**UNITED
        STATES SECURITIES AND EXCHANGE COMMISSION**
 **Washington,
        D. C.  20549**
 
 **FORM
        10-Q**
 **(Mark
        One)**
 **[X]  QUARTERLY
        REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE**
 **SECURITIES
        EXCHANGE ACT OF 1934**
 
 **For
        the
        quarterly period ended June 30, 2007**
 
 **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.
                  Employer****File
                    Number**
              **Address;
                    and Telephone Number**
              **Identification
                    No.****333-21011**
              **FIRSTENERGY
                  CORP.**
              **34-1843785****(An
                  Ohio Corporation)****76
                  South Main Street****Akron,
                  OH  44308****Telephone
                  (800)736**-**3402****1-2578**
              **OHIO
                  EDISON COMPANY**
              **34-0437786****(An
                  Ohio Corporation)****c/o
                  FirstEnergy Corp.****76
                  South Main Street****Akron,
                  OH  44308****Telephone
                  (800)736**-**3402****1-2323**
              **THE
                  CLEVELAND ELECTRIC ILLUMINATING COMPANY**
              **34-0150020****(An
                  Ohio Corporation)****c/o
                  FirstEnergy Corp.****76
                  South Main Street****Akron,
                  OH  44308****Telephone
                  (800)736**-**3402****1-3583**
              **THE
                  TOLEDO EDISON COMPANY**
              **34-4375005****(An
                  Ohio Corporation)****c/o
                  FirstEnergy Corp.****76
                  South Main Street****Akron,
                  OH  44308****Telephone
                  (800)736**-**3402****1-3141**
              **JERSEY
                  CENTRAL POWER & LIGHT COMPANY**
              **21-0485010****(A
                  New
                  Jersey Corporation)****c/o
                  FirstEnergy Corp.****76
                  South Main Street****Akron,
                  OH  44308****Telephone
                  (800)736**-**3402****1-446**
              **METROPOLITAN
                  EDISON COMPANY**
              **23-0870160****(A
                  Pennsylvania Corporation)****c/o
                  FirstEnergy Corp.****76
                  South Main Street****Akron,
                  OH  44308****Telephone
                  (800)736**-**3402****1-3522**
              **PENNSYLVANIA
                  ELECTRIC COMPANY**
              **25-0718085****(A
                  Pennsylvania Corporation)****c/o
                  FirstEnergy Corp.****76
                  South Main Street****Akron,
                  OH  44308****Telephone
                  (800)736**-**3402**
  
  Indicate
        by check
        mark whether each of the registrants (1) has filed all reports required to
        be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
        during the preceding 12 months (or for such shorter period that the
        registrant was required to file such reports), and (2) has been subject to
        such filing requirements for the past 90 days.
 
 Yes
        (X)  No (  )
 
 Indicate
        by check
        mark whether any of the registrants is a large accelerated filer, an accelerated
        filer, or a non-accelerated filer. See definition of "accelerated filer and
        large accelerated filer" in Rule 12b-2 of the Exchange Act.
 
 Large
                  Accelerated Filer  (X)
              FirstEnergy
                  Corp.Accelerated
                  Filer  (  )
              N/ANon-accelerated
                  Filer  (X)
              Ohio
                  Edison
                  Company, The Cleveland Electric Illuminating Company, The Toledo
                  Edison
                  Company, Jersey Central Power & Light Company, Metropolitan Edison
                  Company and Pennsylvania Electric
                  Company
 
 Indicate
        by check
        mark whether any of the registrants is a shell company (as defined in Rule
        12b-2
        of the Exchange Act).
 
 Yes
        (  )  No (X)
 
 Indicate
        the number
        of shares outstanding of each of the issuer's classes of common stock, as
        of the
        latest practicable date:
 
 **OUTSTANDING****CLASS**
              **AS
                    OF AUGUST 7, 2007**FirstEnergy
                  Corp., $.10 par value
              304,835,407Ohio
                  Edison
                  Company, no par value
              60The
                  Cleveland
                  Electric Illuminating Company, no par value
              67,930,743The
                  Toledo
                  Edison Company, $5 par value
              29,402,054Jersey
                  Central
                  Power & Light Company, $10 par value
              14,421,637Metropolitan
                  Edison Company, no par value
              859,500Pennsylvania
                  Electric Company, $20 par value
              5,290,596
 
 FirstEnergy
        Corp. is
        the sole holder of Ohio Edison Company, The Cleveland Electric Illuminating
        Company, The Toledo Edison Company, Jersey Central Power & Light Company,
        Metropolitan Edison Company and Pennsylvania Electric Company common
        stock.
 
 This
        combined Form
        10-Q is separately filed by FirstEnergy Corp., Ohio Edison Company, The
        Cleveland Electric Illuminating Company, The Toledo Edison Company, Jersey
        Central Power & Light Company, Metropolitan Edison Company and Pennsylvania
        Electric Company. Information contained herein relating to any individual
        registrant is filed by such registrant on its own behalf. No registrant makes
        any representation as to information relating to any other registrant, except
        that information relating to any of the FirstEnergy subsidiary registrants
        is
        also attributed to FirstEnergy Corp.
  
  *This
        Form 10-Q
        includes forward-looking statements based on information currently available
        to
        management. Such statements are subject to certain risks and uncertainties.
        These statements typically contain, but are not limited to, the terms
“anticipate,” “potential,” “expect,” “believe,” “estimate” and similar words.
        Actual results may differ materially due to the speed and nature of increased
        competition and deregulation in the electric utility industry, economic or
        weather conditions affecting future sales and margins, changes in markets
        for
        energy services, changing energy and commodity market prices, 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, legislative and regulatory changes (including revised
        environmental requirements), and the legal and regulatory changes resulting
        from
        the implementation of the EPACT (including, but not limited to, the repeal
        of
        the PUHCA), 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 New Source
        Review litigation, 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) as disclosed in
        FirstEnergy’s SEC filings, the timing and outcome of various proceedings before
        the PUCO (including, but not limited to, 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 Rate Stabilization Plan) and the PPUC (including Penn’s default
        service plan filing), the resolution of the Petitions for Review filed with
        the
        Commonwealth Court of Pennsylvania with respect to the transition rate plan
        filing for Met-Ed and Penelec, the continuing availability and operation
        of
        generating units, the ability of generating units to continue to operate
        at, or
        near full capacity, the inability to accomplish or realize anticipated benefits
        from strategic goals (including employee workforce initiatives), the anticipated
        benefits from voluntary pension plan contributions, the ability to improve
        electric commodity margins and to experience growth in the distribution
        business, the ability to access the public securities and other capital markets
        and the cost of such capital, the outcome, cost and other effects of present
        and
        potential legal and administrative proceedings and claims related to the
        August 14, 2003 regional power outage, any final adjustment in the purchase
        price per share under the accelerated share repurchase program announced
        March 2, 2007, the risks and other factors discussed from time to time in
        the
        registrants’ SEC filings, and other similar factors.  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.*
 
 
 
 
 
  
  **TABLE
        OF
        CONTENTS**
 
 
 
 **Pages****Glossary
                  of
                  Terms**
              iii-iv**Part
                  I.     Financial Information****Items
                  1. and 2. - Financial
                  Statements and Management’s Discussion and Analysis of Financial Condition
                  and Results of Operations.**Notes
                  to
                  Consolidated Financial Statements
              1-25**FirstEnergy
                  Corp.**Consolidated
                  Statements of Income
              26Consolidated
                  Statements of Comprehensive Income
              27Consolidated
                  Balance Sheets
              28Consolidated
                  Statements of Cash Flows
              29Report
                  of
                  Independent Registered Public Accounting Firm
              30Management's
                  Discussion and Analysis of Financial Condition and
              31-71Results
                  of Operations**Ohio
                  Edison
                  Company**Consolidated
                  Statements of Income and Comprehensive Income
              72Consolidated
                  Balance Sheets
              73Consolidated
                  Statements of Cash Flows
              74Report
                  of
                  Independent Registered Public Accounting Firm
              75Management's
                  Discussion and Analysis of Financial Condition and
              76-79Results
                  of Operations**The
                  Cleveland Electric
                  Illuminating Company**Consolidated
                  Statements of Income and Comprehensive Income
              80Consolidated
                  Balance Sheets
              81Consolidated
                  Statements of Cash Flows
              82Report
                  of
                  Independent Registered Public Accounting Firm
              83Management's
                  Discussion and Analysis of Financial Condition and
              84-87Results
                  of Operations**The
                  Toledo Edison
                  Company**Consolidated
                  Statements of Income and Comprehensive Income
              88Consolidated
                  Balance Sheets
              89Consolidated
                  Statements of Cash Flows
              90Report
                  of
                  Independent Registered Public Accounting Firm
              91Management's
                  Discussion and Analysis of Financial Condition and
              92-95Results
                  of Operations**Jersey
                  Central Power & Light
                  Company**Consolidated
                  Statements of Income and Comprehensive Income
              96Consolidated
                  Balance Sheets
              97Consolidated
                  Statements of Cash Flows
              98Report
                  of
                  Independent Registered Public Accounting Firm
              99Management's
                  Discussion and Analysis of Financial Condition and
              100-103Results
                  of Operations
 
  i
  **TABLE
        OF
        CONTENTS (Cont'd)**
 
 
 **Pages****Metropolitan
                  Edison
                  Company**Consolidated
                  Statements of Income and Comprehensive Income
              104Consolidated
                  Balance Sheets
              105Consolidated
                  Statements of Cash Flows
              106Report
                  of
                  Independent Registered Public Accounting Firm
              107Management's
                  Discussion and Analysis of Financial Condition and
              108-111Results
                  of Operations**Pennsylvania
                  Electric
                  Company**Consolidated
                  Statements of Income and Comprehensive Income
              112Consolidated
                  Balance Sheets
              113Consolidated
                  Statements of Cash Flows
              114Report
                  of
                  Independent Registered Public Accounting Firm
              115Management's
                  Discussion and Analysis of Financial Condition and
              116-119Results
                  of Operations**Combined
                  Management’s Discussion
                  and Analysis of Registrant Subsidiaries**
              120-132**Item
                  3.                      Quantitative
                  and Qualitative Disclosures About Market Risk.**
              133**Item
                  4.                      Controls
                  and Procedures.**
              133**Part
                  II.    Other Information****Item
                  1.                      Legal
                  Proceedings.**
              134**Item
                  1A.                      Risk
                  Factors.**
              134**Item
                  2.                      Unregistered
                  Sales of Equity Securities and Use of Proceeds.**
              134**Item
                  4.                      Submission
                  of Matters to a Vote of Security Holders.**
              134-135**Item
                  6.                      Exhibits.**
              135-137
  ii
  **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 companyFSG
              FirstEnergy
                  Facilities Services Group, LLC, former parent company of several
                  heating,
                  ventilation,
                air
                  conditioning and energy management companiesGPU
              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
                  subsidiaryMYR
              MYR
                  Group,
                  Inc., a utility infrastructure construction service
                  companyNGC
              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
                  OEPNBV
              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
              Termobarranquilla
                  S.A., Empresa de Servicios PublicosThe
                  following
                  abbreviations and acronyms are used to identify frequently used
                  terms in
                  this report:ALJ
              Administrative
                  Law JudgeAOCL
              Accumulated
                  Other Comprehensive LossARO
              Asset
                  Retirement ObligationBGS
              Basic
                  Generation ServiceCAIR
              Clean
                  Air
                  Interstate RuleCAL
              Confirmatory
                  Action LetterCAMR
              Clean
                  Air
                  Mercury RuleCBP
              Competitive
                  Bid ProcessCO2
              Carbon
                  DioxideDOJ
              United
                  States
                  Department of JusticeDRA
              Division
                  of
                  Ratepayer AdvocateECO
              Electro-Catalytic
                  OxidationECAR
              East
                  Central
                  Area Reliability Coordination AgreementEIS
              Energy
                  Independence StrategyEITF
              Emerging
                  Issues Task ForceEITF
                  06-11
              EITF
                  Issue No.
                  06-11, “Accounting for Income Tax Benefits of Dividends or
                  Share-Based
                Payment
                  Awards”EPA
              Environmental
                  Protection AgencyEPACT
              Energy
                  Policy
                  Act of 2005ERO
              Electric
                  Reliability OrganizationFASB
              Financial
                  Accounting Standards BoardFERC
              Federal
                  Energy
                  Regulatory CommissionFIN
              FASB
                  InterpretationFIN
                  46R
              FIN
                  46
                  (revised December 2003), "Consolidation of Variable Interest
                  Entities"FIN
                  47
              FIN
                  47,
                  "Accounting for Conditional Asset Retirement Obligations - an
                  interpretation of FASB
                Statement
                  No.
                  143"
  iii
 **GLOSSARY
              OF
              TERMS,
              Cont’d.**
  FIN
                  48
              FIN
                  48,
                  “Accounting for Uncertainty in Income Taxes - an interpretation
                  of FASB
                  Statement
                No.
                  109”Fitch
              Fitch
                  Ratings,
                  Ltd.FMB
              First
                  Mortgage
                  BondsGAAP
              Accounting
                  Principles Generally Accepted in the United StatesGHG
              Greenhouse
                  GasesIRS
              Internal
                  Revenue ServicekV
              KilovoltKWH
              Kilowatt-hoursLOC
              Letter
                  of
                  CreditMEIUG
              Met-Ed
                  Industrial Users GroupMISO
              Midwest
                  Independent Transmission System Operator, Inc.Moody’s
              Moody’s
                  Investors ServiceMOU
              Memorandum
                  of
                  UnderstandingMW
              MegawattsNAAQS
              National
                  Ambient Air Quality StandardsNERC
              North
                  American
                  Electric Reliability CorporationNJBPU
              New
                  Jersey
                  Board of Public UtilitiesNOAC
              Northwest
                  Ohio
                  Aggregation CoalitionNOPR
              Notice
                  of
                  Proposed RulemakingNOV
              Notice
                  of
                  ViolationNOX
              Nitrogen
                  OxideNRC
              Nuclear
                  Regulatory CommissionNSR
              New
                  Source
                  ReviewNUG
              Non-Utility
                  GenerationNUGC
              Non-Utility
                  Generation ChargeOCA
              Office
                  of
                  Consumer AdvocateOCC
              Office
                  of the
                  Ohio Consumers’ CounselOVEC
              Ohio
                  Valley
                  Electric CorporationPICA
              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
                  PlanRFP
              Request
                  for
                  ProposalRSP
              Rate
                  Stabilization PlanRTC
              Regulatory
                  Transition ChargeRTO
              Regional
                  Transmission OrganizationRTOR
              Regional
                  Through and Out RatesS&P
              Standard
&
                  Poor’s Ratings ServiceSBC
              Societal
                  Benefits ChargeSEC
              U.S.
                  Securities and Exchange CommissionSECA
              Seams
                  Elimination Cost AdjustmentSFAS
              Statement
                  of
                  Financial Accounting StandardsSFAS
                  107
              SFAS
                  No. 107,
                  “Disclosure about Fair Value of Financial Instruments”SFAS
                  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”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”SIP
              State
                  Implementation Plan(s) Under the Clean Air ActSNCR
              Selective
                  Non-Catalytic ReductionSO2
              Sulfur
                  DioxideSRM
              Special
                  Reliability MasterTBC
              Transition
                  Bond ChargeTMI-2
              Three
                  Mile
                  Island Unit 2UCS
              Union
                  of
                  Concerned ScientistsVIE
              Variable
                  Interest Entity
  iv
  **PART
        I.
        FINANCIAL INFORMATION**
 
 **ITEMS
        1. AND
        2. FINANCIAL STATEMENTS AND MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
        CONDITION AND RESULTS OF OPERATIONS.**
 
 **FIRSTENERGY
        CORP. AND SUBSIDIARIES**
 **OHIO
        EDISON
        COMPANY AND SUBSIDIARIES**
 **THE
        CLEVELAND ELECTRIC ILLUMINATING COMPANY AND SUBSIDIARIES**
 **THE
        TOLEDO
        EDISON COMPANY AND SUBSIDIARY**
 **JERSEY
        CENTRAL POWER & LIGHT COMPANY AND SUBSIDIARIES**
 **METROPOLITAN
        EDISON COMPANY AND SUBSIDIARIES**
 **PENNSYLVANIA
        ELECTRIC COMPANY AND SUBSIDIARIES**
 
 **NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS**
 **(UNAUDITED)**
 
 
 **1.  ORGANIZATION
        AND BASIS OF PRESENTATION**
 
 FirstEnergy's
        principal business is the holding, directly or indirectly, of all of the
        outstanding common stock of its eight principal electric utility operating
        subsidiaries: OE, CEI, TE, Penn, ATSI, JCP&L, Met-Ed and Penelec. Penn is a
        wholly owned subsidiary of OE. FirstEnergy’s consolidated financial statements
        also include its other subsidiaries: 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, FERC and, as applicable, the PUCO, PPUC
        and
        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,
        2006 for FirstEnergy and the Companies. The consolidated unaudited financial
        statements of FirstEnergy 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 businesses divested
        in
        2006 have been classified as discontinued operations on the Consolidated
        Statements of Income (see Note 3). As discussed in Note 12, interim
        period segment reporting in 2006 was reclassified to conform with the current
        year business segment organizations and operations. 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 7)
        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) are accounted for under the equity
        method. 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. Certain
        prior year amounts have been reclassified to conform to the current year
        presentation.
 
 The
        consolidated
        financial statements as of June 30, 2007 and for the three-month and
        six-month periods ended June 30, 2007 and 2006 have been reviewed by
        PricewaterhouseCoopers LLP, an independent registered public accounting firm.
        Their report (dated August 6, 2007) is included on page 28. 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 the registration statement prepared or certified by
        PricewaterhouseCoopers LLP within the meaning of Sections 7 and 11 of the
        Securities Act.
 
  1
  **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 August 10, 2006, FirstEnergy
        repurchased 10.6 million shares, approximately 3.2%, of its outstanding
        common stock through an accelerated share repurchase program. The initial
        purchase price was $600 million, or $56.44 per share. A final purchase
        price adjustment of $27 million was settled in cash on April 2, 2007.
        On March 2, 2007, FirstEnergy repurchased approximately 14.4 million
        shares, or 4.5%, of its outstanding common stock through an additional
        accelerated share repurchase program with an affiliate of Morgan Stanley
        and
        Co., Incorporated at an initial price of $62.63 per share, or a total initial
        purchase price of approximately $900 million. The final purchase price for
        this
        program will be adjusted to reflect the volume weighted average price of
        FirstEnergy’s common stock during the period of time that the bank will acquire
        shares to cover its short position, which is approximately one year. The
        basic
        and diluted earnings per share calculations for the second quarter and first
        six
        months of 2007 reflect the impact associated with the March 2007 accelerated
        share repurchase program. FirstEnergy intends to settle, in cash or shares,
        any
        obligation on its part to pay the difference between the average of the daily
        volume-weighted average price of the shares as calculated under the March
        2007
        program and the initial price of the shares.
 
 **Three
                  Months Ended**
              
              **Six
                  Months Ended****June
                    30,**
              
              **June
                    30,****Reconciliation
                  of Basic and Diluted Earnings per Share**
              
              **2007**
              
              **2006**
              
              **2007**
              
              **2006*****(In
                  millions, except per share amounts)***Income
                  from
                  continuing operations
              
              $
              338
              
              $
              312
              
              $
              628
              
              $
              531Discontinued
                  operations
              
              
              -
              
              
              (8
              )
              
              -
              
              
              (6
              )Redemption
                  premium on subsidiary preferred stock
              
              
              -
              
              
              (3
              )
              
              -
              
              
              (3
              )Net
                  earnings
                  available for common shareholders
              
              $
              338
              
              $
              301
              
              $
              628
              
              $
              522Average
                  shares
                  of common stock outstanding – Basic
              
              
              304
              
              
              328
              
              
              309
              
              
              328Assumed
                  exercise of dilutive stock options and awards
              
              
              4
              
              
              2
              
              
              4
              
              
              2Average
                  shares
                  of common stock outstanding – Dilutive
              
              
              308
              
              
              330
              
              
              313
              
              
              330Earnings
                  per
                  share:Basic
                  earnings
                  per share:Earnings
                  from
                  continuing operations
              
              $
              1.11
              
              $
              0.94
              
              $
              2.03
              
              $
              1.61Discontinued
                  operations
              
              
              -
              
              
              (0.02
              )
              
              -
              
              
              (0.02
              )Net
                  earnings
                  per basic share
              
              $
              1.11
              
              $
              0.92
              
              $
              2.03
              
              $
              1.59Diluted
                  earnings per share:Earnings
                  from
                  continuing operations
              
              $
              1.10
              
              $
              0.93
              
              $
              2.01
              
              $
              1.60Discontinued
                  operations
              
              
              -
              
              
              (0.02
              )
              
              -
              
              
              (0.02
              )Net
                  earnings
                  per diluted share
              
              $
              1.10
              
              $
              0.91
              
              $
              2.01
              
              $
              1.58
 
 **3.  DIVESTITURES
        AND DISCONTINUED OPERATIONS**
 
 In
        2006, FirstEnergy
        sold its remaining FSG subsidiaries (Roth Bros., Hattenbach, Dunbar, Edwards
        and
        RPC) for an aggregate net after-tax gain of $2.2 million. Hattenbach,
        Dunbar, Edwards, and RPC are included in discontinued operations for the
        second
        quarter and six months ended June 30, 2006; Roth Bros. did not meet the criteria
        for that classification.
 
 In
        March 2006,
        FirstEnergy sold 60% of its interest in MYR for an after-tax gain of $0.2
        million. In June 2006, as part of the March agreement, FirstEnergy sold an
        additional 1.67% interest. As a result of the March sale, FirstEnergy
        deconsolidated MYR in the first quarter of 2006 and accounted for its remaining
        38.33% interest under the equity method.  In the fourth quarter of
        2006, FirstEnergy sold its remaining MYR interest for an after-tax gain of
        $8.6 million.
 
 The
        income for the
        period that MYR was accounted for as an equity method investment has not
        been
        included in discontinued operations; however, results prior to the initial
        sale
        in March 2006, including the gain on the sale, are reported as discontinued
        operations.
  2
  
 Revenues
        associated
        with discontinued operations were $34 million and $174 million in the second
        quarter and first six months of 2006, respectively. The following table
        summarizes the net income (loss) included in "Discontinued Operations" on
        the
        Consolidated Statements of Income for the three months and six months ended
        June 30, 2006:
 
 **Three
                  Months**
              
              
              **Six
                  Months***(**In
                  millions)***FSG
                  subsidiaries
              
              $
              (8
              )
              $
              (8
              )MYR
              
              
              -
              
              
              2Total
              
              $
              (8
              )
              $
              (6
              )
 
 **4.  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 purchase and normal sales criterion. Derivatives
        that meet that criterion are accounted for using traditional accrual accounting.
        The changes in the fair value of derivative instruments that do not meet
        the
        normal purchase and normal sales criterion 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
        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 $45 million included in AOCL as of June 30, 2007, for derivative
        hedging activity, as compared to $58 million as of December 31, 2006,
        resulted from a net $2 million decrease related to current hedging activity
        and an $11 million decrease due to net hedge losses reclassified into
        earnings during the six months ended June 30, 2007. Based on current estimates,
        approximately $17 million (after tax) of the net deferred losses on
        derivative instruments in AOCL as of June 30, 2007 is 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. During the first six months of
        2007,
        FirstEnergy unwound swaps with a total notional value of $150 million for
        which it incurred $8 million in cash losses, which will be recognized over
        the remaining maturity of each hedged security as interest expense. As of
        June
        30, 2007, FirstEnergy had interest rate swaps with an aggregate notional
        value
        of $600 million and a fair value of $(30) million.
 
 During
        2006 and the
        first six months of 2007, 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 issuances of fixed-rate,
        long-term debt securities for one or more of its subsidiaries during 2007
        and
        2008 as outstanding debt matures. 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 rates between the date
        of
        hedge inception and the date of the debt issuance. During the first six months
        of 2007, FirstEnergy terminated swaps with a notional value of $950 million
        for which it paid $2 million, all of which were deemed effective.
        FirstEnergy will recognize the loss over the life of the associated future
        debt.
        As of June 30, 2007, FirstEnergy had forward swaps with an aggregate notional
        amount of $250 million and a fair value of
        $6 million.
  3
  
 **5.  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
        $1.2 billion as of June 30, 2007 is primarily related to the 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 June 30, 2007,
        the fair value of the decommissioning trust assets was approximately
        $2.1 billion.
 
 The
        following tables
        analyze changes to the ARO balances during the three months and six months
        ended
        June 30, 2007 and 2006, respectively.
 
 **Three
                  Months Ended**
              
              **FirstEnergy**
              
              **OE**
              
              **CEI**
              
              **TE**
              
              **JCP&L**
              
              **Met-Ed**
              
              **Penelec*****(In
                  millions)*****ARO
                  Reconciliation**Balance,
                  April
                  1, 2007
              
              $
              1,208
              
              $
              89
              
              $
              2
              
              $
              27
              
              $
              86
              
              $
              153
              
              $
              78Liabilities
                  incurred
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Liabilities
                  settled
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Accretion
              
              
              21
              
              
              2
              
              
              -
              
              
              -
              
              
              1
              
              
              3
              
              
              1Revisions
                  in
                  estimatedcashflows
              
              
              (1
              )
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Balance,
                  June
                  30, 2007
              
              $
              1,228
              
              $
              91
              
              $
              2
              
              $
              27
              
              $
              87
              
              $
              156
              
              $
              79Balance,
                  April
                  1, 2006
              
              $
              1,148
              
              $
              84
              
              $
              8
              
              $
              25
              
              $
              81
              
              $
              144
              
              $
              73Liabilities
                  incurred
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Liabilities
                  settled
              
              
              (6
              )
              
              -
              
              
              (6
              )
              
              -
              
              
              -
              
              
              -
              
              
              -Accretion
              
              
              18
              
              
              1
              
              
              -
              
              
              1
              
              
              1
              
              
              2
              
              
              1Revisions
                  in
                  estimatedcashflows
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Balance,
                  June
                  30, 2006
              
              $
              1,160
              
              $
              85
              
              $
              2
              
              $
              26
              
              $
              82
              
              $
              146
              
              $
              74
 
 
 **Six
                  Months Ended**
              
              **FirstEnergy**
              
              **OE**
              
              **CEI**
              
              **TE**
              
              **JCP&L**
              
              **Met-Ed**
              
              **Penelec*****(In
                  millions)*****ARO
                  Reconciliation**Balance,
                  January 1, 2007
              
              $
              1,190
              
              $
              88
              
              $
              2
              
              $
              27
              
              $
              84
              
              $
              151
              
              $
              77Liabilities
                  incurred
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Liabilities
                  settled
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Accretion
              
              
              39
              
              
              3
              
              
              -
              
              
              -
              
              
              3
              
              
              5
              
              
              2Revisions
                  in
                  estimatedcashflows
              
              
              (1
              )
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Balance,
                  June
                  30, 2007
              
              $
              1,228
              
              $
              91
              
              $
              2
              
              $
              27
              
              $
              87
              
              $
              156
              
              $
              79Balance,
                  January 1, 2006
              
              $
              1,126
              
              $
              83
              
              $
              8
              
              $
              25
              
              $
              80
              
              $
              142
              
              $
              72Liabilities
                  incurred
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Liabilities
                  settled
              
              
              (6
              )
              
              -
              
              
              (6
              )
              
              -
              
              
              -
              
              
              -
              
              
              -Accretion
              
              
              36
              
              
              2
              
              
              -
              
              
              1
              
              
              2
              
              
              4
              
              
              2Revisions
                  in
                  estimatedcashflows
              
              
              4
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Balance,
                  June
                  30, 2006
              
              $
              1,160
              
              $
              85
              
              $
              2
              
              $
              26
              
              $
              82
              
              $
              146
              
              $
              74
 
  4
  
 **6.  PENSION
        AND OTHER POSTRETIREMENT BENEFITS**
 
 FirstEnergy
        provides
        noncontributory defined benefit pension plans that cover substantially all
        of
        its employees. 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, 2006. On January 2, 2007, FirstEnergy made a
        $300 million voluntary cash contribution to its qualified pension plan.
        Projections indicate that additional cash contributions are not expected
        to be
        required before 2016. 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.
        During
        2006, FirstEnergy amended the health care plan effective in 2008 to cap the
        monthly contribution for many of the retirees and their spouses receiving
        subsidized health care coverage. In addition, FirstEnergy has obligations
        to
        former or inactive employees after employment, but before retirement, for
        disability-related benefits.
 
 The
        components of
        FirstEnergy's net periodic pension and other postretirement benefit costs
        (including amounts capitalized) for the three months and six months ended
        June
        30, 2007 and 2006 consisted of the following:
 
 **Three
                  Months Ended**
              **Six
                  Months Ended****June
                  30,**
              
              **June
                  30,****Pension
                  Benefits**
              
              **2007**
              
              **2006**
              
              **2007**
              
              **2006*****(In
                  millions)***Service
                  cost
              
              $
              21
              
              $
              21
              
              $
              42
              
              $
              41Interest
                  cost
              
              
              71
              
              
              66
              
              
              142
              
              
              133Expected
                  return on plan assets
              
              
              (113
              )
              
              (99
              )
              
              (225
              )
              
              (198
              )Amortization
                  of prior service cost
              
              
              3
              
              
              2
              
              
              5
              
              
              5Recognized
                  net
                  actuarial loss
              
              
              11
              
              
              15
              
              
              21
              
              
              29Net
                  periodic
                  cost (credit)
              
              $
              (7
              )
              $
              5
              
              $
              (15
              )
              $
              10
 
 **Three
                  Months Ended**
              **Six
                  Months Ended****June
                  30,**
              
              **June
                  30,****Other
                  Postretirement Benefits**
              
              **2007**
              
              **2006**
              
              **2007**
              
              **2006*****(In
                  millions)***Service
                  cost
              
              $
              5
              
              $
              9
              
              $
              10
              
              $
              17Interest
                  cost
              
              
              17
              
              
              26
              
              
              34
              
              
              52Expected
                  return on plan assets
              
              
              (12
              )
              
              (12
              )
              
              (25
              )
              
              (23
              )Amortization
                  of prior service cost
              
              
              (37
              )
              
              (19
              )
              
              (74
              )
              
              (37
              )Recognized
                  net
                  actuarial loss
              
              
              11
              
              
              14
              
              
              23
              
              
              27Net
                  periodic
                  cost (credit)
              
              $
              (16
              )
              $
              18
              
              $
              (32
              )
              $
              36
 
 Pension
        and other
        postretirement benefit obligations are allocated to FirstEnergy’s subsidiaries
        employing the plan participants. FirstEnergy’s subsidiaries capitalize employee
        benefits related to construction projects. The net periodic pension and other
        postretirement benefit costs (including amounts capitalized) recognized by
        each
        of the Companies for the three months and six months ended June 30, 2007
        and
        2006 were as follows:
 
 **Three
                  Months Ended**
              
              **Six
                  Months Ended****June
                  30,**
              
              **June
                  30,****Pension
                  Benefit Cost (Credit)**
              
              **2007**
              
              **2006**
              
              **2007**
              
              **2006*****(In
                  millions)***OE
              
              $
              (3.9
              )
              $
              (1.5
              )
              $
              (7.9
              )
              $
              (2.9
              )CEI
              
              
              0.3
              
              
              1.0
              
              
              0.6
              
              
              1.9TE
              
              
              (0.1
              )
              
              0.2
              
              
              (0.1
              )
              
              0.4JCP&L
              
              
              (2.2
              )
              
              (1.4
              )
              
              (4.3
              )
              
              (2.7
              )Met-Ed
              
              
              (1.7
              )
              
              (1.7
              )
              
              (3.4
              )
              
              (3.5
              )Penelec
              
              
              (2.5
              )
              
              (1.3
              )
              
              (5.1
              )
              
              (2.7
              )Other
                  FirstEnergy subsidiaries
              
              
              2.6
              
              
              9.9
              
              
              5.1
              
              
              20.0$
              (7.5
              )
              $
              5.2
              
              $
              (15.1
              )
              $
              10.5
 
  5
  
 **Three
                  Months Ended**
              
              **Six
                  Months Ended****June
                  30,**
              
              **June
                  30,****Other
                  Postretirement Benefit Cost (Credit)**
              
              **2007**
              
              **2006**
              
              **2007**
              
              **2006*****(In
                  millions)***OE
              
              $
              (2.6
              )
              $
              4.2
              
              $
              (5.3
              )
              $
              8.4CEI
              
              
              0.9
              
              
              2.8
              
              
              1.9
              
              
              5.5TE
              
              
              1.2
              
              
              2.0
              
              
              2.4
              
              
              4.0JCP&L
              
              
              (4.0
              )
              
              0.6
              
              
              (8.0
              )
              
              1.2Met-Ed
              
              
              (2.6
              )
              
              0.7
              
              
              (5.1
              )
              
              1.5Penelec
              
              
              (3.1
              )
              
              1.8
              
              
              (6.3
              )
              
              3.6Other
                  FirstEnergy subsidiaries
              
              
              (5.7
              )
              
              6.1
              
              
              (11.4
              )
              
              12.1$
              (15.9
              )
              $
              18.2
              
              $
              (31.8
              )
              $
              36.3
 
 **7.  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.
  **Leases**
 
 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.
 
 OE,
        CEI and TE are
        exposed to losses under the applicable sale-leaseback agreements upon the
        occurrence of certain contingent events that each company considers unlikely
        to
        occur. OE, CEI and TE each have a maximum exposure to loss under these
        provisions of approximately $851 million, $790 million and
        $790 million, respectively, which represents the net amount of casualty
        value payments upon the occurrence of specified casualty events that render
        the
        applicable plant worthless. Under the applicable sale and leaseback agreements,
        OE, CEI and TE have net minimum discounted lease payments of $619 million,
        $82 million and $442 million, respectively, that would not be payable
        if the casualty value payments are made.
 
 **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.
  6
  
 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 incurs for power.
        FirstEnergy expects any above-market costs it incurs to be recovered from
        customers. As of June 30, 2007, the net above-market loss liability projected
        for these eight NUG agreements was $145 million. Purchased power costs from
        these entities during the three months and six months ended June 30, 2007
        and
        2006 are shown in the following table:
 
 **Three
                  Months Ended**
              
              **Six
                  Months Ended****June
                  30,**
              
              **June
                  30,****2007**
              
              **2006**
              
              **2007**
              
              **2006*****(In
                  millions)***JCP&L
              
              $
              21
              
              $
              19
              
              $
              41
              
              $
              34Met-Ed
              
              
              12
              
              
              16
              
              
              27
              
              
              33Penelec
              
              
              7
              
              
              7
              
              
              15
              
              
              14Total
              
              $
              40
              
              $
              42
              
              $
              83
              
              $
              81
 
 **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 June 30, 2007, $411 million of the transition bonds are
        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 that is
        payable from TBC collections.
 
 **8.  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 affect the
        effective tax rate would be purchase accounting adjustments to goodwill upon
        recognition. During the first six months of 2007, there were no material
        changes
        to FirstEnergy’s unrecognized tax benefits. As of June 30, 2007, the entire
        liability for uncertain tax positions is included in other non-current
        liabilities and changes to FirstEnergy’s tax contingencies that are reasonably
        possible in the next 12 months are not material.
  7
  
 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. As
        of
        January 1, 2007, the net amount of interest accrued was $34 million. During
        the first six months of 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 2001-2006. The IRS
        began
        reviewing returns for the years 2001-2003 in July 2004 and several items
        are
        under appeal. The federal audit for years 2004 and 2005 began in June 2006
        and
        is not expected to close before December 2007. The IRS began auditing the
        year
        2006 in April 2006 under its Compliance Assurance Process experimental program,
        which is not expected to close before December 2007. 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.
 
 In
        the first six
        months of 2007, OE’s income taxes included an immaterial adjustment applicable
        to prior periods of $7.2 million related to an inter-company federal tax
        allocation arrangement among FirstEnergy and its subsidiaries.
 
 **9.  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
        June 30, 2007, outstanding guarantees and other assurances aggregated
        approximately $4.1 billion, consisting of contract guarantees -
        $2.3 billion, surety bonds - $0.1 billion and LOCs - $1.7
        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
        subsidiary financings or refinancings 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 $0.8 billion
        (included in the $2.3 billion discussed above) as of June 30, 2007
        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
        June 30, 2007, FirstEnergy's maximum exposure under these collateral
        provisions was $421 million.
 
 Most
        of
        FirstEnergy's surety bonds are backed by various indemnities common within
        the
        insurance industry. Surety bonds and related FirstEnergy guarantees of
        $95 million provide additional assurance to outside parties that
        contractual and statutory obligations will be met in a number of areas including
        construction jobs, environmental commitments and various retail
        transactions.
 
 The
        Companies, with
        the exception of TE and JCP&L, each have a wholly owned subsidiary whose
        borrowings are secured by customer accounts receivable purchased from its
        respective parent company. The CEI subsidiary's borrowings are also secured
        by
        customer accounts receivable purchased from TE. Each subsidiary company has
        its
        own receivables financing arrangement and, as a separate legal entity with
        separate creditors, would have to satisfy its obligations to creditors before
        any of its remaining assets could be available to its parent
        company.
 
 **Borrowing****Subsidiary
                    Company**
              
              **Parent
                  Company**
              
              **Capacity*****(In
                  millions)***OES
                  Capital,
                  Incorporated
              
              
              OE
              
              $
              170Centerior
                  Funding Corp.
              
              
              CEI
              
              
              200Penn
                  Power
                  Funding LLC
              
              
              Penn
              
              
              25Met-Ed
                  Funding
                  LLC
              
              
              Met-Ed
              
              
              80Penelec
                  Funding LLC
              
              
              Penelec
              
              
              75$
              550
  8
  
 FirstEnergy
        has also
        guaranteed the obligations of the operators of the TEBSA project, up to a
        maximum of $6 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 ($27 million as of
        June 30, 2007), which is renewable and declines yearly based upon the
        senior outstanding debt of TEBSA.
 
 On
        July 13, 2007,
        FGCO completed a sale and leaseback transaction for its 93.825% undivided
        interest in Bruce Mansfield Plant Unit 1, representing 779 MW of net
        demonstrated capacity. The purchase price of approximately $1.329 billion
        (net
        after-tax proceeds of approximately $1.2 billion) for the undivided interest
        was
        funded through a combination of equity investments by affiliates of AIG
        Financial Products Corp. and Union Bank of California, N.A. in six lessor
        trusts
        and proceeds from the sale of $1.135 billion aggregate principal amount of
        6.85%
        pass through certificates due 2034.  A like principal amount of
        secured notes maturing June 1, 2034 were issued by the lessor trusts to the
        pass
        through trust that issued and sold the certificates.  The lessor
        trusts leased the undivided interest back to FGCO for a term of approximately
        33
        years under substantially identical leases. FES has unconditionally and
        irrevocably guaranteed all of FGCO’s obligations under each of the
        leases.  The notes and certificates are not guaranteed by FES or FGCO,
        but the notes are secured by, among other things, each lessor’s undivided
        interest in Unit 1, rights and interests under the applicable lease
        and rights and interests under other related agreements. The transaction
        will be
        classified as a financing under GAAP until FGCO’s and FES’ registration
        obligations under the registration rights agreement applicable to the $1.135
        billion principal amount of pass through certificates issued in connection
        with
        the transaction are satisfied, at which time it is expected to be classified
        as
        an operating lease under GAAP. This transaction generated tax capital gains
        of
        approximately $830 million, a substantial portion of which will be offset
        by existing tax capital loss carryforwards.  FirstEnergy expects to
        reduce its tax loss carryforward valuation allowances in the third quarter
        of
        2007 and anticipates an immaterial impact to net income as the majority of
        the
        unrecognized tax benefits will reduce goodwill.
 
 **(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 $1.8 billion for 2007 through
        2011.
 
 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.
 
 *Clean
        Air Act Compliance*
 
 FirstEnergy
        is
        required to meet federally-approved SO2 emissions
        regulations. Violations of such regulations can result in 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 Clean Air Act.
        FirstEnergy has disputed those alleged violations based on its Clean Air
        Act
        permit, the Ohio SIP and other information provided 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.
  9
  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 Clean Air Act, alleging violations
        of
        air pollution laws at the Mansfield Plant, including opacity limitations.
        Prior
        to the receipt of this notice, the Mansfield 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 July 25, 2007, FirstEnergy and PennFuture
        entered into a Tolling and Confidentiality Agreement that provides for a
        60-day
        negotiation period during which the parties have agreed to not file a
        lawsuit.
 
 *National
        Ambient Air Quality
        Standards*
 
 In
        July 1997, the
        EPA promulgated changes in the NAAQS for ozone and fine particulate matter.
        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
        allowed each affected state until 2006 to develop implementing regulations
        to
        achieve additional 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-fired generation facilities
        will be subject to caps on SO2 and NOX
        emissions, whereas
        its New Jersey fossil-fired 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. The future cost of compliance with these regulations
        may
        be substantial and will depend on how they are ultimately implemented by
        the
        states in which FirstEnergy operates affected facilities.
 
 *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, mercury emissions
        will be
        capped nationally at 38 tons by 2010 (as a "co-benefit" from implementation
        of SO2 and
        NOX emission
        caps under the EPA's CAIR program). Phase II of the mercury cap-and-trade
        program will cap nationwide mercury emissions from coal-fired power plants
        at
        15 tons per year by 2018. However, the final rules give states substantial
        discretion in developing rules to implement these programs. In addition,
        both
        the CAIR and the CAMR have been challenged in the United States Court of
        Appeals
        for the District of Columbia. FirstEnergy's future cost of compliance with
        these
        regulations may be substantial and will depend on how they are ultimately
        implemented by the states in which FirstEnergy operates affected
        facilities.
 
 The
        model rules for
        both CAIR and CAMR contemplate an input-based methodology to allocate allowances
        to affected facilities. Under this approach, allowances would be allocated
        based
        on the amount of fuel consumed by the affected sources. FirstEnergy would
        prefer
        an output-based generation-neutral methodology in which allowances are allocated
        based on megawatts of power produced, allowing new and non-emitting generating
        facilities (including renewables and nuclear) to be entitled to their
        proportionate share of the allowances. Consequently, FirstEnergy will be
        disadvantaged if these model rules were implemented as proposed because
        FirstEnergy’s substantial reliance on non-emitting (largely nuclear) generation
        is not recognized under the input-based allocation.
 
 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. Pennsylvania’s mercury
        regulation would deprive FES of mercury emission allowances that were to
        be
        allocated to the Mansfield Plant under the CAMR and that would otherwise
        be
        available for achieving FirstEnergy system-wide compliance. 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 Mansfield Plant,
        FirstEnergy’s only Pennsylvania coal-fired power plant, until 2015, if at
        all.
  10
  
 *W.
        H. Sammis Plant*
 
 In
        1999 and 2000,
        the EPA issued NOV or compliance orders to nine utilities alleging violations
        of
        the Clean Air Act based on operation and maintenance of 44 power plants,
        including the W. H. Sammis Plant, which was owned at that time by OE and
        Penn,
        and is now owned by FGCO. In addition, the DOJ filed eight civil complaints
        against various investor-owned utilities, including a complaint against OE
        and
        Penn in the U.S. District Court for the Southern District of Ohio. These
        cases
        are referred to as the New Source Review, or 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 settlement agreement are currently
        estimated to be $1.7 billion for 2007 through 2011 ($400 million of which
        is expected to be spent during 2007, with the largest portion of the remaining
        $1.3 billion expected to be spent in 2008 and 2009).
 
 The
        Sammis NSR
        Litigation consent decree also requires FirstEnergy to spend up to
        $25 million toward environmentally beneficial projects, $14 million of
        which is satisfied by entering into 93 MW (or 23 MW if federal tax credits
        are
        not applicable) of wind energy purchased power agreements with a 20-year
        term.
        An initial 16 MW of the 93 MW consent decree obligation was satisfied
        during 2006.
 
 *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 5.2% from 1990 levels between 2008
        and
        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. At the international
        level, efforts have begun to develop climate change agreements for post-2012
        GHG
        reductions. 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.
 
 At
        the federal
        level, members of Congress have introduced several bills seeking to reduce
        emissions of GHG in the United States.  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.
 
 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 Clean Air Act. Although this
        decision did not address CO2 emissions
        from
        electric generating plants, the EPA has similar authority under the Clean
        Air
        Act to regulate “air pollutants” from those and other facilities. Also 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, the EPA proposed to change the NSR regulations, on
        May 8, 2007, to utilize changes in the hourly emission rate (in
        kilograms/hour) to determine whether an emissions increase triggers
        NSR.
 
 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.
  11
  
 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 federal Court of Appeals for the Second
        Circuit remanded portions of the rulemaking dealing with impingement mortality
        and entrainment back to EPA for further rulemaking and eliminated the
        restoration option from 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. FirstEnergy is evaluating various control options and
        their
        costs and effectiveness. Depending on the outcome of such studies, the EPA’s
        further rulemaking and any action taken by the states exercising BPJ, the
        future
        cost 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 nonhazardous
        waste.
 
 Under
        NRC
        regulations, FirstEnergy must ensure that adequate funds will be available
        to
        decommission its nuclear facilities.  As of June 30, 2007, FirstEnergy
        had approximately $1.5 billion invested in external trusts to be used for
        the
        decommissioning and environmental remediation of Davis-Besse, Beaver Valley
        and
        Perry.  As part of the application to the NRC to transfer the
        ownership of these nuclear facilities to NGC, 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 plans to seek 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 are liable on a
        joint
        and several basis. Therefore, environmental liabilities that are considered
        probable have been recognized on the Consolidated Balance Sheet as of June
        30,
        2007, 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. In addition, JCP&L has accrued liabilities for
        environmental remediation of former manufactured gas plants in New Jersey;
        those
        costs are being recovered by JCP&L through a non-bypassable SBC. Total
        liabilities of approximately $88 million (JCP&L - $60 million, TE
        - $3 million, CEI - $1 million, and other subsidiaries - $24 million) have
        been accrued through June 30, 2007.
 
 **(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.
  12
  
 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
        on
        July 8, 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, on March 7, 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
        on
        May 9, 2007.  Proceedings are continuing in the Superior
        Court.  FirstEnergy is vigorously defending this class action but is
        unable to predict the outcome of this matter.  No liability has been
        accrued as of June 30, 2007.
 
 On
        August 14,
        2003, various states and parts of southern Canada experienced widespread
        power
        outages. The outages affected approximately 1.4 million customers in
        FirstEnergy's service area. The U.S. – Canada Power System Outage Task Force’s
        final report in April 2004 on the outages concluded, among other things,
        that
        the problems leading to the outages began in FirstEnergy’s Ohio service area.
        Specifically, the final report concluded, among other things, that the
        initiation of the August 14, 2003 power outages resulted from an alleged
        failure of both FirstEnergy and ECAR to assess and understand perceived
        inadequacies within the FirstEnergy system; inadequate situational awareness
        of
        the developing conditions; and a perceived failure to adequately manage tree
        growth in certain transmission rights of way. The Task Force also concluded
        that
        there was a failure of the interconnected grid's reliability organizations
        (MISO
        and PJM) to provide effective real-time diagnostic support. The final report
        is
        publicly available through the Department of Energy’s Web site (www.doe.gov).
        FirstEnergy believes that the final report does not provide a complete and
        comprehensive picture of the conditions that contributed to the August 14,
        2003 power outages and that it does not adequately address the underlying
        causes
        of the outages. FirstEnergy remains convinced that the outages cannot be
        explained by events on any one utility's system. The final report contained
        46
“recommendations to prevent or minimize the scope of future blackouts.”
Forty-five of those recommendations related to broad industry or policy matters
        while one, including subparts, related to activities the Task Force recommended
        be undertaken by FirstEnergy, MISO, PJM, ECAR, and other parties to correct
        the
        causes of the August 14, 2003 power outages. FirstEnergy implemented
        several initiatives, both prior to and since the August 14, 2003 power
        outages, which were independently verified by NERC as complete in 2004 and
        were
        consistent with these and other recommendations and collectively enhance
        the
        reliability of its electric system. FirstEnergy’s implementation of these
        recommendations in 2004 included completion of the Task Force recommendations
        that were directed toward FirstEnergy. 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.
  13
  
 FirstEnergy
        companies also are defending four separate complaint cases before the PUCO
        relating to the August 14, 2003 power outages. Two of those cases were
        originally filed in Ohio State courts but were subsequently dismissed for
        lack
        of subject matter jurisdiction and further appeals were unsuccessful. In
        these
        cases the individual complainants—three in one case and four in the other—sought
        to represent others as part of a class action. The PUCO dismissed the class
        allegations, stating that its rules of practice do not provide for class
        action
        complaints. Two other pending PUCO complaint cases were filed by various
        insurance carriers either in their own name as subrogees or in the name of
        their
        insured. In each of these cases, the carrier seeks reimbursement from various
        FirstEnergy companies (and, in one case, from PJM, MISO and American Electric
        Power Company, Inc., as well) for claims paid to insureds for damages allegedly
        arising as a result of the loss of power on August 14, 2003. A fifth case
        in which a carrier sought reimbursement for claims paid to insureds was
        voluntarily dismissed by the claimant in April 2007. A sixth case involving
        the
        claim of a non-customer seeking reimbursement for losses incurred when its
        store
        was burglarized on August 14, 2003 was dismissed. The four cases were
        consolidated for hearing by the PUCO in an order dated March 7,
        2006.  In that order the PUCO also limited the litigation to
        service-related claims by customers of the Ohio operating companies; dismissed
        FirstEnergy as a defendant; and ruled that the U.S.-Canada Power System Outage
        Task Force Report was not admissible into evidence. In response to a motion
        for
        rehearing filed by one of the claimants, the PUCO ruled on April 26, 2006
        that
        the insurance company claimants, as insurers, may prosecute their claims
        in
        their name so long as they also identify the underlying insured entities
        and the
        Ohio utilities that provide their service. The PUCO denied all other motions
        for
        rehearing. The plaintiffs in each case have since filed amended complaints
        and
        the named FirstEnergy companies have answered and also have filed a motion
        to
        dismiss each action. On September 27, 2006, the PUCO dismissed certain parties
        and claims and otherwise ordered the complaints to go forward to hearing.
        The
        cases have been set for hearing on January 8, 2008.
 
 On
        October 10, 2006,
        various insurance carriers refiled a complaint in Cuyahoga County Common
        Pleas
        Court seeking reimbursement for claims paid to numerous insureds who allegedly
        suffered losses as a result of the August 14, 2003 outages. All of the insureds
        appear to be non-customers. The plaintiff insurance companies are the same
        claimants in one of the pending PUCO cases. FirstEnergy, the Ohio Companies
        and
        Penn were served on October 27, 2006.  On January 18, 2007, the Court
        granted the Companies’ motion to dismiss the case and they have not been
        appealed.  However, on April 25, 2007, one of the insurance carriers
        refiled the complaint naming only FirstEnergy as the defendant.  On
        July 30, 2007, the case was voluntarily dismissed.  No estimate of
        potential liability is available for any of these cases.
 
 FirstEnergy
        was also
        named, along with several other entities, in a complaint in New Jersey State
        Court. The allegations against FirstEnergy were based, in part, on an alleged
        failure to protect the citizens of Jersey City from an electrical power outage.
        None of FirstEnergy’s subsidiaries serve customers in Jersey City. A responsive
        pleading has been filed. On April 28, 2006, the Court granted FirstEnergy's
        motion to dismiss. The plaintiff has not appealed.
 
 FirstEnergy
        is
        vigorously defending these actions, but cannot predict the outcome of any
        of
        these proceedings or whether any further regulatory proceedings or legal
        actions
        may be initiated against the Companies. Although FirstEnergy is unable to
        predict the impact of these proceedings, if FirstEnergy or its subsidiaries
        were
        ultimately determined to have legal liability in connection with these
        proceedings, it could have a material adverse effect on FirstEnergy's or
        its
        subsidiaries' financial condition, results of operations and cash
        flows.
 
 *Nuclear
        Plant Matters*
 
 On
        August 12,
        2004, the NRC notified FENOC that it would increase its regulatory oversight
        of
        the Perry Nuclear Power Plant as a result of problems with safety system
        equipment over the preceding two years and the licensee's failure to take
        prompt
        and corrective action. On April 4, 2005, the NRC held a public meeting to
        discuss FENOC’s performance at the Perry Nuclear Power Plant as identified in
        the NRC's annual assessment letter to FENOC. Similar public meetings are
        held
        with all nuclear power plant licensees following issuance by the NRC of their
        annual assessments. According to the NRC, overall the Perry Nuclear Power
        Plant
        operated "in a manner that preserved public health and safety" even though
        it
        remained under heightened NRC oversight. During the public meeting and in
        the
        annual assessment, the NRC indicated that additional inspections would continue
        and that the plant must improve performance to be removed from the
        Multiple/Repetitive Degraded Cornerstone Column of the Action
        Matrix.
 
 On
        September 28, 2005, the NRC sent a CAL to FENOC describing commitments that
        FENOC had made to improve the performance at the Perry Nuclear Power Plant
        and
        stated that the CAL would remain open until substantial improvement was
        demonstrated. The CAL was anticipated as part of the NRC's Reactor Oversight
        Process. By two letters dated March 2, 2007, the NRC closed the CAL
        commitments for Perry, the two outstanding white findings, and crosscutting
        issues.  Moreover, the NRC removed Perry from the Multiple Degraded
        Cornerstone Column of the NRC Action Matrix and placed the plant in the Licensee
        Response Column (regular agency oversight).
  14
  
 On
        April 30, 2007,
        the UCS filed a petition with the NRC under Section 2.206 of the NRC’s
        regulations based on a report prepared at FENOC’s request by expert witnesses
        for an insurance arbitration.  In December 2006, the expert witnesses
        for FENOC completed a report that analyzed the crack growth rates in control
        rod
        drive mechanism penetrations and wastage of the former reactor pressure vessel
        head at Davis-Besse.   Citing the findings in the expert witness'
        report, the Section 2.206 petition requested that: (1) Davis-Besse be
        immediately shut down; (2) that the NRC conduct an independent review of
        the
        consultant's report and that all pressurized water reactors be shut down
        until
        remedial actions can be implemented; and (3) Davis-Besse’s operating license be
        revoked.
 
 In
        a letter dated
        May 18, 2007, the NRC stated that the “current reactor pressure vessel (RPV)
        head inspection requirements are adequate to detect RPV degradation issues
        before they result in significant corrosion.” The NRC also indicated that, “no
        immediate safety concern exists at Davis-Besse” and denied UCS’ first demand (to
        shut down the facility).  On June 18, 2007, the NRC Petition
        Review Board indicated that the agency had initially denied petitioner’s other
        requests, and provided an opportunity for UCS to provide additional information
        prior to the final determination. By letter dated July 12, 2007, the NRC
        denied the remainder of the UCS petition.
 
 On
        May 14, 2007, the
        Office of Enforcement of the NRC issued a Demand for Information to FENOC
        following FENOC’s reply to an April 2, 2007 NRC request for information about
        the expert witnesses’ report and another report. The NRC indicated that this
        information is 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 Demand for Information 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. The NRC held a public
        meeting on June 27, 2007 with FENOC to discuss FENOC’s response to the Demand
        for Information. In follow-up discussions, FENOC was requested to provide
        supplemental information to clarify certain aspects of the Demand for
        Information response and provide additional details regarding plans to implement
        the commitments made therein. FENOC submitted this supplemental response
        to the
        NRC on July 16, 2007. FirstEnergy can provide no assurances as to the
        ultimate resolution of this matter.
 
 *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.
 
 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 plaintiff’s motion to amend their complaint which OE
        has opposed.
 
 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. JCP&L
        intends to re-file an appeal again in federal district court once the damages
        associated with this case are identified at an individual employee level.
        JCP&L recognized a liability for the potential $16 million award in
        2005. The parties met on June 27, 2007 before an arbitrator to assert their
        positions regarding the finality of damages. A hearing before the arbitrator
        is
        set for September 7, 2007.
  The
          union employees
          at the W. H. Sammis Plant have been working without a labor contract since
          July
          1, 2007. The union expects to vote on a new contract on August 9, 2007.
          While it
          is expected the union will ratify a new contract, FirstEnergy has a strike
          mitigation plan ready in the event of a strike.
 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.
  15
  
 **10.  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. In 2004, FirstEnergy completed
        implementation of all actions and initiatives related to enhancing area
        reliability, improving voltage and reactive management, operator readiness
        and
        training and emergency response preparedness recommended for completion in
        2004.
        On July 14, 2004, NERC independently verified that FirstEnergy had
        implemented the various initiatives to be completed by June 30 or summer
        2004, with minor exceptions noted by FirstEnergy, which exceptions are now
        essentially complete. FirstEnergy is 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 equipment or material upgrades to
        existing equipment. The FERC or other applicable government agencies and
        reliability entities may, however, take a different view as to recommended
        enhancements or may recommend additional enhancements in the future, which
        could
        require additional, material expenditures.
 
 As
        a result of
        outages experienced in JCP&L’s service area in 2002 and 2003, the NJBPU had
        implemented reviews into JCP&L’s service reliability. In 2004, the NJBPU
        adopted an MOU that set out specific tasks related to service reliability
        to be
        performed by JCP&L and a timetable for completion and endorsed JCP&L’s
        ongoing actions to implement the MOU. On June 9, 2004, the NJBPU approved a
        stipulation that incorporates the final report of an SRM who made
        recommendations on appropriate courses of action necessary to ensure system-wide
        reliability. The stipulation also incorporates the Executive Summary and
        Recommendation portions of the final report of a focused audit of JCP&L’s
        Planning and Operations and Maintenance programs and practices. On
        February 11, 2005, JCP&L met with the DRA to discuss reliability
        improvements. The SRM completed his work and issued his final report to the
        NJBPU on June 1, 2006. JCP&L filed a comprehensive response to the NJBPU on
        July 14, 2006. JCP&L continues to file compliance reports reflecting
        activities associated with the MOU and stipulation.
 
 The
        EPACT served
        partly to amend the Federal Power Act with Section 215, which requires that
        an
        ERO establish and enforce reliability standards for the bulk-power system,
        subject to review of the FERC. Subsequently, the FERC certified NERC as the
        ERO,
        approved NERC's Compliance Monitoring and Enforcement Program and approved
        a set
        of reliability standards, which became mandatory and enforceable on June
        18,
        2007 with penalties and sanctions for noncompliance. The FERC also approved
        a
        delegation agreement between NERC and Reliability*First* Corporation, one
        of eight Regional Entities that carry out enforcement for NERC.  All
        of FirstEnergy’s facilities are located within the Reliability*First*
        region.
 
 While
        the FERC
        approved 83 of the 107 reliability standards proposed by NERC, the FERC has
        directed NERC to submit improvements to 56 of them, endorsing NERC's process
        for
        developing reliability standards and its associated work plan. On May 4,
        2007,
        NERC also submitted 24 proposed Violation Risk Factors.  The FERC
        issued an order approving 22 of those factors on June 26, 2007. Further,
        NERC
        adopted eight cyber security standards that became effective on June 1,
        2006 and filed them with the FERC for approval.  On December 11,
        2006, the FERC Staff provided its preliminary assessment of the cyber security
        standards and cited various deficiencies in the proposed
        standards.  Numerous parties, including FirstEnergy, provided comments
        on the assessment by February 12, 2007. The standards remain pending before
        the FERC.  On July 20, 2007, the FERC issued a NOPR proposing to adopt
        eight Critical Infrastructure Protection Reliability
        Standards.  Comments will not be due to the FERC until September or
        October of 2007.
 
 FirstEnergy
        believes
        it is in compliance with all current NERC reliability standards. However,
        based
        upon a review of the FERC's guidance to NERC in its March 16, 2007 Final
        Rule on
        Mandatory Reliability Standards, it appears that the FERC will eventually
        adopt
        stricter NERC reliability standards than those just approved. The financial
        impact of complying with the new standards cannot be determined at this time.
        However, the EPACT required that all prudent costs incurred to comply with
        the
        new reliability standards be recovered in rates. If FirstEnergy is unable
        to
        meet the reliability standards for its bulk power system in the future, it
        could
        have a material adverse effect on FirstEnergy’s and its subsidiaries’ financial
        condition, results of operations and cash flows.
 
 On
        April 18-20,
        2007, Reliabilit*yFirst* performed a routine compliance audit of
        FirstEnergy's bulk-power system within the Midwest ISO region and found
        FirstEnergy to be in full compliance with all audited reliability
        standards.  Similarly, Reliability*First* has scheduled a
        compliance audit of FirstEnergy's bulk-power system within the PJM region
        in
        2008. FirstEnergy does not expect any material adverse impact to its financial
        condition as a result of these audits.
  16
  
 **(B)   OHIO**
 
 On
        October 21, 2003,
        the Ohio Companies filed their RSP case with the PUCO. On August 5, 2004,
        the
        Ohio Companies accepted the RSP as modified and approved by the PUCO in an
        August 4, 2004 Entry on Rehearing, subject to a CBP. The RSP was intended
        to
        establish generation service rates beginning January 1, 2006, in response
        to the
        PUCO’s concerns about price and supply uncertainty following the end of the Ohio
        Companies' transition plan market development period. On May 3, 2006, the
        Supreme Court of Ohio issued an opinion affirming the PUCO's order in all
        respects, except it remanded back to the PUCO the matter of ensuring the
        availability of sufficient means for customer participation in the marketplace.
        The RSP contained a provision that permitted the Ohio Companies to withdraw
        and
        terminate the RSP in the event that the PUCO, or the Supreme Court of Ohio,
        rejected all or part of the RSP. In such event, the Ohio Companies have 30
        days
        from the final order or decision to provide notice of termination. On July
        20,
        2006, the Ohio Companies filed with the PUCO a Request to Initiate a Proceeding
        on Remand. In their Request, the Ohio Companies provided notice of termination
        to those provisions of the RSP subject to termination, subject to being
        withdrawn, and also set forth a framework for addressing the Supreme Court
        of
        Ohio’s findings on customer participation. If the PUCO approves a resolution to
        the issues raised by the Supreme Court of Ohio that is acceptable to the
        Ohio
        Companies, the Ohio Companies’ termination will be withdrawn and considered to
        be null and void. On July 20, 2006, the OCC and NOAC also submitted to the
        PUCO a conceptual proposal addressing the issue raised by the Supreme Court
        of
        Ohio. On July 26, 2006, the PUCO issued an Entry directing the Ohio Companies
        to
        file a plan in a new docket to address the Court’s concern. The Ohio Companies
        filed their RSP Remand CBP on September 29, 2006. Initial comments were
        filed on January 12, 2007 and reply comments were filed on January 29,
        2007. In their reply comments the Ohio Companies described the highlights
        of a
        new tariff offering they would be willing to make available to customers
        that
        would allow customers to purchase renewable energy certificates associated
        with
        a renewable generation source, subject to PUCO approval. On May 29, 2007,
        the Ohio Companies, together with the PUCO Staff and the OCC, filed a
        stipulation with the PUCO agreeing to offer a standard bid product and a
        green
        resource tariff product. The stipulation is currently pending before the
        PUCO.
        No further proceedings are scheduled at this time.
 
