Edgar Filing: CLEVELAND ELECTRIC ILLUMINATING CO

Form 10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-Q

(Mark One)


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

For the quarterly period ended June 30, 2010


o		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.

333-21011	FIRSTENERGY CORP.	34-1843785
	(An Ohio Corporation)
	76 South Main Street
	Akron, OH 44308
	Telephone (800)736-3402

000-53742	FIRSTENERGY SOLUTIONS CORP.	31-1560186
	(An Ohio Corporation)
	c/o FirstEnergy Corp.
	76 South Main Street
	Akron, OH 44308
	Telephone (800)736-3402

1-2578	OHIO EDISON COMPANY (An Ohio Corporation)	34-0437786
	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

1-3141	JERSEY CENTRAL POWER & LIGHT COMPANY	21-0485010
	(A New Jersey Corporation)
	c/o FirstEnergy Corp.
	76 South Main Street
	Akron, OH 44308
	Telephone (800)736-3402

1-446	METROPOLITAN EDISON COMPANY	23-0870160
	(A Pennsylvania 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 þ No o		FirstEnergy Corp., FirstEnergy Solutions Corp., Ohio Edison Company, The Cleveland Electric Illuminating Company, The Toledo Edison Company, Jersey Central Power & Light Company, Metropolitan Edison Company and Pennsylvania Electric Company

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).


Yes þ No o		FirstEnergy Corp.


Yes o No o		FirstEnergy Solutions Corp., Ohio Edison Company, The Cleveland Electric Illuminating Company, The Toledo Edison Company, Jersey Central Power & Light Company, Metropolitan Edison Company, and Pennsylvania Electric Company

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 þ		FirstEnergy Corp.

Accelerated Filer o		N/A

Non-accelerated Filer (Do not check if a smaller reporting company) þ		FirstEnergy Solutions Corp., Ohio Edison Company, The Cleveland Electric Illuminating Company, The Toledo Edison Company, Jersey Central Power & Light Company, Metropolitan Edison Company and Pennsylvania Electric Company


Smaller Reporting Company o		N/A

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


Yes o No þ		FirstEnergy Corp., FirstEnergy Solutions Corp., Ohio Edison Company, The Cleveland Electric Illuminating Company, The Toledo Edison Company, Jersey Central Power & Light Company, Metropolitan Edison Company and Pennsylvania Electric Company

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 JULY 31, 2010
FirstEnergy Corp., $10 par value		304,835,407
FirstEnergy Solutions Corp., no par value		7
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
Jersey Central Power & Light Company, $10 par value		13,628,447
Metropolitan Edison Company, no par value		859,500
Pennsylvania Electric Company, $20 par value		4,427,577

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

This combined Form 10-Q is separately filed by FirstEnergy Corp., FirstEnergy Solutions Corp., Ohio Edison Company, The Cleveland Electric Illuminating Company, The Toledo Edison Company, Jersey Central Power & Light Company, Metropolitan Edison Company and Pennsylvania Electric Company. Information contained herein relating to any individual registrant is filed by such registrant on its own behalf. No registrant makes any representation as to information relating to any other registrant, except that information relating to any of the FirstEnergy subsidiary registrants is also attributed to FirstEnergy Corp.

FirstEnergy Web Site

Each of the registrants’ Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports filed with or furnished to the SEC pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 are also made available free of charge on or through FirstEnergy’s internet web site at www.firstenergycorp.com.

These reports are posted on the web site as soon as reasonably practicable after they are electronically filed with the SEC. Additionally, the registrants routinely post important information on the web site and recognize the web site is a channel of distribution to reach public investors and as a means of disclosing material non-public information for complying with disclosure obligations under SEC Regulation FD. Information contained on FirstEnergy’s web site shall not be deemed incorporated into, or to be part of, this report.

OMISSION OF CERTAIN INFORMATION

FirstEnergy Solutions Corp., Ohio Edison Company, The Cleveland Electric Illuminating Company, The Toledo Edison Company, Jersey Central Power & Light Company, Metropolitan Edison Company and Pennsylvania Electric Company 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 with the reduced disclosure format specified in General Instruction H(2) to Form 10-Q.

Forward-Looking Statements: This Form 10-Q 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 Pennsylvania.

