<TABLE>
                                               PENNSYLVANIA POWER COMPANY

                                                SELECTED FINANCIAL DATA
<CAPTION>
                                                  1999        1998          1997          1996          1995
                                                --------    --------      --------      --------      --------
                                                                  (Dollars in thousands)
<S>                                           <C>           <C>         <C>           <C>           <C>
Operating Revenues                            $  329,234    $323,756    $  323,381    $  322,625    $  314,642
                                              ==========    ========    ==========    ==========    ==========
Operating Income                              $   32,063    $ 58,041    $   50,736    $   62,329    $   67,317
                                              ==========    ========    ==========    ==========    ==========
Income Before Extraordinary Item              $   12,648    $ 39,748    $   31,472    $   40,587    $   38,930
                                              ==========    ========    ==========    ==========    ==========
Net Income                                    $   12,648    $  9,226    $   31,472    $   40,587    $   38,930
                                              ==========    ========    ==========    ==========    ==========
Earnings on Common Stock                      $    8,278    $  4,600    $   26,846    $   35,961    $   34,155
                                              ==========    ========    ==========    ==========    ==========
Total Assets                                  $1,015,616    $977,772    $1,034,457    $1,074,578    $1,151,990
                                              ==========    ========    ==========    ==========    ==========
CAPITALIZATION:
Common Stockholder's Equity                   $  199,608    $275,281    $  291,977    $  286,504    $  271,920
Preferred Stock-
  Not Subject to Mandatory Redemption             39,105      50,905        50,905        50,905        50,905
  Subject to Mandatory Redemption                 15,000      15,000        15,000        15,000        15,000
Long-Term Debt                                   274,821     287,689       289,305       310,996       338,670
                                              ----------    --------    ----------    ----------    ----------
Total Capitalization                          $  528,534    $628,875    $  647,187    $  663,405    $  676,495
                                              ==========    ========    ==========    ==========    ==========

CAPITALIZATION RATIOS:
Common Stockholder's Equity                         37.8%       43.8%         45.1%         43.2%         40.2%
Preferred Stock-
  Not Subject to Mandatory Redemption                7.4         8.1           7.9           7.7           7.5
  Subject to Mandatory Redemption                    2.8         2.4           2.3           2.2           2.2
Long-Term Debt                                      52.0        45.7          44.7          46.9          50.1
                                                   -----       -----         -----         -----         -----
Total Capitalization                               100.0%      100.0%        100.0%        100.0%        100.0%
                                                   =====       =====         =====         =====         =====
TRANSMISSION AND DISTRIBUTION
KILOWATT-HOUR SALES (Millions):
Residential                                        1,325       1,278         1,238         1,254         1,195
Commercial                                         1,105       1,069         1,013           996           938
Industrial                                         1,495       1,439         1,659         1,693         1,558
Other                                                  6           6             6             6             6
                                                   -----       -----         -----         -----         -----
Total Retail                                       3,931       3,792         3,916         3,949         3,697
Total Wholesale                                    1,118         964           901         1,106         1,080
                                                   -----       -----         -----         -----         -----
Total                                              5,049       4,756         4,817         5,055         4,777
                                                   =====       =====         =====         =====         =====

CUSTOMERS SERVED:
Residential                                      117,440     124,304       129,316       127,936       126,480
Commercial                                        16,307      16,924        16,738        16,531        16,317
Industrial                                           175         206           241           225           223
Other                                                 87          86            97            99            97
                                                 -------     -------       -------       -------       -------
Total                                            134,009     141,520       146,392       144,791       143,117
                                                 =======     =======       =======       =======       =======

Generating Capability:
Coal                                                41.4%       72.1%         72.1%         72.1%         72.1%
Oil                                                  1.5         3.0           3.0           3.0           3.0
Nuclear                                             57.1        24.9          24.9          24.9          24.9
                                                   -----       -----         -----         -----         -----
Total                                              100.0%      100.0%        100.0%        100.0%        100.0%
                                                   =====       =====         =====         =====         =====

SOURCES OF ELECTRIC GENERATION:
Coal                                                61.1%       76.9%         73.8%         67.6%         65.6%
Nuclear                                             38.9        23.1          26.2          32.4          34.4
                                                   -----       -----         -----         -----         -----
Total                                              100.0%      100.0%        100.0%        100.0%        100.0%
                                                   =====       =====         =====         =====         =====
NUMBER OF EMPLOYEES                                  895         888           997         1,015         1,220
                                                     ===         ===           ===         =====         =====


</TABLE>
<PAGE>

                         PENNSYLVANIA POWER COMPANY

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


Results of Operations

Electric Sales

          Operating revenues increased $5.5 million in 1999 from 1998 due
primarily to higher kilowatt-hour sales to wholesale customers. In 1999,
approximately 5% of our retail customers selected an alternative energy
supplier, which slightly decreased our operating revenues from retail
customers. Although we did not provide the generation of power to these
customers, we continue to provide the transmission and distribution of this
power through our system. As a result of increased service area demand, the
kilowatt-hour sales through our system increased to each of our retail
customer groups. Sales to residential, commercial and industrial customers
increased by 3.7%, 3.4% and 3.9%, respectively. Available internal generation
aided sales to wholesale customers which increased by $5.6 million in 1999
compared to 1998.

          In 1998, residential and commercial kilowatt-hour sales increased
3.3% and 7.5%, respectively, but were more than offset by a 13.4% decrease in
industrial sales volume. Closure of an electric arc furnace at Caparo Steel
Company in August 1997 and a general decline in electricity demand by steel
manufacturers due to intense foreign competition contributed to lower
industrial kilowatt-hour sales in 1998.

Operating Expenses and Taxes

          Total operating expenses and taxes increased $31.5 million in 1999
from 1998. The increase resulted from higher operation and maintenance
expenses in all major categories. In 1998, operating expenses and taxes
decreased $6.9 million reflecting lower operation and maintenance expenses,
as well as reduced depreciation and amortization expense.

          Fuel and purchased power increased in 1999 from the prior year. The
Duquesne Light Company (Duquesne) asset swap resulted in one-time costs of
$6.8 million recorded as fuel expenses in 1999, which contributed to our
higher fuel and purchased power costs. In 1998, most of the increase in fuel
and purchased power occurred in the second quarter and resulted from a
combination of factors. Record heat and humidity in late June 1998, coincided
with a regional power shortage which resulted in high prices for purchased
power. Due in part to an unscheduled outage at Beaver Valley Unit 1, we
purchased significant amounts of power from the spot market during that
period resulting in higher purchased power costs.

          Nuclear operating costs increased in 1999 from the prior year due
to a refueling outage at the Perry Plant and increased ownership of the
Beaver Valley Plant following the asset swap in early December 1999. Nuclear
costs were lower in 1998, compared to 1997, due primarily to lower refueling
outage cost levels. Other operating costs also increased in 1999 from the
prior year principally due to higher customer and sales expenses including
expenditures for energy marketing programs, information system requirements
and an increase in employee benefit expense as well as higher distribution
costs from storm repair and overhead line maintenance. The absence of costs
related to a 1997 voluntary retirement program and a charge for uncollectible
customer accounts in 1997 contributed to the reduction in other operating
costs in 1998.

          Depreciation and amortization expense increased by $2.9 million in
1999 compared to the prior year. Amortization of regulatory assets related to
our rate restructuring plan, which began in 1999, more than offset the lower
depreciation expense resulting from reduced nuclear investments following an
extraordinary charge in June 1998 as discussed below. As a result of the
nuclear investment write-down, depreciation and amortization declined in 1998
as compared to 1997. General taxes increased in 1999 from the prior year
principally due to increased state gross receipts taxes resulting from
additional taxable receipts and an adjustment to real estate taxes resulting
from new Pennsylvania legislation.

Extraordinary Item

          The Pennsylvania Public Utility Commission's (PPUC) authorization
of our rate restructuring plan led to the discontinued application of
Statement of Financial Accounting Standards No. 71 (SFAS 71), "Accounting for
the Effects of Certain Types of Regulation," to our generation business in
1998. This resulted in an after-tax write-down in 1998 of $30.5 million of
our nuclear generation unit investment and the recognition of a portion of
such investment -- recoverable through future customer rates -- as a
regulatory asset.