 On
        August 31, 2005,
        the PUCO approved a rider recovery mechanism through which the Ohio Companies
        may recover all MISO transmission and ancillary service related costs incurred
        during each year ending June 30. Pursuant to the PUCO’s order, the Ohio
        Companies, on May 1, 2007, filed revised riders, which became effective on
        July
        1, 2007.  The revised riders represent an increase over the amounts
        collected through the 2006 riders of approximately $64 million
        annually.  If it is subsequently determined by the PUCO that
        adjustments to the rider as filed are necessary, such adjustments, with carrying
        costs, will be incorporated into the 2008 transmission rider
        filing.
  On
        May 8, 2007, the
        Ohio Companies filed with the PUCO a notice of intent to file for an increase
        in
        electric distribution rates. The Ohio Companies filed the application and
        rate
        request 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 bill for most Ohio customers.  The
        distribution rate increases reflect capital expenditures since the Ohio
        Companies’ last distribution rate proceedings, increases in operating and
        maintenance expenses and recovery of regulatory assets created by deferrals
        that
        were approved in prior cases. On August 6, 2007, the Ohio Companies
        provided an update filing supporting a distribution rate increase of
        $332 million to the PUCO to establish the test period data that will be
        used as the basis for setting rates in that proceeding. The PUCO Staff is
        expected to issue its report in the case in the fourth quarter of 2007 with
        evidentiary hearings to follow in late 2007. The PUCO order is expected to
        be
        issued by March 9, 2008. The new rates, subject to evidentiary hearings and
        approval at the PUCO, would become effective January 1, 2009 for OE and TE,
        and
        approximately May 2009 for CEI.
 
 On
        July 10, 2007,
        the Ohio Companies filed an application with the PUCO requesting approval
        of a
        comprehensive supply plan for providing 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 kilowatt-hour 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.
        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 Ohio Companies requested
        that the PUCO issue an order by November 1, 2007, to provide sufficient time
        to
        conduct the bidding process. The PUCO has scheduled a technical conference
        for
        August 16, 2007.
  17
  
 **(C)   PENNSYLVANIA**
 
 Met-Ed
        and Penelec
        have been purchasing a portion of their PLR requirements from FES through
        a
        partial requirements wholesale power sales agreement and various amendments.
        Under these agreements, FES retained the supply obligation and the supply
        profit
        and loss risk for the portion of power supply requirements not self-supplied
        by
        Met-Ed and Penelec. The FES agreements have reduced Met-Ed's and Penelec's
        exposure to high wholesale power prices by providing power at a fixed price
        for
        their uncommitted PLR capacity and energy costs during the term of these
        agreements with FES.
 
 On
        April 7,
        2006, the parties entered into a tolling agreement that arose from FES’ notice
        to Met-Ed and Penelec that FES elected to exercise its right to terminate
        the
        partial requirements agreement effective midnight December 31, 2006. On
        November 29, 2006, Met-Ed, Penelec and FES agreed to suspend the April 7
        tolling agreement pending resolution of the PPUC’s proceedings regarding the
        Met-Ed and Penelec comprehensive transition rate cases filed April 10, 2006,
        described below. Separately, on September 26, 2006, Met-Ed and Penelec
        successfully conducted a competitive RFP for a portion of their PLR obligation
        for the period December 1, 2006 through December 31, 2008. FES was one
        of the successful bidders in that RFP process and on September 26, 2006 entered
        into a supplier master agreement to supply a certain portion of Met-Ed’s and
        Penelec’s PLR requirements at market prices that substantially exceed the fixed
        price in the partial requirements agreements.
 
 Based
        on the outcome
        of the 2006 comprehensive transition rate filing, as described below, Met-Ed,
        Penelec and FES agreed to restate the partial requirements power sales agreement
        effective January 1, 2007. The restated agreement incorporates the same fixed
        price for residual capacity and energy supplied by FES as in the prior
        arrangements between the parties, and automatically extends for successive
        one
        year terms unless any party gives 60 days’ notice prior to the end of the year.
        The restated agreement also 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 thus sold to the extent needed for Met-Ed and Penelec
        to
        satisfy their PLR obligations. The parties also have separately terminated
        the
        tolling, suspension and supplier master agreements in connection with the
        restatement of the partial requirements agreement. Accordingly, the energy
        that
        would have been supplied under the supplier master agreement will now be
        provided under the restated partial requirements agreement. The fixed price
        under the restated 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 its 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 in accordance with the April 7, 2006
        tolling agreement described above. Met-Ed and Penelec also requested approval
        of
        a January 12, 2005 petition for the deferral of transmission-related costs,
        but only for those costs incurred during 2006. In this rate filing, Met-Ed
        and
        Penelec also 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 the merger savings,
        with the comprehensive transmission rate filing case.
  18
  
 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,
        when
        new transmission rates were effective, 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 in 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 expenses and the
        transmission deferral. 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). Met-Ed and Penelec filed a Petition for
        Reconsideration on January 26, 2007 on the issues of consolidated tax savings
        and rate of return on equity. Other parties filed Petitions for Reconsideration
        on transmission (including congestion), transmission deferrals and rate design
        issues. On February 8, 2007, the PPUC entered an order granting Met-Ed’s,
        Penelec’s and the other parties’ petitions for procedural purposes. Due to that
        ruling, the period for appeals to the Commonwealth Court of Pennsylvania
        was
        tolled until 30 days after the PPUC entered a subsequent order ruling on
        the
        substantive issues raised in the petitions. On March 1, 2007, the PPUC issued
        three orders: (1) a tentative order regarding the reconsideration by the
        PPUC of
        its own order; (2) an order denying the Petitions for Reconsideration of
        Met-Ed,
        Penelec and the OCA and denying in part and accepting in part the MEIUG’s and
        PICA’s Petition for Reconsideration; and (3) an order approving the Compliance
        filing. Comments to the PPUC for reconsideration of its order were filed
        on
        March 8, 2007, and the PPUC ruled on the reconsideration on April 13, 2007,
        making minor changes to rate design as agreed upon by Met-Ed, Penelec and
        certain other parties.
 
 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. On June 19, 2007, initial briefs were filed by all
        parties. Responsive briefs are due August 20, 2007, with reply briefs due
        September 4, 2007. Oral arguments are expected to take place in late 2007
        or early 2008. If Met-Ed and Penelec do not prevail on the issue of congestion,
        it could have a material adverse effect on the financial condition and
        results of operations of Met-Ed, Penelec and FirstEnergy.
 
 As
        of June 30, 2007,
        Met-Ed's and Penelec's unrecovered regulatory deferrals pursuant to the 2006
        comprehensive transition rate case, the 1998 Restructuring Settlement (including
        the Phase 2 Proceedings) and the FirstEnergy/GPU Merger Settlement Stipulation
        were $493 million and $127 million, respectively. $82 million of
        Penelec’s deferral is subject to final resolution of an IRS settlement
        associated with NUG trust fund proceeds. During the PPUC’s annual audit of
        Met-Ed’s and Penelec’s NUG stranded cost balances in 2006, it noted a
        modification to the NUG purchased power stranded cost accounting methodology
        made by Met-Ed and Penelec. On August 18, 2006, a PPUC Order was entered
        requiring Met-Ed and Penelec to reflect the deferred NUG cost balances as
        if the
        stranded cost accounting methodology modification had not been implemented.
        As a
        result of this PPUC order, Met-Ed recognized a pre-tax charge of approximately
        $10.3 million in the third quarter of 2006, representing incremental costs
        deferred under the revised methodology in 2005. Met-Ed and Penelec continue
        to
        believe that the stranded cost accounting methodology modification is
        appropriate and on August 24, 2006 filed a petition with the PPUC pursuant
        to
        its order for authorization to reflect the stranded cost accounting methodology
        modification effective January 1, 1999. Hearings on this petition were held
        in
        late February 2007 and briefing was completed on March 28, 2007. The ALJ’s
        initial decision was issued on May 3, 2007 and denied Met-Ed's and Penelec’s
        request to modify their NUG stranded cost accounting methodology. The companies
        filed exceptions to the initial decision on May 23, 2007 and replies to those
        exceptions were filed on June 4, 2007. It is not known when the PPUC may
        issue a
        final decision in this matter.
 
 On
        May 2, 2007, Penn
        filed a plan with the PPUC for the procurement of PLR supply from June 2008
        through May 2011. The filing proposes multiple, competitive RFPs with staggered
        delivery periods for fixed-price, tranche-based, pay as bid PLR supply to
        the
        residential and commercial classes. The proposal phases out existing promotional
        rates and eliminates the declining block and the demand components on generation
        rates for residential and commercial customers. The industrial class PLR
        service
        will be provided through an hourly-priced service provided by Penn. Quarterly
        reconciliation of the differences between the costs of supply and revenues
        from
        customers is also proposed. The PPUC is requested to act on the proposal
        no
        later than November 2007 for the initial RFP to take place in January
        2008.
  19
  
 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 programs to meet demand 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 an optional 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 will be convened
        in
        mid-September 2007 to consider other aspects of the EIS. The final form of
        any
        legislation arising from the special legislative session 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 June 30, 2007, the accumulated deferred
        cost
        balance totaled approximately $392 million.
 
 In
        accordance with
        an April 28, 2004 NJBPU order, JCP&L filed testimony on June 7,
        2004 supporting a 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. 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
        PUHCA pursuant to the EPACT. The NJBPU approved regulations effective October
        2,
        2006 that would 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. Comments on the alternative proposal were submitted on June 15, 2006.
        On November 3, 2006, the Staff circulated a revised draft proposal to
        interested stakeholders. Another revised draft was circulated by the NJBPU
        Staff
        on February 8, 2007.
 
 New
        Jersey statutes
        require that the state periodically undertake a planning process, known as
        the
        Energy Master Plan (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 with the issuance
        of a
        proposed set of objectives which, as to electricity, included the
        following:
 
 ·  Reduce
        the total
        projected electricity demand by 20% by 2020;
 
 ·  Meet
        22.5% of New
        Jersey’s electricity needs with renewable energy resources by that
        date;
 
 ·  Reduce
        air pollution
        related to energy use;
  20
  
 ·  Encourage
        and
        maintain economic growth and development;
 
 · Achieve a 20% reduction in both Customer Average Interruption Duration Index
        and
        System Average Interruption Frequency Index by 2020;
 
 · Unit prices for electricity should remain no more than +5% of the regional
        average price (region includes New York, New Jersey, Pennsylvania,
 Delaware, Maryland
        and
        the District of Columbia); and
 
 ·  Eliminate
        transmission congestion by 2020.
 
 Comments
        on the
        objectives and participation in the development of the EMP have been solicited
        and a number of working groups have been formed to obtain input from a broad
        range of interested stakeholders including utilities, environmental groups,
        customer groups, and major customers. EMP working groups addressing (1) energy
        efficiency and demand response, (2) renewables, (3) reliability, and (4)
        pricing
        issues have completed their assigned tasks of data gathering and analysis
        and
        have provided reports to the EMP Committee. Public stakeholder meetings were
        held in the fall of 2006 and in early 2007, and further public meetings are
        expected later in 2007. A final draft of the EMP is expected to be presented
        to
        the Governor in late 2007. At this time, FirstEnergy cannot predict the outcome
        of this process nor determine the impact, if any, such legislation 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 August 1,
        2007, the NJBPU approved publication of a formal proposal in the New Jersey
        Register, which proposal will be subsequently considered by the NJBPU following
        a period for public comment.  At this time, FirstEnergy cannot predict
        the outcome of this process nor determine the impact, if any, such regulations
        may have on its operations or those of JCP&L.
 
 **(E)   FERC
        MATTERS**
 
 On
        November 18,
        2004, the FERC issued an order eliminating the RTOR for transmission service
        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 SECA mechanism to recover lost RTOR revenues during a 16-month transition
        period from load serving entities. The FERC issued orders in 2005 setting
        the
        SECA for hearing. ATSI, JCP&L, Met-Ed, Penelec, and FES participated in the
        FERC hearings held in May 2006 concerning the calculation and imposition
        of the
        SECA charges. The presiding judge issued an initial decision on August 10,
        2006,
        rejecting the compliance filings made by the RTOs and transmission owners,
        ruling on various issues 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 third quarter of 2007.
 
 On
        January 31, 2005,
        certain PJM transmission owners made three 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. In the second
        filing, the settling transmission owners proposed a revised Schedule 12 to
        the
        PJM tariff designed to harmonize the rate treatment of new and existing
        transmission facilities. Interventions and protests were filed on February
        22,
        2005. In the third filing, Baltimore Gas and Electric Company and Pepco
        Holdings, Inc. requested a formula rate for transmission service provided
        within
        their respective zones. Hearings were held and numerous parties appeared
        and
        litigated various issues; including American Electric Power Company, Inc.,
        which
        filed in opposition proposing to create a "postage stamp" rate for high voltage
        transmission facilities across PJM. At the conclusion of the hearings, the
        ALJ
        issued an initial decision adopting the FERC Trial Staff’s position that the
        cost of all PJM transmission facilities should be recovered through a postage
        stamp rate.******The ALJ recommended an April 1, 2006
        effective date for this change in rate design. Numerous parties, including
        FirstEnergy, submitted briefs opposing the ALJ’s decision and
        recommendations.  On April 19, 2007, the FERC issued an order
        rejecting the ALJ’s findings and recommendations in nearly every respect. The
        FERC found that the PJM transmission owners’ existing “license plate” 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 socialized 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.  Nevertheless, 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.
  21
  
 On
        May 18, 2007,
        certain parties filed for rehearing of the FERC’s April 19, 2007
        Order.  Subsequently, FirstEnergy and other parties filed pleadings
        opposing the requests for rehearing. The FERC’s Orders on PJM rate design, if
        sustained on rehearing and appeal, will prevent the allocation of the cost
        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 costs shifting to the JCP&L, Met-Ed and Penelec
        zones.
 
 On
        August 1, 2007, a
        number of filings were made with the FERC by transmission owning utilities
        in
        the MISO and PJM footprint that could affect the transmission rates paid
        by
        FirstEnergy’s operating companies and FES.
 
 FirstEnergy
        joined
        in a filing made by the MISO transmission owners that would maintain the
        existing “license plate” rates for transmission service within MISO provided
        over existing transmission facilities.  FirstEnergy also joined in a
        filing made by both the MISO and PJM transmission owners proposing to maintain
        existing transmission rates between MISO and PJM.  If accepted by the
        FERC, these filings would not affect the rates charged to load-serving
        FirstEnergy affiliates for transmission service over existing transmission
        facilities.  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 transmission facilities across the
        entire
        MISO footprint be maintained.  All of these filings were supported by
        the majority of transmission owners in either MISO or PJM.
 
 The
        Midwest
        Stand-Alone Transmission Companies made a filing under Section 205 of the
        Federal Power Act requesting that 100% of the cost of new qualifying 345
        kV
        transmission facilities be spread throughout the entire MISO
        footprint.  If adopted by the FERC, this proposal would shift a
        greater portion of the cost of new 345 kV transmission facilities to the
        FirstEnergy footprint, and increase the transmission rates paid by load-serving
        FirstEnergy affiliates.
 
 American
        Electric
        Power (AEP) filed a letter with the FERC Commissioners stating its intent
        to
        file a complaint under Section 206 of the Federal Power Act challenging the
        justness and reasonableness of the rate designs underlying the MISO and PJM
        transmission tariffs.  AEP will propose the adoption of a regional
        rate design that is expected to reallocate the cost of both existing and
        new
        high voltage transmission facilities across the combined MISO and PJM
        footprint.  Based upon the position advocated by AEP in a related
        proceeding, the AEP proposal is expected to result in a greater allocation
        of
        costs to FirstEnergy transmission zones in MISO and PJM.  If approved
        by the FERC, AEP’s proposal would increase the transmission rates paid by
        load-serving FirstEnergy affiliates.
 
 Any
        increase in
        rates charged for transmission service to FirstEnergy affiliates is dependent
        upon the outcome of these proceedings at FERC.  All or some of these
        proceedings may be consolidated by the FERC and set for hearing.  The
        outcome of these cases cannot be predicted.  Any material adverse
        impact on FirstEnergy would depend upon the ability of the load-serving
        FirstEnergy affiliates to recover increased transmission costs in their retail
        rates.  FirstEnergy believes that current retail rate mechanisms in
        place for PLR service for the Ohio Companies and for Met-Ed and Penelec would
        permit them to pass through increased transmission charges in their retail
        rates.  Increased transmission charges in the JCP&L and Penn
        transmission zones would be the responsibility of competitive electric retail
        suppliers, including FES.
 
 On
        February 15,
        2007, MISO filed documents with the FERC to establish a market-based,
        competitive ancillary services market.  MISO contends that the filing
        will integrate operating reserves into MISO’s existing day-ahead and real-time
        settlements process, incorporate opportunity costs into these markets, address
        scarcity pricing through the implementation of a demand curve methodology,
        foster demand response in the provision of operating reserves, and provide
        for
        various efficiencies and optimization with regard to generation
        dispatch.  The filing also proposes amendments to existing documents
        to provide for the transfer of balancing functions from existing local balancing
        authorities to MISO.  MISO will then carry out this reliability
        function as the NERC-certified balancing authority for the MISO region with
        implementation in the third or fourth quarter of 2008.  FirstEnergy
        filed comments on March 23, 2007, supporting the ancillary service market
        in
        concept, but proposing certain changes in MISO’s proposal. MISO requested FERC
        action on its filing by June 2007 and the FERC issued its Order June 22,
        2007.
        The FERC found MISO’s filing to be deficient in two key areas: (1) MISO has not
        submitted a market power analysis in support of its proposed Ancillary Services
        Market and (2) MISO has not submitted a readiness plan to ensure reliability
        during the transition from the current reserve and regulation system managed
        by
        the individual Balancing Authorities to a centralized Ancillary Services
        Market
        managed by MISO. MISO was ordered to remedy these deficiencies and the FERC
        provided more guidance on other issues brought up in filings by stakeholders
        to
        assist MISO to re-file a complete proposal. This Order should facilitate
        MISO’s
        timetable to incorporate final revisions to ensure a market start in Spring
        2008. FirstEnergy will be participating in working groups and task forces
        to
        ensure the Spring 2008 implementation of the Ancillary Services Market.
  22
  
 On
        February 16,
        2007, the FERC issued a final rule that revises its decade-old open access
        transmission regulations and policies.  The FERC explained that the
        final rule is intended to strengthen non-discriminatory access to the
        transmission grid, facilitate FERC enforcement, and provide for a more open
        and
        coordinated transmission planning process.  The final rule became
        effective on May 14, 2007. MISO, PJM and ATSI will be filing revised
        tariffs to comply with the FERC’s order. As a market participant in both MISO
        and PJM, FirstEnergy will conform its business practices to each respective
        revised tariff.
 
 **11.  NEW
        ACCOUNTING STANDARDS AND INTERPRETATIONS**
 
 *SFAS
                  159 –
                  “The Fair Value Option for Financial Assets and Financial Liabilities
–
                  Including an amendment of FASB Statement No.
                  115”*
 
 In
        February 2007,
        the FASB issued SFAS 159, which provides companies with an option to report
        selected financial assets and liabilities at fair value. This Statement requires
        companies to provide additional information that will help investors and
        other
        users of financial statements to more easily understand the effect of the
        company’s choice to use fair value on its earnings.  The Standard also
        requires companies to display the fair value of those assets and liabilities
        for
        which the company has chosen to use fair value on the face of the balance
        sheet.  This guidance does not eliminate disclosure requirements
        included in other accounting standards, including requirements for disclosures
        about fair value measurements included in SFAS 157**and SFAS
        107*.*This Statement is effective for financial statements issued for
        fiscal years beginning after November 15, 2007, and interim periods within
        those years. FirstEnergy is currently evaluating the impact of this Statement
        on
        its financial statements.
 
 *SFAS
        157 – “Fair Value
        Measurements”*
 
 In
        September 2006,
        the FASB issued SFAS 157 that establishes how companies should measure fair
        value when they are required to use a fair value measure for recognition
        or
        disclosure purposes under GAAP. This Statement addresses the need for increased
        consistency and comparability in fair value measurements and for expanded
        disclosures about fair value measurements. The key changes to current practice
        are: (1) the definition of fair value which focuses on an exit price rather
        than
        entry price; (2) the methods used to measure fair value such as emphasis
        that
        fair value is a market-based measurement, not an entity-specific measurement,
        as
        well as the inclusion of an adjustment for risk, restrictions and credit
        standing; and (3) the expanded disclosures about fair value measurements.
        This
        Statement is effective for financial statements issued for fiscal years
        beginning after November 15, 2007, and interim periods within those years.
        FirstEnergy is currently evaluating the impact of this Statement on its
        financial statements.
 
 *EITF
        06-11 – “Accounting for Income Tax
        Benefits of Dividends or Share-based Payment Awards”*
 
 In
        June 2007, the
        FASB released EITF 06-11, which provides guidance on the appropriate accounting
        for income tax benefits related to dividends earned on nonvested share units
        that are charged to retained earnings under SFAS 123(R).  The
        consensus requires that an entity recognize the realized tax benefit associated
        with the dividends on nonvested shares as an increase to additional paid-in
        capital (APIC). This amount should be included in the APIC pool, which is
        to be
        used when an entity’s estimate of forfeitures increases or actual forfeitures
        exceed its estimates, at which time the tax benefits in the APIC pool would
        be
        reclassified to the income statement.  The consensus is effective for
        income tax benefits of dividends declared during fiscal years beginning after
        December 15, 2007.  EITF 06-11 is not expected to have a material
        effect on FirstEnergy’s financial statements.
 
 **12.  SEGMENT
        INFORMATION**
 
 Effective
        January 1, 2007, FirstEnergy has three reportable operating segments:
        competitive energy services, energy delivery services and Ohio transitional
        generation services. None of the aggregate “Other” segments individually meet
        the criteria to be considered a reportable segment. The competitive energy
        services segment primarily consists of unregulated generation and commodity
        operations, including competitive electric sales, and generation sales to
        affiliated electric utilities. The energy delivery services segment consists
        of
        regulated transmission and distribution operations, including transition
        cost
        recovery, and PLR generation service for FirstEnergy’s Pennsylvania and New
        Jersey electric utility subsidiaries. The Ohio transitional generation services
        segment represents PLR generation service by FirstEnergy’s Ohio electric utility
        subsidiaries. “Other” primarily consists of telecommunications services and
        other non-core assets. The assets and revenues for the other business operations
        are below the quantifiable threshold for operating segments for separate
        disclosure as “reportable operating segments.”
  23
  
 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 PLR 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
        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 and owns 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 power 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 power sales.
 
 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
        securing electric generation from the competitive energy services segment
        through full requirements PSA arrangements and the net MISO transmission
        revenues and expenses related to the delivery of that generation
        load.
 
 Segment
        reporting in
        2006 has been revised to conform to the current year business segment
        organization and operations. Changes in the current year operations reporting
        and revised 2006 segment reporting primarily reflect the transfer from FES
        to
        the regulated utilities of the responsibility for obtaining PLR generation
        for
        the utilities’ non-shopping customers. This reflects FirstEnergy’s alignment of
        its business units to accommodate its retail strategy and participation in
        competitive electricity marketplaces in Ohio, Pennsylvania and New Jersey.
        The
        differentiation of the regulated generation commodity operations between
        the two
        regulated business segments recognizes that generation sourcing for the Ohio
        Companies is currently in a transitional state through 2008 as compared to
        the
        segregated commodity sourcing of their Pennsylvania and New Jersey utility
        affiliates. The results of the energy delivery services and the Ohio
        transitional generation services segments now include their electric generation
        revenues and the corresponding generation commodity costs under affiliated
        and
        non-affiliated purchased power arrangements and related net retail PJM/MISO
        transmission expenses associated with serving electricity load in their
        respective franchise areas.
 
 FSG
        completed the
        sale of its five remaining subsidiaries in 2006. Its assets and results for
        2006
        are combined in the “Other” segments in this report, as the remaining business
        does not meet the criteria of a reportable segment. Interest expense on holding
        company debt and corporate support services revenues and expenses are included
        in "Reconciling Items."
  24
   **Segment
                      Financial Information****Ohio****Energy**
                  
                  
                  **Competitive**
                  
                  
                  **Transitional****Delivery**
                  
                  
                  **Energy**
                  
                  
                  **Generation**
                  
                  
                  
                  
                  
                  **Reconciling****Three
                      Months Ended**
                  
                  **Services**
                  
                  
                  **Services**
                  
                  
                  **Services**
                  
                  
                  **Other**
                  
                  
                  **Adjustments**
                  
                  
                  **Consolidated****(In
                      millions)****June
                      30, 2007**External
                      revenues
                  
                  $
                  2,095
                  
                  
                  $
                  404
                  
                  
                  $
                  625
                  
                  
                  $
                  9
                  
                  
                  $
                  (24
                  )
                  
                  $
                  3,109Internal
                      revenues
                  
                  
                  -
                  
                  
                  
                  691
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (691
                  )
                  
                  
                  -Total
                      revenues
                  
                  
                  2,095
                  
                  
                  
                  1,095
                  
                  
                  
                  625
                  
                  
                  
                  9
                  
                  
                  
                  (715
                  )
                  
                  
                  3,109Depreciation
                      and amortization
                  
                  
                  249
                  
                  
                  
                  51
                  
                  
                  
                  (49
                  )
                  
                  
                  1
                  
                  
                  
                  5
                  
                  
                  
                  257Investment
                      income
                  
                  
                  62
                  
                  
                  
                  5
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (37
                  )
                  
                  
                  30Net
                      interest
                      charges
                  
                  
                  116
                  
                  
                  
                  42
                  
                  
                  
                  -
                  
                  
                  
                  1
                  
                  
                  
                  39
                  
                  
                  
                  198Income
                      taxes
                  
                  
                  141
                  
                  
                  
                  96
                  
                  
                  
                  19
                  
                  
                  
                  (3
                  )
                  
                  
                  (31
                  )
                  
                  
                  222Net
                      income
                  
                  
                  207
                  
                  
                  
                  142
                  
                  
                  
                  30
                  
                  
                  
                  6
                  
                  
                  
                  (47
                  )
                  
                  
                  338Total
                      assets
                  
                  
                  23,602
                  
                  
                  
                  7,284
                  
                  
                  
                  260
                  
                  
                  
                  236
                  
                  
                  
                  651
                  
                  
                  
                  32,033Total
                      goodwill
                  
                  
                  5,873
                  
                  
                  
                  24
                  
                  
                  
                  -
                  
                  
                  
                  1
                  
                  
                  
                  -
                  
                  
                  
                  5,898Property
                      additions
                  
                  
                  245
                  
                  
                  
                  139
                  
                  
                  
                  -
                  
                  
                  
                  2
                  
                  
                  
                  15
                  
                  
                  
                  401**June
                      30, 2006**External
                      revenues
                  
                  $
                  1,773
                  
                  
                  $
                  384
                  
                  
                  $
                  575
                  
                  
                  $
                  39
                  
                  
                  $
                  (20
                  )
                  
                  $
                  2,751Internal
                      revenues
                  
                  
                  6
                  
                  
                  
                  623
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (629
                  )
                  
                  
                  -Total
                      revenues
                  
                  
                  1,779
                  
                  
                  
                  1,007
                  
                  
                  
                  575
                  
                  
                  
                  39
                  
                  
                  
                  (649
                  )
                  
                  
                  2,751Depreciation
                      and amortization
                  
                  
                  173
                  
                  
                  
                  48
                  
                  
                  
                  (29
                  )
                  
                  
                  1
                  
                  
                  
                  6
                  
                  
                  
                  199Investment
                      income
                  
                  
                  81
                  
                  
                  
                  2
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (52
                  )
                  
                  
                  31Net
                      interest
                      charges
                  
                  
                  102
                  
                  
                  
                  47
                  
                  
                  
                  -
                  
                  
                  
                  2
                  
                  
                  
                  22
                  
                  
                  
                  173Income
                      taxes
                  
                  
                  155
                  
                  
                  
                  67
                  
                  
                  
                  22
                  
                  
                  
                  2
                  
                  
                  
                  (30
                  )
                  
                  
                  216Income
                      fromcontinuing
                      operations
                  
                  
                  233
                  
                  
                  
                  101
                  
                  
                  
                  31
                  
                  
                  
                  (7
                  )
                  
                  
                  (46
                  )
                  
                  
                  312Discontinued
                      operations
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (8
                  )
                  
                  
                  -
                  
                  
                  
                  (8
                  )Net
                      income
                  
                  
                  233
                  
                  
                  
                  101
                  
                  
                  
                  31
                  
                  
                  
                  (15
                  )
                  
                  
                  (46
                  )
                  
                  
                  304Total
                      assets
                  
                  
                  24,399
                  
                  
                  
                  6,740
                  
                  
                  
                  231
                  
                  
                  
                  355
                  
                  
                  
                  853
                  
                  
                  
                  32,578Total
                      goodwill
                  
                  
                  5,916
                  
                  
                  
                  24
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  5,940Property
                      additions
                  
                  
                  177
                  
                  
                  
                  103
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  12
                  
                  
                  
                  292**Six
                      Months Ended****June
                      30, 2007**External
                      revenues
                  
                  $
                  4,135
                  
                  
                  $
                  732
                  
                  
                  $
                  1,245
                  
                  
                  $
                  20
                  
                  
                  $
                  (50
                  )
                  
                  $
                  6,082Internal
                      revenues
                  
                  
                  -
                  
                  
                  
                  1,404
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (1,404
                  )
                  
                  
                  -Total
                      revenues
                  
                  
                  4,135
                  
                  
                  
                  2,136
                  
                  
                  
                  1,245
                  
                  
                  
                  20
                  
                  
                  
                  (1,454
                  )
                  
                  
                  6,082Depreciation
                      and amortization
                  
                  
                  469
                  
                  
                  
                  102
                  
                  
                  
                  (64
                  )
                  
                  
                  2
                  
                  
                  
                  11
                  
                  
                  
                  520Investment
                      income
                  
                  
                  132
                  
                  
                  
                  8
                  
                  
                  
                  1
                  
                  
                  
                  -
                  
                  
                  
                  (78
                  )
                  
                  
                  63Net
                      interest
                      charges
                  
                  
                  223
                  
                  
                  
                  92
                  
                  
                  
                  1
                  
                  
                  
                  2
                  
                  
                  
                  60
                  
                  
                  
                  378Income
                      taxes
                  
                  
                  289
                  
                  
                  
                  160
                  
                  
                  
                  35
                  
                  
                  
                  2
                  
                  
                  
                  (64
                  )
                  
                  
                  422Net
                      income
                  
                  
                  425
                  
                  
                  
                  240
                  
                  
                  
                  53
                  
                  
                  
                  7
                  
                  
                  
                  (97
                  )
                  
                  
                  628Total
                      assets
                  
                  
                  23,602
                  
                  
                  
                  7,284
                  
                  
                  
                  260
                  
                  
                  
                  236
                  
                  
                  
                  651
                  
                  
                  
                  32,033Total
                      goodwill
                  
                  
                  5,873
                  
                  
                  
                  24
                  
                  
                  
                  -
                  
                  
                  
                  1
                  
                  
                  
                  -
                  
                  
                  
                  5,898Property
                      additions
                  
                  
                  400
                  
                  
                  
                  263
                  
                  
                  
                  -
                  
                  
                  
                  3
                  
                  
                  
                  31
                  
                  
                  
                  697**June
                      30, 2006**External
                      revenues
                  
                  $
                  3,570
                  
                  
                  $
                  738
                  
                  
                  $
                  1,118
                  
                  
                  $
                  68
                  
                  
                  $
                  (38
                  )
                  
                  $
                  5,456Internal
                      revenues
                  
                  
                  14
                  
                  
                  
                  1,235
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (1,249
                  )
                  
                  
                  -Total
                      revenues
                  
                  
                  3,584
                  
                  
                  
                  1,973
                  
                  
                  
                  1,118
                  
                  
                  
                  68
                  
                  
                  
                  (1,287
                  )
                  
                  
                  5,456Depreciation
                      and amortization
                  
                  
                  430
                  
                  
                  
                  94
                  
                  
                  
                  (49
                  )
                  
                  
                  2
                  
                  
                  
                  11
                  
                  
                  
                  488Investment
                      income
                  
                  
                  164
                  
                  
                  
                  17
                  
                  
                  
                  -
                  
                  
                  
                  1
                  
                  
                  
                  (108
                  )
                  
                  
                  74Net
                      interest
                      charges
                  
                  
                  201
                  
                  
                  
                  90
                  
                  
                  
                  1
                  
                  
                  
                  3
                  
                  
                  
                  38
                  
                  
                  
                  333Income
                      taxes
                  
                  
                  281
                  
                  
                  
                  89
                  
                  
                  
                  40
                  
                  
                  
                  (3
                  )
                  
                  
                  (55
                  )
                  
                  
                  352Income
                      fromcontinuing
                      operations
                  
                  
                  422
                  
                  
                  
                  133
                  
                  
                  
                  61
                  
                  
                  
                  5
                  
                  
                  
                  (90
                  )
                  
                  
                  531Discontinued
                      operations
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (6
                  )
                  
                  
                  -
                  
                  
                  
                  (6
                  )Net
                      income
                  
                  
                  422
                  
                  
                  
                  133
                  
                  
                  
                  61
                  
                  
                  
                  (1
                  )
                  
                  
                  (90
                  )
                  
                  
                  525Total
                      assets
                  
                  
                  24,399
                  
                  
                  
                  6,740
                  
                  
                  
                  231
                  
                  
                  
                  355
                  
                  
                  
                  853
                  
                  
                  
                  32,578Total
                      goodwill
                  
                  
                  5,916
                  
                  
                  
                  24
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  5,940Property
                      additions
                  
                  
                  370
                  
                  
                  
                  347
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  22
                  
                  
                  
                  739
 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.
  25
  **FIRSTENERGY
                      CORP.****CONSOLIDATED
                      STATEMENTS OF INCOME****(Unaudited)****Three
                      Months Ended**
                  
                  
                  **Six
                      Months Ended****June
                      30,**
                  
                  
                  **June
                      30,****2007**
                  
                  
                  **2006**
                  
                  
                  **2007**
                  
                  
                  **2006*****(In
                      millions, except per share amounts)*****REVENUES:**Electric
                      utilities
                  
                  $
                  2,744
                  
                  
                  $
                  2,341
                  
                  
                  $
                  5,425
                  
                  
                  $
                  4,681Unregulated
                      businesses
                  
                  
                  365
                  
                  
                  
                  410
                  
                  
                  
                  657
                  
                  
                  
                  775Total
                      revenues
                      *
                  
                  
                  3,109
                  
                  
                  
                  2,751
                  
                  
                  
                  6,082
                  
                  
                  
                  5,456**EXPENSES:**Fuel
                      and
                      purchased power
                  
                  
                  1,185
                  
                  
                  
                  991
                  
                  
                  
                  2,306
                  
                  
                  
                  1,989Other
                      operating expenses
                  
                  
                  750
                  
                  
                  
                  718
                  
                  
                  
                  1,499
                  
                  
                  
                  1,471Provision
                      for
                      depreciation
                  
                  
                  159
                  
                  
                  
                  144
                  
                  
                  
                  315
                  
                  
                  
                  292Amortization
                      of regulatory assets
                  
                  
                  246
                  
                  
                  
                  201
                  
                  
                  
                  497
                  
                  
                  
                  422Deferral
                      of
                      new regulatory assets
                  
                  
                  (148
                  )
                  
                  
                  (146
                  )
                  
                  
                  (292
                  )
                  
                  
                  (226
                  )General
                      taxes
                  
                  
                  189
                  
                  
                  
                  173
                  
                  
                  
                  392
                  
                  
                  
                  366Total
                      expenses
                  
                  
                  2,381
                  
                  
                  
                  2,081
                  
                  
                  
                  4,717
                  
                  
                  
                  4,314**OPERATING
                      INCOME**
                  
                  
                  728
                  
                  
                  
                  670
                  
                  
                  
                  1,365
                  
                  
                  
                  1,142**OTHER
                      INCOME (EXPENSE):**Investment
                      income
                  
                  
                  30
                  
                  
                  
                  31
                  
                  
                  
                  63
                  
                  
                  
                  74Interest
                      expense
                  
                  
                  (205
                  )
                  
                  
                  (178
                  )
                  
                  
                  (390
                  )
                  
                  
                  (343
                  )Capitalized
                      interest
                  
                  
                  7
                  
                  
                  
                  7
                  
                  
                  
                  12
                  
                  
                  
                  14Subsidiaries’
                      preferred stock dividends
                  
                  
                  -
                  
                  
                  
                  (2
                  )
                  
                  
                  -
                  
                  
                  
                  (4
                  )Total
                      other
                      expense
                  
                  
                  (168
                  )
                  
                  
                  (142
                  )
                  
                  
                  (315
                  )
                  
                  
                  (259
                  )**INCOME
                      FROM CONTINUING OPERATIONS BEFORE INCOME TAXES**
                  
                  
                  560
                  
                  
                  
                  528
                  
                  
                  
                  1,050
                  
                  
                  
                  883**INCOME
                      TAXES**
                  
                  
                  222
                  
                  
                  
                  216
                  
                  
                  
                  422
                  
                  
                  
                  352**INCOME
                      FROM CONTINUING OPERATIONS**
                  
                  
                  338
                  
                  
                  
                  312
                  
                  
                  
                  628
                  
                  
                  
                  531Discontinued
                      operations (net of income tax expense (benefits) of$1
                      million and
                      ($1) million in the three months andsix
                      months
                      ended June 30, 2006, respectively) (Note 3)
                  
                  
                  -
                  
                  
                  
                  (8
                  )
                  
                  
                  -
                  
                  
                  
                  (6
                  )**NET
                      INCOME**
                  
                  $
                  338
                  
                  
                  $
                  304
                  
                  
                  $
                  628
                  
                  
                  $
                  525**BASIC
                      EARNINGS PER SHARE OF COMMON STOCK:**Income
                      from
                      continuing operations
                  
                  $
                  1.11
                  
                  
                  $
                  0.94
                  
                  
                  $
                  2.03
                  
                  
                  $
                  1.61Discontinued
                      operations
                  
                  
                  -
                  
                  
                  
                  (0.02
                  )
                  
                  
                  -
                  
                  
                  
                  (0.02
                  )Net
                      earnings
                      per basic share
                  
                  $
                  1.11
                  
                  
                  $
                  0.92
                  
                  
                  $
                  2.03
                  
                  
                  $
                  1.59**WEIGHTED
                      AVERAGE NUMBER OF BASIC SHARES OUTSTANDING**
                  
                  
                  304
                  
                  
                  
                  328
                  
                  
                  
                  309
                  
                  
                  
                  328**DILUTED
                      EARNINGS PER SHARE OF COMMON STOCK:**Income
                      from
                      continuing operations
                  
                  $
                  1.10
                  
                  
                  $
                  0.93
                  
                  
                  $
                  2.01
                  
                  
                  $
                  1.60Discontinued
                      operations
                  
                  
                  -
                  
                  
                  
                  (0.02
                  )
                  
                  
                  -
                  
                  
                  
                  (0.02
                  )Net
                      earnings
                      per diluted share
                  
                  $
                  1.10
                  
                  
                  $
                  0.91
                  
                  
                  $
                  2.01
                  
                  
                  $
                  1.58**WEIGHTED
                      AVERAGE NUMBER OF DILUTED SHARES OUTSTANDING**
                  
                  
                  308
                  
                  
                  
                  330
                  
                  
                  
                  313
                  
                  
                  
                  330**DIVIDENDS
                      DECLARED PER SHARE OF COMMON STOCK**
                  
                  $
                  0.50
                  
                  
                  $
                  0.45
                  
                  
                  $
                  1.00
                  
                  
                  $
                  0.90*
                      Includes
                      excise tax collections of $102 million and $90 million in the
                      second
                      quarter of 2007 and 2006, respectively, and $206
                      millionand $189 million in the six months ended June 2007 and 2006,
                      respectively.The
                      preceding
                      Notes to Consolidated Financial Statements as they relate to
                      FirstEnergy
                      Corp. are an integral part of these
                      statements.
  26
   **FIRSTENERGY
                      CORP.****CONSOLIDATED
                      STATEMENTS OF COMPREHENSIVE INCOME****(Unaudited)****Three
                      Months Ended**
                  
                  
                  **Six
                      Months Ended****June
                      30,**
                  
                  
                  **June
                      30,****2007**
                  
                  
                  **2006**
                  
                  
                  **2007**
                  
                  
                  **2006*****(In
                      millions)*****NET
                      INCOME**
                  
                  $
                  338
                  
                  
                  $
                  304
                  
                  
                  $
                  628
                  
                  
                  $
                  525**OTHER
                      COMPREHENSIVE INCOME (LOSS):**Pension
                      and
                      other postretirement benefits
                  
                  
                  (11
                  )
                  
                  
                  -
                  
                  
                  
                  (22
                  )
                  
                  
                  -Unrealized
                      gain (loss) on derivative hedges
                  
                  
                  (1
                  )
                  
                  
                  36
                  
                  
                  
                  20
                  
                  
                  
                  73Change
                      in
                      unrealized gain on available for sale securities
                  
                  
                  46
                  
                  
                  
                  (24
                  )
                  
                  
                  63
                  
                  
                  
                  13Other
                      comprehensive income
                  
                  
                  34
                  
                  
                  
                  12
                  
                  
                  
                  61
                  
                  
                  
                  86Income
                      tax
                      expense related to othercomprehensive
                      income
                  
                  
                  10
                  
                  
                  
                  4
                  
                  
                  
                  19
                  
                  
                  
                  31Other
                      comprehensive income, net of tax
                  
                  
                  24
                  
                  
                  
                  8
                  
                  
                  
                  42
                  
                  
                  
                  55**COMPREHENSIVE
                      INCOME**
                  
                  $
                  362
                  
                  
                  $
                  312
                  
                  
                  $
                  670
                  
                  
                  $
                  580The
                      preceding
                      Notes to Consolidated Financial Statements as they relate to
                      FirstEnergy
                      Corp. are an integral part ofthese
                      statements.
  27
  **FIRSTENERGY
                      CORP.****CONSOLIDATED
                      BALANCE SHEETS****(Unaudited)****June
                      30,**
                  
                  
                  **December
                      31,****2007**
                  
                  
                  **2006*****(In
                      millions)*****ASSETS****CURRENT
                      ASSETS:**Cash
                      and cash
                      equivalents
                  
                  $
                  37
                  
                  
                  $
                  90Receivables-Customers
                      (less accumulated provisions of $39 million and$43
                      million,
                      respectively, for uncollectible accounts)
                  
                  
                  1,413
                  
                  
                  
                  1,135Other
                      (less
                      accumulated provisions of $22 million and$24
                      million,
                      respectively, for uncollectible accounts)
                  
                  
                  181
                  
                  
                  
                  132Materials
                      and
                      supplies, at average cost
                  
                  
                  583
                  
                  
                  
                  577Prepayments
                      and other
                  
                  
                  322
                  
                  
                  
                  1492,536
                  
                  
                  
                  2,083**PROPERTY,
                      PLANT AND EQUIPMENT:**In
                      service
                  
                  
                  24,555
                  
                  
                  
                  24,105Less
                      -
                      Accumulated provision for depreciation
                  
                  
                  10,330
                  
                  
                  
                  10,05514,225
                  
                  
                  
                  14,050Construction
                      work in progress
                  
                  
                  785
                  
                  
                  
                  61715,010
                  
                  
                  
                  14,667**INVESTMENTS:**Nuclear
                      plant
                      decommissioning trusts
                  
                  
                  2,092
                  
                  
                  
                  1,977Investments
                      in
                      lease obligation bonds
                  
                  
                  738
                  
                  
                  
                  811Other
                  
                  
                  734
                  
                  
                  
                  7463,564
                  
                  
                  
                  3,534**DEFERRED
                      CHARGES AND OTHER ASSETS:**Goodwill
                  
                  
                  5,898
                  
                  
                  
                  5,898Regulatory
                      assets
                  
                  
                  4,155
                  
                  
                  
                  4,441Pension
                      assets
                  
                  
                  297
                  
                  
                  
                  -Other
                  
                  
                  573
                  
                  
                  
                  57310,923
                  
                  
                  
                  10,912$
                  32,033
                  
                  
                  $
                  31,196**LIABILITIES
                      AND CAPITALIZATION****CURRENT
                      LIABILITIES:**Currently
                      payable long-term debt
                  
                  $
                  2,000
                  
                  
                  $
                  1,867Short-term
                      borrowings
                  
                  
                  2,416
                  
                  
                  
                  1,108Accounts
                      payable
                  
                  
                  801
                  
                  
                  
                  726Accrued
                      taxes
                  
                  
                  320
                  
                  
                  
                  598Other
                  
                  
                  745
                  
                  
                  
                  9566,282
                  
                  
                  
                  5,255**CAPITALIZATION:**Common
                      stockholders’ equity-Common
                      stock,
                      $.10 par value, authorized 375,000,000 shares-304,835,407
                      and 319,205,517 shares outstanding, respectively
                  
                  
                  30
                  
                  
                  
                  32Other
                      paid-in
                      capital
                  
                  
                  5,550
                  
                  
                  
                  6,466Accumulated
                      other comprehensive loss
                  
                  
                  (217
                  )
                  
                  
                  (259
                  )Retained
                      earnings
                  
                  
                  3,279
                  
                  
                  
                  2,806Unallocated
                      employee stock ownership plan common stock-134,681
                      and
                      521,818 shares, respectively
                  
                  
                  (2
                  )
                  
                  
                  (10
                  )Total
                      common
                      stockholders' equity
                  
                  
                  8,640
                  
                  
                  
                  9,035Long-term
                      debt
                      and other long-term obligations
                  
                  
                  8,742
                  
                  
                  
                  8,53517,382
                  
                  
                  
                  17,570**NONCURRENT
                      LIABILITIES:**Accumulated
                      deferred income taxes
                  
                  
                  2,849
                  
                  
                  
                  2,740Asset
                      retirement obligations
                  
                  
                  1,228
                  
                  
                  
                  1,190Power
                      purchase
                      contract loss liability
                  
                  
                  877
                  
                  
                  
                  1,182Retirement
                      benefits
                  
                  
                  917
                  
                  
                  
                  944Lease
                      market
                      valuation liability
                  
                  
                  704
                  
                  
                  
                  767Other
                  
                  
                  1,794
                  
                  
                  
                  1,5488,369
                  
                  
                  
                  8,371**COMMITMENTS,
                      GUARANTEES AND CONTINGENCIES (Note 9)**$
                  32,033
                  
                  
                  $
                  31,196The
                      preceding
                      Notes to Consolidated Financial Statements as they relate to
                      FirstEnergy
                      Corp. are an integral part of thesebalance
                      sheets.
  28
  **FIRSTENERGY
                      CORP.****CONSOLIDATED
                      STATEMENTS OF CASH FLOWS****(Unaudited)****Six
                      Months Ended****June
                      30,****2007**
                  
                  
                  **2006*****(In
                      millions)*****CASH
                      FLOWS FROM OPERATING ACTIVITIES:**Net
                      income
                  
                  $
                  628
                  
                  
                  $
                  525Adjustments
                      to
                      reconcile net income to net cash from operating
                      activities-Provision
                      for
                      depreciation
                  
                  
                  315
                  
                  
                  
                  292Amortization
                      of regulatory assets
                  
                  
                  497
                  
                  
                  
                  421Deferral
                      of
                      new regulatory assets
                  
                  
                  (292
                  )
                  
                  
                  (226
                  )Nuclear
                      fuel
                      and lease amortization
                  
                  
                  50
                  
                  
                  
                  42Deferred
                      purchased power and other costs
                  
                  
                  (185
                  )
                  
                  
                  (239
                  )Deferred
                      income taxes and investment tax credits, net
                  
                  
                  85
                  
                  
                  
                  32Investment
                      impairment
                  
                  
                  12
                  
                  
                  
                  12Deferred
                      rents
                      and lease market valuation liability
                  
                  
                  (92
                  )
                  
                  
                  (105
                  )Accrued
                      compensation and retirement benefits
                  
                  
                  (69
                  )
                  
                  
                  33Commodity
                      derivative transactions, net
                  
                  
                  4
                  
                  
                  
                  25Gain
                      on asset
                      sales
                  
                  
                  (12
                  )
                  
                  
                  (4
                  )Income
                      from
                      discontinued operations
                  
                  
                  -
                  
                  
                  
                  6Cash
                      collateral
                  
                  
                  (19
                  )
                  
                  
                  (55
                  )Pension
                      trust
                      contribution
                  
                  
                  (300
                  )
                  
                  
                  -Decrease
                      (increase) in operating assets-Receivables
                  
                  
                  (282
                  )
                  
                  
                  83Materials
                      and
                      supplies
                  
                  
                  22
                  
                  
                  
                  (71
                  )Prepayments
                      and other current assets
                  
                  
                  (157
                  )
                  
                  
                  (159
                  )Increase
                      (decrease) in operating liabilities-Accounts
                      payable
                  
                  
                  28
                  
                  
                  
                  (40
                  )Accrued
                      taxes
                  
                  
                  (17
                  )
                  
                  
                  (45
                  )Electric
                      service prepayment programs
                  
                  
                  (36
                  )
                  
                  
                  (29
                  )Other
                  
                  
                  (49
                  )
                  
                  
                  (13
                  )Net
                      cash
                      provided from operating activities
                  
                  
                  131
                  
                  
                  
                  485**CASH
                      FLOWS FROM FINANCING ACTIVITIES:**New
                      Financing-Long-term
                      debt
                  
                  
                  800
                  
                  
                  
                  1,053Short-term
                      borrowings, net
                  
                  
                  1,308
                  
                  
                  
                  371Redemptions
                      and Repayments-Common
                      stock
                  
                  
                  (918
                  )
                  
                  
                  -Preferred
                      stock
                  
                  
                  -
                  
                  
                  
                  (30
                  )Long-term
                      debt
                  
                  
                  (471
                  )
                  
                  
                  (485
                  )Net
                      controlled
                      disbursement activity
                  
                  
                  32
                  
                  
                  
                  5Stock-based
                      compensation tax benefit
                  
                  
                  14
                  
                  
                  
                  -Common
                      stock
                      dividend payments
                  
                  
                  (311
                  )
                  
                  
                  (296
                  )Net
                      cash
                      provided from financing activities
                  
                  
                  454
                  
                  
                  
                  618**CASH
                      FLOWS FROM INVESTING ACTIVITIES:**Property
                      additions
                  
                  
                  (697
                  )
                  
                  
                  (739
                  )Proceeds
                      from
                      asset sales
                  
                  
                  12
                  
                  
                  
                  63Sales
                      of
                      investment securities held in trusts
                  
                  
                  583
                  
                  
                  
                  959Purchases
                      of
                      investment securities held in trusts
                  
                  
                  (591
                  )
                  
                  
                  (966
                  )Cash
                      investments
                  
                  
                  54
                  
                  
                  
                  118Other
                  
                  
                  1
                  
                  
                  
                  (19
                  )Net
                      cash used
                      for investing activities
                  
                  
                  (638
                  )
                  
                  
                  (584
                  )Net
                      increase
                      (decrease) in cash and cash equivalents
                  
                  
                  (53
                  )
                  
                  
                  519Cash
                      and cash
                      equivalents at beginning of period
                  
                  
                  90
                  
                  
                  
                  64Cash
                      and cash
                      equivalents at end of period
                  
                  $
                  37
                  
                  
                  $
                  583The
                      preceding
                      Notes to Consolidated Financial Statements as they relate to
                      FirstEnergy
                      Corp. are an integral part ofthese
                      statements.
  29
   ***Report
        of Independent Registered Public Accounting Firm***
 
 
 
 
 
 
 
 
 
 To
        the Stockholders
        and Board of
 Directors
        of
        FirstEnergy Corp.:
 
 We
        have reviewed the
        accompanying consolidated balance sheet of FirstEnergy Corp. and its
        subsidiaries as of June 30, 2007 and the related consolidated statements
        of
        income and comprehensive income for each of the three-month and six-month
        periods ended June 30, 2007 and 2006 and the consolidated statement of cash
        flows for the six-month periods ended June 30, 2007 and 2006.  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, 2006, and the related consolidated statements of income, capitalization,
        common stockholders’ equity, preferred stock, and of cash flows for the year
        then ended (not presented herein), and in our report (which contained references
        to the Company’s change in its method of accounting for defined benefit pension
        and other postretirement benefit plans as of December 31, 2006 and conditional
        asset retirement obligations as of December 31, 2005, as discussed in Note
        3,
        Note 2(K) and Note 12 to the consolidated financial statements) dated
        February 27, 2007, 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,
        2006,
        is fairly stated in all material respects in relation to the consolidated
        balance sheet from which it has been derived.
 
 
 
 
 PricewaterhouseCoopers
        LLP
 Cleveland,
        Ohio
 August
        6,
        2007
  30
  **FIRSTENERGY
        CORP.**
 
 **MANAGEMENT’S
        DISCUSSION AND ANALYSIS OF**
 **FINANCIAL
        CONDITION AND RESULTS OF OPERATIONS**
 
 
 **EXECUTIVE
        SUMMARY**
 
 Net
        income in the
        second quarter of 2007 was $338 million, or basic earnings of $1.11 per share
        of
        common stock ($1.10 diluted), compared with net income of $304 million, or
        basic
        earnings of $0.92 per share of common stock ($0.91 diluted) in the second
        quarter of 2006. Net income in the first six months of 2007 was $628 million,
        or
        basic earnings of $2.03 per share of common stock ($2.01 diluted), compared
        with
        net income of $525 million, or basic earnings of $1.59 per share of common
        stock
        ($1.58 diluted) in the first six months of 2006. The increases in FirstEnergy’s
        earnings in both periods of 2007 were driven primarily by higher electric
        sales
        revenues, partially offset by increased fuel and purchased power costs, higher
        other operating expenses and increased interest expense.
 
 **Change
                  in Basic Earnings Per Share**
                **From
                  Prior Year Periods**
              
              **Three
                  Months Ended June 30,**
              
              **Six
                  Months**
                **Ended
                  June 30,**Basic
                  Earnings
                  Per Share – 2006
              
              $
              0.92
              
              $
              1.59Revenues
              
              
              0.71
              
              
              1.22Fuel
                  and
                  purchased power
              
              
              (0.38
              )
              
              (0.62
              )Depreciation
                  and amortization
              
              
              (0.12
              )
              
              (0.19
              )Deferral
                  of
                  new regulatory assets
              
              
              -
              
              
              0.08Other
                  expenses
              
              
              (0.03
              )
              
              (0.10
              )Non-core
                  asset
                  sales/impairments - 2006
              
              
              0.03
              
              
              0.03Saxton
                  decommissioning regulatory asset -2007
              
              
              -
              
              
              0.05Trust
                  securities impairment - 2007
              
              
              (0.02
              )
              
              (0.03
              )Basic
                  Earnings
                  Per Share – 2007
              
              $
              1.11
              
              $
              2.03
 
 **Financial
        Matters**
 
 On
        July 13, 2007,
        FGCO completed a $1.3 billion sale and leaseback transaction for its 779
        MW
        portion of the Bruce Mansfield Plant Unit 1. The terms of the agreement provide
        for an approximate 33-year lease of the unit. There will be no material gain
        from this transaction reflected in earnings during the third quarter of 2007.
        FirstEnergy used the net, after-tax proceeds of approximately $1.2 billion
        to
        repay short-term debt that was used to fund its recent $900 million share
        repurchase program and $300 million pension contribution.  FGCO will
        continue to operate the plant.
 
 On
        May 21, 2007,
        JCP&L issued $550 million of senior unsecured debt securities. The offering
        was in two tranches, consisting of $250 million of 5.65% Senior Notes due
        2017
        and $300 million of 6.15% Senior Notes due 2037.  The proceeds from
        the transaction were used to redeem all of JCP&L’s outstanding first
        mortgage bonds, repay short-term debt and repurchase common stock from
        FirstEnergy.
 
 **Regulatory
        Matters**
 
 *Ohio*
 
 On
        June 7, 2007, the
        Ohio Companies filed their base distribution rate increase request and
        supporting testimony with the PUCO.  The requested increase (updated
        on August 6, 2007) in annualized distribution revenues of approximately
        $332 million is needed to recover expenses related to distribution operations
        and the costs deferred under previously approved rate plans. Concurrent with
        the
        effective dates of the proposed distribution rate increases, the Ohio Companies
        will reduce or eliminate their RTC, resulting in a net reduction of $262
        million
        on the regulated portion of customers’ bills. The PUCO Staff is expected to
        issue its report in the case in the fourth quarter of 2007 with evidentiary
        hearings to follow in late 2007.  The PUCO order is expected to be
        issued by March 9, 2008. The new rates would become effective January 1,
        2009 for OE and TE, and approximately May 2009 for CEI.
  31
  
 On
        July 10, 2007,
        the Ohio Companies filed an application with the PUCO requesting approval
        of a
        comprehensive supply plan for providing 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 kilowatt-hour included in rates 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. The proposal also 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 Ohio Companies requested that the PUCO issue an order by November 1,
        2007,
        to provide sufficient time to conduct the bidding process.
 
 *Pennsylvania*
 
 On
        May 2, 2007, Penn
        made a filing with the PPUC proposing how it will procure the power supply
        needed for default service customers from June 1, 2008 through May 2011.
        Hearings are scheduled for September 10-11, 2007, with a recommended ALJ
        decision expected by October 25, 2007.  A PPUC order is expected by
        November 29, 2007. The initial RFP is expected to take place in January
        2008.
 
 On
        May 3, 2007, an
        ALJ issued her initial decision denying Met-Ed’s and Penelec’s request to modify
        their NUG stranded cost accounting methodology.  The companies filed
        exceptions to the initial decision on May 23, 2007 and replies to those
        exceptions were filed on June 4, 2007.  It is not known when the
        PPUC may issue a final decision in this matter.
 
 On
        June 19, 2007,
        initial briefs were filed with the Commonwealth Court of Pennsylvania by
        all
        parties in the appeal of Met-Ed’s and Penelec’s comprehensive rate
        filing.  Responsive briefs are due August 20, 2007, with reply briefs
        due September 4, 2007.  Met-Ed and Penelec appealed the PPUC’s
        decision on the denial of generation rate relief and consolidated tax savings,
        while other parties appealed the PPUC’s decision on transmission rate
        relief.  Oral arguments are expected to take place in the fourth
        quarter of 2007.
 
 **Operations**
 
 Second
        Quarter KWH
        Sales Record - FirstEnergy set a new second quarter generation sales record
        in
        2007 of 32.8 billion KWH, which represents a 2.9% increase over the second
        quarter of 2006. Distribution deliveries also increased in the second quarter
        to
        26.9 billion KWH – a 4.4% increase from the second quarter of 2006. The higher
        KWH sales and distribution deliveries were primarily attributable to continued
        customer growth in FirstEnergy’s service territories and weather impacts during
        the quarter.
 
 Generation
        Output
        Record - FirstEnergy set a new second quarter generation output record of
        20.4 billion KWH in 2007, which represents a 0.4% increase over the prior
        record established last year. The generation record was primarily attributable
        to performance of the fossil generation fleet, which established its best
        quarterly output ever.
 
 NRC
        Demand for
        Information - On May 14, 2007, the NRC issued a Demand for Information related
        to recent reports prepared for arbitration of an insurance claim for replacing
        the damaged reactor head at the Davis-Besse Plant in 2002. FENOC responded
        to
        the NRC on June 13, 2007.  FirstEnergy officials participated in
        a public meeting with the NRC on June 27, 2007 to discuss circumstances
        leading up to the Demand for Information and FENOC’s response. In follow-up
        discussions, FENOC was requested to provide supplemental information to clarify
        certain aspects of the Demand for Information response and to provide
        supplemental details regarding plans to implement the commitments established
        therein. This supplemental information was submitted to the NRC on July 16,
        2007.
 
 Perry
        Plant Outage -
        FirstEnergy’s Perry Nuclear Power Plant completed its regularly scheduled
        refueling outage on May 13, 2007. Major work activities performed on the
        1,258
        MW facility included replacing approximately one-third of the fuel assemblies
        in
        the reactor and two of the three low-pressure turbine rotors in the main
        generator. On June 29, 2007, Perry began an unplanned outage to replace a
        30-ton motor in the reactor recirculation system. In addition to the motor
        replacement, routine and preventive maintenance and several system inspections
        will be performed during the outage to assure continued safe and reliable
        operation of the plant. On July 25, 2007 the plant was returned to
        service.
 
 Environmental
        Update
        - On May 30, 2007, FirstEnergy announced that FGCO plans to install an ECO
        system on Units 4 and 5 of its R.E. Burger Plant.  Design engineering
        for the new Burger Plant ECO system will begin in 2007 with an anticipated
        start-up date in the first quarter of 2011.  The incremental cost
        installing the system at the Burger Plant instead of Bay Shore Unit 4, as
        originally planned, is approximately $38 million.
  32
  
 **FIRSTENERGY’S
        BUSINESS**
 
 FirstEnergy
        is a
        diversified energy company headquartered in Akron, Ohio, that operates primarily
        through three core business segments (see Results of Operations).
 
 ·
              **Energy
                  Delivery Services** transmits and distributes electricity through
                  FirstEnergy's eight utility operating companies, serving 4.5 million
                  customers within 36,100 square miles of Ohio, Pennsylvania and
                  New Jersey
                  and purchases power for its PLR requirements in Pennsylvania and
                  New
                  Jersey. This business segment derives its revenues principally
                  from the
                  delivery of electricity within FirstEnergy’s service areas, cost recovery
                  of regulatory assets and the sale of electric generation service
                  to
                  non-shopping retail customers under the PLR obligations in its
                  Pennsylvania and New Jersey franchise areas.  Its net income
                  reflects the commodity costs of securing electricity from the Competitive
                  Energy Services Segment under partial requirements purchased power
                  agreements with FES and non-affiliated power suppliers, including
                  associated transmission costs.
 
 ·
              **Competitive
                  Energy Services** supplies the electric power needs of end-use
                  customers through retail and wholesale arrangements, including
                  associated
                  company power sales to meet all or a portion of the PLR requirements
                  of
                  FirstEnergy's Ohio and Pennsylvania utility subsidiaries and competitive
                  retail sales to customers primarily in Ohio, Pennsylvania, Maryland
                  and
                  Michigan. This business segment owns or leases and operates FirstEnergy's
                  generating facilities and also purchases electricity to meet sales
                  obligations. The segment's net income is primarily derived from
                  affiliated
                  company power sales and non-affiliated electric generation sales
                  revenues
                  less the related costs of electricity generation, including purchased
                  power and net transmission and ancillary costs charged by PJM and
                  MISO to
                  deliver energy to the segment’s
                  customers.
 
 ·
              **Ohio
                  Transitional Generation Services** supplies the electric power
                  needs of non-shopping customers under the PLR requirements of
                  FirstEnergy's Ohio Companies. The segment's net income is primarily
                  derived from electric generation sales revenues less the cost of
                  power
                  purchased from the competitive energy services segment through
                  a
                  full-requirements PSA arrangement with FES, including net transmission
                  and
                  ancillary costs charged by MISO to deliver energy to retail
                  customers.
 
