**JERSEY
      CENTRAL POWER & LIGHT COMPANY**





**2005
      ANNUAL
      REPORT TO STOCKHOLDERS**











Jersey
      Central Power
& Light Company is a wholly owned electric utility operating subsidiary of
      FirstEnergy Corp. It engages in the distribution and sale of electric energy
      in
      an area of approximately 3,300 square miles in New Jersey. It also engages
      in
      the sale, purchase and interchange of electric energy with other electric
      companies. The area it serves has a population of approximately 2.5
      million.




















**Contents**
            
            **Page**Glossary
                of
                Terms
            
            i-iiReport
                of
                Independent Registered Public Accounting Firm
            
            
            1Selected
                Financial Data
            
            
            2Management's
                Discussion and Analysis
            
            
            3-14Consolidated
                Statements of Income
            
            
            15Consolidated
                Balance Sheets
            
            
            16Consolidated
                Statements of Capitalization
            
            
            17Consolidated
                Statements of Common Stockholder's Equity
            
            
            18Consolidated
                Statements of Preferred Stock
            
            
            18Consolidated
                Statements of Cash Flows
            
            
            19Consolidated
                Statements of Taxes
            
            
            20Notes
                to
                Consolidated Financial Statements
            
            
            21-40











**GLOSSARY
      OF
      TERMS**





The
      following
      abbreviations and acronyms are used in this report to identify Jersey Central
      Power & Light Company and its affiliates:





ATSI
            American
                Transmission Systems, Inc., owns and operates transmission
                facilitiesCEI
            The
                Cleveland
                Electric Illuminating Company, an affiliated Ohio electric
                utilityCompanies
            OE,
                CEI, TE,
                Penn, JCP&L, Met-Ed and PenelecFES
            FirstEnergy
                Solutions Corp., provides energy-related products and
                servicesFESC
            FirstEnergy
                Service Company, provides legal, financial, and other corporate support
                servicesFirstEnergy
            FirstEnergy
                Corp., a public utility holding companyGPU
            GPU,
                Inc.,
                former parent of JCP&L, Met-Ed and Penelec, which merged with
                FirstEnergy on
              November 7,
                2001GPUS
            GPU
                Service
                Company, previously provided corporate support servicesJCP&L
            Jersey
                Central
                Power & Light CompanyJCP&L
                Transition
            JCP&L
                Transition Funding LLC, a Delaware limited liability company and
                issuer of
                transition
              BondsMet-Ed
            Metropolitan
                Edison Company, an affiliated Pennsylvania electric
                utilityNGC
            FirstEnergy
                Nuclear Generation Corp., owns nuclear generating
                facilitiesOE
            Ohio
                Edison
                Company, an affiliated Ohio electric utilityOhio
                Companies
            CEI,
                OE and
                TEPenelec
            Pennsylvania
                Electric Company, an affiliated Pennsylvania electric
                utilityPenn
            Pennsylvania
                Power Company, an affiliated Pennsylvania electric utilityTE
            The
                Toledo
                Edison Company, an affiliated Ohio electric utilityThe
                following
                abbreviations and acronyms are used to identify frequently used terms
                in
                this report:AOCL
            Accumulated
                Other Comprehensive LossAPB
            Accounting
                Principles BoardAPB
                29
            APB
                Opinion
                No. 29, "Accounting for Stock Issued to Employees"ARB
            Accounting
                Research BulletinARB
                43
            ARB
                No. 43,
                "Restatement and Revision of Accounting Research
                Bulletins"ARO
            Asset
                Retirement ObligationBGS
            Basic
                Generation ServiceCTC
            Competitive
                Transition ChargeECAR
            East
                Central
                Area Reliability Coordination AgreementEITF
            Emerging
                Issues Task ForceEITF
                03-1
            EITF
                Issue No.
                03-1, "The Meaning of Other-Than-Temporary and Its Application to
                Certain
              Investments”EITF
                04-13
            EITF
                Issue No.
                04-13, "Accounting for Purchases and Sales of Inventory with the
                Same
                CounterpartyEPACT
            Energy
                Policy
                Act of 2005FASB
            Financial
                Accounting Standards BoardFERC
            Federal
                Energy
                Regulatory CommissionFIN
                46R
            FASB
                Interpretation (revised December 2003), "Consolidation of Variable
                Interest Entities"FIN
                47
            FIN
                47,
                "Accounting for Conditional Asset Retirement Obligations - an
                interpretation of FASB Statement No. 143"FMB
            First
                Mortgage
                BondsFSP
            FASB
                Staff
                PositionFSP
                106-1
            FASB
                Staff
                Position No.106-1, "Accounting and Disclosure Requirements Related
                to the
                Medicare
              Prescription
                Drug, Improvement and Modernization Act of 2003"FSP
                106-2
            FASB
                Staff
                Position No. 106-2, "Accounting and Disclosure Requirements Related
                to the
                Medicare Prescription Drug, Improvement and Modernization Act of
                2003"FSP
                115-1 and
                FAS 124-1
            FASB
                Staff
                Position No. 115-1 and FAS 124-1, "The Meaning of Other-Than-Temporary
                Impairment and its Application to Certain Investments"GAAP
            Accounting
                Principles Generally Accepted in the United StatesIRS
            Internal
                Revenue ServiceKWH
            Kilowatt-hoursMedicare
                Act
            Medicare
                Prescription Drug, Improvement and Modernization Act of
                2003MISO
            Midwest
                Independent Transmission System Operator, Inc.Moody’s
            Moody’s
                Investors Service





i
 
 GLOSSARY
            OF TERMS
            Cont'd


MTC
            Market
                Transition ChargeMW
            MegawattsNERC
            North
                American
                Electric Reliability CouncilNJBPU
            New
                Jersey
                Board of Public UtilitiesNUG
            Non-Utility
                GenerationOCI
            Other
                Comprehensive IncomeOPEB
            Other
                Post-Employment BenefitsPJM
            PJM
                Interconnection L.L.C.PRP
            Potentially
                Responsible PartyPUCO
            Public
                Utilities Commission of OhioPUHCA
            Public
                Utility
                Holding Company ActS&P
            Standard
&
                Poor’s Ratings ServiceSBC
            Societal
                Benefits ChargeSEC
            United
                States
                Securities and Exchange CommissionSFAC
            Statement
                of
                Financial Accounting ConceptsSFAC
                7
            SFAC
                No. 7,
                "Using Cash Flow Information and Present Value in Accounting
                Measurements"SFAS
            Statement
                of
                Financial Accounting StandardsSFAS
                71
            SFAS
                No. 71,
                "Accounting for the Effects of Certain Types of
                Regulation"SFAS
                87
            SFAS
                No. 87,
                "Employers' Accounting for Pensions"SFAS
                101
            SFAS
                No. 101,
                "Accounting for Discontinuation of Application of SFAS
                71"SFAS
                106
            SFAS
                No. 106,
                "Employers' Accounting for Postretirement Benefits Other Than
                Pensions"SFAS
                115
            SFAS
                No. 115,
                "Accounting for Certain Investments in Debt and Equity
                Securities"SFAS
                133
            SFAS
                No. 133,
                “Accounting for Derivative Instruments and Hedging
                Activities”SFAS
                142
            SFAS
                No. 142,
                "Goodwill and Other Intangible Assets"SFAS
                143
            SFAS
                No. 143,
                "Accounting for Asset Retirement Obligations"SFAS
                144
            SFAS
                No. 144,
                "Accounting for the Impairment or Disposal of Long-Lived
                Assets"SFAS
                151
            SFAS
                No. 151,
                "Inventory Costs - an amendment of ARB No. 43, Chapter
                4"SFAS
                153
            SFAS
                No. 153,
                "Exchanges of Nonmonetary Assets - an amendment of APB Opinion No.
                29"SFAS
                154
            SFAS
                No. 154,
                "Accounting Changes and Error Corrections - a replacement of APB
                Opinion
                No. 20 and FASB Statement No. 3"TBC
            Transition
                Bond ChargeTMI-1
            Three
                Mile
                Island Unit 1TMI-2
            Three
                Mile
                Island Unit 2VIE
            Variable
                Interest Entity





ii


**Report
      of
      Independent Registered Public Accounting Firm**








To
      the Stockholder
      and Board of Directors of


Jersey
      Central Power
& Light Company:








In
      our opinion, the
      accompanying consolidated balance sheets and the related consolidated statements
      of income, capitalization, common stockholder’s equity, preferred stock, cash
      flows and taxes present fairly, in all material respects, the financial position
      of Jersey Central Power & Light Company and its subsidiaries at
      December 31, 2005 and 2004, and the results of their operations and their
      cash flows for each of the three years in the period ended December 31,
      2005 in conformity with accounting principles generally accepted in the United
      States of America. 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 of these
      statements in accordance with the standards of the Public Company Accounting
      Oversight Board (United States). 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, assessing the accounting principles used and significant estimates
      made by management, and evaluating the overall financial statement presentation.
      We believe that our audits provide a reasonable basis for our
      opinion.





As
      discussed in Note
      2(I) to the consolidated financial statements, the Company has restated its
      previously issued consolidated financial statements for the years ended December
      31, 2004 and 2003.










PricewaterhouseCoopers
      LLP


Cleveland,
      Ohio


February
      27,
      2006














1


The
      following
      selected financial data should be read in conjunction with, and is qualified
      in
      its entirety by reference to, the sections entitled “Management’s Discussion and
      Analysis of Results of Operations and Financial Condition” and with our
      consolidated financial statements and the “Notes to Consolidated Financial
      Statements.” Our Consolidated Statements of Income are not necessarily
      indicative of future conditions or results of operations.




**SELECTED
                  FINANCIAL DATA****Restated
                  ***
              
              **Restated
                  *****Restated
                  ***
              
              **Restated
                  ***
              
              **Restated
                  ***
              
              **Nov
                  7
                  -**
              
              **Jan
                  1-****2005**
              
              **2004**
              
              **2003**
              
              **2002**
              
              **Dec.
                  31, 2001**
              
              **Nov.
                  6, 2001****(Dollars
                  in thousands)**GENERAL
                  FINANCIAL INFORMATION:Operating
                  Revenues
              
              $
              2,602,234
              
              $
              2,206,987
              
              $
              2,359,646
              
              $
              2,328,415
              
              $
              282,902
              
              $
              1,838,638Operating
                  Income
              
              $
              255,676
              
              $
              181,816
              
              $
              144,606
              
              $
              332,953
              
              $
              43,347
              
              $
              291,049Net
                  Income
              
              $
              182,927
              
              $
              107,626
              
              $
              64,277
              
              $
              248,357
              
              $
              29,525
              
              $
              31,560Earnings
                  on
                  Common Stock
              
              $
              182,427
              
              $
              107,126
              
              $
              64,389
              
              $
              249,821
              
              $
              28,827
              
              $
              27,013Total
                  Assets
              
              $
              7,584,106
              
              $
              7,296,532
              
              $
              7,583,361
              
              $
              8,062,148
              
              $
              8,053,295**CAPITALIZATION
                  AS OF DECEMBER 31:**Common
                  Stockholder’s Equity
              
              $
              3,210,763
              
              $
              3,143,554
              
              $
              3,146,180
              
              $
              3,270,014
              
              $
              3,163,185Preferred
                  Stock-Not
                  Subject to
                  Mandatory Redemption
              
              
              12,649
              
              
              12,649
              
              
              12,649
              
              
              12,649
              
              
              12,649Subject
                  to
                  Mandatory Redemption
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              44,868Company-Obligated
                  MandatorilyRedeemable
                  Preferred Securities
              
              
              -
              
              
              -
              
              
              -
              
              
              125,244
              
              
              125,250Long-Term
                  Debt
                  and Other Long-Term Obligations
              
              
              972,061
              
              
              1,238,984
              
              
              1,095,991
              
              
              1,210,446
              
              
              1,224,001Total
                  Capitalization
              
              $
              4,195,473
              
              $
              4,395,187
              
              $
              4,254,820
              
              $
              4,618,353
              
              $
              4,569,953**CAPITALIZATION
                  RATIOS:**Common
                  Stockholder’s Equity
              
              
              76.5
              %
              
              71.5
              %
              
              73.9
              %
              
              70.8
              %
              
              69.2%Preferred
                  Stock-Not
                  Subject to
                  Mandatory Redemption
              
              
              0.3
              
              
              0.3
              
              
              0.3
              
              
              0.3
              
              
              0.3Subject
                  to
                  Mandatory Redemption
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              1.0Company-Obligated
                  MandatorilyRedeemable
                  Preferred Securities
              
              
              -
              
              
              -
              
              
              -
              
              
              2.7
              
              
              2.7Long-Term
                  Debt
                  and Other Long-Term Obligations
              
              
              23.2
              
              
              28.2
              
              
              25.8
              
              
              26.2
              
              
              26.8T
                  otal
                  Capitalization
              
              
              100.0
              %
              
              100.0
              %
              
              100.0
              %
              
              100.0
              %
              
              100.0%**DISTRIBUTION
                  KWH DELIVERIES (Millions):**Residential
              
              
              10,107
              
              
              9,355
              
              
              9,104
              
              
              8,976
              
              
              1,428
              
              
              7,042Commercial
              
              
              9,432
              
              
              8,877
              
              
              8,620
              
              
              8,509
              
              
              1,330
              
              
              6,787Industrial
              
              
              3,074
              
              
              3,070
              
              
              3,046
              
              
              3,171
              
              
              474
              
              
              2,670Other
              
              
              86
              
              
              73
              
              
              89
              
              
              81
              
              
              17
              
              
              66Total
              
              
              22,699
              
              
              21,375
              
              
              20,859
              
              
              20,737
              
              
              3,249
              
              
              16,565**CUSTOMERS
                  SERVED:**Residential
              
              
              950,622
              
              
              941,917
              
              
              931,227
              
              
              921,716
              
              
              909,494Commercial
              
              
              117,365
              
              
              115,861
              
              
              114,270
              
              
              112,385
              
              
              109,985Industrial
              
              
              2,640
              
              
              2,666
              
              
              2,705
              
              
              2,759
              
              
              2,785Other
              
              
              1,601
              
              
              1,320
              
              
              1,345
              
              
              1,393
              
              
              1,484Total
              
              
              1,072,228
              
              
              1,061,764
              
              
              1,049,547
              
              
              1,038,253
              
              
              1,023,748**NUMBER
                  OF EMPLOYEES:**
              
              
              1,416
              
              
              1,444
              
              
              1,557
              
              
              ******
              
              
              ******
              
              
              *******See
                  Note 2(I)
                  to the Consolidated Financial Statements.**For
                  years
                  prior to 2003 JCP&L's employees were employed by GPU Service
                  Company.





2


**JERSEY
      CENTRAL POWER & LIGHT COMPANY**








**Management’s
      Discussion and Analysis of**


**Results
      of
      Operations and Financial Condition**








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




**Restatements**
 
 As
        further discussed
        in Note 2(I) to the Consolidated Financial Statements, the Company is restating
        its consolidated financial statements for the two years ended December 31,
        2004.
        The revisions are a result of a current tax audit from the State of New Jersey,
        in which the Company became aware that the New Jersey Transitional Energy
        Facilities Assessment (TEFA) tax is not an allowable deduction for state
        income
        tax purposes.


**Results
      of
      Operations**





Earnings
      on common
      stock increased to $182 million from $107 million in 2004 as increases in
      operating revenues were partially offset by increases in purchased power and
      other operating expenses. Earnings on common stock in 2004 increased to
      $107 million from $64 million in 2003 principally due to the absence
      of non-cash charges aggregating $185 million ($109 million after tax)
      from a 2003 rate case decision disallowing recovery of certain regulatory assets
      (see Regulatory Matters) and reduced purchased power costs in 2004 which were
      partially offset by a decline in operating revenues.





Operating
      revenues
      increased $395 million or 17.9% in 2005 compared with 2004. The revenue
      increases consisted of increases in retail generation revenues of
      $195 million, distribution throughput revenues of $123 million and
      wholesale revenues of $75  million.
      Retail
      generation sales revenues increased in 2005 from 2004 due to higher volumes
      and
      unit prices resulting from the BGS auction. Retail generation kilowatt-hour
      sales increases in the residential (13.9%) and commercial (13.5%) sectors more
      than offset a decline in sales to the industrial sector (6.3%) due to changes
      in
      customer shopping. Generation provided by alternative suppliers to residential
      and commercial customers as a percent of total sales in our franchise area
      decreased by 5.2 and 5.1 percentage points, respectively, while the percentage
      of shopping by industrial customers increased by 1.6 percentage
      points.





The
      $123 million increase in distribution deliveries was due to higher
      composite unit prices coupled with a 6.2% volume increase in 2005 from the
      previous year. The higher composite prices reflected the impact of the
      distribution rate increase effective June 1, 2005 due to the NJBPU
      stipulated settlements (see Note 7). Higher residential and commercial
      sector deliveries resulted, in large part, from warmer summer temperatures
      and
      colder winter temperatures; a slight increase in industrial sector deliveries
      reflected improving economic conditions.





Revenues
      from
      wholesale sales increased by $75 million in 2005 as compared to the
      previous year as higher unit prices were partially offset by a 5.1% decline
      in
      kilowatt-hour sales.





3


Operating
      revenues
      decreased $153 million in 2004 compared with 2003. The decrease in revenues
      was due to a $107 million decline in distribution throughput revenues and a
      $49 million decline in wholesale revenues partially offset by an
      $11 million increase in retail generation revenues. Our BGS obligation was
      transferred to external parties as a result of an NJBPU auction process that
      extended the termination of our BGS obligation through May 2006 (see Note 7
      - Regulatory Matters). We entered into long-term power purchase agreements
      in
      connection with the divestiture of our generation facilities and sold any power
      in excess of our retail customer needs to the wholesale market. The long-term
      purchase agreements ended after the first quarter of 2003 and as a result,
      sales
      to the wholesale market subsequently decreased. Retail generation sales revenues
      increased by $11 million in 2004 compared to 2003 due to higher unit prices
      resulting from the BGS auction. This increase more than offset a composite
      13.2%
      decrease in KWH sales (commercial - 16.0% and industrial - 63.4%), which
      reflected increases in electric generation services to commercial and industrial
      customers provided by alternative suppliers. The shopping percentage in our
      franchise area increased in 2004 by 16.7 percentage points and 46.0
      percentage points, for the commercial and industrial sectors respectively,
      while
      the percentage of shopping by residential customers was relatively unchanged.





The
      $107 million decrease in distribution deliveries was due to lower unit
      prices that more than offset the impact of the 2.5% volume increase in 2004
      from
      the previous year. The lower prices reflected the impact of the distribution
      rate decrease effective August 1, 2003. Warmer temperatures in the summer
      and improving economic conditions resulted, in large part, in higher
      residential, commercial and industrial demand.





Changes
      in electric
      generation sales and distribution deliveries in 2005 and 2004, compared to
      the
      prior year, are summarized in the following table:





**Changes
                in KWH Sales**
            
            **2005**
            
            **2004*****Increase
                (Decrease)***Electric
                Generation:Retail
            
            
            12.8
            %
            
            (13.2
            )%Wholesale
            
            
            (5.1
            )%
            
            (19.1
            )%**Total
                Electric Generation Sales**
            
            
            8.6
            %
            
            (14.7
            )%Distribution
                Deliveries:Residential
            
            
            8.0
            %
            
            2.8
            %Commercial
            
            
            6.3
            %
            
            3.0
            %Industrial
            
            
            0.1
            %
            
            0.8
            %**Total
                Distribution Deliveries**
            
            
            6.2
            %
            
            2.5
            %





*Operating
      Expenses and Taxes*





Total
      operating
      expenses and taxes increased
      $321 million in 2005 after decreasing $190 million in 2004, compared
      to the prior year. The increase in 2005 was primarily due to higher purchased
      power costs. The decrease in 2004 was attributed to non-cash charges in 2003
      for
      amounts disallowed by the NJBPU in its rate case decision. The following table
      presents changes in 2005 and 2004 from the prior year by expense category:





**Operating
                Expenses and Taxes - Changes**
            
            **2005**
            
            **2004*****Increase
                (Decrease)***
            
            ***(In
                millions)***Purchased
                power costs
            
            $
            263
            
            $
            (220
            )Other
                operating costs
            
            
            25
            
            
            (18
            )Provision
                for
                depreciation
            
            
            5
            
            
            (24
            )Amortization
                of regulatory assets
            
            
            14
            
            
            15Deferral
                of
                new regulatory assets
            
            
            (29
            )
            
            -General
                taxes
            
            
            2
            
            
            9Income
                taxes
            
            
            41
            
            
            48**Total
                operating expenses and taxes**
            
            **$**
            **321**
            
            **$**
            (190
            )





Purchased
      power
      increased $263 million in 2005 compared to 2004. The increased purchased
      power costs have no impact on our earnings as all power is provided from the
      BGS
      arrangement and deferral accounting ensures the matching of revenue with
      purchased power expense. The increased purchased power costs reflected higher
      kilowatt-hour purchases due to increased generation sales requirements as
      discussed above and higher unit prices. Other operating expenses increased
      $25 million in 2005 compared to 2004, primarily due to our recording a
      $16 million liability for a potential labor arbitration award.





