<TABLE>
<PAGE>
                                            THE CLEVELAND ELECTRIC ILLUMINATING 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>
GENERAL FINANCIAL INFORMATION:                                       |
                                                                     |
Operating Revenues                         $1,782,376     $  253,963 |  $1,529,014    $1,789,961    $1,768,737    $1,698,021
                                           ==========     ========== |  ==========    ==========    ==========    ==========
Operating Income                           $  368,902     $   49,502 |  $  307,332    $  358,620    $  397,899    $  396,009
                                           ==========     ========== |  ==========    ==========    ==========    ==========
Income Before Extraordinary Item           $  164,891     $   19,290 |  $   95,191    $  116,553    $  183,719    $  185,431
                                           ==========     ========== |  ==========    ==========    ==========    ==========
Net Income (Loss)                          $  164,891     $   19,290 |  $ (229,247)   $  116,553    $  183,719    $  185,431
                                           ==========     ========== |  ==========    ==========    ==========    ==========
Earnings (Loss) on Common Stock            $  140,097     $   19,290 |  $ (274,276)   $   77,810    $  141,275    $  139,994
                                           ==========     ========== |  ==========    ==========    ==========    ==========
Net Utility Plant                          $3,074,043     $3,156,659 |                $4,983,219    $5,090,315    $5,191,628
                                           ==========     ========== |                ==========    ==========    ==========
Total Assets                               $6,318,183     $6,440,284 |                $6,962,297    $7,222,416    $7,204,045
                                           ==========     ========== |                ==========    ==========    ==========
                                                                     |
CAPITALIZATION:                                                      |
Common Stockholder's Equity                $1,008,238     $  950,904 |                $1,044,283    $1,126,762    $1,058,190
Preferred Stock-                                                     |
  Not Subject to Mandatory Redemption         238,325        238,325 |                   238,325       240,871       240,871
  Subject to Mandatory Redemption             149,710        183,174 |                   186,118       215,420       245,971
Long-Term Debt                              2,888,202      3,189,590 |                 2,523,030     2,759,492     2,683,207
                                           ----------     ---------- |                ----------    ----------    ----------
Total Capitalization                       $4,284,475     $4,561,993 |                $3,991,756    $4,342,545    $4,228,239
                                           ==========     ========== |                ==========    ==========    ==========
CAPITALIZATION RATIOS:                                               |
Common Stockholder's Equity                      23.5%          20.9%|                      26.2%         25.9%         25.0%
Preferred Stock-                                                     |
  Not Subject to Mandatory Redemption             5.6            5.2 |                       6.0           5.6           5.7
  Subject to Mandatory Redemption                 3.5            4.0 |                       4.6           5.0           5.8
Long-Term Debt                                   67.4           69.9 |                      63.2          63.5          63.5
                                                -----          ----- |                     -----         -----         -----
Total Capitalization                            100.0%         100.0%|                     100.0%        100.0%        100.0%
                                                =====          ===== |                     =====         =====         =====
KILOWATT-HOUR SALES (Millions):                                      |
Residential                                     4,949            790 |       4,062         4,958         5,063         4,924
Commercial                                      6,353            893 |       4,990         5,908         5,946         5,770
Industrial                                      8,024          1,285 |       6,710         7,977         7,994         7,970
Other                                             165             89 |         476           522           550           575
                                           ----------     ---------- |  ----------    ----------    ----------    ----------
Total Retail                                   19,491          3,057 |      16,238        19,365        19,553        19,239
Total Wholesale                                 1,275            575 |       2,408         2,155         1,694         1,073
                                           ----------     ---------- |  ----------    ----------    ----------    ----------
Total                                          20,766          3,632 |      18,646        21,520        21,247        20,312
                                           ==========     ========== |  ==========    ==========    ==========    ==========
CUSTOMERS SERVED (Year-End):                                         |
Residential                                   668,470        671,265 |                   663,130       669,725       668,346
Commercial                                     68,896         74,751 |                    70,886        72,259        71,609
Industrial                                      5,336          6,515 |                     6,545         6,649         6,993
Other                                             221            278 |                       446           442           417
                                           ----------     ---------- |                ----------    ----------    ----------
Total                                         742,923        752,809 |                   741,007       749,075       747,365
                                           ==========     ========== |                ==========    ==========    ==========
                                                                     |
Average Annual Residential kWh Usage            7,395          7,235 |                     7,451         7,570         7,370
Peak Load-Megawatts                             4,248          3,955 |                     3,938         4,049         3,740
Number of Employees (Year-End)                  1,798          3,162 |                     3,282         3,636         3,547


</TABLE>
<PAGE>

              THE CLEVELAND ELECTRIC ILLUMINATING COMPANY

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


          This discussion includes forward-looking statements based on 
information currently available to management 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 to 1998 and 1996.

          Earnings on common stock were $140.1 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 $50.2 million. For the seven-week 
post-merger period, earnings on common stock were $19.3 million. Earnings 
on common stock were $77.8 million in 1996.

          Operating revenues decreased slightly in 1998 following a 
decline the previous year. The following table summarizes the sources of 
decreases in operating revenues for 1998 and 1997 as compared to the prior 
year:

<TABLE>
<CAPTION>

                                                1998        1997
                                                ----        ----
                                                 (In millions)
<S>                                            <C>        <C>
Change in retail kilowatt-hour sales           $ 12.7     $ (9.8)
Change in average retail price                    5.9       (4.8)
Wholesale sales                                 (15.7)      18.6
Other                                            (3.5)     (11.0)
-----------------------------------------------------------------
Net Decrease                                   $ (0.6)    $ (7.0)
=================================================================

</TABLE>

          Total kilowatt-hour sales were down in 1998 from the prior year 
after establishing a new record for kilowatt-hours sold in 1997. The 
decline was due to a 57.5% 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 in 
1998, compared to 1997, with an increase of 0.5%. Kilowatt-hour sales to 
residential and commercial customers increased 1.5% and 0.3%, 
respectively, while industrial sales remained nearly unchanged from the 
previous year. In 1997, retail sales decreased 0.4% with a small increase 
in sales to industrial customers more than offset by a 2.2% decrease in 
residential kilowatt-hour sales and a 0.4% reduction in commercial 
kilowatt-hour sales from the previous year. However, overall there was a 
3.5% increase in kilowatt-hour sales due to an increase in sales to 
wholesale customers.

