UNITED
STATES SECURITIES AND EXCHANGE COMMISSION


Washington,
D. C.  20549





FORM
10-Q/A





Amendment
No. 1





(Mark
One)


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


SECURITIES
EXCHANGE ACT OF 1934





For
the quarterly period ended September 30, 2008





OR





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


SECURITIES
EXCHANGE ACT OF 1934





For
      the transition period from
            
            to





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















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





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





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





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





Smaller
      Reporting Company
              (  )
            N/A





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





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





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





OUTSTANDINGCLASS
            AS
      OF November 6, 2008Ohio Edison
      Company, no par value
            60The Cleveland
      Electric Illuminating Company, no par value
            67,930,743The Toledo
      Edison Company, $5 par value
            29,402,054Pennsylvania
      Electric Company, $20 par value
            4,427,577





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





OMISSION OF CERTAIN
INFORMATION





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











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





Actual results may
differ materially due to:


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


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


·
            economic or
      weather conditions affecting future sales and
  margins,


·
            changes in
      markets for energy services,


·
            changing
      energy and commodity market prices and
  availability,


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


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


·
            maintenance
      costs being higher than
anticipated,


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


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


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


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


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


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


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


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


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


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


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


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


·
            changes in
      general economic conditions affecting the
  registrants,


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


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





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

















EXPLANATORY
NOTE





This combined
Amendment No. 1 on Form 10-Q/A for the quarter ended September 30, 2008 is being
filed by Ohio Edison Company, The Cleveland Electric Illuminating Company, The
Toledo Edison Company and Pennsylvania Electric Company (the “registrants”) to
correct common stock dividend payments reported in their respective consolidated
statements of cash flows for the nine months ended September 30, 2008 and
2007, contained in Part I, Item 1, Consolidated Financial Statements. This
correction does not affect the respective registrants’ previously reported
consolidated statements of income and comprehensive income for the three months
and nine ended September 30, 2008 and 2007, and consolidated balance sheets
as of September 30, 2008 and December 31, 2007 contained in the combined Form
10-Q for the quarter ended September 30, 2008, as originally filed on November
7, 2008 (the “original Form 10-Q”). Except for Part I, Items 1 and 4T and
certain exhibits under Part II, Item 6, no other information included in the
Form 10-Q as originally filed is being revised by, or repeated in this
amendment.
 
 As discussed under
“Restatement of the Consolidated Statements of Cash Flows” in Note 1 to the
revised Combined Notes to Consolidated Financial Statements of the registrants
included in this Form 10-Q/A, the registrants have restated their respective
consolidated statements of cash flows to correct common stock dividend payments
reported in cash flows from financing activities. The consolidated statements of
cash flows for those registrants, as originally filed, erroneously reflected the
dividends declared in the third quarter of 2008 and the third quarter of 2007
applicable to future quarters' payments as dividends paid in the quarter that
they were declared. The corrections resulted in a corresponding change in
operating liabilities - accounts payable, included in cash flows from operating
activities.
 
 The original Form
10-Q was a combined Form 10-Q representing separate filings by each of the
registrants and their affiliates, FirstEnergy Corp., FirstEnergy Solutions
Corp., Jersey Central Power & Light Company and Metropolitan Edison Company
(the “affiliates”). However, this Form 10-Q/A constitutes an amendment only to
Part I, Items 1 and 4T and Part II, Item 6 of the original Form 10-Q filed by
each registrant. In addition, information contained herein relating to any
individual registrant is filed by such registrant on its own behalf and no
registrant makes any representation as to information contained herein relating
to any other registrant or any of the affiliates, including, but not limited to,
any such information contained in the revised Combined Notes to Consolidated
Financial Statements included herein.
 
 Please note that the
information contained in this Amendment No. 1, including the consolidated
financial statements and notes thereto, does not reflect events occurring after
the date of the original Form 10-Q filing on November 7, 2008, except to the
extent described above.











TABLE
OF CONTENTS











PagesGlossary of Terms
            ii-ivPart
      I.     Financial InformationItem 1. Financial
      Statements.
            1Ohio Edison
    CompanyReport of
      Independent Registered Public Accounting Firm
            2Consolidated
      Statements of Income and Comprehensive Income
            3Consolidated
      Balance Sheets
            4Consolidated
      Statements of Cash Flows
            5The Cleveland Electric
      Illuminating CompanyReport of
      Independent Registered Public Accounting Firm
            6Consolidated
      Statements of Income and Comprehensive Income
            7Consolidated
      Balance Sheets
            8Consolidated
      Statements of Cash Flows
            9The Toledo Edison
      CompanyReport of
      Independent Registered Public Accounting Firm
            10Consolidated
      Statements of Income and Comprehensive Income
            11Consolidated
      Balance Sheets
            12Consolidated
      Statements of Cash Flows
            13Pennsylvania Electric
      CompanyReport of
      Independent Registered Public Accounting Firm
            14Consolidated
      Statements of Income and Comprehensive Income
            15Consolidated
      Balance Sheets
            16Consolidated
      Statements of Cash Flows
            17Combined Notes to Consolidated
      Financial Statements
            18-59Item
      4T.    Controls and Procedures – OE, CEI, TE and
      Penelec.
            60Part
      II.    Other InformationItem
      6.       Exhibits.
            61

















i





GLOSSARY
OF TERMS








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





ATSI
            American
      Transmission Systems, Incorporated, owns and operates transmission
      facilitiesCEI
            The Cleveland
      Electric Illuminating Company, an Ohio electric utility operating
      subsidiaryFENOC
            FirstEnergy
      Nuclear Operating Company, operates nuclear generating
      facilitiesFES
            FirstEnergy
      Solutions Corp., provides energy-related products and
    servicesFESC
            FirstEnergy
      Service Company, provides legal, financial and other corporate support
      servicesFGCO
            FirstEnergy
      Generation Corp., owns and operates non-nuclear generating
      facilitiesFirstEnergy
            FirstEnergy
      Corp., a public utility holding companyGPU
            GPU, Inc.,
      former parent of JCP&L, Met-Ed and Penelec, which merged with
      FirstEnergy on
              November 7,
      2001JCP&L
            Jersey Central
      Power & Light Company, a New Jersey electric utility operating
      subsidiaryJCP&L
      Transition
              Funding
            JCP&L
      Transition Funding LLC, a Delaware limited liability company and issuer of
      transition
              bondsJCP&L
      Transition
              Funding
      II
            JCP&L
      Transition Funding II LLC, a Delaware limited liability company and issuer
      of transition bondsMet-Ed
            Metropolitan
      Edison Company, a Pennsylvania electric utility operating
      subsidiaryNGC
            FirstEnergy
      Nuclear Generation Corp., owns nuclear generating
    facilitiesOE
            Ohio Edison
      Company, an Ohio electric utility operating subsidiaryOhio
      Companies
            CEI, OE and
      TEPenelec
            Pennsylvania
      Electric Company, a Pennsylvania electric utility operating
      subsidiaryPenn
            Pennsylvania
      Power Company, a Pennsylvania electric utility operating subsidiary of
      OEPennsylvania
      Companies
            Met-Ed,
      Penelec and PennPNBV
            PNBV Capital
      Trust, a special purpose entity created by OE in 1996Shippingport
            Shippingport
      Capital Trust, a special purpose entity created by CEI and TE in
      1997Signal
      Peak
            A joint
      venture between FirstEnergy Ventures Corp. and Boich Companies, that owns
      mining and coal transportation operations near Roundup, Montana, formerly
      known as Bull MountainTE
            The Toledo
      Edison Company, an Ohio electric utility operating
    subsidiaryUtilities
            OE, CEI, TE,
      JCP&L, Met-Ed and PenelecThe following
      abbreviations and acronyms are used to identify frequently used terms in
      this report:ACO
            Administrative
      Consent OrderAEP
            American
      Electric Power Company, Inc.ALJ
            Administrative
      Law JudgeAMP-Ohio
            American
      Municipal Power-Ohio, Inc.AOCL
            Accumulated
      Other Comprehensive LossARB
            Accounting
      Research BulletinARO
            Asset
      Retirement ObligationASM
            Ancillary
      Services MarketBGS
            Basic
      Generation ServiceCAA
            Clean Air
      ActCAIR
            Clean Air
      Interstate RuleCAMR
            Clean Air
      Mercury RuleCBP
            Competitive
      Bid ProcessCO2
            Carbon
      DioxideDFI
            Demand for
      InformationDOJ
            United States
      Department of JusticeDRA
            Division of
      Ratepayer AdvocateEIS
            Energy
      Independence StrategyEITF
            Emerging
      Issues Task ForceEMP
            Energy Master
      PlanEPA
            United States
      Environmental Protection AgencyEPACT
            Energy Policy
      Act of 2005ESP
            Electric
      Security PlanFASB
            Financial
      Accounting Standards BoardFERC
            Federal Energy
      Regulatory CommissionFIN
            FASB
      InterpretationFIN
      46R
            FIN 46
      (revised December 2003), "Consolidation of Variable Interest
      Entities"





ii





GLOSSARY
OF TERMS, Cont’d.








FIN
      47
            FIN 47,
      "Accounting for Conditional Asset Retirement Obligations - an
      interpretation of FASB
              Statement
      No. 143"FIN
      48
            FIN 48,
      “Accounting for Uncertainty in Income Taxes - an interpretation of FASB
      Statement
              No.
      109”FMB
            First Mortgage
      BondFTR
            Financial
      Transmission RightsGAAP
            Accounting
      Principles Generally Accepted in the United StatesGHG
            Greenhouse
      GasesIRS
            Internal
      Revenue ServiceISO
            Independent
      System OperatorkV
            KilovoltKWH
            Kilowatt-hoursLIBOR
            London
      Interbank Offered RateLOC
            Letter of
      CreditMEIUG
            Met-Ed
      Industrial Users GroupMEW
            Mission Energy
      Westside, Inc.MISO
            Midwest
      Independent Transmission System Operator, Inc.Moody’s
            Moody’s
      Investors ServiceMRO
            Market Rate
      OfferMW
            MegawattsNAAQS
            National
      Ambient Air Quality StandardsNERC
            North American
      Electric Reliability CorporationNJBPU
            New Jersey
      Board of Public UtilitiesNOV
            Notice of
      ViolationNOX
            Nitrogen
      OxideNRC
            Nuclear
      Regulatory CommissionNSR
            New Source
      ReviewNUG
            Non-Utility
      GenerationNUGC
            Non-Utility
      Generation ChargeNYMEX
            New York
      Mercantile ExchangeOCA
            Office of
      Consumer AdvocateOTC
            Over the
      CounterOVEC
            Ohio Valley
      Electric CorporationPCRB
            Pollution
      Control Revenue BondPICA
            Penelec
      Industrial Customer AlliancePJM
            PJM
      Interconnection L. L. C.PLR
            Provider of
      Last ResortPPUC
            Pennsylvania
      Public Utility CommissionPRP
            Potentially
      Responsible PartyPSA
            Power Supply
      AgreementPUCO
            Public
      Utilities Commission of OhioPUHCA
            Public Utility
      Holding Company Act of 1935RCP
            Rate Certainty
      PlanRECB
            Regional
      Expansion Criteria and BenefitsRFP
            Request for
      ProposalRPM
            Reliability
      Pricing ModelRSP
            Rate
      Stabilization PlanRTC
            Regulatory
      Transition ChargeRTO
            Regional
      Transmission OrganizationS&P
            Standard &
      Poor’s Ratings ServiceSB221
            Amended
      Substitute Senate Bill 221SBC
            Societal
      Benefits ChargeSEC
            U.S.
      Securities and Exchange CommissionSECA
            Seams
      Elimination Cost AdjustmentSFAS
            Statement of
      Financial Accounting StandardsSFAS
      133
            SFAS No. 133,
      “Accounting for Derivative Instruments and Hedging
    Activities”





iii





GLOSSARY
OF TERMS, Cont’d.








SFAS
      142
            SFAS No. 142,
      “Goodwill and Other Intangible Assets”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
      DioxideTMI-1
            Three Mile
      Island Unit 1TMI-2
            Three Mile
      Island Unit 2TSC
            Transmission
      Service ChargeVIE
            Variable
      Interest Entity








iv








PART I. FINANCIAL
INFORMATION





ITEM
1. FINANCIAL STATEMENTS.








1




Report
of Independent Registered Public Accounting Firm


































To the Stockholder
and Board of
 Directors of Ohio
Edison Company:
 
 We have reviewed the
accompanying consolidated balance sheet of Ohio Edison Company and its
subsidiaries as of September 30, 2008 and the related consolidated statements of
income and comprehensive income for each of the three-month and nine-month
periods ended September 30, 2008 and 2007 and the consolidated statement of cash
flows for the nine-month periods ended September 30, 2008 and 2007. These
interim financial statements are the responsibility of the Company’s
management.
 
 We conducted our
review in accordance with the standards of the Public Company Accounting
Oversight Board (United States). A review of interim financial information
consists principally of applying analytical procedures and making inquiries of
persons responsible for financial and accounting matters. It is substantially
less in scope than an audit conducted in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the objective of
which is the expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an opinion.
 
 Based on our review,
we are not aware of any material modifications that should be made to the
accompanying consolidated interim financial statements for them to be in
conformity with accounting principles generally accepted in the United States of
America.
 
 We previously
audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheet as of December
31, 2007, and the related consolidated statements of income, capitalization,
common stockholder's equity, and cash flows for the year then ended (not
presented herein), and in our report dated February 28, 2008, except as to the
error correction described in Note 1, which is as of November 24, 2008, we
expressed an unqualified opinion on those consolidated financial statements. In
our opinion, the information set forth in the accompanying consolidated balance
sheet information as of December 31, 2007, is fairly stated in all material
respects in relation to the consolidated balance sheet from which it has been
derived.
 
 As discussed in Note
1 to the consolidated financial statements, the Company has restated its 2008
and 2007 financial statements to correct an error.
 
 PricewaterhouseCoopers
      LLP
                Cleveland,
      Ohio
                November 6,
      2008, except as to the error correction described in Note 1,
                which is as of
      November 24, 2008.





2




OHIO
      EDISON COMPANYCONSOLIDATED
      STATEMENTS OF INCOME AND COMPREHENSIVE INCOME(Unaudited)Three
      Months
                  
                  
                  Nine
      MonthsEnded September 30
                  
                  
                  Ended September 302008
                  
                  
                  2007
                  
                  
                  2008
                  
                  
                  2007(In
      thousands)REVENUES:Electric
      sales
                  
                  $
                  671,761
                  
                  
                  $
                  638,336
                  
                  
                  $
                  1,877,300
                  
                  
                  $
                  1,802,110Excise tax
      collections
                  
                  
                  30,500
                  
                  
                  
                  30,472
                  
                  
                  
                  87,165
                  
                  
                  
                  89,077Total
      revenues
                  
                  
                  702,261
                  
                  
                  
                  668,808
                  
                  
                  
                  1,964,465
                  
                  
                  
                  1,891,187EXPENSES:Purchased
      power
                  
                  
                  349,374
                  
                  
                  
                  364,709
                  
                  
                  
                  997,609
                  
                  
                  
                  1,037,200Other
      operating costs
                  
                  
                  146,048
                  
                  
                  
                  144,869
                  
                  
                  
                  423,993
                  
                  
                  
                  424,970Provision for
      depreciation
                  
                  
                  14,997
                  
                  
                  
                  19,482
                  
                  
                  
                  57,904
                  
                  
                  
                  57,440Amortization
      of regulatory assets
                  
                  
                  57,660
                  
                  
                  
                  53,026
                  
                  
                  
                  154,054
                  
                  
                  
                  144,569Deferral of
      new regulatory assets
                  
                  
                  (15,078
                  )
                  
                  
                  (41,417
                  )
                  
                  
                  (66,390
                  )
                  
                  
                  (132,410
                  )General
      taxes
                  
                  
                  49,255
                  
                  
                  
                  46,158
                  
                  
                  
                  144,097
                  
                  
                  
                  141,296Total
      expenses
                  
                  
                  602,256
                  
                  
                  
                  586,827
                  
                  
                  
                  1,711,267
                  
                  
                  
                  1,673,065OPERATING
      INCOME
                  
                  
                  100,005
                  
                  
                  
                  81,981
                  
                  
                  
                  253,198
                  
                  
                  
                  218,122OTHER
      INCOME (EXPENSE):Investment
      income
                  
                  
                  19,323
                  
                  
                  
                  19,827
                  
                  
                  
                  45,866
                  
                  
                  
                  67,803Miscellaneous
      income (expense)
                  
                  
                  (1,089
                  )
                  
                  
                  670
                  
                  
                  
                  (5,180
                  )
                  
                  
                  3,362Interest
      expense
                  
                  
                  (17,309
                  )
                  
                  
                  (20,311
                  )
                  
                  
                  (51,851
                  )
                  
                  
                  (62,749
                  )Capitalized
      interest
                  
                  
                  55
                  
                  
                  
                  136
                  
                  
                  
                  324
                  
                  
                  
                  398Total other
      income (expense)
                  
                  
                  980
                  
                  
                  
                  322
                  
                  
                  
                  (10,841
                  )
                  
                  
                  8,814INCOME
      BEFORE INCOME TAXES
                  
                  
                  100,985
                  
                  
                  
                  82,303
                  
                  
                  
                  242,357
                  
                  
                  
                  226,936INCOME
      TAXES
                  
                  
                  28,501
                  
                  
                  
                  34,089
                  
                  
                  
                  77,122
                  
                  
                  
                  79,074NET
      INCOME
                  
                  
                  72,484
                  
                  
                  
                  48,214
                  
                  
                  
                  165,235
                  
                  
                  
                  147,862OTHER
      COMPREHENSIVE INCOME (LOSS):Pension and
      other postretirment benefits
                  
                  
                  (3,994
                  )
                  
                  
                  (3,423
                  )
                  
                  
                  (11,982
                  )
                  
                  
                  (10,270
                  )Change in
      unrealized gain on available-for-sale securities
                  
                  
                  (9,936
                  )
                  
                  
                  2,442
                  
                  
                  
                  (20,310
                  )
                  
                  
                  7,415Other
      comprehensive loss
                  
                  
                  (13,930
                  )
                  
                  
                  (981
                  )
                  
                  
                  (32,292
                  )
                  
                  
                  (2,855
                  )Income tax
      benefit related to other comprehensive loss
                  
                  
                  (5,105
                  )
                  
                  
                  (573
                  )
                  
                  
                  (11,931
                  )
                  
                  
                  (1,688
                  )Other
      comprehensive loss, net of tax
                  
                  
                  (8,825
                  )
                  
                  
                  (408
                  )
                  
                  
                  (20,361
                  )
                  
                  
                  (1,167
                  )TOTAL
      COMPREHENSIVE INCOME
                  
                  $
                  63,659
                  
                  
                  $
                  47,806
                  
                  
                  $
                  144,874
                  
                  
                  $
                  146,695The
      accompanying Notes to Consolidated Financial Statements as they relate to
      Ohio Edison Company are an integral part ofthese
      statements.
  3
   OHIO
      EDISON COMPANYCONSOLIDATED
      BALANCE SHEETS(Unaudited)September 30,
                  
                  
                  December 31,2008
                  
                  
                  2007(In
      thousands)ASSETSCURRENT
      ASSETS:Cash and cash
      equivalents
                  
                  $
                  715
                  
                  
                  $
                  732Receivables-Customers
      (less accumulated provisions of $6,888,000 and 8,032,000,respectively,
      for uncollectible accounts)
                  
                  
                  268,252
                  
                  
                  
                  248,990Associated
      companies
                  
                  
                  205,776
                  
                  
                  
                  185,437Other (less
      accumulated provisions of $13,000 and $5,639,000respectively,
      for uncollectible accounts)
                  
                  
                  16,731
                  
                  
                  
                  12,395Notes
      receivable from associated companies
                  
                  
                  362,695
                  
                  
                  
                  595,859Prepayments
      and other
                  
                  
                  11,285
                  
                  
                  
                  10,341865,454
                  
                  
                  
                  1,053,754UTILITY
      PLANT:In
      service
                  
                  
                  2,854,174
                  
                  
                  
                  2,769,880Less -
      Accumulated provision for depreciation
                  
                  
                  1,101,572
                  
                  
                  
                  1,090,8621,752,602
                  
                  
                  
                  1,679,018Construction
      work in progress
                  
                  
                  41,880
                  
                  
                  
                  50,0611,794,482
                  
                  
                  
                  1,729,079OTHER
      PROPERTY AND INVESTMENTS:Long-term
      notes receivable from associated companies
                  
                  
                  257,457
                  
                  
                  
                  258,870Investment in
      lease obligation bonds
                  
                  
                  248,751
                  
                  
                  
                  253,894Nuclear plant
      decommissioning trusts
                  
                  
                  115,523
                  
                  
                  
                  127,252Other
                  
                  
                  31,441
                  
                  
                  
                  36,037653,172
                  
                  
                  
                  676,053DEFERRED
      CHARGES AND OTHER ASSETS:Regulatory
      assets
                  
                  
                  621,192
                  
                  
                  
                  737,326Pension
      assets
                  
                  
                  250,762
                  
                  
                  
                  228,518Property
      taxes
                  
                  
                  65,520
                  
                  
                  
                  65,520Unamortized
      sale and leaseback costs
                  
                  
                  41,381
                  
                  
                  
                  45,133Other
                  
                  
                  33,820
                  
                  
                  
                  48,0751,012,675
                  
                  
                  
                  1,124,572$
                  4,325,783
                  
                  
                  $
                  4,583,458LIABILITIES
      AND CAPITALIZATIONCURRENT
      LIABILITIES:Currently
      payable long-term debt
                  
                  $
                  159,662
                  
                  
                  $
                  333,224Short-term
      borrowings-Associated
      companies
                  
                  
                  -
                  
                  
                  
                  50,692Other
                  
                  
                  242,449
                  
                  
                  
                  2,609Accounts
      payable-Associated
      companies
                  
                  
                  95,604
                  
                  
                  
                  174,088Other
                  
                  
                  20,902
                  
                  
                  
                  19,881Accrued
      taxes
                  
                  
                  58,800
                  
                  
                  
                  89,571Accrued
      interest
                  
                  
                  14,216
                  
                  
                  
                  22,378Other
                  
                  
                  123,177
                  
                  
                  
                  65,163714,810
                  
                  
                  
                  757,606CAPITALIZATION:Common
      stockholder's equity-Common stock,
      without par value, authorized 175,000,000 shares -60 shares
      outstanding
                  
                  
                  1,224,039
                  
                  
                  
                  1,220,512Accumulated
      other comprehensive income
                  
                  
                  28,025
                  
                  
                  
                  48,386Retained
      earnings
                  
                  
                  207,512
                  
                  
                  
                  307,277Total common
      stockholder's equity
                  
                  
                  1,459,576
                  
                  
                  
                  1,576,175Long-term debt
      and other long-term obligations
                  
                  
                  841,871
                  
                  
                  
                  840,5912,301,447
                  
                  
                  
                  2,416,766NONCURRENT
      LIABILITIES:Accumulated
      deferred income taxes
                  
                  
                  776,042
                  
                  
                  
                  781,012Accumulated
      deferred investment tax credits
                  
                  
                  14,040
                  
                  
                  
                  16,964Asset
      retirement obligations
                  
                  
                  79,372
                  
                  
                  
                  93,571Retirement
      benefits
                  
                  
                  173,297
                  
                  
                  
                  178,343Deferred
      revenues - electric service programs
                  
                  
                  14,954
                  
                  
                  
                  46,849Other
                  
                  
                  251,821
                  
                  
                  
                  292,3471,309,526
                  
                  
                  
                  1,409,086COMMITMENTS
      AND CONTINGENCIES (Note 11)$
                  4,325,783
                  
                  
                  $
                  4,583,458The
      accompanying Notes to Consolidated Financial Statements as they relate to
      Ohio Edison Company are an integralpart of these
      balance sheets.
  4
    OHIO
      EDISON COMPANYCONSOLIDATED
      STATEMENTS OF CASH FLOWS(Unaudited)Nine
      MonthsEnded
      September 30Restated
                
                
                Restated2008
                
                
                2007(In
      thousands)CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      income
                
                $
                165,235
                
                
                $
                147,862Adjustments to
      reconcile net income to net cash from operating
activities-Provision for
      depreciation
                
                
                57,904
                
                
                
                57,440Amortization
      of regulatory assets
                
                
                154,054
                
                
                
                144,569Deferral of
      new regulatory assets
                
                
                (66,390
                )
                
                
                (132,410
                )Amortization
      of lease costs
                
                
                28,535
                
                
                
                28,567Deferred
      income taxes and investment tax credits, net
                
                
                17,267
                
                
                
                (29,155
                )Accrued
      compensation and retirement benefits
                
                
                (41,190
                )
                
                
                (34,572
                )Pension trust
      contribution
                
                
                -
                
                
                
                (20,261
                )Decrease
      (increase) in operating assets-Receivables
                
                
                (26,009
                )
                
                
                (70,098
                )Prepayments
      and other current assets
                
                
                2,065
                
                
                
                (3,542
                )Increase
      (decrease) in operating liabilities-Accounts
      payable
                
                
                (27,463
                )
                
                
                4,550Accrued
      taxes
                
                
                (27,776
                )
                
                
                (25,734
                )Accrued
      interest
                
                
                (8,162
                )
                
                
                (7,277
                )Electric
      service prepayment programs
                
                
                (31,895
                )
                
                
                (27,455
                )Other
                
                
                (1,283
                )
                
                
                9,868Net cash
      provided from operating activities
                
                
                194,892
                
                
                
                42,352CASH
      FLOWS FROM FINANCING ACTIVITIES:New
      Financing-Short-term
      borrowings, net
                
                
                189,148
                
                
                
                -Redemptions
      and Repayments-Common
      stock
                
                
                -
                
                
                
                (500,000
                )Long-term
      debt
                
                
                (175,588
                )
                
                
                (1,190
                )Short-term
      borrowings, net
                
                
                -
                
                
                
                (64,475
                )Dividend
      Payments-Common
      stock
                
                
                (315,000
                )
                
                
                (65,000
                )Net cash used
      for financing activities
                
                
                (301,440
                )
                
                
                (630,665
                )CASH
      FLOWS FROM INVESTING ACTIVITIES:Property
      additions
                
                
                (135,450
                )
                
                
                (109,461
                )Sales of
      investment securities held in trusts
                
                
                115,988
                
                
                
                31,624Purchases of
      investment securities held in trusts
                
                
                (121,871
                )
                
                
                (36,194
                )Loan
      repayments from associated companies, net
                
                
                234,577
                
                
                
                685,364Cash
      investments
                
                
                5,143
                
                
                
                17,316Other
                
                
                8,144
                
                
                
                (321
                )Net cash
      provided from investing activities
                
                
                106,531
                
                
                
                588,328Net increase
      (decrease) in cash and cash equivalents
                
                
                (17
                )
                
                
                15Cash and cash
      equivalents at beginning of period
                
                
                732
                
                
                
                712Cash and cash
      equivalents at end of period
                
                $
                715
                
                
                $
                727The
      accompanying Notes to Consolidated Financial Statements as they relate to
      Ohio Edison Company are anintegral part
      of these statements.
   5


Report
of Independent Registered Public Accounting Firm


































To the Stockholder
and Board of Directors of
 The Cleveland
Electric Illuminating Company:
 
 We have reviewed the
accompanying consolidated balance sheet of The Cleveland Electric Illuminating
Company and its subsidiaries as of September 30, 2008 and the related
consolidated statements of income and comprehensive income for each of the
three-month and nine-month periods ended September 30, 2008 and 2007 and the
consolidated statement of cash flows for the nine-month periods ended September
30, 2008 and 2007. These interim financial statements are the responsibility of
the Company’s management.
 
 We conducted our
review in accordance with the standards of the Public Company Accounting
Oversight Board (United States). A review of interim financial information
consists principally of applying analytical procedures and making inquiries of
persons responsible for financial and accounting matters. It is substantially
less in scope than an audit conducted in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the objective of
which is the expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an opinion.
 
 Based on our review,
we are not aware of any material modifications that should be made to the
accompanying consolidated interim financial statements for them to be in
conformity with accounting principles generally accepted in the United States of
America.
 
 We previously
audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheet as of December
31, 2007, and the related consolidated statements of income, capitalization,
common stockholder's equity, and cash flows for the year then ended (not
presented herein), and in our report dated February 28, 2008, except as to the
error correction described in Note 1, which is as of November 24, 2008, we
expressed an unqualified opinion on those consolidated financial statements. In
our opinion, the information set forth in the accompanying consolidated balance
sheet information as of December 31, 2007, is fairly stated in all material
respects in relation to the consolidated balance sheet from which it has been
derived.
 
 As discussed in Note
1 to the consolidated financial statements, the Company has restated its 2008
and 2007 financial statements to correct an error.
 
 PricewaterhouseCoopers
      LLP
                Cleveland,
      Ohio
                November 6,
      2008, except as to the error correction described in Note 1,
                which is as of
      November 24, 2008.