Depreciation
      expense
      increased $5 million in 2005 due to an increased depreciable asset base and
      the transfer of computer system software assets to us from FESC. Deferral of
      new
      regulatory assets of $29 million in 2005, reflected the NJBPU approval to
      defer previously incurred reliability expenses for recovery from customers.
      Amortization of regulatory assets increased $14 million in 2005 due to an
      increase in the level of MTC revenue recovery.


4





Excluding
      the
      disallowed deferred energy costs of $153 million in 2003, purchased power
      costs decreased $67 million in 2004 compared to 2003. The lower purchased
      power costs reflected lower kilowatt-hour purchases due to reduced generation
      sales requirements. Other operating expenses decreased $18 million in 2004
      compared to 2003, due to cost containment efforts as demonstrated by the 7%
      decline in the number of employees and the absence in 2004 of storm restoration
      costs incurred in 2003.





Changes
      in
      depreciation expense and amortization of regulatory assets in 2004 compared
      to
      the prior year primarily resulted from the 2003 rate case decision. Depreciation
      expense decreased $24 million in 2004 due to reduced depreciation rates
      effective in August 2003 and amortization of regulatory assets increased
      $15 million in 2004 ($48 million excluding the rate case decision's
      disallowed costs of $33 million in 2003) due to an increase in the level of
      MTC revenue recovery.





*Net
      Interest
      Charges*





Net
      interest charges
      in 2005, 2004 and 2003 include charges of $2 million in each year for potential
      interest assessments associated with a New Jersey state income tax audit.
      Excluding these charges, net interest charges decreased $3 million in 2005
      and $6 million in 2004, compared to the prior year, reflecting debt
      redemptions of $56 million and $290 million, respectively. Those
      decreases were partially offset by interest on $300 million of senior notes
      issued in April 2004.





**Capital
      Resources and Liquidity**





Our
      cash
      requirements in 2005 for operating expenses, construction expenditures and
      scheduled debt maturities were met with cash from operations.  We plan
      to issue
      long-term debt during 2006 to fund maturing long-term debt
      obligations.





*Changes
      in Cash
      Position*





As
      of
      December 31, 200 5,
      we had
      $0.1 million of cash and cash equivalents compared with $0.2 million
      as of December 31, 2004. The major sources for changes in these balances
      are summarized below.





*Cash
      Flows From
      Operating Activities*





Our
      net cash
      provided from operating activities was $507 million in 2005,
      $263 million in 2004 and $180 million in 2003, summarized as follows:





**Operating
                Cash Flows**
            
            **2005**
            
            **2004**
            
            **2003*****(In
                millions)***Cash
                earnings(1)
            
            $
            295
            
            $
            226
            
            $
            321Pension
                trust
                contribution(2)
            
            
            (54
            )
            
            (37
            )
            
            -Working
                capital and other
            
            
            266
            
            
            74
            
            
            (141
            )Total
                cash
                flows from operating activities
            
            $
            507
            
            $
            263
            
            $
            180





(1)  Cash
      earnings is a
      non-GAAP measure (see reconciliation below).


(2)  Pension
      trust
      contributions in 2005 and 2004 were each net of $25 million of income tax
      benefits.





Cash
      earnings (in
      the table above) are not a measure of performance calculated in accordance
      with
      GAAP. We believe that cash earnings is a useful financial measure because it
      provides investors and management with an additional means of evaluating our
      cash-based operating performance. The following table reconciles cash earnings
      with net income.





**Reconciliation
                of Cash Earnings**
            
            **2005**
            
            **2004**
            
            **2003*****(In
                millions)***Net
                Income
                (GAAP)
            
            $183
            
            $108
            
            $64Non-Cash
                Charges (Credits):Provision
                for
                depreciation
            
            
            80
            
            
            75
            
            
            99Amortization
                of regulatory assets
            
            
            293
            
            
            279
            
            
            263Deferral
                of
                new regulatory assets
            
            
            (29
            )
            
            -
            
            
            -Revenue
                credits to customers
            
            
            -
            
            
            -
            
            
            (72
            )Disallowed
                regulatory assets
            
            
            -
            
            
            -
            
            
            153Deferred
                purchased power and other costs
            
            
            (257
            )
            
            (263
            )
            
            (276
            )Deferred
                income taxes & investment tax credits, net*
            
            
            36
            
            
            30
            
            
            62Other
                non-cash
                charges (credits)
            
            
            (11
            )
            
            (3
            )
            
            28Cash
                earnings
                (Non-GAAP)
            
            $
            295
            
            $
            226
            
            $
            321





*
      Excludes
      $25 million of deferred tax benefits from pension contributions in
      2004.


5





Net
      cash provided
      from operating activities increased by $244 million in 2005 and
      $83 million in 2004, as compared to the previous year. The increase in 2005
      was due to a $69 million increase in cash earnings for reasons described
      under “Results of Operations” and a $192 million increase from working
      capital and other which was partially offset by a $17 million increase in
      after-tax voluntary pension trust contributions in 2005 from 2004. The increase
      from working capital and other was attributable to a $128 million increase
      in cash collateral collected from suppliers, an increase in cash of
      $41 million from the settlement of receivables and a decrease in cash from
      settlement of $45 million in payables. The increase in 2004 was due to a
      $215 million increase from working capital and other which was partially
      offset by a $95 million decrease in cash earnings for reasons described
      under “Results of Operations” and the $37 million after-tax voluntary
      pension trust contribution in 2004. The increase from working capital and other
      was attributable to a decrease in cash outflow of $151 million in payables
      and a $53 million increase associated with a NUG power contract
      restructuring.





*Cash
      Flows From
      Financing Activities*





Net
      cash used for
      financing activities was $298 million, $82 million and
      $139 million in 2005, 2004 and 2003, respectively, primarily reflecting the
      new issues and redemptions shown below:





**Securities
                Issued or Redeemed in**
            
            **2005**
            
            **2004**
            
            **2003*****(In
                millions)******New
                Issues:***Secured
                Notes
            
            $
            -
            
            $
            300
            
            $
            150***Redemptions:***FMB
            
            $
            56
            
            $
            290
            
            $
            150Medium
                Term
                Notes
            
            
            -
            
            
            -
            
            
            102Preferred
                Stock
            
            
            -
            
            
            -
            
            
            125Transition
                Bonds
            
            
            17
            
            
            16
            
            
            -Other
            
            
            -
            
            
            3
            
            
            -Total
                Redemptions
            
            $
            73
            
            $
            309
            
            $
            377*Short-term
                Borrowings, net*
            
            $
            (67
            )
            $
            18
            
            $
            231





Net
      cash used for
      financing activities increased $216 million in 2005 from 2004. The increase
      resulted from a $68 million increase in common stock dividends to FirstEnergy
      and no new financing.





We
      had approximately
      $102,000 of cash and temporary investments and approximately $181 million
      of short-term indebtedness as of December 31, 2005. We have authorization
      from the SEC to incur short-term debt of up to our charter limit of
      $2.1 billion (including the utility money pool). We will not issue FMB
      other than as collateral for senior notes, since our senior note indentures
      prohibit us (subject to certain exceptions) from issuing any debt which is
      senior to the senior notes. As of December 31, 2005, we had the capability
      to issue $715 million of additional senior notes based upon FMB collateral.
      At year-end 2005, based upon applicable earnings coverage tests and our charter,
      we could issue $1.2 billion of preferred stock (assuming no additional debt
      was issued).





We
      have filed with
      the NJBPU for approval to securitize a portion of our regulatory deferred costs
      balance (see Note 7 - Regulatory Matters) in a transaction similar to the
      securitized transition bonds sale in 2002. We are anticipating approval and
      completion of the new securitization financing transaction of an amount between
      $177 million and $277 million later in 2006.





On
      June 14, 2005, we, FirstEnergy, OE, Penn, CEI, TE, Met-Ed, Penelec, FES and
      ATSI, as Borrowers, entered into a syndicated $2 billion five-year
      revolving credit facility. Borrowings under the facility are available to each
      Borrower separately and mature on the earlier of 364 days from the date of
      borrowing or the commitment termination date, as the same may be extended.
      Our
      borrowing limit under the facility is $425 million.





Under
      the revolving credit facility, borrowers may request the issuance of letters
      of
      credit expiring up to one year from the date of issuance. The stated amount
      of
      outstanding letters of credit will count against total commitments available
      under the facility and against the applicable borrower’s borrowing sub-limit.





The
      revolving credit facility contains financial covenants requiring each borrower
      to maintain a consolidated debt to total capitalization ratio of no more than
      65%. As of December 31, 2005, our debt to total capitalization as defined
      under the revolving credit facility, was 26%.





The
      facility does not contain any provisions that either restrict our ability to
      borrow or accelerate repayment of outstanding advances as a result of any change
      in our credit ratings. Pricing is defined in “pricing grids”, whereby the cost
      of funds borrowed under the facility is related to our credit
      ratings.





6


We
      have the ability
      to borrow from our regulated affiliates and FirstEnergy to meet our short-term
      working capital requirements. FESC administers this money pool and tracks
      surplus funds of FirstEnergy and its regulated subsidiaries. Companies receiving
      a loan under the money pool agreements must repay the principal, together with
      accrued interest, within 364 days of borrowing the funds. The rate of interest
      is the same for each company receiving a loan from the pool and is based on
      the
      average cost of funds available through the pool. The
      average interest
      rate for borrowings in 2005 was 3.24%.





On
      July 18, 2005, Moody’s revised its rating outlook on FirstEnergy and its
      subsidiaries to positive from stable. Moody’s stated that the revision to
      FirstEnergy’s outlook resulted from steady financial improvement and steps taken
      by management to improve operations, including the stabilization of its nuclear
      operations. On October 3, 2005, S&P raised its corporate credit rating
      on FirstEnergy and the EUOC to 'BBB' from 'BBB-'. At the same time, S&P
      raised the senior unsecured ratings at the holding company to 'BBB-' from 'BB+'
      and each of the EUOC by one notch above the previous rating. S&P noted that
      the upgrade followed the continuation of a good operating track record,
      specifically for the nuclear fleet through the third quarter of 2005. On
      December 23, 2005, Fitch revised its rating outlook on FirstEnergy and its
      subsidiaries to positive from stable. Fitch stated that the revision to
      FirstEnergy's outlook resulted from improved performance of the Company's
      generating fleet and ongoing debt reduction.





Our
      access to
      capital markets and costs of financing are dependent on the ratings of our
      securities and that of FirstEnergy. The following table shows securities ratings
      as of December 31, 2005. The ratings outlook from S&P on all securities
      is stable. The ratings outlook from Moody's & Fitch on all securities is
      positive.





**Ratings
                of Securities**
            
            **Securities**
            
            **S&P**
            
            **Moody’s**
            
            **Fitch****FirstEnergy**
            
            
            Senior
                unsecured
            
            
            BBB-
            
            
            Baa3
            
            
            BBB-**JCP&L**
            
            
            Senior
                secured
            
            
            BBB+
            
            
            Baa1
            
            
            BBB+Preferred
                stock
            
            
            BB+
            
            
            Ba1
            
            
            BBB-





*Cash
      Flows From
      Investing Activities*





Cash
      used in
      investing activities increased $28 million in 2005 and $136 million in
      2004. The increase in 2005 resulted primarily from a $30 million increase
      in property additions. The increase in 2004 resulted primarily from a
      $56 million increase in property additions and a $79 million decrease
      in loan repayments from associated companies.





Our
      capital spending
      for the period 2006-2010 is expected to be approximately $924 million for
      property additions and improvements, of which approximately $174 million
      applies to 2006. The capital spending is primarily for property additions
      supporting the distribution of electricity.





**Contractual
      Obligations**





As
      of
      December 31, 2005, our estimated cash payments under existing contractual
      obligations that we considered firm obligations were as follows:





**2007-**
            
            **2009-****Contractual
                Obligations**
            
            **Total**
            
            **2006**
            
            **2008**
            
            **2010**
            
            **Thereafter*****(In
                millions)***Long-term
                debt(1)
            
            $
            1,191
            
            $
            207
            
            $
            37
            
            $
            41
            
            $
            906Short-term
                borrowings
            
            
            181
            
            
            181
            
            
            -
            
            
            -
            
            
            -Operating
                leases(2)
            
            
            103
            
            
            6
            
            
            13
            
            
            12
            
            
            72Purchases(3)
            
            
            3,358
            
            
            642
            
            
            1,182
            
            
            870
            
            
            664Total
            
            $
            4,833
            
            $
            1,036
            
            $
            1,232
            
            $
            923
            
            $
            1,642





(1)  Amounts
      reflected do
      not include interest on long-term debt.


(2)  Operating
      lease
      payments are net of reimbursements from subleasees (see Note 5 -
      Leases).


( 3)  Power
      purchases
      under contracts with fixed or minimum quantities and approximate
      timing.





**Market
      Risk
      Information**





We
      use various
      market risk sensitive instruments, including derivative contracts, primarily
      to
      manage the risk of price and interest rate fluctuations. Our Risk Policy
      Committee, comprised of members of senior management, provides general oversight
      to risk management activities throughout the company.


7





*Commodity
      Price
      Risk*





We
      are exposed to
      market risk primarily due to fluctuations in electricity, energy transmission
      and natural gas, prices. To manage the volatility relating to these exposures,
      we use a variety of non-derivative and derivative instruments, including forward
      contracts, options, futures contracts and swaps. The derivatives are used
      principally for hedging purposes. Derivatives that fall within the scope of
      SFAS 133 must be recorded at their fair value and marked to market. The
      majority of our derivative hedging contracts qualify for the normal purchase
      and
      normal sale exception under SFAS 133 and are therefore excluded from the
      table below. Contracts that are not exempt from such treatment include power
      purchase agreements with NUG entities that were structured pursuant to the
      Public Utility Regulatory Act of 1978. These non-trading contracts are adjusted
      to fair value at the end of each quarter, with a corresponding regulatory asset
      recognized for above-market costs. The change in the fair value of commodity
      derivative contracts related to energy production during 2005 is summarized
      in
      the following table:





**De****crease
                in the Fair Value of Derivative Contracts**
            
            **Non-Hedge**
            
            **Hedge**
            
            **Total*****(In
                millions)*****Change
                in the fair value of commodity derivative
                contracts:**Outstanding
                net liabilities as of January 1, 2005
            
            $
            (1,253
            )
            $
            -
            
            $
            (1,253
            )New
                contract
                value when entered
            
            
            -
            
            
            -
            
            
            -Additions/Changes
                in value of existing contracts
            
            
            (154
            )
            
            -
            
            
            (154
            )Change
                in
                techniques/assumptions
            
            
            -
            
            
            -
            
            
            -Settled
                contracts
            
            
            184
            
            
            -
            
            
            184**Net
                Liabilities - Derivatives Contracts as of December 31,
                2005**(1)
            
            **$**
            (1,223
            )
            **$**
            **-**
            
            **$**
            (1,223
            )**Impact
                of Changes in Commodity Derivative Contracts**(2)Income
                Statement Effects (Pre-Tax)
            
            $
            -
            
            $
            -
            
            $
            -Balance
                Sheet
                Effects:OCI
                (Pre-Tax)
            
            $
            -
            
            $
            -
            
            $
            -Regulatory
                Asset (Net)
            
            $
            (30
            )
            $
            -
            
            $
            (30
            )





(1)
            Includes
                $1,223 million in non-hedge commodity derivative contracts (primarily
                with NUGs), which are offset by a regulatory
                asset.


(2)
            Represents
                the
                change in value of existing contracts, settled contracts and changes
                in
                techniques/ assumptions.





Derivatives
      are
      included on the Consolidated Balance Sheet as of December 31, 2005 as
      follows:





Balance
                Sheet
                Classification
            
            **Non-Hedge**
            
            **Hedge**
            
            **Total*****(In
                millions)*****Current-**Other
                Assets
            
            $
            -
            
            $
            -
            
            $
            -Other
                liabilities
            
            
            -
            
            
            -
            
            
            -**Non-Current-**Other
                Deferred
                Charges
            
            
            14
            
            
            -
            
            
            14Other
                noncurrent liabilities
            
            
            (1,237
            )
            
            -
            
            
            (1,237
            )**Net
                liabilities**
            
            **$**
            (1,223
            )
            $
            -
            
            $
            (1,223
            )




The
      valuation of
      derivative contracts is based on observable market information to the extent
      that such information is available. In cases where such information is not
      available, we rely on model-based information. The model provides estimates
      of
      future regional prices for electricity and an estimate of related price
      volatility. We use these results to develop estimates of fair value for
      financial reporting purposes and for internal management decision making.
      Sources of information for the valuation of commodity derivative contracts
      by
      year are summarized in the following table:





**Source
                of Information****-
                Fair
                Value by Contract Year**
            
            **2006**
            
            **2007**
            
            **2008**
            
            **2009**
            
            **2010**
            
            **Thereafter**
            
            **Total*****(In
                millions)***Prices
                actively quoted(1)
            
            $
            (287
            )
            $
            (267
            )
            $
            -
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            (554
            )Other
                external
                sources(2)
            
            
            5
            
            
            3
            
            
            2
            
            
            -
            
            
            -
            
            
            -
            
            
            10Prices
                based
                on models
            
            
            -
            
            
            -
            
            
            (230
            )
            
            (156
            )
            
            (129
            )
            
            (164
            )
            
            (679
            )**Total****(3)**
            
            $
            (282
            )
            $
            (264
            )
            $
            (228
            )
            $
            (156
            )
            $
            (129
            )
            $
            (164
            )
            $
            (1,223
            )





(1)  Exchange
      traded.


(2)  Broker
      quote
      sheets.


(3)  Includes
      $1,223
      million in non-hedge commodity derivative contracts (primarily with NUGs),
      which
      are offset by a regulatory asset.





8


We
      perform
      sensitivity analyses to estimate our exposure to the market risk of our
      commodity positions. A hypothetical 10% adverse shift in quoted market prices
      in
      the near term on both our trading and non-trading derivative instruments would
      not have had a material effect on our consolidated financial position or cash
      flows as of December 31, 2005. We estimate that if energy commodity prices
      experienced an adverse 10% change, net income for the next twelve months would
      not change, as the prices for all commodity positions are already above the
      contract price caps.





**Interest
      Rate Risk**





Our
      exposure to
      fluctuations in market interest rates is reduced since our debt has fixed
      interest rates, as noted in the following table:





**Comparison
      of Carrying Value to Fair Value**





**Year
                of Maturity**
            
            **2006**
            
            **2007**
            
            **2008**
            
            **2009**
            
            **2010**
            
            **There-**
              **after**
            
            **Total**
            
            **Fair**
              **Value*****(Dollars
                in millions)***AssetsInvestments
                Other Than Cash
              and
                Cash
                Equivalents-Fixed
                Income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            226
            
            **$**
            226
            
            **$**
            224Average
                interest rate
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            5.1
            %
            
            5.1
            %LiabilitiesLong-term
                Debt
                and Other
              Long-Term
                Obligations:Fixed
                rate
            
            $
            207
            
            $
            18
            
            $
            19
            
            $
            20
            
            $
            21
            
            $
            906
            
            **$**
            1,191
            
            **$**
            1,214Average
                interest rate
            
            
            6.3
            %
            
            4.2
            %
            
            5.4
            %
            
            5.4
            %
            
            5.5
            %
            
            6.0
            %
            
            6.0%Short-term
                Borrowings
            
            
            181
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            **$**
            181
            
            **$**
            181Average
                interest rate
            
            
            4.0
            %
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            4.0
            %





**Equity
      Price
      Risk**





Included
      in nuclear
      decommissioning trusts are marketable equity securities carried at their current
      fair value of approximately $ 84 million
      and
      $80 million at December 31, 2005 and 2004, respectively. A
      hypothetical 10% decrease in prices quoted by stock exchanges would result
      in a
      $8 million reduction in fair value as of December 31, 2005. (See
      Note 4 Fair Value of Financial Instruments)





**Outlook**





Beginning
      in 1999,
      all of our customers were able to select alternative energy suppliers. We
      continue to deliver power to homes and businesses through our existing
      distribution system, which remains regulated. To
      support customer
      choice, rates were restructured into unbundled service charges and additional
      non-bypassable charges to recover stranded costs.





*Regulatory
      Matters*





Regulatory
      assets
      are costs which have been authorized by the NJBPU and the FERC for recovery
      from
      customers in the future periods or for which authorization is probable. Without
      the probability of such authorization, costs currently recorded as regulatory
      assets would have been charged to income as incurred. All of our regulatory
      assets are expected to continue to be recovered under the provisions of the
      regulatory proceedings discussed below. Our regulatory assets totaled
      $2.2 billion as of December 31, 2005 and 2004.





