<TABLE>
<PAGE>
                                                    THE TOLEDO EDISON COMPANY

                                          CONSOLIDATED FINANCIAL AND OPERATING STATISTICS
<CAPTION>
                                                           Nov. 8 -         Jan. 1 -
                                                 1998     Dec. 31, 1997     Nov. 7, 1997     1996        1995         1994  
-----------------------------------------------------------------------------------------------------------------------------
                                                                     (Dollars in thousands)
<S>                                          <C>           <C>               <C>          <C>          <C>          <C>
GENERAL FINANCIAL INFORMATION:                                          |  
                                                                        |
Operating Revenues                           $  957,037    $  122,669   |    $  772,707   $  897,259   $  873,657   $  864,647
                                             ==========    ==========   |    ==========   ==========   ==========   ==========
Operating Income                             $  180,261    $   19,055   |    $  123,282   $  156,815   $  188,068   $  179,499
                                             ==========    ==========   |    ==========   ==========   ==========   ==========
Income Before Extraordinary Item             $  106,582    $    7,616   |    $   41,769   $   57,289   $   96,762   $   82,531
                                             ==========    ==========   |    ==========   ==========   ==========   ==========
Net Income (Loss)                            $  106,582    $    7,616   |    $ (150,132)  $   57,289   $   96,762   $   82,531
                                             ==========    ==========   |    ==========   ==========   ==========   ==========
Earnings (Loss) on Common Stock              $   92,972    $    7,616   |    $ (169,567)  $   40,363   $   78,510   $   62,311
                                             ==========    ==========   |    ==========   ==========   ==========   ==========
Net Utility Plant                            $1,168,216    $1,170,806   |                 $2,079,742   $2,122,266   $2,204,717
                                             ==========    ==========   |                 ==========   ==========   ==========
Total Assets                                 $2,768,765    $2,758,152   |                 $3,428,175   $3,532,714   $3,546,628
                                             ==========    ==========   |                 ==========   ==========   ==========
                                                                        |
CAPITALIZATION:                                                         |
Common Stockholder's Equity                  $  575,692    $  531,650   |                 $  803,237   $  762,877   $  684,568
Preferred Stock-                                                        |
  Not Subject to Mandatory Redemption           210,000       210,000   |                    210,000      210,000      210,000
  Subject to Mandatory Redemption                    --         1,690   |                      3,355        5,020        6,685
Long-Term Debt                                1,083,666     1,210,190   |                  1,051,517    1,119,294    1,241,331
                                             ----------    ----------   |                 ----------   ----------   ----------
Total Capitalization                         $1,869,358    $1,953,530   |                 $2,068,109   $2,097,191   $2,142,584
                                             ==========    ==========   |                 ==========   ==========   ==========
                                                                        |
CAPITALIZATION RATIOS:                                                  |
Common Stockholder's Equity                        30.8%         27.2%  |                       38.8%        36.4%        32.0%
Preferred Stock-                                                        |
  Not Subject to Mandatory Redemption              11.2          10.8   |                       10.2         10.0          9.8
  Subject to Mandatory Redemption                    --           0.1   |                        0.2          0.2          0.3
Long-Term Debt                                     58.0          61.9   |                       50.8         53.4         57.9
                                                  -----         -----   |                      -----        -----        -----
Total Capitalization                              100.0%        100.0%  |                      100.0%       100.0%       100.0%
                                                  =====         =====   |                      =====        =====        =====
                                                                        |
KILOWATT-HOUR SALES (Millions):                                         |
Residential                                       2,252           355   |         1,718        2,145        2,164        2,056
Commercial                                        2,425           284   |         1,498        1,790        1,748        1,711
Industrial                                        5,317           847   |         4,003        4,301        4,174        4,099
Other                                                63            79   |           413          488          500          499
                                             ----------    ----------   |    ----------   ----------   ----------   ----------
Total Retail                                     10,057         1,565   |         7,632        8,724        8,586        8,365
Total Wholesale                                   1,617           435   |         2,218        2,330        2,563        2,548
                                             ----------    ----------   |    ----------   ----------   ----------   ----------
Total                                            11,674         2,000   |         9,850       11,054       11,149       10,913
                                             ==========    ==========   |    ==========   ==========   ==========   ==========
CUSTOMERS SERVED (Year-End):                                            |
Residential                                     265,237       262,501   |                    261,541      260,007      256,998
Commercial                                       31,982        29,367   |                     27,411       26,508       25,921
Industrial                                        1,954         1,835   |                      1,839        1,846        1,839
Other                                               359           347   |                      2,136        2,119        1,858
                                             ----------    ----------   |                  ---------   ----------   ----------
Total                                           299,532       294,050   |                    292,927      290,480      286,616
                                             ==========    ==========   |                  =========   ==========   ==========
                                                                        |
Average Annual Residential kWh Usage              8,554         7,937   |                      8,284        8,384        8,044
Peak Load-Megawatts                               1,978         1,813   |                      1,758        1,738        1,620
Number of Employees (Year-End)                      997         1,532   |                      1,643        1,809        1,887

</TABLE>

                      THE TOLEDO EDISON COMPANY

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


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

Results of Operations

          We continued to take steps in 1998 to better position our 
Company as competition continues to expand in the electric utility 
industry. Investments were made in new information systems with enhanced 
functionality which also address Year 2000 application deficiencies. We 
also contributed to the 1998 cash savings of FirstEnergy Corp. 
(FirstEnergy) totaling $173 million. These savings were captured from 
initiatives implemented during the year in connection with merger-
related economies made possible by FirstEnergy's formation through the 
merger of our former parent company, Centerior Energy Corporation, and 
Ohio Edison Company on November 8, 1997.

          Financial results reflect the application of purchase 
accounting to the merger. This accounting resulted in fair value 
adjustments, which were "pushed down" or reflected on the separate 
financial statements of Centerior's direct subsidiaries as of the 
merger date, including our financial statements. As a result, we 
recorded purchase accounting fair value adjustments to: (1) revalue our 
nuclear generating units to fair value, (2) adjust long-term debt to 
fair value, (3) adjust our retirement and severance benefit 
liabilities, and (4) record goodwill. Accordingly, the post-merger 
financial statements reflect a new basis of accounting, and separate 
financial statements are presented for the pre-merger and post-merger 
periods. For the remainder of this discussion, for categories 
substantially unaffected by the merger and with no significant pre-
merger or post-merger accounting events, we have combined the 1997 pre-
merger and post-merger periods and have compared the total for 1997 to 
1998 and 1996.

          Earnings on common stock were $93.0 million in 1998. Results 
for 1998 were adversely affected by sharp increases in the spot market 
price for electricity occasioned by a constrained power supply and heavy 
customer demand in the latter part of June 1998, combined with 
unscheduled generating unit outages, which resulted in spot market 
purchases of power at prices which substantially exceeded amounts 
recovered from retail customers. Pre-merger earnings on common stock in 
1997 included an October 1997 write-off of certain regulatory assets. 
Excluding this write-off, pre-merger earnings on common stock were $22.3 
million. For the seven-week post-merger period, earnings on common stock 
were $7.6 million. Earnings on common stock were $40.4 million in 1996.

          After experiencing a decline in operating revenues in 1997, 
compared to the previous year, we achieved record operating revenues in 
1998. The following table summarizes the sources of changes in operating 
revenues for 1998 and 1997 as compared to the prior year:


<TABLE>
<CAPTION>
                                                1998       1997
                                                ----       ----
                                                 (In millions)
<S>                                             <C>      <C>
Increase in retail kilowatt-hour sales          $68.2    $ 14.4
Decrease in average retail price                 (8.8)    (23.4)
Wholesale sales                                  (6.6)      7.8
Other                                             8.9      (0.7)
---------------------------------------------------------------
Net Change                                      $61.7    $ (1.9)
===============================================================

</TABLE>


          Total kilowatt-hour sales were down in 1998 from the prior 
year after establishing a new record high in 1997. The decline was due 
to a 39.1% decrease in sales to wholesale customers. Several generating 
unit outages, described later in this report, reduced energy available 
for sale to the wholesale market. Retail sales were up for all customer 
groups; residential, commercial and industrial with increases of 8.6%, 
9.5% and 9.6%, respectively, compared to 1997. Retail kilowatt-hour 
sales benefited from growth in the customer base, which added almost 
5,500 new customers during the year. Expanded production at the new 
North Star BHP Steel (North Star) facility was a major contributor to 
the increase in industrial kilowatt-hour sales. In 1997, North Star was 
also a major contributor to industrial sales, which experienced a 12.8% 
increase, compared to 1996. This increase was offset in part by reduced 
kilowatt-hour sales to residential and commercial customers, which 
declined 3.3% and 0.5%, respectively.

          Operation and maintenance expenses increased in 1998 compared 
to the prior year due to increased fuel and purchased power costs, 
offset in part by a decrease in nuclear operating costs. Most of the 
increase in fuel and purchased power occurred in the second quarter and 
resulted from a combination of factors. In late June 1998, the 
midwestern and southern regions of the United States experienced 
electricity shortages caused mainly by record temperatures and humidity 
and unscheduled generating unit outages. During this period, Beaver 
Valley Unit 2 was out of service and the Davis-Besse Plant was removed 
from service as a result of damage to transmission facilities caused by 
a tornado. As a result, we purchased significant amounts of power on the 
spot market at unusually high prices, causing the increase in purchased 
power costs. An increase in purchased power costs also contributed to 
the 1997 increase in fuel and purchased power costs, compared to 1996, 
which was offset in part by lower fuel costs caused by an increase in 
the mix of nuclear generation to coal-fired generation. Nuclear 
operating costs were lower in 1998, compared to 1997, reflecting a 
decrease in costs at the Perry Plant offset in part by higher costs at 
the Beaver Valley and Davis-Besse plants. Nuclear operating costs in 
1997 were relatively unchanged from 1996 with increased operating costs 
at the Beaver Valley Plant substantially offset by lower operating costs 
at the Perry and Davis-Besse plants. Other operating costs were higher 
in 1997 than the previous year principally due to a $9.3 million 
severance and early retirement charge in the 1997 pre-merger period. In 
1998, other operating costs increased slightly, compared to 1997, 
despite the absence of the severance and early retirement charge 
recorded in 1997 primarily due to increased fossil plant costs.

          Lower depreciable asset balances resulting from the purchase 
accounting adjustment reduced depreciation in the 1998 and 1997 post-
merger period. These reductions were partially offset by the 
amortization of goodwill recognized with the application of purchase 
accounting. Depreciation in the 1997 pre-merger period increased 
principally due to changes in depreciation rates approved in the April 
1996 Public Utilities Commission of Ohio (PUCO) rate order.