6




THE
      CLEVELAND ELECTRIC ILLUMINATING COMPANYCONSOLIDATED
      STATEMENTS OF INCOME AND COMPREHENSIVE INCOME(Unaudited)Three
      Months
              
              
              Nine
      MonthsEnded
      September 30
              
              
              Ended
      Septmeber 302008
              
              
              2007
              
              
              2008
              
              
              2007(In
      thousands)REVENUES:Electric
      sales
              
              $
              505,425
              
              
              $
              510,577
              
              
              $
              1,342,327
              
              
              $
              1,366,396Excise tax
      collections
              
              
              18,652
              
              
              
              18,514
              
              
              
              53,447
              
              
              
              53,009Total
      revenues
              
              
              524,077
              
              
              
              529,091
              
              
              
              1,395,774
              
              
              
              1,419,405EXPENSES:Fuel
              
              
              -
              
              
              
              12,160
              
              
              
              -
              
              
              
              39,683Purchased
      power
              
              
              211,445
              
              
              
              216,194
              
              
              
              590,300
              
              
              
              575,520Other
      operating costs
              
              
              66,342
              
              
              
              85,114
              
              
              
              194,119
              
              
              
              243,140Provision for
      depreciation
              
              
              17,677
              
              
              
              18,913
              
              
              
              54,497
              
              
              
              56,094Amortization
      of regulatory assets
              
              
              48,155
              
              
              
              42,077
              
              
              
              124,936
              
              
              
              110,253Deferral of
      new regulatory assets
              
              
              (16,176
              )
              
              
              (37,692
              )
              
              
              (71,443
              )
              
              
              (114,708
              )General
      taxes
              
              
              36,722
              
              
              
              37,930
              
              
              
              109,230
              
              
              
              110,922Total
      expenses
              
              
              364,165
              
              
              
              374,696
              
              
              
              1,001,639
              
              
              
              1,020,904OPERATING
      INCOME
              
              
              159,912
              
              
              
              154,395
              
              
              
              394,135
              
              
              
              398,501OTHER
      INCOME (EXPENSE):Investment
      income
              
              
              8,390
              
              
              
              13,805
              
              
              
              25,972
              
              
              
              47,816Miscellaneous
      income (expense)
              
              
              (1,114
              )
              
              
              (760
              )
              
              
              (1,319
              )
              
              
              3,197Interest
      expense
              
              
              (31,024
              )
              
              
              (34,423
              )
              
              
              (94,479
              )
              
              
              (107,430
              )Capitalized
      interest
              
              
              200
              
              
              
              309
              
              
              
              584
              
              
              
              655Total other
      expense
              
              
              (23,548
              )
              
              
              (21,069
              )
              
              
              (69,242
              )
              
              
              (55,762
              )INCOME
      BEFORE INCOME TAXES
              
              
              136,364
              
              
              
              133,326
              
              
              
              324,893
              
              
              
              342,739INCOME
      TAXES
              
              
              42,977
              
              
              
              54,610
              
              
              
              107,082
              
              
              
              131,525NET
      INCOME
              
              
              93,387
              
              
              
              78,716
              
              
              
              217,811
              
              
              
              211,214OTHER
      COMPREHENSIVE INCOME (LOSS):Pension and
      other postretirement benefits
              
              
              (213
              )
              
              
              1,202
              
              
              
              (639
              )
              
              
              3,607Income tax
      expense (benefit) related to other comprehensive income
              
              
              (130
              )
              
              
              356
              
              
              
              (239
              )
              
              
              1,068Other
      comprehensive income (loss), net of tax
              
              
              (83
              )
              
              
              846
              
              
              
              (400
              )
              
              
              2,539TOTAL
      COMPREHENSIVE INCOME
              
              $
              93,304
              
              
              $
              79,562
              
              
              $
              217,411
              
              
              $
              213,753The
      accompanying Notes to Consolidated Financial Statements as they relate to
      The Cleveland Electric Illuminating Company are an
integralpart of these
      statements.
   7
  
 THE
      CLEVELAND ELECTRIC ILLUMINATING COMPANYCONSOLIDATED
      BALANCE SHEETS(Unaudited)September
      30,
              
              
              December
      31,2008
              
              
              2007(In
      thousands)ASSETSCURRENT
      ASSETS:Cash and cash
      equivalents
              
              $
              237
              
              
              $
              232Receivables-Customers
      (less accumulated provisions of $6,907,000 and $7,540,000respectively,
      for uncollectible accounts)
              
              
              292,735
              
              
              
              251,000Associated
      companies
              
              
              122,210
              
              
              
              166,587Other
              
              
              4,151
              
              
              
              12,184Notes
      receivable from associated companies
              
              
              21,682
              
              
              
              52,306Prepayments
      and other
              
              
              2,373
              
              
              
              2,327443,388
              
              
              
              484,636UTILITY
      PLANT:In
      service
              
              
              2,180,347
              
              
              
              2,256,956Less -
      Accumulated provision for depreciation
              
              
              836,058
              
              
              
              872,8011,344,289
              
              
              
              1,384,155Construction
      work in progress
              
              
              44,392
              
              
              
              41,1631,388,681
              
              
              
              1,425,318OTHER
      PROPERTY AND INVESTMENTS:Investment in
      lessor notes
              
              
              425,717
              
              
              
              463,431Other
              
              
              10,260
              
              
              
              10,285435,977
              
              
              
              473,716DEFERRED
      CHARGES AND OTHER ASSETS:Goodwill
              
              
              1,688,521
              
              
              
              1,688,521Regulatory
      assets
              
              
              796,475
              
              
              
              870,695Pension
      assets
              
              
              68,548
              
              
              
              62,471Property
      taxes
              
              
              76,000
              
              
              
              76,000Other
              
              
              9,036
              
              
              
              32,9872,638,580
              
              
              
              2,730,674$
              4,906,626
              
              
              $
              5,114,344LIABILITIES
      AND CAPITALIZATIONCURRENT
      LIABILITIES:Currently
      payable long-term debt
              
              $
              207,312
              
              
              $
              207,266Short-term
      borrowings-Associated
      companies
              
              
              367,422
              
              
              
              531,943Accounts
      payable-Associated
      companies
              
              
              124,335
              
              
              
              169,187Other
              
              
              5,704
              
              
              
              5,295Accrued
      taxes
              
              
              70,515
              
              
              
              94,991Accrued
      interest
              
              
              37,885
              
              
              
              13,895Other
              
              
              41,366
              
              
              
              34,350854,539
              
              
              
              1,056,927CAPITALIZATION:Common
      stockholder's equity-Common stock,
      without par value, authorized 105,000,000 shares -67,930,743
      shares outstanding
              
              
              878,199
              
              
              
              873,536Accumulated
      other comprehensive loss
              
              
              (69,529
              )
              
              
              (69,129
              )Retained
      earnings
              
              
              793,238
              
              
              
              685,428Total common
      stockholder's equity
              
              
              1,601,908
              
              
              
              1,489,835Long-term debt
      and other long-term obligations
              
              
              1,447,718
              
              
              
              1,459,9393,049,626
              
              
              
              2,949,774NONCURRENT
      LIABILITIES:Accumulated
      deferred income taxes
              
              
              727,615
              
              
              
              725,523Accumulated
      deferred investment tax credits
              
              
              13,442
              
              
              
              18,567Retirement
      benefits
              
              
              95,931
              
              
              
              93,456Deferred
      revenues - electric service programs
              
              
              9,594
              
              
              
              27,145Lease
      assignment payable to associated companies
              
              
              40,827
              
              
              
              131,773Other
              
              
              115,052
              
              
              
              111,1791,002,461
              
              
              
              1,107,643COMMITMENTS
      AND CONTINGENCIES (Note 11)$
              4,906,626
              
              
              $
              5,114,344The
      accompanying Notes to Consolidated Financial Statements as they relate to
      The Cleveland Electric IlluminatingCompany are an
      integral part of these balance sheets.
 
 8
 THE
      CLEVELAND ELECTRIC ILLUMINATING COMPANYCONSOLIDATED
      STATEMENTS OF CASH FLOWS(Unaudited)Nine
      MonthsEnded
      September 30Restated
                
                
                Restated2008
                
                
                2007(In
      thousands)CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      income
                
                $
                217,811
                
                
                $
                211,214Adjustments to
      reconcile net income to net cash from operating
activities-Provision for
      depreciation
                
                
                54,497
                
                
                
                56,094Amortization
      of regulatory assets
                
                
                124,936
                
                
                
                110,253Deferral of
      new regulatory assets
                
                
                (71,443
                )
                
                
                (114,708
                )Deferred rents
      and lease market valuation liability
                
                
                -
                
                
                
                (46,327
                )Deferred
      income taxes and investment tax credits, net
                
                
                4,623
                
                
                
                (40,964
                )Accrued
      compensation and retirement benefits
                
                
                (3,291
                )
                
                
                2,575Pension trust
      contribution
                
                
                -
                
                
                
                (24,800
                )Decrease
      (increase) in operating assets-Receivables
                
                
                43,927
                
                
                
                140,359Prepayments
      and other current assets
                
                
                (37
                )
                
                
                661Increase
      (decrease) in operating liabilities-Accounts
      payable
                
                
                (4,443
                )
                
                
                (303,210
                )Accrued
      taxes
                
                
                (19,613
                )
                
                
                17,301Accrued
      interest
                
                
                23,990
                
                
                
                22,360Electric
      service prepayment programs
                
                
                (17,551
                )
                
                
                (16,819
                )Other
                
                
                4,193
                
                
                
                2,996Net cash
      provided from operating activities
                
                
                357,599
                
                
                
                16,985CASH
      FLOWS FROM FINANCING ACTIVITIES:New
      Financing-Long-term
      debt
                
                
                -
                
                
                
                247,424Redemptions
      and Repayments-Long-term
      debt
                
                
                (508
                )
                
                
                (223,555
                )Short-term
      borrowings, net
                
                
                (176,354
                )
                
                
                (59,328
                )Dividend
      Payments-Common
      stock
                
                
                (150,000
                )
                
                
                (144,000
                )Net cash used
      for financing activities
                
                
                (326,862
                )
                
                
                (179,459
                )CASH
      FLOWS FROM INVESTING ACTIVITIES:Property
      additions
                
                
                (97,326
                )
                
                
                (100,583
                )Loan
      repayments from (loans to) associated companies, net
                
                
                30,624
                
                
                
                (13,863
                )Collection of
      principal on long-term notes receivable
                
                
                -
                
                
                
                220,974Redemption of
      lessor notes
                
                
                37,714
                
                
                
                56,177Other
                
                
                (1,744
                )
                
                
                (218
                )Net cash
      provided from (used for) investing activities
                
                
                (30,732
                )
                
                
                162,487Net increase
      in cash and cash equivalents
                
                
                5
                
                
                
                13Cash and cash
      equivalents at beginning of period
                
                
                232
                
                
                
                221Cash and cash
      equivalents at end of period
                
                $
                237
                
                
                $
                234The
      accompanying Notes to Consolidated Financial Statements as they relate to
      The Cleveland Electric IlluminatingCompany are an
      integral part of these statements.
    9
















Report
of Independent Registered Public Accounting Firm
































To the Stockholder
and Board of


Directors of The
Toledo Edison Company:
 
 We have reviewed the
accompanying consolidated balance sheet of The Toledo Edison Company and its
subsidiary as of September 30, 2008 and the related consolidated statements of
income and comprehensive income for each of the three-month and nine-month
periods ended September 30, 2008 and 2007 and the consolidated statement of cash
flows for the nine-month periods ended September 30, 2008 and 2007. These
interim financial statements are the responsibility of the Company’s
management.
 
 We conducted our
review in accordance with the standards of the Public Company Accounting
Oversight Board (United States). A review of interim financial information
consists principally of applying analytical procedures and making inquiries of
persons responsible for financial and accounting matters. It is substantially
less in scope than an audit conducted in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the objective of
which is the expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an opinion.
 
 Based on our review,
we are not aware of any material modifications that should be made to the
accompanying consolidated interim financial statements for them to be in
conformity with accounting principles generally accepted in the United States of
America.
 
 We previously
audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheet as of December
31, 2007, and the related consolidated statements of income, capitalization,
common stockholder's equity, and cash flows for the year then ended (not
presented herein), and in our report dated February 28, 2008, except as to the
error correction described in Note 1, which is as of November 24, 2008, we
expressed an unqualified opinion on those consolidated financial statements. In
our opinion, the information set forth in the accompanying consolidated balance
sheet information as of December 31, 2007, is fairly stated in all material
respects in relation to the consolidated balance sheet from which it has been
derived.
 
 As discussed in Note
1 to the consolidated financial statements, the Company has restated its 2008
and 2007 financial statements to correct an error.
 
 PricewaterhouseCoopers
      LLP
                Cleveland,
      Ohio
                November 6,
      2008, except as to the error correction described in Note 1,
                which is as of
      November 24, 2008.





10





THE
      TOLEDO EDISON COMPANYCONSOLIDATED
      STATEMENTS OF INCOME AND COMPREHENSIVE INCOME(Unaudited)Three
      Months
                
                
                Nine
      MonthsEnded
      September 30
                
                
                Ended
      September 302008
                
                
                2007
                
                
                2008
                
                
                2007(In
      thousands)REVENUES:Electric
      sales
                
                $
                242,866
                
                
                $
                261,736
                
                
                $
                660,888
                
                
                $
                728,429Excise tax
      collections
                
                
                8,239
                
                
                
                7,926
                
                
                
                23,417
                
                
                
                22,026Total
      revenues
                
                
                251,105
                
                
                
                269,662
                
                
                
                684,305
                
                
                
                750,455EXPENSES:Purchased
      power
                
                
                111,809
                
                
                
                112,502
                
                
                
                315,957
                
                
                
                304,947Other
      operating costs
                
                
                47,010
                
                
                
                73,701
                
                
                
                143,144
                
                
                
                218,961Provision for
      depreciation
                
                
                7,682
                
                
                
                9,231
                
                
                
                24,648
                
                
                
                27,475Amortization
      of regulatory assets
                
                
                31,452
                
                
                
                30,460
                
                
                
                81,837
                
                
                
                79,284Deferral of
      new regulatory assets
                
                
                (5,574
                )
                
                
                (15,645
                )
                
                
                (23,997
                )
                
                
                (47,373
                )General
      taxes
                
                
                13,609
                
                
                
                11,912
                
                
                
                40,591
                
                
                
                38,646Total
      expenses
                
                
                205,988
                
                
                
                222,161
                
                
                
                582,180
                
                
                
                621,940OPERATING
      INCOME
                
                
                45,117
                
                
                
                47,501
                
                
                
                102,125
                
                
                
                128,515OTHER
      INCOME (EXPENSE):Investment
      income
                
                
                5,580
                
                
                
                6,721
                
                
                
                17,285
                
                
                
                21,255Miscellaneous
      expense
                
                
                (1,529
                )
                
                
                (2,153
                )
                
                
                (4,992
                )
                
                
                (7,309
                )Interest
      expense
                
                
                (5,832
                )
                
                
                (8,786
                )
                
                
                (17,445
                )
                
                
                (25,205
                )Capitalized
      interest
                
                
                19
                
                
                
                220
                
                
                
                144
                
                
                
                467Total other
      expense
                
                
                (1,762
                )
                
                
                (3,998
                )
                
                
                (5,008
                )
                
                
                (10,792
                )INCOME
      BEFORE INCOME TAXES
                
                
                43,355
                
                
                
                43,503
                
                
                
                97,117
                
                
                
                117,723INCOME
      TAXES
                
                
                12,174
                
                
                
                18,435
                
                
                
                27,614
                
                
                
                44,924NET
      INCOME
                
                
                31,181
                
                
                
                25,068
                
                
                
                69,503
                
                
                
                72,799OTHER
      COMPREHENSIVE INCOME (LOSS):Pension and
      other postretirement benefits
                
                
                (64
                )
                
                
                574
                
                
                
                (191
                )
                
                
                1,720Change in
      unrealized gain on available-for-sale-securities
                
                
                (247
                )
                
                
                1,946
                
                
                
                (767
                )
                
                
                1,656Other
      comprehensive income (loss)
                
                
                (311
                )
                
                
                2,520
                
                
                
                (958
                )
                
                
                3,376Income tax
      expense (benefit) related to othercomprehensive
      income
                
                
                (108
                )
                
                
                902
                
                
                
                (294
                )
                
                
                1,193Other
      comprehensive income (loss), net of tax
                
                
                (203
                )
                
                
                1,618
                
                
                
                (664
                )
                
                
                2,183TOTAL
      COMPREHENSIVE INCOME
                
                $
                30,978
                
                
                $
                26,686
                
                
                $
                68,839
                
                
                $
                74,982The
      accompanying Notes to Consolidated Financial Statements as they relate to
      The Toledo Edison Company are an integralpart of these
      statements.
  11
   THE
      TOLEDO EDISON COMPANYCONSOLIDATED
      BALANCE SHEETS(Unaudited)September 30,
                
                
                December 31,2008
                
                
                2007(In
      thousands)ASSETSCURRENT
      ASSETS:Cash and cash
      equivalents
                
                $
                24
                
                
                $
                22Receivables-Customers
                
                
                931
                
                
                
                449Associated
      companies
                
                
                58,215
                
                
                
                88,796Other (less
      accumulated provisions of $165,000 and $615,000,respectively,
      for uncollectible accounts)
                
                
                15,810
                
                
                
                3,116Notes
      receivable from associated companies
                
                
                111,519
                
                
                
                154,380Prepayments
      and other
                
                
                1,421
                
                
                
                865187,920
                
                
                
                247,628UTILITY
      PLANT:In
      service
                
                
                860,417
                
                
                
                931,263Less -
      Accumulated provision for depreciation
                
                
                402,952
                
                
                
                420,445457,465
                
                
                
                510,818Construction
      work in progress
                
                
                7,626
                
                
                
                19,740465,091
                
                
                
                530,558OTHER
      PROPERTY AND INVESTMENTS:Investment in
      lessor notes
                
                
                142,657
                
                
                
                154,646Long-term
      notes receivable from associated companies
                
                
                37,308
                
                
                
                37,530Nuclear plant
      decommissioning trusts
                
                
                68,438
                
                
                
                66,759Other
                
                
                1,691
                
                
                
                1,756250,094
                
                
                
                260,691DEFERRED
      CHARGES AND OTHER ASSETS:Goodwill
                
                
                500,576
                
                
                
                500,576Regulatory
      assets
                
                
                145,404
                
                
                
                203,719Pension
      assets
                
                
                31,059
                
                
                
                28,601Property
      taxes
                
                
                21,010
                
                
                
                21,010Other
                
                
                52,325
                
                
                
                20,496750,374
                
                
                
                774,402$
                1,653,479
                
                
                $
                1,813,279LIABILITIES
      AND CAPITALIZATIONCURRENT
      LIABILITIES:Currently
      payable long-term debt
                
                $
                34
                
                
                $
                34Accounts
      payable-Associated
      companies
                
                
                88,769
                
                
                
                245,215Other
                
                
                3,368
                
                
                
                4,449Notes payable
      to associated companies
                
                
                95,203
                
                
                
                13,396Accrued
      taxes
                
                
                20,508
                
                
                
                30,245Lease market
      valuation liability
                
                
                36,900
                
                
                
                36,900Other
                
                
                26,415
                
                
                
                22,747271,197
                
                
                
                352,986CAPITALIZATION:Common
      stockholder's equity-Common stock,
      $5 par value, authorized 60,000,000 shares -29,402,054
      shares outstanding
                
                
                147,010
                
                
                
                147,010Other paid-in
      capital
                
                
                175,643
                
                
                
                173,169Accumulated
      other comprehensive loss
                
                
                (11,270
                )
                
                
                (10,606
                )Retained
      earnings
                
                
                185,121
                
                
                
                175,618Total common
      stockholder's equity
                
                
                496,504
                
                
                
                485,191Long-term debt
      and other long-term obligations
                
                
                303,382
                
                
                
                303,397799,886
                
                
                
                788,588NONCURRENT
      LIABILITIES:Accumulated
      deferred income taxes
                
                
                100,872
                
                
                
                103,463Accumulated
      deferred investment tax credits
                
                
                6,882
                
                
                
                10,180Lease market
      valuation liability
                
                
                282,325
                
                
                
                310,000Retirement
      benefits
                
                
                66,201
                
                
                
                63,215Asset
      retirement obligations
                
                
                29,715
                
                
                
                28,366Deferred
      revenues - electric service programs
                
                
                4,073
                
                
                
                12,639Lease
      assignment payable to associated companies
                
                
                30,529
                
                
                
                83,485Other
                
                
                61,799
                
                
                
                60,357582,396
                
                
                
                671,705COMMITMENTS
      AND CONTINGENCIES (Note 11)$
                1,653,479
                
                
                $
                1,813,279The
      accompanying Notes to Consolidated Financial Statements as they relate to
      The Toledo Edison Companyare an
      integral part of these balance sheets.
  
 12
  THE
      TOLEDO EDISON COMPANYCONSOLIDATED
      STATEMENTS OF CASH FLOWS(Unaudited)Nine
      MonthsEnded
      September 30Restated
                
                
                Restated2008
                
                
                2007(In
      thousands)CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      income
                
                $
                69,503
                
                
                $
                72,799Adjustments to
      reconcile net income to net cash from operating
activities-Provision for
      depreciation
                
                
                24,648
                
                
                
                27,475Amortization
      of regulatory assets
                
                
                81,837
                
                
                
                79,284Deferral of
      new regulatory assets
                
                
                (23,997
                )
                
                
                (47,373
                )Deferred rents
      and lease market valuation liability
                
                
                (32,918
                )
                
                
                (23,551
                )Deferred
      income taxes and investment tax credits, net
                
                
                (4,163
                )
                
                
                (32,530
                )Accrued
      compensation and retirement benefits
                
                
                (196
                )
                
                
                3,493Pension trust
      contribution
                
                
                -
                
                
                
                (7,659
                )Decrease
      (increase) in operating assets-Receivables
                
                
                29,088
                
                
                
                (13,368
                )Prepayments
      and other current assets
                
                
                (556
                )
                
                
                224Increase
      (decrease) in operating liabilities-Accounts
      payable
                
                
                (177,527
                )
                
                
                (55,485
                )Accrued
      taxes
                
                
                (9,737
                )
                
                
                13,588Accrued
      interest
                
                
                4,663
                
                
                
                3,444Electric
      service prepayment programs
                
                
                (8,566
                )
                
                
                (7,650
                )Other
                
                
                (577
                )
                
                
                4,113Net cash
      provided from (used for) operating activities
                
                
                (48,498
                )
                
                
                16,804CASH
      FLOWS FROM FINANCING ACTIVITIES:New
      Financing-Short-term
      borrowings, net
                
                
                81,807
                
                
                
                37,191Redemptions
      and Repayments-Long-term
      debt
                
                
                (26
                )
                
                
                (30,014
                )Dividend
      Payments-Common
      stock
                
                
                (40,000
                )
                
                
                (55,000
                )Net cash
      provided from (used for) financing activities
                
                
                41,781
                
                
                
                (47,823
                )CASH
      FLOWS FROM INVESTING ACTIVITIES:Property
      additions
                
                
                (44,695
                )
                
                
                (41,573
                )Loan
      repayments from associated companies, net
                
                
                42,948
                
                
                
                21,438Collection of
      principal on long-term notes receivable
                
                
                135
                
                
                
                36,077Redemption of
      lessor notes
                
                
                11,989
                
                
                
                14,819Sales of
      investment securities held in trusts
                
                
                28,774
                
                
                
                39,260Purchases of
      investment securities held in trusts
                
                
                (31,297
                )
                
                
                (41,717
                )Other
                
                
                (1,135
                )
                
                
                2,713Net cash
      provided from investing activities
                
                
                6,719
                
                
                
                31,017Net increase
      (decrease) in cash and cash equivalents
                
                
                2
                
                
                
                (2
                )Cash and cash
      equivalents at beginning of period
                
                
                22
                
                
                
                22Cash and cash
      equivalents at end of period
                
                $
                24
                
                
                $
                20The
      accompanying Notes to Consolidated Financial Statements as they relate to
      The Toledo Edison Company arean integral
      part of these statements.
   13





















Report
of Independent Registered Public Accounting Firm


































To the Stockholder
and Board of
 Directors of
Pennsylvania Electric Company:
 
 We have reviewed the
accompanying consolidated balance sheet of Pennsylvania Electric Company and its
subsidiaries as of September 30, 2008 and the related consolidated statements of
income and comprehensive income for each of the three-month and nine-month
periods ended September 30, 2008 and 2007 and the consolidated statement of cash
flows for the nine-month periods ended September 30, 2008 and 2007. These
interim financial statements are the responsibility of the Company’s
management.
 
 We conducted our
review in accordance with the standards of the Public Company Accounting
Oversight Board (United States). A review of interim financial information
consists principally of applying analytical procedures and making inquiries of
persons responsible for financial and accounting matters. It is substantially
less in scope than an audit conducted in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the objective of
which is the expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an opinion.
 
 Based on our review,
we are not aware of any material modifications that should be made to the
accompanying consolidated interim financial statements for them to be in
conformity with accounting principles generally accepted in the United States of
America.
 
 We previously
audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheet as of December
31, 2007, and the related consolidated statements of income, capitalization,
common stockholder's equity, and cash flows for the year then ended (not
presented herein), and in our report dated February 28, 2008, except as to the
error correction described in Note 1, which is as of November 24, 2008, we
expressed an unqualified opinion on those consolidated financial statements. In
our opinion, the information set forth in the accompanying consolidated balance
sheet information as of December 31, 2007, is fairly stated in all material
respects in relation to the consolidated balance sheet from which it has been
derived.
 
 As discussed in Note
1 to the consolidated financial statements, the Company has restated its 2008
and 2007 financial statements to correct an error.
 
 PricewaterhouseCoopers
      LLP
                Cleveland,
      Ohio
                November 6,
      2008, except as to the error correction described in Note 1,
                which is as of
      November 24, 2008.








14





PENNSYLVANIA
      ELECTRIC COMPANYCONSOLIDATED
      STATEMENTS OF INCOME AND COMPREHENSIVE INCOME(Unaudited)Three Months
                
                
                Nine MonthsEnded September 30
                
                
                Ended
      September 302008
                
                
                2007
                
                
                2008
                
                
                2007(In
      thousands)REVENUES:Electric
      sales
                
                $
                372,576
                
                
                $
                336,798
                
                
                $
                1,083,986
                
                
                $
                991,769Gross receipts
      tax collections
                
                
                17,200
                
                
                
                16,637
                
                
                
                52,704
                
                
                
                48,989Total
      revenues
                
                
                389,776
                
                
                
                353,435
                
                
                
                1,136,690
                
                
                
                1,040,758EXPENSES:Purchased
      power
                
                
                230,656
                
                
                
                203,247
                
                
                
                657,681
                
                
                
                588,583Other
      operating costs
                
                
                54,727
                
                
                
                51,571
                
                
                
                175,904
                
                
                
                169,299Provision for
      depreciation
                
                
                14,097
                
                
                
                12,566
                
                
                
                40,531
                
                
                
                36,678Amortization
      of regulatory assets, net
                
                
                23,415
                
                
                
                20,861
                
                
                
                55,346
                
                
                
                32,648General
      taxes
                
                
                20,285
                
                
                
                19,433
                
                
                
                60,485
                
                
                
                57,634Total
      expenses
                
                
                343,180
                
                
                
                307,678
                
                
                
                989,947
                
                
                
                884,842OPERATING
      INCOME
                
                
                46,596
                
                
                
                45,757
                
                
                
                146,743
                
                
                
                155,916OTHER
      INCOME (EXPENSE):Miscellaneous
      income (expense)
                
                
                (93
                )
                
                
                1,483
                
                
                
                774
                
                
                
                5,035Interest
      expense
                
                
                (14,934
                )
                
                
                (14,017
                )
                
                
                (45,157
                )
                
                
                (38,426
                )Capitalized
      interest
                
                
                57
                
                
                
                194
                
                
                
                (679
                )
                
                
                737Total other
      expense
                
                
                (14,970
                )
                
                
                (12,340
                )
                
                
                (45,062
                )
                
                
                (32,654
                )INCOME
      BEFORE INCOME TAXES
                
                
                31,626
                
                
                
                33,417
                
                
                
                101,681
                
                
                
                123,262INCOME
      TAXES
                
                
                9,058
                
                
                
                10,387
                
                
                
                39,324
                
                
                
                49,025NET
      INCOME
                
                
                22,568
                
                
                
                23,030
                
                
                
                62,357
                
                
                
                74,237OTHER
      COMPREHENSIVE INCOME (LOSS):Pension and
      other postretirement benefits
                
                
                (3,474
                )
                
                
                (2,825
                )
                
                
                (10,421
                )
                
                
                (8,475
                )Unrealized
      gain on derivative hedges
                
                
                16
                
                
                
                16
                
                
                
                48
                
                
                
                49Change in
      unrealized gain on available-for-sale securities
                
                
                2
                
                
                
                10
                
                
                
                (8
                )
                
                
                (6
                )Other
      comprehensive loss
                
                
                (3,456
                )
                
                
                (2,799
                )
                
                
                (10,381
                )
                
                
                (8,432
                )Income tax
      benefit related to other comprehensive loss
                
                
                (1,510
                )
                
                
                (1,294
                )
                
                
                (4,536
                )
                
                
                (3,894
                )Other
      comprehensive loss, net of tax
                
                
                (1,946
                )
                
                
                (1,505
                )
                
                
                (5,845
                )
                
                
                (4,538
                )TOTAL
      COMPREHENSIVE INCOME
                
                $
                20,622
                
                
                $
                21,525
                
                
                $
                56,512
                
                
                $
                69,699The
      accompanying Notes to Consolidated Financial Statements as they relate to
      Pennsylvania Electric Company are an integralpart of these
      statements.
  15
   PENNSYLVANIA
      ELECTRIC COMPANYCONSOLIDATED
      BALANCE SHEETS(Unaudited)September
      30,
                
                
                December
      31,2008
                
                
                2007(In
      thousands)ASSETSCURRENT
      ASSETS:Cash and cash
      equivalents
                
                $
                36
                
                
                $
                46Receivables-Customers
      (less accumulated provisions of $3,240,000 and $3,905,000respectively,
      for uncollectible accounts)
                
                
                130,427
                
                
                
                137,455Associated
      companies
                
                
                57,715
                
                
                
                22,014Other
                
                
                20,367
                
                
                
                19,529Notes
      receivable from associated companies
                
                
                15,406
                
                
                
                16,313Prepaid
      taxes
                
                
                31,313
                
                
                
                1,796Other
                
                
                494
                
                
                
                1,281255,758
                
                
                
                198,434UTILITY
      PLANT:In
      service
                
                
                2,290,777
                
                
                
                2,219,002Less -
      Accumulated provision for depreciation
                
                
                858,150
                
                
                
                838,6211,432,627
                
                
                
                1,380,381Construction
      work in progress
                
                
                29,503
                
                
                
                24,2511,462,130
                
                
                
                1,404,632OTHER
      PROPERTY AND INVESTMENTS:Nuclear plant
      decommissioning trusts
                
                
                128,594
                
                
                
                137,859Non-utility
      generation trusts
                
                
                115,938
                
                
                
                112,670Other
                
                
                299
                
                
                
                531244,831
                
                
                
                251,060DEFERRED
      CHARGES AND OTHER ASSETS:Goodwill
                
                
                771,085
                
                
                
                777,904Pension
      assets
                
                
                75,992
                
                
                
                66,111Other
                
                
                29,610
                
                
                
                33,893876,687
                
                
                
                877,908$
                2,839,406
                
                
                $
                2,732,034LIABILITIES
      AND CAPITALIZATIONCURRENT
      LIABILITIES:Currently
      payable long-term debt
                
                $
                145,000
                
                
                $
                -Short-term
      borrowings-Associated
      companies
                
                
                30,483
                
                
                
                214,893Other
                
                
                250,000
                
                
                
                -Accounts
      payable-Associated
      companies
                
                
                83,058
                
                
                
                83,359Other
                
                
                47,796
                
                
                
                51,777Accrued
      taxes
                
                
                3,923
                
                
                
                15,111Accrued
      interest
                
                
                14,034
                
                
                
                13,167Other
                
                
                30,297
                
                
                
                25,311604,591
                
                
                
                403,618CAPITALIZATION:Common
      stockholder's equity-Common stock,
      $20 par value, authorized 5,400,000 shares-4,427,577
      shares outstanding
                
                
                88,552
                
                
                
                88,552Other paid-in
      capital
                
                
                914,863
                
                
                
                920,616Accumulated
      other comprehensive income (loss)
                
                
                (899
                )
                
                
                4,946Retained
      earnings
                
                
                50,300
                
                
                
                57,943Total common
      stockholder's equity
                
                
                1,052,816
                
                
                
                1,072,057Long-term debt
      and other long-term obligations
                
                
                632,910
                
                
                
