PENNSYLVANIA POWER COMPANY

                       2003 ANNUAL REPORT TO STOCKHOLDERS



           Pennsylvania Power Company, an electric utility operating company of
FirstEnergy Corp. and a wholly owned subsidiary of Ohio Edison Company, provides
electric service to approximately 156,000 customers in western Pennsylvania.






Contents                                                                  Page
--------                                                                  ----

Selected Financial Data...........................................          1
Management's Discussion and Analysis..............................        2-10
Statements of Income..............................................         11
Balance Sheets....................................................         12
Statements of Capitalization......................................         13
Statements of Common Stockholder's Equity.........................         14
Statements of Preferred Stock.....................................         14
Statements of Cash Flows..........................................         15
Statements of Taxes...............................................         16
Notes to Financial Statements.....................................        17-30
Reports of Independent Auditors...................................        31-32



<PAGE>


<TABLE>
<CAPTION>


                           PENNSYLVANIA POWER COMPANY

                             SELECTED FINANCIAL DATA


                                                 2003           2002            2001          2000            1999
---------------------------------------------------------------------------------------------------------------------
                                                                      (Dollars in thousands)

<S>                                            <C>             <C>            <C>            <C>           <C>
Operating Revenues......................       $526,867        $506,407       $498,401       $383,112      $  329,234
                                               ========        ========       ========       ========      ==========

Operating Income........................       $ 47,320        $ 60,922       $ 55,178       $ 39,979      $   32,063
                                               ========        ========       ========       ========      ==========

Income Before Cumulative Effect
   of Accounting Change.................       $ 37,833        $ 47,717       $ 41,041       $ 22,847      $   12,648
                                               ========        ========       ========       ========      ==========

Net Income..............................       $ 48,451        $ 47,717       $ 41,041       $ 22,847      $   12,648
                                               ========        ========       ========       ========      ==========

Earnings on Common Stock................       $ 45,263        $ 44,018       $ 37,338       $ 19,143      $    8,278
                                               ========        ========       ========       ========      ==========

Total Assets............................       $879,379        $907,748       $960,097       $988,909      $1,015,616
                                               ========        ========       ========       ========      ==========

CAPITALIZATION AS OF DECEMBER 31:
Common Stockholder's Equity.............       $230,786        $229,374       $223,788       $213,851      $  199,608
Preferred Stock-
   Not Subject to Mandatory Redemption..         39,105          39,105         39,105         39,105          39,105
   Subject to Mandatory Redemption......             --          13,500         14,250         15,000          15,000
Long-Term Debt..........................        130,358         185,499        262,047        270,368         274,821
                                               --------        --------       --------       --------      ----------
Total Capitalization....................       $400,249        $467,478       $539,190       $538,324      $  528,534
                                               ========        ========       ========       ========      ==========

CAPITALIZATION RATIOS:
Common Stockholder's Equity.............           57.7%           49.1%          41.5%          39.7%           37.8%
Preferred Stock-
   Not Subject to Mandatory Redemption..            9.8             8.3            7.3            7.3             7.4
   Subject to Mandatory Redemption......             --             2.9            2.6            2.8             2.8
Long-Term Debt..........................           32.5            39.7           48.6           50.2            52.0
                                                  -----           -----         ------          -----           -----
Total Capitalization....................          100.0%          100.0%         100.0%         100.0%          100.0%
                                                  =====           =====         ======          =====           =====

DISTRIBUTION KILOWATT-HOUR DELIVERIES
(Millions):
Residential.............................          1,506           1,533          1,391          1,387           1,325
Commercial..............................          1,283           1,268          1,220          1,198           1,105
Industrial..............................          1,464           1,505          1,540          1,665           1,495
Other...................................              6               6              6              6               6
                                                  -----           -----          -----          -----           -----
Total...................................          4,259           4,312          4,157          4,256           3,931
                                                  =====           =====          =====          =====           =====

CUSTOMERS SERVED:
Residential.............................        137,170         136,410        134,956        121,066         117,440
Commercial..............................         18,455          18,397         18,153         16,634          16,307
Industrial..............................            219             220            224            177             175
Other...................................             85              85             87             87              87
                                                -------         -------        -------        -------         -------
Total...................................        155,929         155,112        153,420        137,964         134,009
                                                =======         =======        =======        =======         =======

NUMBER OF EMPLOYEES.....................            201             201            256            275             895


</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. Such statements are subject to
certain risks and uncertainties. These statements typically contain, but are not
limited to, the terms "anticipate," "potential," "expect," "believe," "estimate"
and similar words. Actual results may differ materially due to the speed and
nature of increased competition and deregulation in the electric utility
industry, economic or weather conditions affecting future sales and margins,
changes in markets for energy services, changing energy and commodity market
prices, replacement power costs being higher than anticipated or inadequately
hedged, maintenance costs being higher than anticipated, legislative and
regulatory changes (including revised environmental requirements), adverse
regulatory or legal decisions and the outcome of governmental investigations,
availability and cost of capital, the continuing availability and operation of
generating units, the inability to accomplish or realize anticipated benefits
from strategic goals, the ability to improve electric commodity margins and to
experience growth in the distribution business, the ability to access the public
securities market, further investigation into the causes of the August 14, 2003,
regional power outage and the outcome, cost and other effects of present and
potential legal and administrative proceedings and claims related to the outage,
a denial of or material change to the Company's Application related to its Rate
Stabilization Plan, and other similar factors.

Results of Operations
---------------------

           Earnings on common stock in 2003 increased 2.8% to $45.3 million from
$44.0 million in 2002. Earnings in 2003 included an after-tax credit of $10.6
million from the cumulative effect of an accounting change due to the adoption
of SFAS 143, "Accounting for Asset Retirement Obligations," (see Note 1(H)).
Income before the cumulative effect in 2003 decreased 20.7% to $37.8 million
from $47.7 million in 2002. The lower results for 2003 were primarily due to
higher nuclear operating costs and purchased power costs. These increased costs
were partially offset by higher operating revenues, lower fuel costs and reduced
financing costs.

           Earnings on common stock in 2002 increased 17.9% to $44.0 million
from $37.3 million in 2001. The earnings increase in 2002 primarily resulted
from increased operating revenues and lower financing costs, which were
partially offset by higher operating expenses and taxes and reduced other
income.

           Operating revenues increased by $20.5 million, or 4%, in 2003 as
compared to 2002. The higher revenues primarily resulted from increased
wholesale revenues of $24.6 million in 2003, along with higher retail generation
sales revenues of $2.5 million due to higher unit prices -- partially offset by
a 1% decrease in retail kilowatt-hour sales. These electric generation revenue
increases were partially offset by $5.1 million of lower revenues from
distribution deliveries. Wholesale revenue increases from sales to FirstEnergy
Solutions Corp. (FES) reflected higher unit prices, which were partially offset
by lower kilowatt-hour sales due to reduced nuclear generation available for
sale to FES.

           Operating revenues increased by $8.0 million, or 1.6%, in 2002 as
compared to 2001. The return of customers previously served by alternative
generation suppliers contributed to the revenue increase. Retail kilowatt-hour
sales increased by 7.8% in 2002 from the prior year, with increases in the
residential and commercial sectors contributing to a $15.8 million increase in
generation sales revenue. Sales of electric generation by alternative suppliers
as a percent of total sales delivered in our franchise area decreased to 0.4% in
2002 from 4.1% in 2001. Distribution deliveries increased 3.7% in 2002 as
compared to 2001, which increased revenues from electricity throughput by $3.9
million in 2002 from the prior year. The higher distribution deliveries resulted
from additional residential and commercial demand due to warmer summer weather
that was offset in part by the effect of continued sluggishness in the economy
on demand by industrial customers. Sales revenues from wholesale customers
decreased by $14.3 million in 2002 compared to 2001, due to a decline in market
prices.


 Changes in KWH Sales                        2003             2002
 -------------------------------------------------------------------
  Increase (Decrease)
 Electric Generation:
   Retail................................    (1.0)%            7.8%
   Wholesale.............................   (11.6)%           12.0%
 -------------------------------------------------------------------
 Total Electric Generation Sales.........    (7.4)%           10.3%
 ==================================================================
 Distribution Deliveries:
   Residential...........................    (1.8)%           10.2%
   Commercial and industrial.............    (1.0)%            0.5%
 -------------------------------------------------------------------
 Total Distribution Deliveries...........    (1.3)%            3.7%
 ==================================================================

                                    2

<PAGE>

       Operating Expenses and Taxes

           Total operating expenses and taxes increased by $34.1 million in 2003
and $2.3 million in 2002 from the prior year. The following table presents
changes from the prior year by expense category.

 Operating Expenses and Taxes - Changes             2003          2002
 ---------------------------------------------------------------------
  Increase (Decrease)                                (In millions)
 Fuel..........................................    $(3.7)      $  1.6
 Purchased power costs.........................      8.8          5.1
 Nuclear operating costs.......................     38.9        (24.6)
 Other operating costs.........................      2.6          5.4
 --------------------------------------------------------------------
   Total operation and maintenance expenses....     46.6        (12.5)

 Provision for depreciation and amortization...     (2.9)        (0.3)
 General taxes.................................     (2.0)        10.3
 Income taxes..................................     (7.6)         4.8
 --------------------------------------------------------------------
   Total operating expenses and taxes..........    $34.1       $  2.3
=====================================================================


           Lower fuel costs in 2003, compared with 2002, resulted from reduced
nuclear generation. The increased purchased power costs in 2003 reflected higher
unit costs and increased kilowatt-hour purchases. Higher nuclear operating costs
occurred, in large part, due to the refueling outages at Beaver Valley Unit 1
(65.00% ownership); Perry (5.24% ownership) and Beaver Valley Unit 2 (13.74%
ownership) in 2003, compared with one refueling outage at Beaver Valley Unit 2
in 2002.

           Charges for depreciation and amortization decreased by $2.9 million
in 2003 compared to 2002, primarily from lower charges resulting from the
implementation of SFAS 143, "Accounting for Asset Retirement Obligations," ($1.4
million for 2003) and revised service life assumptions for nuclear generating
plants ($1.2 million for 2003).

           Higher fuel and purchased power costs in 2002 compared with 2001,
resulted from a $4.2 million increase in power purchased from FES, reflecting
higher kilowatt-hours purchased due to increased kilowatt-hour sales and lower
unit prices. Nuclear operating costs decreased $24.6 million, primarily due to
one less refueling outage in 2002 compared to 2001. The $5.4 million increase in
other operating costs resulted principally from higher employee benefit costs.

           General taxes decreased $2 million in 2003 from 2002 principally due
to settled property tax claims. General taxes increased by $10.3 million in 2002
from 2001 as a result of additional property taxes and gross receipt taxes.

       Net Interest Charges

           Net interest charges continued to trend lower, decreasing by $2.8
million in 2003 and by $2.2 million in 2002, compared to the prior year. We
continued to redeem and refinance outstanding debt, with 2003 redemptions
totaling $41.7 million (including mandatorily redeemable preferred stock). These
redemptions will result in annualized savings of approximately $3.2 million.

       Cumulative Effect of Accounting Change

           Results for 2003 include an after-tax credit to net income of $10.6
million recorded upon the adoption of SFAS 143 in January 2003. We identified
applicable legal obligations as defined under the new standard for nuclear power
plant decommissioning and reclamation of a sludge disposal pond at the Bruce
Mansfield Plant. As a result of adopting SFAS 143 in January 2003, asset
retirement costs of $78 million were recorded as part of the carrying amount of
the related long-lived asset, offset by accumulated depreciation of $9 million.
The ARO liability at the date of adoption was $121 million, including
accumulated accretion for the period from the date the liability was incurred to
the date of adoption. As of December 31, 2002, we had recorded decommissioning
liabilities of $120 million. We expect substantially all of its nuclear
decommissioning costs to be recoverable in rates over time. Therefore, it
recognized a regulatory liability of $69 million upon adoption of SFAS 143 for
the transition amounts related to establishing the ARO for nuclear
decommissioning. The remaining cumulative effect adjustment for unrecognized
depreciation and accretion, offset by the reduction in the liabilities and the
reversal of accumulated estimated removal costs for non-regulated generation
assets, was an $18.2 million increase to income, or $10.6 million net of income
taxes.

Capital Resources and Liquidity
-------------------------------

           Through net debt and preferred stock redemptions, we continue to
reduce the cost of debt and preferred stock, and improve our financial position
in 2003. During 2003, we reduced our total outstanding debt by approximately
$30.5 million. Preferred stock subject to mandatory redemption is now classified
as debt under SFAS 150.

                                      3

<PAGE>

       Changes in Cash Position

           As of December 31, 2003, we had $40,000 of cash and cash equivalents,
compared with $1.2 million as of December 31, 2002. The major sources for
changes in these balances are summarized below.

       Cash Flows From Operating Activities

           Our net cash from operating activities is provided by our regulated
energy services. Net cash provided from operating activities was $129 million in
2003, $106 million in 2002 and $93 million in 2001. Cash provided from 2003,
2002 and 2001 operating activities are as follows:


 Operating Cash Flows              2003       2002      2001
 -------------------------------------------------------------
                                           (In millions)

 Cash earnings (1).............   $ 98.8     $115.8    $101.6
 Working capital and other.....     29.7      (10.0)     (8.3)
 -------------------------------------------------------------

 Total.........................   $128.5     $105.8    $ 93.3
 =============================================================

 (1) Includes net income, depreciation and
   amortization, deferred income taxes, investment
   tax credits and major noncash charges.

           Net cash from operating activities increased to $129 million in 2003
compared with $106 million in 2002 due to a $40 million reduction in working
capital and other requirements partially offset by a $17 million decrease in
cash earnings.

       Cash Flows From Financing Activities

           In 2003 and 2002, the net cash used for financing activities of $76
million and $75 million, respectively, primarily reflects the redemptions of
debt and preferred stock shown below and dividend payments. The following table
provides details regarding new issues and redemptions during 2003 and 2002:


 Securities Issued or Redeemed                2003       2002
 -------------------------------------------------------------
                                               (In millions)
 New Issues
 ----------
      Pollution Control Notes..............    $ --      $14.5
      Short-Term Borrowings, Net...........     11.3       --

 Redemptions
 -----------
      First Mortgage Bonds.................     41.0       1.0
      Pollution Control Notes..............      --       14.5
      Capital Fuel Leases..................      --       40.7
      Preferred Stock......................      0.8       0.8
      Other, principally redemption
        premiums...........................      0.1       0.6
 --------------------------------------------------------------
                                               $41.9     $57.6


           In 2001, net cash flow used for financing activities totaled $51
million, primarily due to long-term debt redemptions and $31 million of dividend
payments.