Earnings on Common Stock

          Earnings on common stock increased to $8.3 million in 1999 from
$4.6 million in 1998. The increase was primarily due to the absence of the
extraordinary charge recognized in 1998, which was substantially offset by
increased operating expenses in 1999. The loss of a small portion of our
retail customers resulting from alternative energy suppliers also held back
our revenue growth. The asset swap with Duquesne resulted in one-time costs
and additional nuclear expenses related to increased ownership of the Beaver
Valley Plant in 1999. The decrease in earnings on common stock to $4.6
million in 1998 from $26.8 million in 1997 was due primarily to the
extraordinary charge in 1998.

Capital Resources and Liquidity

          We had about $21.1 million of cash and temporary investments and no
short-term indebtedness as of December 31, 1999. Also we had a $2 million
bank facility that provides for borrowings on a short-term basis at the
bank's discretion. At the end of 1999, we had the capability to issue $114
million of additional first mortgage bonds on the basis of property additions
and retired bonds. Based on our earnings test under our charter, we could not
issue any additional preferred stock at year end.

          Our cash requirements in 2000 for operating expenses, construction
expenditures and scheduled debt maturities are expected to be met without
issuing new securities. We have cash requirements of approximately $110
million for the 2000-2004 period to meet scheduled maturities of long-term
debt. Of that amount, approximately $29 million relates to 2000.

          Our capital spending for the period 2000-2004 is expected to be
about $234 million (excluding nuclear fuel), of which approximately $38
million applies to 2000. Investments for additional nuclear fuel during the
2000-2004 period are estimated to be approximately $90 million, of which
about $24 million relates to 2000. During the same periods, our nuclear fuel
investments are expected to be reduced by approximately $86 million and $18
million, respectively, as the nuclear fuel is consumed.

          On December 3, 1999, we completed the exchange of generating assets
between Duquesne and FirstEnergy, which increased FirstEnergy's portfolio of
generation resources. Duquesne transferred 1,436 megawatts at five generating
plants in exchange for 1,328 megawatts at three plants owned by FirstEnergy
operating companies. In the exchange, we received all of Duquesne's ownership
interest in the Beaver Valley Plant, and an additional interest in the Bruce
Mansfield Plant while providing Duquesne with our ownership interest in the
New Castle Plant.

          At the end of 1999, we transferred our interest in Penn Power
Energy, Inc., a wholly owned subsidiary selling energy in Pennsylvania's
unregulated generation market, to FirstEnergy Services Corp., an affiliated
company. For FirstEnergy, the transaction centralized unregulated electricity
sales and marketing activities in one entity.

Interest Rate Risk

          Our exposure to fluctuations in market interest rates is mitigated
since a significant portion of our debt has fixed interest rates, as noted in
the table below. We are subject to the inherent interest rate risks related
to refinancing maturing debt by issuing new debt securities. Changes in the
market value of our nuclear decommissioning trust funds are recognized by
making a corresponding change to the decommissioning liability, as described
in Note 1.

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

Comparison of Carrying Value to Fair Value
----------------------------------------------------------------------------
                                                        There-        Fair
                       2000   2001   2002   2003   2004  after  Total  Value
----------------------------------------------------------------------------
                                    (Dollars in millions)
Investments other
 than Cash and
 Cash Equivalents:
Fixed Income                                             $ 73    $ 73   $ 73
  Average interest
   rate                                                   5.2%    5.2%
----------------------------------------------------------------------------
Liabilities
----------------------------------------------------------------------------
Long-term Debt:
Fixed rate            $ 29   $  1   $  1   $ 41   $ 35   $160    $267   $264
  Average interest
   rate                6.6%   9.7%   9.7%   7.6%   6.6%   7.0%    7.0%
Variable rate                                            $ 16    $ 16   $ 15
  Average interest rate                                   5.6%    5.6%
----------------------------------------------------------------------------
Preferred Stock                     $  1   $  1          $ 13    $ 15   $ 14
  Average dividend rate              7.6%   7.6%          7.6%    7.6%
----------------------------------------------------------------------------


Outlook

          We continue to face many competitive challenges as the electric
utility industry undergoes significant changes, including changing regulation
and the entrance of more energy suppliers into the marketplace. The increased
ownership interests in the Beaver Valley Plant and the Bruce Mansfield Plant
resulting from the Duquesne asset swap will result in increased operating
cost pressures in the future. Application of SFAS 71 was discontinued for the
generation portion of our business in 1998 following PPUC approval of our
restructuring plan. Under the plan, a phase-in period for customer choice
began with 66% of our customers able to select their energy supplier that
began on January 2, 1999, with all remaining customers able to select their
energy providers starting January 1, 2001. We are entitled to recover $236
million of stranded costs through a competitive transition charge that
started in 1999 and ends in 2006.

          In the second half of 1999, we received notification of pending
legal actions based on alleged violations of the Clean Air Act at our Sammis
Plant involving the states of New York and Connecticut, as well as the U.S.
Department of Justice. The civil complaint filed by the U.S. Department of
Justice requests installation of "best available control technology" as well
as civil penalties of up to $27,500 per day. We believe the Sammis Plant is
in full compliance with the Clean Air Act and the legal actions to be without
merit. However, we are unable to predict the outcome of this litigation.
Penalties could be imposed if the Sammis Plant continues to operate without
correcting the alleged violations and a court determines that the allegations
are valid. We expect the Sammis Plant to continue to operate while the matter
is being decided.

          On October 27, 1999, the Federal Energy Regulatory Commission
(FERC) approved FirstEnergy's plan to transfer our transmission assets and
those of OE, The Cleveland Electric Illuminating Company and The Toledo
Edison Company to American Transmission Systems Inc. (ATSI). PPUC and
Securities and Exchange Commission regulatory approvals are also required.
The new FirstEnergy subsidiary represents a first step toward the goal of
establishing or becoming part of a larger independent, regional transmission
organization (RTO). In working toward that goal, FirstEnergy joined with four
other companies -- American Electric Power, Consumers Energy, Detroit Edison
and Virginia Power -- to form the Alliance RTO. On June 3, 1999, the Alliance
submitted an application to FERC to form an independent, for profit RTO. On
December 15, 1999, FERC issued an order conditionally approving the
Alliance's application.

Recently Issued Accounting Standard

          In June 1998, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards No. 133 (SFAS 133),
"Accounting for Derivative Instruments and Hedging Activities". SFAS 133
establishes accounting and reporting standards requiring that every
derivative instrument (including derivative instruments embedded in other
contracts) be recorded on the balance sheet as either an asset or liability
measured at its fair value. SFAS 133 requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. Special accounting for qualifying hedges
allows a derivative's gains and losses to offset related results on the
hedged item in the income statement. We have not completed quantifying the
impacts of adopting SFAS 133 on our financial statements or determined the
method of its adoption. However, SFAS 133 could increase volatility in
earnings and other comprehensive income. We anticipate adopting the new
statement on its amended effective date of January 1, 2001.

Year 2000 Update

          Based on the results of our remediation and testing efforts, we
filed documents with the North American Electric Reliability Council, Nuclear
Regulatory Commission and PPUC that as of June 30, 1999, our generation,
transmission, and distribution systems were ready to serve customers in the
year 2000. We have since experienced no failures or interruptions of service
to our customers resulting from the Year 2000 issue, which was consistent
with our expectations. We spent $4.6 million on Year 2000 related costs
through December 31, 1999, which was slightly lower than previously
estimated. Of this total, $3.4 million was capitalized since those costs are
attributable to the purchase of new software for total system replacements
because the Year 2000 solution comprises only a portion of the benefits
resulting from the system replacements. The remaining $1.2 million was
expensed as incurred. We do not believe there are any continuing Year 2000
issues to be addressed, nor any additional material Year 2000 expenditures.

