or
JCP&L. Also, in the same proceeding, the NJBPU Staff issued an additional
draft proposal on March 31, 2006 addressing various issues including access
to books and records, ring-fencing, cross subsidization, corporate governance
and related matters. With the approval of the NJBPU Staff, the affected
utilities jointly submitted an alternative proposal on June 1, 2006. The
NJBPU Staff circulated revised drafts of the proposal to interested stakeholders
in November 2006 and again in February 2007. On February 1, 2008, the NJBPU
accepted proposed rules for publication in the New Jersey Register on
March 17, 2008. A public hearing on these proposed rules was held on
April 23, 2008 with comments from interested parties due on May 16,
2008.
 
 New Jersey statutes
require that the state periodically undertake a planning process, known as the
EMP, to address energy related issues including energy security, economic
growth, and environmental impact. The EMP is to be developed with involvement of
the Governor’s Office and the Governor’s Office of Economic Growth, and is to be
prepared by a Master Plan Committee, which is chaired by the NJBPU President and
includes representatives of several State departments. In October 2006, the
current EMP process was initiated through the creation of a number of working
groups to obtain input from a broad range of interested stakeholders including
utilities, environmental groups, customer groups, and major customers. In
addition, public stakeholder meetings were held in the fall of 2006 and in early
2007.
 
 On April 17, 2008, a
draft EMP was released for public comment. The draft EMP establishes four major
goals:
 
 ·
              maximize
      energy efficiency to achieve a 20% reduction in energy consumption by
      2020;
 
 ·
              reduce peak
      demand for electricity by 5,700 MW by 2020 (amounting to about a 22%
      reduction in projected demand);
 
 39
 
 
 ·
              meet 22.5% of
      the state’s electricity needs with renewable energy by 2020;
      and
 
 ·
              develop low
      carbon emitting, efficient power plants and close the gap between the
      supply and demand for electricity.
 
 Following the public
comment period which is expected to extend into July 2008, a final EMP will be
issued to be followed by appropriate legislation and regulation as necessary. At
this time, FirstEnergy cannot predict the outcome of this process nor determine
the impact, if any, such legislation or regulation may have on its operations or
those of JCP&L.
 
 On February 13,
2007, the NJBPU Staff informally issued a draft proposal relating to changes to
the regulations addressing electric distribution service reliability and quality
standards. Meetings between the NJBPU Staff and interested stakeholders to
discuss the proposal were held and additional, revised informal proposals were
subsequently circulated by the Staff. On September 4, 2007, proposed
regulations were published in the New Jersey Register, which proposal will be
subsequently considered by the NJBPU following comments that were submitted in
September and October 2007. Final regulations (effective upon publication) were
published in the New Jersey Register March 17, 2008. Upon preliminary review of
the new regulations, FirstEnergy does not expect a material impact on its
operations or those of JCP&L.
 
 (E) FERC MATTERS
 
 Transmission Service between MISO and
PJM
 
 On November 18,
2004, the FERC issued an order eliminating the through and out rate for
transmission service between the MISO and PJM regions. The FERC’s intent was to
eliminate so-called “pancaking” of transmission charges between the MISO and PJM
regions. The FERC also ordered the MISO, PJM and the transmission owners within
MISO and PJM to submit compliance filings containing a rate mechanism to recover
lost transmission revenues created by elimination of this charge (referred to as
the Seams Elimination Cost Adjustment or “SECA”) during a 16-month transition
period. The FERC issued orders in 2005 setting the SECA for hearing. The
presiding judge issued an initial decision on August 10, 2006, rejecting
the compliance filings made by MISO, PJM, and the transmission owners, and
directing new compliance filings. This decision is subject to review and
approval by the FERC. Briefs addressing the initial decision were filed on
September 11, 2006 and October 20, 2006. A final order could be issued by
the FERC in the second quarter of 2008.
  PJM
Transmission Rate Design
 
 On January 31, 2005,
certain PJM transmission owners made filings with the FERC pursuant to a
settlement agreement previously approved by the FERC. JCP&L, Met-Ed and
Penelec were parties to that proceeding and joined in two of the filings. In the
first filing, the settling transmission owners submitted a filing justifying
continuation of their existing rate design within the PJM RTO. Hearings were
held and numerous parties appeared and litigated various issues concerning PJM
rate design; notably AEP, which proposed to create a "postage stamp", or average
rate for all high voltage transmission facilities across PJM and a zonal
transmission rate for facilities below 345 kV. This proposal would have the
effect of shifting recovery of the costs of high voltage transmission lines to
other transmission zones, including those where JCP&L, Met-Ed, and Penelec
serve load. On April 19, 2007, the FERC issued an order finding that the PJM
transmission owners’ existing “license plate” or zonal rate design was just and
reasonable and ordered that the current license plate rates for existing
transmission facilities be retained. On the issue of rates for new transmission
facilities, the FERC directed that costs for new transmission facilities that
are rated at 500 kV or higher are to be collected from all transmission zones
throughout the PJM footprint by means of a postage-stamp rate. Costs for new
transmission facilities that are rated at less than 500 kV, however, are to be
allocated on a “beneficiary pays” basis. The FERC found that PJM’s current
beneficiary-pays cost allocation methodology is not sufficiently detailed and,
in a related order that also was issued on April 19, 2007, directed that
hearings be held for the purpose of establishing a just and reasonable cost
allocation methodology for inclusion in PJM’s tariff.
 
 On May 18, 2007,
certain parties filed for rehearing of the FERC’s April 19, 2007 order. On
January 31, 2008, the requests for rehearing were denied. The FERC’s orders on
PJM rate design will prevent the allocation of a portion of the revenue
requirement of existing transmission facilities of other utilities to JCP&L,
Met-Ed and Penelec. In addition, the FERC’s decision to allocate the cost of new
500 kV and above transmission facilities on a PJM-wide basis will reduce future
transmission revenue recovery from the JCP&L, Met-Ed and Penelec zones. A
partial settlement agreement addressing the “beneficiary pays” methodology for
below 500 kV facilities, but excluding the issue of allocating new facilities
costs to merchant transmission entities, was filed on September 14, 2007. The
agreement was supported by the FERC’s Trial Staff, and was certified by the
Presiding Judge. The FERC’s action on the settlement agreement is pending. The
remaining merchant transmission cost allocation issues will proceed to hearing
in May 2008. On February 13, 2008, AEP appealed the FERC’s orders to the
federal Court of Appeals for the D.C. Circuit. The Illinois Commerce Commission,
the PUCO and Dayton Power & Light have also appealed these orders to the
Seventh Circuit Court of Appeals. The appeals of these parties and others have
been consolidated for argument in the Seventh Circuit.
 
 40
 
 
 Post
Transition Period Rate Design
 
 The FERC had
directed MISO, PJM, and the respective transmission owners to make filings on or
before August 1, 2007 to reevaluate transmission rate design within MISO, and
between MISO and PJM. On August 1, 2007, filings were made by MISO, PJM, and the
vast majority of transmission owners, including FirstEnergy affiliates, which
proposed to retain the existing transmission rate design. These filings were
approved by the FERC on January 31, 2008. As a result of the FERC’s approval,
the rates charged to FirstEnergy’s load-serving affiliates for transmission
service over existing transmission facilities in MISO and PJM are unchanged. In
a related filing, MISO and MISO transmission owners requested that the current
MISO pricing for new transmission facilities that spreads 20% of the cost of new
345 kV and higher transmission facilities across the entire MISO footprint
(known as the RECB methodology) be retained.
 