           We had about $0.4 million of cash and temporary investments and
short-term indebtedness of $11.3 million as of December 31, 2003. At the end of
2003, we had the capability to issue $451 million of additional first mortgage
bonds on the basis of property additions and retired bonds. Based upon
applicable earnings in 2003 under the earnings coverage test contained in our
charter, we could issue $244 million of preferred stock (assuming no additional
debt was issued).

           We have the ability to borrow from our regulated affiliates and
FirstEnergy to meet our short-term working capital requirements. FirstEnergy
Service Company administers this money pool and tracks surplus funds of
FirstEnergy and the respective regulated subsidiaries. Companies receiving a
loan under the money pool agreements must repay the principal, together with
accrued interest, within 364 days of borrowing the funds. The rate of interest
is the same for each company receiving a loan from the pool and is based on the
average cost of funds available through the pool. The average interest rate for
borrowings in 2003 was 1.47%.

           Our access to capital markets and costs of financing are dependent on
the ratings of our securities, OE and FirstEnergy. The following table shows
securities' ratings following the downgrade by Moody's Investors Service in
February 2004. The ratings outlook on all securities is stable.

                                       4
<PAGE>


Ratings of Securities
-----------------------------------------------------------------------------
                    Securities             S&P         Moody's         Fitch
-----------------------------------------------------------------------------
FirstEnergy       Senior unsecured         BB+           Baa3          BBB-

OE                Senior secured           BBB           Baa1          BBB+
                  Senior unsecured         BB+           Baa2          BBB
                  Preferred stock          BB            Ba1           BBB-

Penn              Senior secured           BBB-          Baa1          BBB+
                  Senior unsecured (1)     BB+           Baa2          BBB
                  Preferred stock          BB            Ba1           BBB-
------------------------------------------------------------------------------

(1) Penn's only senior unsecured debt obligations are pollution control revenue
    refunding bonds issued in the name of the Ohio Air Quality Development
    Authority to which this rating applies.


           On September 30, 2003, Fitch Ratings lowered the senior unsecured
ratings of FirstEnergy to "BBB-" from "BBB." In addition, Fitch affirmed the
ratings of OE and the Company. Fitch announced that the Rating Outlook is Stable
for the securities of FirstEnergy, and all of the securities of its electric
utility operating companies. Fitch stated that the changes to the long-term
ratings were "driven by the high debt leverage of the parent, FirstEnergy.
Despite management's commitment to reduce debt related to the GPU merger,
subsequent cash flows have been vulnerable to unfavorable events, slowing the
pace of FirstEnergy's debt reduction efforts. The Stable Outlook reflects the
success of FirstEnergy's recent common equity offering and management's focus on
a relatively conservative integrated utility strategy."

           On December 23, 2003, Standard & Poor's (S&P) lowered its corporate
credit ratings on FirstEnergy and its regulated utility subsidiaries to "BBB-"
from "BBB" and lowered FirstEnergy's senior unsecured debt rating to "BB+" from
"BBB-". Except for OE's senior secured issue rating, which was left unchanged,
all other subsidiary ratings were lowered one notch as well. The ratings were
removed from CreditWatch with negative implications, where they had been placed
by S&P on August 18, 2003, and the Ratings Outlook returned to Stable. The
rating action followed a revision in S&P's assessment of FirstEnergy's
consolidated business risk profile to `6' from `5' (`1' equals low risk, `10'
equals high risk), with S&P citing operational and management challenges as well
as heightened regulatory uncertainty for its revision of our business risk
assessment score. S&P's rationale for its revisions in FirstEnergy's ratings
included uncertainty regarding the timing of the Ohio Rate Plan filing, the
pending final report on the August 14 regional outage (see Power Outage), the
outcome of the remedial phase of litigation relating to the Sammis plant (see
Environmental Matters), and the extended Davis-Besse outage and the related
pending subpoena. S&P further stated that the restart of Davis-Besse and a
supportive Ohio Rate Plan extension will be vital positive developments that
would aid an upgrade of FirstEnergy's ratings. S&P's reduction of FirstEnergy's
credit ratings in December 2003 triggered cash and letter-of-credit collateral
calls in addition to higher interest rates for some outstanding borrowings.


           On February 6, 2004, Moody's downgraded FirstEnergy senior unsecured
debt to Baa3 from Baa2. The ratings of OE and the Company were confirmed.
Moody's said that the lower ratings were prompted by: "1) high consolidated
leverage with significant holding company debt, 2) a degree of regulatory
uncertainty in the service territories in which the company operates, 3) risks
associated with investigations of the causes of the August 2003 blackout, and
related securities litigation, and 4) a narrowing of the ratings range for the
FirstEnergy operating utilities, given the degree to which FirstEnergy
increasingly manages the utilities as a single system and the significant
financial interrelationship among the subsidiaries."

       Cash Flows From Investing Activities

           Net cash used in investing activities totaled $53.9 million in 2003.
The net cash used for investing resulted from increased property additions and
nuclear plant decommissioning trust investments partially offset by loan
payments from the Company's parent company, OE. Expenditures for property
additions include expenditures supporting our distribution of electricity.

           Net cash used in investing activities totaled $29.3 million in 2002.
The net cash used for investing resulted from increased property additions,
which were offset in part by loan payments from associated companies.

           In 2001, net cash used in investing activities totaled $45.9 million,
principally due to property additions and loans to associated companies, which
were offset in part by sales of assets to associated companies.

           Our cash requirements in 2004 for operating expenses, construction
expenditures, scheduled debt maturities and preferred stock redemptions are
expected to be met without increasing our net debt and preferred stock
outstanding.

           Our capital spending for the period 2004-2006 is expected to be about
$143 million (excluding nuclear fuel) of which approximately $64 million applies
to 2004. Investments for additional nuclear fuel during the 2004-2006 period are


                                      5


<PAGE>

estimated to be approximately $34 million, of which about $20 million relates to
2004. During the same periods, our nuclear fuel investments are expected to be
reduced by approximately $35 million and $17 million, respectively, as the
nuclear fuel is consumed. We had no other material obligations as of December
31, 2003 that have not been recognized on our Balance Sheet.

Contractual Obligations
-----------------------

           Our cash contractual obligations as of December 31, 2003 that we
consider firm obligations are as follows:

<TABLE>
<CAPTION>

Contractual Obligations               Total          2004            2005-2006       2007-2008         Thereafter
-----------------------------------------------------------------------------------------------------------------
                                                                  (In millions)
<S>                                   <C>              <C>             <C>             <C>               <C>
Long-term debt..................      $211             $63             $ 2             $ 2               $144
Preferred stock (1).............        14               1               2              11                 --
Short-term borrowings...........        11              11              --              --                 --
Purchases (2)...................       121              20              30              28                 43
----------------------------------------------------------------------------------------------------------------
   Total........................      $357             $95             $34             $41               $187
================================================================================================================

<FN>

(1) Subject to mandatory redemption.
(2) Fuel and power purchases under contracts with fixed or minimum quantities
    and approximate timing.

</FN>
</TABLE>

Interest Rate Risk
------------------

           Our exposure to fluctuations in market interest rates is reduced
since a significant portion of our debt has fixed interest rates, as noted in
the following table.

           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>

Comparison of Carrying Value to Fair Value
------------------------------------------------------------------------------------------------------------------
                                                                                        There-              Fair
Year of Maturity                 2004       2005       2006       2007       2008        after     Total   Value
-------------------------------------------------------------------------------------------------------------------
                                                                (Dollars in millions)
<S>                               <C>         <C>        <C>       <C>          <C>       <C>        <C>    <C>
Assets
Investments Other Than Cash
   and Cash Equivalents-
   Fixed Income...............                 $6                  $ 1           $1       $116       $124   $130
   Average interest rate......                7.8%                 7.8%         7.8%       5.5%       5.6%
__________________________________________________________________________________________________________________
Liabilities
------------------------------------------------------------------------------------------------------------------
Long-term Debt and Other
   Long-Term Obligations:
Fixed rate....................    $63          $1         $1       $ 1           $1       $ 82       $149   $166
   Average interest rate .....     7.4%       9.7%       9.7%      9.7%         9.7%       6.5%       7.0%
Variable rate.................                                                            $ 62       $ 62   $ 62
   Average interest rate......                                                             1.8%       1.8%
Preferred Stock Subject to
   Mandatory Redemption.......    $ 1          $1         $1       $11                               $ 14   $ 14
   Average dividend rate......    7.6%        7.6%       7.6%      7.6%                               7.6%
Short-term Borrowings.........    $11                                                                $ 11   $ 11
   Average interest rate......    1.7%                                                                1.7%
-------------------------------------------------------------------------------------------------------------------

</TABLE>

Equity Price Risk
-----------------

           Included in our nuclear decommissioning trust investments are
marketable equity securities carried at their market value of approximately $50
million and $38 million as of December 31, 2003 and 2002, respectively. A
hypothetical 10% decrease in prices quoted by stock exchanges would result in a
$5 million reduction in fair value as of December 31, 2003 (see Note 1(K) - Cash
and Financial Instruments).

Outlook
-------

           We have a continuing responsibility to provide power to those
customers not choosing to receive power from an alternative energy supplier
subject to certain limits. Adopting new approaches to regulation and
experiencing new forms of competition have created new uncertainties. We
continue to deliver power to homes and businesses through our existing
distribution system, which remains regulated.

                                          6
<PAGE>


       Regulatory Matters-

           In late 2003, the Pennsylvania Public Utility Commission (PPUC)
issued a Tentative Order implementing new reliability benchmarks and standards.
In connection therewith, the PPUC commenced a rulemaking procedure to amend the
Electric Service Reliability Regulations to implement these new benchmarks, and
create additional reporting on reliability. Although neither the Tentative Order
nor the Reliability Rulemaking has been finalized, the PPUC ordered all
Pennsylvania utilities to begin filing quarterly reports on November 1, 2003.
The comment period for both the Tentative Order and the Proposed Rulemaking
Order has closed. We are currently awaiting the PPUC to issue a final order in
both matters. The order will determine (1) the standards and benchmarks to be
utilized, and (2) the details required in the quarterly and annual reports. It
is expected that these Orders will be finalized in March 2004.

           On January 16, 2004, the PPUC initiated a formal investigation of our
levels of compliance with the Public Utility Code and the PPUC's regulations and
orders with regard to reliable electric service. Hearings will be held in August
2004 in this investigation and the Administrative Law Judge has been directed to
issue a Recommended Decision by September 30, 2004, in order to allow the PPUC
time to issue a Final Order before December 16, 2004. We are unable to predict
the outcome of the investigation or the impact of the PPUC Order.

       Environmental Matters

           We believe we are in compliance with the current sulfur dioxide (SO2)
and nitrogen oxide (NOx) reduction requirements under the Clean Air Act
Amendments of 1990. In 1998, the Environmental Protection Agency (EPA) finalized
regulations requiring additional NOx reductions in the future from our Ohio and
Pennsylvania facilities. Various regulatory and judicial actions have since
sought to further define NOx reduction requirements (see Note 5(C) -
Environmental Matters). We continue to evaluate our compliance plans and other
compliance options.

       Clean Air Act Compliance

           Violations of federally approved SO2 regulations can result in
shutdown of the generating unit involved and/or civil or criminal penalties of
up to $31,500 for each day the unit is in violation. The EPA has an interim
enforcement policy for SO2 regulations in Ohio that allows for compliance based
on a 30-day averaging period. We cannot predict what action the EPA may take in
the future with respect to the interim enforcement policy.

        W. H. Sammis Plant

           In 1999 and 2000, the EPA issued Notices of Violation (NOV) or a
Compliance Order to nine utilities covering 44 power plants, including the W. H.
Sammis Plant. In addition, the U.S. Department of Justice filed eight civil
complaints against various investor-owned utilities, which included a complaint
against OE and Penn in the U.S. District Court for the Southern District of
Ohio. The NOV and complaint allege violations of the Clean Air Act based on
operation and maintenance of the W. H. Sammis Plant dating back to 1984. The
complaint requests permanent injunctive relief to require the installation of
"best available control technology" and civil penalties of up to $27,500 per day
of violation. On August 7, 2003, the United States District Court for the
Southern District of Ohio ruled that 11 projects undertaken at the W. H. Sammis
Plant between 1984 and 1998 required pre-construction permits under the Clean
Air Act. The ruling concludes the liability phase of the case, which deals with
applicability of Prevention of Significant Deterioration provisions of the Clean
Air Act. The remedy phase, which is currently scheduled to be ready for trial
beginning July 19, 2004, will address civil penalties and what, if any, actions
should be taken to further reduce emissions at the plant. In the ruling, the
Court indicated that the remedies it "may consider and impose involved a much
broader, equitable analysis, requiring the Court to consider air quality, public
health, economic impact, and employment consequences. The Court may also
consider the less than consistent efforts of the EPA to apply and further
enforce the Clean Air Act." The potential penalties that may be imposed, as well
as the capital expenditures necessary to comply with substantive remedial
measures that may be required, could have a material adverse impact on the
Company's financial condition and results of operations. Management is unable to
predict the ultimate outcome of this matter and no liability has been accrued as
of December 31, 2003.

       Regulation of Hazardous Waste

           As a result of the Resource Conservation and Recovery Act of 1976, as
amended, and the Toxic Substances Control Act of 1976, federal and state
hazardous waste regulations have been promulgated. Certain fossil-fuel
combustion waste products, such as coal ash, were exempted from hazardous waste
disposal requirements pending the EPA's evaluation of the need for future
regulation. The EPA subsequently determined that regulation of coal ash as a
hazardous waste is unnecessary. In April 2000, the EPA announced that it will
develop national standards regulating disposal of coal ash under its authority
to regulate nonhazardous waste.