	•		The impact of the regulatory process on the pending matters in Ohio, Pennsylvania and New Jersey.

	•		Business and regulatory impacts from ATSI’s realignment into PJM.

	•		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 recover regulatory assets or increased costs.

	•		Operation and maintenance costs being higher than anticipated.

	•		Other legislative and regulatory changes, and revised environmental requirements, including possible GHG emission regulations.

	•		The potential impacts of the proposed rules promulgated by EPA on July 6, 2010, in response to the U.S. Court of Appeals’ July 11, 2008 decision requiring revisions to the CAIR rules.

	•		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 that certain generating units may need to be shut down) or levels of emission reductions related to the Consent Decree resolving the NSR litigation or other potential similar regulatory initiatives or actions.

	•		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.

	•		Ultimate resolution of Met-Ed’s and Penelec’s TSC filings with the PPUC.

	•		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 and energy efficiency mandates.

	•		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 amounts that are 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.

	•		Interest rates and any actions taken by credit rating agencies that could negatively affect the registrants’ access to financing or their costs and increase requirements to post additional collateral to support outstanding commodity positions, LOCs and other financial guarantees.

	•		The state of the national and regional economies and associated impacts on the registrants’ major industrial and commercial customers.

	•		Issues concerning the soundness of financial institutions and counterparties with which the registrants do business.

	•		The expected timing and likelihood of completion of the proposed merger with Allegheny Energy, Inc., including the timing, receipt and terms and conditions of any required governmental and regulatory approvals of the proposed merger that could reduce anticipated benefits or cause the parties to abandon the merger, the diversion of management’s time and attention from FirstEnergy’s ongoing business during this time period, the ability to maintain relationships with customers, employees or suppliers as well as the ability to successfully integrate the businesses and realize cost savings and any other synergies and the risk that the credit ratings of the combined company or its subsidiaries may be different from what the companies expect.

	•		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. A security rating is not a recommendation to buy, sell or hold securities that may be subject to revision or withdrawal at any time by the assigning rating organization. Each 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.

TABLE OF CONTENTS


	Page

Glossary of Terms	iii-v

Item 1. Financial Statements

FirstEnergy Corp.

Consolidated Statements of Income		1

Consolidated Statements of Comprehensive Income		2

Consolidated Balance Sheets		3

Consolidated Statements of Cash Flows		4

FirstEnergy Solutions Corp.

Consolidated Statements of Income and Comprehensive Income		5

Consolidated Balance Sheets		6

Consolidated Statements of Cash Flows		7

Ohio Edison Company

Consolidated Statements of Income and Comprehensive Income (Loss)		8

Consolidated Balance Sheets		9

Consolidated Statements of Cash Flows		10

The Cleveland Electric Illuminating Company

Consolidated Statements of Income (Loss) and Comprehensive Income (Loss)		11

Consolidated Balance Sheets		12

Consolidated Statements of Cash Flows		13

The Toledo Edison Company

Consolidated Statements of Income and Comprehensive Income (Loss)		14

Consolidated Balance Sheets		15

Consolidated Statements of Cash Flows		16

Jersey Central Power & Light Company

Consolidated Statements of Income and Comprehensive Income		17

Consolidated Balance Sheets		18

Consolidated Statements of Cash Flows		19

Metropolitan Edison Company

Consolidated Statements of Income and Comprehensive Income (Loss)		20

Consolidated Balance Sheets		21

Consolidated Statements of Cash Flows		22

Pennsylvania Electric Company

Consolidated Statements of Income and Comprehensive Income (Loss)		23

Consolidated Balance Sheets		24

Consolidated Statements of Cash Flows		25
Exhibit 12
Exhibit 31.1
Exhibit 31.2
Exhibit 32
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

TABLE OF CONTENTS (Cont’d)


	Page

Combined Notes To Consolidated Financial Statements		26

Item 2. Management’s Discussion and Analysis of Registrant and Subsidiaries		65

Management’s Narrative Analysis of Results of Operations

FirstEnergy Solutions Corp.		103

Ohio Edison Company		106

The Cleveland Electric Illuminating Company		108

The Toledo Edison Company		110

Jersey Central Power & Light Company		112

Metropolitan Edison Company		114

Pennsylvania Electric Company		116

Item 3. Quantitative and Qualitative Disclosures About Market Risk		118

Item 4. Controls and Procedures — FirstEnergy		118

Item 4T. Controls and Procedures — FES, OE, CEI, TE, JCP&L, Met-Ed and Penelec		118