 On September 17,
2007, AEP filed a complaint under Sections 206 and 306 of the Federal Power Act
seeking to have the entire transmission rate design and cost allocation methods
used by MISO and PJM declared unjust, unreasonable, and unduly discriminatory,
and to have the FERC fix a uniform regional transmission rate design and cost
allocation method for the entire MISO and PJM “Super Region” that recovers the
average cost of new and existing transmission facilities operated at voltages of
345 kV and above from all transmission customers. Lower voltage facilities would
continue to be recovered in the local utility transmission rate zone through a
license plate rate. AEP requested a refund effective October 1, 2007, or
alternatively, February 1, 2008. On January 31, 2008, the FERC issued an order
denying the complaint. A rehearing request by AEP is pending before the
FERC.
 
 Distribution of MISO Network Service
Revenues
 
 Effective February
1, 2008, the MISO Transmission Owners Agreement provides for a change in the
method of distributing transmission revenues among the transmission owners. MISO
and a majority of the MISO transmission owners filed on December 3, 2007 to
change the MISO tariff to clarify, for purposes of distributing network
transmission revenue to the transmission owners, that all network transmission
service revenues, whether collected by MISO or directly by the transmission
owner, are included in the revenue distribution calculation.  This
clarification was necessary because some network transmission service revenues
are collected and retained by transmission owners in states where retail choice
does not exist, and their “unbundled” retail load is currently exempt from MISO
network service charges. The tariff changes filed with the FERC ensure that
revenues collected by transmission owners from bundled load are taken into
account in the revenue distribution calculation, and that transmission owners
with bundled load do not collect more than their revenue requirements. Absent
the changes, transmission owners, and ultimately their customers, with unbundled
load or in retail choice states, such as ATSI, would subsidize transmission
owners with bundled load, who would collect their revenue requirement from
bundled load, plus share in revenues collected by MISO from unbundled customers.
This would result in a large revenue shortfall for ATSI, which would eventually
be passed on to customers in the form of higher transmission rates as calculated
pursuant to ATSI’s Attachment O formula under the MISO tariff.
 
 Numerous parties
filed in support of the tariff changes, including the public service commissions
of Michigan, Ohio and Wisconsin. Ameren filed a protest on December 26, 2007,
arguing that the December 3, 2007 filing violates the MISO Transmission Owners’
Agreement as well as an agreement among Ameren (Union Electric), MISO, and the
Missouri Public Service Commission, which provides that Union Electric’s bundled
load cannot be charged by MISO for network service. On February 2, 2008, the
FERC issued an order conditionally accepting the tariff amendment subject to a
minor compliance filing, which was made on March 3, 2008. This order ensures
that ATSI will continue to receive transmission revenues from MISO equivalent to
its transmission revenue requirement. A rehearing request by Ameren is pending
before the FERC.
 
 On February 1, 2008,
MISO filed a request to continue using the existing revenue distribution
methodology on an interim basis pending amendment of the MISO Transmission
Owners’ Agreement. This request was accepted by the FERC on March 13, 2008. On
that same day, MISO and the MISO transmission owners made a filing to amend the
Transmission Owners’ Agreement to effectively continue the distribution of
transmission revenues that was in effect prior to February 1, 2008. This matter
is currently pending before the FERC.
 
 MISO Ancillary Services Market and
Balancing Area Consolidation
 
 MISO made a filing
on September 14, 2007 to establish an ASM for regulation, spinning and
supplemental reserves, to consolidate the existing 24 balancing areas within the
MISO footprint, and to establish MISO as the NERC registered balancing authority
for the region. This filing would permit load serving entities to purchase their
operating reserve requirements in a competitive market. FirstEnergy supports the
proposal to establish markets for Ancillary Services and consolidate existing
balancing areas. On February 25, 2008, the FERC issued an order approving the
ASM subject to certain compliance filings. MISO has since notified the FERC that
the start of its ASM is delayed until September of 2008.
 
 41
 
 
 Duquesne’s
Request to Withdraw from PJM
 
 On November 8, 2007,
Duquesne Light Company (Duquesne) filed a request with the FERC to exit PJM and
to join the MISO. In its filing, Duquesne asked the FERC to be relieved of
certain capacity payment obligations to PJM for capacity auctions conducted
prior to its departure from PJM, but covering service for planning periods
through May 31, 2011. Duquesne asserted that its primary reason for exiting PJM
is to avoid paying future obligations created by PJM’s forward capacity market.
FirstEnergy believes that Duquesne’s filing did not identify or address numerous
legal, financial or operational issues that are implicated or affected directly
by Duquesne’s proposal. Consequently, FirstEnergy submitted responsive filings
that, while conceding Duquesne’s rights to exit PJM, contested various aspects
of Duquesne’s proposal. FirstEnergy particularly focused on Duquesne’s proposal
that it be allowed to exit PJM without payment of its share of existing capacity
market commitments. FirstEnergy also objected to Duquesne’s failure to address
the firm transmission service requirements that would be necessary for
FirstEnergy to continue to use the Beaver Valley Plant to meet existing
commitments in the PJM capacity markets and to serve native load. Other market
participants also submitted filings contesting Duquesne’s plans.
 
 On January 17, 2008,
the FERC conditionally approved Duquesne’s request to exit PJM. Among other
conditions, the FERC obligated Duquesne to pay the PJM capacity obligations
through May 31, 2011. The FERC’s order took notice of the numerous transmission
and other issues raised by FirstEnergy and other parties to the proceeding, but
did not provide any responsive rulings or other guidance. Rather, the FERC
ordered Duquesne to make a compliance filing in forty-five days detailing how
Duquesne will satisfy its obligations under the PJM Transmission Owners’
Agreement. The FERC likewise directed the MISO to submit detailed plans to
integrate Duquesne into the MISO. Finally, the FERC directed MISO and PJM to
work together to resolve the substantive and procedural issues implicated by
Duquesne’s transition into the MISO. These issues remain unresolved. If Duquesne
satisfies all of the obligations set by the FERC, its planned transition date is
October 9, 2008.
 
 On March 18, 2008,
the PJM Power Providers Group filed a request for emergency clarification
regarding whether Duquesne-zone generators (including the Beaver Valley Plant)
could participate in PJM’s May 2008 auction for the 2011-2012 RPM delivery year.
FirstEnergy and the other Duquesne-zone generators filed responsive pleadings.
On April 18, 2008, the FERC issued its Order on Motion for Emergency
Clarification, wherein the FERC ruled that although the status of the
Duquesne-zone generators will change to “External Resource” upon Duquesne’s exit
from PJM, these generators can contract with PJM for the transmission
reservations necessary to participate in the May 2008 auction. FirstEnergy has
complied with FERC’s order by obtaining executed transmission service agreements
for firm point-to-point transmission service for the 2011-2012 delivery year
and, as such, FirstEnergy satisfies the criteria to bid the Beaver Valley Plant
into the May 2008 RPM auction. Notwithstanding these events, on April 30, 2008
and May 1, 2008, certain members of the PJM Power Providers Group filed further
pleadings on these issues. On May 2, 2008, FirstEnergy filed a responsive
pleading. FirstEnergy is participating in the May 2008 RPM auction for
the 2011-2012 RPM delivery year.
 
