<TABLE>
                                        PENNSYLVANIA POWER COMPANY

                                          SELECTED FINANCIAL DATA
<CAPTION>
                                                   1998       1997        1996         1995      1994  
                                                 --------   ---------   ---------   ---------  ---------
                                                                (Dollars in thousands)
<S>                                              <C>       <C>         <C>         <C>         <C>
Operating Revenues                               $323,756  $  323,381  $  322,625  $  314,642  $  301,965
                                                 ========  ==========  ==========  ==========  ==========
Operating Income                                 $ 58,041  $   50,736  $   62,329  $   67,317  $   63,668
                                                 ========  ==========  ==========  ==========  ==========
Income Before Extraordinary Item                 $ 39,748  $   31,472  $   40,587  $   38,930  $   31,260
                                                 ========  ==========  ==========  ==========  ==========
Net Income                                       $  9,226  $   31,472  $   40,587  $   38,930  $   31,260
                                                 ========  ==========  ==========  ==========  ==========
Earnings on Common Stock                         $  4,600  $   26,846  $   35,961  $   34,155  $   25,896
                                                 ========  ==========  ==========  ==========  ==========
Return on Average Common Equity                       1.6%        9.3%       12.8%       12.9%       10.0%
                                                      ===         ===        ====        ====        ====
Cash Dividends on Common Stock                   $ 21,386  $   21,386  $   21,386  $   21,386  $   21,386
                                                 ========  ==========  ==========  ==========  ==========
Total Assets                                     $977,772  $1,034,457  $1,074,578  $1,151,990  $1,197,302
                                                 ========  ==========  ==========  ==========  ==========
CAPITALIZATION:
Common Stockholder's Equity                      $275,281  $  291,977  $  286,504  $  271,920  $  258,973
Preferred Stock-
  Not Subject to Mandatory Redemption              50,905      50,905      50,905      50,905      50,905
  Subject to Mandatory Redemption                  15,000      15,000      15,000      15,000      15,000
Long-Term Debt                                    287,689     289,305     310,996     338,670     424,457
                                                 --------  ----------  ----------  ----------  ----------
Total Capitalization                             $628,875  $  647,187  $  663,405  $  676,495  $  749,335
                                                 ========  ==========  ==========  ==========  ==========
CAPITALIZATION RATIOS:
Common Stockholder's Equity                          43.8%       45.1%       43.2%       40.2%       34.6%
Preferred Stock-
  Not Subject to Mandatory Redemption                 8.1         7.9         7.7         7.5         6.8
  Subject to Mandatory Redemption                     2.4         2.3         2.2         2.2         2.0
Long-Term Debt                                       45.7        44.7        46.9        50.1        56.6
                                                    -----       -----       -----       -----       -----
Total Capitalization                                100.0%      100.0%      100.0%      100.0%      100.0%
                                                    =====       =====       =====       =====       =====
KILOWATT-HOUR SALES (Millions):
Residential                                         1,278       1,238       1,254       1,195       1,178
Commercial                                          1,090       1,013         996         938         891
Industrial                                          1,436       1,659       1,693       1,558       1,293
Other                                                   6           6           6           6           6
                                                    -----       -----       -----       -----       -----
Total Retail                                        3,810       3,916       3,949       3,697       3,368
Total Wholesale                                       964         901       1,106       1,080       1,076
                                                    -----       -----       -----       -----       -----
Total                                               4,774       4,817       5,055       4,777       4,444
                                                    =====       =====       =====       =====       =====
CUSTOMERS SERVED:
Residential                                       129,452     129,316     127,936     126,480     124,951
Commercial                                         17,296      16,738      16,531      16,317      15,966
Industrial                                            250         241         225         223         219
Other                                                 107          97          99          97          98
                                                 --------  ----------  ----------  ----------  ----------
Total                                             147,105     146,392     144,791     143,117     141,234
                                                 ========  ==========  ==========  ==========  ==========
Average Annual Residential kWh Usage                9,913       9,634       9,866       9,505       9,501
Cost of Fuel per Million Btu                        $1.15       $1.10       $1.09       $1.12       $1.20
Peak Load - Megawatts                                 918         836         792         836         710
Generating Capability:
Coal                                                 72.1%       72.1%       72.1%       72.1%       72.1%
Oil                                                   3.0         3.0         3.0         3.0         3.0
Nuclear                                              24.9        24.9        24.9        24.9        24.9
                                                    -----       -----       -----       -----       -----
Total                                               100.0%      100.0%      100.0%      100.0%      100.0%
                                                    =====       =====       =====       =====       =====
SOURCES OF ELECTRIC GENERATION:
Coal                                                 76.9%       73.8%       67.6%       65.6%       69.6%
Nuclear                                              23.1        26.2        32.4        34.4        30.4
                                                    -----       -----       -----       -----       -----
Total                                               100.0%      100.0%      100.0%      100.0%      100.0%
                                                    =====       =====       =====       =====       =====
NUMBER OF EMPLOYEES                                   888         997       1,015       1,220       1,255
                                                      ===         ===       =====       =====       =====

</TABLE>
<PAGE>

                     PENNSYLVANIA POWER COMPANY

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


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

Results of Operations

          We continued to take steps in 1998 to better position our 
Company as competition continues to expand in the electric utility 
industry. Investments were made in new information systems with 
enhanced functionality which also address Year 2000 application 
deficiencies. We also contributed to 1998 cash savings of FirstEnergy 
Corp. (FirstEnergy) totaling $173 million which were captured from 
initiatives implemented during the year in connection with the November 
1997 merger of our parent company, Ohio Edison Company and Centerior 
Energy Corporation to form FirstEnergy.

          Earnings on common stock of $4.6 million in 1998 declined 
from $26.8 million in 1997. Results for 1998 were adversely affected by 
a one-time, extraordinary charge of $30.5 million after taxes, related 
to our discontinued application of Statement of Financial Accounting 
Standards No. 71 (SFAS 71), "Accounting for the Effects of Certain 
Types of Regulation," to our generation business, as discussed later in 
this report. Additionally, sharp increases in the spot market price for 
electricity occasioned by a constrained power supply and heavy customer 
demand in the latter part of June 1998, combined with an unscheduled 
generating unit outage, resulted in spot market purchases of power at 
prices which substantially exceeded amounts recovered from retail 
customers. Earnings on common stock in 1997 were adversely affected by 
nonrecurring charges resulting from merger-related staffing reductions, 
charges for uncollectible customer accounts and an increase in 
accelerated depreciation and amortization of nuclear and regulatory 
assets under our rate plan.

          Operating revenues were slightly higher in 1998 compared to 
the prior year. This was the third consecutive year of record operating 
revenues. The following table summarizes the sources of increases in 
operating revenues for 1998 and 1997 as compared to the previous year:


<TABLE>
<CAPTION>
                                         1998          1997
                                         ----          ----
                                           (In millions)
<S>                                      <C>          <C>
Decrease in retail kilowatt-hour sales   $(7.6)       $(1.7)
Change in average retail price            (1.1)         3.7
Wholesale sales                            1.3         (3.2)
Other                                      7.8          2.0
-----------------------------------------------------------
Net Increase                             $ 0.4        $ 0.8
==========================================================

</TABLE>


          Our retail customer base continued to grow with over 700 new 
customers added in 1998, after gaining approximately 1,600 customers 
the previous year. Although residential and commercial kilowatt-hour 
sales increased 3.3% and 7.5%, respectively from 1997, the increases 
were more than offset by a 13.4% decrease in industrial sales. Closure 
of an electric arc furnace at Caparo Steel Company (Caparo) in August 
1997 and a general decline in electricity demand by steel manufacturers 
due to intense foreign competition contributed to lower industrial 
kilowatt-hour sales. Excluding sales to Caparo, industrial sales 
declined 1.7% from 1997. Despite a 7.1% increase in kilowatt-hour sales 
to wholesale customers, total kilowatt-hour sales decreased slightly 
from 1997 due to the lower industrial sales. Without the closure of the 
Caparo facility, total sales would have increased 3.4% from the 
previous year. In 1997, residential and industrial kilowatt-hour sales 
decreased 1.3% and 2.0%, respectively, compared to 1996. Kilowatt-hour 
sales to commercial customers increased 1.8% from the prior year. 
Expiration of a one-year contract with another utility to supply 33 
megawatts of power contributed to a 18.6% decline in 1997 kilowatt-hour 
sales to wholesale customers from the previous year and contributed to 
a 4.7% decrease in total 1997 kilowatt-hour sales from 1996.

          Total operation and maintenance expenses in 1998 decreased 
from the prior year with higher fuel and purchased power costs more 
than offset by lower nuclear operating costs and other operating costs. 
Most of the increase in fuel and purchased power occurred in the second 
quarter and resulted from a combination of factors. In late June 1998, 
the midwestern and southern regions of the United States experienced 
electricity shortages caused mainly by record temperatures and humidity 
and unscheduled generating unit outages. Due in part to an unscheduled 
outage at Beaver Valley Unit 1 at that time, our production 
capabilities were reduced to the point that we purchased significant 
amounts of power, at unusually high spot market prices, causing the 
increase in purchased power costs. Because of the decrease in kilowatt-
hour sales in 1997, we spent less on fuel and purchased power during 
1997, compared to 1996. Nuclear operating costs were lower in 1998, 
compared to 1997, due primarily to lower refueling outage cost levels. 
Increased operating costs at Beaver Valley Unit 1 resulted in higher 
nuclear operating costs in 1997 compared to the previous year. Two 
items in 1997, a $3 million charge for uncollectible customer accounts 
and a fourth quarter charge of approximately $5.4 million for a 
voluntary retirement program, contributed to the increase in other 
operating costs in 1997 from the previous year and to the subsequent 
reduction in other operating costs in 1998. In addition, continuing 
improvements in operating efficiency, evidenced by a reduction in the 
number of our employees over the last five years, contributed to the 
reduction in other operating costs in 1998.

