----

**PENNSYLVANIA      ELECTRIC COMPANY**

**2006      ANNUAL      REPORT TO STOCKHOLDERS**

| **Contents**                                                                          | **Page** |
|---------------------------------------------------------------------------------------|----------|
|                                                                                  |     |
| Glossary                of                Terms                                       | i-ii     |
| Report                of                Independent Registered Public Accounting Firm | 1        |
| Selected                Financial Data                                                | 2        |
| Management's                Discussion and Analysis                                   | 3-14     |
| Consolidated                Statements of Income                                      | 15       |
| Consolidated                Balance Sheets                                            | 16       |
| Consolidated                Statements of Capitalization                              | 17       |
| Consolidated                Statements of Common Stockholder's Equity                 | 18       |
| Consolidated                Statements of Cash Flows                                  | 19       |
| Consolidated                Statements of Taxes                                       | 20       |
| Notes                to                Consolidated Financial Statements              | 21-37    |

----

**GLOSSARY      OF      TERMS**

| ATSI                                                                                                                                                            | American                Transmission Systems, Inc., owns and operates transmission                facilities                                                                           |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| CEI                                                                                                                                                             | The                Cleveland                Electric Illuminating Company, an affiliated Ohio electric                utility                                                          |
| Companies                                                                                                                                                       | OE,                CEI, TE,                Penn, JCP&L, Met-Ed and Penelec                                                                                                         |
| FES                                                                                                                                                             | FirstEnergy                Solutions Corp., provides energy-related products and                services                                                                               |
| FESC                                                                                                                                                            | FirstEnergy                Service Company, provides legal, financial, and other corporate support                services                                                             |
| FirstEnergy                                                                                                                                                     | FirstEnergy                Corp., a public utility holding company                                                                                                                     |
| GPU                                                                                                                                                             | GPU,                Inc.,                former parent of JCP&L, Met-Ed and Penelec, which merged with                FirstEnergy onNovember 7,                2001           |
| JCP&L                                                                                                                                                       | Jersey                Central                Power & Light Company, an affiliated New Jersey electric                utility                                                       |
| Met-Ed                                                                                                                                                          | Metropolitan                Edison Company, an affiliated Pennsylvania electric                utility                                                                                 |
| NGC                                                                                                                                                             | FirstEnergy                Nuclear Generation Corp., owns nuclear generating                facilities                                                                                 |
| OE                                                                                                                                                              | Ohio                Edison                Company, an affiliated Ohio electric utility                                                                                                 |
| Penelec                                                                                                                                                         | Pennsylvania                Electric Company                                                                                                                                           |
| Penn                                                                                                                                                            | Pennsylvania                Power Company, an affiliated Pennsylvania electric                utility                                                                                  |
| TE                                                                                                                                                              | The                Toledo                Edison Company, an affiliated Ohio electric utility                                                                                           |
|                                                                                                                                                            |                                                                                                                                                                                   |   |
| The                following                abbreviations and acronyms are used to identify frequently used terms                in                this report: |
|                                                                                                                                                            |                                                                                                                                                                                   |   |
| ALJ                                                                                                                                                             | Administrative                Law Judge                                                                                                                                                |
| AOCL                                                                                                                                                            | Accumulated                Other Comprehensive Loss                                                                                                                                    |
| ARO                                                                                                                                                             | Asset                Retirement Obligation                                                                                                                                             |
| CBP                                                                                                                                                             | Competitive                Bid Process                                                                                                                                                 |
| CTC                                                                                                                                                             | Competitive                Transition Charge                                                                                                                                           |
| ECAR                                                                                                                                                            | East                Central                Area Reliability Coordination Agreement                                                                                                     |
| EPACT                                                                                                                                                           | Energy                Policy                Act of 2005                                                                                                                                |
| FASB                                                                                                                                                            | Financial                Accounting Standards Board                                                                                                                                    |
| FERC                                                                                                                                                            | Federal                Energy                Regulatory Commission                                                                                                                     |
| FIN                                                                                                                                                             | FASB                Interpretation                                                                                                                                                     |
| FIN                46R                                                                                                                                          | FIN                46                (revised December 2003), "Consolidation of Variable Interest                Entities"                                                             |
| FIN                47                                                                                                                                           | FIN                47,                "Accounting for Conditional Asset Retirement Obligations - an                interpretation of FASB Statement No. 143"                           |
| FIN                48                                                                                                                                           | FIN                48,                “Accounting for Uncertainty in Income Taxes-an interpretation of FASB                Statement No. 109”                              |
| Fitch                                                                                                                                                           | Fitch                Ratings,                Ltd.                                                                                                                                      |
| FMB                                                                                                                                                             | First                Mortgage                Bonds                                                                                                                                     |
| FSP                                                                                                                                                             | FASB                Staff                Position                                                                                                                                      |
| FSP                SFAS 115-1                and SFAS                124-1                                                                                      | FASB                Staff                Position No. 115-1 and SFAS 124-1, "The Meaning of Other-Than-Temporary                Impairment and its Application to Certain Investments" |
| FSP                FIN                46(R)-6                                                                                                                   | FASB                Staff                Position No. FIN 46(R)-6, “Determining the Variability to Be Considered in                Applying FASB interpretation No. 46(R)” |
| GAAP                                                                                                                                                            | Accounting                Principles Generally Accepted in the United States                                                                                                           |
| IRS                                                                                                                                                             | Internal                Revenue Service                                                                                                                                                |
| KWH                                                                                                                                                             | Kilowatt-hours                                                                                                                                                                         |
| MISO                                                                                                                                                            | Midwest                Independent Transmission System Operator, Inc.                                                                                                                  |
| Moody’s                                                                                                                                                   | Moody’s                Investors Service                                                                                                                                         |
| NERC                                                                                                                                                            | North                American                Electric Reliability Corporation                                                                                                          |
| NOPR                                                                                                                                                            | Notice                of                Proposed Rulemaking                                                                                                                            |
| NUG                                                                                                                                                             | Non-Utility                Generation                                                                                                                                                  |
| OCI                                                                                                                                                             | Other                Comprehensive Income                                                                                                                                              |
| OPEB                                                                                                                                                            | Other                Post-Employment Benefits                                                                                                                                          |
| PJM                                                                                                                                                             | PJM                Interconnection LLC                                                                                                                                                 |
| PLR                                                                                                                                                             | Provider                of                Last Resort                                                                                                                                  |
| PPUC                                                                                                                                                            | Pennsylvania                Public Utility Commission                                                                                                                                  |
| PRP                                                                                                                                                             | Potentially                Responsible Party                                                                                                                                           |
| PUCO                                                                                                                                                            | Public                Utilities Commission of Ohio                                                                                                                                     |
| RFP                                                                                                                                                             | Request                for                Proposal                                                                                                                                     |
| RTOR                                                                                                                                                            | Regional                Through and Out Rates                                                                                                                                          |
| S&P                                                                                                                                                         | Standard&                Poor's Ratings Service                                                                                                                                    |
| SEC                                                                                                                                                             | United                States                Securities and Exchange Commission                                                                                                         |

----

| SFAC                    | Statement                of                Financial Accounting Concepts                                                                                                                                                                                 |
|-------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| SFAC                7   | SFAC                No. 7,                "Using Cash Flow Information and Present Value in Accounting                Measurements"                                                                                                                      |
| SFAS                    | Statement                of                Financial Accounting Standards                                                                                                                                                                                |
| SFAS                71  | SFAS                No. 71,                "Accounting for the Effects of Certain Types of                Regulation"                                                                                                                                    |
| SFAS                87  | SFAS                No. 87,                "Employers' Accounting for Pensions"                                                                                                                                                                          |
| SFAS                101 | SFAS                No. 101,                “Accounting for Discontinuation of Application of SFAS                71”                                                                                                                        |
| SFAS                106 | SFAS                No. 106,                "Employers' Accounting for Postretirement Benefits Other Than                Pensions"                                                                                                                       |
| SFAS                107 | SFAS                No. 107,                “Disclosures about Fair Value of Financial Instruments”                                                                                                                                          |
| SFAS                115 | SFAS                No. 115,                “Accounting for Certain Investments in Debt and Equity                Securities”                                                                                                                |
| SFAS                133 | SFAS                No. 133,                “Accounting for Derivative Instruments and Hedging                Activities”                                                                                                                    |
| SFAS                142 | SFAS                No. 142,                "Goodwill and Other Intangible Assets"                                                                                                                                                                       |
| SFAS                143 | SFAS                No. 143,                "Accounting for Asset Retirement Obligations"                                                                                                                                                                |
| SFAS                144 | SFAS                No. 144,                "Accounting for the Impairment or Disposal of Long-Lived                Assets"                                                                                                                              |
| SFAS                157 | SFAS                No. 157,                “Fair Value Measurements”                                                                                                                                                                        |
| SFAS                158 | SFAS                No. 158,                “Employers’ Accounting for Defined Benefit Pension and Other                PostretirementPlans-an                amendment of FASB Statements No. 87, 88, 106, and                132(R)” |
| SFAS                159 | SFAS                No. 159,                “The Fair Value Option for Financial Assets and Financial Liabilities                -                Including anamendment                of                FASB Statement No. 115”             |
| TMI-2                   | Three                Mile                Island Unit 2                                                                                                                                                                                                   |
| VIE                     | Variable                Interest Entity                                                                                                                                                                                                                  |

