UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                    FORM 10-Q



(Mark One)

 X    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
---   EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2001
                               -------------------

                                       OR

      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
---   EXCHANGE ACT OF 1934

For the transition period from                  to
                               ----------------     --------------





Commission        Registrant, State of Incorporation,     I.R.S. Employer
File Number       Address and Telephone Number            Identification No.
-----------       -----------------------------------     ------------------

1-3522            Pennsylvania Electric Company             25-0718085
                  (a Pennsylvania corporation)
                  2800 Pottsville Pike
                  Reading, Pennsylvania 19640-0001
                  Telephone (610) 929-3601





      Indicate by check mark  whether the  registrant  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days. Yes X No



      The number of shares  outstanding of each of the  registrant's  classes of
voting stock, as of November 13, 2001, was as follows:

                                                                   Shares
Registrant                           Title                         Outstanding
-----------------------------------  ----------------------------  -------------
Pennsylvania Electric Company        Common Stock, $20 par value    5,290,596






<PAGE>





                          Pennsylvania Electric Company
                          Quarterly Report on Form 10-Q
                               September 30, 2001


                                Table of Contents
                                -----------------

                                                                         Page
                                                                         ----
PART I - Financial Information

      Management's Discussion and Analysis
        of Financial Condition and Results of
        Operations                                                         1

      Consolidated Financial Statements:

            Balance Sheets                                                10
            Statements of Income                                          12
            Statements of Cash Flows                                      13

      Notes to Consolidated Financial Statements                          14

PART II - Other Information                                               26

Signature                                                                 27



      The financial statements (not examined by independent accountants) reflect
all adjustments (which consist of only normal recurring accruals), which are, in
the opinion of management, necessary for a fair statement of the results for the
interim periods presented.

      This  Quarterly  Report  on Form  10-Q is filed by  Pennsylvania  Electric
Company.  This Form 10-Q  supplements and updates the 2000 Annual Report on Form
10-K, filed by the registrant with the Securities and Exchange  Commission,  and
should be read in conjunction therewith.




<PAGE>




                 CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS


      We caution  you that this Form 10-Q  contains  forward-looking  statements
within the meaning of Section 27A of the  Securities Act of 1933 and Section 21E
of the  Securities  Exchange  Act of 1934.  They  are  statements  about  future
performance  or results (such as statements  including,  but not limited to, the
terms "potential,"  "estimate," "believe," "expect" and "anticipate" and similar
words)  when we discuss  our  financial  condition,  results of  operations  and
business.  Forward-looking  statements  involve  certain risks,  assumptions and
uncertainties.  They are not guarantees of future performance. Factors may cause
actual   results   to  differ   materially   from  those   expressed   in  these
forward-looking statements. These factors include:

      -     changes in national and regional economic  conditions;

      -     changes in markets for energy services;

      -     changing commodity market prices;

      -     the availability and cost of capital;

      -     inability to accomplish or realize anticipated benefits of strategic
            goals;

      -     legislative and regulatory changes (including revised  environmental
            requirements);

      -     economic or weather conditions affecting future sales and margins;

      -     the speed and nature of increased  competition  and  deregulation in
            the electric utility industry; and

      -     outcomes of legal proceedings.

      We  believe  that  the  expectations   reflected  in  our  forward-looking
statements are reasonable. However, we cannot assure you that these expectations
will prove to be correct. You should consider the factors we have noted above as
you read the  forward-looking  statements  in this Form 10-Q.  We  undertake  no
obligation to release publicly any revisions to such forward-looking  statements
to reflect events or circumstances after the date of this document or to reflect
the occurrence of unanticipated events.




<PAGE>




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


      Pennsylvania Electric Company (Penelec) is a wholly-owned electric utility
subsidiary of FirstEnergy Corp. (FirstEnergy), an Ohio corporation headquartered
in Akron,  Ohio.  Penelec conducts business under the name GPU Energy along with
its affiliates  Metropolitan  Edison Company (Met-Ed) and Jersey Central Power &
Light  Company  (JCP&L),   which  are  also  electric  utility  subsidiaries  of
FirstEnergy.

         In August  2000,  FirstEnergy  entered  into an agreement to merge with
GPU, Inc., under which FirstEnergy  would acquire all of the outstanding  shares
of GPU,  Inc.'s  common  stock  for  approximately  $4.5  billion  in  cash  and
FirstEnergy  common stock.  The merger became effective on November 7, 2001 and
is being accounted for by the purchase method. Prior to that time, Penelec was a
wholly-owned subsidiary of GPU, Inc.



                              RESULTS OF OPERATIONS
                              ---------------------


      Penelec's earnings for the third quarter 2001 were $14.4 million, compared
to a loss for the third  quarter 2000 of $14  million.  The increase in earnings
was primarily due to the Pennsylvania Public Utility  Commission's  (PaPUC) June
2001  order  that  allows  Penelec  to defer,  for  future  rate  recovery  from
customers, energy costs in excess of its fixed generation tariff rates, starting
June 1, 2001, in connection  with its provider of last resort (PLR)  obligation.
For additional information on the PaPUC's order, see the Provider of Last Resort
section of the Supply Plan. As a result, in the third quarter 2001,  Penelec was
able to  defer  approximately  $91  million  pre-tax  of  energy  costs  that it
otherwise would have had to expense.

      For the nine months ended  September  30, 2001,  Penelec's  earnings  were
$19.5 million,  compared to $17.5 million for the same period in 2000. Excluding
a  non-recurring  charge of $9.4  million  after-tax  for costs  related  to the
termination of a wholesale energy contract with AEC, and a non-recurring  charge
of $5.3 million  after-tax  for costs related to Voluntary  Enhanced  Retirement
Programs (VERP) offered to certain  bargaining unit employees,  earnings for the
nine months ended  September  30, 2001 would have been $34.2  million.  The same
factors  affecting the  comparable  quarterly  results also affected the year to
date comparison on this basis. Also, there was a negative impact on year to date
2001  earnings  prior to June 1,  2001,  when  Penelec  did not defer its excess
energy costs incurred in connection with its PLR obligation.

OPERATING REVENUES:
-------------------

      Operating  revenues for the third quarter 2001 increased  $28.9 million to
$265.6 million, as compared to the third quarter 2000. For the nine months ended
September 30, 2001,  operating revenues increased $76.4 million to $740 million,
compared  to the same  period last year.  The  components  of the changes are as
follows:






                                        1


<PAGE>


                                           2001 vs. 2000 (in millions)
                                      ---------------------------------------
                                      Three Months Ended    Nine Months Ended
                                         September 30,        September 30,
                                      ------------------    -----------------
KWH revenues                                $25.3                $71.3
CTC revenues                                  1.9                  3.1
Other revenues                                1.7                  2.0
                                             ----                 ----
     Increase in revenues                   $28.9                $76.4
                                             ====                 ====

KWH revenues
------------

      The increase in KWH revenues was  primarily  due to the return of numerous
shopping customers from alternate generation suppliers in 2001, partially offset
by a decrease of sales to other  utilities.  Starting June 1, 2001, there was no
impact on earnings associated with these returning customers since Penelec had a
deferral mechanism for its over/under-recovered  energy costs in accordance with
the PaPUC's June 2001 order.

OPERATING INCOME:
-----------------

      Operating  income for the third  quarter 2001  increased  $48.5 million to
$37.5 million, as compared to the third quarter 2000. The increase was primarily
due to the PaPUC's June 2001 order that allows Penelec to defer, for future rate
recovery from customers,  energy costs in excess of its fixed generation  tariff
rates  (approximately  $91 million).  Also  contributing  the increase was lower
operation and maintenance (O&M) expenses  (approximately  $8 million)  resulting
primarily from lower pension costs.

      For the nine months ended September 30, 2001,  operating  income increased
$8.7  million to $66  million,  as compared  to the same  period last year.  The
increase for the nine months ended  September 30, 2001 reflects a  non-recurring
charge of $16 million  pre-tax,  for costs related to the termination of the AEC
contract;  and a non-recurring  charge to other O&M of $9.1 million pre-tax, for
costs  related  to the  VERP.  In  addition,  the  year to date  comparison  was
significantly  impacted  by the  deferral  of  energy  costs in  excess of fixed
generation tariff rates  (approximately  $113 million,  beginning June 1, 2001);
and lower O&M expense (approximately $20 million, excluding the VERP).

OTHER INCOME AND DEDUCTIONS:
----------------------------

      Other income and  deductions  for the third  quarter 2001  increased  $5.1
million to $3.3 million,  as compared to the third  quarter  2000.  For the nine
months ended  September 30, 2001,  other income and  deductions  increased  $4.1
million to $7 million,  versus the same period  last year.  The  increase in the
third  quarter was  primarily  due to the absence in 2001 of the  write-down  of
regulatory  assets  by  $3.8  million  for  Three  Mile  Island  Unit 2  (TMI-2)
decommissioning,  representing the net realized gain previously  recorded on the
accident-related  portion of the TMI-2  decommissioning  trust.  The same factor
affecting  the  comparable  quarterly  results  also  affected  the year to date
comparison.  Partially  offsetting  the year to date increase was lower interest
income.

INTEREST CHARGES:
-----------------

Interest  charges for the third  quarter  2001  decreased  $0.3 million to $11.8
million,  as  compared to the third  quarter  2000.  For the nine  months  ended
September 30, 2001, interest charges increased $3.6 million to $35.9 million,


                                        2


<PAGE>


versus the same period last year.  The  increase  in the  nine-month  period was
primarily  due to interest on the issuance of $93 million of senior notes during
2000.