 **RESULTS
        OF
        OPERATIONS**
 
 The
        financial
        results discussed below include revenues and expenses from transactions among
        FirstEnergy's business segments. A reconciliation of segment financial results
        is provided in Note 12 to the consolidated financial statements. Net income
        by major business segment was as follows:
 
 **Three
                    Months Ended June 30,**
              
              **Six
                    Months Ended June 30,****Increase**
              
              
              
              **Increase****2007**
              
              **2006**
              
              **(Decrease)**
              
              **2007**
              
              **2006**
              
              **(Decrease)*****(In
                  millions, except per share amounts)*****Net
                  Income (Loss)****By
                  Business Segment:**Energy
                  delivery services
              
              
              $
              207
              
              $
              233
              
              $
              (26
              )
              $
              425
              
              $
              422
              
              $
              3Competitive
                  energy services
              
              
              
              142
              
              
              101
              
              
              41
              
              
              240
              
              
              133
              
              
              107Ohio
                  transitional generation services
              
              
              
              30
              
              
              31
              
              
              (1
              )
              
              53
              
              
              61
              
              
              (8
              )Other
                  and
                  reconciling adjustments*
              
              
              
              (41
              )
              
              (61
              )
              
              20
              
              
              (90
              )
              
              (91
              )
              
              1Total
              
              
              $
              338
              
              $
              304
              
              $
              34
              
              $
              628
              
              $
              525
              
              $
              103**Basic
                  Earnings Per Share:**Income
                  from
                  continuing operations
              
              
              $
              1.11
              
              $
              0.94
              
              $
              0.17
              
              $
              2.03
              
              $
              1.61
              
              $
              0.42Discontinued
                  operations
              
              
              
              -
              
              
              (0.02
              )
              
              0.02
              
              
              -
              
              
              (0.02
              )
              
              0.02Net
                  earnings
                  per basic share
              
              
              $
              1.11
              
              $
              0.92
              
              $
              0.19
              
              $
              2.03
              
              $
              1.59
              
              $
              0.44**Diluted
                  Earnings Per Share:**Income
                  from
                  continuing operations
              
              
              $
              1.10
              
              $
              0.93
              
              $
              0.17
              
              $
              2.01
              
              $
              1.60
              
              $
              0.41Discontinued
                  operations
              
              
              
              -
              
              
              (0.02
              )
              
              0.02
              
              
              -
              
              
              (0.02
              )
              
              0.02Net
                  earnings
                  per diluted share
              
              
              $
              1.10
              
              $
              0.91
              
              $
              0.19
              
              $
              2.01
              
              $
              1.58
              
              $
              0.43
 
 *
        Represents other operating segments and reconciling items including interest
        expense on holding company debt and corporate
 support
        services revenues and expenses.
 
  33
  
 ***Summary
        of Results of Operations – Second Quarter of 2007 Compared with the Second
        Quarter of 2006***
 
 Financial
        results
        for FirstEnergy's major business segments in the second quarter of 2007 and
        2006
        were as follows:
 
 **Ohio****Energy**
                  
                  
                  **Competitive**
                  
                  
                  **Transitional**
                  
                  
                  **Other
                      and****Delivery**
                  
                  
                  **Energy**
                  
                  
                  **Generation**
                  
                  
                  **Reconciling**
                  
                  
                  **FirstEnergy****Second
                      Quarter 2007 Financial Results**
                  
                  **Services**
                  
                  
                  **Services**
                  
                  
                  **Services**
                  
                  
                  **Adjustments**
                  
                  
                  **Consolidated****(In
                      millions)**Revenues:ExternalElectric
                  
                  $
                  1,933
                  
                  
                  $
                  359
                  
                  
                  $
                  612
                  
                  
                  $
                  -
                  
                  
                  $
                  2,904Other
                  
                  
                  162
                  
                  
                  
                  45
                  
                  
                  
                  13
                  
                  
                  
                  (15
                  )
                  
                  
                  205Internal
                  
                  
                  -
                  
                  
                  
                  691
                  
                  
                  
                  -
                  
                  
                  
                  (691
                  )
                  
                  
                  -Total
                      Revenues
                  
                  
                  2,095
                  
                  
                  
                  1,095
                  
                  
                  
                  625
                  
                  
                  
                  (706
                  )
                  
                  
                  3,109Expenses:Fuel
                      and
                      purchased power
                  
                  
                  879
                  
                  
                  
                  460
                  
                  
                  
                  537
                  
                  
                  
                  (691
                  )
                  
                  
                  1,185Other
                      operating expenses
                  
                  
                  410
                  
                  
                  
                  283
                  
                  
                  
                  87
                  
                  
                  
                  (30
                  )
                  
                  
                  750Provision
                      for
                      depreciation
                  
                  
                  100
                  
                  
                  
                  51
                  
                  
                  
                  -
                  
                  
                  
                  8
                  
                  
                  
                  159Amortization
                      of regulatory assets
                  
                  
                  242
                  
                  
                  
                  -
                  
                  
                  
                  6
                  
                  
                  
                  (2
                  )
                  
                  
                  246Deferral
                      of
                      new regulatory assets
                  
                  
                  (93
                  )
                  
                  
                  -
                  
                  
                  
                  (55
                  )
                  
                  
                  -
                  
                  
                  
                  (148
                  )General
                      taxes
                  
                  
                  155
                  
                  
                  
                  26
                  
                  
                  
                  1
                  
                  
                  
                  7
                  
                  
                  
                  189Total
                      Expenses
                  
                  
                  1,693
                  
                  
                  
                  820
                  
                  
                  
                  576
                  
                  
                  
                  (708
                  )
                  
                  
                  2,381Operating
                      Income
                  
                  
                  402
                  
                  
                  
                  275
                  
                  
                  
                  49
                  
                  
                  
                  2
                  
                  
                  
                  728Other
                      Income
                      (Expense):Investment
                      income
                  
                  
                  62
                  
                  
                  
                  5
                  
                  
                  
                  -
                  
                  
                  
                  (37
                  )
                  
                  
                  30Interest
                      expense
                  
                  
                  (118
                  )
                  
                  
                  (47
                  )
                  
                  
                  -
                  
                  
                  
                  (40
                  )
                  
                  
                  (205
                  )Capitalized
                      interest
                  
                  
                  2
                  
                  
                  
                  5
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  7Total
                      Other
                      Expense
                  
                  
                  (54
                  )
                  
                  
                  (37
                  )
                  
                  
                  -
                  
                  
                  
                  (77
                  )
                  
                  
                  (168
                  )Income
                      From
                      Continuing Operations BeforeIncome
                      Taxes
                  
                  
                  348
                  
                  
                  
                  238
                  
                  
                  
                  49
                  
                  
                  
                  (75
                  )
                  
                  
                  560Income
                      taxes
                  
                  
                  141
                  
                  
                  
                  96
                  
                  
                  
                  19
                  
                  
                  
                  (34
                  )
                  
                  
                  222Net
                      Income
                  
                  $
                  207
                  
                  
                  $
                  142
                  
                  
                  $
                  30
                  
                  
                  $
                  (41
                  )
                  
                  $
                  338
  34
 **Ohio****Energy**
                  
                  
                  **Competitive**
                  
                  
                  **Transitional**
                  
                  
                  **Other
                      and****Delivery**
                  
                  
                  **Energy**
                  
                  
                  **Generation**
                  
                  
                  **Reconciling**
                  
                  
                  **FirstEnergy****Second
                      Quarter 2006 Financial Results**
                  
                  **Services**
                  
                  
                  **Services**
                  
                  
                  **Services**
                  
                  
                  **Adjustments**
                  
                  
                  **Consolidated****(In
                      millions)**Revenues:ExternalElectric
                  
                  $
                  1,646
                  
                  
                  $
                  338
                  
                  
                  $
                  569
                  
                  
                  $
                  -
                  
                  
                  $
                  2,553Other
                  
                  
                  127
                  
                  
                  
                  46
                  
                  
                  
                  6
                  
                  
                  
                  19
                  
                  
                  
                  198Internal
                  
                  
                  6
                  
                  
                  
                  623
                  
                  
                  
                  -
                  
                  
                  
                  (629
                  )
                  
                  
                  -Total
                      Revenues
                  
                  
                  1,779
                  
                  
                  
                  1,007
                  
                  
                  
                  575
                  
                  
                  
                  (610
                  )
                  
                  
                  2,751Expenses:Fuel
                      and
                      purchased power
                  
                  
                  690
                  
                  
                  
                  434
                  
                  
                  
                  496
                  
                  
                  
                  (629
                  )
                  
                  
                  991Other
                      operating expenses
                  
                  
                  363
                  
                  
                  
                  289
                  
                  
                  
                  53
                  
                  
                  
                  13
                  
                  
                  
                  718Provision
                      for
                      depreciation
                  
                  
                  89
                  
                  
                  
                  48
                  
                  
                  
                  -
                  
                  
                  
                  7
                  
                  
                  
                  144Amortization
                      of regulatory assets
                  
                  
                  197
                  
                  
                  
                  -
                  
                  
                  
                  4
                  
                  
                  
                  -
                  
                  
                  
                  201Deferral
                      of
                      new regulatory assets
                  
                  
                  (113
                  )
                  
                  
                  -
                  
                  
                  
                  (33
                  )
                  
                  
                  -
                  
                  
                  
                  (146
                  )General
                      taxes
                  
                  
                  144
                  
                  
                  
                  23
                  
                  
                  
                  2
                  
                  
                  
                  4
                  
                  
                  
                  173Total
                      Expenses
                  
                  
                  1,370
                  
                  
                  
                  794
                  
                  
                  
                  522
                  
                  
                  
                  (605
                  )
                  
                  
                  2,081Operating
                      Income
                  
                  
                  409
                  
                  
                  
                  213
                  
                  
                  
                  53
                  
                  
                  
                  (5
                  )
                  
                  
                  670Other
                      Income
                      (Expense):Investment
                      income
                  
                  
                  81
                  
                  
                  
                  2
                  
                  
                  
                  -
                  
                  
                  
                  (52
                  )
                  
                  
                  31Interest
                      expense
                  
                  
                  (101
                  )
                  
                  
                  (50
                  )
                  
                  
                  -
                  
                  
                  
                  (27
                  )
                  
                  
                  (178
                  )Capitalized
                      interest
                  
                  
                  4
                  
                  
                  
                  3
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  7Subsidiaries'
                      preferred stock dividends
                  
                  
                  (5
                  )
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  3
                  
                  
                  
                  (2
                  )Total
                      Other
                      Expense
                  
                  
                  (21
                  )
                  
                  
                  (45
                  )
                  
                  
                  -
                  
                  
                  
                  (76
                  )
                  
                  
                  (142
                  )Income
                      From
                      Continuing Operations BeforeIncome
                      Taxes
                  
                  
                  388
                  
                  
                  
                  168
                  
                  
                  
                  53
                  
                  
                  
                  (81
                  )
                  
                  
                  528Income
                      taxes
                  
                  
                  155
                  
                  
                  
                  67
                  
                  
                  
                  22
                  
                  
                  
                  (28
                  )
                  
                  
                  216Income
                      from
                      continuing operations
                  
                  
                  233
                  
                  
                  
                  101
                  
                  
                  
                  31
                  
                  
                  
                  (53
                  )
                  
                  
                  312Discontinued
                      operations
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (8
                  )
                  
                  
                  (8
                  )Net
                      Income
                  
                  $
                  233
                  
                  
                  $
                  101
                  
                  
                  $
                  31
                  
                  
                  $
                  (61
                  )
                  
                  $
                  304**Changes
                      Between Second Quarter 2007 and****Second
                      Quarter 2006 Financial Results****Increase
                      (Decrease)**Revenues:ExternalElectric
                  
                  $
                  287
                  
                  
                  $
                  21
                  
                  
                  $
                  43
                  
                  
                  $
                  -
                  
                  
                  $
                  351Other
                  
                  
                  35
                  
                  
                  
                  (1
                  )
                  
                  
                  7
                  
                  
                  
                  (34
                  )
                  
                  
                  7Internal
                  
                  
                  (6
                  )
                  
                  
                  68
                  
                  
                  
                  -
                  
                  
                  
                  (62
                  )
                  
                  
                  -Total
                      Revenues
                  
                  
                  316
                  
                  
                  
                  88
                  
                  
                  
                  50
                  
                  
                  
                  (96
                  )
                  
                  
                  358Expenses:Fuel
                      and
                      purchased power
                  
                  
                  189
                  
                  
                  
                  26
                  
                  
                  
                  41
                  
                  
                  
                  (62
                  )
                  
                  
                  194Other
                      operating expenses
                  
                  
                  47
                  
                  
                  
                  (6
                  )
                  
                  
                  34
                  
                  
                  
                  (43
                  )
                  
                  
                  32Provision
                      for
                      depreciation
                  
                  
                  11
                  
                  
                  
                  3
                  
                  
                  
                  -
                  
                  
                  
                  1
                  
                  
                  
                  15Amortization
                      of regulatory assets
                  
                  
                  45
                  
                  
                  
                  -
                  
                  
                  
                  2
                  
                  
                  
                  (2
                  )
                  
                  
                  45Deferral
                      of
                      new regulatory assets
                  
                  
                  20
                  
                  
                  
                  -
                  
                  
                  
                  (22
                  )
                  
                  
                  -
                  
                  
                  
                  (2
                  )General
                      taxes
                  
                  
                  11
                  
                  
                  
                  3
                  
                  
                  
                  (1
                  )
                  
                  
                  3
                  
                  
                  
                  16Total
                      Expenses
                  
                  
                  323
                  
                  
                  
                  26
                  
                  
                  
                  54
                  
                  
                  
                  (103
                  )
                  
                  
                  300Operating
                      Income
                  
                  
                  (7
                  )
                  
                  
                  62
                  
                  
                  
                  (4
                  )
                  
                  
                  7
                  
                  
                  
                  58Other
                      Income
                      (Expense):Investment
                      income
                  
                  
                  (19
                  )
                  
                  
                  3
                  
                  
                  
                  -
                  
                  
                  
                  15
                  
                  
                  
                  (1
                  )Interest
                      expense
                  
                  
                  (17
                  )
                  
                  
                  3
                  
                  
                  
                  -
                  
                  
                  
                  (13
                  )
                  
                  
                  (27
                  )Capitalized
                      interest
                  
                  
                  (2
                  )
                  
                  
                  2
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Subsidiaries'
                      preferred stock dividends
                  
                  
                  5
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (3
                  )
                  
                  
                  2Total
                      Other
                      Income
                  
                  
                  (33
                  )
                  
                  
                  8
                  
                  
                  
                  -
                  
                  
                  
                  (1
                  )
                  
                  
                  (26
                  )Income
                      From
                      Continuing Operations BeforeIncome
                      Taxes
                  
                  
                  (40
                  )
                  
                  
                  70
                  
                  
                  
                  (4
                  )
                  
                  
                  6
                  
                  
                  
                  32Income
                      taxes
                  
                  
                  (14
                  )
                  
                  
                  29
                  
                  
                  
                  (3
                  )
                  
                  
                  (6
                  )
                  
                  
                  6Income
                      from
                      continuing operations
                  
                  
                  (26
                  )
                  
                  
                  41
                  
                  
                  
                  (1
                  )
                  
                  
                  12
                  
                  
                  
                  26Discontinued
                      operations
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  8
                  
                  
                  
                  8Net
                      Income
                  
                  $
                  (26
                  )
                  
                  $
                  41
                  
                  
                  $
                  (1
                  )
                  
                  $
                  20
                  
                  
                  $
                  34
  35





***Energy
        Delivery Services – Second
        Quarter 2007 Compared to Second Quarter 2006***
 
 Net
        income decreased
        $26 million (or 11%) to $207 million in the second quarter of 2007
        compared to $233 million in the second quarter of 2006, primarily due to
        increased purchased power costs, higher other operating expenses and increased
        depreciation and amortization, partially offset by higher revenues.
 
 *Revenues
–*
 
 The
        increase in total revenues resulted from the following sources:
 
 **Three
                  Months Ended****June
                  30,****Revenues
                  by Type of Service**
              
              **2007**
              
              **2006**
              
              **Increased*****(In
                  millions)***Distribution
                    services
              
              $
              948
              
              $
              913
              
              $
              35Generation
                    sales:Retail
              
              
              756
              
              
              645
              
              
              111Wholesale
              
              
              148
              
              
              49
              
              
              99Total
                    generation sales
              
              
              904
              
              
              694
              
              
              210Transmission
              
              
              194
              
              
              124
              
              
              70Other
              
              
              49
              
              
              48
              
              
              1Total
                    Revenues
              
              $
              2,095
              
              $
              1,779
              
              $
              316
 
 The
        increases in distribution deliveries by customer class are summarized in
        the
        following table:
 
 **Electric
                  Distribution Deliveries**Residential
              
              9.2
              %Commercial
              
              4.9
              %Industrial
              
              (0.2
              )%Total
                    Distribution Deliveries
              
              4.4
              %
 
 The
        increase in
        electric distribution deliveries to customers was primarily due to higher
        weather-related usage during the second quarter of 2007 compared to the same
        period of 2006 (heating degree days increased by 15.8% and cooling degree
        days
        increased by 39.3%). The higher revenues from distribution deliveries were
        partially offset principally by distribution rate decreases for Met-Ed and
        Penelec as a result of a January 11, 2007 PPUC rate decision (see Outlook
–
State Regulatory Matters – Pennsylvania).
 
 The
        following table
        summarizes the price and volume factors contributing to the $210 million
        increase in non-affiliated generation sales in 2007 compared to
        2006:
 
 **Sources
                    of Change in Generation Sales**
              
              **Increase*****(In
                  millions)***Retail:Effect
                  of 1% increase in customer usage
              
              $
              6Change
                  in prices
              
              
              105111Wholesale:Effect
                  of 131% increase in KWH sales
              
              
              64Change
                  in prices
              
              
              3599Net
                  Increase
                  in Generation Sales
              
              $
              210
 
 The
        increase in
        retail generation prices during the second quarter of 2007 compared to 2006
        was
        primarily due to increased generation rates for JCP&L resulting from the New
        Jersey BGS auction and an increase in NUGC rates authorized by the NJBPU.
        Wholesale generation sales increased principally as a result of Met-Ed and
        Penelec selling additional available power into the PJM market beginning
        in
        January 2007.
 
 Transmission
        revenues increased $70 million primarily due to higher transmission rates
        for Met-Ed and Penelec resulting from the January 2007 PPUC authorization
        for
        transmission cost recovery. Met-Ed and Penelec defer the difference between
        revenues from their transmission rider and transmission costs incurred, with
        no
        material effect to current period earnings.
  36
  
 *Expenses
–*
 
 The
        net increases in revenues discussed above were more than offset by a
        $323 million increase in expenses due to the following:
 
 ·
              Purchased
                  power costs were $187million
                  higher in the second quarter of 2007 due to higher unit prices
                  and volumes
                  purchased. The increased unit prices reflected the effect of higher
                  JCP&L purchased power unit prices resulting from the BGS auction. The
                  increased KWH purchases in 2007 were due to higher customer usage
                  and
                  sales to the wholesale market.  The following table summarizes
                  the sources of changes in purchased power
                  costs:
 
 **Sources
                    of Change in Purchased Power**
              
              **Increase*****(In
                  millions)***Purchased
                  Power:Change
                  due to increased unit costs
              
              $
              99Change
                  due to increased volume
              
              
              43Decrease
                  in NUG costs deferred
              
              
              45Net
                  Increase in Purchased Power Costs
              
              $
              187
 
 ·
              Other
                  operating expenses increased $47million
                  due to the net effects of:
 
 -
              An
                  increase of
                  $49million
                  in transmission expenses, resulting primarily from higher congestion
                  costs
                  ($47 million);
 
 -
              A
                  decrease in
                  miscellaneous operating expenses of $12million
                  primarily due to reduced billings for employee benefits from FESC;
                  and
 
 -
              An
                  increase in
                  operation and maintenance expenses of $12million
                  primarily due to increased labor costs devoted to operating activities
                  ($22 million) partially offset by lower employee benefit costs
                  ($10 million);
 
 ·
              Amortization
                  of regulatory assets increased $45million
                  compared to 2006 due primarily to recovery of deferred BGS costs
                  through
                  higher NUGC revenues for JCP&L as discussed above;
                  and
 
 ·
              The
                  deferral
                  of new regulatory assets during the second quarter of 2007 was
                  $20 million lower than 2006 due in part to $25 million in
                  reduced deferrals of transmission related PJM costs. The higher
                  deferral
                  in the second quarter of 2006 was attributable to the deferral
                  of first
                  quarter costs following authorization by the PPUC in May 2006 (see
                  Note 10). The reduction in deferred PJM costs was partially offset by
                  interest earned on the RCP Distribution
                  Deferral.
 
 *Other
        Income and Expense –*
 
 Other
        income
        decreased $33 million in 2007 compared to the second quarter of 2006
        primarily due to lower interest income of $19 million resulting from the
        repayment of notes receivable from affiliates since the second quarter of
        2006,
        and increased interest expense of $17 million related in part to new debt
        issuances by CEI and JCP&L.
 
 ***Ohio
        Transitional Generation Services –
Second Quarter 2007 Compared to Second Quarter 2006***
 
 Net
        income of
        $30million
        in the second quarter of 2007 did not differ significantly from $31million
        in the same period last year. Higher generation revenues were offset by higher
        operating expenses, primarily for purchased power.
  37
  
 *Revenues
–*
 
 The
        increase in reported segment revenues resulted from the following
        sources:
 
 **Three
                  Months Ended****June
                  30,****Revenues
                  by Type of Service**
              
              **2007**
              
              **2006**
              
              **Increase*****(In
                  millions)***Generation
                    sales:Retail
              
              $
              544
              
              $
              504
              
              $
              40Wholesale
              
              
              2
              
              
              2
              
              
              -Total
                    generation sales
              
              
              546
              
              
              506
              
              
              40Transmission
              
              
              79
              
              
              69
              
              
              10Total
                    Revenues
              
              $
              625
              
              $
              575
              
              $
              50
 
 The
        following table
        summarizes the price and volume factors contributing to the increase in
        generation sales revenues from retail customers:
 
 **Source
                    of Change in Generation Sales**
              
              **Increase*****(In
                  millions)***Retail:Effect
                  of 4.4% increase in customer
                  usage
              
              $
              22Change
                  in prices
              
              
              18Total
                  Increase in Retail Generation Sales
              
              $
              40
 
 The
        increase in
        generation sales was primarily due to higher weather-related usage in the
        second
        quarter of 2007 as discussed above and reduced customer shopping. Average
        prices
        increased primarily due to higher composite unit prices for returning
        customers.
 
 *Expenses
        -*
 
 Purchased
        power
        costs were $41 million higher due primarily to higher unit costs for power
        purchased from FES. The factors contributing to the higher costs are summarized
        in the following table:
 
 **Source
                  of Change in Purchased Power**
              
              **Increase**
                **(Decrease)*****(In
                  millions)***Purchases
                  from
                  non-affiliates:Change
                  due to decreased unit
                  costs
              
              $
              (5
              )Change
                  due to volume
              
              
              2(3
              )Purchases
                  from
                  FES:Change
                  due to increased unit
                  costs
              
              
              23Change
                  due to volume
              
              
              2144Total
                  Increase
                  in Purchased Power Costs
              
              $
              41
 
 
 The
        increase in KWH
        purchases was due to the higher retail generation sales
        requirements.  The higher unit costs resulted from the provision of
        the full-requirements PSA with FES under which purchased power unit costs
        reflected the increases in the Ohio Companies’ retail generation sales unit
        prices.
 
 Other
        operating
        expenses increased $34 million due primarily to MISO transmission-related
        expenses. The difference between transmission revenues accrued and transmission
        expenses incurred is deferred, resulting in no material impact to current
        period
        earnings.
 
 ***Competitive
        Energy Services – Second
        Quarter 2007 Compared to Second Quarter 2006***
 
 Net
        income for this
        segment was $142million in the second
        quarter of 2007 compared to $101million in the same
        period
        last year. An improvement in gross generation margin and lower other operating
        expenses was partially offset by an increase in other expenses.
  38
  *Revenues
–*
 
 Total
        revenues
        increased $88million
        in the second quarter of 2007 compared to the same period in 2006. This increase
        primarily resulted from higher unit prices from affiliated generation sales
        to
        the Ohio Companies, which were partially offset by lower non-affiliated
        wholesale sales.
 
 The
        higher retail
        revenues resulted from increased sales in both the MISO and PJM markets.
        Lower
        non-affiliated wholesale revenues reflected the effect of decreased generation
        available for the non-affiliated wholesale market due to increased affiliated
        company power sales requirements under the Ohio Companies’ full-requirements PSA
        and the partial-requirements power sales agreement with Met-Ed and
        Penelec.
 
 The
        increased
        affiliated company generation revenues were due to higher unit prices and
        increased KWH sales. Factors contributing to the revenue increase from PSA
        sales
        to the Ohio Companies are discussed under the purchased power costs analysis
        in
        the Ohio Transitional Generation Services results above. The higher KWH sales
        to
        the Pennsylvania affiliates were due to increased Met-Ed and Penelec generation
        sales requirements. These increases were partially offset by lower sales
        to Penn
        as a result of the implementation of its competitive solicitation process
        in
        2007.
 
 The
        increase in reported segment revenues resulted from the following
        sources:
 
 **Three
                  Months Ended****June
                  30,**
              
              **Increase****Revenues
                  By Type of Service**
              
              **2007**
              
              **2006**
              
              **(Decrease)*****(In
                  millions)***Non-Affiliated
                    Generation Sales:Retail
              
              $
              185
              
              $
              136
              
              $
              49Wholesale
              
              
              174
              
              
              202
              
              
              (28
              )Total
                    Non-Affiliated Generation Sales
              
              
              359
              
              
              338
              
              
              21Affiliated
                    Generation Sales
              
              
              691
              
              
              623
              
              
              68Transmission
              
              
              22
              
              
              29
              
              
              (7
              )Other
              
              
              23
              
              
              17
              
              
              6Total
                    Revenues
              
              $
              1,095
              
              $
              1,007
              
              $
              88
 
 
 The
        following tables
        summarize the price and volume factors contributing to changes in revenues
        from
        generation sales:
 
 **Increase****Source
                    of Change in Non-Affiliated Generation
                    Sales**
              
              **(Decrease)*****(In
                  millions)***Retail:Effect
                  of 20% increase in sales
                  volume
              
              $
              27Change
                  in prices
              
              
              2249Wholesale:Effect
                  of 28% decrease in KWH
                  sales
              
              
              (56
              )Change
                  in prices
              
              
              28(28
              )Net
                  Increase
                  in Non-Affiliated Generation Sales
              
              $
              21
 
 **Source
                    of Change in Affiliated Generation Sales**
              
              **Increase**
                  **(Decrease)*****(In
                  millions)***Ohio
                  Companies:Effect
                  of 4% increase in KWH
                  sales
              
              $
              21Change
                  in prices
              
              
              2344Pennsylvania
                  Companies:Effect
                  of 18% increase in KWH
                  sales
              
              
              25Change
                  in prices
              
              
              (1
              )24Net
                  Increase
                  in Affiliated Generation Sales
              
              $
              68
 
  39
  
 *Expenses
        -*
 
 Total
        operating
        expenses were $26 million higher in the second quarter of 2007 due to the
        following factors:
 
 ·
              Purchased
                  power costs increased $32million
                  due to higher unit prices;
 
 ·
              Nuclear
                  production costs increased $6 million, caused in part by expenditures
                  related to the Perry refueling outage ($15 million), partially offset
                  by reduced labor costs ($7 million) due to more labor devoted to
                  capital projects in 2007 and reduced employee benefits costs
                  ($3 million);
 
 ·
              Expenses
                  related to marking commodity contracts to market value were
                  $5 million higher due to a $1 million unrealized loss on
                  purchased power hedges and the absence of a $4 million gain on gas
                  hedges recognized in 2006; and
 
 ·
              Higher
                  depreciation expense of $3 million from property
                  additions.
 
 Partially
        offsetting
        the increases were the following:
 
 ·
              MISO/PJM
                  transmission expenses were $8 million lower due to reduced Revenue
                  Sufficiency Guarantee charges ($19 million) partially offset by
                  higher point-to-point transmission and congestion
                  charges;
 
 ·
              Fossil
                  operating costs were $9 million lower due to the absence of asbestos
                  removal costs of $4 million included in 2006 results and reduced
                  employee benefit costs; and
 
 ·
              Fuel
                  costs
                  were $6 million lower due to a $14 million coal inventory
                  adjustment and a $6 million reduction in emission allowance costs.
                  Partially offsetting these decreases were $11 million of increased
                  natural gas, coal and nuclear fuel consumption, due to increased
                  generation, and $3 million of increases in other fuel
                  costs.
 
 *Other
        Income –*
 
 Investment
        income in
        the second quarter of 2007 was $3million
        higher than the 2006 period primarily due to increased earnings on nuclear
        decommissioning trust investments (net of an $8 million impairment) while
        interest expense was $3 million lower due to reduced short-term
        borrowings.
 
 ***Other
–
Second
        Quarter 2007 Compared to
        Second Quarter 2006***
 
 FirstEnergy’s
        financial results from other operating segments and reconciling items, including
        interest expense on holding company debt and corporate support services revenues
        and expenses, resulted in a $20million
        increase in FirstEnergy’s net income in the second quarter of 2007 compared to
        the same quarter of 2006. The increase was primarily due to the absence of
        an
        $8million
        loss included in 2006 results from discontinued operations (see Note 3),
        the absence of $3 million in subsidiary preferred stock dividends and reduced
        capital stock taxes of $3 million.
  40







***Summary
      of Results of Operations – First Six Months of 2007 Compared with the First Six
      Months of 2006***





Financial
      results
      for FirstEnergy's major business segments in the first six months of 2007 and
      2006 were as follows:




**Ohio****Energy**
                
                
                **Competitive**
                
                
                **Transitional**
                
                
                **Other
                    and****Delivery**
                
                
                **Energy**
                
                
                **Generation**
                
                
                **Reconciling**
                
                
                **FirstEnergy****First
                    Six Months 2007 Financial Results**
                
                **Services**
                
                
                **Services**
                
                
                **Services**
                
                
                **Adjustments**
                
                
                **Consolidated****(In
                    millions)**Revenues:ExternalElectric
                
                $
                3,808
                
                
                $
                635
                
                
                $
                1,226
                
                
                $
                -
                
                
                $
                5,669Other
                
                
                327
                
                
                
                97
                
                
                
                19
                
                
                
                (30
                )
                
                
                413Internal
                
                
                -
                
                
                
                1,404
                
                
                
                -
                
                
                
                (1,404
                )
                
                
                -Total
                    Revenues
                
                
                4,135
                
                
                
                2,136
                
                
                
                1,245
                
                
                
                (1,434
                )
                
                
                6,082Expenses:Fuel
                    and
                    purchased power
                
                
                1,722
                
                
                
                907
                
                
                
                1,081
                
                
                
                (1,404
                )
                
                
                2,306Other
                    operating expenses
                
                
                819
                
                
                
                588
                
                
                
                138
                
                
                
                (46
                )
                
                
                1,499Provision
                    for
                    depreciation
                
                
                199
                
                
                
                102
                
                
                
                -
                
                
                
                14
                
                
                
                315Amortization
                    of regulatory assets
                
                
                487
                
                
                
                -
                
                
                
                11
                
                
                
                (1
                )
                
                
                497Deferral
                    of
                    new regulatory assets
                
                
                (217
                )
                
                
                -
                
                
                
                (75
                )
                
                
                -
                
                
                
                (292
                )General
                    taxes
                
                
                320
                
                
                
                55
                
                
                
                2
                
                
                
                15
                
                
                
                392Total
                    Expenses
                
                
                3,330
                
                
                
                1,652
                
                
                
                1,157
                
                
                
                (1,422
                )
                
                
                4,717Operating
                    Income
                
                
                805
                
                
                
                484
                
                
                
                88
                
                
                
                (12
                )
                
                
                1,365Other
                    Income
                    (Expense):Investment
                    income
                
                
                132
                
                
                
                8
                
                
                
                1
                
                
                
                (78
                )
                
                
                63Interest
                    expense
                
                
                (227
                )
                
                
                (100
                )
                
                
                (1
                )
                
                
                (62
                )
                
                
                (390
                )Capitalized
                    interest
                
                
                4
                
                
                
                8
                
                
                
                -
                
                
                
                -
                
                
                
                12Total
                    Other
                    Expense
                
                
                (91
                )
                
                
                (84
                )
                
                
                -
                
                
                
                (140
                )
                
                
                (315
                )Income
                    From
                    Continuing Operations BeforeIncome
                    Taxes
                
                
                714
                
                
                
                400
                
                
                
                88
                
                
                
                (152
                )
                
                
                1,050Income
                    taxes
                
                
                289
                
                
                
                160
                
                
                
                35
                
                
                
                (62
                )
                
                
                422Net
                    Income
                
                $
                425
                
                
                $
                240
                
                
                $
                53
                
                
                $
                (90
                )
                
                $
                628
  41
 **Ohio****Energy**
              
              
              **Competitive**
              
              
              **Transitional**
              
              
              **Other
                  and****Delivery**
              
              
              **Energy**
              
              
              **Generation**
              
              
              **Reconciling**
              
              
              **FirstEnergy****First
                  Six Months 2006 Financial Results**
              
              **Services**
              
              
              **Services**
              
              
              **Services**
              
              
              **Adjustments**
              
              
              **Consolidated****(In
                  millions)**Revenues:ExternalElectric
              
              $
              3,314
              
              
              $
              642
              
              
              $
              1,108
              
              
              $
              -
              
              
              $
              5,064Other
              
              
              256
              
              
              
              96
              
              
              
              10
              
              
              
              30
              
              
              
              392Internal
              
              
              14
              
              
              
              1,235
              
              
              
              -
              
              
              
              (1,249
              )
              
              
              -Total
                  Revenues
              
              
              3,584
              
              
              
              1,973
              
              
              
              1,118
              
              
              
              (1,219
              )
              
              
              5,456Expenses:Fuel
                  and
                  purchased power
              
              
              1,383
              
              
              
              901
              
              
              
              954
              
              
              
              (1,249
              )
              
              
              1,989Other
                  operating expenses
              
              
              729
              
              
              
              634
              
              
              
              109
              
              
              
              (1
              )
              
              
              1,471Provision
                  for
                  depreciation
              
              
              185
              
              
              
              94
              
              
              
              -
              
              
              
              13
              
              
              
              292Amortization
                  of regulatory assets
              
              
              413
              
              
              
              -
              
              
              
              9
              
              
              
              -
              
              
              
              422Deferral
                  of
                  new regulatory assets
              
              
              (168
              )
              
              
              -
              
              
              
              (58
              )
              
              
              -
              
              
              
              (226
              )General
                  taxes
              
              
              302
              
              
              
              49
              
              
              
              2
              
              
              
              13
              
              
              
              366Total
                  Expenses
              
              
              2,844
              
              
              
              1,678
              
              
              
              1,016
              
              
              
              (1,224
              )
              
              
              4,314Operating
                  Income
              
              
              740
              
              
              
              295
              
              
              
              102
              
              
              
              5
              
              
              
              1,142Other
                  Income
                  (Expense):Investment
                  income
              
              
              164
              
              
              
              17
              
              
              
              -
              
              
              
              (107
              )
              
              
              74Interest
                  expense
              
              
              (201
              )
              
              
              (96
              )
              
              
              (1
              )
              
              
              (45
              )
              
              
              (343
              )Capitalized
                  interest
              
              
              7
              
              
              
              6
              
              
              
              -
              
              
              
              1
              
              
              
              14Subsidiaries'
                  preferred stock dividends
              
              
              (7
              )
              
              
              -
              
              
              
              -
              
              
              
              3
              
              
              
              (4
              )Total
                  Other
                  Expense
              
              
              (37
              )
              
              
              (73
              )
              
              
              (1
              )
              
              
              (148
              )
              
              
              (259
              )Income
                  From
                  Continuing Operations BeforeIncome
                  Taxes
              
              
              703
              
              
              
              222
              
              
              
              101
              
              
              
              (143
              )
              
              
              883Income
                  taxes
              
              
              281
              
              
              
              89
              
              
              
              40
              
              
              
              (58
              )
              
              
              352Income
                  from
                  continuing operations
              
              
              422
              
              
              
              133
              
              
              
              61
              
              
              
              (85
              )
              
              
              531Discontinued
                  operations
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (6
              )
              
              
              (6
              )Net
                  Income
              
              $
              422
              
              
              $
              133
              
              
              $
              61
              
              
              $
              (91
              )
              
              $
              525**Changes
                  Between First Six Months 2007****and
                  First Six Months 2006****Financial
                  Results Increase (Decrease)**Revenues:ExternalElectric
              
              $
              494
              
              
              $
              (7
              )
              
              $
              118
              
              
              $
              -
              
              
              $
              605Other
              
              
              71
              
              
              
              1
              
              
              
              9
              
              
              
              (60
              )
              
              
              21Internal
              
              
              (14
              )
              
              
              169
              
              
              
              -
              
              
              
              (155
              )
              
              
              -Total
                  Revenues
              
              
              551
              
              
              
              163
              
              
              
              127
              
              
              
              (215
              )
              
              
              626Expenses:Fuel
                  and
                  purchased power
              
              
              339
              
              
              
              6
              
              
              
              127
              
              
              
              (155
              )
              
              
              317Other
                  operating expenses
              
              
              90
              
              
              
              (46
              )
              
              
              29
              
              
              
              (45
              )
              
              
              28Provision
                  for
                  depreciation
              
              
              14
              
              
              
              8
              
              
              
              -
              
              
              
              1
              
              
              
              23Amortization
                  of regulatory assets
              
              
              74
              
              
              
              -
              
              
              
              2
              
              
              
              (1
              )
              
              
              75Deferral
                  of
                  new regulatory assets
              
              
              (49
              )
              
              
              -
              
              
              
              (17
              )
              
              
              -
              
              
              
              (66
              )General
                  taxes
              
              
              18
              
              
              
              6
              
              
              
              -
              
              
              
              2
              
              
              
              26Total
                  Expenses
              
              
              486
              
              
              
              (26
              )
              
              
              141
              
              
              
              (198
              )
              
              
              403Operating
                  Income
              
              
              65
              
              
              
              189
              
              
              
              (14
              )
              
              
              (17
              )
              
              
              223Other
                  Income
                  (Expense):Investment
                  income
              
              
              (32
              )
              
              
              (9
              )
              
              
              1
              
              
              
              29
              
              
              
              (11
              )Interest
                  expense
              
              
              (26
              )
              
              
              (4
              )
              
              
              -
              
              
              
              (17
              )
              
              
              (47
              )Capitalized
                  interest
              
              
              (3
              )
              
              
              2
              
              
              
              -
              
              
              
              (1
              )
              
              
              (2
              )Subsidiaries'
                  preferred stock dividends
              
              
              7
              
              
              
              -
              
              
              
              -
              
              
              
              (3
              )
              
              
              4Total
                  Other
                  Income
              
              
              (54
              )
              
              
              (11
              )
              
              
              1
              
              
              
              8
              
              
              
              (56
              )Income
                  From
                  Continuing Operations BeforeIncome
                  Taxes
              
              
              11
              
              
              
              178
              
              
              
              (13
              )
              
              
              (9
              )
              
              
              167Income
                  taxes
              
              
              8
              
              
              
              71
              
              
              
              (5
              )
              
              
              (4
              )
              
              
              70Income
                  from
                  continuing operations
              
              
              3
              
              
              
              107
              
              
              
              (8
              )
              
              
              (5
              )
              
              
              97Discontinued
                  operations
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              6
              
              
              
              6Net
                  Income
              
              $
              3
              
              
              $
              107
              
              
              $
              (8
              )
              
              $
              1
              
              
              $
              103
 
 42
 ******
 ***Energy
          Delivery Services – First Six
          Months of 2007 Compared to First Six Months of 2006***


Net
        income increased
        $3 million (or 1%) to $425 million in the first six months of 2007
        compared to $422 million in the first six months of 2006, primarily due to
        increased revenues partially offset by higher operating expenses and lower
        investment income.
 
 *Revenues
–*
 
 The
        increase in total revenues resulted from the following sources:
 
 **Six
                  Months Ended****June
                  30,****Revenues
                  by Type of Service**
              
              **2007**
              
              **2006**
              
              **Increase*****(In
                  millions)***Distribution
                    services
              
              $
              1,892
              
              $
              1,848
              
              $
              44Generation
                    sales:Retail
              
              
              1,476
              
              
              1,281
              
              
              195Wholesale
              
              
              281
              
              
              105
              
              
              176Total
                    generation sales
              
              
              1,757
              
              
              1,386
              
              
              371Transmission
              
              
              376
              
              
              247
              
              
              129Other
              
              
              110
              
              
              103
              
              
              7Total
                    Revenues
              
              $
              4,135
              
              $
              3,584
              
              $
              551
 
 The
        increases in distribution deliveries by customer class are summarized in
        the
        following table:
 
 **Electric
                  Distribution Deliveries**Residential
              
              
              8.0
              %Commercial
              
              
              4.6
              %Industrial
              
              
              -Total
                    Distribution Deliveries
              
              
              4.2
              %
 
 The
        increase in
        electric distribution deliveries to customers was primarily due to higher
        weather-related usage during the first six months of 2007 compared to the
        same
        period of 2006 (heating degree days increased by 15.4% and cooling degree
        days
        increased by 39.8%). The higher revenues from increased distribution deliveries
        were offset principally by distribution rate decreases for Met-Ed and Penelec
        as
        a result of a January 11, 2007 PPUC rate decision (see Outlook – State
        Regulatory Matters – Pennsylvania).
 
 The
        following table
        summarizes the price and volume factors contributing to the $371 million
        increase in non-affiliated generation sales revenues in 2007 compared to
        2006:
 
 **Sources
                    of Change in Generation Sales**
              
              **Increase*****(In
                  millions)***Retail:Effect
                  of 0.6% increase in customer usage
              
              $
              8Change
                  in prices
              
              
              187195Wholesale:Effect
                  of 135% increase in KWH sales
              
              
              141Change
                  in prices
              
              
              35176Net
                  Increase
                  in Generation Sales
              
              $
              371
 
 The
        increase in
        retail generation prices during the first six months of 2007 compared to
        2006
        was primarily due to increased generation rates for JCP&L resulting from the
        New Jersey BGS auction process and an increase in NUGC rates authorized by
        the
        NJBPU. Wholesale generation sales increased principally as a result of Met-Ed
        and Penelec selling additional available power into the PJM market beginning
        in
        January 2007.
 
 Transmission
        revenues increased $129 million primarily due to higher transmission rates
        for Met-Ed and Penelec resulting from the January 2007 PPUC authorization
        for
        transmission cost recovery. Met-Ed and Penelec defer the difference between
        revenues from their transmission rider and transmission costs incurred, with
        no
        material effect on current period earnings
  43
  
 *Expenses
–*
 
 The
        net increases in revenues discussed above were partially offset by a
        $486 million increase in expenses due to the following:
 
 ·
              Purchased
                  power costs were $339million
                  higher in the first six months of 2007 due to higher unit costs
                  and
                  volumes purchased. The increased unit prices reflected the effect
                  of
                  higher JCP&L purchased power unit costs resulting from the BGS auction
                  process. The increased KWH purchases in 2007 were due in part to
                  higher
                  customer usage and sales to the wholesale market.  The following
                  table summarizes the sources of changes in purchased power
                  costs:
 
 **Sources
                    of Change in Purchased Power**
              
              **Increase*****(In
                  millions)***Purchased
                  Power:Change
                  due to increased unit costs
              
              $
              168Change
                  due to increased volume
              
              
              128Decrease
                  in NUG costs deferred
              
              
              43Net
                  Increase in Purchased Power Costs
              
              $
              339
 
 ·
              Other
                  operating expenses increased $90million due
                  to the
                  net effects of:
 
 -
              An
                  increase of
                  $101million in
                  MISO and PJM transmission expenses, resulting primarily from higher
                  congestion costs;
 
 -
              A
                  decrease in
                  miscellaneous operating expenses of $18million primarily
                  due
                  to reduced billings for employee benefits from FESC;
                  and
 
 -
              An
                  increase in
                  operation and maintenance expenses of $10million primarily
                  due
                  to reduced employee benefits applicable to construction activities
                  and
                  storm-related costs;
 
 ·
              Amortization
                  of regulatory assets increased $75million compared
                  to
                  2006 due primarily to recovery of deferred BGS costs through higher
                  NUGC
                  rates for JCP&L as discussed above;
                  and
 
 ·
              The
                  deferral
                  of new regulatory assets during the first six months of 2007 was
                  $49 million higher in 2007 primarily due to the deferral of
                  previously expensed decommissioning costs of $27million related
                  to
                  the Saxton nuclear research facility (see Outlook – State Regulatory
                  Matters - Pennsylvania), increased deferrals of PJM transmission
                  expenses
                  of $10 million and increased RCP Distribution Deferrals of
                  $10 million.
 
 *Other
        Income and Expense –*
 
 Other
        income
        decreased $54million
        in 2007 compared to the first six months of 2006 primarily due to lower interest
        income of $32million
        resulting from the repayment of notes receivable from affiliates since the
        second quarter of 2006 and increased interest expense of $26million related to
        new debt
        issuances by CEI and JCP&L.
 
 ***Ohio
        Transitional Generation Services –
First Six Months of 2007 Compared to First Six Months of
        2006***
 
 Net
        income for this segment decreased to $53million in the first
        six
        months of 2007 from $61 million in the same period last year. Higher
        generation revenues were offset by higher operating expenses, primarily for
        purchased power.
  44
  *Revenues
–*
 
 The
        increase in reported segment revenues resulted from the following
        sources:
 
 **Six
                  Months Ended****June
                  30,**
              
              **Increase****Revenues
                  by Type of Service**
              
              **2007**
              
              **2006**
              
              **(Decrease)*****(In
                  millions)***Generation
                    sales:Retail
              
              $
              1,090
              
              $
              976
              
              $
              114Wholesale
              
              
              4
              
              
              9
              
              
              (5
              )Total
                    generation sales
              
              
              1,094
              
              
              985
              
              
              109Transmission
              
              
              150
              
              
              132
              
              
              18Other
              
              
              1
              
              
              1
              
              
              -Total
                    Revenues
              
              $
              1,245
              
              $
              1,118
              
              $
              127
 
 The
        following table
        summarizes the price and volume factors contributing to the increase in sales
        revenues from retail customers:
 
 **Source
                    of Change in Generation Sales**
              
              **Increase*****(In
                  millions)***Retail:Effect
                  of 6% increase in customer
                  usage
              
              $
              54Change
                  in prices
              
              
              60Total
                  Increase in Retail Generation Sales
              
              $
              114
 
 The
        increase in
        generation sales was primarily due to higher weather-related usage in the
        first
        six months of 2007 compared to the same period of 2006 as discussed above
        and
        reduced customer shopping. Average prices increased primarily due to higher
        composite unit prices for returning customers. The percentage of generation
        services provided by alternative suppliers to total sales delivered by the
        Ohio
        Companies in their service areas decreased by 2percentage
        points from the same period last year.
 
 *Expenses
        -*
 
 Purchased
        power
        costs were $127million
        higher due primarily to higher unit prices for power purchased from FES.
        The
        factors contributing to the higher costs are summarized in the following
        table:
 
 **Source
                  of Change in Purchased Power**
              
              **Increase*****(In
                  millions)***Purchases
                  from
                  non-affiliates:Change
                  due to increased unit
                  costs
              
              $
              7Change
                  due to volume
                  purchased
              
              
              18Purchases
                  from
                  FES:Change
                  due to increased unit
                  costs
              
              
              76Change
                  due to volume
                  purchased
              
              
              43119Total
                  Increase
                  in Purchased Power Costs
              
              $
              127
 
 
 The
        increase in KWH
        purchases was due to the higher retail generation sales
        requirements.  The higher unit costs resulted from the provision of
        the full-requirements PSA with FES under which purchased power unit costs
        reflected the increases in the Ohio Companies’ retail generation sales unit
        prices.
 
 Other
        operating
        expenses increased $29 million primarily due to MISO transmission-related
        expenses. The difference between transmission revenues accrued and transmission
        expenses incurred is deferred, resulting in no material impact to current
        period
        earnings.
 
 ***Competitive
        Energy Services – First Six
        Months of 2007 Compared to First Six Months of 2006***
 
 Net
        income for this
        segment was $240million
        in the first six months of 2007 compared to $133million
        in the same period last year. This increase reflects an improvement in gross
        generation margin and lower other operating expenses, which were partially
        offset by increased depreciation, general taxes and reduced investment
        income.
  45
  *Revenues
–*
 
 Total
        revenues
        increased $163million
        in the first six months of 2007 compared to the same period in 2006. This
        increase primarily resulted from higher unit prices under affiliated generation
        sales to the Ohio Companies, which was partially offset by lower non-affiliated
        wholesale sales.
 
 The
        higher retail
        revenues resulted from increased sales in both the MISO and PJM markets.
        Lower
        non-affiliated wholesale revenues reflected the effect of decreased generation
        available for the non-affiliated wholesale market due to increased affiliated
        company power sales under the Ohio Companies’ full-requirements PSA and the
        partial-requirements power sales agreement with Met-Ed and Penelec.
 
 The
        increased
        affiliated company generation revenues were due to higher unit prices and
        increased KWH sales. Factors contributing to the revenue increase from PSA
        sales
        to the Ohio Companies are discussed under the purchased power costs analysis
        in
        the Ohio Transitional Generation Services results above. The higher KWH sales
        to
        the Pennsylvania affiliates were due to increased Met-Ed and Penelec generation
        sales requirements. These increases were partially offset by lower sales
        to Penn
        due to the implementation of its competitive solicitation process in
        2007.
 
 The
        increase in reported segment revenues resulted from the following
        sources:
 
 **Six
                  Months Ended****June
                  30,**
              
              **Increase****Revenues
                  by Type of Service**
              
              **2007**
              
              **2006**
              
              **(Decrease)*****(In
                  millions)***Non-Affiliated
                    Generation Sales:Retail
              
              $
              359
              
              $
              267
              
              $
              92Wholesale
              
              
              276
              
              
              375
              
              
              (99
              )Total
                    Non-Affiliated Generation Sales
              
              
              635
              
              
              642
              
              
              (7
              )Affiliated
                    Generation Sales
              
              
              1,404
              
              
              1,235
              
              
              169Transmission
              
              
              45
              
              
              64
              
              
              (19
              )Other
              
              
              52
              
              
              32
              
              
              20Total
                    Revenues
              
              $
              2,136
              
              $
              1,973
              
              $
              163
 
 Transmission
        revenues decreased $19 million due to reduced retail load in the MISO
        market, lower transmission rates and reduced FTR auction revenue.
 
 The
        following tables
        summarize the price and volume factors contributing to changes in revenues
        from
        generation sales:
 
 **Increase****Source
                    of Change in Non-Affiliated Generation
                    Sales**
              
              **(Decrease)*****(In
                  millions)***Retail:Effect
                  of 19% increase in sales
                  volume
              
              $
              51Change
                  in prices
              
              
              4192Wholesale:Effect
                  of 31% decrease in KWH
                  sales
              
              
              (118
              )Change
                  in prices
              
              
              19(99
              )Net
                  Decrease
                  in Non-Affiliated Generation Sales
              
              $
              (7
              )
 
 **Source
                    of Change in Affiliated Generation Sales**
              
              **Increase*****(In
                  millions)***Ohio
                  Companies:Effect
                  of 5% increase in KWH
                  sales
              
              $
              43Change
                  in prices
              
              
              77120Pennsylvania
                  Companies:Effect
                  of 14% increase in KWH
                  sales
              
              
              40Change
                  in prices
              
              
              949Net
                  Increase
                  in Affiliated Generation Sales
              
              $
              169
  46
  *Expenses
        -*
 
 Total
        expenses were
        $26 million lower in the first six months of 2007 due to the following
        factors:
 
 ·
              Fuel
                  costs
                  were $26 million lower primarily due to reduced coal costs and
                  emission allowance costs offset by increases in nuclear fuel and
                  natural
                  gas consumption. Coal costs were reduced due to a $14 million
                  inventory adjustment and $35 million of reduced coal consumption
                  reflecting lower generation, partially offset by a $19 million
                  increase in coal prices. Reduced emission allowance costs
                  ($12 million) were more than offset by increased natural gas costs
                  ($6 million) and nuclear fuel costs ($9 million) due to
                  increased generation and higher prices;
                  and
 
 ·
              Nuclear
                  operating costs were $58 million lower due to fewer outages in 2007
                  compared to 2006 and reduced employee benefit
                  costs.
 
 Partially
        offsetting
        the lower costs were the following:
 
 ·
              Purchased
                  power costs increased $31 million due primarily to higher volumes
                  purchased;
 
 ·
              Higher
                  fossil
                  operating costs of $12 million due to increased labor
                  costs;
 
 ·
              Higher
                  depreciation expenses of $8 million due to property additions;
                  and
 
 ·
              Higher
                  general
                  taxes of $5 million.
 
 *Other
        Income –*
 
 Investment
        income in
        the first six months of 2007 was $11million
        lower than the 2006 period primarily due to decreased earnings on nuclear
        decommissioning trust investments (including a $12 million
        impairment).
 
 ***Other
–
First
        Six Months of 2007
        Compared to First Six Months of 2006***
 
 FirstEnergy’s
        financial results from other operating segments and reconciling items, including
        interest expense on holding company debt and corporate support services revenues
        and expenses, resulted in a $1million
        increase in FirstEnergy’s net income in the first six months of 2007. The
        increase was caused by the absence of a $6million
        loss included in 2006 results from discontinued operations (see Note 3)
        offset by increased interest expense in 2007 compared to 2006 due to higher
        short-term borrowings.
 
 **CAPITAL
        RESOURCES AND LIQUIDITY**
 
 FirstEnergy’s
        business is capital intensive, requiring considerable capital resources to
        fund
        operating expenses, construction expenditures, scheduled debt maturities
        and
        interest and dividend payments. During 2007 and in subsequent years, FirstEnergy
        expects to satisfy these requirements primarily with a combination of cash
        from
        operations and funds from the capital markets. FirstEnergy also expects that
        borrowing capacity under credit facilities will continue to be available
        to
        manage working capital requirements during those periods.
 
 **Changes
        in Cash
        Position**
 
 FirstEnergy's
        primary source of cash required for continuing operations as a holding company
        is cash from the operations of its subsidiaries. FirstEnergy and certain
        of its
        subsidiaries also have access to $2.75 billion of short-term financing
        under a revolving credit facility which expires in 2011.  Under the
        terms of the facility, FirstEnergy is permitted to have up to $1.5 billion
        in outstanding borrowings at any given time, subject to the facility cap
        of
        $2.75 billion of aggregate outstanding borrowings by it and its subsidiaries
        that are also parties to such facility. In the first six months of 2007,
        FirstEnergy received $637 million of cash dividends and return of capital
        from its subsidiaries and paid $311 million in cash dividends to common
        shareholders. With the exception of Met-Ed, which is currently in an accumulated
        deficit position, there are no material restrictions on the payment of cash
        dividends by the subsidiaries of FirstEnergy.
  47
  
 On
        March 2, 2007,
        FirstEnergy repurchased approximately 14.4 million shares, or approximately
        4.5%, of its outstanding common stock at an initial price of approximately
        $900
        million pursuant to an accelerated share repurchase
        program.  FirstEnergy acquired these shares under its previously
        announced authorization to repurchase up to 16 million shares of its common
        stock. The share repurchase was funded with short-term borrowings, including
        $500 million from bridge loan facilities that have since been
        repaid.
 
 On
        July 13, 2007,
        FGCO completed a sale and leaseback transaction for its 93.825% undivided
        interest in the Bruce Mansfield Plant Unit 1, representing 779 MW of net
        demonstrated capacity. The purchase price of approximately $1.329 billion
        for the undivided interest was funded through a combination of equity
        investments by affiliates of AIG Financial Products Corp. and Union Bank
        of
        California, N.A. in six lessor trusts and proceeds from the sale of $1.135
        billion aggregate principal amount of 6.85% pass through certificates due
        2034.  A like principal amount of secured notes maturing June 1, 2034
        were issued by the lessor trusts to the pass through trust that issued and
        sold
        the certificates.  The lessor trusts leased the undivided interest
        back to FGCO for a term of approximately 33 years under substantially identical
        leases. FES has unconditionally and irrevocably guaranteed all of FGCO’s
        obligations under each of the leases.  The notes and 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.  The transaction will be classified as a financing
        under GAAP until FGCO’s and FES’ registration obligations under the registration
        rights agreement applicable to the $1.135 billion principal amount of pass
        through certificates issued in connection with the transaction are satisfied,
        at
        which time it is expected to be classified as an operating lease under GAAP.
        FirstEnergy used the net after-tax proceeds of approximately $1.2 billion
        to
        repay short-term debt that was used to fund its recent $900 million accelerated
        share repurchase program and $300 million pension contribution. FGCO continues
        to operate the plant. CEI has an existing sale and leaseback
        arrangement for the remaining 51 MW portion of Bruce Mansfield Unit 1. This
        transaction generated tax capital gains of approximately $830 million, a
        substantial portion of which will be offset by existing tax capital loss
        carryforwards.  FirstEnergy will reduce its tax loss carryforward
        valuation allowances in the third quarter of 2007 and anticipates an immaterial
        impact to net income as the majority of the unrecognized tax benefits will
        reduce goodwill.
 
 As
        of June 30,
        2007, FirstEnergy had $37 million of cash and cash equivalents compared
        with $90 million as of December 31, 2006. The major sources of changes
        in these balances are summarized below.
 
 ***Cash
        Flows From Operating
        Activities***
 
 FirstEnergy's
        consolidated net cash from operating activities is provided primarily by
        its
        regulated services and power supply management services businesses (see Results
        of Operations above). Net cash provided from operating activities was
        $131 million and $485 million in the first six months of 2007 and 2006,
        respectively, summarized as follows:
 
 **Six
                  Months Ended****June
                  30,****Operating
                    Cash Flows**
              
              **2007**
              
              **2006*****(In
                  millions)***Net
                  income
              
              $
              628
              
              $
              525Non-cash
                  charges
              
              
              277
              
              
              260Pension
                  trust
                  contribution
              
              
              (300
              )
              
              -Working
                  capital and other
              
              
              (474
              )
              
              (300
              )$
              131
              
              $
              485
 
 Net
        cash provided
        from operating activities decreased by $354 million in the first six months
        of 2007 compared to the first six months of 2006 primarily due to a $300
        million
        pension trust contribution in 2007 and $174 million from working capital
        charges, partially offset by a $103 million increase in net income (see Results
        of Operations above). The decrease from working capital and other changes
        primarily resulted from a $365 million increase in receivables due to
        higher sales, partially offset by $93 million from reduced materials and
        supplies inventories and $68 million of decreased payments for accounts
        payable.
 
 ***Cash
        Flows From Financing
        Activities***
 
 In
        the first six
        months of 2007, cash provided from financing activities was $454 million
        compared to $618 million in the first six months of 2006. The decrease was
        primarily due to the repurchase of common stock in 2007, partially offset
        by
        higher short-term borrowings. The following table summarizes security issuances
        and redemptions.
  48
  
 
 **Six
                  Months Ended****June
                  30,****Securities
                    Issued or Redeemed**
              
              **2007**
              
              **2006*****(In
                  millions)****New
                  issues*Pollution
                  control notes
              
              $
              -
              
              $
              253Secured
                  notes
              
              
              -
              
              
              200Unsecured
                  notes
              
              
              800
              
              
              600$
              800
              
              $
              1,053*Redemptions*First
                  mortgage
                  bonds
              
              $
              275
              
              $
              1Pollution
                  control notes
              
              
              -
              
              
              307Senior
                  secured
                  notes
              
              
              43
              
              
              177Unsecured
                  notes
              
              
              153
              
              
              -Common
                  stock
              
              
              918
              
              
              -Preferred
                  stock
              
              
              -
              
              
              30$
              1,389
              
              $
              515Short-term
                  borrowings, net
              
              $
              1,308
              
              $
              371
 
 FirstEnergy
        had
        approximately $2.4 billion of short-term indebtedness as of June 30,
        2007 compared to approximately $1.1 billion as of December 31, 2006.
        This increase resulted from interim funding of FirstEnergy’s $900 million
        share repurchase program and $300 million pension contribution in the first
        half of the year. Available bank borrowing capability as of June 30, 2007
        included the following:
 
 **Borrowing
                  Capability (In millions)**Short-term
                  credit facilities(1)
              
              $
              3,220Accounts
                  receivable financing facilities
              
              
              550Utilized
              
              
              (2,413
              )LOCs
              
              
              (339
              )Net
              
              $
              1,018(1) Includes
                  the  $2.75 billion revolving credit facility described below, a
                  $100 million revolving credit facility that expires in December 2009,
                  a $20 million uncommitted line of credit and $350 million bridge loan
                  facilities.
 
 As
        of June 30, 2007,
        the Ohio Companies and Penn had the aggregate capability to issue approximately
        $2.9 billion of additional FMB on the basis of property additions and
        retired bonds under the terms of their respective mortgage indentures. The
        issuance of FMB by OE, CEI and TE is also subject to provisions of their
        senior
        note indentures generally limiting the incurrence of additional secured debt,
        subject to certain exceptions that would permit, among other things, the
        issuance of secured debt (including FMB) (i) supporting pollution control
        notes
        or similar obligations, or (ii) as an extension, renewal or replacement of
        previously outstanding secured debt. In addition, these provisions would
        permit
        OE, CEI and TE to incur additional secured debt not otherwise permitted by
        a
        specified exception of up to $463 million, $515 million and
        $127 million, respectively, as of June 30, 2007.  Because
        JCP&L satisfied the provision of its senior note indenture for the release
        of all FMBs held as collateral for senior notes in May 2007, it is no longer
        required to issue FMBs as collateral for senior notes and therefore is not
        limited as to the amount of senior notes it may issue.
 
 The
        applicable
        earnings coverage tests in the respective charters of OE, TE, Penn and JCP&L
        are currently inoperative. In the event that any of them issues preferred
        stock
        in the future, the applicable earnings coverage test will govern the amount
        of
        preferred stock that may be issued. CEI, Met-Ed and Penelec do not have similar
        restrictions and could issue up to the number of preferred shares authorized
        under their respective charters.
 
 As
        of June 30, 2007,
        approximately $1.0 billion of capacity remained unused under an existing
        FirstEnergy shelf registration statement filed with the SEC in 2003 to support
        future securities issuances. The shelf registration provides the flexibility
        to
        issue and sell various types of securities, including common stock, debt
        securities, and share purchase contracts and related share purchase units.
        As of
        June 30, 2007, OE had approximately $400 million of capacity remaining
        unused under a shelf registration for unsecured debt securities filed with
        the
        SEC in 2006.
  49
  
 FirstEnergy
        and
        certain of its subsidiaries are parties to a $2.75 billion five-year
        revolving credit facility (included in the borrowing capability table above).
        FirstEnergy may request an increase in the total commitments available under
        this facility up to a maximum of $3.25 billion. Commitments under the
        facility are available until August 24, 2011, unless the lenders agree, at
        the request of the Borrowers, to two additional one-year extensions. Generally,
        borrowings under the facility must be repaid within 364 days. Available amounts
        for each Borrower are subject to a specified sub-limit, as well as applicable
        regulatory and other limitations.
 