----

**Report      of      Independent Registered Public Accounting Firm**

----

**PENNSYLVANIA        ELECTRIC COMPANY**

**SELECTED        FINANCIAL DATA**

|                                                                             |   |                                                                             |      |     |   |      |   |     |      |     |   |
|----------------------------------------------------------------------------------|--------|----------------------------------------------------------------------------------|-----------|----------|--------|-----------|--------|----------|-----------|----------|--------|
| **For                  the Years Ended December 31,**                            |   | **2006**                                                                         |      | **2005** |   | **2004**  |   | **2003** |      | **2002** |   |
|                                                                             |   |    ***(Dollars                  in                  thousands)*** |      |
| **GENERAL                  FINANCIAL INFORMATION:**                              |   |                                                                             |      |     |   |      |   |     |      |     |   |
|                                                                             |   |                                                                             |      |     |   |      |   |     |      |     |   |
| Operating                  Revenues                                              |   | $                                                                                | 1,148,460 |     | $      | 1,122,025 |   | $        | 1,036,070 |     | $      | 974,857 |   | $ | 1,027,102 |   |
|                                                                             |   |                                                                             |      |     |   |      |   |     |      |     |   |   |   |   |   |   |
| Operating                  Income                                                |   | $                                                                                | 175,723   |     | $      | 78,144    |   | $        | 102,993   |     | $      | 60,245 |   | $ | 88,190 |   |
|                                                                             |   |                                                                             |      |     |   |      |   |     |      |     |   |   |   |   |   |   |
| Income                  Before                  Cumulative Effect of a           |   |                                                                             |      |     |   |      |   |     |      |     |   |   |   |   |   |   |
| Change                  in                  Accounting Principle                 |   | $                                                                                | 84,182    |     | $      | 27,553    |   | $        | 36,030    |     | $      | 20,237 |   | $ | 50,910 |   |
|                                                                             |   |                                                                             |      |     |   |      |   |     |      |     |   |   |   |   |   |   |
| Net                  Income                                                      |   | $                                                                                | 84,182    |     | $      | 26,755    |   | $        | 36,030    |     | $      | 21,333 |   | $ | 50,910 |   |
|                                                                             |   |                                                                             |      |     |   |      |   |     |      |     |   |   |   |   |   |   |
| Total                  Assets                                                    |   | $                                                                                | 2,704,792 |     | $      | 2,698,577 |   | $        | 2,813,752 |     | $      | 3,052,243 |   | $ | 3,163,254 |   |
|                                                                             |   |                                                                             |      |     |   |      |   |     |      |     |   |   |   |   |   |   |
|                                                                             |   |                                                                             |      |     |   |      |   |     |      |     |   |   |   |   |   |   |
| **CAPITALIZATION                  AS OF DECEMBER 31:**                           |   |                                                                             |      |     |   |      |   |     |      |     |   |   |   |   |   |   |
| Common                  Stockholder’s Equity                               |   | $                                                                                | 1,378,058 |     | $      | 1,333,877 |   | $        | 1,305,015 |     | $      | 1,297,332 |   | $ | 1,353,704 |   |
| Company-Obligated                  Trust                                         |   |                                                                             |      |     |   |      |   |     |      |     |   |   |   |   |   |   |
| Preferred                  Securities                                            |   |                                                                             | -         |     |   | -         |   |     | -         |     |   | - |   |   | 92,214 |   |
| Long-Term                  Debt                  and Other Long-Term Obligations |   |                                                                             | 477,304   |     |   | 476,504   |   |     | 481,871   |     |   | 438,764 |   |   | 470,274 |   |
| Total                  Capitalization                                            |   | $                                                                                | 1,855,362 |     | $      | 1,810,381 |   | $        | 1,786,886 |     | $      | 1,736,096 |   | $ | 1,916,192 |   |
|                                                                             |   |                                                                             |      |     |   |      |   |     |      |     |   |   |   |   |   |   |
|                                                                             |   |                                                                             |      |     |   |      |   |     |      |     |   |   |   |   |   |   |
| **CAPITALIZATION                  RATIOS:**                                      |   |                                                                             |      |     |   |      |   |     |      |     |   |   |   |   |   |   |
| Common                  Stockholder’s Equity                               |   |                                                                             | 74.3      | %        |   | 73.7      | %      |     | 73.0      | %        |   | 74.7 | % |   | 70.7 |   |
| Company-Obligated                  Trust                                         |   |                                                                             |      |     |   |      |   |     |      |     |   |   |   |   |   |   |
| Preferred                  Securities                                            |   |                                                                             | -         |     |   | -         |   |     | -         |     |   | - |   |   | 4.8 |   |
| Long-Term                  Debt                  and Other Long-Term Obligations |   |                                                                             | 25.7      |     |   | 26.3      |   |     | 27.0      |     |   | 25.3 |   |   | 24.5 |   |
| Total                  Capitalization                                            |   |                                                                             | 100.0     | %        |   | 100.0     | %      |     | 100.0     | %        |   | 100.0 | % |   | 100.0 |   |
|                                                                             |   |                                                                             |      |     |   |      |   |     |      |     |   |   |   |   |   |   |
| **DISTRIBUTION                  KWH DELIVERIES (Millions):**                     |   |                                                                             |      |     |   |      |   |     |      |     |   |   |   |   |   |   |
| Residential                                                                      |   |                                                                             | 4,381     |     |   | 4,457     |   |     | 4,249     |     |   | 4,166 |   |   | 4,196 |   |
| Commercial                                                                       |   |                                                                             | 4,961     |     |   | 5,010     |   |     | 4,792     |     |   | 4,748 |   |   | 4,753 |   |
| Industrial                                                                       |   |                                                                             | 4,677     |     |   | 4,729     |   |     | 4,589     |     |   | 4,443 |   |   | 4,336 |   |
| Other                                                                            |   |                                                                             | 41        |     |   | 40        |   |     | 39        |     |   | 41 |   |   | 42 |   |
| Total                                                                            |   |                                                                             | 14,060    |     |   | 14,236    |   |     | 13,669    |     |   | 13,398 |   |   | 13,327 |   |
|                                                                             |   |                                                                             |      |     |   |      |   |     |      |     |   |   |   |   |   |   |
| **CUSTOMERS                  SERVED:**                                           |   |                                                                             |      |     |   |      |   |     |      |     |   |   |   |   |   |   |
| Residential                                                                      |   |                                                                             | 505,524   |     |   | 506,113   |   |     | 505,999   |     |   | 503,738 |   |   | 503,007 |   |
| Commercial                                                                       |   |                                                                             | 80,161    |     |   | 78,847    |   |     | 78,519    |     |   | 77,737 |   |   | 77,125 |   |
| Industrial                                                                       |   |                                                                             | 2,409     |     |   | 2,458     |   |     | 2,492     |     |   | 2,545 |   |   | 2,605 |   |
| Other                                                                            |   |                                                                             | 1,065     |     |   | 1,053     |   |     | 1,056     |     |   | 1,069 |   |   | 1,081 |   |
| Total                                                                            |   |                                                                             | 589,159   |     |   | 588,471   |   |     | 588,066   |     |   | 585,089 |   |   | 583,818 |   |
|                                                                             |   |                                                                             |      |     |   |      |   |     |      |     |   |   |   |   |   |   |
|                                                                             |   |                                                                             |      |     |   |      |   |     |      |     |   |   |   |   |   |   |
| **NUMBER                  OF EMPLOYEES:**                                        |   |                                                                             | 888       |     |   | 867       |   |     | 843       |     |   | 887 |   |   | ***** |   |
|                                                                             |   |                                                                             |      |     |   |      |   |     |      |     |   |   |   |   |   |   |

----

**PENNSYLVANIA      ELECTRIC COMPANY**

**Management’s      Discussion and Analysis of**

**Results      of      Operations and Financial Condition**

***Forward-Looking      Statements:***
*      This discussion      includes forward-looking statements based on information currently available      to      management. Such statements are subject to certain risks and uncertainties.      These statements typically contain, but are not limited to, the terms“anticipate,” “potential,” “expect,” “believe,” “estimate” and similar words.      Actual results may differ materially due to the speed and nature of increased      competition and deregulation in the electric utility industry, economic or      weather conditions affecting future sales and margins, changes in markets for      energy services, changing energy and commodity market prices, replacement power      costs being higher than anticipated or inadequately hedged, the continued      ability to collect transition and other charges or to recover increased      transmission costs, maintenance costs being higher than anticipated, legislative      and regulatory changes (including revised environmental requirements), and      the      legal and regulatory changes resulting from the implementation of the Energy      Policy Act of 2005 (including, but not limited to, the repeal of the Public      Utility Holding Company Act of 1935), the uncertainty of the timing and amounts      of the capital expenditures, adverse regulatory or legal decisions and outcomes      (including, but not limited to, the revocation of necessary licenses or      operating permits, fines or other enforcement actions and remedies) of      governmental investigations and oversight, including by the Securities and      Exchange Commission, the Nuclear Regulatory Commission and the Pennsylvania      Public Utility Commission, including the transition rate plan filings for Met-Ed      and Penelec, the continuing availability and operation of generating units,      the      inability to accomplish or realize anticipated benefits from strategic goals      (including employee workforce initiatives), the anticipated benefits from      voluntary pension plan contributions, the ability to improve electric commodity      margins and to experience growth in the distribution business, the ability      to      access the public securities and other capital markets and the cost of such      capital, the outcome, cost and other effects of present and potential legal      and      administrative proceedings and claims related to the August 14, 2003      regional power outage, the risks and other factors discussed from time to time      in our Securities and Exchange Commission filings, and other similar factors.      Also, a credit rating should not be viewed as a recommendation to buy, sell      or      hold securities and may be revised or withdrawn by a rating agency at any time.      We expressly disclaim any current intention to update any forward-looking      statements contained herein as a result of new information, future events,      or      otherwise.*

**Reclassifications**

**Results      of Operations **

*evenues*

----

|                                                      |   |     |     |                   |   |
|-----------------------------------------------------------|--------|----------|----------|------------------------|--------|
| **Changes                in KWH Sales**                   |   | **2006** |     | **2005**               |   |
| **Increase                (Decrease)**                    |   |     |     |                   |   |
| Retail                Electric Generation:                |   |     |     |                   |   |
| Residential                                               |   |     | (1.6     | )                %     |   | 4.9 | % |
| Commercial                                                |   |     | (0.3     | )                %     |   | 5.0 | % |
| Industrial                                                |   |     | 9.7      | %                      |   | 8.5 | % |
| **Total                Retail Electric Generation Sales** |   |     | **2.2**  | **%**                  |   | **5.9** | **%** |
|                                                      |   |     |     |                   |   |
| Distribution                Deliveries:                   |   |     |     |                   |   |
| Residential                                               |   |     | (1.7     | )                %     |   | 4.9 | % |
| Commercial                                                |   |     | (1.0     | )                %     |   | 4.6 | % |
| Industrial                                                |   |     | (1.1     | )                %     |   | 3.1 | % |
| **Total                Distribution Deliveries**          |   |     | **(1.2** | **)                %** |   | **4.1** | **%** |
|                                                      |   |     |     |                   |   |   |   |

*Expenses*

| **E****xpenses                - Changes**                       |   | **2006**                           |    | **2005** |   |
|-----------------------------------------------------------------|--------|------------------------------------|---------|----------|--------|
| **Increase                (Decrease)**                          |   | ***(In                millions)*** |    |
| Purchased                power costs                            |   | $                                  | 6       |     | $      | 50 |   |
| Other                operating costs                            |   |                               | (54     | )        |   | 61 |   |
| Provision                for                depreciation        |   |                               | (1      | )        |   | 2 |   |
| Amortization                of regulatory assets                |   |                               | 2       |     |   | - |   |
| Deferral                of                new regulatory assets |   |                               | (27     | )        |   | (3 | ) |
| General                taxes                                    |   |                               | 3       |     |   | 1 |   |
| **Net                change in expenses**                       |   | **$**                              | **(71** | )        | **$**  | **111** |   |

*Other      Income      (Expense)*

----

*Cumulative      Effect of a Change in Accounting Principle*

**Capital      Resources and Liquidity**

*Changes      in Cash      Position*

*Cash      Flows From      Operating Activities*

| **Operating                Cash Flows**                                   |   | **2006**                           |    | **2005** |   | **2004** |   |
|---------------------------------------------------------------------------|--------|------------------------------------|---------|----------|--------|----------|--------|
|                                                                      |   | ***(In                millions)*** |    |
| Net                Income                                                 |   | $                                  | 84      |     | $      | 27       |   | $ | 36 |   |
| Net                non-cash                charges                        |   |                               | 23      |     |   | 50       |   |   | 76 |   |
| Pension                trust                contribution(1)               |   |                               | 4       |     |   | (14      | )      |   | (30 | ) |
| Working                capital and other                                  |   |                               | 85      |     |   | 80       |   |   | (36 | ) |
| Net                cash                provided from operating activities |   | **$**                              | **196** |     | **$**  | **143**  |   | **$** | **46** |   |

|  (1)  |  Pension              trust contributions in 2005 and 2004 are net of $6 million and              $20 million    |
|-----------------|---------------------------------------------------------------------------------------------------------------------------------|
|            |  of              income tax              benefits, respectively. The $4 million cash inflow in 2006 represents             |
|            |  reduced              income              taxes paid in 2006 relating to a January 2007 pension              contribution. |

*Cash      Flows From      Financing Activities*

----

| **Securities                Issued or Redeemed** |   | **2006**                           |   | **2005** |   | **2004** |   |
|--------------------------------------------------|--------|------------------------------------|--------|----------|--------|----------|--------|
|                                             |   | ***(In                millions)*** |   |
| New                Issues:                       |   |                               |   |     |   |     |   |   |   |   |
| Pollution                control notes           |   | $                                  | -      |     | $      | 45       |   | $ | 150 |   |
|                                             |   |                               |   |     |   |     |   |   |   |   |
| Redemptions:                                     |   |                               |   |     |   |     |   |   |   |   |
| FMB                                              |   |                               | -      |     |   | 49       |   |   | 229 |   |
| Unsecured                notes                   |   |                               | -      |     |   | 8        |   |   | - |   |
|                                             |   | $                                  | -      |     | $      | 57       |   | $ | 229 |   |
|                                             |   |                               |   |     |   |     |   |   |   |   |
| Short-term                Borrowings, net        |   | $                                  | (62    | )        | $      | 20       |   | $ | 163 |   |

| **Ratings                  of Securities** |   | **Securities**                    |   | **S&P** |   | **Moody’s** |   | **Fitch** |
|--------------------------------------------|--------|-----------------------------------|--------|-------------|--------|-------------------|--------|-----------|
|                                       |   |                              |   |        |   |              |   |      |
| **FirstEnergy**                            |   | Senior                  unsecured |   | BBB-        |   | Baa3              |   | BBB       |
|                                       |   |                              |   |        |   |              |   |      |
| **Penelec**                                |   | Senior                  unsecured |   | BBB         |   | Baa2              |   | BBB       |

