**THE
CLEVELAND ELECTRIC**


**ILLUMINATING
COMPANY**





**2004 ANNUAL
REPORT TO STOCKHOLDERS**



































**Contents**
    
    **Page**Glossary of
      Terms
    
    
    i-iiManagement
      Reports
    
    
    1Report of
      Independent Registered Public Accounting Firm
    
    
    2Selected
      Financial Data
    
    
    3Management's
      Discussion and Analysis
    
    
    4-15Consolidated
      Statements of Income
    
    
    16Consolidated
      Balance Sheets
    
    
    17Consolidated
      Statements of Capitalization
    
    
    18Consolidated
      Statements of Common Stockholder's Equity
    
    
    19Consolidated
      Statements of Preferred Stock
    
    
    19Consolidated
      Statements of Cash Flows
    
    
    20Consolidated
      Statements of Taxes
    
    
    21Notes to
      Consolidated Financial Statements
    
    
    22-41



















GLOSSARY OF TERMS










ATSI
    American
      Transmission Systems, Inc., owns and operates transmission
      facilitiesCEI
    The Cleveland
      Electric Illuminating Company, an Ohio electric utility operating
      subsidiaryCFC
    Centerior
      Funding Corporation, a wholly owned finance subsidiary of
    CEICompanies
    OE, CEI, TE,
      Penn, JCP&L, Met-Ed and PenelecFENOC
    FirstEnergy
      Nuclear Operating Company, operates nuclear generating
      facilitiesFES
    FirstEnergy
      Solutions Corp., provides energy-related products and
    servicesFESC
    FirstEnergy
      Service Company, provides legal, financial, and other corporate support
      servicesFirstEnergy
    FirstEnergy
      Corp., a registered public utility holding companyJCP&L
    Jersey
      Central Power & Light Company, an affiliated New Jersey electric
      utilityMet-Ed
    Metropolitan
      Edison Company, an affiliated Pennsylvania electric
  utilityOE
    Ohio Edison
      Company, an affiliated Ohio electric utilityOhio
      Companies
    CEI, OE and
      TEPenelec
    Pennsylvania
      Electric Company, an affiliated Pennsylvania electric utilityPenn
    Pennsylvania
      Power Company, an affiliated Pennsylvania electric
  utilityShippingport
    Shippingport
      Capital Trust, a special purpose entity created by CEI and TE in
      1997TE
    The Toledo
      Edison Company, an affiliated Ohio electric utilityThe following
      abbreviations and acronyms are used to identify frequently used terms in
      this report:AOCL
    Accumulated
      Other Comprehensive LossAPB
    Accounting
      Principles BoardAPB
      29
    APB Opinion
      No. 29, "Accounting for Nonmonetary Transactions"ARB
    Accounting
      Research BulletinARB
      43
    ARB No. 43,
      "Restatement and Revision of Accounting Research
  Bulletins"ARO
    Asset
      Retirement ObligationCO2
    Carbon
      DioxideCTC
    Competitive
      Transition ChargeECAR
    East Central
      Area Reliability AgreementEITF
    Emerging
      Issues Task ForceEITF
      03-1
    EITF Issue
      No. 03-1, "The Meaning of Other-Than-Temporary and Its Application to
      Certain
      Investments"EITF
      03-16
    EITF Issue
      No. 03-16, "Accounting for Investments in Limited Liability
      Companies"EITF
      97-4
    EITF Issue
      No. 97-4 "Deregulation of the Pricing of Electricity - Issues Related to
      the Application of FASB Statements No. 71 and 101"EPA
    Environmental
      Protection AgencyFASB
    Financial
      Accounting Standards BoardFERC
    Federal
      Energy Regulatory CommissionFIN
      46R
    FASB
      Interpretation No. 46 (revised December 2003), "Consolidation of Variable
      Interest Entities"FMB
    First
      Mortgage BondsFSP
    FASB Staff
      PositionFSP EITF
      03-1-1
    FASB Staff
      Position No. EITF Issue 03-1-1, "Effective Date of Paragraphs 10-20 of
      EITF Issue
      No. 03-1,
      *The Meaning of Other-Than-Temporary Impairment and Its Application to
      Certain Investments"*FSP
      106-1
    FASB Staff
      Position No.106-1, "Accounting and Disclosure Requirements Related to the
      Medicare
      Prescription
      Drug, Improvement and Modernization Act of 2003"FSP
      106-2
    FASB Staff
      Position No.106-2, "Accounting and Disclosure Requirements Related to
      the
      Medicare
      Prescription Drug, Improvement and Modernization Act of
    2003"FSP
      109-1
    FASB Staff
      Position No. 109-1, "Application of FASB Statement No. 109, Accounting for
      Income
      Taxes, to the
      Tax Deduction and Qualified Production Activities provided by the American
      Jobs Creation Act of  2004"GAAP
    Accounting
      Principles Generally Accepted in the United StatesIRS
    Internal
      Revenue ServiceKWH
    Kilowatt-hoursMACT
    Maximum
      Achievable Control TechnologiesMedicare
      Act
    Medicare
      Prescription Drug, Improvement and Modernization Act of
    2003MISO
    Midwest
      Independent Transmission System Operator, Inc.Moody’s
    Moody’s
      Investors ServiceMW
    MegawattsNAAQS
    National
      Ambient Air Quality StandardsNERC
    North
      American Electric Reliability Council










GLOSSARY OF TERMS, Cont.





NOAC
    Northwest
      Ohio Aggregation CoalitionNOX
    Nitrogen
      OxideNRC
    Nuclear
      Regulatory CommissionOCC
    Ohio
      Consumers' CounselOCI
    Other
      Comprehensive IncomeOPEB
    Other
      Post-Employment BenefitsPJM
    PJM
      Interconnection L. L. C.PRP
    Potentially
      Responsible PartyPUCO
    Public
      Utilities Commission of OhioPUHCA
    Public
      Utility Holding Company ActRTC
    Regulatory
      Transition ChargeS&P
    Standard
      & Poor’s Ratings ServiceSEC
    United States
      Securities and Exchange CommissionSFAS
    Statement of
      Financial Accounting StandardsSFAS
      71
    SFAS No. 71,
      "Accounting for the Effects of Certain Types of
  Regulation"SFAS
      87
    SFAS No. 87,
      "Employers' Accounting for Pensions"SFAS
      101
    SFAS No. 101,
      "Accounting for Discontinuation of Application of SFAS
  71"SFAS
      106
    SFAS No. 106,
      "Employers' Accounting for Postretirement Benefits Other Than
      Pensions"SFAS
      115
    SFAS No. 115,
      "Accounting for Certain Investments in Debt and Equity
      Securities"SFAS
      140
    SFAS No. 140,
      "Accounting for Transfers and Servicing of Financial Assets and
      Extinguishment
      of Liabilities"SFAS
      142
    SFAS No. 142,
      "Goodwill and Other Intangible Assets"SFAS
      143
    SFAS No. 143,
      "Accounting for Asset Retirement Obligations"SFAS
      144
    SFAS No. 144,
      "Accounting for the Impairment or Disposal of Long-Lived
      Assets"SFAS
      150
    SFAS No. 150,
      "Accounting for Certain Financial Instruments with Characteristics of Both
       Liabilities and Equity"SO2
    Sulfur
      DioxideVIE
    Variable
      Interest Entity
















MANAGEMENT REPORTS





Management's Responsibility for Financial
Statements




















Management's Reports on Internal Control Over Financial
Reporting





Internal
Control - Integrated Framework .



















Report of Independent Registered Public Accounting
Firm




















Consolidated financial statements















Internal control over financial reporting





Internal Control -
Integrated Framework Internal Control -
Integrated Framework







































THE CLEVELAND ELECTRIC ILLUMINATING
COMPANY





SELECTED FINANCIAL DATA











**2004**
    
    **2003**
    
    **2002**
    
    **2001**
    
    **2000*****(Dollars
      in thousands)*****GENERAL
      FINANCIAL INFORMATION:**Operating
      Revenues
    
    $
    1,808,485
    
    $
    1,719,739
    
    $
    1,843,671
    
    $
    2,064,622
    
    $
    1,890,339Operating
      Income
    
    $
    327,909
    
    $
    255,615
    
    $
    306,152
    
    $
    354,422
    
    $
    397,568Income Before
      Cumulative Effect
      of Accounting Change
    
    $
    236,531
    
    $
    197,033
    
    $
    136,952
    
    $
    177,905
    
    $
    210,424Net
      Income
    
    $
    236,531
    
    $
    239,411
    
    $
    136,952
    
    $
    177,905
    
    $
    210,424Earnings on
      Common Stock
    
    $
    229,523
    
    $
    231,885
    
    $
    121,262
    
    $
    153,067
    
    $
    189,581Total
      Assets
    
    $
    6,690,465
    
    $
    6,773,448
    
    $
    6,510,243
    
    $
    6,526,596
    
    $
    6,756,921**CAPITALIZATION
      AS OF DECEMBER 31:**Common
      Stockholder’s Equity
    
