main_10kamended07.htm


 
 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K/A

Amendment No. 1

(Mark One)
[X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2007
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.
     
1-2578
OHIO EDISON COMPANY
34-0437786
 
(An Ohio Corporation)
 
 
c/o FirstEnergy Corp.
 
 
76 South Main Street
 
 
Akron, OH  44308
 
 
Telephone (800)736-3402
 
     
1-2323
THE CLEVELAND ELECTRIC ILLUMINATING COMPANY
34-0150020
 
(An Ohio Corporation)
 
 
c/o FirstEnergy Corp.
 
 
76 South Main Street
 
 
Akron, OH  44308
 
 
Telephone (800)736-3402
 
     
1-3583
THE TOLEDO EDISON COMPANY
34-4375005
 
(An Ohio Corporation)
 
 
c/o FirstEnergy Corp.
 
 
76 South Main Street
 
 
Akron, OH  44308
 
 
Telephone (800)736-3402
 
     
1-3522
PENNSYLVANIA ELECTRIC COMPANY
25-0718085
 
(A Pennsylvania Corporation)
 
 
c/o FirstEnergy Corp.
 
 
76 South Main Street
 
 
Akron, OH  44308
 
 
Telephone (800)736-3402
 


 
 

 


SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

None

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes  (  ) No (X)
Ohio Edison Company, The Cleveland Electric Illuminating Company, The Toledo Edison Company and Pennsylvania Electric Company

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

Yes (X) No (  )
The Cleveland Electric Illuminating Company and The Toledo Edison Company
Yes (  ) No (X)
Ohio Edison Company and Pennsylvania Electric Company

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 (  )
Ohio Edison Company and Pennsylvania Electric Company
Yes (  )  No (X)
The Cleveland Electric Illuminating Company and The Toledo Edison Company

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.

(X)
Ohio Edison Company, The Cleveland Electric Illuminating Company, The Toledo Edison Company and Pennsylvania Electric Company

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check One):

Large Accelerated Filer
(  )
 
N/A
Accelerated Filer
(  )
 
N/A
Non-accelerated Filer (do not check if a Smaller Reporting Company)
(X)
Ohio Edison Company, The Cleveland Electric Illuminating Company, The Toledo Edison Company and Pennsylvania Electric Company

Smaller Reporting Company
(  )
N/A

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).

Yes (  ) No (X)
Ohio Edison Company, The Cleveland Electric Illuminating Company, The Toledo Edison Company and Pennsylvania Electric Company

 
 

 


State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and ask price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter.

None

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.

 
OUTSTANDING
CLASS
AS OF FEBRUARY 28, 2008
Ohio Edison Company, no par value
60
The Cleveland Electric Illuminating Company, no par value
67,930,743
The Toledo Edison Company, $5 par value
29,402,054
Pennsylvania Electric Company, $20 par value
4,427,577

FirstEnergy Corp. is the sole holder of FirstEnergy Solutions Corp., Ohio Edison Company, The Cleveland Electric Illuminating Company, The Toledo Edison Company, Jersey Central Power & Light Company, Metropolitan Edison Company, and Pennsylvania Electric Company common stock.

Documents incorporated by reference (to the extent indicated herein):

   
PART OF FORM 10-K INTO WHICH
DOCUMENT
 
DOCUMENT IS INCORPORATED
     
FirstEnergy Corp. Annual Report to Stockholders for
   
the fiscal year ended December 31, 2007
 
Part II
     
Proxy Statement for 2008 Annual Meeting of Stockholders
   
to be held May 20, 2008
 
Part III

This combined Form 10-K/A is separately filed by Ohio Edison Company, The Cleveland Electric Illuminating Company, The Toledo Edison Company and Pennsylvania Electric Company. Information contained herein relating to any individual registrant is filed by such registrant on its own behalf.

OMISSION OF CERTAIN INFORMATION

Ohio Edison Company, The Cleveland Electric Illuminating Company, The Toledo Edison Company, and Pennsylvania Electric Company meet the conditions set forth in General Instruction I(1)(a) and (b) of Form 10-K and are therefore filing this Form 10-K/A with the reduced disclosure format specified in General Instruction I(2) to Form 10-K.

 
 

 

Forward-Looking Statements: This Form 10-K/A includes forward-looking statements based on information currently available to management. Such statements are subject to certain risks and uncertainties. These statements include declarations regarding management’s intents, beliefs and current expectations. These statements typically contain, but are not limited to, the terms “anticipate,” “potential,” “expect,” “believe,” “estimate” and similar words. Forward-looking statements involve estimates, assumptions, known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements.