          Operation and maintenance expenses were nearly unchanged in 
1998, compared to the prior year, due to increased fuel and purchased 
power costs substantially offset by a decrease in nuclear operating costs 
and other operating costs. Most of the increase in fuel and purchased 
power occurred in the second quarter and resulted from a combination of 
factors. In late June 1998, the midwestern and southern regions of the 
United States experienced electricity shortages caused mainly by record 
temperatures and humidity and unscheduled generating unit outages. 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 
reduced costs at the Perry Plant partially offset by increased costs at 
the Beaver Valley and Davis-Besse plants. Lower nuclear operating costs 
in 1997 resulted from lower costs at the Perry and Davis-Besse plants 
offset in part by increased costs at the Beaver Valley Plant. Other 
operating costs in 1998 were lower partially due to the absence of a 1997 
pre-merger charge for estimated severance costs totaling $9.9 million. In 
comparing other operating costs in 1997 and 1996, the effect of the 1997 
charge was more than offset by an $11.9 million charge in 1996 for 
disposal of obsolete materials and supplies. Both 1998 and 1997 benefited 
from ongoing cost cutting and the effect of work force reductions.

          Lower depreciable asset balances, resulting from the purchase 
accounting adjustment, reduced depreciation and amortization 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 and amortization 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, increased other income in 1998 and the 1997 post-merger period. In 
the pre-merger period of 1997, interest income on the trust notes was 
more than offset by merger-related expenses and costs associated with the 
accounts receivable securitization. Total interest charges decreased in 
1998 principally due to the amortization of 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 $9 
million and in 1997 were increased by $9 million due to the declaration of 
preferred dividends as of the merger date for dividends attributable to 
the post-merger period (see "Preferred and Preference Stock" in 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. A total of $230 million of long-term debt 
refinancing was completed during 1998. We completed $150 million of 
optional redemptions. During 1998, we reduced our total debt by 
approximately $210 million. Our common stockholder's equity percentage of 
capitalization increased to 24% at December 31, 1998 from 21% 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+            Ba3           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 $18 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 8.82% in 1993 to 8.15% in 1997 
and 7.99% 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 $885.6 million for the 1999-2003 period 
to meet scheduled maturities of long-term debt and preferred stock. Of 
that amount, approximately $178.0 million applies to 1999.

          We had about $73.0 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 Toledo Edison 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 $701 million (excluding nuclear fuel), of which approximately 
$150 million applies to 1999. Investments in additional nuclear fuel 
during the 1999-2003 period are estimated to be approximately $130 
million, of which about $14 million applies to 1999. During the same 
periods, our nuclear fuel investments are expected to be reduced by 
approximately $150 million and $32 million, respectively, as the 
nuclear fuel is consumed. Also, we have operating lease commitments 
net of trust cash receipts of approximately $39 million for the 1999-
2003 period, of which approximately $6 million relates to 1999. We 
recover the cost of nuclear fuel consumed and operating leases through 
our electric rates.

          FirstEnergy signed an agreement in principle with Duquesne 
Light Company (Duquesne) that would result in the transfer of 1,436 
megawatts owned by Duquesne at five generating plants in exchange for 
1,328 megawatts at three plants owned by its electric utility 
operating companies (see "Common Ownership of Generating Facilities" 
in Note 1), including the Company's 743-megawatt Avon Lake Plant. A 
final agreement on the exchange of assets, which will be structured as 
a tax-free transaction to the extent possible is being negotiated. The 
transaction benefits FirstEnergy's utility operating companies by 
providing exclusive ownership and operating control of all generating 
assets that are now jointly owned and operated under the Central Area 
Power Coordination Group agreement.

Interest Rate Risk

          Our exposure to fluctuations in market interest rates is 
mitigated since a significant portion of our debt has fixed interest 
rates, as noted in the table below. We are subject to the inherent 
interest rate risks related to refinancing maturing debt by issuing 
new debt securities. 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                       $ 25   $ 24     $15    $ 38    $ 48    $  416   $  566   $  583
  Average interest rate             7.7%   7.6%    7.8%    7.7%    7.6%      7.4%     7.5%
----------------------------------------------------------------------------------------------------
Liabilities
----------------------------------------------------------------------------------------------------
Long-term Debt:
Fixed rate                         $145   $175     $57    $228    $115    $2,003   $2,723   $2,960
  Average interest rate             8.6%   7.2%    8.6%    7.7%    7.4%      7.7%     7.7%
Variable rate                                                             $  160   $  160   $  160
  Average interest rate                                                      3.4%     3.4%  
Short-term Borrowings              $ 81                                            $   81   $   81
  Average interest rate             5.5%                                              5.5%
----------------------------------------------------------------------------------------------------
Preferred Stock                    $ 33   $ 33     $81    $ 19    $  1    $    5   $  172   $  184
  Average dividend rate             9.0%   9.0%    8.9%    8.9%    7.4%      7.4%     8.9%
----------------------------------------------------------------------------------------------------

</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 $217 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 $280 million are anticipated over the term of the plan for our 
customers. We have committed $70 million for economic development and 
energy efficiency programs.

          We have been authorized by the PUCO, for regulatory 
accounting purposes, to recognize additional depreciation related to 
our generating assets and additional amortization of regulatory assets 
during the regulatory plan period of at least $1.4 billion 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 $499 million were written off ($324 
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 
$1.7 billion 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 diversified nuclear and 
hydroelectric generation capacity.

          We have been named as a "potentially responsible party" 
(PRP) for three sites listed on the Superfund National Priorities List 
and are aware of our potential involvement in the cleanup of several 
other sites. 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 PRPs 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 $212 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 $4.7 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 $32 million total project cost, approximately 
$26 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 $6 million will 
be expensed as incurred. As of December 31, 1998, we have spent $19 
million for Year 2000 capital projects and had expensed approximately 
$3 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.