          Interest income on trust notes acquired in connection with the 
Bruce Mansfield Plant lease refinancing (see Note 2), which began in 
June 1997, was the principal cause of an increase in other income in 
1998 and the 1997 post-merger period. In the pre-merger period of 1997, 
interest income on the trust notes was substantially offset by merger-
related expenses. Total interest charges decreased in 1998 principally 
due to the amortization of net premiums associated with the revaluation 
of long-term debt in connection with the merger, which also contributed 
to the decrease in interest charges in the post-merger period of 1997. 
In the pre-merger period of 1997, interest charges were higher because 
interest on new secured notes and short-term borrowings for the Bruce 
Mansfield Plant lease refinancing exceeded the expense reduction from 
the redemption and refinancing of debt securities.

          Preferred stock dividend requirements in 1998 were reduced by 
$3 million and in 1997 were increased by $3 million due to the 
declaration of preferred dividends as of the merger date for dividends 
attributable to the post-merger period (see Note 3c).

Capital Resources and Liquidity

           We continue to actively pursue economic refinancings and 
optional redemptions to reduce the cost of debt and preferred stock, and 
improve our financial position. In 1998, we completed $26 million of 
optional redemptions. We reduced total debt by approximately $66 million 
during 1998. Our common stockholder's equity percentage of 
capitalization increased to 31% at December 31, 1998 from 27% at the end 
of the previous year. The merger resulted in improved credit ratings in 
1997, which have lowered the cost of new issues. The following table 
summarizes changes in credit ratings resulting from the merger:

<TABLE>
<CAPTION>
                                 Pre-Merger                  Post-Merger
                          -------------------------   --------------------------
                           Standard       Moody's      Standard       Moody's
                           & Poor's      Investors     & Poor's      Investors
                          Corporation  Service, Inc.  Corporation  Service, Inc.
                          -----------  -------------  -----------  -------------
<S>                            <C>          <C>            <C>           <C>
First mortgage bonds           BB           Ba2            BB+           Ba1
Subordinated debt              B+           B1             BB-           Ba3
Preferred Stock                B            b2             BB-           b1

</TABLE>

          Excluding the effect of the Bruce Mansfield Plant lease 
refinancing, interest costs on long-term debt were reduced by 
approximately $4 million in 1998, compared to 1997. Through economic 
refinancings and redemptions of higher cost debt we have reduced the 
average cost of outstanding debt from 9.19% in 1993 to 8.25% in 1997 
and 8.08% in 1998. We continue to streamline our operations, as 
evidenced by a 50% increase in FirstEnergy's customer/employee ratio, 
which has increased from 165 at the end of 1993 to 247 as of December 
31, 1998. Merger-related savings through consolidation of activities 
have contributed to these results.

          Our cash requirements in 1999 for operating expenses, 
construction expenditures and scheduled debt maturities are expected 
to be met without issuing additional securities. We have cash 
requirements of approximately $475.2 million for the 1999-2003 period 
to meet scheduled maturities of long-term debt and preferred stock. Of 
that amount, approximately $105.9 million applies to 1999.

          We had about $105.4 million of cash and temporary 
investments and no short-term indebtedness on December 31, 1998. Upon 
completion of the merger, application of purchase accounting reduced 
bondable property such that we are not currently able to issue 
additional first mortgage bonds, except in connection with 
refinancing. Together with The Cleveland Electric Illuminating 
Company, as of December 31, 1998, we had unused borrowing capability 
of $100 million under a FirstEnergy revolving line of credit.

          Our capital spending for the period 1999-2003 is expected to 
be about $257 million (excluding nuclear fuel), of which approximately 
$58 million applies to 1999. Investments in additional nuclear fuel 
during the 1999-2003 period are estimated to be approximately $102 
million, of which about $9 million applies to 1999. During the same 
periods, our nuclear fuel investments are expected to be reduced by 
approximately $120 million and $26 million, respectively, as the 
nuclear fuel is consumed. Also, we have operating lease commitments 
net of trust cash receipts of approximately $360 million for the 1999-
2003 period, of which approximately $70 million relates to 1999. We 
recover the cost of nuclear fuel consumed and operating leases through 
our electric rates.

Interest Rate Risk

          Our exposure to fluctuations in market interest rates is 
mitigated since a significant portion of our debt has fixed interest 
rates, as noted in the table below. We are subject to the inherent 
interest rate risks related to refinancing maturing debt by issuing 
new debt securities. As discussed in Note 2, our investment in the 
Shippingport Capital Trust effectively reduces future lease 
obligations, also reducing interest rate risk. Changes in the market 
value of our nuclear decommissioning trust funds are recognized by 
making a corresponding change to the decommissioning liability, as 
described in Note 1.

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

<TABLE>
<CAPTION>

----------------------------------------------------------------------------------------------------
                                                                           There-            Fair
                                   1999    2000    2001    2002    2003    after    Total    Value
                                                       (Dollars in Millions)  
---------------------------------------------------------------------------------------------------
<S>                                <C>    <C>      <C>    <C>     <C>     <C>      <C>     <C>
Investments other than Cash and
Cash Equivalents:
Fixed Income                       $ 15   $ 15     $17    $ 20    $19     $241     $  327  $  334
  Average interest rate             7.6%   7.6%    7.6%    7.6%   7.6%     7.3%       7.4%
---------------------------------------------------------------------------------------------------
Liabilities                
---------------------------------------------------------------------------------------------------
Long-term Debt:
Fixed rate                         $104   $ 76     $30    $165    $98     $594     $1,067  $1,143
  Average interest rate             7.4%   7.3%    9.2%    8.6%   7.9%     7.8%       7.9%
Variable rate                                                             $ 31     $   31  $   31
  Average interest rate                                                    3.1%       3.1%
---------------------------------------------------------------------------------------------------
Preferred Stock                    $  2                                            $    2  $    2
  Average dividend rate             9.4%                                              9.4%
---------------------------------------------------------------------------------------------------

</TABLE>

Outlook

          We face many competitive challenges in the years ahead as 
the electric utility industry undergoes significant changes, including 
regulation and the entrance of more energy suppliers into the 
marketplace. Retail wheeling, which would allow retail customers to 
purchase electricity from other energy producers, will be one of those 
challenges. The FirstEnergy Rate Reduction and Economic Development 
Plan provides the foundation to position us to meet the challenges we 
are facing by significantly reducing fixed costs and lowering rates to 
a more competitive level. The plan was approved by the PUCO in January 
1997, and initially maintains current base electric rates through 
December 31, 2005. The plan also revised our fuel recovery method.

          As part of the regulatory plan, the base rate freeze is to 
be followed by a $93 million base rate reduction in 2006; interim 
reductions which began in June 1998 of $3 per month will increase to 
$5 per month per residential customer by July 1, 2001. Total savings 
of $111 million are anticipated over the term of the plan for our 
customers. We have committed $35 million for economic development and 
energy efficiency programs.

          We have been authorized by the PUCO to recognize, for 
regulatory accounting purposes, additional depreciation related to our 
generating assets and additional amortization of regulatory assets 
during the regulatory plan period of at least $647 million more than 
the amounts that would have been recognized if the regulatory plans 
were not in effect. For regulatory purposes these additional charges 
will be reflected over the rate plan period. Our regulatory plan does 
not provide for full recovery of nuclear operations. Accordingly, 
regulatory assets representing customer receivables for future income 
taxes related to nuclear assets of $295 million were written off ($192 
million net of income taxes) prior to consummation of the merger since 
we ceased application of Statement of Financial Accounting Standards 
No. 71 (SFAS 71), "Accounting for the Effects of Certain Types of 
Regulation" for our nuclear operations when implementation of the 
FirstEnergy regulatory plan became probable.

          Based on the current regulatory environment and our 
regulatory plan, we believe we will continue to be able to bill and 
collect cost-based rates relating to our nonnuclear operations. As a 
result, we will continue the application of SFAS 71. However, changes 
in the regulatory environment appear to be on the horizon for electric 
utilities in Ohio. As further discussed below, the Ohio legislature is 
in the discussion stages of restructuring the State's electric utility 
industry. Although we believe that regulatory changes are possible in 
1999, we cannot currently estimate the ultimate impact.

          At the consummation of the merger in November 1997, we 
recognized a fair value purchase accounting adjustment, which 
decreased the carrying value of our nuclear assets by approximately 
$842 million based upon cash flow models. The fair value adjustment to 
nuclear plant recognized for financial reporting purposes will 
ultimately satisfy the asset reduction commitment contained in our 
regulatory plan.

          We continue to actively pursue the enactment of fair 
legislation calling for deregulation of Ohio's investor-owned electric 
utility industry. In early 1998, a deregulation proposal was 
introduced, leading to the creation of a working group to recommend 
legislation. As requested by legislative leadership, investor-owned 
utilities introduced a deregulation plan with objectives to (1) treat 
all major stakeholders in Ohio's electric system fairly; (2) protect 
public schools and local governments from revenue loss; and (3) allow 
utilities an opportunity to recover costs of government-mandated 
investments. The utilities have submitted proposals, which incorporate 
these objectives and also recognize the complexity of restructuring 
the industry. The overlying objective is to do the job right the first 
time. Currently, the working group, comprised of legislative leaders, 
representatives of the electric utility companies and other interested 
stakeholders are meeting to discuss and mold these proposals. Most 
recently, placeholder bills containing statements of principle (that 
will be replaced by specific proposals as they are agreed upon) have 
been introduced. Legislative leaders have placed a high priority on 
enacting a deregulation bill by mid-year.

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

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

          We are aware of our potential involvement in the cleanup of 
several sites containing hazardous waste. Although these sites are not 
on the Superfund National Priorities List, they are generally being 
administered by various governmental entities in the same manner as 
they would be administered if they were on such a list. Allegations 
that we disposed of hazardous waste at these sites, and the amount 
involved are often unsubstantiated and subject to dispute. Federal law 
provides that all "potentially responsible parties" for a particular 
site be held liable on a joint and several basis. If we were held 
liable for 100% of the cleanup costs of all the sites referred to 
above, the cost could be as high as $101 million. However, we believe 
that the actual cleanup costs will be substantially less than 100% and 
that most of the other parties involved are financially able to 
contribute their share. We have accrued a $1.1 million liability as of 
December 31, 1998, based on estimates of the costs of cleanup and our 
proportionate responsibility for such costs. We believe that the 
ultimate outcome of these matters will not have a material adverse 
effect on our financial condition, cash flows or results of 
operations.

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

Year 2000 Readiness

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

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

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

          Most of our Year 2000 issues will be resolved through 
system replacement. Of our major centralized systems, the general 
ledger system and inventory management, procurement and accounts 
payable systems were replaced at the end of 1998. Our payroll system 
was enhanced to be Year 2000 compliant in July 1998. The customer 
service system is due to be replaced in mid-1999.