          Depreciation and amortization decreased in 1998 compared to 
the prior year due primarily to the effect of our rate restructuring 
plan. The Pennsylvania Public Utility Commission's (PPUC) authorization 
of our rate restructuring plan in the second quarter led to 
discontinued application of certain regulatory accounting procedures 
(i.e. SFAS 71) to our generation business, resulting in a write down of 
our nuclear generating unit investment and the recognition of a portion 
of such investment, recoverable through future customer rates, as a 
regulatory asset. The decrease in nuclear depreciation resulting from 
the write down was the primary cause of the total decrease. In 1997, 
the increase in the provision for depreciation and amortization of net 
regulatory assets from the previous year reflected accelerated 
depreciation and amortization of nuclear and regulatory assets under 
our rate plan. The decrease in general taxes in 1997 was due 
principally to an adjustment, which reduced our liability for gross 
receipts taxes.

          The downward trend of net interest charges continued in 1998. 
Interest on long-term debt decreased in both 1998 and 1997 from the 
previous year due to our economic refinancings and redemption of 
higher-cost debt totaling approximately $6.1 million in 1998 and $39.4 
million in 1997.

Capital Resources and Liquidity

          We have significantly improved our financial position over 
the past five years as evidenced by our enhanced fixed charge coverage 
ratios and percentage of common stockholder's equity to total 
capitalization. Our SEC ratio of earnings to fixed charges improved to 
4.14 at the end of 1998 from 2.16 at the end of 1993. Our indenture 
ratio, which is used to determine our ability to issue first mortgage 
bonds, increased from 2.99 at the end of 1993 to 4.92 at the end of 
1998. Over the same period, the charter ratio, a measure of our ability 
to issue preferred stock, improved from 1.61 to 2.33 and our common 
stockholder's equity percentage of capitalization rose from 
approximately 33% at the end of 1993 to almost 44% at the end of 1998. 
Our improving financial position reflects ongoing efforts to increase 
competitiveness. We continue to streamline our operations, as evidenced 
by a 50% increase in FirstEnergy's customer/employee ratio, which has 
increased from 165 at the end of 1993 to 247 as of December 31, 1998. 
Merger-related savings through consolidation of activities have 
contributed to these results. Also, net debt redemptions and 
refinancings have lowered our average cost of long-term debt over the 
last five years from 8.36% in 1993 to 7.70% at the end of 1998. 

          All cash requirements for the year, including debt 
repayments, were met with internally generated funds. Our cash 
requirements for 1999 for operating expenses, construction expenditures 
and scheduled debt maturities are expected to be met without issuing 
additional securities. Cash requirements of approximately $69 million 
for the 1999-2003 period to meet scheduled maturities of long-term debt 
and preferred stock are also expected to be funded internally.

          We had about $57.5 million of cash and temporary investments 
and no short-term indebtedness as of December 31, 1998. We also had a 
$2 million bank facility that provides for borrowings on a short-term 
basis at the bank's discretion.

          During 1998, our capital spending (excluding nuclear fuel) 
totaled approximately $16 million. Our capital spending for the period 
1999-2003 is expected to be about $167 million (excluding nuclear 
fuel), of which approximately $28 million applies to 1999. Investments 
for additional nuclear fuel during the 1999-2003 period are estimated 
to be approximately $28 million, of which about $3 million applies to 
1999. During the same periods, our nuclear fuel investments are 
expected to be reduced by approximately $29 million and $6 million, 
respectively, as the nuclear fuel is consumed.

          FirstEnergy signed an agreement in principle with Duquesne 
Light Company (Duquesne) that would result in the transfer of 1,436 
megawatts owned by Duquesne at five generating plants in exchange for 
1,328 megawatts at three plants owned by FirstEnergy's electric utility 
operating companies (see "Common Ownership of Generating Facilities" in 
Note 1). A final agreement on the exchange of assets, which will be 
structured as a tax-free transaction to the extent possible is being 
negotiated. The transaction benefits FirstEnergy's utility operating 
companies by providing exclusive ownership and operating control of all 
generating assets that are now jointly owned and operated under the 
Central Area Power Coordination Group agreement.

Interest Rate Risk

          Our exposure to fluctuations in market interest rates is 
mitigated since a significant portion of our debt has fixed interest 
rates, as noted in the table below. We are subject to the inherent 
interest rate risks related to refinancing maturing debt by issuing new 
debt securities. Changes in the market value of our nuclear 
decommissioning trust funds are recognized by making a corresponding 
change to the decommissioning liability, as described in Note 1.

          The table below presents principal amounts and related 
weighted average interest rates by year of maturity for our investment 
portfolio, debt obligations and preferred stock with mandatory 
redemption provisions.


<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------
                                                                           There-            Fair
                                   1999    2000    2001    2002    2003    after    Total    Value
                                                       (Dollars in Millions)  
--------------------------------------------------------------------------------------------------
<S>                                <C>     <C>     <C>     <C>     <C>     <C>      <C>      <C>
Investments other than Cash and
Cash Equivalents:
Fixed Income                                                               $  9     $  9     $  9
  Average interest rate                                                     5.1%     5.1%
-------------------------------------------------------------------------------------------------
Liabilities
-------------------------------------------------------------------------------------------------
Long-term Debt:
Fixed rate                         $ 1     $24     $ 1     $ 1     $41     $200     $268     $284
  Average interest rate            9.7%    6.2%    9.7%    9.7%    7.6%     7.0%     7.0%
Variable rate                                                              $ 10     $ 10     $ 10
  Average interest rate                                                     4.2%     4.2%
-------------------------------------------------------------------------------------------------
Preferred Stock                                            $ 1     $ 1     $ 13     $ 15     $ 16
  Average dividend rate                                    7.6%    7.6%     7.6%     7.6%
-------------------------------------------------------------------------------------------------

</TABLE>

Outlook

          We face many competitive challenges in the years ahead as 
the electric utility industry undergoes significant changes, 
including changing regulation and the entrance of more energy 
suppliers into the marketplace. Retail wheeling, which has begun in 
our service area, allows retail customers to purchase electricity 
from other energy producers. Our regulatory plan provided a solid 
foundation to position us to meet the challenges we are now facing by 
facilitating the reduction of fixed costs.

          Application of SFAS 71 was discontinued for the generation 
portion of our business in June 1998 following PPUC approval of the 
rate restructuring plan. Customer choice will be phased in over two 
years with 66% of each customer class able to choose alternative 
suppliers of generation on January 2, 1999, and all remaining 
customers having choice as of January 2, 2000. Under the plan, we 
continue to deliver power to homes and businesses through our 
transmission and distribution system, which remains regulated. 
However, our rates have been restructured to establish separate 
charges for transmission and distribution; generation, which is 
subject to competition; and stranded cost recovery. In the event 
customers obtain power from an alternative source, the generation 
portion of our rates will be excluded from their bill and our 
customers will receive a generation charge from the alternative 
supplier. The stranded cost recovery portion of rates provides for 
recovery of certain amounts not otherwise considered recoverable in a 
competitive generation market, including regulatory assets. We are 
entitled to recover $234 million of stranded costs through a 
competitive transition charge that starts in 1999 and ends in 2005.

          The Clean Air Act Amendments of 1990, discussed in Note 5, 
require additional emission reductions by 2000. We are pursuing cost-
effective compliance strategies for meeting these reduction 
requirements.

          On September 24, 1998, the Federal Environmental Protection 
Agency issued a final rule establishing tighter nitrogen oxide 
emission requirements for fossil fuel-fired utility boilers in 
Pennsylvania, Ohio and twenty other eastern states, including the 
District of Columbia (see "Environmental Matters" in Note 5). 
Controls must be in place by May 2003, with required reductions 
achieved during the five-month summer ozone season (May through 
September). The new rule is expected to increase the cost of 
producing electricity; however, we believe that we are in a better 
position than a number of other utilities to achieve compliance due 
to our nuclear generation capacity.

          In connection with FirstEnergy's regulatory plan to reduce 
fixed costs and lower rates, we continue to take steps to restructure 
our operations. FirstEnergy announced plans to transfer our 
transmission assets into a new subsidiary, American Transmission 
Systems, Inc., with the transfer expected to be finalized in 1999. 
The new subsidiary represents a first step toward the goal of 
establishing or becoming part of a larger independent transmission 
company (TransCo). We believe that a TransCo better addresses the 
Federal Energy Regulatory Commission's (FERC) stated transmission 
objectives of providing non-discriminatory service, while providing 
for streamlined and cost-efficient operation. In working toward the 
goal of forming a larger regional transmission entity, FirstEnergy, 
American Electric Power, Virginia Power and Consumers Energy 
announced in November 1998 that they would prepare a FERC filing 
during 1999 for such a regional transmission entity. The entity would 
be designed to meet the goals of reducing transmission costs that 
result when transferring power over several transmission systems, 
ensuring transmission reliability and providing non-discriminatory 
access to the transmission grid.