Actual results may differ materially due to:
·  
the speed and nature of increased competition in the electric utility industry and legislative and regulatory changes affecting how generation rates will be determined following the expiration of existing rate plans in Ohio and Pennsylvania,
·  
the impact of the PUCO’s rulemaking process on the Ohio Companies’ ESP and MRO filings,
·  
economic or weather conditions affecting future sales and margins,
·  
changes in markets for energy services,
·  
changing energy and commodity market prices and availability,
·  
replacement power costs being higher than anticipated or inadequately hedged,
·  
the continued ability of FirstEnergy’s regulated utilities to collect transition and other charges or to recover increased transmission costs,
·  
maintenance costs being higher than anticipated,
·  
other legislative and regulatory changes, revised environmental requirements, including possible GHG emission regulations,
·  
the impact of the U.S. Court of Appeals’ July 11, 2008 decision to vacate the CAIR rules and the scope of any laws, rules or regulations that may ultimately take their place,
·  
the uncertainty of the timing and amounts of the capital expenditures needed to, among other things, implement the Air Quality Compliance Plan (including that such amounts could be higher than anticipated) or levels of emission reductions related to the Consent Decree resolving the NSR litigation or other potential regulatory initiatives,
·  
adverse regulatory or legal decisions and outcomes (including, but not limited to, the revocation of necessary licenses or operating permits and oversight) by the NRC (including, but not limited to, the Demand for Information issued to FENOC on May 14, 2007),
·  
the timing and outcome of various proceedings before the PUCO (including, but not limited to, the ESP and MRO proceedings as well as the distribution rate cases and the generation supply plan filing for the Ohio Companies and the successful resolution of the issues remanded to the PUCO by the Ohio Supreme Court regarding the RSP and RCP, including the recovery of deferred fuel costs),
·  
Met-Ed’s and Penelec’s transmission service charge filings with the PPUC as well as the resolution of the Petitions for Review filed with the Commonwealth Court of Pennsylvania with respect to the transition rate plan for Met-Ed and Penelec,
·  
the continuing availability of generating units and their ability to operate at or near full capacity,
·  
the ability to comply with applicable state and federal reliability standards,
·  
the ability to accomplish or realize anticipated benefits from strategic goals (including employee workforce initiatives),
·  
the ability to improve electric commodity margins and to experience growth in the distribution business,
·  
the changing market conditions that could affect the value of assets held in the registrants’ nuclear decommissioning trusts, pension trusts and other trust funds, and cause FirstEnergy to make additional contributions sooner, or in an amount that is larger than currently anticipated,
·  
the ability to access the public securities and other capital and credit markets in accordance with FirstEnergy’s financing plan and the cost of such capital,
·  
changes in general economic conditions affecting the registrants,
·  
the state of the capital and credit markets affecting the registrants, and
·  
the risks and other factors discussed from time to time in the registrants’ SEC filings, and other similar factors.

The foregoing review of factors should not be construed as exhaustive. New factors emerge from time to time, and it is not possible for management to predict all such factors, nor assess the impact of any such factor on the registrants’ business or the extent to which any factor, or combination of factors, may cause results to differ materially from those contained in any forward-looking statements. Also, a security rating is not a recommendation to buy, sell or hold securities, and it may be subject to revision or withdrawal at any time and each such rating should be evaluated independently of any other rating. The registrants expressly disclaim any current intention to update any forward-looking statements contained herein as a result of new information, future events or otherwise.



 
 

 



EXPLANATORY NOTE

This combined Amendment No. 1 on Form 10-K/A for the fiscal year ended December 31, 2007 is being filed by Ohio Edison Company, The Cleveland Electric Illuminating Company, The Toledo Edison Company and Pennsylvania Electric Company (the “registrants”) to correct common stock dividend payments reported in their respective consolidated statements of cash flows for the year ended December 31, 2007, contained in Part II, Item 8, Financial Statements and Supplementary Data. This correction does not affect the respective registrants’ previously reported consolidated statements of income for the year ended December 31, 2007, nor the consolidated balance sheets, consolidated statements of capitalization and consolidated statements of common stockholder's equity as of December 31, 2007 contained in the combined Form 10-K for the fiscal year ended December 31, 2007, as originally filed on February 29, 2008 (the “original Form 10-K”). Except for Part II, Items 8 and 9(A)T and certain exhibits under Part IV, Item 15, no other information included in the Form 10-K as originally filed is being revised by, or repeated in this amendment.

As discussed under “Restatement of the Consolidated Statements of Cash Flows” in Note 1 to the revised Combined Notes to Consolidated Financial Statements of the registrants included in this Form 10-K/A, the registrants have restated their respective consolidated statements of cash flows to correct common stock dividend payments reported in cash flows from financing activities. The consolidated statements of cash flows for those registrants, as originally filed, erroneously reflected the dividends declared in the third quarter of 2007 applicable to future quarters' payments as dividends paid in the quarter that they were declared. The corrections resulted in a corresponding change in operating liabilities - accounts payable, included in cash flows from operating activities.

The original Form 10-K was a combined Form 10-K representing separate filings by each of the registrants and their affiliates, FirstEnergy Corp., FirstEnergy Solutions Corp., Jersey Central Power & Light Company and Metropolitan Edison Company (the “affiliates”). However, this Form 10-K/A constitutes an amendment only to Part II, Items 8 and 9(A)T and Part IV, Item 15 of the original Form 10-K filed by each registrant. In addition, information contained herein relating to any individual registrant is filed by such registrant on its own behalf and no registrant makes any representation as to information contained herein relating to any other registrant or any of the affiliates, including, but not limited to, any such information contained in the revised Combined Notes to Consolidated Financial Statements included herein.

Please note that the information contained in this Amendment No. 1, including the consolidated financial statements and notes thereto, does not reflect events occurring after the date of the original Form 10-K filing on February 29, 2008, except to the extent described above.