          We have completed formal communications with most of our key 
suppliers to determine the extent to which we are vulnerable to those 
third parties' failure to resolve their own Year 2000 problems. For 
suppliers having potential compliance problems, we are developing 
alternate sources and services in the event such noncompliance occurs. 
We are also identifying areas requiring higher inventory levels based 
on compliance uncertainties. There can be no guarantee that the 
failure of companies to resolve their own Year 2000 issue will not 
have a material adverse effect on our business, financial condition 
and results of operations. 

          We are using both internal and external resources to 
reprogram and/or replace and test our software for Year 2000 
modifications. Of the $17 million total project cost, approximately 
$14 million will be capitalized since those costs are attributable to 
the purchase of new software for total system replacements because 
the Year 2000 solution comprises only a portion of the benefits 
resulting from the system replacements. The remaining $3 million will 
be expensed as incurred. As of December 31, 1998, we have spent $11 
million for Year 2000 capital projects and had expensed approximately 
$2 million for Year 2000-related maintenance activities. Our total 
Year 2000 project cost, as well as our estimates of the time needed 
to complete remedial efforts, are based on currently available 
information and do not include the estimated costs and time 
associated with the impact of third party Year 2000 issues.

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

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

<TABLE>
<PAGE>
                                              THE TOLEDO EDISON COMPANY

                                          CONSOLIDATED STATEMENTS OF INCOME

<CAPTION>
                                                                For the Year                                For the Year 
                                                                    Ended                                      Ended
                                                                December 31,     Nov. 8 -      Jan. 1 -      December 31,
                                                                     1998      Dec. 31, 1997  Nov. 7, 1997      1996 
--------------------------------------------------------------------------------------------------------------------------- 
                                                                                       (In thousands)
<S>                                                              <C>             <C>       |   <C>              <C>
OPERATING REVENUES (1)                                           $957,037        $122,669  |   $ 772,707        $897,259
                                                                                           |
OPERATING EXPENSES AND TAXES:                                                              |
  Fuel and purchased power                                        202,239          22,926  |     158,027         177,517
  Nuclear operating costs                                         160,080          29,372  |     138,559         168,458
  Other operating costs                                           166,935          20,608  |     145,174         157,785
                                                                 --------        --------  |   ---------        --------
    Total operation and maintenance expenses                      529,254          72,906  |     441,760         503,760
  Provision for depreciation and amortization                      94,703          13,133  |      98,986         115,083
  General taxes                                                    86,661          13,126  |      77,426          89,647
  Income taxes                                                     66,158           4,449  |      31,253          31,954
                                                                 --------        --------  |   ---------        --------
    Total operating expenses and taxes                            776,776         103,614  |     649,425         740,444
                                                                 --------        --------  |   ---------        --------
OPERATING INCOME                                                  180,261          19,055  |     123,282         156,815
                                                                                           |
OTHER INCOME (EXPENSE)                                             12,225           2,153  |       2,153          (4,585)
                                                                 --------        --------  |   ---------        --------
INCOME BEFORE NET INTEREST CHARGES                                192,486          21,208  |     125,435         152,230
                                                                 --------        --------  |   ---------        --------
NET INTEREST CHARGES:                                                                      |
  Interest on long-term debt                                       88,364          13,689  |      74,264          85,535
  Allowance for borrowed funds used during                                                 |
    construction                                                   (1,273)           (138) |        (259)           (827)
  Other interest expense                                           (1,187)             41  |       9,661          10,233
                                                                 --------        --------  |    --------        --------
    Net interest charges                                           85,904          13,592  |      83,666          94,941
                                                                 --------        --------  |    --------        --------
INCOME BEFORE EXTRAORDINARY ITEM                                  106,582           7,616  |      41,769          57,289
                                                                                           |
EXTRAORDINARY ITEM (NET OF INCOME                                                          |
  TAXES) (Note 1)                                                      --              --  |    (191,901)             --
                                                                 --------        --------  |   ---------        --------
NET INCOME (LOSS)                                                 106,582           7,616  |    (150,132)         57,289
                                                                                           |
PREFERRED STOCK DIVIDEND                                                                   |
  REQUIREMENTS                                                     13,610              --  |      19,435          16,926
                                                                 --------        --------  |   ---------        --------
EARNINGS (LOSS) ON COMMON STOCK                                  $ 92,972        $  7,616  |   $(169,567)       $ 40,363
                                                                 ========        ========  |   =========        ========

<FN>

(1)  Includes electric sales to associated companies of $123.6 million, $17.7 million,
     $98.5 million and  $105.0 million in 1998, the November 8-December 31, 1997 period,
     the January 1-November 7, 1997 period and 1996, respectively.

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

</TABLE>
<PAGE>


<TABLE>
                                     THE TOLEDO EDISON COMPANY

                                    CONSOLIDATED BALANCE SHEETS
<CAPTION>
At December 31,                                           1998             1997  
------------------------------------------------------------------------------------
                                                             (In thousands)

                       ASSETS
<S>                                                    <C>               <C>
UTILITY PLANT:
  In service                                           $1,757,364        $1,763,495
  Less--Accumulated provision for depreciation            626,942           619,222
                                                       ----------        ----------
                                                        1,130,422         1,144,273
                                                       ----------        ----------
  Construction work in progress--
    Electric plant                                         26,603            19,901
    Nuclear fuel                                           11,191             6,632
                                                       ----------        ----------
                                                           37,794            26,533
                                                       ----------        ----------
                                                        1,168,216         1,170,806
                                                       ----------        ----------
OTHER PROPERTY AND INVESTMENTS:
  Shippingport Capital Trust (Note 2)                     310,762           312,873
  Nuclear plant decommissioning trusts                    102,749            85,956
  Other                                                     3,656             3,164
                                                       ----------        ----------
                                                          417,167           401,993
                                                       ----------        ----------
CURRENT ASSETS:
  Cash and cash equivalents                                 4,140            22,170
  Receivables--
    Customers                                              36,710            19,071
    Associated companies                                   30,006            15,199
    Other                                                   2,316             2,593
  Notes receivable from associated companies              101,236            40,802
  Materials and supplies, at average cost--
    Owned                                                  25,745            31,892
    Under consignment                                      18,148             9,538
  Prepayments and other                                    25,647            26,437
                                                       ----------        ----------
                                                          243,948           167,702
                                                       ----------        ----------
DEFERRED CHARGES:
  Regulatory assets                                       417,704           442,724
  Goodwill                                                474,593           514,462
  Property taxes                                           42,842            45,338
  Other                                                     4,295            15,127
                                                       ----------        ----------
                                                          939,434         1,017,651
                                                       ----------        ----------
                                                       $2,768,765        $2,758,152
                                                       ==========        ==========
   CAPITALIZATION AND LIABILITIES

CAPITALIZATION (See Consolidated Statements
 of Capitalization):
  Common stockholder's equity                          $  575,692        $  531,650
  Preferred stock--
    Not subject to mandatory redemption                   210,000           210,000
    Subject to mandatory redemption                            --             1,690
  Long-term debt                                        1,083,666         1,210,190
                                                       ----------        ----------
                                                        1,869,358         1,953,530
                                                       ----------        ----------
CURRENT LIABILITIES:
  Currently payable long-term debt and preferred
   stock                                                  130,426            69,979
  Accounts payable--
    Associated companies                                   34,260            21,173
    Other                                                  61,587            60,756
  Accrued taxes                                            62,288            34,441
  Accrued interest                                         24,965            26,633
  Other                                                    14,862            22,603
                                                       ----------        ----------
                                                          328,388           235,585
                                                       ----------        ----------
DEFERRED CREDITS:
  Accumulated deferred income taxes                       151,321           104,543
  Accumulated deferred investment tax credits              40,670            43,265
  Pensions and other postretirement benefits              122,314           113,254
  Other                                                   256,714           307,975
                                                       ----------        ----------
                                                          571,019           569,037
                                                       ----------        ----------
COMMITMENTS, GUARANTEES AND CONTINGENCIES
  (Notes 2 and 5)                                      ----------        ---------
                                                       $2,768,765        $2,758,152
                                                       ==========        ==========

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

</TABLE>
<PAGE>


<TABLE>
                                                    THE TOLEDO EDISON COMPANY

                                            CONSOLIDATED STATEMENTS OF CAPITALIZATION
<CAPTION>
At December 31,                                                                                              1998        1997  
--------------------------------------------------------------------------------------------------------------------------------
                                          (Dollars in thousands, except per share amounts)
<S>                                                                                                       <C>         <C>
COMMON STOCKHOLDER'S EQUITY:
  Common stock, $5 par value, authorized 60,000,000 shares-
    39,133,887 shares outstanding                                                                         $  195,670  $  195,670
  Premium on capital stock                                                                                   328,559     328,364
  Retained earnings (Note 3A)                                                                                 51,463       7,616
                                                                                                          ----------  ----------
    Total common stockholder's equity                                                                        575,692     531,650
                                                                                                          ----------  ----------

                                                   Number of Shares                  Optional
                                                     Outstanding                 Redemption Price  
                                                  ------------------          ----------------------
                                                  1998          1997          Per Share    Aggregate
                                                  ----          ----          ---------    ---------
                                               <C>           <C>               <C>          <C>
PREFERRED STOCK (Note 3C):
Cumulative, $100 par value-
Authorized 3,000,000 shares
  Not Subject to Mandatory Redemption:
    $ 4.25                                       160,000       160,000         $104.63      $  16,740         16,000      16,000
    $ 4.56                                        50,000        50,000          101.00          5,050          5,000       5,000
    $ 4.25                                       100,000       100,000          102.00         10,200         10,000      10,000
    $ 8.32                                       100,000       100,000          102.46         10,246         10,000      10,000
    $ 7.76                                       150,000       150,000          102.44         15,366         15,000      15,000
    $ 7.80                                       150,000       150,000          101.65         15,248         15,000      15,000
    $10.00                                       190,000       190,000          101.00         19,190         19,000      19,000
                                               ---------     ---------                      ---------     ----------  ----------
                                                 900,000       900,000                         92,040         90,000      90,000
                                               ---------     ---------                      ---------     ----------  ----------
Cumulative, $25 par value-
Authorized 12,000,000 shares
  Not Subject to Mandatory Redemption:
    $ 2.21                                     1,000,000     1,000,000           25.25         25,250         25,000      25,000
    $ 2.365                                    1,400,000     1,400,000           27.75         38,850         35,000      35,000
    Adjustable Series A                        1,200,000     1,200,000           25.00         30,000         30,000      30,000
    Adjustable Series B                        1,200,000     1,200,000           25.00         30,000         30,000      30,000
                                               ---------     ---------                       --------     ----------  ----------
                                               4,800,000     4,800,000                        124,100        120,000     120,000
                                               ---------     ---------                       --------     ----------  ----------
      Total not subject to mandatory
        redemption                             5,700,000     5,700,000                       $216,140        210,000     210,000
                                               =========     =========                       ========     ----------  ----------
Cumulative, $100 par value-
  Subject to Mandatory Redemption 
  (Note 3D):
    $9.375.                                       16,900        33,550          100.00       $  1,690          1,690       3,355
    Redemption within one year                                                                                (1,690)     (1,665)
                                               ---------     ---------                       --------     ----------  ----------
      Total subject to mandatory
        redemption                                16,900        33,550                       $  1,690             --       1,690
                                               =========     =========                       ========     ----------  ----------
LONG-TERM DEBT (Note 3E):
  First mortgage bonds:
    7.250% due 1999                                                                                           85,000      85,000
    7.500% due 2002                                                                                               --      26,000
    8.000% due 2003                                                                                           35,325      35,725
    7.875% due 2004                                                                                          145,000     145,000
                                                                                                          ----------  ----------
      Total first mortgage bonds                                                                             265,325     291,725
                                                                                                          ----------  ----------