 MISO
Resource Adequacy Proposal
 
 MISO made a filing
on December 28, 2007 that would create an enforceable planning reserve
requirement in the MISO tariff for load serving entities such as the Ohio
Companies, Penn Power, and FES. This requirement is proposed to become effective
for the planning year beginning June 1, 2009. The filing would permit MISO to
establish the reserve margin requirement for load serving entities based upon a
one day loss of load in ten years standard, unless the state utility regulatory
agency establishes a different planning reserve for load serving entities in its
state. FirstEnergy generally supports the proposal as it promotes a mechanism
that will result in long-term commitments from both load-serving entities and
resources, including both generation and demand side resources that are
necessary for reliable resource adequacy and planning in the MISO footprint.
Comments on the filing were filed on January 28, 2008. The FERC approved MISO’s
Resource Adequacy proposal on March 26, 2008. Rehearing requests are pending on
the FERC’s March 26Order.
A compliance filing establishing the enforcement mechanism for the reserve
margin requirement is due on or before June 25, 2008.
 
 Organized
Wholesale Power Markets
 
 On February 21,
2008, the FERC issued a NOPR through which it proposes to adopt new rules that
it states will “improve operations in organized electric markets, boost
competition and bring additional benefits to consumers.” The proposed rule
addresses demand response and market pricing during reserve shortages, long-term
power contracting, market-monitoring policies, and responsiveness of RTOs and
ISOs to stakeholders and customers. FirstEnergy does not believe that the
proposed rule will have a significant impact on its operations. Comments on the
NOPR were filed on April 18, 2008.
 
 42
 
 
 12.  NEW
      ACCOUNTING STANDARDS AND
INTERPRETATIONS
 
 SFAS 141(R) – “Business
Combinations”
 
 In December 2007,
the FASB issued SFAS 141(R), which requires the acquiring entity in a business
combination to recognize all the assets acquired and liabilities assumed in the
transaction; establishes the acquisition-date fair value as the measurement
objective for all assets acquired and liabilities assumed; and requires the
acquirer to disclose to investors and other users all of the information they
need to evaluate and understand the nature and financial effect of the business
combination. SFAS 141(R) attempts to reduce the complexity of existing GAAP
related to business combinations. The Standard includes both core principles and
pertinent application guidance, eliminating the need for numerous EITF issues
and other interpretative guidance. SFAS 141(R) will affect business combinations
entered into by FirstEnergy that close after January 1, 2009. In addition,
the Standard also affects the accounting for changes in tax valuation allowances
made after January 1, 2009, that were established as part of a business
combination prior to the implementation of this Standard. FirstEnergy is
currently evaluating the impact of adopting this Standard on its financial
statements.
 
 SFAS 160 - “Noncontrolling Interests in
Consolidated Financial Statements – an Amendment of ARB No. 51”
 
 In December 2007,
the FASB issued SFAS 160 that establishes accounting and reporting standards for
the noncontrolling interest in a subsidiary and for the deconsolidation of a
subsidiary. It clarifies that a noncontrolling interest in a subsidiary is an
ownership interest in the consolidated entity that should be reported as equity
in the consolidated financial statements. This Statement is effective for fiscal
years, and interim periods within those fiscal years, beginning on or after
December 15, 2008. Early adoption is prohibited. The Statement is not expected
to have a material impact on FirstEnergy’s financial statements.
 
 SFAS
      161 - “Disclosures about Derivative Instruments and Hedging Activities –
      an Amendment of FASB Statement No.
133”
 
 In March 2008, the
FASB issued SFAS 161, which requires enhancements tothe current
disclosure framework for derivative instruments and hedging activities. The
Statement requires that objectives for using derivative instruments be disclosed
in terms of underlying risk and accounting designation. This disclosure is
intended to better convey the purpose of derivatives use in terms of the risks
that the entity is intending to manage. The FASB believes disclosing the fair
values of derivative instruments and their gains and losses in a tabular format
is designed to provide a more complete picture of the location in an entity’s
financial statements of both the derivative positions existing at period end and
the effect of using derivatives during the reporting period. Disclosing
information about credit-risk-related contingent features is designed to provide
financial statement users information on the potential effect on an entity’s
liquidity from using derivatives. Finally, this Statement requires
cross-referencing within the footnotes, which is intended to help users of
financial statements locate important information about derivative instruments.
FirstEnergy is currently evaluating the impact of adopting this Standard on its
financial statements.
 
 13.  SEGMENT
INFORMATION
 
 FirstEnergy has
three reportable operating segments: energy delivery services, competitive
energy services and Ohio transitional generation services. The “Other” segment
primarily consists of telecommunications services. The assets and revenues for
the other business operations are below the quantifiable threshold for operating
segments for separate disclosure as “reportable operating
segments.”
 
 The energy delivery
services segment designs, constructs, operates and maintains FirstEnergy's
regulated transmission and distribution systems and is responsible for the
regulated generation commodity operations of FirstEnergy’s Pennsylvania and New
Jersey electric utility subsidiaries. Its revenues are primarily derived from
the delivery of electricity, cost recovery of regulatory assets and default
service electric generation sales to non-shopping customers in its Pennsylvania
and New Jersey franchise areas. Its results reflect the commodity costs of
securing electric generation from FES under partial requirements purchased power
agreements and from non-affiliated power suppliers as well as the net PJM
transmission expenses related to the delivery of that generation
load.
 
 The competitive
energy services segment supplies electric power to its electric utility
affiliates, provides competitive electric sales primarily in Ohio, Pennsylvania,
Maryland and Michigan, owns or leases and operates FirstEnergy’s generating
facilities and purchases electricity to meet its sales obligations. The
segment's net income is primarily derived from the affiliated company PSA sales
and the non-affiliated electric generation sales revenues less the related costs
of electricity generation, including purchased power and net transmission
(including congestion) and ancillary costs charged by PJM and MISO to deliver
electricity to the segment’s customers. The segment’s internal revenues
represent the affiliated company PSA sales.
 
 43
 
 
 The Ohio
transitional generation services segment represents the regulated generation
commodity operations of FirstEnergy’s Ohio electric utility subsidiaries. Its
revenues are primarily derived from electric generation sales to non-shopping
customers under the PLR obligations of the Ohio Companies. Its results reflect
the purchase of electricity from the competitive energy services segment through
full-requirements PSA arrangements, the deferral and amortization of certain
fuel costs authorized for recovery by the energy delivery services segment and
the net MISO transmission revenues and expenses related to the delivery of
generation load. This segment’s total assets consist of accounts receivable for
generation revenues from retail customers.
 
  Segment
      Financial InformationOhioEnergy
                
                
                Competitive
                
                
                TransitionalDelivery
                
                
                Energy
                
                
                Generation
                
                
                
                
                
                ReconcilingThree
      Months Ended
                
                Services
                
                
                Services
                
                
                Services
                
                
                Other
                
                
                Adjustments
                
                
                Consolidated(In
      millions)March 31, 2008External
      revenues
                
                $
                2,212
                
                
                $
                329
                
                
                $
                707
                
                
                $
                40
                
                
                $
                (11
                )
                
                $
                3,277Internal
      revenues
                
                
                -
                
                
                
                776
                
                
                
                -
                
                
                
                -
                
                
                
                (776
                )
                
                
                -Total
      revenues
                
                
                2,212
                
                
                
                1,105
                
                
                
                707
                
                
                
                40
                
                
                
                (787
                )
                
                
                3,277Depreciation
      and amortization
                
                
                255
                
                
                
                53
                
                
                
                4
                
                
                
                -
                
                
                
                5
                
                
                
                317Investment
      income
                
                
                45
                
                
                
                (6
                )
                
                
                1
                
                
                
                -
                
                
                
                (23
                )
                
                
                17Net interest
      charges
                
                
                103
                
                
                