 
 

 

TABLE OF CONTENTS



Contents
Page
   
Glossary of Terms
ii-iv
   
Part II.    Item 8. Financial Statements and Supplementary Data.
1
   
Ohio Edison Company
 
     
 
Report of Independent Registered Public Accounting Firm
2
 
Consolidated Statements of Income
3
 
Consolidated Balance Sheets
4
 
Consolidated Statements of Capitalization
5
 
Consolidated Statements of Common Stockholder’s Equity
6
 
Consolidated Statements of Cash Flows
7
     
The Cleveland Electric Illuminating Company
 
     
 
Report of Independent Registered Public Accounting Firm
8
 
Consolidated Statements of Income
9
 
Consolidated Balance Sheets
10
 
Consolidated Statements of Capitalization
11
 
Consolidated Statements of Common Stockholder’s Equity
12
 
Consolidated Statements of Cash Flows
13
     
The Toledo Edison Company
 
     
 
Report of Independent Registered Public Accounting Firm
14
 
Consolidated Statements of Income
15
 
Consolidated Balance Sheets
16
 
Consolidated Statements of Capitalization
17
 
Consolidated Statements of Common Stockholder’s Equity
18
 
Consolidated Statements of Cash Flows
19
     
Pennsylvania Electric Company
 
     
 
Report of Independent Registered Public Accounting Firm
20
 
Consolidated Statements of Income
21
 
Consolidated Balance Sheets
22
 
Consolidated Statements of Capitalization
23
 
Consolidated Statements of Common Stockholder’s Equity
24
 
Consolidated Statements of Cash Flows
25
     
Combined Notes to Consolidated Financial Statements
26-86
   
Item 9A(T). Controls and Procedures.
87
   
Item 15. Exhibits.
88

 
i

 


GLOSSARY OF TERMS

The following abbreviations and acronyms are used in this report to identify FirstEnergy Corp. and its current and former subsidiaries:

ATSI
American Transmission Systems, Inc., owns and operates transmission facilities
CEI
The Cleveland Electric Illuminating Company, an Ohio electric utility operating subsidiary
Centerior
Centerior Energy Corporation, former parent of CEI and TE, which merged with OE to form
    FirstEnergy on November 8, 1997
Companies
OE, CEI, TE, Penn, JCP&L, Met-Ed and Penelec
FENOC
FirstEnergy Nuclear Operating Company, operates nuclear generating facilities
FES
FirstEnergy Solutions Corp., provides energy-related products and services
FESC
FirstEnergy Service Company, provides legal, financial and other corporate support services
FGCO
FirstEnergy Generation Corp., owns and operates non-nuclear generating facilities
FirstEnergy
FirstEnergy Corp., a public utility holding company
GPU
GPU, Inc., former parent of JCP&L, Met-Ed and Penelec, which merged with FirstEnergy on
November 7, 2001
JCP&L
Jersey Central Power & Light Company, a New Jersey electric utility operating subsidiary
JCP&L Transition
   Funding
JCP&L Transition Funding LLC, a Delaware limited liability company and issuer of transition bonds
JCP&L Transition
   Funding II
JCP&L Transition Funding II LLC, a Delaware limited liability company and issuer of transition bonds
Met-Ed
Metropolitan Edison Company, a Pennsylvania electric utility operating subsidiary
MYR
MYR Group, Inc., a utility infrastructure construction service company
NGC
FirstEnergy Nuclear Generation Corp., owns nuclear generating facilities
OE
Ohio Edison Company, an Ohio electric utility operating subsidiary
Ohio Companies
CEI, OE and TE
Pennsylvania Companies
Met-Ed, Penelec and Penn
Penelec
Pennsylvania Electric Company, a Pennsylvania electric utility operating subsidiary
Penn
Pennsylvania Power Company, a Pennsylvania electric utility operating subsidiary of OE
PNBV
PNBV Capital Trust, a special purpose entity created by OE in 1996
Shippingport
Shippingport Capital Trust, a special purpose entity created by CEI and TE in 1997
TE
The Toledo Edison Company, an Ohio electric utility operating subsidiary
   
      The following abbreviations and acronyms are used to identify frequently used terms in this report:
   
AEP
American Electric Power Company, Inc.
ALJ
Administrative Law Judge
AOCI
Accumulated Other Comprehensive Income
AOCL
Accumulated Other Comprehensive Loss
APIC
Additional Paid-In Capital
AQC
Air Quality Control
ARB
Accounting Research Bulletin
ARO
Asset Retirement Obligation
BGS
Basic Generation Service
BPJ
Best Professional Judgment
CAA
Clean Air Act
CAIR
Clean Air Interstate Rule
CAMR
Clean Air Mercury Rule
CAVR
Clean Air Visibility Rule
CAT
Commercial Activity Tax
CBP
Competitive Bid Process
CO2
Carbon Dioxide
CTC
Competitive Transition Charge
DFI
Demand for Information
DOE
United States Department of Energy
DOJ
United States Department of Justice
DRA
Division of Ratepayer Advocate
ECAR
East Central Area Reliability Coordination Agreement
ECO
Electro-Catalytic Oxidation

 
ii

 

GLOSSARY OF TERMS Cont’d.