                         LIQUIDITY AND CAPITAL RESOURCES
                         -------------------------------

Capital Expenditures and Investments
------------------------------------

      Capital  spending  for the nine months  ended  September  30, 2001 was $38
million, and was used primarily to expand and improve existing  transmission and
distribution  facilities and for new customer  connections.  Penelec's remaining
capital  expenditures  for 2001 are  estimated to be $23 million,  primarily for
ongoing  transmission and distribution system development.  Management estimates
that a substantial  portion of Penelec's 2001 capital  spending will be supplied
through internally generated funds.

Financing
---------

      Upon the November 7, 2001 effective date of the  FirstEnergy and GPU, Inc.
merger, Penelec's available short-term bank borrowing facilities (these included
a revolving  credit  agreement and various bank lines of credit) were terminated
by their  terms  and  conditions.  As a result,  on this  date all of  Penelec's
outstanding borrowings from these facilities,  totaling $75 million, were repaid
by  FirstEnergy.  In addition,  Penelec had an outstanding  loan payable to GPU,
Inc.  in the amount of $40  million  that  became  payable to  FirstEnergy  upon
consummation of the merger.  FirstEnergy is in the process of establishing a new
$1.5  billion  revolving  credit  facility  to  meet  the  short-term  liquidity
requirements  of the new  combined  company,  including  those  requirements  of
Penelec.  Penelec is limited by SEC  authorization to $150 million of short-term
debt outstanding at any one time.

      Penelec has regulatory approval to issue senior notes through December 31,
2002 in the  amount of $157  million.  Penelec's  senior  notes  are  unsecured.
Penelec  will not issue any  additional  FMBs other than as  collateral  for the
senior  notes  since the senior  note  indenture  prohibits  (subject to certain
exceptions) Penelec from issuing any debt which is senior to the senior notes.

      In 2002,  Penelec has scheduled  long-term  debt  maturities  totaling $50
million.


                    COMPETITIVE ENVIRONMENT AND RATE MATTERS
                    ----------------------------------------

      In  March  2001,  106  Penelec  employees   accepted   Voluntary  Enhanced
Retirement   Programs   offered  to  certain   bargaining   unit   employees  in
Pennsylvania. As a result, Penelec has recorded a pre-tax charge $9.1 million in
2001 Operating Income for the cost of pension and other postretirement benefits.

Recent Regulatory Actions
-------------------------

      With the transition to a competitive marketplace for generation service in
Pennsylvania,   certain  generation-related  costs,  which  generally  would  be
recoverable  in a regulated  environment,  may no longer be  recoverable.  These
costs are generally referred to as stranded costs.




                                        3


<PAGE>


Restructuring Orders

      In  1998,  the  PaPUC  issued  amended   Restructuring   Orders  approving
Settlement Agreements entered into by Penelec which, among other things, provide
for customer choice of electric  generation  supplier  beginning January 1, 1999
and a one-year (1999) reduction in retail  distribution rates for all consumers.
The Orders also provide for recovery of a substantial  portion of what otherwise
would have become stranded costs, subject to Phase II proceedings  following the
completion  of  Penelec's  generating  asset  divestitures,   to  make  a  final
determination  of the extent of that stranded cost  recovery.  In 2000,  Penelec
submitted Phase II Reports to the PaPUC  supporting their actual net divestiture
proceeds and providing a  reconciliation  of stranded costs pursuant to the 1998
Restructuring Orders.

      In 2000,  the PaPUC  issued a Phase II Order  which,  among other  things,
disallowed  a portion of the  requested  additional  stranded  costs above those
amounts  granted in the 1998 Orders.  The Order requires  Penelec to seek an IRS
ruling  regarding the return of certain  unamortized  investment tax credits and
excess deferred income tax benefits to ratepayers.  If the IRS ruling ultimately
supports  returning these tax benefits to ratepayers,  Penelec would then reduce
stranded costs by $23 million plus interest and record a corresponding charge to
income.

Provider of Last Resort ("PLR")

      Penelec  customers  have  been  permitted  to shop  for  their  generation
supplier since January 1, 1999 under the 1998 PaPUC  Restructuring  Orders.  The
PaPUC  approved a  competitive  bid  process  designed  to assign PLR service to
licensed generation suppliers, referred to as Competitive Default Service (CDS),
for 20% of Penelec's  retail customers on June 1, 2000, 40% on June 1, 2001, 60%
on June 1, 2002 and 80% on June 1, 2003.  Any retail  customers  assigned to CDS
may return to Penelec as the default  PLR.  Penelec may meet any  remaining  PLR
obligation  at rates not less than the lowest  rate  charged by the  winning CDS
provider, but no higher than Penelec's rate cap.

      Due to the absence of  acceptable  bids in 2000,  Penelec was  required to
supply  300  megawatts  (MW) of  electric  power  more than it had  planned.  In
addition,  customers requiring approximately 360 MW of power returned to Penelec
from their  alternate  suppliers  for the peak Summer  months.  During that same
period,  market prices at which Penelec was required to purchase electricity for
their retail supply customers at times substantially exceeded the amount Penelec
was  allowed  to charge  for that  electricity  under  its  capped  rates.  This
situation resulted in Penelec's supply businesses recording after-tax losses for
2000  of  approximately  $14  million.  Under  the  terms  of its  restructuring
settlement,  in 2001 Penelec again sought  alternative  providers  through a CDS
bidding process for 40% of its customers;  however,  the company did not receive
any bids in response to its request.

      In  November  2000,  Penelec  filed a  petition  with  the  PaPUC  seeking
permission to defer for future  recovery their energy costs in excess of amounts
reflected  in  its  capped   generation   rates.  In  January  2001,  the  PaPUC
consolidated this petition with the FirstEnergy/GPU,  Inc. merger proceeding for
consideration and resolution in accord with the merger procedural schedule.

      In June 2001,  Penelec,  Met-Ed and FirstEnergy  entered into a Settlement
Stipulation  with all of the major  intervenors in the combined  merger and rate
relief proceedings, that, in addition to resolving certain issues concerning the
PaPUC's approval of the FirstEnergy/GPU, Inc. merger, also addressed

                                        4


<PAGE>


Penelec's  request for PLR rate  relief.  On June 20,  2001,  the PaPUC  entered
orders  approving  the  Settlement  Stipulation,  thus  approving the merger and
providing  Penelec PLR rate relief.  Accordingly,  Penelec is permitted to defer
for future  recovery the  difference  between its actual  energy costs and those
reflected in its capped generation rates,  retroactive to January 1, 2001. These
"PLR  deferrals"  will  continue  through  December  31,  2005.  If energy costs
incurred  by  Penelec  during  this  period  are  below  its  respective  capped
generation rates, the difference would be used to reduce its PLR deferrals.

      Penelec has  established  regulatory  assets on its balance  sheet for the
deferral of excess  energy costs  incurred  during the period of January 1, 2001
through  September  30,  2001.  In the  second  quarter  of  2001,  Penelec  had
established a reserve of $16 million against its PLR deferrals for the period of
January 1, 2001  through  May 31,  2001,  which  would have been  written off in
accordance with the Settlement  Stipulation had the merger not been consummated.
Upon consummation of the merger, this reserve was reversed.

      Under the  Settlement  Stipulation,  Penelec's PLR  obligations  have been
extended  through December 31, 2010.  Penelec's  Competitive  Transition  Charge
(CTC)  revenues  will be applied  first to PLR costs,  then to non-NUG  stranded
costs and lastly to NUG stranded costs through December 31, 2010.  Remaining PLR
deferrals not recovered as of December 31, 2010 would have to be written off.

      The  Settlement  Stipulation  also requires a revised  calculation  of NUG
stranded costs being recovered  under the terms of Penelec's 1998  Restructuring
Orders,  retroactive to January 1, 2001. In addition, the Settlement Stipulation
allows  Penelec to access its NUG Trust to fund all costs  payable under its NUG
agreements, retroactive to January 1, 2001.

      Several  parties  have filed  Petitions  for Review with the  Commonwealth
Court of Pennsylvania  regarding the PaPUC's order.  The Court has  consolidated
these appeals,  and has granted an expedited schedule.  Oral arguments were held
in November 2001. There can be no assurance as to the outcome of these matters.

Supply Plan and Market Risk
---------------------------

      As a result of the PaPUC's  Restructuring  Orders,  Penelec is required to
act as provider of last resort (PLR) by supplying  electricity  to customers who
do not choose an alternate supplier. In 1999, Penelec completed the sales of its
electric generating stations. As a result, Penelec now has to supply electricity
to  non-shopping  customers  almost  entirely  from  contracted  and open market
purchases.

Generation Agreements

      Electricity supply planning is currently performed on a combined basis for
Penelec and its GPU Energy  affiliates,  with the goal of  supplying  all of the
energy requirements of their non-shopping  customers at a reasonable cost. As of
September 30, 2001,  Penelec and its GPU Energy affiliates had only 285 MW (none
of which is Penelec's) of owned generation capacity and related energy remaining
to meet  customer  needs.  The  companies  also had  contracts  with  nonutility
generators totaling 1,595 MW (of which Penelec's share is 396 MW) and agreements
with other parties to provide varying amounts of capacity  through May 31, 2004.
These  capacity  amounts  from  third  parties  vary  from  a  monthly  high  of
approximately  4,500 MW in 2002 to 500 MW in May 2004.  Based on the exercise of
call  options,  Penelec  and its GPU  Energy  affiliates  may  take  the  energy
associated with up to 150 MW of this capacity through May

                                        5


<PAGE>


2003.  The  companies  have also  purchased  all of the capacity and energy from
their previously owned Three Mile Island Unit 1 (TMI-1) and Oyster Creek nuclear
generating stations through December 31, 2001 and March 31, 2003,  respectively.
In addition,  through May 31, 2002,  the companies have the right to 3,970 MW of
capacity  associated with  generating  stations they sold in 1999. The remaining
capacity and energy needs of Penelec and its GPU Energy  affiliates  will be met
by short- to  intermediate-term  commitments (one month to three years), and any
residual  needs will be purchased  from the  short-term  market (one hour to one
month). Payments pursuant to these agreements, which include firm commitments as
well  as  certain   assumptions   regarding,   among  other   things,   call/put
arrangements,  are estimated to be $282 million for the remainder of 2001,  $781
million in 2002, $115 million in 2003, and $5 million in 2004.

