<TABLE>
                                          THE TOLEDO EDISON COMPANY

                              CONSOLIDATED FINANCIAL AND OPERATING STATISTICS
<CAPTION>

                              Nov. 8 -     Jan. 1 -
                           Dec. 31, 1997|  Nov. 7, 1997   1996        1995        1994        1993
----------------------------------------|------------------------------------------------------------
                                        |              (Dollars in thousands)
<S>                          <C>        |  <C>         <C>         <C>         <C>         <C>
                                        |
GENERAL FINANCIAL INFORMATION           |
                                        |
Operating Revenues           $  122,669 |  $  772,707  $  897,259  $  873,657  $  864,647  $  870,841
                             ========== |  ==========  ==========  ==========  ==========  ==========
Operating Income             $   19,055 |  $  123,282  $  156,815  $  188,068  $  179,499  $   88,502
                             ========== |  ==========  ==========  ==========  ==========  ==========
Income (Loss) Before                    |
 Extraordinary Item          $    7,616 |  $   41,769  $   57,289  $   96,762  $   82,531  $ (289,275)
                             ========== |  ==========  ==========  ==========  ==========  ==========
Net Income (Loss)            $    7,616 |  $ (150,132) $   57,289  $   96,762  $   82,531  $ (289,275)
                             ========== |  ==========  ==========  ==========  ==========  ==========
Earnings (Loss) on Common               |
 Stock                       $    7,616 |  $ (169,567) $   40,363  $   78,510  $   62,311  $ (311,757)
                             ========== |  ==========  ==========  ==========  ==========  ==========
Net Utility Plant            $1,170,806 |              $2,079,742  $2,122,266  $2,204,717  $2,262,407
                             ========== |              ==========  ==========  ==========  ==========
Total Assets                 $2,758,152 |              $3,428,175  $3,532,714  $3,546,628  $3,543,520
                             ========== |              ==========  ==========  ==========  ==========
CAPITALIZATION:                         |
Common Stockholder's Equity  $  531,650 |              $  803,237  $  762,877  $  684,568  $  622,375
Preferred Stock -                       |
  Not Subject to Mandatory              |
   Redemption                   210,000 |                 210,000     210,000     210,000     210,000
  Subject to Mandatory                  |
   Redemption                     1,690 |                   3,355       5,020       6,685      28,350
Long-Term Debt                1,210,190 |               1,051,517   1,119,294   1,241,331   1,328,283
                             ---------- |              ----------  ----------  ----------  ----------
Total Capitalization         $1,953,530 |              $2,068,109  $2,097,191  $2,142,584  $2,189,008
                             ========== |              ==========  ==========  ==========  ==========
CAPITALIZATION RATIOS:                  |
Common Stockholder's Equity        27.2%|                    38.8%       36.4%       32.0%       28.4%
Preferred Stock -                       |
  Not Subject to Mandatory              |
   Redemption                      10.8 |                    10.2        10.0         9.8         9.6
  Subject to Mandatory                  |
   Redemption                        .1 |                      .2          .2          .3         1.3
Long-Term Debt                     61.9 |                    50.8        53.4        57.9        60.7
                                  ----- |                   -----        -----      -----       -----
Total Capitalization              100.0%|                   100.0%      100.0%      100.0%      100.0%
                                  ===== |                   =====       =====       =====       =====
KILOWATT-HOUR SALES (Millions):         |
Residential                         355 |       1,718       2,145       2,164       2,056        2,039
Commercial                          284 |       1,498       1,790       1,748       1,711        1,672
Industrial                          847 |       4,003       4,301       4,174       4,099        3,776
Other                                79 |         413         488         500         499          490
                             ---------- |  ----------  ----------  ----------   ---------   ----------
Total Retail                      1,565 |       7,632       8,724       8,586       8,365        7,977
Total Wholesale                     435 |       2,218       2,330       2,563       2,548        2,146
                             ---------- |  ----------  ----------  ----------   ---------   ----------
Total                             2,000 |       9,850      11,054      11,149      10,913       10,123
                             ========== |  ==========  ==========  ==========   =========   ==========
CUSTOMERS SERVED (Year-End):            |
Residential                     262,501 |                 261,541     260,007     256,998      255,109
Commercial                       27,562 |                  27,411      26,508      25,921       26,049
Industrial                        1,835 |                   1,839       1,846       1,839        1,761
Other                             2,152 |                   2,136       2,119       1,858        2,315
                             ---------- |              ----------  ----------   ---------   ----------
Total                           294,050 |                 292,927     290,480     286,616      285,234
                             ========== |              ==========  ==========   =========   ==========
Average Annual Residential              |
 kWh Usage                        7,937 |                   8,284       8,384       8,044        7,997
Peak Load-Megawatts               1,813 |                   1,758       1,738       1,620        1,568
Number of Employees (Year-End)    1,532 |                   1,643       1,809       1,887        1,909

</TABLE>

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


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

RESULTS OF OPERATIONS

          We continued to make significant progress in 1997 as we
prepare for a more competitive environment in the electric utility
industry.

          The most significant event during the year was the
approval by the Federal Energy Regulatory Commission (FERC) of the
merger of our former parent company, Centerior Energy Corporation,
with Ohio Edison Company to form FirstEnergy Corp., which came into
existence on November 8, 1997. We expect the merger to produce a
minimum of $1 billion in savings for FirstEnergy Corp. during the
first ten years of joint operations through the elimination of
duplicative activities, improved operating efficiencies, lower
capital expenditures, accelerated debt reduction, the coordination
of the companies' work forces and enhanced purchasing power.

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

          Earnings on common stock in the 1997 pre-merger period
were adversely affected by an extraordinary item resulting from the
October 1997 write-off of certain regulatory assets discussed
below. Excluding this write-off, pre-merger 1997 earnings on common
stock were $22.3 million. Earnings on common stock for the 1997
post-merger period were $7.6 million. In 1996, earnings on common
stock were $40.4 million which was lower than 1995 due primarily to
the delay in implementing our 1996 rate increase and the end of
certain regulatory accounting deferrals in November 1995.

          Operating revenues were down $1.9 million in 1997 from
1996 levels following a $23.6 million increase in 1996 compared to
1995. A factor contributing to the lower operating revenues in 1997
was a reduction in average retail prices due in part to contract
renegotiations with certain large industrial customers. The
following table summarizes the sources of changes in operating
revenues for 1997 and 1996 as compared to the previous year:

                                          1997        1996
                                          ----        ----
                                            (In millions)

  Increased retail kilowatt-hour sales    $ 14.4     $19.2
  Change in average retail price           (23.4)      3.4
  Sales to utilities                         7.8       3.2
  Other                                     (0.7)     (2.2)
                                          ------     -----
  Net Change                              $ (1.9)    $23.6
                                          ======     =====

          Total kilowatt-hour sales were at a new high with 11.9
billion kilowatt-hours sold.  Retail sales totaled 9.2 billion
kilowatt-hours, a 5.4% increase from the prior year level.
Residential sales decreased 3.3% in 1997 following a 0.9% decline
the previous year. Commercial sales were down 0.5% after a 2.4%
increase in 1996. Industrial sales increased 12.8% in the current
year following a 3.0% increase in 1996. Excluding sales to the
North Star BHP Steel facility which began operations in late 1996,
industrial sales increased 4.6% in 1997. Sales to other utilities
increased 11.6%, compared to an 8.5% decrease in 1996. Overall,
there was a 7.2% increase in 1997 total kilowatt-hour sales based
on the strength of industrial sales following a 0.9% decrease in
1996 compared to 1995.

          We spent more for fuel and purchased power during 1997
and 1996 compared to 1996 and 1995, respectively, due to higher
purchased power costs. In 1997, the increase was partially offset
by lower fuel expense. An increase in the mix of nuclear generation
to coal-fired generation contributed to the lower fuel costs.
Nuclear expenses in 1997 were relatively unchanged from 1996 as
increased operating costs at the Beaver Valley Plant were
substantially offset by lower operating costs at the Perry and
Davis-Besse Plants. Nuclear expenses in 1996 increased from 1995
due principally to higher operating costs at Davis-Besse resulting
from its refueling outage. Other operating costs in the pre-merger
period of 1997 included a $9.3 million charge for severance and
early retirement benefits. In 1996, other operating costs decreased
compared to 1995 reflecting the Company's cost reduction program.

          Depreciation and amortization increased in the 1997 pre-
merger period and in 1996 principally due to changes in
depreciation rates approved in the April 1996 Public Utilities
Commission of Ohio (PUCO) rate order. In the post-merger period
depreciation and amortization was lower due to a fair value
adjustment which was recorded in connection with accounting for the
merger, which was partially offset by amortization of goodwill.
Amortization of regulatory assets remained nearly unchanged in 1997
after a large increase in 1996 following cessation of the Rate
Stabilization Program deferrals and initiation of their
amortization. Income taxes increased in 1997, compared to 1996, as
a function of taxable income, following a decrease in 1996 from the
prior year due to lower pretax operating income.

          Other income increased in the 1997 pre-merger and post-
merger periods reflecting interest income on trust notes acquired
in connection with the Bruce Mansfield Plant lease refinancing (see
Note 3). The increase in income in the pre-merger period was offset
in part by merger-related expenses. A write-down of two inactive
production facilities totaling $11 million and our share of merger-
related expenses were the primary causes of the decrease in other
income in 1996, compared to 1995. Interest costs were higher
overall in 1997 because new secured notes and short-term borrowings
for the Bruce Mansfield Plant lease refinancing exceeded the
expense reduction from the redemption and refinancing of debt
securities in 1997 and 1996.