Year 2000 Readiness

          The Year 2000 issue is the result of computer programs 
being written using two digits rather than four to identify the 
applicable year. Any of our programs that have date-sensitive 
software may recognize a date using "00" as the year 1900 rather than 
the year 2000. Because so many of our computer functions are date 
sensitive, this could cause far-reaching problems, such as system-
wide computer failures and miscalculations, if no remedial action is 
taken.

          We have developed a multi-phase program for Year 2000 
compliance that consists of an assessment of our systems and 
operations that could be affected by the Year 2000 problem; 
remediation or replacement of noncompliant systems and components; 
and testing of systems and components following such remediation or 
replacement. We have focused our Year 2000 review on three areas: 
centralized system applications, noncentralized systems and 
relationships with third parties (including suppliers as well as end-
use customers). Our review of system readiness extends to systems 
involving customer service, safety, shareholder needs and regulatory 
obligations.

          We are committed to taking appropriate actions to eliminate 
or lessen negative effects of the Year 2000 issue on our operations. 
We have completed an inventory of all computer systems and hardware 
including equipment with embedded computer chips and have determined 
which systems need to be converted or replaced to become Year 2000-
ready and are in the process of remediating them. Based on our 
timetable, we expect to have all identified repairs, replacements and 
upgrades completed to achieve Year 2000 readiness by September 1999.

          Most of our Year 2000 issues will be resolved through 
system replacement. Of our major centralized systems, the general 
ledger system and inventory management, procurement and accounts 
payable systems were replaced at the end of 1998. Our payroll system 
was enhanced to be Year 2000 compliant in July 1998. The customer 
service system is due to be replaced in mid-1999.
          We have completed formal communications with most of our key 
suppliers to determine the extent to which we are vulnerable to those 
third parties' failure to resolve their own Year 2000 problems. For 
suppliers having potential compliance problems, we are developing 
alternate sources and services in the event such noncompliance occurs. 
We are also identifying areas requiring higher inventory levels based 
on compliance uncertainties. There can be no guarantee that the 
failure of companies to resolve their own Year 2000 issue will not 
have a material adverse effect on our business, financial condition 
and results of operations. 

          We are using both internal and external resources to 
reprogram and/or replace and test our software for Year 2000 
modifications. Of the $6 million total project cost, approximately $5 
million will be capitalized since those costs are attributable to the 
purchase of new software for total system replacements because the 
Year 2000 solution comprises only a portion of the benefits resulting 
from the system replacements. The remaining $1 million will be 
expensed as incurred. As of December 31, 1998, we have spent $3 
million for Year 2000 capital projects and had expensed approximately 
$600,000 for Year 2000-related maintenance activities. Our total Year 
2000 project cost, as well as our estimates of the time needed to 
complete remedial efforts, are based on currently available 
information and do not include the estimated costs and time 
associated with the impact of third party Year 2000 issues.

          We believe we are managing the Year 2000 issue in such a 
way that our customers will not experience any interruption of 
service. We believe the most likely worst-case scenario from the Year 
2000 issue will be disruption in power plant monitoring systems, 
thereby producing inaccurate data and potential failures in 
electronic switching mechanisms at transmission junctions. This would 
prolong localized outages, as technicians would have to manually 
activate switches. Such an event could have a material, but currently 
undeterminable, effect on our financial results. We are developing 
contingency plans to address the effects of any delay in becoming 
Year 2000 compliant and expect to have contingency plans completed by 
June 1999.

          The costs of the project and the dates on which we plan to 
complete the Year 2000 modifications are based on management's best 
estimates, which were derived from numerous assumptions of future 
events including the continued availability of certain resources, and 
other factors. However, there can be no guarantee that this project 
will be completed as planned and actual results could differ 
materially from the estimates. Specific factors that might cause 
material differences include but are not limited to, the availability 
and cost of trained personnel, the ability to locate and correct all 
relevant computer code, and similar uncertainties.

<TABLE>
<PAGE>
                                     PENNSYLVANIA POWER COMPANY

                                        STATEMENTS OF INCOME
<CAPTION>
For the Years Ended December 31,                            1998           1997          1996   
------------------------------------------------------------------------------------------------ 
                                                                     (In thousands)
<S>                                                       <C>            <C>           <C>
OPERATING REVENUES                                        $323,756       $323,381      $322,625
                                                          --------       --------      --------
OPERATING EXPENSES AND TAXES:
  Fuel and purchased power                                  76,801         67,345        67,443
  Nuclear operating costs                                   22,968         26,220        22,064
  Other operating costs                                     52,348         66,518        59,753
                                                          --------       --------      --------
    Total operation and maintenance expenses               152,117        160,083       149,260
  Provision for depreciation and amortization               59,264         64,628        57,114
  General taxes                                             22,540         22,379        24,015
  Income taxes                                              31,794         25,555        29,907
                                                          --------       --------      --------
    Total operating expenses and taxes                     265,715        272,645       260,296
                                                          --------       --------      --------
OPERATING INCOME                                            58,041         50,736        62,329

OTHER INCOME                                                 2,485          2,760         5,760
                                                          --------       --------      --------
INCOME BEFORE NET INTEREST CHARGES                          60,526         53,496        68,089
                                                          --------       --------      --------
NET INTEREST CHARGES:
  Interest on long-term debt                                19,255         20,458        25,715
  Interest on nuclear fuel obligations                          28            276           219
  Allowance for borrowed funds used during construction       (294)          (414)         (387)
  Other interest expense                                     1,789          1,704         1,955
                                                          --------       --------      --------
    Net interest charges                                    20,778         22,024        27,502
                                                          --------       --------      --------
INCOME BEFORE EXTRAORDINARY ITEM                            39,748         31,472        40,587

EXTRAORDINARY ITEM (NET OF INCOME TAXES) (Note 1)          (30,522)            --            --
                                                          --------       --------      --------
NET INCOME                                                   9,226         31,472        40,587

PREFERRED STOCK DIVIDEND REQUIREMENTS                        4,626          4,626         4,626
                                                          --------       --------      --------
EARNINGS ON COMMON STOCK                                  $  4,600       $ 26,846      $ 35,961
                                                          ========       ========      ========
</TABLE>
<PAGE>

<TABLE>
                                       PENNSYLVANIA POWER COMPANY

                                             BALANCE SHEETS
<CAPTION>
At December 31,                                                                  1998           1997 
---------------------------------------------------------------------------------------------------- 
                                                                                    (In thousands)
                     ASSETS
<S>                                                                             <C>         <C>
UTILITY PLANT:
In service                                                                      $686,771    $1,237,562
Less-Accumulated provision for depreciation                                      291,188       508,981
                                                                                --------    ----------
                                                                                 395,583       728,581
                                                                                --------    ----------
Construction work in progress-
  Electric plant                                                                  17,187         7,427
  Nuclear fuel                                                                       508         6,788
                                                                                --------    ----------
                                                                                  17,695        14,215
                                                                                --------    ----------
                                                                                 413,278       742,796
                                                                                --------    ----------
OTHER PROPERTY AND INVESTMENTS                                                    29,177        26,157
                                                                                --------    ----------
CURRENT ASSETS:
Cash and cash equivalents                                                          7,485           660
Notes receivable from parent company (Note 4)                                     50,000        17,500
Receivables-
  Customers (less accumulated provisions of $3,599,000 and $3,609,000,
    respectively, for uncollectible accounts)                                     34,737        33,934
  Associated companies                                                            34,430        12,599
  Other                                                                           12,472        14,426
Materials and supplies, at average cost                                           15,515        14,973
Prepayments                                                                        2,657         1,707
                                                                                --------    ----------
                                                                                 157,296        95,799
                                                                                --------    ----------
DEFERRED CHARGES:
Regulatory assets                                                                371,027       162,966
Other                                                                              6,994         6,739
                                                                                --------    ----------
                                                                                 378,021       169,705
                                                                                --------    ----------
                                                                                $977,772    $1,034,457
                                                                                ========    ==========
           CAPITALIZATION AND LIABILITIES

CAPITALIZATION (See Statements of Capitalization):
Common stockholder's equity                                                     $275,281    $  291,977
Preferred stock-
  Not to subject to mandatory redemption                                          50,905        50,905
  Subject mandatory redemption                                                    15,000        15,000
Long-term debt-
  Associated companies                                                             6,617         9,231
  Other                                                                          281,072       280,074
                                                                                --------    ----------
                                                                                 628,875       647,187
                                                                                --------    ----------
CURRENT LIABILITIES:
Currently payable long-term debt-
  Associated companies                                                             5,557         6,958
  Other                                                                              984         1,443
Accounts payable-
  Associated companies                                                             9,676         6,788
  Other                                                                           23,156        22,751
Accrued taxes                                                                     12,849        12,332
Accrued interest                                                                   6,519         6,588
Other                                                                             17,046        14,746
                                                                                --------    ----------
                                                                                  75,787        71,606
                                                                                --------    ----------
DEFERRED CREDITS:
Accumulated deferred income taxes                                                212,427       239,952
Accumulated deferred investment tax credits                                        7,787        26,052
Other                                                                             52,896        49,660
                                                                                --------    ----------
                                                                                 273,110       315,664
                                                                                --------    ----------