      Pursuant to the mandates of the Public Utility Regulatory Policies Act and
state regulatory directives,  Penelec was required to enter into long-term power
purchase  agreements  with NUGs for the purchase of energy and  capacity,  which
agreements  have  remaining  terms of up to 21 years.  The  PaPUC  Restructuring
Orders provide Penelec full recovery of its  above-market  NUG costs and certain
NUG buyout costs.  Penelec has recorded,  on a present value basis, an estimated
liability of $551 million on its  Consolidated  Balance Sheets for  above-market
NUG  costs,  which is offset by  corresponding  regulatory  assets.  Penelec  is
continuing  efforts  to  reduce  the  above-market  costs of  these  agreements;
however,  there can be no assurance as to the extent to which these efforts will
be successful.

Supply Market Risk

      With the divestiture of its generating  plants,  Penelec is in a net short
position  (load in excess of  supply).  Consequently,  Penelec  must  manage its
purchase  and sale of  installed  capacity  and  ancillary  services to minimize
business  risk   associated   with  its   reliability   obligation  in  the  PJM
Interconnection,  LLC (PJM). As discussed above,  Penelec  currently manages its
electricity  supply planning on a combined basis with its GPU Energy affiliates.
Supply/risk  management  transactions  will be made  based on the  objective  of
decreasing  price  uncertainty.  Penelec will enter into  supply/hedging  market
arrangements for hedging purposes only.

      Penelec  is  generally  at risk  of  rising  prices  for  electricity  and
electricity-related  products and  services.  These risks may differ during some
months of the year. To manage these risks,  Penelec employs a portfolio approach
which  primarily  consists of two party forward  purchases and options,  but may
also include New York Mercantile  Exchange PJM  electricity  futures and similar
instruments,   as  they  become  widely  available.   This  portfolio   includes
transactions  of various  durations  ranging  from one hour to greater  than one
year.

      Penelec's electricity market risks can be price-related, volume-related or
cost recovery-related as follows:

-     Price-related risk refers to the price exposure  associated with having to
      purchase amounts of electricity, installed capacity and ancillary services
      for load  requirements from the PJM interchange spot market. To the extent
      Penelec must rely on the PJM pool to satisfy load requirements,  financial
      exposure  exists for the  difference  between the PJM energy and installed
      capacity spot market prices and the fixed rates paid by customers.

-     Volume-related  risk refers to the uncertainty  associated with the amount
      of load Penelec is required to serve. Deregulation of the

                                        6


<PAGE>


      electric  utility  industry  has  resulted in the ability of  customers to
      purchase   electricity  from  other  electric  suppliers.   This  customer
      shopping,  combined with weather  changes,  which affect  customer  energy
      usage, can affect Penelec's position.

-     Cost  recovery-related  risk refers to the prudency risk  associated  with
      future NUG cost recovery under the  Restructuring  Orders  approved by the
      PaPUC, which require continued mitigation of above-market NUG costs.


                              ENVIRONMENTAL MATTERS
                              ---------------------

      As a result of existing  and proposed  legislation  and  regulations,  and
ongoing legal proceedings dealing with environmental matters including,  but not
limited to, air and water quality,  global warming,  electromagnetic fields, and
storage and disposal of hazardous  and/or toxic wastes,  Penelec may be required
to incur  substantial  additional  costs to construct new facilities;  modify or
replace existing and proposed equipment; or remediate,  decommission or clean up
waste disposal and other sites currently or formerly used by it,  including coal
mine refuse piles and generation facilities. In addition,  federal and state law
provide for payment by responsible parties for damage to natural resources.

      Penelec records environmental liabilities (on an undiscounted basis) where
it is probable  that a loss has been  incurred and the amount of the loss can be
reasonably  estimated,  and  adjusts  these  liabilities  as required to reflect
changes in  circumstances.  At  September  30,  2001,  Penelec  had  liabilities
recorded on its Consolidated  Balance Sheet for environmental  remediation of $3
million.

      For more  information,  see the  Environmental  Matters section of Note 1,
Commitments  and   Contingencies,   of  the  Notes  to  Consolidated   Financial
Statements.


                      LEGAL MATTERS - TMI-2 ACCIDENT CLAIMS
                      -------------------------------------

      As a  result  of the 1979  Three  Mile  Island  Unit 2  (TMI-2)  accident,
individual  claims for alleged  personal injury  (including  claims for punitive
damages),  which are material in amount, were asserted against Penelec,  Met-Ed,
JCP&L and GPU, Inc. (the  defendants).  Approximately  2,100 of such claims were
filed in the US District Court for the Middle District of Pennsylvania.  Some of
the  claims  also  seek  recovery  for  injuries   from  alleged   emissions  of
radioactivity before and after the accident.

      In 1996, the District Court granted a motion for summary judgment filed by
the  defendants,  and  dismissed  the ten initial  "test  cases"  which had been
selected for a test case trial,  as well as all of the  remaining  2,100 pending
claims. The Court ruled that there was no evidence which created a genuine issue
of material fact  warranting  submission of  plaintiffs'  claims to a jury.  The
plaintiffs  appealed the District Court's ruling to the Court of Appeals for the
Third Circuit. In November 1999, the Third Circuit affirmed the District Court's
dismissal of the ten "test cases," but set aside the dismissal of the additional
pending claims, remanding them to the District Court for further proceedings. In
remanding these claims, the Third Circuit held that the District Court had erred
in extending its summary judgment  decision to the other plaintiffs and imposing
on these plaintiffs the District Court's finding that radiation  exposures below
10 rems were too speculative to establish a causal link to cancer.  The Court of
Appeals


                                        7


<PAGE>


stated that the non-test  case  plaintiffs  should be permitted to present their
own  individual  evidence  that exposure to radiation  from the accident  caused
their cancers.  In June 2000,  the US Supreme Court denied  petitions for review
filed by the defendants and the plaintiffs.

      In September 2000, the defendants  filed a Motion for Summary  Judgment in
the District Court.  Meanwhile,  the plaintiffs took an interlocutory  appeal to
the Third Circuit seeking review of the District Court's  determination that the
remaining  plaintiffs should be allowed to advance causation theories based only
on the  admissible  evidence of record at the close of discovery in the case. On
April 30, 2001, the Third Circuit  affirmed the District  Court's  decision.  In
July 2001,  the  defendants  renewed  their  motion for Summary  Judgment of the
remaining 2,100 claims in the District Court.

      There can be no assurance as to the outcome of this litigation.

      Penelec believes that any liability to which it might be subject by reason
of the  TMI-2  accident  will not  exceed  its  financial  protection  under the
Price-Anderson Act.





                                        8


<PAGE>




                        (This page intentionally left blank.)




                                        9


<PAGE>
<TABLE>
<CAPTION>


             PENNSYLVANIA ELECTRIC COMPANY AND SUBSIDIARY COMPANIES

                           Consolidated Balance Sheets
                           ---------------------------

                                                                    In Thousands
                                                          ---------------------------
                                                          September 30,  December 31,
                                                              2001           2000
                                                          -------------  ------------
                                                           (Unaudited)

ASSETS
Utility Plant:
<S>                                                       <C>            <C>
  Utility plant in service                                $1,817,409     $1,791,594
  Accumulated depreciation                                  (616,382)      (588,377)
                                                           ---------      ---------
      Net utility plant in service                         1,201,027      1,203,217
  Construction work in progress                               26,422         25,895
  Other, net                                                   2,306          2,665
                                                           ---------      ---------
      Net utility plant                                    1,229,755      1,231,777
                                                           ---------      ---------

Other Property and Investments:
  Nonutility generation trust, at market                     182,803        190,710
  Nuclear decommissioning trusts, at market (Note 1)          95,419         98,426
  Other, net                                                  19,085            833
                                                           ---------      ---------
      Total other property and investments                   297,307        289,969
                                                           ---------      ---------

Current Assets:
  Cash and temporary cash investments                         19,251            250
  Special deposits                                               298            330
  Accounts receivable:
    Customers, less provision for doubtful accounts
      of $14,565 for 2001 and $14,851 for 2000                77,000         78,001
    Affiliates                                                41,507          9,558
    Other                                                     28,375         21,205
  Unbilled revenues                                           34,672         39,514
  Deferred income taxes                                        1,593          1,912
  Prepayments                                                 32,359         11,869
                                                           ---------      ---------
      Total current assets                                   235,055        162,639
                                                           ---------      ---------

Deferred Debits and Other Assets:
  Regulatory assets, net (Note 1)                            427,790        614,182
  Deferred income taxes                                      718,508        708,954
  Other                                                       37,756         34,829
                                                           ---------      ---------
      Total deferred debits and other assets               1,184,054      1,357,965
                                                           ---------      ---------

