q308_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 September 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, 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, 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 November 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 September 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 nine months ended September 30, 2008 and 2007, 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 nine ended September 30, 2008 and 2007, and consolidated balance sheets as of September 30, 2008 and December 31, 2007 contained in the combined Form 10-Q for the quarter ended September 30, 2008, as originally filed on November 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 reflected the dividends declared in the third quarter of 2008 and 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-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 November 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
18-59
   
Item 4T.    Controls and Procedures – OE, CEI, TE and Penelec.
60
     
Part II.    Other Information
 
     
Item 6.       Exhibits.
61





 
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
 
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
 
Signal Peak
A joint venture between FirstEnergy Ventures Corp. and Boich Companies, that owns mining and coal transportation operations near Roundup, Montana, formerly known as Bull Mountain
 
TE
The Toledo Edison Company, an Ohio electric utility operating subsidiary
 
Utilities
OE, CEI, TE, JCP&L, Met-Ed and Penelec
 
     
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
 
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 Bond
FTR
Financial Transmission Rights
GAAP
Accounting Principles Generally Accepted in the United States
GHG
Greenhouse Gases
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
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
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
 
SFAS 133
SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities”
 

 
iii

 

GLOSSARY OF TERMS, Cont’d.


SFAS 142
SFAS No. 142, “Goodwill and Other Intangible Assets”
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”
SIP
State Implementation Plan(s) Under the Clean Air Act
SNCR
Selective Non-Catalytic Reduction
SO2
Sulfur Dioxide
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 September 30, 2008 and the related consolidated statements of income and comprehensive income for each of the three-month and nine-month periods ended September 30, 2008 and 2007 and the consolidated statement of cash flows for the nine-month periods ended September 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 and 2007 financial statements to correct an error.

 
PricewaterhouseCoopers LLP
Cleveland, Ohio
November 6, 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     Nine Months  
     Ended September 30      Ended September 30  
    2008      2007     2008     2007  
 
(In thousands)
 
                         
REVENUES:
                       
Electric sales
  $ 671,761     $ 638,336     $ 1,877,300     $ 1,802,110  
Excise tax collections
    30,500       30,472       87,165       89,077  
Total revenues
    702,261       668,808       1,964,465       1,891,187  
                                 
EXPENSES:
                               
Purchased power
    349,374       364,709       997,609       1,037,200  
Other operating costs
    146,048       144,869       423,993       424,970  
Provision for depreciation
    14,997       19,482       57,904       57,440  
Amortization of regulatory assets
    57,660       53,026       154,054       144,569  
Deferral of new regulatory assets
    (15,078 )     (41,417 )     (66,390 )     (132,410 )
General taxes
    49,255       46,158       144,097       141,296  
Total expenses
    602,256       586,827       1,711,267       1,673,065  
                                 
OPERATING INCOME
    100,005       81,981       253,198       218,122  
                                 
OTHER INCOME (EXPENSE):
                               
Investment income
    19,323       19,827       45,866       67,803  
Miscellaneous income (expense)
    (1,089 )     670       (5,180 )     3,362  
Interest expense
    (17,309 )     (20,311 )     (51,851 )     (62,749 )
Capitalized interest
    55       136       324       398  
Total other income (expense)
    980       322       (10,841 )     8,814  
                                 
INCOME BEFORE INCOME TAXES
    100,985       82,303       242,357       226,936  
                                 
INCOME TAXES
    28,501       34,089       77,122       79,074  
                                 
NET INCOME
    72,484       48,214       165,235       147,862  
                                 
OTHER COMPREHENSIVE INCOME (LOSS):
                               
Pension and other postretirment benefits
    (3,994 )     (3,423 )     (11,982 )     (10,270 )
Change in unrealized gain on available-for-sale securities
    (9,936 )     2,442       (20,310 )     7,415  
Other comprehensive loss
    (13,930 )     (981 )     (32,292 )     (2,855 )
Income tax benefit related to other comprehensive loss
    (5,105 )     (573 )     (11,931 )     (1,688 )
Other comprehensive loss, net of tax
    (8,825 )     (408 )     (20,361 )     (1,167 )
                                 
TOTAL COMPREHENSIVE INCOME
  $ 63,659     $ 47,806     $ 144,874     $ 146,695  
                                 
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)
 
     September 30,      December 31,  
    2008     2007  
      (In thousands)  
ASSETS
           
CURRENT ASSETS:
           