                777,2431,685,726
                
                
                
                1,849,300NONCURRENT
      LIABILITIES:Regulatory
      liabilities
                
                
                104,927
                
                
                
                73,559Asset
      retirement obligations
                
                
                85,748
                
                
                
                81,849Accumulated
      deferred income taxes
                
                
                253,798
                
                
                
                210,776Retirement
      benefits
                
                
                40,864
                
                
                
                41,298Other
                
                
                63,752
                
                
                
                71,634549,089
                
                
                
                479,116COMMITMENTS
      AND CONTINGENCIES (Note 11)$
                2,839,406
                
                
                $
                2,732,034The
      accompanying Notes to Consolidated Financial Statements as they relate to
      Pennsylvania Electric Company arean integral
      part of these statements.
  16
   PENNSYLVANIA
      ELECTRIC COMPANYCONSOLIDATED
      STATEMENTS OF CASH FLOWS(Unaudited)Nine
      MonthsEnded
      September 30Restated
                
                
                Restated2008
                
                
                2007(In
      thousands)CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      income
                
                $
                62,357
                
                
                $
                74,237Adjustments to
      reconcile net income to net cash from operating
activities-Provision for
      depreciation
                
                
                40,531
                
                
                
                36,678Amortization
      of regulatory assets, net
                
                
                55,346
                
                
                
                32,648Deferred costs
      recoverable as regulatory assets
                
                
                (20,304
                )
                
                
                (54,228
                )Deferred
      income taxes and investment tax credits, net
                
                
                68,377
                
                
                
                8,065Accrued
      compensation and retirement benefits
                
                
                (21,190
                )
                
                
                (16,032
                )Cash
      collateral
                
                
                -
                
                
                
                50Pension trust
      contribution
                
                
                -
                
                
                
                (13,436
                )Decrease
      (increase) in operating assets-Receivables
                
                
                (42,971
                )
                
                
                13,809Prepayments
      and other current assets
                
                
                (28,730
                )
                
                
                (4,757
                )Increase
      (decrease) in operating liabilities-Accounts
      payable
                
                
                (8,437
                )
                
                
                (70,701
                )Accrued
      taxes
                
                
                (11,521
                )
                
                
                (4,930
                )Accrued
      interest
                
                
                867
                
                
                
                6,608Other
                
                
                14,663
                
                
                
                9,197Net cash
      provided from operating activities
                
                
                108,988
                
                
                
                17,208CASH
      FLOWS FROM FINANCING ACTIVITIES:New
      Financing-Long-term
      debt
                
                
                45,000
                
                
                
                297,149Short-term
      borrowings, net
                
                
                65,590
                
                
                
                53,082Redemptions
      and Repayments-Long-term
      debt
                
                
                (45,332
                )
                
                
                -Common
      stock
                
                
                -
                
                
                
                (200,000
                )Dividend
      Payments-Common
      stock
                
                
                (65,000
                )
                
                
                (40,000
                )Net cash
      provided from financing activities
                
                
                258
                
                
                
                110,231CASH
      FLOWS FROM INVESTING ACTIVITIES:Property
      additions
                
                
                (94,810
                )
                
                
                (70,076
                )Loan
      repayments from associated companies, net
                
                
                907
                
                
                
                2,378Sales of
      investment securities held in trust
                
                
                84,499
                
                
                
                94,292Purchases of
      investment securities held in trust
                
                
                (96,950
                )
                
                
                (150,711
                )Other
                
                
                (2,902
                )
                
                
                (3,328
                )Net cash used
      for investing activities
                
                
                (109,256
                )
                
                
                (127,445
                )Net decrease
      in cash and cash equivalents
                
                
                (10
                )
                
                
                (6
                )Cash and cash
      equivalents at beginning of period
                
                
                46
                
                
                
                44Cash and cash
      equivalents at end of period
                
                $
                36
                
                
                $
                38The
      accompanying Notes to Consolidated Financial Statements as they relate to
      Pennsylvania Electric Company arean integral
      part of these statements.
    17











COMBINED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(UNAUDITED)








1.ORGANIZATION AND BASIS OF
PRESENTATION





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





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





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





FirstEnergy and its
subsidiaries consolidate all majority-owned subsidiaries over which they
exercise control and, when applicable, entities for which they have a
controlling financial interest. Intercompany transactions and balances are
eliminated in consolidation. FirstEnergy consolidates a VIE (see Note 9) when it
is determined to be the VIE's primary beneficiary. Investments in
non-consolidated affiliates over which FirstEnergy and its subsidiaries have the
ability to exercise significant influence, but not control (20-50% owned
companies, joint ventures and partnerships) follow the equity method of
accounting. Under the equity method, the interest in the entity is reported as
an investment in the Consolidated Balance Sheets and the percentage share of the
entity’s earnings is reported in the Consolidated Statements of
Income.





The consolidated
financial statements as of September 30, 2008 and for the three-month and
nine-month periods ended September 30, 2008 and 2007, have been reviewed by
PricewaterhouseCoopers LLP, an independent registered public accounting firm.
Their report (dated November 6, 2008, except as to the error correction
described in Note 1, which is as of November 24, 2008) is included herein.
The report of PricewaterhouseCoopers LLP states that they did not audit and they
do not express an opinion on that unaudited financial information. Accordingly,
the degree of reliance on their report on such information should be restricted
in light of the limited nature of the review procedures applied.
PricewaterhouseCoopers LLP is not subject to the liability provisions of Section
11 of the Securities Act of 1933 for their report on the unaudited financial
information because that report is not a “report” or a “part” of a registration
statement prepared or certified by PricewaterhouseCoopers LLP within the meaning
of Sections 7 and 11 of the Securities Act of 1933.


Restatement
of the Consolidated Statements of Cash Flows





OE, CEI, TE and
Penelec are restating their respective Consolidated Statements of Cash Flows for
the nine months ended September 30, 2008 and 2007, to correct common stock
dividend payments reported in cash flows from financing activities. The
consolidated statements of cash flows, as originally filed, erroneously
reflected the dividends declared in the third quarter of 2008 and the third
quarter of 2007 applicable to future quarters' payments as dividends paid in the
quarter that they were declared. The corrections resulted in a corresponding
change in operating liabilities - accounts payable, included in cash flows from
operating activities.





This correction does
not affect the respective registrants’ previously reported consolidated
statements of income and comprehensive income for the three months and nine
ended September 30, 2008 and 2007, and consolidated balance sheets as of
September 30, 2008 and December 31, 2007 contained in the combined Form 10-Q for
the quarter ended September 30, 2008, as originally filed on November 7,
2008.




The effects of the
corrections on OE’s, CEI’s, TE’s and Penelec’s Consolidated Statements of Cash
Flows for the nine months ended September 30, 2008 and 2007 are as
follows:





18





OENine
      MonthsEnded
      September 30,2008
                  
                  
                  2007As
                  
                  
                  
                  
                  
                  AsPreviously
                  
                  
                  As
                  
                  
                  Previously
                  
                  
                  AsReported
                  
                  
                  Restated
                  
                  
                  Reported
                  
                  
                  Restated(In
      thousands)CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      income
                  
                  $
                  165,235
                  
                  
                  $
                  165,235
                  
                  
                  $
                  147,862
                  
                  
                  $
                  147,862Adjustments to
      reconcile net income to net cashfrom operating
      activities-Provision for
      depreciation
                  
                  
                  57,904
                  
                  
                  
                  57,904
                  
                  
                  
                  57,440
                  
                  
                  
                  57,440Amortization
      of regulatory assets
                  
                  
                  154,054
                  
                  
                  
                  154,054
                  
                  
                  
                  144,569
                  
                  
                  
                  144,569Deferral of
      new regulatory assets
                  
                  
                  (66,390
                  )
                  
                  
                  (66,390
                  )
                  
                  
                  (132,410
                  )
                  
                  
                  (132,410
                  )Amortization
      of lease costs
                  
                  
                  28,535
                  
                  
                  
                  28,535
                  
                  
                  
                  28,567
                  
                  
                  
                  28,567Deferred
      income taxes and investmenttax credits,
      net
                  
                  
                  17,267
                  
                  
                  
                  17,267
                  
                  
                  
                  (29,155
                  )
                  
                  
                  (29,155
                  )Accrued
      compensation and retirement benefits
                  
                  
                  (41,190
                  )
                  
                  
                  (41,190
                  )
                  
                  
                  (34,572
                  )
                  
                  
                  (34,572
                  )Pension trust
      contribution
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (20,261
                  )
                  
                  
                  (20,261
                  )Decrease
      (increase) in operating assets-Receivables
                  
                  
                  (26,009
                  )
                  
                  
                  (26,009
                  )
                  
                  
                  (70,098
                  )
                  
                  
                  (70,098
                  )Prepayments
      and other current assets
                  
                  
                  2,065
                  
                  
                  
                  2,065
                  
                  
                  
                  (3,542
                  )
                  
                  
                  (3,542
                  )Increase
      (decrease) in operating liabilities-Accounts
      payable
                  
                  
                  (77,463
                  )
                  
                  
                  (27,463
                  )
                  
                  
                  89,550
                  
                  
                  
                  4,550Accrued
      taxes
                  
                  
                  (27,776
                  )
                  
                  
                  (27,776
                  )
                  
                  
                  (25,734
                  )
                  
                  
                  (25,734
                  )Accrued
      interest
                  
                  
                  (8,162
                  )
                  
                  
                  (8,162
                  )
                  
                  
                  (7,277
                  )
                  
                  
                  (7,277
                  )Electric
      service prepayment programs
                  
                  
                  (31,895
                  )
                  
                  
                  (31,895
                  )
                  
                  
                  (27,455
                  )
                  
                  
                  (27,455
                  )Other
                  
                  
                  (1,283
                  )
                  
                  
                  (1,283
                  )
                  
                  
                  9,868
                  
                  
                  
                  9,868Net cash
      provided from operating activities
                  
                  
                  144,892
                  
                  
                  
                  194,892
                  
                  
                  
                  127,352
                  
                  
                  
                  42,352CASH
      FLOWS FROM FINANCING ACTIVITIES:New
      Financing-Short-term
      borrowings, net
                  
                  
                  189,148
                  
                  
                  
                  189,148
                  
                  
                  
                  -
                  
                  
                  
                  -Redemptions
      and Repayments-Common
      stock
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (500,000
                  )
                  
                  
                  (500,000
                  )Long-term
      debt
                  
                  
                  (175,588
                  )
                  
                  
                  (175,588
                  )
                  
                  
                  (1,190
                  )
                  
                  
                  (1,190
                  )Short-term
      borrowings, net
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (64,475
                  )
                  
                  
                  (64,475
                  )Dividend
      Payments-Common
      stock
                  
                  
                  (265,000
                  )
                  
                  
                  (315,000
                  )
                  
                  
                  (150,000
                  )
                  
                  
                  (65,000
                  )Net cash used
      for financing activities
                  
                  
                  (251,440
                  )
                  
                  
                  (301,440
                  )
                  
                  
                  (715,665
                  )
                  
                  
                  (630,665
                  )CASH
      FLOWS FROM INVESTING ACTIVITIES:Property
      additions
                  
                  
                  (135,450
                  )
                  
                  
                  (135,450
                  )
                  
                  
                  (109,461
                  )
                  
                  
                  (109,461
                  )Sales of
      investment securities held in trusts
                  
                  
                  115,988
                  
                  
                  
                  115,988
                  
                  
                  
                  31,624
                  
                  
                  
                  31,624Purchases of
      investment securities held in trusts
                  
                  
                  (121,871
                  )
                  
                  
                  (121,871
                  )
                  
                  
                  (36,194
                  )
                  
                  
                  (36,194
                  )Loan
      repayments from associated companies, net
                  
                  
                  234,577
                  
                  
                  
                  234,577
                  
                  
                  
                  685,364
                  
                  
                  
                  685,364Cash
      investments
                  
                  
                  5,143
                  
                  
                  
                  5,143
                  
                  
                  
                  17,316
                  
                  
                  
                  17,316Other
                  
                  
                  8,144
                  
                  
                  
                  8,144
                  
                  
                  
                  (321
                  )
                  
                  
                  (321
                  )Net cash
      provided from investing activities
                  
                  
                  106,531
                  
                  
                  
                  106,531
                  
                  
                  
                  588,328
                  
                  
                  
                  588,328Net increase
      (decrease) in cash and cash equivalents
                  
                  $
                  (17
                  )
                  
                  $
                  (17
                  )
                  
                  $
                  15
                  
                  
                  $
                  15
   19
  CEINine
      MonthsEnded
      September 302008
                
                
                2007As
                
                
                
                
                
                AsPreviously
                
                
                As
                
                
                Previously
                
                
                AsReported
                
                
                Restated
                
                
                Reported
                
                
                Restated(In
      thousands)CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      income
                
                $
                217,811
                
                
                $
                217,811
                
                
                $
                211,214
                
                
                $
                211,214Adjustments to
      reconcile net income to net cashfrom operating
      activities-Provision for
      depreciation
                
                
                54,497
                
                
                
                54,497
                
                
                
                56,094
                
                
                
                56,094Amortization
      of regulatory assets
                
                
                124,936
                
                
                
                124,936
                
                
                
                110,253
                
                
                
                110,253Deferral of
      new regulatory assets
                
                
                (71,443
                )
                
                
                (71,443
                )
                
                
                (114,708
                )
                
                
                (114,708
                )Deferred rents
      and lease market valuation liability
                
                
                -
                
                
                
                -
                
                
                
                (46,327
                )
                
                
                (46,327
                )Deferred
      income taxes and investmenttax credits,
      net
                
                
                4,623
                
                
                
                4,623
                
                
                
                (40,964
                )
                
                
                (40,964
                )Accrued
      compensation and retirement benefits
                
                
                (3,291
                )
                
                
                (3,291
                )
                
                
                2,575
                
                
                
                2,575Pension trust
      contribution
                
                
                -
                
                
                
                -
                
                
                
                (24,800
                )
                
                
                (24,800
                )Decrease
      (increase) in operating assets-Receivables
                
                
                43,927
                
                
                
                43,927
                
                
                
                140,359
                
                
                
                140,359Prepayments
      and other current assets
                
                
                (37
                )
                
                
                (37
                )
                
                
                661
                
                
                
                661Increase
      (decrease) in operating liabilities-Accounts
      payable
                
                
                (44,443
                )
                
                
                (4,443
                )
                
                
                (143,210
                )
                
                
                (303,210
                )Accrued
      taxes
                
                
                (19,613
                )
                
                
                (19,613
                )
                
                
                17,301
                
                
                
                17,301Accrued
      interest
                
                
                23,990
                
                
                
                23,990
                
                
                
                22,360
                
                
                
                22,360Electric
      service prepayment programs
                
                
                (17,551
                )
                
                
                (17,551
                )
                
                
                (16,819
                )
                
                
                (16,819
                )Other
                
                
                4,193
                
                
                
                4,193
                
                
                
                2,996
                
                
                
                2,996Net cash
      provided from operating activities
                
                
                317,599
                
                
                
                357,599
                
                
                
                176,985
                
                
                
                16,985CASH
      FLOWS FROM FINANCING ACTIVITIES:New
      Financing-Long-term
      debt
                
                
                -
                
                
                
                -
                
                
                
                247,424
                
                
                
                247,424Redemptions
      and Repayments-Long-term
      debt
                
                
                (508
                )
                
                
                (508
                )
                
                
                (223,555
                )
                
                
                (223,555
                )Short-term
      borrowings, net
                
                
                (176,354
                )
                
                
                (176,354
                )
                
                
                (59,328
                )
                
                
                (59,328
                )Dividend
      Payments-Common
      stock
                
                
                (110,000
                )
                
                
                (150,000
                )
                
                
                (304,000
                )
                
                
                (144,000
                )Net cash used
      for financing activities
                
                
                (286,862
                )
                
                
                (326,862
                )
                
                
                (339,459
                )
                
                
                (179,459
                )CASH
      FLOWS FROM INVESTING ACTIVITIES:Property
      additions
                
                
                (97,326
                )
                
                
                (97,326
                )
                
                
                (100,583
                )
                
                
                (100,583
                )Loan
      repayments from (loans to)associated
      companies, net
                
                
                30,624
                
                
                
                30,624
                
                
                
                (13,863
                )
                
                
                (13,863
                )Collection of
      principal on long-term notes receivable
                
                
                -
                
                
                
                -
                
                
                
                220,974
                
                
                
                220,974Redemption of
      lessor notes
                
                
                37,714
                
                
                
                37,714
                
                
                
                56,177
                
                
                
                56,177Other
                
                
                (1,744
                )
                
                
                (1,744
                )
                
                
                (218
                )
                
                
                (218
                )Net cash
      provided from (used for)investing
      activities
                
                
                (30,732
                )
                
                
                (30,732
                )
                
                
                162,487
                
                
                
                162,487Net increase
      in cash and cash equivalents
                
                $
                5
                
                
                $
                5
                
                
                $
                13
                
                
                $
                13
   20
  TENine
      MonthsEnded
      September 302008
                
                
                2007As
                
                
                
                
                
                AsPreviously
                
                
                As
                
                
                Previously
                
                
                AsReported
                
                
                Restated
                
                
                Reported
                
                
                Restated(In
      thousands)CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      income
                
                $
                69,503
                
                
                $
                69,503
                
                
                $
                72,799
                
                
                $
                72,799Adjustments to
      reconcile net income to net cashfrom operating
      activities-Provision for
      depreciation
                
                
                24,648
                
                
                
                24,648
                
                
                
                27,475
                
                
                
                27,475Amortization
      of regulatory assets
                
                
                81,837
                
                
                
                81,837
                
                
                
                79,284
                
                
                
                79,284Deferral of
      new regulatory assets
                
                
                (23,997
                )
                
                
                (23,997
                )
                
                
                (47,373
                )
                
                
                (47,373
                )Deferred rents
      and lease market valuation liability
                
                
                (32,918
                )
                
                
                (32,918
                )
                
                
                (23,551
                )
                
                
                (23,551
                )Deferred
      income taxes and investmenttax credits,
      net
                
                
                (4,163
                )
                
                
                (4,163
                )
                
                
                (32,530
                )
                
                
                (32,530
                )Accrued
      compensation and retirement benefits
                
                
                (196
                )
                
                
                (196
                )
                
                
                3,493
                
                
                
                3,493Pension trust
      contribution
                
                
                -
                
                
                
                -
                
                
                
                (7,659
                )
                
                
                (7,659
                )Decrease
      (increase) in operating assets-Receivables
                
                
                29,088
                
                
                
                29,088
                
                
                
                (13,368
                )
                
                
                (13,368
                )Prepayments
      and other current assets
                
                
                (556
                )
                
                
                (556
                )
                
                
                224
                
                
                
                224Increase
      (decrease) in operating liabilities-Accounts
      payable
                
                
                (157,527
                )
                
                
                (177,527
                )
                
                
                9,515
                
                
                
                (55,485
                )Accrued
      taxes
                
                
                (9,737
                )
                
                
                (9,737
                )
                
                
                13,588
                
                
                
                13,588Accrued
      interest
                
                
                4,663
                
                
                
                4,663
                
                
                
                3,444
                
                
                
                3,444Electric
      service prepayment programs
                
                
                (8,566
                )
                
                
                (8,566
                )
                
                
                (7,650
                )
                
                
                (7,650
                )Other
                
                
                (577
                )
                
                
                (577
                )
                
                
                4,113
                
                
                
                4,113Net cash
      provided from (used for)operating
      activities
                
                
                (28,498
                )
                
                
                (48,498
                )
                
                
                81,804
                
                
                
                16,804CASH
      FLOWS FROM FINANCING ACTIVITIES:New
      Financing-Short-term
      borrowings, net
                
                
                81,807
                
                
                
                81,807
                
                
                
                37,191
                
                
                
                37,191Redemptions
      and Repayments-Long-term
      debt
                
                
                (26
                )
                
                
                (26
                )
                
                
                (30,014
                )
                
                
                (30,014
                )Dividend
      Payments-Common
      stock
                
                
                (60,000
                )
                
                
                (40,000
                )
                
                
                (120,000
                )
                
                
                (55,000
                )Net cash
      provided from (used for)financing
      activities
                
                
                21,781
                
                
                
                41,781
                
                
                
                (112,823
                )
                
                
                (47,823
                )CASH
      FLOWS FROM INVESTING ACTIVITIES:Property
      additions
                
                
                (44,695
                )
                
                
                (44,695
                )
                
                
                (41,573
                )
                
                
                (41,573
                )Loan
      repayments from associated companies, net
                
                
                42,948
                
                
                
                42,948
                
                
                
                21,438
                
                
                
                21,438Collection of
      principal on long-term notes receivable
                
                
                135
                
                
                
                135
                
                
                
                36,077
                
                
                
                36,077Redemption of
      lessor notes
                
                
                11,989
                
                
                
                11,989
                
                
                
                14,819
                
                
                
                14,819Sales of
      investment securities held in trusts
                
                
                28,774
                
                
                
                28,774
                
                
                
                39,260
                
                
                
                39,260Purchases of
      investment securities held in trusts
                
                
                (31,297
                )
                
                
                (31,297
                )
                
                
                (41,717
                )
                
                
                (41,717
                )Other
                
                
                (1,135
                )
                
                
                (1,135
                )
                
                
                2,713
                
                
                
                2,713Net cash
      provided from investing activities
                
                
                6,719
                
                
                
                6,719
                
                
                
                31,017
                
                
                
                31,017Net increase
      (decrease) in cash and cash equivalents
                
                $
                2
                
                
                $
                2
                
                
                $
                (2
                )
                
                $
                (2
                )
   21
  PENELECNine
      MonthsEnded
      September 302008
                
                
                2007As
                
                
                
                
                
                AsPreviously
                
                
                As
                
                
                Previously
                
                
                AsReported
                
                
                Restated
                
                
                Reported
                
                
                Restated(In
      thousands)CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      income
                
                $
                62,357
                
                
                $
                62,357
                
                
                $
                74,237
                
                
                $
                74,237Adjustments to
      reconcile net income to net cashfrom operating
      activities-Provision for
      depreciation
                
                
                40,531
                
                
                
                40,531
                
                
                
                36,678
                
                
                
                36,678Amortization
      of regulatory assets, net
                
                
                55,346
                
                
                
                55,346
                
                
                
                32,648
                
                
                
                32,648Deferred costs
      recoverable as regulatory assets
                
                
                (20,304
                )
                
                
                (20,304
                )
                
                
                (54,228
                )
                
                
                (54,228
                )Deferred
      income taxes and investmenttax credits,
      net
                
                
                68,377
                
                
                
                68,377
                
                
                
                8,065
                
                
                
                8,065Accrued
      compensation and retirement benefits
                
                
                (21,190
                )
                
                
                (21,190
                )
                
                
                (16,032
                )
                
                
                (16,032
                )Cash
      collateral
                
                
                -
                
                
                
                -
                
                
                
                50
                
                
                
                50Pension trust
      contribution
                
                
                -
                
                
                
                -
                
                
                
                (13,436
                )
                
                
                (13,436
                )Decrease
      (increase) in operating assets-Receivables
                
                
                (42,971
                )
                
                
                (42,971
                )
                
                
                13,809
                
                
                
                13,809Prepayments
      and other current assets
                
                
                (28,730
                )
                
                
                (28,730
                )
                
                
                (4,757
                )
                
                
                (4,757
                )Increase
      (decrease) in operating liabilities-Accounts
      payable
                
                
                (3,437
                )
                
                
                (8,437
                )
                
                
                14,299
                
                
                
                (70,701
                )Accrued
      taxes
                
                
                (11,521
                )
                
                
                (11,521
                )
                
                
                (4,930
                )
                
                
                (4,930
                )Accrued
      interest
                
                
                867
                
                
                
                867
                
                
                
                6,608
                
                
                
                6,608Other
                
                
                14,663
                
                
                
                14,663
                
                
                
                9,197
                
                
                
                9,197Net cash
      provided from operating activities
                
                
                113,988
                
                
                
                108,988
                
                
                
                102,208
                
                
                
                17,208CASH
      FLOWS FROM FINANCING ACTIVITIES:New
      Financing-Long-term
      debt
                
                
                45,000
                
                
                
                45,000
                
                
                
                297,149
                
                
                
                297,149Short-term
      borrowings, net
                
                
                65,590
                
                
                
                65,590
                
                
                
                53,082
                
                
                
                53,082Redemptions
      and Repayments-Long-term
      debt
                
                
                (45,332
                )
                
                
                (45,332
                )
                
                
                -
                
                
                
                -Common
      stock
                
                
                -
                
                
                
                -
                
                
                
                (200,000
                )
                
                
                (200,000
                )Dividend
      Payments-Common
      stock
                
                
                (70,000
                )
                
                
                (65,000
                )
                
                
                (125,000
                )
                
                
                (40,000
                )Net cash
      provided from (used for)financing
      activities
                
                
                (4,742
                )
                
                
                258
                
                
                
                25,231
                
                
                
                110,231CASH
      FLOWS FROM INVESTING ACTIVITIES:Property
      additions
                
                
                (94,810
                )
                
                
                (94,810
                )
                
                
                (70,076
                )
                
                
                (70,076
                )Loan
      repayments from associated companies, net
                
                
                907
                
                
                
                907
                
                
                
                2,378
                
                
                
                2,378Sales of
      investment securities held in trust
                
                
                84,499
                
                
                
                84,499
                
                
                
                94,292
                
                
                
                94,292Purchases of
      investment securities held in trust
                
                
                (96,950
                )
                
                
                (96,950
                )
                
                
                (150,711
                )
                
                
                (150,711
                )Other
                
                
                (2,902
                )
                
                
                (2,902
                )
                
                
                (3,328
                )
                
                
                (3,328
                )Net cash used
      for investing activities
                
                
                (109,256
                )
                
                
                (109,256
                )
                
                
                (127,445
                )
                
                
                (127,445
                )Net decrease
      in cash and cash equivalents
                
                $
                (10
                )
                
                $
                (10
                )
                
                $
                (6
                )
                
                $
                (6
                )
   22




2.  EARNINGS
PER SHARE
 
 Basic earnings per
share of common stock is computed using the weighted average of actual common
shares outstanding during the respective period as the denominator. The
denominator for diluted earnings per share of common stock reflects the weighted
average of common shares outstanding plus the potential additional common shares
that could result if dilutive securities and other agreements to issue common
stock were exercised. On March 2, 2007, FirstEnergy repurchased approximately
14.4 million shares, or 4.5%, of its outstanding common stock through an
accelerated share repurchase program at an initial price of approximately
$900 million. A final purchase price adjustment of $51 million was
settled in cash on December 13, 2007. The following table reconciles basic
and diluted earnings per share of common stock:
  Three
      Months
              
              Nine
      MonthsEnded
      September 30
              
              Ended
      September 30Reconciliation
      of Basic and Diluted Earnings per Share
              
              2008
              
              2007
              
              2008
              
              2007(In
      millions, except per share amounts)Net
      income
              
              $
              471
              
              $
              413
              
              $
              1,010
              
              $
              1,041Average shares
      of common stock outstanding – Basic
              
              
              304
              
              
              304
              
              
              304
              
              
              307Assumed
      exercise of dilutive stock options and awards
              
              
              3
              
              
              3
              
              
              3
              
              
              4Average shares
      of common stock outstanding – Dilutive
              
              
              307
              
              
              307
              
              
              307
              
              
              311Basic earnings
      per share
              
              $
              1.55
              
              $
              1.36
              
              $
              3.32
              
              $
              3.39Diluted
      earnings per share
              
              $
              1.54
              
              $
              1.34
              
              $
              3.29
              
              $
              3.35
 
 3.
GOODWILL
 
 In a business
combination, the excess of the purchase price over the estimated fair values of
assets acquired and liabilities assumed is recognized as goodwill. Based on the
guidance provided by SFAS 142, FirstEnergy evaluates its goodwill for impairment
at least annually and more frequently as indicators of impairment arise. In
accordance with the accounting standard, if the fair value of a reporting unit
is less than its carrying value (including goodwill), the goodwill is tested for
impairment. If impairment is indicated, FirstEnergy recognizes a loss –
calculated as the difference between the implied fair value of a reporting
unit's goodwill and the carrying value of the goodwill.
 
 FirstEnergy's 2008
annual review was completed in the third quarter of 2008 with no impairment
indicated. As discussed in Note 12(B), the Ohio Companies filed a
comprehensive ESP and MRO with the PUCO on July 31, 2008. The annual
goodwill impairment analysis assumed management's best estimate of the outcome
of those filings. There was no impairment indicated for FirstEnergy and the
Ohio Companies based on a probability-weighted outcome of the ESP and MRO
proceedings. If the PUCO’s final decision authorizes less revenue recovery than
the amounts assumed, an additional impairment analysis would be performed at
that time that could result in future goodwill impairment.
 
 FirstEnergy's
goodwill primarily relates to its energy delivery services segment. In the first
and third quarters of 2008, FirstEnergy adjusted goodwill by $1 million and $23
million, respectively, of the former GPU companies due to the realization of tax
benefits that had been reserved under purchase accounting. The following tables
reconcile changes to goodwill for the three months and nine months ended
September 30, 2008.
 
 Three
      Months Ended
              
              FirstEnergy
              
              FES
              
              CEI
              
              TE
              
              JCP&L
              
              Met-Ed
              
              Penelec(In
      millions)Balance as of
      July 1, 2008
              
              $
              5,606
              
              $
              24
              
              $
              1,689
              
              $
              501
              
              $
              1,826
              
              $
              424
              
              $
              778Adjustments
      related to GPU acquisition
              
              
              (23
              )
              
              -
              
              
              -
              
              
              -
              
              
              (11
              )
              
              (5
              )
              
              (7
              )Balance as of
      September 30, 2008
              
              $
              5,583
              
              $
              24
              
              $
              1,689
              
              $
              501
              
              $
              1,815
              
              $
              419
              
              $
              771
 
 Nine
      Months Ended
              
              FirstEnergy
              
              FES
              
              CEI
              
              TE
              
              JCP&L
              
              Met-Ed
              
              Penelec(In
      millions)Balance as of
      January 1, 2008
              
              $
              5,607
              
              $
              24
              
              $
              1,689
              
              $
              501
              
              $
              1,826
              
              $
              425
              
              $
              778Adjustments
      related to GPU acquisition
              
              
              (24
              )
              
              -
              
              
              -
              
              
              -
              
              
              (11
              )
              
              (6
              )
              
              (7
              )Balance as of
      September 30, 2008
              
              $
              5,583
              
              $
              24
              
              $
              1,689
              
              $
              501
              
              $
              1,815
              
              $
              419
              
              $
              771
 
   23
 
 4.  DIVESTITURES
AND DISCONTINUED OPERATIONS
 
 On March 7, 2008,
FirstEnergy sold certain telecommunication assets, resulting in a net after-tax
gain of $19.3 million. The sale of assets did not meet the criteria for
classification as discontinued operations as of September 30, 2008.
 