EIS
Energy Independence Strategy
EITF
Emerging Issues Task Force
EITF 06-11
EITF 06-11, “Accounting for Income Tax Benefits of Dividends or Share-based Payment Awards”
EMP
Energy Master Plan
EPA
Environmental Protection Agency
EPACT
Energy Policy Act of 2005
FASB
Financial Accounting Standards Board
FERC
Federal Energy Regulatory Commission
FIN
FASB Interpretation
FIN 39-1
FIN 39-1, “Amendment of FASB Interpretation No. 39”
FIN 46R
FIN 46 (revised December 2003), "Consolidation of Variable Interest Entities"
FIN 47
FIN 47, "Accounting for Conditional Asset Retirement Obligations - an interpretation of FASB Statement No. 143"
FIN 48
FIN 48, “Accounting for Uncertainty in Income Taxes-an interpretation of FASB Statement No. 109”
FMB
First Mortgage Bonds
FSP
FASB Staff Position
FSP SFAS 115-1
   and SFAS 124-1
FSP SFAS 115-1 and SFAS 124-1, “The Meaning of Other-Than-Temporary Impairment and its
    Application to Certain Investments”
FTR
Financial Transmission Rights
GAAP
Accounting Principles Generally Accepted in the United States
GHG
Greenhouse Gases
HVAC
Heating, Ventilation and Air-conditioning
IRS
Internal Revenue Service
ISO
Independent System Operator
kv
Kilovolt
KWH
Kilowatt-hours
LOC
Letter of Credit
MEIUG
Met-Ed Industrial Users Group
MISO
Midwest Independent Transmission System Operator, Inc.
MTC
Market Transition Charge
MW
Megawatts
NAAQS
National Ambient Air Quality Standards
NERC
North American Electric Reliability Corporation
NJBPU
New Jersey Board of Public Utilities
NOPR
Notice of Proposed Rulemaking
NOV
Notice of Violation
NOX
Nitrogen Oxide
NRC
Nuclear Regulatory Commission
NSR
New Source Review
NUG
Non-Utility Generation
NUGC
Non-Utility Generation Charge
OCA
Office of Consumer Advocate
OCI
Other Comprehensive Income
OPEB
Other Post-Employment Benefits
PICA
Penelec Industrial Customer Alliance
PJM
PJM Interconnection L. L. C.
PLR
Provider of Last Resort; an electric utility’s obligation to provide generation service to customers
    whose alternative supplier fails to deliver service
PPUC
Pennsylvania Public Utility Commission
PRP
Potentially Responsible Party
PSA
Power Supply Agreement
PUCO
Public Utilities Commission of Ohio
PUHCA
Public Utility Holding Company Act of 1935
RCP
Rate Certainty Plan
REC
Renewable Energy Certificate
RECB
Regional Expansion Criteria and Benefits
RFP
Request for Proposal
ROP
Reactor Oversight Process
RSP
Rate Stabilization Plan
RTC
Regulatory Transition Charge
RTO
Regional Transmission Organization

 
iii

 

GLOSSARY OF TERMS Cont’d.

S&P
Standard & Poor’s Ratings Service
SBC
Societal Benefits Charge
SCR
Selective Catalytic Reduction
SEC
U.S. Securities and Exchange Commission
SECA
Seams Elimination Cost Adjustment
SERP
Supplemental Executive Retirement Plan
SFAS
Statement of Financial Accounting Standards
SFAS 13
SFAS No. 13, “Accounting for Leases”
SFAS 71
SFAS No. 71, "Accounting for the Effects of Certain Types of Regulation"
SFAS 101
SFAS No. 101, "Accounting for Discontinuation of Application of SFAS 71"
SFAS 107
SFAS No. 107, “Disclosure about Fair Value of Financial Instruments”
SFAS 109
SFAS No. 109, “Accounting for Income Taxes”
SFAS 115
SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities"
SFAS 123(R)
SFAS No. 123(R), "Share-Based Payment"
SFAS 133
SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities”
SFAS 141(R)
SFAS No. 141(R), “Business Combinations”
SFAS 142
SFAS No. 142, "Goodwill and Other Intangible Assets"
SFAS 143
SFAS No. 143, "Accounting for Asset Retirement Obligations"
SFAS 144
SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets"
SFAS 157
SFAS No. 157, “Fair Value Measurements”
SFAS 158
SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement
    Plans-an amendment of FASB Statements No. 87, 88, 106, and 132(R)”
SFAS 159
SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities – Including an
    Amendment of FASB Statement No. 115”
SFAS 160
SFAS No. 160, “Non-controlling Interests in Consolidated Financial Statements – an Amendment of ARB No. 51”
SIP
State Implementation Plan(s) Under the Clean Air Act
SNCR
Selective Non-Catalytic Reduction
SO2
Sulfur Dioxide
TBC
Transition Bond Charge
TMI-1
Three Mile Island Unit 1
TMI-2
Three Mile Island Unit 2
VIE
Variable Interest Entity


 
iv

 


PART II

ITEM 8.                      FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA



 
1

 

 

Report of Independent Registered Public Accounting Firm










To the Stockholder and Board of
Directors of Ohio Edison Company:


In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, capitalization, common stockholder’s equity, and cash flows present fairly, in all material respects, the financial position of Ohio Edison Company and its subsidiaries at December 31, 2007 and 2006, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2007 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

As discussed in the notes to the consolidated financial statements, the Company changed the manner in which it accounts for uncertain tax positions as of January 1, 2007 (Note 8), defined benefit pension and other postretirement plans as of December 31, 2006 (Note 4) and conditional asset retirement obligations as of December 31, 2005 (Note 2(G) and Note 11).

As discussed in Note 1 to the consolidated financial statements, the Company has restated its 2007 financial statements to correct an error.

 
PricewaterhouseCoopers LLP
Cleveland, Ohio
February 28, 2008, except as to the error correction described in Note 1,
which is as of November 24, 2008.
 