      Total Assets                                        $2,946,171     $3,042,350
                                                           =========      =========

The  accompanying  notes  are an  integral  part of the  consolidated  financial
statements.
</TABLE>

                                       10


<PAGE>
<TABLE>
<CAPTION>


             PENNSYLVANIA ELECTRIC COMPANY AND SUBSIDIARY COMPANIES

                           Consolidated Balance Sheets
                           ---------------------------

                                                                    In Thousands
                                                          ---------------------------
                                                          September 30,  December 31,
                                                              2001           2000
                                                          -------------  ------------
                                                           (Unaudited)

LIABILITIES AND CAPITALIZATION
Capitalization:
<S>                                                       <C>            <C>
  Common stock                                            $  105,812     $  105,812
  Capital surplus                                            370,487        320,487
  Retained earnings                                           62,977         43,515
  Accumulated other comprehensive income/(loss) (Note 4)      (1,201)            23
                                                           ---------      ---------
      Total common stockholder's equity                      538,075        469,837
  Company-obligated trust preferred securities (Note 5)      100,000        100,000
  Long-term debt                                             492,937        517,813
                                                           ---------      ---------
      Total capitalization                                 1,131,012      1,087,650
                                                           ---------      ---------

Current Liabilities:
  Securities due within one year                              25,015             14
  Notes payable                                               65,000         55,800
  Obligations under capital leases                               523            485
  Accounts payable:
    Affiliates                                               102,915         29,788
    Other                                                     51,150         50,673
  Taxes accrued                                               19,132         23,895
  Interest accrued                                            17,511         11,582
  Other                                                        8,275          6,880
                                                           ---------      ---------
      Total current liabilities                              289,521        179,117
                                                           ---------      ---------

Deferred Credits and Other Liabilities:
  Deferred income taxes                                      785,730        735,750
  Unamortized investment tax credits                          12,242         13,098
  Power purchase contract loss liability (Note 1)            551,363        846,992
  Three Mile Island Unit 2 future costs (Note 1)             131,929        128,820
  Nuclear fuel disposal fee                                   18,344         17,728
  Other                                                       26,030         33,195
                                                           ---------      ---------
      Total deferred credits and other liabilities         1,525,638      1,775,583
                                                           ---------      ---------

Commitments and Contingencies (Note 1)

      Total Liabilities and Capitalization                $2,946,171     $3,042,350
                                                           =========      =========

The  accompanying  notes  are an  integral  part of the  consolidated  financial
statements.
</TABLE>

                                       11

<PAGE>
<TABLE>
<CAPTION>


             PENNSYLVANIA ELECTRIC COMPANY AND SUBSIDIARY COMPANIES

                        Consolidated Statements of Income
                        ---------------------------------
                                   (Unaudited)

                                                           In Thousands
                                             ----------------------------------------
                                                Three Months          Nine Months
                                             Ended September 30,  Ended September 30,
                                             -------------------  -------------------
                                               2001      2000       2001     2000
                                               ----      ----       ----     ----

Operating Revenues                           $265,603  $236,729   $740,030 $663,623
                                              -------   -------    -------  -------

Operating Expenses:
  Power purchased and interchanged:
<S>                                             <C>         <C>      <C>      <C>
    Affiliates                                  7,506       946      9,600    1,979
    Others                                    252,686   198,961    596,738  469,097
  Deferred costs, net                         (91,802)  (19,488)  (126,557) (63,793)
  Other operation and maintenance              33,602    42,157    114,367  125,388
  Depreciation and amortization                13,674    13,343     43,302   38,346
  Taxes, other than income taxes               12,486    11,877     36,637   35,363
                                              -------   -------    -------  -------
      Total operating expenses                228,152   247,796    674,087  606,380
                                              -------   -------    -------  -------

Operating Income/(Loss)                        37,451   (11,067)    65,943   57,243
                                              -------   -------    -------  -------

Other Income and Deductions:
  Other income/(expense), net                   3,302    (1,748)     7,021    2,957
                                              -------   -------    -------  -------
      Total other income and deductions         3,302    (1,748)     7,021    2,957
                                              -------   -------    -------  -------
Income/(Loss) Before Interest Charges          40,753   (12,815)    72,964   60,200
                                              -------   -------    -------  -------

Interest Charges:
  Long-term debt and notes payable              9,395    10,494     29,056   26,895
  Company-obligated trust
    preferred securities                        1,835     1,529      5,505    5,199
  Other interest                                  297       331      1,374      938
  Allowance for borrowed funds used
    during construction                           224      (215)       (60)    (714)
                                              -------   -------    -------  -------
      Total interest charges                   11,751    12,139     35,875   32,318
                                              -------   -------    -------  -------

Income/(Loss) Before Income Taxes              29,002   (24,954)    37,089   27,882
  Income taxes                                 14,625   (10,945)    17,627   10,410
                                              -------   -------    -------  -------
Net Income/(Loss)                            $ 14,377  $(14,009)  $ 19,462 $ 17,472
                                              =======   =======    =======  =======

The  accompanying  notes  are an  integral  part of the  consolidated  financial
statements.
</TABLE>

                                       12

<PAGE>
<TABLE>
<CAPTION>




             PENNSYLVANIA ELECTRIC COMPANY AND SUBSIDIARY COMPANIES

                      Consolidated Statements of Cash Flows
                      -------------------------------------
                                   (Unaudited)
                                                                    In Thousands
                                                             ----------------------
                                                                  Nine Months
                                                               Ended September 30,
                                                             ----------------------
                                                              2001           2000
                                                              ----           ----
Operating Activities:
<S>                                                        <C>            <C>
  Net income                                               $  19,462      $  17,472
  Adjustments to reconcile income to cash provided:
    Depreciation and amortization                             40,294         41,006
    Provision for doubtful accounts                           10,257         11,148
    Regulatory assets, net                                    (7,518)         7,491
    Voluntary enhanced retirement programs                     9,077            -
    Gain on sale of investment                                   -            1,813
    Deferred income taxes and investment tax
      credits, net                                            42,356         58,360
    Deferred costs, net                                     (126,557)       (63,793)
    Allowance for other funds used during construction           (60)          (714)
  Changes in working capital:
    Receivables                                              (11,584)       (16,346)
    Special deposits and prepayments                         (20,458)       (48,938)
    Payables and accrued liabilities                           3,040        (95,504)
    Due to/from affiliates                                    32,101        (41,458)
  Nonutility generation contract buyout costs                    -           (4,410)
  Other, net                                                  (6,433)        (7,381)
                                                             -------        -------
      Net cash required by operating activities              (16,023)      (141,254)
                                                             -------        -------
Investing Activities:
  Capital expenditures and investments                      (37,529)        (48,356)
  Proceeds from nonutility generation trust                  18,339          62,116
  Contributions to decommissioning trusts                       (15)            (30)
  Other, net                                                 (4,972)          2,047
                                                             -------        -------
      Net cash provided/(required) by investing activities  (24,177)         15,777
                                                             -------        -------
Financing Activities:
  Increase in notes payable, net                              9,200          55,700
  Issuance of long-term debt                                    -           118,000
  Retirement of long-term debt                                  -           (25,000)
  Contributions from parent corporation                      50,000             -
  Dividends paid on common stock                                -           (55,000)
                                                            -------         -------
      Net cash provided by financing activities              59,200          93,700
                                                            -------         -------
Net increase/(decrease) in cash and temporary cash
  investments from above activities                          19,000         (31,777)
Cash and temporary cash investments, beginning of year          250          32,250
                                                            -------         -------
Cash and temporary cash investments, end of period        $  19,250       $     473
                                                            =======         =======
Supplemental Disclosure:
  Interest and preferred dividends paid                   $  21,919       $  23,039
                                                            =======         =======
  Income taxes paid/(refunded)                            $  (9,148)      $ 117,293
                                                            =======         =======
  New capital lease obligations incurred                  $     -         $     -
                                                            =======         =======

The accompanying notes are an integral part of the consolidated financial statements
</TABLE>

                                       13


<PAGE>




                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


         Pennsylvania  Electric  Company  (Penelec) is a  wholly-owned  electric
utility  subsidiary of  FirstEnergy  Corp.  (FirstEnergy),  an Ohio  corporation
headquartered  in Akron,  Ohio.  Penelec  conducts  business  under the name GPU
Energy along with its affiliates Metropolitan Edison Company (Met-Ed) and Jersey
Central  Power  &  Light  Company  (JCP&L),  which  are  also  electric  utility
subsidiaries of FirstEnergy.

         In August  2000,  FirstEnergy  entered  into an agreement to merge with
GPU, Inc., under which FirstEnergy  would acquire all of the outstanding  shares
of GPU,  Inc.'s  common  stock  for  approximately  $4.5  billion  in  cash  and
FirstEnergy  common stock.  The merger became effective on November 7, 2001 and
is being accounted for by the purchase method. Prior to that time, Penelec was a
wholly-owned subsidiary of GPU, Inc.




1.  COMMITMENTS AND CONTINGENCIES


               COMPETITION AND THE CHANGING REGULATORY ENVIRONMENT
               ---------------------------------------------------


Stranded Costs and Regulatory Restructuring Orders:
--------------------------------------------------

         With the transition to a competitive marketplace for generation service
in  Pennsylvania,  certain  generation-related  costs,  which generally would be
recoverable  in a regulated  environment,  may no longer be  recoverable.  These
costs are generally referred to as stranded costs.