We
      are permitted to
      defer for future collection from customers the amounts by which our costs of
      supplying BGS to non-shopping customers and costs incurred under NUG agreements
      exceed amounts collected through BGS and MTC rates and market sales of NUG
      energy and capacity. As of December 31, 2005, the accumulated deferred cost
      balance totaled approximately $541 million. New Jersey law allows for
      securitization of our deferred balance upon application by us and a
      determination by the NJBPU that the conditions of the New Jersey restructuring
      legislation are met. On February 14, 2003, we filed for approval to
      securitize the July 31, 2003 deferred balance. We are in discussions with
      the NJBPU staff as a result of the stipulated settlement agreements (as further
      discussed below) which recommended that the NJBPU issue an order regarding
      our
      application. On July 20, 2005, we requested the NJBPU to set a procedural
      schedule for this matter and are awaiting NJBPU action. On February 1, 2006,
      the
      NJBPU selected Bear Stearns as the financial advisor. On December 2, 2005,
      we filed a request for recovery of $165 million of actual above-market NUG
      costs incurred from August 1, 2005 through October 31, 2005 and
      forecasted above-market NUG costs for November and December 2005. The filing
      also includes a request for recovery of $49 million for above-market NUG
      costs incurred prior to August 1, 2003, to the extent those costs are not
      recoverable through securitization.


9





On
      May 25,
      2005, the NJBPU approved two stipulated settlement agreements. The first
      stipulation between us and the NJBPU staff resolves all of the issues associated
      with our motion for reconsideration of the 2003 NJBPU decision on our base
      electric rate proceeding (Phase I Order). The second stipulation between us,
      the
      NJBPU staff and the Ratepayer Advocate resolves all of the issues associated
      with our Phase II petition requesting an increase in base rates of
      $36 million for the recovery of system reliability costs and a 9.75% return
      on equity. The stipulated settlements provide for, among other things, the
      following:





·
            An
                annual
                increase in distribution revenues of $23 million, effective
                June 1, 2005, associated with the Phase I Order
                reconsideration;





·
            An
                annual
                increase in distribution revenues of $36 million, effective
                June 1, 2005, related to our Phase II
                Petition;





·
            An
                annual
                reduction in both rates and amortization expense of $8 million,
                effective June 1, 2005, in anticipation of an NJBPU order regarding
              our
                request to  securitize up
                to $277 million of its deferred cost
                balance;





·
            An
                increase in
                our authorized return on common equity from 9.5% to 9.75%;
                and





·
            A
                commitment
                by us, through December 31, 2006 or until related legislation is
                adopted, whichever occurs first, to maintain a target level of
              customer
                service reliability with a reduction in our authorized return on
                common
                equity from 9.75% to 9.5% if the target is not met for
              two
                consecutive quarters. The authorized return on common equity would
                then be
                restored to 9.75% if the target is met for two consecutive
                quarters.





The
      Phase II
      stipulation included an agreement that the distribution revenue increase also
      reflects a three-year amortization of our one-time service reliability
      improvement costs incurred in 2003-2005. This resulted in the creation of a
      regulatory asset associated with accelerated tree trimming and other reliability
      costs which were expensed in 2003 and 2004. The establishment of the new
      regulatory asset of approximately $28million resulted in an increase to net
      income of approximately $16 million in the second quarter of
      2005.





On
      August 1,
      2005, the NJBPU established a proceeding to determine whether additional
      ratepayer protections are required at the state level in light of the recent
      repeal of PUHCA under the EPACT. An NJBPU proposed rulemaking to address the
      issues was published in the NJ Register on December 19, 2005. The proposal
      would prevent a holding company that owns a gas or electric public utility
      from
      investing more than 25% of the combined assets of its utility and
      utility-related subsidiaries into businesses unrelated to the utility industry.
      A public hearing was held on February 7, 2006 and comments to the NJBPU
      were due by February 17, 2006.





See
      Note 7 to
      the consolidated financial statements for further details and a complete
      discussion of regulatory matters in New Jersey.





*Environmental
      Matters*





We
      accrue
      environmental liabilities only when we can conclude that it is probable that
      we
      have an obligation for such costs and can reasonably determine the amount of
      such costs. Unasserted claims, are reflected in our determination of
      environmental liabilities and are accrued in the period that they are both
      probable and reasonably estimable.





We
      have been named
      as a PRP at waste disposal sites which may require cleanup under the
      Comprehensive Environmental Responsive, Comprehension and Liability Act of
      1980.
      Allegations of disposal of hazardous substances at historical sites and the
      liability involved are often unsubstantial and subject to dispute; however,
      federal law provides that PRPs for a particular site are held liable on a joint
      and several basis. Therefore, environmental liabilities that are considered
      probable have been recognized on the Consolidated Balance Sheet as of
      December 31, 2005, based on estimates of the total costs of cleanup, our
      proportionate responsibility for such costs and the financial ability of other
      unaffiliated entities to pay. In addition, we have accrued liabilities for
      environmental remediation of former manufactured gas plants in New Jersey;
      those
      costs are being recovered by us through a non-bypassable SBC. Total liabilities
      of approximately $47.3 million have been accrued through December 31,
      2005.





On
      December 1,
      2005, FirstEnergy issued a comprehensive report to shareholders regarding air
      emissions regulations and an assessment of its future risks and mitigation
      efforts. The report is available on FirstEnergy's web site at
      www.firstenergycorp.com/environmental.





See
      Note 11(B)
      to the consolidated financial statements for further details and a complete
      discussion of environmental matters.


10





*Legal
      Matters*





There
      are various
      lawsuits, claims (including claims for asbestos exposure) and proceedings
      related to our normal business operations pending against us. The other material
      items not otherwise discussed above are described in
      Note 11 to
      the consolidated financial statements.





**Critical
      Accounting Policies**





We
      prepare our
      consolidated financial statements in accordance with GAAP. Application of these
      principles often requires a high degree of judgment, estimates and assumptions
      that affect financial results. All of our assets are subject to their own
      specific risks and uncertainties and are regularly reviewed for impairment.
      Our
      more significant accounting policies are described below.





*Regulatory
      Accounting*





We
      are subject to
      regulation that sets the prices (rates) we are permitted to charge our customers
      based on costs that the regulatory agencies determine we are permitted to
      recover. At times, regulators permit the future recovery through rates of costs
      that would be currently charged to expense by an unregulated company. This
      ratemaking process results in the recording of regulatory assets based on
      anticipated future cash inflows. We regularly review these assets to assess
      their ultimate recoverability within the approved regulatory guidelines.
      Impairment risk associated with these assets relates to potentially adverse
      legislative, judicial or regulatory actions in the future.





*Revenue
      Recognition*





We
      follow the
      accrual method of accounting for revenues, recognizing revenue for electricity
      that has been delivered to customers but not yet billed through the end of
      the
      accounting period. The determination of electricity sales to individual
      customers is based on meter readings, which occur on a systematic basis
      throughout the month. At the end of each month, electricity delivered to
      customers since the last meter reading is estimated and a corresponding accrual
      for unbilled sales is recognized. The determination of unbilled sales requires
      management to make estimates regarding electricity available for retail load,
      transmission and distribution line losses, demand by customer class,
      weather-related impacts, prices in effect for each customer class and
      electricity provided by alternative suppliers.





*Pension
      and
      Other Postretirement Benefits Accounting*





Our
      reported costs
      of providing non-contributory defined pension benefits and post employment
      benefits other than pensions are dependent upon numerous factors resulting
      from
      actual plan experience and certain assumptions.





Pension
      and OPEB
      costs are affected by employee demographics (including age, compensation levels,
      and employment periods), the level of contributions we make to the plans, and
      earnings on plan assets. Such factors may be further affected by business
      combinations, which impact employee demographics, plan experience and other
      factors. Pension and OPEB costs are also affected by changes to key assumptions,
      including anticipated rates of return on plan assets, the discount rates and
      health care trend rates used in determining the projected benefit obligations
      for pension and OPEB costs.





In
      accordance with
      SFAS 87, changes in pension and OPEB obligations associated with these
      factors may not be immediately recognized as costs on the income statement,
      but
      generally are recognized in future years over the remaining average service
      period of plan participants. SFAS 87 and SFAS 106 delay recognition of
      changes due to the long-term nature of pension and OPEB obligations and the
      varying market conditions likely to occur over long periods of time. As such,
      significant portions of pension and OPEB costs recorded in any period may not
      reflect the actual level of cash benefits provided to plan participants and
      are
      significantly influenced by assumptions about future market conditions and
      plan
      participants' experience.





In
      selecting an
      assumed discount rate, we consider currently available rates of return on
      high-quality fixed income investments expected to be available during the period
      to maturity of the pension and other postretirement benefit obligations. Due
      to
      recent declines in corporate bond yields and interest rates in general, we
      reduced the assumed discount rate as of December 31, 2005 to 5.75% from
      6.00% and 6.25% used as of December 31, 2004 and 2003, respectively.


11





Our
      assumed rate of
      return on pension plan assets considers historical market returns and economic
      forecasts for the types of investments held by our pension trusts. In 2005,
      2004
      and 2003, plan assets actually earned $325 million or 8.2%,
      $415 million or 11.1% and
      $671 million or 24.2%, respectively. Our pension costs in 2005, 2004 and
      2003 were computed using an assumed 9.0% rate of return on plan assets which
      generated $345 million, $286 million and $248 million expected return on
      plan assets, respectively. The 2005 expected return was based upon projections
      of future returns and our pension trust investment allocation of approximately
      63% equities, 33% bonds, 2% real estate and 2% cash. The gains or losses
      generated as a result of the difference between expected and actual return
      on
      plan assets are deferred and amortized and will increase or decrease future
      net
      periodic pension expense, respectively.





In
      the fourth
      quarter of 2005, FirstEnergy made a $500 million voluntary contribution to
      its pension plan (our share was $79 million). As a result of our voluntary
      contribution and the increased market value of pension plan assets, we
      recognized a prepaid benefit cost of $148 million as of December 31,
      2005. As prescribed by SFAS 87, we eliminated our additional minimum
      liability of $90 million. In addition, the entire AOCL balance was credited
      by $53 million (net of $37 million of deferred taxes) as the fair
      value of trust assets exceeded the accumulated benefit obligation as of
      December 31, 2005.





Health
      care cost
      trends have significantly increased and will affect future OPEB costs. The
      2005
      and 2004 composite health care trend rate assumptions are approximately 9-11%,
      gradually decreasing to 5% in later years. In determining our trend rate
      assumptions, we included the specific provisions of our health care plans,
      the
      demographics and utilization rates of plan participants, actual cost increases
      experienced in our health care plans, and projections of future medical trend
      rates. The effect on JCP&L's portion of pension and OPEB costs from changes
      in key assumptions are as follows:








**Increase
                  in Costs from Adverse Changes in Key Assumptions****Assumption**
              
              **Adverse
                  Change**
              
              **Pension**
              
              **OPEB**
              
              **Total*****(In
                  millions)***Discount
                  rate
              
              
              Decrease
                  by
                  0.25%
              
              $
              1.4
              
              $
              0.6
              
              $
              2.0Long-term
                  return on assets
              
              
              Decrease
                  by
                  0.25%
              
              $
              1.4
              
              $
              0.3
              
              $
              1.7Health
                  care
                  trend rate
              
              
              Increase
                  by
                  1%
              
              
              na
              
              $
              4.6
              
              $
              4.6
 *Long-Lived
        Assets*





In
      accordance with
      SFAS No. 144, we periodically evaluate our long-lived assets to
      determine whether conditions exist that would indicate that the carrying value
      of an asset might not be fully recoverable. The accounting standard requires
      that if the sum of future cash flows (undiscounted) expected to result from
      an
      asset is less than the carrying value of the asset, an asset impairment must
      be
      recognized in the financial statements. If impairment has occurred, we recognize
      a loss - calculated as the difference between the carrying value and the
      estimated fair value of the asset (discounted future net cash flows).





The
      calculation of
      future cash flows is based on assumptions, estimates and judgment about future
      events. The aggregate amount of cash flows determines whether an impairment
      is
      indicated. The timing of the cash flows is critical in determining the amount
      of
      the impairment.





*Asset
      Retirement
      Obligations*





In
      accordance with
      SFAS 143 and FIN 47, we recognize an ARO for the future
      decommissioning of our nuclear power plants and future remediation of other
      environmental liabilities associated with all our long-lived assets. The ARO
      liability represents an estimate of the fair value of our current obligation
      related to nuclear decommissioning and the retirement or remediation of
      environmental liabilities of other assets. A fair value measurement inherently
      involves uncertainty in the amount and timing of settlement of the liability.
      We
      used an expected cash flow approach to measure the fair value of the nuclear
      decommissioning and environmental remediation ARO. This approach applies
      probability weighting to discounted future cash flow scenarios that reflect
      a
      range of possible outcomes. The scenarios consider settlement of the ARO at
      the
      expiration of the nuclear power plants' current license; settlement based on
      an
      extended license term and expected remediation dates.





12


*Goodwill*





In
      a business
      combination, the excess of the purchase price over the estimated fair values
      of
      the assets acquired and liabilities assumed is recognized as goodwill. Based
      on
      the guidance provided by SFAS 142, we evaluate our goodwill for impairment
      at least annually and would make such an evaluation more frequently if
      indicators of impairment should arise. In accordance with the accounting
      standard, if the fair value of a reporting unit is less than its carrying value
      (including goodwill), the goodwill is tested for impairment. If an impairment
      were indicated, we recognize a loss - calculated as the difference between
      the
      implied fair value of our goodwill and the carrying value of the goodwill.
      Our
      annual review was completed in the third quarter of 2005, with no impairment
      of
      goodwill indicated. The forecasts used in our evaluation of goodwill reflect
      operations consistent with our general business assumptions. Unanticipated
      changes in those assumptions could have a significant effect on our future
      evaluations of goodwill. In the year ended December 31, 2005, we adjusted
      goodwill to reverse pre-merger tax accruals due to the final resolution of
      tax
      contingencies related to the GPU acquisition. As of December 31, 2005, we
      had approximately $2.0 billion of goodwill.





**New
      Accounting Standards and Interpretations Adopted**





*FSP
      FAS 115-1
      and FAS 124-1, "The Meaning of Other-Than-Temporary Impairment and its
      Application to Certain Investments"*





Issued
      in November
      2005, FSP 115-1 and FAS 124-1 addresses the determination as to when
      an investment is considered impaired, whether that impairment is other than
      temporary, and the measurement of an impairment loss. The FSP finalized and
      renamed EITF 03-1 and 03-1-a to FSP FAS 115-1. This FSP will (1)
      nullify certain requirements of Issue 03-1 and supersedes EITF topic
      No. D-44, "Recognition of Other Than Temporary Impairment upon the Planned
      Sale of a Security Whose Cost Exceeds Fair Value," (2) clarify that an investor
      should recognize an impairment loss no later than when the impairment is deemed
      other than temporary, even if a decision to sell has not been made, and (3)
      be
      effective for other-than-temporary impairment and analyses conducted in periods
      beginning after September 15, 2005. The FSP requires prospective
      application with an effective date for reporting periods beginning after
      December 15, 2005. We are currently evaluating this FSP and any impact on
      our investments.





*EITF
      Issue
      04-13, "Accounting for Purchases and Sales of Inventory with the Same
      Counterparty"*





In
      September 2005,
      the EITF reached a final consensus on Issue 04-13 concluding that two or more
      legally separate exchange transactions with the same counterparty should be
      combined and considered as a single arrangement for purposes of applying
      APB 29, when the transactions were entered into "in contemplation" of one
      another. If two transactions are combined and considered a single arrangement,
      the EITF reached a consensus that an exchange of inventory should be accounted
      for at fair value. Although electric power is not capable of being held in
      inventory, there is no substantive conceptual distinction between exchanges
      involving power and other storable inventory. Therefore, we will adopt this
      EITF
      effective for new arrangements entered into, or modifications or renewals of
      existing arrangements, in interim or annual periods beginning after
      March 15, 2006.





*SFAS
                154 -
                “Accounting Changes and Error Corrections - a replacement of APB Opinion
                No. 20 and FASB Statement No.
                3”*





In
      May 2005, the
      FASB issued SFAS 154 to change the requirements for accounting and
      reporting a change in accounting principle. It applies to all voluntary changes
      in accounting principle and to changes required by an accounting pronouncement
      when that pronouncement does not include specific transition provisions. This
      Statement requires retrospective application to prior periods’ financial
      statements of changes in accounting principle, unless it is impracticable to
      determine either the period-specific effects or the cumulative effect of the
      change. In those instances, this Statement requires that the new accounting
      principle be applied to the balances of assets and liabilities as of the
      beginning of the earliest period for which retrospective application is
      practicable and that a corresponding adjustment be made to the opening balance
      of retained earnings (or other appropriate components of equity or net assets
      in
      the statement of financial position) for that period rather than being reported
      in the Consolidated Statements of Income. This Statement also requires that
      a
      change in depreciation, amortization, or depletion method for long-lived,
      nonfinancial assets be accounted for as a change in accounting estimate affected
      by a change in accounting principle. The provisions of this Statement are
      effective for accounting changes and corrections of errors made in fiscal years
      beginning after December 15, 2005. We adopted this Statement effective
      January 1, 2006.





13


*SFAS
                153,
                “Exchanges of Nonmonetary Assets - an amendment of APB Opinion No.
                29”*





In
      December 2004,
      the FASB issued SFAS 153 amending APB 29, which was based on the
      principle that nonmonetary assets should be measured based on the fair value
      of
      the assets exchanged. The guidance in APB 29 included certain exceptions to
      that principle. SFAS 153 eliminates the exception from fair value
      measurement for nonmonetary exchanges of similar productive assets and replaces
      it with an exception for exchanges that do not have commercial substance. This
      Statement specifies that a nonmonetary exchange has commercial substance if
      the
      future cash flows of the entity are expected to change significantly as a result
      of the exchange. The provisions of this Statement are effective January 1,
      2006 for us. This FSP is not expected to have a material impact on our financial
      statements.





*SFAS
      151,
“Inventory Costs - an amendment of ARB No. 43, Chapter 4”*





In
      November 2004,
      the FASB issued SFAS 151 to clarify the accounting for abnormal amounts of
      idle facility expense, freight, handling costs and wasted material (spoilage).
      Previous guidance stated that in some circumstances these costs may be “so
      abnormal” that they would require treatment as current period costs.
      SFAS 151 requires abnormal amounts for these items to always be recorded as
      current period costs. In addition, this Statement requires that allocation
      of
      fixed production overheads to the cost of conversion be based on the normal
      capacity of the production facilities. The provisions of this statement are
      effective for inventory costs incurred by us beginning January 1, 2006. We
      do not expect this statement to have a material impact on the financial
      statements.





14


**JERSEY
                  CENTRAL POWER & LIGHT COMPANY****CONSOLIDATED
                  STATEMENTS OF INCOME****Restated***
              
              **Restated*****For
                  the Years Ended December 31,**
              
              
              
              **2005**
              
              **2004**
              
              **2003*****(In
                  thousands)*****OPERATING
                  REVENUES (Note 2(H))**
              
              
              
              
              $
              2,602,234
              
              $
              2,206,987
              
              $
              2,359,646**OPERATING
                  EXPENSES AND TAXES:**Purchased
                  power (Note 2(H))
              
              
              
              
              
              1,429,998
              
              
              1,166,430
              
              
              1,386,899Other
                  operating costs (Note 2(H))
              
              
              
              
              
              375,502
              
              
              350,709
              
              
              368,714Provision
                  for
                  depreciation
              
              
              
              
              
              80,013
              
              
              75,163
              
              
              98,711Amortization
                  of regulatory assets
              
              
              
              
              
              292,668
              
              
              278,559
              
              
              263,227Deferral
                  of
                  new regulatory assets
              
              
              
              
              
              (28,862
              )
              
              -
              
              
              -General
                  taxes
              
              
              
              
              
              64,538
              
              
              62,792
              
              
              53,481Income
                  taxes
              
              
              
              
              
              132,701
              
              
              91,518
              
              
              44,008Total
                  operating expenses and taxes
              
              
              
              
              
              2,346,558
              
              
              2,025,171
              
              
              2,215,040**OPERATING
                  INCOME**
              
              
              
              
              
              255,676
              
              
              181,816
              
              
              144,606**OTHER
                  INCOME (NET OF INCOME TAXES)**
              
              
              
              
              
              6,939
              
              
              7,761
              
              
              7,026**NET
                  INTEREST CHARGES:**Interest
                  on
                  long-term debt
              
              
              
              
              
              74,930
              
              
              80,840
              
              
              87,681Allowance
                  for
                  borrowed funds used during construction
              
              
              
              
              
              (1,740
              )
              
              (615
              )
              
              (296
              )Deferred
                  interest
              
              
              
              
              
              (4,092
              )
              
              (3,545
              )
              
              (8,639
              )Other
                  interest
                  expense
              
              
              
              
              
              10,590
              
              
              5,271
              
              
              3,262Subsidiary's
                  preferred stock dividend requirements
              
              
              
              
              
              -
              
              
              -
              
              
              5,347Net
                  interest
                  charges
              
              
              
              
              
              79,688
              
              
              81,951
              
              
              87,355**NET
                  INCOME**
              
              
              
              
              
              182,927
              
              
              107,626
              
              
              64,277**PREFERRED
                  STOCK DIVIDEND REQUIREMENTS**
              
              
              
              
              
              500
              
              
              500
              
              
              500**GAIN
                  ON PREFERRED STOCK REACQUISITION**
              
              
              
              
              
              -
              
              
              -
              
              
              (612
              )**EARNINGS
                  ON COMMON STOCK**
              
              
              
              
              $
              182,427
              
              $
              107,126
              
              $
              64,389* 
See
                  Note 2(I) to the Consolidated Financial Statements.The
                  accompanying Notes to Consolidated Financial Statements are an
                  integral
                  part of these statements.





