q208_main10-qamended.htm
 


 

 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C.  20549

FORM 10-Q/A

Amendment No. 1

(Mark One)
[X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2008

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
 
 
 

 
 

 

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 whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer,” “accelerated filer” and “smaller reporting company" in Rule 12b-2 of the Exchange Act.

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

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

 
OUTSTANDING
CLASS
AS OF AUGUST 6, 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

This combined Form 10-Q/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 H(1)(a) and (b) of Form 10-Q and are therefore filing this Form 10-Q/A with the reduced disclosure format specified in General Instruction H(2) to Form 10-Q.

 
 

 

Forward-Looking Statements: This Form 10-Q/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-Q/A for the quarter ended June 30, 2008 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 six months ended June 30, 2008, contained in Part I, Item 1, Consolidated Financial Statements. This correction does not affect the respective registrants’ previously reported consolidated statements of income and comprehensive income for the three months and six months ended June 30, 2008 and consolidated balance sheets as of June 30, 2008 contained in the combined Form 10-Q for the quarter ended June 30, 2008, as originally filed on August 7, 2008 (the “original Form 10-Q”). Except for Part I, Items 1 and 4T and certain exhibits under Part II, Item 6, no other information included in the Form 10-Q 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-Q/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 did not reflect the payment of common stock dividends in the first and second quarters of 2008, which were declared in the third quarter of 2007. The corrections resulted in a corresponding change in operating liabilities - accounts payable, included in cash flows from operating activities.

The original Form 10-Q was a combined Form 10-Q 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-Q/A constitutes an amendment only to Part I, Items 1 and 4T and Part II, Item 6 of the original Form 10-Q 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-Q filing on August 7, 2008, except to the extent described above.


 
 

 




TABLE OF CONTENTS



   
Pages
   
Glossary of Terms
ii-iv
     
Part I.     Financial Information
 
     
Item 1. Financial Statements.
1
     
Ohio Edison Company
 
     
 
Report of Independent Registered Public Accounting Firm
2
 
Consolidated Statements of Income and Comprehensive Income
3
 
Consolidated Balance Sheets
4
 
Consolidated Statements of Cash Flows
5
     
The Cleveland Electric Illuminating Company
 
     
 
Report of Independent Registered Public Accounting Firm
6
 
Consolidated Statements of Income and Comprehensive Income
7
 
Consolidated Balance Sheets
8
 
Consolidated Statements of Cash Flows
9
     
The Toledo Edison Company
 
     
 
Report of Independent Registered Public Accounting Firm
10
 
Consolidated Statements of Income and Comprehensive Income
11
 
Consolidated Balance Sheets
12
 
Consolidated Statements of Cash Flows
13
     
Pennsylvania Electric Company
 
     
 
Report of Independent Registered Public Accounting Firm
14
 
Consolidated Statements of Income and Comprehensive Income
15
 
Consolidated Balance Sheets
16
 
Consolidated Statements of Cash Flows
17
     
Combined Notes to Consolidated Financial Statements
18-56
   
Item 4T.     Controls and Procedures – OE, CEI, TE and Penelec.
57
     
Part II.    Other Information
 
   
Item 6.       Exhibits.
58





 
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, Incorporated, owns and operates transmission facilities
 
CEI
The Cleveland Electric Illuminating Company, an Ohio electric utility operating subsidiary
 
Companies
OE, CEI, TE, 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
 
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
 
Penelec
Pennsylvania Electric Company, a Pennsylvania electric utility operating subsidiary
 
Penn
Pennsylvania Power Company, a Pennsylvania electric utility operating subsidiary of OE
 
Pennsylvania Companies
Met-Ed, Penelec and Penn
 
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:
 
     
ACO
Administrative Consent Order
 
AEP
American Electric Power Company, Inc.
 
ALJ
Administrative Law Judge
 
AMP-Ohio
American Municipal Power-Ohio, Inc.
 