CAPITAL RESOURCES AND LIQUIDITY

          Our financial position has improved over the past five
years.  Cash generated from operations was 27% higher in 1997 than
it was in 1992 due to higher revenues and aggressive cost controls.
At the end of 1997 we had 890 fewer employees than five years ago
as a result of our focus on becoming more competitive. The
availability of additional cash generated from operations increased
the Company's ability to redeem higher cost debt and preferred
stock. We have also actively pursued refinancing activities which
replace higher cost debt and preferred stock with lower cost
issues. The merger has resulted in improved credit ratings which
have lowered the cost of new issues. The following table summarizes
changes in credit ratings resulting from the merger.

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

</TABLE>


          Excluding the effect of the Bruce Mansfield Plant lease
refinancing described below, interest costs and preferred dividends
have been reduced by approximately $2.8 million from 1996 levels.
Through economic refinancings and redemption of higher cost debt we
have reduced the average cost of outstanding debt from 9.4% in 1992
to 8.25% in 1997. The Bruce Mansfield Plant lease refinancing is
expected to provide an average annual after tax savings of about
$10 million resulting from an increase in interest income and a
decrease in rent expense offset in part by increased interest
expense on secured notes issued as part of the transaction.

          Our cash requirements in 1998 for operating expenses,
construction expenditures and scheduled debt maturities are
expected to be met without issuing additional securities. We have
cash requirements of approximately $442.6 million for the 1998-2002
period to meet scheduled maturities of long-term debt and preferred
stock. Of that amount, approximately $40.6 million applies to 1998.

          We had about $22.2 million of cash and temporary
investments and no short-term indebtedness on December 31, 1997.
Upon completion of the merger, application of purchase accounting
reduced bondable property such that we are not currently able to
issue additional first mortgage bonds, except in connection with
refinancings. Together with CEI, as of December 31, 1997, we had
unused borrowing capability of $125 million under a revolving line
of credit.

          Our capital spending for the period 1998-2002 is expected
to be about $200 million (excluding nuclear fuel), of which
approximately $50 million applies to 1998. This spending level is
about $30 million lower than actual capital outlays over the past
five years. Investments for additional nuclear fuel during the
1998-2002 period are estimated to be approximately $140 million, of
which about $27 million applies to 1998. During the same periods,
our nuclear fuel investments are expected to be reduced by
approximately $85 million and $30 million, respectively, as the
nuclear fuel is consumed. Also, we have operating lease commitments
net of trust income of approximately $432 million for the 1998-2002
period, of which approximately $81 million relates to 1998. We
recover the cost of nuclear fuel consumed and operating leases
through our electric rates.

OUTLOOK

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

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

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

          Based on the regulatory environment we operate in today
and our regulatory plan, we believe we will continue to be able to
bill and collect cost-based rates relating to our nonnuclear
operations; accordingly, it is appropriate that we continue the
application of SFAS 71 for those operations. However, as discussed
below, changes in the regulatory environment are on the horizon.
The Ohio legislature is in the discussion stages of restructuring
the electric utility industry within the State. We do not expect
any changes in regulation to be effective within the next two years
and we cannot assess what the ultimate impact may be.

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

          On January 6, 1998, the co-chairs of the Ohio General
Assembly's Joint Select Committee on Electric Industry Deregulation
released their draft report of a plan which proposes to give
customers a choice from whom they buy electricity beginning January
1, 2000. No consensus has been reached by the full Committee; in
the meantime, legislation consistent with the co-chairs' draft
report may be introduced into the General Assembly by one or both
of the co-chairs. We cannot predict when or if this legislation
will be introduced and if it will be passed into law. We continue
to study the potential effects that such legislation would have on
our financial position and results of operations.

          The Financial Accounting Standards Board (FASB) issued a
proposed accounting standard for nuclear decommissioning costs in
February 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 reported in
October 1997 that it plans to continue working on the proposal in
1998.

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

          We are aware of our potential involvement in the cleanup
of several sites containing hazardous waste. Although these sites
are not on the Superfund National Priorities List, they are
generally being administered by various governmental entities in
the same manner as they would be administered if they were on such
list. Allegations that we disposed of hazardous waste at these
sites, and the amount involved are often unsubstantiated and
subject to dispute. Federal law provides that all "potentially
responsible parties" for a particular site be held liable on a
joint and several basis. If we were held liable for 100% of the
cleanup costs of all the sites referred to above, the cost could be
as high as $100 million. However, we believe that the actual
cleanup costs will be substantially lower than $100 million, that
our share of any cleanup costs will be substantially less than 100%
and that most of the other parties involved are financially able to
contribute their share. We have accrued a $1.1 million liability as
of December 31, 1997, based on estimates of the costs of cleanup
and our proportionate responsibility for such cost.  We believe
that the ultimate outcome of these matters will not have a material
adverse effect on our financial condition, cash flows or results of
operations.

IMPACT OF THE YEAR 2000 ISSUE

          The Year 2000 Issue is the result of computer programs
being written using two digits rather than four to identify the
applicable year. Any of our programs that have date-sensitive
software may recognize a date using "00" as the year 1900 rather
than the year 2000. This could result in system failures or
miscalculations.

          We currently believe that with modifications to existing
software and conversions to new software, the Year 2000 Issue will
pose no significant operational problems for our computer systems
as so modified and converted. If these modifications and
conversions are not made, or are not completed on a timely basis,
the Year 2000 Issue could have a  material impact on our
operations.

          We have initiated formal communications with many of our
major suppliers to determine the extent to which we are vulnerable
to those third parties' failure to resolve their own Year 2000
problems. Our total Year 2000 project cost and estimates to
complete are based on currently available information and do not
include the estimated costs and time associated with the impact of
a third party's Year 2000 issue. There can be no guarantee that the
failure of other companies to resolve their own Year 2000 issues
will not have a material adverse effect on us.

          We are utilizing both internal and external resources to
reprogram and/or replace and test the software for Year 2000
modifications. Most of our Year 2000 problems will be resolved
through system replacements. The different phases of our Year 2000
project will be completed at various dates, most of which occur in
1999. We plan to complete the entire Year 2000 project by mid-
December 1999. Of the total project cost, approximately $10 million
will be capitalized since those costs are attributable to the
purchase of new software for total system replacements (i.e., the
Year 2000 solution comprises only a portion of the benefit
resulting from the system replacements). The remaining $1 million
will be expensed as incurred over the next two years. To date, we
have incurred approximately $150,000 related to the assessment of,
and preliminary efforts in connection with, our Year 2000 project
and the development of a remediation plan.

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


<TABLE>
                                       THE TOLEDO EDISON COMPANY

                                   CONSOLIDATED STATEMENTS OF INCOME


<CAPTION>
                                        Nov. 8 -    |    Jan. 1 -      For the Years Ended December 31,
                                                    |                 --------------------------------
                                      Dec. 31, 1997 |  Nov. 7, 1997           1996           1995
----------------------------------------------------|-------------------------------------------------
                                                    |            (In thousands)
<S>                                     <C>         |   <C>                 <C>            <C>
OPERATING REVENUES (1)                  $122,669    |   $ 772,707           $897,259       $873,657
                                        --------    |   ---------           --------       --------
OPERATING EXPENSES AND TAXES:                       |
  Fuel and purchased power                21,261    |     149,890            168,909        156,874
  Nuclear operating costs                 28,977    |     132,931            161,321        145,836
  Other operating costs                   22,668    |     158,939            173,530        182,838
                                        --------    |   ---------           --------       ---------
    Total operation and                             |
     maintenance expenses                 72,906    |     441,760            503,760        485,548
  Provision for depreciation                        |
   and amortization                       10,795    |      84,682             98,042         92,911
  Amortization (deferral) of net                    |
   regulatory assets                       2,338    |      14,304             17,041        (16,799)
  General taxes                           13,126    |      77,426             89,647         91,042
  Income taxes                             4,449    |      31,253             31,954         32,887
                                        --------    |   ---------           --------       --------
    Total operating expenses and taxes   103,614    |     649,425            740,444        685,589
                                        --------    |   ---------           --------       --------
                                                    |
OPERATING INCOME                          19,055    |     123,282            156,815        188,068
                                                    |
OTHER INCOME (LOSS)                        2,153    |       2,153             (4,585)        18,835
                                        --------    |   ---------           --------       --------
                                                    |
INCOME BEFORE NET INTEREST CHARGES        21,208    |     125,435            152,230        206,903
                                        --------    |   ---------           --------       --------
NET INTEREST CHARGES:                               |
  Interest on long-term debt              13,689    |      74,264             85,535         98,550
  Allowance for borrowed funds                      |
   used during construction                 (138)   |        (259)              (827)          (674)
  Other interest expense                      41    |       9,661             10,233         12,265
                                        --------    |   ---------           --------       --------
    Net interest                          13,592    |      83,666             94,941        110,141
                                        --------    |   ---------           --------       --------
INCOME BEFORE EXTRAORDINARY ITEM           7,616    |     41,769             57,289         96,762
                                                    |
EXTRAORDINARY ITEM (NET OF INCOME                   |
 TAXES) (Note 1)                               -    |    (191,901)                 -              -
                                        --------    |   ---------           --------       --------
                                                    |
NET INCOME (LOSS)                          7,616    |    (150,132)            57,289         96,762
                                                    |
PREFERRED STOCK DIVIDEND                            |
 REQUIREMENTS                                  -    |      19,435             16,926         18,252
                                        --------    |   ---------           --------       --------
EARNINGS (LOSS) ON COMMON STOCK         $  7,616    |   $(169,567)          $ 40,363       $ 78,510
                                        ========    |   =========           ========       ========

<FN>

(1)  Includes electric sales to The Cleveland Electric Illuminating
     Company of $17.7 million, $98.5  million, $105.0 million and $102.1
     million in the November 8-December 31, 1997 period, the January 1-
     November 7, 1997 period, 1996 and 1995, respectively.