 5.  FAIR
VALUE MEASURES
 
 Effective January 1,
2008, FirstEnergy adopted SFAS 157, which provides a framework for measuring
fair value under GAAP and, among other things, requires enhanced disclosures
about assets and liabilities recognized at fair value. FirstEnergy also adopted
SFAS 159 on January 1, 2008, which provides the option to measure certain
financial assets and financial liabilities at fair value. FirstEnergy has
analyzed its financial assets and financial liabilities within the scope of
SFAS 159 and, as of September 30, 2008, has elected not to record
eligible assets and liabilities at fair value.
  As defined in SFAS
157, fair value is the price that would be received for an asset or paid to
transfer a liability (exit price) in the principal or most advantageous market
for the asset or liability in an orderly transaction between willing market
participants on the measurement date. SFAS 157 establishes a fair value
hierarchy that prioritizes the inputs used to measure fair value. The hierarchy
gives the highest priority to unadjusted quoted market prices in active markets
for identical assets or liabilities (Level 1) and the lowest priority to
unobservable inputs (Level 3). The three levels of the fair value hierarchy
defined by SFAS 157 are as follows:
 
 Level 1 – Quoted
prices are available in active markets for identical assets or liabilities as of
the reporting date. Active markets are those where transactions for the asset or
liability occur in sufficient frequency and volume to provide pricing
information on an ongoing basis. FirstEnergy’s Level 1 assets and liabilities
primarily consist of exchange-traded derivatives and equity securities listed on
active exchanges that are held in various trusts.
 
 Level 2 – Pricing
inputs are either directly or indirectly observable in the market as of the
reporting date, other than quoted prices in active markets included in Level 1.
FirstEnergy’s Level 2 assets and liabilities consist primarily of investments in
debt securities held in various trusts and commodity forwards. Additionally,
Level 2 includes those financial instruments that are valued using models or
other valuation methodologies based on assumptions that are observable in the
marketplace throughout the full term of the instrument, can be derived from
observable data or are supported by observable levels at which transactions are
executed in the marketplace. These models are primarily industry-standard models
that consider various assumptions, including quoted forward prices for
commodities, time value, volatility factors, and current market and contractual
prices for the underlying instruments, as well as other relevant economic
measures. Instruments in this category include non-exchange-traded derivatives
such as forwards and certain interest rate swaps.
 
 Level 3 – Pricing
inputs include inputs that are generally less observable from objective sources.
These inputs may be used with internally developed methodologies that result in
management’s best estimate of fair value. FirstEnergy develops its view of the
future market price of key commodities through a combination of market
observation and assessment (generally for the short term) and fundamental
modeling (generally for the longer term). Key fundamental electricity model
inputs are generally directly observable in the market or derived from publicly
available historic and forecast data. Some key inputs reflect forecasts
published by industry leading consultants who generally employ similar
fundamental modeling approaches. Fundamental model inputs and results, as well
as the selection of consultants, reflect the consensus of appropriate
FirstEnergy management. Level 3 instruments include those that may be more
structured or otherwise tailored to customers’ needs. FirstEnergy’s Level 3
instruments consist of NUG contracts.
 
 FirstEnergy utilizes
market data and assumptions that market participants would use in pricing the
asset or liability, including assumptions about risk and the risks inherent in
the inputs to the valuation technique. These inputs can be readily observable,
market corroborated, or generally unobservable. FirstEnergy primarily applies
the market approach for recurring fair value measurements using the best
information available. Accordingly, FirstEnergy maximizes the use of observable
inputs and minimizes the use of unobservable inputs.
 
 The following table
sets forth FirstEnergy’s financial assets and financial liabilities that are
accounted for at fair value by level within the fair value hierarchy as of
September 30, 2008. As required by SFAS 157, assets and liabilities are
classified in their entirety based on the lowest level of input that is
significant to the fair value measurement. FirstEnergy’s assessment of the
significance of a particular input to the fair value measurement requires
judgment and may affect the valuation of fair value assets and liabilities and
their placement within the fair value hierarchy levels.
   24
 
 September
      30, 2008Recurring
      Fair Value Measures
              
              Level
      1
              
              Level
      2
              
              Level
      3
              
              Total(In
      millions)Assets:Derivatives
              
              $
              -
              
              $
              45
              
              $
              -
              
              $
              45Nuclear
      decommissioning trusts
              
              
              761
              
              
              1,112
              
              
              -
              
              
              1,873Other
      investments
              
              
              19
              
              
              312
              
              
              -
              
              
              331Total
              
              $
              780
              
              $
              1,469
              
              $
              -
              
              $
              2,249Liabilities:Derivatives
              
              $
              8
              
              $
              19
              
              $
              -
              
              $
              27NUG
      contracts(1)
              
              
              -
              
              
              -
              
              
              603
              
              
              603Total
              
              $
              8
              
              $
              19
              
              $
              603
              
              $
              630
 
 (1)
              NUG contracts
      are completely offset by regulatory
assets.
  The determination of
the above fair value measures takes into consideration various factors required
under SFAS 157. These factors include the credit standing of the
counterparties involved, the impact of credit enhancements (such as cash
deposits, LOCs and priority interests) and the impact of nonperformance
risk.
 
 Exchange-traded
derivative contracts, which include some futures and options, are generally
based on unadjusted quoted market prices in active markets and are classified
within Level 1. Forwards, options and swap contracts that are not
exchange-traded are classified as Level 2 as the fair values of these items are
based on Intercontinental Exchange quotes or market transactions in the OTC
markets. In addition, complex or longer-term structured transactions can
introduce the need for internally-developed model inputs that may not be
observable in or corroborated by the market. When such inputs have a significant
impact on the measurement of fair value, the instrument is classified as Level
3.
 
 Nuclear
decommissioning trusts consist of equity securities listed on active exchanges
classified as Level 1 and various debt securities and collective trusts
classified as Level 2. Other investments represent the NUG trusts, spent nuclear
fuel trusts and rabbi trust investments, which primarily consist of various debt
securities and collective trusts classified as Level 2.
 
 The following tables
provide a reconciliation of changes in the fair value of NUG contracts
classified as Level 3 in the fair value hierarchy for the three and nine months
ended September 30, 2008:
 
 Three
      Months
              
              
              Nine
      Months(In
      millions)Balance at
      beginning of period
              
              $
              644
              
              
              $
              750Realized
      and unrealized gains (losses)(1)
              
              
              (32
              )
              
              
              (120
              )Purchases,
      sales, issuances and settlements, net(1)
              
              
              (9
              )
              
              
              (27
              )Net
      transfers to (from) Level 3
              
              
              -
              
              
              
              -Balance as of
      September 30, 2008
              
              $
              603
              
              
              $
              603Change in
      unrealized gains (losses) relating toinstruments
      held as of September 30, 2008
              
              $
              (32
              )
              
              $
              (120
              )
  (1)Changes in the
      fair value of NUG contracts are completely offset by regulatory assets and
      do not impact earnings
 
 Under FSP FAS 157-2,
“Effective Date of FASB Statement No. 157”, FirstEnergy deferred until January
1, 2009, the election of SFAS 157 for financial assets and financial liabilities
measured at fair value on a non-recurring basis and is currently evaluating the
impact of SFAS 157 on those financial assets and financial
liabilities.
 
 6.
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.
   25
 
 FirstEnergy accounts
for derivative instruments in its Consolidated Balance Sheet at their fair value
unless they meet the criteria for the normal purchases and normal sales
exception. Derivatives that meet those criteria are accounted for at cost.
FirstEnergy regularly assesses derivatives based on the normal purchases and
normal sales criteria and expects no changes in eligibility for the normal
purchases and normal sales exception. The changes in the fair value of
derivative instruments that do not meet the normal purchases and normal sales
exception are recorded as other expense, as AOCL, or as part of the value of the
hedged item, depending on whether or not it is designated as part of a hedge
transaction, the nature of the hedge transaction and hedge effectiveness.
FirstEnergy does not offset fair value for the right to reclaim collateral or
the obligation to return collateral.
 
 FirstEnergy hedges
anticipated transactions using cash flow hedges. Such transactions include
hedges of anticipated electricity, natural gas and other commodity 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 recognized directly in net
income.
  The net deferred
losses of $64 million included in AOCL as of September 30, 2008, for
derivative hedging activity, as compared to $75 million as of
December 31, 2007, resulted from a net $3 million increase related to
current hedging activity and a $14 million decrease due to net hedge losses
reclassified to earnings during the nine months ended September 30, 2008.
Based on current estimates, approximately $16 million (after tax) of the net
deferred losses on derivative instruments in AOCL as of September 30, 2008
are expected to be reclassified to earnings during the next twelve months as
hedged transactions occur. The fair value of these derivative instruments
fluctuate from period to period based on various market factors, including
commodity prices, counterparty credit and interest rates.
 
 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. In order to reduce
counterparty exposure and lessen variable debt exposure under current market
conditions, FirstEnergy unwound its remaining interest rate swaps. During the
first nine months of 2008, FirstEnergy received $3 million to terminate
interest rate swaps with an aggregate notional value of $250 million. As of
September 30, 2008, FirstEnergy has no outstanding interest rate swaps
hedging fixed-rate long term debt.
 
 During 2007 and the
first nine months of 2008, FirstEnergy entered into several forward-starting
swap agreements (forward swaps) in order to hedge a portion of the consolidated
interest rate risk associated with the anticipated issuance of variable-rate
short-term debt and fixed-rate long-term debt securities, by one or more of its
subsidiaries, as outstanding debt matures during 2008 and 2009. These
derivatives are treated as cash flow hedges, protecting against the risk of
changes in future interest payments resulting from changes in benchmark U.S.
Treasury and LIBOR rates between the date of hedge inception and the date of the
debt issuance. FirstEnergy considers counterparty credit and nonperformance risk
in its hedge assessments and continues to expect the forward-starting swaps to
be effective in protecting against the risk of changes in future interest
payments. During the first nine months of 2008, FirstEnergy terminated swaps
with a notional value of $750 million and entered into swaps with a
notional value of $950 million. FirstEnergy paid $16 million related
to the terminations, $5 million of which was deemed ineffective and
recognized in current period earnings. FirstEnergy will recognize the remaining
loss over the life of the associated future debt. As of September 30, 2008,
FirstEnergy had forward swaps with an aggregate notional amount of
$600 million and a fair value of $(0.2) million.
 
 7.
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 of $1.3
billion as of September 30, 2008 is primarily related to the future nuclear
decommissioning of the Beaver Valley, Davis-Besse, Perry and TMI-2 nuclear
generating facilities. FirstEnergy utilized an expected cash flow approach to
measure the fair value of the nuclear decommissioning ARO.
 
 FirstEnergy
maintains nuclear decommissioning trust funds that are legally restricted for
purposes of settling the nuclear decommissioning ARO. As of September 30,
2008, the fair value of the decommissioning trust assets was approximately
$1.9 billion.
  
 26
  The following tables
analyze changes to the ARO balance during the three months and nine months ended
September 30, 2008 and 2007, respectively.
 
 ARO
      Reconciliation
              
              FirstEnergy
              
              FES
              
              OE
              
              CEI
              
              TE
              
              JCP&L
              
              Met-Ed
              
              Penelec(In
      millions)Balance, July
      1, 2008
              
              $
              1,307
              
              $
              836
              
              $
              96
              
              $
              2
              
              $
              29
              
              $
              92
              
              $
              166
              
              $
              84Liabilities
      incurred
              
              
              5
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Liabilities
      settled
              
              
              (1
              )
              
              (1
              )
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Accretion
              
              
              21
              
              
              14
              
              
              1
              
              
              -
              
              
              1
              
              
              2
              
              
              2
              
              
              2Revisions in
      estimated cash flows
              
              
              (18
              )
              
              -
              
              
              (18
              )
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Balance,
      September 30, 2008
              
              $
              1,314
              
              $
              849
              
              $
              79
              
              $
              2
              
              $
              30
              
              $
              94
              
              $
              168
              
              $
              86Balance, July
      1, 2007
              
              $
              1,228
              
              $
              784
              
              $
              91
              
              $
              2
              
              $
              27
              
              $
              87
              
              $
              156
              
              $
              79Liabilities
      incurred
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Liabilities
      settled
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Accretion
              
              
              19
              
              
              13
              
              
              1
              
              
              -
              
              
              1
              
              
              1
              
              
              2
              
              
              2Revisions in
      estimated cash flows
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Balance,
      September 30, 2007
              
              $
              1,247
              
              $
              797
              
              $
              92
              
              $
              2
              
              $
              28
              
              $
              88
              
              $
              158
              
              $
              81
 
  ARO
      Reconciliation
              
              FirstEnergy
              
              FES
              
              OE
              
              CEI
              
              TE
              
              JCP&L
              
              Met-Ed
              
              Penelec(In
      millions)Balance,
      January 1, 2008
              
              $
              1,267
              
              $
              810
              
              $
              94
              
              $
              2
              
              $
              28
              
              $
              90
              
              $
              161
              
              $
              82Liabilities
      incurred
              
              
              5
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Liabilities
      settled
              
              
              (2
              )
              
              (1
              )
              
              (1
              )
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Accretion
              
              
              62
              
              
              40
              
              
              4
              
              
              -
              
              
              2
              
              
              4
              
              
              7
              
              
              4Revisions in
      estimated cash flows
              
              
              (18
              )
              
              -
              
              
              (18
              )
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Balance,
      September 30, 2008
              
              $
              1,314
              
              $
              849
              
              $
              79
              
              $
              2
              
              $
              30
              
              $
              94
              
              $
              168
              
              $
              86Balance,
      January 1, 2007
              
              $
              1,190
              
              $
              760
              
              $
              88
              
              $
              2
              
              $
              27
              
              $
              84
              
              $
              151
              
              $
              77Liabilities
      incurred
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Liabilities
      settled
              
              
              (2
              )
              
              (1
              )
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Accretion
              
              
              59
              
              
              38
              
              
              4
              
              
              -
              
              
              1
              
              
              4
              
              
              7
              
              
              4Revisions in
      estimated cash flows
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Balance,
      September 30, 2007
              
              $
              1,247
              
              $
              797
              
              $
              92
              
              $
              2
              
              $
              28
              
              $
              88
              
              $
              158
              
              $
              81
 
 
 8.
PENSION AND OTHER POSTRETIREMENT BENEFITS
 
 FirstEnergy provides
noncontributory defined benefit pension plans that cover substantially all of
its subsidiaries’ 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, 2007. FirstEnergy also provides a
minimum amount of noncontributory life insurance to retired employees in
addition to optional contributory insurance. Health care benefits, which include
certain employee contributions, deductibles and co-payments, are available upon
retirement to employees hired prior to January 1, 2005, their dependents
and, under certain circumstances, their survivors. FirstEnergy recognizes the
expected cost of providing pension benefits and other postretirement benefits
from the time employees are hired until they become eligible to receive those
benefits. In addition, FirstEnergy has obligations to former or inactive
employees after employment, but before retirement, for disability-related
benefits.
 
 The components of
FirstEnergy's net periodic pension cost and other postretirement benefit cost
(including amounts capitalized) for the three months and nine months ended
September 30, 2008 and 2007, consisted of the following:
 
 Three
      Months
              
              Nine
      MonthsEnded
      September 30
              
              Ended
      September 30Pension
      Benefits
              
              2008
              
              2007
              
              2008
              
              2007(In
      millions)Service
      cost
              
              $
              21
              
              $
              21
              
              $
              62
              
              $
              63Interest
      cost
              
              
              72
              
              
              71
              
              
              217
              
              
              213Expected
      return on plan assets
              
              
              (116
              )
              
              (112
              )
              
              (347
              )
              
              (337
              )Amortization
      of prior service cost
              
              
              3
              
              
              2
              
              
              7
              
              
              7Recognized net
      actuarial loss
              
              
              1
              
              
              10
              
              
              4
              
              
              31Net periodic
      cost (credit)
              
              $
              (19
              )
              $
              (8
              )
              $
              (57
              )
              $
              (23
              )
 
   27
 
 Three
      Months
              
              Nine
      MonthsEnded
      September 30
              
              Ended
      September 30Other
      Postretirement Benefits
              
              2008
              
              2007
              
              2008
              
              2007(In
      millions)Service
      cost
              
              $
              5
              
              $
              5
              
              $
              14
              
              $
              16Interest
      cost
              
              
              18
              
              
              17
              
              
              55
              
              
              52Expected
      return on plan assets
              
              
              (13
              )
              
              (12
              )
              
              (38
              )
              
              (38
              )Amortization
      of prior service cost
              
              
              (37
              )
              
              (37
              )
              
              (111
              )
              
              (112
              )Recognized net
      actuarial loss
              
              
              12
              
              
              11
              
              
              35
              
              
              34Net periodic
      cost (credit)
              
              $
              (15
              )
              $
              (16
              )
              $
              (45
              )
              $
              (48
              )
 
 Pension and
postretirement benefit obligations are allocated to FirstEnergy’s subsidiaries
employing the plan participants. FES and the Utilities capitalize employee
benefits related to construction projects. The net periodic pension costs and
net periodic postretirement benefit costs (including amounts capitalized)
recognized by FES and each of the Utilities for the three months and nine months
ended September 30, 2008 and 2007 were as follows:
  Three
      Months
              
              Nine
      MonthsEnded
      September 30
              
              Ended
      September 30Pension
      Benefit Cost (Credit)
              
              2008
              
              2007
              
              2008
              
              2007(In
      millions)FES
              
              $
              4
              
              $
              5
              
              $
              11
              
              $
              16OE
              
              
              (6
              )
              
              (4
              )
              
              (20
              )
              
              (12
              )CEI
              
              
              (1
              )
              
              -
              
              
              (3
              )
              
              1TE
              
              
              (1
              )
              
              -
              
              
              (2
              )
              
              -JCP&L
              
              
              (4
              )
              
              (2
              )
              
              (11
              )
              
              (7
              )Met-Ed
              
              
              (3
              )
              
              (2
              )
              
              (8
              )
              
              (5
              )Penelec
              
              
              (3
              )
              
              (2
              )
              
              (10
              )
              
              (8
              )Other
      FirstEnergy subsidiaries
              
              
              (5
              )
              
              (3
              )
              
              (14
              )
              
              (8
              )$
              (19
              )
              $
              (8
              )
              $
              (57
              )
              $
              (23
              )
 
 
 Three
      Months
              
              Nine
      MonthsEnded
      September 30
              
              Ended
      September 30Other
      Postretirement Benefit Cost (Credit)
              
              2008
              
              2007
              
              2008
              
              2007(In
      millions)FES
              
              $
              (2
              )
              $
              (2
              )
              $
              (5
              )
              $
              (7
              )OE
              
              
              (2
              )
              
              (3
              )
              
              (5
              )
              
              (8
              )CEI
              
              
              1
              
              
              1
              
              
              2
              
              
              3TE
              
              
              1
              
              
              1
              
              
              3
              
              
              4JCP&L
              
              
              (4
              )
              
              (4
              )
              
              (12
              )
              
              (12
              )Met-Ed
              
              
              (3
              )
              
              (3
              )
              
              (8
              )
              
              (8
              )Penelec
              
              
              (3
              )
              
              (3
              )
              
              (10
              )
              
              (10
              )Other
      FirstEnergy subsidiaries
              
              
              (3
              )
              
              (3
              )
              
              (10
              )
              
              (10
              )$
              (15
              )
              $
              (16
              )
              $
              (45
              )
              $
              (48
              )
 
 Under the Pension
Protection Act of 2006, companies are generally required make a scheduled series
of contributions to fund 100% of outstanding qualified pension benefit
obligations over a seven year period. As of December 31, 2007,
FirstEnergy’s pension plan was overfunded, and, therefore, FirstEnergy will not
be required to make any contributions in 2009 for the 2008 plan year. However,
the overall actual asset return as of December 31, 2008 may reduce the value of
the pension plan’s assets to the level where contributions would be required in
2010 for the 2009 plan year.
 
 9.
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 a VIE when they are determined to be the VIE's primary
beneficiary as defined by FIN 46R.
   28
  Mining
Operations
 
 On July 16, 2008,
FirstEnergy Ventures Corp., a subsidiary of FirstEnergy, entered into a joint
venture with the Boich Companies, a Columbus, Ohio-based coal company, to
acquire a majority stake in the Signal Peak mining and coal transportation
operations near Roundup, Montana. FirstEnergy made a $125 million equity
investment in the joint venture, which acquired 80% of the mining operations
(Signal Peak Energy, LLC) and 100% of the transportation operations, with
FirstEnergy Ventures Corp. owning a 45% economic interest and an affiliate of
the Boich Companies owning a 55% economic interest in the joint venture. Both
parties have a 50% voting interest in the joint venture. After January 2010, the
joint venture will have 18 months to exercise an option to acquire the remaining
20% stake in the mining operations. In accordance with FIN 46R, FirstEnergy
is including the limited liability companies created for the mining and
transportation operations of this joint venture in its consolidated financial
statements.
 
 Trusts
 
 FirstEnergy’s
consolidated financial statements include PNBV and Shippingport, VIEs created in
1996 and 1997, respectively, to refinance debt originally issued in connection
with sale and leaseback transactions. PNBV and Shippingport financial data are
included in the consolidated financial statements of OE and CEI,
respectively.
 
 PNBV was established
to purchase a portion of the lease obligation bonds issued in connection with
OE’s 1987 sale and leaseback of its interests in the Perry Plant and Beaver
Valley Unit 2. OE used debt and available funds to purchase the notes issued by
PNBV. Ownership of PNBV includes a 3% equity interest by an unaffiliated third
party and a 3% equity interest held by OES Ventures, a wholly owned subsidiary
of OE. Shippingport was established to purchase all of the lease obligation
bonds issued in connection with CEI’s and TE’s Bruce Mansfield Plant sale and
leaseback transaction in 1987. CEI and TE used debt and available funds to
purchase the notes issued by Shippingport.
  Loss
Contingencies
 
 FES and the Ohio
Companies are exposed to losses under their applicable sale and leaseback
agreements upon the occurrence of certain contingent events that each company
considers unlikely to occur. The maximum exposure under these provisions
represents the net amount of casualty value payments due upon the occurrence of
specified casualty events that render the applicable plant worthless. Net
discounted lease payments would not be payable if the casualty loss payments are
made. The following table shows each company’s net exposure to loss based upon
the casualty value provisions mentioned above as of September 30,
2008:
 
 Maximum
      Exposure
              
              Discounted
                Lease
      Payments, net
              
              Net
      Exposure(in
      millions)FES
              
              $
              1,363
              
              $
              1,209
              
              $
              154OE
              
              788
              
              597
              
              191CEI
              
              718
              
              79
              
              639TE
              
              718
              
              421
              
              297
 
 In
October 2007, CEI and TE assigned their leasehold interests in the Bruce
Mansfield Plant to FGCO, which assumed all of CEI’s and TE’s obligations arising
under those leases. FGCO subsequently transferred the Unit 1 portion of these
leasehold interests, as well as FGCO’s leasehold interests under its
July 2007 Bruce Mansfield Unit 1 sale and leaseback transaction to a newly
formed wholly-owned subsidiary in December 2007. The subsidiary assumed all
of the lessee obligations associated with the assigned interests. However, CEI
and TE will remain primarily liable on the 1987 leases and related agreements as
to the lessors and other parties to the agreements. FGCO remains primarily
liable on the 2007 leases and related agreements, and FES remains primarily
liable as a guarantor under the related 2007 guarantees, as to the lessors and
other parties to the respective agreements. These assignments terminate
automatically upon the termination of the underlying leases.
 
 During the second
quarter of 2008, NGC purchased 56.8 MW of lessor equity interests in the OE 1987
sale and leaseback of the Perry Plant and approximately 43.5 MW of lessor equity
interests in the OE 1987 sale and leaseback of Beaver Valley Unit 2. Also in the
second quarter of 2008, NGC purchased 158.5 MW of lessor equity interests
in the TE and CEI 1987 sale and leaseback of Beaver Valley Unit 2, which
purchases were undertaken in connection with the previously disclosed exercise
of the periodic purchase option provided in the TE and CEI sale and leaseback
arrangements. The Ohio Companies continue to lease these MW under the respective
sale and leaseback arrangements and the related lease debt remains
outstanding.
   29
 
 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 Utilities and the contract price for
power is correlated with the plant’s variable costs of production. FirstEnergy,
through its subsidiaries JCP&L, Met-Ed and Penelec, maintains approximately
30 long-term power purchase agreements with NUG entities. The agreements were
entered into pursuant to the Public Utility Regulatory Policies Act of 1978.
FirstEnergy was not involved in the creation of, and has no equity or debt
invested in, these entities.
 
 FirstEnergy has
determined that for all but eight of these entities, neither JCP&L, Met-Ed
nor Penelec have variable interests in the entities or the entities are
governmental or not-for-profit organizations not within the scope of
FIN 46R. JCP&L, Met-Ed or Penelec may hold variable interests in the
remaining eight entities, which sell their output at variable prices that
correlate to some extent with the operating costs of the plants. As required by
FIN 46R, FirstEnergy periodically requests from these eight entities the
information necessary to determine whether they are VIEs or whether JCP&L,
Met-Ed or Penelec is the primary beneficiary. FirstEnergy has been unable to
obtain the requested information, which in most cases was deemed by the
requested entity to be proprietary. As such, FirstEnergy applied the scope
exception that exempts enterprises unable to obtain the necessary information to
evaluate entities under FIN 46R.
 
 Since FirstEnergy
has no equity or debt interests in the NUG entities, its maximum exposure to
loss relates primarily to the above-market costs it may incur for power.
FirstEnergy expects any above-market costs it incurs to be recovered from
customers. Purchased power costs from these entities during the three months and
nine months ended September 30, 2008 and 2007 are shown in the following
table:
  Three
      Months Ended
              
              Nine
      Months EndedSeptember
      30
              
              September
      302008
              
              2007
              
              2008
              
              2007(In
      millions)JCP&L
              
              $
              26
              
              $
              30
              
              $
              67
              
              $
              71Met-Ed
              
              
              12
              
              
              13
              
              
              44
              
              
              40Penelec
              
              
              8
              
              
              7
              
              
              25
              
              
              22Total
              
              $
              46
              
              $
              50
              
              $
              136
              
              $
              133
 
 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 September 30, 2008, $377 million of the transition bonds were
outstanding. The transition bonds are the sole obligations of JCP&L
Transition Funding and JCP&L Transition Funding II and are collateralized by
each company’s equity and assets - principally bondable transition
property.
 
 Bondable transition
property under New Jersey law represents the irrevocable right of a utility
company to charge, collect and receive from its customers, through a
non-bypassable transition bond charge (TBC), the principal amount and interest
on transition bonds and other fees and expenses associated with their issuance.
JCP&L sold its bondable transition property to JCP&L Transition Funding
and JCP&L Transition Funding II and, as servicer, manages and administers
the bondable transition property, including the billing, collection and
remittance of the TBC, pursuant to separate servicing agreements with JCP&L
Transition Funding and JCP&L Transition Funding II. For the two series of
transition bonds, JCP&L is entitled to aggregate quarterly servicing fees of
$157,000 payable from TBC collections.
 
 10.
INCOME TAXES
 
 FirstEnergy accounts
for uncertainty in income taxes recognized in a company’s financial statements
in accordance with FIN 48. 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.
  
 30
  Of the total amount
of unrecognized income tax benefits, $92 million would favorably affect
FirstEnergy’s effective tax rate, if recognized in 2008. The majority of items
that would not affect the 2008 effective tax rate would be purchase accounting
adjustments to goodwill, if recognized in 2008. Upon completion of the federal
tax examinations for tax years 2004 to 2006 in the third quarter of 2008,
FirstEnergy recognized approximately $45 million in tax benefits, including
$5 million that favorably affected FirstEnergy’s effective tax rate. A
majority of the tax benefits recognized in the third quarter of 2008 adjusted
goodwill as a purchase accounting adjustment ($20 million) and accumulated
deferred income taxes for temporary tax items ($15 million). During the
first nine months of 2007, there were no material changes to FirstEnergy’s
unrecognized tax benefits. As of September 30, 2008, FirstEnergy expects
that it is reasonably possible that approximately $151 million of the
unrecognized benefits may be resolved within the next twelve months, of which
$54 million to $147 million, if recognized, would affect FirstEnergy’s
effective tax rate. The potential decrease in the amount of unrecognized tax
benefits is primarily associated with issues related to the capitalization of
certain costs capital gains and losses recognized on the disposition of assets
and various other tax items.
  FIN 48 also requires
companies to recognize interest expense or income related to uncertain tax
positions. That amount is computed by applying the applicable statutory interest
rate to the difference between the tax position recognized in accordance with
FIN 48 and the amount previously taken or expected to be taken on the tax
return. FirstEnergy includes net interest and penalties in the provision for
income taxes, consistent with its policy prior to implementing FIN 48. The
reversal of accrued interest associated with the $45 million in recognized tax
benefits favorably affected FirstEnergy’s effective tax rate by $12 million
in the third quarter and first nine months of 2008 and an interest receivable of
$4 million was removed from the accrued interest for FIN 48 items. The net
amount of interest accrued as of September 30, 2008 was $56 million,
as compared to $53 million as of December 31, 2007.
 
 FirstEnergy has tax
returns that are under review at the audit or appeals level by the IRS and state
tax authorities. All state jurisdictions are open from 2001-2007. The IRS began
reviewing returns for the years 2001-2003 in July 2004 and several items are
under appeal. The federal audits for the years 2004-2006 were completed in the
third quarter of 2008 and several items are under appeal. The IRS began auditing
the year 2007 in February 2007 and the year 2008 in February 2008 under its
Compliance Assurance Process program. Neither audit is expected to close before
December 2008. Management believes that adequate reserves have been recognized
and final settlement of these audits is not expected to have a material adverse
effect on FirstEnergy’s financial condition or results of
operations.
 
 11.  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
September 30, 2008, outstanding guarantees and other assurances aggregated
approximately $4.2 billion, consisting of parental guarantees -
$0.9 billion, subsidiaries’ guarantees - $2.7 billion, surety bonds -
$0.1 billion and LOCs - $0.5 billion.
 
 FirstEnergy
guarantees energy and energy-related payments of its subsidiaries involved in
energy commodity activities principally to facilitate or hedge normal physical
transactions involving electricity, gas, emission allowances and coal.
FirstEnergy also provides guarantees to various providers of credit support for
the financing or refinancing by subsidiaries of costs related to the acquisition
of property, plant and equipment. These agreements legally obligate FirstEnergy
to fulfill the obligations of those subsidiaries directly involved in energy and
energy-related transactions or financing where the law might otherwise limit the
counterparties' claims. If demands of a counterparty were to exceed the ability
of a subsidiary to satisfy existing obligations, FirstEnergy's guarantee enables
the counterparty's legal claim to be satisfied by other FirstEnergy assets. The
likelihood is remote that such parental guarantees of $0.4 billion
(included in the $0.9 billion discussed above) as of September 30,
2008 would increase amounts otherwise payable by FirstEnergy to meet its
obligations incurred in connection with financings and ongoing energy and
energy-related activities.
 