  Unsecured notes and debentures:
    5.750% due 1999-2003                                                                                       3,600       3,900
   10.000% due 2000-2010                                                                                       1,000       1,000
    8.700% due 2002                                                                                          135,000     135,000
                                                                                                          ----------  ----------
      Total unsecured notes and debentures                                                                   139,600     139,900
                                                                                                          ----------  ----------



                                                         THE TOLEDO EDISON COMPANY

                                           CONSOLIDATED STATEMENTS OF CAPITALIZATION (Cont.)
<CAPTION>
At December 31,                                                                                              1998        1997  
-------------------------------------------------------------------------------------------------------------------------------
                                                                                                              (In thousands)
                                                                                                          <C>         <C>
LONG-TERM DEBT (Cont.):
  Secured notes:
      7.940% due 1998                                                                                             --       5,000
      8.000% due 1998                                                                                             --       7,000
      9.300% due 1998                                                                                             --      26,000
     10.000% due 1998                                                                                             --         650
      7.720% due 1999                                                                                         15,000      15,000
      8.470% due 1999                                                                                          3,500       3,500
      7.190% due 2000                                                                                         45,000      45,000
      7.380% due 2000                                                                                         14,000      14,000
      7.460% due 2000                                                                                         16,500      16,500
      7.500% due 2000                                                                                            100         100
      8.500% due 2001                                                                                          8,000       8,000
      9.500% due 2001                                                                                         21,000      21,000
      8.180% due 2002                                                                                         17,000      17,000
      8.620% due 2002                                                                                          7,000       7,000
      8.650% due 2002                                                                                          5,000       5,000
      7.760% due 2003                                                                                          5,000       5,000
      7.780% due 2003                                                                                          1,000       1,000
      7.820% due 2003                                                                                         38,400      38,400
      7.850% due 2003                                                                                         15,000      15,000
      7.910% due 2003                                                                                          3,000       3,000
      7.670% due 2004                                                                                         70,000      70,000
      7.130% due 2007                                                                                         30,000      30,000
      3.050% due 2011*                                                                                        31,250      31,250
      8.000% due 2019                                                                                         67,300      67,300
      7.625% due 2020                                                                                         45,000      45,000
      7.750% due 2020                                                                                         54,000      54,000
      9.220% due 2021                                                                                         15,000      15,000
     10.000% due 2021                                                                                         15,000      15,000
      7.400% due 2022                                                                                         30,900      30,900
      6.875% due 2023                                                                                         20,200      20,200
      7.550% due 2023                                                                                         37,300      37,300
      8.000% due 2023                                                                                         49,300      49,300
      6.100% due 2027                                                                                         10,100      10,100
      5.375% due 2028                                                                                          3,751          --
                                                                                                          ----------  ----------
          Total secured notes                                                                                693,601     728,500
                                                                                                          ----------  ----------
  Capital lease obligations (Note 2)                                                                          67,453      64,843
                                                                                                          ----------  ----------
  Net unamortized premium on debt                                                                             46,423      53,536
                                                                                                          ----------  ----------
  Long-term debt due within one year                                                                        (128,736)    (68,314)
                                                                                                          ----------  ----------
     Total long-term debt                                                                                  1,083,666   1,210,190
                                                                                                          ----------  ----------
TOTAL CAPITALIZATION                                                                                      $1,869,358  $1,953,530
                                                                                                          ==========  ==========

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

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

</TABLE>
<PAGE>

<TABLE>
                                                    THE TOLEDO EDISON COMPANY

                                     CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDER'S EQUITY
<CAPTION>
                                                    Comprehensive                        Premium      Other      Retained
                                                    Income (Loss)    Number      Par    on Capital   Paid-In     Earnings
                                                      (Note 3B)    of Shares    Value      Stock      Capital    (Deficit)
                                                     ------------  ---------   -------  ----------   --------    ---------
                                                                              (Dollars in thousands)
<S>                                                   <C>         <C>         <C>        <C>         <C>         <C>
Balance, January 1, 1996                                          39,133,887  $195,687   $ 481,057   $ 121,059   $ (34,926)
   Net income                                         $  57,289                                                     57,289
                                                      =========
   Unrealized loss on securities                                                                            (3)
   Cash dividends on preferred stock                                                                               (16,926)
---------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1996                                        39,133,887   195,687     481,057     121,056       5,437
   Net (loss)                                         $(150,132)                                                  (150,132)
                                                      =========
   Cash dividends on preferred stock                                                                               (20,973)
---------------------------------------------------------------------------------------------------------------------------

   Purchase accounting fair value adjustment                                       (17)   (152,693)   (121,056)    165,668
   Net income                                         $   7,616                                                      7,616
                                                      =========
----------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1997                                        39,133,887   195,670     328,364          --       7,616
   Purchase accounting fair value adjustment                                                   195
   Net income                                         $ 106,582                                                    106,582
                                                      =========
   Cash dividends on preferred stock                                                                               (12,252)
   Cash dividends on common stock                                                                                  (50,483)
----------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1998                                        39,133,887  $195,670   $ 328,559    $     --   $  51,463
=============================================================================================================================


</TABLE>

            <TABLE>
                                        CONSOLIDATED STATEMENTS OF PREFERRED STOCK

            <CAPTION>
                                                                Not Subject to          Subject to
                                                             Mandatory Redemption   Mandatory Redemption
                                                             --------------------   --------------------
                                                               Number      Par        Number        Par
                                                             of Shares     Value     of Shares     Value
                                                             ---------   ---------  -----------  -------
                                                                         (Dollars in thousands)
            <S>                                              <C>         <C>          <C>        <C>
            Balance, January 1, 1996                         5,700,000   $210,000      66,850    $ 6,685
                 Redemptions-
                   $100 par $9.375                                                    (16,650)    (1,665)
            ---------------------------------------------------------------------------------------------
            Balance, December 31, 1996                       5,700,000    210,000      50,200      5,020
                 Redemptions-
                   $100 par $9.375                                                    (16,650)    (1,665)
            ---------------------------------------------------------------------------------------------
            Balance, December 31, 1997                       5,700,000    210,000      33,550      3,355
                 Redemptions-
                   $100 par $9.375                                                    (16,650)    (1,665)
            ---------------------------------------------------------------------------------------------
            Balance, December 31, 1998                       5,700,000   $210,000      16,900    $ 1,690
            =============================================================================================
          <FN>

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

            </TABLE>
            <PAGE>

<TABLE>
                                                     THE TOLEDO EDISON COMPANY

                                               CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
                                                         For the Year                                     For the Year 
                                                            Ended                                             Ended
                                                         December 31,     Nov. 8 -          Jan. 1 -       December 31,
                                                             1998       Dec. 31, 1997     Nov. 7, 1997         1996  
-----------------------------------------------------------------------------------------------------------------------------
                                                                                (In thousands)
<S>                                                       <C>             <C>               <C>              <C>
CASH FLOWS FROM OPERATING ACTIVITIES:                                                  |
Net Income (Loss)                                         $ 106,582       $  7,616     |    $(150,132)       $  57,289
Adjustments to reconcile net income to net                                             |
  cash from operating activities:                                                      |
    Provision for depreciation and amortization              94,703         13,133     |       98,986          115,083
    Nuclear fuel and lease amortization                      24,071          5,316     |       30,354           33,294
    Deferred income taxes, net                               50,570          3,113     |     (121,002)          17,919
    Investment tax credits, net                              (2,595)          (400)    |       (3,601)          (4,321)
    Allowance for equity funds used during construction          --            (61)    |         (776)          (1,045)
    Extraordinary item                                           --             --     |      295,233               --
    Receivables                                             (32,169)         1,923     |          317           (9,610)
    Net proceeds from accounts receivable securitization         --             --     |           --           78,461
    Materials and supplies                                   (2,463)        (4,430)    |        6,543            5,697
    Accounts payable                                         31,871        (12,989)    |       18,679           (9,737)
    Other                                                    (8,140)       (29,443)    |       55,233           (1,509)
                                                          ---------       --------     |    ---------        ---------
      Net cash provided from (used for) operating                                      |
      activities                                            262,430        (16,222)    |      229,834          281,521
                                                          ---------       --------     |    ---------        ---------
                                                                                       |
CASH FLOWS FROM FINANCING ACTIVITIES:                                                  |
New Financing--                                                                        |
  Long-term debt                                              3,629             --     |      149,804             (260)
Redemptions and Repayments--                                                           |
  Preferred stock                                             1,665             --     |        1,665            1,665
  Long-term debt                                             90,929             --     |       85,419          110,108
  Short-term borrowings, net                                     --             --     |           --           20,950
Dividend Payments--                                                                    |
  Common stock                                               50,483             --     |           --               --
  Preferred stock                                            16,378          4,156     |       12,589           16,926
                                                          ---------       --------     |    ---------        ---------
      Net cash provided from (used for) financing                                      |
       activities                                          (155,826)        (4,156)    |       50,131         (149,909)
                                                          ---------       --------     |    ---------        ---------
                                                                                       |
CASH FLOWS FROM INVESTING ACTIVITIES:                                                  |
Property additions                                           45,870          6,568     |       36,680           47,961
Loans to associated companies                                60,434             --     |           --           81,817
Loan payments from associated companies                          --        (15,297)    |      (25,718)              --
Capital trust investments                                    (2,111)        (7,314)    |      320,187               --
Other                                                        20,441         (6,585)    |       10,350           14,049
                                                          ---------       --------     |    ---------        ---------
      Net cash used for (provided from) investing                                      |
       activities                                           124,634        (22,628)    |      341,499          143,827
                                                          ---------       --------     |    ---------        ---------
Net increase (decrease) in cash and cash equivalents        (18,030)         2,250     |      (61,534)         (12,215)
Cash and cash equivalents at beginning of period             22,170         19,920     |       81,454           93,669
                                                          ---------       --------     |    ---------        ---------
Cash and cash equivalents at end of period                $   4,140       $ 22,170     |    $  19,920        $  81,454
                                                          =========       ========     |    =========        =========
                                                                                       |
SUPPLEMENTAL CASH FLOWS INFORMATION:                                                   |
Cash Paid During the Period--                                                          |
  Interest (net of amounts capitalized)                   $  94,000       $ 16,000     |    $  73,000        $  92,000
                                                          =========       ========     |    =========        =========
  Income taxes                                            $   6,935       $ 28,000     |    $  25,300        $  15,950
                                                          =========       ========     |    =========        =========