    $
    1,853,561
    
    $
    1,778,827
    
    $
    1,200,001
    
    $
    1,082,041
    
    $
    1,095,874Preferred
      Stock-Not Subject to Mandatory
      Redemption
    
    
    96,404
    
    
    96,404
    
    
    96,404
    
    
    141,475
    
    
    238,325Subject to Mandatory
      Redemption
    
    
    --
    
    
    --
    
    
    105,021
    
    
    106,288
    
    
    26,105Long-Term
      Debt and Other Long-Term Obligations
    
    
    1,970,117
    
    
    1,884,643
    
    
    1,975,001
    
    
    2,156,322
    
    
    2,634,692Total
      Capitalization
    
    $
    3,920,082
    
    $
    3,759,874
    
    $
    3,376,427
    
    $
    3,486,126
    
    $
    3,994,996**CAPITALIZATION
      RATIOS:**Common
      Stockholder’s Equity
    
    
    47.3
    %
    
    47.3
    %
    
    35.5
    %
    
    31.0
    %
    
    27.4
    %Preferred
      Stock-Not Subject to Mandatory
      Redemption
    
    
    2.5
    
    
    2.6
    
    
    2.9
    
    
    4.1
    
    
    6.0Subject to Mandatory
      Redemption
    
    
    --
    
    
    --
    
    
    3.1
    
    
    3.0
    
    
    0.6Long-Term
      Debt and Other Long-Term Obligations
    
    
    50.2
    
    
    50.1
    
    
    58.5
    
    
    61.9
    
    
    66.0Total
      Capitalization
    
    
    100.0
    %
    
    100.0
    %
    
    100.0
    %
    
    100.0
    %
    
    100.0
    %**DISTRIBUTION
      KWH DELIVERIES (Millions):**Residential
    
    
    5,264
    
    
    5,216
    
    
    5,370
    
    
    5,061
    
    
    5,061Commercial
    
    
    4,817
    
    
    4,690
    
    
    4,628
    
    
    4,907
    
    
    6,656Industrial
    
    
    9,006
    
    
    8,908
    
    
    8,921
    
    
    9,593
    
    
    8,320Other
    
    
    162
    
    
    169
    
    
    167
    
    
    166
    
    
    167Total
    
    
    19,249
    
    
    18,983
    
    
    19,086
    
    
    19,727
    
    
    20,204**CUSTOMERS
      SERVED:**Residential
    
    
    674,292
    
    
    669,337
    
    
    677,095
    
    
    673,852
    
    
    667,115Commercial
    
    
    81,093
    
    
    80,596
    
    
    71,893
    
    
    70,636
    
    
    69,103Industrial
    
    
    2,211
    
    
    2,318
    
    
    4,725
    
    
    4,783
    
    
    4,851Other
    
    
    293
    
    
    286
    
    
    289
    
    
    292
    
    
    307Total
    
    
    757,889
    
    
    752,537
    
    
    754,002
    
    
    749,563
    
    
    741,376**Number
      of Employees**
    
    
    905
    
    
    949
    
    
    974
    
    
    1,025
    
    
    1,046



















THE CLEVELAND ELECTRIC ILLUMINATING
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 outcomes (including revocation of necessary licenses or
operating permits, fines or other enforcement actions and remedies) of
governmental investigations and oversight, including by the Securities and
Exchange Commission, the United States Attorney's Office and the Nuclear
Regulatory Commission as disclosed in our Securities and Exchange Commission
filings, generally, and with respect to the Davis-Besse Nuclear Power Station
outage in particular, the availability and cost of capital, the continuing
availability and operation of generating units, our ability to experience growth
in the distribution business, our ability to access the public securities and
other capital markets, 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, the final outcome in the proceeding related to our Application for a
Rate Stabilization Plan in Ohio, the risks and other factors discussed from time
to time in our Securities and Exchange Commission filings, and other similar
factors. We expressly disclaim any current intention to update any
forward-looking statements contained herein as a result of new information,
future events, or otherwise.





Results of Operations


















































**Changes
      in KWH Sales**
    
    **2004**
    
    **2003****Increase
      (Decrease)**Electric
      Generation:Retail
    
    
    (2.6
    )%
    
    (13.6
    )%Wholesale
    
    
    44.2
    %
    
    (12.4
    )%**Total
      Electric Generation Sales**
    
    
    20.4
    %
    
    (13.0
    )%Distribution
      Deliveries:Residential
    
    
    0.9
    %
    
    (2.9
    )%Commercial
    
    
    2.7
    %
    
    1.3
    %Industrial
    
    
    1.1
    %
    
    (0.1
    )%**Total
      Distribution Deliveries**
    
    
    1.4
    %
    
    (0.5
    )%








*Operating Expenses and
Taxes*





Total operating expenses and taxes increased by
$17 million in 2004 and decreased by $73 million in 2003 from the prior year.
The following table presents changes from the prior year by expense
category.








**Operating
      Expenses and Taxes - Changes**
    
    **2004**
    
    **2003*****(In
      millions)*****Increase
      (Decrease)**Fuel and
      purchased power costs
    
    $
    28
    
    $
    7Nuclear
      operating costs
    
    
    (124
    )
    
    34Other
      operating costs
    
    
    36
    
    
    (43
    )Provision for
      depreciation
    
    
    7
    
    
    (38
    )Amortization
      of regulatory assets
    
    
    30
    
    
    17Deferral of
      new regulatory assets
    
    
    (24
    )
    
    (26
    )General
      taxes
    
    
    10
    
    
    (11
    )Income
      taxes
    
    
    54
    
    
    (13
    )**Total operating expenses and
      taxes**
    
    **$**
    **17**
    
    **$**
    **(73**
    **)**





























The increase in depreciation in 2004 compared
to 2003 reflected a higher level of depreciable property in 2004, while the
decrease in 2003 from 2002 was attributable to revised service life assumptions
for nuclear generating plants, lower charges following the implementation of
SFAS 143 ($18 million) and lower fossil plant depreciation ($14 million). Higher
amortization of regulatory assets in 2004 and 2003 as compared to the prior
periods was primarily due to increased amortization of transition regulatory
assets. Increases in the deferral of regulatory assets in 2004 from 2003 were
primarily a result of higher shopping incentive deferrals ($5 million) and
deferred interest on the shopping incentives ($17 million). Increased shopping
incentive deferrals were also the principal cause of the increase in 2003
compared to 2002.





General taxes increased $10 million in 2004
primarily due to the absence of settled property tax claims in 2003 and
correspondingly decreased $11 million in 2003 from 2002 principally due to the
settled property tax claims.





*Other Income*





Other income decreased by $55 million in 2004,
principally due to a $131 million pre-tax NRG settlement recognized in 2003,
partially offset by interest income from Shippingport, which was consolidated
into CEI as of December 31, 2003. The increase in other income in 2003
compared to 2002 reflected the NRG gain in 2003.





*Net Interest Charges*





Net interest charges continued to trend lower,
decreasing by $22 million in 2004 and by $29 million in 2003, due to our debt
paydown program. Long-term debt interest was lower due to the redemptions of
$289 million and refinancing of $46 million of pollution control notes during
2004. This decrease was partially offset by a $17 million increase in other
interest expense resulting from Shippingport interest expense in 2004 (see Note
6 - Variable Interest Entities).





*Cumulative Effect of Accounting Change*





Upon adoption of SFAS 143 in the first quarter
of 2003, we recorded an after-tax gain to net income of $42 million. The
cumulative effect adjustment for unrecognized depreciation and accretion, offset
by the reduction in the existing decommissioning liabilities and ceasing the
accounting practice of depreciating non-regulated generation assets using a cost
of removal component, was a $73 million increase to income, or $42 million net
of income taxes.





*Preferred Stock Dividend
Requirements*





Preferred stock dividend requirements decreased
by $0.5 million in 2004 and decreased by $8 million in 2003 from 2002
principally due to optional redemptions of preferred stock in 2002. Premiums
related to the optional redemptions partially offset the lower dividend
requirements.





**Capital
Resources and Liquidity**





Our cash requirements in 2004 for operating
expenses, construction expenditures, scheduled debt maturities and preferred
stock redemptions were met without increasing our net debt and preferred stock
outstanding. During 2005, we expect to meet our contractual obligations with
cash from operations. Thereafter, we expect to use a combination of cash from
operations and funds from the capital markets.





Changes in
Cash Position











Cash Flows
from Operating Activities










**Operating
      Cash Flows**
    
    **2004**
    
    **2003**
    
    **2002*****(In
      millions)***Cash earnings
      (1)
    
    $
    443
    
    $
    309
    
    $
    229Pension trust
      contribution(2)
    
    
    (19
    )
    
    --
    
    
    --Working
      capital and other
    
    
    (202
    )
    
    2
    
    
    98Total
    
    $
    222
    
    $
    311
    
    $
    327





(1)Cash
earnings are a non-GAAP measure (see reconciliation below).


(2)Pension trust contribution net of $13 million income tax
benefit.

















Cash earnings (in the table above) is not a
measure of performance calculated in accordance with GAAP. We believe that cash
earnings is a useful financial measure because it provides investors and
management with an additional means of evaluating our cash-based operating
performance. The following table reconciles cash earnings with net
income.