 While these types of
guarantees are normally parental commitments for the future payment of
subsidiary obligations, subsequent to the occurrence of a credit rating
downgrade or “material adverse event,” the immediate posting of cash collateral,
provision of an LOC or accelerated payments may be required of the subsidiary.
As of September 30, 2008, FirstEnergy's maximum exposure under these
collateral provisions was $573 million, consisting of $64 million due to
“material adverse event” contractual clauses and $509 million due to a below
investment grade credit rating. Additionally, stress case conditions of a credit
rating downgrade or “material adverse event” and hypothetical adverse price
movements in the underlying commodity markets would increase this amount to $648
million, consisting of $58 million due to “material adverse event” contractual
clauses and $590 million due to a below investment grade credit
rating.
   31
 
 FES, through
potential participation in utility sponsored competitive power procurement
processes (including those of affiliates) or through forward hedging
transactions and as a consequence of future power price movements, could be
required to post significantly higher collateral to support its power
transactions.
 Most of
FirstEnergy's surety bonds are backed by various indemnities common within the
insurance industry. Surety bonds and related guarantees of $94 million
provide additional assurance to outside parties that contractual and statutory
obligations will be met in a number of areas including construction contracts,
environmental commitments and various retail transactions.
 
 In July 2007,
FGCO completed a sale and leaseback transaction for its 93.825% undivided
interest in Bruce Mansfield Unit 1. FES has unconditionally and irrevocably
guaranteed all of FGCO’s obligations under each of the leases (see
Note 15). 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.
  On October 8, 2008,
to enhance their liquidity position in the face of the turbulent credit and bond
markets, FirstEnergy and its subsidiaries, FES and FGCO entered into a $300
million secured term loan facility with Credit Suisse. Under the facility, FGCO
is the borrower and FES and FirstEnergy are guarantors. Generally, the facility
is available to FGCO until October 7, 2009, with a minimum borrowing amount
of $100 million and maturity 30 days from the date of the borrowing. Once
repaid, borrowings may not be re-borrowed.
 
 In early October
2008, FirstEnergy took steps to further enhance its liquidity position by
negotiating with the banks that have issued irrevocable direct pay LOCs in
support of its outstanding variable interest rate PCRBs to extend the respective
reimbursement obligations of the applicable FirstEnergy subsidiary obligors in
the event that such LOCs are drawn upon. FirstEnergy’s subsidiaries currently
have approximately $2.1 billion variable interest rate PCRBs outstanding (FES -
$1.9 billion, OE - $156 million, Met-Ed - $29 million and Penelec -
$45 million). The LOCs supporting these PCRBs may be drawn upon to pay the
purchase price to bondholders that have exercised the right to tender their
PCRBs for mandatory purchase. As a result of these negotiations, a total of
approximately $902 million of LOCs that previously required reimbursement within
30 days or less of a draw under the applicable LOC have now been modified to
extend the reimbursement obligations to six months or June 2009, as
applicable.
 
 (B)
              ENVIRONMENTAL
      MATTERS
 
 Various federal,
state and local authorities regulate FirstEnergy with regard to air and water
quality and other environmental matters. The effects of compliance on
FirstEnergy with regard to environmental matters could have a material adverse
effect on FirstEnergy's earnings and competitive position to the extent that it
competes with companies that are not subject to such regulations and, therefore,
do not bear the risk of costs associated with compliance, or failure to comply,
with such regulations. FirstEnergy estimates capital expenditures for
environmental compliance of approximately $1.4 billion for the period
2008-2012.
 
 FirstEnergy accrues
environmental liabilities only when it concludes that it is probable that it has
an obligation for such costs and can reasonably estimate the amount of such
costs. Unasserted claims are reflected in FirstEnergy’s determination of
environmental liabilities and are accrued in the period that they become both
probable and reasonably estimable.
 
 Clean Air Act Compliance
 
 FirstEnergy is
required to meet federally-approved SO2 emissions
regulations. Violations of such regulations can result in the shutdown of the
generating unit involved and/or civil or criminal penalties of up to $32,500 for
each day the unit is in violation. The EPA has an interim enforcement policy for
SO2
regulations in Ohio that allows for compliance based on a 30-day averaging
period. FirstEnergy believes it is currently in compliance with this policy, but
cannot predict what action the EPA may take in the future with respect to the
interim enforcement policy.
 
 The EPA Region 5
issued a Finding of Violation and NOV to the Bay Shore Power Plant dated June
15, 2006, alleging violations to various sections of the CAA. FirstEnergy has
disputed those alleged violations based on its CAA permit, the Ohio SIP and
other information provided to the EPA at an August 2006 meeting with the EPA.
The EPA has several enforcement options (administrative compliance order,
administrative penalty order, and/or judicial, civil or criminal action) and has
indicated that such option may depend on the time needed to achieve and
demonstrate compliance with the rules alleged to have been violated. On
June 5, 2007, the EPA requested another meeting to discuss “an appropriate
compliance program” and a disagreement regarding emission limits applicable to
the common stack for Bay Shore Units 2, 3 and 4.
   32
 
 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.
  In 1999 and 2000,
the EPA issued an NOV and the DOJ filed a civil complaint against OE and Penn
based on operation and maintenance of the W. H. Sammis Plant (Sammis NSR
Litigation) and filed similar complaints involving 44 other U.S. power plants.
This case, along with seven other similar cases, is referred to as the NSR
cases.  OE’s and Penn’s 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 was approved by the Court on July 11, 2005. This
settlement agreement, in the form of a consent decree, 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. Capital expenditures necessary to complete requirements of the
Sammis NSR Litigation consent decree are currently estimated to be $1.3 billion
for 2008-2012 ($650 million of which is expected to be spent during 2008,
with the largest portion of the remaining $650 million expected to be spent
in 2009). This amount is included in the estimated capital expenditures for
environmental compliance referenced above. On September 8, 2008, the
Environmental Enforcement Section of the DOJ sent a letter to OE regarding its
view that the company was not in compliance with the Sammis NSR Litigation
consent decree because the installation of an SNCR at Eastlake Unit 5 was not
completed by December 31, 2006. However, the DOJ acknowledged that
stipulated penalties could not apply under the terms of the Sammis NSR
Litigation consent decree because Eastlake Unit 5 was idled on December 31,
2006 pending installation of the SNCR and advised that it had exercised its
discretion not to seek any other penalties for this alleged non-compliance. OE
disputed the DOJ's interpretation of the consent decree in a letter dated
September 22, 2008. Although the Eastlake Unit 5 issue is no longer active, OE
filed a dispute resolution petition on October 23, 2008, with the United
States District Court for the Southern District of Ohio, due to potential
impacts on its compliance decisions with respect to Burger Units 4 and 5. Under
the Sammis NSR Litigation consent decree, an election to repower by
December 31, 2012, install flue gas desulfurization (FGD) by December 31,
2010, or permanently shut down those units by December 31, 2010, is due no
later than December 31, 2008. Although FirstEnergy will meet the
December 31, 2008 deadline for making an election, one potential compliance
option, should FGD be elected, would be to idle Burger Units 4 and 5 on
December 31, 2010 pending completion of the FGD installation. Thus, OE is
seeking a determination by the Court whether this approach is indeed in
compliance with the terms of the Sammis NSR Litigation consent decree. The Court
has scheduled a hearing on OE’s dispute resolution petition for
November 17, 2008. The outcome of this dispute resolution process could
have an impact on the option FirstEnergy ultimately elects with respect to
Burger Units 4 and 5.
 
 On April 2,
2007, the United States Supreme Court ruled that changes in annual emissions (in
tons/year) rather than changes in hourly emissions rate (in kilograms/hour) must
be used to determine whether an emissions increase triggers NSR. Subsequently,
on May 8, 2007, the EPA proposed to revise the NSR regulations to utilize
changes in the hourly emission rate (in kilograms/hour) to determine whether an
emissions increase triggers NSR.   The EPA has not yet issued a
final regulation. FGCO’s future cost of compliance with those regulations may be
substantial and will depend on how they are ultimately implemented.
 
 On May 22, 2007,
FirstEnergy and FGCO received a notice letter, required 60 days prior to the
filing of a citizen suit under the federal CAA, alleging violations of air
pollution laws at the Bruce Mansfield Plant, including opacity limitations.
Prior to the receipt of this notice, the Plant was subject to a Consent Order
and Agreement with the Pennsylvania Department of Environmental Protection
concerning opacity emissions under which efforts to achieve compliance with the
applicable laws will continue. On October 18, 2007, PennFuture filed a
complaint, joined by three of its members, in the United States District Court
for the Western District of Pennsylvania. On January 11, 2008, FirstEnergy filed
a motion to dismiss claims alleging a public nuisance. On April 24, 2008, the
Court denied the motion to dismiss, but also ruled that monetary damages could
not be recovered under the public nuisance claim. In July 2008, three additional
complaints were filed against FGCO in the United States District Court for the
Western District of Pennsylvania seeking damages based on Bruce Mansfield Plant
air emissions. In addition to seeking damages, two of the complaints seek to
enjoin the Bruce Mansfield Plant from operating except in a “safe, responsible,
prudent and proper manner”, one being a complaint filed on behalf of twenty-one
individuals and the other being a class action complaint, seeking certification
as a class action with the eight named plaintiffs as the class representatives.
On October 14, 2008, the Court granted FGCO’s motion to consolidate
discovery for all four complaints pending against the Bruce Mansfield Plant.
FGCO believes the claims are without merit and intends to defend itself against
the allegations made in these complaints.
   33
 
 On December 18,
2007, the state of New Jersey filed a CAA citizen suit alleging NSR violations
at the Portland Generation Station against Reliant (the current owner and
operator), Sithe Energy (the purchaser of the Portland Station from Met-Ed in
1999), GPU, Inc. and Met-Ed.  Specifically, New Jersey alleges that
"modifications" at Portland Units 1 and 2 occurred between 1980 and 1995 without
preconstruction NSR or permitting under the CAA's prevention of significant
deterioration program, and seeks injunctive relief, penalties, attorney fees and
mitigation of the harm caused by excess emissions. On March 14, 2008,
Met-Ed filed a motion to dismiss the citizen suit claims against it and a
stipulation in which the parties agreed that GPU, Inc. should be dismissed from
this case. On March 26, 2008, GPU, Inc. was dismissed by the United States
District Court. The scope of Met-Ed’s indemnity obligation to and from Sithe
Energy is disputed.  By letter dated October 1, 2008, New Jersey
informed the Court of its intent to file an amended complaint. Met-Ed is unable
to predict the outcome of this matter.
  On June 11, 2008,
the EPA issued a Notice and Finding of Violation to MEW alleging that
"modifications" at the Homer City Power Station occurred since 1988 to the
present without preconstruction NSR or permitting under the CAA's prevention of
significant deterioration program. MEW is seeking indemnification from Penelec,
the co-owner (along with New York State Electric and Gas Company) and operator
of the Homer City Power Station prior to its sale in 1999.  The scope
of Penelec’s indemnity obligation to and from MEW is
disputed.  Penelec is unable to predict the outcome of this
matter.
 
 On May 16, 2008,
FGCO received a request from the EPA for information pursuant to Section 114(a)
of the CAA for certain operating and maintenance information regarding the
Eastlake, Lakeshore, Bay Shore and Ashtabula generating plants to allow the EPA
to determine whether these generating sources are complying with the NSR
provisions of the CAA. On July 10, 2008, FGCO and the EPA entered into an
ACO modifying that request and setting forth a schedule for FGCO’s response.
FGCO complied with the modified schedule and otherwise intends to fully comply
with the ACO, but, at this time, is unable to predict the outcome of this
matter.
 
 On August 18, 2008,
FirstEnergy received a request from the EPA for information pursuant to Section
114(a) of the CAA for certain operating and maintenance information regarding
the Avon Lake and Niles generating plants, as well as a copy of a nearly
identical request directed to the current owner, Reliant Energy, to allow the
EPA to determine whether these generating sources are complying with the NSR
provisions of the CAA. FirstEnergy intends to fully comply with the EPA’s
information request, but, at this time, is unable to predict the outcome of this
matter.
 
 National Ambient Air Quality
Standards
 
 In March 2005,
the EPA finalized the CAIR covering a total of 28 states (including Michigan,
New Jersey, Ohio and Pennsylvania) and the District of Columbia based on
proposed findings that air emissions from 28 eastern states and the District of
Columbia significantly contribute to non-attainment of the NAAQS for fine
particles and/or the "8-hour" ozone NAAQS in other states. CAIR would have
required 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),
ultimately capping SO2 emissions
in affected states to just 2.5 million tons annually and NOX emissions
to just 1.3 million tons annually. CAIR was challenged in the United States
Court of Appeals for the District of Columbia and on July 11, 2008, the Court
vacated CAIR “in its entirety” and directed the EPA to “redo its analysis from
the ground up.” The Court ruling also vacated the CAIR regional cap and trade
requirements for SO2 and
NOX,
which is currently not expected to, but may, materially impair the value of
emissions allowances obtained for future compliance. On September 24, 2008, the
EPA, utility, mining and certain environmental advocacy organizations petitioned
the Court for a rehearing to reconsider its ruling vacating CAIR.  On
October 21, 2008, the Court ordered the parties who appealed CAIR to file
responses to the rehearing petitions by November 5, 2008 and directed them to
address (1) whether any party is seeking vacatur of CAIR and (2) whether the
Court should stay its vacatur of CAIR until EPA promulgates a revised rule. The
future cost of compliance with these regulations may be substantial and will
depend on the Court’s ruling on rehearing, as well as the action taken by the
EPA or Congress in response to the Court’s ruling.
   34
 
 Mercury Emissions
 
 In December 2000,
the EPA announced it would proceed with the development of regulations regarding
hazardous air pollutants from electric power plants, identifying mercury as the
hazardous air pollutant of greatest concern. In March 2005, the EPA finalized
the CAMR, which provides a cap-and-trade program to reduce mercury emissions
from coal-fired power plants in two phases; initially, capping national mercury
emissions at 38 tons by 2010 (as a "co-benefit" from implementation of
SO2
and NOX emission
caps under the EPA's CAIR program) and 15 tons per year by 2018. Several states
and environmental groups appealed the CAMR to the United States Court of Appeals
for the District of Columbia. On February 8, 2008, the Court vacated the
CAMR, ruling that the EPA failed to take the necessary steps to “de-list”
coal-fired power plants from its hazardous air pollutant program and, therefore,
could not promulgate a cap-and-trade program. The EPA petitioned for rehearing
by the entire Court, which denied the petition on May 20, 2008.  On
October 17, 2008, the EPA (and an industry group) petitioned the United
States Supreme Court for review of the Court’s ruling vacating CAMR. The Supreme
Court could grant the EPA’s petition and alter some or all of the lower Court’s
decision, or the EPA could take regulatory action to promulgate new mercury
emission standards for coal-fired power plants. FGCO’s future cost of compliance
with mercury regulations may be substantial and will depend on the action taken
by the EPA and on how they are ultimately implemented.
 
 Pennsylvania has
submitted a new mercury rule for EPA approval that does not provide a
cap-and-trade approach as in the CAMR, but rather follows a command-and-control
approach imposing emission limits on individual sources. It is anticipated that
compliance with these regulations, if approved by the EPA and implemented, would
not require the addition of mercury controls at the Bruce Mansfield Plant,
FirstEnergy’s only Pennsylvania coal-fired power plant, until 2015, if at
all.
  Climate Change
 
 In December 1997,
delegates to the United Nations' climate summit in Japan adopted an agreement,
the Kyoto Protocol, to address global warming by reducing the amount of man-made
GHG emitted by developed countries by 2012. The United States signed the Kyoto
Protocol in 1998 but it was never submitted for ratification by the United
States Senate. However, the Bush administration has committed the United States
to a voluntary climate change strategy to reduce domestic GHG intensity – the
ratio of emissions to economic output – by 18% through 2012. Also, in an
April 16, 2008 speech, President Bush set a policy goal of stopping the
growth of GHG emissions by 2025, as the next step beyond the 2012 strategy. In
addition, the EPACT established a Committee on Climate Change Technology to
coordinate federal climate change activities and promote the development and
deployment of GHG reducing technologies.
 
 There are a number
of initiatives to reduce GHG emissions under consideration at the federal, state
and international level.  At the international level, efforts to reach
a new global agreement to reduce GHG emissions post-2012 have begun with the
Bali Roadmap, which outlines a two-year process designed to lead to an agreement
in 2009. At the federal level, members of Congress have introduced several bills
seeking to reduce emissions of GHG in the United States, and the Senate
Environment and Public Works Committee has passed one such bill. State
activities, primarily the northeastern states participating in the Regional
Greenhouse Gas Initiative and western states led by California, have coordinated
efforts to develop regional strategies to control emissions of certain
GHGs.
 
 On April 2, 2007,
the United States Supreme Court found that the EPA has the authority to regulate
CO2
emissions from automobiles as “air pollutants” under the CAA. Although this
decision did not address CO2 emissions
from electric generating plants, the EPA has similar authority under the CAA to
regulate “air pollutants” from those and other facilities. On July 11,
2008, the EPA released an Advance Notice of Proposed Rulemaking, soliciting
input from the public on the effects of climate change and the potential
ramifications of regulation of CO2 under the
CAA.
 
 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.
   35
 
 On September 7,
2004, the EPA established new performance standards under Section 316(b) of the
Clean Water Act for reducing impacts on fish and shellfish from cooling water
intake structures at certain existing large electric generating plants. The
regulations call for reductions in impingement mortality (when aquatic organisms
are pinned against screens or other parts of a cooling water intake system) and
entrainment (which occurs when aquatic life is drawn into a facility's cooling
water system). On January 26, 2007, the United States Court of Appeals for the
Second Circuit remanded portions of the rulemaking dealing with impingement
mortality and entrainment back to the EPA for further rulemaking and eliminated
the restoration option from the EPA’s regulations. On July 9, 2007, the EPA
suspended this rule, noting that until further rulemaking occurs, permitting
authorities should continue the existing practice of applying their best
professional judgment to minimize impacts on fish and shellfish from cooling
water intake structures. On April 14, 2008, the Supreme Court of the United
States granted a petition for a writ of certiorari to review one significant
aspect of the Second Circuit Court’s opinion which is whether
Section 316(b) of the Clean Water Act authorizes the EPA to compare costs
with benefits in determining the best technology available for minimizing
adverse environmental impact at cooling water intake structures.  Oral
argument before the Supreme Court is scheduled for December 2, 2008. FirstEnergy
is studying various control options and their costs and effectiveness. Depending
on the results of such studies, the outcome of the Supreme Court’s review of the
Second Circuit’s decision, the EPA’s further rulemaking and any action taken by
the states exercising best professional judgment, the future costs of compliance
with these standards may require material capital expenditures.
 
 Regulation of Hazardous
Waste
 
 As a result of the
Resource Conservation and Recovery Act of 1976, as amended, and the Toxic
Substances Control Act of 1976, federal and state hazardous waste regulations
have been promulgated. Certain fossil-fuel combustion waste products, such as
coal ash, were exempted from hazardous waste disposal requirements pending the
EPA's evaluation of the need for future regulation. The EPA subsequently
determined that regulation of coal ash as a hazardous waste is unnecessary. In
April 2000, the EPA announced that it will develop national standards regulating
disposal of coal ash under its authority to regulate non-hazardous
waste.
  Under NRC
regulations, FirstEnergy must ensure that adequate funds will be available to
decommission its nuclear facilities.  As of September 30, 2008,
FirstEnergy had approximately $1.9 billion invested in external trusts to be
used for the decommissioning and environmental remediation of Davis-Besse,
Beaver Valley, Perry and TMI-2. As part of the application to the NRC to
transfer the ownership of Davis-Besse, Beaver Valley and Perry to NGC in 2005,
FirstEnergy agreed to contribute another $80 million to these trusts by 2010.
Consistent with NRC guidance, utilizing a “real” rate of return on these funds
of approximately 2% over inflation, these trusts are expected to exceed the
minimum decommissioning funding requirements set by the NRC. Conservatively,
these estimates do not include any rate of return that the trusts may earn over
the 20-year plant useful life extensions that FirstEnergy (and Exelon for TMI-1
as it relates to the timing of the decommissioning of TMI-2) seeks for these
facilities.
 
 The Utilities have
been named as PRPs at waste disposal sites, which may require cleanup under the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980.
Allegations of disposal of hazardous substances at historical sites and the
liability involved are often unsubstantiated and subject to dispute; however,
federal law provides that all PRPs for a particular site may be liable on a
joint and several basis. Therefore, environmental liabilities that are
considered probable have been recognized on the Consolidated Balance Sheet as of
September 30, 2008, based on estimates of the total costs of cleanup, the
Utilities' proportionate responsibility for such costs and the financial ability
of other unaffiliated entities to pay. Total liabilities of approximately
$94 million (JCP&L - $68 million, TE - $1 million, CEI -
$1 million and FirstEnergy Corp. - $24 million) have been accrued
through September 30, 2008. Included in the total for JCP&L are accrued
liabilities of approximately $57 million for environmental remediation of
former manufactured gas plants in New Jersey, which are being recovered by
JCP&L through a non-bypassable SBC.
 
 (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.
   36
 
 In August 2002, the
trial Court granted partial summary judgment to JCP&L and dismissed the
plaintiffs' claims for consumer fraud, common law fraud, negligent
misrepresentation, and strict product liability. In November 2003, the trial
Court granted JCP&L's motion to decertify the class and denied plaintiffs'
motion to permit into evidence their class-wide damage model indicating damages
in excess of $50 million. These class decertification and damage rulings were
appealed to the Appellate Division. The Appellate Division issued a decision in
July 2004, affirming the decertification of the originally certified class, but
remanding for certification of a class limited to those customers directly
impacted by the outages of JCP&L transformers in Red Bank, NJ, based on a
common incident involving the failure of the bushings of two large transformers
in the Red Bank substation resulting in planned and unplanned outages in the
area during a 2-3 day period. In 2005, JCP&L renewed its motion to decertify
the class based on a very limited number of class members who incurred damages
and also filed a motion for summary judgment on the remaining plaintiffs’ claims
for negligence, breach of contract and punitive damages. In July 2006, the New
Jersey Superior Court dismissed the punitive damage claim and again decertified
the class based on the fact that a vast majority of the class members did not
suffer damages and those that did would be more appropriately addressed in
individual actions. Plaintiffs appealed this ruling to the New Jersey Appellate
Division which, in March 2007, reversed the decertification of the Red Bank
class and remanded this matter back to the Trial Court to allow plaintiffs
sufficient time to establish a damage model or individual proof of damages.
JCP&L filed a petition for allowance of an appeal of the Appellate Division
ruling to the New Jersey Supreme Court which was denied in May
2007.  Proceedings are continuing in the Superior Court and a case
management conference with the presiding Judge was held on June 13,
2008.  At that conference, the plaintiffs stated their intent to drop
their efforts to create a class-wide damage model and, instead of dismissing the
class action, expressed their desire for a bifurcated trial on liability and
damages. The judge directed the plaintiffs to indicate, on or before
August 22, 2008, how they intend to proceed under this scenario.
Thereafter, the judge expects to hold another pretrial conference to address
plaintiffs' proposed procedure.JCP&L has received
the plaintiffs’ proposed plan of action, and intends to file its objection to
the proposed plan, and also file a renewed motion to decertify the class.
JCP&L is defending this action but is unable to predict the outcome. No
liability has been accrued as of September 30, 2008.
  Nuclear
Plant Matters
 
 On May 14, 2007, the
Office of Enforcement of the NRC issued a DFI to FENOC, following FENOC’s reply
to an April 2, 2007 NRC request for information about two reports prepared by
expert witnesses for an insurance arbitration (the insurance claim was
subsequently withdrawn by FirstEnergy in December 2007) related to Davis-Besse.
The NRC indicated that this information was needed for the NRC “to determine
whether an Order or other action should be taken pursuant to 10 CFR 2.202, to
provide reasonable assurance that FENOC will continue to operate its licensed
facilities in accordance with the terms of its licenses and the Commission’s
regulations.” FENOC was directed to submit the information to the NRC within 30
days. On June 13, 2007, FENOC filed a response to the NRC’s DFI reaffirming that
it accepts full responsibility for the mistakes and omissions leading up to the
damage to the reactor vessel head and that it remains committed to operating
Davis-Besse and FirstEnergy’s other nuclear plants safely and responsibly. FENOC
submitted a supplemental response clarifying certain aspects of the DFI response
to the NRC on July 16, 2007. On August 15, 2007, the NRC issued a
confirmatory order imposing these commitments. FENOC must inform the NRC’s
Office of Enforcement after it completes the key commitments embodied in the
NRC’s order. FENOC has conducted the employee training required by the
confirmatory order and a consultant has performed follow-up reviews to ensure
the effectiveness of that training.  The NRC continues to monitor
FENOC’s compliance with all the commitments made in the confirmatory
order.
 
 In August 2007,
FENOC submitted an application to the NRC to renew the operating licenses for
the Beaver Valley Power Station (Units 1 and 2) for an additional 20 years. The
NRC is required by statute to provide an opportunity for members of the public
to request a hearing on the application. No members of the public, however,
requested a hearing on the Beaver Valley license renewal application. On
September 24, 2008, the NRC issued a draft supplemental Environmental
Impact Statement for Beaver Valley. FENOC will continue to work with the
NRC Staff as it completes its environmental and technical reviews of the license
renewal application, and expects to obtain renewed licenses for the Beaver
Valley Power Station in 2009. If renewed licenses are issued by the NRC, the
Beaver Valley Power Station’s licenses would be extended until 2036 and 2047 for
Units 1 and 2, respectively.
 
 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.
   37
 
 On August 22, 2005,
a class action complaint was filed against OE in Jefferson County, Ohio Common
Pleas Court, seeking compensatory and punitive damages to be determined at trial
based on claims of negligence and eight other tort counts alleging damages from
W.H. Sammis Plant air emissions. The two named plaintiffs are also seeking
injunctive relief to eliminate harmful emissions and repair property damage and
the institution of a medical monitoring program for class members. On
April 5, 2007, the Court rejected the plaintiffs’ request to certify this
case as a class action and, accordingly, did not appoint the plaintiffs as class
representatives or their counsel as class counsel. On July 30, 2007,
plaintiffs’ counsel voluntarily withdrew their request for reconsideration of
the April 5, 2007 Court order denying class certification and the Court
heard oral argument on the plaintiffs’ motion to amend their complaint, which OE
opposed. On August 2, 2007, the Court denied the plaintiffs’ motion to
amend their complaint. The plaintiffs have appealed the Court’s denial of the
motion for certification as a class action and motion to amend their complaint
and oral argument was held on November 5, 2008.
 
 JCP&L's
bargaining unit employees filed a grievance challenging JCP&L's 2002
call-out procedure that required bargaining unit employees to respond to
emergency power outages. On May 20, 2004, an arbitration panel concluded
that the call-out procedure violated the parties' collective bargaining
agreement. At the conclusion of the June 1, 2005 hearing, the arbitration
panel decided not to hear testimony on damages and closed the proceedings. On
September 9, 2005, the arbitration panel issued an opinion to award
approximately $16 million to the bargaining unit employees. On February 6,
2006, a federal district Court granted a union motion to dismiss, as premature,
a JCP&L appeal of the award filed on October 18, 2005. A final order
identifying the individual damage amounts was issued on October 31, 2007.
The award appeal process was initiated. The union filed a motion with the
federal Court to confirm the award and JCP&L filed its answer and
counterclaim to vacate the award on December 31, 2007. JCP&L and the
union filed briefs in June and July of 2008 and oral arguments were held in the
fall. The Court has yet to render its decision. JCP&L recognized a liability
for the potential $16 million award in 2005.
 
 The union employees
at the Bruce Mansfield Plant have been working without a labor contract since
February 15, 2008. The parties are continuing to bargain with the
assistance of a federal mediator. FirstEnergy has a strike mitigation plan ready
in the event of a strike.
 
 FirstEnergy accrues
legal liabilities only when it concludes that it is probable that it has an
obligation for such costs and can reasonably estimate the amount of such costs.
If it were ultimately determined that FirstEnergy or its subsidiaries have legal
liability or are otherwise made subject to liability based on the above matters,
it could have a material adverse effect on FirstEnergy's or its subsidiaries'
financial condition, results of operations and cash flows.
  12.  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 (the PUCO, the FERC, the NERC and the U.S. – Canada Power System Outage
Task Force) regarding enhancements to regional reliability. The proposed
enhancements were divided into two groups:  enhancements that were to
be completed in 2004; and enhancements that were to be completed after
2004.  In 2004, FirstEnergy completed all of the enhancements that
were recommended for completion in 2004. FirstEnergy is also proceeding with the
implementation of the recommendations that were to be completed subsequent to
2004 and will continue to periodically assess the FERC-ordered Reliability Study
recommendations for forecasted 2009 system conditions, recognizing revised load
forecasts and other changing system conditions which may impact the
recommendations. Thus far, implementation of the recommendations has not
required, nor is expected to require, substantial investment in new or material
upgrades to existing equipment. The FERC or other applicable government agencies
and reliability coordinators may, however, take a different view as to
recommended enhancements or may recommend additional enhancements in the future
that could require additional material expenditures.
 
 As a result of
outages experienced in JCP&L’s service area in 2002 and 2003, the NJBPU
performed a review of JCP&L’s service reliability. On June 9, 2004, the
NJBPU approved a stipulation that addresses a third-party consultant’s
recommendations on appropriate courses of action necessary to ensure system-wide
reliability. The stipulation incorporates the consultant’s focused audit of, and
recommendations regarding, JCP&L’s Planning and Operations and Maintenance
programs and practices. On June 1, 2005, the consultant completed his work and
issued his final report to the NJBPU. On July 14, 2006, JCP&L filed a
comprehensive response to the consultant’s report with the NJBPU. JCP&L will
complete the remaining substantive work described in the stipulation in
2008.  JCP&L continues to file compliance reports with the NJBPU
reflecting JCP&L’s activities associated with implementing the
stipulation.
   38
 
 In 2005, Congress
amended the Federal Power Act to provide for federally-enforceable mandatory
reliability standards. The mandatory reliability standards apply to the bulk
power system and impose certain operating, record-keeping and reporting
requirements on the Utilities and ATSI. The NERC is charged with establishing
and enforcing these reliability standards, although it has delegated day-to-day
implementation and enforcement of its responsibilities to eight regional
entities, including ReliabilityFirst
Corporation.  All of FirstEnergy’s facilities are located within the
ReliabilityFirst
region. FirstEnergy actively participates in the NERC and ReliabilityFirst stakeholder processes,
and otherwise monitors and manages its companies in response to the ongoing
development, implementation and enforcement of the reliability
standards.
 