----

*Cash      Flows From      Investing Activities*

**Contractual      Obligations**

|                                                     |   |                                     |   |     |   |                  **2008-** |   |                  **2010-** |   |           |   |
|----------------------------------------------------------|--------|------------------------------------------|--------|----------|--------|---------------------------------|--------|---------------------------------|--------|----------------|--------|
| **Contractual                Obligations**               |   | **Total**                                |   | **2007** |   | **2009**                        |   | **2011**                        |   | **Thereafter** |   |
|                                                     |   | ***(In                millions)***  |   |
| Long-term                debt                (1)         |   | $                                        | 479    |     | $      | -                               |   | $                               | 100    |           | $      | 59 |   | $ | 320 |   |
| Short-term                borrowings                     |   |                                     | 199    |     |   | 199                             |   |                            | -      |           |   | - |   |   | - |   |
| Interest                on                long-term debt |   |                                     | 220    |     |   | 28                              |   |                            | 52     |           |   | 39 |   |   | 101 |   |
| Operating                leases                          |   |                                     | 31     |     |   | 5                               |   |                            | 9      |           |   | 7 |   |   | 10 |   |
| Pension                funding (2)                       |   |                                     | 13     |     |   | 13                              |   |                            | -      |           |   | - |   |   | - |   |
| Purchases                (3)                             |   |                                     | 3,205  |     |   | 551                             |   |                            | 967    |           |   | 640 |   |   | 1,047 |   |
| Total                                                    |   | $                                        | 4,147  |     | $      | 796                             |   | $                               | 1,128  |           | $      | 745 |   | $ | 1,478 |   |

|  (1) | Amounts                  reflected                  do not include interest on long-term debt.                                                                      |
|-----------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  (2) | We                  estimate                  that no further pension contributions will be required during the                  2008-2011 period to maintain       |
|      |  our                  defined                  benefit pension plan's funding at a minimum required level as determined                  by government         |
|      |  regulations.                  We are unable to estimate projected contributions beyond 2011.                  See Note 3                  to the consolidated |
|           |  financial                  statements.                                                                                                                        |
|  (3) |  Power                  purchases under contracts with fixed or minimum quantities and                  approximate                  timing.                   |

**Market      Risk Information**

*Commodity      Price      Risk *

----

| **Increase                (Decrease) in the Fair Value of Derivative                Contracts** |   | **Non-Hedge**                      |   | **Hedge** |   | **Total** |   |
|-------------------------------------------------------------------------------------------------|--------|------------------------------------|--------|-----------|--------|-----------|--------|
|                                                                                            |   | ***(In                millions)*** |   |
| Change                in the                fair value of commodity derivative contracts        |   |                               |   |      |   |      |   |
| Outstanding                net assets as of January 1, 2006                                     |   | $                                  | 27     |      | $      | -         |   | $ | 27 |   |
| New                contract                value when entered                                   |   |                               | -      |      |   | -         |   |   | - |   |
| Additions/Changes                in value of existing contracts                                 |   |                               | 2      |      |   | -         |   |   | 2 |   |
| Change                in                techniques/assumptions                                  |   |                               | -      |      |   | -         |   |   | - |   |
| Settled                contracts                                                                |   |                               | (3     | )         |   | -         |   |   | (3 | ) |
| Other                                                                                           |   |                               | (14    | )         |   |      |   |   | (14 | ) |
|                                                                                            |   |                               |   |      |   | -         |   |   |   |   |
| **Net                Assets - Derivative Contracts as of December 31, 2006**(1)                 |   | **$**                              | 12     |      | **$**  | -         |   | **$** | 12 |   |
|                                                                                            |   |                               |   |      |   |      |   |   |   |   |
| **Impact                of Changes in Commodity Derivative Contracts**(2)                       |   |                               |   |      |   |      |   |   |   |   |
| Income                Statement Effects (Pre-Tax)                                               |   | $                                  | (4     | )         | $      | -         |   | $ | (4 | ) |
| Balance                Sheet                Effects:                                            |   |                               |   |      |   |      |   |   |   |   |
| OCI                (Pre-Tax)                                                                    |   | $                                  | -      |      | $      | -         |   | $ | - |   |
| Regulatory                Asset (net)                                                           |   | $                                  | 3      |      | $      | -         |   | $ | 3 |   |

|  (1) | Includes                  $12 million from an embedded option that is offset by a regulatory                  liability and does not affect earnings.                           |
|-----------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  (2) | Represents                  the                  increase in value of existing contracts, settled contracts and                  changes in                  techniques/assumptions. |

|                                                 |   |    |  **Non-Hedge**                                  |   |    |  **Hedge** |   |    | ** Total** |   |
|------------------------------------------------------|--------|---------|------------------------------------------------------|--------|---------|-----------------|--------|---------|-----------------|--------|
|                                                 |   |    |    ***(In                millions)*** |
|                                                 |   |    |                                                 |   |    |            |   |    |            |   |
|  **Non-current-**                               |   |    |                                                 |   |    |            |   |    |            |   |
| Other                Deferred                Charges |   | $       |  12                                             |        | $       |  -         |   |  $ |  12        |   |
| Other                noncurrent liabilities          |   |    |  -                                              |   |    |  -         |   |    | -               |   |
|                                                 |   |    |                                                 |   |    |            |   |    |            |   |
|  **Net                assets**                  |   |  $ |  12                                             |   |  $ |  -         |   |    |  12        |   |

| **Source                of Information**                        |   |                               |   |     |   |     |   |     |   |     |   |           |   |      |   |
|-----------------------------------------------------------------|--------|------------------------------------|--------|----------|--------|----------|--------|----------|--------|----------|--------|----------------|--------|-----------|--------|
| **-                Fair                Value by Contract Year** |   | **2007**                           |   | **2008** |   | **2009** |   | **2010** |   | **2011** |   | **Thereafter** |   | **Total** |   |
|                                                            |   | ***(In                millions)*** |   |
| Other                external                sources(1)         |   | $                                  | 3      |     | $      | 3        |   | $        | 2      |     | $      | 2              |   | $         | -      |   | $ | - |   | $ | 10 |   |
| Prices                based                on models            |   |                               | -      |     |   | -        |   |     | -      |     |   | -              |   |      | 2      |   |   | - |   |   | 2 |   |
| **Total****(2)**                                                |   | $                                  | 3      |     | $      | 3        |   | $        | 2      |     | $      | 2              |   | $         | 2      |   | $ | - |   | $ | 12 |   |
|                                                            |   |                               |   |     |   |     |   |     |   |     |   |           |   |      |   |

|  (1) | Broker              quote              sheets.                                                                                                                   |
|-----------|------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  (2) | Includes                $12                million from an embedded option that is offset by a regulatory liability                and does not affect earnings. |

*Interest      Rate      Risk*

----

**Comparison      of Carrying Value to Fair Value**

|                                                                                          |   |                                       |   |     |   |     |   |     |   |     |   | **There-** |   |      |   | **Fair**  |   |
|-----------------------------------------------------------------------------------------------|--------|--------------------------------------------|--------|----------|--------|----------|--------|----------|--------|----------|--------|------------|--------|-----------|--------|-----------|--------|
| **Year                of Maturity**                                                           |   | **2007**                                   |   | **2008** |   | **2009** |   | **2010** |   | **2011** |   | **after**  |   | **Total** |   | **Value** |   |
|                                                                                          |   | ***(Dollars                in millions)*** |   |
| Assets                                                                                        |   |                                       |   |     |   |     |   |     |   |     |   |       |   |      |   |      |   |
| Investments                Other Than Cashand                Cash                Equivalents- |   |                                       |   |
| Fixed                Income                                                                   |   |                                       |   |     |   |     |   |     |   |     |   |       |   |      |   |      | $      | 152 |   | **$** | 152 |   | **$** | 153 |   |
| Average                interest rate                                                          |   |                                       |   |     |   |     |   |     |   |     |   |       |   |      |   |      |   | 4.8 | % |   | 4.8 | % |   |   |   |
|                                                                                          |   |                                       |   |     |   |     |   |     |   |     |   |       |   |      |   |      |   |   |   |   |   |   |   |   |   |
|                                                                                          |   |                                       |   |     |   |     |   |     |   |     |   |       |   |      |   |      |   |   |   |   |   |   |   |   |   |
| Liabilities                                                                                   |   |                                       |   |     |   |     |   |     |   |     |   |       |   |      |   |      |   |   |   |   |   |   |   |   |   |
| Long-term                Debt:                                                                |   |                                       |
| Fixed                rate                                                                     |   |                                       |   |     |   |     |   | $        | 100    |     | $      | 59         |   |      |   |      | $      | 275 |   | **$** | 434 |   | **$** | 445 |   |
| Average                interest rate                                                          |   |                                       |   |     |   |     |   |     | 6.1    | %        |   | 6.8        | %      |      |   |      |   | 5.8 | % |   | 6.0 | % |   |   |   |
| Variable                rate                                                                  |   |                                       |   |     |   |     |   |     |   |     |   |       |   |      |   |      | $      | 45 |   | **$** | 45 |   | **$** | 45 |   |
| Average                interest rate                                                          |   |                                       |   |     |   |     |   |     |   |     |   |       |   |      |   |      |   | 3.9 | % |   | 3.9 | % |   |   |   |
| Short-term                Borrowings                                                          |   | $                                          | 199    |     |   |     |   |     |   |     |   |       |   |      |   |      |   |   |   | **$** | 199 |   | **$** | 199 |   |
| Average                interest rate                                                          |   |                                       | 5.6    | %        |   |     |   |     |   |     |   |       |   |      |   |      |   |   |   |   | 5.6 | % |   |   |   |

*Equity      Price      Risk*

**Outlook**

*Regulatory      Matters*

----

----

*Environmental      Matters*

*Legal      Matters*

**Critical      Accounting Policies**

*Goodwill      *

----

*Revenue      Recognition *

*Regulatory      Accounting *

*Pension      and      Other Postretirement Benefits Accounting *

----

| **Increase                in Costs from Adverse Changes in Key Assumptions** |   |
|------------------------------------------------------------------------------|--------|
|                                                                         |   |   |   |   |   |   |   |   |   |
| **Assumption**                                                               |   | **Adverse                Change** |   | **Pension** |   | **OPEB** |   | **Total** |   |
|                                                                         |   |   | ***(In                millions)*** |   |
| Discount                rate                                                 |   |   | Decrease                by                0.25% |   | $ | 1.2 |   | $ | 0.2 |   | $ | 1.4 |   |
| Long-term                return on assets                                    |   |   | Decrease                by                0.25% |   | $ | 1.3 |   | $ | 0.3 |   | $ | 1.6 |   |
| Health                care                trend rate                         |   |   | Increase                by                1% |   |   | na |   | $ | 0.6 |   | $ | 0.6 |   |

*Long-Lived      Assets *

*Asset      Retirement      Obligations *

**New      Accounting Standards and Interpretations Adopted **

|   | *SFAS                159 -                The Fair Value Option for Financial Assets and Financial Liabilities                -                Including an amendment of FASB Statement No.                115* |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

*Fair      Value      Measurements, *
*Disclosures      about Fair Value of Financial Instruments. *

*SFAS      157 - “Fair      Value Measurements”*

----

*FSP      FIN 46(R)-6      - “Determining the Variability to Be Considered in Applying FASB interpretation      No. 46(R)”*

| Step                1: | Analyze                the                nature of the risks in the entity                                                                                                                                                  |
|------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                   |                                                                                                                                                                                                                         |
| Step                2: | Determine                the                purpose(s) for which the entity was created and determine the variability                the entity is designed to create and pass along to its interest                holders. |

*FIN      48 -“Accounting for Uncertainty in Income Taxes - an interpretation of FASB      Statement No. 109”*