<PAGE>
<TABLE>
                                THE CLEVELAND ELECTRIC ILLUMINATING 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                             $1,782,376      $253,963   |   $1,529,014     $1,789,961
                                               ----------      --------   |   ----------     ----------
OPERATING EXPENSES AND TAXES:                                             |
  Fuel and purchased power                        435,752        53,239   |      368,243        418,145
  Nuclear operating costs                          97,914        16,791   |       85,207         89,514
  Other operating costs                           335,621        57,852   |      286,384        381,976
                                               ----------      --------   |   ----------     ----------
    Total operation and maintenance expenses      869,287       127,882   |      739,834        889,635
  Provision for depreciation and amortization     224,430        31,978   |      211,827        244,615
  General taxes                                   221,077        33,912   |      194,400        229,856
  Income taxes                                     98,680        10,689   |       75,621         67,235
                                               ----------      --------   |   ----------     ----------
    Total operating expenses and taxes          1,413,474       204,461   |    1,221,682      1,431,341
                                               ----------      --------   |   ----------     ----------
OPERATING INCOME                                  368,902        49,502   |      307,332        358,620
                                                                          |
OTHER INCOME (EXPENSE)                             25,393         4,572   |       (2,476)        (2,089)
                                               ----------      --------   |   ----------     ----------
INCOME BEFORE NET INTEREST CHARGES                394,295        54,074   |      304,856        356,531
NET INTEREST CHARGES:                          ----------      --------   |   ----------     ----------
  Interest on long-term debt                      234,795        35,300   |      197,323        229,491
  Allowance for borrowed funds used during                                |
    construction                                   (2,079)         (631)  |       (1,928)        (2,110)
  Other interest expense                           (3,312)          115   |       14,270         12,597
                                               ----------      --------   |   ----------     ----------
    Net interest charges                          229,404        34,784   |      209,665        239,978
                                               ----------      --------   |   ----------     ----------
INCOME BEFORE EXTRAORDINARY ITEM                  164,891        19,290   |       95,191        116,553

EXTRAORDINARY ITEM (NET OF INCOME
  TAXES) (Note 1)                                      --            --   |     (324,438)            --
                                               ----------      --------   |   ----------     ----------
NET INCOME (LOSS)                                 164,891        19,290   |     (229,247)       116,553
                                                                          |
PREFERRED STOCK DIVIDEND                                                  |
  REQUIREMENTS                                     24,794            --   |       45,029         38,743
                                               ----------      --------   |   ----------     ----------
EARNINGS (LOSS) ON COMMON STOCK                  $140,097      $ 19,290   |   $ (274,276)    $   77,810
                                               ==========      ========   |   ==========     ==========


<FN>

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

</TABLE>
<PAGE>

<TABLE>
                          THE CLEVELAND ELECTRIC ILLUMINATING COMPANY

                                 CONSOLIDATED BALANCE SHEETS
<CAPTION>
At December 31,                                                   1998             1997  
------------------------------------------------------------------------------------------
                                                                     (In thousands)
                        ASSETS
<S>                                                            <C>              <C>
UTILITY PLANT:
  In service                                                   $4,648,725       $4,578,649
  Less--Accumulated provision for depreciation                  1,631,974        1,470,084
                                                               ----------       ----------
                                                                3,016,751        3,108,565
                                                               ----------       ----------
  Construction work in progress--
    Electric plant                                                 42,428           41,261
    Nuclear fuel                                                   14,864            6,833
                                                               ----------       ----------
                                                                   57,292           48,094
                                                               ----------       ----------
                                                                3,074,043        3,156,659
                                                               ----------       ----------
OTHER PROPERTY AND INVESTMENTS:
  Shippingport Capital Trust (Note 2)                             543,161          575,084
  Nuclear plant decommissioning trusts                            125,050          105,334
  Other                                                            21,059           21,482
                                                               ----------       ----------
                                                                  689,270          701,900
                                                               ----------       ----------
CURRENT ASSETS:
  Cash and cash equivalents                                        19,526           33,775
  Receivables--
    Customers                                                      16,588           29,759
    Associated companies                                           15,636            8,695
    Other                                                         142,834           98,077
  Notes receivable from associated companies                       53,509               --
  Materials and supplies, at average cost--
    Owned                                                          38,213           47,489
    Under consignment                                              43,620           25,411
  Prepayments and other                                            58,342           57,763
                                                               ----------       ----------
                                                                  388,268          300,969
                                                               ----------       ----------
DEFERRED CHARGES:
  Regulatory assets                                               555,925          579,711
  Goodwill                                                      1,471,563        1,552,483
  Property taxes                                                  126,464          125,204
  Other                                                            12,650           23,358
                                                               ----------       ----------
                                                                2,166,602        2,280,756
                                                               ----------       ----------
                                                               $6,318,183       $6,440,284
                                                               ==========       ==========
             CAPITALIZATION AND LIABILITIES

CAPITALIZATION (See Consolidated Statements
 of Capitalization):
  Common stockholder's equity                                  $1,008,238       $  950,904
  Preferred stock--
    Not subject to mandatory redemption                           238,325          238,325
    Subject to mandatory redemption                               149,710          183,174
  Long-term debt                                                2,888,202        3,189,590
                                                               ----------       ----------
                                                                4,284,475        4,561,993
                                                               ----------       ----------
CURRENT LIABILITIES:
  Currently payable long-term debt and preferred stock            208,050          121,965
  Accounts payable--
    Associated companies                                           47,680           56,109
    Other                                                          92,976           90,737
  Notes payable to associated companies                            80,618           56,802
  Accrued taxes                                                   192,359          194,394
  Accrued interest                                                 66,685           67,896
  Other                                                            37,278           52,297
                                                               ----------       ----------
                                                                  725,646          640,200
                                                               ----------       ----------
DEFERRED CREDITS:
  Accumulated deferred income taxes                               524,285          496,437
  Accumulated deferred investment tax credits                      90,946           96,131
  Pensions and other postretirement benefits                      217,719          198,642
  Other                                                           475,112          446,881
                                                               ----------       ----------
                                                                1,308,062        1,238,091
                                                               ----------       ----------
COMMITMENTS, GUARANTEES AND CONTINGENCIES
  (Notes 2 and 5)                                             ----------       ----------
                                                               $6,318,183       $6,440,284
                                                               ==========       ==========

<FN>

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

</TABLE>
<PAGE>

<TABLE>
                                            THE CLEVELAND ELECTRIC ILLUMINATING 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, without par value, authorized 105,000,000 shares--
    79,590,689 shares outstanding                                                                         $  931,962  $  931,614
  Retained earnings (Note 3A)                                                                                 76,276      19,290
                                                                                                          ----------  ----------
    Total common stockholder's equity                                                                      1,008,238     950,904
                                                                                                          ----------  ----------