Part II. Other Information

Item 1. Legal Proceedings		119

Item 1A. Risk Factors		119

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		119

Item 5. Other Information		119

Item 6. Exhibits		120

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
FEV		FirstEnergy Ventures Corp., invests in certain unregulated enterprises and business ventures
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
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
TE		The Toledo Edison Company, an Ohio electric utility operating subsidiary
Utilities		OE, CEI, TE, Penn, JCP&L, Met-Ed and Penelec

The following abbreviations and acronyms are used to identify frequently used terms in this report:


AEP		American Electric Power Company, Inc.
ALJ		Administrative Law Judge
AOCL		Accumulated Other Comprehensive Loss
AQC		Air Quality Control
ARO		Asset Retirement Obligation
BGS CAA		Basic Generation Service Clean Air Act
CAIR		Clean Air Interstate Rule
CAMR		Clean Air Mercury Rule
CBP		Competitive Bid Process
CO₂		Carbon Dioxide
CTC		Competitive Transition Charge
DOE		United States Department of Energy
DOJ		United States Department of Justice
DPA		Department of the Public Advocate, Division of Rate Counsel (New Jersey)
EDCP		Executive Deferred Compensation Plan
EE&C		Energy Efficiency and Conservation
EMAAC		Eastern Mid-Atlantic Area Council
EMP		Energy Master Plan
EPA		United States Environmental Protection Agency
EPRI		Electric Power Research Institute

iii

GLOSSARY OF TERMS, Cont’d.


ESP		Electric Security Plan
FASB		Financial Accounting Standards Board
FERC		Federal Energy Regulatory Commission
FMB		First Mortgage Bond
FPA		Federal Power Act
FRR		Fixed Resource Requirement
GAAP		Generally Accepted Accounting Principles in the United States
GHG		Greenhouse Gases
IRS		Internal Revenue Service
JOA		Joint Operating Agreement
kV		Kilovolt
KWH		Kilowatt-hours
LED		Light-Emitting Diode
LOC		Letter of Credit
MAAC		Mid-Atlantic Area Council
MACT		Maximum Achievable Control Technology
MDPSC		Maryland Public Service Commission
MISO		Midwest Independent Transmission System Operator, Inc.
Moody’s		Moody’s Investors Service, Inc.
MRO		Market Rate Offer
MW		Megawatts
MWH		Megawatt-hours
NAAQS		National Ambient Air Quality Standards
NERC		North American Electric Reliability Corporation
NJBPU		New Jersey Board of Public Utilities
NNSR		Non-Attainment New Source Review
NOAC		Northwest Ohio Aggregation Coalition
NOPEC		Northeast Ohio Public Energy Council
NOV		Notice of Violation
NO_X		Nitrogen Oxide
NRC		Nuclear Regulatory Commission
NSR		New Source Review
NUG		Non-Utility Generation
NUGC		Non-Utility Generation Charge
OCI		Other Comprehensive Income
OPEB		Other Post-Employment Benefits
OVEC		Ohio Valley Electric Corporation
PCRB		Pollution Control Revenue Bond
PJM		PJM Interconnection L. L. C.
POLR		Provider of Last Resort; an electric utility’s obligation to provide generation service to customers whose alternative supplier fails to deliver service
PPUC		Pennsylvania Public Utility Commission
PSCWV		Public Service Commission of West Virginia
PSA		Power Supply Agreement
PSD		Prevention of Significant Deterioration
PPUC		Pennsylvania Public Utility Commission
PUCO		Public Utilities Commission of Ohio
RCP		Rate Certainty Plan
RECs		Renewable Energy Credits
RFP		Request for Proposal
RPM		Reliability Pricing Model
RTEP		Regional Transmission Expansion 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

GLOSSARY OF TERMS, Cont’d.