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


</TABLE>


<TABLE>
                                        THE TOLEDO EDISON COMPANY

                                        CONSOLIDATED BALANCE SHEETS
<CAPTION>
At December 31,                                                          1997        1996
---------------------------------------------------------------------------------------------
                                                                          (In thousands)

                    ASSETS                                                       |
<S>                                                                  <C>         |  <C>
UTILITY PLANT:                                                                   |
  In service                                                         $1,763,495  |  $3,138,344
  Less--Accumulated provision for depreciation                          619,222  |   1,084,933
                                                                     ----------  |  ----------
                                                                      1,144,273  |   2,053,411
                                                                     ----------  |  ----------
  Construction work in progress--                                                |
    Electric plant                                                       19,901  |      21,479
    Nuclear fuel                                                          6,632  |       4,852
                                                                     ----------  |  ----------
                                                                         26,533  |      26,331
                                                                     ----------  |  ----------
                                                                      1,170,806  |   2,079,742
                                                                     ----------  |  ----------
OTHER PROPERTY AND INVESTMENTS:                                                  |
  Shippingport Capital Trust (Note 3)                                   312,873  |           -
  Nuclear plant decommissioning trusts                                   85,956  |      64,093
  Other                                                                   3,164  |       6,281
                                                                     ----------  |  ----------
                                                                        401,993  |      70,374
                                                                     ----------  |  ----------
CURRENT ASSETS:                                                                  |
  Cash and cash equivalents                                              22,170  |      81,454
  Receivables--                                                                  |
    Customers                                                            19,071  |      18,337
    Associated companies                                                 15,199  |      13,519
    Other                                                                 2,593  |       5,567
  Notes receivable from associated companies                             40,802  |      81,817
  Materials and supplies, at average cost--                                      |
    Owned                                                                31,892  |      33,160
    Under consignment                                                     9,538  |      10,383
  Prepayments and other                                                  26,437  |      26,206
                                                                     ----------  |  ----------
                                                                        167,702  |     270,443
                                                                     ----------  |  ----------
DEFERRED CHARGES:                                                                |
  Regulatory assets                                                     442,724  |     927,629
  Goodwill                                                              514,462  |           -
  Property taxes                                                         45,338  |      45,625
  Other                                                                  15,127  |      34,362
                                                                     ----------  |  ----------
                                                                      1,017,651  |   1,007,616
                                                                     ----------  |  ----------
                                                                     $2,758,152  |  $3,428,175
                                                                     ==========  |  ==========
                CAPITALIZATION AND LIABILITIES                                   |
                                                                                 |
CAPITALIZATION (See Consolidated Statements of Capitalization):                  |
  Common stockholder's equity                                        $  531,650  |  $  803,237
  Preferred stock--                                                              |
    Not subject to mandatory redemption                                 210,000  |     210,000
    Subject to mandatory redemption                                       1,690  |       3,355
  Long-term debt                                                      1,210,190  |   1,051,517
                                                                     ----------  |  ----------
                                                                      1,953,530  |   2,068,109
                                                                     ----------  |  ----------
CURRENT LIABILITIES:                                                             |
    Currently payable long-term debt and preferred stock                 69,979  |      87,609
    Accounts payable--                                                           |
        Associated companies                                             21,173  |      30,016
        Other                                                            60,756  |      46,496
    Accrued taxes                                                        34,441  |      24,829
    Accrued interest                                                     26,633  |      22,348
    Other                                                                22,603  |      18,722
                                                                     ----------  |  ----------
                                                                        235,585  |     230,020
                                                                     ----------  |  ----------
DEFERRED CREDITS:                                                                |
    Accumulated deferred income taxes                                   104,543  |     565,600
    Accumulated deferred investment tax credits                          43,265  |      80,884
    Pensions and postretirement benefits                                113,254  |     102,214
    Other                                                               307,975  |     381,348
                                                                     ----------  |  ----------
                                                                        569,037  |   1,130,046
                                                                     ----------  |  ----------
COMMITMENTS, GUARANTEES AND CONTINGENCIES                                        |
    (Notes 3 and 6)                                                              |
                                                                     ----------  |  ----------
                                                                     $2,758,152  |  $3,428,175
                                                                     ==========  |  ==========
<FN>

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

</TABLE>


<TABLE>
                                          THE TOLEDO EDISON COMPANY

                                    CONSOLIDATED STATEMENTS OF CAPITALIZATION
<CAPTION>
At December 31,                                                                      1997   |     1996
--------------------------------------------------------------------------------------------|-----------
                         (Dollars in thousands, except per share amounts)                   |
<S>                                                                                 <C>     |    <C>
COMMON STOCKHOLDER'S EQUITY:                                                                |
  Common stock, $5 par value, authorized 60,000,000 shares -                                |
    39,133,887 shares outstanding                                                $  195,670 | $  195,687
  Premium on capital stock                                                          328,364 |    481,057
  Other paid-in capital                                                                   - |    121,056
  Retained earnings (Note 4A)                                                         7,616 |      5,437
                                                                                 ---------- | ----------
    Total common stockholder's equity                                               531,650 |    803,237
                                                                                 ---------- | ----------
                                        Number of Shares        Optional                    |
                                          Outstanding       Redemption Price                |
                                       -----------------  --------------------              |
                                       1997        1996   Per Share  Aggregate              |
                                       ----        ----   ---------  ---------              |
<S>                                  <C>          <C>      <C>        <C>                   |
PREFERRED STOCK (Note 4B):                                                                  |
$100 par value, authorized                                                                  |
 3,000,000 shares;$25 par value,                                                            |
 authorized 12,000,000 shares                                                               |
  Not Subject to Mandatory                                                                  |
   Redemption:                                                                              |
    $  100 par $ 4.25                 160,000     160,000  $104.63  $ 16,740         16,000 |     16,000
               $ 4.56                  50,000      50,000   101.00     5,050          5,000 |      5,000
               $ 4.25                 100,000     100,000   102.00    10,200         10,000 |     10,000
               $ 8.32                 100,000     100,000   102.46    10,246         10,000 |     10,000
               $ 7.76                 150,000     150,000   102.44    15,366         15,000 |     15,000
               $ 7.80                 150,000     150,000   101.65    15,248         15,000 |     15,000
               $10.00                 190,000     190,000   101.00    19,190         19,000 |     19,000
    $   25 par $ 2.21               1,000,000   1,000,000    25.25    25,250         25,000 |     25,000
               $ 2.365              1,400,000   1,400,000    27.75    38,850         35,000 |     35,000
               Series A Adjustable  1,200,000   1,200,000    25.00    30,000         30,000 |     30,000
               Series B Adjustable  1,200,000   1,200,000    25.00    30,000         30,000 |     30,000
                                    ---------   ---------           --------     ---------- | ----------
                                    5,700,000   5,700,000           $216,140        210,000 |    210,000
                                    =========   =========           ========     ---------- | ----------
  Subject to Mandatory Redemption                                                           |
  (Note 4C):                                                                                |
  $  100 par   $ 9.375                33,550      50,200  $100.49  $  3,371          3,355 |      5,020
  Redemption within one year                                                         (1,665)|
(1,665)
                                    ---------   ---------           --------    ----------- |  ---------
                                       33,550      50,200           $  3,371          1,690 |      3,355
                                    =========   =========           ========    ----------- |  ---------
LONG-TERM DEBT (Note 4D):                                                                   |
  First mortgage bonds:                                                                     |
      6.125% due 1997                                                                     - |     31,400
      7.250% due 1999                                                                85,000 |     85,000
      7.500% due 2002                                                                26,000 |     26,000
      8.000% due 2003                                                                35,725 |     35,725
      7.875% due 2004                                                               145,000 |    145,000
                                                                                ----------- | ----------
        Total first                                                                         |
         mortgage bonds                                                             291,725 |    323,125
                                                                                ----------- |  ---------
-
  Unsecured notes:                                                                          |
      5.750% due 2003                                                                 3,900 |      4,100
     10.000% due 2010                                                                 1,000 |      1,000
                                                                                ----------- |  ---------
        Total unsecured notes                                                         4,900 |      5,100
                                                                                ----------- |  ---------
  Notes secured by subordinate mortgage:                                                    |
      8.750% due 1997                                                                     - |      8,000
                                                                                ----------- |  ---------