15


**JERSEY
                  CENTRAL POWER & LIGHT COMPANY****CONSOLIDATED
                  BALANCE SHEETS****Restated*****As
                  of
                  December 31,**
              
              
              
              **2005**
              
              **2004*****(In
                  thousands)*****ASSETS****UTILITY
                  PLANT:**In
                  service
              
              
              
              
              $
              3,902,684
              
              $
              3,730,767Less
                  -
                  Accumulated provision for depreciation
              
              
              
              
              
              1,445,718
              
              
              1,380,7752,456,966
              
              
              2,349,992Construction
                  work in progress
              
              
              
              
              
              98,720
              
              
              75,0122,555,686
              
              
              2,425,004**OTHER
                  PROPERTY AND INVESTMENTS:**Nuclear
                  plant
                  decommissioning trusts
              
              
              
              
              
              145,975
              
              
              138,205Nuclear
                  fuel
                  disposal trust
              
              
              
              
              
              164,203
              
              
              159,696Long-term
                  notes receivable from associated companies
              
              
              
              
              
              18,419
              
              
              20,436Other
              
              
              
              
              
              16,693
              
              
              19,379345,290
              
              
              337,716**CURRENT
                  ASSETS:**Cash
                  and cash
                  equivalents
              
              
              
              
              
              102
              
              
              162Receivables-Customers
                  (less accumulated provision of $3,830,000 and $3,881,000,respectively,
                  for uncollectible accounts)
              
              
              
              
              
              258,077
              
              
              201,415Associated
                  companies
              
              
              
              
              
              203
              
              
              86,531Other
                  (less
                  accumulated provisions of $204,000 and $162,000,respectively,
                  for uncollectable accounts)
              
              
              
              
              
              41,456
              
              
              39,898Materials
                  and
                  supplies, at average cost
              
              
              
              
              
              2,104
              
              
              2,435Prepayments
                  and other
              
              
              
              
              
              17,065
              
              
              31,489319,007
              
              
              361,930**DEFERRED
                  CHARGES AND OTHER ASSETS:**Regulatory
                  assets
              
              
              
              
              
              2,226,591
              
              
              2,168,554Goodwill
              
              
              
              
              
              1,985,858
              
              
              1,998,350Prepaid
                  pension costs
              
              
              
              
              
              148,054
              
              
              -Other
              
              
              
              
              
              3,620
              
              
              4,9784,364,123
              
              
              4,171,882$
              7,584,106
              
              $
              7,296,532**CAPITALIZATION
                  AND LIABILITIES****CAPITALIZATION**(See
                  Consolidated Statements of Capitalization)**:**Common
                  stockholder's equity
              
              
              
              
              $
              3,210,763
              
              $
              3,143,554Preferred
                  stock not subject to mandatory redemption
              
              
              
              
              
              12,649
              
              
              12,649Long-term
                  debt
                  and other long-term obligations
              
              
              
              
              
              972,061
              
              
              1,238,9844,195,473
              
              
              4,395,187**CURRENT
                  LIABILITIES:**Currently
                  payable long-term debt
              
              
              
              
              
              207,231
              
              
              16,866Notes
                  payable
                  (Note 10)-Associated
                  companies
              
              
              
              
              
              181,346
              
              
              248,532Accounts
                  payable-Associated
                  companies
              
              
              
              
              
              37,955
              
              
              20,605Other
              
              
              
              
              
              149,501
              
              
              124,733Accrued
                  taxes
              
              
              
              
              
              54,356
              
              
              19,908Accrued
                  interest
              
              
              
              
              
              19,916
              
              
              18,199Cash
                  collateral from suppliers
              
              
              
              
              
              141,225
              
              
              6,662Other
              
              
              
              
              
              86,884
              
              
              58,468878,414
              
              
              513,973**NONCURRENT
                  LIABILITIES:**Power
                  purchase
                  contract loss liability
              
              
              
              
              
              1,237,249
              
              
              1,268,478Accumulated
                  deferred income taxes
              
              
              
              
              
              812,034
              
              
              645,741Nuclear
                  fuel
                  disposal costs
              
              
              
              
              
              175,156
              
              
              169,884Asset
                  retirement obligation
              
              
              
              
              
              79,527
              
              
              72,655Retirement
                  benefits
              
              
              
              
              
              72,454
              
              
              103,036Other
              
              
              
              
              
              133,799
              
              
              127,5782,510,219
              
              
              2,387,372**COMMITMENTS
                  AND CONTINGENCIES (Notes 5 and 11)**$
              7,584,106
              
              $
              7,296,532*  
                  See Note 2(I) to the Consolidated Financial Statements
              
              
              .The
                  accompanying Notes to Consolidated Financial Statements are an
                  integral
                  part of these balance sheets.


16


**JERSEY
                  CENTRAL POWER & LIGHT COMPANY****CONSOLIDATED
                  STATEMENTS OF CAPITALIZATION****Restated*****As
                  of
                  December 31,**
              
              
              
              
              
              
              
              
              
              
              
              **2005**
              
              **2004*****(Dollars
                  in thousands, except per share amounts)*****COMMON
                  STOCKHOLDER'S EQUITY:**Common
                stock,
                par value $10 per share, authorized 16,000,000 shares15,371,270
                  shares outstanding
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              $
              153,713
              
              $
              153,713Other
                  paid-in
                  capital
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              3,003,190
              
              
              3,013,912Accumulated
                  other comprehensive loss (Note 2(F))
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (2,030
              )
              
              (55,534
              )Retained
                  earnings (Note 8(A))
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              55,890
              
              
              31,463Total
                  common
                  stockholder's equity
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              3,210,763
              
              
              3,143,554**Number
                  of Shares******Outstanding****
              
              **Optional**
                **Redemption
                  Price****2005**
              
              
              **2004**
              
              
              **Per
                  Share**
              
              
              **Aggregate****PREFERRED
                  STOCK NOT SUBJECT TO****MANDATORY
                  REDEMPTION (Note 8(B)):**Cumulative,
                  without par value-Authorized
                  125,000 shares4.00%
                  Series
              
              
              
              
              
              125,000
              
              
              125,000
              
              $
              106.50
              
              $
              13,313
              
              
              12,649
              
              
              12,649**LONG-TERM
                  DEBT AND OTHER LONG-TERM OBLIGATIONS (Note 8(C)):**First
                  mortgage
                  bonds:6.850%
                  due
                  2006
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              40,000
              
              
              40,0007.125%
                  due
                  2009
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              -
              
              
              5,9857.100%
                  due
                  2015
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              12,200
              
              
              12,2007.500%
                  due
                  2023
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              125,000
              
              
              125,0008.450%
                  due
                  2025
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              -
              
              
              50,0006.750%
                  due
                  2025
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              150,000
              
              
              150,000Total
                  first
                  mortgage bonds
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              327,200
              
              
              383,185Secured
                  notes:6.450%
                  due
                  2006
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              150,000
              
              
              150,0004.190%
                  due
                  2005-2007
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              35,172
              
              
              51,7235.390%
                  due
                  2007-2010
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              52,297
              
              
              52,2975.810%
                  due
                  2010-2013
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              77,075
              
              
              77,0755.625%
                  due
                  2016
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              300,000
              
              
              300,0006.160%
                  due
                  2013-2017
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              99,517
              
              
              99,5174.800%
                  due
                  2018
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              150,000
              
              
              150,000Total
                  secured
                  notes
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              864,061
              
              
              880,612Net
                  unamortized discount on debt
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (11,969
              )
              
              (7,947
              )Long-term
                  debt
                  due within one year
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (207,231
              )
              
              (16,866
              )Total
                  long-term debt and other long-term obligations
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              972,061
              
              
              1,238,984**TOTAL
                  CAPITALIZATION**
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              $
              4,195,473
              
              $
              4,395,187*  
                  See Note 2(I) to the Consolidated Financial Statements
              
              
              .The
                  accompanying Notes to Consolidated Financial Statements are an
                  integral
                  part of these statements.





17




**JERSEY
                  CENTRAL POWER & LIGHT COMPANY****CONSOLIDATED
                  STATEMENTS OF COMMON STOCKHOLDER'S EQUITY****Common
                  Stock**
              
              
              
              **Other**
              
              **Accumulated**
                **Other****Comprehensive**
              
              **Number**
              
              **Par**
              
              **Paid-In**
              
              **Comprehensive**
              
              **Retained****Income**
              
              **of
                  Shares**
              
              **Value**
              
              **Capital**
              
              **Income
                  (Loss)**
              
              **Earnings*****(Dollars
                  in thousands)***Balance,
                  January 1, 2003
              
              
              
              
              
              
              
              
              
              
              
              
              
              $
                  92,003Cumulativeeffect
                for restatements*
              
              
              
              
              
              
              
              
              
              
              
              
              
              (4,055)Balance,
                  January 1, 2003 (Restated*)
              
              
              
              
              
              
              
              
              15,371,270
              
              $
              153,713
              
              $
              3,029,218
              
              $
              (865
              )
              
              87,948Net
                  income
                  (Restated*)
              
              
              
              
              $
              64,277
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              64,277Net
                  unrealized
                  loss on derivative instruments
              
              
              
              
              
              (3,020
              )
              
              
              
              
              
              
              
              
              
              
              (3,020
              )Minimum
                  liability for unfunded retirementbenefits,
                  net
                  of $(32,998,000) of income taxes
              
              
              
              
              
              (47,880
              )
              
              
              
              
              
              
              
              
              
              
              (47,880
              )Comprehensive
                  income
              
              
              
              
              $
              13,377Cash
                  dividends
                  on preferred stock
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (500
              )Cash
                  dividends
                  on common stock
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (138,000
              )Gain
                  on
                  preferred stock reacquisition
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              612Purchase
                  accounting fair value adjustment
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              676Balance,
                  December 31, 2003 (Restated*)
              
              
              
              
              
              
              
              
              15,371,270
              
              
              153,713
              
              
              3,029,894
              
              
              (51,765
              )
              
              14,337Net
                  income
                  (Restated*)
              
              
              
              
              $
              107,626
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              107,626Net
                  unrealized
                  loss on investments
              
              
              
              
              
              (5
              )
              
              
              
              
              
              
              
              
              
              
              (5
              )Net
                  unrealized
                  gain on derivative instruments,net
                  of
                  $1,583,000 of income taxes
              
              
              
              
              
              1,697
              
              
              
              
              
              
              
              
              
              
              
              1,697Minimum
                  liability for unfunded retirementbenefits,
                  net
                  of $(3,772,000) of income taxes
              
              
              
              
              
              (5,461
              )
              
              
              
              
              
              
              
              
              
              
              (5,461
              )Comprehensive
                  income
              
              
              
              
              $
              103,857Cash
                  dividends
                  on preferred stock
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (500
              )Cash
                  dividends
                  on common stock
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (90,000
              )Purchase
                  accounting fair value adjustment
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (15,982
              )Balance,
                  December 31, 2004 (Restated*)
              
              
              
              
              
              
              
              
              15,371,270
              
              
              153,713
              
              
              3,013,912
              
              
              (55,534
              )
              
              31,463Net
                  income
              
              
              
              
              $
              182,927
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              182,927Net
                  unrealized
                  gain on derivative instruments,net
                  of
                  $113,000 of income taxes
              
              
              
              
              
              163
              
              
              
              
              
              
              
              
              
              
              
              163Minimum
                  liability for unfunded retirementbenefits,
                  net
                  of $36,838,000 of income taxes
              
              
              
              
              
              53,341
              
              
              
              
              
              
              
              
              
              
              
              53,341Comprehensive
                  income
              
              
              
              
              $
              236,431Cash
                  dividends
                  on preferred stock
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (500
              )Cash
                  dividends
                  on common stock
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (158,000
              )Purchase
                  accounting fair value adjustment
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (10,722
              )Balance,
                  December 31, 2005
              
              
              
              
              
              
              
              
              15,371,270
              
              $
              153,713
              
              $
              3,003,190
              
              $
              (2,030
              )
              $
              55,890* 
See
                  Note 2(I)
                  to the Consolidated Financial Statements
              
              
              .




**CONSOLIDATED
                  STATEMENTS OF PREFERRED STOCK****Not
                  Subject to**
              **Subject
                  to****Mandatory
                  Redemption**
              
              **Mandatory
                  Redemption****Number**
              
              **Carrying**
              
              **Number**
              
              **Carrying****of
                  Shares**
              
              **Value**
              
              **of
                  Shares**
              
              **Value*****(Dollars
                  in thousands)***Balance,
                  January 1, 2003
              
              
              125,000
              
              $
              12,649
              
              
              5,000,000
              
              $
              125,244Redemptions-8.56%
                  Series
              
              
              
              
              
              
              
              
              (5,000,000
              )
              
              (125,242
              )Amortization
                  of fair marketvalue
                  adjustment
              
              
              
              
              
              
              
              
              
              
              
              (2
              )Balance,
                  December 31, 2003
              
              
              125,000
              
              
              12,649
              
              
              -
              
              
              -Balance,
                  December 31, 2004
              
              
              125,000
              
              
              12,649
              
              
              -
              
              
              -Balance,
                  December 31, 2005
              
              
              125,000
              
              $
              12,649
              
              
              -
              
              $
              -The
                  accompanying Notes to Consolidated Financial Statements are an
                  integral
                  part of these statements.





18


**JERSEY
                  CENTRAL POWER & LIGHT COMPANY****CONSOLIDATED
                  STATEMENTS OF CASH FLOWS****Restated***
              
              **Restated*****For
                  the Years Ended December 31,**
              
              
              
              **2005**
              
              **2004**
              
              **2003*****(In
                  thousands)*****CASH
                  FLOWS FROM OPERATING ACTIVITIES:**Net
                  income
              
              
              
              
              $
              182,927
              
              $
              107,626
              
              $
              64,277Adjustments
                  to
                  reconcile net income to net cash fromoperating
                  activities -Provision
                  for
                  depreciation
              
              
              
              
              
              80,013
              
              
              75,163
              
              
              98,711Amortization
                  of regulatory assets
              
              
              
              
              
              292,668
              
              
              278,559
              
              
              263,227Deferral
                  of
                  new regulatory assets
              
              
              
              
              
              (28,862
              )
              
              -
              
              
              -Deferred
                  purchased power and other costs
              
              
              
              
              
              (257,418
              )
              
              (263,257
              )
              
              (276,214
              )Deferred
                  income taxes and investment tax credits, net
              
              
              
              
              
              36,125
              
              
              54,887
              
              
              62,372Accrued
                  retirement benefit obligation
              
              
              
              
              
              (9,268
              )
              
              (2,986
              )
              
              8,381Accrued
                  compensation, net
              
              
              
              
              
              (1,163
              )
              
              1,014
              
              
              19,864NUG
                  power
                  contract restructuring
              
              
              
              
              
              -
              
              
              52,800
              
              
              -Cash
                  collateral from suppliers
              
              
              
              
              
              134,563
              
              
              6,662
              
              
              -Pension
                  trust
                  contribution
              
              
              
              
              
              (79,120
              )
              
              (62,499
              )
              
              -Accrued
                  liability from arbitration decision
              
              
              
              
              
              16,141
              
              
              -
              
              
              -Revenue
                  credits to customers
              
              
              
              
              
              -
              
              
              -
              
              
              (71,984
              )Disallowed
                  regulatory assets
              
              
              
              
              
              -
              
              
              -
              
              
              152,500Decrease
                  (increase) in operating assets-Receivables
              
              
              
              
              
              28,108
              
              
              (13,360
              )
              
              4,528Materials
                  and
                  supplies
              
              
              
              
              
              331
              
              
              45
              
              
              (1,139
              )Prepayments
                  and other current assets
              
              
              
              
              
              14,424
              
              
              17,870
              
              
              (11,640
              )Increase
                  (decrease) in operating liabilities-Accounts
                  payable
              
              
              
              
              
              42,118
              
              
              (2,887
              )
              
              (153,953
              )Accrued
                  taxes
              
              
              
              
              
              34,448
              
              
              3,800
              
              
              (10,756
              )Accrued
                  interest
              
              
              
              
              
              1,717
              
              
              (2,564
              )
              
              (10,748
              )Other
              
              
              
              
              
              18,970
              
              
              11,780
              
              
              42,526Net
                  cash
                  provided from operating activities
              
              
              
              
              
              506,722
              
              
              262,653
              
              
              179,952**CASH
                  FLOWS FROM FINANCING ACTIVITIES:**New
                  Financing-Long-term
                  debt
              
              
              
              
              
              -
              
              
              300,000
              
              
              150,000Short-term
                  borrowings, net
              
              
              
              
              
              -
              
              
              17,547
              
              
              230,985Redemptions
                  and Repayments-Preferred
                  stock
              
              
              
              
              
              -
              
              
              -
              
              
              (125,244
              )Long-term
                  debt
              
              
              
              
              
              (72,536
              )
              
              (308,872
              )
              
              (251,815
              )Short-term
                  borrowings, net
              
              
              
              
              
              (67,187
              )
              
              -
              
              
              -Dividend
                  Payments-Common
                  stock
              
              
              
              
              
              (158,000
              )
              
              (90,000
              )
              
              (138,000
              )Preferred
                  stock
              
              
              
              
              
              (500
              )
              
              (500
              )
              
              (5,235
              )Net
                  cash used
                  for financing activities
              
              
              
              
              
              (298,223
              )
              
              (81,825
              )
              
              (139,309
              )**CASH
                  FLOWS FROM INVESTING ACTIVITIES:**Property
                  additions
              
              
              
              
              
              (209,118
              )
              
              (178,877
              )
              
              (122,930
              )Loan
                  repayments from (loans to) associated companies, net
              
              
              
              
              
              2,017
              
              
              (857
              )
              
              78,112Contributions
                  to nuclear decommissioning trusts
              
              
              
              
              
              (2,895
              )
              
              (2,895
              )
              
              (2,630
              )Other
              
              
              
              
              
              1,437
              
              
              1,692
              
              
              2,253Net
                  cash used
                  for investing activities
              
              
              
              
              
              (208,559
              )
              
              (180,937
              )
              
              (45,195
              )Net
                  decrease
                  in cash and cash equivalents
              
              
              
              
              
              (60
              )
              
              (109
              )
              
              (4,552
              )Cash
                  and cash
                  equivalents at beginning of year
              
              
              
              
              
              162
              
              
              271
              
              
              4,823Cash
                  and cash
                  equivalents at end of year
              
              
              
              
              $
              102
              
              $
              162
              
              $
              271**SUPPLEMENTAL
                  CASH FLOW INFORMATION:**Cash
                  Paid
                  During the Year-Interest
                  (net
                  of amounts capitalized)
              
              
              
              
              $
              78,750
              
              $
              83,341
              
              $
              101,432Income
                  taxes
              
              
              
              
              $
              12,385
              
              $
              58,549
              
              $
              16,883*  
                  See Note 2(I) to the Consolidated Financial Statements
              
              
              .The
                  accompanying Notes to Consolidated Financial Statements are an
                  integral
                  part of these statements.