SEC		U.S. Securities and Exchange Commission
SIP		State Implementation Plan(s) Under the Clean Air Act
SNCR		Selective Non-Catalytic Reduction
SO₂		Sulfur Dioxide
TBC		Transition Bond Charge
TMI-2		Three Mile Island Unit 2
TSC		Transmission Service Charge
VIE		Variable Interest Entity
VSCC		Virginia State Corporation Commission
VIE		Variable Interest Entity

FIRSTENERGY CORP.

CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)


	Three Months						Six Months
	Ended June 30						Ended June 30
	2010			2009			2010			2009
	*(In millions, except per share amounts)*
REVENUES:
Electric utilities	$	2,373		$	2,791		$	4,916		$	5,811
Unregulated businesses		755			480			1,511			794

Total revenues*		3,128			3,271			6,427			6,605


EXPENSES:
Fuel		350			276			684			588
Purchased power		1,052			1,024			2,290			2,167
Other operating expenses		673			612			1,374			1,439
Provision for depreciation		190			185			383			362
Amortization of regulatory assets		161			233			373			642
Deferral of new regulatory assets		—			(45	)		—			(136	)
General taxes		176			184			381			395

Total expenses		2,602			2,469			5,485			5,457


OPERATING INCOME		526			802			942			1,148


OTHER INCOME (EXPENSE):
Investment income		31			27			47			16
Interest expense		(207	)		(206	)		(420	)		(400	)
Capitalized interest		40			33			81			61

Total other expense		(136	)		(146	)		(292	)		(323	)


INCOME BEFORE INCOME TAXES		390			656			650			825

INCOME TAXES		134			248			245			302


NET INCOME		256			408			405			523

Noncontrolling interest loss		(9	)		(6	)		(15	)		(10	)


EARNINGS AVAILABLE TO FIRSTENERGY CORP.	$	265		$	414		$	420		$	533


BASIC EARNINGS PER SHARE OF COMMON STOCK	$	0.87		$	1.36		$	1.38		$	1.75


WEIGHTED AVERAGE NUMBER OF BASIC SHARES OUTSTANDING		304			304			304			304


DILUTED EARNINGS PER SHARE OF COMMON STOCK	$	0.87		$	1.36		$	1.37		$	1.75


WEIGHTED AVERAGE NUMBER OF DILUTED SHARES OUTSTANDING		305			305			305			306


DIVIDENDS DECLARED PER SHARE OF COMMON STOCK	$	—		$	—		$	0.55		$	0.55


*		Includes excise tax collections of $99 million and $95 million in the three months ended June 30, 2010 and 2009, respectively, and $208 million and $204 million in the six months ended June 30, 2010 and 2009, respectively.

The accompanying Combined Notes to the Consolidated Financial Statements are an integral part of these financial statements.

FIRSTENERGY CORP.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)


	Three Months						Six Months
	Ended June 30						Ended June 30
	2010			2009			2010			2009
	*(In millions)*

NET INCOME	$	256		$	408		$	405		$	523


OTHER COMPREHENSIVE INCOME:
Pension and other postretirement benefits		17			469			30			504
Unrealized gain on derivative hedges		6			23			10			38
Change in unrealized gain on available-for-sale securities		6			37			12			32

Other comprehensive income		29			529			52			574
Income tax expense related to other comprehensive income		9			227			16			242

Other comprehensive income, net of tax		20			302			36			332


COMPREHENSIVE INCOME		276			710			441			855

COMPREHENSIVE LOSS ATTRIBUTABLE TO NONCONTROLLING INTEREST		(9	)		(6	)		(15	)		(10	)


COMPREHENSIVE INCOME AVAILABLE TO FIRSTENERGY CORP.	$	285		$	716		$	456		$	865

The accompanying Combined Notes to the Consolidated Financial Statements are an integral part of these financial statements.

FIRSTENERGY CORP.