</TABLE>

<TABLE>
                                      THE TOLEDO EDISON COMPANY

                                    CONSOLIDATED STATEMENTS OF CAPITALIZATION (Cont.)
<CAPTION>
At December 31,                                                                      1997        1996
-------------------------------------------------------------------------------------------------------
                                                                                      (In thousands)
<S>                                                                                <C>     |     <C>
LONG-TERM DEBT (Cont.):                                                                    |
  Secured notes:                                                                           |
      7.940% due 1998                                                                5,000 |     5,000
      8.000% due 1998                                                                7,000 |     7,000
      9.300% due 1998                                                               26,000 |    26,000
     10.000% due 1998                                                                  650 |       650
      7.720% due 1999                                                               15,000 |    15,000
      8.470% due 1999                                                                3,500 |     3,500
      7.190% due 2000                                                               45,000 |         -
      7.380% due 2000                                                               14,000 |    14,000
      7.460% due 2000                                                               16,500 |    16,500
      7.500% due 2000                                                                  100 |       100
      8.500% due 2001                                                                8,000 |     8,000
      9.500% due 2001                                                               21,000 |    21,000
      8.180% due 2002                                                               17,000 |    17,000
      8.620% due 2002                                                                7,000 |     7,000
      8.650% due 2002                                                                5,000 |     5,000
      7.760% due 2003                                                                5,000 |     5,000
      7.780% due 2003                                                                1,000 |     1,000
      7.820% due 2003                                                               38,400 |    38,400
      7.850% due 2003                                                               15,000 |    15,000
      7.910% due 2003                                                                3,000 |     3,000
      7.670% due 2004                                                               70,000 |         -
      7.130% due 2007                                                               30,000 |         -
      3.800% due 2011*                                                              31,250 |    31,250
      8.000% due 2019                                                               67,300 |    67,300
      7.625% due 2020                                                               45,000 |    45,000
      7.750% due 2020                                                               54,000 |    54,000
      9.220% due 2021                                                               15,000 |    15,000
     10.000% due 2021                                                               15,000 |    15,000
      7.400% due 2022                                                               30,900 |    30,900
      9.875% due 2022                                                                    - |    10,100
      6.875% due 2023                                                               20,200 |    20,200
      7.550% due 2023                                                               37,300 |    37,300
      8.000% due 2023                                                               49,300 |    49,300
      6.100% due 2027                                                               10,100 |         -
                                                                                ---------- | ---------
        Total secured notes                                                        728,500 |   583,500
                                                                                ---------- | ---------
  Debentures:                                                                              |
      8.700% due 2002                                                              135,000 |   135,000
                                                                                ---------- | ---------
  Nuclear fuel lease obligations (Note 3)                                           64,843 |    84,735
                                                                                ---------- | ---------
  Net unamortized premium (discount) on debt (Note 2)                               53,536 |    (1,999)
                                                                                ---------- | ---------
  Long-term debt due within one year                                               (68,314)|   (85,944)
                                                                                ---------- | ---------
    Total long-term debt                                                         1,210,190 | 1,051,517
                                                                                ---------- |----------
TOTAL CAPITALIZATION                                                            $1,953,530 |$2,068,109
                                                                                ========== |==========

<FN>
  *Denotes variable rate issue with December 31, 1997 interest rate shown.

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

</TABLE>

<TABLE>
                                                  THE TOLEDO EDISON COMPANY

                                       CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
<CAPTION>
                                    Nov. 8  -     |      Jan. 1  -        For the Years Ended December 31,
                                                  |                       -------------------------------
                                  Dec. 31, 1997   |    Nov. 7, 1997              1996         1995
--------------------------------------------------|------------------------------------------------------
                                                  |                (In thousands)
<S>                                  <C>          |       <C>                <C>             <C>
Balance at beginning of period       $    -       |        $  5,437           $(34,926)      $(113,235)
Net income (loss)                     7,616       |        (150,132)            57,289          96,762
                                     ------       |        --------           --------       ---------
                                      7,616       |        (144,695)            22,363         (16,473)
--------------------------------------------------|----------------------------------------------------
Cash dividends on preferred                       |
 stock                                    -       |          20,973             16,926          18,454
Purchase accounting fair                          |
 value adjustment                         -       |        (165,668)                 -               -
Other                                     -       |               -                  -              (1)
                                     ------       |        --------           --------       ---------
                                          -       |        (144,695)            16,926          18,453
                                     ------       |        --------           --------       ---------
Balance at end of period (Note 4A)   $7,616       |        $      -           $  5,437       $ (34,926)
======================================================================================================

</TABLE>


<TABLE>
                        CONSOLIDATED STATEMENTS OF CAPITAL STOCK AND OTHER PAID-IN CAPITAL
<CAPTION>
                                                                                      Preferred Stock
                                                                            ------------------------------------------
                                                                              Not Subject to           Subject to
                                             Common Stock                   Mandatory Redemption  Mandatory Redemption
                              -------------------------------------------   --------------------  --------------------
                                                     Premium      Other
                                Number      Par     on Capital    Paid-In     Number       Par      Number       Par
                              of Shares     Value     Stock       Capital   of Shares     Value    of Shares    Value
                              ---------  ---------  ----------    --------  ----------   --------  ---------   -------
                                                    (Dollars in thousands)
<S>                          <C>          <C>         <C>         <C>        <C>         <C>        <C>        <C>
Balance, January 1, 1995     39,133,887   $195,687    $481,057    $121,059   5,700,000   $210,000   483,500    $18,350
  Redemptions--
    $100 par  $9.375                                                                                (16,650)    (1,665)
    $  25 par $2.81                                                                                (400,000)   (10,000)
----------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1995   39,133,887    195,687     481,057     121,059   5,700,000    210,000    66,850      6,685
  Unrealized loss on
   securities                                                           (3)
  Redemptions--
    $100 par  $9.375                                                                                (16,650)    (1,665)
----------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1996   39,133,887    195,687    481,057      121,056   5,700,000    210,000    50,200      5,020
  Redemptions--
    $100 par  $9.375                                                                                (16,650)    (1,665)
----------------------------------------------------------------------------------------------------------------------
  Purchase accounting
   fair value adjustment                       (17)  (152,693)    (121,056)
----------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1997   39,133,887   $195,670   $328,364    $       -   5,700,000   $210,000    33,550    $ 3,355
=======================================================================================================================

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

</TABLE>



<TABLE>
                                     THE TOLEDO EDISON COMPANY

                                CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
                                           Nov. 8 -       Jan. 1 -    For the Years Ended December 31,
                                                      |                --------------------------------
                                        Dec. 31, 1997 |  Nov. 7, 1997         1996           1995
------------------------------------------------------|------------------------------------------------
                                                      |          (In thousands)
<S>                                        <C>        |  <C>              <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES:                 |
Net Income (Loss)                          $ 7,616    |  $ (150,132)      $  57,289       $  96,762
Adjustments to reconcile net income                   |
 to net cash from operating activities:               |
  Provision for depreciation                          |
   and amortization                         10,795    |      84,682          98,042          92,911
  Nuclear fuel and lease amortization        5,316    |      30,354          33,294          54,099
  Other amortization, net                    2,338    |      14,304          17,041         (30,817)
  Deferred income taxes, net                 3,113    |    (121,002)         17,919          16,316
  Investment tax credits, net                 (400)   |      (3,601)         (4,321)         (8,641)
  Allowance for equity funds used                     |
   during construction                         (61)   |        (776)         (1,045)           (874)
  Extraordinary item                             -    |     295,233               -               -
  Receivables                                1,923    |         317          (9,610)         (6,283)
  Net proceeds from accounts                          |
   receivable securitization                     -    |           -          78,461               -
  Materials and supplies                    (4,430)   |       6,543           5,697           7,988
  Accounts payable                         (12,989)   |      18,679          (9,737)          8,043
  Other                                    (29,443)   |      55,233          (1,509)          9,419
                                          --------    |    --------        --------        --------
    Net cash provided from (used for)                 |
     operating activities                  (16,222)   |     229,834         281,521         238,923
                                          --------    |    --------        --------        --------
                                                      |
CASH FLOWS FROM FINANCING ACTIVITIES:                 |
New Financing--                                       |
  Long-term debt                                 -    |     149,804            (260)         92,439
  Short-term borrowings, net                     -    |           -               -          20,950
Redemptions and Repayments--                          |
  Preferred stock                                -    |       1,665           1,665          11,665
  Long-term debt                                 -    |      85,419         110,108         246,714
  Short-term borrowings, net                     -    |           -          20,950               -
Dividend Payments--                                   |
  Preferred stock                            4,156    |      12,589          16,926          18,454
                                           -------    |   ---------        --------        --------
    Net cash provided from (used for)                 |
     financing activities                   (4,156)   |      50,131        (149,909)       (163,444)
                                           -------    |   ---------        --------        --------
                                                      |
CASH FLOWS FROM INVESTING ACTIVITIES:                 |
Property additions                           6,568    |      36,680          47,961          53,492
Loans to associated companies                    -    |           -          81,817               -
Loan payments from associated companies    (15,297)   |     (25,718)              -               -
Capital trust investments                   (7,314)   |     320,187               -               -
Other                                       (6,585)   |      10,350          14,049          16,118
                                           -------    |   ---------       ---------       ---------
    Net cash used for (provided from)                 |
    investing activities                   (22,628)   |     341,499         143,827          69,610
                                           -------    |   ---------       ---------       ---------
Net increase (decrease) in cash and                   |
 cash equivalents                            2,250    |     (61,534)        (12,215)          5,869
Cash and cash equivalents at beginning                |
 of period                                  19,920    |      81,454          93,669          87,800
                                           -------    |   ---------       ---------       ---------
Cash and cash equivalents at end                      |
 of period                                 $22,170    |   $  19,920       $  81,454       $  93,669
                                           =======    |   =========       =========       =========
SUPPLEMENTAL CASH FLOWS INFORMATION:                  |
Cash Paid During the Period--                         |
  Interest (net of amounts capitalized)    $16,000    |   $  73,000       $  92,000       $  93,000
                                           =======    |   =========       =========       =========
  Income taxes                             $28,000    |   $  25,300       $  15,950       $  22,500
                                           =======    |   =========       =========       =========