 The
        following table
        summarizes the borrowing sub-limits for each borrower under the facility,
        as
        well as the limitations on short-term indebtedness applicable to each borrower
        under current regulatory approvals and applicable statutory and/or charter
        limitations:
 
 **Revolving**
              
              **Regulatory
                  and****Credit
                  Facility**
              
              **Other
                  Short-Term****Borrower**
              
              **Sub-Limit**
              
              **Debt
                    Limitations(1)*****(In
                  millions)*****FirstEnergy**
              
              $
              2,750
              
              $
              -
              (2)**OE**
              
              
              500
              
              
              500**Penn**
              
              
              50
              
              
              40**CEI**
              
              
              250
              (3)
              
              500**TE**
              
              
              250
              (3)
              
              500**JCP&L**
              
              
              425
              
              
              431**Met-Ed**
              
              
              250
              
              
              250
              (4)**Penelec**
              
              
              250
              
              
              250
              (4)**FES**
              
              
              250
              
              
              -
              (2)**ATSI**
              
              
              -
              (5)
              
              50
 
 (1)
              As
                  of
                  June 30, 2007.
 (2)
              No
                  regulatory
                  approvals, statutory or charter limitations
                  applicable.
 (3)
              Borrowing
                  sub-limits for CEI and TE may be increased to up to $500 million by
                  delivering notice
                to
                  the
                  administrative agent that such borrower has senior unsecured debt
                  ratings
                  of at least BBB
                by
                  S&P and
                  Baa2 by Moody’s.
 (4)
              Excluding
                  amounts which may be borrowed under the regulated money
                  pool.
 (5)
              The
                  borrowing
                  sub-limit for ATSI may be increased up to $100 million by delivering
                  notice to the
                administrative
                  agent that either (i) such borrower has senior unsecured debt ratings
                  of
                  at least
                BBB-
                  by
                  S&P and Baa3 by Moody’s or (ii) FirstEnergy has guaranteed the
                  obligations of such
                borrower
                  under
                  the facility.
 
 The
        revolving credit
        facility, combined with an aggregate $550 million ($287 million unused as
        of
        June 30, 2007) of accounts receivable financing facilities for OE, CEI, TE,
        Met-Ed, Penelec and Penn, are intended to provide liquidity to meet working
        capital requirements and for other general corporate purposes for FirstEnergy
        and its subsidiaries.
 
 Under
        the revolving
        credit facility, borrowers may request the issuance of LOCs expiring up to
        one
        year from the date of issuance. The stated amount of outstanding LOCs will
        count
        against total commitments available under the facility and against the
        applicable borrower’s borrowing sub-limit.
 
 The
        revolving credit
        facility contains financial covenants requiring each borrower to maintain
        a
        consolidated debt to total capitalization ratio of no more than 65%, measured
        at
        the end of each fiscal quarter. As of June 30, 2007, FirstEnergy and its
        subsidiaries' debt to total capitalization ratios (as defined under the
        revolving credit facility) were as follows:
  **Borrower****FirstEnergy**
              
              61
              %**OE**
              
              48
              %**Penn**
              
              24
              %**CEI**
              
              60
              %**TE**
              
              56
              %**JCP&L**
              
              32
              %**Met-Ed**
              
              46
              %**Penelec**
              
              38
              %**FES**
              
              57
              %
 
 The
        revolving credit
        facility does not contain provisions that either restrict the ability to
        borrow
        or accelerate repayment of outstanding advances as a result of any change
        in
        credit ratings. Pricing is defined in “pricing grids”, whereby the cost of funds
        borrowed under the facility is related to the credit ratings of the company
        borrowing the funds.
  50
  
 FirstEnergy's
        regulated companies also have the ability to borrow from each other and the
        holding company to meet their short-term working capital requirements. A
        similar
        but separate arrangement exists among FirstEnergy's unregulated companies.
        FESC
        administers these two money pools and tracks surplus funds of FirstEnergy
        and
        the respective regulated and unregulated subsidiaries, as well as proceeds
        available from bank borrowings. Companies receiving a loan under the money
        pool
        agreements must repay the principal amount of the loan, together with accrued
        interest, within 364 days of borrowing the funds. The rate of interest is
        the
        same for each company receiving a loan from their respective pool and is
        based
        on the average cost of funds available through the pool. The average interest
        rate for borrowings in the first six months of 2007 was 5.64% for both the
        regulated and the unregulated companies' money pools.
 
 FirstEnergy’s
        access
        to capital markets and costs of financing are influenced by the ratings of
        its
        securities.  The following table displays FirstEnergy’s and the
        Companies’ securities ratings as of June 30, 2007. The ratings outlook from
        Moody’s is stable for FES and positive for all other companies. The ratings
        outlook from S&P on all securities is stable.  The rating outlook
        from Fitch on CEI and Toledo Edison is positive and stable on all other
        operating companies.
 
 **Issuer**
              
              **Securities**
              
              **S&P**
              
              **Moody’s**
              
              **Fitch**FirstEnergy
              
              Senior
                  unsecured
              
              BBB-
              
              Baa3
              
              BBBOE
              
              Senior
                  unsecured
              
              BBB-
              
              Baa2
              
              BBBCEI
              
              Senior
                  secured
              
              BBB
              
              Baa2
              
              BBBSenior
                  unsecured
              
              BBB-
              
              Baa3
              
              BBB-TE
              
              Senior
                  secured
              
              BBB
              
              Baa2
              
              BBBSenior
                  unsecured
              
              BBB-
              
              Baa3
              
              BBB-Penn
              
              Senior
                  secured
              
              BBB+
              
              Baa1
              
              BBB+JCP&L
              
              Senior
                  secured
              
              BBB+
              
              Baa1
              
              A-Senor
                  unsecured
              
              BBB
              
              Baa2
              
              BBB+Met-Ed
              
              Senior
                  unsecured
              
              BBB
              
              Baa2
              
              BBBPenelec
              
              Senior
                  unsecured
              
              BBB
              
              Baa2
              
              BBBFES
              
              Corporate
                  Credit/Issuer Rating
              
              BBB
              
              Baa2
 
 On
        February 21,
        2007, FirstEnergy made a $700 million equity investment in FES, all of
        which was subsequently contributed to FGCO and used to pay-down generation
        asset
        transfer-related promissory notes owed to the Ohio Companies and Penn. OE
        used
        its $500 million of proceeds to repurchase shares of its common stock from
        FirstEnergy.
 
 On
        March 27, 2007,
        CEI issued $250 million of 5.70% unsecured senior notes due 2017.  The
        proceeds of the offering were used to reduce CEI’s short-term borrowings and for
        general corporate purposes.
 
 On
        May 21, 2007,
        JCP&L issued $550 million of senior unsecured debt securities, consisting of
        $250 million of 5.65% Senior Notes due 2017 and $300 million of 6.15% Senior
        Notes due 2037.  A portion of the proceeds of the offering were used
        to redeem outstanding FMB of JCP&L comprised of $125 million principal
        amount of 7.50% series and $150 million principal amount of 6.75%
        series.  On July 1, 2007, JCP&L also redeemed all
        $12.2 million outstanding principal amount of its remaining series of FMB.
        In addition, $125 million of proceeds were used to repurchase shares of its
        common stock from FirstEnergy.  The remaining proceeds were used for
        general corporate purposes.
 
 As
        described above,
        on July 13, 2007, FGCO completed the sale and leaseback of a 93.825% undivided
        interest in Unit 1 of the Bruce Mansfield Generating Plant. Net after-tax
        proceeds of approximately $1.2 billion to FGCO from the transaction were
        used to
        repay short-term borrowings from, and to invest in, the FirstEnergy non-utility
        money pool. The repayments and investment allowed FES to reduce its investment
        in that money pool in order to repay approximately $250 million of external
        bank
        borrowings and fund a $600 million equity repurchase from FirstEnergy.
        FirstEnergy used these funds to reduce its external short term borrowings
        as
        discussed above.
  51
  
 **Cash
        Flows From Investing
        Activities**
 
 Net
        cash flows used
        in investing activities resulted principally from property additions. Energy
        delivery services expenditures for property additions primarily include
        expenditures related to transmission and distribution facilities. Capital
        expenditures by the competitive energy services segment are principally
        generation-related. The following table summarizes investing activities for
        the
        second quarter of 2007 and 2006 by segment:
 
 **Summary
                  of Cash Flows**
              
              **Property****Used
                  for Investing Activities**
              
              **Additions**
              
              **Investments**
              
              **Other**
              
              **Total****Sources
                  (Uses)**
              
              ***(In
                  millions)*****Six
                  Months Ended June 30, 2007**Energy
                    delivery services
              
              $
              (400
              )
              $
              84
              
              $
              -
              
              $
              (316
              )Competitive
                    energy services
              
              
              (263
              )
              
              16
              
              
              (1
              )
              
              (248
              )Other
              
              
              (34
              )
              
              (22
              )
              
              (3
              )
              
              (59
              )Inter-Segment
                    reconciling items
              
              
              -
              
              
              (15
              )
              
              -
              
              
              (15
              )Total
              
              $
              (697
              )
              $
              63
              
              $
              (4
              )
              $
              (638
              )**Six
                    Months Ended June 30, 2006**Energy
                    delivery services
              
              $
              (370
              )
              $
              198
              
              $
              (6
              )
              $
              (178
              )Competitive
                    energy services
              
              
              (347
              )
              
              (20
              )
              
              (4
              )
              
              (371
              )Other
              
              
              (22
              )
              
              46
              
              
              4
              
              
              28Inter-Segment
                    reconciling items
              
              
              -
              
              
              (63
              )
              
              -
              
              
              (63
              )Total
              
              $
              (739
              )
              $
              161
              
              $
              (6
              )
              $
              (584
              )
 
 Net
        cash used for
        investing activities in the first six months of 2007 increased by $54 million
        compared to the same period of 2006. The increase was principally due to
        a $64
        million decrease in cash provided from cash investments, primarily from the
        use
        of restricted cash investments to repay debt during 2006.  Partially
        offsetting the decrease in cash provided from cash investments was a
        $42 million decrease in property additions which reflects the replacement
        of the steam generators and reactor head at Beaver Valley Unit 1 in
        2006.
 
 During
        the second
        half of 2007, capital requirements for property additions and capital leases
        are
        expected to be $820 million. FirstEnergy and the Companies have additional
        requirements of approximately $172 million for maturing long-term debt during
        the remainder of 2007. These cash requirements are expected to be satisfied
        from
        a combination of internal cash, short-term credit arrangements, and funds
        raised
        in the capital markets.
 
 FirstEnergy's
        capital spending for the period 2007-2011 is expected to be nearly
        $7.9 billion (excluding nuclear fuel), of which approximately
        $1.5 billion applies to 2007. Investments for additional nuclear fuel
        during the 2007-2011 period are estimated to be approximately $1.2 billion,
        of
        which about $95 million applies to 2007. During the same period, FirstEnergy's
        nuclear fuel investments are expected to be reduced by approximately $804
        million and $102 million, respectively, as the nuclear fuel is
        consumed.
 
 **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. Some
        of
        the guaranteed contracts contain collateral provisions that are contingent
        upon
        FirstEnergy’s credit ratings.
 
 As
        of June 30,
        2007, FirstEnergy’s maximum exposure to potential future payments under
        outstanding guarantees and other assurances approximated $4.1 billion, as
        summarized below:
  52
  
 
 **Maximum****Guarantees
                    and Other Assurances**
              
              **Exposure*****(In
                  millions)***FirstEnergy
                  Guarantees of SubsidiariesEnergy
                  and
                  Energy-Related Contracts (1)
              
              $
              800LOC
(2)
              
              
              864Other
(3)
              
              
              5872,251Surety
                  Bonds
              
              
              95LOC
(4)(5)
              
              
              1,737Total
                  Guarantees and Other Assurances
              
              $
              4,083
 
 (1)
              Issued
                  for
                  open-ended terms, with a 10-day termination right by
                  FirstEnergy.
 (2)
              LOC’s
                  issued
                  on behalf of FGCO and NGC in support of pollution
                control
                  revenue bonds with various maturities, which are
                recognized
                  on
                  FirstEnergy’s consolidated balance
                  sheets.
 (3)
              Includes
                  guarantees of $300 million for OVEC obligations and
                $80 million
                  for nuclear decommissioning funding
                  assurances.
 (4)
              Includes
                  $339 million issued for various terms pursuant to LOC
                capacity
                  available under FirstEnergy’s revolving credit facility and
                an
                  additional
                  $779 million outstanding in support of pollution
                control
                  revenue bonds issued with various maturities on behalf of
                FGCO
                  and NGC,
                  which are recognized on FirstEnergy’s
                consolidated
                  balance sheets.
 (5)
              Includes
                  approximately $194 million pledged in connection with
                the
                  sale and
                  leaseback of Beaver Valley Unit 2 by CEI and TE,
                $291 million
                  pledged in connection with the sale and leaseback of
                Beaver
                  Valley
                  Unit 2 by OE and $134 million pledged in
                connection
                  with the sale and leaseback of Perry Unit 1 by
                  OE.
 
 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 subsidiary
        financing principally for the acquisition of property, plant and equipment.
        These agreements legally obligate FirstEnergy to fulfill the obligations
        of its
        subsidiaries directly involved in these energy and energy-related transactions
        or financings 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 FirstEnergy’s other assets. The likelihood that such
        parental guarantees will increase amounts otherwise paid by FirstEnergy to
        meet
        its obligations incurred in connection with ongoing energy and energy-related
        contracts is remote.
 
 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 June 30,
        2007, FirstEnergy’s maximum exposure under these collateral provisions was
        $421 million.
 
 Most
        of
        FirstEnergy’s surety bonds are backed by various indemnities common within the
        insurance industry. Surety bonds and related guarantees 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
        guaranteed the obligations of the operators of the TEBSA project up to a
        maximum
        of $6million (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 ($27 million as of June 30, 2007), which is renewable and
        declines yearly based upon the senior outstanding debt of TEBSA.
 
 As
        described above,
        on July 13, 2007, FGCO completed a sale and leaseback transaction for its
        93.825% undivided interest in the Bruce Mansfield Plant 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.
  53
  
 **OFF-BALANCE
        SHEET ARRANGEMENTS**
 
 The
        Ohio Companies
        have obligations that are not included on FirstEnergy’s Consolidated Balance
        Sheets related to the sale and leaseback arrangements involving Perry
        Unit 1, Beaver Valley Unit 2 and the Bruce Mansfield Plant, which are
        satisfied through operating lease payments. As of June 30, 2007, the present
        value of these sale and leaseback operating lease commitments, net of trust
        investments, total $1.1 billion.
 
 FirstEnergy
        has
        equity ownership interests in certain businesses that are accounted for using
        the equity method. There are no undisclosed material contingencies related
        to
        these investments. Certain guarantees that FirstEnergy does not expect to
        have a
        material current or future effect on its financial condition, liquidity or
        results of operations are disclosed under Guarantees and Other Assurances
        above.
 
 **MARKET
        RISK
        INFORMATION**
 
 FirstEnergy
        uses
        various market risk sensitive instruments, including derivative contracts,
        primarily to manage the risk of price and interest rate fluctuations.
        FirstEnergy's Risk Policy Committee, comprised of members of senior management,
        provides general oversight for risk management activities throughout the
        company.
 
 **Commodity
        Price
        Risk**
 
 FirstEnergy
        is
        exposed to financial and market risks resulting from the fluctuation of interest
        rates and commodity prices -- electricity, energy transmission, natural gas,
        coal, nuclear fuel and emission allowances. To manage the volatility relating
        to
        these exposures, FirstEnergy uses a variety of non-derivative and derivative
        instruments, including forward contracts, options, futures contracts and
        swaps.
        The derivatives are used principally for hedging purposes. Derivatives that fall
        within the scope of SFAS 133 must be recorded at their fair value and
        marked to market. The majority of FirstEnergy’s derivative hedging contracts
        qualify for the normal purchase and normal sale exception under SFAS 133
        and are therefore excluded from the tables below. Contracts that are not
        exempt
        from such treatment include certain power purchase agreements with NUG entities
        that were structured pursuant to the Public Utility Regulatory Policies Act
        of
        1978. These non-trading contracts are adjusted to fair value at the end of
        each
        quarter, with a corresponding regulatory asset recognized for above-market
        costs. The change in the fair value of commodity derivative contracts related
        to
        energy production during the three months and six months ended June 30, 2007
        is
        summarized in the following table:
 
 **Three
                  Months Ended**
              
              **Six
                  Months Ended****Increase
                  (Decrease) in the Fair Value**
              **June
                  30, 2007**
              
              **June
                  30, 2007****of
                  Commodity Derivative Contracts**
              **Non-Hedge**
              
              **Hedge**
              
              **Total**
              
              **Non-Hedge**
              
              **Hedge**
              
              **Total*****(In
                  millions)*****Change
                  in the Fair Value of****Commodity
                  Derivative Contracts:**Outstanding
                  net liability at beginning of period
              $
              (1,028
              )
              $
              1
              
              $
              (1,027
              )
              $
              (1,140
              )
              $
              (17
              )
              $
              (1,157
              )Additions/change
                  in value of existing contracts
              
              91
              
              
              (11
              )
              
              80
              
              
              197
              
              
              (6
              )
              
              191Settled
                  contracts
              
              92
              
              
              (2
              )
              
              90
              
              
              98
              
              
              11
              
              
              109Outstanding
                  net liability at end of period (1)
              
              (845
              )
              
              (12
              )
              
              (857
              )
              
              (845
              )
              
              (12
              )
              
              (857
              )**Non-commodity
                  Net Liabilities at End of Period:**Interest
                  rate
                  swaps (2)
              
              -
              
              
              (24
              )
              
              (24
              )
              
              -
              
              
              (24
              )
              
              (24
              )**Net
                  Liabilities - Derivative Contracts**
                **at
                  End
                  of Period**
              $
              (845
              )
              $
              (36
              )
              $
              (881
              )
              $
              (845
              )
              $
              (36
              )
              $
              (881
              )**Impact
                  of Changes in Commodity Derivative Contracts(3)**Income
                  Statement effects (pre-tax)
              $
              (2
              )
              $
              -
              
              $
              (2
              )
              $
              -
              
              $
              -
              
              $
              -Balance
                  Sheet
                  effects:Other
                  comprehensive income (pre-tax)
              $
              -
              
              $
              (13
              )
              $
              (13
              )
              $
              -
              
              $
              5
              
              $
              5Regulatory
                  assets (net)
              $
              (185
              )
              $
              -
              
              $
              (185
              )
              $
              (295
              )
              $
              -
              
              $
              (295
              )
 
 (1)
              Includes
                  $841 million in non-hedge commodity derivative contracts (primarily
                  with NUGs), which are offset by a regulatory
                  asset.
 (2)
              Interest
                  rate
                  swaps are treated as cash flow or fair value hedges (see Interest
                  Rate
                  Swap Agreements below).
 (3)
              Represents
                  the
                  change in value of existing contracts, settled contracts and changes
                  in
                  techniques/assumptions.
  54
  Derivatives
                  are included on the Consolidated Balance Sheet as of June 30, 2007
                  as
                  follows:
 
 **Balance
                    Sheet Classification**
              
              **Non-Hedge**
              
              **Hedge**
              
              **Total*****(In
                  millions)*****Current-**Other
                    assets
              
              $
              -
              
              $
              35
              
              $
              35Other
                    liabilities
              
              
              (4
              )
              
              (50
              )
              
              (54
              )**Non-Current-**Other
                    deferred
                    charges
              
              
              37
              
              
              24
              
              
              61Other
                    non-current liabilities
              
              
              (878
              )
              
              (45
              )
              
              (923
              )Net
                    liabilities
              
              $
              (845
              )
              $
              (36
              )
              $
              (881
              )
 
 
 The
        valuation of
        derivative contracts is based on observable market information to the extent
        that such information is available. In cases where such information is not
        available, FirstEnergy relies on model-based information. The model provides
        estimates of future regional prices for electricity and an estimate of related
        price volatility. FirstEnergy uses these results to develop estimates of
        fair
        value for financial reporting purposes and for internal management decision
        making. Sources of information for the valuation of commodity derivative
        contracts as of June 30, 2007 are summarized by year in the following
        table:
 
 **Source
                  of Information****-
                    Fair
                    Value by Contract Year**
              
              **2007**(1)
              
              **2008**
              
              **2009**
              
              **2010**
              
              **2011**
              
              **Thereafter**
              
              **Total*****(In
                  millions)***Prices
                  actively quoted(2)
              
              $
              (1
              )
              $
              -
              
              $
              -
              
              $
              -
              
              $
              -
              
              $
              -
              
              $
              (1
              )Other
                  external
                  sources(3)
              
              
              (112
              )
              
              (221
              )
              
              (172
              )
              
              (146
              )
              
              -
              
              
              -
              
              
              (651
              )Prices
                  based
                  on models
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (100
              )
              
              (105
              )
              
              (205
              )**Total(4)**
              
              $
              (113
              )
              $
              (221
              )
              $
              (172
              )
              $
              (146
              )
              $
              (100
              )
              $
              (105
              )
              $
              (857
              )
 
 (1)     For
        the last two quarters of 2007.
 (2)     Exchange
        traded.
 (3)     Broker
        quote sheets.
 (4)
              Includes $841 million in non-hedge commodity derivative contracts
                  (primarily with NUGs), which are offset by a regulatory
                  asset.
 
 FirstEnergy
        performs
        sensitivity analyses to estimate its exposure to the market risk of its
        commodity positions. A hypothetical 10% adverse shift (an increase or decrease
        depending on the derivative position) in quoted market prices in the near
        term
        on its derivative instruments would not have had a material effect on its
        consolidated financial position (assets, liabilities and equity) or cash
        flows
        as of June 30, 2007. Based on derivative contracts held as of June 30,
        2007, an adverse 10% change in commodity prices would decrease net income
        by
        approximately $9 million during the next 12 months.
 
 **Interest
        Rate Swap Agreements- Fair
        Value Hedges**
 
 FirstEnergy
        utilizes
        fixed-for-floating interest rate swap agreements as part of its ongoing effort
        to manage the interest rate risk associated with its debt portfolio. These
        derivatives are treated as fair value hedges of fixed-rate, long-term debt
        issues – protecting 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 and interest payment dates match those of the underlying
        obligations. During the first six months of 2007, FirstEnergy paid
        $8 million to terminate swaps with a notional amount $150 million as its
        subsidiary redeemed the associated hedged debt.  The loss was
        recognized as interest expense during the current period.  As of
        June 30, 2007, the debt underlying the $600 million outstanding
        notional amount of interest rate swaps had a weighted average fixed interest
        rate of 5.11%, which the swaps have converted to a current weighted average
        variable rate of 6.06%.
  55
  
 
 **June
                  30, 2007**
              
              **December
                  31, 2006****Notional**
              
              **Maturity**
              
              **Fair**
              
              **Notional**
              
              **Maturity**
              
              **Fair****Interest
                    Rate Swaps**
              
              **Amount**
              
              **Date**
              
              **Value**
              
              **Amount**
              
              **Date**
              
              **Value*****(In
                  millions)***Fair
                  value
                  hedges
              
              $
              100
              
              
              2008
              
              $
              (2
              )
              $
              100
              
              
              2008
              
              $
              (2)50
              
              
              2010
              
              
              (1
              )
              
              50
              
              
              2010
              
              
              (1)300
              
              
              2013
              
              
              (13
              )
              
              300
              
              
              2013
              
              
              (6)150
              
              
              2015
              
              
              (14
              )
              
              150
              
              
              2015
              
              
              (10)-
              
              
              2025
              
              
              -
              
              
              50
              
              
              2025
              
              
              (2)-
              
              
              2031
              
              
              -
              
              
              100
              
              
              2031
              
              
              (6)$
              600
              
              
              
              
              $
              (30
              )
              $
              750
              
              
              
              
              $
              (27)
 
 **Forward
        Starting Swap Agreements -
        Cash Flow Hedges**
 
 FirstEnergy
        utilizes
        forward starting swap agreements (forward swaps) in order to hedge a portion
        of
        the consolidated interest rate risk associated with the anticipated future
        issuances of fixed-rate, long-term debt securities for one or more of its
        consolidated subsidiaries in 2007 and 2008. 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 rates between
        the
        date of hedge inception and the date of the debt issuance. During the first
        six
        months of 2007, FirstEnergy terminated forward swaps with an aggregate notional
        value of $950 million. FirstEnergy paid $2 million in cash related to
        the terminations, which will be recognized over the terms of the associated
        future debt. There was no ineffective portion associated with the loss. As
        of
        June 30, 2007, FirstEnergy had outstanding forward swaps with an aggregate
        notional amount of $250 million and an aggregate fair value of
        $6 million.
 
 **June
                  30, 2007**
              
              **December
                  31, 2006****Notional**
              
              **Maturity**
              
              **Fair**
              
              **Notional**
              
              **Maturity**
              
              **Fair****Forward
                    Starting Swaps**
              
              **Amount**
              
              **Date**
              
              **Value**
              
              **Amount**
              
              **Date**
              
              **Value*****(In
                  millions)***Cash
                  flow
                  hedges
              
              $
              25
              
              
              2015
              
              $
              1
              
              $
              25
              
              
              2015
              
              $
              -150
              
              
              2017
              
              
              2
              
              
              200
              
              
              2017
              
              
              (4
              )25
              
              
              2018
              
              
              -
              
              
              25
              
              
              2018
              
              
              (1
              )50
              
              
              2020
              
              
              3
              
              
              50
              
              
              2020
              
              
              1$
              250
              
              
              
              
              $
              6
              
              $
              300
              
              
              
              
              $
              (4
              )
 
 **Equity
        Price
        Risk**
 
 Included
        in nuclear
        decommissioning trusts are marketable equity securities carried at their
        market
        value of approximately $1.4 billion as of June 30, 2007 and
        December 31, 2006. A hypothetical 10% decrease in prices quoted by stock
        exchanges would result in a $136 million reduction in fair value as of June
        30, 2007.
 
 **CREDIT
        RISK**
 
 Credit
        risk is the
        risk of an obligor’s failure to meet the terms of any investment contract, loan
        agreement or otherwise perform as agreed. Credit risk arises from all activities
        in which success depends on issuer, borrower or counterparty performance,
        whether reflected on or off the balance sheet. FirstEnergy engages in
        transactions for the purchase and sale of commodities including gas,
        electricity, coal and emission allowances. These transactions are often with
        major energy companies within the industry.
 
 FirstEnergy
        maintains credit policies with respect to its counterparties to manage overall
        credit risk. This includes performing independent risk evaluations, actively
        monitoring portfolio trends and using collateral and contract provisions
        to
        mitigate exposure. As part of its credit program, FirstEnergy aggressively
        manages the quality of its portfolio of energy contracts, evidenced by a
        current
        weighted average risk rating for energy contract counterparties of BBB
        (S&P). As of June 30, 2007, the largest credit concentration with one party
        (currently rated investment grade) represented 11% of FirstEnergy‘s total credit
        risk. Within FirstEnergy’s unregulated energy subsidiaries, 99% of credit
        exposures, net of collateral and reserves, were with investment-grade
        counterparties as of June 30, 2007.
  56
  
 **Outlook**
 
 *State
        Regulatory Matters*
 
 In
        Ohio, New Jersey
        and Pennsylvania, laws applicable to electric industry restructuring contain
        similar provisions that are reflected in the Companies' respective state
        regulatory plans. These provisions include:
 
 ·
              restructuring
                  the electric generation business and allowing the Companies' customers
                  to
                  select a competitive electric generation supplier other than the
                  Companies;·
              establishing or defining the PLR obligations to customers in the
                  Companies' service areas;·
              providing the Companies with the opportunity to recover potentially
                  stranded investment (or transition costs) not otherwise recoverable
                  in a
                  competitive generation market;·
              itemizing (unbundling) the price of electricity into its component
                  elements – including generation, transmission, distribution and stranded
                  costs recovery charges;·
              continuing regulation of the Companies' transmission and distribution
                  systems; and·
              requiring corporate separation of regulated and unregulated business
                  activities.
 
 The
        Companies and
        ATSI recognize, as regulatory assets, costs which the FERC, PUCO, PPUC and
        NJBPU
        have authorized for recovery from customers in future periods or for which
        authorization is probable. Without the probability of such authorization,
        costs
        currently recorded as regulatory assets would have been charged to income
        as
        incurred. Regulatory assets that do not earn a current return totaled
        approximately $219 million as of June 30, 2007 (JCP&L -
        $103 million, Met-Ed - $34 million and Penelec - $82 million).
        Regulatory assets not earning a current return will be recovered by 2014
        for
        JCP&L and by 2020 for Met-Ed and Penelec. The following table discloses
        regulatory assets by company:
 
 **June
                  30,**
              
              **December
                  31,**
              
              **Increase****Regulatory
                  Assets***
              
              **2007**
              
              **2006**
              
              **(Decrease)*****(In
                  millions)***OE
              
              $
              733
              
              $
              741
              
              $
              (8
              )CEI
              
              
              863
              
              
              855
              
              
              8TE
              
              
              230
              
              
              248
              
              
              (18
              )JCP&L
              
              
              1,825
              
              
              2,152
              
              
              (327
              )Met-Ed
              
              
              464
              
              
              409
              
              
              55ATSI
              
              
              40
              
              
              36
              
              
              4Total
              
              $
              4,155
              
              $
              4,441
              
              $
              (286
              )
 
 *
              Penelec
                  had
                  net regulatory liabilities of approximately $74 million
                and
                  $96 million as of June 30, 2007 and December 31, 2006,
                respectively.
                  These net regulatory liabilities are included in Other
                Non-current
                  Liabilities on the Consolidated Balance
                  Sheets.
 
 Regulatory
        assets by
        source are as follows:
 
 **June
                  30,**
              
              **December
                  31,**
              
              **Increase****Regulatory
                  Assets By Source**
              
              **2007**
              
              **2006**
              
              **(Decrease)*****(In
                  millions)***Regulatory
                  transition costs
              
              $
              2,731
              
              $
              3,266
              
              $
              (535
              )Customer
                  shopping incentives
              
              
              562
              
              
              603
              
              
              (41
              )Customer
                  receivables for future income taxes
              
              
              259
              
              
              217
              
              
              42Societal
                  benefits charge
              
              
              (2
              )
              
              11
              
              
              (13
              )Loss
                  on
                  reacquired debt
              
              
              59
              
              
              43
              
              
              16Employee
                  postretirement benefits
              
              
              43
              
              
              47
              
              
              (4
              )Nuclear
                  decommissioning, decontaminationand
                  spent fuel
                  disposal costs
              
              
              (114
              )
              
              (145
              )
              
              31Asset
                  removal
                  costs
              
              
              (173
              )
              
              (168
              )
              
              (5
              )Property
                  losses and unrecovered plant costs
              
              
              13
              
              
              19
              
              
              (6
              )MISO/PJM
                  transmission costs
              
              
              292
              
              
              213
              
              
              79Fuel
                  costs -
                  RCP
              
              
              154
              
              
              113
              
              
              41Distribution
                  costs - RCP
              
              
              246
              
              
              155
              
              
              91Other
              
              
              85
              
              
              67
              
              
              18Total
              
              $
              4,155
              
              $
              4,441
              
              $
              (286
              )
  57
  
 ***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. In 2004, FirstEnergy completed
        implementation of all actions and initiatives related to enhancing area
        reliability, improving voltage and reactive management, operator readiness
        and
        training and emergency response preparedness recommended for completion in
        2004.
        On July 14, 2004, NERC independently verified that FirstEnergy had
        implemented the various initiatives to be completed by June 30 or summer
        2004, with minor exceptions noted by FirstEnergy, which exceptions are now
        essentially complete. FirstEnergy is 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 equipment or material upgrades to
        existing equipment. The FERC or other applicable government agencies and
        reliability entities may, however, take a different view as to recommended
        enhancements or may recommend additional enhancements in the future, which
        could
        require additional, material expenditures.
 
 As
        a result of
        outages experienced in JCP&L’s service area in 2002 and 2003, the NJBPU had
        implemented reviews into JCP&L’s service reliability. In 2004, the NJBPU
        adopted an MOU that set out specific tasks related to service reliability
        to be
        performed by JCP&L and a timetable for completion and endorsed JCP&L’s
        ongoing actions to implement the MOU. On June 9, 2004, the NJBPU approved a
        stipulation that incorporates the final report of an SRM who made
        recommendations on appropriate courses of action necessary to ensure system-wide
        reliability. The stipulation also incorporates the Executive Summary and
        Recommendation portions of the final report of a focused audit of JCP&L’s
        Planning and Operations and Maintenance programs and practices. On
        February 11, 2005, JCP&L met with the DRA to discuss reliability
        improvements. The SRM completed his work and issued his final report to the
        NJBPU on June 1, 2006. JCP&L filed a comprehensive response to the NJBPU on
        July 14, 2006. JCP&L continues to file compliance reports reflecting
        activities associated with the MOU and stipulation.
 
 The
        EPACT served
        partly to amend the Federal Power Act with Section 215, which requires that
        an
        ERO establish and enforce reliability standards for the bulk-power system,
        subject to review of the FERC. Subsequently, the FERC certified NERC as the
        ERO,
        approved NERC's Compliance Monitoring and Enforcement Program and approved
        a set
        of reliability standards, which became mandatory and enforceable on June
        18,
        2007 with penalties and sanctions for noncompliance. The FERC also approved
        a
        delegation agreement between NERC and Reliability*First* Corporation, one
        of eight Regional Entities that carry out enforcement for NERC.  All
        of FirstEnergy’s facilities are located within the Reliability*First*
        region.
 
 While
        the FERC
        approved 83 of the 107 reliability standards proposed by NERC, the FERC has
        directed NERC to submit improvements to 56 of them, endorsing NERC's process
        for
        developing reliability standards and its associated work plan. On May 4,
        2007,
        NERC also submitted 24 proposed Violation Risk Factors.  The FERC
        issued an order approving 22 of those factors on June 26, 2007. Further,
        NERC
        adopted eight cyber security standards that became effective on June 1,
        2006 and filed them with the FERC for approval.  On December 11,
        2006, the FERC Staff provided its preliminary assessment of the cyber security
        standards and cited various deficiencies in the proposed
        standards.  Numerous parties, including FirstEnergy, provided comments
        on the assessment by February 12, 2007. The standards remain pending before
        the FERC.  On July 20, 2007, the FERC issued a NOPR proposing to adopt
        eight Critical Infrastructure Protection Reliability
        Standards.  Comments will not be due to the FERC until September or
        October of 2007.
 
 FirstEnergy
        believes
        it is in compliance with all current NERC reliability standards. However,
        based
        upon a review of the FERC's guidance to NERC in its March 16, 2007 Final
        Rule on
        Mandatory Reliability Standards, it appears that the FERC will eventually
        adopt
        stricter NERC reliability standards than those just approved. The financial
        impact of complying with the new standards cannot be determined at this time.
        However, the EPACT required that all prudent costs incurred to comply with
        the
        new reliability standards be recovered in rates. If FirstEnergy is unable
        to
        meet the reliability standards for its bulk power system in the future, it
        could
        have a material adverse effect on FirstEnergy’s and its subsidiaries’ financial
        condition, results of operations and cash flows.
 
 On
        April 18-20,
        2007, Reliabilit*yFirst* performed a routine compliance audit of
        FirstEnergy's bulk-power system within the Midwest ISO region and found
        FirstEnergy to be in full compliance with all audited reliability
        standards.  Similarly, Reliability*First* has scheduled a
        compliance audit of FirstEnergy's bulk-power system within the PJM region
        in
        2008. FirstEnergy does not expect any material adverse impact to its financial
        condition as a result of these audits.
  58
  ***Ohio***
 
 On
        October 21, 2003,
        the Ohio Companies filed their RSP case with the PUCO. On August 5, 2004,
        the
        Ohio Companies accepted the RSP as modified and approved by the PUCO in an
        August 4, 2004 Entry on Rehearing, subject to a CBP. The RSP was intended
        to
        establish generation service rates beginning January 1, 2006, in response
        to the
        PUCO’s concerns about price and supply uncertainty following the end of the Ohio
        Companies' transition plan market development period. On May 3, 2006, the
        Supreme Court of Ohio issued an opinion affirming the PUCO's order in all
        respects, except it remanded back to the PUCO the matter of ensuring the
        availability of sufficient means for customer participation in the marketplace.
        The RSP contained a provision that permitted the Ohio Companies to withdraw
        and
        terminate the RSP in the event that the PUCO, or the Supreme Court of Ohio,
        rejected all or part of the RSP. In such event, the Ohio Companies have 30
        days
        from the final order or decision to provide notice of termination. On July
        20,
        2006 the Ohio Companies filed with the PUCO a Request to Initiate a Proceeding
        on Remand. In their Request, the Ohio Companies provided notice of termination
        to those provisions of the RSP subject to termination, subject to being
        withdrawn, and also set forth a framework for addressing the Supreme Court
        of
        Ohio’s findings on customer participation. If the PUCO approves a resolution to
        the issues raised by the Supreme Court of Ohio that is acceptable to the
        Ohio
        Companies, the Ohio Companies’ termination will be withdrawn and considered to
        be null and void. On July 20, 2006, the OCC and NOAC also submitted to the
        PUCO a conceptual proposal addressing the issue raised by the Supreme Court
        of
        Ohio. On July 26, 2006, the PUCO issued an Entry directing the Ohio Companies
        to
        file a plan in a new docket to address the Court’s concern. The Ohio Companies
        filed their RSP Remand CBP on September 29, 2006. Initial comments were
        filed on January 12, 2007 and reply comments were filed on January 29,
        2007. In their reply comments the Ohio Companies described the highlights
        of a
        new tariff offering they would be willing to make available to customers
        that
        would allow customers to purchase renewable energy certificates associated
        with
        a renewable generation source, subject to PUCO approval. On May 29, 2007,
        the Ohio Companies, together with the PUCO Staff and the OCC, filed a
        stipulation with the PUCO agreeing to offer a standard bid product and a
        green
        resource tariff product. The stipulation is currently pending before the
        PUCO.
        No further proceedings are scheduled at this time.
 
 The
        Ohio Companies
        filed an application and stipulation with the PUCO on September 9, 2005
        seeking approval of the RCP, a supplement to the RSP. On November 4, 2005,
        the
        Ohio Companies filed a supplemental stipulation with the PUCO, which constituted
        an additional component of the RCP filed on September 9, 2005. On January
        4,
        2006, the PUCO approved, with modifications, the Ohio Companies’ RCP to
        supplement the RSP to provide customers with more certain rate levels than
        otherwise available under the RSP during the plan period. The following table
        provides the estimated net amortization of regulatory transition costs and
        deferred shopping incentives (including associated carrying charges) under
        the
        RCP for the period 2007 through 2010:
 
 **Amortization**
                **Period**
              
              **OE**
              
              **CEI**
              
              **TE**
              
              **Total**
                **Ohio*****(In
                  millions)***2007
              
              **$**
              179
              
              **$**
              108
              
              **$**
              93
              
              **$**
              3802008
              
              
              208
              
              
              124
              
              
              119
              
              
              4512009
              
              
              -
              
              
              216
              
              
              -
              
              
              2162010
              
              
              -
              
              
              273
              
              
              -
              
              
              273**Total
                  Amortization**
              
              **$**
              387
              
              **$**
              721
              
              **$**
              212
              
              **$**
              1,320
  On
        August
        31, 2005, the PUCO approved a rider recovery mechanism through which the
        Ohio
        Companies may recover all MISO transmission and ancillary service related
        costs
        incurred during each year ending June 30. Pursuant to the PUCO’s order, the Ohio
        Companies, on May 1, 2007, filed revised riders, which became effective on
        July
        1, 2007.  The revised riders represent an increase over the amounts
        collected through the 2006 riders of approximately $64 million
        annually.  If it is subsequently determined by the PUCO that
        adjustments to the rider as filed are necessary, such adjustments, with carrying
        costs, will be incorporated into the 2008 transmission rider
        filing.
 
 On
        May 8, 2007, the
        Ohio Companies filed with the PUCO a notice of intent to file for an increase
        in
        electric distribution rates. The Ohio Companies filed the application and
        rate
        request 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 bill for most Ohio customers.  The
        distribution rate increases reflect capital expenditures since the Ohio
        Companies’ last distribution rate proceedings, increases in operating and
        maintenance expenses and recovery of regulatory assets created by deferrals
        that
        were approved in prior cases. On August 6, 2007, the Ohio Companies
        provided an update filing supporting a distribution rate increase of
        $332 million to the PUCO to establish the test period data that will be
        used as the basis for setting rates in that proceeding. The PUCO Staff is
        expected to issue its report in the case in the fourth quarter of 2007 with
        evidentiary hearings to follow in late 2007. The PUCO order is expected to
        be
        issued by March 9, 2008. The new rates, subject to evidentiary hearings and
        approval at the PUCO, would become effective January 1, 2009 for OE and TE,
        and
        approximately May 2009 for CEI.
  59
  
 On
        July 10, 2007,
        the Ohio Companies filed an application with the PUCO requesting approval
        of a
        comprehensive supply plan for providing 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 kilowatt-hour 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.
        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 Ohio Companies requested
        that the PUCO issue an order by November 1, 2007, to provide sufficient time
        to
        conduct the bidding process. The PUCO has scheduled a technical conference
        for
        August 16, 2007.
 
 ***Pennsylvania***
 
 Met-Ed
        and Penelec
        have been purchasing a portion of their PLR requirements from FES through
        a
        partial requirements wholesale power sales agreement and various amendments.
        Under these agreements, FES retained the supply obligation and the supply
        profit
        and loss risk for the portion of power supply requirements not self-supplied
        by
        Met-Ed and Penelec. The FES agreements have reduced Met-Ed's and Penelec's
        exposure to high wholesale power prices by providing power at a fixed price
        for
        their uncommitted PLR capacity and energy costs during the term of these
        agreements with FES.
 
 On
        April 7,
        2006, the parties entered into a tolling agreement that arose from FES’ notice
        to Met-Ed and Penelec that FES elected to exercise its right to terminate
        the
        partial requirements agreement effective midnight December 31, 2006. On
        November 29, 2006, Met-Ed, Penelec and FES agreed to suspend the April 7
        tolling agreement pending resolution of the PPUC’s proceedings regarding the
        Met-Ed and Penelec comprehensive transition rate cases filed April 10, 2006,
        described below. Separately, on September 26, 2006, Met-Ed and Penelec
        successfully conducted a competitive RFP for a portion of their PLR obligation
        for the period December 1, 2006 through December 31, 2008. FES was one
        of the successful bidders in that RFP process and on September 26, 2006 entered
        into a supplier master agreement to supply a certain portion of Met-Ed’s and
        Penelec’s PLR requirements at market prices that substantially exceed the fixed
        price in the partial requirements agreements.
 
 Based
        on the outcome
        of the 2006 comprehensive transition rate filing, as described below, Met-Ed,
        Penelec and FES agreed to restate the partial requirements power sales agreement
        effective January 1, 2007. The restated agreement incorporates the same fixed
        price for residual capacity and energy supplied by FES as in the prior
        arrangements between the parties, and automatically extends for successive
        one
        year terms unless any party gives 60 days’ notice prior to the end of the year.
        The restated agreement also 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 thus sold to the extent needed for Met-Ed and Penelec
        to
        satisfy their PLR obligations. The parties also have separately terminated
        the
        tolling, suspension and supplier master agreements in connection with the
        restatement of the partial requirements agreement. Accordingly, the energy
        that
        would have been supplied under the supplier master agreement will now be
        provided under the restated partial requirements agreement. The fixed price
        under the restated 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 its 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 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 in accordance with the April 7, 2006 tolling agreement described
        above. Met-Ed and Penelec also requested approval of a January 12, 2005
        petition for the deferral of transmission-related costs, but only for those
        costs incurred during 2006. In this rate filing, Met-Ed and Penelec also
        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 the merger savings, with the comprehensive
        transmission rate filing case.
  60
  
 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,
        when
        new transmission rates were effective, 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 in 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 expenses and the
        transmission deferral. 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). Met-Ed and Penelec filed a Petition for
        Reconsideration on January 26, 2007 on the issues of consolidated tax savings
        and rate of return on equity. Other parties filed Petitions for Reconsideration
        on transmission (including congestion), transmission deferrals and rate design
        issues. On February 8, 2007, the PPUC entered an order granting Met-Ed’s,
        Penelec’s and the other parties’ petitions for procedural purposes. Due to that
        ruling, the period for appeals to the Commonwealth Court of Pennsylvania
        was
        tolled until 30 days after the PPUC entered a subsequent order ruling on
        the
        substantive issues raised in the petitions. On March 1, 2007, the PPUC
        issued three orders: (1) a tentative order regarding the reconsideration
        by the
        PPUC of its own order; (2) an order denying the Petitions for Reconsideration
        of
        Met-Ed, Penelec and the OCA and denying in part and accepting in part MEIUG’s
        and PICA’s Petition for Reconsideration; and (3) an order approving the
        Compliance filing. Comments to the PPUC for reconsideration of its order
        were
        filed on March 8, 2007, and the PPUC ruled on the reconsideration on
        April 13, 2007, making minor changes to rate design as agreed upon by
        Met-Ed, Penelec and certain other parties.
 
 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. On June 19, 2007, initial briefs were filed by all
        parties. Responsive briefs are due August 20, 2007, with reply briefs due
        September 4, 2007. Oral arguments are expected to take place in late 2007
        or early 2008. If Met-Ed and Penelec do not prevail on the issue of congestion,
        it could have a material adverse effect on the financial condition and
        results of operations of Met-Ed, Penelec and FirstEnergy.
 
 As
        of June 30, 2007,
        Met-Ed's and Penelec's unrecovered regulatory deferrals pursuant to the 2006
        comprehensive transition rate case, the 1998 Restructuring Settlement (including
        the Phase 2 Proceedings) and the FirstEnergy/GPU Merger Settlement Stipulation
        were $493 million and $127 million, respectively. $82 million of
        Penelec’s deferral is subject to final resolution of an IRS settlement
        associated with NUG trust fund proceeds. During the PPUC’s annual audit of
        Met-Ed’s and Penelec’s NUG stranded cost balances in 2006, it noted a
        modification to the NUG purchased power stranded cost accounting methodology
        made by Met-Ed and Penelec. On August 18, 2006, a PPUC Order was entered
        requiring Met-Ed and Penelec to reflect the deferred NUG cost balances as
        if the
        stranded cost accounting methodology modification had not been implemented.
        As a
        result of this PPUC order, Met-Ed recognized a pre-tax charge of approximately
        $10.3 million in the third quarter of 2006, representing incremental costs
        deferred under the revised methodology in 2005. Met-Ed and Penelec continue
        to
        believe that the stranded cost accounting methodology modification is
        appropriate and on August 24, 2006 filed a petition with the PPUC pursuant
        to
        its order for authorization to reflect the stranded cost accounting methodology
        modification effective January 1, 1999. Hearings on this petition were held
        in
        late February 2007 and briefing was completed on March 28, 2007. The ALJ’s
        initial decision was issued on May 3, 2007 and denied Met-Ed's and Penelec’s
        request to modify their NUG stranded cost accounting methodology. The companies
        filed exceptions to the initial decision on May 23, 2007 and replies to those
        exceptions were filed on June 4, 2007. It is not known when the PPUC may
        issue a
        final decision in this matter.
 
 On
        May 2, 2007, Penn
        filed a plan with the PPUC for the procurement of PLR supply from June 2008
        through May 2011. The filing proposes multiple, competitive RFPs with staggered
        delivery periods for fixed-price, tranche-based, pay as bid PLR supply to
        the
        residential and commercial classes. The proposal phases out existing promotional
        rates and eliminates the declining block and the demand components on generation
        rates for residential and commercial customers. The industrial class PLR
        service
        would be provided through an hourly-priced service provided by Penn. Quarterly
        reconciliation of the differences between the costs of supply and revenues
        from
        customers is also proposed. The PPUC is requested to act on the proposal
        no
        later than November 2007 for the initial RFP to take place in January
        2008.
  61
  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 programs to meet demand 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 an optional 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 will
        be
        convened in mid-September 2007 to consider other aspects of the EIS. The
        final
        form of any legislation arising from the special legislative session is
        uncertain. Consequently, FirstEnergy is unable to predict what impact, if
        any,
        such legislation may have on its operations.
 
 ***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 June 30, 2007, the accumulated deferred
        cost
        balance totaled approximately $392 million.
 
 In
        accordance with
        an April 28, 2004 NJBPU order, JCP&L filed testimony on June 7,
        2004 supporting a 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. 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
        PUHCA pursuant to the EPACT. The NJBPU approved regulations effective October
        2,
        2006 that would 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.
        Comments on the alternative proposal were submitted on June 15, 2006. On
        November 3, 2006, the Staff circulated a revised draft proposal to
        interested stakeholders. Another revised draft was circulated by the NJBPU
        Staff
        on February 8, 2007.
 
 New
        Jersey statutes
        require that the state periodically undertake a planning process, known as
        the
        Energy Master Plan (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 with the issuance
        of a
        proposed set of objectives which, as to electricity, included the
        following:
  ·  Reduce
        the total
        projected electricity demand by 20% by 2020;
  ·  Meet
        22.5% of New
        Jersey’s electricity needs with renewable energy resources by that
        date;
  ·  Reduce
        air pollution
        related to energy use;
  ·  Encourage
        and
        maintain economic growth and development;
 
 · Achieve
        a 20% reduction in both Customer Average Interruption Duration Index and
        System
        Average Interruption Frequency Index by 2020;
 
 · Unit
        prices for electricity should remain no more than +5% of the regional average
        price (region includes New York, New Jersey, Pennsylvania, Delaware, Maryland
 and the District of Columbia); and
  ·  Eliminate
        transmission congestion by 2020.
  62
  
 Comments
        on the
        objectives and participation in the development of the EMP have been solicited
        and a number of working groups have been formed to obtain input from a broad
        range of interested stakeholders including utilities, environmental groups,
        customer groups, and major customers. EMP working groups addressing (1) energy
        efficiency and demand response, (2) renewables, (3) reliability, and (4)
        pricing
        issues have completed their assigned tasks of data gathering and analysis
        and
        have provided reports to the EMP Committee. Public stakeholder meetings were
        held in the fall of 2006 and in early 2007, and further public meetings are
        expected later in 2007. A final draft of the EMP is expected to be presented
        to
        the Governor in late 2007. At this time, FirstEnergy cannot predict the outcome
        of this process nor determine the impact, if any, such legislation 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 August 1,
        2007, the NJBPU approved publication of a formal proposal in the New Jersey
        Register, which proposal will be subsequently considered by the NJBPU following
        a period for public comment.  At this time, FirstEnergy cannot predict
        the outcome of this process nor determine the impact, if any, such regulations
        may have on its operations or those of JCP&L.
 
 ***FERC
        Matters***
 
 On
        November 18,
        2004, the FERC issued an order eliminating the RTOR for transmission service
        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 SECA mechanism to recover lost RTOR revenues during a 16-month transition
        period from load serving entities. The FERC issued orders in 2005 setting
        the
        SECA for hearing. ATSI, JCP&L, Met-Ed, Penelec, and FES participated in the
        FERC hearings held in May 2006 concerning the calculation and imposition
        of the
        SECA charges. The presiding judge issued an initial decision on August 10,
        2006,
        rejecting the compliance filings made by the RTOs and transmission owners,
        ruling on various issues 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 third quarter of 2007.
 
 On
        January 31, 2005,
        certain PJM transmission owners made three 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. In the second
        filing, the settling transmission owners proposed a revised Schedule 12 to
        the
        PJM tariff designed to harmonize the rate treatment of new and existing
        transmission facilities. Interventions and protests were filed on February
        22,
        2005. In the third filing, Baltimore Gas and Electric Company and Pepco
        Holdings, Inc. requested a formula rate for transmission service provided
        within
        their respective zones. Hearings were held and numerous parties appeared
        and
        litigated various issues; including American Electric Power Company, Inc.,
        which
        filed in opposition proposing to create a "postage stamp" rate for high voltage
        transmission facilities across PJM. At the conclusion of the hearings, the
        ALJ
        issued an initial decision adopting the FERC Trial Staff’s position that the
        cost of all PJM transmission facilities should be recovered through a postage
        stamp rate.******The ALJ recommended an April 1, 2006
        effective date for this change in rate design. Numerous parties, including
        FirstEnergy, submitted briefs opposing the ALJ’s decision and
        recommendations.  On April 19, 2007, the FERC issued an order
        rejecting the ALJ’s findings and recommendations in nearly every respect. The
        FERC found that the PJM transmission owners’ existing “license plate” 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 socialized 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.  Nevertheless, 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.  Subsequently, FirstEnergy and other parties filed pleadings
        opposing the requests for rehearing. The FERC’s Orders on PJM rate design, if
        sustained on rehearing and appeal, will prevent the allocation of the cost
        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 costs shifting to the JCP&L, Met-Ed and Penelec
        zones.
  63
  
 On
        August 1, 2007, a
        number of filings were made with the FERC by transmission owning utilities
        in
        the MISO and PJM footprint that could affect the transmission rates paid
        by
        FirstEnergy’s operating companies and FES.
 
 FirstEnergy
        joined
        in a filing made by the MISO transmission owners that would maintain the
        existing “license plate” rates for transmission service within MISO provided
        over existing transmission facilities.  FirstEnergy also joined in a
        filing made by both the MISO and PJM transmission owners proposing to maintain
        existing transmission rates between MISO and PJM.  If accepted by the
        FERC, these filings would not affect the rates charged to load-serving
        FirstEnergy affiliates for transmission service over existing transmission
        facilities.  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 transmission facilities across the
        entire
        MISO footprint be maintained.  All of these filings were supported by
        the majority of transmission owners in either MISO or PJM.
 
 The
        Midwest
        Stand-Alone Transmission Companies made a filing under Section 205 of the
        Federal Power Act requesting that 100% of the cost of new qualifying 345
        kV
        transmission facilities be spread throughout the entire MISO
        footprint.  If adopted by the FERC, this proposal would shift a
        greater portion of the cost of new 345 kV transmission facilities to the
        FirstEnergy footprint, and increase the transmission rates paid by load-serving
        FirstEnergy affiliates.
 
 American
        Electric
        Power (AEP) filed a letter with the FERC Commissioners stating its intent
        to
        file a complaint under Section 206 of the Federal Power Act challenging the
        justness and reasonableness of the rate designs underlying the MISO and PJM
        transmission tariffs.  AEP will propose the adoption of a regional
        rate design that is expected to reallocate the cost of both existing and
        new
        high voltage transmission facilities across the combined MISO and PJM
        footprint.  Based upon the position advocated by AEP in a related
        proceeding, the AEP proposal is expected to result in a greater allocation
        of
        costs to FirstEnergy transmission zones in MISO and PJM.  If approved
        by the FERC, AEP’s proposal would increase the transmission rates paid by
        load-serving FirstEnergy affiliates.
 
 Any
        increase in
        rates charged for transmission service to FirstEnergy affiliates is dependent
        upon the outcome of these proceedings at FERC.  All or some of these
        proceedings may be consolidated by the FERC and set for hearing.  The
        outcome of these cases cannot be predicted.  Any material adverse
        impact on FirstEnergy would depend upon the ability of the load-serving
        FirstEnergy affiliates to recover increased transmission costs in their retail
        rates.  FirstEnergy believes that current retail rate mechanisms in
        place for PLR service for the Ohio Companies and for Met-Ed and Penelec would
        permit them to pass through increased transmission charges in their retail
        rates.  Increased transmission charges in the JCP&L and Penn
        transmission zones would be the responsibility of competitive electric retail
        suppliers, including FES.
 
 On
        February 15,
        2007, MISO filed documents with the FERC to establish a market-based,
        competitive ancillary services market.  MISO contends that the filing
        will integrate operating reserves into MISO’s existing day-ahead and real-time
        settlements process, incorporate opportunity costs into these markets, address
        scarcity pricing through the implementation of a demand curve methodology,
        foster demand response in the provision of operating reserves, and provide
        for
        various efficiencies and optimization with regard to generation
        dispatch.  The filing also proposes amendments to existing documents
        to provide for the transfer of balancing functions from existing local balancing
        authorities to MISO.  MISO will then carry out this reliability
        function as the NERC-certified balancing authority for the MISO region with
        implementation in the third or fourth quarter of 2008.  FirstEnergy
        filed comments on March 23, 2007, supporting the ancillary service market
        in
        concept, but proposing certain changes in MISO’s proposal. MISO requested FERC
        action on its filing by June 2007 and the FERC issued its Order June 22,
        2007.
        The FERC found MISO’s filing to be deficient in two key areas: (1) MISO has not
        submitted a market power analysis in support of its proposed Ancillary Services
        Market and (2) MISO has not submitted a readiness plan to ensure reliability
        during the transition from the current reserve and regulation system managed
        by
        the individual Balancing Authorities to a centralized Ancillary Services
        Market
        managed by MISO. MISO was ordered to remedy these deficiencies and the FERC
        provided more guidance on other issues brought up in filings by stakeholders
        to
        assist MISO to re-file a complete proposal. This Order should facilitate
        MISO’s
        timetable to incorporate final revisions to ensure a market start in Spring
        2008. FirstEnergy will be participating in working groups and task forces
        to
        ensure the Spring 2008 implementation of the Ancillary Services Market.
 
 On
        February 16,
        2007, the FERC issued a final rule that revises its decade-old open access
        transmission regulations and policies. The FERC explained that the final
        rule is
        intended to strengthen non-discriminatory access to the transmission grid,
        facilitate FERC enforcement, and provide for a more open and coordinated
        transmission planning process.  The final rule became effective on
        May 14, 2007. MISO, PJM and ATSI will be filing revised tariffs to comply
        with the FERC’s order. As a market participant in both MISO and PJM, FirstEnergy
        will conform its business practices to each respective revised
        tariff.
  64
  
 ***Environmental
        Matters***
 
 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.
 
 *Clean
        Air Act Compliance*
 
 FirstEnergy
        is
        required to meet federally-approved SO2 emissions
        regulations. Violations of such regulations can result in 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 Clean Air Act.
        FirstEnergy has disputed those alleged violations based on its Clean Air
        Act
        permit, the Ohio SIP and other information provided 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 Clean Air Act, alleging violations
        of
        air pollution laws at the Mansfield Plant, including opacity limitations.
        Prior
        to the receipt of this notice, the Mansfield 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 July 25, 2007, FirstEnergy and PennFuture
        entered into a Tolling and Confidentiality Agreement that provides for a
        60-day
        negotiation period during which the parties have agreed to not file a
        lawsuit.
  *National
        Ambient Air Quality
        Standards*
 
 In
        July 1997, the
        EPA promulgated changes in the NAAQS for ozone and fine particulate matter.
        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
        allowed each affected state until 2006 to develop implementing regulations
        to
        achieve additional 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-fired generation facilities
        will be subject to caps on SO2 and NOX
        emissions, whereas
        its New Jersey fossil-fired 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. The future cost of compliance with these regulations
        may
        be substantial and will depend on how they are ultimately implemented by
        the
        states in which FirstEnergy operates affected facilities.
  65
  
 *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, mercury emissions
        will be
        capped nationally at 38 tons by 2010 (as a "co-benefit" from implementation
        of SO2 and
        NOX emission
        caps under the EPA's CAIR program). Phase II of the mercury cap-and-trade
        program will cap nationwide mercury emissions from coal-fired power plants
        at
        15 tons per year by 2018. However, the final rules give states substantial
        discretion in developing rules to implement these programs. In addition,
        both
        the CAIR and the CAMR have been challenged in the United States Court of
        Appeals
        for the District of Columbia. FirstEnergy's future cost of compliance with
        these
        regulations may be substantial and will depend on how they are ultimately
        implemented by the states in which FirstEnergy operates affected
        facilities.
 
 The
        model rules for
        both CAIR and CAMR contemplate an input-based methodology to allocate allowances
        to affected facilities. Under this approach, allowances would be allocated
        based
        on the amount of fuel consumed by the affected sources. FirstEnergy would
        prefer
        an output-based generation-neutral methodology in which allowances are allocated
        based on megawatts of power produced, allowing new and non-emitting generating
        facilities (including renewables and nuclear) to be entitled to their
        proportionate share of the allowances. Consequently, FirstEnergy will be
        disadvantaged if these model rules were implemented as proposed because
        FirstEnergy’s substantial reliance on non-emitting (largely nuclear) generation
        is not recognized under the input-based allocation.
 
 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. Pennsylvania’s mercury
        regulation would deprive FES of mercury emission allowances that were to
        be
        allocated to the Mansfield Plant under the CAMR and that would otherwise
        be
        available for achieving FirstEnergy system-wide compliance. 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 Mansfield Plant,
        FirstEnergy’s only coal-fired Pennsylvania power plant, until 2015, if at
        all.
 
 *W.
        H. Sammis Plant*
 
 In
        1999 and 2000,
        the EPA issued NOV or compliance orders to nine utilities alleging violations
        of
        the Clean Air Act based on operation and maintenance of 44 power plants,
        including the W. H. Sammis Plant, which was owned at that time by OE and
        Penn,
        and is now owned by FGCO. In addition, the DOJ filed eight civil complaints
        against various investor-owned utilities, including a complaint against OE
        and
        Penn in the U.S. District Court for the Southern District of Ohio. These
        cases
        are referred to as the New Source Review, or 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 settlement agreement are currently
        estimated to be $1.7 billion for 2007 through 2011 ($400 million of which
        is expected to be spent during 2007, with the largest portion of the remaining
        $1.3 billion expected to be spent in 2008 and 2009).
 
 The
        Sammis NSR
        Litigation consent decree also requires FirstEnergy to spend up to
        $25 million toward environmentally beneficial projects, $14 million of
        which is satisfied by entering into 93 MW (or 23 MW if federal tax credits
        are
        not applicable) of wind energy purchased power agreements with a 20-year
        term.
        An initial 16 MW of the 93 MW consent decree obligation was satisfied
        during 2006.
 
 *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 5.2% from 1990 levels between 2008
        and
        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. At the international
        level, efforts have begun to develop climate change agreements for post-2012
        GHG
        reductions. 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.
  66
  
 At
        the federal
        level, members of Congress have introduced several bills seeking to reduce
        emissions of GHG in the United States.  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.
 
 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 Clean Air Act. Although this
        decision did not address CO2 emissions
        from
        electric generating plants, the EPA has similar authority under the Clean
        Air
        Act to regulate “air pollutants” from those and other facilities. Also 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, the EPA proposed to change the NSR regulations, on
        May 8, 2007, to utilize changes in the hourly emission rate (in
        kilograms/hour) to determine whether an emissions increase triggers
        NSR.
 
 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 federal Court of Appeals for the Second
        Circuit remanded portions of the rulemaking dealing with impingement mortality
        and entrainment back to EPA for further rulemaking and eliminated the
        restoration option from 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. FirstEnergy is evaluating various control options and
        their
        costs and effectiveness. Depending on the outcome of such studies, the EPA’s
        further rulemaking and any action taken by the states exercising BPJ, the
        future
        cost 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 nonhazardous
        waste.
 
 Under
        NRC
        regulations, FirstEnergy must ensure that adequate funds will be available
        to
        decommission its nuclear facilities.  As of June 30, 2007, FirstEnergy
        had approximately $1.5 billion invested in external trusts to be used for
        the decommissioning and environmental remediation of Davis-Besse, Beaver
        Valley
        and Perry.  As part of the application to the NRC to transfer the
        ownership of these nuclear facilities to NGC, 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 plans to seek for these
        facilities.
  67
  
 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 are liable on a
        joint
        and several basis. Therefore, environmental liabilities that are considered
        probable have been recognized on the Consolidated Balance Sheet as of June
        30,
        2007, 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. In addition, JCP&L has accrued liabilities for
        environmental remediation of former manufactured gas plants in New Jersey;
        those
        costs are being recovered by JCP&L through a non-bypassable SBC. Total
        liabilities of approximately $88 million have been accrued through June 30,
        2007.
 
 ***Other
        Legal
        Proceedings***
 
 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 material items not otherwise discussed above
        are
        described below.
 