----

| **PENNSYLVANIA                  ELECTRIC COMPANY**                                                                                                             |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                                                                           |   |
| **CONSOLIDATED                  STATEMENTS OF INCOME**                                                                                                         |   |
|                                                                                                                                                           |   |
| **For                  the Years Ended December 31,**                                                                                                          |   | **2006** |   | **2005** |   | **2004** |   |
|                                                                                                                                                           |   | ***(In                  thousands)*** |   |
| **REVENUES:**                                                                                                                                                  |   |    |   |    |   |    |   |
| Electric                  sales                                                                                                                                |   | $         1,086,781 |   | $            1,063,841 |   | $            980,680 |   |
| Gross                  receipts                  tax collections                                                                                               |   |  61,679 |   | 58,184 |   |  55,390 |   |
|                                                                                                                                                                |   |   | 1,148,460 |   |   | 1,122,025 |   |   | 1,036,070 |   |
|                                                                                                                                                           |   |   |   |   |   |   |   |   |   |   |
| **EXPENSES:**                                                                                                                                                  |   |   |   |   |   |   |   |   |   |   |
|                      Purchased power (Note 2(I))                                                                                                |   |   | 626,367 |   |   | 620,509 |   |   | 570,349 |   |
|                      Other operating costs (Note 2(I))                                                                                          |   |   | 203,868 |   |   | 257,869 |   |   | 197,089 |   |
|                      Provision for depreciation                                                                                                 |   |   | 48,003 |   |   | 49,410 |   |   | 47,104 |   |
|                      Amortization of regulatory assets                                                                                          |   |   | 52,477 |   |   | 50,348 |   |   | 50,403 |   |
|                      Deferral of new regulatory assets                                                                                          |   |   | (30,590 | ) |   | (3,239 | ) |   | - |   |
|                      General taxes                                                                                                              |   |   | 72,612 |   |   | 68,984 |   |   | 68,132 |   |
|                          Total expenses                                                                                     |   |   | 972,737 |   |   | 1,043,881 |   |   | 933,077 |   |
|                                                                                                                                                           |   |   |   |   |   |   |   |   |   |   |
| **OPERATING                  INCOME**                                                                                                                          |   |   | 175,723 |   |   | 78,144 |   |   | 102,993 |   |
|                                                                                                                                                           |   |   |   |   |   |   |   |   |   |   |
| **OTHER                  INCOME (EXPENSE):**                                                                                                                   |   |   |   |   |   |   |   |   |   |   |
|                      Miscellaneous income                                                                                                       |   |   | 8,986 |   |   | 5,013 |   |   | 3,002 |   |
|                      Interest expense                                                                                                           |   |   | (45,278 | ) |   | (39,900 | ) |   | (40,212 | ) |
|                      Capitalized interest                                                                                                       |   |   | 1,290 |   |   | 908 |   |   | 248 |   |
|                          Total other expense                                                                                |   |   | (35,002 | ) |   | (33,979 | ) |   | (36,962 | ) |
|                                                                                                                                                           |   |   |   |   |   |   |   |   |   |   |
| **INCOME                  BEFORE INCOME TAXES**                                                                                                                |   |   | 140,721 |   |   | 44,165 |   |   | 66,031 |   |
|                                                                                                                                                           |   |   |   |   |   |   |   |   |   |   |
| **INCOME                  TAX EXPENSE**                                                                                                                        |   |   | 56,539 |   |   | 16,612 |   |   | 30,001 |   |
|                                                                                                                                                           |   |   |   |   |   |   |   |   |   |   |
| **INCOME                  BEFORE CUMULATIVE EFFECT**                                                                                                           |   |   |   |   |   |   |   |   |   |   |
| **                     OF A CHANGE IN ACCOUNTING PRINCIPLE**                                                                                    |   |   | 84,182 |   |   | 27,553 |   |   | 36,030 |   |
|                                                                                                                                                           |   |   |   |   |   |   |   |   |   |   |
| Cumulative                  effect of a change in accounting principle                                                                                         |   |   |   |   |   |   |   |   |   |   |
|                      (net of income tax benefit of $566,000) (Note 2 (G))                                                                       |   |   | - |   |   | (798 | ) |   | - |   |
|                                                                                                                                                           |   |   |   |   |   |   |   |   |   |   |
| **NET                  INCOME**                                                                                                                                |   | $ | 84,182 |   | $ | 26,755 |   | $ | 36,030 |   |
|                                                                                                                                                           |   |   |   |   |   |   |   |   |   |   |
|  The                  accompanying Notes to Consolidated Financial Statements are an                  integral                  part of these statements. |

----

|  **PENNSYLVANIA                          ELECTRIC COMPANY**                                                                                                                                                                                                                                 |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                             |
|  **CONSOLIDATED                          BALANCE SHEETS**                                                                                                                                                                                                                                   |
|                                                                                                                                                                                                                                                                                             |
| **As                          of                          December 31**                                                                                                                                                                                                                          |   | **2006** |   | **2005** |   |
|                                                                                                                                                                                                                                                                                             |   | ***(In                          thousands)*** |   |
| **ASSETS**                                                                                                                                                                                                                                                                                       |   |   |   |   |   |
| **CURRENT                          ASSETS:**                                                                                                                                                                                                                                                     |   |   |   |   |   |
|                              Cash and cash equivalents                                                                                                                                                                                                                            |   | $ | 44 |   | $ | 35 |   |
|                              Receivables-                                                                                                                                                                                                                                         |   |   |   |   |   |   |   |
|                                  Customers (less accumulated provisions of $3,814,000 and                          $4,184,000,                                    respectively, for uncollectible accounts) |   |   | 126,639 |   |   | 129,960 |   |
|        Associated                        companies                                                                                                                                                                                                            |   |   | 49,728 |   |   | 18,626 |   |
|          Other                                                                                                                                                                                                                                      |   |   | 16,367 |   |   | 12,800 |   |
|                              Notes receivable from associated companies                                                                                                                                                                                                           |   |   | 19,548 |   |   | 17,624 |   |
|                              Prepayments and other                                                                                                                                                                                                                                |   |   | 4,236 |   |   | 7,936 |   |
|                                                                                                                                                                                                                                                                                             |   |   | 216,562 |   |   | 186,981 |   |
| **UTILITY                          PLANT:**                                                                                                                                                                                                                                                      |   |   |   |   |   |   |   |
|                              In service                                                                                                                                                                                                                                           |   |   | 2,141,324 |   |   | 2,043,885 |   |
|                              Less - Accumulated provision for depreciation                                                                                                                                                                                                        |   |   | 809,028 |   |   | 784,494 |   |
|                                                                                                                                                                                                                                                                                             |   |   | 1,332,296 |   |   | 1,259,391 |   |
|                              Construction work in progress                                                                                                                                                                                                                        |   |   | 22,124 |   |   | 30,888 |   |
|                                                                                                                                                                                                                                                                                             |   |   | 1,354,420 |   |   | 1,290,279 |   |
| **OTHER                          PROPERTY AND INVESTMENTS:**                                                                                                                                                                                                                                     |   |   |   |   |   |   |   |
|                               Nuclear plant decommissioning trusts                                                                                                                                                                                                           |   |   | 125,216 |   |   | 113,368 |   |
|                               Non-utility generation trusts                                                                                                                                                                                                                  |   |   | 99,814 |   |   | 96,761 |   |
|                               Other                                                                                                                                                                                                                                          |   |   | 531 |   |   | 918 |   |
|                                                                                                                                                                                                                                                                                             |   |   | 225,561 |   |   | 211,047 |   |
| **DEFERRED                          CHARGES AND OTHER ASSETS:**                                                                                                                                                                                                                                  |   |   |   |   |   |   |   |
|                              Goodwill                                                                                                                                                                                                                                             |   |   | 860,716 |   |   | 882,344 |   |
|                              Prepaid pension costs                                                                                                                                                                                                                                |   |   | 11,474 |   |   | 89,637 |   |
|                              Other                                                                                                                                                                                                                                                |   |   | 36,059 |   |   | 38,289 |   |
|                                                                                                                                                                                                                                                                                             |   |   | 908,249 |   |   | 1,010,270 |   |
|                                                                                                                                                                                                                                                                                             |   | $ | 2,704,792 |   | $ | 2,698,577 |   |
|  **LIABILITIES                          AND CAPITALIZATION**                                                                                                                                                                                                                                |   |   |   |   |   |   |   |
| **CURRENT                          LIABILITIES:**                                                                                                                                                                                                                                                |   |   |   |   |   |   |   |
|                              Short-term borrowings-                                                                                                                                                                                                                               |   |   |   |   |   |   |   |
|                                  Associated companies                                                                                                                                                                                                         |   | $ | 199,231 |   | $ | 261,159 |   |
|                              Accounts payable-                                                                                                                                                                                                                                    |   |   |   |   |   |   |   |
|                                  Associated companies                                                                                                                                                                                                         |   |   | 92,020 |   |   | 33,770 |   |
|                                  Other                                                                                                                                                                                                                        |   |   | 47,629 |   |   | 38,277 |   |
|                              Accrued taxes                                                                                                                                                                                                                                        |   |   | 11,670 |   |   | 27,905 |   |
|                              Accrued interest                                                                                                                                                                                                                                     |   |   | 7,224 |   |   | 8,905 |   |
|                              Other                                                                                                                                                                                                                                                |   |   | 21,178 |   |   | 19,756 |   |
|                                                                                                                                                                                                                                                                                             |   |   | 378,952 |   |   | 389,772 |   |
| **CAPITALIZATION**(See                          Consolidated Statements of Capitalization):                                                                                                                                                                                                      |   |   |   |   |   |   |   |
|                              Common stockholder's equity                                                                                                                                                                                                                          |   |   | 1,378,058 |   |   | 1,333,877 |   |
|                              Long-term debt and other long-term obligations                                                                                                                                                                                                       |   |   | 477,304 |   |   | 476,504 |   |
|                                                                                                                                                                                                                                                                                             |   |   | 1,855,362 |   |   | 1,810,381 |   |
| **NONCURRENT                          LIABILITIES:**                                                                                                                                                                                                                                             |   |   |   |   |   |   |   |
|                              Regulatory liabilities                                                                                                                                                                                                                               |   |   | 96,151 |   |   | 162,937 |   |
|                              Accumulated deferred income taxes                                                                                                                                                                                                                    |   |   | 193,662 |   |   | 106,871 |   |
|                              Retirement benefits                                                                                                                                                                                                                                  |   |   | 50,394 |   |   | 102,046 |   |
|                              Asset retirement obligations                                                                                                                                                                                                                         |   |   | 76,924 |   |   | 72,295 |   |
|                              Other                                                                                                                                                                                                                                                |   |   | 53,347 |   |   | 54,275 |   |
|                                                                                                                                                                                                                                                                                             |   |   | 470,478 |   |   | 498,424 |   |
| **COMMITMENTS                          AND CONTINGENCIES (Notes 5 and 11)**                                                                                                                                                                                                                      |   |    |    |   |   |   |   |
|                                                                                                                                                                                                                                                                                             |   | $ | 2,704,792 |   | $ | 2,698,577 |   |
|                                                                                                                                                                                                                                                                                             |   |   |   |   |   |   |   |
|  The                          accompanying Notes to Consolidated Financial Statements                          are an integral                          part of these balance                          sheets.                                                                         |   |   |   |   |   |   |   |