COMMITMENTS, GUARANTEES AND CONTINGENCIES (Notes 2 and 5)                       --------    ----------
                                                                                $977,772    $1,034,457
                                                                                ========    ==========

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

</TABLE>
<PAGE>


<TABLE>
                                                PENNSYLVANIA POWER COMPANY

                                               STATEMENTS OF CAPITALIZATION
<CAPTION>
At December 31,                                                                                           1998          1997  
----------------------------------------------------------------------------------------------------------------------------
                                        (Dollars in thousands, except per share amounts)
<S>                                                                                                       <C>         <C>
COMMON STOCKHOLDER'S EQUITY:
  Common stock, $30 par value, 6,500,000 shares authorized, 6,290,000 shares outstanding                  $188,700    $188,700
  Other paid-in capital                                                                                       (310)       (310)
  Accumulated other comprehensive income (Note 3B)                                                              --         (90)
  Retained earnings (Note 3A)                                                                               86,891     103,677
                                                                                                          --------    --------
    Total common stockholder's equity                                                                      275,281     291,977
                                                                                                          --------    --------
                                                     Number of Shares             Optional
                                                       Outstanding            Redemption Price  
                                                     -----------------    -----------------------
                                                     1998         1997    Per Share     Aggregate
                                                     ----         ----    ---------     ---------
                                                    <C>          <C>        <C>          <C>
PREFERRED STOCK (Note 3C):
Cumulative, $100 par value-
Authorized 1,200,000 shares
  Not Subject to Mandatory Redemption:
    4.24%                                           40,000       40,000     $103.13      $ 4,125             4,000       4,000
    4.25%                                           41,049       41,049      105.00        4,310             4,105       4,105
    4.64%                                           60,000       60,000      102.98        6,179             6,000       6,000
    7.64%                                           60,000       60,000      101.42        6,085             6,000       6,000
    7.75%                                          250,000      250,000          --           --            25,000      25,000
    8.00%                                           58,000       58,000      102.07        5,920             5,800       5,800
                                                   -------      -------                  -------          --------    --------
      Total not subject to mandatory redemption    509,049      509,049                  $26,619            50,905      50,905
                                                   =======      =======                  =======          --------    --------
  Subject to Mandatory Redemption (Note 3D):
    7.625%                                         150,000      150,000      106.86      $16,029            15,000      15,000
                                                   =======      =======                  =======          --------    --------

LONG-TERM DEBT (Note 3E):
  First mortgage bonds-
    9.740% due 1999-2019                                                                                    20,000      20,000
    7.500% due 2003                                                                                         40,000      40,000
    6.375% due 2004                                                                                         20,500      20,500
    6.625% due 2004                                                                                         14,000      14,000
    8.500% due 2022                                                                                         27,250      27,250
    7.625% due 2023                                                                                          6,500       6,500
                                                                                                          --------    --------
      Total first mortgage bonds                                                                           128,250     128,250
                                                                                                          --------    --------
  Secured notes-
    4.750% due 1998                                                                                             --         850
    6.080% due 2000                                                                                         23,000      23,000
    5.400% due 2013                                                                                          1,000       1,000
    5.400% due 2017                                                                                         10,600      10,600
    7.150% due 2017                                                                                         17,925      17,925
    5.900% due 2018                                                                                         16,800      16,800
    8.100% due 2020                                                                                          5,200       5,200
    7.150% due 2021                                                                                         14,482      14,482
    6.150% due 2023                                                                                         12,700      12,700
   *4.150% due 2027                                                                                         10,300      10,300
    6.450% due 2027                                                                                         14,500      14,500
    5.375% due 2028                                                                                          1,734          --
    5.450% due 2028                                                                                          6,950       6,950
    6.000% due 2028                                                                                         14,250      14,250
    5.950% due 2029                                                                                            238         238
                                                                                                          --------    --------
      Total secured notes                                                                                  149,679     148,795
                                                                                                          --------    --------

  Other obligations-
    Nuclear fuel                                                                                            12,174      16,189
    Capital leases (Note 2)                                                                                  4,635       5,022
                                                                                                          --------    --------
      Total other obligations                                                                               16,809      21,211
                                                                                                          --------    --------
  Net unamortized discount on debt                                                                            (508)       (550)
                                                                                                          --------    --------
  Long-term debt due within one year                                                                        (6,541)     (8,401)
                                                                                                          --------    --------
      Total long-term debt                                                                                 287,689     289,305
                                                                                                          --------    --------
TOTAL CAPITALIZATION                                                                                      $628,875    $647,187
                                                                                                          ========    ========


<FN>

*  Denotes variable rate issue with December 31, 1998 interest rate shown.

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

</TABLE>
<PAGE>

<TABLE>
                                         PENNSYLVANIA POWER COMPANY

                                 STATEMENTS OF COMMON STOCKHOLDER'S EQUITY
<CAPTION>
                                                                              Accumulated
                                                                                Other
                               Comprehensive                        Other    Comprehensive
                                  Income        Number      Par    Paid-In      Income       Retained
                                 (Note 3B)    of Shares    Value   Capital     (Note 3B)     Earnings
                               -------------  ----------  -------  -------   --------------  ---------
                                                        (Dollars in thousands)
<S>                               <C>          <C>        <C>       <C>           <C>        <C>
Balance, January 1, 1996                       6,290,000  $188,700  $(310)        $(112)     $ 83,642
  Net income                      $40,587                                                      40,587
  Minimum liability for
   unfunded retirement
   benefits, net of $7,000
   of income taxes                      9                                             9
                                  -------
  Comprehensive income            $40,596
                                  =======
  Cash dividends on common
   stock                                                                                      (21,386)
  Cash dividends on preferred
   stock                                                                                       (4,626)
-----------------------------------------------------------------------------------------------------
Balance, December 31, 1996                     6,290,000   188,700   (310)         (103)       98,217
  Net income                      $31,472                                                      31,472
  Minimum liability for 
   unfunded retirement
   benefits, net of $9,000
   of income taxes                     13                                            13
                                  -------
  Comprehensive income            $31,485
                                  =======
  Cash dividends on common
   stock                                                                                      (21,386)
  Cash dividends on preferred
   stock                                                                                       (4,626)
------------------------------------------------------------------------------------------------------
Balance, December 31, 1997                     6,290,000   188,700   (310)          (90)      103,677
  Net income                      $ 9,226                                                       9,226
  Transfer of minimum liability
   for unfunded retirement
   benefits to FirstEnergy             90                                            90
                                  -------
  Comprehensive income            $ 9,316
                                  =======
  Cash dividends on common
   stock                                                                                      (21,386)
  Cash dividends on preferred
   stock                                                                                       (4,626)
------------------------------------------------------------------------------------------------------
Balance, December 31, 1998                     6,290,000  $188,700  $(310)        $  --      $ 86,891
======================================================================================================

</TABLE>


<TABLE>
                                   STATEMENTS OF PREFERRED STOCK
<CAPTION>
                                       Not Subject to         Subject to
                                    Mandatory Redemption  Mandatory Redemption
                                    --------------------  --------------------
                                      Number       Par       Number      Par
                                    of Shares     Value    of Shares    Value
                                    ---------    -------   ----------  -------
                                               (Dollars in thousands)  
<S>                                  <C>        <C>         <C>        <C>
Balance, January 1, 1996             509,049    $50,905     150,000    $15,000
-----------------------------------------------------------------------------
Balance, December 31, 1996           509,049     50,905     150,000     15,000
-----------------------------------------------------------------------------
Balance, December 31, 1997           509,049     50,905     150,000     15,000
-----------------------------------------------------------------------------
Balance, December 31, 1998           509,049    $50,905     150,000    $15,000
=============================================================================
<FN>

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

</TABLE>
<PAGE>

<TABLE>
                                       PENNSYLVANIA POWER COMPANY

                                        STATEMENTS OF CASH FLOWS
<CAPTION>
For the Years Ended December 31,                                   1998        1997         1996 
------------------------------------------------------------------------------------------------
                                                                        (In thousands)
<S>                                                               <C>         <C>        <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income                                                        $  9,226    $31,472    $ 40,587
Adjustments to reconcile net income to net cash from 
 operating activities: 
  Provision for depreciation and amortization                       59,264     64,628      57,114
  Nuclear fuel and lease amortization                                5,418      7,172       8,693
  Other amortization, net                                             (330)    (1,187)     (1,700)
  Deferred income taxes, net                                       (20,007)    (6,631)        396
  Investment tax credits, net                                       (2,289)    (2,331)     (2,138)
  Deferred fuel costs, net                                              --         --       3,220
  Extraordinary item                                                51,730         --          -- 
  Receivables                                                      (20,680)     6,515      (1,193)
  Materials and supplies                                              (542)      (704)      1,319
  Accounts payable                                                   3,293     (4,476)     (2,472)
  Other                                                              3,148     (5,707)    (12,087)
                                                                  --------    -------    --------
    Net cash provided from operating activities                     88,231     88,751      91,739
                                                                  --------    -------    --------
CASH FLOWS FROM FINANCING ACTIVITIES:
New Financing-
  Long-term debt                                                     1,563      9,942          --
Redemptions and Repayments-
  Long-term debt                                                     6,088     39,464      84,347
Dividend Payments-
  Common stock                                                      21,386     21,386      21,386
  Preferred stock                                                    4,626      4,626       4,626
                                                                  --------    -------    --------
    Net cash used for financing activities                          30,537     55,534     110,359
                                                                  --------    -------    --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property additions                                                  16,495     14,513      20,361
Loan to parent                                                      32,500     15,000          --
Loan payment from parent                                                --         --     (19,500)
Other                                                                1,874      4,431         116
                                                                  --------    -------    --------
    Net cash used for investing activities                          50,869     33,944         977
                                                                  --------    -------    --------
Net increase (decrease) in cash and cash equivalents                 6,825       (727)    (19,597)
Cash and cash equivalents at beginning of year                         660      1,387      20,984
                                                                  --------    -------    --------
Cash and cash equivalents at end of year                          $  7,485    $   660    $  1,387
                                                                  ========    =======    ========
SUPPLEMENTAL CASH FLOWS INFORMATION:
Cash paid during the year-
  Interest (net of amounts capitalized)                           $ 19,057    $21,137    $ 26,653
                                                                  ========    =======    ========
  Income taxes                                                    $ 32,290    $38,324    $ 36,815
                                                                  ========    =======    ========