                                         7
<PAGE>


       Climate Change

           In December 1997, delegates to the United Nations' climate summit in
Japan adopted an agreement, the Kyoto Protocol (Protocol), to address global
warming by reducing the amount of man-made greenhouse gases emitted by developed
countries by 5.2% from 1990 levels between 2008 and 2012. The United States
signed the Protocol in 1998 but failed to receive the two-thirds vote of the
U.S. Senate required for ratification. However, the Bush administration has
committed the United States to a voluntary climate change strategy to reduce
domestic greenhouse gas intensity - the ratio of emissions to economic output -
by 18% through 2012.

           We cannot currently estimate the financial impact of climate change
policies although the potential restrictions on carbon dioxide (CO2) emissions
could require significant capital and other expenditures. However, the CO2
emissions per kilowatt-hour of electricity generated by the Company is lower
than many regional competitors due to the Company's diversified generation
sources which includes the low or non-CO2 emitting gas-fired and nuclear
generators.

       Power Outage

           On August 14, 2003, various states in the northeast United States and
part of southern Canada experienced a widespread power outage. That outage
affected approximately 1.4 million customers in FirstEnergy's service area.
FirstEnergy continues to accumulate data and evaluate the status of its
electrical system prior to and during the outage event, and continues to
cooperate with the U.S.-Canada Power System Outage Task Force (Task Force)
investigating the August 14th outage. The interim report issued by the Task
Force on November 18, 2003 concluded that the problems leading up to the outage
began in FirstEnergy's service area. Specifically, the interim report concludes,
among other things, that the initiation of the August 14th outage resulted from
the coincidence on that afternoon of the following events: (1) inadequate
situational awareness at FirstEnergy; (2) FirstEnergy's failure to adequately
manage tree growth in its transmission rights of way; and (3) failure of the
interconnected grid's reliability organizations (Midwest ISO and PJM
Interconnection) to provide effective diagnostic support. We believe that the
interim report does not provide a complete and comprehensive picture of the
conditions that contributed to the August 14th outage and that it does not
adequately address the underlying causes of the outage. On November 25, 2003,
the PUCO ordered FirstEnergy to file a plan with the PUCO no later than March 1,
2004, illustrating how FirstEnergy will correct problems identified by the Task
Force as events contributing to the August 14th outage and addressing how
FirstEnergy proposes to upgrade its control room computer hardware and software
and improve the training of control room operators to ensure that similar
problems do not occur in the future. The PUCO, in consultation with the North
American Electric Reliability Council, will review the plan before determining
the next steps in the proceeding. On December 24, 2003, the FERC ordered
FirstEnergy to pay for an independent study of part of Ohio's power grid. The
study has commenced and will examine the stability of the grid in critical
points in the Cleveland and Akron areas; the status of projected power reserves
during summer 2004 through 2008; and the need for new transmission lines or
other grid projects. The FERC ordered the study to be completed within 120 days.
At this time, we do not know how the results of the study will impact
FirstEnergy.

       Legal Matters

           Various lawsuits, claims and proceedings related to our normal
business operations are pending against us, the most significant of which are
described above.

Critical Accounting Policies
----------------------------

           We prepare our financial statements in accordance with accounting
principles that are generally accepted in the United States. Application of
these principles often requires a high degree of judgment, estimates and
assumptions that affect our financial results. All of our assets are subject to
their own specific risks and uncertainties and are regularly reviewed for
impairment. Assets related to the application of the policies discussed below
are similarly reviewed with their risks and uncertainties reflecting those
specific factors. Our more significant accounting policies are described below.

       Regulatory Accounting

           We are subject to regulation that sets the prices (rates) we are
permitted to charge our customers based on our costs that the regulatory
agencies determine we are permitted to recover. At times, regulators permit the
future recovery through rates of costs that would be currently charged to
expense by an unregulated company. This rate-making process results in the
recording of regulatory assets based on anticipated future cash inflows. We
continually review these assets to assess their ultimate recoverability within
the approved regulatory guidelines. Impairment risk associated with these assets
relates to potentially adverse legislative, judicial or regulatory actions in
the future.

       Revenue Recognition

           We follow the accrual method of accounting for revenues, recognizing
revenue for kilowatt-hours that have been delivered but not yet been billed
through the end of the year. The determination of unbilled revenues requires
management to make various estimates including:

                                        8

<PAGE>

           o  Net energy generated or purchased for retail load
           o  Losses of energy over distribution lines
           o  Allocations to distribution companies within the FirstEnergy
              system
           o  Mix of Kilowatt-hour usage by residential, commercial and
              industrial customers
           o  Kilowatt-hour usage of customers receiving electricity from
              alternative suppliers

       Pension and Other Postretirement Benefits Accounting

           FirstEnergy's reported costs of providing non-contributory defined
pension benefits and postemployment benefits other than pensions are dependent
upon numerous factors resulting from actual plan experience and certain
assumptions.

           Pension and OPEB costs are affected by employee demographics
(including age, compensation levels, and employment periods), the level of
contributions we make to the plans, and earnings on plan assets. Such factors
may be further affected by business combinations (such as FirstEnergy's merger
with GPU, Inc. in November 2001), which impacts employee demographics, plan
experience and other factors. Pension and OPEB costs are also affected by
changes to key assumptions, including anticipated rates of return on plan
assets, the discount rates and health care trend rates used in determining the
projected benefit obligations for pension and OPEB costs.

           Plan amendments to retirement health care benefits in 2003 and 2002,
related to changes in benefits provided and cost-sharing provisions, reduced
FirstEnergy's obligation by $123 million and $121 million, respectively. In
early 2004, FirstEnergy announced that it would amend the benefit provisions of
its health care benefits plan and both employees and retirees would share in
more of the benefit costs.

           In accordance with SFAS 87, "Employers' Accounting for Pensions" and
SFAS 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions," changes in pension and OPEB obligations associated with these factors
may not be immediately recognized as costs on the income statement, but
generally are recognized in future years over the remaining average service
period of plan participants. SFAS 87 and SFAS 106 delay recognition of changes
due to the long-term nature of pension and OPEB obligations and the varying
market conditions likely to occur over long periods of time. As such,
significant portions of pension and OPEB costs recorded in any period may not
reflect the actual level of cash benefits provided to plan participants and are
significantly influenced by assumptions about future market conditions and plan
participants' experience.

           In selecting an assumed discount rate, FirstEnergy considers
currently available rates of return on high-quality fixed income investments
expected to be available during the period to maturity of the pension and other
postretirement benefit obligations. Due to recent declines in corporate bond
yields and interest rates in general, FirstEnergy reduced the assumed discount
rate as of December 31, 2003 to 6.25% from 6.75% and 7.25% used as of December
31, 2002 and 2001, respectively.

           FirstEnergy's assumed rate of return on pension plan assets considers
historical market returns and economic forecasts for the types of investments
held by our pension trusts. In 2003, 2002 and 2001, plan assets actually earned
24.0%, (11.3)% and (5.5)%, respectively. FirstEnergy's pension costs in 2003
were computed assuming a 9.0% rate of return on plan assets based upon
projections of future returns and FirstEnergy's pension trust investment
allocation of approximately 70% equities, 27% bonds, 2% real estate and 1% cash.

           As a result of GPU Service Inc. merging with FirstEnergy Service
Company in the second quarter of 2003, operating company employees of GPU
Service were transferred to the former GPU operating companies. Accordingly,
FirstEnergy requested an actuarial study to update the pension liabilities for
each of its subsidiaries. Based on the actuary's report, our accrued pension
costs as of June 30, 2003 increased by $16 million. The corresponding adjustment
related to this change decreased other comprehensive income and deferred income
taxes and increased the payable to associated companies.

           Due to the increased market value of our pension plan assets, we
reduced our minimum liability as prescribed by SFAS 87 as of December 31, 2003
by $16 million, recording an increase of $2 million in an intangible asset and
crediting OCI by $11 million (offsetting previously recorded deferred tax
benefits by $7 million). The remaining balance in OCI of $12 million will
reverse in future periods to the extent the accumulated benefit obligation
exceeds the fair value of trust assets. The accrued pension cost was reduced to
$15 million as of December 31, 2003.

           Based on pension assumptions and pension plan assets as of December
31, 2003, FirstEnergy will not be required to fund its pension plans in 2004.
However, health care cost trends have significantly increased and will affect
future OPEB costs. FirstEnergy's pension and OPEB expenses in 2004 are expected
to decrease by $38 million and $34 million, respectively. These reductions
reflect the actual performance of pension plan assets and amendments to the
health care benefits plan announced in early 2004 which result in employees and
retirees sharing more of the benefit costs. The reduction in OPEB costs for 2004
does not reflect the impact of the new Medicare law signed by President

                                        9

<PAGE>


Bush in December 2003 due to uncertainties regarding some of its new provisions
(see Note 1(I)). The 2003 and 2002 composite health care trend rate assumptions
are approximately 10%-12% gradually decreasing to 5% in later years. In
determining FirstEnergy's trend rate assumptions, FirstEnergy included the
specific provisions of its health care plans, the demographics and utilization
rates of plan participants, actual cost increases experienced in its health care
plans, and projections of future medical trend rates. The effect on
FirstEnergy's pension and OPEB costs and liabilities from changes in key
assumptions are as follows:

<TABLE>
<CAPTION>

Increase in Costs from Adverse Changes in Key Assumptions
-----------------------------------------------------------------------------------------------
Assumption                       Adverse Change              Pension         OPEB         Total
-----------------------------------------------------------------------------------------------
                                                                          (In millions)
<S>                              <C>                          <C>             <C>         <C>
Discount rate................    Decrease by 0.25%            $ 10            $ 5         $ 15
Long-term return on assets...    Decrease by 0.25%            $  8            $ 1         $  9
Health care trend rate.......    Increase by 1%                 na            $26         $ 26

Increase in Minimum Liability
-----------------------------
Discount rate................    Decrease by 0.25%            $104             na         $104
----------------------------------------------------------------------------------------------

</TABLE>

       Long-Lived Assets

           In accordance with SFAS 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets," we periodically evaluate our long-lived assets
to determine whether conditions exist that would indicate that the carrying
value of an asset might not be fully recoverable. The accounting standard
requires that if the sum of future cash flows (undiscounted) expected to result
from an asset is less than the carrying value of the asset, an asset impairment
must be recognized in the financial statements. If impairment has occurred, we
recognize a loss - calculated as the difference between the carrying value and
the estimated fair value of the asset (discounted future net cash flows).

           The calculation of future cash flows is based on assumptions,
estimates and judgement about future events. The aggregate amount of cash flows
determines whether an impairment is indicated. The timing of the cash flows is
critical in determining the amount of the impairment.

       Nuclear Decommissioning

           In accordance with SFAS 143, we recognize an ARO for the future
decommissioning of our nuclear power plants. The ARO liability represents an
estimate of the fair value of our current obligation related to nuclear
decommissioning and the retirement of other assets. A fair value measurement
inherently involves uncertainty in the amount and timing of settlement of the
liability. We used an expected cash flow approach (as discussed in FASB Concepts
Statement No. 7, "Using Cash Flow Information and Present Value in Accounting
Measurements") to measure the fair value of the nuclear decommissioning ARO.
This approach applies probability weighting to discounted future cash flow
scenarios that reflect a range of possible outcomes. The scenarios consider
settlement of the ARO at the expiration of the nuclear power plants' current
license and settlement based on an extended license term.

NEW ACCOUNTING STANDARDS AND INTERPRETATIONS ADOPTED

       SFAS 143, "Accounting for Asset Retirement Obligations"

           In January 2003, Penn implemented SFAS 143 which provides accounting
standards for retirement obligations associated with tangible long-lived assets.
This statement requires recognition of the fair value of a liability for an
asset retirement obligation in the period in which it is incurred. See Notes
1(E) and 1(H) for further discussions of SFAS 143.

       SFAS 150, "Accounting for Certain Financial Instruments with
       Characteristics of both Liabilities and Equity"

           In May 2003, the FASB issued SFAS 150, which establishes standards
for how an issuer classifies and measures certain financial instruments with
characteristics of both liabilities and equity. In accordance with the standard,
certain financial instruments that embody obligations for the issuer are
required to be classified as liabilities. SFAS 150 was effective immediately for
financial instruments entered into or modified after May 31, 2003 and effective
at the beginning of the first interim period beginning after June 15, 2003 for
all other financial instruments.

           Upon adoption of SFAS 150, effective July 1, 2003, we reclassified as
debt our preferred stock subject to mandatory redemption with a carrying value
of approximately $14 million as of December 31, 2003. Dividends on preferred
stock subject to mandatory redemption on our Statements of Income, which were
not included in net interest charges prior to the adoption of SFAS 150, are now
included in net interest charges for the six months ended December 31, 2003.