AOCL
Accumulated Other Comprehensive Loss
 
AQC
Air Quality Control
 
ARB
Accounting Research Bulletin
 
ARO
Asset Retirement Obligation
 
ASM
Ancillary Services Market
 
BGS
Basic Generation Service
 
CAA
Clean Air Act
 
CAIR
Clean Air Interstate Rule
 
CAMR
Clean Air Mercury Rule
 
CBP
Competitive Bid Process
 
CO2
Carbon Dioxide
 
DFI
Demand for Information
DOJ
United States Department of Justice
DRA
Division of Ratepayer Advocate
EIS
Energy Independence Strategy
EITF
Emerging Issues Task Force
EMP
Energy Master Plan
EPA
United States Environmental Protection Agency
EPACT
Energy Policy Act of 2005
ESP
Electric Security Plan
FASB
Financial Accounting Standards Board
FERC
Federal Energy Regulatory Commission
FIN
FASB Interpretation
FIN 46R
FIN 46 (revised December 2003), "Consolidation of Variable Interest Entities"

 
ii

 

GLOSSARY OF TERMS, Cont’d.


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 FAS 157-2
FSP FAS 157-2, “Effective Date of  FASB Statement No. 157”
FTR
Financial Transmission Rights
GAAP
Accounting Principles Generally Accepted in the United States
GHG
Greenhouse Gases
ICE
Intercontinental Exchange
IRS
Internal Revenue Service
ISO
Independent System Operator
kV
Kilovolt
KWH
Kilowatt-hours
LIBOR
London Interbank Offered Rate
LOC
Letter of Credit
MEIUG
Met-Ed Industrial Users Group
MEW
Mission Energy Westside, Inc.
MISO
Midwest Independent Transmission System Operator, Inc.
Moody’s
Moody’s Investors Service
MRO
Market Rate Offer
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
NYMEX
New York Mercantile Exchange
OCA
Office of Consumer Advocate
OTC
Over the Counter
OVEC
Ohio Valley Electric Corporation
PCAOB
Public Company Accounting Oversight Board
PCRB
Pollution Control Revenue Bond
PICA
Penelec Industrial Customer Alliance
PJM
PJM Interconnection L. L. C.
PLR
Provider of Last Resort
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
 
RECB
Regional Expansion Criteria and Benefits
 
RFP
Request for Proposal
 
RPM
Reliability Pricing Model
 
RSP
Rate Stabilization Plan
 
RTC
Regulatory Transition Charge
 
RTO
Regional Transmission Organization
 
S&P
Standard & Poor’s Ratings Service
 
SB221
Amended Substitute Senate Bill 221
 
SBC
Societal Benefits Charge
 
SEC
U.S. Securities and Exchange Commission
 
SECA
Seams Elimination Cost Adjustment
 
SFAS
Statement of Financial Accounting Standards
 

 
iii

 

GLOSSARY OF TERMS, Cont’d.


SFAS 109
SFAS No. 109, “Accounting for Income Taxes”
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 143
SFAS No. 143, “Accounting for Asset Retirement Obligations”
SFAS 157
SFAS No. 157, “Fair Value Measurements”
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, “Noncontrolling Interests in Consolidated Financial Statements – an Amendment
    of ARB No. 51”
SFAS 161
SFAS No 161, “Disclosure about Derivative Instruments and Hedging Activities – an Amendment
    of FASB Statement No. 133”
SFAS 162
SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles”
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
TSC
Transmission Service Charge
VIE
Variable Interest Entity


 
iv

 


PART I. FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS.


 
1

 
 

Report of Independent Registered Public Accounting Firm









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

We have reviewed the accompanying consolidated balance sheet of Ohio Edison Company and its subsidiaries as of June 30, 2008 and the related consolidated statements of income and comprehensive income for each of the three-month and six-month periods ended June 30, 2008 and 2007 and the consolidated statement of cash flows for the six-month periods ended June 30, 2008 and 2007. These interim financial statements are the responsibility of the Company’s management.

We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that should be made to the accompanying consolidated interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.

We previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet as of December 31, 2007, and the related consolidated statements of income, capitalization, common stockholder's equity, and cash flows for the year then ended (not presented herein), and in our report dated February 28, 2008, except as to the error correction described in Note 1, which is as of November 24, 2008, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet information as of December 31, 2007, is fairly stated in all material respects in relation to the consolidated balance sheet from which it has been derived.

As discussed in Note 1 to the consolidated financial statements, the Company has restated its 2008 financial statements to correct an error.

 
PricewaterhouseCoopers LLP
Cleveland, Ohio
August 7, 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 AND COMPREHENSIVE INCOME
 
(Unaudited)
 
                         
 
Three Months Ended
   
Six Months Ended
 
 
June 30,
   
June 30,
 
                         
   
2008
   
2007
   
2008
   
2007
 
                         
 
(In thousands)
 
                         
REVENUES:
                       
Electric sales
  $ 583,268     $ 569,430     $ 1,205,539     $ 1,163,774  
Excise tax collections
    26,287       27,351       56,665       58,605  
Total revenues
    609,555       596,781       1,262,204       1,222,379  
                                 
EXPENSES:
                               
Purchased power
    308,049       322,639       648,235       672,491  
Other operating costs
    137,619       147,086       277,945       280,101  
Provision for depreciation
    21,414       19,110       42,907       37,958  
Amortization of regulatory assets
    47,856       46,126       96,394       91,543  
Deferral of new regulatory assets
    (25,901 )     (54,344 )     (51,312 )     (90,993 )
General taxes
    44,389       45,393       94,842       95,138  
Total expenses
    533,426       526,010       1,109,011       1,086,238  
                                 
OPERATING INCOME
    76,129       70,771       153,193       136,141  
                                 
OTHER INCOME (EXPENSE):
                               
Investment income
    11,488       21,346       26,543       47,976  
Miscellaneous income (expense)
    (285 )     2,319       (4,091 )     2,692  
Interest expense
    (16,901 )     (21,416 )     (34,542 )     (42,438 )
Capitalized interest
    159       152       269       262  
Total other income (expense)
    (5,539 )     2,401       (11,821 )     8,492  
                                 
INCOME BEFORE INCOME TAXES
    70,590       73,172       141,372       144,633  
                                 
INCOME TAXES
    21,748       27,559       48,621       44,985  
                                 
NET INCOME
    48,842       45,613       92,751       99,648  
                                 
OTHER COMPREHENSIVE INCOME (LOSS):
                               
Pension and other postretirment benefits
    (3,994 )     (3,424 )     (7,988 )     (6,847 )
Change in unrealized gain on available-for-sale securities
    (2,803 )     5,099       (10,374 )     4,973  
Other comprehensive income (loss)
    (6,797 )     1,675       (18,362 )     (1,874 )
Income tax expense (benefit) related to other
                               
comprehensive income
    (2,564 )     388       (6,826 )     (1,115 )
Other comprehensive income (loss), net of tax
    (4,233 )     1,287       (11,536 )     (759 )
                                 
TOTAL COMPREHENSIVE INCOME
  $ 44,609     $ 46,900     $ 81,215     $ 98,889  
                                 
The accompanying 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
 
(Unaudited)
 
   
June 30,
   
December 31,
 
   
2008
    2007  
   
(In thousands)
 
ASSETS
           
CURRENT ASSETS:
           
Cash and cash equivalents
  $ 889     $ 732  
Receivables-
               
Customers (less accumulated provisions of $6,222,000 and $8,032,000,
               
respectively, for uncollectible accounts)
    262,717       248,990  
Associated companies
    174,773       185,437  
Other (less accumulated provisions of $30,000 and $5,639,000,
               
respectively, for uncollectible accounts)
    10,094       12,395  
Notes receivable from associated companies
    472,884       595,859  
Prepayments and other
    15,833       10,341  
      937,190       1,053,754  
UTILITY PLANT:
               