----

|                                                                                                                                                                       |   |                                                      |      |     |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------------------|-----------|----------|--------|
| **PENNSYLVANIA                        ELECTRIC COMPANY**                                                                                                                   |   |
|                                                                                                                                                                       |   |
| **CONSOLIDATED                        STATEMENTS OF CAPITALIZATION**                                                                                                       |   |
|                                                                                                                                                                       |   |                                                      |      |     |   |
|  As                      of December 31,                                                                                                                              |   | **2006**                                                  |      | **2005** |   |
|                                                                                                                                                                            |   |  ***(Dollars                        in thousands)*** |
| **COMMON                        STOCKHOLDER'S EQUITY:**                                                                                                                    |   |                                                      |      |     |   |
|       Common                        stock, $20 par value, 5,400,000 shares authorized                                                        |   |                                                      |      |     |   |
|                                   5,290,596 shares outstanding                                                           |   | $                                                         | 105,812   |     | $      | 105,812 |   |
|                              Other paid-in capital                                                                                                |   |                                                      | 1,189,434 |     |   | 1,202,551 |   |
|                              Accumulated other comprehensive loss (Note 2 (F))                                                                    |   |                                                      | (7,193    | )        |   | (309 | ) |
|                              Retained earnings (Note 8(A))                                                                                        |   |                                                      | 90,005    |     |   | 25,823 |   |
|                                            Total                            |   |                                                      | 1,378,058 |     |   | 1,333,877 |   |
|                                                                                                                                                                       |   |                                                      |      |     |   |   |   |
|                                                                                                                                                                       |   |                                                      |      |     |   |   |   |
| **LONG-TERM                        DEBT (Note 8 (C)):**                                                                                                                    |   |                                                      |      |     |   |   |   |
|                              First mortgage bonds-                                                                                                |   |                                                      |      |     |   |   |   |
|                                    5.350% due 2010                                                                  |   |                                                      | 12,310    |     |   | 12,310 |   |
|                                    5.350% due 2010                                                                  |   |                                                      | 12,000    |     |   | 12,000 |   |
|                                            Total                            |   |                                                      | 24,310    |     |   | 24,310 |   |
|                                                                                                                                                                       |   |                                                      |      |     |   |   |   |
|                              Unsecured notes-                                                                                                     |   |                                                      |      |     |   |   |   |
|                                    6.125% due 2009                                                                  |   |                                                      | 100,000   |     |   | 100,000 |   |
|                                    7.770% due 2010                                                                  |   |                                                      | 35,000    |     |   | 35,000 |   |
|                                    5.125% due 2014                                                                  |   |                                                      | 150,000   |     |   | 150,000 |   |
|                                    6.625% due 2019                                                                  |   |                                                      | 125,000   |     |   | 125,000 |   |
|                                    *3.780% due 2020                                                                 |   |                                                      | 20,000    |     |   | 20,000 |   |
|                                    *3.950% due 2025                                                                 |   |                                                      | 25,000    |     |   | 25,000 |   |
|                                            Total                            |   |                                                      | 455,000   |     |   | 455,000 |   |
|                                                                                                                                                                       |   |                                                      |      |     |   |   |   |
|                                                                                                                                                                       |   |                                                      |      |     |   |   |   |
|                              Net unamortized discount on debt                                                                                     |   |                                                      | (2,006    | )        |   | (2,806 | ) |
|                                            9Total long-term debt            |   |                                                      | 477,304   |     |   | 476,504 |   |
| **TOTAL                        CAPITALIZATION**                                                                                                                            |   | $                                                         | 1,855,362 |     | $      | 1,810,381 |   |
|                                                                                                                                                                       |   |                                                      |      |     |   |   |   |
| *Denotes                        variable rate issue with applicable year-end interest rate                        shown.                                                   |   |                                                      |      |     |   |   |   |
|                                                                                                                                                                       |   |                                                      |      |     |   |   |   |
| The                        accompanying Notes to Consolidated Financial Statements are                        an integral                        part of these statements. |   |                                                      |      |     |   |   |   |

----

| **PENNSYLVANIA                    ELECTRIC COMPANY**                                                     |    |
|----------------------------------------------------------------------------------------------------------|---------|
|                                                                                                     |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **CONSOLIDATED                    STATEMENTS OF COMMON STOCKHOLDER'S EQUITY**                            |    |
|                                                                                                     |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                     |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                     |    |   |   |   |   |   |   |   |   |   |   | **Accumulated** |   |   |   |   |
|                                                                                                     |    |   |   | **Common                    Stock** |   |   | **Other** |   |   | **Other** |   |   |   |   |
|                                                                                                     |    | **Comprehensive** |   | **Number** |   | **Par** |   |   | **Paid-In** |   |   | **Comprehensive** |   |   | **Retained** |   |
|                                                                                                     |    | **Income                    (Loss)** |   | **of                    Shares** |   | **Value** |   |   | **Capital** |   |   | **Income                    (Loss)** |   |   | **Earnings** |   |
|                                                                                                     |    | ***(Dollars                    in thousands)*** |   |
|                                                                                                     |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance,                    January 1, 2004                                                              |    |   |  | 5,290,596 | $ | 105,812 |   | $ | 1,215,667 |   |  $ | $                    (42,185 | )  | $ | 18,038 |   |
|                        Net income                                                         |  $ |  36,030 |   |   |   |   |   |   |   |   |   |   |   |   | 36,030 |   |
|                        Net unrealized loss on investments                                 |    | (2 | ) |   |   |   |   |   |   |   |   | (2 | )  |   |   |   |
|                        Net unrealized loss on derivative instruments, net                 |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                            of $249,000 of income tax benefits         |    | (353 | ) |   |   |   |   |   |   |   |   | (353 | ) |   |   |   |
|                        Minimum liability for unfunded retirement benefits,                |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                            net of $7,298,000 of income tax benefits   |    | (10,273 | ) |   |   |   |   |   |   |   |   | (10,273 | ) |   |   |   |
|                        Comprehensive income                                               |  $ |  25,402 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                        Cash dividends on common stock                                     |    |   |   |   |   |   |   |   |   |   |   |   |   |   | (8,000 | ) |
|                        Purchase accounting fair value adjustment                          |    |   |   |   |   |   |   |   | (9,719 | )  |   |   |   |   |   |   |
| Balance,                    December 31, 2004                                                            |    |   |   | 5,290,596 |   | 105,812 |   |   | 1,205,948 |   |   | (52,813 | ) |   | 46,068 |   |
|                        Net income                                                         |  $ |  26,755 |   |   |   |   |   |   |   |   |   |   |   |   | 26,755 |   |
|                        Net unrealized gain on investments, net                            |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                            of $4,000 of income taxes                  |    | 3 |   |   |   |   |   |   |   |   |   | 3 |   |   |   |   |
|                        Net unrealized gain on derivative instruments, net                 |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                            of $24,000 of income taxes                 |    | 40 |   |   |   |   |   |   |   |   |   | 40 |   |   |   |   |
|                        Minimum liability for unfunded retirement benefits,                |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                            net of $37,206,000 of income taxes         |    | 52,461 |   |   |   |   |   |   |   |   |   | 52,461 |   |   |   |   |
|                        Comprehensive income                                               |  $ |  79,259 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                        Restricted stock units                                             |    |   |   |   |   |   |   |   | 20 |   |   |   |   |   |   |   |
|                        Cash dividends on common stock                                     |    |   |   |   |   |   |   |   |   |   |   |   |   |   | (47,000) |   |
|                        Purchase accounting fair value adjustment                          |    |   |   |   |   |   |   |   | (3,417 | )  |   |   |   |   |   |   |
| Balance,                    December 31, 2005                                                            |    |   |   | 5,290,596 |   | 105,812 |   |   | 1,202,551 |   |   | (309 | ) |   | 25,823 |   |
|                        Net income                                                         |  $ |  84,182 |   |   |   |   |   |   |   |   |   |   |   |   | 84,182 |   |
|                        Net unrealized gain on investments                                 |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                            of $4,000 of income taxes                  |    | 2 |   |   |   |   |   |   |   |   |   | 2 |   |   |   |   |
|                        Net unrealized gain on derivative instruments, net                 |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                            of $27,000 of income taxes                 |    | 38 |   |   |   |   |   |   |   |   |   | 38 |   |   |   |   |
|                        Comprehensive income                                               |  $ |  84,222 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                        Net liability for unfunded retirement benefits                     |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                            due to the implementation of SFAS 158, net |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                            of $17,340,000 of income tax benefits      |    |   |   |   |   |   |   |   |   |   |   | (6,924 | ) |   |   |   |
|     Restricted                    stock units                                        |    |   |   |   |   |   |   |   | 46 |   |   |   |   |   |   |   |
|     Stock                    based compensation                                      |    |   |   |   |   |   |   |   | 21 |   |   |   |   |   |   |   |
|                        Cash dividends on common stock                                     |    |   |   |   |   |   |   |   |   |   |   |   |   |   | (20,000) |   |
|                        Purchase accounting fair value adjustment                          |    |   |   |   |   |   |   |   | (13,184 | )  |   |   |   |   |   |   |
| Balance,                    December 31, 2006                                                            |    |   |   | 5,290,596 | $ |  105,812 |   | $ |  1,189,434 |   | $ |  (7,193 | ) | $ | $                    90,005 |   |
|                                                                                                     |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

----

| **PENNSYLVANIA                      ELECTRIC                      COMPANY**                                                                                                  |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **CONSOLIDATED                      STATEMENTS OF CASH                      FLOWS**                                                                                          |
|                                                                                                                                                                                                       |   |    |   |    |   |    |   |
|                                                                                                                                                                                                       |   |    |   |    |   |    |   |
|                                                                                                                                                                                                       |   |    |   |    |   |    |   |
| **For                      the Years Ended December 31,**                                                                                                                                                  |   | **2006** |   | **2005** |   | **2004** |   |
|                                                                                                                                                                                                       |   |    |   |  ***(In                      thousands)*** |   |    |   |
|                                                                                                                                                                                                       |   |    |   |    |   |    |   |
| **CASH                      FLOWS FROM OPERATING ACTIVITIES:**                                                                                                                                             |   |    |   |    |   |    |   |
| Net                      income                                                                                                                                                                            |   | $ | 84,182 |   | $ | 26,755 |   | $ | 36,030 |   |
|                              Adjustments to reconcile net income to net cash from operating                      activities-                                            |   |   |   |   |   |   |   |   |   |   |
|                                  Provision for depreciation                                                                                         |   |   | 48,003 |   |   | 49,410 |   |   | 47,104 |   |
|                                  Amortization of regulatory assets                                                                                  |   |   | 52,477 |   |   | 50,348 |   |   | 50,403 |   |
|                                  Deferral of new regulatory assets                                                                                  |   |   | (30,590 | ) |   | (3,239 | ) |   | - |   |
|             Deferred                      costs recoverable as regulatory assets                                                               |   |   | (80,942 | ) |   | (59,224 | ) |   | (87,379 | ) |
|                                  Deferred income taxes and investment tax credits, net                                                              |   |   | 28,568 |   |   | 8,823 |   |   | 77,375 |   |
|                                  Accrued compensation and retirement benefits                                                                       |   |   | 5,125 |   |   | 3,596 |   |   | 9,048 |   |
|                                  Cumulative effect of a change in accounting principle                                                              |   |   | - |   |   | 798 |   |   | - |   |
|                                  Pension trust contribution                                                                                         |   |   | - |   |   | (20,000 | ) |   | (50,281 | ) |
|                                  Decrease (increase) in operating assets-                                                                           |   |   |   |   |   |   |   |   |   |   |
|                                       Receivables                                                                          |   |   | 14,299 |   |   | 70,330 |   |   | (2,591 | ) |
|                                       Prepayments and other current assets                                                 |   |   | 683 |   |   | (737 | ) |   | (4,687 | ) |
|                                  Increase (decrease) in operating liabilities-                                                                      |   |   |   |   |   |   |   |   |   |   |
|                                       Accounts payable                                                                     |   |   | 67,602 |   |   | (10,067 | ) |   | (13,909 | ) |
|                                       Accrued taxes                                                                        |   |   | (1,524 | ) |   | 19,905 |   |   | (705 | ) |
|                                       Accrued interest                                                                     |   |   | (638 | ) |   | (790 | ) |   | (2,999 | ) |
|                                 Other                                                                                                                    |   |   | 8,363 |   |   | 7,158 |   |   | (11,116 | ) |
|                                            Net cash provided from operating activities                 |   |   | 195,608 |   |   | 143,066 |   |   | 46,293 |   |
|                                                                                                                                                                                                       |   |   |   |   |   |   |   |   |   |   |
| **CASH                      FLOWS FROM FINANCING ACTIVITIES:**                                                                                                                                             |   |   |   |   |   |   |   |   |   |   |
|          New                      Financing-                                                                                                                  |   |   |   |   |   |   |   |   |   |   |
|                                      Long-term debt                                                                             |   |   | - |   |   | 45,000 |   |   | 150,000 |   |
|                                      Short-term borrowings, net                                                                 |   |   | - |   |   | 19,663 |   |   | 162,986 |   |
|          Redemptions                      and Repayments-                                                                                                     |   |   |   |   |   |   |   |   |   |   |
|                                       Long-term debt                                                                       |   |   | - |   |   | (56,538 | ) |   | (228,670 | ) |
|                                       Short-term borrowings, net                                                           |   |   | (61,928 | ) |   | - |   |   | - |   |
|          Dividend                      Payments-                                                                                                              |   |   |   |   |   |   |   |   |   |   |
|                                       Common stock                                                                         |   |   | (20,000 | ) |   | (47,000 | ) |   | (8,000 | ) |
|                                            Net cash provided from (used for) financing activities |   |   | (81,928 | ) |   | (38,875 | ) |   | 76,316 |   |
|                                                                                                                                                                                                       |   |   |   |   |   |   |   |   |   |   |
| **CASH                      FLOWS FROM INVESTING ACTIVITIES:**                                                                                                                                             |   |   |   |   |   |   |   |   |   |   |
|          Property                      additions                                                                                                              |   |   | (106,980 | ) |   | (107,602 | ) |   | (51,801 | ) |
|          Non-utility                      generation trusts contributions                                                                                     |   |   | - |   |   | - |   |   | (50,614 | ) |
|          Loan                      repayments from (loans to) associated companies, net                                                                       |   |   | (1,924 | ) |   | 3,730 |   |   | (7,559 | ) |
|          Proceeds                      from nuclear decommissioning trust fund sales                                                                          |   |   | 77,024 |   |   | 85,580 |   |   | 45,295 |   |
|          Investments                      in nuclear decommissioning trust funds                                                                              |   |   | (77,024 | ) |   | (85,580 | ) |   | (45,295 | ) |
|          Other,                      net                                                                                                                      |   |   | (4,767 | ) |   | (320 | ) |   | (12,635 | ) |
|                                            Net cash used for investing activities                 |   |   | (113,671 | ) |   | (104,192 | ) |   | (122,609 | ) |
|                                                                                                                                                                                                       |   |   |   |   |   |   |   |   |   |   |
| Net                      change in                      cash and cash equivalents                                                                                                                          |   |   | 9 |   |   | (1 | ) |   | - |   |
| Cash                      and cash                      equivalents at beginning of year                                                                                                                   |   |   | 35 |   |   | 36 |   |   | 36 |   |
| Cash                      and cash                      equivalents at end of year                                                                                                                         |   | $ | 44 |   | $ | 35 |   | $ | 36 |   |
|                                                                                                                                                                                                       |   |   |   |   |   |   |   |   |   |   |
| **SUPPLEMENTAL                      CASH FLOW INFORMATION:**                                                                                                                                               |   |   |   |   |   |   |   |   |   |   |
| Cash                      Paid                      During the Year-                                                                                                                                       |   |   |   |   |   |   |   |   |   |   |
|          Interest                      (net of amounts capitalized)                                                                                           |   | $ | 41,976 |   | $ | 35,387 |   | $ | 40,765 |   |
|          Income                      taxes (refund)                                                                                                           |   | $ | 29,189 |   | $ | (42,324 | ) | $ | (36,434 | ) |
|                                                                                                                                                                                                       |   |   |   |   |   |   |   |   |   |   |
|  The                    accompanying                    Notes to Consolidated Financial Statements are an integral part                    of these                    statements.                    |   |   |   |   |