                                     10
<PAGE>


<TABLE>
<CAPTION>




                                                    PENNSYLVANIA POWER COMPANY

                                                       STATEMENTS OF INCOME


For the Years Ended December 31,                                                 2003         2002          2001
-------------------------------------------------------------------------------------------------------------------
                                                                                         (In thousands)

<S>                                                                            <C>          <C>           <C>
OPERATING REVENUES (Note 1(J))............................................     $526,867     $506,407      $498,401
                                                                               --------     --------      --------

OPERATING EXPENSES AND TAXES:
   Fuel and purchased power (Note 1(J))...................................      187,086      181,968       175,257
   Nuclear operating costs................................................      128,896       90,024       114,623
   Other operating costs (Note 1(J))......................................       53,137       50,523        45,133
                                                                               --------     --------      --------
     Total operation and maintenance expenses.............................      369,119      322,515       335,013
   Provision for depreciation and amortization............................       53,806       56,763        57,087
   General taxes..........................................................       22,458       24,474        14,214
   Income taxes...........................................................       34,164       41,733        36,909
                                                                               --------     --------      --------
     Total operating expenses and taxes...................................      479,547      445,485       443,223
                                                                               --------     --------      --------

OPERATING INCOME..........................................................       47,320       60,922        55,178

OTHER INCOME (Note 1(J))..................................................        2,850        1,960         3,185
                                                                               --------     --------      --------

INCOME BEFORE NET INTEREST CHARGES........................................       50,170       62,882        58,363
                                                                               --------     --------      --------

NET INTEREST CHARGES:
   Interest on long-term debt.............................................       14,228       15,521        16,971
   Allowance for borrowed funds used during construction..................       (3,189)      (1,509)         (850)
   Other interest expense.................................................        1,298        1,153         1,201
                                                                               --------     --------      --------
     Net interest charges.................................................       12,337       15,165        17,322
                                                                               --------     --------      --------

INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE......................       37,833       47,717        41,041

Cumulative effect of accounting change (net of income taxes of $7,532,000)
   (Note 1(H))............................................................       10,618           --            --
                                                                               --------     --------      --------

NET INCOME................................................................       48,451       47,717        41,041

PREFERRED STOCK DIVIDEND REQUIREMENTS.....................................        3,188        3,699         3,703
                                                                               --------     --------      --------

EARNINGS ON COMMON STOCK..................................................     $ 45,263     $ 44,018      $ 37,338
                                                                               ========     ========      ========

<FN>



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

</FN>
</TABLE>

                                                          11



<PAGE>


<TABLE>
<CAPTION>


                                                    PENNSYLVANIA POWER COMPANY

                                                          BALANCE SHEETS

As of December 31,                                                                       2003             2002
-------------------------------------------------------------------------------------------------------------------
                                                                                             (In thousands)
<S>                                                                                    <C>              <C>
                                    ASSETS
UTILITY PLANT:
In service......................................................................       $808,637         $680,729
Less-Accumulated provision for depreciation.....................................        324,710          310,423
                                                                                       --------         --------
                                                                                        483,927          370,306
                                                                                       --------         --------
Construction work in progress-
   Electric plant...............................................................         68,091           44,696
   Nuclear fuel.................................................................            360            8,812
                                                                                       --------         --------
                                                                                         68,451           53,508
                                                                                       --------         --------
                                                                                        552,378          423,814
                                                                                       --------         --------

OTHER PROPERTY AND INVESTMENTS:
Nuclear plant decommissioning trusts (Note 1(K))................................        133,867          119,401
Long-term notes receivable from associated companies............................         39,179           38,921
Other...........................................................................          2,195            2,569
                                                                                       --------         --------
                                                                                        175,241          160,891
                                                                                       --------         --------

CURRENT ASSETS:
Cash and cash equivalents.......................................................             40            1,222
Notes receivable from associated companies......................................            399           35,317
Receivables-
   Customers (less accumulated provisions of $769,000 and $702,000,
     respectively, for uncollectible accounts)..................................         44,861           44,341
   Associated companies.........................................................         24,965           42,652
   Other........................................................................          1,047            5,262
Materials and supplies, at average cost.........................................         33,918           30,309
Prepayments.....................................................................          9,383            5,346
                                                                                       --------         --------
                                                                                        114,613          164,449
                                                                                       --------         --------

NONCURRENT LIABILITIES:
Regulatory assets...............................................................         27,513          150,902
Other...........................................................................          9,634            7,692
                                                                                       --------         --------
                                                                                         37,147          158,594
                                                                                       --------         --------
                                                                                       $879,379         $907,748
                                                                                       ========         ========

                        CAPITALIZATION AND LIABILITIES

CAPITALIZATION (See Statements of Capitalization):
Common stockholder's equity.....................................................       $230,786         $229,374
   Preferred stock-
     Not subject to mandatory redemption........................................         39,105           39,105
     Subject to mandatory redemption (Note 3(E))................................             --           13,500
   Long-term debt and other long-term obligations-
     Preferred stock subject to mandatory redemption (Note 3(E))................         12,750               --
     Other......................................................................        117,608          185,499
                                                                                       --------         --------
                                                                                        400,249          467,478
                                                                                       --------         --------
CURRENT LIABILITIES:
Currently payable long-term debt and preferred stock............................         93,474           66,556
Accounts payable-
   Associated companies.........................................................         40,172           52,653
   Other........................................................................          1,294            5,730
Notes payable to associated companies...........................................         11,334               --
Accrued taxes...................................................................         27,091           12,507
Accrued interest................................................................          4,396            5,558
Other...........................................................................          8,444           10,479
                                                                                       --------         --------
                                                                                        186,205          153,483
                                                                                       --------         --------

NONCURRENT LIABILITIES:
Accumulated deferred income taxes...............................................         97,871          117,385
Accumulated deferred investment tax credits.....................................          3,516            3,810
Asset retirement obligation.....................................................        129,546               --
Nuclear plant decommissioning costs.............................................             --          119,863
Retirement benefits.............................................................         54,057           38,198
Other...........................................................................          7,935            7,531
                                                                                       --------         --------
                                                                                        292,925          286,787
                                                                                       --------         --------

COMMITMENTS AND CONTINGENCIES (Notes 2 and 5).......................
                                                                                       --------         --------
                                                                                       $879,379         $907,748
                                                                                       ========         ========

<FN>


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

</FN>
</TABLE>
                                                         12
<PAGE>

<TABLE>
<CAPTION>

                                                    PENNSYLVANIA POWER COMPANY

                                                   STATEMENTS OF CAPITALIZATION

As of December 31,                                                                                  2003       2002
-----------------------------------------------------------------------------------------------------------------------
                                          (Dollars in thousands, except per share amounts)
COMMON STOCKHOLDER'S EQUITY:
<S>                                                                                                <C>        <C>
   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 loss (Note 3(F)).....................................            (11,783)    (9,932)
   Retained earnings (Note 3(A))........................................................             54,179     50,916
                                                                                                   --------   --------
     Total common stockholder's equity..................................................            230,786    229,374
                                                                                                   --------   --------
<CAPTION>

                                                     Number of Shares          Optional
                                                       Outstanding         Redemption Price
                                                     ----------------      ----------------
                                                     2003        2002    Per Share    Aggregate
                                                     ----        ----    ---------    ---------
<S>                                                <C>         <C>       <C>           <C>
PREFERRED STOCK (Note 3(C)):
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
     7.75%................................         250,000     250,000    100.00        25,000       25,000     25,000
                                                   -------     -------                 -------     --------   --------
       Total not subject to mandatory
         redemption.......................         391,049     391,049                 $39,614       39,105     39,105
                                                   =======     =======                 =======     --------   --------

   Subject to Mandatory Redemption (Note 3(E)):
     7.625%**.............................              --     142,500                                   --     14,250
   Redemption Within One Year**...........              --                                               --       (750)
                                                   -------     -------                             --------   --------
       Total subject to mandatory redemption            --     142,500                                   --     13,500
                                                   =======     =======                             --------   --------

LONG-TERM DEBT (Note 3(D)):
   First mortgage bonds-
     9.740% due 2004-2019.....................................................................       15,617     16,591
     7.500% due 2003..........................................................................           --     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.............................................................       83,867    124,841
                                                                                                   --------   --------

   Secured notes-
     5.400% due 2013..........................................................................        1,000      1,000
     5.400% due 2017..........................................................................       10,600     10,600
    *1.100% due 2017..........................................................................       17,925     17,925
     5.900% due 2018..........................................................................       16,800     16,800
    *1.100% due 2021..........................................................................       14,482     14,482
     6.150% due 2023..........................................................................       12,700     12,700
    *1.200% due 2027..........................................................................       10,300     10,300
     5.375% due 2028..........................................................................        1,734      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....................................................................      106,979    106,979
                                                                                                   --------   --------

   Unsecured notes-
    *2.500% due 2029..........................................................................       14,500     14,500
    *5.900% due 2033..........................................................................        5,200      5,200
                                                                                                   --------   --------
       Total unsecured notes..................................................................       19,700     19,700
                                                                                                   --------   --------

   Preferred stock subject to mandatory redemption**..........................................       13,500         --
                                                                                                   --------   --------
   Capital leases obligations (Note 2)........................................................           --         32
                                                                                                   --------   --------
   Net unamortized discount on debt...........................................................         (214)      (247)
                                                                                                   --------   --------
   Long-term debt due within one year**.......................................................      (93,474)   (65,806)
                                                                                                   --------   --------
       Total long-term debt**.................................................................      130,358    185,499
                                                                                                   --------   --------
TOTAL CAPITALIZATION..........................................................................     $400,249   $467,478
                                                                                                   ========   ========

<FN>

* Denotes variable rate issue with December 31, 2003 interest rate shown.
** The December 31, 2003 balance for preferred stock subject to mandatory redemption is classified as debt under SFAS 150.

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

</FN>
</TABLE>

                                                           13


<PAGE>

<TABLE>
<CAPTION>


                                                         PENNSYLVANIA POWER COMPANY

                                                 STATEMENTS OF COMMON STOCKHOLDER'S EQUITY


                                                                                           Accumulated
                                                                                Other         Other
                                         Comprehensive    Number       Par      Paid-In    Comprehensive     Retained
                                            Income      of Shares     Value     Capital    Income (Loss)     Earnings
                                         -------------  ---------     -----     -------    -------------     --------
                                                                 (Dollars in thousands)

<S>                                         <C>         <C>         <C>          <C>         <C>             <C>
Balance, January 1, 2001.............                   6,290,000   $188,700     $(310)      $     --        $ 25,461
   Net income........................       $41,041                                                            41,041
                                            =======
   Cash dividends on common stock....                                                                         (27,400)
   Cash dividends on preferred stock.                                                                          (3,704)
---------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2001...........                   6,290,000    188,700      (310)            --          35,398
   Net income........................       $47,717                                                            47,717
   Minimum liability for unfunded
     retirement benefits, net of
     $(7,045,000) of income taxes....        (9,932)                                           (9,932)
                                            -------
   Comprehensive income..............       $37,785
                                            =======
   Cash dividends on preferred stock.                                                                          (3,699)
   Cash dividends on common stock....                                                                         (28,500)
---------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2002...........                   6,290,000    188,700      (310)        (9,932)         50,916
   Net income........................       $48,451                                                            48,451
   Minimum liability for unfunded
     retirement benefits, net of
     $(1,290,000) of income taxes....        (1,851)                                           (1,851)
                                            -------
   Comprehensive income..............       $46,600
                                            =======
   Cash dividends on preferred stock.                                                                          (3,188)
   Cash dividends on common stock....                                                                         (42,000)
---------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2003...........                   6,290,000   $188,700     $(310)      $(11,783)       $ 54,179
=====================================================================================================================

</TABLE>




<TABLE>
<CAPTION>

                                                   STATEMENTS OF PREFERRED STOCK

                                                        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, 2001..........      391,049       $39,105       150,000        $15,000
             ------------------------------------------------------------------------------------------
             Balance, December 31, 2001........      391,049        39,105       150,000         15,000
              Redemptions-
                7.625% Series..................                                   (7,500)          (750)
             ------------------------------------------------------------------------------------------
             Balance, December 31, 2002........      391,049        39,105       142,500         14,250
              Redemptions-
                7.625% Series..................                                   (7,500)          (750)
             ------------------------------------------------------------------------------------------
             Balance, December 31, 2003........      391,049       $39,105       135,000        $13,500*
             ==========================================================================================

<FN>


* December 31, 2003 balance for preferred stock subject to mandatory redemption is classified as debt under SFAS 150 (see Note 6).

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

</FN>
</TABLE>

                                                     14

<PAGE>


<TABLE>
<CAPTION>


                                                    PENNSYLVANIA POWER COMPANY

                                                     STATEMENTS OF CASH FLOWS

For the Years Ended December 31,                                             2003            2002           2001
-------------------------------------------------------------------------------------------------------------------
                                                                                        (In thousands)
<S>                                                                        <C>            <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................................................     $ 48,451       $ 47,717        $ 41,041
Adjustments to reconcile net income to net cash from operating
   activities:
   Provision for depreciation and amortization........................       53,806         56,763          57,087
   Nuclear fuel and lease amortization................................       15,947         19,204          17,323
   Deferred income taxes, net.........................................       (2,816)        (5,337)        (11,055)
   Amortization of investment tax credits.............................       (2,412)        (2,595)         (2,775)
   Cumulative effect of accounting change (Note 1(H)).................      (18,150)            --              --
   Receivables........................................................       16,276         (8,434)          8,345
   Materials and supplies.............................................       (3,609)        (4,711)          3,997
   Accounts payable...................................................      (11,163)         6,338         (11,413)
   Accrued taxes......................................................       14,584         (6,346)           (397)
   Accrued interest...................................................       (1,162)           294            (708)
   Prepayments and other current assets...............................       (4,037)           336          (3,638)
   Asset retirement obligation, net...................................       16,983             --              --
   Other..............................................................        5,814          2,533          (4,522)
                                                                           --------       --------        --------
     Net cash provided from operating activities......................      128,512        105,762          93,285
                                                                           --------       --------        --------

CASH FLOWS FROM FINANCING ACTIVITIES:
New Financing-
   Long-term debt.....................................................           --         14,500          31,626
   Short-term borrowings, net.........................................       11,334             --              --
Redemptions and Repayments-
   Preferred stock....................................................         (750)          (750)             --
   Long-term debt.....................................................      (41,155)       (56,837)        (51,351)
Dividend Payments-
   Common stock.......................................................      (42,000)       (28,500)        (27,400)
   Preferred stock....................................................       (3,188)        (3,699)         (3,704)
                                                                           --------       --------        --------
     Net cash used for financing activities...........................      (75,759)       (75,286)        (50,829)
                                                                           --------       --------        --------

CASH FLOWS FROM INVESTING ACTIVITIES:
Property additions....................................................      (70,864)       (46,060)        (40,529)
Contributions to nuclear decommissioning trusts.......................       (1,594)        (1,594)         (1,595)
Loans from (to) associated companies, net.............................       34,660         19,463         (18,856)
Sale of assets to associated companies................................           --             --           6,053
Other.................................................................      (16,137)        (1,130)          9,063
                                                                           --------       --------        --------
     Net cash used for investing activities...........................      (53,935)       (29,321)        (45,864)
                                                                           --------       --------        --------
Net increase (decrease) in cash and cash equivalents..................       (1,182)         1,155          (3,408)
Cash and cash equivalents at beginning of year........................        1,222             67           3,475
                                                                           --------       --------        --------
Cash and cash equivalents at end of year.............................      $     40       $  1,222        $     67
                                                                           ========       ========        ========