<FN>

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

</TABLE>

<TABLE>
                                             THE TOLEDO EDISON COMPANY

                                       CONSOLIDATED STATEMENTS OF TAXES
<CAPTION>
                                        Nov. 8-           Jan. 1 -      For the Years Ended December 31,
                                                  |                      -------------------------------
                                    Dec. 31, 1997 |      Nov. 7, 1997        1996            1995
--------------------------------------------------|-----------------------------------------------------
                                                  |                   (In thousands)
<S>                                  <C>          |      <C>               <C>             <C>
GENERAL TAXES:                                    |
Real and personal property           $  5,998     |      $  40,495         $  45,446       $  47,100
State gross receipts                    5,826     |         28,590            33,793          33,149
Social security and unemployment          818     |          4,444             5,689           5,684
Other                                     484     |          3,897             4,719           5,109
                                     --------     |      ---------         ---------       ---------
  Total general taxes                $ 13,126     |      $  77,426         $  89,647       $  91,042
                                     ========     |      =========         =========       =========
                                                  |
PROVISION FOR INCOME TAXES:                       |
Currently payable--                               |
  Federal                            $  2,859     |      $  55,192         $  13,582       $  27,512
  State (1)                               209     |              -                 -               -
                                     --------     |      ---------         ---------       ---------
                                        3,068     |         55,192            13,582          27,512
                                     --------     |      ---------         ---------       ---------
Deferred, net--                                   |
  Federal                               3,096     |       (121,002)           17,919          16,316
  State (1)                                17     |              -                 -               -
                                     --------     |      ---------         ---------       ---------
                                        3,113     |       (121,002)           17,919          16,316
                                     --------     |      ---------         ---------       ---------
Investment tax credit amortization       (400)    |         (3,601)           (4,321)         (8,641)
                                     --------     |      ---------         ---------       ---------
  Total provision for income taxes   $  5,781     |      $ (69,411)        $  27,180       $  35,187
                                     ========     |      =========         =========       =========
INCOME STATEMENT CLASSIFICATION                   |
OF PROVISION FOR INCOME TAXES:                    |
Operating income                     $  4,449     |      $  31,253         $  31,954       $  32,887
Other income                            1,332     |          2,667            (4,774)          2,300
Extraordinary item                          -     |       (103,331)                -               -
                                     --------     |      ---------         ---------       ---------
  Total provision for income taxes   $  5,781     |      $ (69,411)        $  27,180       $  35,187
                                     ========     |      =========         =========       =========
RECONCILIATION OF FEDERAL INCOME                  |
 TAX EXPENSE AT STATUTORY RATE TO                 |
 TOTAL PROVISION FOR INCOME TAXES:                |
Book income before provision for                  |
 income taxes                        $ 13,397     |      $(219,543)        $  84,469       $ 131,949
                                     ========     |      =========         =========       =========
Federal income tax expense at                     |
 statutory rate                      $  4,689     |      $ (76,840)        $  29,564       $  46,182
Increases (reductions) in taxes                   |
 resulting from--                                 |
  Amortization of investment tax                  |
   credits                               (400)    |         (3,601)           (4,321)         (8,641)
  Depreciation                              -     |          3,428            (3,742)         (1,259)
  Other, net                            1,492     |          7,602             5,679          (1,095)
                                     --------     |      ---------         ---------       ---------
    Total provision for income                    |
     taxes                           $  5,781     |      $ (69,411)        $  27,180       $  35,187
                                     ========     |      =========         =========       =========
ACCUMULATED DEFERRED INCOME TAXES                 |
  AT DECEMBER 31:                                 |
Property basis differences           $190,636     |                        $ 612,000       $ 627,000
Deferred nuclear expense               83,052     |                           84,000          85,000
Deferred sale and leaseback costs     (17,431)    |                                -          (4,000)
Unamortized investment tax credits    (20,960)    |                          (44,000)        (46,000)
Unused alternative minimum tax                    |
 credits                             (108,156)    |                          (99,837)        (80,396)
Other                                 (22,598)    |                           13,437          (8,569)
                                     --------     |                        ---------       ---------
  Net deferred income tax liability  $104,543     |                        $ 565,600       $ 573,035
                                     ========     |                        =========       =========

<FN>

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

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

</TABLE>



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

          The consolidated financial statements include The
Toledo Edison Company (Company) and its 90% owned subsidiary, The
Toledo Edison Capital Corporation (TECC). The subsidiary was
formed in 1997 to make equity investments in a business trust in
connection with the financing transactions related to the Bruce
Mansfield Plant sale and leaseback (see Note 3). The Cleveland
Electric Illuminating Company (CEI), an affiliate, has a 10%
interest in TECC. All significant intercompany transactions have
been eliminated. The Company is a wholly owned subsidiary of
FirstEnergy Corp. (FirstEnergy). Prior to the merger in November
1997 (see Note 2), the Company and CEI were the principal
operating subsidiaries of Centerior Energy Corporation
(Centerior). The merger was accounted for using the purchase
method of accounting in accordance with generally accepted
accounting principles, and the applicable effects were reflected
on the separate financial statements of Centerior's direct
subsidiaries as of the merger date. Accordingly, the post-merger
financial statements reflect a new basis of accounting, and pre-
merger period and post-merger period financial results (separated
by a heavy black line) are presented. The Company follows the
accounting policies and practices prescribed by The Public
Utilities Commission of Ohio (PUCO) and the Federal Energy
Regulatory Commission (FERC). The preparation of financial
statements in conformity with generally accepted accounting
principles requires management to make periodic estimates and
assumptions that affect the reported amounts of assets,
liabilities, revenues and expenses. Certain prior year amounts
have been reclassified to conform with the current year
presentation.

    REVENUES-

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

          Receivables from customers include sales to
residential, commercial and industrial customers located in the
Company's service area and sales to wholesale customers. There
was no material concentration of receivables at December 31, 1997
or 1996, with respect to any particular segment of the Company's
customers.

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

    REGULATORY PLAN-

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

          All of the Company's regulatory assets related to its
nonnuclear operations are being recovered under provisions of the
regulatory plan (see Regulatory Assets). The Company recognized a
fair value purchase accounting adjustment to reduce nuclear plant
by $842 million in connection with the FirstEnergy merger (see
Note 2); that fair value adjustment recognized for financial
reporting purposes will ultimately satisfy the $647 million asset
reduction commitment contained in the regulatory plan. For
regulatory purposes, the Company will recognize the $647 million
of accelerated amortization over the regulatory plan period.

    UTILITY PLANT AND DEPRECIATION-

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

          The Company provides for depreciation on a straight-
line basis at various rates over the estimated lives of property
included in plant in service. In its April 1996 rate order, the
PUCO approved depreciation rates for the Company of 2.95% for
nuclear property and 3.13% for nonnuclear property. The
annualized composite rate was approximately 2.6% for the post-
merger period.

          Annual depreciation expense includes approximately $9.8
million for future decommissioning costs applicable to the
Company's ownership interests in three nuclear generating units.
The Company's share of the future obligation to decommission
these units is approximately $327 million in current dollars and
(using a 3.5% escalation rate) approximately $774 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 $81 million for decommissioning through its
electric rates from customers through December 31, 1997. 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 $86.0 million invested
in external decommissioning trust funds as of December 31, 1997.
Earnings on these funds are reinvested with a corresponding
increase to the decommissioning liability. The Company has also
recognized an estimated liability of approximately $9.6 million
at December 31, 1997 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 February 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 indicated in October 1997 that it plans to continue work
on the proposal in 1998.

    COMMON OWNERSHIP OF GENERATING FACILITIES-

          The Company, CEI, Duquesne Light Company, Ohio Edison
Company (OE) and its wholly owned subsidiary, Pennsylvania Power
Company (Penn), constitute the Central Area Power Coordination
Group (CAPCO). The CAPCO companies own and/or lease, as tenants
in common, various power generating facilities. Each of the
companies is obligated to pay a share of the costs associated
with any jointly owned facility in the same proportion as its
interest. The Company's portion of operating expenses associated
with jointly owned facilities is included in the corresponding
operating expenses on the Consolidated Statements of Income. The
amounts reflected on the Consolidated Balance Sheet under utility
plant at December 31, 1997 include the following:

<TABLE>
<CAPTION>
                       Utility      Accumulated      Construction      Ownership/
                        Plant      Provision for       Work in         Leasehold
Generating Units     in Service     Depreciation       Progress         Interest
----------------------------------------------------------------------------------
                                              (In millions)
<S>                   <C>              <C>               <C>              <C>
Bruce Mansfield
  Units 2 and 3       $ 38.3           $ 9.7             $ .4             18.61%
Beaver Valley Unit 2    57.5             1.0              3.1             19.91%
Davis-Besse            200.8               -              2.2             48.62%
Perry                  315.9               -               .7             19.91%
--------------------------------------------------------------------------------
  Total               $612.5           $10.7             $6.4
=================================================================================

</TABLE>




          The Bruce Mansfield Plant and Beaver Valley Unit 2 are
being leased through sale and leaseback transactions (see Note 3)
and the above related amounts represent construction expenditures
subsequent to the transaction.

    NUCLEAR FUEL-

          The Company leases its nuclear fuel and pays for the
fuel as it is consumed (see Note 3). The Company amortizes the
cost of nuclear fuel based on the rate of consumption. The
Company's electric rates include amounts for the future disposal
of spent nuclear fuel based upon the payments to the DOE.

    INCOME TAXES-

          Details of the total provision for income taxes are
shown on the Consolidated Statements of Taxes. Deferred income
taxes result from timing differences in the recognition of
revenues and expenses for tax and accounting purposes. Investment
tax credits, which were deferred when utilized, are being
amortized over the recovery period of the related property. The
liability method is used to account for deferred income taxes.
Deferred income tax liabilities related to tax and accounting
basis differences are recognized at the statutory income tax
rates in effect when the liabilities are expected to be paid.
Alternative minimum tax credits of $108 million, which may be
carried forward indefinitely, are available to reduce future
federal income taxes.