Forward-Looking Information

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


<TABLE>
                                                    PENNSYLVANIA POWER COMPANY

                                                       STATEMENTS OF INCOME
<CAPTION>
For the Years Ended December 31,                                  1999         1998         1997
--------------------------------------------------------------------------------------------------
                                                                           (In thousands)
<S>                                                             <C>          <C>          <C>
OPERATING REVENUES                                              $329,234     $323,756     $323,381
                                                                --------     --------     --------
OPERATING EXPENSES AND TAXES:
  Fuel and purchased power                                        87,128       76,801       67,345
  Nuclear operating costs                                         36,915       22,968       26,220
  Other operating costs                                           65,079       52,348       66,518
                                                                --------     --------     --------
    Total operation and maintenance expenses                     189,122      152,117      160,083
  Provision for depreciation and amortization                     62,182       59,264       64,628
  General taxes                                                   28,110       22,540       22,379
  Income taxes                                                    17,757       31,794       25,555
                                                                --------     --------     --------
    Total operating expenses and taxes                           297,171      265,715      272,645
                                                                --------     --------     --------
OPERATING INCOME                                                  32,063       58,041       50,736

OTHER INCOME                                                       1,438        2,485        2,760
                                                                --------     --------     --------
INCOME BEFORE NET INTEREST CHARGES                                33,501       60,526       53,496
                                                                --------     --------     --------

NET INTEREST CHARGES:
  Interest on long-term debt                                      19,268       19,255       20,458
  Interest on nuclear fuel obligations                                90           28          276
  Allowance for borrowed funds used during construction             (464)        (294)        (414)
  Other interest expense                                           1,959        1,789        1,704
                                                                --------     --------     --------
    Net interest charges                                          20,853       20,778       22,024
                                                                --------     --------     --------
INCOME BEFORE EXTRAORDINARY ITEM                                  12,648       39,748       31,472

EXTRAORDINARY ITEM (NET OF INCOME TAXES) (Note 1)                     --      (30,522)          --
                                                                --------     --------     --------
NET INCOME                                                        12,648        9,226       31,472

PREFERRED STOCK DIVIDEND REQUIREMENTS                              4,370        4,626        4,626
                                                                --------     --------     --------
EARNINGS ON COMMON STOCK                                        $  8,278     $  4,600     $ 26,846
                                                                ========     ========     ========
<FN>

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

</TABLE>
<PAGE>




<TABLE>
                                              PENNSYLVANIA POWER COMPANY

                                                    BALANCE SHEETS
<CAPTION>
At December 31,                                                                 1999            1998
------------------------------------------------------------------------------------------------------
                                                                                   (In thousands)
<S>                                                                          <C>              <C>
                       ASSETS
UTILITY PLANT:
In service                                                                   $  646,186       $686,771
Less-Accumulated provision for depreciation                                     237,893        291,188
                                                                             ----------       --------
                                                                                408,293        395,583
                                                                             ----------       --------
Construction work in progress-
  Electric plant                                                                 18,558         17,187
  Nuclear fuel                                                                    6,540            508
                                                                             ----------       --------
                                                                                 25,098         17,695
                                                                             ----------       --------
                                                                                433,391        413,278
                                                                             ----------       --------
OTHER PROPERTY AND INVESTMENTS:
Nuclear plant decommissioning trusts (Note 1)                                   104,775         13,722
Other                                                                            19,784         15,455
                                                                             ----------       --------
                                                                                124,559         29,177
                                                                             ----------       --------
CURRENT ASSETS:
Cash and cash equivalents                                                         5,670          7,485
Notes receivable from parent company (Note 4)                                    15,423         50,000
Receivables-
  Customers (less accumulated provisions of $3,537,000 and $3,599,000,
  respectively, for uncollectible accounts)                                      34,568         34,737
  Associated companies                                                           38,565         34,430
  Other                                                                           8,896         12,472
Materials and supplies, at average cost                                          32,483         15,515
Prepayments                                                                       2,208          2,657
                                                                             ----------       --------
                                                                                137,813        157,296
                                                                             ----------       --------
DEFERRED CHARGES:
Regulatory assets                                                               314,593        371,027
Other                                                                             5,260          6,994
                                                                             ----------       --------
                                                                                319,853        378,021
                                                                             ----------       --------
                                                                             $1,015,616       $977,772
                                                                             ==========       ========
         CAPITALIZATION AND LIABILITIES

CAPITALIZATION (See Statements of Capitalization):
Common stockholder's equity                                                  $  199,608       $275,281
Preferred stock-
  Not subject to mandatory redemption                                            39,105         50,905
  Subject to mandatory redemption                                                15,000         15,000
Long-term debt-
  Associated companies                                                           18,007          6,617
  Other                                                                         256,814        281,072
                                                                             ----------       --------
                                                                                528,534        628,875
                                                                             ----------       --------
CURRENT LIABILITIES:
Currently payable long-term debt-
  Associated companies                                                           13,504          5,557
  Other                                                                          29,521            984
Accounts payable-
  Associated companies                                                           26,220          9,676
  Other                                                                          28,903         23,156
Accrued taxes                                                                    21,863         12,849
Accrued interest                                                                  6,592          6,519
Other                                                                            16,506         17,046
                                                                             ----------       --------
                                                                                143,109         75,787
                                                                             ----------       --------
DEFERRED CREDITS:
Accumulated deferred income taxes                                               182,702        212,427
Accumulated deferred investment tax credits                                       7,266          7,787
Nuclear plant decommissioning costs                                             107,816         14,948
Other                                                                            46,189         37,948
                                                                             ----------       --------
                                                                                343,973        273,110
                                                                             ----------       --------

COMMITMENTS, GUARANTEES AND CONTINGENCIES (Notes 2 and 5)                    ----------       --------
                                                                             $1,015,616       $977,772
                                                                             ==========       ========

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

</TABLE>
<PAGE>

<TABLE>
                                                       PENNSYLVANIA POWER COMPANY

                                                      STATEMENTS OF CAPITALIZATION
<CAPTION>
At December 31,                                                                                        1999           1998
-------------------------------------------------------------------------------------------------------------------------
                                        (Dollars in thousands, except per share amounts)
<S>                                                                                                  <C>            <C>
COMMON STOCKHOLDER'S EQUITY:
  Common stock, $30 par value, 6,500,000 shares authorized, 6,290,000 shares outstanding             $188,700       $188,700
  Other paid-in capital                                                                                  (310)          (310)
  Retained earnings (Note 3A)                                                                          11,218         86,891
                                                                                                     --------       --------
    Total common stockholder's equity                                                                 199,608        275,281
                                                                                                     --------       --------
<CAPTION>
                                                   Number of Shares             Optional
                                                     Outstanding            Redemption Price
                                                   ----------------       -------------------
                                                   1999        1998       Per Share  Aggregate
                                                   ----        ----       ---------  ---------
<S>                                              <C>         <C>           <C>        <C>
PREFERRED STOCK (Note 3C):
Cumulative, $100 par value-
Authorized 1,200,000 shares
  Not Subject to Mandatory Redemption:
    4.24%                                         40,000      40,000       $103.13    $ 4,125           4,000          4,000
    4.25%                                         41,049      41,049        105.00      4,310           4,105          4,105
    4.64%                                         60,000      60,000        102.98      6,179           6,000          6,000
    7.64%                                             --      60,000            --         --              --          6,000
    7.75%                                        250,000     250,000            --         --          25,000         25,000
    8.00%                                             --      58,000            --         --              --          5,800
                                                 -------     -------                  -------        --------       --------
      Total not subject to mandatory
       redemption                                391,049     509,049                  $14,614          39,105         50,905
                                                 =======     =======                  =======        --------       --------
  Subject to Mandatory Redemption (Note 3D):
    7.625%                                       150,000     150,000        106.10    $15,915          15,000         15,000
                                                 =======     =======                  =======        --------       --------
LONG-TERM DEBT (Note 3E):
  First mortgage bonds-
    9.740% due 2000-2019                                                                               19,513         20,000
    7.500% due 2003                                                                                    40,000         40,000
    6.375% due 2004                                                                                    20,500         20,500
    6.625% due 2004                                                                                    14,000         14,000
    8.500% due 2022                                                                                    27,250         27,250
    7.625% due 2023                                                                                     6,500          6,500
                                                                                                     --------       --------
      Total first mortgage bonds                                                                      127,763        128,250
                                                                                                     --------       --------
  Secured notes-
    6.080% due 2000                                                                                    23,000         23,000
    8.100% due 2000                                                                                     5,200          5,200
    5.400% due 2013                                                                                     1,000          1,000
    5.400% due 2017                                                                                    10,600         10,600
    7.150% due 2017                                                                                    17,925         17,925
    5.900% due 2018                                                                                    16,800         16,800
    7.150% due 2021                                                                                    14,482         14,482
    6.150% due 2023                                                                                    12,700         12,700
  * 5.450% due 2027                                                                                    10,300         10,300
    6.450% due 2027                                                                                    14,500         14,500
    5.375% due 2028                                                                                     1,734          1,734
    5.450% due 2028                                                                                     6,950          6,950
    6.000% due 2028                                                                                    14,250         14,250
    5.950% due 2029                                                                                       238            238
                                                                                                     --------       --------
      Total secured notes                                                                             149,679        149,679
                                                                                                     --------       --------
  Unsecured notes-
  * 5.900% due 2033                                                                                     5,200             --
                                                                                                     --------       --------
  Other obligations-
    Nuclear fuel                                                                                       31,511         12,174
    Capital leases (Note 2)                                                                             4,160          4,635
                                                                                                     --------       --------
      Total other obligations                                                                          35,671         16,809
                                                                                                     --------       --------
  Net unamortized discount on debt                                                                       (467)          (508)
                                                                                                     --------       --------
  Long-term debt due within one year                                                                  (43,025)        (6,541)
                                                                                                     --------       --------
      Total long-term debt                                                                            274,821        287,689
                                                                                                     --------       --------
TOTAL CAPITALIZATION                                                                                 $528,534       $628,875
                                                                                                     ========       ========

<FN>

*Denotes variable rate issue with December 31, 1999 interest rate shown.