SUPPLEMENTAL CASH FLOWS INFORMATION:
Cash paid during the year-
   Interest (net of amounts capitalized)..............................     $ 12,449       $ 13,771        $ 19,286
                                                                           ========       ========        ========
   Income taxes.......................................................     $ 33,502       $ 60,078        $ 53,527
                                                                           ========       ========        ========

<FN>


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

</FN>
</TABLE>

                                                          15
<PAGE>

<TABLE>
<CAPTION>


                                                    PENNSYLVANIA POWER COMPANY

                                                        STATEMENTS OF TAXES


For the Years Ended December 31,                                             2003            2002           2001
-------------------------------------------------------------------------------------------------------------------
                                                                                        (In thousands)

GENERAL TAXES:
<S>                                                                        <C>            <C>             <C>
State gross receipts*................................................      $ 18,028       $ 18,516        $ 12,776
Real and personal property...........................................         2,262          3,729              59
State capital stock..................................................           952          1,357           1,081
Social security and unemployment.....................................           878            750             201
Other................................................................           338            122              97
                                                                           --------       --------        --------
     Total general taxes.............................................      $ 22,458       $ 24,474        $ 14,214
                                                                           ========       ========        ========

PROVISION FOR INCOME TAXES:
Currently payable-
   Federal...........................................................      $ 37,351       $ 38,972        $ 40,948
   State.............................................................        11,368         12,004          12,803
                                                                           --------       --------        --------
                                                                             48,719         50,976          53,751
                                                                           --------       --------        --------
Deferred, net-
   Federal...........................................................        (2,424)        (4,144)         (8,304)
   State.............................................................          (392)        (1,193)         (2,751)
                                                                           --------       --------        --------
                                                                             (2,816)        (5,337)        (11,055)
                                                                           --------       --------        --------
Investment tax credit amortization...................................        (2,412)        (2,595)         (2,775)
                                                                           --------       --------        --------
     Total provision for income taxes................................      $ 43,491       $ 43,044        $ 39,921
                                                                           ========       ========        ========

INCOME STATEMENT CLASSIFICATION OF PROVISION FOR
INCOME TAXES:
Operating expenses...................................................      $ 34,164       $ 41,733        $ 36,909
Other income.........................................................         1,795          1,311           3,012
Cumulative effect of accounting change...............................         7,532             --              --
                                                                           --------       --------        --------
     Total provision for income taxes................................      $ 43,491       $ 43,044        $ 39,921
                                                                           ========       ========        ========

RECONCILIATION OF FEDERAL INCOME TAX EXPENSE AT
STATUTORY RATE TO TOTAL PROVISION FOR INCOME TAXES:
Book income before provision for income taxes........................      $ 91,942       $ 90,761        $ 80,962
                                                                           ========       ========        ========
Federal income tax expense at statutory rate.........................      $ 32,180       $ 31,766        $ 28,337
Increases (reductions) in taxes resulting from:
   State income taxes, net of federal income tax benefit.............         7,134          7,027           6,534
   Amortization of investment tax credits............................        (2,412)        (2,595)         (2,775)
   Amortization of tax regulatory assets.............................         5,616          5,967           6,315
   Other, net........................................................           973            879           1,510
                                                                           --------       --------        --------
     Total provision for income taxes................................      $ 43,491       $ 43,044        $ 39,921
                                                                           ========       ========        ========

ACCUMULATED DEFERRED INCOME TAXES AT DECEMBER 31:
Competitive transition charge........................................      $ 37,280       $ 56,172        $ 75,686
Property basis differences...........................................        77,147         72,488          65,534
Allowance for equity funds used during construction..................            --          1,045           2,608
Customer receivables for future income taxes.........................         2,860          4,249           5,640
Unamortized investment tax credits...................................        (1,457)        (1,578)         (1,702)
Deferred gain for asset sale to affiliated company...................         8,106          8,810           9,943
Other comprehensive income...........................................        (8,335)        (7,045)             --
Other................................................................       (17,730)       (16,756)        (20,901)
                                                                           --------       --------        --------
     Net deferred income tax liability...............................      $ 97,871       $117,385        $136,808
                                                                           ========       ========        ========


<FN>

* Collected from customers through regulated rates and included in revenue on the Statements of Income.

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


</FN>
</TABLE>

                                                                  16

<PAGE>


NOTES TO FINANCIAL STATEMENTS

1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

           Pennsylvania Power Company (Company), a wholly owned subsidiary of
Ohio Edison Company (OE), follows the accounting policies and practices
prescribed by the Securities and Exchange Commission (SEC), the Pennsylvania
Public Utility Commission (PPUC) and the Federal Energy Regulatory Commission
(FERC). OE is a wholly owned subsidiary of FirstEnergy Corp. The preparation of
financial statements in conformity with accounting principles generally accepted
in the United States (GAAP) requires management to make periodic estimates and
assumptions that affect the reported amounts of assets, liabilities, revenues
and expenses and the disclosure of contingent assets and liabilities. Actual
results could differ from these estimates. Certain prior year amounts have been
reclassified to conform with the current year presentation, as described further
in Note 1(E).

     (A) 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 provided
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 as of
December 31, 2003 or 2002, with respect to any particular segment of the
Company's customers. Total customer receivables were $45 million (billed - $29
million and unbilled - $16 million) and $44 million (billed - $25 million and
unbilled - $19 million) as of December 31, 2003 and 2002, respectively.

     (B) REGULATORY MATTERS-

           Pennsylvania enacted its electric utility competition law in 1996
with the phase in of customer choice for electric generation suppliers completed
as of January 1, 2001. The Company continues to deliver power to homes and
businesses through its distribution system, which remains regulated by the PPUC.
The Company's rates have been restructured to itemize (unbundle) the current
price of electricity into its component elements - including generation,
transmission, distribution and stranded cost recovery. In the event customers
obtain power from an alternative source, the generation portion of the Company's
rates is excluded from their bill and the customers 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.

           In late 2003, the PPUC issued a Tentative Order implementing new
reliability benchmarks and standards. In connection therewith, the PPUC
commenced a rulemaking procedure to amend the Electric Service Reliability
Regulations to implement these new benchmarks, and create additional reporting
on reliability. Although neither the Tentative Order nor the Reliability
Rulemaking has been finalized, the PPUC ordered all Pennsylvania utilities to
begin filing quarterly reports on November 1, 2003. The comment period for both
the Tentative Order and the Proposed Rulemaking Order has closed. The Company is
currently awaiting the PPUC to issue a final order in both matters. The order
will determine (1) the standards and benchmarks to be utilized, and (2) the
details required in the quarterly and annual reports. It is expected that these
Orders will be finalized in March 2004.

           On January 16, 2004, the PPUC initiated a formal investigation of the
Company's levels of compliance with the Public Utility Code and the PPUC's
regulations and orders with regard to reliable electric service. Hearings will
be held in August in this investigation and the Administrative Law Judge has
been directed to issue a Recommended Decision by September 30, 2004, in order to
allow the PPUC time to issue a Final Order before December 16, 2004. The Company
is unable to predict the outcome of the investigation or the impact of the PPUC
Order.

         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 expected to continue to be recovered from customers under
the Company's rate restructuring plan. Based on the rate restructuring plan, the
Company continues to bill and collect cost-based rates relating to the Company's
nongeneration operations and continues the application of Statement of Financial
Accounting Standards No. (SFAS) 71, "Accounting for the Effects of Certain Types
of Regulation" to these operations.

                                         17
<PAGE>


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

                                                      2003             2002
-----------------------------------------------------------------------------
                                                           (In millions)
Competitive transition charge..................      $ 90              $136
Customer receivables for future income taxes...         7                10
Loss on reacquired debt........................         6                 7
Employee postretirement benefit costs..........         2                 3
Nuclear decommissioning costs..................       (72)               --
Component removal costs........................        (6)               (6)
Other..........................................         1                 1
---------------------------------------------------------------------------
     Total.....................................      $ 28              $151
===========================================================================


         Regulatory Accounting Generation Operations-

           In 1998, the PPUC authorized the Company's rate restructuring plan,
which essentially resulted in the deregulation of the Company's generation
business. 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 SEC issued interpretive guidance regarding
asset impairment measurement providing 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 the CTC
over a seven-year transition period; the remaining net amount of $78 million was
written off. The Company is entitled to recover $236 million of stranded costs
through the CTC that began in 1999 and ends in 2006. The Company's net assets
included in utility plant relating to the operations for which the application
of SFAS 71 was discontinued were $92 million as of December 31, 2003.

     (C) UTILITY PLANT AND DEPRECIATION-

           Utility plant reflects the original cost of construction (except for
nuclear generating units which were adjusted to fair value), including payroll
and related costs such as taxes, employee benefits, administrative and general
costs, and interest costs incurred to place the assets in service. The Company's
accounting policy for planned major maintenance projects is to recognize
liabilities as they are incurred.

           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 2.6% in 2003 and
2.9% in 2002 and 2001.

         Nuclear Fuel-

           Nuclear fuel is recorded at original cost, which includes material,
enrichment, fabrication and interest costs incurred prior to reactor load. The
Company amortizes the cost of nuclear fuel based on the rate of consumption.

     (D) COMMON OWNERSHIP OF GENERATING FACILITIES-

           The Company, together with OE and other affiliated companies, The
Cleveland Electric Illuminating Company (CEI) and The Toledo Edison Company
(TE), 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 as of December
31, 2003 include the following:

<TABLE>
<CAPTION>

                                                  Utility       Accumulated         Construction    Company's
                                                 Plant in       Provision for          Work in      Ownership
               Generating Units                  Service        Depreciation          Progress       Interest
      -------------------------------------------------------------------------------------------------------
                                                                         (In millions)
      <S>                                         <C>                <C>                  <C>          <C>
      W. H. Sammis #7.......................      $ 64               $ 22                 $--          20.80%
      Bruce Mansfield
        #1, #2 and #3.......................       187                100                  --          16.38%
      Beaver Valley #1 and #2...............       139                 24                  59          39.37%
      Perry #1..............................         8                  2                   1           5.24%
      -------------------------------------------------------------------------------------------------------
          Total.............................      $398               $148                 $60
      =======================================================================================================

</TABLE>

                                                       18
<PAGE>

     (E) ASSET RETIREMENT OBLIGATION-

           In January 2003, the Company implemented SFAS 143, "Accounting for
Asset Retirement Obligations," which provides accounting standards for
retirement obligations associated with tangible long-lived assets. This
statement requires recognition of the fair value of a liability for an asset
retirement obligation (ARO) in the period in which it is incurred. The
associated asset retirement costs are capitalized as part of the carrying amount
of the long-lived asset. Over time the capitalized costs are depreciated and the
present value of the asset retirement liability increases, resulting in a period
expense. However, rate-regulated entities may recognize a regulatory asset or
liability instead if the criteria for such treatment are met. Upon retirement, a
gain or loss would be recognized if the cost to settle the retirement obligation
differs from the carrying amount.

           The Company identified applicable legal obligations as defined under
the new standard for nuclear power plant decommissioning and reclamation of a
sludge disposal pond related to the Bruce Mansfield Plant. The ARO liability as
of the date of adoption of SFAS 143 was $121.3 million, including accumulated
accretion for the period from the date the liability was incurred to the date of
adoption. Accretion during 2003 was $8.2 million, bringing the ARO liability as
of December 31, 2003 to $129.5 million. The ARO includes the Company's
obligation for nuclear decommissioning of the Beaver Valley and Perry generating
facilities. The Company's share of the obligation to decommission these units
was developed based on site-specific studies performed by an independent
engineer. The Company utilized an expected cash flow approach (as discussed in
FASB Concepts Statement No. 7, "Using Cash Flow Information and Present Value in
Accounting Measurements") to measure the fair value of the nuclear
decommissioning ARO. The Company maintains nuclear decommissioning trust funds
that are legally restricted for purposes of settling the nuclear decommissioning
ARO. As of December 31, 2003, the fair value of the decommissioning trust assets
was $133.9 million.

           In accordance with SFAS 143, the Company ceased the accounting
practice of depreciating non-regulated generation assets using a cost of removal
component in the depreciation rates. That practice recognized accumulated
depreciation in excess of the historical cost of an asset because the removal
cost would exceed the estimated salvage value. Beginning in 2003, the cost of
removal related to non-regulated generation assets is charged to expense rather
than to the accumulated provision for depreciation. In accordance with SFAS 71,
the cost of removal on regulated plant assets continues to be accounted for as a
component of depreciation rates and is recognized as a regulatory liability.

           The following table provides the year-end balance of the ARO for
2002, as if SFAS 143 had been adopted on January 1, 2002.

Adjusted ARO Reconciliation                    2002
-------------------------------------------------------
                                           (In millions)
Beginning balance as of January 1, 2002         $113.7
Accretion in 2002                                  7.6
------------------------------------------------------
Ending balance as of December 31, 2002          $121.3
------------------------------------------------------


     (F) STOCK-BASED COMPENSATION-

           FirstEnergy applies the recognition and measurement principles of
Accounting Principles Board Opinion No. 25 (APB 25), "Accounting for Stock
Issued to Employees" and related Interpretations in accounting for its
stock-based compensation plans (see Note 3(B)). No material stock-based employee
compensation expense is reflected in net income as all options granted under
those plans had an exercise price equal to the market value of the underlying
common stock on the grant date resulting in substantially no intrinsic value.

           If FirstEnergy had accounted for employee stock options under the
fair value method of SFAS 123, "Accounting for Stock Compensation," a higher
value would have been assigned to the options granted. The weighted average
assumptions used in valuing the options and their resulting estimated fair
values would be as follows:


                                    2003           2002            2001
----------------------------------------------------------------------------
Valuation assumptions:
  Expected option term (years).     7.9            8.1             8.3
  Expected volatility..........    26.91%         23.31%          23.45%
  Expected dividend yield......     5.09%          4.36%           5.00%
  Risk-free interest rate......     3.67%          4.60%           4.67%
Fair value per option..........    $5.09          $6.45           $4.97
----------------------------------------------------------------------------


           The effects of applying fair value accounting to FirstEnergy's stock
options would not materially affect the Company's net income.