<FN>

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

</TABLE>
<PAGE>


<TABLE>
                                      THE TOLEDO EDISON COMPANY

                                  CONSOLIDATED STATEMENTS OF TAXES
<CAPTION>
                                               For the Year                                For the Year 
                                                  Ended                                       Ended
                                               December 31,    Nov. 8 -        Jan. 1 -     December 31,
                                                   1998      Dec. 31, 1997   Nov. 7, 1997      1996  
--------------------------------------------------------------------------------------------------------
                                                                    (In thousands)
<S>                                             <C>            <C>            <C>              <C>
GENERAL TAXES:                                                            |
Real and personal property                      $ 44,993       $   5,998  |   $  40,495       $ 45,446
State gross receipts                              35,114           5,826  |      28,590         33,793
Social security and unemployment                   5,065             818  |       4,444          5,689
Other                                              1,489             484  |       3,897          4,719
                                                --------       ---------  |   ---------       --------
  Total general taxes                           $ 86,661       $  13,126  |   $  77,426       $ 89,647
                                                ========       =========  |   =========       ========
PROVISION FOR INCOME TAXES:                                               |
Currently payable--                                                       |
  Federal                                       $ 22,767       $   2,859  |   $  55,192       $ 13,582
  State *                                          1,954             209  |          --             --
                                                --------       ---------  |   ---------       --------
                                                  24,721           3,068  |      55,192         13,582
                                                --------       ---------  |   ---------       --------
Deferred, net--                                                           |
  Federal                                         50,337           3,096  |    (121,002)        17,919
  State *                                            233              17  |          --             --
                                                --------       ---------  |   ---------       --------
                                                  50,570           3,113  |    (121,002)        17,919
                                                --------       ---------  |   ---------       --------
Investment tax credit amortization                (2,595)           (400) |      (3,601)        (4,321)
                                                --------       ---------  |   ---------       --------
  Total provision for income taxes              $ 72,696       $   5,781  |   $ (69,411)      $ 27,180
                                                ========       =========  |   =========       ========
INCOME STATEMENT CLASSIFICATION                                           |
OF PROVISION FOR INCOME TAXES:                                            |
Operating income                                $ 66,158       $   4,449  |   $  31,253       $ 31,954
Other income                                       6,538           1,332  |       2,667         (4,774)
Extraordinary item                                    --              --  |    (103,331)            --
                                                --------       ---------  |   ---------       --------
  Total provision for income taxes              $ 72,696       $   5,781  |   $ (69,411)      $ 27,180
                                                ========       =========  |   =========       ========
RECONCILIATION OF FEDERAL INCOME TAX                                      |
EXPENSE AT STATUTORY RATE TO TOTAL                                        |
PROVISION FOR INCOME TAXES:                                               |
Book income before provision for income taxes   $179,278       $  13,397  |   $(219,543)      $ 84,469
                                                ========       =========  |   =========       ========
Federal income tax expense at statutory rate    $ 62,747       $   4,689  |   $ (76,840)      $ 29,564
Increases (reductions) in taxes resulting                                 |
 from--                                                                   |
  Amortization of investment tax credits          (2,595)           (400) |      (3,601)        (4,321)
  Depreciation                                        --              --  |       3,428         (3,742)
  Amortization of tax regulatory assets            5,728             955  |          --             --
  Amortization of goodwill                         4,421             670  |          --             --
  Other, net                                       2,395            (133) |       7,602          5,679
                                                --------       ---------  |   ---------       --------
    Total provision for income taxes            $ 72,696       $   5,781  |   $ (69,411)      $ 27,180
                                                ========       =========  |   =========       ========
ACCUMULATED DEFERRED INCOME TAXES                                         |
AT DECEMBER 31:                                                           |
Property basis differences                      $195,948       $ 190,636  |                   $612,000
Deferred nuclear expense                          79,355          83,052  |                     84,000
Deferred sale and leaseback costs                (20,623)        (17,431) |                         --
Unamortized investment tax credits               (19,515)        (20,960) |                    (44,000)
Unused alternative minimum tax credits           (66,322)       (108,156) |                    (99,837)
Other                                            (17,522)        (22,598) |                     13,437
                                                --------       ---------  |                   --------
  Net deferred income tax liability             $151,321       $ 104,543  |                   $565,600
                                                ========       =========  |                   ========
<FN>

*  For periods prior to November 8, 1997, state income taxes are included
   in the General Taxes section above. These amounts are not material and
   no restatement was made.

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

</TABLE>
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

          The consolidated financial statements include The Toledo 
Edison Company (Company) and its 90% owned subsidiary, The Toledo Edison 
Capital Corporation (TECC). The subsidiary was formed in 1997 to make 
equity investments in a business trust in connection with the financing 
transactions related to the Bruce Mansfield Plant sale and leaseback 
(see Note 2). The Cleveland Electric Illuminating Company (CEI), an 
affiliate, has a 10% interest in TECC. All significant intercompany 
transactions have been eliminated. The Company is a wholly owned 
subsidiary of FirstEnergy Corp. (FirstEnergy). Prior to the merger in 
November 1997 (see Note 7), the Company and CEI were the principal 
operating subsidiaries of Centerior Energy Corporation (Centerior). The 
merger was accounted for using the purchase method of accounting in 
accordance with generally accepted accounting principles, and the 
applicable effects were reflected on the separate financial statements 
of Centerior's direct subsidiaries as of the merger date. Accordingly, 
the post-merger financial statements reflect a new basis of accounting 
and pre-merger period and post-merger period financial results 
(separated by a heavy black line) are presented. The Company follows the 
accounting policies and practices prescribed by the Public Utilities 
Commission of Ohio (PUCO) and the Federal Energy Regulatory Commission 
(FERC). The preparation of financial statements in conformity with 
generally accepted accounting principles requires management to make 
periodic estimates and assumptions that affect the reported amounts of 
assets, liabilities, revenues and expenses. Certain prior year amounts 
have been reclassified to conform with the current year presentation.

REVENUES-

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

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

          In May 1996, the Company and CEI began to sell on a daily 
basis substantially all of their retail customer accounts receivable to 
Centerior Funding Corporation (Centerior Funding), a wholly owned 
subsidiary of CEI, under an asset-backed securitization agreement which 
expires in 2001. In July 1996, Centerior Funding completed a public sale 
of $150 million of receivables-backed investor certificates in a 
transaction that qualified for sale accounting treatment.

REGULATORY PLAN-

          FirstEnergy's Rate Reduction and Economic Development Plan for 
the Company was approved in January 1997, to be effective upon 
consummation of the merger. The regulatory plan initially maintains 
current base electric rates for the Company through December 31, 2005. 
At the end of the regulatory plan period, the Company's base rates will 
be reduced by $93 million (approximately 15 percent below current 
levels). The regulatory plan also revised the Company's fuel cost 
recovery method. The Company formerly recovered fuel-related costs not 
otherwise included in base rates from retail customers through a 
separate energy rate. In accordance with the regulatory plan, the 
Company's fuel rate will be frozen through the regulatory plan period, 
subject to limited periodic adjustments. As part of the regulatory plan, 
transition rate credits were implemented for customers, which are 
expected to reduce operating revenues for the Company by approximately 
$111 million during the regulatory plan period.

          All of the Company's regulatory assets related to its 
nonnuclear operations are being recovered under provisions of the 
regulatory plan (see "Regulatory Assets"). The Company recognized a fair 
value purchase accounting adjustment to reduce nuclear plant by 
$842 million in connection with the FirstEnergy merger (see Note 7); 
that fair value adjustment recognized for financial reporting purposes 
will ultimately satisfy the $647 million asset reduction commitment 
contained in the regulatory plan. For regulatory purposes, the Company 
will recognize the $647 million of accelerated amortization over the 
regulatory plan period.

          Application of Statement of Financial Accounting Standards 
(SFAS) No. 71, "Accounting for the Effects of Certain Types of 
Regulation" (SFAS 71), was discontinued in 1997 with respect to the 
Company's nuclear operations. The Company's net assets included in 
utility plant relating to the operations for which the application of 
SFAS 71 was discontinued were $579 million as of December 31, 1998.

UTILITY PLANT AND DEPRECIATION-

          Utility plant reflects the original cost of construction 
(except for the Company's nuclear generating units which were adjusted 
to fair value in 1997), including payroll and related costs such as 
taxes, employee benefits, administrative and general costs, and interest 
costs.

          The Company provides for depreciation on a straight-line basis 
at various rates over the estimated lives of property included in plant 
in service. The annualized composite rate was approximately 3.4% 
(reflecting the nuclear asset fair value adjustment discussed above) and 
2.6% in 1998 and the post-merger period in 1997, respectively. In its 
April 1996 rate order, the PUCO approved depreciation rates for the 
Company of 2.95% for nuclear property and 3.13% for nonnuclear property.

          Annual depreciation expense includes approximately 
$9.8 million for future decommissioning costs applicable to the 
Company's ownership interests in three nuclear generating units. The 
Company's share of the future obligation to decommission these units is 
approximately $348 million in current dollars and (using a 4.0% 
escalation rate) approximately $896 million in future dollars. The 
estimated obligation and the escalation rate were developed based on 
site specific studies. Payments for decommissioning are expected to 
begin in 2016, when actual decommissioning work begins. The Company has 
recovered approximately $91 million for decommissioning through its 
electric rates from customers through December 31, 1998. If the actual 
costs of decommissioning the units exceed the funds accumulated from 
investing amounts recovered from customers, the Company expects that 
additional amount to be recoverable from its customers. The Company has 
approximately $102.7 million invested in external decommissioning trust 
funds as of December 31, 1998. Earnings on these funds are reinvested 
with a corresponding increase to the decommissioning liability. The 
Company has also recognized an estimated liability of approximately $8.7 
million at December 31, 1998 related to decontamination and 
decommissioning of nuclear enrichment facilities operated by the United 
States Department of Energy (DOE), as required by the Energy Policy Act 
of 1992.