                                                    Number of Shares          Optional
                                                      Outstanding           Redemption Price    
                                                   ------------------     ---------------------
                                                    1998       1997       Per Share    Aggregate
                                                    ----       ----       ---------    ---------
<S>                                             <C>        <C>           <C>           <C>
PREFERRED STOCK (Note 3C):
Cumulative, without par value-
Authorized 4,000,000 shares
  Not Subject to Mandatory Redemption:
    $ 7.40  Series A                              500,000    500,000     $  101.00     $ 50,500               50,000      50,000
    $ 7.56  Series B                              450,000    450,000        102.26       46,017               45,071      45,071
    Adjustable Series L                           474,000    474,000        100.00       47,400               46,404      46,404
    $42.40  Series T                              200,000    200,000        500.00      100,000               96,850      96,850
                                                ---------  ---------                   --------           ----------  ----------
      Total not subject to mandatory
       redemption                               1,624,000  1,624,000                   $243,917              238,325     238,325
                                                =========  =========                   ========           ----------  ----------

  Subject to Mandatory Redemption (Note 3D):
    $7.35  Series C.                              100,000    110,000        101.00     $ 10,100               10,110      11,110
    $88.00  Series E                                6,000      9,000      1,003.83        6,023                6,000       9,000
    $91.50  Series Q                               32,144     42,858      1,000.00       32,144               32,144      42,858
    $88.00  Series R                               50,000     50,000            --           --               55,000      55,000
    $90.00  Series S                               74,000     74,000            --           --               79,920      79,920
    Redemption within one year                                                                               (33,464)    (14,714)
                                                ---------  ---------                   --------           ----------  ----------
      Total subject to mandatory redemption       262,144    285,858                   $ 48,267              149,710     183,174
                                                =========  =========                   ========           ----------  ----------
LONG-TERM DEBT (Note 3E):
  First mortgage bonds:
    7.625% due 2002                                                                                          195,000     195,000
    7.375% due 2003                                                                                          100,000     100,000
    8.750% due 2005                                                                                               --      75,000
    9.500% due 2005                                                                                          300,000     300,000
    6.860% due 2008                                                                                          125,000          --
    8.375% due 2011                                                                                               --     125,000
    8.375% due 2012                                                                                               --      75,000
    9.000% due 2023                                                                                          150,000     150,000
                                                                                                          ----------  ----------
      Total first mortgage bonds                                                                             870,000   1,020,000
                                                                                                          ----------  ----------
  Unsecured notes:
    6.700% due 2006                                                                                               --      19,500
    5.700% due 2008                                                                                               --       7,300
    6.700% due 2011                                                                                               --       5,500
    5.875% due 2012                                                                                               --      14,300
                                                                                                          ----------  ----------
      Total unsecured notes                                                                                       --      46,600
                                                                                                          ----------  ----------

                                         THE CLEVELAND ELECTRIC ILLUMINATING COMPANY

                                       CONSOLIDATED STATEMENTS OF CAPITALIZATION (Cont.)

<CAPTION>
At December 31,                                                                                              1998         1997 
--------------------------------------------------------------------------------------------------------------------------------- 
                                                                                                               (In thousands)   
<S>                                                                                                       <C>         <C>
LONG-TERM DEBT: (Cont.)
  Secured notes:
    8.150% due 1998                                                                                               --       7,500
    8.160% due 1998                                                                                               --       5,000
    8.170% due 1998                                                                                               --      11,000
    8.260% due 1998                                                                                               --       2,500
    8.330% due 1998                                                                                               --      25,000
    8.870% due 1998                                                                                               --      10,000
    9.000% due 1998                                                                                               --       5,000
    7.000% due 1999-2009                                                                                       1,880       1,910
    7.250% due 1999                                                                                           12,000      12,000
    7.670% due 1999                                                                                            3,000       3,000
    7.770% due 1999                                                                                           17,000      17,000
    7.850% due 1999                                                                                           25,000      25,000
    8.290% due 1999                                                                                           10,000      10,000
    9.250% due 1999                                                                                           52,500      52,500
    9.300% due 1999                                                                                           25,000      25,000
    7.190% due 2000                                                                                          175,000     175,000
    7.420% due 2001                                                                                           10,000      10,000
    8.540% due 2001                                                                                            3,000       3,000
    8.550% due 2001                                                                                            5,000       5,000
    8.560% due 2001                                                                                            3,500       3,500
    8.680% due 2001                                                                                           15,000      15,000
    9.050% due 2001                                                                                            5,000       5,000
    9.200% due 2001                                                                                           15,000      15,000
    7.850% due 2002                                                                                            5,000       5,000
    8.130% due 2002                                                                                           28,000      28,000
    7.750% due 2003                                                                                           15,000      15,000
    7.670% due 2004                                                                                          280,000     280,000
    7.130% due 2007                                                                                          120,000     120,000
    7.430% due 2009                                                                                          150,000     150,000
    6.000% due 2011*                                                                                              --       5,650
    6.000% due 2011*                                                                                              --       1,700
    8.000% due 2013                                                                                           78,700      78,700
    3.278% due 2015*                                                                                          39,835      39,835
    6.000% due 2017*                                                                                              --       1,285
    7.880% due 2017                                                                                          300,000     300,000
    3.060% due 2018*                                                                                          72,795      72,795
    4.100% due 2020*                                                                                          47,500      47,500
    6.000% due 2020*                                                                                              --      40,900
    6.000% due 2020*                                                                                              --       9,100
    6.000% due 2020                                                                                           62,560      62,560
    6.100% due 2020                                                                                           70,500      70,500
    9.520% due 2021                                                                                            7,500       7,500
    6.850% due 2023                                                                                           30,000      30,000
    8.000% due 2023                                                                                           73,800      73,800
    7.625% due 2025                                                                                           53,900      53,900
    7.700% due 2025                                                                                           43,800      43,800
    7.750% due 2025                                                                                           45,150      45,150
    5.375% due 2028                                                                                            5,993          --
    4.400% due 2030                                                                                           23,255          --
    4.600% due 2030                                                                                           81,640          --
                                                                                                          ----------  ----------
      Total secured notes                                                                                  2,012,808   2,026,585
                                                                                                          ----------  ----------

  Capital lease obligations (Note 2)                                                                          94,568      98,504
                                                                                                          ----------  ----------
  Net unamortized premium on debt                                                                             85,412     105,152
                                                                                                          ----------  ----------
  Long-term debt due within one year                                                                        (174,586)   (107,251)
                                                                                                          ----------  ----------
      Total long-term debt                                                                                 2,888,202   3,189,590
                                                                                                          ----------  ----------
TOTAL CAPITALIZATION                                                                                      $4,284,475  $4,561,993
                                                                                                          ==========  ==========

<FN>

  *  Denotes variable rate issue with December 31, 1998 interest rate
     shown for December 31, 1998 balances and December 31, 1997 interest 
     rate for issues with only December 31, 1997 balances.