 
2

 

 
OHIO EDISON COMPANY
 
               
CONSOLIDATED STATEMENTS OF INCOME
 
               
               
               
For the Years Ended December 31,
 
2007
 
2006
 
2005
 
   
(In thousands)
 
REVENUES (Note 3):
             
Electric sales
  $ 2,375,306   $ 2,312,956   $ 2,861,043  
Excise and gross receipts tax collections
    116,223     114,500     114,510  
Total revenues
    2,491,529     2,427,456     2,975,553  
                     
EXPENSES (Note 3):
                   
Fuel
    11,691     11,047     53,113  
Purchased power
    1,359,783     1,275,975     939,193  
Nuclear operating costs
    174,696     186,377     337,901  
Other operating costs
    381,339     378,717     404,763  
Provision for depreciation
    77,405     72,982     108,583  
Amortization of regulatory assets
    191,885     190,245     457,205  
Deferral of new regulatory assets
    (177,633 )   (159,465 )   (151,032 )
General taxes
    181,104     180,446     193,284  
Total expenses
    2,200,270     2,136,324     2,343,010  
                     
OPERATING INCOME
    291,259     291,132     632,543  
                     
OTHER INCOME (EXPENSE) (Note 3):
                   
Investment income
    85,848     130,853     99,269  
Miscellaneous income (expense)
    4,409     1,751     (25,190 )
Interest expense
    (83,343 )   (90,355 )   (75,388 )
Capitalized interest
    266     2,198     10,849  
Subsidiary's preferred stock dividend requirements
    -     (597 )   (1,689 )
Total other income
    7,180     43,850     7,851  
                     
INCOME BEFORE INCOME TAXES AND CUMULATIVE
             
EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE
    298,439     334,982     640,394  
                     
INCOME TAXES
    101,273     123,343     309,996  
                     
INCOME BEFORE CUMULATIVE EFFECT OF
                   
A CHANGE IN ACCOUNTING PRINCIPLE
    197,166     211,639     330,398  
                     
Cumulative effect of a change in accounting principle
             
(net of income tax benefit of $9,223,000) (Note 2(G))
    -     -     (16,343 )
                     
NET INCOME
    197,166     211,639     314,055  
                     
PREFERRED STOCK DIVIDEND REQUIREMENTS
             
AND REDEMPTION PREMIUM
    -     4,552     2,635  
                     
EARNINGS ON COMMON STOCK
  $ 197,166   $ 207,087   $ 311,420  
                     
                     
The accompanying Combined Notes to Consolidated Financial Statements as they relate to Ohio Edison Company
 
are an integral part of these statements.
                   

 
3

 
 
OHIO EDISON COMPANY
           
CONSOLIDATED BALANCE SHEETS
           
As of December 31,
 
2007
 
2006
 
   
(In thousands)
 
ASSETS
         
CURRENT ASSETS:
         
Cash and cash equivalents
  $ 732   $ 712  
Receivables-
             
Customers (less accumulated provisions of $8,032,000 and $15,033,000, respectively,
 
for uncollectible accounts)
    248,990     234,781  
Associated companies
    185,437     141,084  
Other (less accumulated provisions of $5,639,000 and $1,985,000, respectively,
       
for uncollectible accounts)
    12,395     13,496  
Notes receivable from associated companies
    595,859     458,647  
Prepayments and other
    10,341     13,606  
      1,053,754     862,326  
UTILITY PLANT:
             
In service
    2,769,880     2,632,207  
Less - Accumulated provision for depreciation
    1,090,862     1,021,918  
      1,679,018     1,610,289  
Construction work in progress
    50,061     42,016  
      1,729,079     1,652,305  
OTHER PROPERTY AND INVESTMENTS:
             
Long-term notes receivable from associated companies
    258,870     1,219,325  
Investment in lease obligation bonds (Note 6)
    253,894     291,393  
Nuclear plant decommissioning trusts
    127,252     118,209  
Other
    36,037     38,160  
      676,053     1,667,087  
DEFERRED CHARGES AND OTHER ASSETS:
             
Regulatory assets
    737,326     741,564  
Pension assets
    228,518     68,420  
Property taxes
    65,520     60,080  
Unamortized sale and leaseback costs
    45,133     50,136  
Other
    48,075     18,696  
      1,124,572     938,896  
    $ 4,583,458   $ 5,120,614  
LIABILITIES AND CAPITALIZATION
             
CURRENT LIABILITIES:
             
Currently payable long-term debt
  $ 333,224   $ 159,852  
Short-term borrowings-
             
Associated companies
    50,692     113,987  
Other
    2,609     3,097  
Accounts payable-
             
Associated companies
    174,088     115,252  
Other
    19,881     13,068  
Accrued taxes
    89,571     187,306  
Accrued interest
    22,378     24,712  
Other
    65,163     64,519  
      757,606     681,793  
CAPITALIZATION (See Consolidated Statements of Capitalization):
             
Common stockholder's equity
    1,576,175     1,972,385  
Long-term debt and other long-term obligations
    840,591     1,118,576  
      2,416,766     3,090,961  
NONCURRENT LIABILITIES:
             
Accumulated deferred income taxes
    781,012     674,288  
Accumulated deferred investment tax credits
    16,964     20,532  
Asset retirement obligations
    93,571     88,223  
Retirement benefits
    178,343     167,379  
Deferred revenues - electric service programs
    46,849     86,710  
Other
    292,347     310,728  
      1,409,086     1,347,860  
COMMITMENTS AND CONTINGENCIES (Notes 6 and 13)
             
    $ 4,583,458   $ 5,120,614  
               
               
The accompanying Combined Notes to Consolidated Financial Statements as they relate to Ohio Edison Company are an integral part of
 
these balance sheets.
             