In service
    2,819,937       2,769,880  
Less - Accumulated provision for depreciation
    1,093,194       1,090,862  
      1,726,743       1,679,018  
Construction work in progress
    40,065       50,061  
      1,766,808       1,729,079  
OTHER PROPERTY AND INVESTMENTS:
               
Long-term notes receivable from associated companies
    257,940       258,870  
Investment in lease obligation bonds
    248,894       253,894  
Nuclear plant decommissioning trusts
    117,941       127,252  
Other
    32,205       36,037  
      656,980       676,053  
DEFERRED CHARGES AND OTHER ASSETS:
               
Regulatory assets
    682,844       737,326  
Pension assets
    243,348       228,518  
Property taxes
    65,520       65,520  
Unamortized sale and leaseback costs
    42,632       45,133  
Other
    32,017       48,075  
      1,066,361       1,124,572  
    $ 4,427,339     $ 4,583,458  
LIABILITIES AND CAPITALIZATION
               
CURRENT LIABILITIES:
               
Currently payable long-term debt
  $ 159,659     $ 333,224  
Short-term borrowings-
               
Associated companies
    -       50,692  
Other
    122,874       2,609  
Accounts payable-
               
Associated companies
    112,484       174,088  
Other
    24,654       19,881  
Accrued taxes
    58,265       89,571  
Accrued interest
    21,126       22,378  
Other
    64,332       65,163  
      563,394       757,606  
CAPITALIZATION:
               
Common stockholder's equity-
               
Common stock, without par value, authorized 175,000,000 shares -
               
60 shares outstanding
    1,220,424       1,220,512  
Accumulated other comprehensive income
    36,850       48,386  
Retained earnings
    400,028       307,277  
Total common stockholder's equity
    1,657,302       1,576,175  
Long-term debt and other long-term obligations
    838,283       840,591  
      2,495,585       2,416,766  
NONCURRENT LIABILITIES:
               
Accumulated deferred income taxes
    779,427       781,012  
Accumulated deferred investment tax credits
    15,015       16,964  
Asset retirement obligations
    96,469       93,571  
Retirement benefits
    174,592       178,343  
Deferred revenues - electric service programs
    25,078       46,849  
Other
    277,779       292,347  
      1,368,360       1,409,086  
COMMITMENTS AND CONTINGENCIES (Note 10)
               
    $ 4,427,339     $ 4,583,458  
                 
The accompanying 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 CASH FLOWS
 
(Unaudited)
 
             
   
Six Months Ended
 
   
June 30,
 
   
Restated
       
   
2008
   
2007
 
   
(In thousands)
 
             
CASH FLOWS FROM OPERATING ACTIVITIES:
           
Net income
  $ 92,751     $ 99,648  
Adjustments to reconcile net income to net cash from operating activities-
               
Provision for depreciation
    42,907       37,958  
Amortization of regulatory assets
    96,394       91,543  
Deferral of new regulatory assets
    (51,312 )     (90,993 )
Amortization of lease costs
    (4,399 )     (4,367 )
Deferred income taxes and investment tax credits, net
    7,059       3,017  
Accrued compensation and retirement benefits
    (31,579 )     (25,829 )
Pension trust contribution
    -       (20,261 )
Decrease (increase) in operating assets-
               
Receivables
    30,159       (60,535 )
Prepayments and other current assets
    (2,485 )     (3,162 )
Increase (decrease) in operating liabilities-
               
Accounts payable
    (6,831 )     10,080  
Accrued taxes
    (31,306 )     (87,969 )
Accrued interest
    (1,252 )     (1,306 )
Electric service prepayment programs
    (21,771 )     (19,144 )
 Other
    2,671       4,545  
Net cash provided from (used for) operating activities
    121,006       (66,775 )
                 
CASH FLOWS FROM FINANCING ACTIVITIES:
               
New Financing-
               
Short-term borrowings, net
    69,573       2,859  
Redemptions and Repayments-
               
Common stock
    -       (500,000 )
Long-term debt
    (175,577 )     (1,181 )
Dividend Payments-
               