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

</TABLE>
<PAGE>

<TABLE>
                                                PENNSYLVANIA POWER COMPANY

                                          STATEMENTS OF COMMON STOCKHOLDER'S EQUITY
<CAPTION>
                                                                                              Accumulated
                                                                                                 Other
                                       Comprehensive                              Other      Comprehensive
                                          Income         Number        Par        Paid-In       Income           Retained
                                        (Note 3B)       of Shares      Value      Capital       (Note 3B)        Earnings
                                       -------------    ---------      -----      -------    -------------       --------
                                                                       (Dollars in thousands)
<S>                                       <C>           <C>           <C>          <C>           <C>            <C>
Balance, January 1, 1997                                6,290,000     $188,700     $(310)        $(103)         $ 98,217
  Net income                              $31,472                                                                 31,472
  Minimum liability for unfunded
   retirement benefits, net of $9,000
   of income taxes                             13                                                   13
                                          -------
  Comprehensive income                    $31,485
                                          =======
  Cash dividends on common stock                                                                                 (21,386)
  Cash dividends on preferred stock                                                                               (4,626)
----------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1997                              6,290,000      188,700      (310)          (90)          103,677
  Net income                              $ 9,226                                                                  9,226
  Transfer of minimum liability for
   unfunded retirement benefits to
   FirstEnergy                                 90                                                   90
                                          -------
  Comprehensive income                    $ 9,316
                                          =======
  Cash dividends on common stock                                                                                 (21,386)
  Cash dividends on preferred stock                                                                               (4,626)
-------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1998                              6,290,000      188,700      (310)           --            86,891
  Net income                              $12,648                                                                 12,648
                                          =======
  Transfer of Penn Power Energy
   to FirstEnergy Services Corp.                                                                                   3,302
  Cash dividends on common stock                                                                                 (87,362)
  Cash dividends on preferred stock                                                                               (4,056)
  Premium on redemption of preferred
    stock                                                                                                           (205)
-------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1999                              6,290,000     $188,700     $(310)        $  --          $ 11,218
========================================================================================================================

</TABLE>


<TABLE>

                                            STATEMENTS OF PREFERRED STOCK
<CAPTION>
                                       Not Subject to          Subject to
                                    Mandatory Redemption  Mandatory Redemption
                                    --------------------  --------------------
                                       Number      Par       Number      Par
                                     of Shares    Value    of Shares    Value
                                     ---------    -----    ---------    -----
                                                (Dollars in thousands)
<S>                                   <C>        <C>        <C>        <C>
Balance, January 1, 1997              509,049    $50,905    150,000    $15,000
------------------------------------------------------------------------------
Balance, December 31, 1997            509,049     50,905    150,000     15,000
------------------------------------------------------------------------------
Balance, December 31, 1998            509,049     50,905    150,000     15,000
------------------------------------------------------------------------------
  Redemptions-
    7.64% Series                      (60,000)    (6,000)
    8.00% Series                      (58,000)    (5,800)
------------------------------------------------------------------------------
Balance, December 31, 1999            391,049    $39,105    150,000    $15,000
==============================================================================

<FN>

The accompanying Notes to Financial Statements are an integral part of these statements.
</TABLE>
<PAGE>

<TABLE>
                                                PENNSYLVANIA POWER COMPANY

                                                 STATEMENTS OF CASH FLOWS
<CAPTION>
For the Years Ended December 31,                                  1999          1998           1997
----------------------------------------------------------------------------------------------------
                                                                           (In thousands)
<S>                                                            <C>           <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income                                                     $ 12,648      $  9,226        $31,472
Adjustments to reconcile net income to net cash
 from operating activities:
  Provision for depreciation and amortization                    62,182        59,264         64,628
  Nuclear fuel and lease amortization                             8,423         5,418          7,172
  Other amortization, net                                            --          (330)        (1,187)
  Deferred income taxes, net                                    (16,207)      (20,007)        (6,631)
  Investment tax credits, net                                    (3,111)       (2,289)        (2,331)
  Extraordinary item                                                 --        51,730             --
  Receivables                                                      (390)      (20,680)         6,515
  Materials and supplies                                            389          (542)          (704)
  Accounts payable                                               22,291         3,293         (4,476)
  Other                                                          15,899         3,148         (5,707)
                                                               --------      --------        -------
    Net cash provided from operating activities                 102,124        88,231         88,751
                                                               --------      --------        -------
CASH FLOWS FROM FINANCING ACTIVITIES:
New Financing-
  Long-term debt                                                  5,200         1,563          9,942
Redemptions and Repayments-
  Preferred stock                                                12,005            --             --
  Long-term debt                                                  8,675         6,088         39,464
Dividend Payments-
  Common stock                                                   87,362        21,386         21,386
  Preferred stock                                                 4,055         4,626          4,626
                                                               --------      --------        -------
    Net cash used for financing activities                      106,897        30,537         55,534
                                                               --------      --------        -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property additions                                               21,964        16,495         14,513
Loan to parent                                                       --        32,500         15,000
Loan payment from parent                                        (34,577)           --             --
Other                                                             9,655         1,874          4,431
                                                               --------      --------        -------
    Net cash used for (provided from) investing activities       (2,958)       50,869         33,944
                                                               --------      --------        -------
Net increase (decrease) in cash and cash equivalents             (1,815)        6,825           (727)
Cash and cash equivalents at beginning of year                    7,485           660          1,387
                                                               --------      --------        -------
Cash and cash equivalents at end of year                       $  5,670      $  7,485        $   660
                                                               ========      ========        =======
SUPPLEMENTAL CASH FLOWS INFORMATION:
Cash paid during the year-
  Interest (net of amounts capitalized)                        $ 19,436      $ 19,057        $21,137
                                                               ========      ========        =======
  Income taxes                                                 $ 33,786      $ 32,290        $38,324
                                                               ========      ========        =======