19


**JERSEY
                  CENTRAL POWER & LIGHT COMPANY****CONSOLIDATED
                  STATEMENTS OF TAXES****Restated***
              
              **Restated*****For
                  the Years Ended December 31,**
              
              
              
              **2005**
              
              **2004**
              
              **2003*****(In
                  thousands)*****GENERAL
                  TAXES:**New
                  Jersey
                  Transitional Energy Facilities Assessment**
              
              
              
              
              $
              52,026
              
              $
              49,455
              
              $
              38,668Real
                  and
                  personal property
              
              
              
              
              
              4,567
              
              
              4,894
              
              
              3,889Social
                  security and unemployment
              
              
              
              
              
              7,682
              
              
              8,287
              
              
              4,826Other
              
              
              
              
              
              263
              
              
              156
              
              
              6,098Total
                  general
                  taxes
              
              
              
              
              $
              64,538
              
              $
              62,792
              
              $
              53,481**PROVISION
                  FOR INCOME TAXES:**Currently
                  payable-Federal
              
              
              
              
              $
              77,783
              
              $
              27,701
              
              $
              (17,701
              )State
              
              
              
              
              
              21,899
              
              
              14,617
              
              
              3,93899,682
              
              
              42,318
              
              
              (13,763
              )Deferred,
                  net-Federal
              
              
              
              
              
              27,336
              
              
              50,817
              
              
              54,252State
              
              
              
              
              
              10,167
              
              
              5,657
              
              
              10,34837,503
              
              
              56,474
              
              
              64,600Investment
                  tax
                  credit amortization
              
              
              
              
              
              (1,338
              )
              
              (1,587
              )
              
              (2,228
              )Total
                  provision for income taxes
              
              
              
              
              $
              135,847
              
              $
              97,205
              
              $
              48,609**INCOME
                  STATEMENT CLASSIFICATION****OF
                  PROVISION FOR INCOME TAXES:**Operating
                  income
              
              
              
              
              $
              132,701
              
              $
              91,518
              
              $
              44,008Other
                  income
              
              
              
              
              
              3,146
              
              
              5,687
              
              
              4,601Total
                  provision for income taxes
              
              
              
              
              $
              135,847
              
              $
              97,205
              
              $
              48,609**RECONCILIATION
                  OF FEDERAL INCOME TAX****EXPENSE
                  AT STATUTORY RATE TO TOTAL****PROVISION
                  FOR INCOME TAXES:**Book
                  income
                  before provision for income taxes
              
              
              
              
              $
              318,832
              
              $
              204,831
              
              $
              112,887Federal
                  income
                  tax expense at statutory rate
              
              
              
              
              $
              111,591
              
              $
              71,691
              
              $
              39,510Increases
                  (reductions) in taxes resulting from-Amortization
                  of investment tax credits
              
              
              
              
              
              (1,338
              )
              
              (1,587
              )
              
              (2,228
              )State
                  income
                  taxes, net of federal income tax benefit
              
              
              
              
              
              20,843
              
              
              13,178
              
              
              9,286Other,
                  net
              
              
              
              
              
              4,751
              
              
              13,923
              
              
              2,041Total
                  provision for income taxes
              
              
              
              
              $
              135,847
              
              $
              97,205
              
              $
              48,609**ACCUMULATED
                  DEFERRED INCOME TAXES AS OF****DECEMBER
                  31:**Property
                  basis
                  differences
              
              
              
              
              $
              416,005
              
              $
              361,640
              
              $
              345,753Deferred
                  sale
                  and leaseback costs
              
              
              
              
              
              (18,942
              )
              
              (17,836
              )
              
              (16,651
              )Purchase
                  accounting basis difference
              
              
              
              
              
              (1,253
              )
              
              (1,253
              )
              
              (1,253
              )Sale
                  of
                  generation assets
              
              
              
              
              
              (17,861
              )
              
              (17,861
              )
              
              (17,861
              )Regulatory
                  transition charge
              
              
              
              
              
              227,379
              
              
              213,665
              
              
              197,729Customer
                  receivables for future income taxes
              
              
              
              
              
              6,589
              
              
              (27,239
              )
              
              (4,519
              )Oyster
                  Creek
                  securitization
              
              
              
              
              
              173,177
              
              
              184,245
              
              
              193,558Other
                  comprehensive income
              
              
              
              
              
              (1,402
              )
              
              (38,353
              )
              
              (32,998
              )Deferred
                  nuclear expenses
              
              
              
              
              
              (9,881
              )
              
              (11,178
              )
              
              3,531Employee
                  benefits
              
              
              
              
              
              29,182
              
              
              1,652
              
              
              (29,129
              )Other
              
              
              
              
              
              9,041
              
              
              (1,741
              )
              
              2,048Net
                  deferred
                  income tax liability
              
              
              
              
              $
              812,034
              
              $
              645,741
              
              $
              640,208*  
                  See Note 2(I) to the Consolidated Financial Statements.**
                  Collected
                  from customers through regulated rates and included in revenue
                  in the
                  Consolidated Statements of Income.The
                  accompanying Notes to Consolidated Financial Statements are an
                  integral
                  part of these statements.


20


**NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS**





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





The
      consolidated
      financial statements include JCP&L (Company) and its wholly owned
      subsidiaries. The Company is a wholly owned subsidiary of FirstEnergy.
      FirstEnergy also holds directly all of the issued and outstanding common shares
      of its other principal electric utility operating subsidiaries, including OE,
      CEI, TE, ATSI, Met-Ed and Penelec.





The
      Company follows
      GAAP and complies with the regulations, orders, policies and practices
      prescribed by the SEC, NJBPU and the FERC. The preparation of financial
      statements in conformity with GAAP requires management to make periodic
      estimates and assumptions that affect the reported amounts of assets,
      liabilities, revenues and expenses and the disclosure of contingent assets
      and
      liabilities. Actual results could differ from these estimates.





The
      Company
      consolidates all majority-owned subsidiaries, over which the Company exercises
      control and, when applicable, entities for which the Company has a controlling
      financial interest and VIEs for which the Company or any of its subsidiaries
      is
      the primary beneficiary. Intercompany transactions and balances are eliminated
      in consolidation. Investments in non-consolidated affiliates (20-50% owned
      companies, joint ventures and partnerships) over which the Company has the
      ability to exercise significant influence, but not control, are accounted for
      on
      the equity basis.





Unless
      otherwise
      indicated, defined terms used herein have the meanings set forth in the
      accompanying Glossary of Terms.





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





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





The
      Company accounts
      for the effects of regulation through the application of SFAS 71 since its
      rates:





·
            are
                established by a third-party regulator with the authority to set
                rates
                that bind customers;





·
            are
                cost-based; and





·
            can
                be charged
                to and collected from customers.





An
      enterprise
      meeting all of these criteria capitalizes costs that would otherwise be charged
      to expense if the rate actions of its regulator make it probable that those
      costs will be recovered in future revenue. SFAS 71 is applied only to the
      parts of the business that meet the above criteria. If a portion of the business
      applying SFAS 71 no longer meets those requirements, previously recorded
      regulatory assets are removed from the balance sheet in accordance with the
      guidance in SFAS 101.





*Regulatory
      Assets-*





The
      Company
      recognizes, as regulatory assets, costs which the FERC and the NJBPU
      have
      authorized for recovery from customers in future periods or for which
      authorization is probable. Without the probability of such authorization, costs
      currently recorded as regulatory assets would have been charged to income as
      incurred. All regulatory assets are expected to be recovered from customers
      under the Company’s regulatory plan. The Company continues to bill and collect
      cost-based rates for its transmission and distribution services, which remain
      regulated; accordingly, it is appropriate that the Company continue the
      application of SFAS 71 to those operations.





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





**2005**
            
            **2004*****(In
                millions)***Regulatory
                transition costs
            
            $
            2,229
            
            $
            2,215Societal
                benefits charge
            
            
            29
            
            
            51Property
                losses and unrecovered plant costs
            
            
            29
            
            
            50Customer
                receivables for future income taxes
            
            
            31
            
            
            (58
            )Employee
                postretirement benefit costs
            
            
            23
            
            
            27Loss
                on
                reacquired debt
            
            
            10
            
            
            10Reliability
                costs
            
            
            23
            
            
            -Component
                removal costs
            
            
            (148
            )
            
            (150
            )Other
            
            
            1
            
            
            24**Total**
            
            **$**
            2,227
            
            **$**
            2,169


21


Regulatory
      transition charges as of December 31, 2005 for the Company are
      approximately $2.2 billion. Deferral of above-market costs from power
      supplied by NUGs to the Company are approximately $1.2 billion and are
      being recovered through BGS and MTC revenues. The liability for projected
      above-market NUG costs and corresponding regulatory asset are adjusted to fair
      value at the end of each quarter. Recovery of the remaining regulatory
      transition costs is expected to continue under the provisions of the various
      regulatory proceedings in New Jersey.





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





All
      temporary cash
      investments purchased with an initial maturity of three months or less are
      reported as cash equivalents on the Consolidated Balance Sheets at cost, which
      approximates their fair market value.





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





The
      Company’s
      principal business is providing electric service to customers in New Jersey.
      The
      Company’s retail customers are metered on a cycle basis. Electric revenues are
      recorded based on energy delivered through the end of the calendar month. An
      estimate of unbilled revenues is calculated to recognize electric service
      provided between the last meter reading and the end of the month. This estimate
      includes many factors including estimated weather impacts, customer shopping
      activity, historical line loss factors and prices in effect for each class
      of
      customer. In each accounting period, the Company accrues the estimated unbilled
      amount receivable as revenue and reverses the related prior period
      estimate.





Receivables
      from
      customers include sales to residential, commercial and industrial customers
      and
      sales to wholesale customers. There was no material concentration of receivables
      as of December 31, 200 5,
      with respect to
      any particular segment of the Company's customers. Total customer receivables
      were $258 million (billed - $157 million and unbilled -
      $101 million) and $201 million (billed - $122 million and
      unbilled - $79 million) as of December 31, 2005 and 2004,
      respectively.





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





As
      a result of the
      Company's acquisition by FirstEnergy, a portion of the Company’s property, plant
      and equipment was adjusted to reflect fair value. The majority of the Company’s
      property, plant and equipment is reflected at original cost since such assets
      remain subject to rate regulation on a historical cost basis. In addition to
      its
      wholly owned facilities, the Company holds a 50% ownership interest in Yards
      Creek Pumped Storage Facility, and its net book value was approximately
      $20 million as of December 31, 2005. The costs of normal maintenance,
      repairs and minor replacements are expensed as incurred. The Company's
      accounting policy for planned major maintenance projects is to recognize
      liabilities as they are incurred.





The
      Company provides
      for depreciation on a straight-line basis at various rates over the estimated
      lives of property included in plant in service. The annualized composite rate
      was approximately 2.2% in 2005, 2.1% in 2004 and 2.8% in 2003. The reduced
      depreciation rate in 2004 reflects reductions from the NJBPU August 2003 rate
      decision.





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





*Long-Lived
      Assets*





The
      Company
      evaluates the carrying value of its long-lived assets when events or
      circumstances indicate that the carrying amount may not be recoverable. In
      accordance with SFAS 144, the carrying amount of a long-lived asset is not
      recoverable if it exceeds the sum of the undiscounted cash flows expected to
      result from the use and eventual disposition of the asset. If an impairment
      exists, a loss is recognized for the amount by which the carrying value of
      the
      long-lived asset exceeds its estimated fair value. Fair value is estimated
      by
      using available market valuations or the long-lived asset's expected future
      net
      discounted cash flows. The calculation of expected cash flows is based on
      estimates and assumptions about future events.





22


*Goodwill*





In
      a business
      combination, the excess of the purchase price over the estimated fair values
      of
      assets acquired and liabilities assumed is recognized as goodwill. Based
      o n
      the
      guidance provided by SFAS 142, the Company evaluates its goodwill for
      impairment at least annually and would make such an evaluation more frequently
      if indicators of impairment should arise. In accordance with the accounting
      standard, if the fair value of a reporting unit is less than its carrying value
      (including goodwill), the goodwill is tested for impairment. If an impairment
      is
      indicated, the Company recognizes a loss - calculated as the difference between
      the implied fair value of a reporting unit's goodwill and the carrying value
      of
      the goodwill. The Company's 2005 annual review was completed in the third
      quarter of 2005 with no impairment indicated. The forecasts used in the
      Company's evaluation of goodwill reflect operations consistent with its general
      business assumptions. Unanticipated changes in those assumptions could have
      a
      significant effect on the Company's future evaluations of goodwill. As of
      December 31, 2005, the Company had recorded goodwill of $2.0 billion
      related to the merger. In the year ended December 31, 2005, the Company
      adjusted goodwill to reverse pre-merger tax accruals due to the final resolution
      of tax contingencies related to the GPU acquisition.





*Investments*





The
      Company
      periodically evaluates for impairment investments that include
      available-for-sale securities held by their nuclear decommissioning trusts.
      In
      accordance with SFAS 115, securities classified as available-for-sale are
      evaluated to determine whether a decline in fair value below the cost basis
      is
      other than temporary. If the decline in fair value is determined to be other
      than temporary, the cost basis of the security is written down to fair value.
      The Company considers, among other factors, the length of time and the extent
      to
      which the security's fair value has been less than cost and the near-term
      financial prospects of the security issuer when evaluating investments for
      impairment. The fair value and unrealized gains and losses of the Company's
      investments are disclosed in Note 4.





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





Comprehensive
      income
      includes net income as reported on the Consolidated Statements of Income and
      all
      other changes in common stockholder’s equity except those resulting from
      transactions with FirstEnergy and preferred stockholders. As of
      December 31, 2005, accumulated other comprehensive loss consisted of
      unrealized losses on derivative instrument hedges of $ 2 million.
      As
      of December 31, 2004, accumulated other comprehensive loss consisted of
      unrealized losses on derivative instrument hedges of $2 million and a
      minimum liability for unfunded retirement benefits of
      $53 million.





**(G)**  **INCOME
      TAXES-**





Details
      of the total
      provision for income taxes are shown on the Consolidated Statements of Taxes.
      The Company records income taxes in accordance with the liability method of
      accounting. Deferred income taxes reflect the net tax effect of temporary
      differences between the carrying amounts of assets and liabilities for financial
      reporting purposes and the amounts used for tax purposes. Investment tax
      credits, which were deferred when utilized, are being amortized over the
      recovery period of the related property. Deferred income tax liabilities related
      to tax and accounting basis differences and tax credit carry forward items
      are
      recognized at the statutory income tax rates in effect when the liabilities
      are
      expected to be paid. Deferred tax assets are recognized based on income tax
      rates expected to be in effect when they are settled. The Company is included
      in
      FirstEnergy's consolidated federal income tax return. The consolidated tax
      liability is allocated on a “stand-alone” company basis, with the Company
      recognizing the tax benefit for any tax losses or credits it contributes to
      the
      consolidated return.





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





Operating
      expenses
      and other income included transactions with affiliated companies, primarily
      FESC, GPUS and FES. GPUS (until it ceased operations in mid-2003) and FESC
      have
      provided legal, accounting, financial and other corporate support services
      to
      the Company. Through the BGS auction process, FES is a supplier of power to
      the
      Company. The primary affiliated companies transactions are as
      follows:





**2005**
            
            **2004**
            
            **2003*****(In
                millions)*****Operating
                Revenues:**Wholesale
                sales - affiliated companies
            
            $
            33
            
            $
            49
            
            $
            36**Services
                Received:**Service
                Company support services
            
            
            94
            
            
            95
            
            
            101Power
                purchased from FES
            
            
            78
            
            
            71
            
            
            55





23


FirstEnergy
      does not
      bill directly or allocate any of its costs to any subsidiary company. Costs
      are
      allocated to the Company from FESC, a subsidiary of FirstEnergy. The vast
      majority of costs are directly billed or assigned at no more than cost. The
      remaining costs are for services that are provided on behalf of more than one
      company, or costs that cannot be precisely identified and are allocated using
      formulas developed by FESC. The current allocation or assignment formulas used
      and their bases include multiple factor formulas; each company’s proportionate
      amount of FirstEnergy’s aggregate total for direct payroll, number of employees,
      asset balances, revenues, number of customers, other factors and specific
      departmental charge ratios. It is management’s belief that allocation methods
      utilized are reasonable. Intercompany transactions with FirstEnergy and its
      other subsidiaries are generally settled under commercial terms within thirty
      days.





**(I)**
            **RESTATEMENTS**


The
      Company is
      restating its financial statements for the two years ended December 31, 2004.
      The revisions are a result of a current tax audit from the State of New Jersey,
      in which the Company became aware that the New Jersey Transitional Energy
      Facilities Assessment (TEFA) tax is not an allowable deduction for state income
      tax purposes. The Company had incorrectly claimed a state income tax deduction
      for TEFA tax payments since 1998. The underpayment of tax, with interest through
      December 31, 2005, is approximately $29.5 million (net of federal tax benefit).
      The portion related to the period before the merger between GPU and FirstEnergy
      (1998 through November 6, 2001) is reflected as an increase to acquired
      liabilities, with the offset in the acquisition accounting resulting in an
      increase in goodwill of $13.3 million (net of federal tax benefit).


The
          Company has
          adjusted the results of operations for all periods subsequent to the merger
          and
          has reflected the cumulative impact of the accounting through December
          31, 2002
          as an adjustment of $4.1 million to the opening retained earnings as of
          January
          1, 2003 in these consolidated financial statements. The effect of this
          item on
          the Consolidating Statements of Income for the two years ended December
          31, 2004
          is as follows:
 Income
                      Statement EffectsIncrease
                      (Decrease)
                  
                  2004
                  
                  2003***(In
                      thousands)***Income
                      taxes
                  
                  $
                  2,093
                  
                  $
                  2,169Total
                      operating expenses and taxes
                  
                  
                  2,093
                  
                  
                  2,169Operating
                      Income
                  
                  
                  (2,093
                  )
                  
                  (2,169
                  )Other
                      interest
                      expense
                  
                  
                  1,920
                  
                  
                  1,571Net
                      interest
                      charges
                  
                  
                  1,920
                  
                  
                  1,571Net
                      income
                  
                  $
                  (4,013
                  )
                  $
                  (3,740
                  )


In
      addition, the
      above adjustments had the following impact on the Consolidated Balance Sheet
      as
      of December 31, 2004:





Increase
                  (Decrease)*(in
                  thousands)*Goodwill
              
              $
              13,314Total
                  assets
              
              $
              13,314Common
                  stockholder's equity
              
              $
              (11,808
              )Accrued
                  taxes
              
              
              17,282Accrued
                  interest
              
              
              7,840Total
                  capitalization and liabilities
              
              $
              13,314


24


The
      effects of all
      of the changes in this restatement on the previously reported Consolidated
      Balance Sheet as of December 31, 2004, and the Consolidated Statements of Income
      and Consolidated Statements of Cash Flow for the years ended December 31, 2004
      and 2003 are as follows:




**2004**
              
              **2003****As
                  Previously**
              
              **As**
              
              **As
                  Previously**
              
              **As****CONSOLIDATED
                  STATEMENTS OF INCOME**
              
              **Reported**
              
              **Restated**
              
              **Reported**
              
              **Restated****OPERATING
                  REVENUES (Note 2(H))**
              
              $
              2,206,987
              
              $
              2,206,987
              
              $
              2,359,646
              
              $
              2,359,646**OPERATING
                  EXPENSES AND TAXES:**Purchased
                  power (Note 2(H))
              
              
              1,166,430
              
              
              1,166,430
              
              
              1,386,899
              
              
              1,386,899Other
                  operating costs (Note 2(H))
              
              
              350,709
              
              
              350,709
              
              
              368,714
              
              
              368,714Provision
                  for
                  depreciation
              
              
              75,163
              
              
              75,163
              
              
              98,711
              
              
              98,711Amortization
                  of regulatory assets
              
              
              278,559
              
              
              278,559
              
              
              263,227
              
              
              263,227Deferral
                  of
                  new regulatory assets
              
              
              -
              
              
              -
              
              
              -
              
              
              -General
                  taxes
              
              
              62,792
              
              
              62,792
              
              
              53,481
              
              
              53,481Income
                  taxes
              
              
              89,425
              
              
              91,518
              
              
              41,839
              
              
              44,008Total
                  operating expenses and taxes
              
              
              2,023,078
              
              
              2,025,171
              
              
              2,212,871
              
              
              2,215,040**OPERATING
                  INCOME**
              
              
              183,909
              
              
              181,816
              
              
              146,775
              
              
              144,606**OTHER
                  INCOME (NET OF INCOME TAXES)**
              
              
              7,761
              
              
              7,761
              
              
              7,026
              
              
              7,026**NET
                  INTEREST CHARGES**
              
              
              80,031
              
              
              81,951
              
              
              85,784
              
              
              87,355**NET
                  INCOME**
              
              
              111,639
              
              
              107,626
              
              
              68,017
              
              
              64,277**PREFERRED
                  STOCK DIVIDEND REQUIREMENTS**
              
              
              500
              
              
              500
              
              
              500
              
              
              500**GAIN
                  ON PREFERRED STOCK REACQUISITION**
              
              
              -
              
              
              -
              
              
              (612
              )
              