 
4

 
OHIO EDISON COMPANY
 
           
CONSOLIDATED STATEMENTS OF CAPITALIZATION
 
           
As of December 31,
 
2007
 
2006
 
   
(In thousands)
 
COMMON STOCKHOLDER'S EQUITY:
         
Common stock, without par value, 175,000,000 shares authorized,
         
60 and 80 shares outstanding, respectively
  $ 1,220,512   $ 1,708,441  
Accumulated other comprehensive income (Note 2(F))
    48,386     3,208  
Retained earnings (Note 10(A))
    307,277     260,736  
Total
    1,576,175     1,972,385  
               
LONG-TERM DEBT AND OTHER LONG-TERM OBLIGATIONS (Note 10(C)):
       
Ohio Edison Company-
             
Secured notes:
             
5.375% due 2028
    13,522     13,522  
*   3.780% due 2029
    -     100,000  
*   3.750% due 2029
    -     6,450  
7.008% weighted average interest rate due 2007-2010
    3,900     8,253  
Total
    17,422     128,225  
               
Unsecured notes:
             
4.000% due 2008
    175,000     175,000  
*   3.400% due 2014
    50,000     50,000  
5.450% due 2015
    150,000     150,000  
6.400% due 2016
    250,000     250,000  
*   3.850% due 2018
    33,000     33,000  
*   3.800% due 2018
    23,000     23,000  
*   3.750% due 2023
    50,000     50,000  
6.875% due 2036
    350,000     350,000  
Total
    1,081,000     1,081,000  
               
Pennsylvania Power Company-
             
First mortgage bonds:
             
9.740% due 2007-2019
    11,721     12,695  
7.625% due 2023
    6,500     6,500  
Total
    18,221     19,195  
               
Secured notes:
             
5.400% due 2013
    1,000     1,000  
5.375% due 2028
    1,734     1,734  
Total
    2,734     2,734  
               
Unsecured notes:
             
5.390% due 2010 to associated company
    62,900     62,900  
Total
    62,900     62,900  
               
Capital lease obligations (Note 6)
    329     362  
Net unamortized discount on debt
    (8,791 )   (15,988 )
Long-term debt due within one year
    (333,224 )   (159,852 )
Total long-term debt and other long-term obligations
    840,591     1,118,576  
TOTAL CAPITALIZATION
  $ 2,416,766   $ 3,090,961  
               
* Denotes variable rate issue with applicable year-end interest rate shown.
       
               
The accompanying Combined Notes to Consolidated Financial Statements as they relate to Ohio Edison Company are an
 
integral part of these statements.
             

 
5

 
 
OHIO EDISON COMPANY
 
                       
CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDER'S EQUITY
 
                       
           
Accumulated
     
       
Common Stock
 
Other
     
   
Comprehensive
 
Number
 
Carrying
 
Comprehensive
 
Retained
 
   
Income
 
of Shares
 
Value
 
Income (Loss)
 
Earnings
 
   
(Dollars in thousands)
 
Balance, January 1, 2005
        100   $ 2,098,729   $ (47,118 ) $ 442,198  
Net income
  $ 314,055                       314,055  
Minimum liability for unfunded retirement
                               
benefits, net of $49,027,000 of income taxes
    69,463                 69,463        
Unrealized loss on investments, net of
                               
$13,068,000 of income tax benefits
    (18,251 )               (18,251 )      
Comprehensive income
  $ 365,267                          
Affiliated company asset transfers
                198,147           (106,774 )
Restricted stock units
                32              
Preferred stock redemption adjustment
                345              
Cash dividends on preferred stock
                            (2,635 )
Cash dividends on common stock
                            (446,000 )
Balance, December 31, 2005
          100     2,297,253     4,094     200,844  
Net income
  $ 211,639                       211,639  
Unrealized gain on investments, net of
                               
$4,455,000 of income taxes
    7,954                 7,954        
Comprehensive income
  $ 219,593                          
Net liability for unfunded retirement benefits
                         
due to the implementation of SFAS 158, net
                         
of $22,287,000 of income tax benefits (Note 4)
                (8,840 )      
Affiliated company asset transfers
                (87,893 )            
Restricted stock units
                58              
Stock based compensation
                82              
Repurchase of common stock
          (20 )   (500,000 )            
Preferred stock redemption adjustments
                (1,059 )         604  
Preferred stock redemption premiums
                            (2,928 )
Cash dividends on preferred stock
                            (1,423 )
Cash dividends on common stock
                            (148,000 )
Balance, December 31, 2006
          80     1,708,441     3,208     260,736  
Net income
  $ 197,166                       197,166  
Unrealized gain on investments, net of
                               
$2,784,000 of income taxes
    3,874                 3,874        
Pension and other postretirement benefits, net
                         
of $37,820,000 of income taxes (Note 4)
    41,304                 41,304        
Comprehensive income
  $ 242,344                          
Restricted stock units
                129              
Stock based compensation
                17              
Repurchase of common stock
          (20 )   (500,000 )            
Consolidated tax benefit allocation
                11,925              
FIN 48 cumulative effect adjustment
                            (625 )
Cash dividends on common stock
                            (150,000 )
Balance, December 31, 2007
          60   $ 1,220,512   $ 48,386   $ 307,277  
                                 
The accompanying Combined Notes to Consolidated Financial Statements as the relate to Ohio Edison Company are an integral
 
part of these statements.
                               