**Reconciliation
      of Cash Earnings**
    
    **2004**
    
    **2003**
    
    **2002*****(In millions)***Net Income
      (GAAP)
    
    $
    237
    
    $
    239
    
    $
    137Non-Cash
      Charges (Credits):Provision for
      depreciation
    
    
    132
    
    
    125
    
    
    163Amortization
      of regulatory assets
    
    
    196
    
    
    166
    
    
    149Deferral of
      new regulatory assets
    
    
    (117
    )
    
    (93
    )
    
    (67
    )Nuclear fuel
      and capital lease amortization
    
    
    28
    
    
    18
    
    
    21Other
      amortization
    
    
    (18
    )
    
    (16
    )
    
    (15
    )Deferred
      operating lease costs, net
    
    
    (56
    )
    
    (78
    )
    
    (60
    )Deferred
      income taxes and investment tax credits, net
    
    
    26
    
    
    22
    
    
    (1
    )Accrued
      retirement benefit obligations
    
    
    13
    
    
    8
    
    
    (104
    )Accrued
      compensation, net
    
    
    2
    
    
    (9
    )
    
    6Cumulative
      effect of accounting change
    
    
    --
    
    
    (73
    )
    
    --**Cash
      earnings (Non-GAAP)**
    
    $
    443
    
    $
    309
    
    $
    229














Cash Flows
from Financing Activities




















**Securities
      Issued or Redeemed**
    
    **2004**
    
    **2003**
    
    **2002*****(In
      millions)******New
      Issues***Pollution Control Notes
    
    $
    125
    
    $
    --
    
    $
    107Unsecured Notes
    
    
    --
    
    
    297
    
    
    --***Redemptions***FMB
    
    
    --
    
    
    550
    
    
    195Pollution Control Notes
    
    
    46
    
    
    112
    
    
    79Secured Notes
    
    
    288
    
    
    15
    
    
    33Preferred Stock
    
    
    1
    
    
    1
    
    
    165Other
    
    
    1
    
    
    --
    
    
    3$
    336
    
    $
    678
    
    $
    475Short-term
      Borrowings, Net
    
    $
    290
    
    $
    (109
    )
    $
    191








We had about $0.7
million of cash and temporary investments (which include short-term notes
receivable from associated companies) and approximately $489 million of
short-term indebtedness as of December 31, 2004. We have obtained
authorization from the PUCO to incur short-term debt of up to $500 million
(including the utility money pool described below). We had the capability to
issue $1.4 billion of additional FMB on the basis of property additions and
retired bonds under the terms of our mortgage indenture. The issuance of FMB by
CEI is subject to a provision of our senior note indenture generally limiting
the incurrence of additional secured debt, subject to certain exceptions that
would permit, among other things, the issuance of secured debt (including FMB)
(i) supporting pollution control notes or similar obligations, or (ii) as an
extension, renewal or replacement of previously outstanding secured debt. In
addition, this provision would permit us to incur additional secured debt not
otherwise permitted by a specified exception of up to $588 million as of
December 31, 2004. We have no restrictions on the issuance of preferred
stock


























**Ratings
      of Securities****Securities**
    
    **S&P**
    
    **Moody’s**
    
    **Fitch****FirstEnergy**
    
    
    Senior
      unsecured
    
    
    BB+
    
    
    Baa3
    
    
    BBB-**CEI**
    
    
    Senior
      secured
    
    
    BBB-
    
    
    Baa2
    
    
    BBB-Senior
      unsecured
    
    
    BB+
    
    
    Baa3
    
    
    BBPreferred
      stock
    
    
    BB
    
    
    Ba2
    
    
    BB-








Cash Flows
from Investing Activities


Contractual Obligations














**Contractual
      Obligations**
    
    **Total**
    
    **2005**
    
    **2006-2007**
    
    **2008-2009**
    
    **Thereafter*****(In
      millions)***Long-term
      debt (4)
    
    $
    2,018
    
    $
    --
    
    $
    141
    
    $
    303
    
    $
    1,574Short-term
      borrowings
    
    
    489
    
    
    489
    
    
    --
    
    
    --
    
    
    --Preferred
      stock(1)
    
    
    4
    
    
    1
    
    
    2
    
    
    1
    
    
    --Capital
      leases
    
    
    8
    
    
    1
    
    
    2
    
    
    2
    
    
    3Operating
      leases (2)
    
    
    174
    
    
    18
    
    
    25
    
    
    21
    
    
    110Purchases
      (3)
    
    
    408
    
    
    58
    
    
    146
    
    
    126
    
    
    78Total
    
    $
    3,101
    
    $
    567
    
    $
    316
    
    $
    453
    
    $
    1,765





(1)


(2)


(3)


(4)











Off-Balance Sheet Arrangements

















Interest Rate Risk














**Comparison
      of Carrying Value to Fair Value******
    
    **There-**
    
    
    
    **Fair****Year
      of Maturity**
    
    **2005**
    
    **2006**
    
    **2007**
    
    **2008**
    
    **2009**
    
    **after**
    
    **Total**
    
    **Value*****(Dollars
      in millions)***AssetsInvestments
      Other Than Cashand Cash Equivalents-Fixed Income
    
    $
    33
    
    $
    45
    
    $
    36
    
    $
    39
    
    $
    41
    
    $
    640
    
    **$******
    ******834**
    
    **$******
    ******954**Average interest rate
    
    
    7.9
    %
    
    7.8
    %
    
    7.7
    %
    
    7.7
    %
    
    7.7
    %
    
    7.0
    %
    
    7.2
    %LiabilitiesLong-term
      Debt and OtherLong-Term Obligations:Fixed
      rate
    
    
    
    
    $
    12
    
    $
    129
    
    $
    140
    
    $
    163
    
    $
    1,205
    
    **$******
    ******1,649**
    
    **$******
    ******1,821**Average interest rate
    
    
    
    
    
    7.7
    %
    
    7.2
    %
    
    7.0
    %
    
    7.4
    %
    
    7.0
    %
    
    7.1
    %Variable
      rate
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    369
    
    **$******
    ******369**
    
    **$******
    ******370**Average interest rate
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2.3
    %
    
    2.3
    %Preferred
      Stock Subject toMandatory Redemption
    
    $
    1
    
    $
    1
    
    $
    1
    
    $
    1
    
    
    
    
    
    
    
    **$******
    ******4**
    
    **$******
    ******4**Average dividend rate
    
    
    7.4
    %
    
    7.4
    %
    
    7.4
    %
    
    7.4
    %
    
    
    
    
    
    
    
    7.4
    %Short-term
      Borrowings
    
    $
    489
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    **$******
    ******489**
    
    **$******
    ******489**Average interest rate
    
    
    2.1
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2.1
    %








Equity Price Risk











Outlook











Regulatory
Matters









































extension of
      the amortization period for transition costs being recovered through the
      RTC from 2008 to as late as mid-2009;deferral of
      interest costs on the accumulated customer shopping incentives as new
      regulatory assets; andability to
      request increases in generation charges during 2006 through 2008, under
      certain limited conditions, for increases in fuel costs and
      taxes.





























Environmental Matters





2 x x x











Clean Air Act
Compliance-




2 2





2 x x x x x x x





National Ambient
Air Quality Standards-





In July 1997, the
EPA  promulgated changes in the 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, SO2 emissions would be reduced by approximately
3.6 million tons annually by 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 on whether and how they are
ultimately implemented by the states in which we operate affected
facilities.





Mercury
Emissions-





2 x





Regulation of
Hazardous Waste-























Climate
Change-











2 2 2





Clean Water
Act-

















Other
Legal Proceedings





Power Outages
and Related Litigation-























Nuclear Plant
Matters-


























Other Legal
Matters-























Critical Accounting Policies











Regulatory
Accounting











Revenue
Recognition











Pension and
Other Postretirement Benefits Accounting






























































Ohio
Transition Cost Amortization










Long-Lived
Assets























Goodwill











Nuclear
Decommissioning











NEW ACCOUNTING STANDARDS AND INTERPRETATIONS





EITF Issue No. 03-1, "The Meaning of Other-Than-Temporary
Impairment and its Application to Certain Investments"
























THE CLEVELAND ELECTRIC ILLUMINATING
COMPANY





CONSOLIDATED STATEMENTS OF INCOME








**For
      the Years Ended December 31,**
    **2004**
    
    **2003**
    
    **2002*****(In
      thousands)*****OPERATING
      REVENUES (Note 2(I))**
    $
    1,808,485
    
    $
    1,719,739
    
    $
    1,843,671**OPERATING
      EXPENSES AND TAXES:**Fuel and
      purchased power (Note 2(I))
    
    622,021
    
    
    593,816
    
    
    587,108Nuclear
      operating costs
    
    117,091
    
    
    240,971
    
    
    207,313Other
      operating costs (Note 2(I))
    
    272,303
    
    
    236,359
    
    
    279,242Provision for
      depreciation
    
    131,854
    
    
    125,467
    
    
    163,443Amortization
      of regulatory assets
    
    196,501
    
    
    166,343
    
    
    148,611Deferral of
      new regulatory assets
    
    (117,466
    )
    
    (93,503
    )
    