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

</TABLE>
<PAGE>

<TABLE>
                                      PENNSYLVANIA POWER COMPANY

                                        STATEMENT OF TAXES
<CAPTION>
For the Years Ended December 31,                                    1998      1997       1996  
----------------------------------------------------------------------------------------------
                                                                         (In thousands)
<S>                                                              <C>        <C>        <C>
GENERAL TAXES:
State gross receipts                                             $ 10,830   $ 11,267   $ 12,305
Real and personal property                                          6,893      6,060      6,178
State capital stock                                                 2,774      2,566      2,820
Social security and unemployment                                    1,894      2,224      2,064
Other                                                                 149        262        648
                                                                 --------   --------   --------
  Total general taxes                                            $ 22,540   $ 22,379   $ 24,015
                                                                 ========   ========   ========
PROVISION FOR INCOME TAXES:
Currently payable-
  Federal                                                        $ 25,938   $ 27,560   $ 27,282
  State                                                             7,654      8,061      7,881
                                                                 --------   --------   --------
                                                                   33,592     35,621     35,163
                                                                 --------   --------   --------
Deferred, net-
  Federal                                                         (15,454)    (5,096)       272
  State                                                            (4,553)    (1,535)       124
                                                                 --------   --------   --------
                                                                  (20,007)    (6,631)       396
                                                                 --------   --------   --------
Investment tax credit amortization                                 (2,289)    (2,331)    (2,138)
                                                                 --------   --------   --------
  Total provision for income taxes                               $ 11,296   $ 26,659   $ 33,421
                                                                 ========   ========   ========

INCOME STATEMENT CLASSIFICATION OF 
PROVISION FOR INCOME TAXES:
Operating expenses                                               $ 31,794   $ 25,555   $ 29,907
Other income                                                          710      1,104      3,514
Extraordinary item                                                (21,208)       --          --
                                                                 --------   --------   --------
  Total provision for income taxes                               $ 11,296   $ 26,659   $ 33,421
                                                                 ========   ========   ========
RECONCILIATION OF FEDERAL INCOME TAX EXPENSE AT
STATUTORY RATE TO TOTAL PROVISION FOR INCOME TAXES:
Book income before provision for income taxes                    $ 20,522   $ 58,131   $ 74,008
                                                                 ========   ========   ========
Federal income tax expense at statutory rate                     $  7,183   $ 20,346   $ 25,903
Increases (reductions) in taxes resulting from:
  State income taxes, net of federal income tax benefit             2,016      4,242      5,203
  Amortization of investment tax credits                           (2,289)    (2,331)    (2,138)
  Amortization of tax regulatory assets                             4,745      4,554      4,423
  Other, net                                                         (359)      (152)        30
                                                                 --------   --------   --------
  Total provision for income taxes                               $ 11,296   $ 26,659   $ 33,421
                                                                 ========   ========   ========
ACCUMULATED DEFERRED INCOME TAXES AT DECEMBER 31:
Competitive transition charge                                    $135,730   $     --   $     --
Property basis differences                                         69,867    172,094    178,886
Allowance for equity funds used during construction                 7,219     29,875     33,677
Deferred nuclear expense                                               --      7,163      8,031
Customer receivables for future income taxes                        9,690     37,954     40,901
Unamortized investment tax credits                                 (3,193)   (10,681)   (11,635)
Other                                                              (6,886)     3,547      3,916
                                                                 --------   --------   --------
  Net deferred income tax liability                              $212,427   $239,952   $253,776
                                                                 ========   ========   ========

<FN>

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

</TABLE>
<PAGE>


NOTES TO FINANCIAL STATEMENTS

1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

          The Company, a wholly owned subsidiary of Ohio Edison Company 
(Edison), follows the accounting policies and practices prescribed by 
the Pennsylvania Public Utility Commission (PPUC) and the Federal Energy 
Regulatory Commission (FERC). The preparation of financial statements in 
conformity with generally accepted accounting principles requires 
management to make periodic estimates and assumptions that affect the 
reported amounts of assets, liabilities, revenues and expenses. Certain 
prior year amounts have been reclassified to conform with the current 
year presentation.

REVENUES-

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

          Receivables from customers include sales to residential, 
commercial and industrial customers located in the Company's service 
area and sales to wholesale customers. There was no material 
concentration of receivables at December 31, 1998 or 1997, with respect 
to any particular segment of the Company's customers.

REGULATORY PLAN-

          In June 1998, the PPUC authorized a rate restructuring plan 
for the Company, which superseded the regulatory plan which had been in 
place for the Company since 1996, and essentially resulted in the 
deregulation of the Company's generation business as of June 30, 1998. 
The Company was required to remove from its balance sheet all 
regulatory assets and liabilities related to its generation business 
and assess all other assets for impairment. The Securities and Exchange 
Commission (SEC) issued interpretive guidance regarding asset 
impairment measurement which concluded that any supplemental regulated 
cash flows such as a competitive transition charge (CTC) should be 
excluded from the cash flows of assets in a portion of the business not 
subject to regulatory accounting practices. If those assets are 
impaired, a regulatory asset should be established if the costs are 
recoverable through regulatory cash flows. Consistent with the SEC 
guidance, the Company reduced its nuclear generating unit investments 
by approximately $305 million, of which approximately $227 million was 
recognized as a regulatory asset to be recovered through a CTC over a 
seven-year transition period; the remaining net amount of $78 million 
was written off. The charge of $51.7 million ($30.5 million after 
income taxes) for discontinuing the application of Statement of 
Financial Accounting Standards (SFAS) No. 71, "Accounting for the 
Effects of Certain Types of Regulation" (SFAS 71), to the Company's 
generation business was recorded as an extraordinary item on the 
Statement of Income. The Company's net assets included in utility plant 
relating to the operations for which the application of SFAS 71 was 
discontinued were $146 million as of December 31, 1998.

          All of the Company's regulatory assets are being recovered 
under provisions of the regulatory plan. In addition, the PPUC had 
authorized the Company to accelerate at least $358 million, more than 
the amounts that would have been recognized if the regulatory plan was 
not in effect. These additional amounts are being recovered through 
current rates. As of December 31, 1998, the Company's cumulative 
additional capital recovery and regulatory asset amortization amounted 
to $184 million (including the impairment discussed above).

          In December 1996, Pennsylvania enacted "The Electricity 
Generation Customer Choice and Competition Act," which permitted 
customers, including the Company's customers, to choose their electric 
generation supplier, while transmission and distribution services will 
continue to be supplied by their current providers. Customer choice will 
be phased in over two years with 66% of each customer class able to 
choose alternative suppliers of generation on January 2, 1999, and all 
remaining customers having choice as of January 2, 2000. Under the rate 
restructuring plan, the Company continues to deliver power to homes and 
businesses through its transmission and distribution system, which 
remains regulated by the PPUC. The Company's rates have been 
restructured to establish separate charges for transmission and 
distribution; generation, which is subject to competition; and stranded 
cost recovery. In the event customers obtain power from an alternative 
source, the generation portion of the Company's rates will be excluded 
from their bill and the customers will receive a generation charge from 
the alternative supplier. The stranded cost recovery portion of rates 
provides for recovery of certain amounts not otherwise considered 
recoverable in a competitive generation market, including regulatory 
assets. The Company is entitled to recover $234 million of stranded 
costs through a CTC that starts in 1999 and ends in 2005.

UTILITY PLANT AND DEPRECIATION-

          Utility plant reflects the original cost of construction 
(except for nuclear generating units which were adjusted to fair value 
as discussed above), including payroll and related costs such as taxes, 
employee benefits, administrative and general costs, and interest costs.

          The Company provides for depreciation on a straight-line basis 
at various rates over the estimated lives of property included in plant 
in service. The annual composite rate for electric plant was 
approximately 3.0% in 1998 and 2.7% in 1997 and 1996. In addition to the 
straight-line depreciation recognized in 1998, 1997 and 1996, the 
Company also recognized additional capital recovery of $15 million, 
$27 million and $20 million, respectively, as additional depreciation 
expense in accordance with the regulatory plan.