              (612
              )**EARNINGS
                  ON COMMON STOCK**
              
              $
              111,139
              
              $
              107,126
              
              $
              68,129
              
              $
              64,389**CONSOLIDATED
                  BALANCE SHEETS**
              
              
              **As
                  Previously Reported**
              
              
              **As**
                **Restated****ASSETS**
              
              
              ***(In
                  thousands)*****CURRENT
                  ASSETS**
              
              $
              361,930
              
              $
              361,930**PROPERTY,
                  PLANT AND EQUIPMENT**
              
              
              2,425,004
              
              
              2,425,004**INVESTMENTS**
              
              
              337,716
              
              
              337,716**DEFERRED
                  CHARGES AND OTHER ASSETS:**Regulatory
                  assets
              
              
              2,168,554
              
              
              2,168,554Goodwill
              
              
              1,985,036
              
              
              1,998,350Prepaid
                  pension costs
              
              
              -
              
              
              -Other
              
              
              4,978
              
              
              4,9784,158,568
              
              
              4,171,882$
              7,283,218
              
              $
              7,296,532**CAPITALIZATION
                  AND LIABILITIES****CURRENT
                  LIABILITIES**
              
              
              488,851
              
              
              513,973**CAPITALIZATION:**Common
                  stockholder's equity
              
              
              3,155,362
              
              
              3,143,554Preferred
                  stock not subject to mandatory redemption
              
              
              12,649
              
              
              12,649Long-term
                  debt
                  and other long-term obligations
              
              
              1,238,984
              
              
              1,238,9844,406,995
              
              
              4,395,187**NONCURRENT
                  LIABILITIES:**Power
                  purchase
                  contract loss liability
              
              
              1,268,478
              
              
              1,268,478Accumulated
                  deferred income taxes
              
              
              645,741
              
              
              645,741Nuclear
                  fuel
                  disposal costs
              
              
              169,884
              
              
              169,884Asset
                  retirement obligation
              
              
              72,655
              
              
              72,655Retirement
                  benefits
              
              
              103,036
              
              
              103,036Other
              
              
              127,578
              
              
              127,5782,387,372
              
              
              2,387,372$
              7,283,218
              
              $
              7,296,532
   25





**2004**
              
              **2003****As
                  Previously**
              
              **As**
              
              **As
                  Previously**
              
              **As****CONSOLIDATED
                  STATEMENTS OF CASH FLOWS**
              
              **Reported**
              
              **Restated**
              
              **Reported**
              
              **Restated*****(In
                  thousands)*****CASH
                  FLOWS FROM OPERATING ACTIVITIES:**Net
                  income
              
              $
              111,639
              
              $
              107,626
              
              $
              68,017
              
              $
              64,277Adjustments
                  to
                  reconcile net income to net cash fromoperating
                  activities -Provision
                  for
                  depreciation
              
              
              75,163
              
              
              75,163
              
              
              98,711
              
              
              98,711Amortization
                  of regulatory assets
              
              
              278,559
              
              
              278,559
              
              
              263,227
              
              
              263,227Deferred
                  purchased power and other costs
              
              
              (263,257
              )
              
              (263,257
              )
              
              (276,214
              )
              
              (276,214
              )Deferred
                  income taxes and investment tax credits, net
              
              
              54,887
              
              
              54,887
              
              
              62,372
              
              
              62,372Accrued
                  retirement benefit obligation
              
              
              (2,986
              )
              
              (2,986
              )
              
              8,381
              
              
              8,381Accrued
                  compensation, net
              
              
              1,014
              
              
              1,014
              
              
              19,864
              
              
              19,864NUG
                  power
                  contract restructuring
              
              
              52,800
              
              
              52,800
              
              
              -
              
              
              -Cash
                  collateral from suppliers
              
              
              6,662
              
              
              6,662
              
              
              -
              
              
              -Pension
                  trust
                  contribution
              
              
              (62,499
              )
              
              (62,499
              )
              
              -
              
              
              -Revenue
                  credits to customers
              
              
              -
              
              
              -
              
              
              (71,984
              )
              
              (71,984
              )Disallowed
                  regulatory assets
              
              
              -
              
              
              -
              
              
              152,500
              
              
              152,500Decrease
                  (increase) in operating assets-Receivables
              
              
              (13,360
              )
              
              (13,360
              )
              
              4,528
              
              
              4,528Materials
                  and
                  supplies
              
              
              45
              
              
              45
              
              
              (1,139
              )
              
              (1,139
              )Prepayments
                  and other current assets
              
              
              17,870
              
              
              17,870
              
              
              (11,640
              )
              
              (11,640
              )Increase
                  (decrease) in operating liabilities-Accounts
                  payable
              
              
              (2,887
              )
              
              (2,887
              )
              
              (153,953
              )
              
              (153,953
              )Accrued
                  taxes
              
              
              1,707
              
              
              3,800
              
              
              (12,925
              )
              
              (10,756
              )Accrued
                  interest
              
              
              (4,484
              )
              
              (2,564
              )
              
              (12,319
              )
              
              (10,748
              )Other
              
              
              11,780
              
              
              11,780
              
              
              42,526
              
              
              42,526Net
                  cash
                  provided from operating activities
              
              $
              262,653
              
              $
              262,653
              
              $
              179,952
              
              $
              179,952**CASH
                  FLOWS FROM FINANCING ACTIVITIES**
              
              $
              (81,825
              )
              $
              (81,825
              )
              $
              (139,309
              )
              $
              (139,309
              )**CASH
                  FLOWS FROM INVESTING ACTIVITIES**
              
              $
              (180,937
              )
              $
              (180,937
              )
              $
              (45,195
              )
              $
              (45,195
              )











26


**3.**  **PENSION
      AND
      OTHER POSTRETIREMENT BENEFIT PLANS**





FirstEnergy
      provides
      noncontributory defined benefit pension plans that cover substantially all
      of
      the Company's employees. The trusteed plans provide defined benefits based
      on
      years of service and compensation levels. The Company's funding policy is based
      on actuarial computations using the projected unit credit method. In the fourth
      quarter of 2005, FirstEnergy made a $500 million voluntary contribution to
      its pension plan (the Company's share was $79 million). Projections
      indicated that absent this funding, cash contributions would have been required
      at some point prior to 2010. Pre-funding the pension plan is expected to
      eliminate this future funding requirement under current pension funding rules
      and should also minimize FirstEnergy's exposure to any funding requirements
      resulting from proposed pension reform.





FirstEnergy
      provides
      a minimum amount of noncontributory life insurance to retired employees in
      addition to optional contributory insurance. Health care benefits, which include
      certain employee contributions, deductibles and co-payments, are also available
      upon retirement to employees hired prior to January 1, 2005, their
      dependents and, under certain circumstances, their survivors. The Company
      recognizes the expected cost of providing other postretirement benefits to
      employees and their beneficiaries and covered dependents from the time employees
      are hired until they become eligible to receive those benefits. In addition,
      FirstEnergy has obligations to former or inactive employees after employment,
      but before retirement for disability related benefits.





Pension
      and OPEB
      costs are affected by employee demographics (including age, compensation levels,
      and employment periods), the level of contributions made to the plans, and
      earnings on plan assets. Such factors may be further affected by business
      combinations which impact employee demographics, plan experience and other
      factors. Pension and OPEB costs may also be affected by changes in key
      assumptions, including anticipated rates of return on plan assets, the discount
      rates and health care trend rates used in determining the projected benefit
      obligations and pension and OPEB costs. FirstEnergy uses a December 31
      measurement date for most of its plans.





Unless
      otherwise
      indicated, the following tables provide information applicable to FirstEnergy’s
      pension and OPEB plans.





**Obligations
                and Funded Status**
            
            **Pension
                Benefits**
            
            **Other
                Benefits****As
                of
                December 31**
            
            **2005**
            
            **2004**
            
            **2005**
            
            **2004*****(In
                millions)*****Change
                in benefit obligation**Benefit
                obligation as of January 1
            
            $
            4,364
            
            $
            4,162
            
            $
            1,930
            
            $
            2,368Service
                cost
            
            
            77
            
            
            77
            
            
            40
            
            
            36Interest
                cost
            
            
            254
            
            
            252
            
            
            111
            
            
            112Plan
                participants’ contributions
            
            
            -
            
            
            -
            
            
            18
            
            
            14Plan
                amendments
            
            
            15
            
            
            -
            
            
            (312
            )
            
            (281
            )Actuarial
                (gain) loss
            
            
            310
            
            
            134
            
            
            197
            
            
            (211
            )Benefits
                paid
            
            
            (270
            )
            
            (261
            )
            
            (100
            )
            
            (108
            )Benefit
                obligation as of December 31
            
            $
            4,750
            
            $
            4,364
            
            $
            1,884
            
            $
            1,930**Change
                in fair value of plan assets**Fair
                value of
                plan assets as of January 1
            
            $
            3,969
            
            $
            3,315
            
            $
            564
            
            $
            537Actual
                return
                on plan assets
            
            
            325
            
            
            415
            
            
            33
            
            
            57Company
                contribution
            
            
            500
            
            
            500
            
            
            58
            
            
            64Plan
                participants’ contribution
            
            
            -
            
            
            -
            
            
            18
            
            
            14Benefits
                paid
            
            
            (270
            )
            
            (261
            )
            
            (100
            )
            
            (108
            )Fair
                value of
                plan assets as of December 31
            
            $
            4,524
            
            $
            3,969
            
            $
            573
            
            $
            564**Funded
                status**
            
            $
            (226
            )
            $
            (395
            )
            $
            (1,311
            )
            $
            (1,366
            )Unrecognized
                net actuarial loss
            
            
            1,179
            
            
            885
            
            
            899
            
            
            730Unrecognized
                prior service cost (benefit)
            
            
            70
            
            
            63
            
            
            (645
            )
            
            (378
            )Net
                asset
                (liability) recognized
            
            $
            1,023
            
            $
            553
            
            $
            (1,057
            )
            $
            (1,014
            )





27





**Amounts
                Recognized in the**
              **Consolidated
                Balance Sheets**
              **As
                of
                December 31**Prepaid
                benefit cost
            
            $
            1,023
            
            $
            -
            
            $
            -
            
            $
            -Accrued
                benefit cost
            
            
            -
            
            
            (14
            )
            
            (1,057
            )
            
            (1,014
            )Intangible
                assets
            
            
            -
            
            
            63
            
            
            -
            
            
            -Accumulated
                other comprehensive loss
            
            
            -
            
            
            504
            
            
            -
            
            
            -Net
                amount
                recognized
            
            $
            1,023
            
            $
            553
            
            $
            (1,057
            )
            $
            (1,014
            )Company's
                share of net amount recognized
            
            $
            148
            
            $
            68
            
            $
            (70
            )
            $
            (79
            )Decrease
                in
                minimum liability
              included
                in
                other comprehensive income
              (net
                of
                tax)
            
            $
            (295
            )
            $
            (4
            )
            
            -
            
            
            -**Assumptions
                Used to Determine**
              **Benefit
                Obligations As of December 31**Discount
                rate
            
            
            5.75
            %
            
            6.00
            %
            
            5.75
            %
            
            6.00
            %Rate
                of
                compensation increase
            
            
            3.50
            %
            
            3.50
            %**Allocation
                of Plan Assets**
              **As
                of
                December 31**
              **Asset
                Category**Equity
                securities
            
            
            63
            %
            
            68
            %
            
            71
            %
            
            74
            %Debt
                securities
            
            
            33
            
            
            29
            
            
            27
            
            
            25Real
                estate
            
            
            2
            
            
            2
            
            
            -
            
            
            -Cash
            
            
            2
            
            
            1
            
            
            2
            
            
            1Total
            
            
            100
            %
            
            100
            %
            
            100
            %
            
            100
            %





**Information
                for Pension Plans With an**
              **Accumulated
                Benefit Obligation in**
              **Excess
                of Plan Assets**
            
            **2005**
            
            **2004*****(In
                millions)***Projected
                benefit obligation
            
            $
            4,750
            
            $
            4,364Accumulated
                benefit obligation
            
            
            4,327
            
            
            3,983Fair
                value of
                plan assets
            
            
            4,524
            
            
            3,969





**Pension
                Benefits**
            
            **Other
                Benefits****Components
                of Net Periodic Benefit Costs**
            
            **2005**
            
            **2004**
            
            **2003**
            
            **2005**
            
            **2004**
            
            **2003*****(In
                millions)***Service
                cost
            
            $
            77
            
            $
            77
            
            $
            66
            
            $
            40
            
            $
            36
            
            $
            43Interest
                cost
            
            
            254
            
            
            252
            
            
            253
            
            
            111
            
            
            112
            
            
            137Expected
                return on plan assets
            
            
            (345
            )
            
            (286
            )
            
            (248
            )
            
            (45
            )
            
            (44
            )
            
            (43
            )Amortization
                of prior service cost
            
            
            8
            
            
            9
            
            
            9
            
            
            (45
            )
            
            (40
            )
            
            (9
            )Amortization
                of transition obligation
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            9Recognized
                net
                actuarial loss
            
            
            36
            
            
            39
            
            
            62
            
            
            40
            
            
            39
            
            
            40Net
                periodic
                cost
            
            $
            30
            
            $
            91
            
            $
            142
            
            $
            101
            
            $
            103
            
            $
            177Company's
                share of net periodic cost (income)
            
            $
            (1
            )
            $
            7
            
            $
            12
            
            $
            7
            
            $
            5
            
            $
            12





**Weighted-Average
                Assumptions Used****to
                Determine Net Periodic Benefit Cost**
            
            **Pension
                Benefits**
            
            **Other
                Benefits****for
                Years Ended December 31**
            
            **2005**
            
            **2004**
            
            **2003**
            
            **2005**
            
            **2004**
            
            **2003**Discount
                rate
            
            
            6.00
            %
            
            6.25
            %
            
            6.75
            %
            
            6.00
            %
            
            6.25
            %
            
            6.75
            %Expected
                long-term return on plan assets
            
            
            9.00
            %
            
            9.00
            %
            
            9.00
            %
            
            9.00
            %
            
            9.00
            %
            
            9.00
            %Rate
                of
                compensation increase
            
            
            3.50
            %
            
            3.50
            %
            
            3.50
            %





In
      selecting an
      assumed discount rate, FirstEnergy considers currently available rates of return
      of high-quality fixed income investments expected to be available during the
      period to maturity of the pension and other postretirement benefit obligations.
      The assumed rates of return on pension plan assets consider historical market
      returns and economic forecasts for the types of investments held by the
      Company's pension trusts. The long-term rate of return is developed considering
      the portfolio’s asset allocation strategy.


28





FirstEnergy
      employs
      a total return investment approach whereby a mix of equities and fixed income
      investments are used to maximize the long-term return on plan assets for a
      prudent level of risk. Risk tolerance is established through careful
      consideration of plan liabilities, plan funded status, and corporate financial
      condition. The investment portfolio contains a diversified blend of equity
      and
      fixed-income investments. Furthermore, equity investments are diversified across
      U.S. and non-U.S. stocks, as well as growth, value, and small and large
      capitalization funds. Other assets such as real estate are used to enhance
      long-term returns while improving portfolio diversification. Derivatives may
      be
      used to gain market exposure in an efficient and timely manner; however,
      derivatives are not used to leverage the portfolio beyond the market value
      of
      the underlying investments. Investment risk is measured and monitored on a
      continuing basis through periodic investment portfolio reviews, annual liability
      measurements, and periodic asset/liability studies.





**Assumed
                Health Care Cost Trend Rates****As
                of
                December 31**
            
            **2005**
            
            **2004**Health
                care
                cost trend rate assumed for next
              year
                (pre/post-Medicare)
            
            
            9-11
            %
            
            9-11
            %Rate
                to which
                the cost trend rate is assumed to
              decline
                (the
                ultimate trend rate)
            
            
            5
            %
            
            5
            %Year
                that the
                rate reaches the ultimate trend
              rate
                (pre/post-Medicare)
            
            
            2010-2012
            
            
            2009-2011





Assumed
      health care
      cost trend rates have a significant effect on the amounts reported for the
      health care plans. A one-percentage-point change in assumed health care cost
      trend rates would have the following effects:





**1-Percentage-**
            
            **1-Percentage-****Point
                Increase**
            
            **Point
                Decrease*****(In
                millions)***Effect
                on
                total of service and interest cost
            
            $
            23
            
            $
            (19
            )Effect
                on
                postretirement benefit obligation
            
            $
            239
            
            $
            (209
            )





As
      a result of its
      voluntary contribution and the increased market value of pension plan assets,
      the Company recognized a prepaid pension cost of $148 million as of
      December 31, 2005. As prescribed by SFAS 87, the Company eliminated
      its additional minimum liability of $90 million. In addition, the entire
      AOCL balance was credited by $53 million (net of $37 million of
      deferred taxes) as the fair value of trust assets exceeded the accumulated
      benefit obligation as of December 31, 2005.





Taking
      into account
      estimated employee future service, FirstEnergy expects to make the following
      benefit payments from plan assets:





**Pension
                Benefits**
            
            **Other
                Benefits*****(In
                millions)***2006
            
            $
            228
            
            $
            1062007
            
            
            228
            
            
            1092008
            
            
            236
            
            
            1122009
            
            
            247
            
            
            1152010
            
            
            264
            
            
            119Years
                2011 -
                2015
            
            
            1,531
            
            
            642





The
      Company also
      maintains an unfunded benefit plan under which non-qualified supplemental
      pension benefits are paid to certain employees in addition to amounts received
      under the Company's qualified retirement plan, which is subject to IRS
      limitations on covered compensation. The net liability recognized was $2 million
      as of December 31, 2005.





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





*Long-term
      Debt
      and Other Long-term Obligations-*





All
      borrowings with
      initial maturities of less than one year are defined as financial instruments
      under GAAP and are reported on the Consolidated Balance Sheets at cost, which
      approximates their fair market value. The following table provides the
      approximate fair value and related carrying amounts of long-term debt as of
      December 31:





**2005**
            
            **2004****Carrying**
            
            **Fair**
            
            **Carrying**
            
            **Fair****Value**
            
            **Value**
            
            **Value**
            
            **Value*****(In
                millions)***Long-term
                debt
            
            $
            1,191
            
            $
            1,214
            
            $
            1,264
            
            $
            1,252





29


The
      fair values of
      long-term debt 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
      corporations with credit ratings similar to the Company’s ratings.





*Investments-*





The
      carrying amounts
      of cash and cash equivalents approximate fair value due to the short-term nature
      of these investments. The following table provides the approximate fair value
      and related carrying amounts of investments other than cash and cash equivalents
      as of December 31:





**2005**
            
            **2004****Carrying**
            
            **Fair**
            
            **Carrying**
            
            **Fair****Value**
            
            **Value**
            
            **Value**
            
            **Value*****(In
                millions)***Debt
                securities:(1)࿓-Government
                obligations
            
            $
            215
            
            $
            213
            
            $
            208
            
            $
            208࿓-Corporate
                debt securities
            
            
            12
            
            
            12
            
            
            11
            
            
            11227
            
            
            225
            
            
            219
            
            
            219Equity
                securities(1)
            
            
            84
            
            
            84
            
            
            80
            
            
            80$
            311
            
            $
            309
            
            $
            299
            
            $
            299





(1)  Includes
      nuclear
      decommissioning and nuclear fuel disposal trust investments.





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 held-to-maturity securities and
      available-for-sale securities. Decommissioning trust investments are classified
      as available-for-sale. The Company has no securities held for trading purposes.
      The following table summarizes the amortized cost basis, gross unrealized gains
      and losses and fair values for decommissioning trust investments as of
      December 31:





**2005**
            
            **2004****Cost**
            
            **Unrealized**
            
            **Unrealized**
            
            **Fair**
            
            **Cost**
            
            **Unrealized**
            
            **Unrealized**
            
            **Fair****Basis**
            
            **Gains**
            
            **Losses**
            
            **Value**
            
            **Basis**
            
            **Gains**
            
            **Losses**
            
            **Value*****(In
                millions)***Debt
                securities
            
            $
            60
            
            $
            2
            
            $
            -
            
            $
            62
            
            $
            55
            
            $
            3
            
            $
            -
            
            $
            58Equity
                securities
            
            
            73
            
            
            12
            
            
            1
            
            
            84
            
            
            72
            
            
            10
            
            
            2
            
            
            80$
            133
            
            $
            14
            
            $
            1
            
            $
            146
            
            $
            127
            
            $
            13
            
            $
            2
            
            $
            138





Proceeds
      from the
      sale of decommissioning trust investments, gross realized gains and losses
      on
      those sales, and interest and dividend income for the three years ended
      December 31, 2005 were as follows:





**2005**
            
            **2004**
            
            **2003*****(In
                millions)***Proceeds
                from
                sales
            
            $
            121
            
            $
            119
            
            $
            70Gross
                realized
                gains
            
            
            4
            
            
            15
            
            
            1Gross
                realized
                losses
            
            
            5
            
            
            1
            
            
            -Interest
                and
                dividend income
            
            
            4
            
            
            4
            
            
            4





The
      following table
      provides the fair value and gross unrealized losses of nuclear decommissioning
      trust investments that are deemed to be temporarily impaired as of
      December 31, 2005





**Less
                Than 12 Months**
            
            **12
                Months or More**
            
            **Total****Fair**
            
            **Unrealized**
            
            **Fair**
            
            **Unrealized**
            
            **Fair**
            
            **Unrealized****Value**
            
            **Losses**
            
            **Value**
            
            **Losses**
            
            **Value**
            
            **Losses*****(In
                millions)***Debt
                securities
            
            $
            22
            
            $
            -
            
            $
            7
            
            $
            -
            
            $
            29
            
            $
            -Equity
                securities
            
            
            11
            
            
            1
            
            
            2
            
            
            -
            
            
            13
            
            
            1$
            33
            
            $
            1
            
            $
            9
            
            $
            -
            
            $
            42
            
            $
            1





30





The
      Company
      periodically evaluates the securities held by its nuclear decommissioning trusts
      for other-than-temporary impairment. The Company considers the length of time
      and the extent to which the security's fair value has been less than its cost
      basis and other factors to determine whether an impairment is other than
      temporary. The Company's decommissioning trusts are subject to regulatory
      accounting in accordance with SFAS 71. Net unrealized gains and losses are
      recorded as regulatory liabilities or assets since the difference between
      investments held in trust and the decommissioning liabilities are recovered
      from
      or refunded to customers.