<FN>

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

</TABLE>
<PAGE>

<TABLE>
                                              PENNSYLVANIA POWER COMPANY

                                                 STATEMENT OF TAXES
<CAPTION>
For the Years Ended December 31,                                 1999         1998         1997
------------------------------------------------------------------------------------------------
                                                                        (In thousands)
<S>                                                            <C>          <C>          <C>
GENERAL TAXES:
State gross receipts                                           $ 13,466     $ 10,830     $ 11,267
Real and personal property                                        8,626        6,893        6,060
State capital stock                                               3,067        2,774        2,566
Social security and unemployment                                  2,875        1,894        2,224
Other                                                                76          149          262
                                                               --------     --------     --------
    Total general taxes                                        $ 28,110     $ 22,540     $ 22,379
                                                               ========     ========     ========
PROVISION FOR INCOME TAXES:
Currently payable-
  Federal                                                      $ 29,522     $ 25,938     $ 27,560
  State                                                           8,630        7,654        8,061
                                                               --------     --------     --------
                                                                 38,152       33,592       35,621
                                                               --------     --------     --------
Deferred, net-
  Federal                                                       (12,714)     (15,454)      (5,096)
  State                                                          (3,493)      (4,553)      (1,535)
                                                               --------     --------     --------
                                                                (16,207)     (20,007)      (6,631)
                                                               --------     --------     --------
Investment tax credit amortization                               (3,111)      (2,289)      (2,331)
                                                               --------     --------     --------
    Total provision for income taxes                           $ 18,834     $ 11,296     $ 26,659
                                                               ========     ========     ========
INCOME STATEMENT CLASSIFICATION OF PROVISION FOR
INCOME TAXES:
Operating expenses                                             $ 17,757     $ 31,794     $ 25,555
Other income                                                      1,077          710        1,104
Extraordinary item                                                   --      (21,208)          --
                                                               --------     --------     --------
    Total provision for income taxes                           $ 18,834     $ 11,296     $ 26,659
                                                               ========     ========     ========
RECONCILIATION OF FEDERAL INCOME TAX EXPENSE AT
STATUTORY RATE TO TOTAL PROVISION FOR INCOME TAXES:
Book income before provision for income taxes                  $ 31,482     $ 20,522     $ 58,131
                                                               ========     ========     ========
Federal income tax expense at statutory rate                   $ 11,019     $  7,183     $ 20,346
Increases (reductions) in taxes resulting from:
  State income taxes, net of federal income tax benefit           3,339        2,016        4,242
  Amortization of investment tax credits                         (3,111)      (2,289)      (2,331)
  Amortization of tax regulatory assets                           7,059        4,745        4,554
  Other, net                                                        528         (359)        (152)
                                                               --------     --------     --------
    Total provision for income taxes                           $ 18,834     $ 11,296     $ 26,659
                                                               ========     ========     ========
ACCUMULATED DEFERRED INCOME TAXES AT DECEMBER 31:
Competitive transition charge                                  $115,277     $135,730     $     --
Property basis differences                                       73,694       69,867      172,094
Allowance for equity funds used during construction               5,688        7,219       29,875
Deferred nuclear expense                                             --           --        7,163
Customer receivables for future income taxes                      8,354        9,690       37,954
Unamortized investment tax credits                               (2,987)      (3,193)     (10,681)
Other                                                           (17,324)      (6,886)       3,547
                                                               --------     --------     --------
    Net deferred income tax liability                          $182,702     $212,427     $239,952
                                                               ========     ========     ========

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

</TABLE>
<PAGE>

NOTES TO FINANCIAL STATEMENTS

1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

          The Company, a wholly owned subsidiary of Ohio Edison Company
(Edison), follows the accounting policies and practices prescribed by the
Pennsylvania Public Utility Commission (PPUC) and the Federal Energy
Regulatory Commission (FERC). The preparation of financial statements in
conformity with generally accepted accounting principles requires management
to make periodic estimates and assumptions that affect the reported amounts
of assets, liabilities, revenues and expenses. Certain prior year amounts
have been reclassified to conform with the current year presentation.

          Results of operations for 1999 include Penn and its wholly owned
subsidiary, Penn Power Energy, Inc. (PPE). The subsidiary was formed to
market energy products and services coincident with the commencement of
electricity generation customer choice and competition in Pennsylvania in
January 1999. All significant intercompany transactions have been eliminated.
The Company transferred its 100% ownership in PPE to FirstEnergy Services
Corp., an affiliate, effective December 31, 1999.

REVENUES-

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

          Receivables from customers include sales to residential, commercial
and industrial customers located in the Company's service area and sales to
wholesale customers. There was no material concentration of receivables at
December 31, 1999 or 1998, with respect to any particular segment of the
Company's customers.

REGULATORY PLAN-

          In June 1998, the PPUC authorized a rate restructuring plan for the
Company, which essentially resulted in the deregulation of the Company's
generation business as of June 30, 1998. The Company was required to remove
from its balance sheet all regulatory assets and liabilities related to its
generation business and assess all other assets for impairment. The
Securities and Exchange Commission (SEC) issued interpretive guidance
regarding asset impairment measurement which concluded that any supplemental
regulated cash flows such as a competitive transition charge (CTC) should be
excluded from the cash flows of assets in a portion of the business not
subject to regulatory accounting practices. If those assets are impaired, a
regulatory asset should be established if the costs are recoverable through
regulatory cash flows. Consistent with the SEC guidance, the Company reduced
its nuclear generating unit investments by approximately $305 million, of
which approximately $227 million was recognized as a regulatory asset to be
recovered through a CTC over a seven-year transition period; the remaining
net amount of $78 million was written off. The charge of $51.7 million ($30.5
million after income taxes) for discontinuing the application of Statement of
Financial Accounting Standards (SFAS) No. 71, "Accounting for the Effects of
Certain Types of Regulation" (SFAS 71), to the Company's generation business
was recorded as a 1998 extraordinary item on the Statement of Income. The
Company's net assets included in utility plant relating to the operations for
which the application of SFAS 71 was discontinued were $76 million as of
December 31, 1999.

          All of the Company's regulatory assets are being recovered under
provisions of the regulatory plan. In addition, the PPUC had authorized the
Company to accelerate at least $358 million, more than the amounts that would
have been recognized if the regulatory plan was not in effect. These
additional amounts are being recovered through current rates. As of December
31, 1999, the Company's cumulative additional capital recovery and regulatory
asset amortization amounted to $225 million (including the impairment
discussed above and CTC recovery).

          In December 1996, Pennsylvania enacted "The Electricity Generation
Customer Choice and Competition Act," which permitted customers, including
the Company's customers, to choose their electric generation supplier, while
transmission and distribution services would continue to be supplied by their
current providers. Customer choice began with 66% of each customer class able
to choose alternative suppliers of generation on January 2, 1999, and all
remaining customers having choice as of January 1, 2001. Under the rate
restructuring plan, the Company continues to deliver power to homes and
businesses through its transmission and distribution system, which remains
regulated by the PPUC. The Company's rates have been restructured to
establish separate charges for transmission and distribution; generation,
which is subject to competition; and stranded cost recovery. In the event
customers obtain power from an alternative source, the generation portion of
the Company's rates will be excluded from their bill and the customers will
receive a generation charge from the alternative supplier. The stranded cost
recovery portion of rates provides for recovery of certain amounts not
otherwise considered recoverable in a competitive generation market,
including regulatory assets. The Company is entitled to recover $236 million
of stranded costs through a CTC that began in 1999 and ends in 2006.

UTILITY PLANT AND DEPRECIATION-

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

          The Company provides for depreciation on a straight-line basis at
various rates over the estimated lives of property included in plant in
service. The annual composite rate for electric plant was approximately 2.5%
in 1999, 3.0% in 1998 and 2.7% in 1997. In addition to the straight-line
depreciation recognized in 1999, 1998 and 1997, the Company also recognized
additional capital recovery of $3 million, $15 million and $27 million,
respectively, as additional depreciation expense in accordance with the
regulatory plan.

          Annual depreciation expense includes approximately $3.2 million for
future decommissioning costs applicable to the Company's ownership interest
in three nuclear generating units. The Company's future decommissioning costs
reflect the increase in its ownership interests related to the asset transfer
with Duquesne Light Company (Duquesne) discussed below in "Common Ownership
of Generating Facilities." The Company's share of the future obligation to
decommission these units is approximately $315 million in current dollars and
(using a 4.0% escalation rate) approximately $695 million in future dollars.
The estimated obligation and the escalation rate were developed based on site
specific studies. Payments for decommissioning are expected to begin in 2016,
when actual decommissioning work begins. The Company has recovered
approximately $15 million for decommissioning through its electric rates from
customers through December 31, 1999. If the actual costs of decommissioning
the units exceed the funds accumulated from investing amounts recovered from
customers, the Company expects that additional amount to be recoverable from
its customers. The Company has approximately $104.8 million invested in
external decommissioning trust funds as of December 31, 1999. This includes
additions to the trust funds and the corresponding liability of $89 million
as a result of the asset transfer. Earnings on these funds are reinvested
with a corresponding increase to the decommissioning liability. The Company
has also recognized an estimated liability of approximately $9.2 million at
December 31, 1999 related to decontamination and decommissioning of nuclear
enrichment facilities operated by the United States Department of Energy
(DOE), as required by the Energy Policy Act of 1992.

          The Financial Accounting Standards Board (FASB) issued a proposed
accounting standard for nuclear decommissioning costs in 1996. If the
standard is adopted as proposed: (1) annual provisions for decommissioning
could increase; (2) the net present value of estimated decommissioning costs
could be recorded as a liability; and (3) income from the external
decommissioning trusts could be reported as investment income. The FASB
subsequently expanded the scope of the proposed standard to include other
closure and removal obligations related to long-lived assets. A revised
proposal may be issued by the FASB in the first quarter of 2000.

COMMON OWNERSHIP OF GENERATING FACILITIES-

          The Company and other Central Area Power Coordination Group (CAPCO)
companies formerly owned, as tenants in common, various power generating
facilities. Each of the companies is obligated to pay a share of the costs
associated with any jointly owned facility in the same proportion as its
interest. The Company's portion of operating expenses associated with jointly
owned facilities is included in the corresponding operating expenses on the
Statements of Income.