----

|  **PENNSYLVANIA                        ELECTRIC COMPANY**                                                                                                                                |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                          |   |   |   |   |   |   |   |
|  **CONSOLIDATED                        STATEMENTS OF TAXES**                                                                                                                             |   |
| **For                        the Years Ended December 31,**                                                                                                                              |   | **2006** |   | **2005** |   | **2004** |   |
|                                                                                                                                                                                          |   | ***(In                        thousands)*** |   |
| **GENERAL                        TAXES:**                                                                                                                                                     |   |   |   |   |   |   |   |
| State                        gross                        receipts*                                                                                                                           |   | $ | 61,679 |   | $ | 58,184 |   | $ | 55,390 |   |
| Real                        and                        personal property                                                                                                                      |   |   | 913 |   |   | 1,404 |   |   | 2,686 |   |
| Social                        security and unemployment                                                                                                                                       |   |   | 5,338 |   |   | 5,248 |   |   | 5,103 |   |
| State                        capital                        stock                                                                                                                             |   |   | 4,509 |   |   | 4,013 |   |   | 4,781 |   |
| Other                                                                                                                                                                                         |   |   | 173 |   |   | 135 |   |   | 172 |   |
|                                      Total general taxes                                                                     |   | $ | 72,612 |   | $ | 68,984 |   | $ | 68,132 |   |
|                                                                                                                                                                                          |   |   |   |   |   |   |   |   |   |   |
| **PROVISION                        FOR INCOME TAXES:**                                                                                                                                        |   |   |   |   |   |   |   |   |   |   |
| Currently                        payable (refundable)-                                                                                                                                        |   |   |   |   |   |   |   |   |   |   |
| Federal                                                                                                                                                                                       |   | $ | 20,969 |   | $ | 7,082 |   | $ | (38,759 | ) |
| State                                                                                                                                                                                         |   |   | 7,002 |   |   | 707 |   |   | (8,615 | ) |
|                                                                                                                                                                                          |   |   | 27,971 |   |   | 7,789 |   |   | (47,374 | ) |
| Deferred,                        net-                                                                                                                                                         |   |   |   |   |   |   |   |   |   |   |
| Federal                                                                                                                                                                                       |   |   | 26,096 |   |   | 10,529 |   |   | 64,435 |   |
| State                                                                                                                                                                                         |   |   | 2,943 |   |   | (830 | ) |   | 13,959 |   |
|                                                                                                                                                                                          |   |   | 29,039 |   |   | 9,699 |   |   | 78,394 |   |
| Investment                        tax                        credit amortization                                                                                                              |   |   | (471 | ) |   | (876 | ) |   | (1,019 | ) |
|                                      Total provision for income taxes                                                        |   | $ | 56,539 |   | $ | 16,612 |   | $ | 30,001 |   |
|                                                                                                                                                                                          |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                                                                                          |   |   |   |   |   |   |   |   |   |   |
| **RECONCILIATION                        OF FEDERAL INCOME TAX**                                                                                                                               |   |   |   |   |   |   |   |   |   |   |
| **EXPENSE                        AT STATUTORY RATE TO TOTAL**                                                                                                                                 |   |   |   |   |   |   |   |   |   |   |
| **PROVISION                        FOR INCOME TAXES:**                                                                                                                                        |   |   |   |   |   |   |   |   |   |   |
| Book                        income                        before provision for income taxes                                                                                                   |   | $ | 140,721 |   | $ | 44,165 |   | $ | 66,031 |   |
| Federal                        income                        tax expense at statutory rate                                                                                                    |   | $ | 49,252 |   | $ | 15,458 |   | $ | 23,111 |   |
| Increases                        (reductions) in taxes resulting from-                                                                                                                        |   |   |   |   |   |   |   |   |   |   |
| Amortization                        of investment tax credits                                                                                                                                 |   |   | (472 | ) |   | (876 | ) |   | (1,019 | ) |
| Depreciation                                                                                                                                                                                  |   |   | 3,552 |   |   | 4,005 |   |   | 1,649 |   |
| State                        income                        taxes, net of federal income tax benefit                                                                                           |   |   | 6,464 |   |   | (80 | ) |   | 3,474 |   |
| Other,                        net                                                                                                                                                             |   |   | (2,257 | ) |   | (1,895 | ) |   | 2,786 |   |
|  Total                        provision for income taxes                                                                                                                                 |   | $ | 56,539 |   | $ | 16,612 |   | $ | 30,001 |   |
|                                                                                                                                                                                          |   |   |   |   |   |   |   |   |   |   |
| **ACCUMULATED                        DEFERRED INCOME TAXES AS OF**                                                                                                                            |   |   |   |   |   |   |   |   |   |   |
| **DECEMBER                        31:**                                                                                                                                                       |   |   |   |   |   |   |   |   |   |   |
| Property                        basis                        differences                                                                                                                      |   | $ | 328,937 |   | $ | 308,297 |   | $ | 287,234 |   |
| Non-utility                        generation costs                                                                                                                                           |   |   | (123,036 | ) |   | (177,878 | ) |   | (181,649 | ) |
| Purchase                        accounting basis difference                                                                                                                                   |   |   | (762 | ) |   | (762 | ) |   | (762 | ) |
| Asset                        retirement obligations                                                                                                                                           |   |   | (613 | ) |   | (566 | ) |   | - |   |
| Sale                        of                        generation assets                                                                                                                       |   |   | 7,495 |   |   | 7,495 |   |   | 7,495 |   |
| PJM                        transmission costs                                                                                                                                                 |   |   | 12,693 |   |   | - |   |   | - |   |
| Customer                        receivables for future income taxes                                                                                                                           |   |   | 61,621 |   |   | 55,169 |   |   | 52,063 |   |
| Other                        comprehensive income                                                                                                                                             |   |   | (17,558 | ) |   | (221 | ) |   | (37,455 | ) |
| Nuclear                        decommissioning                                                                                                                                                |   |   | (57,854 | ) |   | (57,469 | ) |   | (56,238 | ) |
| Employee                        benefits                                                                                                                                                      |   |   | (18,991 | ) |   | (17,566 | ) |   | (20,397 | ) |
| Other                                                                                                                                                                                         |   |   | 1,730 |   |   | (9,628 | ) |   | (12,973 | ) |
|                                      Net deferred income tax liability                                                       |   | $ | 193,662 |   | $ | 106,871 |   | $ | 37,318 |   |
|                                                                                                                                                                                          |   |   |   |   |   |   |   |   |   |   |
| *Collected                        from customers through regulated rates and included in revenue                        in the                        Consolidated Statements of Income. |   |
|                                                                                                                                                                                          |   |   |   |   |   |   |   |   |   |   |
| The                        accompanying Notes to Consolidated Financial Statements are                        an integral                        part of these statements.                    |   |

----

**NOTES      TO      CONSOLIDATED FINANCIAL STATEMENTS**

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

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

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

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

*Regulatory      Assets-*

|                                                                 |   | **2006**                           |    | **2005** |   |
|----------------------------------------------------------------------|--------|------------------------------------|---------|----------|--------|
|                                                                 |   | ***(In                millions)*** |    |
| Regulatory                transition costs                           |   | $                                  | (245    | )        | $      | (272 | ) |
| Customer                receivables for future income taxes          |   |                               | 157     |     |   | 141 |   |
| Nuclear                decommissioning costs                         |   |                               | (54     | )        |   | (47 | ) |
| PJM                Transmission Costs                                |   |                               | 31      |     |   | - |   |
| Gain/Loss                on                reacquired debt and other |   |                               | 15      |     |   | 15 |   |
| **Total**                                                            |   | **$**                              | **(96** | **)**    | **$**  | **(163** | **)** |

----

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

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

**(D)**
**PROPERTY,      PLANT AND EQUIPMENT-**

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

*Long-Lived      Assets*

*Goodwill*

----

*Investments*

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

**(G)**
**CUMULATIVE      EFFECT **
**OF      A CHANGE      IN ACCOUNTING PRINCIPLE-**

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

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

|                                    |   | **2006**                           |   | **2005** |   | **2004** |
|-----------------------------------------|--------|------------------------------------|--------|----------|--------|----------|
|                                    |   | ***(In                millions)*** |
| **Expenses:**                           |   |                               |   |     |   |     |   |   |   |
| Power                purchased from FES |   | $                                  | 154    |     | $      | 321      |   | $ | 404 |
| Company                support services |   |                               | 55     |     |   | 51       |   |   | 45 |

----

| **3.  ** | **PENSION                AND OTHER POSTRETIREMENT                BENEFITS:** |
|--------------------|------------------------------------------------------------------------------|