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

</TABLE>
<PAGE>

<TABLE>
                                              THE CLEVELAND ELECTRIC ILLUMINATING COMPANY

                                           CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDER'S EQUITY
<CAPTION>
                                              Comprehensive                             Other       Retained
                                               Income (Loss)     Number    Carrying    Paid-In      Earnings
                                                 (Note 3B)     of Shares     Value      Capital     (Deficit)
                                              --------------   ---------   --------    --------     ---------
                                                               (Dollars in thousands)
<S>                                             <C>           <C>         <C>          <C>          <C>  
Balance, January 1, 1996                                      79,590,689  $1,241,284   $ 78,624     $(193,146)
  Net income                                    $ 116,553                                             116,553
                                                =========
  Reclassification of $90.00 Series S 
   preferred stock redemption gain                                              (111)       111
  Unrealized loss on securities                                                              (6)
  Gain on redemption of Adjustable Series L
    preferred stock                                                                         725
  Carrying value adjustments for preferred
    stock redemptions                                                            114
  Cash dividends on preferred stock                                                                   (38,734)
  Cash dividends on common stock                                                                     (160,816)
  Other, primarily preferred stock
    redemption expenses                                                                                  (315)
---------------------------------------------------------------------------------------------------------------
Balance, December 31, 1996                                    79,590,689   1,241,287     79,454      (276,458)
  Net (loss)                                    $(229,247)                                           (229,247)
                                                =========
  Equity contributions from parent                                                        4,500
  Carrying value adjustments for preferred
    stock redemptions                                                             25
  Cash dividends on preferred stock                                                                   (35,848)
  Cash dividends on common stock                                                                     (123,602)
  Other, primarily preferred stock
    redemption expenses                                                                                  (232)
--------------------------------------------------------------------------------------------------------------
  Purchase accounting fair value adjustment                                 (309,698)   (83,954)      665,387
  Net income                                    $  19,290                                              19,290
                                                =========
--------------------------------------------------------------------------------------------------------------
Balance, December 31, 1997                                    79,590,689     931,614         --        19,290
  Purchase accounting fair value adjustment                                      348
  Net income                                    $ 164,891                                             164,891
                                                =========
  Cash dividends on preferred stock                                                                   (21,947)
  Cash dividends on common stock                                                                      (85,958)
--------------------------------------------------------------------------------------------------------------
Balance, December 31, 1998                                    79,590,689  $  931,962   $     --     $  76,276
==============================================================================================================
</TABLE>


<TABLE>
                                      CONSOLIDATED STATEMENTS OF PREFERRED STOCK
<CAPTION>

                                                  Not Subject to              Subject to
                                               Mandatory Redemption      Mandatory Redemption
                                               --------------------      --------------------
                                                Number    Carrying         Number   Carrying
                                               of Shares    Value        of Shares    Value  
                                               ---------  ---------      ---------  ---------
                                                              (Dollars in thousands)
<S>                                            <C>        <C>            <C>         <C>
Balance, January 1, 1996                       1,650,000  $240,871        633,286    $245,134
  Redemptions-
    Adjustable Series L                          (26,000)   (2,546)
    $ 7.35 Series C                                                       (10,000)     (1,000)
    $88.00 Series E                                                        (3,000)     (3,000)
    $9.125 Series N                                                      (150,000)    (14,794)
    $91.50 Series Q                                                       (10,714)    (10,714)
---------------------------------------------------------------------------------------------
Balance, December 31, 1996                     1,624,000   238,325        459,572     215,626
  Redemptions-
    $ 7.35 Series C                                                       (10,000)     (1,000)
    $88.00 Series E                                                        (3,000)     (3,000)
    $9.125 Series N                                                      (150,000)    (14,794)
    $91.50 Series Q                                                       (10,714)    (10,714)
---------------------------------------------------------------------------------------------
Purchase accounting fair value
  adjustment-
    $ 7.35 Series C                                                                       110
    $88.00 Series R                                                                     5,000
    $90.00 Series S                                                                     6,660
---------------------------------------------------------------------------------------------
Balance, December 31, 1997                     1,624,000   238,325        285,858     197,888
  Redemptions-
    $ 7.35 Series C                                                       (10,000)     (1,000)
    $88.00 Series E                                                        (3,000)     (3,000)
    $91.50 Series Q                                                       (10,714)    (10,714)
---------------------------------------------------------------------------------------------
Balance, December 31, 1998                     1,624,000  $238,325        262,144    $183,174
=============================================================================================