                27
                
                
                
                -
                
                
                
                -
                
                
                
                41
                
                
                
                171Income
      taxes
                
                
                119
                
                
                
                58
                
                
                
                15
                
                
                
                14
                
                
                
                (19
                )
                
                
                187Net
      income
                
                
                179
                
                
                
                87
                
                
                
                23
                
                
                
                22
                
                
                
                (35
                )
                
                
                276Total
      assets
                
                
                23,211
                
                
                
                8,108
                
                
                
                257
                
                
                
                281
                
                
                
                558
                
                
                
                32,415Total
      goodwill
                
                
                5,582
                
                
                
                24
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                5,606Property
      additions
                
                
                255
                
                
                
                462
                
                
                
                -
                
                
                
                12
                
                
                
                (18
                )
                
                
                711March 31, 2007External
      revenues
                
                $
                2,040
                
                
                $
                321
                
                
                $
                619
                
                
                $
                12
                
                
                $
                (19
                )
                
                $
                2,973Internal
      revenues
                
                
                -
                
                
                
                714
                
                
                
                -
                
                
                
                -
                
                
                
                (714
                )
                
                
                -Total
      revenues
                
                
                2,040
                
                
                
                1,035
                
                
                
                619
                
                
                
                12
                
                
                
                (733
                )
                
                
                2,973Depreciation
      and amortization
                
                
                220
                
                
                
                51
                
                
                
                (15
                )
                
                
                1
                
                
                
                6
                
                
                
                263Investment
      income
                
                
                70
                
                
                
                3
                
                
                
                1
                
                
                
                -
                
                
                
                (41
                )
                
                
                33Net interest
      charges
                
                
                107
                
                
                
                49
                
                
                
                1
                
                
                
                2
                
                
                
                21
                
                
                
                180Income
      taxes
                
                
                148
                
                
                
                65
                
                
                
                15
                
                
                
                5
                
                
                
                (33
                )
                
                
                200Net
      income
                
                
                218
                
                
                
                98
                
                
                
                24
                
                
                
                1
                
                
                
                (51
                )
                
                
                290Total
      assets
                
                
                23,526
                
                
                
                7,089
                
                
                
                246
                
                
                
                254
                
                
                
                675
                
                
                
                31,790Total
      goodwill
                
                
                5,874
                
                
                
                24
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                5,898Property
      additions
                
                
                155
                
                
                
                124
                
                
                
                -
                
                
                
                1
                
                
                
                16
                
                
                
                296
 Reconciling
adjustments to segment operating results from internal management reporting to
consolidated external financial reporting primarily consist of interest expense
related to holding company debt, corporate support services revenues and
expenses and elimination of intersegment transactions.
 
 14.  SUPPLEMENTAL
      GUARANTOR INFORMATION
 
 On July 13, 2007,
FGCO completed a sale and leaseback transaction for its 93.825% undivided
interest in Bruce Mansfield Unit 1. FES has unconditionally and irrevocably
guaranteed all of FGCO’s obligations under each of the leases. The related
lessor notes and pass through certificates are not guaranteed by FES or FGCO,
but the notes are secured by, among other things, each lessor trust’s undivided
interest in Unit 1, rights and interests under the applicable lease and rights
and interests under other related agreements, including FES’ lease
guaranty.
 
 The consolidating
statements of income for the three months ended March 31, 2008 and 2007,
consolidating balance sheets as of March 31, 2008 and December 31, 2007 and
condensed consolidating statements of cash flows for the three months ended
March 31, 2008 and 2007 for FES (parent and guarantor), FGCO and NGC
(non-guarantor) are presented below. Investments in wholly owned subsidiaries
are accounted for by FES using the equity method. Results of operations for FGCO
and NGC are, therefore, reflected in FES’ investment accounts and earnings as if
operating lease treatment was achieved. The principal elimination entries
eliminate investments in subsidiaries and intercompany balances and transactions
and reflect operating lease treatment associated with the 2007 Bruce Mansfield
Unit 1 sale and leaseback transaction.
 
 44
 
 
 FIRSTENERGY
      SOLUTIONS CORP.CONSOLIDATING
      STATEMENTS OF INCOME(Unaudited)For
      the Three Months Ended March 31, 2008
                
                FES
                
                
                FGCO
                
                
                NGC
                
                
                Eliminations
                
                
                Consolidated(In
      thousands)REVENUES
                
                $
                1,099,848
                
                
                $
                567,701
                
                
                $
                325,684
                
                
                $
                (894,117
                )
                
                $
                1,099,116EXPENSES:Fuel
                
                
                2,138
                
                
                
                291,239
                
                
                
                28,312
                
                
                
                -
                
                
                
                321,689Purchased
      power from non-affiliates
                
                
                206,724
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                206,724Purchased
      power from affiliates
                
                
                891,979
                
                
                
                2,138
                
                
                
                25,485
                
                
                
                (894,117
                )
                
                
                25,485Other
      operating expenses
                
                
                37,596
                
                
                
                107,167
                
                
                
                139,595
                
                
                
                12,188
                
                
                
                296,546Provision for
      depreciation
                
                
                307
                
                
                
                26,599
                
                
                
                24,194
                
                
                
                (1,358
                )
                
                
                49,742General
      taxes
                
                
                5,415
                
                
                
                11,570
                
                
                
                6,212
                
                
                
                -
                
                
                
                23,197Total
      expenses
                
                
                1,144,159
                
                
                
                438,713
                
                
                
                223,798
                
                
                
                (883,287
                )
                
                
                923,383OPERATING
      INCOME (LOSS)
                
                
                (44,311
                )
                
                
                128,988
                
                
                
                101,886
                
                
                
                (10,830
                )
                
                
                175,733OTHER
      INCOME (EXPENSE):Miscellaneous
      income (expense), includingnet income
      from equity investees
                
                
                121,725
                
                
                
                (1,208
                )
                
                
                (6,537
                )
                
                
                (116,884
                )
                
                
                (2,904
                )Interest
      expense to affiliates
                
                
                (82
                )
                
                
                (5,289
                )
                
                
                (1,839
                )
                
                
                -
                
                
                
                (7,210
                )Interest
      expense - other
                
                
                (3,978
                )
                
                
                (25,968
                )
                
                
                (11,018
                )
                
                
                16,429
                
                
                
                (24,535
                )Capitalized
      interest
                
                
                21
                
                
                
                6,228
                
                
                
                414
                
                
                
                -
                
                
                
                6,663Total other
      income (expense)
                
                
                117,686
                
                
                
                (26,237
                )
                
                
                (18,980
                )
                
                
                (100,455
                )
                
                
                (27,986
                )INCOME
      BEFORE INCOME TAXES
                
                
                73,375
                
                
                
                102,751
                
                
                
                82,906
                
                
                
                (111,285
                )
                
                
                147,747INCOME
      TAXES (BENEFIT)
                
                
                (16,609
                )
                
                
                39,285
                
                
                
                32,764
                
                
                
                2,323
                
                
                
                57,763NET
      INCOME
                
                $
                89,984
                
                
                $
                63,466
                
                
                $
                50,142
                
                
                $
                (113,608
                )
                
                $
                89,984
   45
   FIRSTENERGY
      SOLUTIONS CORP.CONSOLIDATING
      STATEMENTS OF INCOME(Unaudited)For
      the Three Months Ended March 31, 2007
                
                FES
                
                
                FGCO
                
                
                NGC
                
                
                Eliminations
                
                
                Consolidated(In
      thousands)REVENUES
                
                $
                1,019,387
                
                
                $
                551,355
                
                
                $
                234,091
                
                
                $
                (786,540
                )
                