    (67,327
    )General
      taxes
    
    146,276
    
    
    136,434
    
    
    147,804Income
      taxes
    
    111,996
    
    
    58,237
    
    
    71,325Total
      operating expenses and taxes
    
    1,480,576
    
    
    1,464,124
    
    
    1,537,519**OPERATING
      INCOME**
    
    327,909
    
    
    255,615
    
    
    306,152**OTHER
      INCOME (NET OF INCOME TAXES) (Notes 2(I) and 7)**
    
    42,190
    
    
    97,318
    
    
    15,971**NET
      INTEREST CHARGES:**Interest on
      long-term debt
    
    120,058
    
    
    157,967
    
    
    179,140Allowance for
      borrowed funds used during construction
    
    (5,110
    )
    
    (8,232
    )
    
    (4,331
    )Other
      interest expense
    
    18,620
    
    
    1,665
    
    
    1,462Subsidiary's
      preferred stock dividend requirements
    
    --
    
    
    4,500
    
    
    8,900Net interest
      charges
    
    133,568
    
    
    155,900
    
    
    185,171**INCOME
      BEFORE CUMULATIVE EFFECT****OF
      ACCOUNTING CHANGE**
    
    236,531
    
    
    197,033
    
    
    136,952Cumulative
      effect of accounting change (net of incometaxes of
      $30,168,000) (Note 2(G))
    
    --
    
    
    42,378
    
    
    --**NET
      INCOME**
    
    236,531
    
    
    239,411
    
    
    136,952**PREFERRED
      STOCK DIVIDEND REQUIREMENTS**
    
    7,008
    
    
    7,526
    
    
    15,690**EARNINGS
      ON COMMON STOCK**
    $
    229,523
    
    $
    231,885
    
    $
    121,262











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














THE CLEVELAND ELECTRIC ILLUMINATING
COMPANY





CONSOLIDATED BALANCE SHEETS


**As of
      December 31,**
    **2004**
    
    **2003****ASSETS**
    ***(In
      thousands)*****UTILITY
      PLANT:**In
      service
    $
    4,418,313
    
    $
    4,232,335Less-Accumulated
      provision for depreciation
    
    1,961,737
    
    
    1,857,5882,456,576
    
    
    2,374,747Construction
      work in progress-Electric
      plant
    
    85,258
    
    
    159,897Nuclear
      fuel
    
    30,827
    
    
    21,338116,085
    
    
    181,2352,572,661
    
    
    2,555,982**OTHER
      PROPERTY AND INVESTMENTS:**Investment in
      lessor notes (Note 6)
    
    596,645
    
    
    605,915Nuclear plant
      decommissioning trusts
    
    383,875
    
    
    313,621Long-term
      notes receivable from associated companies
    
    97,489
    
    
    107,946Other
    
    17,001
    
    
    23,6361,095,010
    
    
    1,051,118**CURRENT
      ASSETS:**Cash and cash
      equivalents
    
    197
    
    
    24,782Receivables-Customers
    
    11,537
    
    
    10,313Associated
      companies
    
    33,414
    
    
    40,541Other (less
      accumulated provisions of $293,000 and $1,765,000, respectively,
      foruncollectible
      accounts)
    
    152,785
    
    
    185,179Notes
      receivable from associated companies
    
    521
    
    
    482Materials and
      supplies, at average cost
    
    58,922
    
    
    50,616Prepayments
      and other
    
    2,136
    
    
    4,511259,512
    
    
    316,424**DEFERRED
      CHARGES:**Regulatory
      assets
    
    958,986
    
    
    1,056,050Goodwill
    
    1,693,629
    
    
    1,693,629Property
      taxes
    
    77,792
    
    
    77,122Other
    
    32,875
    
    
    23,1232,763,282
    
    
    2,849,924$
    6,690,465
    
    $
    6,773,448**CAPITALIZATION
      AND LIABILITIES****CAPITALIZATION**(See Consolidated Statements of Capitalization):Common
      stockholder’s equity
    $
    1,853,561
    
    $
    1,778,827Preferred
      stock not subject to mandatory redemption
    
    96,404
    
    
    96,404Long-term
      debt and other long-term obligations
    
    1,970,117
    
    
    1,884,6433,920,082
    
    
    3,759,874**CURRENT
      LIABILITIES:**Currently
      payable long-term debt
    
    76,701
    
    
    387,414Accounts
      payable-Associated
      companies
    
    150,141
    
    
    245,815Other
    
    9,271
    
    
    7,342Notes payable
      to associated companies
    
    488,633
    
    
    188,156Accrued
      taxes
    
    129,454
    
    
    202,522Accrued
      interest
    
    22,102
    
    
    37,872Lease market
      valuation liability
    
    60,200
    
    
    60,200Other
    
    61,131
    
    
    76,722997,633
    
    
    1,206,043**NONCURRENT
      LIABILITIES:**Accumulated
      deferred income taxes
    
    540,211
    
    
    486,048Accumulated
      deferred investment tax credits
    
    60,901
    
    
    65,996Asset
      retirement obligation
    
    272,123
    
    
    254,834Retirement
      benefits
    
    82,306
    
    
    105,101Lease market
      valuation liability
    
    668,200
    
    
    728,400Other
    
    149,009
    
    
    167,1521,772,750
    
    
    1,807,531**COMMITMENTS
      AND CONTINGENCIES**(Notes 5 and
      12)$
    6,690,465
    
    $
    6,773,448





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
















THE CLEVELAND ELECTRIC ILLUMINATING
COMPANY





CONSOLIDATED STATEMENTS OF
CAPITALIZATION





**As of
      December 31,**
    
    **2004**
    
    **2003*****(Dollars
      in thousands, except per share amounts)*****COMMON
      STOCKHOLDER'S EQUITY:**Common stock,
      without par value, authorized 105,000,000 shares
      79,590,689
      shares outstanding
    
    $
    1,281,962
    
    $
    1,281,962Accumulated
      other comprehensive income (Note 2(F))
    
    
    17,859
    
    
    2,653Retained
      earnings (Note 9(A))
    
    
    553,740
    
    
    494,212Total common
      stockholder's equity
    
    
    1,853,561
    
    
    1,778,827





**Number
      of Shares**
    
    **Optional****Outstanding**
    
    **Redemption
      Price****2004**
    
    **2003**
    
    **Per
      Share**
    
    **Aggregate****PREFERRED
      STOCK NOT SUBJECT TO****MANDATORY
      REDEMPTION(Note 9(B)):**Cumulative,
      without par value-Authorized
      4,000,000 shares$ 7.40 Series
      A
    
    
    500,000
    
    
    500,000
    
    $
    101.00
    
    $
    50,500
    
    
    50,000
    
    
    50,000Adjustable
      Series L
    
    
    474,000
    
    
    474,000
    
    
    100.00
    
    
    47,400
    
    
    46,404
    
    
    46,404Total
    
    
    974,000
    
    
    974,000
    
    
    
    
    $
    97,900
    
    
    96,404
    
    
    96,404





**LONG-TERM
      DEBT AND OTHER**
      **LONG-TERM
      OBLIGATIONS(Note 9(C)):**First
      mortgage bonds:6.860% due
      2008
    
    
    125,000
    
    
    125,000Total first
      mortgage bonds
    
    
    125,000
    
    
    125,000Unsecured
      notes:6.000% due
      2013
    
    
    78,700
    
    
    78,7005.650% due
      2013
    
    
    300,000
    
    
    300,0009.000% due
      2031
    
    
    103,093
    
    
    103,093* 2.000% due
      2033
    
    
    27,700
    
    
    27,700509,493
    
    
    509,4937.743% due to
      associated companies 2006-2016 (Note 6)
    
    
    188,629
    
    
    198,843Total
      unsecured notes
    
    
    698,122
    
    
    708,336Secured
      notes:7.000% due
      2005-2009
    
    
    1,700
    
    
    1,7307.670% due
      2004
    
    
    --
    
    
    280,0007.130% due
      2007
    
    
    120,000
    
    
    120,0007.430% due
      2009
    
    
    150,000
    
    
    150,000* 1.850% due
      2015
    
    
    39,835
    
    
    39,8357.880% due
      2017
    
    
    300,000
    
    
    300,000* 1.850% due
      2018
    
    
    72,795
    
    
    72,795* 2.000% due
      2020
    
    
    47,500
    
    
    47,5006.000% due
      2020
    
    
    62,560
    
    
    62,5606.100% due
      2020
    
    
    70,500
    
    
    70,5009.520% due
      2021
    
    
    --
    
    
    7,5008.000% due
      2023
    
    
    --
    
    
    46,1007.625% due
      2025
    
    
    53,900
    
    
    53,9007.700% due
      2025
    
    
    43,800
    
    
    43,8007.750% due
      2025
    
    
    45,150
    
    
    45,1505.375% due
      2028
    
    
    5,993
    
    
    5,993* 1.700% due
      2030
    
    
    23,255
    
    
    23,255* 3.750% due
      2030
    
    
    81,640
    
    
    --* 1.800% due
      2033
    
    
    30,000
    
    
    30,000* 1.750% due
      2033
    
    
    46,100
    
    
    --Total secured
      notes
    
    
    1,194,728
    
    
    1,400,618Preferred
      stock subject to mandatory redemption
    
    
    4,009
    
    
    5,014Capital lease
      obligations (Note 5)
    
    
    5,455
    
    
    5,924Net
      unamortized premium on debt
    
    
    19,504
    
    
    27,165Long-term
      debt due within one year
    
    
    (76,701
    )
    
    (387,414
    )Total
      long-term debt and other long-term obligations
    
    
    1,970,117
    
    
    1,884,643**TOTAL
      CAPITALIZATION**
    
    $
    3,920,082
    
    $
    3,759,874








*  Denotes
variable rate issue with December 31, 2004 interest rate shown.