 *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
        on
        July 8, 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, on March 7, 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
        on
        May 9, 2007.  Proceedings are continuing in the Superior
        Court.  FirstEnergy is vigorously defending this class action but is
        unable to predict the outcome of this matter.  No liability has been
        accrued as of June 30, 2007.
  68
  
 On
        August 14,
        2003, various states and parts of southern Canada experienced widespread
        power
        outages. The outages affected approximately 1.4 million customers in
        FirstEnergy's service area. The U.S. – Canada Power System Outage Task Force’s
        final report in April 2004 on the outages concluded, among other things,
        that
        the problems leading to the outages began in FirstEnergy’s Ohio service area.
        Specifically, the final report concluded, among other things, that the
        initiation of the August 14, 2003 power outages resulted from an alleged
        failure of both FirstEnergy and ECAR to assess and understand perceived
        inadequacies within the FirstEnergy system; inadequate situational awareness
        of
        the developing conditions; and a perceived failure to adequately manage tree
        growth in certain transmission rights of way. The Task Force also concluded
        that
        there was a failure of the interconnected grid's reliability organizations
        (MISO
        and PJM) to provide effective real-time diagnostic support. The final report
        is
        publicly available through the Department of Energy’s Web site (www.doe.gov).
        FirstEnergy believes that the final report does not provide a complete and
        comprehensive picture of the conditions that contributed to the August 14,
        2003 power outages and that it does not adequately address the underlying
        causes
        of the outages. FirstEnergy remains convinced that the outages cannot be
        explained by events on any one utility's system. The final report contained
        46
“recommendations to prevent or minimize the scope of future blackouts.”
Forty-five of those recommendations related to broad industry or policy matters
        while one, including subparts, related to activities the Task Force recommended
        be undertaken by FirstEnergy, MISO, PJM, ECAR, and other parties to correct
        the
        causes of the August 14, 2003 power outages. FirstEnergy implemented
        several initiatives, both prior to and since the August 14, 2003 power
        outages, which were independently verified by NERC as complete in 2004 and
        were
        consistent with these and other recommendations and collectively enhance
        the
        reliability of its electric system. FirstEnergy’s implementation of these
        recommendations in 2004 included completion of the Task Force recommendations
        that were directed toward FirstEnergy. 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.
 
 FirstEnergy
        companies also are defending four separate complaint cases before the PUCO
        relating to the August 14, 2003 power outages. Two of those cases were
        originally filed in Ohio State courts but were subsequently dismissed for
        lack
        of subject matter jurisdiction and further appeals were unsuccessful. In
        these
        cases the individual complainants—three in one case and four in the other—sought
        to represent others as part of a class action. The PUCO dismissed the class
        allegations, stating that its rules of practice do not provide for class
        action
        complaints. Two other pending PUCO complaint cases were filed by various
        insurance carriers either in their own name as subrogees or in the name of
        their
        insured. In each of these cases, the carrier seeks reimbursement from various
        FirstEnergy companies (and, in one case, from PJM, MISO and American Electric
        Power Company, Inc., as well) for claims paid to insureds for damages allegedly
        arising as a result of the loss of power on August 14, 2003. A fifth case
        in which a carrier sought reimbursement for claims paid to insureds was
        voluntarily dismissed by the claimant in April 2007. A sixth case involving
        the
        claim of a non-customer seeking reimbursement for losses incurred when its
        store
        was burglarized on August 14, 2003 was dismissed. The four cases were
        consolidated for hearing by the PUCO in an order dated March 7,
        2006.  In that order the PUCO also limited the litigation to
        service-related claims by customers of the Ohio operating companies; dismissed
        FirstEnergy as a defendant; and ruled that the U.S.-Canada Power System Outage
        Task Force Report was not admissible into evidence. In response to a motion
        for
        rehearing filed by one of the claimants, the PUCO ruled on April 26, 2006
        that
        the insurance company claimants, as insurers, may prosecute their claims
        in
        their name so long as they also identify the underlying insured entities
        and the
        Ohio utilities that provide their service. The PUCO denied all other motions
        for
        rehearing. The plaintiffs in each case have since filed amended complaints
        and
        the named FirstEnergy companies have answered and also have filed a motion
        to
        dismiss each action. On September 27, 2006, the PUCO dismissed certain parties
        and claims and otherwise ordered the complaints to go forward to hearing.
        The
        cases have been set for hearing on January 8, 2008.
 
 On
        October 10, 2006,
        various insurance carriers refiled a complaint in Cuyahoga County Common
        Pleas
        Court seeking reimbursement for claims paid to numerous insureds who allegedly
        suffered losses as a result of the August 14, 2003 outages. All of the insureds
        appear to be non-customers. The plaintiff insurance companies are the same
        claimants in one of the pending PUCO cases. FirstEnergy, the Ohio Companies
        and
        Penn were served on October 27, 2006.  On January 18, 2007, the Court
        granted the Companies’ motion to dismiss the case and they have not been
        appealed.  However, on April 25, 2007, one of the insurance carriers
        refiled the complaint naming only FirstEnergy as the defendant.  On
        July 30, 2007, the case was voluntarily dismissed.  No estimate of
        potential liability is available for any of these cases.
 
 FirstEnergy
        was also
        named, along with several other entities, in a complaint in New Jersey State
        Court. The allegations against FirstEnergy were based, in part, on an alleged
        failure to protect the citizens of Jersey City from an electrical power outage.
        None of FirstEnergy’s subsidiaries serve customers in Jersey City. A responsive
        pleading has been filed. On April 28, 2006, the Court granted FirstEnergy's
        motion to dismiss. The plaintiff has not appealed.
  69
  
 FirstEnergy
        is
        vigorously defending these actions, but cannot predict the outcome of any
        of
        these proceedings or whether any further regulatory proceedings or legal
        actions
        may be initiated against the Companies. Although FirstEnergy is unable to
        predict the impact of these proceedings, if FirstEnergy or its subsidiaries
        were
        ultimately determined to have legal liability in connection with these
        proceedings, it could have a material adverse effect on FirstEnergy's or
        its
        subsidiaries' financial condition, results of operations and cash
        flows.
 
 *Nuclear
        Plant Matters*
 
 On
        August 12,
        2004, the NRC notified FENOC that it would increase its regulatory oversight
        of
        the Perry Nuclear Power Plant as a result of problems with safety system
        equipment over the preceding two years and the licensee's failure to take
        prompt
        and corrective action. On April 4, 2005, the NRC held a public meeting to
        discuss FENOC’s performance at the Perry Nuclear Power Plant as identified in
        the NRC's annual assessment letter to FENOC. Similar public meetings are
        held
        with all nuclear power plant licensees following issuance by the NRC of their
        annual assessments. According to the NRC, overall the Perry Nuclear Power
        Plant
        operated "in a manner that preserved public health and safety" even though
        it
        remained under heightened NRC oversight. During the public meeting and in
        the
        annual assessment, the NRC indicated that additional inspections would continue
        and that the plant must improve performance to be removed from the
        Multiple/Repetitive Degraded Cornerstone Column of the Action
        Matrix.
 
 On
        September 28, 2005, the NRC sent a CAL to FENOC describing commitments that
        FENOC had made to improve the performance at the Perry Nuclear Power Plant
        and
        stated that the CAL would remain open until substantial improvement was
        demonstrated. The CAL was anticipated as part of the NRC's Reactor Oversight
        Process. By two letters dated March 2, 2007, the NRC closed the CAL
        commitments for Perry, the two outstanding white findings, and crosscutting
        issues.  Moreover, the NRC removed Perry from the Multiple Degraded
        Cornerstone Column of the NRC Action Matrix and placed the plant in the Licensee
        Response Column (regular agency oversight).
 
 On
        April 30, 2007,
        the UCS filed a petition with the NRC under Section 2.206 of the NRC’s
        regulations based on a report prepared at FENOC’s request by expert witnesses
        for an insurance arbitration.  In December 2006, the expert witnesses
        for FENOC completed a report that analyzed the crack growth rates in control
        rod
        drive mechanism penetrations and wastage of the former reactor pressure vessel
        head at Davis-Besse.   Citing the findings in the expert witness'
        report, the Section 2.206 petition requested that: (1) Davis-Besse be
        immediately shut down; (2) that the NRC conduct an independent review of
        the
        consultant's report and that all pressurized water reactors be shut down
        until
        remedial actions can be implemented; and (3) Davis-Besse’s operating license be
        revoked.
 
 In
        a letter dated
        May 18, 2007, the NRC stated that the “current reactor pressure vessel (RPV)
        head inspection requirements are adequate to detect RPV degradation issues
        before they result in significant corrosion.” The NRC also indicated that, “no
        immediate safety concern exists at Davis-Besse” and denied UCS’ first demand (to
        shut down the facility).  On June 18, 2007, the NRC Petition
        Review Board indicated that the agency had initially denied petitioner’s other
        requests, and provided an opportunity for UCS to provide additional information
        prior to the final determination. By letter dated July 12, 2007, the NRC
        denied the remainder of the UCS petition.
 
 On
        May 14, 2007, the
        Office of Enforcement of the NRC issued a Demand for Information to FENOC
        following FENOC’s reply to an April 2, 2007 NRC request for information about
        the expert witnesses’ report and another report. The NRC indicated that this
        information is 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 Demand for Information 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. The NRC held a public
        meeting on June 27, 2007 with FENOC to discuss FENOC’s response to the Demand
        for Information. In follow-up discussions, FENOC was requested to provide
        supplemental information to clarify certain aspects of the Demand for
        Information response and provide additional details regarding plans to implement
        the commitments made therein. FENOC submitted this supplemental response
        to the
        NRC on July 16, 2007. FirstEnergy can provide no assurances as to the
        ultimate resolution of this matter.
 
 *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.
  70
  
 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 plaintiff’s motion to amend their complaint which OE
        has opposed.
 
 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. JCP&L
        intends to re-file an appeal in federal district court once the damages
        associated with this case are identified at an individual employee level.
        JCP&L recognized a liability for the potential $16 million award in
        2005. The parties met on June 27, 2007 before an arbitrator to assert their
        positions regarding the finality of damages. A hearing before the arbitrator
        is
        set for September 7, 2007.
  The
          union employees
          at the W. H. Sammis Plant have been working without a labor contract since
          July
          1, 2007. The union expects to vote on a new contract on August 9, 2007.
          While it
          is expected the union will ratify a new contract, FirstEnergy has a strike
          mitigation plan ready in the event of a strike.
 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.
 
 **NEW
        ACCOUNTING STANDARDS AND INTERPRETATIONS**
 
 *SFAS
                  159 –
                  “The Fair Value Option for Financial Assets and Financial Liabilities
–
                  Including an amendment of FASB Statement No.
                  115”*
 
 In
        February 2007,
        the FASB issued SFAS 159, which provides companies with an option to report
        selected financial assets and liabilities at fair value.  This
        Statement requires companies to provide additional information that will
        help
        investors and other users of financial statements to more easily understand
        the
        effect of the company’s choice to use fair value on its earnings.  The
        Standard also requires companies to display the fair value of those assets
        and
        liabilities for which the company has chosen to use fair value on the face
        of
        the balance sheet.  This guidance does not eliminate disclosure
        requirements included in other accounting standards, including requirements
        for
        disclosures about fair value measurements included in SFAS 157**and
        SFAS 107*.*This Statement is effective for financial statements issued
        for fiscal years beginning after November 15, 2007, and interim periods
        within those years. FirstEnergy is currently evaluating the impact of this
        Statement on its financial statements.
 
 *SFAS
        157 – “Fair Value
        Measurements”*
 
 In
        September 2006,
        the FASB issued SFAS 157 that establishes how companies should measure fair
        value when they are required to use a fair value measure for recognition
        or
        disclosure purposes under GAAP. This Statement addresses the need for increased
        consistency and comparability in fair value measurements and for expanded
        disclosures about fair value measurements. The key changes to current practice
        are: (1) the definition of fair value which focuses on an exit price rather
        than
        entry price; (2) the methods used to measure fair value such as emphasis
        that
        fair value is a market-based measurement, not an entity-specific measurement,
        as
        well as the inclusion of an adjustment for risk, restrictions and credit
        standing; and (3) the expanded disclosures about fair value measurements.
        This
        Statement is effective for financial statements issued for fiscal years
        beginning after November 15, 2007, and interim periods within those years.
        FirstEnergy is currently evaluating the impact of this Statement on its
        financial statements.
 
 *EITF
        06-11 – “Accounting for Income Tax
        Benefits of Dividends or Share-based Payment Awards”*
 
 In
        June 2007, the
        FASB released EITF 06-11, which provides guidance on the appropriate accounting
        for income tax benefits related to dividends earned on nonvested share units
        that are charged to retained earnings under SFAS 123(R).  The
        consensus requires that an entity recognize the realized tax benefit associated
        with the dividends on nonvested shares as an increase to additional paid-in
        capital (APIC). This amount should be included in the APIC pool, which is
        to be
        used when an entity’s estimate of forfeitures increases or actual forfeitures
        exceed its estimates, at which time the tax benefits in the APIC pool would
        be
        reclassified to the income statement.  The consensus is effective for
        income tax benefits of dividends declared during fiscal years beginning after
        December 15, 2007.  EITF 06-11 is not expected to have a material
        effect on FirstEnergy’s financial statements.
  71
   **OHIO
                  EDISON COMPANY****CONSOLIDATED
                  STATEMENTS OF INCOME AND COMPREHENSIVE INCOME****(Unaudited)****Three
                  Months Ended**
              
              
              **Six
                  Months Ended****June
                  30,**
              
              
              **June
                  30,****2007**
              
              
              **2006**
              
              
              **2007**
              
              
              **2006****STATEMENTS
                  OF INCOME**
              
              ***(In
                  thousands)*****REVENUES:**Electric
                  sales
              
              $
              569,430
              
              
              $
              546,176
              
              
              $
              1,163,774
              
              
              $
              1,103,405Excise
                  tax
                  collections
              
              
              27,351
              
              
              
              26,916
              
              
              
              58,605
              
              
              
              55,890Total
                  revenues
              
              
              596,781
              
              
              
              573,092
              
              
              
              1,222,379
              
              
              
              1,159,295**EXPENSES:**Fuel
              
              
              2,312
              
              
              
              2,821
              
              
              
              5,327
              
              
              
              5,772Purchased
                  power
              
              
              322,639
              
              
              
              293,033
              
              
              
              672,491
              
              
              
              576,053Nuclear
                  operating costs
              
              
              47,654
              
              
              
              43,506
              
              
              
              89,168
              
              
              
              84,590Other
                  operating costs
              
              
              97,120
              
              
              
              91,604
              
              
              
              185,606
              
              
              
              182,414Provision
                  for
                  depreciation
              
              
              19,110
              
              
              
              17,547
              
              
              
              37,958
              
              
              
              35,563Amortization
                  of regulatory assets
              
              
              46,126
              
              
              
              43,444
              
              
              
              91,543
              
              
              
              97,305Deferral
                  of
                  new regulatory assets
              
              
              (54,344
              )
              
              
              (42,083
              )
              
              
              (90,993
              )
              
              
              (78,323
              )General
                  taxes
              
              
              45,393
              
              
              
              43,931
              
              
              
              95,138
              
              
              
              89,826Total
                  expenses
              
              
              526,010
              
              
              
              493,803
              
              
              
              1,086,238
              
              
              
              993,200**OPERATING
                  INCOME**
              
              
              70,771
              
              
              
              79,289
              
              
              
              136,141
              
              
              
              166,095**OTHER
                  INCOME (EXPENSE):**Investment
                  income
              
              
              21,346
              
              
              
              32,818
              
              
              
              47,976
              
              
              
              65,860Miscellaneous
                  income (expense)
              
              
              2,319
              
              
              
              (1,001
              )
              
              
              2,692
              
              
              
              (804
              )Interest
                  expense
              
              
              (21,416
              )
              
              
              (17,366
              )
              
              
              (42,438
              )
              
              
              (35,598
              )Capitalized
                  interest
              
              
              152
              
              
              
              643
              
              
              
              262
              
              
              
              1,134Subsidiary's
                  preferred stock dividend requirements
              
              
              -
              
              
              
              (155
              )
              
              
              -
              
              
              
              (311
              )Total
                  other
                  income
              
              
              2,401
              
              
              
              14,939
              
              
              
              8,492
              
              
              
              30,281**INCOME
                  BEFORE INCOME TAXES**
              
              
              73,172
              
              
              
              94,228
              
              
              
              144,633
              
              
              
              196,376**INCOME
                  TAXES**
              
              
              27,559
              
              
              
              35,019
              
              
              
              44,985
              
              
              
              73,337**NET
                  INCOME**
              
              
              45,613
              
              
              
              59,209
              
              
              
              99,648
              
              
              
              123,039**PREFERRED
                  STOCK DIVIDEND REQUIREMENTS AND****REDEMPTION
                  PREMIUM**
              
              
              -
              
              
              
              3,587
              
              
              
              -
              
              
              
              4,246**EARNINGS
                  ON COMMON STOCK**
              
              $
              45,613
              
              
              $
              55,622
              
              
              $
              99,648
              
              
              $
              118,793**STATEMENTS
                  OF COMPREHENSIVE INCOME****NET
                  INCOME**
              
              $
              45,613
              
              
              $
              59,209
              
              
              $
              99,648
              
              
              $
              123,039**OTHER
                  COMPREHENSIVE INCOME (LOSS):**Pension
                  and
                  other postretirment benefits
              
              
              (3,424
              )
              
              
              -
              
              
              
              (6,847
              )
              
              
              -Change
                  in
                  unrealized gain on available for sale securities
              
              
              5,099
              
              
              
              (4,063
              )
              
              
              4,973
              
              
              
              1,672Other
                  comprehensive income (loss)
              
              
              1,675
              
              
              
              (4,063
              )
              
              
              (1,874
              )
              
              
              1,672Income
                  tax
                  expense (benefit) related to othercomprehensive
                  income
              
              
              388
              
              
              
              (1,466
              )
              
              
              (1,115
              )
              
              
              603Other
                  comprehensive income (loss), net of tax
              
              
              1,287
              
              
              
              (2,597
              )
              
              
              (759
              )
              
              
              1,069**TOTAL
                  COMPREHENSIVE INCOME**
              
              $
              46,900
              
              
              $
              56,612
              
              
              $
              98,889
              
              
              $
              124,108The
                  preceding
                  Notes to Consolidated Financial Statements as they relate to Ohio
                  Edison
                  Company are an integral part of thesestatements.
   72
  **OHIO
                      EDISON COMPANY****CONSOLIDATED
                      BALANCE SHEETS****(Unaudited)****June
                      30,**
                  
                  
                  **December
                      31,****2007**
                  
                  
                  **2006*****(In
                      thousands)*****ASSETS****CURRENT
                      ASSETS:**Cash
                      and cash
                      equivalents
                  
                  $
                  899
                  
                  
                  $
                  712Receivables-Customers
                      (less accumulated provisions of $8,990,000 and
                      $15,033,000,respectively,
                      for uncollectible accounts)
                  
                  
                  263,316
                  
                  
                  
                  234,781Associated
                      companies
                  
                  
                  173,200
                  
                  
                  
                  141,084Other
                      (less
                      accumulated provisions of $5,090,000 and $1,985,000,respectively,
                      for uncollectible accounts)
                  
                  
                  13,380
                  
                  
                  
                  13,496Notes
                      receivable from associated companies
                  
                  
                  367,971
                  
                  
                  
                  458,647Prepayments
                      and other
                  
                  
                  20,482
                  
                  
                  
                  13,606839,248
                  
                  
                  
                  862,326**UTILITY
                      PLANT:**In
                      service
                  
                  
                  2,690,282
                  
                  
                  
                  2,632,207Less
                      -
                      Accumulated provision for depreciation
                  
                  
                  1,043,183
                  
                  
                  
                  1,021,9181,647,099
                  
                  
                  
                  1,610,289Construction
                      work in progress
                  
                  
                  37,019
                  
                  
                  
                  42,0161,684,118
                  
                  
                  
                  1,652,305**OTHER
                      PROPERTY AND INVESTMENTS:**Long-term
                      notes receivable from associated companies
                  
                  
                  639,227
                  
                  
                  
                  1,219,325Investment
                      in
                      lease obligation bonds
                  
                  
                  274,248
                  
                  
                  
                  291,393Nuclear
                      plant
                      decommissioning trusts
                  
                  
                  125,906
                  
                  
                  
                  118,209Other
                  
                  
                  37,970
                  
                  
                  
                  38,1601,077,351
                  
                  
                  
                  1,667,087**DEFERRED
                      CHARGES AND OTHER ASSETS:**Regulatory
                      assets
                  
                  
                  733,147
                  
                  
                  
                  741,564Pension
                      assets
                  
                  
                  100,682
                  
                  
                  
                  68,420Property
                      taxes
                  
                  
                  60,080
                  
                  
                  
                  60,080Unamortized
                      sale and leaseback costs
                  
                  
                  47,634
                  
                  
                  
                  50,136Other
                  
                  
                  53,914
                  
                  
                  
                  18,696995,457
                  
                  
                  
                  938,896$
                  4,596,174
                  
                  
                  $
                  5,120,614**LIABILITIES
                      AND CAPITALIZATION****CURRENT
                      LIABILITIES:**Currently
                      payable long-term debt
                  
                  $
                  335,812
                  
                  
                  $
                  159,852Short-term
                      borrowings-Associated
                      companies
                  
                  
                  -
                  
                  
                  
                  113,987Other
                  
                  
                  119,943
                  
                  
                  
                  3,097Accounts
                      payable-Associated
                      companies
                  
                  
                  120,493
                  
                  
                  
                  115,252Other
                  
                  
                  17,907
                  
                  
                  
                  13,068Accrued
                      taxes
                  
                  
                  94,615
                  
                  
                  
                  187,306Accrued
                      interest
                  
                  
                  23,406
                  
                  
                  
                  24,712Other
                  
                  
                  61,611
                  
                  
                  
                  64,519773,787
                  
                  
                  
                  681,793**CAPITALIZATION:**Common
                      stockholder's equity-Common
                      stock,
                      without par value, authorized 175,000,000 shares -60
                      and 80
                      shares outstanding, respectively
                  
                  
                  1,208,498
                  
                  
                  
                  1,708,441Accumulated
                      other comprehensive income
                  
                  
                  2,449
                  
                  
                  
                  3,208Retained
                      earnings
                  
                  
                  309,656
                  
                  
                  
                  260,736Total
                      common
                      stockholder's equity
                  
                  
                  1,520,603
                  
                  
                  
                  1,972,385Long-term
                      debt
                      and other long-term obligations
                  
                  
                  937,676
                  
                  
                  
                  1,118,5762,458,279
                  
                  
                  
                  3,090,961**NONCURRENT
                      LIABILITIES:**Accumulated
                      deferred income taxes
                  
                  
                  717,373
                  
                  
                  
                  674,288Accumulated
                      deferred investment tax credits
                  
                  
                  18,748
                  
                  
                  
                  20,532Asset
                      retirement obligations
                  
                  
                  90,801
                  
                  
                  
                  88,223Retirement
                      benefits
                  
                  
                  162,078
                  
                  
                  
                  167,379Deferred
                      revenues - electric service programs
                  
                  
                  67,566
                  
                  
                  
                  86,710Other
                  
                  
                  307,542
                  
                  
                  
                  310,7281,364,108
                  
                  
                  
                  1,347,860**COMMITMENTS
                      AND CONTINGENCIES (Note 9)**$
                  4,596,174
                  
                  
                  $
                  5,120,614The
                      preceding
                      Notes to Consolidated Financial Statements as they relate to
                      Ohio Edison
                      Company are an integral part ofthese
                      balance
                      sheets.
 
 73
  
 **OHIO
                      EDISON COMPANY****CONSOLIDATED
                      STATEMENTS OF CASH FLOWS****(Unaudited)****Six
                      Months Ended****June
                      30,****2007**
                  
                  
                  **2006*****(In
                      thousands)*****CASH
                      FLOWS FROM OPERATING ACTIVITIES:**Net
                      income
                  
                  $
                  99,648
                  
                  
                  $
                  123,039Adjustments
                      to
                      reconcile net income to net cash from operating
                      activities-Provision
                      for
                      depreciation
                  
                  
                  37,958
                  
                  
                  
                  35,563Amortization
                      of regulatory assets
                  
                  
                  91,543
                  
                  
                  
                  97,305Deferral
                      of
                      new regulatory assets
                  
                  
                  (90,993
                  )
                  
                  
                  (78,323
                  )Amortization
                      of lease costs
                  
                  
                  (4,367
                  )
                  
                  
                  (4,334
                  )Deferred
                      income taxes and investment tax credits, net
                  
                  
                  3,017
                  
                  
                  
                  (17,351
                  )Accrued
                      compensation and retirement benefits
                  
                  
                  (25,829
                  )
                  
                  
                  930Pension
                      trust
                      contribution
                  
                  
                  (20,261
                  )
                  
                  
                  -Decrease
                      (increase) in operating assets-Receivables
                  
                  
                  (60,535
                  )
                  
                  
                  66,215Prepayments
                      and other current assets
                  
                  
                  (3,162
                  )
                  
                  
                  (7,913
                  )Increase
                      (decrease) in operating liabilities-Accounts
                      payable
                  
                  
                  10,080
                  
                  
                  
                  (45,894
                  )Accrued
                      taxes
                  
                  
                  (87,969
                  )
                  
                  
                  9,378Accrued
                      interest
                  
                  
                  (1,306
                  )
                  
                  
                  (1,183
                  )Electric
                      service prepayment programs
                  
                  
                  (19,144
                  )
                  
                  
                  (16,838
                  )Other
                  
                  
                  2,854
                  
                  
                  
                  (8,051
                  )Net
                      cash
                      provided from (used for) operating activities
                  
                  
                  (68,466
                  )
                  
                  
                  152,543**CASH
                      FLOWS FROM FINANCING ACTIVITIES:**New
                      Financing-Long-term
                      debt
                  
                  
                  -
                  
                  
                  
                  599,778Short-term
                      borrowings, net
                  
                  
                  2,859
                  
                  
                  
                  -Redemptions
                      and Repayments-Common
                      stock
                  
                  
                  (500,000
                  )
                  
                  
                  -Long-term
                      debt
                  
                  
                  (1,181
                  )
                  
                  
                  (145,316
                  )Short-term
                      borrowings, net
                  
                  
                  -
                  
                  
                  
                  (176,708
                  )Dividend
                      Payments-Common
                      stock
                  
                  
                  (50,000
                  )
                  
                  
                  (35,000
                  )Preferred
                      stock
                  
                  
                  -
                  
                  
                  
                  (1,317
                  )Net
                      cash
                      provided from (used for) financing activities
                  
                  
                  (548,322
                  )
                  
                  
                  241,437**CASH
                      FLOWS FROM INVESTING ACTIVITIES:**Property
                      additions
                  
                  
                  (66,607
                  )
                  
                  
                  (63,294
                  )Sales
                      of
                      investment securities held in trusts
                  
                  
                  22,225
                  
                  
                  
                  29,168Purchases
                      of
                      investment securities held in trusts
                  
                  
                  (24,187
                  )
                  
                  
                  (29,860
                  )Loan
                      repayments from associated companies, net
                  
                  
                  670,774
                  
                  
                  
                  112,840Cash
                      investments
                  
                  
                  -
                  
                  
                  
                  78,248Other
                  
                  
                  14,770
                  
                  
                  
                  23,281Net
                      cash
                      provided from investing activities
                  
                  
                  616,975
                  
                  
                  
                  150,383Net
                      increase
                      in cash and cash equivalents
                  
                  
                  187
                  
                  
                  
                  544,363Cash
                      and cash
                      equivalents at beginning of period
                  
                  
                  712
                  
                  
                  
                  929Cash
                      and cash
                      equivalents at end of period
                  
                  $
                  899
                  
                  
                  $
                  545,292The
                      preceding
                      Notes to Consolidated Financial Statements as they relate to
                      Ohio Edison
                      Company are an integral partof
                      these
                      statements.
 
 74
 ***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 June 30, 2007 and the related consolidated statements
              of
              income and comprehensive income for each of the three-month and six-month
              periods ended June 30, 2007 and 2006 and the consolidated statement
              of cash
              flows for the six-month periods ended June 30, 2007 and 2006.  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, 2006, and the related consolidated statements of income, capitalization,
              common stockholder’s equity, preferred stock, cash flows and taxes for the year
              then ended (not presented herein), and in our report (which contained
              references
              to the Company’s change in its method of accounting for defined benefit pension
              and other postretirement benefit plans as of December 31, 2006,  and
              conditional asset retirement obligations as of December 31, 2005 as
              discussed in
              Note 3, Note 2(G) and Note 11 to the consolidated financial statements)
              dated February 27, 2007, 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, 2006, is fairly stated in all material respects in relation
              to the
              consolidated balance sheet from which it has been derived.
 
 
 
 
 PricewaterhouseCoopers
              LLP
 Cleveland,
              Ohio
 August
              6,
              2007
 
 
  75
  **OHIO
              EDISON
              COMPANY**
 
 **MANAGEMENT’S
              DISCUSSION AND ANALYSIS OF**
 **FINANCIAL
              CONDITION AND RESULTS OF
              OPERATIONS**
 
 
 OE
              is a wholly owned
              electric utility subsidiary of FirstEnergy. OE and its wholly owned
              subsidiary,
              Penn, conduct business in portions of Ohio and Pennsylvania, providing
              regulated
              electric distribution services. OE also provides generation services
              to those
              customers electing to retain OE as their power supplier. OE’s power supply
              requirements are provided by FES – an affiliated company.
 
 **Results
              of Operations**
 
 Earnings
              on common
              stock in the second quarter of 2007 decreased to $46 million from $56
              million in
              the second quarter of 2006. In the first six months of 2007, earnings
              on common
              stock decreased to $100 million from $119 million in the same period
              of 2006. The decrease in earnings in both periods primarily resulted
              from higher
              purchased power costs and lower other income, partially offset by higher
              electric sales revenues and the deferral of new regulatory assets.
 
 *Revenues*
 
 Revenues
              increased
              by $24 million or 4.1% in the second quarter of 2007 compared with
              the same
              period in 2006, primarily due to higher retail generation revenues
              of $15
              million and wholesale generation revenues of $5 million.
 
 Higher
              retail
              generation revenues from residential customers reflected increased
              sales volume
              and the impact of higher average unit prices. Weather conditions in
              the second
              quarter of 2007 compared to the same period in 2006 contributed to
              the higher
              KWH sales to residential customers (heating degree days increased 7.0%
              and 8.5%
              and cooling degree days increased by 74.5% and 83.8% in OE’s and Penn’s service
              territories, respectively). Commercial retail generation revenues increased
              primarily due to higher average unit prices, partially offset by reduced
              KWH
              sales. Average prices increased due to the higher generation prices
              that went
              into effect in January 2007 under Penn’s competitive RFP process. Retail
              generation revenues from the industrial sector decreased primarily
              due to an
              increase in customer shopping in the second quarter of 2007 as compared
              to the
              same period in 2006. The percentage of shopping customers increased
              to 27.6
              percent during the second quarter of 2007 from 15.2 percent in the
              second
              quarter of 2006.
 
 Revenues
              increased
              by $63 million or 5.4% in the first six months of 2007 compared with
              the same
              period in 2006, primarily due to higher retail generation revenues
              of $63
              million and wholesale generation revenues of $2 million, partially
              offset by
              decreases in revenues from distribution throughput of $13 million.
 
 Retail
              generation
              revenues increased for residential and commercial customers due to
              the higher
              prices and increased sales volume. Weather conditions in the first
              six months of
              2007 compared to the same period in 2006 contributed to the higher
              KWH sales to
              residential and commercial customers (heating degree days increased
              13.9% and
              10.7% in OE’s and Penn’s service territories, respectively). Retail generation
              revenues from the industrial sector decreased primarily due to an increase
              in
              customer shopping in the first six months of 2007 as compared to the
              same period
              in 2006. The percentage of shopping customers increased to 26.9 percent
              in the
              first six months of 2007 from 15.9 percent in the first six months
              of
              2006.
 
 Changes
              in retail
              electric generation KWH sales and revenues in the second quarter and
              first six
              months of 2007 from the corresponding periods of 2006 are summarized
              in the
              following tables:
 
 **Retail
                        Generation KWH Sales**
                    
                    **Three
                        Months**
                    
                    **Six
                        Months****Increase
                        (Decrease)**Residential
                    
                    
                    9.0
                    %
                    
                    10.8
                    %Commercial
                    
                    
                    (1.3
                    )%
                    
                    0.7
                    %Industrial
                    
                    
                    (16.8
                    )%
                    
                    (14.9
                    )%**Net
                        Decrease in Generation Sales**
                    
                    
                    **(4.3**
                    **)%**
                    
                    **(1.7**
                    **)%**
 
 **Retail
                        Generation Revenues**
                    
                    **Three
                        Months**
                    
                    **Six
                        Months****Increase
                        (Decrease)**
                    
                    ***(In
                        millions)***Residential
                    
                    $
                    24
                    
                    $
                    61Commercial
                    
                    
                    6
                    
                    
                    22Industrial
                    
                    
                    (15
                    )
                    
                    (20
                    )**Net
                        Increase in Generation Revenues**
                    
                    **$**
                    **15**
                    
                    **$**
                    **63**
 
  76
  
 Increased
              revenues
              from distribution throughput to residential customers reflected the
              impact of
              weather conditions described above in the second quarter and first
              six months of
              2007 as compared to the same periods in 2006, partially offset by lower
              composite unit prices. Reduced revenues from distribution throughput
              to
              commercial customers in the second quarter and first six months of
              2007 resulted
              from lower unit prices, partially offset by increased KWH deliveries.
              Revenues
              from distribution throughput to industrial customers decreased in the
              second
              quarter and first six months of 2007 as a result of lower unit prices
              and
              reduced KWH deliveries.
 
 Changes
              in
              distribution KWH deliveries and revenues in the second quarter and
              first six
              months of 2007 from the corresponding periods of 2006 are summarized
              in the
              following tables.
 
 **Changes
                        in Distribution KWH Deliveries**
                    
                    **Three
                        Months**
                    
                    **Six
                        Months****Increase
                        (Decrease)**Residential
                    
                    
                    7.5
                    %
                    
                    8.7
                    %Commercial
                    
                    
                    4.7
                    %
                    
                    4.6
                    %Industrial
                    
                    
                    (2.5
                    )%
                    
                    (2.0
                    )%**Net
                        Increase in Distribution Deliveries**
                    
                    
                    **2.7**
                    **%**
                    
                    **3.5**
                    **%**
 
 **Changes
                        in Distribution Revenues**
                    
                    **Three
                        Months**
                    
                    **Six
                        Months****Increase
                        (Decrease)**
                    
                    ***(In
                        millions)***Residential
                    
                    $
                    4
                    
                    $
                    3Commercial
                    
                    
                    (1
                    )
                    
                    (5
                    )Industrial
                    
                    
                    (3
                    )
                    
                    (11
                    )**Changes
                        in Distribution Revenues**
                    
                    **$**
                    **-**
                    
                    **$**
                    **(13**
                    **)**
 
 *Expenses*
 
 Total
              expenses
              increased by $32 million in the second quarter of 2007 and $93 million
              in the
              first six months of 2007 from the same periods of 2006. The following
              table
              presents changes from the prior year by expense category.
 
 **Expenses
                        – Changes**
                    
                    **Three
                        Months**
                    
                    **Six
                        Months****Increase
                        (Decrease)**
                    
                    ***(In
                        millions)***Purchased
                        power costs
                    
                    $
                    30
                    
                    $
                    97Nuclear
                        operating costs
                    
                    
                    4
                    
                    
                    4Other
                        operating costs
                    
                    
                    5
                    
                    
                    3Provision
                        for
                        depreciation
                    
                    
                    1
                    
                    
                    2Amortization
                        of regulatory assets
                    
                    
                    3
                    
                    
                    (5
                    )Deferral
                        of
                        new regulatory assets
                    
                    
                    (12
                    )
                    
                    (13
                    )General
                        taxes
                    
                    
                    1
                    
                    
                    5**Net
                        Increase in Expenses**
                    
                    **$**
                    **32**
                    
                    **$**
                    **93**
 
 Higher
              purchased
              power costs in the second quarter and first six months of 2007 primarily
              reflected higher unit prices under Penn’s competitive RFP process and OE’s PSA
              with FES. The increase in nuclear operating costs during the second
              quarter and
              first six months of 2007 was due to expenses related to the second
              quarter 2007
              nuclear refueling outage at the Perry Plant. The increase in other
              operating
              costs during the second quarter of 2007 was primarily due to higher
              transmission
              expenses related to MISO operations, partially offset by lower employee
              benefit
              expenses. Lower amortization of regulatory assets for the first six
              months of
              2007 was due to the completion of the generation-related transition
              cost
              amortization under OE’s and Penn’s respective transition plans at the end of
              January 2006. The decreases in expense related to the deferral of new
              regulatory
              assets for the second quarter of 2007 and first six months of 2007
              were
              primarily due to increases in MISO cost deferrals and related interest.
              General
              taxes were higher in the first six months of 2007 as compared to the
              same period
              last year as a result of higher real and personal property taxes and
              KWH excise
              taxes.
 
 *Other
              Income*
 
 Other
              income
              decreased $13 million in the second quarter of 2007 and $22 million
              in the first
              six months of 2007 as compared with the same periods of 2006, primarily due
              to reductions in interest income on notes receivable resulting from
              principal
              payments from associated companies. Higher interest expense in the
              second
              quarter and first six months of 2007 also contributed to the decrease
              in other
              income in both periods of 2007 and was largely due to OE’s issuance of $600
              million of long-term debt in June 2006, partially offset by debt redemptions
              that have occurred since the second quarter of 2006.
  77
  
 *Income
              Taxes*
 
 In
              the first six
              months of 2007, OE’s income taxes included a $7.2 million adjustment
              related to an inter-company federal tax allocation arrangement between
              FirstEnergy and its subsidiaries.
 
 **Capital
              Resources and Liquidity**
 
 During
              2007, OE
              expects to meet its contractual obligations primarily with cash from
              operations
              and short-term credit arrangements. Borrowing capacity under OE’s credit
              facilities is available to manage its working capital requirements.
 
 *Changes
              in Cash Position*
 
 OE
              had $899,000 of
              cash and cash equivalents as of June 30, 2007 compared with $712,000
              as of
              December 31, 2006. The major sources for changes in these balances are
              summarized below.
 
 *Cash
              Flows From Operating
              Activities*
 
 Net
              cash provided from operating activities in the first six months
              of 2007 and 2006 were as follows:
 
 **Six
                        Months Ended**
                      **June
                        30,****Operating
                          Cash Flows**
                    
                    **2007**
                    
                    **2006*****(In
                        millions)***Net
                          income
                    
                    $
                    100
                    
                    $
                    123Non-cash
                          charges (credits)
                    
                    
                    (7
                    )
                    
                    18Pension
                          trust
                          contribution
                    
                    
                    (20
                    )
                    
                    -Working
                          capital and other
                    
                    
                    (141
                    )
                    
                    12Net
                          cash
                          provided from (used for) operating activities
                    
                    $
                    (68
                    )
                    $
                    153
 
 The
              changes in net
              income and non-cash charges are described above under “Results of Operations.”
The decrease from working capital changes primarily reflects changes
              in accounts
              receivable of $127 million and accrued taxes of $97 million, partially
              offset by
              changes in accounts payable of $56 million.
 
 *Cash
              Flows From Financing
              Activities*
 
 In
              the first six
              months of 2007, net cash used for financing activities was $548 million
              compared
              to $241 million provided from financing activities in the same period
              last year.
              This change primarily resulted from a $500 million repurchase of common
              stock
              from FirstEnergy, a $276 million net decrease in new financing activity
              and a
              $15 million increase in common stock dividends to FirstEnergy.
 
 OE
              had approximately
              $369 million of cash and temporary cash investments (which include
              short-term
              notes receivable from associated companies) and $120 million of short-term
              indebtedness as of June 30, 2007. OE has authorization from the PUCO
              to incur
              short-term debt of up to $500 million through bank facilities and the
              utility money pool. Penn has authorization from the FERC to incur short-term
              debt up to its charter limit of $39 million as of June 30, 2007, and
              also has
              access to bank facilities and the utility money pool.
 
 In
              February 2007,
              FES made a $562 million payment on its fossil generation asset transfer
              notes
              owed to OE and Penn. OE used $500 million of the proceeds to repurchase
              shares of its common stock from FirstEnergy.
 
 See
              the “Financing
              Capability” section within the Combined Management’s Discussion and Analysis of
              Registrant Subsidiaries for additional discussion of OE’s financing
              capabilities.
 
 *Cash
              Flows From Investing
              Activities*
 
 Net
              cash provided
              from investing activities increased $467 million in the first six months
              of 2007
              from the same period in 2006. The increase resulted primarily from
              a $558
              million increase in loan repayments from associated companies (including
              the
              $562 million payment from FES described above), partially offset by
              a $78
              million change in cash investments.
  78
  
 During
              the second
              half of 2007, OE’s capital spending is expected to be approximately $70 million.
              OE has additional requirements of approximately $3 million for maturing
              long-term debt during that period. These cash requirements are expected
              to be
              satisfied from a combination of cash from operations and short-term
              credit
              arrangements. OE’s capital spending for the period 2007-2011 is expected to be
              about $769 million, of which approximately $139 million applies to
              2007.
 
 **Off-Balance
              Sheet Arrangements**
 
 Obligations
              not
              included on OE’s Consolidated Balance Sheets primarily consist of sale and
              leaseback arrangements involving Perry Unit 1 and Beaver Valley Unit
              2. As of
              June 30, 2007, the present value of these operating lease commitments,
              net of
              trust investments, was $619 million.
 
 **Equity
              Price Risk**
 
 Included
              in OE’s
              nuclear decommissioning trust investments are marketable equity securities
              carried at their market value of approximately $82 million and $80
              million as of
              June 30, 2007 and December 31, 2006, respectively. A hypothetical 10%
              decrease in prices quoted by stock exchanges would result in an $8
              million
              reduction in fair value as of June 30, 2007.
 
 **Regulatory
              Matters**
 
 See
              the “Regulatory
              Matters” section within the Combined Management’s Discussion and Analysis of
              Registrant Subsidiaries for discussion of regulatory matters applicable
              to
              OE.
 
 **Environmental
              Matters**
 
 See
              the
“Environmental Matters” section within the Combined Management’s Discussion and
              Analysis of Registrant Subsidiaries for discussion of environmental
              matters
              applicable to OE.
 
 **Other
              Legal Proceedings**
 
 See
              the “Other Legal
              Proceedings” section within the Combined Management’s Discussion and Analysis of
              Registrant Subsidiaries for discussion of other legal proceedings applicable
              to
              OE.
 
 **New
              Accounting Standards and Interpretations**
 
 See
              the “New
              Accounting Standards and Interpretations” section within the Combined
              Management’s Discussion and Analysis of Registrant Subsidiaries for discussion
              of new accounting standards and interpretations applicable to OE.
 
 .
  79
   
 **THE
                        CLEVELAND ELECTRIC ILLUMINATING COMPANY****CONSOLIDATED
                        STATEMENTS OF INCOME AND COMPREHENSIVE INCOME****(Unaudited)****Three
                        Months Ended**
                    
                    
                    **Six
                        Months Ended****June
                        30,**
                    
                    
                    **June
                        30,****2007**
                    
                    
                    **2006**
                    
                    
                    **2007**
                    
                    
                    **2006*****(In
                        thousands)*****REVENUES:**Electric
                        sales
                    
                    $
                    433,014
                    
                    
                    $
                    416,690
                    
                    
                    $
                    855,819
                    
                    
                    $
                    807,189Excise
                        tax
                        collections
                    
                    
                    16,468
                    
                    
                    
                    15,681
                    
                    
                    
                    34,495
                    
                    
                    
                    32,992Total
                        revenues
                    
                    
                    449,482
                    
                    
                    
                    432,371
                    
                    
                    
                    890,314
                    
                    
                    
                    840,181**EXPENSES:**Fuel
                    
                    
                    14,332
                    
                    
                    
                    13,413
                    
                    
                    
                    27,523
                    
                    
                    
                    26,976Purchased
                        power
                    
                    
                    178,669
                    
                    
                    
                    157,941
                    
                    
                    
                    359,326
                    
                    
                    
                    301,711Other
                        operating costs
                    
                    
                    83,075
                    
                    
                    
                    68,436
                    
                    
                    
                    158,026
                    
                    
                    
                    141,331Provision
                        for
                        depreciation
                    
                    
                    18,713
                    
                    
                    
                    11,050
                    
                    
                    
                    37,181
                    
                    
                    
                    28,251Amortization
                        of regulatory assets
                    
                    
                    35,047
                    
                    
                    
                    29,476
                    
                    
                    
                    68,176
                    
                    
                    
                    61,006Deferral
                        of
                        new regulatory assets
                    
                    
                    (43,059
                    )
                    
                    
                    (31,697
                    )
                    
                    
                    (77,016
                    )
                    
                    
                    (62,223
                    )General
                        taxes
                    
                    
                    34,098
                    
                    
                    
                    31,510
                    
                    
                    
                    72,992
                    
                    
                    
                    66,580Total
                        expenses
                    
                    
                    320,875
                    
                    
                    
                    280,129
                    
                    
                    
                    646,208
                    
                    
                    
                    563,632**OPERATING
                        INCOME**
                    
                    
                    128,607
                    
                    
                    
                    152,242
                    
                    
                    
                    244,106
                    
                    
                    
                    276,549**OTHER
                        INCOME (EXPENSE):**Investment
                        income
                    
                    
                    16,324
                    
                    
                    
                    24,674
                    
                    
                    
                    34,011
                    
                    
                    
                    51,610Miscellaneous
                        income
                    
                    
                    3,226
                    
                    
                    
                    5,642
                    
                    
                    
                    3,957
                    
                    
                    
                    5,396Interest
                        expense
                    
                    
                    (37,267
                    )
                    
                    
                    (34,634
                    )
                    
                    
                    (73,007
                    )
                    
                    
                    (69,366
                    )Capitalized
                        interest
                    
                    
                    141
                    
                    
                    
                    837
                    
                    
                    
                    346
                    
                    
                    
                    1,510Total
                        other
                        expense
                    
                    
                    (17,576
                    )
                    
                    
                    (3,481
                    )
                    
                    
                    (34,693
                    )
                    
                    
                    (10,850
                    )**INCOME
                        BEFORE INCOME TAXES**
                    
                    
                    111,031
                    
                    
                    
                    148,761
                    
                    
                    
                    209,413
                    
                    
                    
                    265,699**INCOME
                        TAXES**
                    
                    
                    42,082
                    
                    
                    
                    57,709
                    
                    
                    
                    76,915
                    
                    
                    
                    102,234**NET
                        INCOME**
                    
                    
                    68,949
                    
                    
                    
                    91,052
                    
                    
                    
                    132,498
                    
                    
                    
                    163,465**OTHER
                        COMPREHENSIVE INCOME:**Pension
                        and
                        other postretirement benefits
                    
                    
                    1,203
                    
                    
                    
                    -
                    
                    
                    
                    2,405
                    
                    
                    
                    -Income
                        tax
                        expense related to other comprehensive income
                    
                    
                    357
                    
                    
                    
                    -
                    
                    
                    
                    712
                    
                    
                    
                    -Other
                        comprehensive income, net of tax
                    
                    
                    846
                    
                    
                    
                    -
                    
                    
                    
                    1,693
                    
                    
                    
                    -**TOTAL
                        COMPREHENSIVE INCOME**
                    
                    $
                    69,795
                    
                    
                    $
                    91,052
                    
                    
                    $
                    134,191
                    
                    
                    $
                    163,465The
                        preceding
                        Notes to Consolidated Financial Statements as they relate
                        to The Cleveland
                        Electric Illuminating Company are anintegral
                        part
                        of these statements.
 
 80
 
 **THE
                        CLEVELAND ELECTRIC ILLUMINATING COMPANY****CONSOLIDATED
                        BALANCE SHEETS****(Unaudited)****June
                        30,**
                    
                    
                    **December
                        31,****2007**
                    
                    
                    **2006*****(In
                        thousands)*****ASSETS****CURRENT
                        ASSETS:**Cash
                        and cash
                        equivalents
                    
                    $
                    236
                    
                    
                    $
                    221Receivables-Customers
                        (less accumulated provisions of $8,554,000 and $6,783,000respectively,
                        for uncollectible accounts)
                    
                    
                    290,711
                    
                    
                    
                    245,193Associated
                        companies
                    
                    
                    59,852
                    
                    
                    
                    249,735Other
                    
                    
                    12,775
                    
                    
                    
                    14,240Notes
                        receivable from associated companies
                    
                    
                    24,898
                    
                    
                    
                    27,191Prepayments
                        and other
                    
                    
                    2,002
                    
                    
                    
                    2,314390,474
                    
                    
                    
                    538,894**UTILITY
                        PLANT:**In
                        service
                    
                    
                    2,183,308
                    
                    
                    
                    2,136,766Less
                        -
                        Accumulated provision for depreciation
                    
                    
                    839,003
                    
                    
                    
                    819,6331,344,305
                    
                    
                    
                    1,317,133Construction
                        work in progress
                    
                    
                    46,543
                    
                    
                    
                    46,3851,390,848
                    
                    
                    
                    1,363,518**OTHER
                        PROPERTY AND INVESTMENTS:**Long-term
                        notes receivable from associated companies
                    
                    
                    353,293
                    
                    
                    
                    486,634Investment
                        in
                        lessor notes
                    
                    
                    463,436
                    
                    
                    
                    519,611Other
                    
                    
                    10,316
                    
                    
                    
                    13,426827,045
                    
                    
                    
                    1,019,671**DEFERRED
                        CHARGES AND OTHER ASSETS:**Goodwill
                    
                    
                    1,688,521
                    
                    
                    
                    1,688,521Regulatory
                        assets
                    
                    
                    862,758
                    
                    
                    
                    854,588Pension
                        assets
                    
                    
                    15,124
                    
                    
                    
                    -Property
                        taxes
                    
                    
                    65,000
                    
                    
                    
                    65,000Other
                    
                    
                    51,028
                    
                    
                    
                    33,3062,682,431
                    
                    
                    
                    2,641,415$
                    5,290,798
                    
                    
                    $
                    5,563,498**LIABILITIES
                        AND CAPITALIZATION****CURRENT
                        LIABILITIES:**Currently
                        payable long-term debt
                    
                    $
                    120,597
                    
                    
                    $
                    120,569Short-term
                        borrowings-Associated
                        companies
                    
                    
                    179,892
                    
                    
                    
                    218,134Accounts
                        payable-Associated
                        companies
                    
                    
                    71,407
                    
                    
                    
                    365,678Other
                    
                    
                    6,517
                    
                    
                    
                    7,194Accrued
                        taxes
                    
                    
                    88,277
                    
                    
                    
                    128,829Accrued
                        interest
                    
                    
                    22,150
                    
                    
                    
                    19,033Lease
                        market
                        valuation liability
                    
                    
                    58,750
                    
                    
                    
                    60,200Other
                    
                    
                    37,473
                    
                    
                    
                    52,101585,063
                    
                    
                    
                    971,738**CAPITALIZATION:**Common
                        stockholder's equity-Common
                        stock,
                        without par value, authorized 105,000,000 shares -67,930,743
                        shares outstanding
                    
                    
                    860,206
                    
                    
                    
                    860,133Accumulated
                        other comprehensive loss
                    
                    
                    (102,738
                    )
                    
                    
                    (104,431
                    )Retained
                        earnings
                    
                    
                    741,439
                    
                    
                    
                    713,201Total
                        common
                        stockholder's equity
                    
                    
                    1,498,907
                    
                    
                    
                    1,468,903Long-term
                        debt
                        and other long-term obligations
                    
                    
                    1,936,862
                    
                    
                    
                    1,805,8713,435,769
                    
                    
                    
                    3,274,774**NONCURRENT
                        LIABILITIES:**Accumulated
                        deferred income taxes
                    
                    
                    492,203
                    
                    
                    
                    470,707Accumulated
                        deferred investment tax credits
                    
                    
                    19,422
                    
                    
                    
                    20,277Lease
                        market
                        valuation liability
                    
                    
                    505,725
                    
                    
                    
                    547,800Retirement
                        benefits
                    
                    
                    110,329
                    
                    
                    
                    122,862Deferred
                        revenues - electric service programs
                    
                    
                    40,459
                    
                    
                    
                    51,588Other
                    
                    
                    101,828
                    
                    
                    
                    103,7521,269,966
                    
                    
                    
                    1,316,986**COMMITMENTS
                        AND CONTINGENCIES (Note 9)**$
                    5,290,798
                    
                    
                    $
                    5,563,498The
                        preceding
                        Notes to Consolidated Financial Statements as they relate
                        to The Cleveland
                        Electric Illuminating Companyare
                        an
                        integral part of these balance sheets.
 
 81
 
 **THE
                        CLEVELAND ELECTRIC ILLUMINATING COMPANY****CONSOLIDATED
                        STATEMENTS OF CASH FLOWS****(Unaudited)****Six
                        Months Ended****June
                        30,****2007**
                    
                    
                    **2006*****(In
                        thousands)*****CASH
                        FLOWS FROM OPERATING ACTIVITIES:**Net
                        income
                    
                    $
                    132,498
                    
                    
                    $
                    163,465Adjustments
                        to
                        reconcile net income to net cash from operating
                        activities-Provision
                        for
                        depreciation
                    
                    
                    37,181
                    
                    
                    
                    28,251Amortization
                        of regulatory assets
                    
                    
                    68,176
                    
                    
                    
                    61,006Deferral
                        of
                        new regulatory assets
                    
                    
                    (77,016
                    )
                    
                    
                    (62,223
                    )Nuclear
                        fuel
                        and capital lease amortization
                    
                    
                    116
                    
                    
                    
                    120Deferred
                        rents
                        and lease market valuation liability
                    
                    
                    (45,858
                    )
                    
                    
                    (55,043
                    )Deferred
                        income taxes and investment tax credits, net
                    
                    
                    (7,103
                    )
                    
                    
                    (4,745
                    )Accrued
                        compensation and retirement benefits
                    
                    
                    1,594
                    
                    
                    
                    1,584Pension
                        trust
                        contribution
                    
                    
                    (24,800
                    )
                    
                    
                    -Decrease
                        (increase) in operating assets-Receivables
                    
                    
                    156,526
                    
                    
                    
                    46,262Prepayments
                        and other current assets
                    
                    
                    163
                    
                    
                    
                    399Increase
                        (decrease) in operating liabilities-Accounts
                        payable
                    
                    
                    (308,551
                    )
                    
                    
                    (6,388
                    )Accrued
                        taxes
                    
                    
                    (40,119
                    )
                    
                    
                    (1,932
                    )Accrued
                        interest
                    
                    
                    3,117
                    
                    
                    
                    (76
                    )Electric
                        service prepayment programs
                    
                    
                    (11,129
                    )
                    
                    
                    (7,695
                    )Other
                    
                    
                    573
                    
                    
                    
                    (4,162
                    )Net
                        cash
                        provided from (used for) operating activities
                    
                    
                    (114,632
                    )
                    
                    
                    158,823**CASH
                        FLOWS FROM FINANCING ACTIVITIES:**New
                        Financing-Long-term
                        debt
                    
                    
                    247,426
                    
                    
                    
                    -Redemptions
                        and Repayments-Long-term
                        debt
                    
                    
                    (103,397
                    )
                    
                    
                    (118,152
                    )Short-term
                        borrowings, net
                    
                    
                    (52,894
                    )
                    
                    
                    (57,675
                    )Dividend
                        Payments-Common
                        stock
                    
                    
                    (104,000
                    )
                    
                    
                    (63,000
                    )Net
                        cash used
                        for financing activities
                    
                    
                    (12,865
                    )
                    
                    
                    (238,827
                    )**CASH
                        FLOWS FROM INVESTING ACTIVITIES:**Property
                        additions
                    
                    
                    (64,366
                    )
                    
                    
                    (65,551
                    )Loan
                        repayments from associated companies, net
                    
                    
                    2,292
                    
                    
                    
                    108,169Collection
                        of
                        principal on long-term notes receivable
                    
                    
                    133,341
                    
                    
                    
                    -Redemption
                        of
                        lessor notes
                    
                    
                    56,175
                    
                    
                    
                    44,551Other
                    
                    
                    70
                    
                    
                    
                    (7,155
                    )Net
                        cash
                        provided from investing activities
                    
                    
                    127,512
                    
                    
                    
                    80,014Net
                        increase
                        in cash and cash equivalents
                    
                    
                    15
                    
                    
                    
                    10Cash
                        and cash
                        equivalents at beginning of period
                    
                    
                    221
                    
                    
                    
                    207Cash
                        and cash
                        equivalents at end of period
                    
                    $
                    236
                    
                    
                    $
                    217The
                      preceeding
                      Notes to Consolidated Financial Statements as they relate to
                      The Cleveland
                      Electric Illuminating Companyare
                      an
                      integral part of these statements.
 
 82
 ***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 June 30, 2007 and the related
                consolidated
                statements of income and comprehensive income for each of the three-month
                and
                six-month periods ended June 30, 2007 and 2006 and the consolidated
                statement of
                cash flows for the six-month periods ended June 30, 2007 and
                2006.  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,
                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, 2006, and the related consolidated statements of income, capitalization,
                common stockholder’s equity, preferred stock, cash flows and taxes for the year
                then ended (not presented herein), and in our report (which contained
                references
                to the Company’s change in its method of accounting for defined benefit pension
                and other postretirement benefit plans as of December 31, 2006, and
                conditional
                asset retirement obligations as of December 31, 2005, as discussed
                in Note 3,
                Note 2(G) and Note 11 to those consolidated financial statements)
                dated February
                27, 2007, 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, 2006, is
                fairly stated in all material respects in relation to the consolidated
                balance
                sheet from which it has been derived.
 
 
 
 
 PricewaterhouseCoopers
                LLP
 Cleveland,
                Ohio
 August
                6,
                2007
  83
  
 **THE
                CLEVELAND ELECTRIC ILLUMINATING COMPANY**
 
 **MANAGEMENT’S
                DISCUSSION AND ANALYSIS OF**
 **FINANCIAL
                CONDITION AND RESULTS OF OPERATIONS**
 
 
 CEI
                is a wholly
                owned, electric utility subsidiary of FirstEnergy. CEI conducts business
                in
                northeastern Ohio, providing regulated electric distribution services.
                CEI also
                provides generation services to those customers electing to retain
                CEI as their
                power supplier. CEI’s power supply requirements are primarily provided by FES –
an affiliated company.
 
 **Results
                of Operations**
 
 Net
                income in the
                second quarter of 2007 decreased to $69 million from $91 million in the
                same period of 2006.  In the first six months of 2007, net income
                decreased to $132 million from $163 million in the same period of
                2006. The
                decrease in both periods resulted primarily from higher purchased
                power costs
                and other operating costs, partially offset by higher revenues and
                the deferral
                of new regulatory assets.
 
 *Revenues*
 
 Revenues
                increased
                by $17 million or 4% in the second quarter of 2007 from the same
                period of 2006
                primarily due to higher retail generation and distribution revenues. Retail
                generation revenues increased $11 million due to increased KWH sales
                in the
                residential and commercial sectors and higher composite unit prices
                in the
                commercial and industrial sectors. More extreme weather in the second
                quarter of
                2007 compared to the unseasonably mild weather in the same period
                in 2006
                contributed to the higher KWH sales for both residential and commercial
                customers (cooling degree days increased 82% and heating degree days
                were 10%
                higher in 2007).
 
 In
                the first six
                months of 2007, revenues increased by $50 million or 6% compared
                to the same
                period of 2006 primarily due to higher retail generation and wholesale
                revenues.  Retail generation revenues increased by $33 million due to
                increased KWH sales and higher composite unit prices in all
                classes.  The weather contributed to the increased KWH sales in the
                residential and commercial sectors (cooling degree days increased
                84% and
                heating degree days increased 16% from the same period in
                2006).  Increased industrial KWH sales reflected a slight decrease in
                customer shopping.
 
 Wholesale
                generation
                revenues increased by $1 million in the second quarter and $12 million
                in the
                first six months of 2007 compared to the corresponding periods of
                2006.  The increases in both periods were primarily due to higher unit
                prices for PSA sales to associated companies.  In the first six months
                of 2007 higher unit prices were partially offset by a decrease in
                sales volume
                due in part to maintenance outages at the Bruce Mansfield Plant in
                the first
                quarter of 2007. CEI sells KWH from its leasehold interests in the
                Bruce
                Mansfield Plant to FGCO.
 
 Increases
                in retail
                electric generation sales and revenues in the second quarter and
                the first six
                months of 2007 compared to the corresponding periods of 2006 are
                summarized in
                the following tables:
 
 **Retail
                        Generation KWH Sales**
                      
                      **Three
                          Months**
                      
                      **Six
                          Months**Residential
                      
                      
                      5.3
                      %
                      
                      6.8
                      %Commercial
                      
                      
                      6.6
                      %
                      
                      6.9
                      %Industrial
                      
                      
                      0.8
                      %
                      
                      2.0
                      %**Increase
                          in Retail Generation Sales**
                      
                      
                      **3.3**
                      **%**
                      
                      **4.5**
                      **%**
 
 **Retail
                          Generation Revenues**
                      
                      **Three
                          Months**
                      
                      **Six
                          Months*****(In
                          millions)***Residential
                      
                      $
                      2
                      
                      $
                      9Commercial
                      
                      
                      5
                      
                      
                      12Industrial
                      
                      
                      4
                      
                      
                      12**Increase
                          in Generation Revenues**
                      
                      **$**
                      **11**
                      
                      **$**
                      **33**
 
 
 Revenues
                from
                distribution throughput increased by $3 million in the second quarter
                and $1
                million in the first six months of 2007 compared to the same periods
                of 2006
                primarily due to increased residential and commercial KWH deliveries,
                offset by
                lower composite unit prices in all classes. Increased KWH deliveries
                were
                primarily a result of the more extreme weather in 2007 as described
                above.
  84
  
 Changes
                in
                distribution KWH deliveries and revenues in the second quarter and
                first six
                months of 2007 compared to the corresponding periods of 2006 are
                summarized in
                the following tables.
 
 **Increase
                          in Distribution KWH Deliveries**
                      
                      **Three
                          Months**
                      
                      **Six
                          Months**Residential
                      
                      
                      5.4
                      %
                      
                      6.9
                      %Commercial
                      
                      
                      4.6
                      %
                      
                      4.8
                      %Industrial
                      
                      
                      0.9
                      %
                      
                      1.5
                      %**Total
                          Increase in Distribution Deliveries**
                      
                      
                      **3.0**
                      **%**
                      
                      **3.8**
                      **%**
 
 **Change
                          in Distribution Revenues**
                      
                      **Three
                          Months**
                      
                      **Six
                          Months****Increase
                          (Decrease)**
                      
                      ***(In
                          millions)***Residential
                      
                      $
                      3
                      
                      $
                      5Commercial
                      
                      
                      2
                      
                      
                      3Industrial
                      
                      
                      (2
                      )
                      
                      (7
                      )Net
                          Increase
                          in Distribution Revenues
                      
                      **$**
                      **3**
                      
                      **$**
                      **1**
 
 
 *Expenses*
 
 Total
                expenses
                increased by $41 million in the second quarter and $83 million in
                the first six
                months of 2007 compared to the corresponding periods of 2006. The
                following
                table presents changes in each period from the prior year by expense
                category:
 
 **Expenses  -
                          Changes**
                      
                      **Three
                          Months**
                      
                      **Six
                          Months****Increase
                          (Decrease)**
                      
                      ***(In
                          millions)***Fuel
                          costs
                      
                      $
                      1
                      
                      $
                      1Purchased
                          power costs
                      
                      
                      21
                      
                      
                      58Other
                          operating costs
                      
                      
                      15
                      
                      
                      17Provision
                          for
                          depreciation
                      
                      
                      8
                      
                      
                      9Amortization
                          of regulatory assets
                      
                      
                      5
                      
                      
                      7Deferral
                          of
                          new regulatory assets
                      
                      
                      (11
                      )
                      
                      (15
                      )General
                          taxes
                      
                      
                      2
                      
                      
                      6**Net
                          Increase in Expenses**
                      
                      $
                      41
                      
                      $
                      83
 
 
 Higher
                purchased
                power costs in the second quarter and the first six months of 2007
                compared to
                the corresponding periods of 2006 primarily reflect higher unit prices
                associated with the PSA with FES and an increase in KWH purchases
                to meet CEI’s
                higher retail generation sales requirements. The higher other operating
                costs in
                the second quarter and the first six months of 2007 compared to the
                same periods
                of 2006 reflect an increase in MISO transmission related expenses. The
                difference between transmission revenues accrued and transmission
                costs incurred
                is deferred, resulting in no material impact to current period earnings.
                The
                increased depreciation in the second quarter of 2007 and the first
                six months of
                2007 is primarily due to the absence of credit adjustments in the
                second quarter
                of 2006 related to prior periods ($6.5 million pre-tax, $4 million
                net of
                tax).
 