CONSOLIDATED BALANCE SHEETS
(Unaudited)


	June 30,			December 31,
	2010			2009
	*(In millions)*
ASSETS

CURRENT ASSETS:
Cash and cash equivalents	$	281		$	874
Receivables-
Customers (less allowances of $33 million in 2010 and 2009)		1,409			1,244
Other (less allowances of $7 million in 2010 and 2009)		146			153
Materials and supplies, at average cost		675			647
Prepaid taxes		397			248
Other		206			154

		3,114			3,320

PROPERTY, PLANT AND EQUIPMENT:
In service		28,274			27,826
Less — Accumulated provision for depreciation		11,724			11,397

		16,550			16,429
Construction work in progress		3,000			2,735

		19,550			19,164

INVESTMENTS:
Nuclear plant decommissioning trusts		1,880			1,859
Investments in lease obligation bonds		486			543
Other		589			621

		2,955			3,023

DEFERRED CHARGES AND OTHER ASSETS:
Goodwill		5,575			5,575
Regulatory assets		2,313			2,356
Power purchase contract asset		134			200
Other		825			666

		8,847			8,797

	$	34,466		$	34,304

LIABILITIES AND CAPITALIZATION

CURRENT LIABILITIES:
Currently payable long-term debt	$	1,571		$	1,834
Short-term borrowings		1,463			1,181
Accounts payable		848			829
Accrued taxes		256			314
Other		907			1,130

		5,045			5,288

CAPITALIZATION:
Common stockholders’ equity-
Common stock, $0.10 par value, authorized 375,000,000 shares- 304,835,407 shares outstanding		31			31
Other paid-in capital		5,440			5,448
Accumulated other comprehensive loss		(1,379	)		(1,415	)
Retained earnings		4,747			4,495

Total common stockholders’ equity		8,839			8,559
Noncontrolling interest		(20	)		(2	)

Total equity		8,819			8,557
Long-term debt and other long-term obligations		11,861			11,908

		20,680			20,465

NONCURRENT LIABILITIES:
Accumulated deferred income taxes		2,710			2,468
Retirement benefits		1,531			1,534
Asset retirement obligations		1,372			1,425
Deferred gain on sale and leaseback transaction		976			993
Power purchase contract liability		691			643
Lease market valuation liability		239			262
Other		1,222			1,226

		8,741			8,551

COMMITMENTS, GUARANTEES AND CONTINGENCIES (Note 8)
	$	34,466		$	34,304

The accompanying Combined Notes to the Consolidated Financial Statements are an integral part of these financial statements.

FIRSTENERGY CORP.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)


	Six Months Ended
	June 30
	2010			2009
	*(In millions)*
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income	$	405		$	523
Adjustments to reconcile net income to net cash from operating activities-
Provision for depreciation		383			362
Amortization of regulatory assets		373			642
Deferral of new regulatory assets		—			(136	)
Nuclear fuel and lease amortization		76			52
Deferred purchased power and other costs		(146	)		(135	)
Deferred income taxes and investment tax credits, net		159			69
Investment impairment		19			39
Deferred rents and lease market valuation liability		(62	)		(59	)
Stock-based compensation		(6	)		(2	)
Accrued compensation and retirement benefits		(27	)		(93	)
Interest rate swap transactions		43			—
Commodity derivative transactions, net		(29	)		18
Cash collateral received (paid), net		(63	)		48
Decrease (increase) in operating assets-
Receivables		(156	)		32
Materials and supplies		(17	)		6
Prepayments and other current assets		(81	)		(179	)
Increase (decrease) in operating liabilities-
Accounts payable		18			(11	)
Accrued taxes		(58	)		(101	)
Other		27			27

Net cash provided from operating activities		858			1,102


CASH FLOWS FROM FINANCING ACTIVITIES:
New Financing-
Long-term debt		—			1,679
Short-term borrowings, net		281			—
Redemptions and Repayments-
Long-term debt		(407	)		(881	)
Common stock dividend payments		(335	)		(335	)
Other		(23	)		(37	)

Net cash provided from (used for) financing activities		(484	)		426


CASH FLOWS FROM INVESTING ACTIVITIES:
Property additions		(997	)		(1,143	)
Proceeds from asset sales		116			19
Sales of investment securities held in trusts		1,915			1,001
Purchases of investment securities held in trusts		(1,934	)		(1,041	)
Customer acquisition costs		(105	)		—
Cash investments		59			40
Other		(21	)		(49	)

Net cash used for investing activities		(967	)		(1,173	)


Net change in cash and cash equivalents		(593	)		355
Cash and cash equivalents at beginning of period		874			545

Cash and cash equivalents at end of period	$	281		$	900

The accompanying Combined Notes to the Consolidated Financial Statements are an integral part of these financial statements.