----

| **Obligations                and Funded Status**                                     |   | **Pension                Benefits** |   | **Other                Benefits** |   |
|--------------------------------------------------------------------------------------|--------|-------------------------------------|--------|-----------------------------------|--------|
| **As                of                December 31**                                  |   | **2006**                            |   | **2005**                          |   | **2006** |   | **2005** |   |
|                                                                                 |   | ***(In                millions)***  |   |
| **Change                in benefit obligation**                                      |   |                                |   |                              |   |   |   |   |   |
| Benefit                obligation as of January 1                                    |   | $                                   | 4,750  |                              | $      | 4,364 |   | $ | 1,884 |   | $ | 1,930 |   |
| Service                cost                                                          |   |                                | 83     |                              |   | 77 |   |   | 34 |   |   | 40 |   |
| Interest                cost                                                         |   |                                | 266    |                              |   | 254 |   |   | 105 |   |   | 111 |   |
| Plan                participants’ contributions                                |   |                                | -      |                              |   | - |   |   | 20 |   |   | 18 |   |
| Plan                amendments                                                       |   |                                | 3      |                              |   | 15 |   |   | (620 | ) |   | (312 | ) |
| Medicare                retiree drug subsidy                                         |   |                                | -      |                              |   | - |   |   | 6 |   |   | - |   |
| Actuarial                (gain) loss                                                 |   |                                | 33     |                              |   | 310 |   |   | (119 | ) |   | 197 |   |
| Benefits                paid                                                         |   |                                | (274   | )                                 |   | (270 | ) |   | (109 | ) |   | (100 | ) |
| Benefit                obligation as of December 31                                  |   | $                                   | 4,861  |                              | $      | 4,750 |   | $ | 1,201 |   | $ | 1,884 |   |
|                                                                                 |   |                                |   |                              |   |   |   |   |   |   |   |   |   |
| **Change                in fair value of plan assets**                               |   |                                |   |                              |   |   |   |   |   |   |   |   |   |
| Fair                value of                plan assets as of January 1              |   | $                                   | 4,524  |                              | $      | 3,969 |   | $ | 573 |   | $ | 564 |   |
| Actual                return                on plan assets                           |   |                                | 567    |                              |   | 325 |   |   | 69 |   |   | 33 |   |
| Company                contribution                                                  |   |                                | -      |                              |   | 500 |   |   | 54 |   |   | 58 |   |
| Plan                participants’ contribution                                 |   |                                | -      |                              |   | - |   |   | 20 |   |   | 18 |   |
| Benefits                paid                                                         |   |                                | (273   | )                                 |   | (270 | ) |   | (109 | ) |   | (100 | ) |
| Fair                value of                plan assets as of December 31            |   | $                                   | 4,818  |                              | $      | 4,524 |   | $ | 607 |   | $ | 573 |   |
|                                                                                 |   |                                |   |                              |   |   |   |   |   |   |   |   |   |
| **Funded                status**                                                     |   | $                                   | (43    | )                                 | $      | (226 | ) | $ | (594 | ) | $ | (1,311 | ) |
|                                                                                 |   |                                |   |                              |   |   |   |   |   |   |   |   |   |
| **Accumulated                benefit obligation**                                    |   | $                                   | 4,447  |                              | $      | 4,327 |   |   |   |   |   |   |   |
|                                                                                 |   |                                |   |                              |   |   |   |   |   |   |   |   |   |
| **Amounts                Recognized in the Statement of**                            |   |                                |   |                              |   |   |   |   |   |   |   |   |   |
| **Financial                Position**                                                |   |                                |   |                              |   |   |   |   |   |   |   |   |   |
| Noncurrent                assets                                                     |   | $                                   | -      |                              | $      | 1,023 |   | $ | - |   | $ | - |   |
| Current                liabilities                                                   |   |                                | -      |                              |   | - |   |   | - |   |   | - |   |
| Noncurrent                liabilities                                                |   |                                | (43    | )                                 |   | - |   |   | (594 | ) |   | (1,057 | ) |
| Net                pension                asset (liability) at end of year           |   | $                                   | (43    | )                                 | $      | 1,023 |   | $ | (594 | ) | $ | (1,057 | ) |
| Company’s                share of net pension asset (liability) at end of year |   | $                                   | 11     |                              | $      | 90 |   | $ | (49 | ) | $ | (101 | ) |
|                                                                                 |   |                                |   |                              |   |   |   |   |   |   |   |   |   |
| **Amounts                Recognized in**                                             |   |                                |   |                              |   |   |   |   |   |   |   |   |   |
| **Accumulated                Other Comprehensive Income**                            |   |                                |   |                              |   |   |   |   |   |   |   |   |   |
|                                                                                 |   |                                |   |                              |   |   |   |   |   |   |   |   |   |
| Prior                service                cost (credit)                            |   | $                                   | 63     |                              | $      | - |   | $ | (1,190 | ) | $ | - |   |
| Actuarial                (gain) loss                                                 |   |                                | 982    |                              |   | - |   |   | 702 |   |   | - |   |
| Net                amount                recognized                                  |   | $                                   | 1,045  |                              | $      | - |   | $ | (488 | ) | $ | - |   |
|                                                                                 |   |                                |   |                              |   |   |   |   |   |   |   |   |   |
| **Assumptions                Used to Determine**                                     |   |                                |   |                              |   |   |   |   |   |   |   |   |   |
| **Benefit                Obligations As of December 31**                             |   |                                |   |                              |   |   |   |   |   |   |   |   |   |
|                                                                                 |   |                                |   |                              |   |   |   |   |   |   |   |   |   |
| Discount                rate                                                         |   |                                | 6.00   | %                                 |   | 5.75 | % |   | 6.00 | % |   | 5.75 | % |
| Rate                of                compensation increase                          |   |                                | 3.50   | %                                 |   | 3.50 | % |   |   |   |   |   |   |
|                                                                                 |   |                                |   |                              |   |   |   |   |   |   |   |   |   |
| **Allocation                of Plan Assets**                                         |   |                                |   |                              |   |   |   |   |   |   |   |   |   |
| **As                of                December 31**                                  |   |                                |   |                              |   |   |   |   |   |   |   |   |   |
| Asset                Category                                                        |   |                                |   |                              |   |   |   |   |   |   |   |   |   |
| Equity                securities                                                     |   |                                | 64     | %                                 |   | 63 | % |   | 72 | % |   | 71 | % |
| Debt                securities                                                       |   |                                | 29     |                              |   | 33 |   |   | 26 |   |   | 27 |   |
| Real                estate                                                           |   |                                | 5      |                              |   | 2 |   |   | 1 |   |   | - |   |
| Private                equities                                                      |   |                                | 1      |                              |   | - |   |   | - |   |   | - |   |
| Cash                                                                                 |   |                                | 1      |                              |   | 2 |   |   | 1 |   |   | 2 |   |
| Total                                                                                |   |                                | 100    | %                                 |   | 100 | % |   | 100 | % |   | 100 | % |

----

|  **Estimated              Items to Be Amortized in 2007 Net** | ** ** | ** ** | ** **         | ** ** | ** ** | ** **         | ** ** |
|--------------------------------------------------------------------|------------|------------|--------------------|------------|------------|--------------------|------------|
| ** Periodic              Pension Cost from Accumulated**      | ** ** | ** ** | ** Pension**  | ** ** | ** ** | ** Other**    | ** ** |
| ** Other              Comprehensive Income**                  |       |       |  **Benefits** |       |       |  **Benefits** |       |
|  Prior              service              cost (credit)        |       |  $    |  10           |       |  $    |  (149         | )          |
|  Actuarial              (gain) loss                           |       |       | 41                 |       |       |  45           |       |
|                                                               |       |       |               |       |       |               |       |
|                                                               |       |       |               |       |       |               |       |

|                                                          |       | ** Pension                  Benefits** |       | **Other                  Benefits** |       |
|---------------------------------------------------------------|------------|---------------------------------------------|------------|-------------------------------------|------------|
| **Components                  of Net Periodic Benefit Costs** | ** ** | **2006**                                    | ** ** | **2005**                            | ** ** | **2004** | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** |   |
|                                                          |       |                                        |       |                                |       | * (In                millions)* |   |   |   |   |   |
| Service                  Cost                                 |       | $                                           | 83         |                                | $          | 77 |   | $ | 77 |   | $ | 34 |   | $ | 40 |   | $ | 36 |   |
| Interest                  Cost                                |       |                                        | 266        |                                |       | 254 |   |   | 252 |   |   | 105 |   |   | 111 |   |   | 112 |   |
| Expected                  return on plan assets               |       |                                        | (396       | )                                   |       | (345 | ) |   | (286 | ) |   | (46 | ) |   | (45 | ) |   | (44 | ) |
| Amortization                  of prior service costs          |       |                                        | 10         |                                |       | 8 |   |   | 9 |   |   | (76 | ) |   | (45 | ) |   | (40 | ) |
| Amortization                of transition obligation     |       |                                        | -     |                                |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Recognized                net                actuarial loss   |       |                                        | 58         |                                |       | 36 |   |   | 39 |   |   | 56 |   |   | 40  |   |   | 39  |   |
| Net                periodic                cost          |       |  $                                     | 21         |                                |  $    | 30 |   |   | 91 |   |   | 73 |   |   | 101 |   |   | 103 |   |
|  Company's                share of net periodic cost     |       |  $                                     | (5         | )                                   |  $    | (5 | )  |  $ | - |   |  $ | 7 |   |  $ | 8 |   |  $ | 3 |   |

|  Weighted-Average                Assumptions Used                                                                                    |   |                                        |    |                                |       |       |       |       |       |       |       |       |    |
|-------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------|---------|-------------------------------------|------------|------------|------------|------------|------------|------------|------------|------------|---------|
|  to                Determine                Net Periodic Benefit Cost                                                                |   |  **Pension                  Benefits** |    | **Other                  Benefits** |
|  for                  Years                  Ended December 31                                                                       |   | **2006**                                    |    | **2005**                            | ** ** | **2004**   | ** ** | **2006**   | ** ** | **2005**   | ** ** | **2004**   |    |
|  Discount                rate                                                                                                        |   |  5.75                                  |  % |  6.00                          |  %    |  6.25 |  %    |  5.75 |  %    |  6.00 |  %    |  6.25 |  % |
|  Expected                long-term return on plan assets                                                                             |   |  9.00                                  |  % |  9.00                          |  %    |  9.00 |  %    |  9.00 |  %    |  9.00 |  %    |  9.00 |  % |
|  Rate                of                compensation increase             |   | 3.50                                        | %  |  3.50                          | %          |  3.50 |  %    |       |       |       |       |       |    |
|                                                                                                                                      |   |                                        |    |                                |       |       |       |       |       |       |       |       |    |
|                                                                                                                                      |   |                                        |    |                                |       |       |       |       |       |       |       |       |    |

| **Assumed                Health Care Cost Trend Rates**                       |   |     |      |     |   |
|-------------------------------------------------------------------------------|--------|----------|-----------|----------|--------|
| **As                of                December 31**                           |   | **2006** |      | **2005** |   |
| Health                care                cost trend rate assumed for next    |   |     |      |     |   |
| year                (pre/post-Medicare)                                       |   |     | 9-11      | %        |   | 9-11 | % |
| Rate                to which                the cost trend rate is assumed to |   |     |      |     |   |   |   |
| decline                (the                ultimate trend rate)               |   |     | 5         | %        |   | 5 | % |
| Year                that the                rate reaches the ultimate trend   |   |     |      |     |   |   |   |
| rate                (pre/post-Medicare)                                       |   |     | 2011-2013 |     |   | 2010-2012 |   |

|                                                                                  |   | **1-Percentage-**                  |   | **1-Percentage-**                 |   |
|---------------------------------------------------------------------------------------|--------|------------------------------------|--------|-----------------------------------|--------|
|                                                                                  |   | **Point                Increase**  |   | **Point                Decrease** |   |
|                                                                                  |   | ***(In                millions)*** |   |
| Effect                on                total of service and interest cost            |   | $                                  | 6      |                              | $      | (5 | ) |
| Effect                on                accumulated postretirement benefit obligation |   | $                                  | 33     |                              | $      | (29 | ) |

----

|                                           | **Pension**                        |   | **Other**    |
|------------------------------------------------|------------------------------------|--------|--------------|
|                                           | **Benefits**                       |   | **Benefits** |
|                                           | ***(In                millions)*** |
| 2007                                           | $                                  | 247    |         | $ | 91 |
| 2008                                           |                               | 249    |         |   | 91 |
| 2009                                           |                               | 256    |         |   | 94 |
| 2010                                           |                               | 269    |         |   | 98 |
| 2011                                           |                               | 280    |         |   | 101 |
| Years                2012-                2016 |                               | 1,606  |         |   | 537 |

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

**(A)**
**LONG-TERM      DEBT-**

|                          |   | **2006**                           |   | **2005**  |   |
|-------------------------------|--------|------------------------------------|--------|-----------|--------|
|                          |   | **Carrying**                       |   | **Fair**  |   | **Carrying** |   | **Fair** |   |
|                          |   | **Value**                          |   | **Value** |   | **Value** |   | **Value** |   |
|                          |   | ***(In                millions)*** |   |
| Long-term                debt |   | $                                  | 479    |      | $      | 490 |   | $ | 479 |   | $ | 498 |   |