 FirstEnergy believes
that it is in compliance with all currently-effective and enforceable
reliability standards.  Nevertheless, it is clear that the NERC,
ReliabilityFirst and
the FERC will continue to refine existing reliability standards as well as to
develop and adopt new reliability standards. The financial impact of complying
with new or amended standards cannot be determined at this time. However, the
2005 amendments to the Federal Power Act provide that all prudent costs incurred
to comply with the new reliability standards be recovered in rates. Still, any
future inability on FirstEnergy’s part to comply with the reliability standards
for its bulk power system could result in the imposition of financial penalties
and thus have a material adverse effect on its financial condition, results of
operations and cash flows.
 
 In April 2007,
ReliabilityFirst
performed a routine compliance audit of FirstEnergy’s bulk-power system within
the Midwest ISO region and found it to be in full compliance with all audited
reliability standards.  Similarly, ReliabilityFirst scheduled a compliance
audit of FirstEnergy’s bulk-power system within the PJM region in October 2008.
FirstEnergy currently does not expect any material adverse financial impact as a
result of these audits.
 
 (B)   
OHIO
 
 On January 4,
2006, the PUCO issued an order authorizing the Ohio Companies to recover certain
increased fuel costs through a fuel rider and to defer certain other increased
fuel costs to be incurred from January 1, 2006 through December 31,
2008, including interest on the deferred balances. The order also provided for
recovery of the deferred costs over a twenty-five-year period through
distribution rates. On August 29, 2007, the Supreme Court of Ohio concluded that
the PUCO violated a provision of the Ohio Revised Code by permitting the Ohio
Companies “to collect deferred increased fuel costs through future distribution
rate cases, or to alternatively use excess fuel-cost recovery to reduce deferred
distribution-related expenses” and remanded the matter to the PUCO for further
consideration. On September 10, 2007 the Ohio Companies filed an
application with the PUCO that requested the implementation of two
generation-related fuel cost riders to collect the increased fuel costs that
were previously authorized to be deferred. On January 9, 2008 the PUCO
approved the Ohio Companies’ proposed fuel cost rider to recover increased fuel
costs to be incurred in 2008 commencing January 1, 2008 through
December 31, 2008, which is expected to be approximately $189 million.
In addition, the PUCO ordered the Ohio Companies to file a separate application
for an alternate recovery mechanism to collect the 2006 and 2007 deferred fuel
costs. On February 8, 2008, the Ohio Companies filed an application
proposing to recover $226 million of deferred fuel costs and carrying
charges for 2006 and 2007 pursuant to a separate fuel rider. Recovery of the
deferred fuel costs is addressed in the Ohio Companies’ comprehensive ESP
filing, as described below. If the recovery of the deferred fuel costs is not
resolved in the ESP, or in the event the MRO is implemented, recovery of the
deferred fuel costs will be resolved in the proceeding that was instituted with
the PUCO on February 8, 2008, as referenced above.
  On June 7, 2007, the
Ohio Companies filed an application for an increase in electric distribution
rates with the PUCO and, on August 6, 2007, updated their filing to support
a distribution rate increase of $332 million. On December 4, 2007, the
PUCO Staff issued its Staff Reports containing the results of its investigation
into the distribution rate request. In its reports, the PUCO Staff recommended a
distribution rate increase in the range of $161 million to $180 million,
with $108 million to $127 million for distribution revenue increases and
$53 million for recovery of costs deferred under prior cases. Evidentiary
hearings began on January 29, 2008 and continued through February 25, 2008.
During the evidentiary hearings and filing of briefs, the PUCO Staff decreased
their recommended revenue increase to a range of $117 million to
$135 million. Additionally, in testimony submitted on February 11,
2008, the PUCO Staff adopted a position regarding interest deferred for
RCP-related deferrals, line extension deferrals and transition tax deferrals
that, if upheld by the PUCO, would result in the write-off of approximately
$58 million of interest costs deferred through September 30, 2008
($0.12 per share of common stock). The Ohio Companies’ electric distribution
rate request is addressed in their comprehensive ESP filing, as described
below.
   39
 
 On May 1, 2008,
Governor Strickland signed SB221, which became effective on July 31, 2008.
The bill requires all utilities to file an ESP with the PUCO. A utility also may
file an MRO in which it would have to prove the following objective market
criteria:
 
 ·
              the utility or
      its transmission service affiliate belongs to a FERC approved RTO, or
      there is comparable and nondiscriminatory access to the electric
      transmission grid;
 
 ·
              the RTO has a
      market-monitor function and the ability to mitigate market power or the
      utility’s market conduct, or a similar market monitoring function exists
      with the ability to identify and monitor market conditions and conduct;
      and
 
 ·
              a published
      source of information is available publicly or through subscription that
      identifies pricing information for traded electricity products, both on-
      and off-peak, scheduled for delivery two years into the
      future.
 
 On July 31, 2008,
the Ohio Companies filed with the PUCO a comprehensive ESP and MRO. The MRO
outlines a CBP that would be implemented if the ESP is not approved by the PUCO.
Under SB221, a PUCO ruling on the ESP filing is required within 150 days and an
MRO decision is required within 90 days. The ESP proposes to phase in new
generation rates for customers beginning in 2009 for up to a three-year period
and would resolve the Ohio Companies’ collection of fuel costs deferred in 2006
and 2007, and the distribution rate request described above. Major provisions of
the ESP include:
 
 ·
              a phase-in of
      new generation rates for up to a three-year period, whereby customers
      would receive a 10% phase-in credit; related costs (expected to
      approximate $429 million in 2009, $488 million in 2010 and
      $553 million in 2011) would be deferred for future collection over a
      period not to exceed 10 years;
 
 ·
              a reconcilable
      rider to recover fuel transportation cost surcharges in excess of $30
      million in 2009, $20 million in 2010 and $10 million in
      2011;
 
 ·
              generation
      rate adjustments to recover any increase in fuel costs in 2011 over fuel
      costs incurred in 2010 for FES’ generation assets used to support the
      ESP;
 
 ·
              generation
      rate adjustments to recover the costs of complying with new requirements
      for certain renewable energy resources, new taxes and new environmental
      laws or new interpretations of existing laws that take effect after
      January 1, 2008 and exceed $50 million during the plan
      period;
 
 ·
              an RCP fuel
      rider to recover the 2006 and 2007 deferred fuel costs and carrying
      charges (described above) over a period not to exceed 25
      years;
 
 ·
              the resolution
      of outstanding issues pending in the Ohio Companies’ distribution rate
      case (described above), including annual electric distribution rate
      increases of $75 million for OE, $34.5 million for CEI and $40.5 million
      for TE. The new distribution rates would be effective January 1, 2009, for
      OE and TE and May 1, 2009 for CEI, with a commitment to maintain
      distribution rates through 2013. CEI also would be authorized to defer
      $25 million in distribution-related costs incurred from January 1,
      2009, through April 30, 2009;
 
 ·
              an adjustable
      delivery service improvement rider, effective January 1, 2009, through
      December 31, 2013, to ensure the Ohio Companies maintain and improve
      customer standards for service and
reliability;
 
 ·
              the waiver of
      RTC charges for CEI’s customers as of January 1, 2009, which would
      result in CEI’s write-off of approximately $485 million of estimated
      unrecoverable transition costs ($1.01 per share of common
      stock);
  ·
              the continued
      recovery of transmission costs, including MISO, ancillary services and
      congestion charges, through an annually adjusted transmission rider; a
      separate rider will be established to recover costs incurred annually
      between May 1st
      and September 30th
      for capacity purchases required to meet FERC, NERC, MISO and other
      applicable standards for planning reserve margin requirements in excess of
      amounts provided by FES as described in the ESP (the separate application
      for the recovery of these costs was filed on October 17,
      2008);
 
 ·
              a deferred
      transmission cost recovery rider effective January 1, 2009, through
      December 31, 2010 to recover transmission costs deferred by the Ohio
      Companies in 2005 and accumulated carrying charges through
      December 31, 2008; a deferred distribution cost recovery rider
      effective January 1, 2011, to recover distribution costs deferred
      under the RCP, CEI’s additional $25 million of cost deferrals in
      2009, line extension deferrals and transition tax
    deferrals;
   40
 
 ·
              the deferral
      of annual storm damage expenses in excess of $13.9 million, certain line
      extension costs, as well as depreciation, property tax obligations and
      post in-service carrying charges on energy delivery capital investments
      for reliability and system efficiency placed in service after December 31,
      2008. Effective January 1, 2014, a rider will be established to
      collect the deferred balance and associated carrying charges over a
      10-year period; and
 
 ·
              a commitment
      by the Ohio Companies to invest in aggregate at least $1 billion in
      capital improvements in their energy delivery systems through 2013 and
      fund $25 million for energy efficiency programs and $25 million
      for economic development and job retention programs through
      2013.
 
 Evidentiary hearings
in the ESP case concluded on October 31, 2008 and no further hearings are
scheduled. The parties are required to submit initial briefs by November 21,
2008, with all reply briefs due by December 12, 2008.
 
 The Ohio Companies’
MRO filing outlines a CBP for providing retail generation supply if the ESP is
not approved by the PUCO or is changed and not accepted by the Ohio Companies.
The CBP would use a “slice-of-system” approach where suppliers bid on tranches
(approximately 100 MW) of the Ohio Companies’ total customer load. If the Ohio
Companies proceed with the MRO option, successful bidders (including affiliates)
would be required to post independent credit requirements and could be subject
to significant collateral calls depending upon power price movement. On
September 16, 2008, the PUCO staff filed testimony and evidentiary hearings
were held. The PUCO failed to act on October 29, 2008 as required under the
statute.  The Ohio Companies are unable to predict the outcome of this
proceeding.
 
 The Ohio Companies
included an interim pricing proposal as part of their ESP filing, if additional
time is necessary for final PUCO approval of either the ESP or MRO. FES will be
required to obtain FERC authorization to sell electric capacity or energy to the
Ohio Companies under the ESP or MRO, unless a waiver is obtained (see FERC
Matters).
 
 (C)  
 PENNSYLVANIA
 
 Met-Ed and Penelec
purchase a portion of their PLR and default service requirements from FES
through a fixed-price partial requirements wholesale power sales agreement. The
agreement allows Met-Ed and Penelec to sell the output of NUG energy to the
market and requires FES to provide energy at fixed prices to replace any NUG
energy sold to the extent needed for Met-Ed and Penelec to satisfy their PLR and
default service obligations. The fixed price under the agreement is expected to
remain below wholesale market prices during the term of the agreement. If Met-Ed
and Penelec were to replace the entire FES supply at current market power prices
without corresponding regulatory authorization to increase their generation
prices to customers, each company would likely incur a significant increase in
operating expenses and experience a material deterioration in credit quality
metrics. Under such a scenario, each company's credit profile would no longer be
expected to support an investment grade rating for their fixed income
securities. Based on the PPUC’s January 11, 2007 order described below, if
FES ultimately determines to terminate, reduce, or significantly modify the
agreement prior to the expiration of Met-Ed’s and Penelec’s generation rate caps
in 2010, timely regulatory relief is not likely to be granted by the PPUC. See
FERC Matters below for a description of the Third Restated Partial Requirements
Agreement, executed by the parties on October 31, 2008, that limits
the amount of energy and capacity FES must supply to Met-Ed and Penelec. In the
event of a third party supplier default, the increased costs to Met-Ed and
Penelec could be material.
 Met-Ed and Penelec
made a comprehensive transition rate filing with the PPUC on April 10, 2006
to address a number of transmission, distribution and supply issues. If Met-Ed's
and Penelec's preferred approach involving accounting deferrals had been
approved, annual revenues would have increased by $216 million and
$157 million, respectively. That filing included, among other things, a
request to charge customers for an increasing amount of market-priced power
procured through a CBP as the amount of supply provided under the then existing
FES agreement was to be phased out. Met-Ed and Penelec also requested approval
of a January 12, 2005 petition for the deferral of transmission-related
costs incurred during 2006. In this rate filing, Met-Ed and Penelec requested
recovery of annual transmission and related costs incurred on or after
January 1, 2007, plus the amortized portion of 2006 costs over a ten-year
period, along with applicable carrying charges, through an adjustable rider.
Changes in the recovery of NUG expenses and the recovery of Met-Ed's non-NUG
stranded costs were also included in the filing. On May 4, 2006, the PPUC
consolidated the remand of the FirstEnergy and GPU merger proceeding, related to
the quantification and allocation of merger savings, with the comprehensive
transition rate filing case.
   41
  The PPUC entered its
opinion and order in the comprehensive rate filing proceeding on
January 11, 2007. The order approved the recovery of transmission costs,
including the transmission-related deferral for January 1, 2006 through
January 10, 2007, and determined that no merger savings from prior years
should be considered in determining customers’ rates. The request for increases
in generation supply rates was denied as were the requested changes to NUG
expense recovery and Met-Ed’s non-NUG stranded costs. The order decreased
Met-Ed’s and Penelec’s distribution rates by $80 million and
$19 million, respectively. These decreases were offset by the increases
allowed for the recovery of transmission costs. Met-Ed’s and Penelec’s request
for recovery of Saxton decommissioning costs was granted and, in January 2007,
Met-Ed and Penelec recognized income of $15 million and $12 million,
respectively, to establish regulatory assets for those previously expensed
decommissioning costs. Overall rates increased by 5.0% for Met-Ed
($59 million) and 4.5% for Penelec ($50 million).
 
 On March 30, 2007,
MEIUG and PICA filed a Petition for Review with the Commonwealth Court of
Pennsylvania asking the Court to review the PPUC’s determination on transmission
(including congestion) and the transmission deferral. Met-Ed and Penelec filed a
Petition for Review on April 13, 2007 on the issues of consolidated tax savings
and the requested generation rate increase. The OCA filed its Petition for
Review on April 13, 2007, on the issues of transmission (including
congestion) and recovery of universal service costs from only the residential
rate class. From June through October 2007, initial responsive and reply briefs
were filed by various parties. The Commonwealth
Court issued its decision on November 7, 2008, which affirmed the PPUC's
January 11, 2007 order in all respects, including the deferral and recovery
of transmission and congestion related costs.
 
 On May 22, 2008, the
PPUC approved the Met-Ed and Penelec annual updates to the TSC rider for the
period June 1, 2008, through May 31, 2009. Various intervenors filed
complaints against Met-Ed’s and Penelec’s TSC filings.  In addition,
the PPUC ordered an investigation to review the reasonableness of Met-Ed’s TSC,
while at the same time allowing the company to implement the rider June 1,
2008, subject to refund. On July 15, 2008, the PPUC directed the ALJ to
consolidate the complaints against Met-Ed with its investigation and a
litigation schedule was adopted with hearings for both companies scheduled to
begin in January 2009. The TSCs include a component for under-recovery of actual
transmission costs incurred during the prior period (Met-Ed - $144 million
and Penelec - $4 million) and future transmission cost projections for June 2008
through May 2009 (Met-Ed - $258 million and Penelec - $92 million).
Met-Ed received approval from the PPUC of a transition approach that would
recover past under-recovered costs plus carrying charges through the new TSC
over thirty-one months and defer a portion of the projected costs
($92 million) plus carrying charges for recovery through future TSCs by
December 31, 2010.
 
 On February 1, 2007,
the Governor of Pennsylvania proposed an EIS. The EIS includes four pieces of
proposed legislation that, according to the Governor, is designed to reduce
energy costs, promote energy independence and stimulate the economy. Elements of
the EIS include the installation of smart meters, funding for solar panels on
residences and small businesses, conservation and demand reduction programs to
meet energy growth, a requirement that electric distribution companies acquire
power that results in the “lowest reasonable rate on a long-term basis,” the
utilization of micro-grids and a three year phase-in of rate increases. On
July 17, 2007 the Governor signed into law two pieces of energy
legislation. The first amended the Alternative Energy Portfolio Standards Act of
2004 to, among other things, increase the percentage of solar energy that must
be supplied at the conclusion of an electric distribution company’s transition
period. The second law allows electric distribution companies, at their sole
discretion, to enter into long term contracts with large customers and to build
or acquire interests in electric generation facilities specifically to supply
long-term contracts with such customers. A special legislative session on energy
was convened in mid-September 2007 to consider other aspects of the EIS. The
Pennsylvania House and Senate on March 11, 2008 and December 12, 2007,
respectively, passed different versions of bills to fund the Governor’s EIS
proposal. As part of the 2008 state budget negotiations, the Alternative Energy
Investment Act was enacted creating a $650 million alternative energy fund to
increase the development and use of alternative and renewable energy, improve
energy efficiency and reduce energy consumption.  On October 8, 2008,
House Bill 2200 as amended, was voted out of the full Senate and adopted by the
House. On October 15, 2008, the Governor of Pennsylvania signed House Bill 2200
into law which becomes effective on November 14, 2008 as Act 129 of
2008.  The bill addresses issues such as: energy efficiency and peak
load reduction; generation procurement; time-of-use rates; smart meters and
alternative energy.  Act 129 requires utilities to file with the PPUC
an energy efficiency and peak load reduction plan by July 1, 2009 and a
smart meter procurement and installation plan by August 14, 2009.
 
 Major provisions of
the legislation include:
  ·
                power acquired
      by utilities to serve customers after rate caps expire will be procured
      through a competitive procurement process that must include a mix of
      long-term and short-term contracts and spot market
    purchases;
 
 ·
                the
      competitive procurement process must be approved by the PPUC and may
      include auctions, request for proposals, and/or bilateral
      agreements;
   42
 
 ·
                utilities must
      provide for the installation of smart meter technology within 15
      years;
 
 ·
                a minimum
      reduction in peak demand of 4.5% by May 31,
  2013;
   ·
              minimum
      reductions in energy consumption of 1% and 3% by May 31, 2011 and May 31,
      2013, respectively; and
 
 ·
              an expanded
      definition of alternative energy to include additional types of
      hydroelectric and biomass
facilities.
 
 The current
legislative session ends on November 30, 2008, and any pending legislation
addressing rate mitigation and the expiration of rate caps not enacted by that
time must be re-introduced in order to be considered in the next legislative
session which begins in January 2009.  While the form and impact of
such legislation is uncertain, several legislators and the Governor have
indicated their intent to address these issues next year.
 
 On September 25,
2008, Met-Ed and Penelec filed for Commission approval of a Voluntary Prepayment
Plan that would provide an opportunity for residential and small commercial
customers to pre-pay an amount, which would earn interest at 7.5%, on their
monthly electric bills in 2009 and 2010, to be used to reduce electric rates in
2011 and 2012. Met-Ed and Penelec also intend to file a generation procurement
plan for 2011 and beyond with the PPUC later this year or early next year.
Met-Ed and Penelec requested that the PPUC approve the Plan by mid-December 2008
and are currently awaiting a decision.
 
 (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 September 30, 2008, the accumulated
deferred cost balance totaled approximately $210 million.
 
 In accordance with
an April 28, 2004 NJBPU order, JCP&L filed testimony on June 7,
2004 supporting continuation of the current level and duration of the funding of
TMI-2 decommissioning costs by New Jersey customers without a reduction,
termination or capping of the funding. On September 30, 2004, JCP&L
filed an updated TMI-2 decommissioning study. This study resulted in an updated
total decommissioning cost estimate of $729 million (in 2003 dollars)
compared to the estimated $528 million (in 2003 dollars) from the prior
1995 decommissioning study. The DRA filed comments on February 28, 2005
requesting that decommissioning funding be suspended. On March 18, 2005,
JCP&L filed a response to those comments. JCP&L responded to additional
NJBPU staff discovery requests in May and November 2007 and also submitted
comments in the proceeding in November 2007. A schedule for further NJBPU
proceedings has not yet been set.
 
 On August 1, 2005,
the NJBPU established a proceeding to determine whether additional ratepayer
protections are required at the state level in light of the repeal of the PUHCA
pursuant to the EPACT. The NJBPU approved regulations effective October 2,
2006 that prevent a holding company that owns a gas or electric public utility
from investing more than 25% of the combined assets of its utility and
utility-related subsidiaries into businesses unrelated to the utility industry.
These regulations are not expected to materially impact FirstEnergy or
JCP&L. Also, in the same proceeding, the NJBPU Staff issued an additional
draft proposal on March 31, 2006 addressing various issues including access
to books and records, ring-fencing, cross subsidization, corporate governance
and related matters. With the approval of the NJBPU Staff, the affected
utilities jointly submitted an alternative proposal on June 1, 2006. The
NJBPU Staff circulated revised drafts of the proposal to interested stakeholders
in November 2006 and again in February 2007. On February 1, 2008, the NJBPU
accepted proposed rules for publication in the New Jersey Register on
March 17, 2008. A public hearing on these proposed rules was held on
April 23, 2008 and comments from interested parties were submitted by May
19, 2008.
 
 New Jersey statutes
require that the state periodically undertake a planning process, known as the
EMP, to address energy related issues including energy security, economic
growth, and environmental impact. The EMP is to be developed with involvement of
the Governor’s Office and the Governor’s Office of Economic Growth, and is to be
prepared by a Master Plan Committee, which is chaired by the NJBPU President and
includes representatives of several State departments. In October 2006, the
current EMP process was initiated through the creation of a number of working
groups to obtain input from a broad range of interested stakeholders including
utilities, environmental groups, customer groups, and major customers. In
addition, public stakeholder meetings were held in 2006, 2007 and the first half
of 2008.
   43
  On April 17, 2008, a
draft EMP was released for public comment. The final EMP was issued on October
22, 2008 and establishes five major goals:
 
 ·
              maximize
      energy efficiency to achieve a 20% reduction in energy consumption by
      2020;
 
 ·
              reduce peak
      demand for electricity by 5,700 MW by
2020;
 
 ·
              meet 30% of
      the state’s electricity needs with renewable energy by
    2020;
  ·
              examine smart
      grid technology and develop additional cogeneration and other generation
      resources consistent with the state’s greenhouse gas targets;
      and
 
 ·
              invest in
      innovative clean energy technologies and businesses to stimulate the
      industry’s growth in New Jersey.
 
 The final EMP will
be followed by appropriate legislation and regulation as necessary. At this
time, FirstEnergy cannot predict the outcome of this process nor determine the
impact, if any, such legislation or regulation may have on its operations or
those of JCP&L.
 
 (E)   
FERC MATTERS
 
 Transmission Service between MISO and
PJM
 
 On November 18,
2004, the FERC issued an order eliminating the through and out rate for
transmission service between the MISO and PJM regions. The FERC’s intent was to
eliminate multiple transmission charges for a single transaction between the
MISO and PJM regions. The FERC also ordered MISO, PJM and the transmission
owners within MISO and PJM to submit compliance filings containing a rate
mechanism to recover lost transmission revenues created by elimination of this
charge (referred to as the Seams Elimination Cost Adjustment or “SECA”) during a
16-month transition period. The FERC issued orders in 2005 setting the SECA for
hearing. The presiding judge issued an initial decision on August 10, 2006,
rejecting the compliance filings made by MISO, PJM, and the transmission owners,
and directing new compliance filings. This decision is subject to review and
approval by the FERC. Briefs addressing the initial decision were filed on
September 11, 2006 and October 20, 2006. A final order could be issued by
the FERC by year-end 2008.  In the meantime, FirstEnergy affiliates
have been negotiating and entering into settlement agreements with other parties
in the docket to mitigate the risk of lower transmission revenue collection
associated with an adverse order.  On September 26, 2008, the MISO and
PJM transmission owners filed a motion requesting that the FERC approve the
pending settlements and act on the initial decision.
 
 PJM Transmission Rate
Design
 
 On January 31, 2005,
certain PJM transmission owners made filings with the FERC pursuant to a
settlement agreement previously approved by the FERC. JCP&L, Met-Ed and
Penelec were parties to that proceeding and joined in two of the filings. In the
first filing, the settling transmission owners submitted a filing justifying
continuation of their existing rate design within the PJM RTO. Hearings were
held and numerous parties appeared and litigated various issues concerning PJM
rate design; notably AEP, which proposed to create a "postage stamp", or average
rate for all high voltage transmission facilities across PJM and a zonal
transmission rate for facilities below 345 kV. This proposal would have the
effect of shifting recovery of the costs of high voltage transmission lines to
other transmission zones, including those where JCP&L, Met-Ed, and Penelec
serve load. On April 19, 2007, the FERC issued an order finding that the PJM
transmission owners’ existing “license plate” or zonal rate design was just and
reasonable and ordered that the current license plate rates for existing
transmission facilities be retained. On the issue of rates for new transmission
facilities, the FERC directed that costs for new transmission facilities that
are rated at 500 kV or higher are to be collected from all transmission zones
throughout the PJM footprint by means of a postage-stamp rate. Costs for new
transmission facilities that are rated at less than 500 kV, however, are to be
allocated on a “beneficiary pays” basis. The FERC found that PJM’s current
beneficiary-pays cost allocation methodology is not sufficiently detailed and,
in a related order that also was issued on April 19, 2007, directed that
hearings be held for the purpose of establishing a just and reasonable cost
allocation methodology for inclusion in PJM’s tariff.
   44
 
 On May 18, 2007,
certain parties filed for rehearing of the FERC’s April 19, 2007 order. On
January 31, 2008, the requests for rehearing were denied. The FERC’s orders on
PJM rate design will prevent the allocation of a portion of the revenue
requirement of existing transmission facilities of other utilities to JCP&L,
Met-Ed and Penelec. In addition, the FERC’s decision to allocate the cost of new
500 kV and above transmission facilities on a PJM-wide basis will reduce the
costs of future transmission to be recovered from the JCP&L, Met-Ed and
Penelec zones. A partial settlement agreement addressing the “beneficiary pays”
methodology for below 500 kV facilities, but excluding the issue of allocating
new facilities costs to merchant transmission entities, was filed on September
14, 2007. The agreement was supported by the FERC’s Trial Staff, and was
certified by the Presiding Judge to the FERC. On July 29, 2008, the FERC issued
an order conditionally approving the settlement subject to the submission of a
compliance filing.  The compliance filing was submitted on
August 29, 2008, and the FERC issued an order accepting the compliance
filing on October 15, 2008.  The remaining merchant transmission cost
allocation issues were the subject of a hearing at the FERC in May
2008.  An initial decision was issued by the Presiding Judge on
September 18, 2008.  PJM and FERC trial staff each filed a Brief on
Exceptions to the initial decision on October 20, 2008.  Briefs
Opposing Exceptions are due on November 10, 2008. On February 11, 2008, AEP
appealed the FERC’s April 19, 2007 and January 31, 2008 orders to the federal
Court of Appeals for the D.C. Circuit. The Illinois Commerce Commission, the
PUCO and Dayton Power & Light have also appealed these orders to the Seventh
Circuit Court of Appeals. The appeals of these parties and others have been
consolidated for argument in the Seventh Circuit.
  Post
Transition Period Rate Design
 
 The FERC had
directed MISO, PJM, and the respective transmission owners to make filings on or
before August 1, 2007 to reevaluate transmission rate design within MISO, and
between MISO and PJM. On August 1, 2007, filings were made by MISO, PJM, and the
vast majority of transmission owners, including FirstEnergy affiliates, which
proposed to retain the existing transmission rate design. These filings were
approved by the FERC on January 31, 2008. As a result of the FERC’s approval,
the rates charged to FirstEnergy’s load-serving affiliates for transmission
service over existing transmission facilities in MISO and PJM are unchanged. In
a related filing, MISO and MISO transmission owners requested that the current
MISO pricing for new transmission facilities that spreads 20% of the cost of new
345 kV and higher transmission facilities across the entire MISO footprint
(known as the RECB methodology) be retained.
 
 On September 17, 2007, AEP filed a
complaint under Sections 206 and 306 of the Federal Power Act seeking to have
the entire transmission rate design and cost allocation methods used by MISO and
PJM declared unjust, unreasonable, and unduly discriminatory, and to have the
FERC fix a uniform regional transmission rate design and cost allocation method
for the entire MISO and PJM “Super Region” that recovers the average cost of new
and existing transmission facilities operated at voltages of 345 kV and above
from all transmission customers. Lower voltage facilities would continue to be
recovered in the local utility transmission rate zone through a license plate
rate. AEP requested a refund effective October 1, 2007, or alternatively,
February 1, 2008. On January 31, 2008, the FERC issued an order denying the
complaint. The effect of this order is to prevent the shift of significant costs
to the FirstEnergy zones in MISO and PJM. A rehearing request by AEP is pending
before the FERC.
 
 MISO Ancillary Services Market and
Balancing Area Consolidation
 
 MISO made a filing
on September 14, 2007 to establish an ASM for regulation, spinning and
supplemental reserves, to consolidate the existing 24 balancing areas within the
MISO footprint, and to establish MISO as the NERC registered balancing authority
for the region. These markets would permit generators to sell, and load-serving
entities to purchase, their operating reserve requirements in a competitive
market. FirstEnergy supports the proposal to establish markets for Ancillary
Services and consolidate existing balancing areas. On February 25, 2008, the
FERC issued an order approving the ASM subject to certain compliance filings.
Numerous parties filed requests for rehearing on March 26, 2008. On
June 23, 2008, the FERC issued an order granting in part and denying in
part rehearing.
 
 On February 29,
2008, MISO submitted a compliance filing setting forth MISO’s Readiness Advisor
ASM and Consolidated Balancing Authority Initiative Verification plan and status
and Real-Time Operations ASM Reversion plan. FERC action on this compliance
filing remains pending. On March 26, 2008, MISO submitted a tariff filing in
compliance with the FERC’s 30-day directives in the February 25 order. Numerous
parties submitted comments and protests on April 16, 2008. The FERC issued an
order accepting the revisions pending further compliance on June 23, 2008. On
April 25, 2008, MISO submitted a tariff filing in compliance with the FERC’s
60-day directives in the February 25 order. FERC action on this compliance
filing remains pending. On May 23, 2008, MISO submitted its amended Balancing
Authority Agreement. On July 21, 2008, the FERC issued an order
conditionally accepting the amended Balancing Authority Agreement and requiring
a further compliance filing. On August 19, 2008, MISO submitted its compliance
filing to the FERC. On July 25, 2008, MISO submitted another Readiness
Certification.  The FERC has not yet acted on this
submission.  MISO announced on August 26, 2008 that the startup
of its market is postponed indefinitely.  MISO commits to make a
filing giving at least sixty days notice of the new effective date. The latest
announced effective date for market startup is January 6, 2009.
   45
 
 Interconnection
Agreement with AMP-Ohio
 
 On May 29, 2008, TE
filed with the FERC a proposed Notice of Cancellation effective midnight
December 31, 2008, of the Interconnection Agreement with AMP-Ohio. AMP-Ohio
protested this filing. TE also filed a Petition for Declaratory Order seeking a
FERC ruling, in the alternative if cancellation is not accepted, of TE's right
to file for an increase in rates effective January 1, 2009, for power
provided to AMP-Ohio under the Interconnection Agreement. AMP-Ohio filed a
pleading agreeing that TE may seek an increase in rates, but arguing that any
increase is limited to the cost of generation owned by TE
affiliates.  On August 18, 2008, the FERC issued an order that
suspended the cancellation of the Agreement for five months, to become effective
on June 1, 2009, and established expedited hearing procedures on issues raised
in the filing and TE’s Petition for Declaratory Order.   On
October 14, 2008, the parties filed a settlement agreement and mutual notice of
cancellation of the Interconnection Agreement effective midnight December 31,
2008.  Upon acceptance by the FERC, this filing will terminate the
litigation and the Interconnection Agreement, among other effects.
 