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

COMMON OWNERSHIP OF GENERATING FACILITIES-

          The Company, CEI, Duquesne Light Company, Ohio Edison Company 
(OE) and its wholly owned subsidiary, Pennsylvania Power Company (Penn), 
constitute the Central Area Power Coordination Group (CAPCO). The CAPCO 
companies own and/or lease, 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 Consolidated Statements of 
Income. The amounts reflected on the Consolidated Balance Sheet under 
utility plant at December 31, 1998 include the following:


<TABLE>
<CAPTION>

                         Utility    Accumulated  Construction  Ownership/
                          Plant    Provision for    Work in    Leasehold
Generating Units        in Service  Depreciation    Progress    Interest 
--------------------------------------------------------------------------- 
                                            (In millions)
<S>                      <C>            <C>           <C>          <C>
Bruce Mansfield
  Units 2 and 3          $ 39.4         $11.1         $ 1.1        18.61%
Beaver Valley Unit 2       57.7           3.3           0.7        19.91%
Davis-Besse               202.5           4.8           6.2        48.62%
Perry                     332.7          16.4           4.0        19.91%
-------------------------------------------------------------------------
  Total                  $632.3         $35.6         $12.0
=========================================================================

</TABLE>



          The Bruce Mansfield Plant and Beaver Valley Unit 2 are being 
leased through sale and leaseback transactions (see Note 2) and the 
above-related amounts represent construction expenditures subsequent 
to the transaction.

NUCLEAR FUEL-

          The Company leases its nuclear fuel and pays for the fuel as 
it is consumed (see Note 2). The Company amortizes the cost of nuclear 
fuel based on the rate of consumption. The Company's electric rates 
include amounts for the future disposal of spent nuclear fuel based 
upon the payments to the DOE.

INCOME TAXES-

          Details of the total provision for income taxes are shown on 
the Consolidated Statements of Taxes. Deferred income taxes result 
from timing differences in the recognition of revenues and expenses 
for tax and accounting purposes. Investment tax credits, which were 
deferred when utilized, are being amortized over the recovery period 
of the related property. The liability method is used to account for 
deferred income taxes. Deferred income tax liabilities related to tax 
and accounting basis differences are recognized at the statutory 
income tax rates in effect when the liabilities are expected to be 
paid. Alternative minimum tax credits of $66 million, which may be 
carried forward indefinitely, are available to reduce future federal 
income taxes. Since the Company became a wholly owned subsidiary of 
FirstEnergy on November 8, 1997, the Company is included in 
FirstEnergy's consolidated federal income tax return. The consolidated 
tax liability is allocated on a "stand-alone" company basis, with the 
Company recognizing any tax losses or credits it contributed to the 
consolidated return.

RETIREMENT BENEFITS-

          Centerior had sponsored jointly with the Company, CEI and 
Centerior Service Company (Service Company) a noncontributory pension 
plan (Centerior Pension Plan) which covered all employee groups. Upon 
retirement, employees receive a monthly pension generally based on the 
length of service. In 1998, the Centerior Pension Plan was merged into 
the FirstEnergy pension plans. In connection with the OE-Centerior 
merger, the Company recorded fair value purchase accounting 
adjustments to recognize the net gain, prior service cost, and net 
transition asset (obligation) associated with the pension and 
postretirement benefit plans. The assets of the pension plans consist 
primarily of common stocks, United States government bonds and 
corporate bonds.

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

          The following sets forth the funded status of the 
FirstEnergy plans in 1998 and the former Centerior plans in 1997 and 
amounts recognized on the Consolidated Balance Sheets as of December 
31:

<TABLE>
<CAPTION>
                                                                                   Other
                                                     Pension Benefits      Postretirement Benefits
                                                    ----------------      -----------------------
                                                     1998       1997        1998        1997  
-------------------------------------------------------------------------------------------------
                                                                 (In millions)
<S>                                                <C>        <C>         <C>          <C>
Change in benefit obligation:
Benefit obligation as of January 1*                $1,327.5   $395.0      $ 534.1      $ 211.9
Service cost                                           25.0     13.4          7.5          2.3
Interest cost                                          92.5     31.5         37.6         16.3
Plan amendments                                        44.3      7.1         40.1           --
Early retirement program expense                         --     27.8           --           --
Actuarial loss                                        101.6     74.8         10.7         51.9
Benefits paid                                         (90.8)   (16.2)       (28.7)       (15.9)
-----------------------------------------------------------------------------------------------
Benefit obligation as of December 31                1,500.1    533.4        601.3        266.5
-----------------------------------------------------------------------------------------------

Change in plan assets:
Fair value of plan assets as of January 1*          1,542.5    420.8          2.8           --
Actual return on plan assets                          231.3     57.3          0.7           --
Company contribution                                     --       --          0.4           --
Benefits paid                                         (90.8)   (16.2)          --           --
-----------------------------------------------------------------------------------------------
Fair value of plan assets as of December 31         1,683.0    461.9          3.9           --
-----------------------------------------------------------------------------------------------

Funded status of plan*                                182.9    (71.5)      (597.4)      (266.5)
Unrecognized actuarial loss (gain)                   (110.8)     3.0         30.6           --
Unrecognized prior service cost                        63.0       --         27.4           --
Unrecognized net transition obligation (asset)        (18.0)      --        129.3           --
-----------------------------------------------------------------------------------------------
Prepaid (accrued) benefit cost                     $  117.1   $(68.5)     $(410.1)     $(266.5)
===============================================================================================

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

<FN>

  *  1998 beginning balances represents 1998 merger of Centerior
     and OE plans into FirstEnergy plans.

</TABLE>

          The Consolidated Balance Sheet classification of Pensions 
and Other Postretirement Benefits at December 31, 1998 and 1997 
includes the Company's share of the net pension liability of $17.3 
million and $18.1 million, respectively; and the Company's share of 
the accrued postretirement benefit liability of $105.0 million and 
$95.2 million, respectively.

          Net pension and other postretirement benefit costs for the 
three years ended December 31, 1998 (FirstEnergy plans in 1998 and 
Centerior plans in 1997 and 1996) were computed as follows:


<TABLE>
<CAPTION>

                                         Pension Benefits         Other Postretirement Benefits
                                  -----------------------------   ------------------------------                        
                                              1997                              1997  
                                        ----------------                 ----------------
                                        Nov. 8- |  Jan. 1-                 Nov. 8-| Jan. 1-
                                 1998   Dec. 31 |  Nov. 7   1996     1998  Dec. 31| Nov. 7  1996
------------------------------------------------|---------------------------------|-------------
                                                |         (In millions)           |
<S>                             <C>      <C>    | <C>      <C>       <C>     <C>  | <C>    <C>
Service cost                    $  25.0  $ 2.3  | $ 11.1   $ 12.6    $ 7.5   $0.5 | $ 1.8  $ 2.1
Interest cost                      92.5    6.1  |   25.4     27.9     37.6    2.8 |  13.5   17.8
Expected return on plan assets   (152.7)  (7.7) |  (38.0)   (43.0)    (0.3)    -- |    --     --
Amortization of transition                      |                                 |
obligation (asset)                 (8.0)    --  |   (3.0)    (3.5)     9.2     -- |   6.4    7.5
Amortization of prior service                   |                                 |
 cost                               2.3     --  |    1.1      1.3     (0.8)    -- |    --     --
Recognized net actuarial loss                   |                                 |
 (gain)                            (2.6)    --  |   (0.5)    (2.7)      --     -- |  (0.9)    --
Voluntary early retirement                      |                                 |
 program expense                     --   23.0  |    4.8       --       --     -- |    --     --
------------------------------------------------|---------------------------------|-------------
Net benefit cost                $ (43.5) $23.7  | $  0.9   $ (7.4)   $53.2   $3.3 | $20.8  $27.4
================================================|=================================|=============
Company's share of total plan                   |                                 |
costs                           $  (1.1) $ 5.7  | $  3.5   $ (2.4)   $ 7.5   $1.5 | $ 8.9  $ 9.0
------------------------------------------------------------------------------------------------

</TABLE>

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

TRANSACTIONS WITH AFFILIATED COMPANIES-

          Operating revenues, operating expenses and interest charges 
include amounts for transactions with affiliated companies in the 
ordinary course of business operations.

          The Company's transactions with CEI and the other 
FirstEnergy operating subsidiaries (OE and Penn) from the November 8, 
1997 merger date are primarily for firm power, interchange power, 
transmission line rentals and jointly owned power plant operations and 
construction (see Note 7). Beginning in May 1996, Centerior Funding 
began serving as the transferor in connection with the accounts 
receivable securitization for the Company and CEI.

          The Service Company (formerly a wholly owned subsidiary of 
Centerior and now a wholly owned subsidiary of FirstEnergy) provided 
support services at cost to the Company and other affiliated 
companies. The Service Company billed the Company $39.0 million, 
$13.9 million, $51.5 million and $59.8 million in 1998, the 
November 8-December 31, 1997 period, the January 1-November 7, 1997 
period and 1996, respectively, for such services.

SUPPLEMENTAL CASH FLOWS INFORMATION-

          All temporary cash investments purchased with an initial 
maturity of three months or less are reported as cash equivalents on 
the Consolidated Balance Sheets. The Company reflects temporary cash 
investments at cost, which approximates their fair market value. 
Noncash financing and investing activities included capital lease 
transactions amounting to $28 million, $2 million, $12 million and 
$32 million in 1998, the November 8-December 31, 1997 period, the 
January 1-November 7, 1997 period and 1996, respectively.

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

<TABLE>
<CAPTION>

                                          1998           1997  
--------------------------------------------------------------------
                                   Carrying  Fair  Carrying  Fair
                                     Value   Value   Value   Value
-------------------------------------------------------------------
                                              (In millions)
<S>                                 <C>     <C>     <C>     <C>
Long-term debt                      $1,098  $1,174  $1,160  $1,218
Preferred stock                     $    2  $    2  $    3  $    3
Investments other than cash
 and cash equivalents:
  Debt securities
  -(Maturing in more than 10 years) $  308  $  301  $  295  $  303
  Equity securities                      3       3       3       3
  All other                            103     105      86      85
-------------------------------------------------------------------
                                    $  414  $  409  $  384  $  391
====================================================================

</TABLE>


          The carrying value of long-term debt was adjusted to fair 
value in connection with the OE-Centerior merger and reflects the 
present value of the cash outflows relating to those securities based 
on the current call price, the yield to maturity or the yield to call, 
as deemed appropriate at the end of each respective year. The yields 
assumed were based on securities with similar characteristics offered 
by a corporation with credit ratings similar to the Company's ratings.

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

REGULATORY ASSETS-

          The Company recognizes, as regulatory assets, costs which 
the FERC and PUCO 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 related to 
nonnuclear operations are being recovered from customers under the 
Company's regulatory plan. Based on the regulatory plan, at this time, 
the Company believes it will continue to be able to bill and collect 
cost-based rates (with the exception of the Company's nuclear 
operations as discussed below); accordingly, it is appropriate that 
the Company continues the application of SFAS 71 in the foreseeable 
future for its nonnuclear operations.