The
      investment
      policy for the nuclear decommissioning trust funds restricts or limits the
      ability to hold certain types of assets including private or direct placements,
      warrants, securities of FirstEnergy, investments in companies owning nuclear
      power plants, financial derivatives, preferred stocks, securities convertible
      into common stock and securities of the trust fund's custodian or managers
      and
      their parents or subsidiaries.





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





Consistent
      with the
      regulatory treatment, the rentals for operating leases are charged to operating
      expenses on the Consolidated Statements of Income. The Company's most
      significant operating leases relate to the sale and leaseback of a portion
      of
      its ownership interest in the Merrill Creek Reservoir project and the lease
      of
      vehicles.





Such
      costs for the
      three years ended December 31, 2005 are summarized as follows:





**2005**
            
            **2004**
            
            **2003*****(In
                millions)***Operating
                leasesInterest
                element
            
            $
            2.6
            
            $
            2.6
            
            $
            3.1Other
            
            
            3.2
            
            
            3.7
            
            
            5.1Total
                rentals
            
            $
            5.8
            
            $
            6.3
            
            $
            8.2





The
      future minimum
      lease payments as of December 31, 2005 are:





**Operating
                Leases*****(In
                millions)***2006
            
            $
            6.52007
            
            
            6.42008
            
            
            6.22009
            
            
            6.42010
            
            
            5.8Years
                thereafter
            
            
            72.0Total
                minimum
                lease payments
            
            
            103.3





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





FIN 46R
      addresses the consolidation of VIEs, including special-purpose entities, that
      are not controlled through voting interests or in which the equity investors
      do
      not bear the residual economic risks and rewards. FirstEnergy adopted
      FIN 46R for special-purpose entities as of December 31, 2003 and for
      all other entities in the first quarter of 2004. The Company consolidates VIEs
      when it is determined to be the VIE's primary beneficiary as defined by
      FIN 46R.





The
      Company has
      evaluated its power purchase agreements and determined that certain NUG entities
      may be VIEs to the extent they own a plant that sells substantially all of
      its
      output to the Company and the contract price for power is correlated with the
      plant’s variable costs of production. The Company maintains several long-term
      power purchase agreements with NUG entities. The agreements were structured
      pursuant to the Public Utility Regulatory Policies Act of 1978. The Company
      was
      not involved in the creation of, and has no equity or debt invested in, these
      entities.





The
      Company has
      determined that for all but five of these entities, the Company has no variable
      interests in the entities or the entities are governmental or not-for-profit
      organizations not within the scope of FIN 46R. The Company may hold
      variable interests in the remaining five entities, which sell their output
      at
      variable prices that correlate to some extent with the operating costs of the
      plants.


31





As
      required by
      FIN 46R, the Company periodically requests the information necessary from
      these entities to determine whether they are VIEs or whether the Company is
      the
      primary beneficiary. The Company has been unable to obtain the requested
      information, which in most cases, was deemed by the requested entity to be
      proprietary. As such, the Company applied the scope exception that exempts
      enterprises unable to obtain the necessary information to evaluate entities
      under FIN 46R. The purchased power costs from these entities during 2005,
      2004 and 2003, were $101 million, $94 million and $88 million,
      respectively.





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





In
      late 2003 and
      early 2004, a series of letters, reports and recommendations were issued from
      various entities, including governmental, industry and ad hoc reliability
      entities (PUCO, FERC, NERC and the U.S. - Canada Power System Outage Task Force)
      regarding enhancements to regional reliability. In 2004, FirstEnergy completed
      implementation of all actions and initiatives related to enhancing area
      reliability, improving voltage and reactive management, operator readiness
      and
      training and emergency response preparedness recommended for completion in
      2004.
      On July 14, 2004, NERC independently verified that FirstEnergy had
      implemented the various initiatives to be completed by June 30 or summer
      2004, with minor exceptions noted by FirstEnergy, which exceptions are now
      essentially complete. FirstEnergy is proceeding with the implementation of
      the
      recommendations that were to be completed subsequent to 2004 and will continue
      to periodically assess the FERC-ordered Reliability Study recommendations for
      forecasted 2009 system conditions, recognizing revised load forecasts and other
      changing system conditions which may impact the recommendations. Thus far,
      implementation of the recommendations has not required, nor is expected to
      require, substantial investment in new, or material upgrades to existing
      equipment. The FERC or other applicable government agencies and reliability
      coordinators may, however, take a different view as to recommended enhancements
      or may recommend additional enhancements in the future as the result of adoption
      of mandatory reliability standards pursuant to the EPACT that could require
      additional, material expenditures. Finally, the PUCO is continuing to review
      the
      FirstEnergy filing that addressed upgrades to control room computer hardware
      and
      software and enhancements to the training of control room operators before
      determining the next steps, if any, in the proceeding.





As
      a result of
      outages experienced in the Company's service area in 2002 and 2003, the NJBPU
      had implemented reviews into the Company's service reliability. In 2004, the
      NJBPU adopted an MOU that set out specific tasks related to service reliability
      to be performed by the Company and a timetable for completion and endorsed
      the
      Company's ongoing actions to implement the MOU. On June 9, 2004, the NJBPU
      approved a Stipulation that incorporates the final report of a Special
      Reliability Master who made recommendations on appropriate courses of action
      necessary to ensure system-wide reliability. The Stipulation also incorporates
      the Executive Summary and Recommendation portions of the final report of a
      focused audit of the Company's Planning and Operations and Maintenance programs
      and practices (Focused Audit). A final order in the Focused Audit docket was
      issued by the NJBPU on July 23, 2004. On February 11, 2005, the
      Company met with the Ratepayer Advocate to discuss reliability improvements.
      The
      Company continues to file compliance reports reflecting activities associated
      with the MOU and Stipulation.





The
      EPACT provides
      for the creation of an ERO to establish and enforce reliability standards for
      the bulk power system, subject to FERC review. On February 3, 2006, the FERC
      adopted a rule establishing certification requirements for the ERO, as well
      as
      regional entities envisioned to assume monitoring responsibility for the new
      reliability standards.





The
      NERC has been
      preparing the implementation aspects of reorganizing its structure to meet
      the
      FERC’s certification requirements for the ERO. The NERC will make a filing with
      the FERC to obtain certification as the ERO and to obtain FERC approval of
      delegation agreements with regional entities. The new FERC rule referred to
      above, further provides for reorganizing regional reliability organizations
      (regional entities) that would replace the current regional councils and for
      rearranging the relationship with the ERO. The “regional entity” may be
      delegated authority by the ERO, subject to FERC approval, for enforcing
      reliability standards adopted by the ERO and approved by the FERC. NERC also
      intends to make a parallel filing with the FERC seeking approval of mandatory
      reliability standards. These
      reliability
      standards are expected to be based on the current NERC Version 0 reliability
      standards with some additional standards. The
      two filings are
      expected to be made in the second quarter of 2006.





The
      ECAR,
      Mid-Atlantic Area Council, and Mid-American Interconnected Network reliability
      councils have completed the consolidation of these regions into a single new
      regional reliability organization known as ReliabilityFirst Corporation.
      ReliabilityFirst began operations as a regional reliability council under NERC
      on January 1, 2006 and intends to file and obtain certification consistent
      with the final rule as a “regional entity” under the ERO during 2006. All of
      FirstEnergy’s facilities are located within the ReliabilityFirst
      region.





On
      a parallel path,
      the NERC is establishing working groups to develop reliability standards to
      be
      filed for approval with the FERC following the NERC’s certification as an ERO.
      These reliability standards are expected to build on the current NERC Version
      0
      reliability standards. It is expected that the proposed reliability standards
      will be filed with the FERC in early 2006.


32


FirstEnergy
      believes
      it is in compliance with all current NERC reliability standards. However, it
      is
      expected that the FERC will adopt stricter reliability standards than those
      contained in the current NERC Version 0 standards. The financial impact of
      complying with the new standards cannot be determined at this time. However,
      the
      EPACT required that all prudent costs incurred to comply with the new
      reliability standards be recovered in rates.





The Company is permitted to
      defer for future collection from customers the amounts by which its costs of
      supplying BGS to non-shopping customers and costs incurred under NUG agreements
      exceed amounts collected through BGS and MTC rates and market sales of NUG
      energy and capacity. As of December 31, 2005, the accumulated deferred cost
      balance totaled approximately $541 million. New Jersey law allows for
      securitization of the Company's deferred balance upon application by the Company
      and a determination by the NJBPU that the conditions of the New Jersey
      restructuring legislation are met. On February 14, 2003, the Company filed
      for approval to securitize the July 31, 2003 deferred balance. The Company
      is in discussions with the NJBPU staff as a result of the stipulated settlement
      agreements (as further discussed below) which recommended that the NJBPU issue
      an order regarding the Company's application. On July 20, 2005, the Company
      requested the NJBPU to set a procedural schedule for this matter and is awaiting
      NJBPU action. On February 1, 2006, the NJBPU selected Bear Stearns as the
      financial advisor. On December 2, 2005, the Company filed a request for
      recovery of $165 million of actual above-market NUG costs incurred from
      August 1, 2005 through October 31, 2005 and forecasted above-market
      NUG costs for November and December 2005. The filing also includes a request
      for
      recovery of $49 million for above-market NUG costs incurred prior to
      August 1, 2003, to the extent those costs are not recoverable through
      securitization.





The
      2003 NJBPU
      decision on the Company's base electric rate proceeding (the Phase I Order)
      disallowed certain regulatory assets and provided for an interim return on
      equity of 9.5% on the Company's rate base. The Phase I order also provided
      for a
      Phase II proceeding in which the NJBPU would review whether the Company is
      in
      compliance with current service reliability and quality standards and determine
      whether the expenditures and projects undertaken by the Company to increase
      its
      system's reliability are prudent and reasonable for rate recovery. Depending
      on
      its assessment of the Company's service reliability, the NJBPU could have
      increased the Company's return on equity to 9.75% or decreased it to
      9.25%.





On
      July 16,
      2004, the Company filed the Phase II petition and testimony with the NJBPU,
      requesting an increase in base rates of $36 million for the recovery of system
      reliability costs and a 9.75% return on equity. The filing also requested an
      increase to the MTC deferred balance recovery of approximately $20 million
      annually.





On
      May 25,
      2005, the NJBPU approved two stipulated settlement agreements. The first
      stipulation between the Company and the NJBPU staff resolves all of the issues
      associated with the Company's motion for reconsideration of the Phase I Order.
      The second stipulation between the Company, the NJBPU staff and the Ratepayer
      Advocate resolves all of the issues associated with the Company's Phase II
      proceeding. The stipulated settlements provide for, among other things, the
      following:





·
            An
                annual
                increase in distribution revenues of $23 million effective June 1,
                2005, associated with the Phase I Order
                reconsideration;


·
            An
                annual
                increase in distribution revenues of $36 million effective June 1,
                2005, related to the Company's Phase II
                Petition;





·
            An
                annual
                reduction in both rates and amortization expense of $8 million, effective
                June 1, 2005, in anticipation of an NJBPU order regarding the
              Company's
                request to securitize up to $277 million of its deferred cost
                balance;





·
            An
                increase in
                the Company's authorized return on common equity from 9.5% to 9.75%;
                and





·
            A
                commitment
                by the Company, through December 31, 2006 or until related legislation
                is
                adopted, whichever occurs first, to maintain a target level
                of
              customer
                service reliability with a reduction in the Company's authorized
                return on
                common equity from 9.75% to 9.5% if the target is not met for two
              consecutive
                quarters. The authorized return on common equity would then be restored
                to
                9.75% if the target is met for two consecutive
                quarters.





The
      Phase II
      stipulation included an agreement that the distribution revenue increase also
      reflects a three-year amortization of the Company's one-time service reliability
      improvement costs incurred in 2003-2005. This resulted in the creation of a
      regulatory asset associated with accelerated tree trimming and other reliability
      costs which were expensed in 2003 and 2004. The establishment of the new
      regulatory asset of approximately $28 million resulted in an increase to net
      income of approximately $16 million in the second quarter of 2005.





33


The
      Company sells
      all self-supplied energy (NUGs and owned generation) to the wholesale market
      with offsetting credits to its deferred energy balance with the exception of
      300
      MW from the Company's NUG committed supply currently being used to serve BGS
      customers pursuant to NJBPU order for the period June 1, 2005 through
      May 31, 2006. New BGS tariffs reflecting the results of a February 2005
      auction for the BGS supply became effective June 1, 2005.





The
      NJBPU decision
      approving the BGS procurement proposal for the period beginning June 1,
      2006 was issued on October 12, 2005. The Company submitted a compliance
      filing on October 26, 2005, which was approved on November 10, 2005. The
      written Order was dated December 8, 2005. The auction
      took
      place in early February 2006 and the results have been approved by the
      NJBPU.




In
      accordance with
      an April 28, 2004 NJBPU order, the Company filed testimony on June 7,
      2004 supporting a continuation of the current level and duration of the funding
      of TMI-2 decommissioning costs by New Jersey customers without a reduction,
      termination or capping of the funding. On September 30, 2004, the Company
      filed an updated TMI-2 decommissioning study. This study resulted in an updated
      total decommissioning cost estimate of $729 million (in 2003 dollars) compared
      to the estimated $528 million (in 2003 dollars) from the prior 1995
      decommissioning study. The Ratepayer Advocate filed comments on
      February 28, 2005. On March 18, 2005, the Company filed a response to
      those comments. A schedule for further proceedings has not yet been
      set.





On
      August 1,
      2005, the NJBPU established a proceeding to determine whether additional
      ratepayer protections are required at the state level in light of the recent
      repeal of PUHCA under the EPACT. An NJBPU proposed rulemaking to address the
      issues was published in the NJ Register on December 19, 2005. The proposal
      would prevent a holding company that owns a gas or electric public utility
      from
      investing more than 25% of the combined assets of its utility and
      utility-related subsidiaries into businesses unrelated to the utility industry.
      A public hearing was held on February 7, 2006 and comments may be submitted
      to the NJBPU by February 17, 2006. JCP&L is not able to predict the
      outcome of this proceeding at this time.





The
      Company, ATSI,
      Met-Ed, Penelec, and FES continue to be involved in FERC hearings concerning
      the
      calculation and imposition of Seams Elimination Cost Adjustment (SECA) charges
      to various load serving entities. Pursuant to its January 30, 2006 Order,
      the FERC has compressed both phases of this proceeding into a single hearing
      scheduled to begin May 1, 2006, with an initial decision on or before
      August 11, 2006.





On
      January 31,
      2005, certain PJM transmission owners made three filings pursuant to a
      settlement agreement previously approved by the FERC. The Company, Met-Ed and
      Penelec were parties to that proceeding and joined in two of the filings. In
      the
      first filing, the settling transmission owners submitted a filing justifying
      continuation of their existing rate design within the PJM RTO. In the second
      filing, the settling transmission owners proposed a revised Schedule 12 to
      the PJM tariff designed to harmonize the rate treatment of new and existing
      transmission facilities. Interventions and protests were filed on
      February 22, 2005. In the third filing, Baltimore Gas and Electric Company
      and Pepco Holdings, Inc. requested a formula rate for transmission service
      provided within their respective zones. On May 31, 2005, the FERC issued an
      order on these cases. First, it set for hearing the existing rate design and
      indicated that it will issue a final order within six months. Second, the FERC
      approved the proposed Schedule 12 rate harmonization. Third, the FERC accepted
      the proposed formula rate, subject to referral and hearing procedures. On
      June 30, 2005, the PJM transmission owners filed a request for rehearing of
      the May 31, 2005 order. The rate design and formula rate proceedings are
      currently being litigated before the FERC. If FERC accepts AEP’s proposal to
      create a “postage stamp” rate for high voltage transmission facilities across
      PJM, significant additional transmission revenues would be imposed on the
      Company, Met-Ed, Penelec, and other transmission zones within PJM.





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





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





In
      general, the
      Company’s first
      mortgage
      indenture restricts the payment of dividends or distributions on or with respect
      to the Company’s common stock to amounts credited to earned surplus since the
      date of its indenture. As of December 31, 2005, the Company had retained
      earnings available to pay common stock dividends of $54 million, net of
      amounts restricted under the Company’s first mortgage indenture.





**(B)**  **PREFERRED
      AND PREFERENCE STOCK-**





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


34


**(C)**  **LONG-TERM
      DEBT AND OTHER LONG-TERM OBLIGATIONS-**





*Securitized
      Transition Bonds*





JCP&L
      Transition
      (Issuer), a wholly owned limited liability company of the Company, sold
      $320 million of transition bonds to securitize the recovery of the
      Company’s bondable stranded costs associated with the previously divested Oyster
      Creek Nuclear Generating Station. The Company did not purchase and does not
      own
      any of the transition bonds.





As
      of
      December 31, 2005, $264 million of transition bonds are outstanding
      and included in long-term debt on the Company’s Consolidated Balance Sheet. The
      transition bonds represent obligations only of the Issuer and are collateralized
      solely by the equity and assets of the Issuer, which consist primarily of
      bondable transition property. The bondable transition property is solely the
      property of the Issuer.





Bondable
      transition
      property represents the irrevocable right of a utility company to charge,
      collect and receive from its customers, through a non-bypassable TBC, the
      principal amount and interest on the transition bonds and other fees and
      expenses associated with their issuance. The Company, as servicer, manages
      and
      administers the bondable transition property, including the billing, collection
      and remittance of the TBC, pursuant to a servicing agreement with the Issuer.
      The Company is entitled to a quarterly servicing fee of $100,000 that is payable
      from TBC collections.





*Other
      Long-term
      Debt*





The
      Company’s first
      mortgage indenture, which secures all of the Company’s FMB, serves as a direct
      first mortgage lien on substantially all of the Company’s property and
      franchises, other than specifically excepted property.





The
      Company has
      various debt covenants under its financing arrangements. The most restrictive
      of
      these relate to the nonpayment of interest and/or principal on debt, which
      could
      trigger a default. Cross-default provisions also exist between FirstEnergy
      and
      the Company.





Based
      on the amount
      of bonds authenticated by the Trustee through December 31, 2005, the
      Company’s annual sinking fund requirements for all bonds issued under the
      mortgage amount to $16 million. The Company could fulfill its
      sinking fund obligation by providing refundable bonds, property additions or
      cash to the Trustee.





Sinking
      fund
      requirements for FMB and maturing long-term debt for the next five years
      are:





***(In
                millions)***2006
            
            $2072007
            
            
            182008
            
            
            192009
            
            
            202010
            
            
            21





**9.**  **ASSET
      RETIREMENT OBLIGATION:**





In
      January 2003, the
      Company implemented SFAS 143, which provides accounting guidance for
      retirement obligations associated with tangible long-lived assets. This standard
      requires recognition of the fair value of a liability for an ARO in the period
      in which it is incurred. The associated asset retirement costs are capitalized
      as part of the carrying amount of the long-lived asset. Over time the
      capitalized costs are depreciated and the present value of the ARO increases,
      resulting in a period expense. However, rate-regulated entities may recognize
      a
      regulatory asset or liability instead of an expense if the criteria for such
      treatment are met. Upon retirement, a gain or loss would be recognized if the
      cost to settle the retirement obligation differs from the carrying amount.