          Annual depreciation expense includes approximately 
$3.1 million for future decommissioning costs applicable to the 
Company's ownership interest in two nuclear generating units. The 
Company's share of the future obligation to decommission these units is 
approximately $88 million in current dollars and (using a 4.0% 
escalation rate) approximately $205 million in future dollars. The 
estimated obligation and the escalation rate were developed based on 
site specific studies. Payments for decommissioning are expected to 
begin in 2016, when actual decommissioning work begins. The Company has 
recovered approximately $12 million for decommissioning through its 
electric rates from customers through December 31, 1998. If the actual 
costs of decommissioning the units exceed the funds accumulated from 
investing amounts recovered from customers, the Company expects that 
additional amount to be recoverable from its customers. The Company has 
approximately $13.7 million invested in external decommissioning trust 
funds as of December 31, 1998. Earnings on these funds are reinvested 
with a corresponding increase to the decommissioning liability. The 
Company has also recognized an estimated liability of approximately 
$3.0 million at December 31, 1998 related to decontamination and 
decommissioning of nuclear enrichment facilities operated by the United 
States Department of Energy (DOE), as required by the Energy Policy Act 
of 1992.

          The Financial Accounting Standards Board (FASB) issued a 
proposed accounting standard for nuclear decommissioning costs in 1996. 
If the standard is adopted as proposed: (1) annual provisions for 
decommissioning could increase; (2) the net present value of estimated 
decommissioning costs could be recorded as a liability; and (3) income 
from the external decommissioning trusts could be reported as investment 
income. The FASB subsequently expanded the scope of the proposed 
standard to include other closure and removal obligations related to 
long-lived assets. A revised proposal may be issued by the FASB in 1999.

COMMON OWNERSHIP OF GENERATING FACILITIES-

          The Company and other Central Area Power Coordination Group 
(CAPCO) companies own, as tenants in common, various power generating 
facilities. Each of the companies is obligated to pay a share of the 
costs associated with any jointly owned facility in the same proportion 
as its interest. The Company's portion of operating expenses associated 
with jointly owned facilities is included in the corresponding 
operating expenses on the Statements of Income. The amounts reflected 
on the Balance Sheet under utility plant at December 31, 1998, include 
the following:




<TABLE>
<CAPTION>

                           Utility    Accumulated  Construction  Company's
    Generating              Plant    Provision for    Work in    Ownership
      Units              in Service  Depreciation   Progress     Interest 
--------------------------------------------------------------------------- 
                                            (In millions)
<S>                      <C>            <C>          <C>           <C>
W. H. Sammis #7          $ 57.8         $21.8        $0.3          20.80%
Bruce Mansfield
  #1, #2 and #3            98.9          47.3         0.6           5.76%
Beaver Valley #1           18.6           1.2         2.2          17.50%
Perry #1                    1.5           0.6         1.1           5.24%
--------------------------------------------------------------------------
    Total                $176.8         $70.9        $4.2
==========================================================================

</TABLE>


          On October 15, 1998, FirstEnergy Corp. (FirstEnergy) the 
parent company of Edison, announced that it signed an agreement in 
principle with Duquesne Light Company (Duquesne) that would result in 
the transfer of 1,436 megawatts owned by Duquesne at eight CAPCO 
generating units in exchange for 1,328 megawatts at three non-CAPCO 
power plants owned by the Company, Edison and The Cleveland Electric 
Illuminating Company, an affiliate. As part of this exchange, the 
Company will transfer its 339-megawatt New Castle Plant and its 4-
megawatt interest in the Niles Plant  to Duquesne. A definitive 
agreement on the exchange of assets, which will be structured as a 
tax-free transaction to the extent possible, will provide 
FirstEnergy's utility operating companies with exclusive ownership 
and operating control of all CAPCO generating units. Duquesne will 
fund decommissioning costs equal to its percentage interest in the 
three nuclear generating units to be transferred. The asset transfer 
is expected to take twelve to eighteen months to close.

NUCLEAR FUEL-

          OES Fuel, Incorporated (OES Fuel), a wholly owned subsidiary 
of Edison, is the sole lessor for the Company's nuclear fuel 
requirements.

          Minimum lease payments during the next five years are 
estimated to be as follows:

                   (In millions)
-------------------------------
1999                      $6.3
2000                       3.6
2001                       2.2
2002                       1.2
2003                       0.2
------------------------------

          The Company amortizes the cost of nuclear fuel based on the 
rate of consumption. The Company's electric rates include amounts for 
the future disposal of spent nuclear fuel based upon the formula used 
to compute payments to the DOE.

INCOME TAXES-

          Details of the total provision for income taxes are shown on 
the Statements of Taxes. Deferred income taxes result from timing 
differences in the recognition of revenues and expenses for tax and 
accounting purposes. Investment tax credits, which were deferred when 
utilized, are being amortized over the recovery period of the related 
property. The liability method is used to account for deferred income 
taxes. Deferred income tax liabilities related to tax and accounting 
basis differences are recognized at the statutory income tax rates in 
effect when the liabilities are expected to be paid. Since Edison 
became a wholly owned subsidiary of FirstEnergy on November 8, 1997, 
the Company is included in FirstEnergy's consolidated federal income 
tax return. The consolidated tax liability is allocated on a "stand-
alone" company basis, with the Company recognizing any tax losses or 
credits it contributed to the consolidated return.

RETIREMENT BENEFITS-

          The Company's trusteed, noncontributory defined benefit 
pension plan covers almost all full-time employees. Upon retirement, 
employees receive a monthly pension based on length of service and 
compensation. In 1998, the Company's, Edison's and Centerior Energy 
Corporation pension plans were merged into the FirstEnergy pension 
plans. The Company uses the projected unit credit method for funding 
purposes and was not required to make pension contributions during 
the three years ended December 31, 1998. The assets of the pension 
plans consist primarily of common stocks, United States government 
bonds and corporate bonds.

          The Company provides a minimum amount of noncontributory 
life insurance to retired employees in addition to optional 
contributory insurance. Health care benefits, which include certain 
employee deductibles and copayments, are also available to retired 
employees, their dependents and, under certain circumstances, their 
survivors. The Company pays insurance premiums to cover a portion of 
these benefits in excess of set limits; all amounts up to the limits 
are paid by the Company. The Company recognizes the expected cost of 
providing other postretirement benefits to employees and their 
beneficiaries and covered dependents from the time employees are 
hired until they become eligible to receive those benefits.

          The following sets forth the funded status of the 
FirstEnergy plans in 1998 and the Company's plans in 1997 and amounts 
recognized on the Balance Sheets as of December 31 (which includes 
the Company's share of the FirstEnergy 1998 plans' net prepaid 
pension cost and accrued other postretirement benefits costs of $9.0 
million and $28.4 million, respectively):

<TABLE>
<CAPTION>
                                                                                   Other
                                                     Pension Benefits      Postretirement Benefits
                                                     ----------------      -----------------------
                                                     1998       1997        1998         1997  
--------------------------------------------------------------------------------------------------
                                                                 (In millions)
<S>                                                <C>        <C>         <C>          <C>
Change in benefit obligation:
Benefit obligation as of January 1*                $1,327.5   $122.8      $ 534.1      $ 43.7
Service cost                                           25.0      2.7          7.5         0.9
Interest cost                                          92.5      8.9         37.6         3.2
Plan amendments                                        44.3      0.5         40.1          --
Early retirement program expense                         --      5.8           --         0.3
Actuarial loss                                        101.6     10.1         10.7         1.5
Benefits paid                                         (90.8)    (8.4)       (28.7)       (2.3)
---------------------------------------------------------------------------------------------
Benefit obligation as of December 31                1,500.1    142.4        601.3        47.3
---------------------------------------------------------------------------------------------

Change in plan assets:
Fair value of plan assets as of January 1*          1,542.5    150.5          2.8         0.2
Actual return on plan assets                          231.3     30.0          0.7         0.1
Company contribution                                     --       --          0.4          --
Benefits paid                                         (90.8)    (8.4)          --          --
---------------------------------------------------------------------------------------------
Fair value of plan assets as of December 31         1,683.0    172.1          3.9         0.3
---------------------------------------------------------------------------------------------

Funded status of plan*                                182.9     29.7       (597.4)      (47.0)
Unrecognized actuarial loss (gain)                   (110.8)   (25.7)        30.6         4.3
Unrecognized prior service cost                        63.0      4.2         27.4        (4.0)
Unrecognized net transition obligation (asset)        (18.0)    (5.3)       129.3        21.4
---------------------------------------------------------------------------------------------
Prepaid (accrued) benefit cost                     $  117.1   $  2.9      $(410.1)     $(25.3)
=============================================================================================

Assumptions used as of December 31:
Discount rate                                          7.00%    7.25%        7.00%       7.25%
Expected long-term return on plan assets              10.25%   10.00%       10.25%      10.00%
Rate of compensation increase                          4.00%    4.00%        4.00%       4.00%

<FN>
  
  *  1998 beginning balances reflect 1998 merger of the Company's,
     Edison's and Centerior plans into FirstEnergy plans.