**(B)**
**INVESTMENTS-**

|                                                                                                      |   | **2006**                           |   | **2005**  |   |
|-----------------------------------------------------------------------------------------------------------|--------|------------------------------------|--------|-----------|--------|
|                                                                                                      |   | **Carrying**                       |   | **Fair**  |   | **Carrying** |   | **Fair** |   |
|                                                                                                      |   | **Value**                          |   | **Value** |   | **Value** |   | **Value** |   |
|                                                                                                      |   | ***(In                millions)*** |   |
| Debt                securities:                                                                           |   |                               |   |      |   |   |   |   |   |   |   |   |   |
| -Government                obligations(1)                                                                 |   | $                                  | 98     |      | $      | 98 |   | $ | 97 |   | $ | 97 |   |
|                                                                                                      |
| (1)Excludes                cash                and cash equivalents of $2 million for                2006 |

|                           |   | **2006**                           |   | **2005**       |   |
|--------------------------------|--------|------------------------------------|--------|----------------|--------|
|                           |   | **Cost**                           |   | **Unrealized** |   | **Unrealized** |   | **Fair** |   | **Cost** |   | **Unrealized** |   | **Unrealized** |   | **Fair** |   |
|                           |   | **Basis**                          |   | **Gains**      |   | **Losses** |   | **Value** |   | **Basis** |   | **Gains** |   | **Losses** |   | **Value** |   |
|                           |   | ***(In                millions)*** |   |
| Debt                securities |   | $                                  | 98     |           | $      | - |   | $ | - |   | $ | 98 |   | $ | 97 |   | $ | - |   | $ | - |   | $ | 97 |   |

----

|                                                       |        | **2006**                           |   | **2005** |   | **2004** |   |
|------------------------------------------------------------|--------|------------------------------------|--------|----------|--------|----------|--------|
|                                                       |   | ***(In                millions)*** |   |
| Proceeds                from                sales          |   | $                                  | 1,378  |     | $      | 4,670    |   | $ | 17,358 |   |
| Realized                gains                              |   |                               | -      |     |   | -        |   |   | - |   |
| Realized                losses                             |   |                               | 2      |     |   | 2        |   |   | 1 |   |
| Interest                and                dividend income |   |                               | 4      |     |   | 4        |   |   | 2 |   |

**(C)**
**NUCLEAR      DECOMMISSIONING TRUST FUND INVESTMENTS-**

|                                   |   | **2006**                           |   | **2005** |
|----------------------------------------|--------|------------------------------------|--------|----------|
|                                   |   | ***(In                millions)*** |
| Debt                securities         |   |                               |   |     |   |   |
| -Government                Obligations |   | $                                  | 53     |     | $ | 52 |
| Equity                securities       |   |                               | 72     |     |   | 62 |
|                                   |   | $                                  | 125    |     | $ | 114 |

|                             |   | **2006**                           |   | **2005**       |   |
|----------------------------------|--------|------------------------------------|--------|----------------|--------|
|                             |   | **Cost**                           |   | **Unrealized** |   | **Unrealized** |   | **Fair** |   | **Cost** |   | **Unrealized** |   | **Unrealized** |   | **Fair** |   |
|                             |   | **Basis**                          |   | **Gains**      |   | **Losses** |   | **Value** |   | **Basis** |   | **Gains** |   | **Losses** |   | **Value** |   |
|                             |   | ***(In                millions)*** |   |
| Debt                securities   |   | $                                  | 52     |           | $      | 1 |   | $ | - |   | $ | 53 |   | $ | 51 |   | $ | 1 |   | $ | - |   | $ | 52 |   |
| Equity                securities |   |                               | 55     |           |   | 17 |   |   | - |   |   | 72 |   |   | 56 |   |   | 7 |   |   | 1 |   |   | 62 |   |
|                             |   |                               |   |           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                             |   | $                                  | 107    |           | $      | 18 |   | $ | - |   | $ | 125 |   | $ | 107 |   | $ | 8 |   | $ | 1 |   | $ | 114 |   |

|                                                       |   | **2006**                           |   | **2005** |   | **2004** |   |
|------------------------------------------------------------|--------|------------------------------------|--------|----------|--------|----------|--------|
|                                                       |   | ***(In                millions)*** |   |
| Proceeds                from                sales          |   | $                                  | 76     |     | $      | 69       |   | $ | 102 |   |
| Gross                realized                gains         |   |                               | -      |     |   | 4        |   |   | 18 |   |
| Gross                realized                losses        |   |                               | 2      |     |   | 4        |   |   | - |   |
| Interest                and                dividend income |   |                               | 3      |     |   | 3        |   |   | 3 |   |

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

----

|                            |   | **2006**                           |   | **2005** |   | **2004** |
|---------------------------------|--------|------------------------------------|--------|----------|--------|----------|
|                            |   | ***(In                millions)*** |
| Operating                leases |   |                               |   |     |   |     |
| Interest                element |   | $                                  | 0.6    |     | $      | 0.7      |   | $ | 0.5 |
| Other                           |   |                               | 3.8    |     |   | 2.1      |   |   | 2.3 |
| Capital                Leases   |   |                               |   |     |   |     |   |   |   |
| Interest                Element |   |                               | -      |     |   | -        |   |   | 0.1 |
| Other                           |   |                               | -      |     |   | 0.1      |   |   | 0.5 |
| Total                rentals    |   | $                                  | 4.4    |     | $      | 2.9      |   | $ | 3.4 |

|                                                       |   |                                |
|------------------------------------------------------------|--------|-------------------------------------|
|                                                       |   | **Operating                Leases** |
|                                                       |   | ***(In                millions)***  |
| 2007                                                       |   | $                                   | 5.1 |
| 2008                                                       |   |                                | 5.1 |
| 2009                                                       |   |                                | 4.2 |
| 2010                                                       |   |                                | 3.9 |
| 2011                                                       |   |                                | 3.1 |
| Years                thereafter                            |   |                                | 10.1 |
| Total                minimum                lease payments |   | $                                   | 31.5 |

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

**7.**
**REGULATORY      MATTERS:**

----

*First*
*First*
*First*

----

----

*** ***
*** ***

----

**8.**
**CAPITALIZATION:**

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

**(B)**
**PREFERRED      STOCK-**

**(C)**
**LONG-TERM      DEBT-**

|   |   | ***(In                millions)*** |   |
|--------|--------|------------------------------------|--------|
| 2007   |   | $                                  | -      |   |
| 2008   |   |                               | -      |   |
| 2009   |   |                               | 100    |   |
| 2010   |   |                               | 59     |   |
| 2011   |   |                               | -      |   |

| **9.** | **ASSET                RETIREMENT OBLIGATIONS:** |
|--------|--------------------------------------------------|

----

** **
** **

|                                                       |   | **2006**                           |   | **2005** |   |
|------------------------------------------------------------|--------|------------------------------------|--------|----------|--------|
| **ARO                Reconciliation**                      |   | ***(In                millions)*** |   |
| Balance                at                beginning of year |   | $                                  | 72     |     | $      | 66 |   |
| Accretion                                                  |   |                               | 5      |     |   | 4 |   |
| FIN                47 ARO                upon adoption     |   |                               | -      |     |   | 2 |   |
| Balance                at end                of year       |   | $                                  | 77     |     | $      | 72 |   |

**10.**
**SHORT-TERM      BORROWINGS:**

----

**11.**
**COMMITMENTS,      GUARANTEES AND CONTINGENCIES:**

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

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

**(C)**
**OTHER      LEGAL      PROCEEDINGS-**

*Power      Outages      and Related Litigation*

----

*Legal      Matters*

**12.**
**NEW      ACCOUNTING STANDARDS AND INTERPRETATIONS: **

|   | *SFAS                159 -                The Fair Value Option for Financial Assets and Financial Liabilities                -                Including an amendment of FASB Statement No.                115* |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

*Fair      Value      Measurements, *
*Disclosures      about Fair Value of Financial Instruments. *

*SFAS      157 - “Fair      Value Measurements”*

|   | *FSP                FIN                46(R)-6 - “Determining the Variability to Be Considered in Applying FASB                interpretation No. 46(R)”* |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| Step                1: | Analyze                the                nature of the risks in the entity                                                                                                                                                  |
|------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                   |                                                                                                                                                                                                                         |
| Step                2: | Determine                the                purpose(s) for which the entity was created and determine the variability                the entity is designed to create and pass along to its interest                holders. |

----

*FIN      48 -“Accounting for Uncertainty in Income Taxes - an interpretation of FASB      Statement No. 109”*

**13.**
**SUMMARY      OF      QUARTERLY FINANCIAL DATA (UNAUDITED):**

| **Three                Months Ended**                                               |   | **March                31,****2006** |   | **June                30,****2006** |   | **September                30, 2006** |   | **December                31, 2006** |   |
|-------------------------------------------------------------------------------------|--------|--------------------------------------|--------|-------------------------------------|--------|---------------------------------------|--------|--------------------------------------|--------|
|                                                                                |   | ***(In                millions)***   |   |
| Revenues                                                                            |   | $                                    | 291.8  |                                | $      | 265.0                                 |   | $                                    | 303.4  |   | $ | 288.3 |   |
| Expenses                                                                            |   |                                 | 246.8  |                                |   | 225.4                                 |   |                                 | 265.3  |   |   | 235.2 |   |
| Operating                Income                                                     |   |                                 | 45.0   |                                |   | 39.6                                  |   |                                 | 38.1   |   |   | 53.1 |   |
| Other                Expense                                                        |   |                                 | (7.9   | )                                   |   | (9.6                                  | )      |                                 | (9.3   | ) |   | (8.3 | ) |
| Income                from                Continuing Operations Before Income Taxes |   |                                 | 37.1   |                                |   | 30.0                                  |   |                                 | 28.8   |   |   | 44.8 |   |
| Income                Taxes                                                         |   |                                 | 14.0   |                                |   | 14.5                                  |   |                                 | 10.7   |   |   | 17.3 |   |
| Net                Income                                                           |   | $                                    | 23.1   |                                | $      | 15.5                                  |   | $                                    | 18.1   |   | $ | 27.5 |   |

| **Three                Months Ended**                                                                                               |   | **March                31,****2005** |   | **June                30,****2005** |   | **September                30, 2005** |   | **December                31, 2005** |   |
|-------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------|--------|-------------------------------------|--------|---------------------------------------|--------|--------------------------------------|--------|
|                                                                                                                                |   | ***(In                millions)***   |   |
| Revenues                                                                                                                            |   | $                                    | 293.9  |                                | $      | 262.0                                 |   | $                                    | 290.4  |   | $ | 275.6 |   |
| Expenses                                                                                                                            |   |                                 | 248.0  |                                |   | 243.7                                 |   |                                 | 287.4  |   |   | 264.8 |   |
| Operating                Income                                                                                                     |   |                                 | 45.9   |                                |   | 18.3                                  |   |                                 | 3.0    |   |   | 10.8 |   |
| Other                Expense                                                                                                        |   |                                 | (9.2   | )                                   |   | (8.9                                  | )      |                                 | (7.5   | ) |   | (8.4 | ) |
| Income                (Loss)                from Continuing Operations Before                   Income Taxes              |   |                                 | 36.7   |                                |   | 9.4                                   |   |                                 | (4.5   | ) |   | 2.4 |   |
| Income                Taxes                (Benefit)                                                                                |   |                                 | 15.3   |                                |   | 3.6                                   |   |                                 | (2.1   | ) |   | (0.3 | ) |
| Income                (Loss)                Before Cumulative Effect of a Change in                  Accounting Principle |   |                                 | 21.4   |                                |   | 5.8                                   |   |                                 | (2.4   | ) |   | 2.7 |   |
| Cumulative                Effect of a Change in Accounting Principle                  (Net of Income Taxes)               |   |                                 | -      |                                |   | -                                     |   |                                 | -      |   |   | (0.8 | ) |
| Net                Income                (Loss)                                                                                     |   | $                                    | 21.4   |                                | $      | 5.8                                   |   | $                                    | (2.4   | ) | $ | 1.9 |   |

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