          The Company discontinued the application of SFAS 71 for its 
nuclear operations in October 1997 when implementation of the 
regulatory plan became probable. The regulatory plan does not provide 
for full recovery of the Company's nuclear operations. In accordance 
with SFAS No. 101, "Regulated Enterprises -- Accounting for the 
Discontinuation of Application of SFAS 71," the Company was required 
to remove from its balance sheet all regulatory assets and liabilities 
related to the portion of its business for which SFAS 71 was 
discontinued and to assess all other assets for impairment. Regulatory 
assets attributable to nuclear operations of $295.2 million 
($191.9 million after taxes) were written off as an extraordinary item 
in October 1997. The regulatory assets attributable to nuclear 
operations written off represent the net amounts due from customers 
for future federal income taxes when the taxes become payable, which, 
under the regulatory plan, are no longer recoverable from customers. 
The remainder of the Company's business continues to comply with the 
provisions of SFAS 71. All remaining regulatory assets of the Company 
will continue to be recovered through rates set for the nonnuclear 
portion of its business. For financial reporting purposes, the net 
book value of the nuclear generating units was not impaired as a 
result of the regulatory plan.

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

<TABLE>
<CAPTION>

                                          1998        1997
----------------------------------------------------------
                                            (In millions)
<S>                                      <C>         <C>
Nuclear unit expenses                    $200.1      $207.4
Rate stabilization program deferrals      164.1       172.0
Sale and leaseback costs                   41.3        40.2
Loss on reacquired debt                    20.0        21.1
Other                                      (7.8)        2.0
----------------------------------------------------------
      Total                              $417.7      $442.7
==========================================================

</TABLE>


2.  LEASES:

          The Company leases certain generating facilities, nuclear 
fuel, certain transmission facilities, office space and other property 
and equipment under cancelable and noncancelable leases.

          The Company and CEI sold their ownership interests in Bruce 
Mansfield Units 1, 2 and 3 and the Company sold a portion of its 
ownership interest in Beaver Valley Unit 2. In connection with these 
sales, which were completed in 1987, the Company and CEI entered into 
operating leases for lease terms of approximately 30 years as co-
lessees. During the terms of the leases, the Company and CEI continue 
to be responsible, to the extent of their combined ownership and 
leasehold interest, for costs associated with the units including 
construction expenditures, operation and maintenance expenses, 
insurance, nuclear fuel, property taxes and decommissioning. The 
Company and CEI have the right, at the end of the respective basic 
lease terms, to renew the leases. The Company and CEI also have the 
right to purchase the facilities at the expiration of the basic lease 
term or renewal term (if elected) at a price equal to the fair market 
value of the facilities.

          As co-lessee with CEI, the Company is also obligated for 
CEI's lease payments. If CEI is unable to make its payments under the 
Bruce Mansfield Plant lease, the Company would be obligated to make 
such payments. No such payments have been made on behalf of CEI. 
(CEI's future minimum lease payments as of December 31, 1998 were 
approximately $1.1 billion.)

          The Company is selling 150 megawatts of its Beaver Valley 
Unit 2 leased capacity entitlement to CEI. Operating revenues for this 
transaction were $98.5 million, $16.8 million, $87.4 million and 
$99.4 million in 1998, the November 8-December 31, 1997 period, the 
January 1-November 7, 1997 period and 1996, respectively. This sale is 
expected to continue through the end of the lease period. The future 
minimum lease payments through 2017 associated with Beaver Valley 
Unit 2 are approximately $1.1 billion.

          Nuclear fuel is currently financed for the Company and CEI 
through leases with a special-purpose corporation. As of December 31, 
1998, $156 million of nuclear fuel ($67 million for the Company) was 
financed under a lease financing arrangement totaling $175 million 
($60 million of intermediate-term notes and $115 million from bank 
credit arrangements). The notes mature from 1999 through 2000 and the 
bank credit arrangements expire in September 2000. Lease rates are 
based on intermediate-term note rates, bank rates and commercial paper 
rates.

           Consistent with the regulatory treatment, the rentals for 
capital and operating leases are charged to operating expenses on the 
Consolidated Statements of Income. Such costs for the three years 
ended December 31, 1998 are summarized as follows:


<TABLE>
<CAPTION>

                                  Nov. 8 -       Jan. 1 -
                       1998    Dec. 31, 1997    Nov. 7, 1997    1996
---------------------------------------------------------------------
                                       (In millions)
<S>                   <C>          <C>        |     <C>        <C>
Operating leases                              |
  Interest element    $ 59.2       $28.0      |     $ 57.4     $ 82.5
  Other                 44.9        13.5      |       23.1       42.6
Capital leases                                |
  Interest element       4.9         1.0      |        6.0        7.5
  Other                 25.1         5.3      |       30.4       38.6
----------------------------------------------|----------------------
  Total rentals       $134.1       $47.8      |     $116.9     $171.2
=====================================================================

</TABLE>




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


<TABLE>
<CAPTION>
                                            Operating Leases  
                                       ----------------------------
                              Capital   Lease     Capital 
                              Leases   Payments    Trust      Net
------------------------------------------------------------------
                                        (In millions)
<S>                           <C>      <C>         <C>      <C>
1999                          $28.7    $  106.5    $ 36.3   $   70.2
2000                           19.4       104.8      35.4       69.4
2001                           12.0       108.0      36.4       71.6
2002                            5.8       111.0      37.9       73.1
2003                            1.9       111.7      36.0       75.7
Years thereafter                0.4     1,318.4     321.4      997.0
--------------------------------------------------------------------
Total minimum lease payments   68.2    $1,860.4    $503.4   $1,357.0
                                       ========    ======   ========
Interest portion                8.3
-----------------------------------
Present value of net 
  minimum lease payments       59.9
Less current portion           24.5
-----------------------------------
Noncurrent portion            $35.4
===================================

</TABLE>


          The Company and CEI refinanced high-cost fixed obligations 
related to their 1987 sale and leaseback transaction for the Bruce 
Mansfield Plant through a lower cost transaction in June and July 
1997. In a June 1997 offering (Offering), the two companies pledged 
$720 million aggregate principal amount ($145 million for the Company 
and $575 million for CEI) of first mortgage bonds due in 2000, 2004 
and 2007 to a trust as security for the issuance of a like principal 
amount of secured notes due in 2000, 2004 and 2007. The obligations of 
the two companies under these secured notes are joint and several. 
Using available cash, short-term borrowings and the net proceeds from 
the Offering, the two companies invested $906.5 million 
($337.1 million for the Company and $569.4 million for CEI) in a 
business trust, in June 1997. The trust used these funds in July 1997 
to purchase lease notes and redeem all $873.2 million aggregate 
principal amount of 10-1/4% and 11-1/8% secured lease obligation bonds 
(SLOBs) due 2003 and 2016. The SLOBs were issued by a special-purpose 
funding corporation in 1988 on behalf of lessors in the two companies' 
1987 sale and leaseback transaction. The Shippingport capital trust 
arrangement effectively reduce lease costs related to that 
transaction.

3.  CAPITALIZATION:

   (A)  RETAINED EARNINGS-

          The Company has a provision in its mortgage applicable to 
$35.325 million of its 8.00% First Mortgage Bonds due 2003 that 
requires common stock dividends to be paid out of its total balance of 
retained earnings. The merger purchase accounting adjustments included 
resetting the retained earnings balance to zero at the November 8, 
1997 merger date.

   (B)  COMPREHENSIVE INCOME-

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

   (C)  PREFERRED AND PREFERENCE STOCK-

          Preferred stock may be redeemed by the Company in whole, or 
in part, with 30-90 days' notice.

          The preferred dividend rates on the Company's Series A and 
Series B fluctuate based on prevailing interest rates and market 
conditions. The dividend rates for these issues averaged 7.00% and 
7.07%, respectively, in 1998.

          Preference stock authorized for the Company is 5,000,000 
shares with a $25 par value. No preference shares are currently 
outstanding.

          A liability of $5 million was included in the Company's net 
assets as of the merger date for preferred dividends declared 
attributable to the post-merger period. Accordingly, no accrual for 
preferred stock dividend requirements was included on the Company's 
November 8, 1997 to December 31, 1997 Consolidated Statement of 
Income. This liability was subsequently reduced to zero in 1998.

   (D)  PREFERRED STOCK SUBJECT TO MANDATORY REDEMPTION-

          Annual sinking fund requirements for the next five years 
consist of $1.7 million in 1999. 

   (E)  LONG-TERM DEBT-

          The first mortgage indenture and its supplements, which 
secure all of the Company's first mortgage bonds, serve as direct 
first mortgage liens on substantially all property and franchises, 
other than specifically excepted property, owned by the Company.

          Based on the amount of bonds authenticated by the Trustees 
through December 31, 1998, TE's annual sinking and improvement fund 
requirements for all bonds issued under the mortgage amounts to $0.4 
million. TE expects to deposit funds in 1999 that will 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) for the next five 
years are:

<TABLE>
<CAPTION>
                   (In millions)
-------------------------------
<S>                      <C>
1999                     $104.2
2000                       76.3
2001                       29.9
2002                      165.4
2003                       97.7
-------------------------------
</TABLE>

          The Company's obligations to repay certain pollution control 
revenue bonds are secured by several series of first mortgage bonds. 
One pollution control revenue bond issue is entitled to the benefit of 
an irrevocable bank letter of credit of $32.1 million. To the extent 
that drawings are made under this letter of credit to pay principal 
of, or interest on, the pollution control revenue bonds, the Company 
is entitled to a credit against its obligation to repay those bonds. 
The Company pays an annual fee of 1.875% of the amount of the letter 
of credit to the issuing bank and is obligated to reimburse the bank 
for any drawings thereunder.

          The Company and CEI have letters of credit of approximately 
$225 million in connection with the sale and leaseback of Beaver 
Valley Unit 2 that expire in June 1999. The letters of credit are 
secured by first mortgage bonds of the Company and CEI in the 
proportion of 60% and 40%, respectively (see Note 2).

4.  SHORT-TERM BORROWINGS:

          FirstEnergy has a $100 million revolving credit facility 
that expires in May 1999. FirstEnergy may borrow under the facility, 
with all borrowings jointly and severally guaranteed by the Company 
and CEI. FirstEnergy plans to transfer any of its borrowed funds to 
the Company and CEI. The credit agreement is secured with first 
mortgage bonds of the Company and CEI in the proportion of 60% and 
40%, respectively. The credit agreement also provides the 
participating banks with a subordinate mortgage security interest in 
the properties of the Company and CEI. The banks' fee is 0.50% per 
annum payable quarterly in addition to interest on any borrowings. 
There were no borrowings under the facility at December 31, 1998. 
Also, the Company may borrow from its affiliates on a short-term 
basis.

5.  COMMITMENTS, GUARANTEES AND CONTINGENCIES:

CAPITAL EXPENDITURES-

          The Company's current forecast reflects expenditures of 
approximately $257 million for property additions and improvements 
from 1999-2003, of which approximately $58 million is applicable to 
1999. Investments for additional nuclear fuel during the 1999-2003 
period are estimated to be approximately $102 million, of which 
approximately $9 million applies to 1999. During the same periods, the 
Company's nuclear fuel investments are expected to be reduced by 
approximately $120 million and $26 million, respectively, as the 
nuclear fuel is consumed.