         In 1998,  the  Pennsylvania  Public Utility  Commission  (PaPUC) issued
amended  Restructuring  Orders approving  Settlement  Agreements entered into by
Penelec  which,  among other  things,  provide for  customer  choice of electric
generation supplier beginning January 1, 1999 and a one-year (1999) reduction in
retail  distribution  rates for all  consumers.  The  Orders  also  provide  for
recovery of a substantial  portion of what otherwise  would have become stranded
costs,  subject to Phase II  proceedings  following the  completion of Penelec's
generating asset  divestitures,  to make a final  determination of the extent of
that stranded cost recovery.  In 2000, Penelec submitted Phase II Reports to the
PaPUC  supporting  their  actual  net  divestiture   proceeds  and  providing  a
reconciliation of stranded costs pursuant to the 1998 Restructuring Orders.

         In 2000,  the PaPUC issued a Phase II Order which,  among other things,
disallowed  a portion of the  requested  additional  stranded  costs above those
amounts  granted in the 1998 Orders.  The Order requires  Penelec to seek an IRS
ruling  regarding the return of certain  unamortized  investment tax credits and
excess deferred income tax benefits to ratepayers.  If the IRS ruling ultimately
supports  returning these tax benefits to ratepayers,  Penelec would then reduce
stranded costs by $23 million plus interest and record a corresponding charge to
income.





                                       14


<PAGE>


Supply of Electricity:
---------------------

         As a result of the PaPUC's Restructuring Orders, Penelec is required to
act as provider of last resort (PLR) by supplying  electricity  to customers who
do not  choose  an  alternate  supplier.  Given  that  Penelec  has  exited  the
generation  business  and  will  have  to  supply  electricity  to  non-shopping
customers  entirely from  contracted  and open market  purchases,  there will be
increased risks associated with supplying that electricity.

         Penelec  has been unable to recover  energy  costs in excess of amounts
reflected  in its  capped  generation  rates,  which are in effect  for  varying
periods,  under its 1998  Restructuring  Orders.  During 2000,  market prices at
which  Penelec  was  required  to  purchase  electricity  for its retail  supply
customers at times  substantially  exceeded  the amounts  Penelec was allowed to
charge for that  electricity  under its capped rates. In November 2000,  Penelec
filed a petition with the PaPUC seeking  permission to defer for future recovery
its energy costs in excess of amounts  reflected in its capped generation rates.
In January 2001, the PaPUC consolidated this petition with the  FirstEnergy/GPU,
Inc.  merger  proceeding  for  consideration  and  resolution in accord with the
merger procedural schedule.

         In June 2001, Penelec, Met-Ed and FirstEnergy entered into a Settlement
Stipulation  with all of the major  intervenors in the combined  merger and rate
relief proceedings, that, in addition to resolving certain issues concerning the
PaPUC's approval of the  FirstEnergy/GPU,  Inc. merger, also addressed Penelec's
request  for PLR rate  relief.  On June  20,  2001,  the  PaPUC  entered  orders
approving the  Settlement  Stipulation,  thus approving the merger and providing
Penelec PLR rate relief.  Accordingly,  Penelec is permitted to defer for future
recovery the difference  between its actual energy costs and those  reflected in
its  capped  generation  rates,  retroactive  to  January  1,  2001.  These "PLR
deferrals" will continue  through December 31, 2005. If energy costs incurred by
Penelec during this period are below its respective capped generation rates, the
difference would be used to reduce its PLR deferrals.

         Penelec has established  regulatory assets on its balance sheet for the
deferral of excess  energy costs  incurred  during the period of January 1, 2001
through  September  30,  2001.  In the  second  quarter  of  2001,  Penelec  had
established a reserve of $16 million against its PLR deferrals for the period of
January 1, 2001  through  May 31,  2001,  which  would have been  written off in
accordance with the Settlement  Stipulation had the merger not been consummated.
Upon consummation of the merger, this reserve was reversed.

         Under the Settlement  Stipulation,  Penelec's PLR obligations have been
extended  through December 31, 2010.  Penelec's  Competitive  Transition  Charge
(CTC)  revenues  will be applied  first to PLR costs,  then to non-NUG  stranded
costs and lastly to NUG stranded costs through December 31, 2010.  Remaining PLR
deferrals not recovered as of December 31, 2010 would have to be written off.

         The Settlement  Stipulation also requires a revised  calculation of NUG
stranded costs being recovered  under the terms of Penelec's 1998  Restructuring
Orders,  retroactive to January 1, 2001. In addition, the Settlement Stipulation
allows  Penelec to access its NUG Trust to fund all costs  payable under its NUG
agreements, retroactive to January 1, 2001.

         Several parties have filed Petitions for Review with the  Commonwealth
Court of Pennsylvania regarding the PaPUC's orders. The Court has


                                       15


<PAGE>


consolidated  these  appeals,  and  has  granted  an  expedited  schedule.  Oral
arguments  were  held in  November  2001.  There can be no  assurance  as to the
outcome of these matters.

Generation Agreements:
---------------------

         The  evolving  competitive  generation  market has created  uncertainty
regarding the  forecasting of energy supply needs,  which has caused the company
to seek shorter-term  agreements  offering more  flexibility.  Penelec currently
manages its electricity  supply planning on a combined basis with its GPU Energy
affiliates.   The   current   supply   plan   generally   utilizes   short-   to
intermediate-term  commitments  (one month to three  years),  with any  residual
needs being purchased from the short-term market (one hour to one month).

         Penelec and its GPU Energy affiliates have entered into agreements with
third party  suppliers  to purchase  capacity  and energy  through  2004.  As of
September 30, 2001,  payments pursuant to these  agreements,  which include firm
commitments  as well as  certain  assumptions  regarding,  among  other  things,
call/put  arrangements,  are  estimated to be $282 million for the  remainder of
2001, $781 million in 2002, $115 million in 2003 and $5 million in 2004.

         Pursuant  to the  mandates  of the federal  Public  Utility  Regulatory
Policies Act and state regulatory directives, Penelec was required to enter into
long-term  power  purchase  agreements  with NUGs for the purchase of energy and
capacity,  which  agreements have remaining  terms of up to 21 years.  The rates
under  virtually  all of these NUG  agreements  are  substantially  in excess of
current and projected prices from alternative  sources,  except for periods when
Penelec is required to meet high customer  demand,  typically  during periods of
extremely hot weather or when power  supplies are limited.  The following  table
shows  Penelec's  actual  payments  from 1999 through  September  30, 2001,  and
estimated payments thereafter through 2006:

                        Calendar              Payments Under NUG Agreements
                          Year                       (in millions)
                          ----                       -------------

                          1999                           $219
                          2000                            217
                          2001                            198
                          2002                            191
                          2003                            196
                          2004                            202
                          2005                            198
                          2006                            201

         The  PaPUC  Restructuring  Orders  provide  Penelec  assurance  of full
recovery  of its  above-market  NUG costs  and  certain  NUG  buyout  costs.  At
September 30, 2001, Penelec had recorded, on a present value basis, an estimated
liability of $551 million on its Consolidated Balance Sheet for above-market NUG
costs,  which  was  offset  by  corresponding   regulatory  assets.  Penelec  is
continuing  efforts  to  reduce  the  above-market  costs of  these  agreements;
however,  there can be no assurance as to the extent to which these efforts will
be successful.


                               ACCOUNTING MATTERS
                               ------------------

         In  1998,  Penelec   discontinued  the  application  of  Statement  of
Financial  Accounting  Standards No. 71 (FAS 71), "Accounting for the Effects of
Certain  Types of  Regulation,"  and  adopted the  provisions  of  Statement  of
Financial

                                       16

<PAGE>


Accounting Standards No. 101 (FAS 101), "Regulated  Enterprises - Accounting for
the  Discontinuation  of  Application  of FASB  Statement  No. 71," and Emerging
Issues Task Force (EITF) Issue 97-4, "Deregulation of the Pricing of Electricity
- Issues Related to the  Application of FAS 71 and FAS 101," with respect to its
electric  generation  operations.  The transmission and distribution  portion of
Penelec's  operations  continues  to be  subject  to the  provisions  of FAS 71.
Regulatory  assets,  net as reflected in the September 30, 2001 and December 31,
2000 Consolidated Balance Sheets in accordance with the provisions of FAS 71 and
EITF Issue 97-4 were as follows:

<TABLE>
<CAPTION>
                                                                    In Thousands
                                                         ---------------------------------
                                                         September 30,        December 31,
                                                             2001                2000
                                                         -------------       -------------


<S>                                                        <C>                 <C>
CTC                                                        $  248,687          $  439,446
Costs recoverable through distribution rates:
 Income taxes recoverable through future rates, net           148,816             149,399
 Three Mile Island Unit 2 decommissioning costs                24,222              18,479
 Other, net                                                     6,065               6,858
                                                            ---------           ---------
     Total regulatory assets, net                          $  427,790          $  614,182
                                                            =========           =========
</TABLE>


         As of September 30, 2001,  Regulatory  assets, net shown above included
$(68)   million  of  deferred   energy-related   costs  plus  interest  (net  of
collections).  This  deferred  balance  includes  the  under-recovered  costs of
supplying  electricity to customers who did not choose an alternate supplier, as
well  as  above-market   NUG  costs,  but  excludes  the  net  generation  asset
divestiture  gains  which were used to reduce  stranded  costs.  For  additional
information, see Competition and the Changing Regulatory Environment section.