                $
                1,018,293EXPENSES:Fuel
                
                
                2,367
                
                
                
                201,231
                
                
                
                29,937
                
                
                
                -
                
                
                
                233,535Purchased
      power from non-affiliates
                
                
                186,203
                
                
                
                2,367
                
                
                
                -
                
                
                
                (2,367
                )
                
                
                186,203Purchased
      power from affiliates
                
                
                784,172
                
                
                
                59,069
                
                
                
                17,415
                
                
                
                (784,173
                )
                
                
                76,483Other
      operating expenses
                
                
                51,249
                
                
                
                99,095
                
                
                
                113,252
                
                
                
                -
                
                
                
                263,596Provision for
      depreciation
                
                
                453
                
                
                
                24,936
                
                
                
                22,621
                
                
                
                -
                
                
                
                48,010General
      taxes
                
                
                4,934
                
                
                
                10,568
                
                
                
                6,216
                
                
                
                -
                
                
                
                21,718Total
      expenses
                
                
                1,029,378
                
                
                
                397,266
                
                
                
                189,441
                
                
                
                (786,540
                )
                
                
                829,545OPERATING
      INCOME (LOSS)
                
                
                (9,991
                )
                
                
                154,089
                
                
                
                44,650
                
                
                
                -
                
                
                
                188,748OTHER
      INCOME (EXPENSE):Miscellaneous
      income (expense), includingnet income
      from equity investees
                
                
                113,948
                
                
                
                916
                
                
                
                5,200
                
                
                
                (100,332
                )
                
                
                19,732Interest
      expense to affiliates
                
                
                -
                
                
                
                (24,331
                )
                
                
                (5,115
                )
                
                
                -
                
                
                
                (29,446
                )Interest
      expense - other
                
                
                (1,385
                )
                
                
                (6,760
                )
                
                
                (9,213
                )
                
                
                -
                
                
                
                (17,358
                )Capitalized
      interest
                
                
                5
                
                
                
                2,099
                
                
                
                1,105
                
                
                
                -
                
                
                
                3,209Total other
      income (expense)
                
                
                112,568
                
                
                
                (28,076
                )
                
                
                (8,023
                )
                
                
                (100,332
                )
                
                
                (23,863
                )INCOME
      BEFORE INCOME TAXES
                
                
                102,577
                
                
                
                126,013
                
                
                
                36,627
                
                
                
                (100,332
                )
                
                
                164,885INCOME
      TAXES
                
                
                73
                
                
                
                49,289
                
                
                
                13,019
                
                
                
                -
                
                
                
                62,381NET
      INCOME
                
                $
                102,504
                
                
                $
                76,724
                
                
                $
                23,608
                
                
                $
                (100,332
                )
                
                $
                102,504
 
 46
   FIRSTENERGY
      SOLUTIONS CORP.CONSOLIDATING
      BALANCE SHEETS(Unaudited)As
      of March 31, 2008
                
                FES
                
                
                FGCO
                
                
                NGC
                
                
                Eliminations
                
                
                Consolidated(In
      thousands)ASSETSCURRENT
      ASSETS:Cash and cash
      equivalents
                
                $
                2
                
                
                $
                -
                
                
                $
                -
                
                
                $
                -
                
                
                $
                2Receivables-Customers
                
                
                125,116
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                125,116Associated
      companies
                
                
                285,350
                
                
                
                231,049
                
                
                
                96,852
                
                
                
                (295,511
                )
                
                
                317,740Other
                
                
                1,174
                
                
                
                1,050
                
                
                
                -
                
                
                
                
                
                
                
                2,224Notes
      receivable from associated companies
                
                
                668,376
                
                
                
                -
                
                
                
                69,011
                
                
                
                -
                
                
                
                737,387Materials and
      supplies, at average cost
                
                
                2,849
                
                
                
                264,501
                
                
                
                207,275
                
                
                
                -
                
                
                
                474,625Prepayments
      and other
                
                
                107,798
                
                
                
                26,208
                
                
                
                1,728
                
                
                
                -
                
                
                
                135,7341,190,665
                
                
                
                522,808
                
                
                
                374,866
                
                
                
                (295,511
                )
                
                
                1,792,828PROPERTY,
      PLANT AND EQUIPMENT:In
      service
                
                
                35,302
                
                
                
                5,359,381
                
                
                
                3,700,973
                
                
                
                (391,896
                )
                
                
                8,703,760Less -
      Accumulated provision for depreciation
                
                
                7,810
                
                
                
                2,655,103
                
                
                
                1,537,747
                
                
                
                (168,115
                )
                
                
                4,032,54527,492
                
                
                
                2,704,278
                
                
                
                2,163,226
                
                
                
                (223,781
                )
                
                
                4,671,215Construction
      work in progress
                
                
                10,792
                
                
                
                881,899
                
                
                
                165,389
                
                
                
                -
                
                
                
                1,058,08038,284
                
                
                
                3,586,177
                
                
                
                2,328,615
                
                
                
                (223,781
                )
                
                
                5,729,295OTHER
      PROPERTY AND INVESTMENTS:Nuclear plant
      decommissioning trusts
                
                
                -
                
                
                
                -
                
                
                
                1,263,338
                
                
                
                -
                
                
                
                1,263,338Long-term
      notes receivable from associated companies
                
                
                -
                
                
                
                -
                
                
                
                62,900
                
                
                
                -
                
                
                
                62,900Investment in
      associated companies
                
                
                2,598,022
                
                
                
                -
                
                
                
                -
                
                
                
                (2,598,022
                )
                
                
                -Other
                
                
                2,529
                
                
                
                21,657
                
                
                
                202
                
                
                
                -
                
                
                
                24,3882,600,551
                
                
                
                21,657
                
                
                
                1,326,440
                
                
                
                (2,598,022
                )
                
                
                1,350,626DEFERRED
      CHARGES AND OTHER ASSETS:Accumulated
      deferred income taxes
                
                
                10,518
                
                
                
                495,131
                
                
                
                -
                
                
                
                (248,666
                )
                
                
                256,983Lease
      assignment receivable from associated companies
                
                
                -
                
                
                
                67,256
                
                
                
                -
                
                
                
                -
                
                
                
                67,256Goodwill
                
                
                24,248
                
                
                
                
                
                
                
                -
                
                
                
                -
                
                
                
                24,248Property
      taxes
                
                
                -
                
                
                
                25,007
                
                
                
                22,767
                
                
                
                -
                
                
                
                47,774Pension
      assets
                
                
                3,214
                
                
                
                12,856
                
                
                
                -
                
                
                
                -
                
                
                
                16,070Unamortized
      sale and leaseback costs
                
                
                -
                
                
                
                38,120
                
                
                
                -
                
                
                
                47,575
                
                
                
                85,695Other
                
                
                18,177
                
                
                
                49,393
                
                
                
                5,188
                
                
                
                (37,939
                )
                
                
                34,81956,157
                
                
                
                687,763
                
                
                
                27,955
                
                
                
                (239,030
                )
                
                
                532,845$
                3,885,657
                
                
                $
                4,818,405
                
                
                $
                4,057,876
                
                
                $
                (3,356,344
                )
                
                $
                9,405,594LIABILITIES
      AND CAPITALIZATIONCURRENT
      LIABILITIES:Currently
      payable long-term debt
                
                $
                -
                
                
                $
                738,087
                
                
                $
                887,265
                
                
                $
                (16,896
                )
                