 Duquesne’s
Request to Withdraw from PJM
 
 On November 8, 2007,
Duquesne Light Company (Duquesne) filed a request with the FERC to exit PJM and
to join MISO. In its filing, Duquesne asked the FERC to be relieved of certain
capacity payment obligations to PJM for capacity auctions conducted prior to its
departure from PJM, but covering service for planning periods through
May 31, 2011. Duquesne asserted that its primary reason for exiting PJM is
to avoid paying future obligations created by PJM’s forward capacity market. On
January 17, 2008, the FERC conditionally approved Duquesne’s request to
exit PJM. Among other conditions, the FERC obligated Duquesne zone load-serving
entities to pay their PJM capacity obligations through May 31,
2011.
  FirstEnergy desires
to continue to use its Duquesne zone generation resources to serve load in PJM.
On April 18, 2008, the FERC issued its Order on Motion for Emergency
Clarification on whether Duquesne-zone generators could participate in PJM’s May
2008 auction for the 2011-2012 planning year. In the order, the FERC ruled
that although the status of the Duquesne-zone generators will change to
“External Resource” upon Duquesne’s exit from PJM, these generators could
contract with PJM for the transmission reservations necessary to participate in
the May 2008 auction. FirstEnergy has complied with the FERC’s order by
obtaining executed transmission service agreements for firm point-to-point
transmission service for the 2011-2012 delivery year and, as such, FirstEnergy
satisfied the criteria to bid the Beaver Valley Plant into the May 2008 RPM
auction.
 
 The FERC also
directed MISO and PJM to resolve the substantive and procedural issues
associated with Duquesne’s transition into MISO. As directed, PJM filed thirteen
load-serving entity Capacity Payment Agreements and a Capacity Portability
Agreement with the FERC. The Capacity Payment Agreements addressed Duquesne Zone
load-serving entity obligations through May 31, 2011 with regards to RPM
Capacity while the Capacity Portability Agreement addressed operational issues
associated with the portability of such capacity. On September 30, 2008, the
FERC approved both agreements, subject to conditions, taking notice of many
operational and procedural issues brought forth by FirstEnergy and other market
participants.
 
 Several issues
surrounding Duquesne’s transition into MISO continue to be contested at the
FERC. Specifically, Duquesne’s obligation to pay for transmission expansion
costs allocated to the Duquesne zone when they were a member of PJM, and other
issues in which market participants wish to be held harmless by Duquesne’s
transition. FirstEnergy filed for rehearing on these issues on October 3, 2008.
Duquesne’s transition into MISO is also contingent upon the start of MISO’s
ancillary services market and consolidation of its balancing authorities,
currently scheduled for January 6, 2009.
 
 Complaint
against PJM RPM Auction
 
 On May 30,
2008, a group of PJM load-serving entities, state commissions, consumer
advocates, and trade associations (referred to collectively as the RPM Buyers)
filed a complaint at the FERC against PJM alleging that three of the
four transitional RPM auctions yielded prices that are unjust and
unreasonable under the Federal Power Act. Most of the parties comprising
the RPM Buyers group were parties to the settlement approved by the FERC that
established the RPM. In the complaint, the RPM Buyers request that the
total projected payments to RPM sellers for the three auctions at issue be
materially reduced. On July 11, 2008, PJM filed its answer to the
complaint, in which it denied the allegation that the rates are unjust and
unreasonable. Also on that date, FirstEnergy filed a motion to
intervene.
 
 On September 19,
2008, the FERC denied the RPM Buyers complaint. However, the FERC did grant the
RPM Buyers request for a technical conference to review aspects of the RPM. The
FERC also ordered PJM to file on or before December 15, 2008, a report on
its progress on contemplating adjustments to the RPM as suggested by the Brattle
Group in its report reviewing the RPM. The technical conference will take place
in February, 2009. On October 20, 2008, the RPM Buyers filed a request for
rehearing of the FERC’s September 19, 2008 order.
   46
 
 MISO
Resource Adequacy Proposal
 
 MISO made a filing
on December 28, 2007 that would create an enforceable planning reserve
requirement in the MISO tariff for load-serving entities such as the Ohio
Companies, Penn Power, and FES. This requirement is proposed to become effective
for the planning year beginning June 1, 2009. The filing would permit MISO to
establish the reserve margin requirement for load-serving entities based upon a
one day loss of load in ten years standard, unless the state utility regulatory
agency establishes a different planning reserve for load-serving entities in its
state. FirstEnergy believes the proposal promotes a mechanism that will result
in commitments from both load-serving entities and resources, including both
generation and demand side resources that are necessary for reliable resource
adequacy and planning in the MISO footprint. Comments on the filing were filed
on January 28, 2008. The FERC conditionally approved MISO’s Resource Adequacy
proposal on March 26, 2008, requiring MISO to submit to further compliance
filings. Rehearing requests are pending on the FERC’s March 26 Order. On May 27,
2008, MISO submitted a compliance filing to address issues associated with
planning reserve margins. On June 17, 2008, various parties submitted comments
and protests to MISO’s compliance filing. FirstEnergy submitted comments
identifying specific issues that must be clarified and addressed. On
June 25, 2008, MISO submitted a second compliance filing establishing the
enforcement mechanism for the reserve margin requirement which establishes
deficiency payments for load-serving entities that do not meet the resource
adequacy requirements. Numerous parties, including FirstEnergy, protested this
filing.   On October 20, 2008, the FERC issued three orders
essentially permitting the MISO Resource Adequacy program to proceed with some
modifications.  First, the FERC accepted MISO's financial settlement
approach for enforcement of Resource Adequacy subject to a compliance filing
modifying the cost of new entry penalty. Second, the FERC conditionally accepted
MISO's compliance filing on the qualifications for purchase power agreements to
be capacity resources, load forecasting, loss of load expectation, and planning
reserve zones. Additional compliance filings were directed on accreditation of
load modifying resources and price responsive demand. Finally, the FERC largely
denied rehearing of its March 26 order with the exception of issues related to
behind the meter resources and certain ministerial matters. Issuance of these
orders is not expected to delay the June 1, 2009 start date for MISO Resource
Adequacy.
  Organized
Wholesale Power Markets
 
 The FERC issued a
final rule on October 17, 2008, amending its regulations to “improve the
operation of organized wholesale electric markets in the areas of: (1) demand
response and market pricing during periods of operating reserve shortage; (2)
long-term power contracting; (3) market-monitoring policies; and (4) the
responsiveness of RTOs and ISOs to their customers and other stakeholders.” The
RTOs and ISOs were directed to submit amendments to their respective tariffs to
address these market operation improvements.  The final rule directs
RTOs to adopt market rules permitting prices to increase during periods of
supply shortages and to permit enhanced participation by demand response
resources.  It also codifies and defines for the first time the roles
and duties of independent market monitors within RTOs.  Finally, it
adopts requirements for enhanced access by stakeholders to RTO boards of
directors.  RTOs are directed to make compliance filings six months
from the effective date of the final rule.  The final rule is not
expected to have any material effect on FirstEnergy's operations within MISO and
PJM.
 
 FES
Sales to Affiliates
 
 On October 24, 2008,
FES, on its own behalf and on behalf of its generation-controlling subsidiaries,
filed an application with the FERC seeking a waiver of the affiliate sales
restrictions between FES and the Ohio Companies. The purpose of the waiver is to
ensure thatFESwill be able to continue supplying
a material portion of the electric load requirements of the Ohio Companies in
January 2009 pursuant to either an ESP or MRO as filed with the
PUCO. FES previously obtained a similar waiver for electricity sales
to its affiliates in New Jersey, New York, and Pennsylvania.  A ruling
by the FERC is expected the week of December 15, 2008.
 
 On October 31, 2008,
FES executed a Third Restated Partial Requirements Agreement with
Met-Ed, Penelec, and The Waverly Power and Light Company (Waverly)
effective November 1, 2008.  The Third Restated Partial Requirements
Agreement limits the amount of capacity and energy required to be supplied by
FES in 2009 and 2010 to roughly two-thirds of these affiliates’ power supply
requirements. Met-Ed, Penelec, and Waverly have committed resources in
place for the balance of their expected power supply during 2009 and
2010.  Under the Third Restated Partial Requirements Agreement,
Met-Ed, Penelec, and Waverly are responsible for obtaining additional power
supply requirements created by the default or failure of supply of their
committed resources. Prices for the power provided by FES were not changed in
the Third Restated Partial Requirements Agreement.
   47
  13. 
NEW ACCOUNTING STANDARDS AND INTERPRETATIONS
 
 SFAS 141(R) – “Business
Combinations”
 
 In December 2007,
the FASB issued SFAS 141(R), which: (i) requires the acquiring entity in a
business combination to recognize all assets acquired and liabilities assumed in
the transaction; (ii) establishes the acquisition-date fair value as the
measurement objective for all assets acquired and liabilities assumed; and (iii)
requires the acquirer to disclose to investors and other users all of the
information they need to evaluate and understand the nature and financial effect
of the business combination. The Standard includes both core principles and
pertinent application guidance, eliminating the need for numerous EITF issues
and other interpretative guidance. SFAS 141(R) will affect business combinations
entered into by FirstEnergy that close after January 1, 2009. In addition,
the Standard also affects the accounting for changes in deferred tax valuation
allowances and income tax uncertainties made after January 1, 2009, that
were established as part of a business combination prior to the implementation
of this Standard. Under SFAS 141(R), adjustments to the acquired entity’s
deferred tax assets and uncertain tax position balances occurring outside the
measurement period will be recorded as a component of income tax expense, rather
than goodwill.The
impact of FirstEnergy’s application of this Standard in periods after
implementation will be dependent upon acquisitions at that time.
 
 SFAS
160 - “Non-controlling Interests in Consolidated Financial Statements – an
Amendment of ARB No. 51”
 
 In December 2007,
the FASB issued SFAS 160 that establishes accounting and reporting standards for
the noncontrolling interest in a subsidiary and for the deconsolidation of a
subsidiary. It clarifies that a noncontrolling interest in a subsidiary is an
ownership interest in the consolidated entity that should be reported as equity
in the consolidated financial statements. This Statement is effective for fiscal
years, and interim periods within those fiscal years, beginning on or after
December 15, 2008. Early adoption is prohibited. The Statement is not
expected to have a material impact on FirstEnergy’s financial
statements.
  SFAS
      161 - “Disclosures about Derivative Instruments and Hedging Activities –
      an Amendment of FASB Statement No.
133”
 
 In March 2008, the
FASB issued SFAS 161 that enhances the current disclosure framework for
derivative instruments and hedging activities. The Statement requires that
objectives for using derivative instruments be disclosed in terms of underlying
risk and accounting designation. The FASB believes that additional required
disclosure of the fair values of derivative instruments and their gains and
losses in a tabular format will provide a more complete picture of the location
in an entity’s financial statements of both the derivative positions existing at
period end and the effect of using derivatives during the reporting period.
Disclosing information about credit-risk-related contingent features is designed
to provide information on the potential effect on an entity’s liquidity from
using derivatives. This Statement also requires cross-referencing within the
footnotes to help users of financial statements locate important information
about derivative instruments. The Statement is effective for reporting periods
beginning after November 15, 2008. FirstEnergy expects this Standard to
increase its disclosure requirements for derivative instruments and hedging
activities.
 
 14.  SEGMENT
INFORMATION
 
 FirstEnergy has
three reportable operating segments: energy delivery services, competitive
energy services and Ohio transitional generation services. The assets and
revenues for all other business operations are below the quantifiable threshold
for operating segments for separate disclosure as “reportable operating
segments.”
 
 The energy delivery
services segment designs, constructs, operates and maintains FirstEnergy's
regulated transmission and distribution systems and is responsible for the
regulated generation commodity operations of FirstEnergy’s Pennsylvania and New
Jersey electric utility subsidiaries. Its revenues are primarily derived from
the delivery of electricity, cost recovery of regulatory assets, and default
service electric generation sales to non-shopping customers in its Pennsylvania
and New Jersey franchise areas. Its results reflect the commodity costs of
securing electric generation from FES under partial requirements purchased power
agreements and from non-affiliated power suppliers as well as the net PJM
transmission expenses related to the delivery of that generation
load.
   48
 
 The competitive
energy services segment supplies electric power to its electric utility
affiliates, provides competitive electricity sales primarily in Ohio,
Pennsylvania, Maryland and Michigan, owns or leases and operates FirstEnergy’s
generating facilities and purchases electricity to meet its sales obligations.
The segment's net income is primarily derived from the affiliated company PSA
sales and the non-affiliated electric generation sales revenues less the related
costs of electricity generation, including purchased power and net transmission
(including congestion) and ancillary costs charged by PJM and MISO to deliver
electricity to the segment’s customers. The segment’s internal revenues
represent the affiliated company PSA sales.
 
 The Ohio
transitional generation services segment represents the regulated generation
commodity operations of FirstEnergy’s Ohio electric utility subsidiaries. Its
revenues are primarily derived from electric generation sales to non-shopping
customers under the PLR obligations of the Ohio Companies. Its results reflect
the purchase of electricity from the competitive energy services segment through
full-requirements PSA arrangements, the deferral and amortization of certain
fuel costs authorized for recovery by the energy delivery services segment and
the net MISO transmission revenues and expenses related to the delivery of
generation load. This segment’s total assets consist of accounts receivable for
generation revenues from retail customers.
 
 49
   Segment
      Financial InformationOhioEnergy
                
                
                Competitive
                
                
                TransitionalDelivery
                
                
                Energy
                
                
                Generation
                
                
                
                
                
                ReconcilingThree
      Months Ended
                
                Services
                
                
                Services
                
                
                Services
                
                
                Other
                
                
                Adjustments
                
                
                Consolidated(In
      millions)September 30,
      2008External
      revenues
                
                $
                2,657
                
                
                $
                460
                
                
                $
                813
                
                
                $
                5
                
                
                $
                (31
                )
                
                $
                3,904Internal
      revenues
                
                
                -
                
                
                
                786
                
                
                
                -
                
                
                
                -
                
                
                
                (786
                )
                
                
                -Total
      revenues
                
                
                2,657
                
                
                
                1,246
                
                
                
                813
                
                
                
                5
                
                
                
                (817
                )
                
                
                3,904Depreciation
      and amortization
                
                
                286
                
                
                
                67
                
                
                
                46
                
                
                
                1
                
                
                
                1
                
                
                
                401Investment
      income
                
                
                48
                
                
                
                13
                
                
                
                1
                
                
                
                -
                
                
                
                (22
                )
                
                
                40Net interest
      charges
                
                
                101
                
                
                
                31
                
                
                
                1
                
                
                
                -
                
                
                
                44
                
                
                
                177Income
      taxes
                
                
                188
                
                
                
                109
                
                
                
                14
                
                
                
                (46
                )
                
                
                (27
                )
                
                
                238Net
      income
                
                
                283
                
                
                
                164
                
                
                
                19
                
                
                
                48
                
                
                
                (43
                )
                
                
                471Total
      assets
                
                
                23,088
                
                
                
                9,360
                
                
                
                270
                
                
                
                457
                
                
                
                387
                
                
                
                33,562Total
      goodwill
                
                
                5,559
                
                
                
                24
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                5,583Property
      additions
                
                
                170
                
                
                
                285
                
                
                
                -
                
                
                
                85
                
                
                
                20
                
                
                
                560September 30,
      2007External
      revenues
                
                $
                2,520
                
                
                $
                370
                
                
                $
                723
                
                
                $
                9
                
                
                $
                19
                
                
                $
                3,641Internal
      revenues
                
                
                -
                
                
                
                806
                
                
                
                -
                
                
                
                -
                
                
                
                (806
                )
                
                
                -Total
      revenues
                
                
                2,520
                
                
                
                1,176
                
                
                
                723
                
                
                
                9
                
                
                
                (787
                )
                
                
                3,641Depreciation
      and amortization
                
                
                299
                
                
                
                51
                
                
                
                (16
                )
                
                
                1
                
                
                
                8
                
                
                
                343Investment
      income
                
                
                58
                
                
                
                5
                
                
                
                -
                
                
                
                1
                
                
                
                (34
                )
                
                
                30Net interest
      charges
                
                
                117
                
                
                
                39
                
                
                
                -
                
                
                
                1
                
                
                
                37
                
                
                
                194Income
      taxes
                
                
                175
                
                
                
                99
                
                
                
                11
                
                
                
                (2
                )
                
                
                (10
                )
                
                
                273Net
      income
                
                
                269
                
                
                
                148
                
                
                
                16
                
                
                
                6
                
                
                
                (26
                )
                
                
                413Total
      assets
                
                
                23,308
                
                
                
                7,182
                
                
                
                268
                
                
                
                232
                
                
                
                663
                
                
                
                31,653Total
      goodwill
                
                
                5,585
                
                
                
                24
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                5,609Property
      additions
                
                
                209
                
                
                
                199
                
                
                
                -
                
                
                
                3
                
                
                
                19
                
                
                
                430Nine
      Months EndedSeptember 30,
      2008External
      revenues
                
                $
                7,051
                
                
                $
                1,164
                
                
                $
                2,203
                
                
                $
                65
                
                
                $
                (57
                )
                
                $
                10,426Internal
      revenues
                
                
                -
                
                
                
                2,266
                
                
                
                -
                
                
                
                -
                
                
                
                (2,266
                )
                
                
                -Total
      revenues
                
                
                7,051
                
                
                
                3,430
                
                
                
                2,203
                
                
                
                65
                
                
                
                (2,323
                )
                
                
                10,426Depreciation
      and amortization
                
                
                782
                
                
                
                179
                
                
                
                61
                
                
                
                2
                
                
                
                10
                
                
                
                1,034Investment
      income
                
                
                133
                
                
                
                (1
                )
                
                
                1
                
                
                
                6
                
                
                
                (66
                )
                
                
                73Net interest
      charges
                
                
                303
                
                
                
                86
                
                
                
                1
                
                
                
                -
                
                
                
                133
                
                
                
                523Income
      taxes
                
                
                436
                
                
                
                212
                
                
                
                42
                
                
                
                (33
                )
                
                
                (72
                )
                
                
                585Net
      income
                
                
                655
                
                
                
                317
                
                
                
                62
                
                
                
                96
                
                
                
                (120
                )
                
                
                1,010Total
      assets
                
                
                23,088
                
                
                
                9,360
                
                
                
                270
                
                
                
                457
                
                
                
                387
                
                
                
                33,562Total
      goodwill
                
                
                5,559
                
                
                
                24
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                5,583Property
      additions
                
                
                621
                
                
                
                1,430
                
                
                
                -
                
                
                
                106
                
                
                
                20
                
                
                
                2,177September 30,
      2007External
      revenues
                
                $
                6,655
                
                
                $
                1,089
                
                
                $
                1,968
                
                
                $
                29
                
                
                $
                (18
                )
                
                $
                9,723Internal
      revenues
                
                
                -
                
                
                
                2,210
                
                
                
                -
                
                
                
                -
                
                
                
                (2,210
                )
                
                
                -Total
      revenues
                
                
                6,655
                
                
                
                3,299
                
                
                
                1,968
                
                
                
                29
                
                
                
                (2,228
                )
                
                
                9,723Depreciation
      and amortization
                
                
                767
                
                
                
                153
                
                
                
                (80
                )
                
                
                3
                
                
                
                20
                
                
                
                863Investment
      income
                
                
                190
                
                
                
                13
                
                
                
                1
                
                
                
                1
                
                
                
                (112
                )
                
                
                93Net interest
      charges
                
                
                340
                
                
                
                131
                
                
                
                1
                
                
                
                3
                
                
                
                97
                
                
                
                572Income
      taxes
                
                
                464
                
                
                
                259
                
                
                
                46
                
                
                
                -
                
                
                
                (74
                )
                
                
                695Net
      income
                
                
                695
                
                
                
                388
                
                
                
                69
                
                
                
                13
                
                
                
                (124
                )
                
                
                1,041Total
      assets
                
                
                23,308
                
                
                
                7,182
                
                
                
                268
                
                
                
                232
                
                
                
                663
                
                
                
                31,653Total
      goodwill
                
                
                5,585
                
                
                
                24
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                5,609Property
      additions
                
                
                609
                
                
                
                462
                
                
                
                -
                
                
                
                6
                
                
                
                50
                
                
                
                1,127
 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.
 
 50
 
 
 15.  SUPPLEMENTAL
GUARANTOR INFORMATION
 
 On July 13, 2007,
FGCO completed a sale and leaseback transaction for its 93.825% undivided
interest in Bruce Mansfield Unit 1. FES has unconditionally and irrevocably
guaranteed all of FGCO’s obligations under each of the leases. The related
lessor notes and pass through certificates are not guaranteed by FES or FGCO,
but the notes are secured by, among other things, each lessor trust’s undivided
interest in Unit 1, rights and interests under the applicable lease and rights
and interests under other related agreements, including FES’ lease guaranty.
This transaction is classified as an operating lease under GAAP for FES and
FirstEnergy and a financing for FGCO.
 
 The consolidating
statements of income for the three-month and nine-month periods ended
September 30, 2008 and 2007, consolidating balance sheets as of
September 30, 2008 and December 31, 2007 and condensed consolidating
statements of cash flows for the nine months ended September 30, 2008 and
2007 for FES (parent and guarantor), FGCO and NGC (non-guarantor) are presented
below. Investments in wholly owned subsidiaries are accounted for by FES using
the equity method. Results of operations for FGCO and NGC are, therefore,
reflected in FES’ investment accounts and earnings as if operating lease
treatment was achieved. The principal elimination entries eliminate investments
in subsidiaries and intercompany balances and transactions and reflect operating
lease treatment associated with the 2007 Bruce Mansfield Unit 1 sale and
leaseback transaction.
 
 51
 
 FIRSTENERGY
      SOLUTIONS CORP.CONSOLIDATING
      STATEMENTS OF INCOME(Unaudited)For
      the Three Months Ended September 30, 2008
                
                FES
                
                
                FGCO
                
                
                NGC
                
                
                Eliminations
                
                
                Consolidated(In
      thousands)REVENUES
                
                $
                1,222,783
                
                
                $
                574,394
                
                
                $
                267,017
                
                
                $
                (822,590
                )
                
                $
                1,241,604EXPENSES:Fuel
                
                
                8,177
                
                
                
                307,646
                
                
                
                34,123
                
                
                
                -
                
                
                
                349,946Purchased
      power from non-affiliates
                
                
                221,493
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                221,493Purchased
      power from affiliates
                
                
                815,243
                
                
                
                7,347
                
                
                
                15,821
                
                
                
                (822,590
                )
                
                
                15,821Other
      operating expenses
                
                
                35,596
                
                
                
                110,701
                
                
                
                120,697
                
                
                
                12,190
                
                
                
                279,184Provision for
      depreciation
                
                
                1,978
                
                
                
                33,432
                
                
                
                30,559
                
                
                
                (1,336
                )
                
                
                64,633General
      taxes
                
                
                4,829
                
                
                
                10,768
                
                
                
                6,139
                
                
                
                -
                
                
                
                21,736Total
      expenses
                
                
                1,087,316
                
                
                
                469,894
                
                
                
                207,339
                
                
                
                (811,736
                )
                
                
                952,813-
                
                
                
                -
                
                
                
                -
                
                
                
                -OPERATING
      INCOME
                
                
                135,467
                
                
                
                104,500
                
                
                
                59,678
                
                
                
                (10,854
                )
                
                
                288,791OTHER
      INCOME (EXPENSE):Miscellaneous
      income (expense), includingnet income
      from equity investees
                
                
                102,777
                
                
                
                (515
                )
                
                
                13,287
                
                
                
                (97,122
                )
                
                
                18,427Interest
      expense - affiliates
                
                
                (120
                )
                
                
                (4,963
                )
                
                
                (2,932
                )
                
                
                -
                
                
                
                (8,015
                )Interest
      expense - other
                
                
                (8,464
                )
                
                
                (23,447
                )
                
                
                (17,183
                )
                
                
                16,325
                
                
                
                (32,769
                )Capitalized
      interest
                
                
                41
                
                
                
                11,376
                
                
                
                978
                
                
                
                -
                
                
                
                12,395Total other
      income (expense)
                
                
                94,234
                
                
                
                (17,549
                )
                
                
                (5,850
                )
                
                
                (80,797
                )
                
                
                (9,962
                )INCOME
      BEFORE INCOME TAXES
                
                
                229,701
                
                
                
                86,951
                
                
                
                53,828
                
                
                
                (91,651
                )
                
                
                278,829INCOME
      TAXES
                
                
                44,046
                
                
                
                31,863
                
                
                
                14,995
                
                
                
                2,270
                
                
                
                93,174NET
      INCOME
                
                $
                185,655
                
                
                $
                55,088
                
                
                $
                38,833
                
                
                $
                (93,921
                )
                
                $
                185,655
  52
   FIRSTENERGY
      SOLUTIONS CORP.CONSOLIDATING
      STATEMENTS OF INCOME(Unaudited)For
      the Three Months Ended September 30, 2007
                
                FES
                
                
                FGCO
                
                
                NGC
                
                
                Eliminations
                
                
                Consolidated(In
      thousands)REVENUES
                
                $
                1,180,449
                
                
                $
                496,204
                
                
                $
                280,072
                
                
                $
                (785,817
                )
                
                $
                1,170,908EXPENSES:Fuel
                
                
                10,944
                
                
                
                261,759
                
                
                
                29,083
                
                
                
                -
                
                
                
                301,786Purchased
      power from non-affiliates
                
                
                228,755
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                228,755Purchased
      power from affiliates
                
                
                774,873
                
                
                
                57,927
                
                
                
                15,525
                
                
                
                (785,817
                )
                
                
                62,508Other
      operating expenses
                
                
                41,828
                
                
                
                75,985
                
                
                
                117,220
                
                
                
                -
                
                
                
                235,033Provision for
      depreciation
                
                
                650
                
                
                
                24,669
                
                
                
                23,181
                
                
                
                -
                
                
                
                48,500General
      taxes
                
                
                5,406
                
                
                
                11,788
                
                
                
                5,048
                
                
                
                -
                
                
                
                22,242Total
      expenses
                
                
                1,062,456
                
                
                
                432,128
                
                
                
                190,057
                
                
                
                (785,817
                )
                
                
                898,824OPERATING
      INCOME
                
                
                117,993
                
                
                
                64,076
                
                
                
                90,015
                
                
                
                -
                
                
                
                272,084OTHER
      INCOME (EXPENSE):Miscellaneous
      income, includingnet income
      from equity investees
                
                
                82,870
                
                
                
                2,375
                
                
                
                3,935
                
                
                
                (76,525
                )
                
                
                12,655Interest
      expense - affiliates
                
                
                (676
                )
                
                
                (4,769
                )
                
                
                (4,196
                )
                
                
                -
                
                
                
                (9,641
                )Interest
      expense - other
                
                
                (808
                )
                
                
                (21,274
                )
                
                
                (9,712
                )
                
                
                -
                
                
                
                (31,794
                )Capitalized
      interest
                
                
                9
                
                
                
                3,889
                
                
                
                1,233
                
                
                
                -
                
                
                
                5,131Total other
      income (expense)
                
                
                81,395
                
                
                
                (19,779
                )
                
                
                (8,740
                )
                
                
                (76,525
                )
                
                
                (23,649
                )INCOME
      BEFORE INCOME TAXES
                
                
                199,388
                
                
                
                44,297
                
                
                
                81,275
                
                
                
                (76,525
                )
                
                
                248,435INCOME
      TAXES
                
                
                44,624
                
                
                
                19,850
                
                
                
                29,197
                
                
                
                -
                
                
                
                93,671NET
      INCOME
                
                $
                154,764
                
                
                $
                24,447
                
                
                $
                52,078
                
                
                $
                (76,525
                )
                
                $
                154,764
  53
   FIRSTENERGY
      SOLUTIONS CORP.CONSOLIDATING
      STATEMENTS OF INCOME(Unaudited)For
      the Nine Months Ended September 30, 2008
                
                FES
                
                
                FGCO
                
                
                NGC
                
                
                Eliminations
                
                
                Consolidated(In
      thousands)REVENUES
                
                $
                3,387,258
                
                
                $
                1,707,320
                
                
                $
                879,729
                
                
                $
                (2,562,309
                )
                
                $
                3,411,998EXPENSES:Fuel
                
                
                13,920
                
                
                
                876,077
                
                
                
                92,188
                
                
                
                -
                
                
                
                982,185Purchased
      power from non-affiliates
                
                
                648,556
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                648,556Purchased
      power from affiliates
                
                
                2,549,892
                
                
                
                12,417
                
                
                
                75,834
                
                
                
                (2,562,309
                )
                
                
                75,834Other
      operating expenses
                
                
                103,034
                
                
                
                342,041
                
                
                
                381,826
                
                
                
                36,567
                
                
                
                863,468Provision for
      depreciation
                
                
                3,885
                
                
                
                90,058
                
                
                
                80,646
                
                
                
                (4,054
                )
                
                
                170,535General
      taxes
                
                
                14,971
                
                
                
                33,842
                
                
                
                15,915
                
                
                
                -
                
                
                
                64,728Total
      expenses
                
                
                3,334,258
                
                
                
                1,354,435
                
                
                
                646,409
                
                
                
                (2,529,796
                )
                
                
                2,805,306OPERATING
      INCOME
                
                
                53,000
                
                
                
                352,885
                
                
                
                233,320
                
                
                
                (32,513
                )
                
                
                606,692OTHER
      INCOME (EXPENSE):Miscellaneous
      income (expense), includingnet income
      from equity investees
                
                
                323,092
                
                
                
                (1,234
                )
                
                
                (2,699
                )
                
                
                (305,710
                )
                
                
                13,449Interest
      expense - affiliates
                
                
                (252
                )
                
                
                (18,172
                )
                
                
                (7,529
                )
                
                
                -
                
                
                
                (25,953
                )Interest
      expense - other
                
                
                (19,105
                )
                
                
                (73,112
                )
                
                
                (38,833
                )
                
                
                49,241
                
                
                
                (81,809
                )Capitalized
      interest
                
                
                90
                
                
                
                27,460
                
                
                
                2,049
                
                
                
                -
                
                
                
                29,599Total other
      income (expense)
                
                
                303,825
                
                
                
                (65,058
                )
                
                
                (47,012
                )
                
                
                (256,469
                )
                
                
                (64,714
                )INCOME
      BEFORE INCOME TAXES
                
                
                356,825
                
                
                
                287,827
                
                
                
                186,308
                
                
                
                (288,982
                )
                
                
                541,978INCOME
      TAXES
                
                
                13,092
                
                
                
                109,615
                
                
                
                68,597
                
                
                
                6,941
                
                
                