    RETIREMENT BENEFITS-

          Centerior had sponsored jointly with the Company, CEI
and Centerior Service Company (Service Company) a noncontributing
pension plan (Centerior Pension Plan) which covered all employee
groups. Upon retirement, employees receive a monthly pension
generally based on the length of service. Under certain
circumstances, benefits can begin as early as age 55. The funding
policy was to comply with the Employee Retirement Income Security
Act of 1974 guidelines. In December 1997, the Centerior Pension
Plan was merged into the FirstEnergy pension plans. In connection
with the Ohio Edison-Centerior merger, the Company recorded fair
value purchase accounting adjustments to recognize the net gain,
prior service cost and net transition asset (obligation)
associated with the pension and postretirement benefit plans (see
Note 2).

          The following sets forth the funded status of the
former Centerior Pension Plan. The Company's share of the former
Centerior Pension Plan's total projected benefit obligation
approximates 30% at December 31, 1997.

At December 31,                                   1997     1996
----------------------------------------------------------------
                                                  (In millions)
Actuarial present value                                 |
 of benefit obligations:                                |
  Vested benefits                                $418.9 |  $325.8
  Nonvested benefits                               30.5 |    15.8
--------------------------------------------------------|--------
Accumulated benefit obligation                   $449.4 |  $341.6
========================================================|========
Plan assets at fair value                        $461.9 |  $420.8
Actuarial present value of                              |
 projected benefit obligation                     533.4 |   395.0
--------------------------------------------------------|--------
Projected benefit obligation in                         |
 excess of plan assets                             71.5 |  (25.8)
Unrecognized net gain (loss)                       (3.0)|   55.0
Unrecognized prior service cost                       - |  (14.2)
Unrecognized net transition asset                     - |   32.3
--------------------------------------------------------|--------
    Net pension liability                        $ 68.5 | $ 47.3
=================================================================

          The assets of the Centerior Pension Plan consisted
primarily of investments in common stocks, bonds, guaranteed
investment contracts, cash equivalent securities and real estate.
Net pension costs for the three years ended December 31, 1997
were computed as follows:

<TABLE>
<CAPTION>
                                     Nov. 8 -     Jan. 1 -
                                 Dec. 31, 1997  Nov. 7, 1997      1996       1995
---------------------------------------------------------------------------------
                                        (In millions)
<S>                                 <C>       |      <C>         <C>        <C>
Service cost-benefits earned                  |
during the period                    $  2.3   |     $ 11.1      $ 12.6     $  9.8
Interest on projected benefit                 |
 obligation                             6.1   |       25.4        27.9       25.8
Return on plan assets                  (7.7)  |      (38.0)      (49.7)     (52.8)
Net deferral (amortization)               -   |       (2.4)        1.8        9.2
Voluntary early retirement                    |
 program expense                       23.0   |        4.8           -          -
----------------------------------------------|------------------------------------
    Net pension cost                 $ 23.7   |     $  0.9      $ (7.4)    $ (8.0)
==============================================|====================================
Company's share, including                    |
 pro rata share of the Service                |
 Company's costs                     $  5.7   |      $  3.5      $ (2.4)    $ (2.7)
-----------------------------------------------------------------------------------
</TABLE>


          A September 30 measurement date was used for 1996
reporting. The assumed discount rates used in determining the
actuarial present value of the projected benefit obligation were
7.25% in 1997, 7.75% in 1996 and 8.0% in 1995. The assumed rate
of increase in future compensation levels used to measure this
obligation was 4.0% in 1997. The rate of annual compensation
increase assumption in 1996 was 3.5% for 1997 and 4.0%
thereafter. The rate of annual compensation increase assumption
in 1995 was 3.5% for 1996 and 1997 and 4.0% thereafter. Expected
long-term rates of return on plan assets were assumed to be 10%
in 1997 and 11% in 1996 and 1995. At December 31, 1997 and 1996,
the Company's net pension liability included in Pensions and
Other Postretirement Benefits on the Consolidated Balance Sheets
was $18.1 million and $61.9 million, respectively.

          Centerior had sponsored jointly with its former
subsidiaries a postretirement benefit plan which provided all
employee groups certain health care, death and other
postretirement benefits other than pensions. The plan was
contributory, with retiree contributions adjusted annually. The
plan was not funded.

          The accumulated postretirement benefit obligation and
accrued postretirement benefit cost for the Centerior
postretirement benefit plan are as follows:

At December 31,                               1997         1996
-----------------------------------------------------------------
                                               (In millions)
Accumulated postretirement benefit                    |
  obligation allocation:                              |
    Retirees                                  $209.8  |  $ 177.1
    Fully eligible active plan                        |
     participants                                9.8  |      3.9
    Other active plan participants              46.9  |     30.9
------------------------------------------------------|---------
Accumulated postretirement benefit                    |
 obligation                                    266.5  |    211.9
Unrecognized transition obligation                 -  |   (120.1)
Unrecognized net gain                              -  |     44.4
------------------------------------------------------|---------
  Net postretirement benefit liability        $266.5  |  $ 136.2
================================================================

          Net periodic postretirement benefit costs for the three
years ended December 31, 1997 were computed as follows:

<TABLE>
<CAPTION>
                                                Nov. 8 -          Jan. 1 -
                                            Dec. 31, 1997      Nov. 7, 1997       1996         1995
-----------------------------------------------------------------------------------------------------
                                                         |           (In millions)
<S>                                          <C>         |      <C>              <C>            <C>
Service cost-benefits attributed                         |
 to the period                                  $0.5     |         $ 1.8         $  2.1        $  1.7
Interest cost on accumulated                             |
 benefit obligation                              2.8     |          13.5           17.8          17.9
Amortization of transition obligation              -     |           6.4            7.5           7.5
Amortization of gain                               -     |          (0.9)             -          (0.6)
---------------------------------------------------------|--------------------------------------------
  Net periodic postretirement benefit cost      $3.3     |         $20.8          $27.4         $26.5
=========================================================|===========================================
Company's share, including pro rata                      |
  share of the Service Company's costs          $1.5     |         $ 8.9          $ 9.0         $ 9.6
-----------------------------------------------------------------------------------------------------
</TABLE>


          The Consolidated Balance Sheet classification of
Pensions and Other Postretirement Benefits at December 31, 1997
and 1996 includes the Company's share of the accrued
postretirement benefit liability of $95.2 million and $40.3
million, respectively.

          The health care trend rate assumption is approximately
6.0% in the first year gradually decreasing to approximately 4.0%
for the year 2008 and later. The discount rates used to compute
the accumulated postretirement benefit obligation were 7.25% in
1997, 7.75% in 1996 and 8.0% in 1995. An increase in the health
care trend rate assumption by one percentage point in all years
would increase the accumulated postretirement benefit obligation
by approximately $7.7 million and the aggregate annual service
and interest costs by approximately $0.5 million. A September 30
measurement date was used for 1996 reporting.

    TRANSACTIONS WITH AFFILIATED COMPANIES-

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

          The Company's transactions with CEI and the other
FirstEnergy operating subsidiaries (OE and Penn) from the
November 8, 1997 merger date are primarily for firm power,
interchange power, transmission line rentals and jointly owned
power plant operations and construction (see Note 3). Beginning
in May 1996, Centerior Funding began serving as the transferor in
connection with the accounts receivable securitization for the
Company and CEI.

          The Service Company (formerly a wholly owned subsidiary
of Centerior and now a wholly owned subsidiary of FirstEnergy)
provides support services at cost to the Company and other
affiliated companies. The Service Company billed the Company
$13.9 million, $51.5 million, $59.8 million and $66.7 million in
the November 8-December 31, 1997 period, the January 1-
November 7, 1997 period, 1996 and 1995, respectively, for such
services.

    SUPPLEMENTAL CASH FLOWS INFORMATION-

          All temporary cash investments purchased with an
initial maturity of three months or less are reported as cash
equivalents on the Consolidated Balance Sheets. The Company
reflects temporary cash investments at cost, which approximates
their fair market value. Noncash financing and investing
activities included capital lease transactions amounting to $2
million, $12 million, $32 million and $12 million in the November
8-December 31, 1997 period, the January 1-November 7, 1997
period, 1996 and 1995, respectively.

          All borrowings with initial maturities of less than one
year are defined as financial instruments under generally
accepted accounting principles and are reported on the
Consolidated Balance Sheets at cost, which approximates their
fair market value. The following sets forth the approximate fair
value and related carrying amounts of all other long-term debt,
preferred stock subject to mandatory redemption and investments
other than cash and cash equivalents as of December 31:
                                  1997               1996
                            ----------------   ---------------
                            Carrying  Fair     Carrying  Fair
                             Value     Value     Value   Value
----------------------------------------------------------------
                                          (In millions)
Long-term debt               $1,214   $1,218  |  $1,054   $1,086
Preferred stock              $    3   $    3  |  $    5   $    5
Investments other                             |
 than cash and cash                           |
 equivalents:                                 |
  Debt securities                             |
  - (Maturing in more                         |
    than 10 years)           $  295  $  303   |  $    -   $    -
  Equity securities               3       3   |       -        -
  All other                      86      85   |      52       52
----------------------------------------------|-----------------
                             $  384  $  391   |  $   52   $   52
================================================================

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

          The fair value of investments other than cash and cash
equivalents represent cost (which approximates fair value) or the
present value of the cash inflows based on the yield to maturity.
The yields assumed were based on financial instruments with
similar characteristics and terms. Investments other than cash
and cash equivalents include decommissioning trusts investments.
Unrealized gains and losses applicable to the decommissioning
trusts have been recognized in the trust investments with a
corresponding change to the decommissioning liability. In 1996,
the Company and CEI transferred most of their investment assets
in existing trusts into Centerior pooled trust funds for the two
companies. The amounts in the table represent the Company's pro
rata share of the fair value of such noncash investments. The
other debt and equity securities referred to above are in the
held-to-maturity category. The Company has no securities held for
trading purposes.