                                         19

<PAGE>


     (G) INCOME TAXES-

           Details of the total provision for income taxes are shown on the
Consolidated Statements of Taxes. The Company records income taxes in accordance
with the liability method of accounting. Deferred income taxes reflect the net
tax effect of temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for tax
purposes. Investment tax credits, which were deferred when utilized, are being
amortized over the recovery period of the related property. Deferred income tax
liabilities related to tax and accounting basis differences and tax credit
carryforward items are recognized at the statutory income tax rates in effect
when the liabilities are expected to be paid. 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.

     (H) CUMULATIVE EFFECT OF ACCOUNTING CHANGE

           Results for 2003 include an after-tax credit to net income of $10.6
million recorded upon the adoption of SFAS 143 in January 2003. The Company
identified applicable legal obligations as defined under the new standard for
nuclear power plant decommissioning and reclamation of a sludge disposal pond at
the Bruce Mansfield Plant. As a result of adopting SFAS 143 in January 2003,
asset retirement costs of $78 million were recorded as part of the carrying
amount of the related long-lived asset, offset by accumulated depreciation of $9
million. The ARO liability at the date of adoption was $121 million, including
accumulated accretion for the period from the date the liability was incurred to
the date of adoption. As of December 31, 2002, the Company had recorded
decommissioning liabilities of $120 million. The Company expects substantially
all of its nuclear decommissioning costs to be recoverable in rates over time.
Therefore, it recognized a regulatory liability of $69 million upon adoption of
SFAS 143 for the transition amounts related to establishing the ARO for nuclear
decommissioning. The remaining cumulative effect adjustment for unrecognized
depreciation and accretion, offset by the reduction in the liabilities and the
reversal of accumulated estimated removal costs for non-regulated generation
assets, was an $18.2 million increase to income, or $10.6 million net of income
taxes. If SFAS 143 had been applied during 2002 and 2001, the impact would not
have been material to the Company's Statements of Income.

     (I) PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS

           FirstEnergy provides noncontributory defined benefit pension plans
that cover substantially all of the Company's employees. The trusteed plans
provide defined benefits based on years of service and compensation levels.
FirstEnergy's funding policy is based on actuarial computations using the
projected unit credit method. No pension contributions were required during the
three years ended December 31, 2003.

           FirstEnergy provides a minimum amount of noncontributory life
insurance to retired employees in addition to optional contributory insurance.
Health care benefits, which include certain employee contributions, deductibles
and copayments, are also available to retired employees, their dependents and,
under certain circumstances, their survivors. 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.

           Pension and OPEB costs are affected by employee demographics
(including age, compensation levels, and employment periods), the level of
contributions made to the plans, and earnings on plan assets. Such factors may
be further affected by business combinations (such as FirstEnergy's merger with
GPU, Inc. in November 2001), which impacts employee demographics, plan
experience and other factors. Pension and OPEB costs may also be affected by
changes to key assumptions, including anticipated rates of return on plan
assets, the discount rates and health care trend rates used in determining the
projected benefit obligations and pension and OPEB costs. FirstEnergy uses a
December 31 measurement date for the majority of its plans.

           Plan amendments to retirement health care benefits in 2003 and 2002,
relate to changes in benefits provided and cost-sharing provisions, which
reduced FirstEnergy's obligation by $123 million and $121 million, respectively.
In early 2004, FirstEnergy announced that it would amend the benefit provisions
of its health care benefits plan and both employees and retirees would share in
more of the benefit costs.

           On December 8, 2003, President Bush signed into law a bill that
expands Medicare, primarily adding a prescription drug benefit for
Medicare-eligible retirees starting in 2006. FirstEnergy anticipates that the
benefits it pays after 2006 will be lower as a result of the new Medicare
provisions. Due to uncertainties surrounding some of the new Medicare provisions
and a lack of authoritative accounting guidance about these issues, FirstEnergy
deferred the recognition of the impact of the new Medicare provisions as
provided by FASB Staff Position 106-1. The final accounting guidance could
require changes to previously reported information.

                                     20

<PAGE>

           The following sets forth the funded status of the plans and amounts
recognized on FirstEnergy's Consolidated Balance Sheets as of December 31:

<TABLE>
<CAPTION>

         Obligations and Funded Status                 Pension Benefits             Other Benefits
                                                      -------------------        ------------------
         As of December 31                             2003         2002          2003        2002
         ------------------------------------------------------------------------------------------
                                                                       (In millions)
         <S>                                          <C>          <C>           <C>        <C>
         Change in benefit obligation
         Benefit obligation at beginning of year..    $3,866       $3,548        $ 2,077    $ 1,582
         Service cost.............................        66           59             43         28
         Interest cost............................       253          249            136        114
         Plan participants' contributions.........        --           --              6         --
         Plan amendments..........................        --           --           (123)      (121)
         Actuarial loss...........................       222          268            323        440
         GPU acquisition..........................        --          (12)            --        110
         Benefits paid............................      (245)        (246)           (94)       (76)
                                                      ------       ------        -------    -------
         Benefit obligation at end of year........    $4,162       $3,866        $ 2,368    $ 2,077
                                                      ======       ======        =======    =======

         Change in fair value of plan assets
         Fair value of plan assets at
           beginning of year......................    $2,889       $3,484        $   473    $   535
         Actual return on plan assets.............       671         (349)            88        (57)
         Company contribution.....................        --           --             68         31
         Plan participants' contribution..........        --           --              2         --
         Benefits paid............................      (245)        (246)           (94)       (36)
                                                      ------       ------        -------    -------
         Fair value of plan assets at end of year.    $3,315       $2,889        $   537    $   473
                                                      ======       ======        =======    =======

         Funded status............................    $ (847)      $ (977)       $(1,831)   $(1,604)
         Unrecognized net actuarial loss..........       919        1,186            994        752
         Unrecognized prior service cost
          (benefit)...............................        72           78           (221)      (107)
         Unrecognized net transition obligation...        --           --             83         92
                                                      ------       ------        -------    -------
         Net asset (liability) recognized.........    $  144       $  287        $  (975)   $  (867)
                                                      ======       ======        =======    =======

         Amounts Recognized in the
         Consolidated Balance Sheets                   Pension Benefits              Other Benefits
                                                      -----------------          ------------------
         As of December 31                             2003         2002          2003         2002
         ------------------------------------------------------------------------------------------

         Accrued benefit cost.....................    $ (438)      $ (548)       $  (975)   $  (867)
         Intangible assets........................        72           78             --         --
         Accumulated other comprehensive loss.....       510          757             --         --
                                                      ------       ------        -------    -------
         Net amount recognized....................    $  144       $  287        $  (975)   $  (867)
                                                      ======       ======        =======    =======
         Company's share of net amount recognized.    $   10       $    9        $   (39)   $   (26)
                                                      ======       ======        =======    =======

         Increase (decrease) in minimum liability
           included in other comprehensive income
           (net of tax)...........................    $ (145)      $  444        $    --    $    --

         Weighted-Average Assumptions Used
         to Determine Benefit Obligations
         As of December 31
         ----------------------------------------

         Discount rate...........................       6.25%        6.75%          6.25%      6.75%
         Rate of compensation increase...........       3.50%        3.50%

         Allocation of Plan Assets
         As of December 31
         -------------------------

         Asset Category
         Equity securities.....................           70%          61%            71%        58%
         Debt securities.......................           27           35             22         29
         Real estate...........................            2            2             --         --
         Other.................................            1            2              7         13
                                                         ---         ----            ---        ---
         Total.................................          100%         100%           100%       100%
                                                         ===          ===            ===        ===

         Information for Pension Plans With an
         Accumulated Benefit Obligation in
         Excess of Plan Assets                         2003         2002
         -----------------------------------------     ----         ----
                                                         (In millions)
         Projected benefit obligation.............    $4,162       $3,866
         Accumulated benefit obligation...........     3,753        3,438
         Fair value of plan assets................     3,315        2,889

</TABLE>


         FirstEnergy's net pension and other postretirement benefit costs for
         the three years ended December 31, 2003 were computed as follows:


                                             21


<PAGE>

<TABLE>
<CAPTION>

                                                        Pension Benefits              Other Benefits
                                                     ----------------------       --------------------
         Components of Net Periodic Benefit Costs    2003     2002     2001       2003    2002    2001
         ---------------------------------------------------------------------------------------------
                                                                        (In millions)
         <S>                                         <C>     <C>      <C>         <C>     <C>    <C>
         Service cost............................    $  66   $  59    $  35       $ 43    $ 29   $ 18
         Interest cost...........................      253     249      133        137     114     65
         Expected return on plan assets..........     (248)   (346)    (205)       (43)    (52)   (10)
         Amortization of prior service cost......        9       9        9         (9)      3      3
         Amortization of transition obligation
          (asset)................................       --      --       (2)         9       9      9
         Recognized net actuarial loss...........       62      --       --         40      11      5
         Voluntary early retirement program......       --      --        6         --      --      2
                                                     -----   -----    -----       ----    ----   ----
         Net periodic cost (income)..............    $ 142   $ (29)   $ (24)      $177    $114   $ 92
                                                     =====   =====    =====       ====    ====   ====
         Company's share of net benefit costs....    $   4   $   1    $  (1)      $  7    $  2   $  4
                                                     =====   =====    =====       ====    ====   ====

         Weighted-Average Assumptions Used
         to Determine Net Periodic Benefit Cost
         for Years Ended December 31
         ---------------------------------------

         Discount rate..........................      6.75%   7.25%    7.75%      6.75%   7.25%  7.75%
         Expected long-term return on plan
           assets...............................      9.00%  10.25%   10.25%      9.00%  10.25% 10.25%

         Rate of compensation increase..........      3.50%   4.00%    4.00%

</TABLE>


           In selecting an assumed discount rate, FirstEnergy considers
currently available rates of return on high-quality fixed income investments
expected to be available during the period to maturity of the pension and other
postretirement benefit obligations. The assumed rate of return on pension plan
assets considers historical market returns and economic forecasts for the types
of investments held by the Company's pension trusts. The long-term rate of
return is developed considering the portfolio's asset allocation strategy.


Assumed health care cost trend rates
As of December 31                                        2003           2002
-------------------------------------------------------------------------------
Health care cost trend rate assumed for next
  year (pre/post-Medicare)..........................   10%-12%        10%-12%
Rate to which the cost trend rate is assumed to
  decline (the ultimate trend rate).................        5%             5%
Year that the rate reaches the ultimate trend
  rate (pre/post-Medicare)..........................  2009-2011      2008-2010


           Assumed health care cost trend rates have a significant effect on the
amounts reported for the health care plans. A one-percentage-point change in
assumed health care cost trend rates would have the following effects:

                                                1-Percentage-    1-Percentage-
                                                Point Increase   Point Decrease
-------------------------------------------------------------------------------
                                                        (In millions)

Effect on total of service and interest cost..      $ 26            $ (19)
Effect on postretirement benefit obligation...      $233            $(212)


           FirstEnergy employs a total return investment approach whereby a mix
of equities and fixed income investments are used to maximize the long-term
return of plan assets for a prudent level of risk. Risk tolerance is established
through careful consideration of plan liabilities, plan funded status, and
corporate financial condition. The investment portfolio contains a diversified
blend of equity and fixed-income investments. Furthermore, equity investments
are diversified across U.S. and non-U.S. stocks, as well as growth, value, and
small and large capitalizations. Other assets such as real estate are used to
enhance long-term returns while improving portfolio diversification. Derivatives
may be used to gain market exposure in an efficient and timely manner; however,
derivatives are not used to leverage the portfolio beyond the market value of
the underlying investments. Investment risk is measured and monitored on a
continuing basis through periodic investment portfolio reviews, annual liability
measurements, and periodic asset/liability studies.

           As a result of GPU Service Inc. merging with FirstEnergy Service
Company in the second quarter of 2003, operating company employees of GPU
Service were transferred to the former GPU operating companies. Accordingly,
FirstEnergy requested an actuarial study to update the pension liabilities for
each of its subsidiaries. Based on the actuary's report, the accrued pension
costs for the Company as of June 30, 2003 increased by $16 million. The
corresponding adjustment related to this change decreased other comprehensive
income and deferred income taxes and increased the payable to associated
companies.

           Due to the increased market value of its pension plan assets, the
Company reduced its minimum liability as prescribed by SFAS 87 as of December
31, 2003 by $16 million, recording an increase of $2 million in an intangible

                                  22

<PAGE>

asset and crediting OCI by $11 million (offsetting previously recorded deferred
tax benefits by $7 million). The remaining balance in OCI of $12 million will
reverse in future periods to the extent the accumulated benefit obligation
exceeds the fair value of trust assets. The accrued pension cost was reduced to
$15 million as of December 31, 2003.

           FirstEnergy does not expect to contribute to its pension plans in
2004 and expects to contribute $16 million to its other postretirement benefit
plans in 2004.

     (J) TRANSACTIONS WITH AFFILIATED COMPANIES-

           Operating revenues, operating expenses and other income include
transactions with affiliated companies, primarily American Transmission Systems,
Inc. (ATSI), FirstEnergy Solutions Corp. (FES) and FirstEnergy Service Company
(FESC). The Ohio transition plan resulted in the corporate separation of
FirstEnergy's regulated and unregulated operations in 2001. FES operates the
generation businesses of the Company, OE, CEI and TE. As a result, the Company
entered into power supply agreements (PSA) whereby FES purchases all of the
Company's nuclear generation and the Company purchases its power from FES to
meet its "provider of last resort" obligations. In 2002, the Company terminated
its nuclear fuel leasing arrangement with OES Fuel and now owns its nuclear
fuel. The primary affiliated companies transactions are as follows:

                                        2003          2002           2001
-----------------------------------------------------------------------------
                                                    (In millions)
Operating Revenues:
PSA revenues from FES...............   $162         $138           $152
Generating units rent from FES......     20           20             20
Ground lease with ATSI..............      1            1              1

Operating Expenses:
Nuclear fuel leased from OES Fuel...     --            5             19
Purchased power under PSA...........    166          157            153
Transmission facilities rentals.....     10           13             10
FESC support services...............     13            9             10

Other Income:
Interest income from ATSI...........      3            3              3
Interest income from FES............      1            1              1
------------------------------------------------------------------------------


           FirstEnergy does not bill directly or allocate any of its costs to
any subsidiary company. Costs are allocated to the Company from FESC, a
subsidiary of FirstEnergy Corp. and a "mutual service company" as defined in
Rule 93 of the Public Utility Holding Company Act of 1935 (PUHCA). The majority
of costs are directly billed or assigned at no more than cost as determined by
PUHCA Rule 91. The remaining costs are for services that are provided on behalf
of more than one company, or costs that cannot be precisely identified and are
allocated using formulas that are filed annually with the SEC on Form U-13-60.
The current allocation or assignment formulas used and their bases include
multiple factor formulas; each company's proportionate amount of FirstEnergy's
aggregate direct payroll, number of employees, asset balances, revenues, number
of customers, other factors and specific departmental charge ratios. Management
believes that these allocation methods are reasonable. Intercompany transactions
with OE, FirstEnergy and its other subsidiaries are generally settled under
commercial terms within thirty days, except for a net $2.3 million receivable
from affiliates for pension and OPEB obligations.