                               NUCLEAR FACILITIES
                               ------------------

Investments:
-----------

         In 1999,  Penelec and its GPU Energy  affiliates sold Three Mile Island
Unit 1 (TMI-1) to AmerGen Energy Company,  LLC (AmerGen) for approximately  $100
million.  As part of the sale,  AmerGen  has  assumed  full  responsibility  for
decommissioning  the  plants,  and Penelec  and its GPU Energy  affiliates  have
transferred  $320  million of TMI-1  decommissioning  trust funds to AmerGen (of
which Penelec's share was $80 million).  Three Mile Island Unit 2 (TMI-2), which
was  damaged  during a 1979  accident,  is jointly  owned by Penelec and its GPU
Energy  affiliates,  with Penelec having a 25% ownership  percentage.  Penelec's
remaining  investment  in TMI-2 was  written  off in 1998  after  receiving  the
PaPUC's Restructuring Orders.

TMI-2:
------

         As a result of the 1979 TMI-2 accident,  individual  claims for alleged
personal injury (including claims for punitive  damages),  which are material in
amount,  were  asserted  against  Penelec,  Met-Ed,  JCP&L  and GPU,  Inc.  (the
defendants).  Approximately  2,100 of such  claims were filed in the US District
Court for the Middle  District  of  Pennsylvania.  Some of the claims  also seek
recovery for injuries from alleged  emissions of radioactivity  before and after
the accident.

         At  the  time  of  the  TMI-2   accident,   as  provided   for  in  the
Price-Anderson  Act,  Penelec,  Met-Ed  and  JCP&L  had  (a)  primary  financial
protection in the form of insurance policies with groups of insurance companies

                                       17


<PAGE>


providing  an  aggregate  of $140  million of primary  coverage,  (b)  secondary
financial  protection  in the  form of  private  liability  insurance  under  an
industry  retrospective  rating plan  providing  for up to an  aggregate of $335
million in premium  charges under such plan and (c) an indemnity  agreement with
the Nuclear  Regulatory  Commission (NRC) for up to $85 million,  bringing their
total  financial  protection  up to an  aggregate  of $560  million.  Under  the
secondary  level,  Penelec,  Met-Ed  and JCP&L are  subject  to a  retrospective
premium  charge of up to $5 million per reactor,  or a total of $15 million,  of
which Penelec's share is $2.5 million.

         In 1995,  the US Court of Appeals for the Third  Circuit ruled that the
Price-Anderson  Act provides coverage under its primary and secondary levels for
punitive as well as compensatory damages, but that punitive damages could not be
recovered  against the  Federal  Government  under the third level of  financial
protection. In so doing, the Court of Appeals referred to the "finite fund" (the
$560 million of financial  protection  under the Price-  Anderson  Act) to which
plaintiffs must resort to get compensatory as well as punitive damages.

         The Court of Appeals  also ruled that the  standard of care owed by the
defendants  to a plaintiff  was  determined  by the specific  level of radiation
which was  released  into the  environment,  as measured  at the site  boundary,
rather than as measured at the specific  site where the plaintiff was located at
the time of the accident (as the defendants proposed). The Court of Appeals also
held that each plaintiff still must demonstrate  exposure to radiation  released
during the TMI-2  accident and that such  exposure had resulted in injuries.  In
1996,  the US Supreme Court denied  petitions  filed by the defendants to review
the Court of Appeals' rulings.

         In 1996, the District Court granted a motion for summary judgment filed
by the  defendants,  and  dismissed  the ten initial "test cases" which had been
selected for a test case trial,  as well as all of the  remaining  2,100 pending
claims. The Court ruled that there was no evidence which created a genuine issue
of material fact  warranting  submission of  plaintiffs'  claims to a jury.  The
plaintiffs  appealed the District Court's ruling to the Court of Appeals for the
Third Circuit. In November 1999, the Third Circuit affirmed the District Court's
dismissal of the ten "test cases," but set aside the dismissal of the additional
pending claims, remanding them to the District Court for further proceedings. In
remanding these claims, the Third Circuit held that the District Court had erred
in extending its summary judgment  decision to the other plaintiffs and imposing
on these plaintiffs the District Court's finding that radiation  exposures below
10 rems were too speculative to establish a causal link to cancer.  The Court of
Appeals stated that the non-test case plaintiffs  should be permitted to present
their own  individual  evidence  that  exposure to  radiation  from the accident
caused their cancers.  In June 2000,  the US Supreme Court denied  petitions for
review filed by the defendants and the plaintiffs.

         In September 2000, the defendants  filed a Motion for Summary  Judgment
in the District Court. Meanwhile, the plaintiffs took an interlocutory appeal to
the Third Circuit seeking review of the District Court's  determination that the
remaining  plaintiffs should be allowed to advance causation theories based only
on the  admissible  evidence of record at the close of discovery in the case. On
April 30, 2001, the Third Circuit  affirmed the District  Court's  decision.  In
July 2001,  the  defendants  renewed  their  motion for Summary  Judgment of the
remaining 2,100 claims in the District Court.

         There can be no assurance as to the outcome of this litigation.

                                       18


<PAGE>


         Penelec  believes  that any  liability  to which it might be subject by
reason of the TMI-2 accident will not exceed its financial  protection under the
Price-Anderson Act.


                         NUCLEAR PLANT RETIREMENT COSTS
                         ------------------------------

         Retirement  costs  for  nuclear  plants  include   decommissioning  the
radiological  portions of the plants and the cost of removal of  nonradiological
structures  and  materials.  The  disposal  of  spent  nuclear  fuel is  covered
separately by contracts with the US Department of Energy (DOE).

         In 1995, a  consultant  performed a  site-specific  study of TMI-2 that
considered   various   decommissioning   methods  and   estimated  the  cost  of
decommissioning  the  radiological  portion  and  the  cost  of  removal  of the
nonradiological  portion  of the plant,  using the prompt  removal/dismantlement
method.  Management has reviewed the methodology  and  assumptions  used in this
study, is in agreement with them, and believes the results are  reasonable.  The
TMI-2  funding  completion  date is 2014,  consistent  with TMI-2  remaining  in
long-term storage.  Penelec's share of the estimated  retirement costs under the
1995  site-specific  study,  assuming  decommissioning of TMI-2 in 2014, is $115
million for radiological  decommissioning and $8.9 million for  non-radiological
removal  costs (net of $3.1 million  spent as of  September  30,  2001)(in  2001
dollars).

         Penelec  and  its  GPU  Energy  affiliates  are  each  responsible  for
retirement  costs in  proportion to its  respective  ownership  percentage.  The
ultimate  cost of  retiring  TMI-2  may be  different  from  the  cost  estimate
contained in this site-specific study. The NRC has established a decommissioning
funding target which,  while not an actual cost estimate,  is a reference  level
designed to assure that licensees demonstrate adequate financial  responsibility
for  decommissioning.  The current NRC funding target exceeds the  site-specific
study cost estimate by $10 million.

         Penelec's   estimated  liability  for  future  TMI-2  retirement  costs
(reflected as Three Mile Island Unit 2 future costs on the Consolidated  Balance
Sheet) as of September  30, 2001 was $132  million,  and as of December 31, 2000
was $129  million.  This  liability is based upon the 1995  site-specific  study
estimate  (in  2001 and  2000  dollars,  respectively)  discussed  above  and an
estimate for remaining  incremental  monitored storage costs of $7 million, both
as of September  30, 2001 and December 31, 2000,  as a result of TMI-2  entering
long-term monitored storage in 1993.

         Offsetting the $132 million liability for future TMI-2 retirement costs
as of September 30, 2001 was $24 million which  management  believes is probable
of recovery  from  customers  and  included  in  Regulatory  assets,  net on the
Consolidated  Balance  Sheet,  and $95  million  in trust  funds  for  TMI-2 and
included  in  Nuclear  decommissioning  trusts,  at market  on the  Consolidated
Balance Sheet.

         The  PaPUC  Restructuring  Orders  granted  Penelec  recovery  of TMI-2
decommissioning  costs as part of the CTC; however,  Penelec has recovered these
costs through the divestiture of its generating assets. The 1996 Customer Choice
Act also allows  Penelec to defer as a regulatory  asset those  amounts that are
above the level provided for in the CTC for future recovery.

         As of  September  30,  2001,  the  accident-related  portion  of  TMI-2
radiological  decommissioning costs was estimated to be $20 million for Penelec,
which is based on the 1995 site-specific study (in 2001 dollars).

                                       19


<PAGE>


In  connection  with rate case  resolutions,  Penelec made  contributions  to an
irrevocable external trust for its share of the accident-related  portion of the
decommissioning  liability in the amount of $20 million.  This  contribution was
not recoverable from customers and was expensed in 1991.

         Penelec intends to seek recovery for any increases in TMI-2  retirement
costs, but recognizes that recovery cannot be assured.

         Penelec and its GPU Energy  affiliates  own all of the common  stock of
the Saxton Nuclear  Experimental  Corporation,  which owns a small demonstration
nuclear  reactor.  Decommissioning  of the plant is expected to be  completed in
2002. Penelec's estimated liability for future Saxton  decommissioning  costs at
September 30, 2001 was $3 million,  net of $10 million spent by Penelec  through
September 30, 2001.


                                    INSURANCE
                                    ---------

         Penelec has insurance  (subject to retentions and  deductibles) for its
operations and facilities  including coverage for property damage,  liability to
employees  and  third  parties,  and  loss of use  and  occupancy.  There  is no
assurance that Penelec will maintain all existing insurance coverages. Losses or
liabilities  that are not  completely  insured,  unless  allowed to be recovered
through  ratemaking,  could  have a  material  adverse  effect on the  financial
position of Penelec.