Common stock
    (50,000 )     (50,000 )
Net cash used for financing activities
    (156,004 )     (548,322 )
                 
CASH FLOWS FROM INVESTING ACTIVITIES:
               
Property additions
    (92,061 )     (66,607 )
Sales of investment securities held in trusts
    79,613       22,225  
Purchases of investment securities held in trusts
    (84,130 )     (25,878 )
Loan repayments from associated companies, net
    123,905       670,774  
Cash investments
    5,000       -  
Other
    2,828       14,770  
Net cash provided from investing activities
    35,155       615,284  
                 
Net increase in cash and cash equivalents
    157       187  
Cash and cash equivalents at beginning of period
    732       712  
Cash and cash equivalents at end of period
  $ 889     $ 899  
                 
The accompanying Notes to Consolidated Financial Statements as they relate to Ohio Edison Company are an integral
 
part of these statements.
               
 
 
5


 
 
 
Report of Independent Registered Public Accounting Firm










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

We have reviewed the accompanying consolidated balance sheet of The Cleveland Electric Illuminating Company and its subsidiaries as of June 30, 2008 and the related consolidated statements of income and comprehensive income for each of the three-month and six-month periods ended June 30, 2008 and 2007 and the consolidated statement of cash flows for the six-month periods ended June 30, 2008 and 2007. These interim financial statements are the responsibility of the Company’s management.

We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that should be made to the accompanying consolidated interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.

We previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet as of December 31, 2007, and the related consolidated statements of income, capitalization, common stockholder's equity, and cash flows for the year then ended (not presented herein), and in our report dated February 28, 2008, except as to the error correction described in Note 1, which is as of November 24, 2008, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet information as of December 31, 2007, is fairly stated in all material respects in relation to the consolidated balance sheet from which it has been derived.

As discussed in Note 1 to the consolidated financial statements, the Company has restated its 2008 financial statements to correct an error.

 
PricewaterhouseCoopers LLP
Cleveland, Ohio
August 7, 2008, except as to the error correction described in Note 1,
which is as of November 24, 2008.
 

 

 
6

 


 
 

THE CLEVELAND ELECTRIC ILLUMINATING COMPANY
 
                         
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
 
(Unaudited)
 
                         
   
Three Months Ended
   
Six Months Ended
 
   
June 30,
   
June 30,
 
                         
   
2008
   
2007
   
2008
   
2007
 
   
(In thousands)
 
                         
REVENUES:
                       
Electric sales
  $ 418,194     $ 433,014     $ 836,902     $ 855,819  
Excise tax collections
    16,195       16,468       34,795       34,495  
Total revenues
    434,389       449,482       871,697       890,314  
                                 
EXPENSES:
                               
Fuel
    -       14,332       -       27,523  
Purchased power
    185,611       178,669       378,855       359,326  
Other operating costs
    62,659       83,075       127,777       158,026  
Provision for depreciation
    17,744       18,713       36,820       37,181  
Amortization of regulatory assets
    38,525       35,047       76,781       68,176  
Deferral of new regulatory assets
    (26,019 )     (43,059 )     (55,267 )     (77,016 )
General taxes
    32,425       34,098       72,508       72,992  
Total expenses
    310,945       320,875       637,474       646,208  
                                 
OPERATING INCOME
    123,444       128,607       234,223       244,106  
                                 
OTHER INCOME (EXPENSE):
                               
Investment income
    8,394       16,324       17,582       34,011  
Miscellaneous income (expense)
    (739 )     3,226       (205 )     3,957  
Interest expense
    (30,935 )     (37,267 )     (63,455 )     (73,007 )
Capitalized interest
    188       141       384       346  
Total other expense
    (23,092 )     (17,576 )     (45,694 )     (34,693 )
                                 
INCOME BEFORE INCOME TAXES
    100,352       111,031       188,529       209,413  
                                 
INCOME TAXES
    33,779       42,082       64,105       76,915  
                                 
NET INCOME
    66,573       68,949       124,424       132,498  
                                 
OTHER COMPREHENSIVE INCOME (LOSS):
                               