 The
                increased
                amortization of regulatory assets in the second quarter and the first
                six months
                of 2007 compared to the corresponding periods of 2006 was due to
                increased
                transition cost amortization reflecting the higher KWH sales discussed
                above.  The increases in the deferral of new regulatory assets in the
                second quarter and the first six months of 2007 compared to the same
                periods of
                2006 reflect a higher level of MISO costs that were deferred in excess
                of
                transmission revenues and increased distribution cost deferrals under
                CEI’s
                RCP. General taxes were higher in the second quarter and the first six
                months of 2007 as a result of higher real and personal property taxes
                and KWH
                excise taxes.
 
 *Other
                Expense*
 
 Other
                expense
                increased by $14 million in the second quarter and $24 million in
                the first six
                months of 2007 compared to the corresponding periods of 2006 primarily
                due to
                lower investment income on associated company notes receivable in
                2007. CEI
                received principal repayments from FGCO and NGC subsequent to the
                second quarter
                of 2006 on notes receivable related to the generation asset transfers. In
                addition, there was a $6 million benefit recognized in the second
                quarter of
                2006 related to the sale of the Ashtabula C.
 
 **Capital
                Resources and Liquidity**
 
 During
                2007, CEI
                expects to meet its contractual obligations with cash from operations
                and
                short-term credit arrangements.
  85
  
 *Changes
                in Cash Position*
 
 As
                of June 30, 2007,
                CEI had $236,000 of cash and cash equivalents, compared with $221,000
                as of
                December 31, 2006. The major sources of changes in these balances are
                summarized below.
 
 *Cash
                Flows from Operating
                Activities*
 
 Cash
                used for
                operating activities during the first six months of 2007, compared
                with cash
                provided from operating activities for the first six months of 2006,
                were as
                follows:
 
 **Six
                          Months Ended**
                        **June
                            30,****Operating
                          Cash Flows**
                      
                      **2007**
                      
                      **2006*****(In
                            millions)***Net
                          Income
                      
                      **$**
                      132
                      
                      **$**
                      163Non-cash
                          credits
                      
                      
                      (34
                      )
                      
                      (38
                      )Pension
                          trust
                          contribution
                      
                      
                      (25
                      )
                      
                      -Working
                          capital and other
                      
                      
                      (188
                      )
                      
                      34Net
                          cash
                          provided from (used for) operating activities
                      
                      **$**
                      (115
                      )
                      **$**
                      159
 
 
 Net
                cash used for
                operating activities was $115 million in the first six months of
                2007 compared
                to $159 million provided from operating activities for the same period
                in
                2006.  The $274 million change was primarily due to a $25 million
                pension trust contribution in the first quarter of 2007 and a
                $222 million change in working capital and other. The change in
                working capital was due to changes in accounts payable of $302 million
                (primarily for the settlement of payables with associated companies)
                and accrued
                taxes of $38 million, partially offset by changes in accounts receivable
                of
                $110 million. The changes in net income and non–cash credits are described
                above under “Results of Operations.”
 
 *Cash
                Flows from Financing
                Activities*
 
 Net
                cash used for
                financing activities was $13 million in the first six months of 2007
                compared to
                $239 million in the same period of 2006. The change reflects $248
                million of new
                long-term debt financing and a $14 million decrease in repayments
                of long-term
                debt, partially offset by a $41 million increase in common stock
                dividend
                payments to FirstEnergy.
 
 CEI
                had $25 million
                of cash and temporary investments (which included short-term notes
                receivable
                from associated companies) and approximately $180 million of short-term
                indebtedness as of June 30, 2007. CEI has obtained authorization
                from the PUCO
                to incur short-term debt of up to $500 million through bank facilities and
                the utility money pool.
 
 On
                March 27,
                2007, CEI issued $250 million of 5.70% unsecured senior notes due 2017. The
                proceeds of the offering were used to reduce short-term borrowings
                and for
                general corporate purposes. On June 1, 2007 CEI redeemed $103 million
                of Trust C
                preferred securities.
 
 See
                the “Financing
                Capability” section within the Combined Management’s Discussion and Analysis of
                Registrant Subsidiaries for additional discussion of CEI’s financing
                capabilities.
 
 *Cash
                Flows from Investing
                Activities*
 
 Net
                cash provided
                from investing activities increased by $47 million in the first six
                months of
                2007 compared to the same period of 2006. The change was primarily
                due to the
                collection of principal on long-term notes receivable, partially
                offset by a
                decrease in loan repayments from associated companies.
 
 CEI’s
                capital
                spending for the last two quarters of 2007 is expected to be about
                $92 million. These cash requirements are expected to be satisfied with
                cash
                from operations and short-term credit arrangements. CEI’s capital spending for
                the period 2007-2011 is expected to be about $843 million, of which
                approximately $160 million applies to 2007.
  86
  
 **Off-Balance
                Sheet Arrangements**
 
 Obligations
                not
                included on CEI’s Consolidated Balance Sheet primarily consist of sale and
                leaseback arrangements involving the Bruce Mansfield Plant. As of
                June 30, 2007,
                the present value of these operating lease commitments, net of trust
                investments, total $82 million.
 
 **Regulatory
                Matters**
 
 See
                the “Regulatory
                Matters” section within the Combined Management’s Discussion and Analysis of
                Registrant Subsidiaries for discussion of regulatory matters applicable
                to
                CEI.
 
 **Environmental
                Matters**
 
 See
                the
“Environmental Matters” section within the Combined Management’s Discussion and
                Analysis of Registrant Subsidiaries for discussion of environmental
                matters
                applicable to CEI.
 
 **Other
                Legal Proceedings**
 
 See
                the “Other Legal
                Proceedings” section within the Combined Management’s Discussion and Analysis of
                Registrant Subsidiaries for discussion of other legal proceedings
                applicable to
                CEI.
 
 **New
                Accounting Standards and Interpretations**
 
 See
                the “New
                Accounting Standards and Interpretations” section within the Combined
                Management’s Discussion and Analysis of Registrant Subsidiaries for discussion
                of new accounting standards and interpretations applicable to CEI.
 
 
 
 
 
  87
   **THE
                          TOLEDO EDISON COMPANY****CONSOLIDATED
                          STATEMENTS OF INCOME AND COMPREHENSIVE INCOME****(Unaudited)****Three
                          Months Ended**
                      
                      
                      **Six
                          Months Ended****June
                          30,**
                      
                      
                      **June
                          30,****2007**
                      
                      
                      **2006**
                      
                      
                      **2007**
                      
                      
                      **2006****STATEMENTS
                          OF INCOME**
                      
                      ***(In
                          thousands)*****REVENUES:**Electric
                          sales
                      
                      $
                      233,637
                      
                      
                      $
                      219,139
                      
                      
                      $
                      466,693
                      
                      
                      $
                      430,013Excise
                          tax
                          collections
                      
                      
                      6,700
                      
                      
                      
                      6,459
                      
                      
                      
                      14,100
                      
                      
                      
                      13,562Total
                          revenues
                      
                      
                      240,337
                      
                      
                      
                      225,598
                      
                      
                      
                      480,793
                      
                      
                      
                      443,575**EXPENSES:**Fuel
                      
                      
                      10,461
                      
                      
                      
                      9,638
                      
                      
                      
                      20,608
                      
                      
                      
                      19,400Purchased
                          power
                      
                      
                      96,276
                      
                      
                      
                      80,659
                      
                      
                      
                      192,445
                      
                      
                      
                      156,079Nuclear
                          operating costs
                      
                      
                      17,846
                      
                      
                      
                      17,866
                      
                      
                      
                      35,567
                      
                      
                      
                      35,198Other
                          operating costs
                      
                      
                      46,164
                      
                      
                      
                      39,718
                      
                      
                      
                      89,085
                      
                      
                      
                      80,143Provision
                          for
                          depreciation
                      
                      
                      9,127
                      
                      
                      
                      8,240
                      
                      
                      
                      18,244
                      
                      
                      
                      16,337Amortization
                          of regulatory assets
                      
                      
                      24,948
                      
                      
                      
                      22,117
                      
                      
                      
                      48,824
                      
                      
                      
                      46,573Deferral
                          of
                          new regulatory assets
                      
                      
                      (18,247
                      )
                      
                      
                      (14,190
                      )
                      
                      
                      (31,728
                      )
                      
                      
                      (27,846
                      )General
                          taxes
                      
                      
                      13,000
                      
                      
                      
                      12,253
                      
                      
                      
                      26,734
                      
                      
                      
                      25,184Total
                          expenses
                      
                      
                      199,575
                      
                      
                      
                      176,301
                      
                      
                      
                      399,779
                      
                      
                      
                      351,068**OPERATING
                          INCOME**
                      
                      
                      40,762
                      
                      
                      
                      49,297
                      
                      
                      
                      81,014
                      
                      
                      
                      92,507**OTHER
                          INCOME (EXPENSE):**Investment
                          income
                      
                      
                      7,309
                      
                      
                      
                      8,945
                      
                      
                      
                      14,534
                      
                      
                      
                      18,725Miscellaneous
                          expense
                      
                      
                      (2,056
                      )
                      
                      
                      (1,926
                      )
                      
                      
                      (5,156
                      )
                      
                      
                      (4,610
                      )Interest
                          expense
                      
                      
                      (8,916
                      )
                      
                      
                      (4,364
                      )
                      
                      
                      (16,419
                      )
                      
                      
                      (8,674
                      )Capitalized
                          interest
                      
                      
                      164
                      
                      
                      
                      344
                      
                      
                      
                      247
                      
                      
                      
                      558Total
                          other
                          income (expense)
                      
                      
                      (3,499
                      )
                      
                      
                      2,999
                      
                      
                      
                      (6,794
                      )
                      
                      
                      5,999**INCOME
                          BEFORE INCOME TAXES**
                      
                      
                      37,263
                      
                      
                      
                      52,296
                      
                      
                      
                      74,220
                      
                      
                      
                      98,506**INCOME
                          TAXES**
                      
                      
                      15,392
                      
                      
                      
                      19,924
                      
                      
                      
                      26,489
                      
                      
                      
                      37,128**NET
                          INCOME**
                      
                      
                      21,871
                      
                      
                      
                      32,372
                      
                      
                      
                      47,731
                      
                      
                      
                      61,378**PREFERRED
                          STOCK DIVIDEND REQUIREMENTS**
                      
                      
                      -
                      
                      
                      
                      1,161
                      
                      
                      
                      -
                      
                      
                      
                      2,436**EARNINGS
                          ON COMMON STOCK**
                      
                      $
                      21,871
                      
                      
                      $
                      31,211
                      
                      
                      $
                      47,731
                      
                      
                      $
                      58,942**STATEMENTS
                          OF COMPREHENSIVE INCOME****NET
                          INCOME**
                      
                      $
                      21,871
                      
                      
                      $
                      32,372
                      
                      
                      $
                      47,731
                      
                      
                      $
                      61,378**OTHER
                          COMPREHENSIVE INCOME (LOSS):**Pension
                          and
                          other postretirement benefits
                      
                      
                      573
                      
                      
                      
                      -
                      
                      
                      
                      1,146
                      
                      
                      
                      -Change
                          in
                          unrealized gain on available for sale securities
                      
                      
                      (669
                      )
                      
                      
                      191
                      
                      
                      
                      (290
                      )
                      
                      
                      (947
                      )Other
                          comprehensive income (loss)
                      
                      
                      (96
                      )
                      
                      
                      191
                      
                      
                      
                      856
                      
                      
                      
                      (947
                      )Income
                          tax
                          expense (benefit) related to othercomprehensive
                          income
                      
                      
                      (43
                      )
                      
                      
                      69
                      
                      
                      
                      291
                      
                      
                      
                      (342
                      )Other
                          comprehensive income (loss), net of tax
                      
                      
                      (53
                      )
                      
                      
                      122
                      
                      
                      
                      565
                      
                      
                      
                      (605
                      )**TOTAL
                          COMPREHENSIVE INCOME**
                      
                      $
                      21,818
                      
                      
                      $
                      32,494
                      
                      
                      $
                      48,296
                      
                      
                      $
                      60,773The
                          preceding
                          Notes to Consolidated Financial Statements as they relate
                          to The Toledo
                          Edison Company are an integral part ofthese
                          statements.
  88
 
 **THE
                            TOLEDO EDISON COMPANY****CONSOLIDATED
                            BALANCE SHEETS****(Unaudited)****June
                            30,**
                        
                        
                        **December
                            31,****2007**
                        
                        
                        **2006*****(In
                            thousands)*****ASSETS****CURRENT
                            ASSETS:**Cash
                            and cash
                            equivalents
                        
                        $
                        22
                        
                        
                        $
                        22Receivables-Customers
                        
                        
                        1,081
                        
                        
                        
                        772Associated
                            companies
                        
                        
                        37,927
                        
                        
                        
                        13,940Other
                            (less accumulated provisions of $408,000 and $430,000,respectively,
                            for uncollectible accounts)
                        
                        
                        4,334
                        
                        
                        
                        3,831Notes
                            receivable from associated companies
                        
                        
                        120,101
                        
                        
                        
                        100,545Prepayments
                            and other
                        
                        
                        792
                        
                        
                        
                        851164,257
                        
                        
                        
                        119,961**UTILITY
                            PLANT:**In
                            service
                        
                        
                        907,710
                        
                        
                        
                        894,888Less
                            -
                            Accumulated provision for depreciation
                        
                        
                        403,634
                        
                        
                        
                        394,225504,076
                        
                        
                        
                        500,663Construction
                            work in progress
                        
                        
                        14,573
                        
                        
                        
                        16,479518,649
                        
                        
                        
                        517,142**OTHER
                            PROPERTY AND INVESTMENTS:**Investment
                            in
                            lessor notes
                        
                        
                        154,647
                        
                        
                        
                        169,493Long-term
                            notes receivable from associated companies
                        
                        
                        96,521
                        
                        
                        
                        128,858Nuclear
                            plant
                            decommissioning trusts
                        
                        
                        62,289
                        
                        
                        
                        61,094Other
                        
                        
                        1,808
                        
                        
                        
                        1,871315,265
                        
                        
                        
                        361,316**DEFERRED
                            CHARGES AND OTHER ASSETS:**Goodwill
                        
                        
                        500,576
                        
                        
                        
                        500,576Regulatory
                            assets
                        
                        
                        230,002
                        
                        
                        
                        247,595Pension
                            assets
                        
                        
                        5,379
                        
                        
                        
                        -Property
                            taxes
                        
                        
                        22,010
                        
                        
                        
                        22,010Other
                        
                        
                        45,194
                        
                        
                        
                        30,042803,161
                        
                        
                        
                        800,223$
                        1,801,332
                        
                        
                        $
                        1,798,642**LIABILITIES
                            AND CAPITALIZATION****CURRENT
                            LIABILITIES:**Currently
                            payable long-term debt
                        
                        $
                        30,000
                        
                        
                        $
                        30,000Accounts
                            payable-Associated
                            companies
                        
                        
                        36,974
                        
                        
                        
                        84,884Other
                        
                        
                        4,020
                        
                        
                        
                        4,021Notes
                            payable
                            to associated companies
                        
                        
                        242,253
                        
                        
                        
                        153,567Accrued
                            taxes
                        
                        
                        46,153
                        
                        
                        
                        47,318Lease
                            market
                            valuation liability
                        
                        
                        23,655
                        
                        
                        
                        24,600Other
                        
                        
                        18,755
                        
                        
                        
                        37,551401,810
                        
                        
                        
                        381,941**CAPITALIZATION:**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
                        
                        
                        166,801
                        
                        
                        
                        166,786Accumulated
                            other comprehensive loss
                        
                        
                        (36,239
                        )
                        
                        
                        (36,804
                        )Retained
                            earnings
                        
                        
                        212,071
                        
                        
                        
                        204,423Total
                            common
                            stockholder's equity
                        
                        
                        489,643
                        
                        
                        
                        481,415Long-term
                            debt
                        
                        
                        358,227
                        
                        
                        
                        358,281847,870
                        
                        
                        
                        839,696**NONCURRENT
                            LIABILITIES:**Accumulated
                            deferred income taxes
                        
                        
                        160,799
                        
                        
                        
                        161,024Accumulated
                            deferred investment tax credits
                        
                        
                        10,597
                        
                        
                        
                        11,014Lease
                            market
                            valuation liability
                        
                        
                        198,688
                        
                        
                        
                        218,800Retirement
                            benefits
                        
                        
                        76,270
                        
                        
                        
                        77,843Asset
                            retirement obligations
                        
                        
                        27,439
                        
                        
                        
                        26,543Deferred
                            revenues - electric service programs
                        
                        
                        18,212
                        
                        
                        
                        23,546Other
                        
                        
                        59,647
                        
                        
                        
                        58,235551,652
                        
                        
                        
                        577,005**COMMITMENTS
                            AND CONTINGENCIES (Note 9)**$
                        1,801,332
                        
                        
                        $
                        1,798,642The
                            preceding
                            Notes to Consolidated Financial Statements as they relate
                            to The Toledo
                            Edison Company arean
                            integral part of these balance sheets.
  89
 **THE
                            TOLEDO EDISON COMPANY****CONSOLIDATED
                            STATEMENTS OF CASH FLOWS****(Unaudited)****Six
                            Months Ended****June
                            30,****2007**
                        
                        
                        **2006*****(In
                            thousands)*****CASH
                            FLOWS FROM OPERATING ACTIVITIES:**Net
                            income
                        
                        $
                        47,731
                        
                        
                        $
                        61,378Adjustments
                            to
                            reconcile net income to net cash from operating
                            activities-Provision
                            for
                            depreciation
                        
                        
                        18,244
                        
                        
                        
                        16,337Amortization
                            of regulatory assets
                        
                        
                        48,824
                        
                        
                        
                        46,573Deferral
                            of
                            new regulatory assets
                        
                        
                        (31,728
                        )
                        
                        
                        (27,846
                        )Deferred
                            rents
                            and lease market valuation liability
                        
                        
                        (41,981
                        )
                        
                        
                        (45,843
                        )Deferred
                            income taxes and investment tax credits, net
                        
                        
                        (11,924
                        )
                        
                        
                        (13,322
                        )Accrued
                            compensation and retirement benefits
                        
                        
                        1,277
                        
                        
                        
                        1,268Pension
                            trust
                            contribution
                        
                        
                        (7,659
                        )
                        
                        
                        -Decrease
                            (increase) in operating assets-Receivables
                        
                        
                        (21,594
                        )
                        
                        
                        (18,257
                        )Prepayments
                            and other current assets
                        
                        
                        59
                        
                        
                        
                        (4,076
                        )Increase
                            (decrease) in operating liabilities-Accounts
                            payable
                        
                        
                        (56,784
                        )
                        
                        
                        (14,231
                        )Accrued
                            taxes
                        
                        
                        751
                        
                        
                        
                        3,748Accrued
                            interest
                        
                        
                        1
                        
                        
                        
                        (222
                        )Electric
                            service prepayment programs
                        
                        
                        (5,334
                        )
                        
                        
                        (4,454
                        )Other
                        
                        
                        1,093
                        
                        
                        
                        3,326Net
                            cash
                            provided from (used for) operating activities
                        
                        
                        (59,024
                        )
                        
                        
                        4,379**CASH
                            FLOWS FROM FINANCING ACTIVITIES:**New
                            Financing-Short-term
                            borrowings, net
                        
                        
                        88,686
                        
                        
                        
                        71,882Redemptions
                            and Repayments-Preferred
                            stock
                        
                        
                        -
                        
                        
                        
                        (30,000
                        )Long-term
                            debt
                        
                        
                        -
                        
                        
                        
                        (53,650
                        )Dividend
                            Payments-Common
                            stock
                        
                        
                        (40,000
                        )
                        
                        
                        (25,000
                        )Preferred
                            stock
                        
                        
                        -
                        
                        
                        
                        (2,436
                        )Net
                            cash
                            provided from (used for) financing activities
                        
                        
                        48,686
                        
                        
                        
                        (39,204
                        )**CASH
                            FLOWS FROM INVESTING ACTIVITIES:**Property
                            additions
                        
                        
                        (19,804
                        )
                        
                        
                        (29,361
                        )Loan
                            repayments from (loans to) associated companies, net
                        
                        
                        (19,546
                        )
                        
                        
                        2,611Collection
                            of
                            principal on long-term notes receivable
                        
                        
                        32,327
                        
                        
                        
                        53,766Redemption
                            of
                            lessor notes
                        
                        
                        14,846
                        
                        
                        
                        9,305Sales
                            of
                            investment securities held in trusts
                        
                        
                        32,499
                        
                        
                        
                        30,954Purchases
                            of
                            investment securities held in trusts
                        
                        
                        (32,796
                        )
                        
                        
                        (31,043
                        )Other
                        
                        
                        2,812
                        
                        
                        
                        (1,399
                        )Net
                            cash
                            provided from investing activities
                        
                        
                        10,338
                        
                        
                        
                        34,833Net
                            change in
                            cash and cash equivalents
                        
                        
                        -
                        
                        
                        
                        8Cash
                            and cash
                            equivalents at beginning of period
                        
                        
                        22
                        
                        
                        
                        15Cash
                            and cash
                            equivalents at end of period
                        
                        $
                        22
                        
                        
                        $
                        23The
                            preceding
                            Notes to Consolidated Financial Statements as they relate
                            to The Toledo
                            Edison Company are an integralpart
                            of these
                            statements.
  90
  
 
 ***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 June 30, 2007 and the related consolidated statements
                  of income
                  and comprehensive income for each of the three-month and six-month
                  periods ended
                  June 30, 2007 and 2006 and the consolidated statement of cash flows
                  for the
                  six-month periods ended June 30, 2007 and 2006.  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,
                  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, 2006, and the related consolidated statements of income, capitalization,
                  common stockholder’s equity, preferred stock, cash flows and taxes for the year
                  then ended (not presented herein), and in our report (which contained
                  references
                  to the Company’s change in its method of accounting for defined benefit pension
                  and other postretirement benefit plans as of December 31, 2006
                  as discussed in
                  Note 3 to those consolidated financial statements) dated February
                  27, 2007, 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, 2006, is
                  fairly stated in all material respects in relation to the consolidated
                  balance
                  sheet from which it has been derived.
 
 
 
 
 PricewaterhouseCoopers
                  LLP
 Cleveland,
                  Ohio
 August
                  6,
                  2007
 
 
  91
  
 **THE
                  TOLEDO
                  EDISON COMPANY**
 
 **MANAGEMENT’S
                  DISCUSSION AND ANALYSIS OF**
 **FINANCIAL
                  CONDITION AND RESULTS OF OPERATIONS**
 
 
 TE
                  is a wholly owned
                  electric utility subsidiary of FirstEnergy. TE conducts business
                  in northwestern
                  Ohio, providing regulated electric distribution services. TE also
                  provides
                  generation services to those customers electing to retain TE as
                  their power
                  supplier. TE’s power supply requirements are provided by FES – an affiliated
                  company.
 
 **Results
                  of Operations**
 
 Earnings
                  on common
                  stock in the second quarter of 2007 decreased to $22 million from
                  $31 million in
                  the second quarter of 2006. Earnings on common stock in the first
                  six months of
                  2007 decreased to $48 million from $59 million in the same period
                  of 2006. The
                  decreases in both periods resulted primarily from higher purchased
                  power and
                  other operating costs, partially offset by higher electric sales
                  revenues and
                  the deferral of new regulatory assets.
 
 *Revenues*
 
 Revenues
                  increased
                  $15 million or 6.5% in the second quarter of 2007 compared to the
                  same period of
                  2006 primarily due to higher retail and wholesale generation revenues.
                  Retail
                  generation revenues increased by $8 million in the second quarter
                  of 2007 due to
                  higher average prices and increased sales volume across all customer
                  classes.
                  Average prices increased primarily due to higher composite unit
                  prices for
                  retail generation shopping customers returning to TE. Generation
                  services
                  provided by alternative suppliers as a percentage of total sales
                  delivered in
                  TE’s franchise area decreased by 1 percentage point for residential customers
                  from the second quarter of 2006.  The increase in sales volume also
                  resulted from changes in weather in the second quarter of 2007
                  (heating and
                  cooling degree days increased 14.3% and 38.4%, respectively, from
                  the second
                  quarter of 2006).
 
 The
                  increase in
                  wholesale revenues ($2 million) resulted primarily from increased KWH sales
                  to associated companies, partially offset by lower unit prices.
                  TE sells KWH
                  from its leasehold interests in Beaver Valley Unit 2 and the Bruce
                  Mansfield
                  Plant to CEI and FGCO, respectively.
 
 Revenues
                  increased
                  $37 million or 8.4% in the first six months of 2007 compared to
                  the same period
                  of 2006 primarily due to higher retail generation revenues of $20
                  million,
                  higher wholesale generation revenues of $12 million and higher
                  transmission
                  revenues from non-associated companies of $2 million. Retail generation
                  revenues
                  increased for all customer sectors in the first six months of 2007
                  due to higher
                  average prices and increased sales volume as compared to the same
                  period of
                  2006. Average prices increased primarily due to higher composite
                  unit prices for
                  retail generation shopping customers returning to TE. Generation
                  services
                  provided by alternative suppliers as a percentage of total sales
                  delivered in
                  TE’s franchise area decreased by 3 percentage points and 1 percentage
                  point for
                  residential and commercial customers, respectively.  The increase in
                  sales volume also reflects weather impacts in the first six months
                  of 2007
                  (heating and cooling degree days increased 16.9% and 39.3%, respectively,
                  from
                  the same period of 2006).
 
 The
                  increase in
                  wholesale revenues resulted primarily from increased KWH sales
                  to associated
                  companies and higher unit prices.  Wholesale revenues from
                  non-associated companies decreased $2 million primarily due to
                  lower sales to
                  municipal customers.
 
 Increases
                  in
                  electric generation KWH sales and revenues in the second quarter
                  and first six
                  months of 2007 from the corresponding periods of 2006 are summarized
                  in the
                  following tables.
 
 **Increase
                            in Retail Generation KWH Sales**
                        
                        **Three
                            Months**
                        
                        **Six
                            Months**Residential
                        
                        
                        9.7
                        %
                        
                        11.9
                        %Commercial
                        
                        
                        3.7
                        %
                        
                        4.5
                        %Industrial
                        
                        
                        0.4
                        %
                        
                        0.6
                        %**Total
                            Retail Electric Generation Sales**
                        
                        
                        **2.9**
                        **%**
                        
                        **3.9**
                        **%**
 
 **Increase
                            in Retail Generation Revenues**
                        
                        **Three
                            Months**
                        
                        **Six
                            Months*****(In
                            millions)***Residential
                        
                        $
                        2
                        
                        $
                        7Commercial
                        
                        
                        2
                        
                        
                        4Industrial
                        
                        
                        4
                        
                        
                        9**Total
                            Retail Generation Revenues**
                        
                        **$**
                        **8**
                        
                        **$**
                        **20**
  92
  
 Revenues
                  from
                  distribution throughput increased by $4 million and $2 million
                  in the second
                  quarter and first six months of 2007, respectively, compared to
                  the respective
                  periods in 2006 due to higher KWH deliveries to all customer sectors,
                  partially
                  offset by lower composite unit prices. The higher KWH deliveries
                  to residential
                  and commercial customers in both the second quarter and first six
                  months of 2007
                  reflected the impact of weather variations described above in both
                  periods of
                  2007 compared to the respective periods in 2006.
 
 Changes
                  in
                  distribution KWH deliveries and revenues in the second quarter
                  and first six
                  months of 2007 from the corresponding periods of 2006 are summarized
                  in the
                  following tables.
 
 **Increase
                            in Distribution KWH Deliveries**
                        
                        **Three
                            Months**
                        
                        **Six
                            Months**Residential
                        
                        
                        8.6
                        %
                        
                        8.2
                        %Commercial
                        
                        
                        4.3
                        %
                        
                        3.5
                        %Industrial
                        
                        
                        0.7
                        %
                        
                        0.6
                        %**Total
                            Increase in Distribution Deliveries**
                        
                        
                        **3.2**
                        **%**
                        
                        **3.1**
                        **%**
 
 **Changes
                            in Distribution Revenues**
                        
                        **Three
                            Months**
                        
                        **Six
                            Months****Increase
                            (Decrease)**
                        
                        ***(In
                            millions)***Residential
                        
                        $
                        2
                        
                        $
                        4Commercial
                        
                        
                        2
                        
                        
                        2Industrial
                        
                        
                        -
                        
                        
                        (4
                        )**Net
                            Increase in Distribution Revenues**
                        
                        **$**
                        **4**
                        
                        **$**
                        **2**
 
 *Expenses*
 
 Total
                  expenses
                  increased by $23 million and $49 million in the second quarter and the
                  first six months of 2007, respectively, from the same periods of
                  2006. The
                  following table presents changes from the prior year by expense
                  category:
 
 **Expenses
                            – Changes**
                        
                        **Three
                            Months**
                        
                        **Six
                            Months****Increase
                            (Decrease)**
                        
                        ***(In
                            millions)***Fuel
                        
                        $
                        1
                        
                        $
                        1Purchased
                            power costs
                        
                        
                        15
                        
                        
                        36Other
                            operating costs
                        
                        
                        6
                        
                        
                        9Provision
                            for
                            depreciation
                        
                        
                        1
                        
                        
                        2Amortization
                            of regulatory assets
                        
                        
                        3
                        
                        
                        2Deferral
                            of
                            new regulatory assets
                        
                        
                        (4
                        )
                        
                        (3
                        )General
                            taxes
                        
                        
                        1
                        
                        
                        2**Net
                            increase in expenses**
                        
                        $
                        23
                        
                        $
                        49
 
 Higher
                  purchased
                  power costs in the second quarter of 2007 compared to the second
                  quarter of 2006
                  reflected higher unit prices associated with the PSA with FES and
                  an increase in
                  KWH purchases to meet the higher retail generation sales requirements.
                  Other
                  operating costs were higher due to a $7 million increase in MISO
                  network
                  transmission expense assessments in the second quarter of 2007.
                  Higher
                  amortization of regulatory assets reflected increased amortization
                  of transition
                  cost deferrals and MISO transmission deferrals. The change in the
                  deferral of
                  new regulatory assets was primarily due to $5 million of increased
                  deferrals for
                  MISO transmission expenses.  The difference between transmission
                  revenues accrued and transmission costs incurred is deferred, resulting
                  in no
                  material impact to current period earnings.
 
 Higher
                  purchased
                  power costs in the first six months of 2007 compared to the same
                  period of 2006
                  reflected higher unit prices associated with the PSA with FES and
                  an increase in
                  KWH purchases to meet the higher retail generation sales requirements.
                  Higher
                  amortization of regulatory assets reflected increased amortization
                  of transition
                  cost deferrals and MISO transmission deferrals.  The change in the
                  deferral of new regulatory assets was primarily due to increased
                  deferrals for
                  MISO transmission expenses and RCP reliability costs, partially
                  offset by lower
                  RCP fuel cost deferrals. Other operating costs were higher due
                  to an $8 million
                  increase in MISO network transmission expenses in the first six
                  months of 2007.
                  Depreciation expense was higher due to an increase in depreciable
                  property as a
                  result of plant additions. Higher general taxes primarily reflected
                  increased
                  property taxes and higher KWH excise taxes.
  93
  
 *Other
                  Expense*
 
 Other
                  expense
                  increased $6 million in the second quarter of 2007 and $13 million
                  in the first
                  six months of 2007 compared to the same periods of 2006 primarily
                  due to lower
                  investment income and higher interest expense. The decrease in
                  investment income
                  resulted primarily from the principal repayments since the second
                  quarter of
                  2006 on notes receivable from associated companies. The higher
                  interest expense
                  is principally associated with new long-term debt issued in November
                  2006.
 
 **Capital
                  Resources and Liquidity**
 
 During
                  2007, TE
                  expects to meet its contractual obligations primarily with cash
                  from operations
                  and short-term credit arrangements. Borrowing capacity under TE’s credit
                  facilities is available to manage its working capital requirements.
 
 *Changes
                  in Cash Position*
 
 There
                  was no change
                  as of June 30, 2007 from December 31, 2006 in TE’s cash and cash equivalents of
                  $22,000.
 
 *Cash
                  Flows From Operating
                  Activities*
 
 Net
                  cash provided
                  from (used for) operating activities in the first six months of
                  2007 and 2006
                  were as follows:
 
 **Six  Months
                            Ended**
                          **June
                            30,****Operating
                              Cash Flows**
                        
                        **2007**
                        
                        **2006*****(In
                            millions)***Net
                              income
                        
                        $
                        48
                        
                        $
                        61Non-cash
                              credits
                        
                        
                        (22
                        )
                        
                        (27
                        )Pension
                              trust
                              contribution
                        
                        
                        (8
                        )
                        
                        -Working
                              capital and other
                        
                        
                        (77
                        )
                        
                        (30
                        )Net
                              cash
                              provided from (used for)
                          operating
                              activities
                        
                        $
                        (59
                        )
                        $
                        4
 
 Net
                  cash used for
                  operating activities was $59 million in the first six months of
                  2007 compared to
                  net cash provided from operating activities of $4 million in the
                  same period of
                  2006. The change was the result of a $13 million decrease in net income, an
                  $8 million pension trust contribution in the first six months of
                  2007 and a $47
                  million decrease from changes in working capital and other, partially
                  offset by
                  a $5 million decrease in net non-cash credits. The change in net
                  income is
                  described above under “Results of Operations.”  The changes in working
                  capital and other are primarily due to increased cash outflows
                  for accounts
                  payable of $43 million.
 
 *Cash
                  Flows From Financing
                  Activities*
 
 Net
                  cash provided
                  from financing activities increased by $88 million in the first
                  six months of
                  2007 compared to the same period of 2006. The increase resulted
                  primarily from a
                  $17 million increase in short-term borrowings, a $30 million decrease in
                  preferred stock redemptions and a $54 million decrease in long-term
                  debt
                  redemptions, partially offset by a $15 million increase in common
                  stock
                  dividends to FirstEnergy in the first six months of 2007.
 
 TE
                  had $120 million
                  of cash and temporary investments (which included short-term notes
                  receivable
                  from associated companies) and $242 million of short-term indebtedness as
                  of June 30, 2007. TE has authorization from the PUCO to incur short-term
                  debt of
                  up to $500 million through bank facilities and the utility money
                  pool.
 
 See
                  the “Financing
                  Capability” section within the Combined Management’s Discussion and Analysis of
                  Registrant Subsidiaries for additional discussion of TE’s financing
                  capabilities.
 
 *Cash
                  Flows From Investing
                  Activities*
 
 Net
                  cash provided
                  from investing activities decreased by $24 million in the first
                  six months of
                  2007 compared to the same period of 2006. The change was primarily
                  due to a $44
                  million net decrease in loan repayments from associated companies,
                  partially
                  offset by a $10 million decrease in property additions and a $6 million
                  increase from the redemption of lessor notes.
  94
  
 TE’s
                  capital
                  spending for the last two quarters of 2007 is expected to be about
                  $38 million. TE has additional requirements of $30 million for maturing
                  long-term debt during the remainder of 2007. These cash requirements
                  are
                  expected to be satisfied primarily with cash from operations and
                  short-term
                  credit arrangements. TE’s capital spending for the period 2007-2011 is expected
                  to be nearly $322 million, of which approximately $61 million applies
                  to 2007.
 
 **Off-Balance
                  Sheet Arrangements**
 
 Obligations
                  not
                  included on TE’s Consolidated Balance Sheet primarily consist of sale and
                  leaseback arrangements involving the Bruce Mansfield Plant and
                  Beaver Valley
                  Unit 2. As of June 30, 2007, the present value of these operating
                  lease
                  commitments, net of trust investments, total $442 million.
 
 **Regulatory
                  Matters**
 
 See
                  the “Regulatory
                  Matters” section within the Combined Management’s Discussion and Analysis of
                  Registrant Subsidiaries for discussion of regulatory matters applicable
                  to
                  TE.
 
 **Environmental
                  Matters**
 
 See
                  the
“Environmental Matters” section within the Combined Management’s Discussion and
                  Analysis of Registrant Subsidiaries for discussion of environmental
                  matters
                  applicable to TE.
 
 **Other
                  Legal Proceedings**
 
 See
                  the “Other Legal
                  Proceedings” section within the Combined Management’s Discussion and Analysis of
                  Registrant Subsidiaries for discussion of other legal proceedings
                  applicable to
                  TE.
 
 **New
                  Accounting Standards and Interpretations**
 
 See
                  the “New
                  Accounting Standards and Interpretations” section within the Combined
                  Management’s Discussion and Analysis of Registrant Subsidiaries for discussion
                  of new accounting standards and interpretations applicable to TE.
 
  95
  
 **JERSEY
                            CENTRAL POWER & LIGHT COMPANY****CONSOLIDATED
                            STATEMENTS OF INCOME AND COMPREHENSIVE INCOME****(Unaudited)****Three
                            Months Ended**
                        
                        
                        **Six
                            Months Ended****June
                            30,**
                        
                        
                        **June
                            30,****2007**
                        
                        
                        **2006**
                        
                        
                        **2007**
                        
                        
                        **2006****STATEMENTS
                            OF INCOME**
                        
                        ***(In
                            thousands)*****REVENUES:**Electric
                            sales
                        
                        $
                        768,190
                        
                        
                        $
                        600,560
                        
                        
                        $
                        1,439,097
                        
                        
                        $
                        1,164,110Excise
                            tax
                            collections
                        
                        
                        11,845
                        
                        
                        
                        10,924
                        
                        
                        
                        24,681
                        
                        
                        
                        23,166Total
                            revenues
                        
                        
                        780,035
                        
                        
                        
                        611,484
                        
                        
                        
                        1,463,778
                        
                        
                        
                        1,187,276**EXPENSES:**Purchased
                            power
                        
                        
                        464,505
                        
                        
                        
                        343,045
                        
                        
                        
                        851,002
                        
                        
                        
                        658,755Other
                            operating costs
                        
                        
                        74,564
                        
                        
                        
                        72,105
                        
                        
                        
                        149,215
                        
                        
                        
                        155,133Provision
                            for
                            depreciation
                        
                        
                        21,319
                        
                        
                        
                        20,826
                        
                        
                        
                        41,835
                        
                        
                        
                        41,454Amortization
                            of regulatory assets
                        
                        
                        93,890
                        
                        
                        
                        65,526
                        
                        
                        
                        189,118
                        
                        
                        
                        132,271General
                            taxes
                        
                        
                        15,553
                        
                        
                        
                        14,272
                        
                        
                        
                        32,552
                        
                        
                        
                        30,504Total
                            expenses
                        
                        
                        669,831
                        
                        
                        
                        515,774
                        
                        
                        
                        1,263,722
                        
                        
                        
                        1,018,117**OPERATING
                            INCOME**
                        
                        
                        110,204
                        
                        
                        
                        95,710
                        
                        
                        
                        200,056
                        
                        
                        
                        169,159**OTHER
                            INCOME (EXPENSE):**Miscellaneous
                            income
                        
                        
                        3,238
                        
                        
                        
                        2,528
                        
                        
                        
                        6,299
                        
                        
                        
                        6,071Interest
                            expense
                        
                        
                        (24,494
                        )
                        
                        
                        (20,367
                        )
                        
                        
                        (46,910
                        )
                        
                        
                        (40,983
                        )Capitalized
                            interest
                        
                        
                        563
                        
                        
                        
                        1,037
                        
                        
                        
                        1,076
                        
                        
                        
                        1,929Total
                            other
                            expense
                        
                        
                        (20,693
                        )
                        
                        
                        (16,802
                        )
                        
                        
                        (39,535
                        )
                        
                        
                        (32,983
                        )**INCOME
                            BEFORE INCOME TAXES**
                        
                        
                        89,511
                        
                        
                        
                        78,908
                        
                        
                        
                        160,521
                        
                        
                        
                        136,176**INCOME
                            TAXES**
                        
                        
                        39,698
                        
                        
                        
                        38,632
                        
                        
                        
                        72,362
                        
                        
                        
                        62,190**NET
                            INCOME**
                        
                        
                        49,813
                        
                        
                        
                        40,276
                        
                        
                        
                        88,159
                        
                        
                        
                        73,986**PREFERRED
                            STOCK DIVIDEND REQUIREMENTS**
                        
                        
                        -
                        
                        
                        
                        125
                        
                        
                        
                        -
                        
                        
                        
                        250**EARNINGS
                            ON COMMON STOCK**
                        
                        $
                        49,813
                        
                        
                        $
                        40,151
                        
                        
                        $
                        88,159
                        
                        
                        $
                        73,736**STATEMENTS
                            OF COMPREHENSIVE INCOME****NET
                            INCOME**
                        
                        $
                        49,813
                        
                        
                        $
                        40,276
                        
                        
                        $
                        88,159
                        
                        
                        $
                        73,986**OTHER
                            COMPREHENSIVE INCOME (LOSS):**Pension
                            and
                            other postretirement benefits
                        
                        
                        (2,115
                        )
                        
                        
                        -
                        
                        
                        
                        (4,230
                        )
                        
                        
                        -Unrealized
                            gain on derivative hedges
                        
                        
                        69
                        
                        
                        
                        38
                        
                        
                        
                        166
                        
                        
                        
                        107Other
                            comprehensive income (loss)
                        
                        
                        (2,046
                        )
                        
                        
                        38
                        
                        
                        
                        (4,064
                        )
                        
                        
                        107Income
                            tax
                            expense (benefit) related to othercomprehensive
                            income
                        
                        
                        (995
                        )
                        
                        
                        15
                        
                        
                        
                        (1,979
                        )
                        
                        
                        43Other
                            comprehensive income (loss), net of tax
                        
                        
                        (1,051
                        )
                        
                        
                        23
                        
                        
                        
                        (2,085
                        )
                        
                        
                        64**TOTAL
                            COMPREHENSIVE INCOME**
                        
                        $
                        48,762
                        
                        
                        $
                        40,299
                        
                        
                        $
                        86,074
                        
                        
                        $
                        74,050The
                            preceding
                            Notes to Consolidated Financial Statements as they relate
                            to Jersey
                            Central Power & Light Company are an integralpart
                            of
                            these statements.
 
 96
  
 **JERSEY
                              CENTRAL POWER & LIGHT COMPANY****CONSOLIDATED
                              BALANCE SHEETS****(Unaudited)****June
                              30,**
                          
                          
                          **December
                              31,****2007**
                          
                          
                          **2006*****(In
                              thousands)*****ASSETS****CURRENT
                              ASSETS:**Cash
                              and cash
                              equivalents
                          
                          $
                          87
                          
                          
                          $
                          41Receivables-Customers
                              (less accumulated provisions of $4,042,000 and $3,524,000,respectively,
                              for uncollectible accounts)
                          
                          
                          378,940
                          
                          
                          
                          254,046Associated
                              companies
                          
                          
                          186
                          
                          
                          
                          11,574Other
                              (less
                              accumulated provisions of $701,000 and $204,000,respectively,
                              for uncollectible accounts)
                          
                          
                          64,010
                          
                          
                          
                          40,023Notes
                              receivable - associated companies
                          
                          
                          23,691
                          
                          
                          
                          24,456Materials
                              and
                              supplies, at average cost
                          
                          
                          1,953
                          
                          
                          
                          2,043Prepaid
                              taxes
                          
                          
                          122,391
                          
                          
                          
                          13,333Other
                          
                          
                          10,480
                          
                          
                          
                          18,076601,738
                          
                          
                          
                          363,592**UTILITY
                              PLANT:**In
                              service
                          
                          
                          4,074,918
                          
                          
                          
                          4,029,070Less
                              -
                              Accumulated provision for depreciation
                          
                          
                          1,484,602
                          
                          
                          
                          1,473,1592,590,316
                          
                          
                          
                          2,555,911Construction
                              work in progress
                          
                          
                          97,539
                          
                          
                          
                          78,7282,687,855
                          
                          
                          
                          2,634,639**OTHER
                              PROPERTY AND INVESTMENTS:**Nuclear
                              fuel
                              disposal trust
                          
                          
                          170,840
                          
                          
                          
                          171,045Nuclear
                              plant
                              decommissioning trusts
                          
                          
                          172,371
                          
                          
                          
                          164,108Other
                          
                          
                          2,065
                          
                          
                          
                          2,047345,276
                          
                          
                          
                          337,200**DEFERRED
                              CHARGES AND OTHER ASSETS:**Regulatory
                              assets
                          
                          
                          1,824,873
                          
                          
                          
                          2,152,332Goodwill
                          
                          
                          1,962,361
                          
                          
                          
                          1,962,361Pension
                              Assets
                          
                          
                          39,609
                          
                          
                          
                          14,660Other
                          
                          
                          15,724
                          
                          
                          
                          17,7813,842,567
                          
                          
                          
                          4,147,134$
                          7,477,436
                          
                          
                          $
                          7,482,565**LIABILITIES
                              AND CAPITALIZATION****CURRENT
                              LIABILITIES:**Currently
                              payable long-term debt
                          
                          $
                          39,082
                          
                          
                          $
                          32,683Short-term
                              borrowings-Associated
                              companies
                          
                          
                          263,809
                          
                          
                          
                          186,540Accounts
                              payable-Associated
                              companies
                          
                          
                          7,325
                          
                          
                          
                          80,426Other
                          
                          
                          229,023
                          
                          
                          
                          160,359Accrued
                              taxes
                          
                          
                          18,600
                          
                          
                          
                          1,451Accrued
                              interest
                          
                          
                          10,621
                          
                          
                          
                          14,458Cash
                              collateral from suppliers
                          
                          
                          8,505
                          
                          
                          
                          32,300Other
                          
                          
                          83,766
                          
                          
                          
                          96,150660,731
                          
                          
                          
                          604,367**CAPITALIZATION:**Common
                              stockholder's equity-Common
                              stock,
                              $10 par value, authorized 16,000,000 shares-14,421,637
                              and
                              15,009,335 shares outstanding, respectively
                          
                          
                          144,216
                          
                          
                          
                          150,093Other
                              paid-in
                              capital
                          
                          
                          2,789,235
                          
                          
                          
                          2,908,279Accumulated
                              other comprehensive loss
                          
                          
                          (46,339
                          )
                          
                          
                          (44,254
                          )Retained
                              earnings
                          
                          
                          218,545
                          
                          
                          
                          145,480Total
                              common
                              stockholder's equity
                          
                          
                          3,105,657
                          
                          
                          
                          3,159,598Long-term
                              debt
                              and other long-term obligations
                          
                          
                          1,575,430
                          
                          
                          
                          1,320,3414,681,087
                          
                          
                          
                          4,479,939**NONCURRENT
                              LIABILITIES:**Power
                              purchase
                              contract loss liability
                          
                          
                          877,297
                          
                          
                          
                          1,182,108Accumulated
                              deferred income taxes
                          
                          
                          780,004
                          
                          
                          
                          803,944Nuclear
                              fuel
                              disposal costs
                          
                          
                          188,205
                          
                          
                          
                          183,533Asset
                              retirement obligations
                          
                          
                          87,018
                          
                          
                          
                          84,446Other
                          
                          
                          203,094
                          
                          
                          
                          144,2282,135,618
                          
                          
                          
                          2,398,259**COMMITMENTS
                              AND CONTINGENCIES (Note 9)**$
                          7,477,436
                          
                          
                          $
                          7,482,565The
                              preceding
                              Notes to Consolidated Financial Statements as they
                              relate to Jersey
                              Central Power & Light Company are anintegral
                              part
                              of these balance sheets.
  97
 **JERSEY
                              CENTRAL POWER & LIGHT COMPANY****CONSOLIDATED
                              STATEMENTS OF CASH FLOWS****(Unaudited)****Six
                              Months Ended****June
                              30,****2007**
                          
                          
                          **2006*****(In
                              thousands)*****CASH
                              FLOWS FROM OPERATING ACTIVITIES:**Net
                              income
                          
                          $
                          88,159
                          
                          
                          $
                          73,986Adjustments
                              to
                              reconcile net income to net cash from operating activities
                              -Provision
                              for
                              depreciation
                          
                          
                          41,835
                          
                          
                          
                          41,454Amortization
                              of regulatory assets
                          
                          
                          189,118
                          
                          
                          
                          132,271Deferred
                              purchased power and other costs
                          
                          
                          (111,517
                          )
                          
                          
                          (134,759
                          )Deferred
                              income taxes and investment tax credits, net
                          
                          
                          (3,116
                          )
                          
                          
                          10,942Accrued
                              compensation and retirement benefits
                          
                          
                          (11,467
                          )
                          
                          
                          (3,436
                          )Cash
                              collateral returned to suppliers
                          
                          
                          (23,905
                          )
                          
                          
                          (108,791
                          )Pension
                              trust
                              contribution
                          
                          
                          (17,800
                          )
                          
                          
                          -Decrease
                              (increase) in operating assets-Receivables
                          
                          
                          (137,492
                          )
                          
                          
                          (24,074
                          )Materials
                              and
                              supplies
                          
                          
                          90
                          
                          
                          
                          91Prepaid
                              taxes
                          
                          
                          (109,058
                          )
                          
                          
                          (100,650
                          )Other
                              current
                              assets
                          
                          
                          2,540
                          
                          
                          
                          1,718Increase
                              (decrease) in operating liabilities-Accounts
                              payable
                          
                          
                          (4,438
                          )
                          
                          
                          23,589Accrued
                              taxes
                          
                          
                          27,515
                          
                          
                          
                          (9,062
                          )Accrued
                              interest
                          
                          
                          (3,837
                          )
                          
                          
                          362Tax
                              collections payable
                          
                          
                          (12,478
                          )
                          
                          
                          (10,322
                          )Other
                          
                          
                          (6,114
                          )
                          
                          
                          8,680Net
                              cash used
                              for operating activities
                          
                          
                          (91,965
                          )
                          
                          
                          (98,001
                          )**CASH
                              FLOWS FROM FINANCING ACTIVITIES:**New
                              Financing-Long-term
                              debt
                          
                          
                          550,000
                          
                          
                          
                          200,003Short-term
                              borrowings, net
                          
                          
                          77,269
                          
                          
                          
                          183,818Redemptions
                              and Repayments-Long-term
                              debt
                          
                          
                          (304,579
                          )
                          
                          
                          (157,659
                          )Common
                              Stock
                          
                          
                          (125,000
                          )
                          
                          
                          -Dividend
                              Payments-Common
                              stock
                          
                          
                          (15,000
                          )
                          
                          
                          (25,000
                          )Preferred
                              stock
                          
                          
                          -
                          
                          
                          
                          (250
                          )Net
                              cash
                              provided from financing activities
                          
                          
                          182,690
                          
                          
                          
                          200,912**CASH
                              FLOWS FROM INVESTING ACTIVITIES:**Property
                              additions
                          
                          
                          (95,310
                          )
                          
                          
                          (91,101
                          )Loan
                              repayments from (loans to) associated companies, net
                          
                          
                          765
                          
                          
                          
                          (9,347
                          )Sales
                              of
                              investment securities held in trusts
                          
                          
                          77,941
                          
                          
                          
                          131,079Purchases
                              of
                              investment securities held in trusts
                          
                          
                          (79,388
                          )
                          
                          
                          (132,526
                          )Other
                          
                          
                          5,313
                          
                          
                          
                          (1,023
                          )Net
                              cash used
                              for investing activities
                          
                          
                          (90,679
                          )
                          
                          
                          (102,918
                          )Net
                              increase
                              (decrease) in cash and cash equivalents
                          
                          
                          46
                          
                          
                          
                          (7
                          )Cash
                              and cash
                              equivalents at beginning of period
                          
                          
                          41
                          
                          
                          
                          102Cash
                              and cash
                              equivalents at end of period
                          
                          $
                          87
                          
                          
                          $
                          95The
                              preceding
                              Notes to Consolidated Financial Statements as they
                              relate to Jersey
                              Central Power & Light Companyare
                              an
                              integral part of these statements.
  98
 ***Report
                    of Independent Registered Public Accounting Firm***
 
 
 
 
 
 
 
 
 
 To
                    the Stockholder
                    and Board of
 Directors
                    of Jersey
                    Central Power & Light Company:
 
 We
                    have reviewed the
                    accompanying consolidated balance sheet of Jersey Central Power
& Light
                    Company and its subsidiaries as of June 30, 2007 and the related
                    consolidated
                    statements of income and comprehensive income for each of the
                    three-month and
                    six-month periods ended June 30, 2007 and 2006 and the consolidated
                    statement of
                    cash flows for the six-month periods ended June 30, 2007 and
                    2006.  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,
                    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, 2006, and the related consolidated statements of income,
                    capitalization,
                    common stockholder’s equity, preferred stock, cash flows and taxes for the year
                    then ended (not presented herein), and in our report (which contained
                    references
                    to the Company’s change in its method of accounting for defined benefit pension
                    and other postretirement benefit plans as of December 31, 2006,
                    as discussed in
                    Note 3 to those consolidated financial statements) dated February
                    27, 2007, 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, 2006, is
                    fairly stated in all material respects in relation to the consolidated
                    balance
                    sheet from which it has been derived.
 
 
 
 
 PricewaterhouseCoopers
                    LLP
 Cleveland,
                    Ohio
 August
                    6,
                    2007
 
 
 
  99
  
 **JERSEY
                    CENTRAL POWER & LIGHT COMPANY**
 
 **MANAGEMENT’S
                    DISCUSSION AND ANALYSIS OF**
 **FINANCIAL
                    CONDITION AND RESULTS OF OPERATIONS**
 
 
 JCP&L
                    is a
                    wholly owned, electric utility subsidiary of FirstEnergy. JCP&L conducts
                    business in New Jersey, providing regulated electric transmission
                    and
                    distribution services. JCP&L also provides generation services to those
                    customers electing to retain JCP&L as their power supplier.
 
 **Results
                    of Operations**
 
 Earnings
                    on common
                    stock in the second quarter of 2007 increased to $50 million
                    from
                    $40 million in 2006. The increase was primarily due to higher revenues,
                    partially offset by higher purchased power costs, increased amortization
                    of
                    regulatory assets, interest expense and other operating costs.
                    In the first six
                    months of 2007, earnings on common stock increased to $88 million
                    compared to
                    $74 million for the same period in 2006. The increase was primarily
                    due to
                    higher revenues and lower other operating costs, partially offset
                    by higher
                    purchased power costs, increased amortization of regulatory assets
                    and interest
                    expense.
 
 *Revenues*
 
 Revenues
                    increased
                    $169 million or 27.6% in the second quarter of 2007 and $277
                    million or 23.3% in
                    the first six months of 2007 compared with the same periods of
                    2006, reflecting
                    higher retail and wholesale generation revenues. Retail generation
                    revenues
                    increased by $102 million and $164 million in the second quarter
                    and the first
                    six months of 2007, respectively. Wholesale revenues increased
                    $19 million in
                    the second quarter and $27 million in the first six months of
                    2007.
 
 Generation
                    revenues
                    from all customer classes increased in the second quarter and
                    first six months
                    of 2007 as compared to 2006. The increases in both periods of
                    2007 were due to
                    higher unit prices resulting from the BGS auctions effective
                    June 1, 2006 and
                    June 1, 2007 and higher retail generation KWH sales. Sales volume
                    increased as a
                    result of weather conditions in the second quarter of 2007 (heating
                    degree days
                    were 35% greater than the second quarter of 2006). Industrial
                    generation KWH
                    sales declined in the second quarter and first six months of
                    2007 from the same
                    period in 2006 due to an increase in customer shopping.
 
 Wholesale
                    generation
                    revenues increased ($19 million in the second quarter and $27
                    million in the
                    first six months of 2007) due to higher market prices, partially
                    offset by sales
                    volume decreases of 3.9% and 1.4% from the second quarter and
                    first six months
                    of 2006, respectively.
 
 Changes
                    in retail
                    generation KWH sales and revenues by customer class in the second
                    quarter and
                    the first six months of 2007 compared to the same periods of
                    2006 are summarized
                    in the following table:
 
 **Retail
                              Generation KWH Sales**
                          
                          **Three
                              Months**
                          
                          **Six
                              Months**Increase
                              (Decrease)Residential
                          
                          
                          13.6
                          %
                          
                          8.9
                          %Commercial
                          
                          
                          5.3
                          %
                          
                          3.2
                          %Industrial
                          
                          
                          (8.4
                          )%
                          
                          (4.9
                          )%**Net
                              Increase in Generation Sales**
                          
                          
                          **9.0**
                          **%**
                          
                          **5.8**
                          **%**
 
 **Retail
                              Generation Revenues**
                          
                          **Three
                              Months**
                          
                          **Six
                              Months*****(In
                              millions)***Residential
                          
                          $
                          64
                          
                          $
                          100Commercial
                          
                          
                          36
                          
                          
                          60Industrial
                          
                          
                          2
                          
                          
                          4**Increase
                              in Generation Revenues**
                          
                          **$**
                          **102**
                          
                          **$**
                          **164**
 
 Distribution
                    revenues increased $39 million and $67 million in the second
                    quarter and first
                    six months of 2007, respectively, compared to the same periods
                    of 2006 due to
                    higher composite unit prices and increased KWH deliveries, reflecting
                    the
                    weather impacts described above. The higher unit prices resulted
                    from a NUGC
                    rate increase effective in December 2006 as approved by the
                    NJBPU.
  100
  
 Changes
                    in
                    distribution KWH deliveries and revenues in the second quarter
                    and first six
                    months of 2007 compared to the corresponding periods of 2006
                    are summarized in
                    the following tables.
 
 **Increase
                              in Distribution KWH Deliveries**
                          
                          **Three
                              Months**
                          
                          **Six
                              Months**Residential
                          
                          
                          13.7
                          %
                          
                          8.9
                          %Commercial
                          
                          
                          5.4
                          %
                          
                          4.8
                          %Industrial
                          
                          
                          2.9
                          %
                          
                          2.3
                          %**Total
                              Increase in Distribution Deliveries**
                          
                          
                          **8.5**
                          **%**
                          
                          **6.2**
                          **%**
 
 **Increase
                            in Distribution Revenues**
                          
                          **Three
                              Months**
                          
                          **Six
                              Months*****(In
                              millions)***Residential
                          
                          $
                          24
                          
                          $
                          38Commercial
                          
                          
                          13
                          
                          
                          25Industrial
                          
                          
                          2
                          
                          
                          4**Total
                              Increase in Distribution Revenues**
                          
                          **$**
                          **39**
                          
                          **$**
                          **67**
 
 The
                    higher revenues
                    for the second quarter and first six months of 2007 also included
                    $8 million and
                    $16 million, respectively, of increased revenues resulting from
                    the August 2006
                    securitization of deferred costs associated with JCP&L’s BGS
                    supply.
 
 *Expenses*
 
 Total
                    expenses
                    increased by $154 million in the second quarter and $246 million
                    in the first
                    six months of 2007 as compared to the same periods of 2006. The
                    following table
                    presents changes from the prior year by expense category:
 
 **Expenses  -
                              Changes**
                          
                          **Three
                              Months**
                          
                          **Six
                              Months****Increase
                              (Decrease)**
                          
                          ***(In
                              millions)***Purchased
                              power costs
                          
                          $
                          121
                          
                          $
                          192Other
                              operating costs
                          
                          
                          2
                          
                          
                          (6
                          )Provision
                              for
                              depreciation
                          
                          
                          1
                          
                          
                          1Amortization
                              of regulatory assets
                          
                          
                          29
                          
                          
                          57General
                              Taxes
                          
                          
                          1
                          
                          
                          2**Net
                              increase in expenses**
                          
                          $
                          154
                          
                          $
                          246
 
 The
                    increase in
                    purchased power costs (35.4% in the second quarter of 2007 and
                    29.2% in the
                    first six months) primarily reflected higher unit prices resulting
                    from the BGS
                    auctions. Other operating costs increased $2 million in the second
                    quarter of
                    2007 due to higher labor costs from storm damage repairs in 2007,
                    but decreased
                    $6 million in the first six months  of 2007 primarily due to lower
                    employee benefit costs. Amortization of regulatory assets increased
                    $29 million
                    in the second quarter and $57 million in the first six months
                    of 2007 due to
                    higher transition cost recovery associated with the December
                    2006 NUGC rate
                    increase.
 
 **Capital
                    Resources and Liquidity**
 
 During
                    the remainder
                    of 2007, JCP&L expects to meet its contractual obligations with a
                    combination of cash from operations and short-term borrowings.
                    Borrowing
                    capacity under JCP&L’s credit facilities is available to manage its working
                    capital requirements.
 
 *Changes
                    in Cash Position*
 
 As
                    of June 30,
                    2007, JCP&L had $87,000 of cash and cash equivalents compared with $41,000
                    as of December 31, 2006. The major sources for changes in these balances
                    are summarized below.
  101
  
 *Cash
                    Flows From Operating
                    Activities*
 
 Cash
                    provided from
                    operating activities in the first six months of 2007 compared
                    with the first six
                    months of 2006 were as follows:
 
 
 **Six
                              Months Ended****June
                              30,****Operating
                              Cash Flows**
                          
                          **2007**
                          
                          **2006*****(In
                              millions)***Net
                              income
                          
                          $
                          88
                          
                          $
                          74Net
                              non-cash
                              charges
                          
                          
                          105
                          
                          
                          46Pension
                              trust
                              contribution
                          
                          
                          (18
                          )
                          
                          -Cash
                              collateral returned to suppliers
                          
                          
                          (24
                          )
                          
                          (109
                          )Working
                              capital and other
                          
                          
                          (243
                          )
                          
                          (109
                          )Net
                              cash used
                              for operating activities
                          
                          $
                          (92
                          )
                          $
                          (98
                          )
 
 Net
                    cash used for
                    operating activities decreased $6 million in the first six months
                    of 2007 from
                    the same period of 2006. This decrease was primarily due to an
                    $85 million
                    reduction in cash collateral payments made to suppliers in the
                    first six months
                    of 2007 compared to the same period in 2006, an increase of $59
                    million in
                    non-cash charges and an increase in net income of $14 million.
                    These increases
                    were largely offset by a $134 million decrease from working capital
                    (due to
                    changes in the collection of receivables and tax payments) and
                    an $18 million
                    pension trust contribution in the first quarter of 2007. The
                    changes in net
                    income and non-cash charges are described above in “Results of
                    Operations.”
 
 *Cash
                    Flows From Financing
                    Activities*
 
 Net
                    cash provided
                    from financing activities was $183 million in the first six months
                    of 2007
                    compared to $201 million in same period of 2006. The decrease primarily
                    resulted from a $107 million reduction in short-term borrowings,
                    a $125 million
                    repurchase of common stock from FirstEnergy and $147 million
                    of additional
                    long-term debt redemptions, partially offset by a $350 million
                    increase in new
                    long-term debt financing and a $10 million reduction in common
                    stock dividend
                    payments to FirstEnergy.
 