Cash and cash equivalents
  $ 715     $ 732  
Receivables-
               
Customers (less accumulated provisions of $6,888,000 and 8,032,000,
         
respectively, for uncollectible accounts)
    268,252       248,990  
Associated companies
    205,776       185,437  
Other (less accumulated provisions of $13,000 and $5,639,000
               
respectively, for uncollectible accounts)
    16,731       12,395  
Notes receivable from associated companies
    362,695       595,859  
Prepayments and other
    11,285       10,341  
      865,454       1,053,754  
UTILITY PLANT:
               
In service
    2,854,174       2,769,880  
Less - Accumulated provision for depreciation
    1,101,572       1,090,862  
      1,752,602       1,679,018  
Construction work in progress
    41,880       50,061  
      1,794,482       1,729,079  
OTHER PROPERTY AND INVESTMENTS:
               
Long-term notes receivable from associated companies
    257,457       258,870  
Investment in lease obligation bonds
    248,751       253,894  
Nuclear plant decommissioning trusts
    115,523       127,252  
Other
    31,441       36,037  
      653,172       676,053  
DEFERRED CHARGES AND OTHER ASSETS:
               
Regulatory assets
    621,192       737,326  
Pension assets
    250,762       228,518  
Property taxes
    65,520       65,520  
Unamortized sale and leaseback costs
    41,381       45,133  
Other
    33,820       48,075  
      1,012,675       1,124,572  
    $ 4,325,783     $ 4,583,458  
LIABILITIES AND CAPITALIZATION
               
CURRENT LIABILITIES:
               
Currently payable long-term debt
  $ 159,662     $ 333,224  
Short-term borrowings-
               
Associated companies
    -       50,692  
Other
    242,449       2,609  
Accounts payable-
               
Associated companies
    95,604       174,088  
Other
    20,902       19,881  
Accrued taxes
    58,800       89,571  
Accrued interest
    14,216       22,378  
Other
    123,177       65,163  
      714,810       757,606  
CAPITALIZATION:
               
Common stockholder's equity-
               
Common stock, without par value, authorized 175,000,000 shares -
               
60 shares outstanding
    1,224,039       1,220,512  
Accumulated other comprehensive income
    28,025       48,386  
Retained earnings
    207,512       307,277  
Total common stockholder's equity
    1,459,576       1,576,175  
Long-term debt and other long-term obligations
    841,871       840,591  
      2,301,447       2,416,766  
NONCURRENT LIABILITIES:
               
Accumulated deferred income taxes
    776,042       781,012  
Accumulated deferred investment tax credits
    14,040       16,964  
Asset retirement obligations
    79,372       93,571  
Retirement benefits
    173,297       178,343  
Deferred revenues - electric service programs
    14,954       46,849  
Other
    251,821       292,347  
      1,309,526       1,409,086  
COMMITMENTS AND CONTINGENCIES (Note 11)
               
   
$
4,325,783     $ 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)
 
             
   
Nine Months
 
   
Ended September 30
 
   
Restated
   
Restated
 
   
2008
   
2007
 
   
(In thousands)
 
             
CASH FLOWS FROM OPERATING ACTIVITIES:
           
Net income
  $ 165,235     $ 147,862  
Adjustments to reconcile net income to net cash from operating activities-
               
Provision for depreciation
    57,904       57,440  
Amortization of regulatory assets
    154,054       144,569  
Deferral of new regulatory assets
    (66,390 )     (132,410 )
Amortization of lease costs
    28,535       28,567  
Deferred income taxes and investment tax credits, net
    17,267       (29,155 )
Accrued compensation and retirement benefits
    (41,190 )     (34,572 )
Pension trust contribution
    -       (20,261 )
Decrease (increase) in operating assets-
               
Receivables
    (26,009 )     (70,098 )
Prepayments and other current assets
    2,065       (3,542 )
Increase (decrease) in operating liabilities-
               
Accounts payable
    (27,463 )     4,550  
Accrued taxes
    (27,776 )     (25,734 )
Accrued interest
    (8,162 )     (7,277 )
Electric service prepayment programs
    (31,895 )     (27,455 )
Other
    (1,283 )     9,868  
Net cash provided from operating activities
    194,892       42,352  
                 
CASH FLOWS FROM FINANCING ACTIVITIES:
               
New Financing-
               
Short-term borrowings, net
    189,148       -  
Redemptions and Repayments-
               
Common stock
    -       (500,000 )
Long-term debt
    (175,588 )     (1,190 )
Short-term borrowings, net
    -       (64,475 )
Dividend Payments-
               