Pension and other postretirement benefits
    (213 )     1,203       (426 )     2,405  
Income tax expense (benefit) related to other comprehensive income
    (390 )     357       (109 )     712  
Other comprehensive income (loss), net of tax
    177       846       (317 )     1,693  
                                 
TOTAL COMPREHENSIVE INCOME
  $ 66,750     $ 69,795     $ 124,107     $ 134,191  
                                 
The accompanying Notes to Consolidated Financial Statements as they relate to The Cleveland Electric Illuminating Company are an
 
integral part of these statements.
                               

 
7

 


THE CLEVELAND ELECTRIC ILLUMINATING COMPANY
 
             
CONSOLIDATED BALANCE SHEETS
 
(Unaudited)
 
   
June 30,
   
December 31,
 
   
2008
   
2007
 
   
(In thousands)
 
ASSETS
           
CURRENT ASSETS:
           
Cash and cash equivalents
  $ 239     $ 232  
Receivables-
               
Customers (less accumulated provisions of $5,951,000 and $7,540,000
    286,275       251,000  
respectively, for uncollectible accounts)
               
Associated companies
    92,179       166,587  
Other
    11,354       12,184  
Notes receivable from associated companies
    22,174       52,306  
Prepayments and other
    3,022       2,327  
      415,243       484,636  
UTILITY PLANT:
               
In service
    2,173,276       2,256,956  
Less - Accumulated provision for depreciation
    836,523       872,801  
      1,336,753       1,384,155  
Construction work in progress
    36,281       41,163  
      1,373,034       1,425,318  
OTHER PROPERTY AND INVESTMENTS:
               
Investment in lessor notes
    425,719       463,431  
Other
    10,265       10,285  
      435,984       473,716  
DEFERRED CHARGES AND OTHER ASSETS:
               
Goodwill
    1,688,521       1,688,521  
Regulatory assets
    838,612       870,695  
Pension assets
    66,522       62,471  
Property taxes
    76,000       76,000  
Other
    8,888       32,987  
      2,678,543       2,730,674  
    $ 4,902,804     $ 5,114,344  
LIABILITIES AND CAPITALIZATION
               
CURRENT LIABILITIES:
               
Currently payable long-term debt
  $ 207,296     $ 207,266  
Short-term borrowings-
               
Associated companies
    308,214       531,943  
Other
    135,000       -  
Accounts payable-
               
Associated companies
    78,565       169,187  
Other
    6,993       5,295  
Accrued taxes
    56,337       94,991  
Accrued interest
    14,073       13,895  
Other
    34,468       34,350  
      840,946       1,056,927  
                 
CAPITALIZATION:
               
Common stockholder's equity-
               
Common stock, without par value, authorized 105,000,000 shares -
               
67,930,743 shares outstanding
    873,433       873,536  
Accumulated other comprehensive loss
    (69,446 )     (69,129 )
Retained earnings
    809,852       685,428  
Total common stockholder's equity
    1,613,839       1,489,835  
Long-term debt and other long-term obligations
    1,447,851       1,459,939  
      3,061,690       2,949,774  
NONCURRENT LIABILITIES:
               
Accumulated deferred income taxes
    712,467       725,523  
Accumulated deferred investment tax credits
    17,637       18,567  
Retirement benefits
    94,951       93,456  
Deferred revenues - electric service programs
    15,646       27,145  
Lease assignment payable to associated companies
    38,420       131,773  
Other
    121,047       111,179  
      1,000,168       1,107,643  
COMMITMENTS AND CONTINGENCIES (Note 10)
               
    $ 4,902,804     $ 5,114,344  
                 
The accompanying Notes to Consolidated Financial Statements as they relate to The Cleveland Electric Illuminating Company
 
are an integral part of these balance sheets.
               