The
      Company
      initially identified applicable legal obligations as defined under the standard
      for nuclear power plant decommissioning of TMI-2. The ARO liability as of the
      date of adoption was $104 million, including accumulated accretion for the
      period from the date the liability was incurred to the date of adoption. The
      Company expects substantially all nuclear decommissioning costs to be
      recoverable through regulated rates. Therefore ,
      a regulatory
      liability of $26 million was recognized upon adoption of SFAS 143. The
      Company’s share of the obligation to decommission these units was developed
      based on site specific studies performed by an independent engineer. The Company
      utilized an expected cash flow approach to measure the fair value of the nuclear
      decommissioning ARO.





In
      2004, the Company
      revised the ARO associated with TMI-2 as the result of an updated study and
      the
      anticipated operating license extension for TMI-1. The abandoned TMI-2 is
      adjacent to TMI-1 and the units are expected to be decommissioned concurrently.
      The net decrease in the TMI-2 ARO liability and corresponding regulatory asset
      was $43 million.





35


The
      Company
      maintains the nuclear decommissioning trust funds that are legally restricted
      for purposes of settling the nuclear decommissioning ARO. As of
      December 31, 2005, the fair value of the decommissioning trust assets was
      $146 million.





The Company implemented FIN 47, "Accounting for Conditional Asset
      Retirement Obligations", an interpretation of SFAS 143 on December 31,
      2005. FIN 47 provides accounting standards for conditional retirement
      obligations associated with tangible long-lived assets, requiring recognition
      of
      the fair value of a liability for an ARO in the period in which it is incurred
      if a reasonable estimate can be identified. FIN 47 states that
      an **** obligation
      exists
      even though there may be uncertainty about timing or method of settlement
      and **** further
      clarifies
      SFAS 143, stating that the uncertainty surrounding the timing and method of
      settlement when settlement is conditional on a future event occurring should
      be
      reflected in the measurement of the liability not in the recognition of the
      liability. Accounting for conditional ARO under FIN 47 is the same as
      described above for SFAS 143. The adoption of FIN 47 had an immaterial
      impact on the Company’s year ended December 31, 2005 results.





The
      following table
      describes the changes to the ARO balances during 2005 and 2004.





**2005**
            
            **2004****ARO
                Reconciliation**
            
            ***(In
                millions)***Balance
                at
                beginning of year
            
            $
            73
            
            
            110Accretion
            
            
            5
            
            
            5Revisions
                in
                estimated cash flows
            
            
            -
            
            
            (42
            )FIN
                47
                ARO
            
            
            2
            
            
            -Balance
                at end
                of year
            
            $
            80
            
            
            73





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





Short-term
      borrowings outstanding as of December 31, 2005, consisted of
      $181 million of borrowings from affiliates. In June 2005, the Company,
      FirstEnergy, OE, Penn, CEI, TE, Met-Ed, Penelec, FES and ATSI, as Borrowers,
      entered into a syndicated $2 billion five-year revolving credit facility.
      Borrowings under the facility are available to each Borrower separately and
      mature on the earlier of 364 days from the date of borrowing or the commitment
      termination date, as the same may be extended. The Company's borrowing limit
      under the facility is $425 million. The average interest rate on short-term
      borrowings outstanding as of December 31, 2005 and 2004, was 4.0% and 2.0%,
      respectively.





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





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





The
      Price-Anderson
      Act limits the public liability relative to a single incident at a nuclear
      power
      plant to $10.8 billion. The amount is covered by a combination of private
      insurance and an industry retrospective rating plan. Based on its present
      ownership interest in TMI-2, the Company is exempt from any potential assessment
      under the industry retrospective rating plan.





The
      Company is also
      insured as to its interest in TMI-2 under a policy issued to the operating
      company for the plant. Under this policy, $150 million is provided for
      property damage and decontamination and decommissioning costs. Under this
      policy, the Company can be assessed a maximum of approximately $0.2 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 property damage, decontamination, decommissioning,
      repair and replacement costs and other such costs arising from a nuclear
      incident at TMI-2 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.





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





The
      Company accrues
      environmental liabilities only when it concludes that it is probable that it
      has
      an obligation for such costs and can reasonably estimate the amount of such
      costs. Unasserted claims are reflected in the Company’s determination of
      environmental liabilities and are accrued in the period that they are both
      probable and reasonably estimable.





36


The
      Company has been
      named as a PRP at waste disposal sites, which may require cleanup under the
      Comprehensive Environmental Response, Compensation, and Liability Act of 1980.
      Allegations of disposal of hazardous substances at historical sites and the
      liability involved are often unsubstantiated and subject to dispute; however,
      federal law provides that all PRPs for a particular site are liable on a joint
      and several basis. Therefore, environmental liabilities that are considered
      probable have been recognized on the Consolidated Balance Sheet as of
      December 31, 2005, based on estimates of the total costs of cleanup, the
      Company’s proportionate responsibility for such costs and the financial ability
      of other unaffiliated entities to pay. In addition, the Company has accrued
      liabilities for environmental remediation of former manufactured gas plants
      in
      New Jersey; those costs are being recovered by the Company through a
      non-bypassable SBC. Total liabilities of approximately $47.3 million have
      been accrued through December 31, 2005.





On
      December 1,
      2005, FirstEnergy issued a comprehensive report to shareholders regarding air
      emissions regulations and an assessment of its future risks and mitigation
      efforts.





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





*Power
      Outages
      and Related Litigation*





In
      July 1999, the
      Mid-Atlantic States experienced a severe heat wave, which resulted in power
      outages throughout the service territories of many electric utilities, including
      the Company's territory. In an investigation into the causes of the outages
      and
      the reliability of the transmission and distribution systems of all four of
      New
      Jersey’s electric utilities, the NJBPU concluded that there was not a prima
      facie case demonstrating that, overall, the Company provided unsafe, inadequate
      or improper service to its customers. Two class action lawsuits (subsequently
      consolidated into a single proceeding) were filed in New Jersey Superior Court
      in July 1999 against the Company, GPU and other GPU companies, seeking
      compensatory and punitive damages arising from the July 1999 service
      interruptions in the Company's territory.




In
      August 2002, the
      trial court granted partial summary judgment to the Company and dismissed the
      plaintiffs' claims for consumer fraud, common law fraud, negligent
      misrepresentation, and strict product liability. In November 2003, the trial
      court granted the Company's motion to decertify the class and denied plaintiffs'
      motion to permit into evidence their class-wide damage model indicating damages
      in excess of $50 million. These class decertification and damage rulings
      were appealed to the Appellate Division. The Appellate Division issued a
      decision on July 8, 2004, affirming the decertification of the originally
      certified class, but remanding for certification of a class limited to those
      customers directly impacted by the outages of the Company's transformers in
      Red
      Bank, New Jersey. On September 8, 2004, the New Jersey Supreme Court denied
      the motions filed by plaintiffs and the Company for leave to appeal the decision
      of the Appellate Division. The Company has filed a motion for summary judgment.
      FirstEnergy is unable to predict the outcome of these matters and no liability
      has been accrued as of December 31, 2005.





On
      August 14,
      2003, various states and parts of southern Canada experienced widespread power
      outages. The outages affected approximately 1.4 million customers in
      FirstEnergy's service area. The U.S. - Canada Power System Outage Task Force’s
      final report in April 2004 on the outages concluded, among other things, that
      the problems leading to the outages began in FirstEnergy’s Ohio service area. Specifically,
      the
      final report concluded, among other things, that the initiation of the
      August 14, 2003 power outages resulted from an alleged failure of both
      FirstEnergy and ECAR to assess and understand perceived inadequacies within
      the
      FirstEnergy system; inadequate situational awareness of the developing
      conditions; and a perceived failure to adequately manage tree growth in certain
      transmission rights of way. The Task Force also concluded that there was a
      failure of the interconnected grid's reliability organizations (MISO and PJM)
      to
      provide effective real-time diagnostic support. The final report is publicly
      available through the Department of Energy’s website (www.doe.gov). FirstEnergy
      believes that the final report does not provide a complete and comprehensive
      picture of the conditions that contributed to the August 14, 2003 power
      outages and that it does not adequately address the underlying causes of the
      outages. FirstEnergy remains convinced that the outages cannot be explained
      by
      events on any one utility's system. The final report contained 46
“recommendations to prevent or minimize the scope of future blackouts.”
Forty-five of those recommendations related to broad industry or policy matters
      while one, including subparts, related to activities the Task Force recommended
      be undertaken by FirstEnergy, MISO, PJM, ECAR, and other parties to correct
      the
      causes of the August 14, 2003 power outages. FirstEnergy implemented
      several initiatives, both prior to and since the August 14, 2003 power
      outages, which were independently verified by NERC as complete in 2004 and
      were
      consistent with these and other recommendations and collectively enhance the
      reliability of its electric system. FirstEnergy’s implementation of these
      recommendations in 2004 included completion of the Task Force recommendations
      that were directed toward FirstEnergy. FirstEnergy also is proceeding with
      the
      implementation of the recommendations regarding enhancements to regional
      reliability that were to be completed subsequent to 2004 and will continue
      to
      periodically assess the FERC-ordered Reliability Study recommendations for
      forecasted 2009 system conditions, recognizing revised load forecasts and other
      changing system conditions which may impact the recommendations. Thus far,
      implementation of the recommendations has not required, nor is expected to
      require, substantial investment in new or material upgrades to existing
      equipment, and therefore FirstEnergy has not accrued a liability as of
      December 31, 2005 for any expenditures in excess of those actually incurred
      through that date. The FERC or other applicable government agencies and
      reliability coordinators may, however, take a different view as to recommended
      enhancements or may recommend additional enhancements in the future that could
      require additional, material expenditures. Finally, the PUCO is continuing
      to
      review FirstEnergy’s filing that addressed upgrades to control room computer
      hardware and software and enhancements to the training of control room
      operators, before determining the next steps, if any, in the
      proceeding.


37





In
      addition to the
      above proceedings, FirstEnergy was named in a complaint filed in Michigan State
      Court by an individual who is not a customer of any FirstEnergy company. A
      responsive pleading to this matter has been filed. FirstEnergy was also named,
      along with several other entities, in a complaint in New Jersey State Court.
      The
      allegations against FirstEnergy are based, in part, on an alleged failure to
      protect the citizens of Jersey City from an electrical power outage. No
      FirstEnergy entity serves any customers in Jersey City. A responsive pleading
      has been filed. No estimate of potential liability has been undertaken in either
      of these matters.





FirstEnergy
      is
      vigorously defending these actions, but cannot predict the outcome of any of
      these proceedings or whether any further regulatory proceedings or legal actions
      may be initiated against the Companies. Although unable to predict the impact
      of
      these proceedings, if FirstEnergy or its subsidiaries were ultimately determined
      to have legal liability in connection with these proceedings, it could have
      a
      material adverse effect on FirstEnergy's or its subsidiaries' financial
      condition, results of operations and cash flows.





*Legal
      Matters*





There
      are various
      lawsuits, claims (including claims for asbestos exposure) and proceedings
      related to FirstEnergy's normal business operations pending against FirstEnergy
      and its subsidiaries. The other potentially material items not otherwise
      discussed above are described below.





The
      Company’s bargaining unit
      employees filed a grievance challenging the Company’s 2002 call-out procedure
      that required bargaining unit employees to respond to emergency power outages.
      On May 20, 2004, an arbitration panel concluded that the call-out procedure
      violated the parties' collective bargaining agreement. At the conclusion of
      the
      June 1, 2005 hearing, the Arbitrator decided not to hear testimony on
      damages and closed the proceedings. On September 9, 2005, the Arbitrator
      issued an opinion to award approximately $16 million to the bargaining unit
      employees. On February 6, 2006, the federal court granted a Union motion to
      dismiss the Company’s appeal of the award as premature. The Company will file
      its appeal again in federal district court once the damages associated with
      this
      case are identified at an individual employee level. The Company recognized
      a
      liability for the potential $16 million award in 2005.





If
      it were
      ultimately determined that FirstEnergy or its subsidiaries have legal liability
      or are otherwise made subject to liability based on the above matters, it could
      have a material adverse effect on FirstEnergy's or its subsidiaries' financial
      condition, results of operations and cash flows.





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





*FSP
      FAS 115-1 and FAS 124-1, "The Meaning of Other-Than-Temporary Impairment and
      its
      Application to Certain Investments"*





Issued
      in November
      2005, FSP 115-1 and FAS 124-1 addresses the determination as to when
      an investment is considered impaired, whether that impairment is other than
      temporary, and the measurement of an impairment loss. The FSP finalized and
      renamed EITF 03-1 and 03-1-a to FSP FAS 115-1. This FSP will (1) nullify certain
      requirements of Issue 03-1 and supersedes EITF topic No. D-44, "Recognition
      of
      Other Than Temporary Impairment upon the Planned Sale of a Security Whose Cost
      Exceeds Fair Value," (2) clarify that an investor should recognize an impairment
      loss no later than when the impairment is deemed other than temporary, even
      if a
      decision to sell has not been made, and (3) be effective for
      other-than-temporary impairment and analyses conducted in periods beginning
      after September 15, 2005. The FSP requires prospective application with an
      effective date for reporting periods beginning after December 15, 2005. The
      Company is currently evaluating this FSP and any impact on its
      investments.





*EITF Issue 04-13, "Accounting for Purchases and Sales of Inventory with the
      Same
      Counterparty"*





In
      September 2005,
      the EITF reached a final consensus on Issue 04-13 concluding that two or more
      legally separate exchange transactions with the same counterparty should be
      combined and considered as a single arrangement for purposes of applying
      APB 29, when the transactions were entered into "in contemplation" of one
      another. If two transactions are combined and considered a single arrangement,
      the EITF reached a consensus that an exchange of inventory should be accounted
      for at fair value. Although electric power is not capable of being held in
      inventory, there is no substantive conceptual distinction between exchanges
      involving power and other storable inventory. Therefore, the Company will adopt
      this EITF effective for new arrangements entered into, or modifications or
      renewals of existing arrangements, in interim or annual periods beginning after
      March 15, 2006.





*SFAS
                154 -
                “Accounting Changes and Error Corrections - a replacement of APB Opinion
                No. 20 and FASB Statement No.
                3”*





38


In
      May 2005, the
      FASB issued SFAS 154 to change the requirements for accounting and reporting
      a
      change in accounting principle. It applies to all voluntary changes in
      accounting principle and to changes required by an accounting pronouncement
      when
      that pronouncement does not include specific transition provisions. This
      Statement requires retrospective application to prior periods’ financial
      statements of changes in accounting principle, unless it is impracticable to
      determine either the period-specific effects or the cumulative effect of the
      change. In those instances, this Statement requires that the new accounting
      principle be applied to the balances of assets and liabilities as of the
      beginning of the earliest period for which retrospective application is
      practicable and that a corresponding adjustment be made to the opening balance
      of retained earnings (or other appropriate components of equity or net assets
      in
      the statement of financial position) for that period rather than being reported
      in the Consolidated Statements of Income. This Statement also requires that
      a
      change in depreciation, amortization, or depletion method for long-lived,
      nonfinancial assets be accounted for as a change in accounting estimate affected
      by a change in accounting principle. The provisions of this Statement are
      effective for accounting changes and corrections of errors made in fiscal years
      beginning after December 15, 2005. The Company adopted this Statement
      effective January 1, 2006.





*SFAS
                153,
                “Exchanges of Nonmonetary Assets - an amendment of APB Opinion No.
                29”*





In
      December 2004,
      the FASB issued SFAS 153 amending APB 29, which was based on the
      principle that nonmonetary assets should be measured based on the fair value
      of
      the assets exchanged. The guidance in APB 29 included certain exceptions to
      that principle. SFAS 153 eliminates the exception from fair value
      measurement for nonmonetary exchanges of similar productive assets and replaces
      it with an exception for exchanges that do not have commercial substance. This
      Statement specifies that a nonmonetary exchange has commercial substance if
      the
      future cash flows of the entity are expected to change significantly as a result
      of the exchange. The provisions of this Statement are effective January 1,
      2006 for the Company. This FSP is not expected to have a material impact on
      the
      Company’s financial statements.





*SFAS
      151,
“Inventory Costs - an amendment of ARB No. 43, Chapter 4”*





In
      November 2004,
      the FASB issued SFAS 151 to clarify the accounting for abnormal amounts of
      idle facility expense, freight, handling costs and wasted material (spoilage).
      Previous guidance stated that in some circumstances these costs may be “so
      abnormal” that they would require treatment as current period costs.
      SFAS 151 requires abnormal amounts for these items to always be recorded as
      current period costs. In addition, this Statement requires that allocation
      of
      fixed production overheads to the cost of conversion be based on the normal
      capacity of the production facilities. The provisions of this statement are
      effective for inventory costs incurred by the Company beginning January 1,
      2006. The Company does not expect this statement to have a material impact
      on
      its financial statements.





39




**13.**  **SUMMARY
        OF
        QUARTERLY FINANCIAL DATA (UNAUDITED):**
 
 **Three
                  Months Ended**
              
              **March
                  31, 2005(a)**
              
              **June
                  30, 2005(a)**
              
              **September
                  30, 2005(a)**
              
              **December
                  31, 2005****As
                  Previously**
              
              **As**
              
              **As
                  Previously**
              
              **As**
              
              **As
                  Previously**
              
              **As**
              
              **As****Reported**
              
              **Restated**
              
              **Reported**
              
              **Restated**
              
              **Reported**
              
              **Restated**
              
              **Reported*****(In
                  millions)***Operating
                  Revenues
              
              $
              529.1
              
              $
              529.1
              
              $
              595.3
              
              $
              595.3
              
              $
              900.3
              
              $
              900.3
              
              $
              577.6Operating
                  Expenses andTaxes
              
              
              494.7
              
              
              495.2
              
              
              521.2
              
              
              521.6
              
              
              809.2
              
              
              809.8
              
              
              519.9Operating
                  Income
              
              
              34.4
              
              
              33.9
              
              
              74.1
              
              
              73.7
              
              
              91.1
              
              
              90.5
              
              
              57.7Other
                  Income
              
              
              -
              
              
              -
              
              
              0.3
              
              
              0.3
              
              
              3.0
              
              
              3.0
              
              
              3.6Net
                  Interest
                  Charges
              
              
              19.9
              
              
              20.5
              
              
              19.1
              
              
              19.7
              
              
              18.9
              
              
              19.5
              
              
              20.1Net
                  Income
                  (Loss)
              
              $
              14.5
              
              $
              13.4
              
              $
              55.3
              
              $
              54.3
              
              $
              75.2
              
              $
              74.0
              
              $
              41.2Earnings
                  (Loss) Applicableto
                  Common
                  Stock
              
              $
              14.4
              
              $
              13.3
              
              $
              55.2
              
              $
              54.2
              
              $
              75.0
              
              $
              73.7
              
              $
              41.2
 
 
 
 **Three
                  Months Ended**
              
              **March
                  31, 2004(a)**
              
              **June
                  30, 2004(a)**
              
              **September
                  30, 2004(a)**
              
              **December
                  31, 2004(a)****As
                  Previously**
              
              **As**
              
              **As
                  Previously**
              
              **As**
              
              **As
                  Previously**
              
              **As**
              
              **As
                  Previously**
              
              **As****Reported**
              
              **Restated**
              
              **Reported**
              
              **Restated**
              
              **Reported**
              
              **Restated**
              
              **Reported**
              
              **Restated*****(In
                  millions)***Operating
                  Revenues
              
              $
              498.1
              
              $
              498.1
              
              $
              549.7
              
              $
              549.7
              
              $
              706.7
              
              $
              706.7
              
              $
              452.6
              
              
              $
              452.6Operating
                  Expenses andTaxes
              
              
              466.2
              
              
              466.7
              
              
              494.7
              
              
              495.2
              
              
              634.5
              
              
              635.2
              
              
              427.7
              
              
              
              428.2Operating
                  Income
              
              
              31.9
              
              
              31.4
              
              
              55.0
              
              
              54.5
              
              
              72.2
              
              
              71.5
              
              
              24.9
              
              
              
              24.4Other
                  Income
              
              
              1.5
              
              
              1.5
              
              
              1.1
              
              
              1.1
              
              
              2.0
              
              
              2.0
              
              
              3.2
              
              
              
              3.2Net
                  Interest
                  Charges
              
              
              20.1
              
              
              20.6
              
              
              19.2
              
              
              19.7
              
              
              21.8
              
              
              22.3
              
              
              19.0
              
              
              
              19.4Net
                  Income
                  (Loss)
              
              $
              13.3
              
              $
              12.3
              
              $
              36.9
              
              $
              35.9
              
              $
              52.4
              
              $
              51.2
              
              $
              9.1
              
              
              $
              8.2Earnings
                  (Loss) Applicableto
                  Common
                  Stock
              
              $
              13.3
              
              $
              12.2
              
              $
              36.7
              
              $
              35.8
              
              $
              52.2
              
              $
              51.1
              
              $
              8.9
              
              
              $
              8.0
 
 (a)
              See
                  Note 2(I)
                  to the Consolidated Financial
                  Statements.
 
 40