          On March 26, 1999, FirstEnergy completed its agreements with
Duquesne to exchange certain generating assets. All regulatory approvals were
received by October 1999. In December 1999, Duquesne transferred 1,436
megawatts owned by Duquesne at eight CAPCO generating units in exchange for
1,328 megawatts at three non-CAPCO power plants owned by the Company, Edison
and The Cleveland Electric Illuminating Company (CEI), an affiliate. As part
of this exchange, the Company transferred its 339-megawatt New Castle Plant
and its 4-megawatt interest in the Niles Plant to Duquesne. The Company
acquired Duquesne's ownership interest in the Beaver Valley Station and
acquired, with Edison and CEI, Duquesne's ownership interest in the Bruce
Mansfield Plant. The agreements for the exchange of assets, which was
structured as a like-kind exchange for tax purposes, provides FirstEnergy's
utility operating companies with exclusive ownership and operating control of
all CAPCO generating units. The three FirstEnergy plants transferred are
being sold by Duquesne to a wholly owned subsidiary of Orion Power Holdings,
Inc. (Orion). The Company, Edison and CEI will continue to operate those
plants until the assets are transferred to the new owners. Duquesne funded
decommissioning costs equal to its percentage interest in the three nuclear
generating units that were transferred to FirstEnergy. The Duquesne asset
transfer to the Orion subsidiary could take place by the middle of 2000.
Under the agreements, Duquesne was no longer a participant in the CAPCO
arrangements after the exchange. The amounts reflected on the Balance Sheet
under utility plant at December 31, 1999 include the following:

<TABLE>
<CAPTION>
                      Utility     Accumulated    Construction   Company's
                      Plant in   Provision for     Work in      Ownership
  Generating Units    Service    Depreciation     Progress      Interest
---------------------------------------------------------------------------
                                          (In millions)
<S>                    <C>          <C>              <C>          <C>
W. H. Sammis #7        $ 58.2       $ 23.3           $ 1.7        20.80%
Bruce Mansfield
  #1, #2 and #3         204.2        113.3             3.1        16.38%
Beaver Valley #1
 and #2                  31.0          9.7             5.8        39.37%
Perry #1                  2.1          0.9             1.4         5.24%
-------------------------------------------------------------------------
    Total              $295.5       $147.2           $12.0
=========================================================================

</TABLE>

NUCLEAR FUEL-

          OES Fuel, Incorporated (OES Fuel), a wholly owned subsidiary of
Edison, is the sole lessor for the Company's nuclear fuel requirements.

          Minimum lease payments during the next five years are estimated to
be as follows:


<TABLE>
<CAPTION>
              (In millions)
---------------------------
<S>                  <C>
2000                 $15.4
2001                  11.5
2002                   5.5
2003                   1.7
2004                   0.6
---------------------------

</TABLE>

          The Company amortizes the cost of nuclear fuel based on the rate of
consumption. The Company's electric rates include amounts for the future
disposal of spent nuclear fuel based upon the formula used to compute
payments to the DOE.

INCOME TAXES-

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

RETIREMENT BENEFITS-

          FirstEnergy's trusteed, noncontributory defined benefit pension
plan covers almost all of the Company's full-time employees. Upon retirement,
employees receive a monthly pension based on length of service and
compensation. In 1998, the Company's, Edison's and Centerior Energy
Corporation's pension plans were merged into the FirstEnergy pension plan.
The Company uses the projected unit credit method for funding purposes and
was not required to make pension contributions during the three years ended
December 31, 1999. The assets of the FirstEnergy pension plan consist
primarily of common stocks, United States government bonds and corporate
bonds.

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

        The following sets forth the funded status of the FirstEnergy plans
in 1999 and 1998 and amounts recognized on the Balance Sheets as of December
31 (which includes the Company's share of the FirstEnergy 1999 plans' net
prepaid pension cost and accrued other postretirement benefit costs of $13.8
million and $31.7 million, respectively, and the Company's share of the
FirstEnergy 1998 plans' net prepaid pension cost and accrued other
postretirement benefits costs of $9.0 million and $28.4 million,
respectively):

<TABLE>
<CAPTION>
                                                              Other
                                   Pension Benefits   Postretirement Benefits
                                   ----------------   -----------------------
                                    1999      1998        1999       1998
-----------------------------------------------------------------------------
                                                  (In millions)
<S>                               <C>       <C>         <C>        <C>
Change in benefit obligation:
Benefit obligation as of
 January 1                        $1,500.1  $1,327.5    $ 601.3    $ 534.1
Service cost                          28.3      25.0        9.3        7.5
Interest cost                        102.0      92.5       40.7       37.6
Plan amendments                       --        44.3       --         40.1
Actuarial loss (gain)               (155.6)    101.6      (17.6)      10.7
Net increase from asset swap          14.8      --         12.5       --
Benefits paid                        (95.5)    (90.8)     (37.8)     (28.7)
----------------------------------------------------------------------------
Benefit obligation as of
 December 31                       1,394.1   1,500.1      608.4      601.3
----------------------------------------------------------------------------
Change in plan assets:
Fair value of plan assets as
 of January 1                      1,683.0   1,542.5        3.9        2.8
Actual return on plan assets         220.0     231.3        0.6        0.7
Company contribution                  --        --          0.4        0.4
Benefits paid                        (95.5)    (90.8)      --         --
----------------------------------------------------------------------------
Fair value of plan assets as
 of December 31                    1,807.5   1,683.0        4.9        3.9
----------------------------------------------------------------------------
Funded status of plan                413.4     182.9     (603.5)    (597.4)
Unrecognized actuarial loss
 (gain)                             (303.5)   (110.8)      24.9       30.6
Unrecognized prior service cost       57.3      63.0       24.1       27.4
Unrecognized net transition
 obligation (asset)                  (10.1)    (18.0)     120.1      129.3
----------------------------------------------------------------------------
Prepaid (accrued) benefit cost     $ 157.1  $  117.1    $(434.4)   $(410.1)
============================================================================
Assumptions used as of
 December 31:
Discount rate                         7.75%     7.00%      7.75%      7.00%
Expected long-term return on
 plan assets                         10.25%    10.25%     10.25%     10.25%
Rate of compensation increase         4.00%     4.00%      4.00%      4.00%

</TABLE>

          Net pension and other postretirement benefit costs for the three
year ended December 31, 1999 (FirstEnergy plans in 1999 and 1998 and the
Company's plan in 1997) were computed as follows:

<TABLE>
<CAPTION>
                                                             Other
                                 Pension Benefits     Postretirement Benefits
                               --------------------   ----------------------
                               1999    1998    1997      1999   1998  1997
-----------------------------------------------------------------------------
                                               (In millions)
<S>                         <C>      <C>      <C>       <C>    <C>     <C>
Service cost                $  28.3  $  25.0  $  2.7    $ 9.3  $ 7.5   $0.9
Interest cost                 102.0     92.5     8.9     40.7   37.6    3.2
Expected return on
 plan assets                 (168.1)  (152.7)  (14.7)    (0.4)  (0.3)  --
Amortization of transition
 obligation (asset)            (7.9)    (8.0)   (1.0)     9.2    9.2    1.2
Amortization of prior
 service cost                   5.7      2.3     0.4      3.3   (0.8)  --
Recognized net actuarial
 gain                          --       (2.6)   (0.4)    --     --     --
Voluntary early retirement
 program expense               --       --       5.8     --     --      0.3
----------------------------------------------------------------------------
Net benefit cost            $ (40.0) $ (43.5) $  1.7    $62.1  $53.2   $5.6
============================================================================
Company's share of total
 plan costs                 $  (4.8) $  (6.1) $  1.7    $ 7.5  $ 5.4   $5.6
----------------------------------------------------------------------------

</TABLE>


          The FirstEnergy plan's health care trend rate assumption is 5.3% in
2000, 5.2% in 2001 and 5.0% for 2002 and later years. Assumed health care
cost trend rates have a significant effect on the amounts reported for the
health care plan. An increase in the health care trend rate assumption by one
percentage point would increase the total service and interest cost
components by $4.5 million and the postretirement benefit obligation by $72.0
million. A decrease in the same assumption by one percentage point would
decrease the total service and interest cost components by $3.5 million and
the postretirement benefit obligation by $58.2 million.