 
8

 
 
THE CLEVELAND ELECTRIC ILLUMINATING COMPANY
 
             
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
(Unaudited)
 
             
   
Six Months Ended
 
   
June 30,
 
   
Restated
       
   
2008
   
2007
 
   
(In thousands)
 
CASH FLOWS FROM OPERATING ACTIVITIES:
           
Net income
  $ 124,424     $ 132,498  
  Adjustments to reconcile net income to net cash from operating activities-
         
Provision for depreciation
    36,820       37,181  
Amortization of regulatory assets
    76,781       68,176  
Deferral of new regulatory assets
    (55,267 )     (77,016 )
Deferred rents and lease market valuation liability
    -       (45,858 )
Deferred income taxes and investment tax credits, net
    (12,125 )     (7,103 )
Accrued compensation and retirement benefits
    (4,027 )     1,594  
Pension trust contribution
    -       (24,800 )
Decrease (increase) in operating assets-
               
Receivables
    73,484       156,526  
Prepayments and other current assets
    (689 )     163  
Increase (decrease) in operating liabilities-
               
Accounts payable
    11,076       (308,551 )
Accrued taxes
    (38,654 )     (40,119 )
Accrued interest
    178       3,117  
Electric service prepayment programs
    (11,498 )     (11,129 )
Other
    2,291       689  
Net cash provided from (used for) operating activities
    202,794       (114,632 )
                 
CASH FLOWS FROM FINANCING ACTIVITIES:
               
New Financing-
               
Long-term debt
    -       247,426  
Redemptions and Repayments-
               
Long-term debt
    (335 )     (103,397 )
Short-term borrowings, net
    (100,562 )     (52,894 )
Dividend Payments-
               
Common stock
    (100,000 )     (104,000 )
Net cash used for financing activities
    (200,897 )     (12,865 )
                 
CASH FLOWS FROM INVESTING ACTIVITIES:
               
Property additions
    (67,206 )     (64,366 )
Loan repayments from associated companies, net
    30,132       2,292  
Collection of principal on long-term notes receivable
    -       133,341  
Redemption of lessor notes
    37,712       56,175  
 Other
    (2,528 )     70  
Net cash provided from (used for) investing activities
    (1,890 )     127,512  
                 
Net increase in cash and cash equivalents
    7       15  
Cash and cash equivalents at beginning of period
    232       221  
Cash and cash equivalents at end of period
  $ 239     $ 236  
                 
The accompanying Notes to Consolidated Financial Statements as they relate to The Cleveland Electric Illuminating Company
 
are an integral part of these statements.
               
 
 
9



Report of Independent Registered Public Accounting Firm







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

We have reviewed the accompanying consolidated balance sheet of The Toledo Edison Company and its subsidiary as of June 30, 2008 and the related consolidated statements of income and comprehensive income for each of the three-month and six-month periods ended June 30, 2008 and 2007 and the consolidated statement of cash flows for the six-month periods ended June 30, 2008 and 2007. These interim financial statements are the responsibility of the Company’s management.

We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that should be made to the accompanying consolidated interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.

We previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet as of December 31, 2007, and the related consolidated statements of income, capitalization, common stockholder's equity, and cash flows for the year then ended (not presented herein), and in our report dated February 28, 2008, except as to the error correction described in Note 1, which is as of November 24, 2008, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet information as of December 31, 2007, is fairly stated in all material respects in relation to the consolidated balance sheet from which it has been derived.

As discussed in Note 1 to the consolidated financial statements, the Company has restated its 2008 financial statements to correct an error.

 
PricewaterhouseCoopers LLP
Cleveland, Ohio
August 7, 2008, except as to the error correction described in Note 1,
which is as of November 24, 2008.
 