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
















**THE
CLEVELAND ELECTRIC ILLUMINATING COMPANY**





**CONSOLIDATED
STATEMENTS OF COMMON STOCKHOLDER’S EQUITY**





**Accumulated****Other****Comprehensive**
    
    **Number**
    
    **Carrying**
    
    **Comprehensive**
    
    **Retained****Income**
    
    **of
      Shares**
    
    **Value**
    
    **Income
      (Loss)**
    
    **Earnings*****(Dollars
      in thousands)***Balance,
      January 1, 2002
    
    
    
    
    79,590,689
    
    $
    931,962
    
    $
    9,000
    
    $
    141,079Net
      income
    $
    136,952
    
    
    
    
    
    
    
    
    
    
    
    136,952Unrealized
      loss on investments, net of$(6,058,000)
      of income taxes
    
    (9,233
    )
    
    
    
    
    
    
    
    (9,233
    )Minimum
      liability for unfunded retirement benefits,net of
      $(31,359,000) of income taxes
    
    (44,051
    )
    
    
    
    
    
    
    
    (44,051
    )Comprehensive
      income
    $
    83,668Equity
      contribution from parent
    
    
    
    
    
    
    
    50,000Cash
      dividends on preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10,965
    )Preferred
      stock redemption premiums
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,743
    )Balance,
      December 31, 2002
    
    
    
    
    79,590,689
    
    
    981,962
    
    
    (44,284
    )
    
    262,323Net
      income
    $
    239,411
    
    
    
    
    
    
    
    
    
    
    
    239,411Unrealized
      gain on investments, net of$19,598,000
      of income taxes
    
    28,255
    
    
    
    
    
    
    
    
    28,255Minimum
      liability for unfunded retirement benefits,net of
      $13,760,000 of income taxes
    
    18,682
    
    
    
    
    
    
    
    
    18,682Comprehensive
      income
    $
    286,348Equity
      contribution from parent
    
    
    
    
    
    
    
    300,000Cash
      dividends on preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,429
    )Preferred
      stock redemption premiums
    
    
    
    
    
    
    
    
    
    
    
    
    
    (93
    )Balance,
      December 31, 2003
    
    
    
    
    79,590,689
    
    
    1,281,962
    
    
    2,653
    
    
    494,212Net
      income
    $
    236,531
    
    
    
    
    
    
    
    
    
    
    
    236,531Unrealized
      gain on investments, net of$8,294,000 of
      income taxes
    
    11,450
    
    
    
    
    
    
    
    
    11,450Minimum
      liability for unfunded retirement benefits,net of
      $2,413,000 of income taxes
    
    3,756
    
    
    
    
    
    
    
    
    3,756Comprehensive
      income
    $
    251,737Cash
      dividends on preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,003
    )Cash
      dividends on common stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    (170,000
    )Balance,
      December 31, 2004
    
    
    
    
    79,590,689
    
    $
    1,281,962
    
    $
    17,859
    
    $
    553,740








**CONSOLIDATED
STATEMENTS OF PREFERRED STOCK**





**Not
      Subject to**
      **Mandatory
      Redemption**
    
    **Subject
      to**
      **Mandatory
      Redemption****Number**
    
    **Carrying**
    
    **Number**
    
    **Carrying****of
      Shares**
    
    **Value**
    
    **of
      Shares**
    
    **Value*****(Dollars
      in thousands)***Balance,
      January 1, 2002
    
    1,624,000
    
    $
    238,325
    
    
    4,087,750
    
    $
    124,298Redemptions-$7.56 Series
      B
    
    (450,000
    )
    
    (45,071
    )$42.40 Series
      T
    
    (200,000
    )
    
    (96,850
    )$7.35 Series
      C
    
    
    
    
    
    
    
    (10,000
    )
    
    (1,000
    )$90.00 Series
      S
    
    
    
    
    
    
    
    (17,750
    )
    
    (17,010
    )Amortization
      of fair marketvalue
      adjustments-$7.35 Series
      C
    
    
    
    
    
    
    
    
    
    
    (9
    )$90.00 Series
      S
    
    
    
    
    
    
    
    
    
    
    (258
    )Balance,
      December 31, 2002
    
    974,000
    
    
    96,404
    
    
    4,060,000
    
    
    106,021Redemptions-$7.35 Series
      C
    
    
    
    
    
    
    
    (10,000
    )
    
    (1,000
    )FIN 46
      Deconsolidation-9.00%
      Series
    
    
    
    
    
    
    
    (4,000,000
    )
    
    (100,000
    )Amortization
      of fair marketvalue
      adjustments-$7.35 Series
      C
    
    
    
    
    
    
    
    
    
    
    (7
    )Balance,
      December 31, 2003
    
    974,000
    
    
    96,404
    
    
    50,000
    
    
    5,014*Redemptions
      -$7.35 Series
      C
    
    
    
    
    
    
    
    (10,000
    )
    
    (1,000
    )Amortization
      of fair marketvalue
      adjustments-$7.35 Series
      C
    
    
    
    
    
    
    
    
    
    
    (5
    )Balance,
      December 31, 2004
    
    974,000
    
    $
    96,404
    
    
    40,000
    
    $
    4,009*





* Preferred stock
subject to mandatory redemption is classified as debt under SFAS
150.





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








**THE
CLEVELAND ELECTRIC ILLUMINATING COMPANY**





**CONSOLIDATED
STATEMENTS OF CASH FLOWS**








**For
      the Years Ended December 31,**
    **2004**
    
    **2003**
    
    **2002*****(In
      thousands)*****CASH
      FLOWS FROM OPERATING ACTIVITIES:**Net
      Income
    $
    236,531
    
    $
    239,411
    
    $
    136,952Adjustments
      to reconcile net income to netcash from operating activities:Provision for
      depreciation
    
    131,854
    
    
    125,467
    
    
    163,443Amortization
      of regulatory assets
    
    196,501
    
    
    166,343
    
    
    148,611Deferral of
      new regulatory assets
    
    (117,466
    )
    
    (93,503
    )
    
    (67,327
    )Nuclear fuel
      and capital lease amortization
    
    28,239
    
    
    17,466
    
    
    21,044Amortization
      of electric service obligation
    
    (18,386
    )
    
    (16,278
    )
    
    (15,008
    )Deferred
      rents and lease market valuation liability
    
    (56,405
    )
    
    (78,214
    )
    
    (60,200
    )Deferred
      income taxes and investment tax credits, net
    
    39,129
    
    
    22,332
    
    
    (995
    )Accrued
      retirement benefit obligations
    
    13,245
    
    
    7,630
    
    
    (103,448
    )Accrued
      compensation, net
    
    2,433
    
    
    (8,743
    )
    
    6,372Cumulative
      effect of accounting change (Note 2(G))
    
    --
    
    
    (72,546
    )
    
    --Pension trust
      contribution
    
    (31,718
    )
    
    --
    
    
    --Decrease
      (Increase) in operating assets:Receivables
    
    38,297
    
    
    (16,339
    )
    
    (27,159
    )Materials and
      supplies
    
    (8,306
    )
    
    5,771
    
    
    (7,624
    )Prepayments
      and other current assets
    
    2,375
    
    
    (294
    )
    
    27,418Increase
      (Decrease) in operating liabilities:Accounts
      payable
    
    (93,745
    )
    
    (54,858
    )
    
    47,147Accrued
      taxes
    
    (73,068
    )
    
    76,261
    
    
    (3,568
    )Accrued
      interest
    
    (15,770
    )
    
    (13,895
    )
    
    (5,334
    )Other
    
    (51,617
    )
    
    4,754
    
    
    66,933Net cash
      provided from operating activities
    
    222,123
    
    
    310,765
    
    
    327,257**CASH
      FLOWS FROM FINANCING ACTIVITIES:**New
      Financing-Long-term
      debt
    
    124,977
    
    
    296,905
    
    
    106,981Short-term
      borrowings, net
    
    290,263
    
    
    --
    
    
    190,879Equity
      contributions from parent
    
    --
    
    
    300,000
    
    
    50,000Redemptions
      and Repayments-Preferred
      stock
    
    (1,000
    )
    
    (1,093
    )
    
    (164,674
    )Long-term
      debt
    
    (335,393
    )
    
    (677,097
    )
    
    (309,480
    )Short-term
      borrowings, net
    
    --
    
    
    (109,212
    )
    
    --Dividend
      Payments-Common
      stock
    
    (170,000
    )
    
    --
    
    
    --Preferred
      stock
    
    (7,008
    )
    
    (7,451
    )
    
    (13,782
    )Net cash used
      for financing activities
    
    (98,161
    )
    
    (197,948
    )
    
    (140,076
    )**CASH
      FLOWS FROM INVESTING ACTIVITIES:**Property
      additions
    
    (121,316
    )
    
    (134,899
    )
    
    (163,199
    )Loan
      repayments from (payments to) associated companies, net
    
    10,418
    
    
    (5,003
    )
    
    415Investment in
      lessor notes (Note 6)
    