Common stock
    (315,000 )     (65,000 )
Net cash used for financing activities
    (301,440 )     (630,665 )
                 
CASH FLOWS FROM INVESTING ACTIVITIES:
               
Property additions
    (135,450 )     (109,461 )
Sales of investment securities held in trusts
    115,988       31,624  
Purchases of investment securities held in trusts
    (121,871 )     (36,194 )
Loan repayments from associated companies, net
    234,577       685,364  
Cash investments
    5,143       17,316  
Other
    8,144       (321 )
Net cash provided from investing activities
    106,531       588,328  
                 
Net increase (decrease) in cash and cash equivalents
    (17 )     15  
Cash and cash equivalents at beginning of period
    732       712  
Cash and cash equivalents at end of period
  $ 715     $ 727  
                 
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 September 30, 2008 and the related consolidated statements of income and comprehensive income for each of the three-month and nine-month periods ended September 30, 2008 and 2007 and the consolidated statement of cash flows for the nine-month periods ended September 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 and 2007 financial statements to correct an error.

 
PricewaterhouseCoopers LLP
Cleveland, Ohio
November 6, 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
   
Nine Months
 
   
Ended September 30
   
Ended Septmeber 30
 
                         
    2008     2007     2008     2007  
   
(In thousands)
 
                         
REVENUES:
                       
Electric sales
  $ 505,425     $ 510,577     $ 1,342,327     $ 1,366,396  
Excise tax collections
    18,652       18,514       53,447       53,009  
Total revenues
    524,077       529,091       1,395,774       1,419,405  
                                 
EXPENSES:
                               
Fuel
    -       12,160       -       39,683  
Purchased power
    211,445       216,194       590,300       575,520  
Other operating costs
    66,342       85,114       194,119       243,140  
Provision for depreciation
    17,677       18,913       54,497       56,094  
Amortization of regulatory assets
    48,155       42,077       124,936       110,253  
Deferral of new regulatory assets
    (16,176 )     (37,692 )     (71,443 )     (114,708 )
General taxes
    36,722       37,930       109,230       110,922  
Total expenses
    364,165       374,696       1,001,639       1,020,904  
                                 
OPERATING INCOME
    159,912       154,395       394,135       398,501  
                                 
OTHER INCOME (EXPENSE):
                               
Investment income
    8,390       13,805       25,972       47,816  
Miscellaneous income (expense)
    (1,114 )     (760 )     (1,319 )     3,197  
Interest expense
    (31,024 )     (34,423 )     (94,479 )     (107,430 )
Capitalized interest
    200       309       584       655  
Total other expense
    (23,548 )     (21,069 )     (69,242 )     (55,762 )
                                 
INCOME BEFORE INCOME TAXES
    136,364       133,326       324,893       342,739  
                                 
INCOME TAXES
    42,977       54,610       107,082       131,525  
                                 
NET INCOME
    93,387       78,716       217,811       211,214  
                                 
OTHER COMPREHENSIVE INCOME (LOSS):
                               
Pension and other postretirement benefits
    (213 )     1,202       (639 )     3,607  
Income tax expense (benefit) related to other comprehensive income
    (130 )     356       (239 )     1,068  
Other comprehensive income (loss), net of tax
    (83 )     846       (400 )     2,539  
                                 
TOTAL COMPREHENSIVE INCOME
  $ 93,304     $ 79,562     $ 217,411     $ 213,753  
                                 
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)
 
   
September 30,
   
December 31,
 
    2008     2007  
   
(In thousands)
 
ASSETS
           
CURRENT ASSETS:
           
Cash and cash equivalents
  $ 237     $ 232  
Receivables-
               
Customers (less accumulated provisions of $6,907,000 and $7,540,000
         
respectively, for uncollectible accounts)
    292,735       251,000  
Associated companies
    122,210       166,587  
Other
    4,151       12,184  
Notes receivable from associated companies
    21,682       52,306  
Prepayments and other
    2,373       2,327  
      443,388       484,636  
UTILITY PLANT:
               
In service
    2,180,347       2,256,956  
Less - Accumulated provision for depreciation
    836,058       872,801  
 
    1,344,289       1,384,155  
Construction work in progress
    44,392       41,163  
      1,388,681       1,425,318  
OTHER PROPERTY AND INVESTMENTS:
               