                198,245NET
      INCOME
                
                $
                343,733
                
                
                $
                178,212
                
                
                $
                117,711
                
                
                $
                (295,923
                )
                
                $
                343,733
  54
    FIRSTENERGY
      SOLUTIONS CORP.CONSOLIDATING
      STATEMENTS OF INCOME(Unaudited)For
      the Nine Months Ended September 30, 2007
                
                FES
                
                
                FGCO
                
                
                NGC
                
                
                Eliminations
                
                
                Consolidated(In
      thousands)REVENUES
                
                $
                3,274,694
                
                
                $
                1,501,112
                
                
                $
                793,255
                
                
                $
                (2,311,129
                )
                
                $
                3,257,932EXPENSES:Fuel
                
                
                20,824
                
                
                
                698,643
                
                
                
                84,734
                
                
                
                -
                
                
                
                804,201Purchased
      power from non-affiliates
                
                
                577,831
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                577,831Purchased
      power from affiliates
                
                
                2,290,305
                
                
                
                176,654
                
                
                
                53,746
                
                
                
                (2,311,129
                )
                
                
                209,576Other
      operating expenses
                
                
                123,596
                
                
                
                240,774
                
                
                
                367,404
                
                
                
                -
                
                
                
                731,774Provision for
      depreciation
                
                
                1,572
                
                
                
                74,844
                
                
                
                68,614
                
                
                
                -
                
                
                
                145,030General
      taxes
                
                
                15,942
                
                
                
                31,406
                
                
                
                17,522
                
                
                
                -
                
                
                
                64,870Total
      expenses
                
                
                3,030,070
                
                
                
                1,222,321
                
                
                
                592,020
                
                
                
                (2,311,129
                )
                
                
                2,533,282OPERATING
      INCOME
                
                
                244,624
                
                
                
                278,791
                
                
                
                201,235
                
                
                
                -
                
                
                
                724,650OTHER
      INCOME (EXPENSE):Miscellaneous
      income, includingnet income
      from equity investees
                
                
                271,599
                
                
                
                2,669
                
                
                
                13,350
                
                
                
                (239,862
                )
                
                
                47,756Interest
      expense - affiliates
                
                
                (676
                )
                
                
                (47,090
                )
                
                
                (14,138
                )
                
                
                -
                
                
                
                (61,904
                )Interest
      expense - other
                
                
                (7,966
                )
                
                
                (34,150
                )
                
                
                (28,729
                )
                
                
                -
                
                
                
                (70,845
                )Capitalized
      interest
                
                
                20
                
                
                
                9,044
                
                
                
                3,699
                
                
                
                -
                
                
                
                12,763Total other
      income (expense)
                
                
                262,977
                
                
                
                (69,527
                )
                
                
                (25,818
                )
                
                
                (239,862
                )
                
                
                (72,230
                )INCOME
      BEFORE INCOME TAXES
                
                
                507,601
                
                
                
                209,264
                
                
                
                175,417
                
                
                
                (239,862
                )
                
                
                652,420INCOME
      TAXES
                
                
                98,917
                
                
                
                82,031
                
                
                
                62,788
                
                
                
                -
                
                
                
                243,736NET
      INCOME
                
                $
                408,684
                
                
                $
                127,233
                
                
                $
                112,629
                
                
                $
                (239,862
                )
                
                $
                408,684
  55
   FIRSTENERGY
      SOLUTIONS CORP.CONSOLIDATING
      BALANCE SHEETS(Unaudited)As
      of September 30, 2008
                
                FES
                
                
                FGCO
                
                
                NGC
                
                
                Eliminations
                
                
                Consolidated(In
      thousands)ASSETSCURRENT
      ASSETS:Cash and cash
      equivalents
                
                $
                2
                
                
                $
                -
                
                
                $
                -
                
                
                $
                -
                
                
                $
                2Receivables-Customers
                
                
                137,126
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                137,126Associated
      companies
                
                
                267,777
                
                
                
                195,005
                
                
                
                100,481
                
                
                
                (299,484
                )
                
                
                263,779Other
                
                
                910
                
                
                
                1,595
                
                
                
                20,419
                
                
                
                -
                
                
                
                22,924Notes
      receivable from associated companies
                
                
                118,526
                
                
                
                38,400
                
                
                
                -
                
                
                
                -
                
                
                
                156,926Materials and
      supplies, at average cost
                
                
                3,519
                
                
                
                288,623
                
                
                
                205,134
                
                
                
                -
                
                
                
                497,276Prepayments
      and other
                
                
                64,585
                
                
                
                84,138
                
                
                
                30,807
                
                
                
                -
                
                
                
                179,530592,445
                
                
                
                607,761
                
                
                
                356,841
                
                
                
                (299,484
                )
                
                
                1,257,563PROPERTY,
      PLANT AND EQUIPMENT:In
      service
                
                
                108,733
                
                
                
                5,413,310
                
                
                
                4,704,478
                
                
                
                (391,859
                )
                
                
                9,834,662Less -
      Accumulated provision for depreciation
                
                
                10,990
                
                
                
                2,712,638
                
                
                
                1,658,863
                
                
                
                (170,774
                )
                
                
                4,211,71797,743
                
                
                
                2,700,672
                
                
                
                3,045,615
                
                
                
                (221,085
                )
                
                
                5,622,945Construction
      work in progress
                
                
                2,827
                
                
                
                1,225,381
                
                
                
                157,444
                
                
                
                -
                
                
                
                1,385,652100,570
                
                
                
                3,926,053
                
                
                
                3,203,059
                
                
                
                (221,085
                )
                
                
                7,008,597OTHER
      PROPERTY AND INVESTMENTS:Nuclear plant
      decommissioning trusts
                
                
                -
                
                
                
                -
                
                
                
                1,145,384
                
                
                
                -
                
                
                
                1,145,384Long-term
      notes receivable from associated companies
                
                
                -
                
                
                
                -
                
                
                
                62,900
                
                
                
                -
                
                
                
                62,900Investment in
      associated companies
                
                
                3,581,979
                
                
                
                -
                
                
                
                -
                
                
                
                (3,581,979
                )
                
                
                -Other
                
                
                2,124
                
                
                
                38,247
                
                
                
                202
                
                
                
                -
                
                
                
                40,5733,584,103
                
                
                
                38,247
                
                
                
                1,208,486
                
                
                
                (3,581,979
                )
                
                
                1,248,857DEFERRED
      CHARGES AND OTHER ASSETS:Accumulated
      deferred income taxes
                
                
                9,655
                
                
                
                471,718
                
                
                
                -
                
                
                
                (251,032
                )
                
                
                230,341Lease
      assignment receivable from associated companies
                
                
                -
                
                
                
                71,356
                
                
                
                -
                
                
                
                -
                
                
                
                71,356Goodwill
                
                
                24,248
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                24,248Property
      taxes
                
                
                -
                
                
                
                25,007
                
                
                
                22,767
                
                
                
                -
                
                
                
                47,774Pension
      assets
                
                
                3,208
                
                
                
                11,556
                
                
                
                -
                
                
                
                -
                
                
                
                14,764Unamortized
      sale and leaseback costs
                
                
                -
                
                
                
                8,445
                
                
                
                -
                
                
                
                48,920
                
                
                
                57,365Other
                
                
                18,343
                
                
                
                59,511
                
                
                
                18,717
                
                
                
                (46,869
                )
                
                
                49,70255,454
                
                
                
                647,593
                
                
                
                41,484
                
                
                
                (248,981
                )
                
                
                495,550$
                4,332,572
                
                
                $
                5,219,654
                
                
                $
                4,809,870
                
                
                $
                (4,351,529
                )
                
                $
                10,010,567LIABILITIES
      AND CAPITALIZATIONCURRENT
      LIABILITIES:Currently
      payable long-term debt
                
                $
                4,679
                
                
                $
                873,562
                
                
                $
                1,077,289
                
                
                $
                (17,315
                )
                
                $
                1,938,215Short-term
      borrowings-Associated
      companies
                
                
                -
                
                
                
                147,108
                
                
                
                164,642
                
                
                
                -
                
                
                
                311,750Other
                
                
                1,000,000
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                1,000,000Accounts
      payable-Associated
      companies
                
                
                276,155
                
                
                
                202,678
                
                
                
                158,215
                
                
                
                (275,601
                )
                
                
                361,447Other
                
                
                36,724
                
                
                
                126,449
                
                
                
                -
                
                
                
                -
                
                
                
                163,173Accrued
      taxes
                
                
                4,109
                
                
                
                88,826
                
                
                
                17,661
                
                
                
                (29,877
                )
                
                
                80,719Other
                
                
                36,491
                
                
                
                116,637
                
                
                
                26,777
                
                
                
                38,009
                
                
                
                217,9141,358,158
                
                
                
                1,555,260
                
                
                
                1,444,584
                
                
                
                (284,784
                )
                
                
                4,073,218CAPITALIZATION:Common
      stockholder's equity
                
                
                2,916,934
                
                
                
                1,813,911
                
                
                
                1,755,054
                
                
                
                (3,568,965
                )
                
                
                2,916,934Long-term debt
      and other long-term obligations
                
                
                40,333
                
                
                
                1,364,207
                
                
                
                451,365
                
                
                
                (1,296,982
                )
                
                
                558,9232,957,267
                
                
                
                3,178,118
                
                
                
                2,206,419
                
                
                
                (4,865,947
                )
                
                
                3,475,857NONCURRENT
      LIABILITIES:Deferred gain
      on sale and leaseback transaction
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                1,035,013
                
                
                
                1,035,013Accumulated
      deferred income taxes
                
                
                -
                
                
                
                -
                
                
                
                235,811
                
                
                
                (235,811
                )
                
                
                -Accumulated
      deferred investment tax credits
                
                
                -
                
                
                
                40,209
                
                
                
                23,759
                
                
                
                -
                
                
                
                63,968Asset
      retirement obligations
                
                
                -
                
                
                
                24,148
                
                
                
                825,327
                
                
                
                -
                
                
                
                849,475Retirement
      benefits
                
                
                9,745
                
                
                
                57,822
                
                
                
                -
                
                
                
                -
                
                
                
                67,567Property
      taxes
                
                
                -
                
                
                
                25,328
                
                
                
                22,767
                
                
                
                -
                
                
                
                48,095Lease market
      valuation liability
                
                
                -
                
                
                
                319,129
                
                
                
                -
                
                
                
                -
                
                
                
                319,129Other
                
                
                7,402
                
                
                
                19,640
                
                
                
                51,203
                
                
                
                -
                
                
                
                78,24517,147
                
                
                
                486,276
                
                
                
                1,158,867
                
                
                
                799,202
                
                
                
                2,461,492$
                4,332,572
                
                
                $
                5,219,654
                
                
                $
                4,809,870
                
                
                $
                (4,351,529
                )
                
                $
                10,010,567
  56
  
 FIRSTENERGY
      SOLUTIONS CORP.CONSOLIDATING
      BALANCE SHEETS(Unaudited)As
      of December 31, 2007
                  
                  FES
                  
                  
                  FGCO
                  
                  
                  NGC
                  
                  
                  Eliminations
                  
                  
                  Consolidated(In
      thousands)ASSETSCURRENT
      ASSETS:Cash and cash
      equivalents
                  
                  $
                  2
                  
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  2Receivables-Customers
                  
                  
                  133,846
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  133,846Associated
      companies
                  
                  
                  327,715
                  
                  
                  
                  237,202
                  
                  
                  
                  98,238
                  
                  
                  
                  (286,656
                  )
                  
                  
                  376,499Other
                  
                  
                  2,845
                  
                  
                  
                  978
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  3,823Notes
      receivable from associated companies
                  
                  
                  23,772
                  
                  
                  
                  -
                  
                  
                  
                  69,012
                  
                  
                  
                  -
                  
                  
                  
                  92,784Materials and
      supplies, at average cost
                  
                  
                  195
                  
                  
                  
                  215,986
                  
                  
                  
                  210,834
                  
                  
                  
                  -
                  
                  
                  
                  427,015Prepayments
      and other
                  
                  
                  67,981
                  
                  
                  
                  21,605
                  
                  
                  
                  2,754
                  
                  
                  
                  -
                  
                  
                  
                  92,340556,356
                  
                  
                  
                  475,771
                  
                  
                  
                  380,838
                  
                  
                  
                  (286,656
                  )
                  
                  
                  1,126,309PROPERTY,
      PLANT AND EQUIPMENT:In
      service
                  
                  
                  25,513
                  
                  
                  
                  5,065,373
                  
                  
                  
                  3,595,964
                  
                  
                  
                  (392,082
                  )
                  
                  
                  8,294,768Less -
      Accumulated provision for depreciation
                  
                  
                  7,503
                  
                  
                  
                  2,553,554
                  
                  
                  
                  1,497,712
                  
                  
                  
                  (166,756
                  )
                  
                  
                  3,892,01318,010
                  
                  
                  
                  2,511,819
                  
                  
                  
                  2,098,252
                  
                  
                  
                  (225,326
                  )
                  
                  
                  4,402,755Construction
      work in progress
                  
                  
                  1,176
                  
                  
                  
                  571,672
                  
                  
                  
                  188,853
                  
                  
                  
                  -
                  
                  
                  
                  761,70119,186
                  
                  
                  
                  3,083,491
                  
                  
                  
                  2,287,105
                  
                  
                  
                  (225,326
                  )
                  
                  
                  5,164,456OTHER
      PROPERTY AND INVESTMENTS:Nuclear plant
      decommissioning trusts
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  1,332,913
                  
                  
                  
                  -
                  
                  
                  
                  1,332,913Long-term
      notes receivable from associated companies
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  62,900
                  
                  
                  
                  -
                  
                  
                  
                  62,900Investment in
      associated companies
                  
                  
                  2,516,838
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (2,516,838
                  )
                  
                  
                  -Other
                  
                  
                  2,732
                  
                  
                  
                  37,071
                  
                  
                  
                  201
                  
                  
                  
                  -
                  
                  
                  
                  40,0042,519,570
                  
                  
                  
                  37,071
                  
                  
                  
                  1,396,014
                  
                  
                  
                  (2,516,838
                  )
                  
                  
                  1,435,817DEFERRED
      CHARGES AND OTHER ASSETS:Accumulated
      deferred income taxes
                  
                  
                  16,978
                  
                  
                  
                  522,216
                  
                  
                  
                  -
                  
                  
                  
                  (262,271
                  )
                  
                  
                  276,923Lease
      assignment receivable from associated companies
                  
                  
                  -
                  
                  
                  
                  215,258
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  215,258Goodwill
                  
                  
                  24,248
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  24,248Property
      taxes
                  
                  
                  -
                  
                  
                  
                  25,007
                  
                  
                  
                  22,767
                  
                  
                  
                  -
                  
                  
                  
                  47,774Pension
      asset
                  
                  
                  3,217
                  
                  
                  
                  13,506
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  16,723Unamortized
      sale and leaseback costs
                  
                  
                  -
                  
                  
                  
                  27,597
                  
                  
                  
                  -
                  
                  
                  
                  43,206
                  
                  
                  
                  70,803Other
                  
                  
                  22,956
                  
                  
                  
                  52,971
                  
                  
                  
                  6,159
                  
                  
                  
                  (38,133
                  )
                  
                  
                  43,95367,399
                  
                  
                  
                  856,555
                  
                  
                  
                  28,926
                  
                  
                  
                  (257,198
                  )
                  
                  
                  695,682$
                  3,162,511
                  
                  
                  $
                  4,452,888
                  
                  
                  $
                  4,092,883
                  
                  
                  $
                  (3,286,018
                  )
                  
                  $
                  8,422,264LIABILITIES
      AND CAPITALIZATIONCURRENT
      LIABILITIES:Currently
      payable long-term debt
                  
                  $
                  -
                  
                  
                  $
                  596,827
                  
                  
                  $
                  861,265
                  
                  
                  $
                  (16,896
                  )
                  
                  $
                  1,441,196Short-term
      borrowings-Associated
      companies
                  
                  
                  -
                  
                  
                  
                  238,786
                  
                  
                  
                  25,278
                  
                  
                  
                  -
                  
                  
                  
                  264,064Other
                  
                  
                  300,000
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  300,000Accounts
      payable-Associated
      companies
                  
                  
                  287,029
                  
                  
                  
                  175,965
                  
                  
                  
                  268,926
                  
                  
                  
                  (286,656
                  )
                  
                  
                  445,264Other
                  
                  
                  56,194
                  
                  
                  
                  120,927
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  177,121Accrued
      taxes
                  
                  
                  18,831
                  
                  
                  
                  125,227
                  
                  
                  
                  28,229
                  
                  
                  
                  (836
                  )
                  
                  
                  171,451Other
                  
                  
                  57,705
                  
                  
                  
                  131,404
                  
                  
                  
                  11,972
                  
                  
                  
                  36,725
                  
                  
                  
                  237,806719,759
                  
                  
                  
                  1,389,136
                  
                  
                  
                  1,195,670
                  
                  
                  
                  (267,663
                  )
                  
                  
                  3,036,902CAPITALIZATION:Common
      stockholder's equity
                  
                  
                  2,414,231
                  
                  
                  
                  951,542
                  
                  
                  
                  1,562,069
                  
                  
                  
                  (2,513,611
                  )
                  
                  
                  2,414,231Long-term debt
      and other long-term obligations
                  
                  
                  -
                  
                  
                  
                  1,597,028
                  
                  
                  
                  242,400
                  
                  
                  
                  (1,305,716
                  )
                  
                  
                  533,7122,414,231
                  
                  
                  
                  2,548,570
                  
                  
                  
                  1,804,469
                  
                  
                  
                  (3,819,327
                  )
                  
                  
                  2,947,943NONCURRENT
      LIABILITIES:Deferred gain
      on sale and leaseback transaction
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  1,060,119
                  
                  
                  
                  1,060,119Accumulated
      deferred income taxes
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  259,147
                  
                  
                  
                  (259,147
                  )
                  
                  
                  -Accumulated
      deferred investment tax credits
                  
                  
                  -
                  
                  
                  
                  36,054
                  
                  
                  
                  25,062
                  
                  
                  
                  -
                  
                  
                  
                  61,116Asset
      retirement obligations
                  
                  
                  -
                  
                  
                  
                  24,346
                  
                  
                  
                  785,768
                  
                  
                  
                  -
                  
                  
                  
                  810,114Retirement
      benefits
                  
                  
                  8,721
                  
                  
                  
                  54,415
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  63,136Property
      taxes
                  
                  
                  -
                  
                  
                  
                  25,328
                  
                  
                  
                  22,767
                  
                  
                  
                  -
                  
                  
                  
                  48,095Lease market
      valuation liability
                  
                  
                  -
                  
                  
                  
                  353,210
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  353,210Other
                  
                  
                  19,800
                  
                  
                  
                  21,829
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  41,62928,521
                  
                  
                  
                  515,182
                  
                  
                  
                  1,092,744
                  
                  
                  
                  800,972
                  
                  
                  
                  2,437,419$
                  3,162,511
                  
                  
                  $
                  4,452,888
                  
                  
                  $
                  4,092,883
                  
                  
                  $
                  (3,286,018
                  )
                  
                  $
                  8,422,264
  57
   FIRSTENERGY
      SOLUTIONS CORP.CONDENSED
      CONSOLIDATING STATEMENTS OF CASH FLOWS(Unaudited)For
      the Nine Months Ended September 30, 2008
                  
                  FES
                  
                  
                  FGCO
                  
                  
                  NGC
                  
                  
                  Eliminations
                  
                  
                  Consolidated(In
      thousands)NET
      CASH PROVIDED FROM OPERATING ACTIVITIES:
                  
                  $
                  47,463
                  
                  
                  $
                  267,933
                  
                  
                  $
                  247,054
                  
                  
                  $
                  (8,317
                  )
                  
                  $
                  554,133CASH
      FLOWS FROM FINANCING ACTIVITIES:New
      Financing-Long-term
      debt
                  
                  
                  -
                  
                  
                  
                  328,325
                  
                  
                  
                  209,050
                  
                  
                  
                  -
                  
                  
                  
                  537,375Equity
      contribution from parent
                  
                  
                  280,000
                  
                  
                  
                  675,000
                  
                  
                  
                  175,000
                  
                  
                  
                  (850,000
                  )
                  
                  
                  280,000Short-term
      borrowings, net
                  
                  
                  700,000
                  
                  
                  
                  -
                  
                  
                  
                  139,363
                  
                  
                  
                  (91,677
                  )
                  
                  
                  747,686Redemptions
      and Repayments-Long-term
      debt
                  
                  
                  (1,777
                  )
                  
                  
                  (286,776
                  )
                  
                  
                  (180,666
                  )
                  
                  
                  8,317
                  
                  
                  
                  (460,902
                  )Short-term
      borrowings, net
                  
                  
                  -
                  
                  
                  
                  (91,677
                  )
                  
                  
                  -
                  
                  
                  
                  91,677
                  
                  
                  
                  -Common stock
      dividend payment
                  
                  
                  (43,000
                  )
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (43,000
                  )Net cash
      provided from financing activities
                  
                  
                  935,223
                  
                  
                  
                  624,872
                  
                  
                  
                  342,747
                  
                  
                  
                  (841,683
                  )
                  
                  
                  1,061,159CASH
      FLOWS FROM INVESTING ACTIVITIES:Property
      additions
                  
                  
                  (38,481
                  )
                  
                  
                  (778,329
                  )
                  
                  
                  (600,395
                  )
                  
                  
                  -
                  
                  
                  
                  (1,417,205
                  )Proceeds from
      asset sales
                  
                  
                  -
                  
                  
                  
                  15,218
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  15,218Sales of
      investment securities held in trusts
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  596,291
                  
                  
                  
                  -
                  
                  
                  
                  596,291Purchases of
      investment securities held in trusts
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (624,899
                  )
                  
                  
                  -
                  
                  
                  
                  (624,899
                  )Loan
      repayments from (loans to) associated companies, net
                  
                  
                  (94,755
                  )
                  
                  
                  (38,399
                  )
                  
                  
                  69,012
                  
                  
                  
                  -
                  
                  
                  
                  (64,142
                  )Investment in
      subsidiary
                  
                  
                  (850,000
                  )
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  850,000
                  
                  
                  
                  -Restricted
      funds for debt redemption
                  
                  
                  -
                  
                  
                  
                  (52,090
                  )
                  
                  
                  (29,550
                  )
                  
                  
                  -
                  
                  
                  
                  (81,640
                  )Other
                  
                  
                  550
                  
                  
                  
                  (39,205
                  )
                  
                  
                  (260
                  )
                  
                  
                  -
                  
                  
                  
                  (38,915
                  )Net cash used
      for investing activities
                  
                  
                  (982,686
                  )
                  
                  
                  (892,805
                  )
                  
                  
                  (589,801
                  )
                  
                  
                  850,000
                  
                  
                  
                  (1,615,292
                  )Net change in
      cash and cash equivalents
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Cash and cash
      equivalents at beginning of period
                  
                  
                  2
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  2Cash and cash
      equivalents at end of period
                  
                  $
                  2
                  
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  2
  58
   FIRSTENERGY
      SOLUTIONS CORP.CONDENSED
      CONSOLIDATING STATEMENTS OF CASH FLOWS(Unaudited)For
      the Nine Months Ended September 30, 2007
                  
                  FES
                  
                  
                  FGCO
                  
                  
                  NGC
                  
                  
                  Eliminations
                  
                  
                  Consolidated(In
      thousands)NET
      CASH PROVIDED FROM (USED FOR)OPERATING
      ACTIVITIES
                  
                  $
                  (7,937
                  )
                  
                  $
                  350,927
                  
                  
                  $
                  179,037
                  
                  
                  $
                  -
                  
                  
                  $
                  522,027CASH
      FLOWS FROM FINANCING ACTIVITIES:New
      Financing-Long-term
      debt
                  
                  
                  -
                  
                  
                  
                  1,328,919
                  
                  
                  
                  -
                  
                  
                  
                  (1,328,919
                  )
                  
                  
                  -Equity
      contribution from parent
                  
                  
                  700,000
                  
                  
                  
                  700,000
                  
                  
                  
                  -
                  
                  
                  
                  (700,000
                  )
                  
                  
                  700,000Short-term
      borrowings, net
                  
                  
                  223,942
                  
                  
                  
                  -
                  
                  
                  
                  13,128
                  
                  
                  
                  (237,070
                  )
                  
                  
                  -Redemptions
      and Repayments-Common
      stock
                  
                  
                  (600,000
                  )
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (600,000
                  )Long-term
      debt
                  
                  
                  -
                  
                  
                  
                  (795,019
                  )
                  
                  
                  (315,155
                  )
                  
                  
                  -
                  
                  
                  
                  (1,110,174
                  )Short-term
      borrowings, net
                  
                  
                  -
                  
                  
                  
                  (1,022,197
                  )
                  
                  
                  -
                  
                  
                  
                  237,070
                  
                  
                  
                  (785,127
                  )Common stock
      dividend payment
                  
                  
                  (67,000
                  )
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (67,000
                  )Net cash
      provided from (used for) financing activities
                  
                  
                  256,942
                  
                  
                  
                  211,703
                  
                  
                  
                  (302,027
                  )
                  
                  
                  (2,028,919
                  )
                  
                  
                  (1,862,301
                  )CASH
      FLOWS FROM INVESTING ACTIVITIES:Property
      additions
                  
                  
                  (10,119
                  )
                  
                  
                  (332,499
                  )
                  
                  
                  (140,289
                  )
                  
                  
                  -
                  
                  
                  
                  (482,907
                  )Proceeds from
      asset sales
                  
                  
                  -
                  
                  
                  
                  12,990
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  12,990Proceeds from
      sale and leaseback transaction
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  1,328,919
                  
                  
                  
                  1,328,919Sales of
      investment securities held in trusts
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  521,535
                  
                  
                  
                  -
                  
                  
                  
                  521,535Purchases of
      investment securities held in trusts
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (552,779
                  )
                  
                  
                  -
                  
                  
                  
                  (552,779
                  )Loan
      repayments from (loans to) associated companies, net
                  
                  
                  460,023
                  
                  
                  
                  (242,612
                  )
                  
                  
                  292,896
                  
                  
                  
                  -
                  
                  
                  
                  510,307Investment in
      subsidiary
                  
                  
                  (700,000
                  )
                  
                  
                  -
                  
                  
                  
                  
                  
                  
                  
                  700,000
                  
                  
                  
                  -Other
                  
                  
                  1,091
                  
                  
                  
                  (509
                  )
                  
                  
                  1,627
                  
                  
                  
                  -
                  
                  
                  
                  2,209Net cash
      provided from (used for) investing activities
                  
                  
                  (249,005
                  )
                  
                  
                  (562,630
                  )
                  
                  
                  122,990
                  
                  
                  
                  2,028,919
                  
                  
                  
                  1,340,274Net change in
      cash and cash equivalents
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Cash and cash
      equivalents at beginning of period
                  
                  
                  2
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  2Cash and cash
      equivalents at end of period
                  
                  $
                  2
                  
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  2
 
 59




ITEM
4T. CONTROLS AND PROCEDURES – OE, CEI, TE AND PENELEC (Restated)
 
 (a)           EVALUATION
OF DISCLOSURE CONTROLS AND PROCEDURES
 
 In the original Form
10-Q for the third quarter of 2008, each registrant’s chief executive officer
and chief financial officer concluded that, as of the end of the period covered
by that report, the applicable registrant's disclosure controls and procedures
were effective as of September 30, 2008. Subsequent to the restatement of the
respective registrants’ Consolidated Statements of Cash Flows discussed in the
revised Note 1 to the Combined Notes to Consolidated Financial Statements
included in the Form 10-Q/A, each registrant's chief executive officer and chief
financial officer performed an updated review and evaluated such registrant's
disclosure controls and procedures. Based upon that updated evaluation and as a
result of the material weakness in the internal controls over the preparation
and review of the Consolidated Statement of Cash Flows discussed below, those
officers concluded that, as of the end of the period covered by this report, the
applicable registrant's disclosure controls and procedures were ineffective as
of September 30, 2008.
 
 The term disclosure
controls and procedures means controls and other procedures of a registrant that
are designed to ensure that information required to be disclosed by the
registrant in the reports that it files or submits under the Securities Exchange
Act of 1934 (15 U.S.C. 78a et seq.) is recorded, processed, summarized and
reported, within the time periods specified in the Securities and Exchange
Commission's rules and forms. Disclosure controls and procedures include,
without limitation, controls and procedures designed to ensure that information
required to be disclosed by an issuer in the reports that it files or submits
under that Act is accumulated and communicated to the registrant's management,
including its principal executive and principal financial officers, or persons
performing similar functions, as appropriate to allow timely decisions regarding
required disclosure.
 
 As reported in this
Form 10-Q/A, each registrant has amended its original Form 10-Q for the third
quarter of 2008 to restate its Consolidated Statements of Cash Flows for the
nine months ended September 30, 2008, to correct common stock dividend payments
reported in cash flows from financing activities. The Consolidated Statements of
Cash Flows for each registrant, as originally filed, erroneously reflected the
dividends declared in the third quarter of 2008 and the third quarter of 2007
applicable to future quarters' payments as dividends paid in the quarter that
they were declared. The corrections resulted in a corresponding change in
operating liabilities - accounts payable, included in cash flows from operating
activities.
 
 A material weakness
is a deficiency, or a combination of deficiencies in internal control over
financial reporting, such that there is a reasonable possibility that a material
misstatement of the company's annual or interim financial statements will not be
prevented or detected on a timely basis.
  The restatement
described above resulted from a material weakness in the internal controls over
one aspect of the preparation and review of the Consolidated Statements of Cash
Flows. Specifically, the registrants did not have a control that was designed to
ensure that declared but unpaid dividends to the registrants’ parent were not
reported as cash used for financing activities. This control deficiency resulted
in a material misstatement of the registrants’ interim and annual consolidated
financial statements. Accordingly, management determined that this control
deficiency constitutes a material weakness. The registrants modified their
internal controls over the preparation and review of their Consolidated
Statements of Cash Flows during the fourth quarter of 2008. Management has
implemented a process to segregate dividend declarations with payments
applicable to future reporting periods in a unique general ledger account in
order to distinguish associated company dividends payable from other associated
company accounts payable. Management believes that this process enhances the
existing internal controls over financial reporting and remediated the material
weakness discussed above for each of the registrants.
 
 (b)           CHANGES
IN INTERNAL CONTROLS
 
 During the quarter
ended September 30, 2008, there were no changes in the registrants' internal
control over financial reporting that have materially affected, or are
reasonably likely to materially affect, the registrants' internal control over
financial reporting.


60








PART II. OTHER
INFORMATION








ITEM
6.                 EXHIBITS





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







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





61





SIGNATURES











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








November 25,
2008

















OHIO EDISON
      COMPANYRegistrantTHE
      CLEVELAND ELECTRICILLUMINATING
      COMPANYRegistrantTHE TOLEDO EDISON
      COMPANYRegistrantPENNSYLVANIA ELECTRIC
      COMPANYRegistrant











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








62