    9,270
    
    
    44,732
    
    
    39,636Contributions
      to nuclear decommissioning trusts
    
    (29,024
    )
    
    (29,024
    )
    
    (29,024
    )Other
    
    (17,895
    )
    
    5,777
    
    
    (4,923
    )Net cash used
      for investing activities
    
    (148,547
    )
    
    (118,417
    )
    
    (157,095
    )Net increase
      (decrease) in cash and cash equivalents
    
    (24,585
    )
    
    (5,600
    )
    
    30,086Cash and cash
      equivalents at beginning of year
    
    24,782
    
    
    30,382
    
    
    296Cash and cash
      equivalents at end of year
    $
    197
    
    $
    24,782
    
    $
    30,382**SUPPLEMENTAL
      CASH FLOWS INFORMATION:**Cash Paid
      During the Year-Interest (net
      of amounts capitalized)
    $
    152,373
    
    $
    174,375
    
    $
    186,040Income
      taxes
    $
    144,277
    
    $
    24,796
    
    $
    121,668








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














THE CLEVELAND ELECTRIC ILLUMINATING
COMPANY





CONSOLIDATED STATEMENTS OF TAXES








**For
      the Years Ended December 31,**
    **2004**
    
    **2003**
    
    **2002*****(In
      thousands)*****GENERAL
      TAXES:**Real and
      personal property
    $
    74,206
    
    $
    63,448
    
    $
    77,516Ohio
      kilowatt-hour excise*
    
    66,974
    
    
    68,459
    
    
    66,775Social
      security and unemployment
    
    4,496
    
    
    4,331
    
    
    3,478Other
    
    600
    
    
    196
    
    
    35Total general
      taxes
    $
    146,276
    
    $
    136,434
    
    $
    147,804**PROVISION
      FOR INCOME TAXES:**Currently
      payable-Federal
    $
    72,264
    
    $
    109,775
    
    $
    76,364State
    
    27,463
    
    
    29,346
    
    
    14,72199,727
    
    
    139,121
    
    
    91,085Deferred,
      net-Federal
    
    34,450
    
    
    21,382
    
    
    (3,661
    )State
    
    9,775
    
    
    5,757
    
    
    2,14644,225
    
    
    27,139
    
    
    (1,515
    )Investment
      tax credit amortization
    
    (5,096
    )
    
    (4,807
    )
    
    (4,632
    )Total
      provision for income taxes
    $
    138,856
    
    $
    161,453
    
    $
    84,938**INCOME
      STATEMENT CLASSIFICATION****OF
      PROVISION FOR INCOME TAXES:**Operating
      income
    $
    111,996
    
    $
    58,237
    
    $
    71,325Other
      income
    
    26,860
    
    
    73,048
    
    
    13,613Cumulative
      effect of accounting change
    
    --
    
    
    30,168
    
    
    --Total
      provision for income taxes
    $
    138,856
    
    $
    161,453
    
    $
    84,938**RECONCILIATION
      OF FEDERAL INCOME TAX****EXPENSE
      AT STATUTORY RATE TO TOTAL****PROVISION
      FOR INCOME TAXES:**Book income
      before provision for income taxes
    $
    375,387
    
    $
    400,864
    
    $
    221,890Federal
      income tax expense at statutory rate
    $
    131,385
    
    $
    140,302
    
    $
    77,662Increases
      (reductions) in taxes resulting from-State income
      taxes, net of federal income tax benefit
    
    24,205
    
    
    22,817
    
    
    10,964Amortization
      of investment tax credits
    
    (5,096
    )
    
    (4,807
    )
    
    (4,632
    )Amortization
      of tax regulatory assets
    
    1,156
    
    
    1,087
    
    
    999Other,
      net
    
    (12,794
    )
    
    2,054
    
    
    (55
    )Total
      provision for income taxes
    $
    138,856
    
    $
    161,453
    
    $
    84,938**ACCUMULATED
      DEFERRED INCOME TAXES AT****DECEMBER
      31:**Property
      basis differences
    
    502,625
    
    $
    477,358
    
    $
    473,506Regulatory
      transition charge
    
    221,386
    
    
    302,270
    
    
    371,486Unamortized
      investment tax credits
    
    (23,208
    )
    
    (25,311
    )
    
    (27,839
    )Deferred gain
      for asset sale to affiliated company
    
    33,841
    
    
    38,394
    
    
    43,193Other
      comprehensive income
    
    12,548
    
    
    1,841
    
    
    (31,517
    )Above market
      leases
    
    (300,000
    )
    
    (324,843
    )
    
    (350,299
    )Retirement
      benefits
    
    (21,674
    )
    
    (32,023
    )
    
    (42,079
    )Shopping
      credit incentive deferral
    
    121,778
    
    
    73,804
    
    
    35,203Other
    
    (7,085
    )
    
    (25,442
    )
    
    (64,357
    )Net deferred
      income tax liability
    $
    540,211
    
    $
    486,048
    
    $
    407,297





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


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











NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS





**1.**
    **ORGANIZATION
      AND BASIS OF PRESENTATION:**





























**2.**
    **SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES:**





**(A)**
    **ACCOUNTING
      FOR THE EFFECTS OF
REGULATION-**










are
      established by a third-party regulator with the authority to set rates
      that bind customers;are
      cost-based; andcan be
      charged to and collected from customers.











Regulatory
Assets-

















**2004**
    
    **2003*****(In millions)***Regulatory transition costs
    
    $
    705
    
    $
    900Customer shopping incentives
    
    
    295
    
    
    179Customer receivables for future income taxes
    
    
    6
    
    
    7Loss on reacquired debt
    
    
    13
    
    
    14Employee postretirement benefit costs
    
    
    13
    
    
    15Asset removal costs
    
    
    (75
    )
    
    (60
    )Other
    
    
    2
    
    
    1Total
    
    $
    959
    
    $
    1,056

















Transition
Cost Amortization-











***(In millions)***2005
    
    $
    2222006
    
    
    1262007
    
    
    1392008
    
    
    1592009
    
    
    54










Accounting
for Generation Operations-











**(B)**
    **CASH AND SHORT-TERM FINANCIAL
    INSTRUMENTS-**











**(C)**
    **REVENUES AND
RECEIVABLES-**





































**(D)**
    **UTILITY PLANT AND
DEPRECIATION-**

















Jointly -
Owned Generating Stations-














**Utility**
    
    **Accumulated**
    
    **Construction**
    
    **Ownership/****Plant**
    
    **Provision for**
    
    **Work in**
    
    **Leasehold****Generating Units**
    
    **in Service**
    
    **Depreciation**
    
    **Progress**
    
    **Interest*****(In millions)***W. H. Sammis Unit 7
    
    $
    179
    
    $
    127
    
    $
    --
    
    
    31.20
    %Bruce Mansfield Units 1, 2 and 3
    
    
    153
    
    
    46
    
    
    9
    
    
    20.42
    %Beaver Valley Unit 2
    
    
    19
    
    
    1
    
    
    12
    
    
    24.47
    %Davis-Besse
    
    
    308
    
    
    63
    
    
    34
    
    
    51.38
    %Perry
    
    
    663
    
    
    172
    
    
    11
    
    
    44.85
    %Total
    
    $
    1,322
    
    $
    409
    
    $
    66














Nuclear
Fuel-











**(E)**
    **ASSET IMPAIRMENTS-**





Long-Lived
Assets-

















Goodwill-











Investments-











**(F)**
    **COMPREHENSIVE INCOME-**











**(G)**
    **CUMULATIVE EFFECT OF ACCOUNTING
  CHANGE-**











**(H)**
    **INCOME TAXES-**

















**(I)**
    **TRANSACTIONS WITH AFFILIATED
  COMPANIES-**











**2004**
    
    **2003**
    
    **2002*****(In millions)*****Operating Revenues:**PSA revenues from FES
    
    $
    387
    
    $
    260
    
    $
    284Generating units rent from FES
    
    
    59
    
    
    59
    
    
    60Ground lease with ATSI
    
    
    7
    
    
    7
    
    
    7**Operating Expenses:**Purchased power under PSA
    
    
    444
    
    
    423
    
    
    420Purchased power from TE
    
    
    101
    
    
    109
    
    
    104Transmission expenses
    
    
    --
    
    
    32
    
    
    41FESC support services
    
    
    65
    
    
    63
    
    
    52**Other Income:**Interest income from ATSI
    
    
    7
    
    
    7
    
    
    7Interest income from FES
    
    
    --
    
    
    1
    
    
    1

















**3.**
    **PENSION AND OTHER POSTRETIREMENT BENEFIT
      PLANS:**



































**Obligations and Funded Status**
    
    **Pension Benefits**
    
    **Other Benefits****As of December 31****2004**
    
    **2003**
    
    **2004**
    
    **2003*****(In millions)*****Change in benefit obligation**Benefit obligation as of January 1
    
    $
    4,162
    
    $
    3,866
    
    $
    2,368
    
    $
    2,077Service cost
    
    
    77
    
    
    66
    
    
    36
    
    
    43Interest cost
    
    
    252
    
    
    253
    
    
    112
    
    
    136Plan participants’ contributions
    
    
    --
    
    
    --
    
    
    14
    
    
    6Plan amendments
    
    
    --
    
    
    --
    
    
    (281
    )
    