Investment in lessor notes
    425,717       463,431  
Other
    10,260       10,285  
      435,977       473,716  
DEFERRED CHARGES AND OTHER ASSETS:
               
Goodwill
    1,688,521       1,688,521  
Regulatory assets
    796,475       870,695  
Pension assets
    68,548       62,471  
Property taxes
    76,000       76,000  
Other
    9,036       32,987  
      2,638,580       2,730,674  
    $ 4,906,626     $ 5,114,344  
LIABILITIES AND CAPITALIZATION
               
CURRENT LIABILITIES:
               
Currently payable long-term debt
  $ 207,312     $ 207,266  
Short-term borrowings-
               
Associated companies
    367,422       531,943  
Accounts payable-
               
Associated companies
    124,335       169,187  
Other
    5,704       5,295  
Accrued taxes
    70,515       94,991  
Accrued interest
    37,885       13,895  
Other
    41,366       34,350  
      854,539       1,056,927  
CAPITALIZATION:
               
Common stockholder's equity-
               
Common stock, without par value, authorized 105,000,000 shares -
               
67,930,743 shares outstanding
    878,199       873,536  
Accumulated other comprehensive loss
    (69,529 )     (69,129 )
Retained earnings
    793,238       685,428  
Total common stockholder's equity
    1,601,908       1,489,835  
Long-term debt and other long-term obligations
    1,447,718       1,459,939  
      3,049,626       2,949,774  
NONCURRENT LIABILITIES:
               
Accumulated deferred income taxes
    727,615       725,523  
Accumulated deferred investment tax credits
    13,442       18,567  
Retirement benefits
    95,931       93,456  
Deferred revenues - electric service programs
    9,594       27,145  
Lease assignment payable to associated companies
    40,827       131,773  
Other
    115,052       111,179  
      1,002,461       1,107,643  
COMMITMENTS AND CONTINGENCIES (Note 11)
               
    $ 4,906,626     $ 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)
 
             
   
Nine Months
 
   
Ended September 30
 
   
Restated
   
Restated
 
   
2008
   
2007
 
   
(In thousands)
 
CASH FLOWS FROM OPERATING ACTIVITIES:
           
Net income
  $ 217,811     $ 211,214  
Adjustments to reconcile net income to net cash from operating activities-
         
Provision for depreciation
    54,497       56,094  
Amortization of regulatory assets
    124,936       110,253  
Deferral of new regulatory assets
    (71,443 )     (114,708 )
Deferred rents and lease market valuation liability
    -       (46,327 )
Deferred income taxes and investment tax credits, net
    4,623       (40,964 )
Accrued compensation and retirement benefits
    (3,291 )     2,575  
Pension trust contribution
    -       (24,800 )
Decrease (increase) in operating assets-
               
Receivables
    43,927       140,359  
Prepayments and other current assets
    (37 )     661  
Increase (decrease) in operating liabilities-
               
Accounts payable
    (4,443 )     (303,210 )
Accrued taxes
    (19,613 )     17,301  
Accrued interest
    23,990       22,360  
Electric service prepayment programs
    (17,551 )     (16,819 )
Other
    4,193       2,996  
Net cash provided from operating activities
    357,599       16,985  
                 
CASH FLOWS FROM FINANCING ACTIVITIES:
               
New Financing-
               
Long-term debt
    -       247,424  
Redemptions and Repayments-
               
Long-term debt
    (508 )     (223,555 )
Short-term borrowings, net
    (176,354 )     (59,328 )
Dividend Payments-
               
Common stock
    (150,000 )     (144,000 )
Net cash used for financing activities
    (326,862 )     (179,459 )
                 
CASH FLOWS FROM INVESTING ACTIVITIES:
               
Property additions
    (97,326 )     (100,583 )
Loan repayments from (loans to) associated companies, net
    30,624       (13,863 )
Collection of principal on long-term notes receivable
    -       220,974  
Redemption of lessor notes
    37,714       56,177  
  Other
    (1,744 )     (218 )
Net cash provided from (used for) investing activities
    (30,732 )     162,487  
                 
Net increase in cash and cash equivalents
    5       13  
Cash and cash equivalents at beginning of period
    232       221  
Cash and cash equivalents at end of period
  $ 237     $ 234  
                 
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 September 30, 2008 and the related consolidated statements of income and comprehensive income for each of the three-month and nine-month periods ended September 30, 2008 and 2007 and the consolidated statement of cash flows for the nine-month periods ended September 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 and 2007 financial statements to correct an error.