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

</TABLE>
<PAGE>

<TABLE>
                           THE CLEVELAND ELECTRIC ILLUMINATING 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)                          $164,891       $ 19,290   |  $ (229,247)     $ 116,553
Adjustments to reconcile net income                                  |
 to net cash from operating activities:                              |
    Provision for depreciation and                                   |
     amortization                           224,430         31,978   |     211,827        244,615
    Nuclear fuel and lease amortization      35,361          7,393   |      42,577         45,987
    Other amortization                      (12,677)            --   |          --             --
    Deferred income taxes, net               22,949          7,723   |    (126,693)        24,973
    Investment tax credits, net              (5,185)          (822)  |      (6,670)        (7,992)
    Allowance for equity funds used                                  |
     during construction                         --           (140)  |      (1,647)        (2,014)
    Extraordinary item                           --             --   |     499,135             --
    Receivables                             (38,527)        51,213   |      (3,974)           586
    Net proceeds from accounts                                       |
     receivable securitization                   --             --   |          --         64,891
    Materials and supplies                   (8,933)        (3,922)  |       6,363         25,589
    Accounts payable                         20,180           (777)  |      (7,938)        (6,344)
    Other                                   (53,433)        18,839   |      (2,566)        10,992
                                           --------       --------   |  ----------      ---------
      Net cash provided from operating                               |
       activities                           349,056        130,775   |     381,167        517,836
                                           --------       --------   |  ----------      ---------
CASH FLOWS FROM FINANCING ACTIVITIES:                                |
New Financing--                                                      |
  Long-term debt                            232,919             --   |   1,176,781           (307)
  Ohio Schools Council prepayment program   116,598             --   |          --             --
  Short-term borrowings, net                 23,816            703   |          --        106,618
Redemptions and Repayments--                                         |
  Preferred stock                            14,714             --   |      29,714         31,528
  Long-term debt                            488,610         43,500   |     701,843        310,177
  Short-term borrowings, net                     --             --   |      55,519             --
Dividend Payments--                                                  |
  Common stock                               85,958         34,785   |      88,816        160,816
  Preferred stock                            34,841          7,191   |      29,311         39,325
                                           --------       --------   |  ----------      ---------
      Net cash provided from                                         |
      (used for) financing activities      (250,790)       (84,773)  |     271,578       (435,535)
                                           --------       --------   |  ----------      ---------
CASH FLOWS FROM INVESTING ACTIVITIES:                                |
Property additions                           72,130         17,943   |     104,230        105,588
Loans to associated companies                53,509             --   |          --             --
Capital trust investments                   (31,923)        16,248   |     558,836             --
Other                                        18,799         (4,288)  |       2,276         16,210
                                           --------       --------   |  ----------      ---------
      Net cash used for investing                                    |
       activities                           112,515         29,903   |     665,342        121,798
                                           --------       --------   |  ----------      ---------
Net increase (decrease) in cash and                                  |
 cash equivalents                           (14,249)        16,099   |     (12,597)       (39,497)
Cash and cash equivalents at beginning                               |
 of period                                   33,775         17,676   |      30,273         69,770
                                           --------       --------   |  ----------      ---------
Cash and cash equivalents at end                                     |
 of period                                 $ 19,526       $ 33,775   |  $   17,676      $  30,273
                                           ========       ========   |  ==========      =========
SUPPLEMENTAL CASH FLOWS INFORMATION:                                 |
Cash Paid During the Period--                                        |
  Interest (net of amounts capitalized)    $239,000       $ 36,000   |  $  188,000      $ 237,000
                                           ========       ========   |  ==========      =========
  Income taxes                             $100,107       $  9,000   |  $   26,300      $  29,732
                                           ========       ========   |  ==========      =========


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

</TABLE>
<PAGE>

<TABLE>
                             THE CLEVELAND ELECTRIC ILLUMINATING 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                    $ 130,642      $  17,707   |    $ 114,393       $  132,582
State gross receipts                             78,344         13,302   |       65,966           78,109
Social security and unemployment                  9,029          1,548   |        6,296            9,127
Other                                             3,062          1,355   |        7,745           10,038
                                              ---------      ---------   |    ---------       ----------
    Total general taxes                       $ 221,077      $  33,912   |    $ 194,400       $  229,856
                                              =========      =========   |    =========       ==========
PROVISION FOR INCOME TAXES:                                              |
Currently payable-                                                       |
  Federal                                     $  90,690      $   6,969   |    $  37,605       $   44,147
  State *                                         2,158            159   |           --               --
                                              ---------      ---------   |    ---------       ----------
                                                 92,848          7,128   |       37,605           44,147
                                              ---------      ---------   |    ---------       ----------
Deferred, net-                                                           |
  Federal                                        22,743          7,617   |     (126,693)          24,973
  State *                                           206            106   |         --               --
                                              ---------      ---------   |    ---------       ----------
                                                 22,949          7,723   |     (126,693)          24,973
                                              ---------      ---------   |    ---------       ----------
Investment tax credit amortization               (5,185)          (822)  |       (6,670)          (7,992)
                                              ---------      ---------   |    ---------       ----------
    Total provision for income taxes          $ 110,612      $  14,029   |    $ (95,758)      $   61,128
                                              =========      =========   |    =========       ==========
INCOME STATEMENT CLASSIFICATION                                          |
OF PROVISION FOR INCOME TAXES:                                           |
Operating income                              $  98,680      $  10,689   |    $  75,621       $   67,235
Other income                                     11,932          3,340   |        3,318           (6,107)
Extraordinary item                                   --             --   |     (174,697)              --
                                              ---------      ---------   |    ---------       ----------
    Total provision for income taxes          $ 110,612      $  14,029   |    $ (95,758)      $   61,128
                                              =========      =========   |    =========       ========== 
RECONCILIATION OF FEDERAL INCOME TAX                                     |
EXPENSE AT STATUTORY RATE TO TOTAL                                       |
PROVISION FOR INCOME TAXES:                                              |
Book income before provision for income                                  |
 taxes                                        $ 275,503      $  33,319   |    $(325,005)      $  177,681
                                              =========      =========   |    =========       ==========
Federal income tax expense at statutory                                  |
 rate                                         $  96,426      $  11,662   |    $(113,752)      $   62,188
Increases (reductions) in taxes resulting                                |
 from-                                                                   |
  Amortization of investment tax credits         (5,186)          (822)  |       (6,670)          (7,992)
  Depreciation                                       --             --   |       14,780            7,853
  Amortization of tax regulatory assets           7,038          1,170   |           --               --
  Amortization of goodwill                       13,447          2,015   |           --               --
  Other, net                                     (1,113)             4   |        9,884             (921)
                                              ---------      ---------   |    ---------       ----------
    Total provision for income taxes          $ 110,612      $  14,029   |    $ (95,758)      $   61,128
                                              =========      =========   |    =========       ==========
ACCUMULATED DEFERRED INCOME TAXES AT                                     |
DECEMBER 31 :                                                            |
Property basis differences                    $ 672,283      $ 676,853   |                    $1,482,000
Deferred nuclear expense                        132,818        133,281   |                       134,000
Deferred sale and leaseback costs              (113,884)      (118,611)  |                      (121,000)
Unamortized investment tax credits              (40,241)       (42,743)  |                       (95,000)
Unused alternative minimum tax credits         (124,459)      (133,442)  |                      (173,733)
Other                                            (2,232)       (18,901)  |                        79,334
                                              ---------      ---------   |                    ----------
    Net deferred income tax liability         $ 524,285      $ 496,437   |                    $1,305,601
                                              =========      =========   |                    ==========

<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 Cleveland 
Electric Illuminating Company (Company) and its wholly owned subsidiary, 
Centerior Funding Corporation (Centerior Funding). The subsidiary was 
formed in 1995 to serve as the transferor in connection with an accounts 
receivable securitization completed in 1996. 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 The Toledo Edison Company 
(TE) 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 northeastern 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 TE began to sell on a daily basis 
substantially all of their retail customer accounts receivable to 
Centerior Funding 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 become 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 $217 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 
$280 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 
$1.71 billion in connection with the FirstEnergy merger (see Note 7); 
that fair value adjustment recognized for financial reporting purposes 
will ultimately satisfy the $1.4 billion asset reduction commitment 
contained in the regulatory plan. For regulatory purposes, the Company 
will recognize the $1.4 billion 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 $1,064 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 
2.8% for 1998 and the post-merger 1997 period, respectively. In its 
April 1996 rate order, the PUCO approved depreciation rates for the 
Company of 2.88% for nuclear property and 3.23% for nonnuclear property.