    (123
    )Actuarial (gain) loss
    
    
    134
    
    
    222
    
    
    (211
    )
    
    323Benefits paid
    
    
    (261
    )
    
    (245
    )
    
    (108
    )
    
    (94
    )Benefit obligation as of December 31
    
    $
    4,364
    
    $
    4,162
    
    $
    1,930
    
    $
    2,368**Change in fair value of plan assets**Fair value of plan assets as of January 1
    
    $
    3,315
    
    $
    2,889
    
    $
    537
    
    $
    473Actual return on plan assets
    
    
    415
    
    
    671
    
    
    57
    
    
    88Company contribution
    
    
    500
    
    
    --
    
    
    64
    
    
    68Plan participants’ contribution
    
    
    --
    
    
    --
    
    
    14
    
    
    2Benefits paid
    
    
    (261
    )
    
    (245
    )
    
    (108
    )
    
    (94
    )Fair value of plan assets as of December 31
    
    $
    3,969
    
    $
    3,315
    
    $
    564
    
    $
    537**Funded status**
    
    $
    (395
    )
    $
    (847
    )
    $
    (1,366
    )
    $
    (1,831
    )Unrecognized net actuarial loss
    
    
    885
    
    
    919
    
    
    730
    
    
    994Unrecognized prior service cost (benefit)
    
    
    63
    
    
    72
    
    
    (378
    )
    
    (221
    )Unrecognized net transition obligation
    
    
    --
    
    
    --
    
    
    --
    
    
    83Net asset (liability) recognized
    
    $
    553
    
    $
    144
    
    $
    (1,014
    )
    $
    (975
    )**Amounts Recognized in the****Consolidated Balance Sheets****As of December 31**Accrued benefit cost
    
    $
    (14
    )
    $
    (438
    )
    $
    (1,014
    )
    $
    (975
    )Intangible assets
    
    
    63
    
    
    72
    
    
    --
    
    
    --Accumulated other comprehensive loss
    
    
    504
    
    
    510
    
    
    --
    
    
    --Net amount recognized
    
    $
    553
    
    $
    144
    
    $
    (1,014
    )
    $
    (975
    )Company's share of net amount recognized
    
    $
    47
    
    $
    22
    
    $
    (77
    )
    $
    (71
    )Increase (decrease) in minimum liability
      included in other comprehensive income (net of tax)
    
    $
    (4
    )
    $
    (145
    )
    
    --
    
    
    --**Assumptions Used to Determine****Benefit Obligations As of December 31**Discount rate
    
    
    6.00
    %
    
    6.25
    %
    
    6.00
    %
    
    6.25
    %Rate of compensation increase
    
    
    3.50
    %
    
    3.50
    %**Allocation of Plan Assets****As of December 31**Asset CategoryEquity securities
    
    
    68
    %
    
    70
    %
    
    74
    %
    
    71
    %Debt securities
    
    
    29
    
    
    27
    
    
    25
    
    
    22Real estate
    
    
    2
    
    
    2
    
    
    --
    
    
    --Cash
    
    
    1
    
    
    1
    
    
    1
    
    
    7Total
    
    
    100
    %
    
    100
    %
    
    100
    %
    
    100
    %














**Information for Pension Plans With
      an**
      **Accumulated Benefit Obligation in**
      **Excess of Plan Assets**
    
    **2004**
    
    **2003*****(In millions)***Projected benefit obligation
    
    $
    4,364
    
    $
    4,162Accumulated benefit obligation
    
    
    3,983
    
    
    3,753Fair value of plan assets
    
    
    3,969
    
    
    3,315
  **Pension Benefits**
    
    **Other Benefits****Components of Net Periodic Benefit
      Costs**
    
    **2004**
    
    **2003**
    
    **2002**
    
    **2004**
    
    **2003**
    
    **2002*****(In millions)***Service cost
    
    $
    77
    
    $
    66
    
    $
    59
    
    $
    36
    
    $
    43
    
    $
    29Interest cost
    
    
    252
    
    
    253
    
    
    249
    
    
    112
    
    
    137
    
    
    114Expected return on plan assets
    
    
    (286
    )
    
    (248
    )
    
    (346
    )
    
    (44
    )
    
    (43
    )
    
    (52
    )Amortization of prior service cost
    
    
    9
    
    
    9
    
    
    9
    
    
    (40
    )
    
    (9
    )
    
    3Amortization of transition obligation (asset)
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    9
    
    
    9Recognized net actuarial loss
    
    
    39
    
    
    62
    
    
    --
    
    
    39
    
    
    40
    
    
    11Net periodic cost (income)
    
    $
    91
    
    $
    142
    
    $
    (29
    )
    $
    103
    
    $
    177
    
    $
    114Company's share of net periodic cost
    
    $
    6
    
    $
    10
    
    $
    1
    
    $
    18
    
    $
    15
    
    $
    10




**Weighted-Average Assumptions
      Used****to Determine Net Periodic Benefit
      Cost**
    
    **Pension Benefits**
    
    **Other Benefits****for Years Ended December 31**
    
    **2004**
    
    **2003**
    
    **2002**
    
    **2004**
    
    **2003**
    
    **2002**Discount rate
    
    
    6.25
    %
    
    6.75
    %
    
    7.25
    %
    
    6.25
    %
    
    6.75
    %
    
    7.25
    %Expected long-term return on plan assets
    
    
    9.00
    %
    
    9.00
    %
    
    10.25
    %
    
    9.00
    %
    
    9.00
    %
    
    10.25
    %Rate of compensation increase
    
    
    3.50
    %
    
    3.50
    %
    
    4.00
    %

















**Assumed Health Care Cost Trend Rates****As of December 31**
    
    **2004**
    
    **2003**Health care cost trend rate assumed for nextyear
      (pre/post-Medicare)
    
    
    9%-11
    %
    
    10%-12
    %Rate to which the cost trend rate is assumed todecline (the
      ultimate trend rate)
    
    
    5
    %
    
    5
    %Year that the rate reaches the ultimate trendrate
      (pre/post-Medicare)
    
    
    2009-2011
    
    
    2009-2011














**1-Percentage-**
    
    **1-Percentage****Point Increase**
    
    **Point Decrease*****(In millions)***Effect on total of service and interest cost
    
    $
    19
    
    $
    (16
    )Effect on postretirement benefit obligation
    
    $
    205
    
    $
    (179
    )












































**Pension Benefits**
    
    **Other Benefits*****(In millions)***2005
    
    $
    228
    
    $
    1112006
    
    
    228
    
    
    1062007
    
    
    236
    
    
    1092008
    
    
    247
    
    
    1122009
    
    
    264
    
    
    115Years 2010 - 2014
    
    
    1,531
    
    
    627








**4.**
    **FAIR VALUE OF FINANCIAL
INSTRUMENTS:**





Long-term
Debt and Other Long-term Obligations-














**2004**
    
    **2003****Carrying**
    
    **Fair**
    
    **Carrying**
    
    **Fair****Value**
    
    **Value**
    
    **Value**
    
    **Value*****(In millions)***Long-term debt
    
    $
    1,915
    
    $
    2,079
    
    $
    2,131
    
    $
    2,331Subordinated debentures to affiliated trusts
    
    
    103
    
    
    112
    
    
    103
    
    
    113Preferred stock subject to mandatory redemption
    
    
    4
    
    
    4
    
    
    5
    
    
    5$
    2,022
    
    $
    2,195
    
    $
    2,239
    
    $
    2,449














Investments-




















**2004**
    
    **2003****Carrying**
    
    **Fair**
    
    **Carrying**
    
    **Fair****Value**
    
    **Value**
    
    **Value**
    
    **Value*****(In millions)***Debt securities:(1)-Government
      obligations
    
    $
    100
    
    $
    100
    
    $
    85
    
    $
    85-Corporate
      debt securities(2)
    
    
    734
    
    
    854
    
    
    754
    
    
    868834
    
    
    954
    
    
    839
    
    
    953Equity securities(1)
    
    
    242
    
    
    242
    
    
    188
    
    
    188$
    1,076
    
    $
    1,196
    
    $
    1,027
    
    $
    1,141





(1)


(2)

