</TABLE>


          Net pension and other postretirement benefit costs for the 
three years ended December 31, 1998 (including the Company's share of 
FirstEnergy plans' 1998 pension benefits costs and other 
postretirement benefit costs of $(6.1) million and $5.4 million, 
respectively) were computed as follows: 

<TABLE>
<CAPTION>
                                                                                Other
                                               Pension Benefits        Postretirement Benefits
                                             --------------------      ----------------------
                                             1998    1997    1996       1998    1997    1996 
---------------------------------------------------------------------------------------------
                                                              (In millions)
<S>                                       <C>      <C>     <C>         <C>     <C>     <C>
Service cost                              $  25.0  $  2.7  $  3.2      $ 7.5   $0.9    $ 1.1
Interest cost                                92.5     8.9     9.5       37.6    3.2      3.2
Expected return on plan assets             (152.7)  (14.7)  (12.3)      (0.3)    --       --
Amortization of transition obligation
 (asset)                                     (8.0)   (1.0)   (1.0)       9.2    1.2      1.7
Amortization of prior service cost            2.3     0.4     0.4       (0.8)    --     (0.3)
Recognized net actuarial gain                (2.6)   (0.4)     --         --     --       --
Voluntary early retirement program
 expense                                       --     5.8      --         --    0.3       --
Plan curtailment loss (gain)                   --      --    (4.3)        --     --      3.5
-------------------------------------------------------------------------------------------
Net benefit cost                          $ (43.5) $  1.7  $ (4.5)     $53.2   $5.6    $ 9.2
============================================================================================

</TABLE>

          In accordance with SFAS 88 "Employers' Accounting for 
Settlements and Curtailments of Defined Benefit Pension Plans and for 
Termination Benefits," the 1996 net pension costs and postretirement 
benefit costs shown above included curtailment effects (significant 
changes in projected plan assumptions) relating to the pension and 
postretirement benefit plans. The employee terminations reflected in 
the Company's 1996 restructuring activities represented a plan 
curtailment that significantly reduced the expected future employee 
service years and the related accrual of defined pension and 
postretirement benefits. In the pension plan, the reduction in the 
benefit obligation increased the net pension asset and was shown as a 
plan curtailment gain. In the postretirement benefit plan, the 
unrecognized prior service cost associated with service years no 
longer expected to be rendered as a result of the terminations, was 
shown as a plan curtailment loss.

          The FirstEnergy plans' health care trend rate assumption is 
5.5% in the first year gradually decreasing to 4.0% for the year 2008 
and later. Assumed health care cost trend rates have a significant 
effect on the amounts reported for the health care plan. An increase 
in the health care trend rate assumption by one percentage point would 
increase the total service and interest cost components by $4.0 
million and the postretirement benefit obligation by $68.1 million. A 
decrease in the same assumption by one percentage point would decrease 
the total service and interest cost components by $3.2 million and the 
postretirement benefit obligation by $55.2 million.

TRANSACTIONS WITH AFFILIATED COMPANIES-

          Transactions with affiliated companies are included on the 
Statements of Income as follows:



<TABLE>
<CAPTION>
                                          1998      1997      1996 
-------------------------------------------------------------------
                                               (In millions)
<S>                                      <C>       <C>       <C>
Operating revenues:
  Electric sales                         $ 9.8     $ 6.1     $ 3.6
  Bruce Mansfield Plant administrative
   and general charges to affiliates       6.3       0.9        --
  Other transactions                       0.7       0.4       0.4
-------------------------------------------------------------------
                                         $16.8     $ 7.4     $ 4.0
===================================================================
Fuel and purchased power:
  Purchased power                        $20.9     $12.7     $13.2
  Nuclear fuel leased from OES Fuel        5.9       7.5       9.6
-------------------------------------------------------------------
                                         $26.8     $20.2     $22.8
===================================================================
Other operating costs:
  Rental of transmission lines           $ 1.3     $ 1.0     $ 1.0
  Data processing services                 2.8       2.9       2.5
  Other transactions                       5.4       4.4       3.9
-------------------------------------------------------------------
                                         $ 9.5     $ 8.3     $ 7.4
===================================================================
</TABLE>



SUPPLEMENTAL CASH FLOWS INFORMATION-

          All temporary cash investments purchased with an initial 
maturity of three months or less are reported as cash equivalents on 
the Balance Sheets. The Company reflects temporary cash investments 
at cost, which approximates their market value. Noncash financing and 
investing activities included capital lease transactions amounting to 
$0.8 million, $8.5 million and $4.1 million for the years 1998, 1997 
and 1996, respectively.

          All borrowings with initial maturities of less than one year 
are defined as financial instruments under generally accepted 
accounting principles and are reported on the Balance Sheets at cost, 
which approximates their fair market value. The following sets forth 
the approximate fair value and related carrying amounts of all other 
long-term debt, preferred stock subject to mandatory redemption and 
investments other than cash and cash equivalents as of December 31:


<TABLE>
<CAPTION>

                                        1998              1997  
--------------------------------------------------------------------
                                 Carrying  Fair    Carrying   Fair
                                  Value   Value     Value    Value 
--------------------------------------------------------------------
                                               (In millions)
<S>                                 <C>      <C>       <C>      <C>
Long-term debt                      $278     $294      $277     $291
Preferred stock                       15       16        15       15
Investments other than cash 
and cash equivalents                  17       21        14       15
--------------------------------------------------------------------

</TABLE>

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

          The fair value of investments other than cash and cash 
equivalents represent cost (which approximates fair value) or the 
present value of the cash inflows based on the yield to maturity. The 
yields assumed were based on financial instruments with similar 
characteristics and terms. Investments other than cash and cash 
equivalents consist primarily of decommissioning trust investments. 
Unrealized gains and losses applicable to the decommissioning trust 
have been recognized in the trust investment with a corresponding 
change to the decommissioning liability. The Company has no 
securities held for trading purposes.

REGULATORY ASSETS-

          The Company recognizes, as regulatory assets, costs which 
the FERC and PPUC have authorized for recovery from customers in 
future periods. Without such authorization, the costs would have been 
charged to income as incurred. All regulatory assets are being 
recovered from customers under the Company's regulatory plan. Based 
on the regulatory plan, at this time, the Company believes it will 
continue to be able to bill and collect cost-based rates relating to 
the Company's nongeneration operations; accordingly, it is 
appropriate that the Company continues the application of SFAS 71 
relating to those operations. The Company recognized additional cost 
recovery of $24 million, $11 million and $8 million in 1998, 1997 and 
1996, respectively, as additional regulatory asset amortization in 
accordance with its regulatory plan. Regulatory assets on the Balance 
Sheets are comprised of the following:

<TABLE>
<CAPTION>
                                                   1998       1997 
-------------------------------------------------------------------
                                                      (In millions)
<S>                                               <C>        <C>
Competitive transition charge                     $331.0     $   --
Customer receivables for future income taxes        23.6       92.6
Nuclear unit expenses                                 --       17.5
Perry Unit 2 termination                              --       36.7
Loss on reacquired debt                              8.2        9.2
DOE decommissioning and decontamination costs        0.3        3.6
Employee postretirement benefit costs                6.2         --
Other                                                1.7        3.4
-------------------------------------------------------------------
  Total                                           $371.0     $163.0
===================================================================


</TABLE>


2.  LEASES

          The Company leases certain transmission facilities, office 
space and other property and equipment under cancelable and 
noncancelable leases. Consistent with the regulatory treatment, the 
rentals for capital and operating leases are charged to operating 
expenses on the Statements of Income. Such costs for the three years 
ended December 31, 1998, are summarized as follows:

<TABLE>
<CAPTION>

                          1998       1997        1996
-----------------------------------------------------
                               (In millions)
<S>                      <C>       <C>         <C>
Operating leases
  Interest element      $0.5       $0.5        $0.5
  Other                  1.3        1.5         1.3
Capital leases
  Interest element       0.6        0.7         0.7
  Other                  0.7        0.8         0.9
---------------------------------------------------
Total rental payments   $3.1       $3.5        $3.4
===================================================
</TABLE>

          The future minimum lease payments as of  December 31, 1998, 
are:

<TABLE>
<CAPTION>

                                          Capital       Operating
                                          Leases         Leases
------------------------------------------------------------------
                                              (In millions)
<S>                                       <C>             <C>
1999                                      $ 1.3           $0.2
2000                                        1.2            0.2
2001                                        1.0            0.2
2002                                        1.0            0.2
2003                                        0.9            0.2
Years thereafter                            9.6            3.0
--------------------------------------------------------------
Total minimum lease payments               15.0           $4.0
                                                          ====
Executory costs                             3.1
-----------------------------------------------
Net minimum lease payments                 11.9
Interest portion                            7.3
-----------------------------------------------
Present value of net minimum
  lease payments                            4.6
Less current portion                        0.5
-----------------------------------------------
Noncurrent portion                        $ 4.1
===============================================

</TABLE>

3.  CAPITALIZATION:

   (A)  RETAINED EARNINGS-

          Under the Company's Charter, the Company's retained 
earnings unrestricted for payment of cash dividends on the Company's 
common stock were $75.3 million at December 31, 1998.

   (B)  COMPREHENSIVE INCOME-

          In 1998, the Company adopted SFAS 130, "Reporting 
Comprehensive Income," and applied the standard to all periods 
presented in the Statements of Common Stockholder's Equity. 
Comprehensive income includes net income as reported on the 
Statements of Income and all other changes in common stockholder's 
equity except dividends to stockholders.

   (C)  PREFERRED STOCK-

          The Company's 7.75% series of preferred stock has 
restrictions which prevent early redemption prior to July 2003. All 
other preferred stock may be redeemed by the Company in whole, or in 
part, with 30-60 days' notice.