 JCP&Lhad
                    $24 million of cash and temporary investments (which includes
                    short-term notes
                    receivable from associated companies) and approximately $229 million of
                    short-term indebtedness as of June 30, 2007. JCP&L has authorization
                    from the FERC to incur short-term debt up to its charter limit
                    of $431 million
                    (including the utility money pool).
 
 See
                    the “Financing
                    Capability” section within the Combined Management’s Discussion and Analysis of
                    Registrant Subsidiaries for additional discussion of JCP&L’s financing
                    capabilities.
 
 *Cash
                    Flows From Investing
                    Activities*
 
 Net
                    cash used for
                    investing activities was $91 million in the first six months
                    of 2007 compared to
                    $103 million in the previous year. The $12 million decrease primarily
                    resulted from the absence of $10 million in loans to associated
                    companies in
                    2006.
 
 During
                    the last half
                    of 2007, capital requirements for property additions and improvements
                    are
                    expected to be about $95 million. These cash requirements are expected to
                    be satisfied from a combination of internal cash and short-term
                    credit
                    arrangements.
 
 JCP&L’s
                    capital
                    spending for the period 2007-2011 is expected to be about $1.3 billion for
                    property additions, of which approximately $192 million applies
                    to
                    2007.
 
 **Market
                    Risk Information**
 
 During
                    the first six
                    months of 2007, the value of commodity derivative contracts decreased
                    by $302
                    million as a result of settled contracts ($196 million) and changes
                    in the value
                    of existing contracts ($106 million). These non-trading contracts
                    (primarily
                    with NUG entities) are adjusted to fair value at the end of each
                    quarter with a
                    corresponding offset to regulatory assets, resulting in no impact
                    to current
                    period earnings.  Commodity derivative contracts were valued at $869
                    million and $1.2 billion as of June 30, 2007 and December 31,
                    2006,
                    respectively.  See the “Market Risk Information” section of
                    JCP&L’s 2006 Annual Report on Form 10-K for additional discussion of
                    market
                    risk.
  102
  
 **Equity
                    Price Risk**
 
 Included
                    in nuclear
                    decommissioning trusts are marketable equity securities carried
                    at their current
                    fair value of approximately $104 million and $97 million as of
                    June 30,
                    2007 and December 31, 2006, respectively. A hypothetical 10% decrease in
                    prices quoted by stock exchanges would result in a $10 million
                    reduction in fair
                    value as of June 30, 2007.
 
 **Regulatory
                    Matters**
 
 See
                    the “Regulatory
                    Matters” section within the Combined Management’s Discussion and Analysis of
                    Registrant Subsidiaries for discussion of regulatory matters
                    applicable to
                    JCP&L.
 
 **Environmental
                    Matters**
 
 See
                    the
“Environmental Matters” section within the Combined Management’s Discussion and
                    Analysis of Registrant Subsidiaries for discussion of environmental
                    matters
                    applicable to JCP&L.
 
 **Other
                    Legal Proceedings**
 
 See
                    the “Other Legal
                    Proceedings” section within the Combined Management’s Discussion and Analysis of
                    Registrant Subsidiaries for discussion of other legal proceedings
                    applicable to
                    JCP&L.
 
 **New
                    Accounting Standards and Interpretations**
 
 See
                    the “New
                    Accounting Standards and Interpretations” section within the Combined
                    Management’s Discussion and Analysis of Registrant Subsidiaries for discussion
                    of new accounting standards and interpretations applicable to
                    JCP&L.
 
 
 
  103
    **METROPOLITAN
                                EDISON COMPANY****CONSOLIDATED
                                STATEMENTS OF INCOME AND COMPREHENSIVE INCOME****(Unaudited)****Three
                                Months Ended**
                            
                            
                            **Six
                                Months Ended****June
                                30,**
                            
                            
                            **June
                                30,****2007**
                            
                            
                            **2006**
                            
                            
                            **2007**
                            
                            
                            **2006*****(In
                                thousands)*****REVENUES:**Electric
                                sales
                            
                            $
                            344,241
                            
                            
                            $
                            266,533
                            
                            
                            $
                            696,377
                            
                            
                            $
                            560,570Gross
                                receipts
                                tax collections
                            
                            
                            17,502
                            
                            
                            
                            15,686
                            
                            
                            
                            35,622
                            
                            
                            
                            32,862Total
                                revenues
                            
                            
                            361,743
                            
                            
                            
                            282,219
                            
                            
                            
                            731,999
                            
                            
                            
                            593,432**EXPENSES:**Purchased
                                power
                            
                            
                            182,818
                            
                            
                            
                            143,070
                            
                            
                            
                            374,407
                            
                            
                            
                            302,957Other
                                operating costs
                            
                            
                            111,105
                            
                            
                            
                            59,575
                            
                            
                            
                            209,123
                            
                            
                            
                            120,654Provision
                                for
                                depreciation
                            
                            
                            10,531
                            
                            
                            
                            10,288
                            
                            
                            
                            20,815
                            
                            
                            
                            21,193Amortization
                                of regulatory assets
                            
                            
                            30,972
                            
                            
                            
                            25,669
                            
                            
                            
                            65,112
                            
                            
                            
                            55,717Deferral
                                of
                                new regulatory assets
                            
                            
                            (31,895
                            )
                            
                            
                            (45,581
                            )
                            
                            
                            (74,621
                            )
                            
                            
                            (45,581
                            )General
                                taxes
                            
                            
                            20,170
                            
                            
                            
                            18,595
                            
                            
                            
                            41,222
                            
                            
                            
                            39,216Total
                                expenses
                            
                            
                            323,701
                            
                            
                            
                            211,616
                            
                            
                            
                            636,058
                            
                            
                            
                            494,156**OPERATING
                                INCOME**
                            
                            
                            38,042
                            
                            
                            
                            70,603
                            
                            
                            
                            95,941
                            
                            
                            
                            99,276**OTHER
                                INCOME (EXPENSE):**Interest
                                income
                            
                            
                            7,775
                            
                            
                            
                            8,964
                            
                            
                            
                            15,501
                            
                            
                            
                            17,714Miscellaneous
                                income
                            
                            
                            1,498
                            
                            
                            
                            1,792
                            
                            
                            
                            2,607
                            
                            
                            
                            4,404Interest
                                expense
                            
                            
                            (13,424
                            )
                            
                            
                            (12,071
                            )
                            
                            
                            (25,180
                            )
                            
                            
                            (23,255
                            )Capitalized
                                interest
                            
                            
                            388
                            
                            
                            
                            344
                            
                            
                            
                            648
                            
                            
                            
                            611Total
                                other
                                expense
                            
                            
                            (3,763
                            )
                            
                            
                            (971
                            )
                            
                            
                            (6,424
                            )
                            
                            
                            (526
                            )**INCOME
                                BEFORE INCOME TAXES**
                            
                            
                            34,279
                            
                            
                            
                            69,632
                            
                            
                            
                            89,517
                            
                            
                            
                            98,750**INCOME
                                TAXES**
                            
                            
                            14,809
                            
                            
                            
                            29,555
                            
                            
                            
                            38,408
                            
                            
                            
                            40,759**NET
                                INCOME**
                            
                            
                            19,470
                            
                            
                            
                            40,077
                            
                            
                            
                            51,109
                            
                            
                            
                            57,991**OTHER
                                COMPREHENSIVE INCOME (LOSS):**Pension
                                and
                                other postretirement benefits
                            
                            
                            (1,453
                            )
                            
                            
                            -
                            
                            
                            
                            (2,905
                            )
                            
                            
                            -Unrealized
                                gain on derivative hedges
                            
                            
                            84
                            
                            
                            
                            84
                            
                            
                            
                            168
                            
                            
                            
                            168Other
                                comprehensive income (loss)
                            
                            
                            (1,369
                            )
                            
                            
                            84
                            
                            
                            
                            (2,737
                            )
                            
                            
                            168Income
                                tax
                                expense (benefit) related to othercomprehensive
                                income
                            
                            
                            (693
                            )
                            
                            
                            35
                            
                            
                            
                            (1,385
                            )
                            
                            
                            70Other
                                comprehensive income (loss), net of tax
                            
                            
                            (676
                            )
                            
                            
                            49
                            
                            
                            
                            (1,352
                            )
                            
                            
                            98**TOTAL
                                COMPREHENSIVE INCOME**
                            
                            $
                            18,794
                            
                            
                            $
                            40,126
                            
                            
                            $
                            49,757
                            
                            
                            $
                            58,089The
                                preceding
                                Notes to Consolidated Financial Statements as they
                                relate to Metropolitan
                                Edison Company are an integral part ofthese
                                statements.
  104
 **METROPOLITAN
                              EDISON COMPANY****CONSOLIDATED
                              BALANCE SHEETS****(Unaudited)****June
                              30,**
                          
                          
                          **December
                              31,****2007**
                          
                          
                          **2006*****(In
                              thousands)*****ASSETS****CURRENT
                              ASSETS:**Cash
                              and cash
                              equivalents
                          
                          $
                          127
                          
                          
                          $
                          130Receivables-Customers
                              (less accumulated provisions of $4,480,000 and $4,153,000,respectively,
                              for uncollectible accounts)
                          
                          
                          160,147
                          
                          
                          
                          127,084Associated
                              companies
                          
                          
                          27,213
                          
                          
                          
                          3,604Other
                          
                          
                          20,163
                          
                          
                          
                          8,107Notes
                              receivable from associated companies
                          
                          
                          34,399
                          
                          
                          
                          31,109Prepaid
                              taxes
                          
                          
                          23,598
                          
                          
                          
                          13,533Other
                          
                          
                          353
                          
                          
                          
                          1,424266,000
                          
                          
                          
                          184,991**UTILITY
                              PLANT:**In
                              service
                          
                          
                          1,945,821
                          
                          
                          
                          1,920,563Less
                              -
                              Accumulated provision for depreciation
                          
                          
                          750,937
                          
                          
                          
                          739,7191,194,884
                          
                          
                          
                          1,180,844Construction
                              work in progress
                          
                          
                          33,474
                          
                          
                          
                          18,4661,228,358
                          
                          
                          
                          1,199,310**OTHER
                              PROPERTY AND INVESTMENTS:**Nuclear
                              plant
                              decommissioning trusts
                          
                          
                          283,596
                          
                          
                          
                          269,777Other
                          
                          
                          1,361
                          
                          
                          
                          1,362284,957
                          
                          
                          
                          271,139**DEFERRED
                              CHARGES AND OTHER ASSETS:**Goodwill
                          
                          
                          496,129
                          
                          
                          
                          496,129Regulatory
                              assets
                          
                          
                          464,434
                          
                          
                          
                          409,095Pension
                              assets
                          
                          
                          23,583
                          
                          
                          
                          7,261Other
                          
                          
                          38,885
                          
                          
                          
                          46,3541,023,031
                          
                          
                          
                          958,839$
                          2,802,346
                          
                          
                          $
                          2,614,279**LIABILITIES
                              AND CAPITALIZATION****CURRENT
                              LIABILITIES:**Currently
                              payable long-term debt
                          
                          $
                          -
                          
                          
                          $
                          50,000Short-term
                              borrowings-Associated
                              companies
                          
                          
                          158,731
                          
                          
                          
                          141,501Other
                          
                          
                          197,000
                          
                          
                          
                          -Accounts
                              payable-Associated
                              companies
                          
                          
                          26,435
                          
                          
                          
                          100,232Other
                          
                          
                          70,566
                          
                          
                          
                          59,077Accrued
                              taxes
                          
                          
                          513
                          
                          
                          
                          11,300Accrued
                              interest
                          
                          
                          7,050
                          
                          
                          
                          7,496Other
                          
                          
                          22,978
                          
                          
                          
                          22,825483,273
                          
                          
                          
                          392,431**CAPITALIZATION:**Common
                              stockholder's equity-Common
                              stock,
                              without par value, authorized 900,000 shares-859,000
                              shares
                              outstanding
                          
                          
                          1,276,119
                          
                          
                          
                          1,276,075Accumulated
                              other comprehensive loss
                          
                          
                          (27,868
                          )
                          
                          
                          (26,516
                          )Accumulated
                              deficit
                          
                          
                          (183,560
                          )
                          
                          
                          (234,620
                          )Total
                              common
                              stockholder's equity
                          
                          
                          1,064,691
                          
                          
                          
                          1,014,939Long-term
                              debt
                              and other long-term obligations
                          
                          
                          542,070
                          
                          
                          
                          542,0091,606,761
                          
                          
                          
                          1,556,948**NONCURRENT
                              LIABILITIES:**Accumulated
                              deferred income taxes
                          
                          
                          405,170
                          
                          
                          
                          387,456Accumulated
                              deferred investment tax credits
                          
                          
                          8,830
                          
                          
                          
                          9,244Nuclear
                              fuel
                              disposal costs
                          
                          
                          42,514
                          
                          
                          
                          41,459Asset
                              retirement obligations
                          
                          
                          155,867
                          
                          
                          
                          151,107Retirement
                              benefits
                          
                          
                          17,187
                          
                          
                          
                          19,522Other
                          
                          
                          82,744
                          
                          
                          
                          56,112712,312
                          
                          
                          
                          664,900**COMMITMENTS
                              AND CONTINGENCIES (Note 9)**$
                          2,802,346
                          
                          
                          $
                          2,614,279The
                              preceding
                              Notes to Consolidated Financial Statements as they
                              relate to Metropolitan
                              Edison Company are an integral partof
                              these
                              balance sheets.
 
 105
  **METROPOLITAN
                                EDISON COMPANY****CONSOLIDATED
                                STATEMENTS OF CASH FLOWS****(Unaudited)****Six
                                Months Ended****June
                                30,****2007**
                            
                            
                            **2006*****(In
                                thousands)*****CASH
                                FLOWS FROM OPERATING ACTIVITIES:**Net
                                income
                            
                            $
                            51,109
                            
                            
                            $
                            57,991Adjustments
                                to
                                reconcile net income to net cash from operating
                                activities-Provision
                                for
                                depreciation
                            
                            
                            20,815
                            
                            
                            
                            21,193Amortization
                                of regulatory assets
                            
                            
                            65,112
                            
                            
                            
                            55,717Deferred
                                costs
                                recoverable as regulatory assets
                            
                            
                            (38,540
                            )
                            
                            
                            (50,570
                            )Deferral
                                of
                                new regulatory assets
                            
                            
                            (74,621
                            )
                            
                            
                            (45,581
                            )Deferred
                                income taxes and investment tax credits, net
                            
                            
                            27,069
                            
                            
                            
                            22,463Accrued
                                compensation and retirement benefits
                            
                            
                            (11,150
                            )
                            
                            
                            (4,712
                            )Cash
                                collateral
                            
                            
                            4,850
                            
                            
                            
                            (2,250
                            )Pension
                                trust
                                contribution
                            
                            
                            (11,012
                            )
                            
                            
                            -Decrease
                                (increase) in operating assets-Receivables
                            
                            
                            (64,465
                            )
                            
                            
                            38,182Prepayments
                                and other current assets
                            
                            
                            (8,994
                            )
                            
                            
                            (24,564
                            )Increase
                                (decrease) in operating liabilities-Accounts
                                payable
                            
                            
                            (62,308
                            )
                            
                            
                            6,161Accrued
                                taxes
                            
                            
                            (10,788
                            )
                            
                            
                            (12,045
                            )Accrued
                                interest
                            
                            
                            (446
                            )
                            
                            
                            297Other
                            
                            
                            4,238
                            
                            
                            
                            (4,011
                            )Net
                                cash
                                provided from (used for) operating activities
                            
                            
                            (109,131
                            )
                            
                            
                            58,271**CASH
                                FLOWS FROM FINANCING ACTIVITIES:**New
                                Financing-Short-term
                                borrowings, net
                            
                            
                            214,229
                            
                            
                            
                            -Redemptions
                                and Repayments-Long-term
                                debt
                            
                            
                            (50,000
                            )
                            
                            
                            -Short-term
                                borrowings, net
                            
                            
                            -
                            
                            
                            
                            (1,707
                            )Net
                                cash
                                provided from (used for) financing activities
                            
                            
                            164,229
                            
                            
                            
                            (1,707
                            )**CASH
                                FLOWS FROM INVESTING ACTIVITIES:**Property
                                additions
                            
                            
                            (49,852
                            )
                            
                            
                            (47,301
                            )Sales
                                of
                                investment securities held in trusts
                            
                            
                            55,603
                            
                            
                            
                            113,637Purchases
                                of
                                investment securities held in trusts
                            
                            
                            (57,571
                            )
                            
                            
                            (118,379
                            )Loans
                                to
                                associated companies, net
                            
                            
                            (3,290
                            )
                            
                            
                            (4,054
                            )Other
                            
                            
                            9
                            
                            
                            
                            (453
                            )Net
                                cash used
                                for investing activities
                            
                            
                            (55,101
                            )
                            
                            
                            (56,550
                            )Net
                                increase
                                (decrease) in cash and cash equivalents
                            
                            
                            (3
                            )
                            
                            
                            14Cash
                                and cash
                                equivalents at beginning of period
                            
                            
                            130
                            
                            
                            
                            120Cash
                                and cash
                                equivalents at end of period
                            
                            $
                            127
                            
                            
                            $
                            134The
                                preceding
                                Notes to Consolidated Financial Statements as they
                                relate to Metropolitan
                                Edison Company are an integralpart
                                of these
                                statements.
  106
 
 ***Report
                      of Independent Registered Public Accounting Firm***
 
 
 
 
 
 
 
 
 
 To
                      the Stockholder
                      and Board of
 Directors
                      of
                      Metropolitan Edison Company:
 
 We
                      have reviewed the
                      accompanying consolidated balance sheet of Metropolitan Edison
                      Company and its
                      subsidiaries as of June 30, 2007 and the related consolidated
                      statements of
                      income and comprehensive income for each of the three-month
                      and six-month
                      periods ended June 30, 2007 and 2006 and the consolidated statement
                      of cash
                      flows for the six-month periods ended June 30, 2007 and 2006.  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,
                      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, 2006, and the related consolidated statements of income,
                      capitalization,
                      common stockholder’s equity, preferred stock, cash flows and taxes for the year
                      then ended (not presented herein), and in our report (which
                      contained references
                      to the Company’s change in its method of accounting for defined benefit pension
                      and other postretirement benefit plans as of December 31, 2006,
                      and conditional
                      asset retirement obligations as of December 31, 2005, as discussed
                      in Note 3,
                      Note 2(G) and Note 9 to those consolidated financial statements)
                      dated February
                      27, 2007, 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, 2006, is
                      fairly stated in all material respects in relation to the consolidated
                      balance
                      sheet from which it has been derived.
 
 
 
 
 PricewaterhouseCoopers
                      LLP
 Cleveland,
                      Ohio
 August
                      6,
                      2007
 
 
 
 
  107
  
 **METROPOLITAN
                      EDISON COMPANY**
 
 **MANAGEMENT’S
                      DISCUSSION AND ANALYSIS OF**
 **FINANCIAL
                      CONDITIONAND RESULTS
                      OF
                      OPERATIONS**
 
 
 Met-Ed
                      is a wholly
                      owned, electric utility subsidiary of FirstEnergy. Met-Ed conducts
                      business in
                      eastern Pennsylvania, providing regulated electric transmission
                      and distribution
                      services. Met-Ed also provides generation service to those
                      customers electing to
                      retain Met-Ed as their power supplier.
 
 **Results
                      of Operations**
 
 Net
                      income in the
                      second quarter of 2007 decreased to $19 million from $40 million
                      in the second
                      quarter of 2006. The decrease was primarily due to higher purchased
                      power costs,
                      other operating costs and lower deferrals of new regulatory
                      assets due to the
                      May 2006 PPUC order as discussed below, partially offset by
                      higher revenues. For
                      the first six months of 2007, net income decreased to $51 million
                      from $58
                      million in the same period of 2006. The decrease in the six
                      month period
                      reflects higher purchased power costs and other operating costs,
                      partially
                      offset by higher revenues and increased deferrals of new regulatory
                      assets.
 
 *Revenues*
 
 Revenues
                      increased
                      by $80 million, or 28.2%, in the second quarter of 2007 and
                      $139 million, or
                      23.4%, in the first six months of 2007 compared with the same
                      periods of 2006.
                      The increases in both periods were primarily due to higher
                      retail and wholesale
                      generation revenues.
 
 In
                      the second
                      quarter of 2007, retail generation revenues increased by $10
                      million primarily
                      due to higher KWH sales in the residential and commercial sectors,
                      partially
                      offset by slightly lower KWH sales in the industrial sector.
                      The increase in
                      retail generation revenues in the residential and commercial
                      sectors primarily
                      resulted from higher weather-related usage in the second quarter
                      of 2007 as
                      compared to the same period of 2006 (heating degree days increased
                      by 34.9% and
                      cooling degree days increased by 19.3%).
 
 In
                      the first six
                      months of 2007, retail generation revenues increased by $15
                      million due to
                      higher KWH sales in all customer sectors. The increase in retail
                      generation
                      revenues in the residential and commercial sectors was primarily
                      due to weather
                      conditions during the first six months of 2007 (heating degree
                      days increased by
                      18.3% and cooling degree days increased by 19.3% as compared
                      to the same period
                      of 2006).
 
 Increases
                      in retail
                      electric generation sales and revenues in the second quarter
                      and the first six
                      months of 2007 compared to the same periods of 2006 are summarized
                      in the
                      following tables:
 
 **Retail
                                Generation KWH Sales**
                            
                            **Three
                                Months**
                            
                            **Six
                                Months****Increase
                                (Decrease)**Residential
                            
                            
                            11.7
                            %
                            
                            8.7
                            %Commercial
                            
                            
                            4.7
                            %
                            
                            4.2
                            %Industrial
                            
                            
                            (0.2
                            )%
                            
                            1.3
                            %**Total
                                Retail Electric Generation Sales**
                            
                            
                            **5.6**
                            **%**
                            
                            **5.0**
                            **%**
 
 **Retail
                                Generation Revenues**
                            
                            **Three
                                Months**
                            
                            **Six
                                Months*****(In
                                millions)***Residential
                            
                            $
                            7
                            
                            $
                            10Commercial
                            
                            
                            3
                            
                            
                            5Industrial
                            
                            
                            -
                            
                            
                            -**Increase
                                in Generation Revenues**
                            
                            **$**
                            **10**
                            
                            **$**
                            **15**
 
 Wholesale
                      revenues
                      increased by $36 million in the second quarter of 2007 and
                      $62 million in the
                      first six months of 2007 compared with the same periods of
                      2006.  The
                      increases in both periods were due to Met-Ed selling additional
                      available power
                      into the PJM market beginning in January 2007.
  108
  Revenues
                      from
                      distribution throughput increased by $22 million in the second
                      quarter and $43
                      million in the first six months of 2007 compared to the same
                      periods in 2006.
                      The increases are due to higher KWH deliveries, reflecting
                      the effect of the
                      weather discussed above, and an increase in composite unit
                      prices resulting from
                      a January 2007 PPUC authorization to increase transmission
                      rates, partially
                      offset by a 5% decrease in distribution rates.
 
 Changes
                      in
                      distribution KWH deliveries and revenues in the second quarter
                      and first six
                      months of 2007 compared to the same periods of 2006 are summarized
                      in the
                      following tables:
 
 **Distribution
                                KWH Deliveries**
                            
                            **Three
                                Months**
                            
                            **Six
                                Months**Residential
                            
                            
                            11.7
                            %
                            
                            8.7
                            %Commercial
                            
                            
                            4.7
                            %
                            
                            4.1
                            %Industrial
                            
                            
                            0.5
                            %
                            
                            0.7
                            %**Total
                                Increase in Distribution Deliveries**
                            
                            
                            **5.7**
                            **%**
                            
                            **4.8**
                            **%**
 
 **Distribution
                                Revenues**
                            
                            **Three
                                Months**
                            
                            **Six
                                Months*****(In
                                millions)***Residential
                            
                            $
                            15
                            
                            $
                            32Commercial
                            
                            
                            2
                            
                            
                            1Industrial
                            
                            
                            5
                            
                            
                            10**Increase
                                in Distribution Revenues**
                            
                            **$**
                            **22**
                            
                            **$**
                            **43**
 
 PJM
                      transmission
                      revenues increased by $13 million and $20 million in the second
                      quarter and
                      first six months of 2007, respectively, as a result of higher
                      transmission
                      volumes and additional PJM auction revenue rights, compared
                      to the prior year
                      periods. Met-Ed defers the difference between revenue from
                      its transmission
                      rider and transmission costs incurred, resulting in no material
                      effect to
                      current period earnings.
 
 *Expenses*
 
 Total
                      expenses
                      increased by $112 million and $142 million in the second quarter
                      and first six
                      months of 2007, respectively, compared to the same periods
                      of 2006. The
                      following table presents changes from the prior year by expense
                      category:
 
 **Expenses
                                – Changes**
                            
                            **Three
                                Months**
                            
                            **Six
                                Months****Increase
                                (Decrease)**
                            
                            ***(In
                                millions)***Purchased
                                power costs
                            
                            $
                            40
                            
                            $
                            72Other
                                operating costs
                            
                            
                            52
                            
                            
                            88Amortization
                                of regulatory assets
                            
                            
                            5
                            
                            
                            9Deferral
                                of
                                new regulatory assets
                            
                            
                            13
                            
                            
                            (29
                            )General
                                taxes
                            
                            
                            2
                            
                            
                            2**Net
                                increase in expenses**
                            
                            $
                            112
                            
                            $
                            142
 
 Purchased
                      power
                      costs increased in the second quarter and first six months
                      of 2007 by $40
                      million and $72 million, respectively, due to increased KWH
                      purchases to source
                      higher generation sales, combined with higher composite unit
                      costs. In the
                      second quarter of 2007, other operating costs increased primarily
                      due to $47
                      million in higher congestion costs and other transmission expenses
                      associated
                      with the increased transmission volumes discussed above and  $4
                      million of increased contractor service and labor costs for
                      increased work on
                      reliability-related projects. In the first six months of 2007,
                      other operating
                      costs increased primarily due to higher congestion costs and
                      other transmission
                      expenses ($84 million) and increased customer expenses ($3
                      million) related to
                      Met-Ed’s customer assistance programs.
 
 Met-Ed’s
                      revenue in
                      the first six months of 2007 included the recovery of a portion
                      of the
                      transmission costs that were deferred in 2006. As a result,
                      amortization of
                      regulatory assets increased in the second quarter and first
                      six months of 2007
                      compared to the prior year. In the second quarter of 2007,
                      the deferral of new
                      regulatory assets decreased primarily due to higher PJM transmission
                      cost
                      deferrals recognized in the second quarter of 2006. The deferral
                      in the second
                      quarter of 2006 also included PJM Transmission costs incurred
                      in the first
                      quarter following authorization by the PPUC in May 2006. The
                      deferral of new
                      regulatory assets increased in the first six months of 2007
                      due to the deferral
                      of previously expensed decommissioning costs of $15 million
                      associated with the
                      Saxton nuclear research facility as approved by the PPUC in
                      January 2007 and
                      higher PJM transmission costs and associated interest deferrals.
 
 For
                      both periods,
                      general taxes increased primarily due to higher gross receipts
                      taxes.
  109
  
 
 **Capital
                      Resources and Liquidity**
 
 During
                      2007, Met-Ed
                      expects to meet its contractual obligations with a combination
                      of cash from
                      operations and funds from the capital markets. Borrowing capacity
                      under Met-Ed’s
                      credit facilities is available to manage its working capital
                      requirements.
 
 *Changes
                      in Cash Position*
 
 As
                      of June 30, 2007,
                      Met-Ed had cash and cash equivalents of $127,000 compared with
                      $130,000 as of
                      December 31, 2006. The major sources of changes in these balances are
                      summarized below.
 
 *Cash
                      Flows From Operating
                      Activities*
 
 Net
                      cash used for
                      operating activities was $109 million in the first six months of 2007
                      compared to net cash provided from operating activities of
                      $58 million in
                      the same period of 2006, as summarized in the following table:
 
 **Six
                                Months Ended**
                              **June
                                30,****Operating
                                  Cash Flows**
                            
                            **2007**
                            
                            **2006*****(In
                                millions)***Net
                                  income
                            
                            $
                            51
                            
                            $
                            58Net
                                  non-cash
                                  charges (credits)
                            
                            
                            (11
                            )
                            
                            (2
                            )Pension
                                  trust
                                  contribution
                            
                            
                            (11
                            )
                            
                            -Working
                                  capital and other
                            
                            
                            (138
                            )
                            
                            2Net
                                  cash
                                  provided from (used for) operating activities
                            
                            $
                            (109
                            )
                            $
                            58
 
 
 The
                      decrease from
                      working capital primarily resulted from a $103 million change
                      in receivables,
                      due in part to increased billings associated with the January
                      2007 rate increase
                      that were delayed until the second quarter of 2007, and a $68
                      million change in
                      accounts payable, partially offset by a $16 million decrease
                      in prepayments, a
                      $7 million increase in cash collateral received from suppliers
                      and an $8 million
                      increase in cash flows from other operating activities. Changes
                      in net income
                      and non-cash charges (credits) are described above under “Results of
                      Operations.”
 
 *Cash
                      Flows From Financing
                      Activities*
 
 Net
                      cash provided
                      from financing activities was $164 million in the first six
                      months of 2007
                      compared to net cash used for financing of $2 million in the first six
                      months of 2006. The increase reflects a $216 million increase
                      in short-term
                      borrowings, offset by a $50 million increase in long-term debt
                      redemptions in
                      the first six months of 2007.
 
 As
                      of June 30, 2007,
                      Met-Ed had approximately $34 million of cash and temporary
                      investments (which
                      included short-term notes receivable from associated companies)
                      and $356 million
                      of short-term borrowings (including $72 million from its receivables
                      financing arrangement and $138 million from money pool borrowings).
                      Met-Ed has
                      authorization from the FERC to incur short-term debt up to
                      $250 million
                      (excluding receivables financing and money pool borrowings)
                      and authorization
                      from the PPUC to incur money pool borrowings up to
                      $300 million.
 
 See
                      the “Financing
                      Capability” section within the Combined Management’s Discussion and Analysis of
                      Registrant Subsidiaries for additional discussion of Met-Ed’s financing
                      capabilities.
 
 *Cash
                      Flows From Investing
                      Activities*
 
 In
                      the first six
                      months of 2007, Met-Ed's cash used for investing activities
                      totaled
                      $55 million, compared to $56 million in the same period of 2006. The
                      decrease primarily resulted from a reduction in loan repayments
                      to associated
                      companies.
 
 During
                      the last half
                      of 2007, capital requirements for property additions and improvements
                      are
                      expected to be approximately $42 million. This cash requirement is expected
                      to be satisfied from a combination of cash from operations,
                      short-term credit
                      arrangements and funds from the capital markets. Met-Ed's capital
                      spending for
                      the period 2007 through 2011 is expected to be about $520 million, of which
                      approximately $92 million applies to 2007.
 
 In
                      June 2007, Met-Ed
                      entered into an agreement to sell 100% of its ownership interest
                      in York Haven
                      Power Company, pending approval from the PPUC. The sale is
                      subject to regulatory
                      accounting and is not expected to have a material impact on
                      Met-Ed’s
                      earnings.
  110
  
 **Market
                      Risk Information**
 
 During
                      the first six
                      months of 2007, the value of commodity derivative contracts
                      decreased by $5
                      million as a result of settled contracts ($6 million) and changes
                      in the value
                      of existing contracts ($1 million). These non-trading contracts
                      are adjusted to
                      fair value at the end of each quarter with a corresponding
                      offset to regulatory
                      liabilities, resulting in no impact to current period
                      earnings.  Commodity derivative contracts were valued at $18 million
                      and $23 million as of June 30, 2007 and December 31, 2006,
                      respectively.  See the “Market Risk Information” section of Met-Ed’s
                      2006 Annual Report on Form 10-K for additional discussion of
                      market
                      risk.
 
 **Equity
                      Price Risk**
 
 Included
                      in nuclear
                      decommissioning trusts are marketable equity securities carried
                      at their current
                      fair value of approximately $175 million and $164 million as
                      of June 30, 2007
                      and December 31, 2006, respectively. A hypothetical 10% decrease in prices
                      quoted by stock exchanges would result in an $18 million reduction
                      in fair value
                      as of June 30, 2007.
 
 **Regulatory
                      Matters**
 
 See
                      the “Regulatory
                      Matters” section within the Combined Management’s Discussion and Analysis of
                      Registrant Subsidiaries for discussion of regulatory matters
                      applicable to
                      Met-Ed.
 
 **Environmental
                      Matters**
 
 See
                      the
“Environmental Matters” section within the Combined Management’s Discussion and
                      Analysis of Registrant Subsidiaries for discussion of environmental
                      matters
                      applicable to Met-Ed.
 
 **Other
                      Legal Proceedings**
 
 See
                      the “Other Legal
                      Proceedings” section within the Combined Management’s Discussion and Analysis of
                      Registrant Subsidiaries for discussion of other legal proceedings
                      applicable to
                      Met-Ed.
 
 **New
                      Accounting Standards and Interpretations**
 
 See
                      the “New
                      Accounting Standards and Interpretations” section within the Combined
                      Management’s Discussion and Analysis of Registrant Subsidiaries for discussion
                      of new accounting standards and interpretations applicable
                      to
                      Met-Ed.
 
 
  111
  
 **PENNSYLVANIA
                                  ELECTRIC COMPANY****CONSOLIDATED
                                  STATEMENTS OF INCOME AND COMPREHENSIVE INCOME****(Unaudited)****Three
                                  Months Ended**
                              
                              
                              **Six
                                  Months Ended****June
                                  30,**
                              
                              
                              **June
                                  30,****2007**
                              
                              
                              **2006**
                              
                              
                              **2007**
                              
                              
                              **2006*****(In
                                  thousands)*****REVENUES:**Electric
                                  sales
                              
                              $
                              315,745
                              
                              
                              $
                              250,400
                              
                              
                              $
                              654,971
                              
                              
                              $
                              526,227Gross
                                  receipts
                                  tax collections
                              
                              
                              15,672
                              
                              
                              
                              14,599
                              
                              
                              
                              32,352
                              
                              
                              
                              30,524Total
                                  revenues
                              
                              
                              331,417
                              
                              
                              
                              264,999
                              
                              
                              
                              687,323
                              
                              
                              
                              556,751**EXPENSES:**Purchased
                                  power
                              
                              
                              184,494
                              
                              
                              
                              146,875
                              
                              
                              
                              385,336
                              
                              
                              
                              308,516Other
                                  operating costs
                              
                              
                              58,267
                              
                              
                              
                              48,133
                              
                              
                              
                              117,728
                              
                              
                              
                              86,475Provision
                                  for
                                  depreciation
                              
                              
                              12,335
                              
                              
                              
                              11,798
                              
                              
                              
                              24,112
                              
                              
                              
                              24,441Amortization
                                  of regulatory assets
                              
                              
                              13,845
                              
                              
                              
                              12,979
                              
                              
                              
                              29,239
                              
                              
                              
                              27,794Deferral
                                  of
                                  new regulatory assets
                              
                              
                              (364
                              )
                              
                              
                              (11,815
                              )
                              
                              
                              (17,452
                              )
                              
                              
                              (11,815
                              )General
                                  taxes
                              
                              
                              18,350
                              
                              
                              
                              17,458
                              
                              
                              
                              38,201
                              
                              
                              
                              36,847Total
                                  expenses
                              
                              
                              286,927
                              
                              
                              
                              225,428
                              
                              
                              
                              577,164
                              
                              
                              
                              472,258**OPERATING
                                  INCOME**
                              
                              
                              44,490
                              
                              
                              
                              39,571
                              
                              
                              
                              110,159
                              
                              
                              
                              84,493**OTHER
                                  INCOME (EXPENSE):**Miscellaneous
                                  income
                              
                              
                              2,135
                              
                              
                              
                              1,627
                              
                              
                              
                              3,552
                              
                              
                              
                              3,997Interest
                                  expense
                              
                              
                              (13,072
                              )
                              
                              
                              (11,599
                              )
                              
                              
                              (24,409
                              )
                              
                              
                              (22,135
                              )Capitalized
                                  interest
                              
                              
                              285
                              
                              
                              
                              422
                              
                              
                              
                              543
                              
                              
                              
                              769Total
                                  other
                                  expense
                              
                              
                              (10,652
                              )
                              
                              
                              (9,550
                              )
                              
                              
                              (20,314
                              )
                              
                              
                              (17,369
                              )**INCOME
                                  BEFORE INCOME TAXES**
                              
                              
                              33,838
                              
                              
                              
                              30,021
                              
                              
                              
                              89,845
                              
                              
                              
                              67,124**INCOME
                                  TAXES**
                              
                              
                              14,375
                              
                              
                              
                              14,564
                              
                              
                              
                              38,638
                              
                              
                              
                              28,518**NET
                                  INCOME**
                              
                              
                              19,463
                              
                              
                              
                              15,457
                              
                              
                              
                              51,207
                              
                              
                              
                              38,606**OTHER
                                  COMPREHENSIVE INCOME (LOSS):**Pension
                                  and
                                  other postretirement benefits
                              
                              
                              (2,825
                              )
                              
                              
                              -
                              
                              
                              
                              (5,650
                              )
                              
                              
                              -Unrealized
                                  gain on derivative hedges
                              
                              
                              17
                              
                              
                              
                              16
                              
                              
                              
                              33
                              
                              
                              
                              32Change
                                  in
                                  unrealized gain on available for sale securities
                              
                              
                              (13
                              )
                              
                              
                              (14
                              )
                              
                              
                              (16
                              )
                              
                              
                              (18
                              )Other
                                  comprehensive income (loss)
                              
                              
                              (2,821
                              )
                              
                              
                              2
                              
                              
                              
                              (5,633
                              )
                              
                              
                              14Income
                                  tax
                                  expense (benefit) related to othercomprehensive
                                  income
                              
                              
                              (1,302
                              )
                              
                              
                              1
                              
                              
                              
                              (2,600
                              )
                              
                              
                              7Other
                                  comprehensive income (loss), net of tax
                              
                              
                              (1,519
                              )
                              
                              
                              1
                              
                              
                              
                              (3,033
                              )
                              
                              
                              7**TOTAL
                                  COMPREHENSIVE INCOME**
                              
                              $
                              17,944
                              
                              
                              $
                              15,458
                              
                              
                              $
                              48,174
                              
                              
                              $
                              38,613The
                                  preceding
                                  Notes to Consolidated Financial Statements as they
                                  relate to Pennsylvania
                                  Electric Company are an integralpart
                                  of these
                                  statements.
  112
 **PENNSYLVANIA
                                ELECTRIC COMPANY****CONSOLIDATED
                                BALANCE SHEETS****(Unaudited)****June
                                30,**
                            
                            
                            **December
                                31,****2007**
                            
                            
                            **2006*****(In
                                thousands)*****ASSETS****CURRENT
                                ASSETS:**Cash
                                and cash
                                equivalents
                            
                            $
                            40
                            
                            
                            $
                            44Receivables-Customers
                                (less accumulated provisions of $4,216,000 and $3,814,000respectively,
                                for uncollectible accounts)
                            
                            
                            143,874
                            
                            
                            
                            126,639Associated
                                companies
                            
                            
                            73,743
                            
                            
                            
                            49,728Other
                            
                            
                            19,809
                            
                            
                            
                            16,367Notes
                                receivable from associated companies
                            
                            
                            18,263
                            
                            
                            
                            19,548Prepaid
                                taxes
                            
                            
                            24,740
                            
                            
                            
                            3,016Other
                            
                            
                            314
                            
                            
                            
                            1,220280,783
                            
                            
                            
                            216,562**UTILITY
                                PLANT:**In
                                service
                            
                            
                            2,169,653
                            
                            
                            
                            2,141,324Less
                                -
                                Accumulated provision for depreciation
                            
                            
                            822,098
                            
                            
                            
                            809,0281,347,555
                            
                            
                            
                            1,332,296Construction
                                work in progress
                            
                            
                            28,719
                            
                            
                            
                            22,1241,376,274
                            
                            
                            
                            1,354,420**OTHER
                                PROPERTY AND INVESTMENTS:**Nuclear
                                plant
                                decommissioning trusts
                            
                            
                            133,103
                            
                            
                            
                            125,216Non-utility
                                generation trusts
                            
                            
                            101,240
                            
                            
                            
                            99,814Other
                            
                            
                            531
                            
                            
                            
                            531234,874
                            
                            
                            
                            225,561**DEFERRED
                                CHARGES AND OTHER ASSETS:**Goodwill
                            
                            
                            860,716
                            
                            
                            
                            860,716Pension
                                assets
                            
                            
                            31,293
                            
                            
                            
                            11,474Other
                            
                            
                            32,785
                            
                            
                            
                            36,059924,794
                            
                            
                            
                            908,249$
                            2,816,725
                            
                            
                            $
                            2,704,792**LIABILITIES
                                AND CAPITALIZATION****CURRENT
                                LIABILITIES:**Short-term
                                borrowings-Associated
                                companies
                            
                            $
                            166,534
                            
                            
                            $
                            199,231Other
                            
                            
                            199,000
                            
                            
                            
                            -Accounts
                                payable-Associated
                                companies
                            
                            
                            23,354
                            
                            
                            
                            92,020Other
                            
                            
                            46,225
                            
                            
                            
                            47,629Accrued
                                taxes
                            
                            
                            2,920
                            
                            
                            
                            11,670Accrued
                                interest
                            
                            
                            7,404
                            
                            
                            
                            7,224Other
                            
                            
                            21,703
                            
                            
                            
                            21,178467,140
                            
                            
                            
                            378,952**CAPITALIZATION:**Common
                                stockholder's equity-Common
                                stock,
                                $20 par value, authorized 5,400,000 shares-5,290,596
                                shares outstanding
                            
                            
                            105,812
                            
                            
                            
                            105,812Other
                                paid-in
                                capital
                            
                            
                            1,189,479
                            
                            
                            
                            1,189,434Accumulated
                                other comprehensive loss
                            
                            
                            (10,226
                            )
                            
                            
                            (7,193
                            )Retained
                                earnings
                            
                            
                            116,165
                            
                            
                            
                            90,005Total
                                common
                                stockholder's equity
                            
                            
                            1,401,230
                            
                            
                            
                            1,378,058Long-term
                                debt
                                and other long-term obligations
                            
                            
                            477,704
                            
                            
                            
                            477,3041,878,934
                            
                            
                            
                            1,855,362**NONCURRENT
                                LIABILITIES:**Regulatory
                                liabilities
                            
                            
                            73,990
                            
                            
                            
                            96,151Asset
                                retirement obligations
                            
                            
                            79,348
                            
                            
                            
                            76,924Accumulated
                                deferred income taxes
                            
                            
                            185,969
                            
                            
                            
                            193,662Retirement
                                benefits
                            
                            
                            50,974
                            
                            
                            
                            50,328Other
                            
                            
                            80,370
                            
                            
                            
                            53,413470,651
                            
                            
                            
                            470,478**COMMITMENTS
                                AND CONTINGENCIES (Note 9)**$
                            2,816,725
                            
                            
                            $
                            2,704,792The
                                preceding
                                Notes to Consolidated Financial Statements as they
                                relate to Pennsylvania
                                Electric Company are anintegral
                                part
                                of these balance sheets.
 
 113
 
 **PENNSYLVANIA
                                  ELECTRIC COMPANY****CONSOLIDATED
                                  STATEMENTS OF CASH FLOWS****(Unaudited)****Six
                                  Months Ended****June
                                  30,****2007**
                              
                              
                              **2006*****(In
                                  thousands)*****CASH
                                  FLOWS FROM OPERATING ACTIVITIES:**Net
                                  income
                              
                              $
                              51,207
                              
                              
                              $
                              38,606Adjustments
                                  to
                                  reconcile net income to net cash from operating
                                  activitiesProvision
                                  for
                                  depreciation
                              
                              
                              24,112
                              
                              
                              
                              24,441Amortization
                                  of regulatory assets
                              
                              
                              29,239
                              
                              
                              
                              27,794Deferral
                                  of
                                  new regulatory assets
                              
                              
                              (17,452
                              )
                              
                              
                              (11,815
                              )Deferred
                                  costs
                                  recoverable as regulatory assets
                              
                              
                              (34,691
                              )
                              
                              
                              (54,092
                              )Deferred
                                  income taxes and investment tax credits, net
                              
                              
                              13,548
                              
                              
                              
                              13,206Accrued
                                  compensation and retirement benefits
                              
                              
                              (12,130
                              )
                              
                              
                              893Cash
                                  collateral
                              
                              
                              3,250
                              
                              
                              
                              -Pension
                                  trust
                                  contribution
                              
                              
                              (13,436
                              )
                              
                              
                              -Decrease
                                  (increase) in operating assetsReceivables
                              
                              
                              (39,530
                              )
                              
                              
                              30,485Prepayments
                                  and other current assets
                              
                              
                              (20,819
                              )
                              
                              
                              (18,565
                              )Increase
                                  (decrease) in operating liabilitiesAccounts
                                  payable
                              
                              
                              (70,070
                              )
                              
                              
                              (9,008
                              )Accrued
                                  taxes
                              
                              
                              (8,750
                              )
                              
                              
                              (10,756
                              )Accrued
                                  interest
                              
                              
                              181
                              
                              
                              
                              190Other
                              
                              
                              1,377
                              
                              
                              
                              8,817Net
                                  cash
                                  provided from (used for) operating activities
                              
                              
                              (93,964
                              )
                              
                              
                              40,196**CASH
                                  FLOWS FROM FINANCING ACTIVITIES:**New
                                  FinancingShort-term
                                  borrowings, net
                              
                              
                              166,303
                              
                              
                              
                              26,642Dividend
                                  PaymentsCommon
                                  stock
                              
                              
                              (25,000
                              )
                              
                              
                              -Net
                                  cash
                                  provided from financing activities
                              
                              
                              141,303
                              
                              
                              
                              26,642**CASH
                                  FLOWS FROM INVESTING ACTIVITIES:**Property
                                  additions
                              
                              
                              (43,904
                              )
                              
                              
                              (60,747
                              )Loan
                                  repayments from (loans to) associated companies,
                                  net
                              
                              
                              1,285
                              
                              
                              
                              (3,466
                              )Sales
                                  of
                                  investment securities held in trust
                              
                              
                              26,882
                              
                              
                              
                              60,650Purchases
                                  of
                                  investment securities held in trust
                              
                              
                              (29,610
                              )
                              
                              
                              (60,650
                              )Other,
                                  net
                              
                              
                              (1,996
                              )
                              
                              
                              (2,611
                              )Net
                                  cash used
                                  for investing activities
                              
                              
                              (47,343
                              )
                              
                              
                              (66,824
                              )Net
                                  increase
                                  (decrease) in cash and cash equivalents
                              
                              
                              (4
                              )
                              
                              
                              14Cash
                                  and cash
                                  equivalents at beginning of period
                              
                              
                              44
                              
                              
                              
                              35Cash
                                  and cash
                                  equivalents at end of period
                              
                              $
                              40
                              
                              
                              $
                              49The
                                  preceding
                                  Notes to Consolidated Financial Statements as they
                                  relate to Pennsylvania
                                  Electric Company are anintegral
                                  part
                                  of these statements.
  114
 ***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 June 30, 2007 and the related consolidated
                        statements of
                        income and comprehensive income for each of the three-month
                        and six-month
                        periods ended June 30, 2007 and 2006 and the consolidated
                        statement of cash
                        flows for the six-month periods ended June 30, 2007 and 2006.  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,
                        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, 2006, and the related consolidated statements of income,
                        capitalization,
                        common stockholder’s equity, preferred stock, cash flows and taxes for the year
                        then ended (not presented herein), and in our report (which
                        contained references
                        to the Company’s change in its method of accounting for defined benefit
                        pension
                        and other postretirement benefit plans as of December 31,
                        2006, and conditional
                        asset retirement obligations as of December 31, 2005, as
                        discussed in Note 3,
                        Note 2(G) and Note 9 to those consolidated financial statements)
                        dated February
                        27, 2007, 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, 2006, is
                        fairly stated in all material respects in relation to the
                        consolidated balance
                        sheet from which it has been derived.
 
 
 
 
 PricewaterhouseCoopers
                        LLP
 Cleveland,
                        Ohio
 August
                        6,
                        2007
 
 
  115
  
 **PENNSYLVANIA
                        ELECTRIC COMPANY**
 
 **MANAGEMENT’S
                        DISCUSSION ANDANALYSIS
                        OF**
 **FINANCIAL
                        CONDITION AND RESULTS OF
                        OPERATIONS**
 
 
 Penelec
                        is a wholly
                        owned electric utility subsidiary of FirstEnergy. Penelec
                        conducts business in
                        northern and south central Pennsylvania, providing regulated
                        transmission and
                        distribution services. Penelec also provides generation services
                        to those
                        customers electing to retain Penelec as their power supplier.
 
 **Results
                        of Operations**
 
 Net
                        income in the
                        second quarter of 2007 increased to $19 million, compared
                        to $15 million in
                        the second quarter of 2006. This increase resulted from higher
                        revenues
                        partially offset by higher purchased power costs, other operating
                        costs and
                        lower deferrals of new regulatory assets due to the May 2006
                        PPUC order
                        discussed below. In the first six months of 2007, net income
                        increased to $51
                        million, compared to $39 million in the first six months
                        of 2006. This increase
                        in net income was due to higher revenues and deferrals of
                        new regulatory assets,
                        partially offset by increased purchased power costs and other
                        operating
                        costs.
 
 *Revenues*
 
 Revenues
                        increased
                        by $66 million, or 25.1%, in the second quarter of 2007 and
                        $131 million, or
                        23.5%, in the first six months of 2007. The increases in
                        both periods were
                        primarily due to higher retail and wholesale generation revenues.
 
 Retail
                        generation
                        revenues increased by $6 million in the second quarter of
                        2007 primarily due to
                        higher KWH sales to residential and commercial customers.
                        The increase in retail
                        generation revenues in the residential and commercial classes
                        was primarily due
                        to higher weather-related usage in the second quarter of
                        2007 compared to the
                        second quarter of 2006 (heating degree days increased 6.2%
                        and cooling degree
                        days increased 58.5%).
 
 Retail
                        generation
                        revenues increased $12 million for the first six months of
                        2007 primarily due to
                        higher KWH sales to all customer classes. The increase in
                        retail generation
                        revenues in the residential and commercial sectors was primarily
                        due to weather
                        conditions in the first six months of 2007 (heating degree
                        days increased 12.5%
                        and cooling degree days increased 58.5% as compared to the
                        same time period of
                        2006).
 
 Increases
                        in retail
                        electric generation sales and revenues in the second quarter
                        and first six
                        months of 2007 compared to the corresponding periods of 2006
                        are summarized in
                        the following tables:
 
 **Retail
                                  Generation KWH Sales**
                              
                              **Three
                                  Months**
                              
                              **Six
                                  Months****Increase
                                  (Decrease)**Residential
                              
                              
                              5.2
                              %
                              
                              5.5
                              %Commercial
                              
                              
                              4.9
                              %
                              
                              5.0
                              %Industrial
                              
                              
                              (0.1
                              )%
                              
                              -**Total
                                  Retail Electric Generation Sales**
                              
                              
                              **3.3**
                              **%**
                              
                              **3.6**
                              **%**
 
 **Retail
                                  Generation Revenues**
                              
                              **Three
                                  Months**
                              
                              **Six
                                  Months*****(In
                                  millions)***Residential
                              
                              $
                              3
                              
                              $
                              6Commercial
                              
                              
                              3
                              
                              
                              6Industrial
                              
                              
                              -
                              
                              
                              -**Increase
                                  in Retail Generation Revenues**
                              
                              **$**
                              **6**
                              
                              **$**
                              **12**
 
 Wholesale
                        revenues
                        increased $39 million in the second quarter of 2007 and $74
                        million in the first
                        six months of 2007, compared with the same periods of 2006
                        due to Penelec
                        selling additional available power into the PJM market beginning
                        in January
                        2007.
 
 Revenues
                        from
                        distribution throughput increased $13 million in the second
                        quarter and $29
                        million in the first six months of 2007 due to higher KWH
                        deliveries reflecting
                        the effect of the weather discussed above and an increase
                        in composite unit
                        prices resulting from a January 2007 PPUC authorization to
                        increase transmission
                        rates, partially offset by a 4.5% decrease in distribution
                        rates.
  116
  
 Changes
                        in
                        distribution KWH deliveries and revenues in the second quarter
                        and first six
                        months of 2007 compared to the same periods in 2006 are summarized
                        in the
                        following tables:
 
 **Distribution
                                  KWH Deliveries**
                              
                              **Three
                                  Months**
                              
                              **Six
                                  Months****Increase
                                  (Decrease)**Residential
                              
                              
                              5.2
                              %
                              
                              5.5
                              %Commercial
                              
                              
                              4.9
                              %
                              
                              5.0
                              %Industrial
                              
                              
                              -
                              
                              
                              (0.9
                              )%**Total
                                  Distribution Deliveries**
                              
                              
                              **3.2**
                              **%**
                              
                              **3.1**
                              **%**
 
 **Distribution  Revenues**
                              
                              **Three
                                  Months**
                              
                              **Six
                                  Months****Increase
                                  (Decrease)**
                              
                              ***(In
                                  millions)***Residential
                              
                              $
                              13
                              
                              $
                              30Commercial
                              
                              
                              (1
                              )
                              
                              (3
                              )Industrial
                              
                              
                              1
                              
                              
                              2**Total
                                  Distribution Revenues**
                              
                              **$**
                              **13**
                              
                              **$**
                              **29**
 
 PJM
                        transmission
                        revenues increased by $9 million in the second quarter of
                        2007 and $15 million
                        in the first six months of 2007 compared to the same period
                        in 2006 due to
                        higher transmission volumes and additional PJM auction revenue
                        rights in 2007.
                        Penelec defers the difference between revenue from its transmission
                        rider and
                        transmission costs incurred, with no material effect to current
                        period
                        earnings.
 
 *Expenses*
 
 Total
                        expenses
                        increased by $62 million in the second quarter of 2007 and
                        $105 million in the
                        first six months of 2007 compared with the same periods in
                        2006. The following
                        table presents changes from the prior year by expense category:
 
 **Three**
                              
                              **Six****Expenses
                                  - Changes**
                              
                              **Months**
                              
                              **Months*****(In
                                  millions)*****Increase
                                  (Decrease)**Purchased
                                  power costs
                              
                              $
                              38
                              
                              $
                              77Other
                                  operating costs
                              
                              
                              10
                              
                              
                              31Provision
                                  for
                                  depreciation
                              
                              
                              1
                              
                              
                              -Amortization
                                  of regulatory assets
                              
                              
                              1
                              
                              
                              1Deferral
                                  of
                                  new regulatory assets
                              
                              
                              11
                              
                              
                              (5
                              )General
                                  taxes
                              
                              
                              1
                              
                              
                              1**Net
                                  increase in expenses**
                              
                              $
                              62
                              
                              $
                              105
 
 Purchased
                        power
                        costs increased by $38 million, or 25.6%, in the second quarter
                        of 2007 and $77
                        million, or 24.9%, in the first six months of 2007, compared
                        to the same period
                        of 2006. The increases were due primarily to higher KWH purchases
                        to source
                        higher retail and wholesale generation sales combined with
                        higher composite unit
                        costs. Other operating costs increased by $9 million in the second
                        quarter
                        of 2007 and $32 million in the first six months of 2007 principally
                        due to
                        higher congestion costs and other transmission expenses associated
                        with the
                        increased transmission volumes discussed above.
 
 In
                        the second
                        quarter of 2007, the deferral of new regulatory assets decreased
                        primarily due
                        to higher PJM transmission cost deferrals recognized in the
                        second quarter of
                        2006. The deferral in the second quarter of 2006 also included
                        PJM transmission
                        costs incurred in the first quarter following authorization
                        by the PPUC in May
                        2006. The deferral of new regulatory assets increased in
                        the first six months of
                        2007 due to the deferral of previously expensed decommissioning
                        costs of $12
                        million associated with the Saxton nuclear research facility
                        as approved by the
                        PPUC in January 2007,partially
                        offset by lower PJM transmission cost deferrals.
 
 **Capital
                        Resources and Liquidity**
 
 During
                        2007, Penelec
                        expects to meet its contractual obligations with a combination
                        of cash from
                        operations and funds from the capital markets. Borrowing
                        capacity under
                        Penelec’s credit facilities is available to manage its working capital
                        requirements.
  117
  
 *Changes
                        in Cash Position*
 
 As
                        of June 30,
                        2007, Penelec had $40,000 of cash and cash equivalents compared
                        with $44,000 as
                        of December 31, 2006. The major sources for changes in these
                        balances are
                        summarized below.
 
 *Cash
                        Flows From Operating
                        Activities*
 
 Net
                        cash provided
                        (used) for operating activities in the second quarter of
                        2007 and 2006 were as
                        follows:
 
 **Six
                                  Months Ended****June
                                  30,****Operating
                                  Cash Flows**
                              
                              **2007**
                              
                              **2006*****(In
                                  millions)***Net
                                  income
                              
                              $
                              51
                              
                              $
                              39Net
                                  non-cash
                                  charges
                              
                              
                              3
                              
                              
                              -Pension
                                  trust
                                  contribution
                              
                              
                              (13
                              )
                              
                              -Working
                                  capital and other
                              
                              
                              (135
                              )
                              
                              1Net
                                  cash
                                  provided from (used for) operating activities
                              
                              $
                              (94
                              )
                              $
                              40
  The
                        $136 million change from working capital principally resulted
                        from a $70 million
                        change in accounts receivable due in part to increased billings
                        associated with
                        the January 2007 rate increase that were delayed until the
                        second quarter of
                        2007, increased cash payments of $61 million for accounts
                        payable and $8 million
                        in increased cash outflows from other operating activities
                        partially offset by a
                        $3 million increase in cash collateral received from suppliers.
                        Changes in
                        net income and non-cash charges are described under “Results of
                        Operations.”
 
 *Cash
                        Flows From Financing
                        Activities*
 
 Net
                        cash provided
                        from financing activities was $141 million in the first six
                        months of 2007
                        compared to $26 million in the first six months of 2006. The increase
                        reflects a $140 million increase in short-term borrowings,
                        partially offset by a
                        $25 million increase in common stock dividend payments to
                        FirstEnergy.
 
 Penelec
                        had
                        approximately $18 million of cash and temporary investments
                        (which included
                        short-term notes receivable from associated companies) and
                        $366 million of
                        short-term indebtedness (including $74 million from its receivables
                        financing
                        arrangement and $167 million in money pool borrowings) as
                        of June 30,
                        2007. Penelec has authorization from the FERC to incur short-term
                        debt of
                        up to $250 million (excluding receivables financing and money
                        pool borrowings)
                        and authorization from the PPUC to incur money pool borrowings
                        of up to
                        $300 million.
 
 See
                        the “Financing
                        Capability” section within the Combined Management’s Discussion and Analysis of
                        Registrant Subsidiaries for additional discussion of Penelec’s financing
                        capabilities.
 
 *Cash
                        Flows From Investing
                        Activities*
 
 In
                        the first six
                        months of 2007, net cash used for investing activities totaled
                        $47 million
                        compared to $67 million in the first six months of 2006.
                        The decrease primarily
                        resulted from a $17 million decrease in property additions
                        and a $5 million
                        increase in loan repayments from associated companies, partially
                        offset by a $3
                        million increase in the investments in the nuclear decommissioning
                        trust
                        fund.
 
 During
                        the last half
                        of 2007, capital requirements for property additions are
                        expected to be
                        about $46 million. Penelec’s capital spending for the period 2007-2011 is
                        expected to be about $614 million, of which approximately
                        $92 million applies to
                        2007.
 
 **Market
                        Risk Information**
 
 During
                        the first six
                        months of 2007, the value of commodity derivative contracts
                        decreased by $2
                        million as a result of settled contracts. These non-trading
                        contracts are
                        adjusted to fair value at the end of each quarter with a
                        corresponding offset to
                        regulatory liabilities, resulting in no impact to current
                        period earnings.
                        Commodity derivative contracts were valued at $10 million
                        and $12 million as of
                        June 30, 2007 and December 31, 2006, respectively. See the
“Market Risk
                        Information” section of Penelec’s 2006 Annual Report on Form 10-K for additional
                        discussion of market risk.
  118
  
 **Equity
                        Price Risk**
 
 Included
                        in nuclear
                        decommissioning trusts are marketable equity securities carried
                        at their current
                        fair value of approximately $80 million and $72 million as of June 30, 2007
                        and December 31, 2006, respectively. A hypothetical 10% decrease in prices
                        quoted by stock exchanges would result in an $8 million reduction
                        in fair value
                        as of June 30, 2007.
 
 **Regulatory
                        Matters**
 
 See
                        the “Regulatory
                        Matters” section within the Combined Management’s Discussion and Analysis of
                        Registrant Subsidiaries for discussion of regulatory matters
                        applicable to
                        Penelec.
 
 **Environmental
                        Matters**
 
 See
                        the
“Environmental Matters” section within the Combined Management’s Discussion and
                        Analysis of Registrant Subsidiaries for discussion of environmental
                        matters
                        applicable to Penelec.
 
 **Other
                        Legal Proceedings**
 
 See
                        the “Other Legal
                        Proceedings” section within the Combined Management’s Discussion and Analysis of
                        Registrant Subsidiaries for discussion of other legal proceedings
                        applicable to
                        Penelec.
 
 **New
                        Accounting Standards and Interpretations**
 
 See
                        the “New
                        Accounting Standards and Interpretations” section within the Combined
                        Management’s Discussion and Analysis of Registrant Subsidiaries for
                        discussion
                        of new accounting standards and interpretations applicable
                        to
                        Penelec.
  119
  
 **COMBINED
                        MANAGEMENT’S DISCUSSION**
 **AND
                        ANALYSIS
                        OF REGISTRANT SUBSIDIARIES**
 
 
 The
                        following is a
                        combined presentation of certain disclosures referenced in
                        Management’s
                        Discussion and Analysis of Financial Condition and Results
                        of Operations of the
                        Companies. This information should be read in conjunction
                        with (i) the
                        Companies’ respective Consolidated Financial Statements and Management’s
                        Discussion and Analysis of Financial Condition and Results
                        of Operations; (ii)
                        the Notes to Consolidated Financial Statements as they relate
                        to the Companies;
                        and (iii) the Companies’ respective 2006 Annual Reports on Form
                        10-K.
 
 **Financing
                        Capability**  (Applicable to each of the
                        Companies)
 
 As
                        of June 30, 2007,
                        OE, CEI and TE had the capability to issue approximately
                        $1.5 billion, $557
                        million and $797 million, respectively, of additional FMB
                        on the basis of
                        property additions and retired bonds under the terms of their
                        respective
                        mortgage indentures. The issuance of FMB by OE, CEI and TE
                        is also subject to
                        provisions of their senior note indentures generally limiting
                        the incurrence of
                        additional secured debt, subject to certain exceptions that
                        would permit, among
                        other things, the issuance of secured debt (including FMB)
                        (i) supporting
                        pollution control notes or similar obligations, or (ii) as
                        an extension, renewal
                        or replacement of previously outstanding secured debt. In
                        addition, these
                        provisions would permit OE, CEI and TE to incur additional
                        secured debt not
                        otherwise permitted by a specified exception of up to $463 million,
                        $515 million and $127 million, respectively, as of June 30, 2007.
                        Because JCP&L satisfied the provision of its senior note indenture for
                        the
                        release of all FMBs held as collateral for senior notes in
                        May 2007, it is no
                        longer required to issue FMBs as collateral for senior notes
                        and therefore is
                        not limited as to the amount of senior notes it may issue.
 