 
6

 
 
 
OHIO EDISON COMPANY
 
                   
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
                   
   
Restated
             
For the Years Ended December 31,
 
2007
   
2006
   
2005
 
       
(In thousands)
       
                   
CASH FLOWS FROM OPERATING ACTIVITIES:
                 
Net income
  $ 197,166     $ 211,639     $ 314,055  
Adjustments to reconcile net income to net cash from operating activities-
                       
Provision for depreciation
    77,405       72,982       108,583  
Amortization of regulatory assets
    191,885       190,245       457,205  
Deferral of new regulatory assets
    (177,633 )     (159,465 )     (151,032 )
Nuclear fuel and lease amortization
    33       735       45,769  
Amortization of lease costs
    (7,425 )     (7,928 )     (6,365 )
Deferred income taxes and investment tax credits, net
    423       (68,259 )     (29,750 )
Accrued compensation and retirement benefits
    (46,313 )     5,004       14,506  
Cumulative effect of a change in accounting principle
    -       -       16,343  
Pension trust contributions
    (20,261 )     -       (106,760 )
Decrease (increase) in operating assets-
                       
Receivables
    (57,461 )     103,925       84,688  
Materials and supplies
    -       -       (3,367 )
Prepayments and other current assets
    3,265       1,275       (1,778 )
Increase (decrease) in operating liabilities-
                       
Accounts payable
    15,649       (53,798 )     45,149  
Accrued taxes
    (81,079 )     23,436       10,470  
Accrued interest
    (2,334 )     16,379       (3,659 )
Electric service prepayment programs
    (39,861 )     (34,983 )     121,692  
Other
    6,096       5,882       (464 )
Net cash provided from operating activities
    59,555       307,069       915,285  
                         
CASH FLOWS FROM FINANCING ACTIVITIES:
                       
New Financing-
                       
Long-term debt
    -       592,180       146,450  
Short-term borrowings, net
    -       -       26,404  
Redemptions and Repayments-
                       
Common stock
    (500,000 )     (500,000 )     -  
Preferred stock
    -       (78,480 )     (37,750 )
Long-term debt
    (112,497 )     (613,002 )     (414,020 )
Short-term borrowings, net
    (114,475 )     (186,511 )     -  
Dividend Payments-
                       
Common stock
    (100,000 )     (148,000 )     (446,000 )
Preferred stock
    -       (1,423 )     (2,635 )
Net cash used for financing activities
    (826,972 )     (935,236 )     (727,551 )
                         
CASH FLOWS FROM INVESTING ACTIVITIES:
                       
Property additions
    (145,311 )     (123,210 )     (266,823 )
Sales of investment securities held in trusts
    37,736       39,226       283,816  
Purchases of investment securities held in trusts
    (43,758 )     (41,300 )     (315,356 )
Loan repayments from (loans to) associated companies, net
    (79,115 )     78,101       (35,553 )
Collection of principal on long-term notes receivable
    960,327       553,734       199,848  
Cash investments
    37,499       112,584       (49,270 )
 Other
    59       8,815       (4,697 )
Net cash provided from (used for) investing activities
    767,437       627,950       (188,035 )
                         
Net increase (decrease) in cash and cash equivalents
    20       (217 )     (301 )
Cash and cash equivalents at beginning of year
    712       929       1,230  
Cash and cash equivalents at end of year
  $ 732     $ 712     $ 929  
                         
SUPPLEMENTAL CASH FLOW INFORMATION:
                       
Cash Paid During the Year-
                       
Interest (net of amounts capitalized)
  $ 80,958     $ 57,243     $ 67,239  
Income taxes
  $ 133,170     $ 156,610     $ 285,819  
                         
The accompanying Combined Notes to Consolidated Financial Statements as the relate to Ohio Edison Company are an integral part of
 
these statements.
                       
 
 
7

 
 

 
Report of Independent Registered Public Accounting Firm










 
To the Stockholder and Board of Directors of
The Cleveland Electric Illuminating Company:


In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, capitalization, common stockholder’s equity, and cash flows present fairly, in all material respects, the financial position of The Cleveland Electric Illuminating Company and its subsidiaries at December 31, 2007 and 2006, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2007 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

As discussed in the notes to the consolidated financial statements, the Company changed the manner in which it accounts for uncertain tax positions as of January 1, 2007 (Note 8), defined benefit pension and other postretirement plans as of December 31, 2006 (Note 4) and conditional asset retirement obligations as of December 31, 2005 (Note 2(G) and Note 11).

As discussed in Note 1 to the consolidated financial statements, the Company has restated its 2007 financial statements to correct an error.

 
PricewaterhouseCoopers LLP
Cleveland, Ohio
February 28, 2008, except as to the error correction described in Note 1,
which is as of November 24, 2008.
 





 
8

 
 
 
THE CLEVELAND ELECTRIC ILLUMINATING COMPANY
 
               
CONSOLIDATED STATEMENTS OF INCOME
 
               
               
               
               
For the Years Ended December 31,
 
2007
 
2006
 
2005
 
   
(In thousands)
 
REVENUES (Note 3):
             
Electric sales
  $ 1,753,385   $ 1,702,089   $ 1,799,211  
Excise tax collections
    69,465     67,619     68,950  
Total revenues
    1,822,850     1,769,708     1,868,161  
                     
EXPENSES (Note 3):
                   
Fuel
    40,551     50,291     85,993  
Purchased power
    748,214     704,517     557,593  
Nuclear operating costs
    -     -     142,698  
Other operating costs
    310,274     290,904     301,366  
Provision for depreciation
    75,238     63,589     127,959  
Amortization of regulatory assets
    144,370     127,403     227,221  
Deferral of new regulatory assets
    (149,556 )   (128,220 )   (163,245 )
General taxes
    141,551     134,663     152,678  
Total expenses
    1,310,642     1,243,147     1,432,263  
                     
OPERATING INCOME
    512,208     526,561     435,898  
                     
OTHER INCOME (EXPENSE) (Note 3):
                   
Investment income
    57,724     100,816     86,898  
Miscellaneous income (expense)
    7,902     6,428     (9,031 )
Interest expense
    (138,977 )   (141,710 )   (132,226 )
Capitalized interest
    918     2,618     2,533  
Total other expense
    (72,433 )   (31,848 )   (51,826 )
                     