 
PricewaterhouseCoopers LLP
Cleveland, Ohio
November 6, 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     Nine Months  
    Ended September 30      Ended September 30   
    2008     2007     2008     2007  
 
(In thousands)
 
                         
REVENUES:
                       
Electric sales
  $ 242,866     $ 261,736     $ 660,888     $ 728,429  
Excise tax collections
    8,239       7,926       23,417       22,026  
Total revenues
    251,105       269,662       684,305       750,455  
 
                               
EXPENSES:
                               
Purchased power
    111,809       112,502       315,957       304,947  
Other operating costs
    47,010       73,701       143,144       218,961  
Provision for depreciation
    7,682       9,231       24,648       27,475  
Amortization of regulatory assets
    31,452       30,460       81,837       79,284  
Deferral of new regulatory assets
    (5,574 )     (15,645 )     (23,997 )     (47,373 )
General taxes
    13,609       11,912       40,591       38,646  
Total expenses
    205,988       222,161       582,180       621,940  
                                 
OPERATING INCOME
    45,117       47,501       102,125       128,515  
                                 
OTHER INCOME (EXPENSE):
                               
Investment income
    5,580       6,721       17,285       21,255  
Miscellaneous expense
    (1,529 )     (2,153 )     (4,992 )     (7,309 )
Interest expense
    (5,832 )     (8,786 )     (17,445 )     (25,205 )
Capitalized interest
    19       220       144       467  
Total other expense
    (1,762 )     (3,998 )     (5,008 )     (10,792 )
                                 
INCOME BEFORE INCOME TAXES
    43,355       43,503       97,117       117,723  
                                 
INCOME TAXES
    12,174       18,435       27,614       44,924  
                                 
NET INCOME
    31,181       25,068       69,503       72,799  
                                 
OTHER COMPREHENSIVE INCOME (LOSS):
                               
Pension and other postretirement benefits
    (64 )     574       (191 )     1,720  
Change in unrealized gain on available-for-sale-securities
    (247 )     1,946       (767 )     1,656  
Other comprehensive income (loss)
    (311 )     2,520       (958 )     3,376  
Income tax expense (benefit) related to other
                               
comprehensive income
    (108 )     902       (294 )     1,193  
Other comprehensive income (loss), net of tax
    (203 )     1,618       (664 )     2,183  
                                 
TOTAL COMPREHENSIVE INCOME
  $ 30,978     $ 26,686     $ 68,839     $ 74,982  
                                 
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)
 
     September 30,      December 31,  
    2008     2007  
 
(In thousands)
 
ASSETS
           
CURRENT ASSETS:
           
Cash and cash equivalents
  $ 24     $ 22  
Receivables-
               
Customers
    931       449  
Associated companies
    58,215       88,796  
Other (less accumulated provisions of $165,000 and $615,000,
               
respectively, for uncollectible accounts)
    15,810       3,116  
Notes receivable from associated companies
    111,519       154,380  
Prepayments and other
    1,421       865  
      187,920       247,628  
UTILITY PLANT:
               
In service
    860,417       931,263  
Less - Accumulated provision for depreciation
    402,952       420,445  
      457,465       510,818  
Construction work in progress
    7,626       19,740  
      465,091       530,558  
OTHER PROPERTY AND INVESTMENTS:
               
Investment in lessor notes
    142,657       154,646  
Long-term notes receivable from associated companies
    37,308       37,530  
Nuclear plant decommissioning trusts
    68,438       66,759  
Other
    1,691       1,756  
      250,094       260,691  
DEFERRED CHARGES AND OTHER ASSETS:
               
Goodwill
    500,576       500,576  
Regulatory assets
    145,404       203,719  
Pension assets
    31,059       28,601  
Property taxes
    21,010       21,010  
Other
    52,325       20,496  
      750,374       774,402  
    $ 1,653,479     $ 1,813,279  
LIABILITIES AND CAPITALIZATION
               
CURRENT LIABILITIES:
               
Currently payable long-term debt
  $ 34     $ 34  
Accounts payable-
               
Associated companies
    88,769       245,215  
Other
    3,368       4,449  
Notes payable to associated companies
    95,203       13,396  
Accrued taxes
    20,508       30,245  
Lease market valuation liability
    36,900       36,900  
Other
    26,415       22,747  
      271,197       352,986  
CAPITALIZATION:
               
Common stockholder's equity-
               
Common stock, $5 par value, authorized 60,000,000 shares -
               
29,402,054 shares outstanding
    147,010