    REGULATORY ASSETS-

          The Company recognizes, as regulatory assets, costs
which the FERC and PUCO have authorized for recovery from
customers in future periods. Without such authorization, the
costs would have been charged to income as incurred. All
regulatory assets related to nonnuclear operations are being
recovered from customers under the Company's regulatory plan.
Based on the regulatory plan, at this time, the Company believes
it will continue to be able to bill and collect cost-based rates
(with the exception of the Company's nuclear operations as
discussed below); accordingly, it is appropriate that the Company
continue the application of SFAS No. 71, "Accounting for the
Effects of Certain Types of Regulation" (SFAS 71), in the
foreseeable future for its nonnuclear operations.

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

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

At December 31,                                 1997      1996
----------------------------------------------------------------
                                                  (In millions)
Nuclear unit expenses                          $207.4  |  $214.8
Customer receivables for future income                 |
 taxes                                           96.5  |   391.4
Rate stabilization program deferrals            172.0  |   179.8
Sale and leaseback costs *                      (76.9) |    91.7
Loss on reacquired debt                          21.1  |    24.2
Other                                            22.6  |    25.7
-------------------------------------------------------|---------
  Total                                        $442.7  |  $927.6
================================================================

*  Includes the gain from the Bruce Mansfield Plant sale which
   was reclassified as a regulatory liability in connection with
   the purchase accounting adjustments, consistent with the
   ratemaking treatment.

2. OHIO EDISON-CENTERIOR MERGER:

          FirstEnergy was formed on November 8, 1997 by the
merger of OE and Centerior. FirstEnergy holds directly all of the
issued and outstanding common shares of OE and all of the issued
and outstanding common shares of Centerior's former direct
subsidiaries, which include, among others, the Company and CEI.
As a result of the merger, the former common shareholders of OE
and Centerior now own all of the outstanding shares of
FirstEnergy Common Stock. All other classes of capital stock of
OE and its subsidiaries and of the subsidiaries of Centerior are
unaffected by the Merger and remain outstanding.

          The merger was accounted for as a purchase of
Centerior's net assets with 77,637,704 shares of FirstEnergy
Common Stock through the conversion of each outstanding Centerior
Common Stock share into 0.525 of a share of FirstEnergy Common
Stock (fractional shares were paid in cash). Based on an imputed
value of $20.125 per share, the purchase price was approximately
$1.582 billion which also included approximately $20 million of
merger related costs. Goodwill of approximately $2.1 billion was
recognized by FirstEnergy (to be amortized on a straight-line
basis over forty years), which represented the excess of the
purchase price over Centerior's net assets after fair value
adjustments. Such amount may be adjusted if additional
information produces changed assumptions over the twelve months
following the merger as FirstEnergy continues to integrate
operations and evaluate options with respect to its generation
portfolio.

          The Company's merger purchase accounting adjustments,
which were recognized in its accounting records, primarily
consist of (1) revaluation of the Company's nuclear generating
units to fair value ($561 million), based upon the results of
independent appraisals and estimated discounted future cash flows
expected to be generated by its nuclear generating units (the
estimated cash flows are based upon management's current view of
the likely cost recovery associated with the nuclear units); (2)
adjusting by $55 million its long-term debt to estimated fair
value; (3) adjusting its obligations related to retirement
benefits (pension liability - $53 million and postretirement
obligation - $51 million); (4) recognizing the Company's
estimated severance and other compensation liabilities ($24
million); (5) adjustment of the Beaver Valley Unit 2 deferred
rent liability by $57 million to reflect remaining payments on a
straight-line basis; and (6) adjusting the Company's common
equity by $108 million. The nuclear assets revaluation does not
include decommissioning since that obligation is expected to be
recovered with the cash flows provided by the regulated portion
of the business. Other assets and liabilities were not adjusted
since they remain subject to rate regulation on a historical cost
basis. See Note 8.

3. LEASES:

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

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

          As co-lessee with CEI, the Company is also obligated
for CEI's lease payments. If CEI is unable to make its payments
under the Bruce Mansfield Plant lease, the Company would be
obligated to make such payments. No such payments have been made
on behalf of CEI. (CEI's minimum lease payments as of December
31, 1997 were $793 million.)

          The Company is selling 150 megawatts of its Beaver
Valley Unit 2 leased capacity entitlement to CEI. Operating
revenues for this transaction were $16.8 million, $87.4 million,
$99.4 million and $97.6 million in the November 8-December 31,
1997 period, the January 1-November 7, 1997 period, 1996 and
1995, respectively. This sale is expected to continue through the
end of the lease period. The future minimum lease payments
through 2017 associated with Beaver Valley Unit 2 are
approximately $1.2 billion.

          Nuclear fuel is currently financed for the Company and
CEI through leases with a special-purpose corporation. As of
December 31, 1997, $157 million of nuclear fuel ($64 million for
the Company) was financed under a lease financing arrangement
totaling $190 million ($90 million of intermediate-term notes and
$100 million from bank credit arrangements). The notes mature
from 1998 through 2000 and the bank credit arrangements expire in
October 1998. Lease rates are based on intermediate-term note
rates, bank rates and commercial paper rates.

          Consistent with the regulatory treatment, the rentals
for capital and operating leases are charged to operating
expenses on the Consolidated Statements of Income. Such costs for
the three years ended December 31, 1997 are summarized as
follows:

                      Nov. 8 -      Jan. 1 -
                   Dec. 31, 1997 |  Nov. 7, 1997   1996    1995
---------------------------------|------------------------------
                                 |     (In millions)
Operating leases                 |
  Interest element     $28.0     |     $ 57.4    $ 82.5  $ 85.0
  Other                 13.5     |       23.1      42.6    17.8
Capital leases                   |
  Interest element       1.0     |        6.0       7.5     8.2
  Other                  5.3     |       30.4      38.6    43.6
---------------------------------|-----------------------------
    Total rentals      $47.8     |     $116.9    $171.2  $154.6
==============================================================

The future minimum lease payments as of December 31, 1997 are:

                       Capital  Operating   Capital    Trust
                        Leases    Leases     Income     Net
--------------------------------------------------------------
                                     (In millions)
1998                     $32.1   $  103.9   $  22.5   $   81.4
1999                      22.5      106.5      21.8       84.7
2000                      12.8      104.8      20.6       84.2
2001                       6.1      108.0      19.4       88.6
2002                       3.0      111.1      18.0       93.1
Years thereafter           2.7    1,430.1     130.3    1,299.8
--------------------------------------------------------------
Total minimum lease
 payments                 79.2   $1,964.4    $232.6   $1,731.8
                                 ========    ======   ========
Interest portion          14.4
------------------------------
Present value of net
 minimum lease payments   64.8
Less current portion      29.4
------------------------------
Noncurrent portion       $35.4
==============================

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

4. CAPITALIZATION:

  (A)  RETAINED EARNINGS-

          The Company has a provision in its mortgage applicable
to approximately $62 million of outstanding first mortgage bonds
that requires common stock dividends to be paid out of its total
balance of retained earnings. The merger purchase accounting
adjustments included resetting the retained earnings balance to
zero at the November 8, 1997 merger date.

  (B)  PREFERRED AND PREFERENCE STOCK-

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

          The preferred dividend rates on the Company's Series A
and Series B fluctuate based on prevailing interest rates and
market conditions. The dividend rates for these issues averaged
7.03% and 7.71%, respectively, in 1997.

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

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

  (C)  PREFERRED STOCK SUBJECT TO MANDATORY REDEMPTION-

       Annual sinking fund requirements for the next five years
are $1.7 million in each year 1998 and 1999.

  (D)  LONG-TERM DEBT-

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

          Sinking fund requirements for first mortgage bonds and
maturing long-term debt (excluding capital leases) for the next
five years are:

                                  (In millions)
--------------------------------------------------------
                    1998             $ 39.0
                    1999              103.8
                    2000               75.9
                    2001               29.5
                    2002              191.0
---------------------------------------------------------

          The Company's obligations to repay certain pollution
control revenue bonds are secured by several series of first
mortgage bonds. One pollution control revenue bond issue is
entitled to the benefit of an irrevocable bank letter of credit
of $31.3 million. To the extent that drawings are made under this
letter of credit to pay principal of, or interest on, the
pollution control revenue bonds, the Company is entitled to a
credit against its obligation to repay those bonds. The Company
pays an annual fee of 1.875% of the amount of the letter of
credit to the issuing bank and is obligated to reimburse the bank
for any drawings thereunder.

          The Company and CEI have letters of credit of
approximately $225 million in connection with the sale and
leaseback of Beaver Valley Unit 2 that expire in June 1999. The
letters of credit are secured by first mortgage bonds of the
Company and CEI in the proportion of 60% and 40%, respectively
(see Note 3).