          Annual depreciation expense includes approximately 
$11.7 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 $432 million in current dollars and (using a 4.0% 
escalation rate) approximately $1.1 billion 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 $110 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 $125.0 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 
$10.1 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, TE, Duquesne Light Company (Duquesne), 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 1, 2, and 3      $   63.8       $ 23.1          $ 1.8      19.92%
Beaver Valley Unit 2        341.5         16.5            1.0      24.47%
Davis-Besse                 201.9           --            4.1      51.38%
Perry                       546.6         24.9            7.6      31.11%
Eastlake Unit 5             160.5        116.8            0.7      68.80%
Seneca                       64.3         25.4            0.1      80.00%
-------------------------------------------------------------------------
  Total                  $1,378.6       $206.7          $15.3
=========================================================================

</TABLE>

          The Bruce Mansfield Plant is being leased through a sale and 
leaseback transaction (see Note 2) and the above-related amounts 
represent construction expenditures subsequent to the transaction.

          The Seneca Unit is currently jointly owned by the Company 
and a non-CAPCO company. FirstEnergy has agreed to purchase the 
remaining 20% share in 1999.

          On October 15, 1998, FirstEnergy announced that it signed an 
agreement in principle with Duquesne that would result in the transfer 
of 1,436 megawatts owned by Duquesne at eight CAPCO generating units 
in exchange for 1,328 megawatts at three non-CAPCO power plants owned 
by the Company, OE and Penn. As part of this exchange, the Company 
will transfer the 743-megawatt Avon Lake Plant to Duquesne. A 
definitive agreement on the exchange of assets, which will be 
structured as a tax-free transaction to the extent possible, will 
provide FirstEnergy's utility operating companies with exclusive 
ownership and operating control of all CAPCO generating units. 
Duquesne will fund decommissioning costs equal to its percentage 
interest in the three nuclear generating units to be transferred. The 
asset transfer is expected to take twelve to eighteen months to close.

NUCLEAR FUEL-

          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 $124 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, TE 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 $47.7 
million and $49.2 million, respectively; and the Company's share of 
the accrued postretirement liability of $170.0 million and $149.5 
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                           $  (2.7) $16.5 |  $ (2.5) $ (5.0)  $14.5   $2.6 |$11.4   $18.4
-----------------------------------------------------------------------------------------------

</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 TE 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 TE.

          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 $80.6 million, 
$34.1 million, $130.8 million and $148.6 million in 1998, the 
November 8-December 31, 1997 period, the January 1-November 7, 1997 
period and 1996, respectively, for such services.

          Fuel and purchased power expenses on the Consolidated 
Statements of Income include the cost of power purchased from TE of 
$104.7 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.

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 $32 million, $3 million, $13 million and 
$37 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                       $2,883  $3,120  $3,093  $3,238
Preferred stock                      $  183  $  184  $  198  $  198
Investments other than cash
 and cash equivalents:
  Debt securities
  - (Maturing in more than 10 years) $  543  $  533  $  547  $  553
  All other                             135     136     105     104
-------------------------------------------------------------------
                                     $  678  $  669  $  652  $  657
====================================================================

</TABLE>


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

          The fair value of investments other than cash and cash 
equivalents represent cost (which approximates fair value) or the 
present value of the cash inflows based on the yield to maturity. The 
yields assumed were based on financial instruments with similar 
characteristics and terms. Investments other than cash and cash 
equivalents 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 debt 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 $499.1 million 
($324.4 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 will continue 
to be recovered through rates set for the nonnuclear portion of the 
Company's 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                           $ 298.0    $ 309.0
Customer receivables for future income taxes       13.0       18.6
Rate stabilization program deferrals              276.0      288.1
Sale and leaseback costs                         (140.9)    (150.0)
Loss on reacquired debt                            81.6       80.9
Other                                              28.2       33.1
------------------------------------------------------------------
     Total                                      $ 555.9    $ 579.7
==================================================================

</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 TE sold their ownership interests in Bruce 
Mansfield Units 1, 2 and 3 and TE 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 TE entered into 
operating leases for lease terms of approximately 30 years as co-
lessees. During the terms of the leases, the Company and TE 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 TE have the right, at the end of the respective basic 
lease terms, to renew the leases. The Company and TE 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 TE, the Company is also obligated for TE's 
lease payments. If TE is unable to make its payments under the Beaver 
Valley Unit 2 and Bruce Mansfield Plant leases, the Company would be 
obligated to make such payments. No such payments have been made on 
behalf of TE. (TE's future minimum lease payments as of December 31, 
1998 were approximately $1.9 billion.)

          The Company is buying 150 megawatts of TE's Beaver Valley 
Unit 2 leased capacity entitlement. Purchased power expense for this 
transaction was $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 
purchase 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 TE 
through leases with a special-purpose corporation. As of December 31, 
1998, $156 million of nuclear fuel ($88 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   $ 32.4        $10.6      |     $ 56.0     $ 58.1
  Other                74.4          8.4      |       18.3        4.8
Capital leases                                |
  Interest element      7.0          1.5      |        8.5       10.1
  Other                36.1          7.5      |       43.4       51.7
----------------------------------------------|----------------------
  Total rentals      $149.9        $28.0      |     $126.2     $124.7
======================================================================

</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                          $35.9    $   69.3    $ 62.9   $  6.4
2000                           25.5        66.6      60.5      6.1
2001                           16.0        71.7      50.2     21.5
2002                            8.2        76.4      70.6      5.8
2003                            3.4        77.5      77.9     (0.4)
Years thereafter               10.8       776.2     564.3    211.9
-------------------------------------------------------------------
Total minimum lease payments   99.8    $1,137.7    $886.4   $251.3
                                       ========    ======   ======
Interest portion               16.1
-----------------------------------
Present value of net
  minimum lease payments       83.7
Less current portion           30.0
-----------------------------------
Noncurrent portion            $53.7
===================================

</TABLE>

          The Company and TE 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 ($575 million for the 
Company and $145 million for TE) 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 
($569.4 million for the Company and $337.1 million for TE) 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 reduces lease costs related to that 
transaction.