   (D)  PREFERRED STOCK SUBJECT TO MANDATORY REDEMPTION-

          The Company's 7.625% series has an annual sinking fund 
requirement for 7,500 shares beginning on October 1, 2002.

   (E)  LONG-TERM DEBT-

          The first mortgage indenture and its supplements, which 
secure all of the Company's first mortgage bonds, serve as a direct 
first mortgage lien on substantially all property and franchises, 
other than specifically excepted property, owned by the Company. 
Long-term debt maturities (excluding capital leases) during the next 
five years are $0.5 million in 1999, $24.0 million in 2000, 
$1.0 million in 2001, $1.0 million in 2002 and $41.0 million in 
2003.

          The Company's obligations to repay certain pollution 
control revenue bonds are secured by series of first mortgage bonds 
and, in some cases, by subordinate liens on the related pollution 
control facilities.

4.  SHORT-TERM BORROWINGS:

          The Company has a credit agreement with Edison whereby 
either company can borrow funds from the other by issuing unsecured 
notes at the prevailing prime or similar interest rate. Under the 
terms of this agreement, the maximum borrowing is limited only by the 
availability of funds; however, the Company's borrowing under this 
agreement is currently limited by the PPUC to a total of $50 million. 
Either company can terminate the agreement with six months' notice.

5.  COMMITMENTS, GUARANTEES AND   CONTINGENCIES:

CAPITAL EXPENDITURES-

          The Company's current forecast reflects expenditures of 
approximately $167 million for property additions and improvements 
from 1999 through 2003, of which approximately $28 million is 
applicable to 1999. Investments for additional nuclear fuel during 
the 1999-2003 period are estimated to be approximately $28 million, 
of which approximately $3 million applies to 1999. During the same 
periods, the Company's nuclear fuel investments are expected to be 
reduced by approximately $29 million and $6 million, respectively, as 
the nuclear fuel is consumed. 

NUCLEAR INSURANCE-

          The Price-Anderson Act limits the public liability relative 
to a single incident at a nuclear power plant to $9.7 billion. The 
amount is covered by a combination of private insurance and an 
industry retrospective rating plan. Based on its present ownership 
interests in Beaver Valley Unit 1 and the Perry Plant, the Company's 
maximum potential assessment under the industry retrospective rating 
plan (assuming the other co-owners contribute their proportionate 
shares of any assessments under the retrospective rating plan) would 
be $20 million per incident but not more than $2.3 million in any one 
year for each incident.

          The Company is also insured as to its interest in Beaver 
Valley Unit 1 and the Perry Plant under policies issued to the 
operating company for each plant. Under these policies, up to 
$2.75 billion is provided for property damage and decontamination and 
decommissioning costs. The Company has also obtained approximately 
$69.5 million of insurance coverage for replacement power costs for 
its interests in Perry and Beaver Valley Unit 1. Under these 
policies, the Company can be assessed a maximum of approximately 
$2.8 million for incidents at any covered nuclear facility occurring 
during a policy year which are in excess of accumulated funds 
available to the insurer for paying losses.

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

GUARANTEE-

          The Company, together with the other CAPCO companies, has 
severally guaranteed certain debt and lease obligations in connection 
with a coal supply contract for the Bruce Mansfield Plant. As of 
December 31, 1998, the Company's share of the guarantee (which 
approximates fair market value) was $3.6 million. The price under the 
coal supply contract, which includes certain minimum payments, has 
been determined to be sufficient to satisfy the debt and lease 
obligations. The Company's total payments under the coal supply 
contract were $15.0 million, $13.3 million and $11.1 million during 
1998, 1997, and 1996, respectively. The Company's minimum payment for 
1999 is approximately $4 million. The contract expires December 31, 
1999.

ENVIRONMENTAL MATTERS-

          Various federal, state and local authorities regulate the 
Company with regard to air and water quality and other environmental 
matters. The Company has estimated additional capital expenditures 
for environmental compliance of approximately $47 million, which is 
included in the construction forecast provided under "Capital 
Expenditures" for 1999 through 2003.

          The Company is in compliance with the current sulfur dioxide 
(SO2) and nitrogen oxides (NOx) reduction requirements under the Clean 
Air Act Amendments of 1990. SO2 reductions in 1999 will be achieved by 
burning lower-sulfur fuel, generating more electricity from lower-
emitting plants, and/or purchasing emission allowances. Plans for 
complying with reductions required for the year 2000 and thereafter 
have not been finalized. In September 1998, the Environmental 
Protection Agency (EPA) finalized regulations requiring additional NOx 
reductions from the Company's Pennsylvania facilities by May 2003. The 
EPA's NOx Transport Rule imposes uniform reductions of NOx emissions 
across a region of twenty-two states and the District of Columbia, 
including Ohio and Pennsylvania, based on a conclusion that such NOx 
emissions are contributing significantly to ozone pollution in the 
eastern United States. By September 1999, each of the twenty-two 
states are required to submit revised State Implementation Plans (SIP) 
which comply with individual state NOx budgets established by the EPA. 
These state NOx budgets contemplate an 85% reduction in utility plant 
NOx emissions from 1990 emissions. A proposed Federal Implementation 
Plan accompanied the NOx Transport Rule and may be implemented by the 
EPA in states which fail to revise their SIP. In another separate but 
related action, eight states filed petitions with the EPA under 
Section 126 of the Clean Air Act seeking reductions of NOx emissions 
which are alleged to contribute to ozone pollution in the eight 
petitioning states. The EPA suggests that the Section 126 petitions 
will be adequately addressed by the NOx Transport Program, but a 
September 1998 proposed rulemaking established an alternative program 
which would require nearly identical 85% NOx reductions at the 
Company's Ohio and Pennsylvania plants by May 2003 in the event 
implementation of the NOx Transport Rule is delayed. FirstEnergy 
continues to evaluate its compliance plans and other compliance 
options and currently estimates its additional capital expenditures 
for NOx reductions may reach $500 million.

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

          In July 1997, the EPA promulgated changes in the National 
Ambient Air Quality Standard (NAAQS) for ozone and proposed a new 
NAAQS for previously unregulated ultra-fine particulate matter. The 
cost of compliance with these regulations may be substantial and 
depends on the manner in which they are implemented by the states in 
which the Company operates affected facilities.

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

6.  SUMMARY OF QUARTERLY FINANCIAL DATA (UNAUDITED):

          The following summarizes certain operating results by 
quarter for 1998 and 1997.

<TABLE>
<CAPTION>

                                             March 31,  June 30,  September 30,  December 31,
Three Months Ended                            1998       1998        1998          1998  
-------------------------------------------------------------------------------------------
                                                             (In millions)
<S>                                           <C>       <C>          <C>            <C>
Operating Revenues                           $78.5     $ 80.3       $87.9          $77.0
Operating Expenses and Taxes                  65.9       70.3        71.5           58.0
----------------------------------------------------------------------------------------
Operating Income                              12.6       10.0        16.4           19.0
Other Income                                   0.7        0.6         0.6            0.6
Net Interest Charges                           5.4        5.2         5.2            5.1
----------------------------------------------------------------------------------------
Income Before Extraordinary Item               7.9        5.4        11.8           14.5
Extraordinary Item (Net of Income Taxes)
  (Note 1)                                      --      (30.5)         --             --
Net Income (Loss)                            $ 7.9     $(25.1)      $11.8          $14.5
========================================================================================
Earnings (Loss) on Common Stock              $ 6.8     $(26.2)      $10.7          $13.3
========================================================================================

</TABLE>


<TABLE>
<CAPTION>

                                             March 31,  June 30,  September 30,  December 31,
     Three Months Ended                       1997       1997        1997           1997  
--------------------------------------------------------------------------------------------
                                                             (In millions)
<S>                                           <C>       <C>          <C>           <C>
Operating Revenues                            $79.0     $79.2        $85.2         $79.9
Operating Expenses and Taxes                   65.4      66.2         69.6          71.4
----------------------------------------------------------------------------------------
Operating Income                               13.6      13.0         15.6           8.5
Other Income                                    0.7       0.3          0.8           0.9
Net Interest Charges                            5.7       5.5          5.5           5.2
----------------------------------------------------------------------------------------
Net Income                                    $ 8.6     $ 7.8        $10.9         $ 4.2 
=========================================================================================
Earnings on Common Stock                      $ 7.4     $ 6.6        $ 9.7         $ 3.1 
=========================================================================================

</TABLE>

Report of Independent Public Accountants

To the Stockholders and Board of Directors of Pennsylvania Power Company:

We have audited the accompanying balance sheets and statements of 
capitalization of Pennsylvania Power Company (a Pennsylvania corporation 
and wholly owned subsidiary of Ohio Edison Company) as of December 31, 1998 
and 1997, and the related statements of income, common stockholder's 
equity, preferred stock, cash flows and taxes for each of the three years 
in the period ended December 31, 1998. These financial statements are the 
responsibility of the Company's management. Our responsibility is to 
express an opinion on these financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly, 
in all material respects, the financial position of Pennsylvania Power 
Company as of December 31, 1998 and 1997, and the results of its operations 
and its cash flows for each of the three years in the period ended 
December 31, 1998, in conformity with generally accepted accounting 
principles.



                                   ARTHUR ANDERSEN LLP


Cleveland, Ohio
February 12, 1999