                $
                1,608,456Notes
      payable-Associated
      companies
                
                
                -
                
                
                
                885,760
                
                
                
                260,199
                
                
                
                -
                
                
                
                1,145,959Other
                
                
                700,000
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                700,000Accounts
      payable-Associated
      companies
                
                
                554,844
                
                
                
                1,419
                
                
                
                119,773
                
                
                
                (270,368
                )
                
                
                405,668Other
                
                
                55,614
                
                
                
                130,090
                
                
                
                -
                
                
                
                -
                
                
                
                185,704Accrued
      taxes
                
                
                3,378
                
                
                
                116,383
                
                
                
                47,292
                
                
                
                (24,219
                )
                
                
                142,834Other
                
                
                85,100
                
                
                
                107,791
                
                
                
                9,731
                
                
                
                45,484
                
                
                
                248,1061,398,936
                
                
                
                1,979,530
                
                
                
                1,324,260
                
                
                
                (265,999
                )
                
                
                4,436,727CAPITALIZATION:Common
      stockholder's equity
                
                
                2,460,215
                
                
                
                1,011,907
                
                
                
                1,579,614
                
                
                
                (2,591,521
                )
                
                
                2,460,215Long-term debt
      and other long-term obligations
                
                
                -
                
                
                
                1,320,773
                
                
                
                62,900
                
                
                
                (1,305,717
                )
                
                
                77,9562,460,215
                
                
                
                2,332,680
                
                
                
                1,642,514
                
                
                
                (3,897,238
                )
                
                
                2,538,171NONCURRENT
      LIABILITIES:Deferred gain
      on sale and leaseback transaction
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                1,051,871
                
                
                
                1,051,871Accumulated
      deferred income taxes
                
                
                -
                
                
                
                -
                
                
                
                244,978
                
                
                
                (244,978
                )
                
                
                -Accumulated
      deferred investment tax credits
                
                
                -
                
                
                
                35,350
                
                
                
                24,619
                
                
                
                -
                
                
                
                59,969Asset
      retirement obligations
                
                
                -
                
                
                
                24,947
                
                
                
                798,739
                
                
                
                -
                
                
                
                823,686Retirement
      benefits
                
                
                9,332
                
                
                
                56,016
                
                
                
                -
                
                
                
                -
                
                
                
                65,348Property
      taxes
                
                
                -
                
                
                
                25,329
                
                
                
                22,766
                
                
                
                -
                
                
                
                48,095Lease market
      valuation liability
                
                
                -
                
                
                
                341,881
                
                
                
                -
                
                
                
                -
                
                
                
                341,881Other
                
                
                17,174
                
                
                
                22,672
                
                
                
                -
                
                
                
                -
                
                
                
                39,84626,506
                
                
                
                506,195
                
                
                
                1,091,102
                
                
                
                806,893
                
                
                
                2,430,696$
                3,885,657
                
                
                $
                4,818,405
                
                
                $
                4,057,876
                
                
                $
                (3,356,344
                )
                
                $
                9,405,594
   47
 
 FIRSTENERGY
      SOLUTIONS CORP.CONSOLIDATING
      BALANCE SHEETS(Unaudited)As
      of December 31, 2007
                
                FES
                
                
                FGCO
                
                
                NGC
                
                
                Eliminations
                
                
                Consolidated(In
      thousands)ASSETSCURRENT
      ASSETS:Cash and cash
      equivalents
                
                $
                2
                
                
                $
                -
                
                
                $
                -
                
                
                $
                -
                
                
                $
                2Receivables-Customers
                
                
                133,846
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                133,846Associated
      companies
                
                
                327,715
                
                
                
                237,202
                
                
                
                98,238
                
                
                
                (286,656
                )
                
                
                376,499Other
                
                
                2,845
                
                
                
                978
                
                
                
                -
                
                
                
                -
                
                
                
                3,823Notes
      receivable from associated companies
                
                
                23,772
                
                
                
                -
                
                
                
                69,012
                
                
                
                -
                
                
                
                92,784Materials and
      supplies, at average cost
                
                
                195
                
                
                
                215,986
                
                
                
                210,834
                
                
                
                -
                
                
                
                427,015Prepayments
      and other
                
                
                67,981
                
                
                
                21,605
                
                
                
                2,754
                
                
                
                -
                
                
                
                92,340556,356
                
                
                
                475,771
                
                
                
                380,838
                
                
                
                (286,656
                )
                
                
                1,126,309PROPERTY,
      PLANT AND EQUIPMENT:In
      service
                
                
                25,513
                
                
                
                5,065,373
                
                
                
                3,595,964
                
                
                
                (392,082
                )
                
                
                8,294,768Less -
      Accumulated provision for depreciation
                
                
                7,503
                
                
                
                2,553,554
                
                
                
                1,497,712
                
                
                
                (166,756
                )
                
                
                3,892,01318,010
                
                
                
                2,511,819
                
                
                
                2,098,252
                
                
                
                (225,326
                )
                
                
                4,402,755Construction
      work in progress
                
                
                1,176
                
                
                
                571,672
                
                
                
                188,853
                
                
                
                -
                
                
                
                761,70119,186
                
                
                
                3,083,491
                
                
                
                2,287,105
                
                
                
                (225,326
                )
                
                
                5,164,456OTHER
      PROPERTY AND INVESTMENTS:Nuclear plant
      decommissioning trusts
                
                
                -
                
                
                
                -
                
                
                
                1,332,913
                
                
                
                -
                
                
                
                1,332,913Long-term
      notes receivable from associated  companies
                
                
                -
                
                
                
                -
                
                
                
                62,900
                
                
                
                -
                
                
                
                62,900Investment in
      associated companies
                
                
                2,516,838
                
                
                
                -
                
                
                
                -
                
                
                
                (2,516,838
                )
                
                
                -Other
                
                
                2,732
                
                
                
                37,071
                
                
                
                201
                
                
                
                -
                
                
                
                40,0042,519,570
                
                
                
                37,071
                
                
                
                1,396,014
                
                
                
                (2,516,838
                )
                
                
                1,435,817DEFERRED
      CHARGES AND OTHER ASSETS:Accumulated
      deferred income taxes
                
                
                16,978
                
                
                
                522,216
                
                
                
                -
                
                
                
                (262,271
                )
                
                
                276,923Lease
      assignment receivable from associated companies
                
                
                -
                
                
                
                215,258
                
                
                
                -
                
                
                
                -
                
                
                
                215,258Goodwill
                
                
                24,248
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                24,248Property
      taxes
                
                
                -
                
                
                
                25,007
                
                
                
                22,767
                
                
                
                -
                
                
                
                47,774Pension
      asset
                
                
                3,217
                
                
                
                13,506
                
                
                
                -
                
                
                
                -
                
                
                
                16,723Unamortized
      sale and leaseback costs
                
                
                -
                
                
                
                27,597
                
                
                
                -
                
                
                
                43,206
                
                
                
                70,803Other
                
                
                22,956
                
                
                
                52,971
                
                
                
                6,159
                
                
                
                (38,133
                )
                
                
                43,95367,399
                
                
                
                856,555
                
                
                
                28,926
                
                
                
                (257,198
                )
                
                
                695,682TOTAL
      ASSETS
                
                $
                3,162,511
                
                
                $
                4,452,888
                
                
                $
                4,092,883
                
                
                $
                (3,286,018
                )
                
                $
                8,422,264LIABILITIES
      AND CAPITALIZATIONCURRENT
      LIABILITIES:Currently
      payable long-term debt
                