     (K) CASH AND FINANCIAL INSTRUMENTS-

           All temporary cash investments purchased with an initial maturity of
three months or less are reported as cash equivalents on the Balance Sheets at
cost, which approximates their fair market value. Noncash financing and
investing activities included capital lease transactions amounting to $1.5
million and $21.6 million for the years 2002 and 2001, respectively. There were
no capital lease transactions in 2003.

           All borrowings with initial maturities of less than one year are
defined as financial instruments under GAAP 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:

                                        23
<PAGE>

<TABLE>
<CAPTION>

                                                               2003                         2002
------------------------------------------------------------------------------------------------------
                                                      Carrying      Fair            Carrying      Fair
                                                        Value      Value              Value      Value
------------------------------------------------------------------------------------------------------
                                                                          (In millions)
<S>                                                     <C>        <C>                <C>        <C>
Long-term debt......................................    $211       $228               $252       $260
Preferred stock*....................................      14         14                 14         14
Investments other than cash and cash equivalents....     175        180                161        165
-----------------------------------------------------------------------------------------------------
<FN>

* The December 31, 2003 amount is classified as debt under SFAS 150.

</FN>
</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 corporations 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. The Company has no securities held for trading purposes.

           The investment policy for the nuclear decommissioning trust funds
restricts or limits the ability to hold certain types of assets including
private or direct placements, warrants, securities of FirstEnergy, investments
in companies owning nuclear power plants, financial derivatives, preferred
stocks, securities convertible into common stock and securities of the trust
fund's custodian or managers and their parents or subsidiaries. The investments
that are held in the decommissioning trusts (included as "Investments other than
cash and cash equivalents" in the table above) consist of equity securities ($50
million) and fixed income securities ($84 million) as of December 31, 2003.
Realized and unrealized gains and losses applicable to the decommissioning
trusts have been recognized in the trust investment with a corresponding change
to regulatory assets. For 2003 and 2002, net realized gains (losses) were
approximately $1.2 million and $(0.3) million and interest and dividend income
totaled approximately $4.8 million and $5.2 million, respectively.

2.   LEASES

           The Company leases 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, 2003, are summarized as follows:

                                          2003            2002         2001
----------------------------------------------------------------------------
                                                      (In millions)
Operating leases
   Interest element...................    $0.2            $0.1         $ --
   Other..............................     0.3             0.2          0.1
Capital leases
   Interest element...................      --              --           --
   Other..............................      --             0.1          0.1
----------------------------------------------------------------------------
Total rentals.........................    $0.5            $0.4         $0.2
============================================================================


           The future minimum lease payments as of December 31, 2003, are:

                                                            Operating
                                                              Leases
  ---------------------------------------------------------------------
                                                          (In millions)
  2004...................................................     $0.1
  2005...................................................      0.1
  2006...................................................      0.1
  2007...................................................      0.1
  2008...................................................      0.1
  Years thereafter.......................................      0.6
  ----------------------------------------------------------------
  Total minimum lease payments...........................     $1.1
  ================================================================


                                         24
<PAGE>


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
$44.4 million as of December 31, 2003.

     (B) STOCK COMPENSATION PLANS-

           FirstEnergy administers the FirstEnergy Executive and Director
Incentive Compensation Plan (FE Plan). Under the FE Plan, total awards cannot
exceed 22.5 million shares of common stock or their equivalent. Only stock
options and restricted stock have been granted, with vesting periods ranging
from six months to seven years. Several other stock compensation plans have been
acquired through the mergers with GPU and Centerior - GPU, Inc. Stock Option and
Restricted Stock Plan for MYR Group Inc. Employees (MYR Plan), 1990 Stock Plan
for Employees of GPU, Inc. and Subsidiaries (GPU Plan) and Centerior Equity
Plan. No further stock-based compensation can be awarded under these plans.

           Collectively, the above plans are referred to as the FE Programs.
Restricted common stock grants under the FE Programs were as follows:

                                          2003        2002         2001
---------------------------------------------------------------------------

Restricted common shares granted......     --         36,922     133,162
Weighted average market price ........    n/a (1)     $36.04      $35.68
Weighted average vesting period
  (years).............................    n/a (1)        3.2         3.7
Dividends restricted..................    n/a (1)      Yes            -- (2)
---------------------------------------------------------------------------

 (1) Not applicable since no restricted stock was granted.
 (2) FE Plan dividends are paid as restricted stock on 4,500 shares;
     MYR Plan dividends are paid as unrestricted cash on 128,662 shares


           Under the Executive Deferred Compensation Plan (EDCP), covered
employees can direct a portion of their Annual Incentive Award and/or Long-Term
Incentive Award into an unfunded FirstEnergy Stock Account to receive vested
stock units. An additional 20% premium is received in the form of stock units
based on the amount allocated to the FirstEnergy Stock Account. Dividends are
calculated quarterly on stock units outstanding and are paid in the form of
additional stock units. Upon withdrawal, stock units are converted to
FirstEnergy shares. Payout typically occurs three years from the date of
deferral; however, an election can be made in the year prior to payout to
further defer shares into a retirement stock account that will pay out in cash
upon retirement. As of December 31, 2003, there were 410,399 stock units
outstanding.

           Stock option activities under the FE Programs for the past three
years were as follows:

                                  Number of        Weighted Average
 Stock Option Activities            Options          Exercise Price
--------------------------------------------------------------------
 Balance, January 1, 2001.......   5,021,862            24.09
 (473,314 options exercisable)..                        24.11

   Options granted..............   4,240,273            28.11
   Options exercised............     694,403            24.24
   Options forfeited............     120,044            28.07
 Balance, December 31, 2001.....   8,447,688            26.04
 (1,828,341 options exercisable)                        24.83

   Options granted..............   3,399,579            34.48
   Options exercised............   1,018,852            23.56
   Options forfeited............     392,929            28.19
 Balance, December 31, 2002.....  10,435,486            28.95
 (1,400,206 options exercisable)                        26.07

   Options granted..............   3,981,100            29.71
   Options exercised............     455,986            25.94
   Options forfeited............     311,731            29.09
 Balance, December 31, 2003.....  13,648,869            29.27
 (1,919,662 options exercisable)                        29.67


           As of December 31, 2003, the weighted average remaining contractual
life of outstanding stock options was 7.6 years.

                                   25
<PAGE>

           Options outstanding by plan and range of exercise price as of
December 31, 2003 were as follows:

                                    Range of                 Options
FirstEnergy Program              Exercise Prices          Outstanding
---------------------------------------------------------------------
FE Plan                          $19.31 - $29.87           9,904,861
                                 $30.17 - $35.15           3,214,601
Plans acquired through merger:
GPU Plan                         $23.75 - $35.92             501,734
Other plans                                                   27,673
--------------------------------------------------------------------
Total                                                     13,648,869
====================================================================


           No material stock-based employee compensation expense is reflected in
net income for stock options granted under the above plans since the exercise
price was equal to the market value of the underlying common stock on the grant
date. The effect of applying fair value accounting to FirstEnergy's stock
options is summarized in Note 1(F) - "Stock-Based Compensation."

     (C) PREFERRED STOCK-

           All preferred stock may be redeemed by the Company in whole, or in
part, with 30-60 days' notice.

     (D) LONG-TERM DEBT-

           The Company has a first mortgage indenture under which it issues
first mortgage bonds secured by a direct first mortgage lien on substantially
all of its property and franchises, other than specifically excepted property.
The Company has various debt covenants under its financing arrangements. The
most restrictive of the debt covenants relate to the nonpayment of interest
and/or principal on debt which could trigger a default and the maintenance of
minimum fixed charge ratios and debt to capitalization ratios. There also exists
cross-default provisions among financing arrangements of FirstEnergy and the
Company.

           Based on the amount of bonds authenticated by the mortgage bond
trustee through December 31, 2003, the Company's annual sinking fund
requirements for all bonds issued under its first mortgage indenture amounts to
$9.2 million. The Company expects to deposit funds with its mortgage bond
trustee in 2004 that will then be withdrawn upon the surrender for cancellation
of a like principal amount of bonds, which are specifically authenticated for
such purposes against unfunded property additions or against previously retired
bonds. This method can result in minor increases in the amount of the annual
sinking fund requirement.

           Sinking fund requirements for first mortgage bonds and maturing
long-term debt (excluding capital leases) during the next five years are $92.7
million in 2004 and $1.0 million in each year 2005 through 2008. Included in
these amounts are various variable interest rate long-term debt which have
provisions by which individual debt holders have the option to "put back" or
require the respective debt issuer to redeem their debt at those times when the
interest rate may change prior to its maturity date. Those amounts are $30
million in 2004, which is the next time debt holders may exercise this
provision.

           The Company's obligations to repay certain pollution control revenue
bonds are secured by several series of first mortgage bonds. Certain pollution
control revenue bonds are entitled to the benefit of irrevocable bank letters of
credit of $10.4 million and noncancelable municipal bond insurance policies of
$32.9 million to pay principal of, or interest on, the pollution control revenue
bonds. To the extent that drawings are made under the letters of credit or
policies, the Company is entitled to a credit against its obligation to repay
the related bond. The Company pays an annual fee of 1.375% of the amount of the
letters of credit to the issuing bank and is obligated to reimburse the bank for
any drawings thereunder.

     (E) LONG-TERM DEBT:  PREFERRED STOCK SUBJECT TO MANDATORY REDEMPTION-

           Effective July 1, 2003, upon adoption of SFAS 150 (see Note 6), the
Company reclassified as debt its preferred stock subject to mandatory
redemption. Prior year amounts were not reclassified.

           The Company's 7.625% series has an annual sinking fund requirement
for 7,500 shares.

     (F) COMPREHENSIVE INCOME-

           Comprehensive income includes net income as reported on the
Consolidated Statements of Income and all other changes in common stockholder's
equity except those resulting from transactions with the parent. As of


                                        26
<PAGE>



December 31, 2003, accumulated other comprehensive loss consisted of a minimum
liability for unfunded retirement benefits of $11.8 million.

4.   SHORT-TERM BORROWINGS:

           The Company may borrow from affiliates on a short-term basis. As of
December 31, 2003, the Company had borrowed $11.3 million from its affiliates at
an average interest rate of 1.7%.

5.   COMMITMENTS AND CONTINGENCIES:

     (A) CAPITAL EXPENDITURES-

           The Company's current forecast reflects expenditures of approximately
$143 million for property additions and improvements from 2004-2006, of which
approximately $64 million is applicable to 2004. Investments for additional
nuclear fuel during the 2004-2006 period are estimated to be approximately $34
million, of which approximately $20 million applies to 2004. During the same
periods, the Company's nuclear fuel investments are expected to be reduced by
approximately $35 million and $17 million, respectively, as the nuclear fuel is
consumed.

     (B) NUCLEAR INSURANCE-

           The Price-Anderson Act limits the public liability relative to a
single incident at a nuclear power plant to $10.9 billion. The amount is covered
by a combination of private insurance and an industry retrospective rating plan.
Based on its ownership interests in the Beaver Valley Station and the Perry
Plant, the Company's maximum potential assessment under the industry
retrospective rating plan (assuming the other affiliate co-owners contribute
their proportionate shares of any assessments under the retrospective rating
plan) would be $84.5 million per incident but not more than $8.4 million in any
one year for each incident.

           The Company is also insured as to its interest in Beaver Valley and
Perry under policies issued to the operating company for each plant. Under these
policies, up to $2.75 billion is provided for property damage and
decontamination and decommissioning costs. The Company has also obtained
approximately $222.1 million of insurance coverage for replacement power costs
for its interests in Beaver Valley and Perry. Under these policies, the Company
can be assessed a maximum of approximately $11.9 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.

     (C) ENVIRONMENTAL MATTERS-

           Various federal, state and local authorities regulate the Company
with regard to air and water quality and other environmental matters. The
effects of compliance on the Company with regard to environmental matters could
have a material adverse effect on the Company's earnings and competitive
position. These environmental regulations affect the Company's earnings and
competitive position to the extent that it competes with companies that are not
subject to such regulations and therefore do not bear the risk of costs
associated with compliance, or failure to comply, with such regulations.
Overall, the Company believes it is in material compliance with existing
regulations but is unable to predict future change in regulatory policies and
what, if any, the effects of such change would be. Generation operations and any
related additional capital expenditures for environmental compliance are the
responsibility of FirstEnergy's competitive services business unit.

         Clean Air Act Compliance

           The Company is required to meet federally approved sulfur dioxide
(SO2) regulations. Violations of such regulations can result in shutdown of the
generating unit involved and/or civil or criminal penalties of up to $31,500 for
each day the unit is in violation. The Environmental Protection Agency (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.

           The Company is complying with SO2 reduction requirements under the
Clean Air Act Amendments of 1990 by burning lower-sulfur fuel, generating more
electricity from lower-emitting plants, and/or using emission allowances. NOx
reductions required by the 1990 Amendments are being achieved through combustion
controls and the generation of


                                        27
<PAGE>




more electricity at lower-emitting plants. In September 1998, the EPA finalized
regulations requiring additional NOx reductions from the Company's Ohio and
Pennsylvania facilities. The EPA's NOx Transport Rule imposes uniform reductions
of NOx emissions (an approximate 85% reduction in utility plant NOx emissions
from projected 2007 emissions) across a region of nineteen states (including
Ohio and Pennsylvania) and the District of Columbia based on a conclusion that
such NOx emissions are contributing significantly to ozone pollution in the
eastern United States. State Implementation Plans (SIP) must comply by May 31,
2004 with individual state NOx budgets established by the EPA. Pennsylvania
submitted a SIP that required compliance with the NOx budgets at the Company's
Pennsylvania facilities by May 1, 2003. The Company's Pennsylvania facilities
complied with the NOx budgets in 2003 and all facilities will comply with the
NOx budgets in 2004 and thereafter. Ohio submitted a SIP that requires
compliance with the NOx budgets at the Company's Ohio facilities by May 31,
2004.