         Penelec  and its GPU Energy  affiliates  have  purchased  property  and
decontamination insurance coverage for TMI-2 totaling $150 million.

         The  Price-Anderson  Act limits an owner's  liability to third  parties
resulting from a nuclear  incident to approximately  $9.5 billion.  Coverage for
the first $200 million of such liability is provided by private  insurance.  The
remaining  coverage,   or  secondary  financial   protection,   is  provided  by
retrospective premiums payable by all nuclear reactor owners.  Although TMI-2 is
exempt from retrospective premium assessments, the plant is still covered by the
provisions of the  Price-Anderson  Act. In addition,  Penelec and its GPU Energy
affiliates are subject to other  retrospective  premium  assessments  related to
policies applicable to TMI-1 prior to its sale to AmerGen.


                              ENVIRONMENTAL MATTERS
                              ---------------------

         As a result of existing and proposed  legislation and regulations,  and
ongoing legal proceedings dealing with environmental matters including,  but not
limited to, air and water quality,  global warming,  electromagnetic fields, and
storage and disposal of hazardous  and/or toxic wastes,  Penelec may be required
to incur  substantial  additional  costs to construct new facilities;  modify or
replace existing and proposed equipment; or remediate,  decommission or clean up
waste disposal and other sites currently or formerly used by it,  including coal
mine refuse piles and generation facilities. In addition, federal and state laws
provide for payment by responsible parties for damage to natural resources.

         At  September  30,  2001,  Penelec  had  liabilities  recorded  on  its
Consolidated  Balance  Sheet for  environmental  remediation  of $3 million,  as
discussed below.

         Penelec has been formally  notified by the US Environmental  Protection
Agency (EPA) and state environmental authorities that it is among the

                                       20


<PAGE>


potentially  responsible  parties (PRPs) who may be jointly and severally liable
to pay for the costs  associated with the  investigation  and remediation at two
hazardous and/or toxic waste sites.

         In  addition,   Penelec  has  been  requested  to  participate  in  the
remediation or supply information to the EPA and state environmental authorities
on  several  other  sites  for  which it has not been  formally  named as a PRP,
although the EPA and/or state  authorities may  nevertheless  consider it a PRP.
Penelec has also been named in lawsuits  requesting  damages (which are material
in amount) for hazardous  and/or toxic  substances  allegedly  released into the
environment. As of September 30, 2001, a liability of approximately $0.2 million
had  been  recorded  for PRP  sites  where it is  probable  that a loss has been
incurred and the amount could be reasonably estimated.

         The ultimate cost of remediation of all these and other hazardous waste
sites will depend upon changing  circumstances as site investigations  continue,
including  (a) the  existing  technology  required  for  site  cleanup,  (b) the
remedial  action  plan chosen and (c) the extent of site  contamination  and the
portion attributed to Penelec.


                       OTHER COMMITMENTS AND CONTINGENCIES
                       -----------------------------------

         In March 1999,  Penelec and New York State  Electric & Gas  Corporation
(NYSEG)  each sold their 50%  undivided  ownership  interests  in the Homer City
Station  to a  subsidiary  of Edison  Mission  Energy  (EME) for a total of $1.9
billion.  In connection with the sale,  Penelec and NYSEG  indemnified the buyer
with  respect to certain  contingent  liabilities.  In 1998,  the EPA  conducted
inspections at Homer City with regard to the plant's  compliance with New Source
Performance  Standards,  Prevention of Significant  Deterioration and New Source
Review  regulations  under the Clean Air Act. On October 30, 2000,  EME notified
Penelec and NYSEG that the EPA had concluded that these  regulations  applied to
Homer  City  prior to the  sale to EME and that  Homer  City  was  operating  in
violation of these Clean Air Act  regulations.  If it is  ultimately  determined
that these  regulations  were  applicable  to Homer City,  the EPA might seek to
assess substantial  monetary penalties and require capital  modifications to the
plant,  the costs of which would be material.  If it is determined  that Penelec
and NYSEG are obligated to indemnify EME for any of these costs, they would each
be severally liable for a 50% share. There can be no assurance as to the outcome
of this matter.

         In accordance with the Nuclear Waste Policy Act of 1982 (NWPA), Penelec
has  entered  into  contracts  with,  and paid fees to,  the DOE for the  future
disposal of spent nuclear fuel in a repository or interim storage  facility.  In
1996, the DOE notified Penelec and other Standard Contract holders that it would
be unable to begin  acceptance of spent nuclear fuel for disposal by January 31,
1998, as mandated by the NWPA. The DOE requested  recommendations  from contract
holders  for  handling  the  delay.  In June  1997,  a  consortium  of  electric
utilities,  including  GPU  Nuclear,  Inc.  (GPUN),  the former  operator of the
nuclear plants previously owned by Penelec and its GPU Energy affiliates,  filed
a  license  application  with the NRC  seeking  permission  to build an  interim
above-ground storage facility for spent nuclear fuel in Utah.

         At September 30, 2001,  Penelec had recorded a liability of $18 million
owed to the Nuclear Waste Fund, related to spent nuclear fuel generated prior


                                       21


<PAGE>


to the sale of TMI-1 to AmerGen.  AmerGen has assumed all liability for disposal
costs  related to spent  nuclear fuel  generated  following  its purchase of the
plant.

         On July 26, 2000, GPUN filed suit in the United States Court of Federal
Claims  seeking to recover  damages as a result of the DOE's failure to commence
disposal of GPUN's spent  nuclear  fuel by January 31, 1998,  as required by the
terms of the  Standard  Contracts  between  GPUN and DOE.  The  complaint  seeks
damages from the  Government in an amount to be  determined  at trial.  GPUN has
alleged that it is entitled to damages  attributable  to operations at TMI-1. In
an  August  20,  2001  pleading,  the  Government  acknowledged  that the  DOE's
inability to begin providing the services  required by the Standard  Contract by
January 31, 1998 constituted a partial breach of the Standard  Contract.  In the
same pleading, the Government stated that GPUN may lack standing to maintain its
suit because it assigned its Standard  Contracts  and title to its spent nuclear
fuel to the buyer of TMI-1.  By order dated September 24, 2001, the Court stated
that it would hold in abeyance  any final  determination  on standing  until the
completion of discovery,  which is currently underway. There can be no assurance
as to the outcome of this matter.

         During the normal course of the operation of its business,  in addition
to the matters  described  above,  Penelec  is,  from time to time,  involved in
disputes,  claims and, in some cases,  as a  defendant  in  litigation  in which
compensatory  and  punitive  damages  are  sought  by  the  public,   customers,
contractors,  vendors and other  suppliers  of  equipment  and  services  and by
employees  alleging  unlawful  employment  practices.  While management does not
expect  that the  outcome  of these  matters  will  have a  material  effect  on
Penelec's financial position or results of operations, there can be no assurance
that this will continue to be the case.



2.  ACCOUNTING FOR NON-RECURRING ITEMS

         In March  2001,  106  Penelec  employees  accepted  Voluntary  Enhanced
Retirement   Programs   offered  to  certain   bargaining   unit   employees  in
Pennsylvania. As a result, in the quarter ended March 31, 2001, a pre-tax charge
of $9.1 million ($5.3 million  after-tax)  was recorded in Operating  Income for
the cost of pension and other postretirement benefits.

         In February 2001, Penelec paid Allegheny Electric  Cooperative (AEC), a
wholesale  customer,  $16 million  pre-tax ($9.4 million  after-tax),  for costs
related to the  termination  of a  wholesale  energy  contract.  The $16 million
payment was recorded in Operating Income in the quarter ended March 31, 2001.



3.  NEW ACCOUNTING STANDARDS

         Penelec's use of derivative  instruments is intended to manage the risk
of  price  and  interest  rate  fluctuations.  Penelec  does  not  hold or issue
derivative instruments for trading purposes.

         Effective  January 1, 2001,  Penelec  adopted  Statement  of  Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities," as amended by FAS 137,  "Accounting for Derivative  Instruments and
Hedging Activities - Deferral of the Effective Date of FASB


                                       22


<PAGE>


Statement No. 133" and FAS 138,  "Accounting for Certain Derivative  Instruments
and  Certain  Hedging  Activities  - An  Amendment  of FASB  Statement  No. 133"
(collectively,  FAS 133). FAS 133 establishes accounting and reporting standards
for derivative instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities.

         In general,  FAS 133 requires that companies  recognize all derivatives
as either assets or  liabilities  on the balance  sheet,  measured at their fair
value.  Derivatives not designated as hedges must be adjusted to fair value with
an offset to income.  If the  derivative is designated as a hedge,  depending on
the nature of the hedge,  changes  in fair  value of the  derivative  are either
offset  against  the  change  in fair  value of the asset or  liability  through
income, or recognized in accumulated other comprehensive income until the hedged
item is  recognized  in  income.  To the extent  the hedge is  determined  to be
ineffective,   that  portion  of  the  derivative's  change  in  fair  value  is
immediately  recognized  in income.  FAS 133 provides an  exemption  for certain
contracts  that  qualify as "normal  purchases  and  sales." To qualify for this
exclusion,  certain  criteria,  including  that  it must be  probable  that  the
contract will result in physical delivery, must be met.