                $
                -
                
                
                $
                596,827
                
                
                $
                861,265
                
                
                $
                (16,896
                )
                
                $
                1,441,196Short-term
      borrowings-Associated
      companies
                
                
                -
                
                
                
                238,786
                
                
                
                25,278
                
                
                
                -
                
                
                
                264,064Other
                
                
                300,000
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                300,000Accounts
      payable-Associated
      companies
                
                
                287,029
                
                
                
                175,965
                
                
                
                268,926
                
                
                
                (286,656
                )
                
                
                445,264Other
                
                
                56,194
                
                
                
                120,927
                
                
                
                -
                
                
                
                -
                
                
                
                177,121Accrued
      taxes
                
                
                18,831
                
                
                
                125,227
                
                
                
                28,229
                
                
                
                (836
                )
                
                
                171,451Other
                
                
                57,705
                
                
                
                131,404
                
                
                
                11,972
                
                
                
                36,725
                
                
                
                237,806719,759
                
                
                
                1,389,136
                
                
                
                1,195,670
                
                
                
                (267,663
                )
                
                
                3,036,902CAPITALIZATION:Common
      stockholder's equity
                
                
                2,414,231
                
                
                
                951,542
                
                
                
                1,562,069
                
                
                
                (2,513,611
                )
                
                
                2,414,231Long-term debt
      and other long-term obligations
                
                
                -
                
                
                
                1,597,028
                
                
                
                242,400
                
                
                
                (1,305,716
                )
                
                
                533,7122,414,231
                
                
                
                2,548,570
                
                
                
                1,804,469
                
                
                
                (3,819,327
                )
                
                
                2,947,943NONCURRENT
      LIABILITIES:Deferred gain
      on sale and leaseback transaction
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                1,060,119
                
                
                
                1,060,119Accumulated
      deferred income taxes
                
                
                -
                
                
                
                -
                
                
                
                259,147
                
                
                
                (259,147
                )
                
                
                -Accumulated
      deferred investment tax credits
                
                
                -
                
                
                
                36,054
                
                
                
                25,062
                
                
                
                -
                
                
                
                61,116Asset
      retirement obligations
                
                
                -
                
                
                
                24,346
                
                
                
                785,768
                
                
                
                -
                
                
                
                810,114Retirement
      benefits
                
                
                8,721
                
                
                
                54,415
                
                
                
                -
                
                
                
                -
                
                
                
                63,136Property
      taxes
                
                
                -
                
                
                
                25,328
                
                
                
                22,767
                
                
                
                -
                
                
                
                48,095Lease market
      valuation liability
                
                
                -
                
                
                
                353,210
                
                
                
                -
                
                
                
                -
                
                
                
                353,210Other
                
                
                19,800
                
                
                
                21,829
                
                
                
                -
                
                
                
                -
                
                
                
                41,62928,521
                
                
                
                515,182
                
                
                
                1,092,744
                
                
                
                800,972
                
                
                
                2,437,419TOTAL
      LIABILITIES AND CAPITALIZATION
                
                $
                3,162,511
                
                
                $
                4,452,888
                
                
                $
                4,092,883
                
                
                $
                (3,286,018
                )
                
                $
                8,422,264
 
 48
  
 FIRSTENERGY
      SOLUTIONS CORP.CONDENSED
      CONSOLIDATING STATEMENTS OF CASH FLOWS(Unaudited)For
      the Three Months Ended March 31, 2008
                
                FES
                
                
                FGCO
                
                
                NGC
                
                
                Eliminations
                
                
                Consolidated(In
      thousands)NET
      CASH PROVIDED FROM (USED FOR)OPERATING
      ACTIVITIES
                
                $
                273,827
                
                
                $
                (122,171
                )
                
                $
                8,108
                
                
                $
                188
                
                
                $
                159,952CASH
      FLOWS FROM FINANCING ACTIVITIES:New
      Financing-Short-term
      borrowings, net
                
                
                400,000
                
                
                
                646,975
                
                
                
                234,921
                
                
                
                -
                
                
                
                1,281,896Redemptions
      and Repayments-Long-term
      debt
                
                
                -
                
                
                
                (135,063
                )
                
                
                (153,540
                )
                
                
                -
                
                
                
                (288,603
                )Common stock
      dividend payments
                
                
                (10,000
                )
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (10,000
                )Net cash provided from financing activities
                
                
                390,000
                
                
                
                511,912
                
                
                
                81,381
                
                
                
                -
                
                
                
                983,293CASH
      FLOWS FROM INVESTING ACTIVITIES:Property
      additions
                
                
                (19,406
                )
                
                
                (375,391
                )
                
                
                (81,545
                )
                
                
                (187
                )
                
                
                (476,529
                )Proceeds from
      asset sales
                
                
                -
                
                
                
                5,088
                
                
                
                -
                
                
                
                -
                
                
                
                5,088Sales of
      investment securities held in trusts
                
                
                -
                
                
                
                -
                
                
                
                173,123
                
                
                
                -
                
                
                
                173,123Purchases of
      investment securities held in trusts
                
                
                -
                
                
                
                -
                
                
                
                (181,079
                )
                
                
                -
                
                
                
                (181,079
                )Loans to
      associated companies, net
                
                
                (644,604
                )
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (644,604
                )Other
                
                
                183
                
                
                
                (19,438
                )
                
                
                12
                
                
                
                (1
                )
                
                
                (19,244
                )Net
      cash used for investing activities
                
                
                (663,827
                )
                
                
                (389,741
                )
                
                
                (89,489
                )
                
                
                (188
                )
                
                
                (1,143,245
                )Net change in
      cash and cash equivalents
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Cash and cash
      equivalents at beginning of period
                
                
                2
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                2Cash and cash
      equivalents at end of period
                
                $
                2
                
                
                $
                -
                
                
                $
                -
                
                
                $
                -
                
                
                $
                2
  
 49
 
 FIRSTENERGY
      SOLUTIONS CORP.CONDENSED
      CONSOLIDATING STATEMENTS OF CASH FLOWS(Unaudited)For
      the Three Months Ended March 31, 2007
                
                FES
                
                
                FGCO
                
                
                NGC
                
                
                Eliminations
                
                
                Consolidated(In
      thousands)NET
      CASH PROVIDED FROMOPERATING
      ACTIVITIES
                
                $
                65,870
                
                
                $
                55,003
                
                
                $
                177,456
                
                
                $
                -
                
                
                $
                298,329CASH
      FLOWS FROM FINANCING ACTIVITIES:New
      Financing-Equity
      contribution from parent
                
                
                700,000
                
                
                
                700,000
                
                
                
                -
                
                
                
                (700,000
                )
                
                
                700,000Short-term
      borrowings, net
                
                
                250,000
                
                
                
                -
                
                
                
                -
                
                
                
                (52,269
                )
                
                
                197,731Redemptions
      and Repayments-Long-term
      debt
                
                
                -
                
                
                
                (616,728
                )
                
                
                (128,716
                )
                
                
                -
                
                
                
                (745,444
                )Short-term
      borrowings, net
                
                
                -
                
                
                
                (52,269
                )
                
                
                -
                
                
                
                52,269
                
                
                
                -Net cash provided from (used for) financing activities
                
                
                950,000
                
                
                
                31,003
                
                
                
                (128,716
                )
                
                
                (700,000
                )
                
                
                152,287CASH
      FLOWS FROM INVESTING ACTIVITIES:Property
      additions
                
                
                (214
                )
                
                
                (81,400
                )
                