TRANSACTIONS WITH AFFILIATED COMPANIES-

          Transactions with affiliated companies are included on the
Statements of Income as follows:

<TABLE>
<CAPTION>
                                                 1999     1998     1997
-------------------------------------------------------------------------
                                                     (In millions)
<S>                                             <C>      <C>       <C>
Operating revenues:
  Electric sales                                $12.6    $ 9.8     $ 6.1
  Bruce Mansfield Plant administrative and
   general charges to affiliates                  5.3      6.3       0.9
  Other transactions                              0.7      0.7       0.4
-------------------------------------------------------------------------
                                                $18.6    $16.8     $ 7.4
=========================================================================
Fuel and purchased power:
  Purchased power                               $12.9    $20.9     $12.7
  Nuclear fuel leased from OES Fuel               8.8      5.9       7.5
-------------------------------------------------------------------------
                                                $21.7    $26.8     $20.2
=========================================================================
Other operating costs:
  Rental of transmission lines                  $ 1.3    $ 1.3     $ 1.0
  Data processing services                        6.2      2.8       2.9
  Other transactions                              8.2      5.4       4.4
-------------------------------------------------------------------------
                                                $15.7    $ 9.5     $ 8.3
=========================================================================

</TABLE>


SUPPLEMENTAL CASH FLOWS INFORMATION-

          All temporary cash investments purchased with an initial maturity
of three months or less are reported as cash equivalents on the Balance
Sheets. At December 31, 1999 and 1998, cash and cash equivalents included $5
million and $2 million, respectively, to be used for the redemption of long-
term debt in the first quarter of 2000 and in 1999, respectively. The Company
reflects temporary cash investments at cost, which approximates their market
value. Noncash financing and investing activities included capital lease
transactions amounting to $27.1 million, $0.8 million and $8.5 million for
the years 1999, 1998 and 1997, respectively.

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

<TABLE>
<CAPTION>
                                         1999              1998
-----------------------------------------------------------------------
                                  Carrying  Fair    Carrying  Fair
                                   Value    Value     Value   Value
-----------------------------------------------------------------------
                                             (In millions)
<S>                                 <C>     <C>        <C>     <C>
Long-term debt                      $283    $279       $278    $294
Preferred stock                       15      14         15      16
Investments other than cash
 and cash equivalents                108     116         17      21
-----------------------------------------------------------------------

</TABLE>


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

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

REGULATORY ASSETS-

          The Company recognizes, as regulatory assets, costs which the FERC
and PPUC have authorized for recovery from customers in future periods.
Without such authorization, the costs would have been charged to income as
incurred. All regulatory assets are being recovered from customers under the
Company's regulatory plan. Based on the regulatory plan, at this time, the
Company is continuing to bill and collect cost-based rates relating to the
Company's nongeneration operations and continues the application of SFAS 71
to these operations. The Company recognized additional cost recovery of $39
million, $24 million and $11 million in 1999, 1998 and 1997, respectively, as
additional regulatory asset amortization in accordance with its regulatory
plan. Regulatory assets on the Balance Sheets are comprised of the following:

<TABLE>
<CAPTION>
                                        1999         1998
------------------------------------------------------------
                                          (In millions)
<S>                                    <C>          <C>
Competitive transition charge          $280.4       $331.0
Customer receivables for future
 income taxes                            20.3         23.6
Loss on reacquired debt                   7.1          8.2
Employee postretirement benefit costs     5.4          6.2
Other                                     1.4          2.0
-----------------------------------------------------------
    Total                              $314.6       $371.0
===========================================================

</TABLE>


2.  LEASES

          The Company leases certain transmission facilities, office space
and other property and equipment under cancelable and noncancelable leases.
Consistent with the regulatory treatment, the rentals for capital and
operating leases are charged to operating expenses on the Statements of
Income. Such costs for the three years ended December 31, 1999, are
summarized as follows:

<TABLE>
<CAPTION>

                                    1999      1998      1997
-------------------------------------------------------------
                                         (In millions)
<S>                                 <C>       <C>       <C>
Operating leases
  Interest element                  $0.6      $0.5      $0.5
  Other                              1.6       1.3       1.5
Capital leases
  Interest element                   0.6       0.6       0.7
  Other                              0.5       0.7       0.8
-------------------------------------------------------------
Total rental payments               $3.3      $3.1      $3.5
=============================================================

</TABLE>

          The future minimum lease payments as of December 31, 1999, are:

<TABLE>
<CAPTION>

                                      Capital      Operating
                                      Leases        Leases
-------------------------------------------------------------
                                         (In millions)
<S>                                   <C>             <C>
2000                                  $ 1.2           $0.2
2001                                    1.0            0.2
2002                                    1.0            0.2
2003                                    0.9            0.2
2004                                    0.8            0.2
Years thereafter                        9.0            3.0
----------------------------------------------------------
Total minimum lease payments           13.9           $4.0
Executory costs                         2.9           ====
-------------------------------------------
Net minimum lease payments             11.0
Interest portion                        6.8
-------------------------------------------
Present value of net minimum
  lease payments                        4.2
Less current portion                    0.3
-------------------------------------------
Noncurrent portion                     $3.9
===========================================

</TABLE>

3.  CAPITALIZATION

  (A)  RETAINED EARNINGS-

          Under the Company's Charter, the Company's retained earnings
unrestricted for payment of cash dividends on the Company's common stock were
$2.0 million as of December 31, 1999.

  (B)  COMPREHENSIVE INCOME-

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

  (C)  PREFERRED STOCK-

          The Company's 7.75% series of preferred stock has a restriction
which prevents early redemption prior to July 2003. All other preferred stock
may be redeemed by the Company in whole, or in part, with 30-60 days' notice.

  (D)  PREFERRED STOCK SUBJECT TO MANDATORY REDEMPTION-

          The Company's 7.625% series has an annual sinking fund requirement
for 7,500 shares beginning on October 1, 2002.

  (E)  LONG-TERM DEBT-

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

          Based on the amount of bonds authenticated by the Trustee through
December 31, 1999, the Company's annual sinking and improvement fund
requirements for all bonds issued under the mortgage amounts to $0.4 million.
The Company expects to deposit funds in 2000 that will be withdrawn upon the
surrender for cancellation of a like principal amount of bonds, which are
specifically authenticated for such purposes against unfunded property
additions or against previously retired bonds. This method can result in
minor increases in the amount of the annual sinking fund requirement. Sinking
fund requirements for first mortgage bonds and maturing long-term debt
(excluding capital leases) during the next five years are $29.0 million in
2000, $1.0 million in 2001, $1.0 million in 2002, $41.0 million in 2003 and
$40.7 million in 2004.

          The Company's obligations to repay certain pollution control
revenue bonds are secured by series of first mortgage bonds and, in some
cases, by subordinate liens on the related pollution control facilities. The
$10.3 million pollution control revenue bond is entitled to the benefit of
irrevocable bank letters of credit of $10.4 million. To the extent that
drawings are made under this letter of credit to pay principal of, or
interest on, the pollution control revenue bond, the Company is entitled to a
credit against its obligation to repay this bond. The Company pays an annual
fee of 0.525% of the amount of the letter of credit to the issuing bank and
is obligated to reimburse the bank for any drawings thereunder.

4.  SHORT-TERM BORROWINGS:

          The Company has a credit agreement with Edison whereby either
company can borrow funds from the other by issuing unsecured notes at the
prevailing prime or similar interest rate. Under the terms of this agreement,
the maximum borrowing is limited only by the availability of funds; however,
the Company's borrowing under this agreement is currently limited by the PPUC
to a total of $50 million. Either company can terminate the agreement with
six months' notice.

5.  COMMITMENTS AND CONTINGENCIES:

CAPITAL EXPENDITURES-

          The Company's current forecast reflects expenditures of
approximately $234 million for property additions and improvements from 2000-
2004, of which approximately $38 million is applicable to 2000. Investments
for additional nuclear fuel during the 2000-2004 period are estimated to be
approximately $90 million, of which approximately $24 million applies to
2000. During the same periods, the Company's nuclear fuel investments are
expected to be reduced by approximately $86 million and $18 million,
respectively, as the nuclear fuel is consumed.