INCOME BEFORE INCOME TAXES AND CUMULATIVE
             
EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE
    439,775     494,713     384,072  
                     
INCOME TAXES
    163,363     188,662     153,014  
                     
INCOME BEFORE CUMULATIVE EFFECT OF
                   
A CHANGE IN ACCOUNTING PRINCIPLE
    276,412     306,051     231,058  
                     
Cumulative effect of a change in accounting principle (net of income
             
tax benefit of $2,101,000) (Note 2(G))
    -     -     (3,724 )
                     
NET INCOME
    276,412     306,051     227,334  
                     
PREFERRED STOCK DIVIDEND REQUIREMENTS
    -     -     2,918  
                     
EARNINGS ON COMMON STOCK
  $ 276,412   $ 306,051   $ 224,416  
                     
                     
The accompanying Combined Notes to Consolidated Financial Statements as they relate to The Cleveland Electric Illuminating Company
 
are an integral part of these statements.
                   

 
9

 
 
THE CLEVELAND ELECTRIC ILLUMINATING COMPANY
 
           
CONSOLIDATED BALANCE SHEETS
 
           
As of December 31,
 
2007
 
2006
 
   
(In thousands)
 
ASSETS
         
CURRENT ASSETS:
         
Cash and cash equivalents
  $ 232   $ 221  
Receivables-
             
Customers (less accumulated provisions of $7,540,000 and
    251,000     245,193  
$6,783,000, respectively, for uncollectible accounts)
             
Associated companies
    166,587     249,735  
Other
    12,184     14,240  
Notes receivable from associated companies
    52,306     27,191  
Prepayments and other
    2,327     2,314  
      484,636     538,894  
UTILITY PLANT:
             
In service
    2,256,956     2,136,766  
Less - Accumulated provision for depreciation
    872,801     819,633  
      1,384,155     1,317,133  
Construction work in progress
    41,163     46,385  
      1,425,318     1,363,518  
OTHER PROPERTY AND INVESTMENTS:
             
Long-term notes receivable from associated companies
    -     486,634  
Investment in lessor notes (Note 7)
    463,431     519,611  
Other
    10,285     13,426  
      473,716     1,019,671  
DEFERRED CHARGES AND OTHER ASSETS:
             
Goodwill
    1,688,521     1,688,521  
Regulatory assets
    870,695     854,588  
Pension assets (Note 4)
    62,471     -  
Property taxes
    76,000     65,000  
Other
    32,987     33,306  
      2,730,674     2,641,415  
    $ 5,114,344   $ 5,563,498  
LIABILITIES AND CAPITALIZATION
             
CURRENT LIABILITIES:
             
Currently payable long-term debt
  $ 207,266   $ 120,569  
Short-term borrowings-
             
Associated companies
    531,943     218,134  
Accounts payable-
             
Associated companies
    169,187     365,678  
Other
    5,295     7,194  
Accrued taxes
    94,991     128,829  
Accrued interest
    13,895     19,033  
Lease market valuation liability
    -     60,200  
Other
    34,350     52,101  
      1,056,927     971,738  
CAPITALIZATION (See Consolidated Statements of Capitalization):
             
Common stockholder's equity
    1,489,835     1,468,903  
Long-term debt and other long-term obligations
    1,459,939     1,805,871  
      2,949,774     3,274,774  
NONCURRENT LIABILITIES:
             
Accumulated deferred income taxes
    725,523     470,707  
Accumulated deferred investment tax credits
    18,567     20,277  
Lease market valuation liability
    -     547,800  
Retirement benefits
    93,456     122,862  
Deferred revenues - electric service programs
    27,145     51,588  
Lease assignment payable to associated companies
    131,773     -  
      111,179     103,752  
      1,107,643     1,316,986  
COMMITMENTS AND CONTINGENCIES (Notes 6 and 13)
             
    $ 5,114,344   $ 5,563,498  
               
               
The accompanying Combined Notes to Consolidated Financial Statements as they relate to The Cleveland Electric Illuminating
 
Company are an integral part of these balance sheets.
             

 
10

 
 
THE CLEVELAND ELECTRIC ILLUMINATING COMPANY
 
           
CONSOLIDATED STATEMENTS OF CAPITALIZATION
 
           
As of December 31,
 
2007
 
2006
 
   
(In thousands)
 
           
COMMON STOCKHOLDER'S EQUITY:
         
Common stock, without par value, 105,000,000 shares authorized,
         
67,930,743 shares outstanding
  $ 873,536   $ 860,133  
Accumulated other comprehensive loss (Note 2(F))
    (69,129 )   (104,431 )
Retained earnings (Note 10(A))
    685,428     713,201  
Total
    1,489,835     1,468,903  
               
               
LONG-TERM DEBT AND OTHER LONG-TERM OBLIGATIONS (Note 10(C)):
             
First mortgage bonds-
             
6.860% due 2008
    125,000     125,000  
Total
    125,000     125,000  
               
Secured notes-
             
7.130% due 2007
    -     120,000  
7.430% due 2009
    150,000     150,000  
7.880% due 2017
    300,000     300,000  
6.000% due 2020
    -     62,560  
6.100% due 2020
    -     70,500  
5.375% due 2028
    5,993     5,993  
*   3.750% due 2030
    81,640     81,640  
*   3.650% due 2035
    -     53,900  
Total
    537,633     844,593  
               
Unsecured notes-
             
6.000% due 2013
    -     78,700  
5.650% due 2013
    300,000     300,000  
5.700% due 2017
    250,000     -  
9.000% due 2031
    -     103,093  
5.950% due 2036
    300,000     300,000