**2004**
    
    **2003****Cost**
    
    **Unrealized**
    
    **Unrealized**
    
    **Fair**
    
    **Cost**
    
    **Unrealized**
    
    **Unrealized**
    
    **Fair****Basis**
    
    **Gains**
    
    **Losses**
    
    **Value**
    
    **Basis**
    
    **Gains**
    
    **Losses**
    
    **Value*****(In millions)***Debt securities
    
    $
    140
    
    $
    2
    
    $
    --
    
    $
    142
    
    $
    119
    
    $
    7
    
    $
    1
    
    $
    125Equity securities
    
    
    177
    
    
    69
    
    
    4
    
    
    242
    
    
    148
    
    
    52
    
    
    12
    
    
    188$
    317
    
    $
    71
    
    $
    4
    
    $
    384
    
    $
    267
    
    $
    59
    
    $
    13
    
    $
    313

















**2004**
    
    **2003**
    
    **2002*****(In millions)***Proceeds from sales
    
    $
    411
    
    $
    226
    
    $
    198Gross realized gains
    
    
    35
    
    
    15
    
    
    15Gross realized losses
    
    
    21
    
    
    16
    
    
    22Interest and dividend income
    
    
    11
    
    
    9
    
    
    7

















**Less Than 12 Months**
    
    **12 Months or More**
    
    **Total****Fair**
    
    **Unrealized**
    
    **Fair**
    
    **Unrealized**
    
    **Fair**
    
    **Unrealized****Value**
    
    **Losses**
    
    **Value**
    
    **Losses**
    
    **Value**
    
    **Losses*****(In millions)***Debt securities
    
    $
    50
    
    $
    --
    
    $
    1
    
    $
    --
    
    $
    51
    
    $
    --Equity securities
    
    
    38
    
    
    2
    
    
    6
    
    
    2
    
    
    44
    
    
    4$
    88
    
    $
    2
    
    $
    7
    
    $
    2
    
    $
    95
    
    $
    4



































**5.**
    **LEASES:**
































**2004**
    
    **2003**
    
    **2002*****(In millions)***Operating leasesInterest
      element
    
    $
    28.6
    
    $
    31.6
    
    $
    33.6Other
    
    
    27.1
    
    
    45.9
    
    
    42.8Capital leasesInterest element
    
    
    0.5
    
    
    0.6
    
    
    0.6Other
    
    
    0.5
    
    
    0.4
    
    
    0.4Total
      rentals
    
    $
    56.7
    
    $
    78.5
    
    $
    77.4

















**Operating Leases****Capital**
    
    **Lease**
    
    **Capital****Leases**
    
    **Payments**
    
    **Trust**
    
    **Net*****(In millions)***2005
    
    $
    1.0
    
    $
    66.7
    
    $
    48.3
    
    $
    18.42006
    
    
    1.0
    
    
    71.3
    
    
    56.2
    
    
    15.12007
    
    
    1.0
    
    
    57.8
    
    
    48.2
    
    
    9.62008
    
    
    1.0
    
    
    54.2
    
    
    42.9
    
    
    11.32009
    
    
    1.0
    
    
    56.1
    
    
    46.1
    
    
    10.0Years thereafter
    
    
    2.7
    
    
    414.4
    
    
    304.3
    
    
    110.1Total minimum lease payments
    
    
    7.7
    
    $
    720.5
    
    $
    546.0
    
    $
    174.5Interest portion
    
    
    2.2Present value of net minimum
      lease
      payments
    
    
    5.5Less current portion
    
    
    0.5Noncurrent portion
    
    $
    5.0

























**6.**
    **VARIABLE INTEREST
ENTITIES:**



































**7.**
    **SALE OF GENERATING
ASSETS:**




















**8.**
    **REGULATORY MATTERS:**






















·
    extension of the amortization period for transition costs
      being recovered through the RTC from 2008 to as
      late as mid-2009;·
    deferral of interest costs on the accumulated customer
      shopping incentives as new regulatory assets; and·
    ability to request increases in generation charges during
      2006 through 2008, under certain limited conditions,
      for increases in fuel costs and taxes.



















**9.**
    **CAPITALIZATION:**





**(A)**
    **RETAINED
EARNINGS-**





There are no restrictions on retained earnings
for payment of cash dividends on the Company’s common stock.





**(B)**
    **PREFERRED AND PREFERENCE
STOCK-**





The Company’s preferred stock may be redeemed
in whole, or in part, with 30-90 days’ notice.





The preferred dividend rate on the Company’s
Series L fluctuates based on prevailing interest rates and market
conditions. The dividend rate for this issue was 7% in 2004.





The Company will exercise its option to redeem
all outstanding shares of two series of preferred stock during the first quarter
of 2005 as follows:





**Series**
    
    **Outstanding Shares**
    
    **Call Price**$7.40A
    
    
    500,000
    
    $
    101.00L
    
    
    474,000
    
    
    100.00


The Company has three million authorized
and unissued shares of preference stock having no par value.





**(C)** **LONG-TERM
DEBT AND OTHER LONG-TERM OBLIGATIONS-**

















***(In millions)***2005
    
    $
    752006
    
    
    122007
    
    
    1292008
    
    
    2212009
    
    
    163





























**(D)**
    **SUBORDINATED DEBENTURES TO AFFILIATED
      TRUSTS-**
















**10.**
    **ASSET RETIREMENT
OBLIGATION:**























**Effect of the Change in
      Accounting****Principle Applied Retroactively**
    
    **2002*****(In millions)***Reported net income
    
    $
    137Increase (Decrease):Elimination of decommissioning expense
    
    
    29Depreciation of asset retirement cost
    
    
    (1
    )Accretion of ARO liability
    
    
    (15
    )Non-regulated generation cost of removal component,
      net
    
    
    9Income tax effect
    
    
    (9
    )Net earnings increase
    
    
    13Net income adjusted
    
    $
    150











**ARO Reconciliation**
    
    **2004**
    
    **2003*****(In millions)***Beginning balance as of January 1
    
    $
    255
    
    $
    238Accretion
    
    
    17
    
    
    17**Ending balance as of December 31**
    
    **$**
    **272**
    
    **$**
    **255**




















**Adjusted ARO Reconciliation**
    
    **2002*****(In millions)***Beginning balance as of January 1
    
    $
    223Accretion
    
    
    15**Ending balance as of December 31**
    
    $
    238








**11.**
    **SHORT-TERM BORROWINGS:**











**12.**
    **COMMITMENTS AND
CONTINGENCIES:**





**(A)**
    **NUCLEAR INSURANCE-**























**(B)**
    **ENVIRONMENTAL MATTERS-**











Clean Air Act
Compliance





2 2














2 x x x x x x x





National
Ambient Air Quality Standards





x 2 2 x





Mercury
Emissions





2 x





Regulation of
Hazardous Waste


























Climate
Change










2 2 2





Clean Water
Act
















(C) OTHER LEGAL
PROCEEDINGS-





Power
Outages and Related Litigation






































Nuclear Plant
Matters

















Other Legal
Matters



































**13.**
    **NEW ACCOUNTING STANDARDS AND INTERPRETATIONS:**





*SFAS
      153, "Exchanges of Nonmonetary Assets - an amendment of APB Opinion No.
      29"*














*SFAS 151, "Inventory Costs - an amendment of ARB No. 43,
      Chapter 4"*











**
    *EITF Issue No.
      03-1, "The Meaning of Other-Than-Temporary Impairment and its Application
      to Certain Investments"*










*EITF
      Issue No. 03-16, "Accounting for Investments in Limited Liability
      Companies"*










*FSP 109-1. "Application of FASB Statement No. 109,
      Accounting for Income Taxes, to the Tax Deduction and Qualified Production
      Activities Provided by the American Jobs Creation Act of
    2004"*















*FSP
      106-2, "Accounting and Disclosure Requirements Related to the Medicare
      Prescription Drug, Improvement and Modernization Act of 2003"*








**14.**
    **SUMMARY OF QUARTERLY FINANCIAL DATA
      (UNAUDITED):**














**March 31,**
    
    **June 30,**
    
    **September 30,**
    
    **December 31,****Three Months Ended**
    
    **2004**
    
    **2004**
    
    **2004**
    
    **2004*****(In millions)***Operating Revenues
    
    $
    426.5
    
    $
    440.9
    
    $
    504.9
    
    $
    436.2Operating Expenses and Taxes
    
    
    353.2
    
    
    363.5
    
    
    402.5
    
    
    361.4Operating Income
    
    
    73.3
    
    
    77.4
    
    
    102.4
    
    
    74.8Other Income
    
    
    11.7
    
    
    9.5
    
    
    8.3
    
    
    12.7Net Interest Charges
    
    
    36.6
    
    
    37.1
    
    
    28.3
    
    
    31.6Net Income
    
    $
    48.4
    
    $
    49.8
    
    $
    82.4
    
    $
    55.9Earnings on Common Stock
    
    $
    46.7
    
    $
    48.0
    
    $
    80.7
    
    $
    54.1











**March 31,**
    
    **June 30,**
    
    **September 30,**
    
    **December 31,****Three Months Ended**
    
    **2003**
    
    **2003**
    
    **2003**
    
    **2003*****(In millions)***Operating Revenues
    
    $
    419.8
    
    $
    412.1
    
    $
    496.1
    
    $
    391.7Operating Expenses and Taxes
    
    
    365.8
    
    
    367.6
    
    
    395.9
    
    
    334.9Operating Income
    
    
    54.0
    
    
    44.5
    
    
    100.2
    
    
    56.8Other Income
    
    
    4.7
    
    
    4.7
    
    
    6.2
    
    
    81.7Net Interest Charges
    
    
    43.5
    
    
    39.9
    
    
    38.6
    
    
    33.9Income Before Cumulative Effect of
      Accounting
      Change
    
    
    15.2
    
    
    9.3
    
    
    67.8
    
    
    104.6Cumulative Effect of Accounting Change
      (Net of
      Income Taxes)
    
    
    42.4
    
    
    --
    
    
    --
    
    
    --Net Income
    
    $
    57.6
    
    $
    9.3
    
    $
    67.8
    
    $
    104.6Earnings on Common Stock
    
    $
    58.4
    
    $
    7.5
    
    $
    66.0
    
    $
    100.0