NUCLEAR INSURANCE-

          The Price-Anderson Act limits the public liability relative to a
single incident at a nuclear power plant to $9.5 billion. The amount is
covered by a combination of private insurance and an industry retrospective
rating plan. Based on its present ownership interests in the Beaver Valley
Station and the Perry Plant, the Company's maximum potential assessment under
the industry retrospective rating plan (assuming the other affiliate co-
owners contribute their proportionate shares of any assessments under the
retrospective rating plan) would be $74 million per incident but not more
than $8.4 million in any one year for each incident.

          The Company is also insured as to its interest in Beaver Valley and
Perry under policies issued to the operating company for each plant. Under
these policies, up to $2.75 billion is provided for property damage and
decontamination and decommissioning costs. The Company has also obtained
approximately $367 million of insurance coverage for replacement power costs
for its interests in Beaver Valley and Perry. Under these policies, the
Company can be assessed a maximum of approximately $9.7 million for incidents
at any covered nuclear facility occurring during a policy year which are in
excess of accumulated funds available to the insurer for paying losses.

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

ENVIRONMENTAL MATTERS-

          Various federal, state and local authorities regulate the Company
with regard to air and water quality and other environmental matters. The
Company estimates additional capital expenditures for environmental
compliance of approximately $31 million, which is included in the
construction forecast provided under "Capital Expenditures" for 2000 through
2004.

          The Company is in compliance with the current sulfur dioxide (SO2)
and nitrogen oxides (NOx) reduction requirements under the Clean Air Act
Amendments of 1990. SO2 reductions are being achieved by burning lower-sulfur
fuel, generating more electricity from lower-emitting plants, and/or
purchasing emission allowances. NOx reductions are being achieved through
combustion controls and generating more electricity from lower-emitting
plants. In September 1998, the Environmental Protection Agency (EPA)
finalized regulations requiring additional NOx reductions from the Company's
Pennsylvania facilities by May 2003. The EPA's NOx Transport Rule imposes
uniform reductions of NOx emissions across a region of twenty-two states and
the District of Columbia, including Ohio and Pennsylvania, based on a
conclusion that such NOx emissions are contributing significantly to ozone
pollution in the eastern United States. In May 1999, the U.S. Court of
Appeals for the D.C. Circuit issued a stay which delays implementation of
EPA's NOx Transport Rule until the Court has ruled on the merits of various
appeals. Under the NOx Transport Rule, each of the twenty-two states are
required to submit revised State Implementation Plans (SIP) which comply with
individual state NOx budgets established by the EPA contemplating an
approximate 85% reduction in utility plant NOx emissions from projected 2007
emissions. A proposed Federal Implementation Plan accompanied the NOx
Transport Rule and may be implemented by the EPA in states which fail to
revise their SIP. In another separate but related action, eight states filed
petitions with the EPA under Section 126 of the Clean Air Act seeking
reductions of NOx emissions which are alleged to contribute to ozone
pollution in the eight petitioning states. The EPA suggests that the Section
126 petitions will be adequately addressed by the NOx Transport Program, but
a December 17, 1999 rulemaking established an alternative program which would
require nearly identical 85% NOx reductions at 392 utility plants, including
the Company's Ohio and Pennsylvania plants, by May 2003 in the event
implementation of the NOx Transport Rule is delayed. New Section 126
petitions were filed by New Jersey, Maryland, Delaware and the District of
Columbia in mid-1999 and are still under evaluation by the EPA. FirstEnergy
continues to evaluate its compliance plans and other compliance options.

          The Company is required to meet federally approved SO2 regulations.
Violations of such regulations can result in shutdown of the generating unit
involved and/or civil or criminal penalties of up to $27,500 for each day the
unit is in violation. The EPA has an interim enforcement policy for SO2
regulations in Ohio that allows for compliance based on a 30-day averaging
period. The Company cannot predict what action the EPA may take in the future
with respect to the interim enforcement policy.

          In July 1997, the EPA promulgated changes in the National Ambient
Air Quality Standard (NAAQS) for ozone and proposed a new NAAQS for
previously unregulated ultra-fine particulate matter. In May 1999, the U.S.
Court of Appeals for the D.C. Circuit remanded both standards back to the EPA
finding constitutional and other defects in the new NAAQS rules. The D.C.
Circuit Court, on October 29, 1999, denied an EPA petition for rehearing. The
Company cannot predict the EPA's action in response to the Court's remand
order. The cost of compliance with these regulations, if they are reinstated,
may be substantial and depends on the manner in which they are ultimately
implemented, if at all, by the states in which the Company operates affected
facilities.

          In September 1999, FirstEnergy received, and subsequently in
October 1999, the Company and Edison received a citizen suit notification
letter from the New York Attorney General's office alleging Clean Air Act
violations at the W. H. Sammis Plant. In November 1999, the Company and
Edison received a citizen suit notification letter from the Connecticut
Attorney General's office alleging Clean Air Act violations at the Sammis
Plant. On November 3, 1999, the EPA issued Notices of Violation (NOV) or a
Compliance Order to eight utilities covering 32 power plants, including the
Sammis Plant. In addition, the U.S. Department of Justice filed seven civil
complaints against various investor-owned utilities, which included a
complaint against the Company and Edison in the U.S. District Court for the
Southern District of Ohio. The NOV and complaint allege violations of the
Clean Air Act based on operation and maintenance of the Sammis Plant dating
back to 1984. The complaint requests permanent injunctive relief to require
the installation of "best available control technology" and civil penalties
of up to $27,500 per day of violation. The Company and Edison believe the
Sammis Plant is in full compliance with the Clean Air Act and the NOV and
complaint are without merit. However, the Company and Edison are unable to
predict the outcome of this litigation. Penalties could be imposed if the
Sammis Plant continues to operate without correcting the alleged violations
and a court determines that the allegations are valid. It is anticipated at
this time that the Sammis Plant will continue to operate while the matter is
being decided.

6.  SUMMARY OF QUARTERLY FINANCIAL DATA (UNAUDITED):

          The following summarizes certain operating results by quarter for
1999 and 1998.

<TABLE>
<CAPTION>
                             March 31,  June 30,  September 30,  December 31,
Three Months Ended             1999       1999        1999           1999
----------------------------------------------------------------------------
                                            (In millions)
<S>                            <C>       <C>         <C>           <C>
Operating Revenues             $81.4     $82.1       $82.4         $83.4
Operating Expenses and Taxes    67.1      72.4        73.2          84.5
----------------------------------------------------------------------------
Operating Income (Loss)         14.3       9.7         9.2          (1.1)
Other Income                     1.0       0.3         0.2          --
Net Interest Charges             5.0       5.9         4.9           5.1
----------------------------------------------------------------------------
Net Income (Loss)              $10.3     $ 4.1       $ 4.5         $(6.2)
============================================================================
Earnings (Loss) on Common
 Stock                         $ 9.2     $ 2.9       $ 3.3         $(7.2)
============================================================================

</TABLE>

<TABLE>
<CAPTION>

                            March 31,  June 30,  September 30,  December 31,
Three Months Ended             1998       1998        1998           1998
----------------------------------------------------------------------------
                                            (In millions)
<S>                           <C>        <C>         <C>           <C>
Operating Revenues            $78.5      $ 80.3      $87.9         $77.0
Operating Expenses and
 Taxes                         65.9        70.3       71.5          58.0
----------------------------------------------------------------------------
Operating Income               12.6        10.0       16.4          19.0
Other Income                    0.7         0.6        0.6           0.6
Net Interest Charges            5.4         5.2        5.2           5.1
----------------------------------------------------------------------------
Income Before Extraordinary
 Item                           7.9         5.4       11.8          14.5
Extraordinary Item
 (Net of Income Taxes)
  (Note 1)                     --         (30.5)      --            --
----------------------------------------------------------------------------
Net Income (Loss)             $ 7.9      $(25.1)     $11.8         $14.5
============================================================================
Earnings (Loss) on
 Common Stock                 $ 6.8      $(26.2)     $10.7         $13.3
============================================================================

</TABLE>

Report of Independent Public Accountants

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

We have audited the accompanying balance sheets and statements of
capitalization of Pennsylvania Power Company (a Pennsylvania corporation and
wholly owned subsidiary of Ohio Edison Company) as of December 31, 1999 and
1998, and the related statements of income, common stockholder's equity,
preferred stock, cash flows and taxes for each of the three years in the
period ended December 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Pennsylvania Power Company
as of December 31, 1999 and 1998, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1999,
in conformity with generally accepted accounting principles.




                                   ARTHUR ANDERSEN LLP



Cleveland, Ohio
February 11, 2000