                
                (35,892
                )
                
                
                -
                
                
                
                (117,506
                )Sales of
      investment securities held in trusts
                
                
                -
                
                
                
                -
                
                
                
                178,632
                
                
                
                -
                
                
                
                178,632Purchases of
      investment securities held in trusts
                
                
                -
                
                
                
                -
                
                
                
                (188,076
                )
                
                
                -
                
                
                
                (188,076
                )Loans to
      associated companies, net
                
                
                (316,003
                )
                
                
                -
                
                
                
                (3,895
                )
                
                
                -
                
                
                
                (319,898
                )Investment in
      subsidiary
                
                
                (700,000
                )
                
                
                -
                
                
                
                -
                
                
                
                700,000
                
                
                
                -Other
                
                
                347
                
                
                
                (4,606
                )
                
                
                491
                
                
                
                -
                
                
                
                (3,768
                )Net cash used for investing activities
                
                
                (1,015,870
                )
                
                
                (86,006
                )
                
                
                (48,740
                )
                
                
                700,000
                
                
                
                (450,616
                )Net change in
      cash and cash equivalents
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Cash and cash
      equivalents at beginning of period
                
                
                2
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                2Cash and cash
      equivalents at end of period
                
                $
                2
                
                
                $
                -
                
                
                $
                -
                
                
                $
                -
                
                
                $
                2


50








ITEM
4T. CONTROLS AND PROCEDURES – OE, CEI, TE AND PENELEC (Restated)
 
 (a)           EVALUATION
OF DISCLOSURE CONTROLS AND PROCEDURES
 
 In the original Form
10-Q for the first quarter of 2008, each registrant’s chief executive officer
and chief financial officer concluded that, as of the end of the period covered
by that report, the applicable registrant's disclosure controls and procedures
were effective as of March 31, 2008. Subsequent to the restatement of the
respective registrants’ Consolidated Statements of Cash Flows discussed in the
revised Note 1 to the Combined Notes to Consolidated Financial Statements
included in the Form 10-Q/A, each registrant's chief executive officer and chief
financial officer performed an updated review and evaluated such registrant's
disclosure controls and procedures. Based upon that updated evaluation and as a
result of the material weakness in the internal controls over the preparation
and review of the Consolidated Statement of Cash Flows discussed below, those
officers concluded that, as of the end of the period covered by this report, the
applicable registrant's disclosure controls and procedures were ineffective as
of March 31, 2008.
 
 The term disclosure
controls and procedures means controls and other procedures of a registrant that
are designed to ensure that information required to be disclosed by the
registrant in the reports that it files or submits under the Securities Exchange
Act of 1934 (15 U.S.C. 78a et seq.) is recorded, processed, summarized and
reported, within the time periods specified in the Securities and Exchange
Commission's rules and forms. Disclosure controls and procedures include,
without limitation, controls and procedures designed to ensure that information
required to be disclosed by an issuer in the reports that it files or submits
under that Act is accumulated and communicated to the registrant's management,
including its principal executive and principal financial officers, or persons
performing similar functions, as appropriate to allow timely decisions regarding
required disclosure.
 
 As reported in this
Form 10-Q/A, each registrant has amended its original Form 10-Q for the first
quarter of 2008 to restate its Consolidated Statements of Cash Flows for the
three months ended March 31, 2008, to correct common stock dividend payments
reported in cash flows from financing activities. The Consolidated Statements of
Cash Flows for each registrant, as originally filed, erroneously did not reflect
the payment of common stock dividends in the first quarter of 2008, which were
declared in the third quarter of 2007. The corrections resulted in a
corresponding change in operating liabilities - accounts payable, included in
cash flows from operating activities.
 
 A material weakness
is a deficiency, or a combination of deficiencies in internal control over
financial reporting, such that there is a reasonable possibility that a material
misstatement of the company's annual or interim financial statements will not be
prevented or detected on a timely basis.
  The restatement
described above resulted from a material weakness in the internal controls over
one aspect of the preparation and review of the Consolidated Statements of Cash
Flows. Specifically, the registrants did not have a control that was designed to
ensure that declared but unpaid dividends to the registrants’ parent were not
reported as cash used for financing activities. This control deficiency resulted
in a material misstatement of the registrants’ interim and annual consolidated
financial statements. Accordingly, management determined that this control
deficiency constitutes a material weakness. The registrants modified their
internal controls over the preparation and review of their Consolidated
Statements of Cash Flows during the fourth quarter of 2008. Management has
implemented a process to segregate dividend declarations with payments
applicable to future reporting periods in a unique general ledger account in
order to distinguish associated company dividends payable from other associated
company accounts payable. Management believes that this process enhances the
existing internal controls over financial reporting and remediated the material
weakness discussed above for each of the registrants.
 
 (b)           CHANGES
IN INTERNAL CONTROLS
 
 During the quarter
ended March 31, 2008, there were no changes in the registrants' internal control
over financial reporting that have materially affected, or are reasonably likely
to materially affect, the registrants' internal control over financial
reporting.





51





PART II. OTHER
INFORMATION





ITEM
6.   EXHIBITS





Exhibit
              NumberOE15
            Letter from
      independent registered public accounting firm31.1
            Certification
      of chief executive officer, as adopted pursuant to Rule
      13a-14(a)31.2
            Certification
      of chief financial officer, as adopted pursuant to Rule
      13a-14(a)32
            Certification
      of chief executive officer and chief financial officer, pursuant to 18
      U.S.C. Section 1350CEI15
            Letter from
      independent registered public accounting firm31.1
            Certification
      of chief executive officer, as adopted pursuant to Rule
      13a-14(a)31.2
            Certification
      of chief financial officer, as adopted pursuant to Rule
      13a-14(a)32
            Certification
      of chief executive officer and chief financial officer, pursuant to 18
      U.S.C. Section 1350TE15
            Letter from
      independent registered public accounting firm31.1
            Certification
      of chief executive officer, as adopted pursuant to Rule
      13a-14(a)31.2
            Certification
      of chief financial officer, as adopted pursuant to Rule
      13a-14(a)32
            Certification
      of chief executive officer and chief financial officer, pursuant to 18
      U.S.C. Section 1350Penelec15
            Letter from
      independent registered public accounting firm31.1
            Certification
      of chief executive officer, as adopted pursuant to Rule
      13a-14(a)31.2
            Certification
      of chief financial officer, as adopted pursuant to Rule
      13a-14(a)32
            Certification
      of chief executive officer and chief financial officer, pursuant to 18
      U.S.C. Section 1350







Pursuant to
reporting requirements of respective financings, OE and Penelec are required to
file fixed charge ratios as an exhibit to this Form 10-Q. Pursuant to paragraph
(b)(4)(iii)(A) of Item 601 of Regulation S-K, neither OE, CEI, TE nor Penelec
have filed as an exhibit to this Form 10-Q any instrument with respect to
long-term debt if the respective total amount of securities authorized
thereunder does not exceed 10% of its respective total assets, but each hereby
agrees to furnish to the SEC on request any such documents.





52





SIGNATURES











Pursuant to the
requirements of the Securities Exchange Act of 1934, each Registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.








November 25,
2008

















OHIO EDISON
      COMPANYRegistrantTHE
      CLEVELAND ELECTRICILLUMINATING
      COMPANYRegistrantTHE TOLEDO EDISON
      COMPANYRegistrantPENNSYLVANIA ELECTRIC
      COMPANYRegistrant











/s/  Harvey
      L. WagnerHarvey L.
      WagnerVice President
      and Controller

















53