         The adoption of FAS 133 on January 1, 2001 resulted in the  recognition
of derivative assets on the Consolidated Balance Sheet at January 1, 2001 in the
amount of $26  million,  with an  offsetting  amount,  net of tax,  recorded  in
Regulatory  assets,  net, of $25.9 million.  As of January 1, 2001, Penelec also
recorded  derivative  liabilities  in the  amount of $1  million  as a result of
adopting FAS 133, with a substantially offsetting amount recorded in Accumulated
other comprehensive income, of $0.5 million. As of January 1, 2001, a cumulative
effect of accounting change was recognized as an expense in Other income, net on
the Consolidated Statement of Income in the amount of $0.8 million.

         Penelec uses Over-the-Counter  forward contracts and options on forward
contracts to manage the risk of fluctuations in the market price of electricity.
The majority of the forward commodity contracts are considered "normal purchases
and sales," as defined by FAS 133, and  therefore are excluded from the scope of
FAS 133.

         The energy options and forward  contracts  determined to be derivatives
under FAS 133 are  accounted for as cash flow hedges and expire on various dates
through  November 2002.  These contracts are recorded at fair value on Penelec's
September 30, 2001 Consolidated Balance Sheet in the amount of $0.2 million. The
offset  of  the  change  in  fair  value  is  recorded  in   Accumulated   other
comprehensive income, net of tax, and subsequently  recognized as a component of
Power purchased and  interchanged on the  Consolidated  Statement of Income when
the underlying power being hedged is purchased. The ineffective portion of these
commodity contracts was immaterial for the quarter ended September 30, 2001.

         When Penelec and its GPU Energy  affiliates sold TMI-1 to AmerGen,  the
parties  entered into an agreement which calls for an adjustment to the purchase
price of TMI-1 in the event of future  energy  price  increases.  If the  future
price of energy exceeds the strike price during the contract year as defined per
the agreement,  Penelec and its GPU Energy affiliates will receive payments from
AmerGen,  subject to a market price cap. However,  if the future price of energy
is less than the  strike  price  during a  contract  year,  a credit is  applied
against  future  contract  payments that would be received  from  AmerGen.  This
agreement  qualifies  as a  derivative  as defined by FAS 133,  and its value is
recorded on the Consolidated Balance Sheet based


                                       23


<PAGE>


on the present  value of the  contract's  projected  future  cash  flows.  As of
September  30, 2001,  Penelec's  share of this amount was $13.7  million and was
included in Other  Property and  Investments  - Other,  net on the  Consolidated
Balance Sheet. An offsetting regulatory liability in the amount of $12.9 million
was recorded  against  Regulatory  assets,  net,  representing the obligation to
treat the retail  portion of payments  received as stranded  cost  revenues when
received.  The non-retail  portion is recorded on the Consolidated  Statement of
Income in Other income,  net. This amount was  immaterial  for the quarter ended
September 30, 2001.

         Penelec  uses  interest  rate swap  agreements  to  manage  the risk of
increases in variable  interest rates. The interest rate swap agreements,  which
were  entered  into to  convert  variable  rate  debt to fixed  rate  debt,  are
accounted  for as cash flow hedges  under FAS 133 and are recorded at fair value
on the Consolidated  Balance Sheet in Deferred  Credits and Other  Liabilities -
Other in the amount of $2 million as of September  30,  2001.  The offset of the
change in fair value is recorded in Accumulated other comprehensive  income, net
of tax, and subsequently  recognized as a component of Interest expense when the
related  interest  payments  being  hedged are  recognized.  Of the $1.2 million
recorded in  Accumulated  other  comprehensive  income as of September 30, 2001,
Penelec expects a pre-tax loss of  approximately  $2 million to be recognized in
income within the next twelve months.  The  ineffective  portion of the interest
rate swaps was immaterial for the quarter ended September 30, 2001.

         As of September  30, 2001,  the interest rate swap  agreements  covered
approximately $50 million of debt, and were scheduled to expire on various dates
through  2002.  For the quarter ended  September  30, 2001,  the amount by which
fixed rate interest expense exceeded variable rate interest was immaterial.

         In June 2001, the Financial  Accounting Standards Board (FASB) approved
Statement  of  Financial  Accounting  Standards  No.  141 (FAS  141),  "Business
Combinations,"  and  Statement of Financial  Accounting  Standards  No. 142 (FAS
142), "Goodwill and Other Intangible Assets".  These new standards are effective
beginning  July 1, 2001.  FAS 141 requires all business  combinations  initiated
after June 30, 2001, to be accounted for using  purchase  accounting.  Under FAS
142, amortization of existing goodwill will cease on January 1, 2002 and instead
goodwill  will be  tested  for  impairment  at least on an annual  basis.  As of
September  30,  2001,  Penelec did not have any  goodwill on its balance  sheet,
however,  as a result of the merger of  FirstEnergy  and GPU, Inc.  which became
effective  on November  7, 2001,  there will be  goodwill  associated  with this
merger  applied to Penelec.  The amount of goodwill to be applied to Penelec has
not yet been determined.

         In July  2001,  the  FASB  issued  Statement  of  Financial  Accounting
Standards No. 143 (FAS 143), "Accounting for Asset Retirement  Obligations." FAS
143 provides the accounting  requirements for retirement  obligations associated
with tangible long-lived assets. FAS 143 is effective for fiscal years beginning
after  June 15,  2002,  with early  adoption  encouraged.  Penelec is  currently
assessing  the  new  standard  and  has not yet  determined  the  impact  on its
financial statements.

         In September 2001, the FASB issued  Statement of Financial  Accounting
Standards  No. 144 (FAS 144),  "Accounting  for the  Impairment  or  Disposal of
Long-Lived  Assets."  FAS  144  supersedes  Statement  of  Financial  Accounting
Standards No. 121,  "Accounting for the Impairment of Long-Lived  Assets and for
Long-Lived  Assets  to Be  Disposed  Of."  The  Statement  also  supersedes  the
accounting and reporting provisions of Accounting Principles Board Opinion

                                       24


<PAGE>


No. 30, "Reporting the Results of Operations - Reporting the Effects of Disposal
of a Segment of a Business and Extraordinary, Unusual and Infrequently Occurring
Events and  Transactions." FAS 144 is effective for fiscal years beginning after
June 15, 2001, with early adoption  encouraged.  Penelec is currently  assessing
the new  standard  and  has  not yet  determined  the  impact  on its  financial
statements.




4.  COMPREHENSIVE INCOME

      For the nine  months  ended  September  30,  2001 and 2000,  comprehensive
income is summarized below.
                                                             In Thousands
                                                        ----------------------
                                                             Nine months
                                                          Ended September 30,
                                                        -----------------------
                                                           2001        2000
                                                           ----        ----

Net income/(loss)                                       $ 19,462    $ 17,472
                                                         -------     -------
Other comprehensive income/(loss), net of tax:
     Net unrealized gain/(loss) on investments               (19)    (10,609)
     Cumulative effect of change in accounting
       for derivative instruments at 1/1/01                 (535)        -
     Net unrealized loss on derivative instruments          (670)        -
                                                         -------     -------
       Total other comprehensive income/(loss)            (1,224)    (10,609)
                                                         -------     -------
Comprehensive income                                    $ 18,238    $  6,863
                                                         =======     =======


5.  COMPANY-OBLIGATED TRUST PREFERRED SECURITIES

      In 1999,  Penelec  Capital Trust,  a  wholly-owned  subsidiary of Penelec,
issued $100  million of trust  preferred  securities  (Penelec  Trust  Preferred
Securities) at 7.34%, due 2039. The sole assets of Penelec Capital Trust are the
7.34%  Cumulative  Preferred  Securities  of Penelec  Capital II, L.P.  (Penelec
Partnership  Preferred  Securities) and its only revenues are the quarterly cash
distributions it receives on the Penelec Partnership Preferred Securities.  Each
Penelec Trust  Preferred  Security  represents a Penelec  Partnership  Preferred
Security.  Penelec Capital II, L.P. is a wholly-owned  subsidiary of Penelec and
the sponsor of Penelec  Capital  Trust.  The sole assets of Penelec  Capital II,
L.P. are Penelec's 7.34% Subordinated Debentures, Series A, due 2039, which have
an  aggregate  principal  amount  of  $103.1  million.  Penelec  has  fully  and
unconditionally  guaranteed the Penelec Partnership Preferred  Securities,  and,
therefore, the Penelec Trust Preferred Securities.




                                       25


<PAGE>



                                     PART II

ITEM 1 -    LEGAL PROCEEDINGS
            -----------------

            Information   concerning   the  current   status  of  certain  legal
            proceedings  instituted  against Penelec discussed in Part I of this
            report  in  the  Notes  to  Consolidated   Financial  Statements  is
            incorporated herein by reference and made a part hereof.

ITEM 6 -    EXHIBITS AND REPORTS ON FORM 8-K
            --------------------------------

            (a) Exhibits

                (12) Statements  Showing  Computation  of Ratio of  Earnings to
                     Fixed Charges Based on SEC Regulation S-K, Item 503

            (b) Reports on Form 8-K

                Dated  September  28, 2001,  under Item 5 (Other  Events)

                Dated October 30, 2001, under Item 5 (Other Events)

                Dated  November  9, 2001,  under  Item 1  (Changes  in Control
                of Registrant) and under Item 4 (Changes in Registrant's
                Certifying Accountant)




                                       26

<PAGE>


                                    Signature
                                    ---------

      Pursuant to the  requirements  of the Securities  Exchange Act of 1934,the
Registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.



November 14, 2001

                                       PENNSYLVANIA ELECTRIC COMPANY
                                       -----------------------------
                                                Registrant





                                       /s/ Harvey L. Wagner
                                       ---------------------------------
                                           Harvey L. Wagner
                                       Vice President and Controller
                                       (Principal Accounting Officer)




                                       27