 The
                        applicable
                        earnings coverage tests in the respective charters of OE,
                        TE, Penn and JCP&L
                        are currently inoperative. In the event that any of them
                        issues preferred stock
                        in the future, the applicable earnings coverage test will
                        govern the amount of
                        preferred stock that may be issued. CEI, Met-Ed and Penelec
                        do not have similar
                        restrictions and could issue up to the number of preferred
                        shares authorized
                        under their respective charters.
 
 As
                        of June 30, 2007,
                        OE had approximately $400 million of capacity remaining unused under its
                        existing shelf registration for unsecured debt securities
                        filed with the SEC in
                        2006.
 
 FirstEnergy
                        and
                        certain of its subsidiaries are parties to a $2.75 billion five-year
                        revolving credit facility (included in the borrowing capability
                        table above).
                        FirstEnergy may request an increase in the total commitments
                        available under
                        this facility up to a maximum of $3.25 billion. Commitments under the
                        facility are available until August 24, 2011, unless the lenders agree, at
                        the request of the Borrowers, to two additional one-year
                        extensions. Generally,
                        borrowings under the facility must be repaid within 364 days.
                        Available amounts
                        for each Borrower are subject to a specified sub-limit, as
                        well as applicable
                        regulatory and other limitations.
 
 The
                        following table
                        summarizes the borrowing sub-limits for each borrower under
                        the facility, as
                        well as the limitations on short-term indebtedness applicable
                        to each borrower
                        under current regulatory approvals and applicable statutory
                        and/or charter
                        limitations:
 
 **Revolving**
                              
                              **Regulatory
                                  and****Credit
                                  Facility**
                              
                              **Other
                                  Short-Term****Borrower**
                              
                              **Sub-Limit**
                              
                              **Debt
                                    Limitations(1)*****(In
                                  millions)*****FirstEnergy**
                              
                              $
                              2,750
                              
                              $
                              -
                              (2)**OE**
                              
                              
                              500
                              
                              
                              500**Penn**
                              
                              
                              50
                              
                              
                              39**CEI**
                              
                              
                              250
                              (3)
                              
                              500**TE**
                              
                              
                              250
                              (3)
                              
                              500**JCP&L**
                              
                              
                              425
                              
                              
                              431**Met-Ed**
                              
                              
                              250
                              
                              
                              250
                              (4)**Penelec**
                              
                              
                              250
                              
                              
                              250
                              (4)
 
 (1)
                              As
                                  of
                                  June 30, 2007.
 (2)
                              No
                                  regulatory
                                  approvals, statutory or charter limitations
                                  applicable.
 (3)
                              Borrowing
                                  sub-limits for CEI and TE may be increased to up
                                  to $500 million by
                                  delivering notice to the
                                administrative
                                  agent that such borrower has senior unsecured debt
                                  ratings of at least BBB
                                  by S&P and
                                Baa2
                                  by
                                  Moody’s.
 (4)
                              Excluding
                                  amounts which may be borrowed under the regulated
                                  money
                                  pool.
  120
  
 Under
                        the revolving
                        credit facility, borrowers may request the issuance of LOCs
                        expiring up to one
                        year from the date of issuance. The stated amount of outstanding
                        LOCs will count
                        against total commitments available under the facility and
                        against the
                        applicable borrower’s borrowing sub-limit.
 
 The
                        revolving credit
                        facility contains financial covenants requiring each borrower
                        to maintain a
                        consolidated debt to total capitalization ratio of no more
                        than 65%, measured at
                        the end of each fiscal quarter. As of June 30, 2007, FirstEnergy and its
                        subsidiaries' debt to total capitalization ratios (as defined
                        under the
                        revolving credit facility) were as follows:
 
 **Borrower****FirstEnergy**
                              
                              61
                              %**OE***
                              
                              48
                              %**Penn**
                              
                              24
                              %**CEI***
                              
                              60
                              %**TE***
                              
                              56
                              %**JCP&L**
                              
                              32
                              %**Met-Ed**
                              
                              46
                              %**Penelec***
                              
                              38
                              %
 
 *The
                        ratios of
                        June 30, 2007, as adjusted for common stock dividends declared
 in
                        July 2007 would
                        be: OE – 50%, CEI – 63%, TE – 61% and Penelec – 39%.
 
 The
                        revolving credit
                        facility does not contain provisions that either restrict
                        the ability to borrow
                        or accelerate repayment of outstanding advances as a result
                        of any change in
                        credit ratings. Pricing is defined in “pricing grids”, whereby the cost of funds
                        borrowed under the facility is related to the credit ratings
                        of the company
                        borrowing the funds.
 
 The
                        Companies also
                        have the ability to borrow from each other and the holding
                        company to meet their
                        short-term working capital requirements. FESC administers
                        the money pool and
                        tracks surplus funds of FirstEnergy and the Companies, as
                        well as proceeds
                        available from bank borrowings. Companies receiving a loan
                        under the money pool
                        agreements must repay the principal amount of the loan, together
                        with accrued
                        interest, within 364 days of borrowing the funds. The rate
                        of interest is the
                        same for each company receiving a loan from the pool and
                        is based on the average
                        cost of funds available through the pool. The average interest
                        rate for
                        borrowings in the first six months of 2007 was 5.64%.
 
 Each
                        of the
                        Companies’ access to capital markets and costs of financing are influenced
                        by
                        the ratings of its securities and the securities of FirstEnergy.  The
                        following table displays FirstEnergy’s and the Companies’ securities ratings as
                        of June 30, 2007. The ratings outlook from Moody’s is positive for all
                        securities. The ratings outlook from S&P on all securities is
                        stable.  The ratings outlook from Fitch on CEI and TE is positive
                        and
                        stable on all other operating companies.
 
 **Issuer**
                              
                              **Securities**
                              
                              **S&P**
                              
                              **Moody’s**
                              
                              **Fitch**FirstEnergy
                              
                              Senior
                                  unsecured
                              
                              BBB-
                              
                              Baa3
                              
                              BBBOE
                              
                              Senior
                                  unsecured
                              
                              BBB+
                              
                              Baa1
                              
                              BBB+CEI
                              
                              Senior
                                  secured
                              
                              BBB
                              
                              Baa2
                              
                              BBBSenior
                                  unsecured
                              
                              BBB-
                              
                              Baa3
                              
                              BBB-TE
                              
                              Senior
                                  secured
                              
                              BBB
                              
                              Baa2
                              
                              BBBSenior
                                  unsecured
                              
                              BBB-
                              
                              Baa3
                              
                              BBB-Penn
                              
                              Senior
                                  secured
                              
                              BBB+
                              
                              Baa1
                              
                              BBB+JCP&L
                              
                              Senior
                                  secured
                              
                              BBB+
                              
                              Baa1
                              
                              A-Met-Ed
                              
                              Senior
                                  unsecured
                              
                              BBB
                              
                              Baa2
                              
                              BBBPenelec
                              
                              Senior
                                  unsecured
                              
                              BBB
                              
                              Baa2
                              
                              BBB
 
 OE,
                        CEI, Penn,
                        Met-Ed and Penelec each have a wholly owned subsidiary whose
                        borrowings are
                        secured by customer accounts receivable purchased from its
                        respective parent
                        company. The CEI subsidiary's borrowings are also secured
                        by customer accounts
                        receivable purchased from TE. Each subsidiary company has
                        its own receivables
                        financing arrangement and, as a separate legal entity with
                        separate creditors,
                        would have to satisfy its obligations to creditors before
                        any of its remaining
                        assets could be available to its parent company. The receivables
                        financing
                        borrowing capacity and outstanding balance by company, as
                        of June 30, 2007, are
                        shown in the following table.
  121
  
 
 **Subsidiary
                                  Company**
                              
                              **Parent
                                  Company**
                              
                              
                              **Borrowing**
                                **Capacity**
                              
                              
                              **Outstanding
                                  Balance**
                              
                              **Annual
                                  Facility Fee*****(In
                                  millions)***OES
                                  Capital,
                                  Incorporated
                              
                              OE
                              
                              $
                              170
                              
                              $
                              100
                              
                              0.15%Centerior
                                  Funding Corp.
                              
                              CEI
                              
                              
                              200
                              
                              
                              -
                              
                              0.15Penn
                                  Power
                                  Funding LLC
                              
                              Penn
                              
                              
                              25
                              
                              
                              17
                              
                              0.125Met-Ed
                                  Funding
                                  LLC
                              
                              Met-Ed
                              
                              
                              80
                              
                              
                              72
                              
                              0.125Penelec
                                  Funding LLC
                              
                              Penelec
                              
                              
                              75
                              
                              
                              74
                              
                              0.125$
                              550
                              
                              $
                              263
 
 **Regulatory
                        Matters******(Applicable to each of the
                        Companies)
 
 In
                        Ohio, New Jersey
                        and Pennsylvania, laws applicable to electric industry restructuring
                        contain
                        similar provisions that are reflected in the Companies' respective
                        state
                        regulatory plans. These provisions include:
 
 ·
                              restructuring the electric generation business
                                  and allowing customers to
                                  select a competitive electric generation supplier
                                  other than the
                                  Companies;·
                              establishing or defining the PLR obligations to
                                  customers in the
                                  Companies' service areas;·
                              providing the Companies with the opportunity to
                                  recover potentially
                                  stranded investment (or transition costs) not otherwise
                                  recoverable in a
                                  competitive generation market;·
                              itemizing (unbundling) the price of electricity
                                  into its component
                                  elements – including generation, transmission, distribution
                                  and stranded
                                  costs recovery charges;·
                              continuing regulation of the Companies' transmission
                                  and distribution
                                  systems; and·
                              requiring corporate separation of regulated and
                                  unregulated business
                                  activities.
 
 The
                        Companies
                        recognize, as regulatory assets, costs which the FERC, PUCO,
                        PPUC and NJBPU have
                        authorized for recovery from customers in future periods
                        or for which
                        authorization is probable. Without the probability of such
                        authorization, costs
                        currently recorded as regulatory assets would have been charged
                        to income as
                        incurred. Regulatory assets that do not earn a current return
                        totaled
                        approximately $219 million as of June 30, 2007 (JCP&L -
                        $103 million, Met-Ed - $34 million and Penelec - $82 million).
                        Regulatory assets not earning a current return will be recovered
                        by 2014 for
                        JCP&L and by 2020 for Met-Ed and Penelec. The following table
                        discloses
                        regulatory assets by company:
 
 **June
                                  30,**
                              
                              **December
                                  31,**
                              
                              **Increase****Regulatory
                                  Assets***
                              
                              **2007**
                              
                              **2006**
                              
                              **(Decrease)*****(In
                                  millions)***OE
                              
                              $
                              733
                              
                              $
                              741
                              
                              $
                              (8
                              )CEI
                              
                              
                              863
                              
                              
                              855
                              
                              
                              8TE
                              
                              
                              230
                              
                              
                              248
                              
                              
                              (18
                              )JCP&L
                              
                              
                              1,825
                              
                              
                              2,152
                              
                              
                              (327
                              )Met-Ed
                              
                              
                              464
                              
                              
                              409
                              
                              
                              55Total
                              
                              $
                              4,115
                              
                              $
                              4,405
                              
                              $
                              (290
                              )
 
 *
                              Penelec
                                  had
                                  net regulatory liabilities of approximately $74 million
                                and
                                  $96 million as of June 30, 2007 and December 31, 2006,
                                respectively.
                                  These net regulatory liabilities are included in
                                  Other
                                Non-current
                                  Liabilities on the Consolidated Balance
                                  Sheets.
 
  122
  
 ***Ohio***(Applicable
                        to OE, CEI and TE)******
 
 On
                        October 21, 2003,
                        the Ohio Companies filed their RSP case with the PUCO. On
                        August 5, 2004, the
                        Ohio Companies accepted the RSP as modified and approved
                        by the PUCO in an
                        August 4, 2004 Entry on Rehearing, subject to a CBP. The
                        RSP was intended to
                        establish generation service rates beginning January 1, 2006,
                        in response to the
                        PUCO’s concerns about price and supply uncertainty following the
                        end of the Ohio
                        Companies' transition plan market development period. On
                        May 3, 2006, the
                        Supreme Court of Ohio issued an opinion affirming the PUCO's
                        order in all
                        respects, except it remanded back to the PUCO the matter
                        of ensuring the
                        availability of sufficient means for customer participation
                        in the marketplace.
                        The RSP contained a provision that permitted the Ohio Companies
                        to withdraw and
                        terminate the RSP in the event that the PUCO, or the Supreme
                        Court of Ohio,
                        rejected all or part of the RSP. In such event, the Ohio
                        Companies have 30 days
                        from the final order or decision to provide notice of termination.
                        On July 20,
                        2006 the Ohio Companies filed with the PUCO a Request to
                        Initiate a Proceeding
                        on Remand. In their Request, the Ohio Companies provided
                        notice of termination
                        to those provisions of the RSP subject to termination, subject
                        to being
                        withdrawn, and also set forth a framework for addressing
                        the Supreme Court of
                        Ohio’s findings on customer participation. If the PUCO approves
                        a resolution to
                        the issues raised by the Supreme Court of Ohio that is acceptable
                        to the Ohio
                        Companies, the Ohio Companies’ termination will be withdrawn and considered to
                        be null and void. On July 20, 2006, the OCC and NOAC also submitted to the
                        PUCO a conceptual proposal addressing the issue raised by
                        the Supreme Court of
                        Ohio. On July 26, 2006, the PUCO issued an Entry directing
                        the Ohio Companies to
                        file a plan in a new docket to address the Court’s concern. The Ohio Companies
                        filed their RSP Remand CBP on September 29, 2006. Initial comments were
                        filed on January 12, 2007 and reply comments were filed on January 29,
                        2007. In their reply comments the Ohio Companies described
                        the highlights of a
                        new tariff offering they would be willing to make available
                        to customers that
                        would allow customers to purchase renewable energy certificates
                        associated with
                        a renewable generation source, subject to PUCO approval.
                        On May 29, 2007,
                        the Ohio Companies, together with the PUCO Staff and the
                        OCC, filed a
                        stipulation with the PUCO agreeing to offer a standard bid
                        product and a green
                        resource tariff product. The stipulation is currently pending
                        before the PUCO.
                        No further proceedings are scheduled at this time.
 
 The
                        Ohio Companies
                        filed an application and stipulation with the PUCO on September 9, 2005
                        seeking approval of the RCP, a supplement to the RSP. On
                        November 4, 2005, the
                        Ohio Companies filed a supplemental stipulation with the
                        PUCO, which constituted
                        an additional component of the RCP filed on September 9,
                        2005. On January 4,
                        2006, the PUCO approved, with modifications, the Ohio Companies’ RCP to
                        supplement the RSP to provide customers with more certain
                        rate levels than
                        otherwise available under the RSP during the plan period.
                        The following table
                        provides the estimated net amortization of regulatory transition
                        costs and
                        deferred shopping incentives (including associated carrying
                        charges) under the
                        RCP for the period 2007 through 2010:
 
 **Amortization**
                              
                              
                              
                              
                              
                              
                              
                              
                              **Total****Period**
                              
                              **OE**
                              
                              **CEI**
                              
                              **TE**
                              
                              **Ohio*****(In
                                  millions)***2007
                              
                              **$**
                              179
                              
                              **$**
                              108
                              
                              **$**
                              93
                              
                              **$**
                              3802008
                              
                              
                              208
                              
                              
                              124
                              
                              
                              119
                              
                              
                              4512009
                              
                              
                              -
                              
                              
                              216
                              
                              
                              -
                              
                              
                              2162010
                              
                              
                              -
                              
                              
                              273
                              
                              
                              -
                              
                              
                              273**Total
                                  Amortization**
                              
                              **$**
                              387
                              
                              **$**
                              721
                              
                              **$**
                              212
                              
                              **$**
                              1,320
 
 
 On
                        August 31, 2005,
                        the PUCO approved a rider recovery mechanism through which
                        the Ohio Companies
                        may recover all MISO transmission and ancillary service related
                        costs incurred
                        during each year ending June 30. Pursuant to the PUCO’s order, the Ohio
                        Companies, on May 1, 2007, filed revised riders, which became
                        effective on July
                        1, 2007.  The revised riders represent an increase over the amounts
                        collected through the 2006 riders of approximately $64 million
                        annually.  If it is subsequently determined by the PUCO that
                        adjustments to the rider as filed are necessary, such adjustments,
                        with carrying
                        costs, will be incorporated into the 2008 transmission rider
                        filing.
 
 On
                        May 8, 2007, the
                        Ohio Companies filed with the PUCO a notice of intent to
                        file for an increase in
                        electric distribution rates. The Ohio Companies filed the
                        application and rate
                        request 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 bill for most Ohio customers.  The
                        distribution rate increases reflect capital expenditures
                        since the Ohio
                        Companies’ last distribution rate proceedings, increases in operating
                        and
                        maintenance expenses and recovery of regulatory assets created
                        by deferrals that
                        were approved in prior cases. On August 6, 2007, the Ohio Companies
                        provided an update filing supporting a distribution rate
                        increase of
                        $332 million to the PUCO to establish the test period data that
                        will be
                        used as the basis for setting rates in that proceeding. The
                        PUCO Staff is
                        expected to issue its report in the case in the fourth quarter
                        of 2007 with
                        evidentiary hearings to follow in late 2007. The PUCO order
                        is expected to be
                        issued by March 9, 2008. The new rates, subject to evidentiary hearings and
                        approval at the PUCO, would become effective January 1, 2009
                        for OE and TE, and
                        approximately May 2009 for CEI.
  123
  
 On
                        July 10, 2007,
                        the Ohio Companies filed an application with the PUCO requesting
                        approval of a
                        comprehensive supply plan for providing 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 kilowatt-hour 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.
                        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 Ohio
                        Companies requested
                        that the PUCO issue an order by November 1, 2007, to provide
                        sufficient time to
                        conduct the bidding process. The PUCO has scheduled a technical
                        conference for
                        August 16, 2007.
 
 ***Pennsylvania***(Applicable
                        to Met-Ed, Penelec and Penn)
 
 Met-Ed
                        and Penelec
                        have been purchasing a portion of their PLR requirements
                        from FES through a
                        partial requirements wholesale power sales agreement and
                        various amendments.
                        Under these agreements, FES retained the supply obligation
                        and the supply profit
                        and loss risk for the portion of power supply requirements
                        not self-supplied by
                        Met-Ed and Penelec. The FES agreements have reduced Met-Ed's
                        and Penelec's
                        exposure to high wholesale power prices by providing power
                        at a fixed price for
                        their uncommitted PLR capacity and energy costs during the
                        term of these
                        agreements with FES.
 
 On
                        April 7,
                        2006, the parties entered into a tolling agreement that arose
                        from FES’ notice
                        to Met-Ed and Penelec that FES elected to exercise its right
                        to terminate the
                        partial requirements agreement effective midnight December 31, 2006. On
                        November 29, 2006, Met-Ed, Penelec and FES agreed to suspend the April
                        7
                        tolling agreement pending resolution of the PPUC’s proceedings regarding the
                        Met-Ed and Penelec comprehensive transition rate cases filed
                        April 10, 2006,
                        described below. Separately, on September 26, 2006, Met-Ed and Penelec
                        successfully conducted a competitive RFP for a portion of
                        their PLR obligation
                        for the period December 1, 2006 through December 31, 2008. FES was one
                        of the successful bidders in that RFP process and on September
                        26, 2006 entered
                        into a supplier master agreement to supply a certain portion
                        of Met-Ed’s and
                        Penelec’s PLR requirements at market prices that substantially exceed
                        the fixed
                        price in the partial requirements agreements.
 
 Based
                        on the outcome
                        of the 2006 comprehensive transition rate filing, as described
                        below, Met-Ed,
                        Penelec and FES agreed to restate the partial requirements
                        power sales agreement
                        effective January 1, 2007. The restated agreement incorporates
                        the same fixed
                        price for residual capacity and energy supplied by FES as
                        in the prior
                        arrangements between the parties, and automatically extends
                        for successive one
                        year terms unless any party gives 60 days’ notice prior to the end of the year.
                        The restated agreement also 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 thus sold to the extent needed for
                        Met-Ed and Penelec to
                        satisfy their PLR obligations. The parties also have separately
                        terminated the
                        tolling, suspension and supplier master agreements in connection
                        with the
                        restatement of the partial requirements agreement. Accordingly,
                        the energy that
                        would have been supplied under the supplier master agreement
                        will now be
                        provided under the restated partial requirements agreement.
                        The fixed price
                        under the restated 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 its 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 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 in accordance with the April 7, 2006 tolling agreement described
                        above. Met-Ed and Penelec also requested approval of a January 12, 2005
                        petition for the deferral of transmission-related costs,
                        but only for those
                        costs incurred during 2006. In this rate filing, Met-Ed and
                        Penelec also
                        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 the merger savings,
                        with the comprehensive
                        transmission rate filing case.
  124
  
 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, when
                        new transmission rates were effective, 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 in 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
                        expenses and the
                        transmission deferral. 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). Met-Ed and Penelec filed a Petition for
                        Reconsideration on January 26, 2007 on the issues of consolidated
                        tax savings
                        and rate of return on equity. Other parties filed Petitions
                        for Reconsideration
                        on transmission (including congestion), transmission deferrals
                        and rate design
                        issues. On February 8, 2007, the PPUC entered an order granting
                        Met-Ed’s,
                        Penelec’s and the other parties’ petitions for procedural purposes. Due to that
                        ruling, the period for appeals to the Commonwealth Court
                        of Pennsylvania was
                        tolled until 30 days after the PPUC entered a subsequent
                        order ruling on the
                        substantive issues raised in the petitions. On March 1, 2007, the PPUC
                        issued three orders: (1) a tentative order regarding the
                        reconsideration by the
                        PPUC of its own order; (2) an order denying the Petitions
                        for Reconsideration of
                        Met-Ed, Penelec and the OCA and denying in part and accepting
                        in part MEIUG’s
                        and PICA’s Petition for Reconsideration; and (3) an order approving
                        the
                        Compliance filing. Comments to the PPUC for reconsideration
                        of its order were
                        filed on March 8, 2007, and the PPUC ruled on the reconsideration
                        on
                        April 13, 2007, making minor changes to rate design as agreed upon
                        by
                        Met-Ed, Penelec and certain other parties.
 
 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. On June 19, 2007, initial briefs were filed by all
                        parties. Responsive briefs are due August 20, 2007, with
                        reply briefs due
                        September 4, 2007. Oral arguments are expected to take place in late
                        2007
                        or early 2008. If Met-Ed and Penelec do not prevail on the
                        issue of congestion,
                        it could have a material adverse effect on the financial condition and
                        results of operations of Met-Ed, Penelec and FirstEnergy.
 
 As
                        of June 30, 2007,
                        Met-Ed's and Penelec's unrecovered regulatory deferrals pursuant
                        to the 2006
                        comprehensive transition rate case, the 1998 Restructuring
                        Settlement (including
                        the Phase 2 Proceedings) and the FirstEnergy/GPU Merger Settlement
                        Stipulation
                        were $493 million and $127 million, respectively. $82 million of
                        Penelec’s deferral is subject to final resolution of an IRS settlement
                        associated with NUG trust fund proceeds. During the PPUC’s annual audit of
                        Met-Ed’s and Penelec’s NUG stranded cost balances in 2006, it noted a
                        modification to the NUG purchased power stranded cost accounting
                        methodology
                        made by Met-Ed and Penelec. On August 18, 2006, a PPUC Order
                        was entered
                        requiring Met-Ed and Penelec to reflect the deferred NUG
                        cost balances as if the
                        stranded cost accounting methodology modification had not
                        been implemented. As a
                        result of this PPUC order, Met-Ed recognized a pre-tax charge
                        of approximately
                        $10.3 million in the third quarter of 2006, representing incremental
                        costs
                        deferred under the revised methodology in 2005. Met-Ed and
                        Penelec continue to
                        believe that the stranded cost accounting methodology modification
                        is
                        appropriate and on August 24, 2006 filed a petition with
                        the PPUC pursuant to
                        its order for authorization to reflect the stranded cost
                        accounting methodology
                        modification effective January 1, 1999. Hearings on this
                        petition were held in
                        late February 2007 and briefing was completed on March 28,
                        2007. The ALJ’s
                        initial decision was issued on May 3, 2007 and denied Met-Ed's
                        and Penelec’s
                        request to modify their NUG stranded cost accounting methodology.
                        The companies
                        filed exceptions to the initial decision on May 23, 2007
                        and replies to those
                        exceptions were filed on June 4, 2007. It is not known when
                        the PPUC may issue a
                        final decision in this matter.
 
 On
                        May 2, 2007, Penn
                        filed a plan with the PPUC for the procurement of PLR supply
                        from June 2008
                        through May 2011. The filing proposes multiple, competitive
                        RFPs with staggered
                        delivery periods for fixed-price, tranche-based, pay as bid
                        PLR supply to the
                        residential and commercial classes. The proposal phases out
                        existing promotional
                        rates and eliminates the declining block and the demand components
                        on generation
                        rates for residential and commercial customers. The industrial
                        class PLR service
                        would be provided through an hourly-priced service provided
                        by Penn. Quarterly
                        reconciliation of the differences between the costs of supply
                        and revenues from
                        customers is also proposed. The PPUC is requested to act
                        on the proposal no
                        later than November 2007 for the initial RFP to take place
                        in January
                        2008.
  125
  
 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 programs to
                        meet demand 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 an optional 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 will be
                        convened in mid-September 2007 to consider other aspects
                        of the EIS. The final
                        form of any legislation arising from the special legislative
                        session is
                        uncertain. Consequently, FirstEnergy is unable to predict
                        what impact, if any,
                        such legislation may have on its operations.
 
 ***New
                        Jersey***(Applicable to JCP&L)
 
 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 June 30, 2007, the accumulated
                        deferred cost
                        balance totaled approximately $392 million.
 
 In
                        accordance with
                        an April 28, 2004 NJBPU order, JCP&L filed testimony on June 7,
                        2004 supporting a 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. 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
                        PUHCA pursuant to the EPACT. The NJBPU approved regulations
                        effective October 2,
                        2006 that would 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.
                        Comments on the alternative proposal were submitted on June 15, 2006. On
                        November 3, 2006, the Staff circulated a revised draft proposal to
                        interested stakeholders. Another revised draft was circulated
                        by the NJBPU Staff
                        on February 8, 2007.
 
 New
                        Jersey statutes
                        require that the state periodically undertake a planning
                        process, known as the
                        Energy Master Plan (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 with
                        the issuance of a
                        proposed set of objectives which, as to electricity, included
                        the
                        following:
 
 ·  Reduce
                        the total
                        projected electricity demand by 20% by 2020;
 
 · Meet
                        22.5% of New Jersey’s electricity needs with renewable energy resources by that
                        date;
 
 ·  Reduce
                        air pollution
                        related to energy use;
 
 ·  Encourage
                        and
                        maintain economic growth and development;
 
 · Achieve
                        a 20%
                        reduction in both Customer Average Interruption Duration
                        Index and System
                        Average Interruption Frequency Index by 2020;
 
 · Unit
                        prices for electricity should remain no more than +5% of
                        the regional average
                        price (region includes New York, New Jersey, Pennsylvania,
                        Delaware, Maryland
                        and the
 District of Columbia); and
 
 ·  Eliminate
                        transmission congestion by 2020.
  126
  
 Comments
                        on the
                        objectives and participation in the development of the EMP
                        have been solicited
                        and a number of working groups have been formed to obtain
                        input from a broad
                        range of interested stakeholders including utilities, environmental
                        groups,
                        customer groups, and major customers. EMP working groups
                        addressing (1) energy
                        efficiency and demand response, (2) renewables, (3) reliability,
                        and (4) pricing
                        issues have completed their assigned tasks of data gathering
                        and analysis and
                        have provided reports to the EMP Committee. Public stakeholder
                        meetings were
                        held in the fall of 2006 and in early 2007, and further public
                        meetings are
                        expected later in 2007. A final draft of the EMP is expected
                        to be presented to
                        the Governor in late 2007. At this time, FirstEnergy cannot
                        predict the outcome
                        of this process nor determine the impact, if any, such legislation
                        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 August 1,
                        2007, the NJBPU approved publication of a formal proposal
                        in the New Jersey
                        Register, which proposal will be subsequently considered
                        by the NJBPU following
                        a period for public comment.  At this time, FirstEnergy cannot predict
                        the outcome of this process nor determine the impact, if
                        any, such regulations
                        may have on its operations or those of JCP&L.
 
 ***FERC
                        Matters***(Applicable to each of the
                        Companies)
 
 On
                        November 18,
                        2004, the FERC issued an order eliminating the RTOR for transmission
                        service
                        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 SECA mechanism to recover lost RTOR revenues during a 16-month
                        transition
                        period from load serving entities. The FERC issued orders
                        in 2005 setting the
                        SECA for hearing. ATSI, JCP&L, Met-Ed, Penelec, and FES participated in the
                        FERC hearings held in May 2006 concerning the calculation
                        and imposition of the
                        SECA charges. The presiding judge issued an initial decision
                        on August 10, 2006,
                        rejecting the compliance filings made by the RTOs and transmission
                        owners,
                        ruling on various issues 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 third quarter of 2007.
 
 On
                        January 31, 2005,
                        certain PJM transmission owners made three 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. In the second
                        filing, the settling transmission owners proposed a revised
                        Schedule 12 to the
                        PJM tariff designed to harmonize the rate treatment of new
                        and existing
                        transmission facilities. Interventions and protests were
                        filed on February 22,
                        2005. In the third filing, Baltimore Gas and Electric Company
                        and Pepco
                        Holdings, Inc. requested a formula rate for transmission
                        service provided within
                        their respective zones. Hearings were held and numerous parties
                        appeared and
                        litigated various issues; including American Electric Power
                        Company, Inc., which
                        filed in opposition proposing to create a "postage stamp"
                        rate for high voltage
                        transmission facilities across PJM. At the conclusion of
                        the hearings, the ALJ
                        issued an initial decision adopting the FERC Trial Staff’s position that the
                        cost of all PJM transmission facilities should be recovered
                        through a postage
                        stamp rate.******The ALJ recommended an April
                        1, 2006
                        effective date for this change in rate design. Numerous parties,
                        including
                        FirstEnergy, submitted briefs opposing the ALJ’s decision and
                        recommendations.  On April 19, 2007, the FERC issued an order
                        rejecting the ALJ’s findings and recommendations in nearly every respect. The
                        FERC found that the PJM transmission owners’ existing “license plate” 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 socialized
                        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.  Nevertheless, 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.  Subsequently, FirstEnergy and other parties filed pleadings
                        opposing the requests for rehearing. The FERC’s Orders on PJM rate design, if
                        sustained on rehearing and appeal, will prevent the allocation
                        of the cost 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 costs shifting to the JCP&L, Met-Ed and Penelec
                        zones.
 
 On
                        August 1, 2007, a
                        number of filings were made with the FERC by transmission
                        owning utilities in
                        the MISO and PJM footprint that could affect the transmission
                        rates paid by
                        FirstEnergy’s operating companies and FES.
  127
  
 FirstEnergy
                        joined
                        in a filing made by the MISO transmission owners that would
                        maintain the
                        existing “license plate” rates for transmission service within MISO provided
                        over existing transmission facilities.  FirstEnergy also joined in a
                        filing made by both the MISO and PJM transmission owners
                        proposing to maintain
                        existing transmission rates between MISO and PJM.  If accepted by the
                        FERC, these filings would not affect the rates charged to
                        load-serving
                        FirstEnergy affiliates for transmission service over existing
                        transmission
                        facilities.  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 transmission facilities
                        across the entire
                        MISO footprint be maintained.  All of these filings were supported by
                        the majority of transmission owners in either MISO or PJM.
 
 The
                        Midwest
                        Stand-Alone Transmission Companies made a filing under Section
                        205 of the
                        Federal Power Act requesting that 100% of the cost of new
                        qualifying 345 kV
                        transmission facilities be spread throughout the entire MISO
                        footprint.  If adopted by the FERC, this proposal would shift a
                        greater portion of the cost of new 345 kV transmission facilities
                        to the
                        FirstEnergy footprint, and increase the transmission rates
                        paid by load-serving
                        FirstEnergy affiliates.
 
 American
                        Electric
                        Power (AEP) filed a letter with the FERC Commissioners stating
                        its intent to
                        file a complaint under Section 206 of the Federal Power Act
                        challenging the
                        justness and reasonableness of the rate designs underlying
                        the MISO and PJM
                        transmission tariffs.  AEP will propose the adoption of a regional
                        rate design that is expected to reallocate the cost of both
                        existing and new
                        high voltage transmission facilities across the combined
                        MISO and PJM
                        footprint.  Based upon the position advocated by AEP in a related
                        proceeding, the AEP proposal is expected to result in a greater
                        allocation of
                        costs to FirstEnergy transmission zones in MISO and PJM.  If approved
                        by the FERC, AEP’s proposal would increase the transmission rates paid by
                        load-serving FirstEnergy affiliates.
 
 Any
                        increase in
                        rates charged for transmission service to FirstEnergy affiliates
                        is dependent
                        upon the outcome of these proceedings at FERC.  All or some of these
                        proceedings may be consolidated by the FERC and set for hearing.  The
                        outcome of these cases cannot be predicted.  Any material adverse
                        impact on FirstEnergy would depend upon the ability of the
                        load-serving
                        FirstEnergy affiliates to recover increased transmission
                        costs in their retail
                        rates.  FirstEnergy believes that current retail rate mechanisms
                        in
                        place for PLR service for the Ohio Companies and for Met-Ed
                        and Penelec would
                        permit them to pass through increased transmission charges
                        in their retail
                        rates.  Increased transmission charges in the JCP&L and Penn
                        transmission zones would be the responsibility of competitive
                        electric retail
                        suppliers, including FES.
 
 On
                        February 15,
                        2007, MISO filed documents with the FERC to establish a market-based,
                        competitive ancillary services market.  MISO contends that the filing
                        will integrate operating reserves into MISO’s existing day-ahead and real-time
                        settlements process, incorporate opportunity costs into these
                        markets, address
                        scarcity pricing through the implementation of a demand curve
                        methodology,
                        foster demand response in the provision of operating reserves,
                        and provide for
                        various efficiencies and optimization with regard to generation
                        dispatch.  The filing also proposes amendments to existing documents
                        to provide for the transfer of balancing functions from existing
                        local balancing
                        authorities to MISO.  MISO will then carry out this reliability
                        function as the NERC-certified balancing authority for the
                        MISO region with
                        implementation in the third or fourth quarter of 2008.  FirstEnergy
                        filed comments on March 23, 2007, supporting the ancillary
                        service market in
                        concept, but proposing certain changes in MISO’s proposal. MISO requested FERC
                        action on its filing by June 2007 and the FERC issued its
                        Order June 22,
                        2007. The FERC found MISO’s filing to be deficient in two key areas: (1) MISO
                        has not submitted a market power analysis in support of its
                        proposed Ancillary
                        Services Market and (2) MISO has not submitted a readiness
                        plan to ensure
                        reliability during the transition from the current reserve
                        and regulation system
                        managed by the individual Balancing Authorities to a centralized
                        Ancillary
                        Services Market managed by MISO. MISO was ordered to remedy
                        these deficiencies
                        and the FERC provided more guidance on other issues brought
                        up in filings by
                        stakeholders to assist MISO to re-file a complete proposal.
                        This Order should
                        facilitate MISO’s timetable to incorporate final revisions to ensure a market
                        start in Spring 2008. FirstEnergy will be participating in
                        working groups and
                        task forces to ensure the Spring 2008 implementation of the
                        Ancillary Services
                        Market.
 
 On
                        February 16,
                        2007, the FERC issued a final rule that revises its decade-old
                        open access
                        transmission regulations and policies.  The FERC explained that the
                        final rule is intended to strengthen non-discriminatory access
                        to the
                        transmission grid, facilitate FERC enforcement, and provide
                        for a more open and
                        coordinated transmission planning process.  The final rule became
                        effective on May 14, 2007. MISO, PJM and ATSI will be filing revised
                        tariffs to comply with the FERC’s order. As market participants in both MISO and
                        PJM, the Companies will conform their business practices
                        to each respective
                        revised tariff.
 
 **Environmental
                        Matters******(Applicable to each of the
                        Companies)
 
 The
                        Companies accrue
                        environmental liabilities only when they conclude that it
                        is probable that they
                        have an obligation for such costs and can reasonably estimate
                        the amount of such
                        costs. Unasserted claims are reflected in the Companies’ determination of
                        environmental liabilities and are accrued in the period that
                        they become both
                        probable and reasonably estimable.
  128
  
 *Regulation
                        of Hazardous Waste*
 
 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
                        are liable on a joint
                        and several basis. Therefore, environmental liabilities that
                        are considered
                        probable have been recognized on the Consolidated Balance
                        Sheet as of June 30,
                        2007, 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. In addition, JCP&L has accrued liabilities for
                        environmental remediation of former manufactured gas plants
                        in New Jersey; those
                        costs are being recovered by JCP&L through a non-bypassable SBC. Total
                        liabilities of approximately $88 million (JCP&L - $60 million, TE
                        - $3 million, CEI - $1 million, and other subsidiaries - $24 million)
                        have
                        been accrued through June 30, 2007.
 
 *W.
                        H. Sammis
                        Plant*(Applicable to OE and Penn)
 
 In
                        1999 and 2000,
                        the EPA issued NOV or compliance orders to nine utilities
                        alleging violations of
                        the Clean Air Act based on operation and maintenance of 44
                        power plants,
                        including the W. H. Sammis Plant, which was owned at that
                        time by OE and Penn,
                        and is now owned by FGCO. In addition, the DOJ filed eight
                        civil complaints
                        against various investor-owned utilities, including a complaint
                        against OE and
                        Penn in the U.S. District Court for the Southern District
                        of Ohio. These cases
                        are referred to as the New Source Review, or 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 settlement agreement
                        are currently
                        estimated to be $1.7 billion for FGCO for 2007 through 2011 ($400 million
                        of which is expected to be spent during 2007, with the largest
                        portion of the
                        remaining $1.3 billion expected to be spent in 2008 and 2009).
 
 The
                        Sammis NSR
                        Litigation consent decree also requires FirstEnergy to spend
                        up to
                        $25 million toward environmentally beneficial projects, $14 million of
                        which is satisfied by entering into 93 MW (or 23 MW if federal
                        tax credits are
                        not applicable) of wind energy purchased power agreements
                        with a 20-year term.
                        An initial 16 MW of the 93 MW consent decree obligation was satisfied
                        during 2006.
 
 **Other
                        Legal Proceedings******(Applicable to each of the
                        Companies)
 
 There
                        are various
                        lawsuits, claims (including claims for asbestos exposure)
                        and proceedings
                        related to the Companies’ normal business operations pending against FirstEnergy
                        and the Companies. The other material items not otherwise
                        discussed above are
                        described below.
 
 *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.
  129
  
 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 on
                        July 8, 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, on March 7, 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 on
                        May 9, 2007.  Proceedings are continuing in the Superior
                        Court.  FirstEnergy is vigorously defending this class action but
                        is
                        unable to predict the outcome of this matter.  No liability has been
                        accrued as of June 30, 2007.
 
 On
                        August 14,
                        2003, various states and parts of southern Canada experienced
                        widespread power
                        outages. The outages affected approximately 1.4 million customers
                        in
                        FirstEnergy's service area. The U.S. – Canada Power System Outage Task Force’s
                        final report in April 2004 on the outages concluded, among
                        other things, that
                        the problems leading to the outages began in FirstEnergy’s Ohio service area.
                        Specifically, the final report concluded, among other things,
                        that the
                        initiation of the August 14, 2003 power outages resulted from an alleged
                        failure of both FirstEnergy and ECAR to assess and understand
                        perceived
                        inadequacies within the FirstEnergy system; inadequate situational
                        awareness of
                        the developing conditions; and a perceived failure to adequately
                        manage tree
                        growth in certain transmission rights of way. The Task Force
                        also concluded that
                        there was a failure of the interconnected grid's reliability
                        organizations (MISO
                        and PJM) to provide effective real-time diagnostic support.
                        The final report is
                        publicly available through the Department of Energy’s Web site (www.doe.gov).
                        FirstEnergy believes that the final report does not provide
                        a complete and
                        comprehensive picture of the conditions that contributed
                        to the August 14,
                        2003 power outages and that it does not adequately address
                        the underlying causes
                        of the outages. FirstEnergy remains convinced that the outages
                        cannot be
                        explained by events on any one utility's system. The final
                        report contained 46
“recommendations to prevent or minimize the scope of future
                        blackouts.”
Forty-five of those recommendations related to broad industry
                        or policy matters
                        while one, including subparts, related to activities the
                        Task Force recommended
                        be undertaken by FirstEnergy, MISO, PJM, ECAR, and other
                        parties to correct the
                        causes of the August 14, 2003 power outages. FirstEnergy implemented
                        several initiatives, both prior to and since the August 14, 2003 power
                        outages, which were independently verified by NERC as complete
                        in 2004 and were
                        consistent with these and other recommendations and collectively
                        enhance the
                        reliability of its electric system. FirstEnergy’s implementation of these
                        recommendations in 2004 included completion of the Task Force
                        recommendations
                        that were directed toward FirstEnergy. 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.
  130
  
 FirstEnergy
                        companies also are defending four separate complaint cases
                        before the PUCO
                        relating to the August 14, 2003 power outages. Two of those cases were
                        originally filed in Ohio State courts but were subsequently
                        dismissed for lack
                        of subject matter jurisdiction and further appeals were unsuccessful.
                        In these
                        cases the individual complainants—three in one case and four in the other—sought
                        to represent others as part of a class action. The PUCO dismissed
                        the class
                        allegations, stating that its rules of practice do not provide
                        for class action
                        complaints. Two other pending PUCO complaint cases were filed
                        by various
                        insurance carriers either in their own name as subrogees
                        or in the name of their
                        insured. In each of these cases, the carrier seeks reimbursement
                        from various
                        FirstEnergy companies (and, in one case, from PJM, MISO and
                        American Electric
                        Power Company, Inc., as well) for claims paid to insureds
                        for damages allegedly
                        arising as a result of the loss of power on August 14, 2003. A fifth case
                        in which a carrier sought reimbursement for claims paid to
                        insureds was
                        voluntarily dismissed by the claimant in April 2007. A sixth
                        case involving the
                        claim of a non-customer seeking reimbursement for losses
                        incurred when its store
                        was burglarized on August 14, 2003 was dismissed. The four cases were
                        consolidated for hearing by the PUCO in an order dated March 7,
                        2006.  In that order the PUCO also limited the litigation to
                        service-related claims by customers of the Ohio operating
                        companies; dismissed
                        FirstEnergy as a defendant; and ruled that the U.S.-Canada
                        Power System Outage
                        Task Force Report was not admissible into evidence. In response
                        to a motion for
                        rehearing filed by one of the claimants, the PUCO ruled on
                        April 26, 2006 that
                        the insurance company claimants, as insurers, may prosecute
                        their claims in
                        their name so long as they also identify the underlying insured
                        entities and the
                        Ohio utilities that provide their service. The PUCO denied
                        all other motions for
                        rehearing. The plaintiffs in each case have since filed amended
                        complaints and
                        the named FirstEnergy companies have answered and also have
                        filed a motion to
                        dismiss each action. On September 27, 2006, the PUCO dismissed
                        certain parties
                        and claims and otherwise ordered the complaints to go forward
                        to hearing. The
                        cases have been set for hearing on January 8, 2008.
 
 On
                        October 10, 2006,
                        various insurance carriers refiled a complaint in Cuyahoga
                        County Common Pleas
                        Court seeking reimbursement for claims paid to numerous insureds
                        who allegedly
                        suffered losses as a result of the August 14, 2003 outages.
                        All of the insureds
                        appear to be non-customers. The plaintiff insurance companies
                        are the same
                        claimants in one of the pending PUCO cases. FirstEnergy,
                        the Ohio Companies and
                        Penn were served on October 27, 2006.  On January 18, 2007, the Court
                        granted the Companies’ motion to dismiss the case and they have not been
                        appealed.  However, on April 25, 2007, one of the insurance carriers
                        refiled the complaint naming only FirstEnergy as the defendant.  On
                        July 30, 2007, the case was voluntarily dismissed.  No estimate of
                        potential liability is available for any of these cases.
 
 FirstEnergy
                        was also
                        named, along with several other entities, in a complaint
                        in New Jersey State
                        Court. The allegations against FirstEnergy were based, in
                        part, on an alleged
                        failure to protect the citizens of Jersey City from an electrical
                        power outage.
                        None of FirstEnergy’s subsidiaries serve customers in Jersey City. A responsive
                        pleading has been filed. On April 28, 2006, the Court granted FirstEnergy's
                        motion to dismiss. The plaintiff has not appealed.
 
 FirstEnergy
                        is
                        vigorously defending these actions, but cannot predict the
                        outcome of any of
                        these proceedings or whether any further regulatory proceedings
                        or legal actions
                        may be initiated against the Companies. Although FirstEnergy
                        is unable to
                        predict the impact of these proceedings, if FirstEnergy or
                        the Companies were
                        ultimately determined to have legal liability in connection
                        with these
                        proceedings, it could have a material adverse effect on FirstEnergy's
                        or the
                        Companies' financial condition, results of operations and
                        cash
                        flows.
 
 *Other
                        Legal Matters*
 
 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 plaintiff’s motion to amend their complaint which OE
                        has opposed.
 
 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. JCP&L
                        intends to re-file an appeal in federal district court once
                        the damages
                        associated with this case are identified at an individual
                        employee level.
                        JCP&L recognized a liability for the potential $16 million award in
                        2005. The parties met on June 27, 2007 before an arbitrator to assert their
                        positions regarding the finality of damages. A hearing before
                        the arbitrator is
                        set for September 7, 2007.
  131
  
 If
                        it were
                        ultimately determined that FirstEnergy or the Companies 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 the Companies’ financial
                        condition, results of operations and cash flows.
 
 **New
                        Accounting Standards and
                        Interpretations******(Applicable to each of the
                        Companies)
 
 *SFAS
                                  159 –
                                  “The Fair Value Option for Financial Assets and
                                  Financial Liabilities –
                                  Including an amendment of FASB Statement No.
                                  115”*
 
 In
                        February 2007,
                        the FASB issued SFAS 159, which provides companies with an
                        option to report
                        selected financial assets and liabilities at fair value.  This
                        Statement requires companies to provide additional information
                        that will help
                        investors and other users of financial statements to more
                        easily understand the
                        effect of the company’s choice to use fair value on its earnings.  The
                        Standard also requires companies to display the fair value
                        of those assets and
                        liabilities for which the company has chosen to use fair
                        value on the face of
                        the balance sheet.  This guidance does not eliminate disclosure
                        requirements included in other accounting standards, including
                        requirements for
                        disclosures about fair value measurements included in SFAS
                        157**and
                        SFAS 107*.*This Statement is effective for financial statements
                        issued
                        for fiscal years beginning after November 15, 2007, and interim periods
                        within those years. The Companies are currently evaluating
                        the impact of this
                        Statement on their financial statements.
 
 *SFAS
                        157 – “Fair Value
                        Measurements”*
 
 In
                        September 2006,
                        the FASB issued SFAS 157 that establishes how companies should
                        measure fair
                        value when they are required to use a fair value measure
                        for recognition or
                        disclosure purposes under GAAP. This Statement addresses
                        the need for increased
                        consistency and comparability in fair value measurements
                        and for expanded
                        disclosures about fair value measurements. The key changes
                        to current practice
                        are: (1) the definition of fair value which focuses on an
                        exit price rather than
                        entry price; (2) the methods used to measure fair value such
                        as emphasis that
                        fair value is a market-based measurement, not an entity-specific
                        measurement, as
                        well as the inclusion of an adjustment for risk, restrictions
                        and credit
                        standing; and (3) the expanded disclosures about fair value
                        measurements. This
                        Statement is effective for financial statements issued for
                        fiscal years
                        beginning after November 15, 2007, and interim periods within those years.
                        The Companies are currently evaluating the impact of this
                        Statement on their
                        financial statements.
 
 *EITF
                        06-11 – “Accounting for Income Tax
                        Benefits of Dividends or Share-based Payment Awards”*
 
 In
                        June 2007, the
                        FASB released EITF 06-11, which provides guidance on the
                        appropriate accounting
                        for income tax benefits related to dividends earned on nonvested
                        share units
                        that are charged to retained earnings under SFAS 123(R).  The
                        consensus requires that an entity recognize the realized
                        tax benefit associated
                        with the dividends on nonvested shares as an increase to
                        additional paid-in
                        capital (APIC). This amount should be included in the APIC
                        pool, which is to be
                        used when an entity’s estimate of forfeitures increases or actual forfeitures
                        exceed its estimates, at which time the tax benefits in the
                        APIC pool would be
                        reclassified to the income statement.  The consensus is effective for
                        income tax benefits of dividends declared during fiscal years
                        beginning after
                        December 15, 2007.  EITF 06-11 is not expected to have a material
                        impact on the Companies’ financial statements.
 
 
 
  132
  
 **ITEM
                        3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
                        RISK**
 
 See
“Management’s
                        Discussion and Analysis of Financial Condition and Results
                        of Operations –
Market Risk Information” in Item 2 above.
 
 **ITEM
                        4.
                        CONTROLS AND PROCEDURES**
 
 **(a)           EVALUATION
                        OF DISCLOSURE CONTROLS AND PROCEDURES**
 
 The
                        applicable
                        registrant's chief executive officer and chief financial
                        officer have reviewed
                        and evaluated the registrant's disclosure controls and procedures.
                        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. Based on that evaluation, those officers
                        have concluded
                        that the applicable registrant's disclosure controls and
                        procedures are
                        effective and were designed to bring to their attention material
                        information
                        relating to the registrant and its consolidated subsidiaries
                        by others within
                        those entities.
 
 **(b)           CHANGES
                        IN INTERNAL CONTROLS**
 
 During
                        the quarter
                        ended June 30, 2007, 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.
  133
  ***PART
                        II. OTHER INFORMATION***
 
 **ITEM
                        1.                     
LEGAL PROCEEDINGS**
 
 Information
                        required
                        for Part II, Item 1 is incorporated by reference to the discussions
                        in
                        Notes 9 and 10 of the Consolidated Financial Statements in Part
                        I, Item 1
                        of this Form 10-Q.
 
 **ITEM
                        1A.   
               
RISK FACTORS**
 
 See
                        Item 1A RISK
                        FACTORS in Part I of the Form 10-K for the year ended December 31, 2006 for
                        a discussion of the risk factors of FirstEnergy and the subsidiary
                        registrants.
                        For the quarter ended June 30, 2007, there have been no material
                        changes to
                        these risk factors.
 
 **ITEM
                        2.                      UNREGISTERED
                        SALES OF EQUITY SECURITIES AND USE OF PROCEEDS**
 
 **(c)           FirstEnergy**
 
 The
                        table below includes information on a monthly basis regarding
                        purchases made by
                        FirstEnergy of its common stock.
 
 **Period****April
                                  1-30,**
                              
                              **May
                                  1-31,**
                              
                              **June
                                  1-30,**
                              
                              **Second****2007**
                              
                              **2007**
                              
                              **2007**
                              
                              **Quarter**Total
                                  Number
                                  of Shares Purchased (a)
                              
                              194,553
                              
                              304,287
                              
                              219,445
                              
                              718,285Average
                                  Price
                                  Paid per Share
                              
                              $68.41
                              
                              $71.09
                              
                              $68.12
                              
                              $69.46Total
                                  Number
                                  of Shares PurchasedAs
                                  Part of Publicly Announced
                                  Plansor Programs (b)
                              
                              
                              -
                              
                              
                              -
                              
                              
                              -
                              
                              
                              -Maximum
                                    Number
                                    (or Approximate DollarValue)
                                    of Shares that May Yet
                                    BePurchased
                                  Under the Plans or
                                  Programs
                              
                              
                              1,629,890
                              
                              
                              1,629,890
                              
                              
                              1,629,890
                              
                              
                              1,629,890
 
 (a)
                              Share amounts reflect purchases on the open market
                                  to satisfy
                                  FirstEnergy's obligations to deliver common stock
                                  under its
                                Executive and Director Incentive Compensation Plan,
                                  Deferred Compensation
                                  Plan for Outside Directors, Executive Deferred
                                Comp ensation Plan, Savings Plan and Stock Investment
                                  Plan. In addition,
                                  such amounts reflect shares tendered by employees
                                to pay the exercise price or withholding taxes
                                  upon exercise of stock
                                  options granted under the Executive and Director
                                  Incentive
                                Compensation Plan and shares purchased as part
                                  of publicly announced
                                  plans.(b)
                              FirstEnergy publicly announced, on January 30, 2007, a plan to
                                  repurchase up to 16 million shares of its common stock through
                                June 30, 2008. On March 2, 2007, FirstEnergy repurchased
                                  approximately 14.4 million shares, or 4.5%, of its outstanding
                                common stock under this plan through an accelerated
                                  share repurchase
                                  program with an affiliate of Morgan Stanley and
                                  Co.,
                                Incorporated at an initial price of $62.63 per
                                  share.
 
 **ITEM
                        4.                      SUBMISSION
                        OF MATTERS TO A VOTE OF SECURITY HOLDERS**
 
 (a)
                              The
                                  annual
                                  meeting of FirstEnergy shareholders was held on
                                  May 15,
                                  2007.
 
 (b)
                              At
                                  this
                                  meeting, the following persons were elected to
                                  FirstEnergy's Board of
                                  Directors for one-year terms:
 
 **Number
                                  of Votes****For**
                              
                              **Withheld**Paul
                                  T.
                                  Addison
                              
                              
                              188,720,311
                              
                              
                              74,174,290Anthony
                                  J.
                                  Alexander
                              
                              
                              188,700,783
                              
                              
                              74,193,818Michael
                                  J.
                                  Anderson
                              
                              
                              249,806,449
                              
                              
                              13,088,152Dr.
                                  Carol A.
                                  Cartwright
                              
                              
                              159,733,696
                              
                              
                              103,160,905William
                                  T.
                                  Cottle
                              
                              
                              166,930,916
                              
                              
                              95,963,685Robert
                                  B.
                                  Heisler, Jr.
                              
                              
                              190,762,159
                              
                              
                              72,132,442Ernest
                                  J.
                                  Novak, Jr.
                              
                              
                              188,312,120
                              
                              
                              74,582,481Catherine
                                  A.
                                  Rein
                              
                              
                              188,486,982
                              
                              
                              74,407,619George
                                  M.
                                  Smart
                              
                              
                              166,422,193
                              
                              
                              96,472,408Wes
                                  M.
                                  Taylor
                              
                              
                              188,651,197
                              
                              
                              74,243,404Jesse
                                  T.
                                  Williams, Sr.
                              
                              
                              166,684,440
                              
                              
                              96,210,161
 
  134
  
 The
                        following
                        Directors retired from the Board effective May 15, 2007:
                        Russell W. Maier and
                        Robert C. Savage.
 
 (c)
                              (i)
                              At
                                  this
                                  meeting, the appointment of PricewaterhouseCoopers
                                  LLP, an independent
                                  registered public accounting firm, as auditor for
                                  the year 2007 was
                                  ratified:
 
 **Number
                                  of Votes****For**
                              
                              **Against**
                              
                              **Abstentions**258,877,611
                              
                              
                              1,368,549
                              
                              
                              2,648,441
 
 (ii)
                              At
                                  this
                                  meeting, the FirstEnergy Corp. 2007 Incentive Plan
                                  was
                                  approved:
 
 **Number
                                  of Votes****Broker****For**
                              
                              **Against**
                              
                              **Abstentions**
                              
                              **Non-Votes**207,313,123
                              
                              
                              23,286,182
                              
                              
                              3,901,643
                              
                              
                              28,393,653
 
 (iii)
                              At
                                  this
                                  meeting, a shareholder proposal recommending that
                                  the Board of Directors
                                  change the company’s jurisdiction from Ohio to Delaware was not approved
                                  (approval required a favorable vote of a majority
                                  of the votes
                                  cast):
 
 **Number
                                  of Votes****Broker****For**
                              
                              **Against**
                              
                              **Abstentions**
                              
                              **Non-Votes**80,014,916
                              
                              
                              149,489,965
                              
                              
                              5,026,051
                              
                              
                              28,363,669
 
 (iv)
                              At
                                  this
                                  meeting, a shareholder proposal recommending that
                                  the Board of Directors
                                  adopt a policy establishing an engagement process
                                  with proponents of
                                  shareholder proposals that are supported by a majority
                                  of the votes cast
                                  was not approved (approval required a favorable
                                  vote of a majority of the
                                  votes cast):
 
 **Number
                                  of Votes****Broker****For**
                              
                              **Against**
                              
                              **Abstentions**
                              
                              **Non-Votes**91,938,193
                              
                              
                              137,204,324
                              
                              
                              5,358,416
                              
                              
                              28,393,668
 
 (v)
                              At
                                  this
                                  meeting, a shareholder proposal recommending that
                                  the Board of Directors
                                  adopt simple majority shareholder voting was approved
                                  (approval required a
                                  favorable vote of a majority of the votes
                                  cast):
 
 **Number
                                  of Votes****Broker****For**
                              
                              **Against**
                              
                              **Abstentions**
                              
                              **Non-Votes**175,884,412
                              
                              
                              53,721,749
                              
                              
                              4,893,976
                              
                              
                              28,394,464
 
 Based
                        on this
                        result, the Board of directors will further review this proposal
 and
                        consider the
                        appropriate steps to take in response.
 
 **ITEM
                        6.                      EXHIBITS**
 
 **Exhibit**
                                **Number****FirstEnergy**10-1
                              Participation
                                  Agreement, dated as of June 26, 2007, among FirstEnergy
                                  Generation Corp.,
                                  as Lessee, FirstEnergy Solutions Corp., as Guarantor,  the
                                  applicable Lessor, U.S. Bank Trust National Association,
                                  as Trust Company,
                                  the applicable Owner Participant, The Bank of New
                                  York Trust Company,
                                  N.A., as Indenture Trustee, and The Bank of New
                                  York Trust Company, N.A.,
                                  as Pass Through Trustee(1)(2)
  135
  
 10-2
                              Trust
                                  Agreement, dated as of June 26, 2007 between the
                                  applicable Owner
                                  Participant and U.S. Bank Trust National Association,
                                  as Owner
                                  Trustee(1)(2)10-3
                              Indenture
                                  of
                                  Trust, Open-End Mortgage and Security Agreement,
                                  dated as of July 1, 2007,
                                  between the applicable Lessor and The Bank of New
                                  York Trust Company,
                                  N.A., as Indenture Trustee(1)(2)10-4
                              6.85%
                                  Lessor
                                  Note due 2034(1)(2)(included in Exhibit 10-3)10-5
                              Bill
                                  of Sale
                                  and Transfer, dated as of July 1, 2007, between
                                  FirstEnergy Generation
                                  Corp. and the applicable Lessor(1)(2)10-6
                              Facility
                                  Lease
                                  Agreement, dated as of July 1, 2007, between FirstEnergy
                                  Generation Corp.
                                  and the applicable Lessor(1)(2)10-7
                              Site
                                  Lease,
                                  dated as of July 1, 2007, between FirstEnergy Generation
                                  Corp. and the
                                  applicable Lessor(1)(2)10-8
                              Site
                                  Sublease,
                                  dated as of July 1, 2007, between FirstEnergy Generation
                                  Corp. and the
                                  applicable Lessor(1)(2)10-9
                              Guaranty
                                  of
                                  FirstEnergy Solutions Corp., dated as of July 1,
                                  2007(1)(2)10-10
                              Support
                                  Agreement, dated as of July 1, 2007, between FirstEnergy
                                  Generation Corp.
                                  and the applicable Lessor(1)(2)10-11
                              Second
                                  Amendment to the Bruce Mansfield Units 1, 2, and
                                  3 Operating Agreement,
                                  dated as of July 1, 2007, between FirstEnergy Generation
                                  Corp., The
                                  Cleveland Electric Illuminating Company, and The
                                  Toledo Edison
                                  Company(1)10-12
                              Pass
                                  Through
                                  Trust Agreement, dated as of June 26, 2007, among
                                  FirstEnergy Generation
                                  Corp., FirstEnergy Solutions Corp., and The Bank
                                  of New York Trust
                                  Company, N.A., as Pass Through Trustee(1)10-13
                              6.85%
                                  Pass
                                  Through Trust Certificate due 2034(1)(2)(included
                                  in Exhibit 10-12)10-14
                              Registration
                                  Rights Agreement, dated as of July 13, 2007, among
                                  FirstEnergy Generation
                                  Corp., FirstEnergy Solutions Corp., The Bank of
                                  New York Trust Company,
                                  N.A., as Pass Through Trustee, Morgan Stanley & Co. Incorporated, and
                                  Credit Suisse Securities (USA) LLC, as representatives
                                  of the several
                                  initial purchasers(1)12
                              Fixed
                                  charge
                                  ratios15
                              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.
 
 **OE**12
                              Fixed
                                  charge
                                  ratios15
                              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.**CEI**31.1
                              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.**TE**31.1
                              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.**JCP&L**3
                              Jersey
                                  Central
                                  Power & Light Company By-Laws, as amended July 11,
                                  200712
                              Fixed
                                  charge
                                  ratios31.1
                              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.
  136
  
 **Met-Ed**12
                              Fixed
                                  charge
                                  ratios31.1
                              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.**Penelec**12
                              Fixed
                                  charge
                                  ratios15
                              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.
 
 (1)
                        Incorporated by
                        reference to the Registrant’s Form 8-K/A filed on August 2, 2007.
 (2)
                                  Pursuant to
                                  the Instructions to Item 601(a), the Registrant
                                  has omitted the
                                  indentures, contracts and other documents required
                                  to be filed as exhibits
                                  since they are substantially identical in all material
                                  respects except as
                                  to the parties thereto and certain other details
                                  as noted in the schedule
                                  filed as Exhibit 99-1 to the Registrant’s Form 8-K/A file on August 2,
                                  2007. The Registrant agrees to furnish these items
                                  at the request of the
                                  SEC.
 
 Pursuant
                        to
                        reporting requirements of respective financings, FirstEnergy,
                        OE, JCP&L,
                        Met-Ed 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
                        FirstEnergy, OE,
                        CEI, TE, JCP&L, Met-Ed 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.
 
  137
  **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.
 
 
 August
                        7,
                        2007
 
 
 
 
 
 **FIRSTENERGY
                                  CORP.**Registrant**OHIO
                                  EDISON COMPANY**Registrant**THE
                                  CLEVELAND ELECTRIC****ILLUMINATING
                                  COMPANY**Registrant**THE
                                  TOLEDO EDISON COMPANY**Registrant**METROPOLITAN
                                  EDISON COMPANY**Registrant**PENNSYLVANIA
                                  ELECTRIC COMPANY**Registrant
 
 
 
 /s/  Harvey
                                    L. WagnerHarvey
                                  L.
                                  WagnerVice
                                  President, Controllerand
                                  Chief
                                  Accounting Officer
 
 
 
 **JERSEY
                                  CENTRAL POWER & LIGHT COMPANY**Registrant/s/  Paulette
                                    R. ChatmanPaulette
                                  R.
                                  ChatmanController(Principal
                                  Accounting Officer)
  138