NUCLEAR INSURANCE-

          The Price-Anderson Act limits the public liability relative 
to a single incident at a nuclear power plant to $9.7 billion. The 
amount is covered by a combination of private insurance and an 
industry retrospective rating plan. Based on its present ownership and 
leasehold interests in Beaver Valley Unit 2, the Davis-Besse Plant and 
the Perry Plant, the Company's maximum potential assessment under the 
industry retrospective rating plan (assuming the other co-owners 
contribute their proportionate share of any assessments under the 
retrospective rating plan) would be $77.9 million per incident but not 
more than $8.8 million in any one year for each incident.

          The Company is also insured as to its respective interests 
in Beaver Valley Unit 2, the Davis-Besse Plant and the Perry Plant 
under policies issued to the operating company for each plant. Under 
these policies, up to $2.75 billion is provided for property damage 
and decontamination and decommissioning costs. The Company has also 
obtained approximately $354 million of insurance coverage for 
replacement power costs for its respective interests in Beaver Valley 
Unit 2, Davis-Besse and Perry. Under these policies, the Company can 
be assessed a maximum of approximately $10.5 million for incidents at 
any covered nuclear facility occurring during a policy year which are 
in excess of accumulated funds available to the insurer for paying 
losses.

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

GUARANTEE-

          The Company, together with the other CAPCO companies, has 
severally guaranteed certain debt and lease obligations in connection 
with a coal supply contract for the Bruce Mansfield Plant. As of 
December 31, 1998, the Company's share of the guarantee (which 
approximates fair market value) was $5.5 million. The price under the 
coal supply contract, which includes certain minimum payments, has 
been determined to be sufficient to satisfy the debt and lease 
obligations. The Company's total payments under the coal supply 
contract were $32.9 million, $29.9 million and $31.4 million during 
1998, 1997 and 1996, respectively. The Company's minimum payment for 
1999 is approximately $9 million. The contract expires December 31, 
1999.

ENVIRONMENTAL MATTERS-

          Various federal, state and local authorities regulate the 
Company with regard to air and water quality and other environmental 
matters. The Company has estimated additional capital expenditures for 
environmental compliance of approximately $44 million, which is 
included in the construction forecast provided under "Capital 
Expenditures" for 1999 through 2003.

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

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

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

          The Company has been named as a "potentially responsible 
party" (PRP) at waste disposal sites which may require cleanup under 
the Comprehensive Environmental Response, Compensation and Liability 
Act of 1980. Allegations that the Company disposed of hazardous 
substances at historical sites and the liability involved, are often 
unsubstantiated and subject to dispute. Federal law provides that all 
PRPs for a particular site be held liable on a joint and several 
basis. The Company has accrued a liability of $1 million as of 
December 31, 1998, based on estimates of the costs of cleanup and the 
proportionate responsibility of other PRPs for such costs. The Company 
believes that waste disposal costs will not have a material adverse 
effect on its financial condition, cash flows or results of 
operations.

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

6.  SUMMARY OF QUARTERLY FINANCIAL DATA (UNAUDITED):

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

<TABLE>
<CAPTION>

                                             March 31,  June 30,  September 30,  December 31,
     Three Months Ended                        1998       1998        1998          1998  
-------------------------------------------------------------------------------------------
                                                             (In millions)
<S>                                           <C>       <C>          <C>          <C>
Operating Revenues                            $221.1    $239.7       $253.3       $243.0
Operating Expenses and Taxes                   169.1     201.9        202.1        203.7
----------------------------------------------------------------------------------------
Operating Income                                52.0      37.8         51.2         39.3
Other Income                                     3.8       3.1          2.7          2.6
Net Interest Charges                            21.8      21.8         21.2         21.1
----------------------------------------------------------------------------------------
Net Income                                    $ 34.0    $ 19.1       $ 32.7       $ 20.8
========================================================================================
Earnings on Common Stock                      $ 32.6    $ 15.0       $ 28.5       $ 16.9
========================================================================================

</TABLE>


<TABLE>
<CAPTION>
                                          Three Months Ended
                                     ----------------------------
                                     Mar. 31,  June 30,  Sept. 30,      Oct. 1 -      Nov. 8 -
                                       1997      1997      1997      Nov. 7, 1997   Dec. 31, 1997
--------------------------------------------------------------------------------------------------
                                                            (In millions)         |
<S>                                  <C>       <C>       <C>           <C>        |    <C>
Operating Revenues                   $217.1    $222.1    $241.3        $  92.2    |    $122.7
Operating Expenses and Taxes          184.7     186.1     191.9           86.7    |     103.6
----------------------------------------------------------------------------------|----------
Operating Income                       32.4      36.0      49.4            5.5    |      19.1
Other Income (Expense)                 (0.4)      0.4       5.0           (2.9)   |       2.1
Net Interest Charges                   23.2      23.3      27.2           10.0    |      13.6
----------------------------------------------------------------------------------|----------
Income (Loss) Before Extraordinary                                                |
 Item                                   8.8      13.1      27.2           (7.4)   |       7.6
Extraordinary Item (Net of Income                                                 |
 Taxes) (Note 1)                         --        --        --         (191.9)   |        --
----------------------------------------------------------------------------------|----------
Net Income (Loss)                     $ 8.8    $ 13.1    $ 27.2        $(199.3)   |    $  7.6
==================================================================================|==========
Earnings (Loss) on Common Stock       $ 4.6     $ 8.9    $ 23.0        $(206.2)   |    $  7.6
=============================================================================================

</TABLE>

7.  PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME (UNAUDITED):

          FirstEnergy was formed on November 8, 1997 by the merger of 
OE and Centerior. The merger was accounted for as a purchase of 
Centerior's net assets with 77,637,704 shares of FirstEnergy Common 
Stock through the conversion of each outstanding Centerior Common 
Stock share into 0.525 of a share of FirstEnergy Common Stock 
(fractional shares were paid in cash). Based on an imputed value of 
$20.125 per share, the purchase price was approximately 
$1.582 billion, which also included approximately $20 million of 
merger related costs. Goodwill of approximately $2.0 billion was 
recognized (to be amortized on a straight-line basis over forty 
years), which represented the excess of the purchase price over 
Centerior's net assets after fair value adjustments.

          Accumulated amortization of goodwill was approximately 
$15 million as of December 31, 1998. The merger purchase accounting 
adjustments included recognizing estimated severance and other 
compensation liabilities ($24 million). The amount charged against 
the liability in 1998 relating to the costs of involuntary employee 
separation was $11 million. The liability was subsequently reduced to 
zero as of December 31, 1998. The liability adjustment was offset by 
a corresponding reduction to goodwill recognized in connection with 
the Centerior acquisition.

          The following pro forma statements of income for the 
Company give effect to the OE-Centerior merger as if it had been 
consummated on January 1, 1996, with the purchase accounting 
adjustments actually recognized in the business combination.


<TABLE>
<CAPTION>
                                   Year Ended December 31,
                                   -----------------------
                                       1997        1996  
----------------------------------------------------------
                                         (In millions)
<S>                                    <C>         <C>
Operating Revenues                     $895        $897
Operating Expenses and Taxes            742         728
                                       ----        ----
Operating Income                        153         169
Other Income (Expense)                   10          (3)
Net Interest Charges                     91          89
                                       ----        ----
Net Income                             $ 72        $ 77
========================================================

</TABLE>


          Pro forma adjustments reflected above include: (1) 
adjusting the Company's nuclear generating units to fair value based 
upon independent appraisals and estimated discounted future cash 
flows based on management's estimate of cost recovery; (2) the effect 
of discontinuing SFAS 71 for the Company's nuclear operations; (3) 
amortization of the fair value adjustment for long-term debt; (4) 
goodwill recognized representing the excess of the Company's portion 
of the purchase price over the Company's adjusted net assets; (5) the 
elimination of merger costs; and (6) adjustments for estimated tax 
effects of the above adjustments.

8.  PENDING MERGER OF THE COMPANY INTO CEI:

          In March 1994, Centerior announced a plan to merge the 
Company into CEI. All necessary regulatory approvals have been 
obtained, except the approval of the Nuclear Regulatory Commission 
(NRC). This application was withdrawn at the NRC's request pending 
the decision whether to complete this merger. No final decision 
regarding the proposed merger has been reached.

          In June 1995, the Company's preferred stockholders approved 
the merger and CEI's preferred stockholders approved the 
authorization of additional shares of preferred stock. If and when 
the merger becomes effective, the Company's preferred stockholders 
will exchange their shares for preferred stock shares of CEI having 
substantially the same terms. Debt holders of the merging companies 
will become debt holders of CEI.

          For the merging companies, the combined pro forma operating 
revenues were $2.621 billion, $2.527 billion and $2.554 billion and 
the combined pro forma net income was $272 million, $220 million 
(excluding the extraordinary item discussed in Note 1 and a similar 
item for CEI) and $218 million for the years 1998, 1997 and 1996, 
respectively. The pro forma data is based on accounting for the 
merger of the Company and CEI on a method similar to a pooling of 
interests and for 1997 and 1996 includes pro forma adjustments to 
reflect the effect of the OE -Centerior merger. The pro forma data is 
not necessarily indicative of the results of operations which would 
have been reported had the merger been in effect during those years 
or which may be reported in the future. The pro forma data should be 
read in conjunction with the audited financial statements of both the 
Company and CEI. 


Report of Independent Public Accountants

To the Stockholders and Board of Directors of The Toledo Edison 
Company:

We have audited the accompanying consolidated balance sheets and 
consolidated statements of capitalization of The Toledo Edison Company 
(an Ohio corporation and wholly owned subsidiary of FirstEnergy Corp.) 
and subsidiary as of December 31, 1998 and 1997, and the related 
consolidated statements of income, common stockholder's equity, 
preferred stock, cash flows and taxes for the year ended December 31, 
1996, the period from January 1, 1997 to November 7, 1997 (pre-
merger), the period from November 8, 1997 to December 31, 1997 (post-
merger), and the year ended December 31, 1998. These financial 
statements are the responsibility of the Company's management. Our 
responsibility is to express an opinion on these financial statements 
based on our audits.

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

In our opinion, the financial statements referred to above present 
fairly, in all material respects, the financial position of The Toledo 
Edison Company and subsidiary as of December 31, 1998 and 1997, and 
the results of their operations and their cash flows for the year 
ended December 31, 1996, the period from January 1, 1997 to 
November 7, 1997 (pre-merger), the period from November 8, 1997 to 
December 31, 1997 (post-merger), and the year ended December 31, 1998, 
in conformity with generally accepted accounting principles.







                                   ARTHUR ANDERSEN LLP


Cleveland, Ohio
February 12, 1999