5. SHORT-TERM BORROWINGS:

          FirstEnergy has a $125 million revolving credit
facility that expires in May 1998. FirstEnergy and the Service
Company may borrow under the facility, with all borrowings
jointly and severally guaranteed by the Company and CEI.
FirstEnergy plans to transfer any of its borrowed funds to the
Company and CEI. The credit agreement is secured with first
mortgage bonds of the Company and CEI in the proportion of 60%
and 40%, respectively. The credit agreement also provides the
participating banks with a subordinate mortgage security interest
in the properties of the Company and CEI. The banks' fee is
0.625% per annum payable quarterly in addition to interest on any
borrowings. There were no borrowings under the facility at
December 31, 1997. Also, the Company may borrow from its
affiliates on a short-term basis.

6. COMMITMENTS, GUARANTEES AND CONTINGENCIES:

    CAPITAL EXPENDITURES-

          The Company's current forecast reflects expenditures of
approximately $200 million for property additions and
improvements from 1998-2002, of which approximately $50 million
is applicable to 1998. Investments for additional nuclear fuel
during the 1998-2002 period are estimated to be approximately
$140 million, of which approximately $27 million applies to 1998.
During the same periods, the Company's nuclear fuel investments
are expected to be reduced by approximately $85 million and $30
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 $8.92
billion. The amount is covered by a combination of private
insurance and an industry retrospective rating plan. Based on its
present ownership and leasehold interests in Beaver Valley Unit
2, the Davis-Besse Nuclear Power Station (Davis-Besse) and the
Perry Nuclear Power Plant (Perry), the Company's maximum
potential assessment under the industry retrospective rating plan
(assuming the other CAPCO companies were to contribute their
proportionate share of any assessments under the retrospective
rating plan) would be $70 million per incident but not more than
$8.8 million in any one year for each incident.

          The Company is also insured as to its respective
interests in Beaver Valley Unit 2, Davis-Besse 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 $260 million of insurance
coverage for replacement power costs for its respective interests
in Beaver Valley Unit 2, Davis-Besse and Perry. Under these
policies, the Company can be assessed a maximum of approximately
$11 million for incidents at any covered nuclear facility
occurring during a policy year which are in excess of accumulated
funds available to the insurer for paying losses.

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

    GUARANTEE-

          The Company, together with the other CAPCO companies,
has severally guaranteed certain debt and lease obligations in
connection with a coal supply contract for the Bruce Mansfield
Plant. As of December 31, 1997, the Company's share of the
guarantee (which approximates fair market value) was $8.3
million. The price under the coal supply contract, which includes
certain minimum payments, has been determined to be sufficient to
satisfy the debt and lease obligations. The Company's total
payments under the coal supply contract were $29.9 million, $31.4
million and $24.5 million during 1997, 1996 and 1995,
respectively. The Company's minimum annual payments are
approximately $9 million under the contract, which expires
December 31, 1999.

    ENVIRONMENTAL MATTERS-

          Various federal, state and local authorities regulate
the Company with regard to air and water quality and other
environmental matters. The Company has estimated additional
capital expenditures for environmental compliance of
approximately $11 million, which is included in the construction
forecast provided under "Capital Expenditures" for 1998 through
2002.

          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
through the year 1999 will be achieved by burning lower-sulfur
fuel, generating more electricity from lower-emitting plants,
and/or purchasing emission allowances. Plans for complying with
reductions required for the year 2000 and thereafter have not
been finalized. The Environmental Protection Agency (EPA) is
conducting additional studies which could indicate the need for
additional NOX  reductions from the Bruce Mansfield Plant by the
year 2003. In addition, the EPA is also considering the need for
additional NOX reductions from the Company's Ohio facilities. On
November 7, 1997, the EPA proposed uniform reductions of NOX
emissions across a region of twenty-two states, including Ohio
and the District of Columbia (NOX Transport Rule) after
determining that such NOX emissions are contributing
significantly to ozone pollution in the eastern United States. In
a 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. A December 1997 EPA
Memorandum of Agreement proposes to finalize the NOX Transport
Rule by September 30, 1998 and establishes a schedule for EPA
action on the Section 126 petitions. The cost of NOX reductions,
if required, may be substantial. The Company 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 $25,000 for each day the unit is in violation.
The EPA has an interim enforcement policy for SO2 regulations in
Ohio that allows for compliance based on a 30-day averaging
period. The Company cannot predict what action the EPA may take
in the future with respect to proposed regulations or the interim
enforcement policy.

          The Company is aware of its potential involvement in
the cleanup of several hazardous waste disposal sites. The
Company has accrued a liability totaling $1.1 million at December
31, 1997 based on estimates of the costs of cleanup and its
proportionate responsibility for such costs. The Company believes
that the ultimate outcome of these matters will not have a
material adverse effect on its financial condition, cash flows or
results of operations.

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

7. SUMMARY OF QUARTERLY FINANCIAL DATA (UNAUDITED):

          The following summarizes certain consolidated operating
results by quarter for 1997 and 1996.

<TABLE>
<CAPTION>
                                    Three Months Ended
                               ----------------------------
                               Mar. 31,  June 30,  Sept. 30,   Oct. 1  -       Nov. 8  -
                                 1997     1997       1997     Nov. 7, 1997 |  Dec. 31, 1997
---------------------------------------------------------------------------|---------------
                                              (In millions)                |
<S>                            <C>       <C>        <C>         <C>        |     <C>
Operating Revenues             $217.1    $222.1     $241.3      $   92.2   |     $122.7
Operating Expenses                                                         |
 and Taxes                      184.7     186.1      191.9          86.7   |      103.6
---------------------------------------------------------------------------|------------
Operating Income                 32.4      36.0       49.4           5.5   |       19.1
Other Income (Loss)               (.4)       .4        5.0          (2.9)  |        2.1
Net Interest Charges             23.2      23.3       27.2          10.0   |       13.6
---------------------------------------------------------------------------|-----------
Income (Loss) Before                                                       |
 Extraordinary Item               8.8      13.1       27.2          (7.4)  |        7.6
Extraordinary Item                                                         |
 (Net of Income Taxes)                                                     |
  (Note 1)                          -         -          -        (191.9)  |          -
---------------------------------------------------------------------------|-----------
Net Income (Loss)              $  8.8   $  13.1     $ 27.2       $(199.3)  |     $  7.6
---------------------------------------------------------------------------|-----------
Earnings (Loss) on Common                                                  |
 Stock                         $  4.6   $   8.9     $ 23.0       $(206.2)  |     $  7.6
--------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
                               March 31,  June 30,  September 30,   December 31,
                                 1996       1996         1996           1996
------------------------------------------------------------------------------------------
                                               (In millions)
<S>                            <C>       <C>           <C>             <C>
Operating Revenues             $210.8    $210.9        $252.2          $223.3
Operating Expenses and Taxes    177.9     180.3         200.5           181.7
------------------------------------------------------------------------------
Operating Income                 32.9      30.6          51.7            41.6
Other Income (Loss)              (5.5)       .7            .3               -
Net Interest Charges             24.1      23.7          24.0            23.2
------------------------------------------------------------------------------
Net Income                     $  3.3    $  7.6        $ 28.0          $ 18.4
------------------------------------------------------------------------------
Earnings (Loss) on Common
 Stock                         $  (.9)  $  3.4         $ 23.7          $ 14.2
------------------------------------------------------------------------------
</TABLE>


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

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

                                 Year Ended December 31,
                                 -----------------------
                                   1997         1996
--------------------------------------------------------
                                      (In millions)

Operating Revenues                 $895        $897
Operating Expenses and Taxes        742         728
                                   ----        ----
Operating Income                    153         169
Other Income (Loss)                  10          (3)
Net Interest Charges                 91          89
                                   ----        ----
Net Income                         $ 72        $ 77
===================================================

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

9. PENDING MERGER OF THE COMPANY INTO CEI:

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

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

          For the merging companies, the combined pro forma operating
revenues were $2.527 billion, $2.554 billion and $2.516 billion and the
combined pro forma net income was $220 million (excluding the extraordinary
item discussed in Note 1 and a similar item for CEI), $218 million and $281
million for the years 1997, 1996 and 1995, respectively. The pro forma data
is based on accounting for the merger of the Company and CEI on a method
similar to a pooling of interests and for 1997 and 1996 includes pro forma
adjustments to reflect the effect of the OE and Centerior merger (see Note
8). The pro forma data is not necessarily indicative of the results of
operations which would have been reported had the merger been in effect
during those years or which may be reported in the future. The pro forma
data should be read in conjunction with the audited financial statements of
both the Company and CEI.


Report of Independent Public Accountants

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

We have audited the accompanying consolidated balance sheets and
consolidated statements of capitalization of  The Toledo Edison Company (an
Ohio corporation and wholly owned subsidiary of FirstEnergy Corp.) and
subsidiary as of December 31, 1997 (post-merger) and 1996 (pre-merger), and
the related consolidated statements of income, retained earnings, capital
stock and other paid-in capital, cash flows and taxes for the years ended
December 31, 1996 and 1995 and the period from January 1, 1997 to November
7, 1997 (pre-merger), and the period from November 8, 1997 to December 31,
1997 (post-merger). These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of The Toledo Edison
Company and subsidiary as of December 31, 1997 (post-merger) and 1996 (pre-
merger), and the results of their operations and their cash flows for the
years ended December 31, 1996 and 1995 and the period from January 1, 1997
to November 7, 1997 (pre-merger), and the period from November 8, 1997 to
December 31, 1997 (post-merger), in conformity with generally accepted
accounting principles.






                                ARTHUR ANDERSEN LLP


Cleveland, Ohio
February 13, 1998