3.  CAPITALIZATION:

     (A)  RETAINED EARNINGS-

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

          The Company's $88.00 Series R preferred stock is not 
redeemable before December 2001 and its $90.00 Series S has no 
optional redemption provision. All other preferred stock may be 
redeemed by the Company in whole, or in part, with 30-90 days' notice.

          The preferred dividend rate on the Company's Series L 
fluctuates based on prevailing interest rates and market conditions. 
The dividend rate for this issue was 7% in 1998.

          Preference stock authorized for the Company is 3,000,000 
shares without par value. No preference shares are currently 
outstanding.
          A liability of $14 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 provisions for preferred stock are as 
follows:

<TABLE>
<CAPTION>

                         Redemption
                         Price Per
Series        Shares        Share         Date      Beginning
-------------------------------------------------------------
<S>          <C>          <C>           <C>            <C>
$ 7.35 C     10,000       $  100                         (i)
 88.00 E      3,000        1,000                         (i)
 91.50 Q     10,714        1,000                         (i)
 90.00 S     18,750        1,000        November 1     1999
 88.00 R     50,000        1,000        December 1     2001
-------------------------------------------------------------

<FN>

(i) Sinking fund provisions are in effect.

</TABLE>


          Annual sinking fund requirements for the next five years are 
$33.5 million in each year 1999 and 2000, $80.5 million in 2001, 
$18.0 million in 2002 and $1.0 million in 2003.

     (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.

          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                 $144.5
2000                  175.0
2001                   56.5
2002                  228.0
2003                  115.0
---------------------------

</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 $48.1 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 1.1% 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 TE 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 TE in the 
proportion of 40% and 60%, 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 TE. FirstEnergy plans to transfer any of its borrowed funds to the 
Company and TE. The credit agreement is secured with first mortgage 
bonds of the Company and TE in the proportion of 40% and 60%, 
respectively. The credit agreement also provides the participating 
banks with a subordinate mortgage security interest in the properties 
of the Company and TE. 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. At December 31, 
1998, the Company had total short-term borrowings of $80.6 million 
from its affiliates with a weighted average interest rate of 
approximately 5.5%.

5.  COMMITMENTS, GUARANTEES AND CONTINGENCIES:

CAPITAL EXPENDITURES-

          The Company's current forecast reflects expenditures of 
approximately $701 million for property additions and improvements 
from 1999-2003, of which approximately $150 million is applicable to 
1999. Investments for additional nuclear fuel during the 1999-2003 
period are estimated to be approximately $130 million, of which 
approximately $14 million applies to 1999. During the same periods, 
the Company's nuclear fuel investments are expected to be reduced by 
approximately $150 million and $32 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 shares of any assessments under the 
retrospective rating plan) would be $94.2 million per incident but not 
more than $10.7 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 $558 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 $14.1 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 $9.4 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 $52.5 million, $51.2 million and $47.0 million during 
1998, 1997 and 1996, respectively. The Company's minimum payment for 
1999 is approximately $14 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 $145 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 $4.7 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                            $415.0    $465.2       $512.6        $389.5
Operating Expenses and Taxes                   324.3     377.8        389.4         321.9
-----------------------------------------------------------------------------------------------
Operating Income                                90.7      87.4        123.2          67.6
Other Income                                     7.6       5.9          8.1           3.7
Net Interest Charges                            58.7      58.5         56.3          55.9
-----------------------------------------------------------------------------------------------
Net Income                                    $ 39.6    $ 34.8       $ 75.0        $ 15.4
===============================================================================================
Earnings on Common Stock                      $ 38.6    $ 27.4       $ 66.5        $  7.6
===============================================================================================

</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                   $431.6    $428.2    $499.5        $ 169.7    |    $254.0
Operating Expenses and Taxes          351.6     350.8     368.0          151.3    |     204.5
----------------------------------------------------------------------------------|------------
Operating Income                       80.0      77.4     131.5           18.4    |      49.5
Other Income (Expense)                 (3.7)     (5.2)      7.5           (1.2)   |       4.6
Net Interest Charges                   56.1      58.2      71.3           24.0    |      34.8
----------------------------------------------------------------------------------|------------
Income (Loss) Before Extraordinary                                                |
 Item                                  20.2      14.0      67.7           (6.8)   |      19.3
Extraordinary Item (Net of                                                        |
 Income Taxes) (Note 1)                  --        --        --         (324.4)   |        --
----------------------------------------------------------------------------------|------------
Net Income (Loss)                    $ 20.2    $ 14.0    $ 67.7        $(331.2)   |    $ 19.3
==================================================================================|============
Earnings (Loss) on Common Stock      $ 10.9    $  4.9    $ 58.9        $(348.9)   |    $ 19.3
===============================================================================================

</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 
$44 million as of December 31, 1998. The merger purchase accounting 
adjustments included recognizing estimated severance and other 
compensation liabilities ($56 million). The amount charged against 
the liability in 1998 relating to the costs of involuntary employee 
separation was $30 million. The liability was subsequently reduced to 
approximately $9 million as of December 31, 1998 to represent 
potential costs associated with the separation of 493 Company 
employees. 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                       $1,783       $1,790
Operating Expenses and Taxes              1,418        1,424
                                         ------       ------
Operating Income                            365          366
Other Income                                 15            2
Net Interest Charges                        232          227
                                         ------       ------
Net Income                               $  148       $  141
=============================================================

</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 TE INTO THE COMPANY:

          In March 1994, Centerior announced a plan to merge TE into 
the Company. 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, TE's preferred stockholders approved the 
merger and the Company's preferred stockholders approved the 
authorization of additional shares of preferred stock. If and when 
the merger becomes effective, TE's preferred stockholders will 
exchange their shares for preferred stock shares of the Company 
having substantially the same terms. Debt holders of the merging 
companies will become debt holders of the Company.

          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 TE) 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 TE 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 TE.

Report of Independent Public Accountants

To the Stockholders and Board of Directors of The Cleveland Electric 
Illuminating Company:

We have audited the accompanying consolidated balance sheets and 
consolidated statements of capitalization of The Cleveland Electric 
Illuminating 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 
Cleveland Electric Illuminating 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