 
10

 


 

 
THE TOLEDO EDISON COMPANY
 
                       
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
 
(Unaudited)
 
                       
 
Three Months Ended
   
Six Months Ended
 
 
June 30,
   
June 30,
 
 
2008
   
2007
   
2008
   
2007
 
 
(In thousands)
 
                       
REVENUES:
                     
Electric sales
$ 214,353     $ 233,637     $ 418,022     $ 466,693  
Excise tax collections
  7,153       6,700       15,178       14,100  
Total revenues
  221,506       240,337       433,200       480,793  
                               
EXPENSES:
                             
Purchased power
  102,850       96,276       204,148       192,445  
Other operating costs
  50,805       74,471       96,134       145,260  
Provision for depreciation
  7,941       9,127       16,966       18,244  
Amortization of regulatory assets
  25,360       24,948       50,385       48,824  
Deferral of new regulatory assets
  (8,929 )     (18,247 )     (18,423 )     (31,728 )
General taxes
  12,605       13,000       26,982       26,734  
Total expenses
  190,632       199,575       376,192       399,779  
                               
OPERATING INCOME
  30,874       40,762       57,008       81,014  
                               
OTHER INCOME (EXPENSE):
                             
Investment income
  5,224       7,309       11,705       14,534  
Miscellaneous expense
  (1,949 )     (2,056 )     (3,463 )     (5,156 )
Interest expense
  (5,578 )     (8,916 )     (11,613 )     (16,419 )
Capitalized interest
  88       164       125       247  
Total other expense
  (2,215 )     (3,499 )     (3,246 )     (6,794 )
                               
INCOME BEFORE INCOME TAXES
  28,659       37,263       53,762       74,220  
                               
INCOME TAXES
  7,352       15,392       15,440       26,489  
                               
NET INCOME
  21,307       21,871       38,322       47,731  
                               
OTHER COMPREHENSIVE INCOME (LOSS):
                             
Pension and other postretirement benefits
  (64 )     573       (127 )     1,146  
Change in unrealized gain on available-for-sale-securities
  (2,481 )     (669 )     (520 )     (290 )
Other comprehensive income (loss)
  (2,545 )     (96 )     (647 )     856  
Income tax expense (benefit) related to other
                             
comprehensive income
  (914 )     (43 )     (186 )     291  
Other comprehensive income (loss), net of tax
  (1,631 )     (53 )     (461 )     565  
                               
TOTAL COMPREHENSIVE INCOME
$ 19,676     $ 21,818     $ 37,861     $ 48,296  
                               
The accompanying Notes to Consolidated Financial Statements as they relate to The Toledo Edison Company are an integral
 
part of these statements.
                             

 
11

 


THE TOLEDO EDISON COMPANY
 
             
CONSOLIDATED BALANCE SHEETS
 
(Unaudited)
 
 
June 30,
   
December 31,
 
   
2008
   
2007
 
 
(In thousands)
 
ASSETS
           
CURRENT ASSETS:
           
Cash and cash equivalents
  $ 22     $ 22  
Receivables-
               
Customers
    1,251       449  
Associated companies
    13,465       88,796  
Other (less accumulated provisions of $174,000 and $615,000,
         
respectively, for uncollectible accounts)
    9,901       3,116  
Notes receivable from associated companies
    56,912       154,380  
Prepayments and other
    1,157       865  
      82,708       247,628  
UTILITY PLANT:
               
In service
    852,806       931,263  
Less - Accumulated provision for depreciation
    397,496       420,445  
      455,310       510,818  
Construction work in progress
    6,111       19,740  
      461,421       530,558  
OTHER PROPERTY AND INVESTMENTS:
               
Investment in lessor notes
    142,687       154,646  
Long-term notes receivable from associated companies
    37,384       37,530  
Nuclear plant decommissioning trusts
    68,002       66,759  
Other
    1,712       1,756  
      249,785       260,691  
DEFERRED CHARGES AND OTHER ASSETS:
               
Goodwill
    500,576       500,576  
Regulatory assets
    171,030       203,719  
Pension assets
    30,240       28,601  
Property taxes
    21,010       21,010  
Other
    62,686       20,496  
      785,542       774,402  
    $ 1,579,456     $ 1,813,279  
LIABILITIES AND CAPITALIZATION
               
CURRENT LIABILITIES:
               
Currently payable long-term debt
  $ 34     $ 34