         National Ambient Air Quality Standards

           In July 1997, the EPA promulgated changes in the National Ambient Air
Quality Standard (NAAQS) for ozone and proposed a new NAAQS for fine particulate
matter. On December 17, 2003, the EPA proposed the "Interstate Air Quality Rule"
covering a total of 29 states (including Ohio and Pennsylvania) and the District
of Columbia based on proposed findings that air pollution emissions from 29
eastern states and the District of Columbia significantly contribute to
nonattainment of the NAAQS for fine particles and/or the "8-hour" ozone NAAQS in
other states. The EPA has proposed the Interstate Air Quality Rule to
"cap-and-trade" NOx and SO2 emissions in two phases (Phase I in 2010 and Phase
II in 2015). According to the EPA, power plant SO2 emissions would be
reduced by approximately 3.6 million tons in 2010, across states covered by the
rule, with reductions ultimately reaching more than 5.5 million tons annually.
NOx emission reductions would measure about 1.5 million tons in 2010 and 1.8
million tons in 2015. The future cost of compliance with these proposed
regulations may be substantial and will depend if and how they are ultimately
implemented by the states in which the Company operates affected facilities.

         Mercury Emissions

           In December 2000, the EPA announced it would proceed with the
development of regulations regarding hazardous air pollutants from electric
power plants, identifying mercury as the hazardous air pollutant of greatest
concern. On December 15, 2003, the EPA proposed two different approaches to
reduce mercury emissions from coal-fired power plants. The first approach would
require plants to install controls known as "maximum achievable control
technologies" (MACT) based on the type of coal burned. According to the EPA, if
implemented, the MACT proposal would reduce nationwide mercury emissions from
coal-fired power plants by fourteen tons to approximately thirty-four tons per
year. The second approach proposes a cap-and-trade program that would reduce
mercury emissions in two distinct phases. Initially, mercury emissions would be
reduced by 2010 as a "co-benefit" from implementation of SO2 and NOx emission
caps under the EPA's proposed Interstate Air Quality Rule. Phase II of the
mercury cap-and-trade program would be implemented in 2018 to cap nationwide
mercury emissions from coal-fired power plants at fifteen tons per year. The EPA
has agreed to choose between these two options and issue a final rule by
December 15, 2004. The future cost of compliance with these regulations may be
substantial.

         W. H. Sammis Plant

           In 1999 and 2000, the EPA issued Notices of Violation (NOV) or a
Compliance Order to nine utilities covering 44 power plants, including the W. H.
Sammis Plant. In addition, the U.S. Department of Justice filed eight civil
complaints against various investor-owned utilities, which included a complaint
against the Company and OE in the U.S. District Court for the Southern District
of Ohio. The NOV and complaint allege violations of the Clean Air Act based on
operation and maintenance of the W. H. Sammis Plant dating back to 1984. The
complaint requests permanent injunctive relief to require the installation of
"best available control technology" and civil penalties of up to $27,500 per day
of violation. On August 7, 2003, the United States District Court for the
Southern District of Ohio ruled that 11 projects undertaken at the W. H. Sammis
Plant between 1984 and 1998 required pre-construction permits under the Clean
Air Act. The ruling concludes the liability phase of the case, which deals with
applicability of Prevention of Significant Deterioration provisions of the Clean
Air Act. The remedy phase, which is currently scheduled to be ready for trial
beginning July 19, 2004, will address civil penalties and what, if any, actions
should be taken to further reduce emissions at the plant. In the ruling, the
Court indicated that the remedies it "may consider and impose involved a much
broader, equitable analysis, requiring the Court to consider air quality, public
health, economic impact, and employment consequences. The Court may also
consider the less than consistent efforts of the EPA to apply and further
enforce the Clean Air Act." The potential penalties that may be imposed, as well
as the capital expenditures necessary to comply with substantive remedial
measures that may be required, could have a material adverse impact on the
Company's financial condition and results of operations. Management is unable to
predict the ultimate outcome of this matter and no liability has been accrued as
of December 31, 2003.

                                        28
<PAGE>


         Regulation of Hazardous Waste

           As a result of the Resource Conservation and Recovery Act of 1976, as
amended, and the Toxic Substances Control Act of 1976, federal and state
hazardous waste regulations have been promulgated. Certain fossil-fuel
combustion waste products, such as coal ash, were exempted from hazardous waste
disposal requirements pending the EPA's evaluation of the need for future
regulation. The EPA subsequently determined that regulation of coal ash as a
hazardous waste is unnecessary. In April 2000, the EPA announced that it will
develop national standards regulating disposal of coal ash under its authority
to regulate nonhazardous waste.

         Climate Change

           In December 1997, delegates to the United Nations' climate summit in
Japan adopted an agreement, the Kyoto Protocol (Protocol), to address global
warming by reducing the amount of man-made greenhouse gases emitted by developed
countries by 5.2% from 1990 levels between 2008 and 2012. The United States
signed the Protocol in 1998 but it failed to receive the two-thirds vote of the
U.S. Senate required for ratification. However, the Bush administration has
committed the United States to a voluntary climate change strategy to reduce
domestic greenhouse gas intensity - the ratio of emissions to economic output -
by 18% through 2012.

           The Company cannot currently estimate the financial impact of climate
change policies although the potential restrictions on carbon dioxide (CO2)
emissions could require significant capital and other expenditures. However, the
CO2 emissions per kilowatt-hour of electricity generated by the Company is lower
than many regional competitors due to the Company's diversified generation
sources which includes low or non-CO2 emitting gas-fired and nuclear generators.

         Clean Water Act

           Various water quality regulations, the majority of which are the
result of the federal Clean Water Act and its amendments, apply to the Company's
plants. In addition, Ohio and Pennsylvania have water quality standards
applicable to the Company's operations. As provided in the Clean Water Act,
authority to grant federal National Pollutant Discharge Elimination System water
discharge permits can be assumed by a state. Ohio and Pennsylvania have assumed
such authority.

     (D) LEGAL MATTERS-

           Various lawsuits, claims and proceedings related to the Company's
normal business operations are pending against FirstEnergy and its subsidiaries.
The most significant applicable to the Company are described above.

         Power Outage

           On August 14, 2003, various states in the northeast United States and
part of southern Canada experienced a widespread power outage. That outage
affected approximately 1.4 million customers in FirstEnergy's service area.
FirstEnergy continues to accumulate data and evaluate the status of its
electrical system prior to and during the outage event, and continues to
cooperate with the U.S.-Canada Power System Outage Task Force (Task Force)
investigating the August 14th outage. The interim report issued by the Task
Force on November 18, 2003 concluded that the problems leading up to the outage
began in FirstEnergy's service area. Specifically, the interim report concludes,
among other things, that the initiation of the August 14th outage resulted from
the coincidence on that afternoon of the following events: (1) inadequate
situational awareness at FirstEnergy; (2) FirstEnergy's failure to adequately
manage tree growth in its transmission rights of way; and (3) failure of the
interconnected grid's reliability organizations (Midwest ISO and PJM
Interconnection) to provide effective diagnostic support. FirstEnergy believes
that the interim report does not provide a complete and comprehensive picture of
the conditions that contributed to the August 14th outage and that it does not
adequately address the underlying causes of the outage. On November 25, 2003,
the PUCO ordered FirstEnergy to file a plan with the PUCO no later than March 1,
2004, illustrating how FirstEnergy will correct problems identified by the Task
Force as events contributing to the August 14th outage and addressing how
FirstEnergy proposes to upgrade its control room computer hardware and software
and improve the training of control room operators to ensure that similar
problems do not occur in the future. The PUCO, in consultation with the North
American Electric Reliability Council, will review the plan before determining
the next steps in the proceeding. On December 24, 2003, the FERC ordered
FirstEnergy to pay for an independent study of part of Ohio's power grid. The
study has commenced and will examine the stability of the grid in critical
points in the Cleveland and Akron areas; the status of projected power reserves
during summer 2004 through 2008; and the need for new transmission lines or
other grid projects. The FERC ordered the study to be completed within 120 days.
At this time, we do not know how the results of the study will impact
FirstEnergy.

                                       29
<PAGE>


6.   NEW ACCOUNTING STANDARDS AND INTERPRETATIONS:

         SFAS 143, "Accounting for Asset Retirement Obligations"

           In January 2003, the Company implemented SFAS 143 which provides
accounting standards for retirement obligations associated with tangible
long-lived assets. This statement requires recognition of the fair value of a
liability for an asset retirement obligation in the period in which it is
incurred. See Notes 1(E) and 1(H) for further discussions of SFAS 143.

         SFAS 150, "Accounting for Certain Financial Instruments with
         Characteristics of both Liabilities and Equity"

           In May 2003, the FASB issued SFAS 150, which establishes standards
for how an issuer classifies and measures certain financial instruments with
characteristics of both liabilities and equity. In accordance with the standard,
financial instruments that embody obligations for the issuer are required to be
classified as liabilities. SFAS 150 was effective immediately for financial
instruments entered into or modified after May 31, 2003 and effective at the
beginning of the first interim period beginning after June 15, 2003 for all
other financial instruments.

           Upon adoption of SFAS 150, effective July 1, 2003, the Company
reclassified as debt its preferred stock subject to mandatory redemption with a
carrying value of approximately $14 million as of December 31, 2003. Dividends
on preferred stock subject to mandatory redemption on the Company's Statements
of Income, which were not included in net interest charges prior to the adoption
of SFAS 150, are now included in net interest charges for the six months ended
December 31, 2003.

7. SUMMARY OF QUARTERLY FINANCIAL DATA (UNAUDITED):

           The following summarizes certain operating results by quarter for
2003 and 2002.

<TABLE>
<CAPTION>


                                             March 31,          June 30,        September 30,     December 31,
Three Months Ended                              2003             2003               2003             2003 (a)
---------------------------------------------------------------------------------------------------------------
                                                                       (In millions)
<S>                                           <C>                <C>              <C>                <C>
Operating Revenues........................    $128.3             $116.6           $145.9             $136.1
Operating Expenses and Taxes..............     130.2              110.3            126.0              113.1
---------------------------------------------------------------------------------------------------------------
Operating Income (Loss)...................      (1.9)               6.3             19.9               23.0
Other Income..............................       0.6                0.5              0.5                1.3
Net Interest Charges......................       3.4                3.4              3.0                2.5
---------------------------------------------------------------------------------------------------------------
Income (Loss) Before Cumulative Effect of
   Accounting Change......................      (4.7)               3.4             17.4               21.8
Cumulative Effect of Accounting Change
   (Net of Income Taxes)..................      10.6               --               --                 --
---------------------------------------------------------------------------------------------------------------
Net Income................................    $  5.9             $  3.4           $ 17.4             $ 21.8
===============================================================================================================
Earnings on Common Stock..................    $  5.0             $  2.5           $ 16.7             $ 21.1
===============================================================================================================


                                             March 31,          June 30,        September 30,     December 31,
Three Months Ended                              2002             2002               2002             2002
---------------------------------------------------------------------------------------------------------------
                                                                       (In millions)
Operating Revenues........................    $124.3             $127.8           $131.9             $122.4
Operating Expenses and Taxes..............     109.2              106.3            113.1              116.9
---------------------------------------------------------------------------------------------------------------
Operating Income..........................      15.1               21.5             18.8                5.5
Other Income..............................       0.7                0.5              0.7                0.1
Net Interest Charges......................       3.8                4.0              3.7                3.6
---------------------------------------------------------------------------------------------------------------
Net Income................................    $ 12.0             $ 18.0           $ 15.8             $  2.0
===============================================================================================================
Earnings on Common Stock..................    $ 11.0             $ 17.1           $ 14.9             $  1.0
===============================================================================================================

<FN>

(a)  Net income for the three months ended December 31, 2003, was increased by
     $1.1 million due to adjustments that were subsequently capitalized to
     construction projects in the fourth quarter. The adjustments included $0.2
     million, $0.3 million and $0.6 million of costs charged to expense in the
     first, second and third quarters, respectively. Management concluded that
     these adjustments were not material to the consolidated financial
     statements for any quarter of 2003.

</FN>
</TABLE>

                                                       30
<PAGE>


Report of Independent Auditors

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

In our opinion, the accompanying balance sheets and statements of capitalization
and the related statements of income, common stockholder's equity, preferred
stock, cash flows and taxes present fairly, in all material respects, the
financial position of Pennsylvania Power Company (a wholly owned subsidiary of
Ohio Edison Company) as of December 31, 2003 and 2002, and the results of its
operations and its cash flows for the years then ended in conformity with
accounting principles generally accepted in the United States of America. 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 of these statements in accordance with
auditing standards generally accepted in the United States of America, which
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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion. The financial statements of Pennsylvania Power
Company for the year ended December 31, 2001, were audited by other independent
auditors who have ceased operations. Those independent auditors expressed an
unqualified opinion on those financial statements in their report dated March
18, 2002.

As discussed in Note 1(E) to the financial statements, the Company changed its
method of accounting for asset retirement obligations as of January 1, 2003.





PricewaterhouseCoopers LLP
Cleveland, Ohio
February 25, 2004

                                          31

<PAGE>


The following report is a copy of a report previously issued by Arthur Andersen
LLP (Andersen). This report has not been reissued by Andersen and Andersen did
not consent to the incorporation by reference of this report into any of the
Company's registration statements.


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, 2001 and 2000, 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,
2001. 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 auditing standards generally accepted
in the United States. 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, 2001 and 2000, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 2001, in
conformity with accounting principles generally accepted in the United States.







ARTHUR ANDERSEN LLP


Cleveland, Ohio,
   March 18, 2002.

                                           32
<PAGE>