FIRSTENERGY SOLUTIONS CORP.

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(Unaudited)


	Three Months Ended						Six Months Ended
	June 30						June 30
	2010			2009			2010			2009
	*(In thousands)*
REVENUES:
Electric sales to affiliates	$	538,545		$	839,751		$	1,145,847		$	1,732,441
Electric sales to non-affiliates		728,803			205,379			1,397,488			485,125
Other		47,326			296,022			159,432			349,692

Total revenues		1,314,674			1,341,152			2,702,767			2,567,258


EXPENSES:
Fuel		342,411			270,309			670,632			576,467
Purchased power from affiliates		68,898			51,249			129,851			114,456
Purchased power from non-affiliates		298,820			185,613			749,035			345,955
Other operating expenses		303,895			278,264			608,406			585,620
Provision for depreciation		63,319			65,548			126,237			126,921
General taxes		22,272			21,285			49,018			44,661

Total expenses		1,099,615			872,268			2,333,179			1,794,080


OPERATING INCOME		215,059			468,884			369,588			773,178


OTHER INCOME (EXPENSE):
Investment income (loss)		13,366			5,643			14,083			(23,231	)
Miscellaneous income		4,393			7,622			5,703			10,133
Interest expense to affiliates		(2,560	)		(3,315	)		(4,865	)		(6,294	)
Interest expense — other		(51,372	)		(26,271	)		(101,016	)		(48,798	)
Capitalized interest		23,905			14,028			43,595			24,106

Total other expense		(12,268	)		(2,293	)		(42,500	)		(44,084	)


INCOME BEFORE INCOME TAXES		202,791			466,591			327,088			729,094

INCOME TAXES		68,866			169,189			113,237			261,011


NET INCOME		133,925			297,402			213,851			468,083


OTHER COMPREHENSIVE INCOME:
Pension and other postretirement benefits		885			72,121			(8,949	)		74,689
Unrealized gain on derivative hedges		3,017			15,041			4,291			26,057
Change in unrealized gain on available-for-sale securities		6,060			39,504			11,088			38,027

Other comprehensive income		9,962			126,666			6,430			138,773
Income tax expense related to other comprehensive income		3,544			50,625			2,204			55,334

Other comprehensive income, net of tax		6,418			76,041			4,226			83,439


TOTAL COMPREHENSIVE INCOME	$	140,343		$	373,443		$	218,077		$	551,522

The accompanying Combined Notes to the Consolidated Financial Statements are an integral part of these financial statements.

FIRSTENERGY SOLUTIONS CORP.

CONSOLIDATED BALANCE SHEETS
(Unaudited)


	June 30,			December 31,
	2010			2009
	*(In thousands)*
ASSETS

CURRENT ASSETS:
Cash and cash equivalents	$	11		$	12
Receivables-
Customers (less accumulated provisions of $14,523,000 and $12,041,000, respectively, for uncollectible accounts)		315,178			195,107
Associated companies		354,127			318,561
Other (less accumulated provisions of $6,702,000 for uncollectible accounts)		36,392			51,872
Notes receivable from associated companies		173,931			805,103
Materials and supplies, at average cost		578,521			539,541
Prepayments and other		172,514			107,782

		1,630,674			2,017,978

PROPERTY, PLANT AND EQUIPMENT:
In service		10,500,405			10,357,632
Less — Accumulated provision for depreciation		4,695,180			4,531,158

		5,805,225			5,826,474
Construction work in progress		2,622,865			2,423,446

		8,428,090			8,249,920

INVESTMENTS:
Nuclear plant decommissioning trusts		1,107,594			1,088,641
Other		7,965			22,466

		1,115,559			1,111,107

DEFERRED CHARGES AND OTHER ASSETS:
Accumulated deferred income tax benefits		—			86,626
Customer intangibles		118,219			16,566
Goodwill		24,248			24,248
Property taxes		50,125			50,125
Unamortized sales and leaseback costs		77,646			72,553
Other		128,315			121,665

		398,553			371,783

	$	11,572,876		$	11,750,788

LIABILITIES AND CAPITALIZATION

CURRENT LIABILITIES:
Currently payable long-term debt	$	1,381,783		$	1,550,927
Short-term borrowings-
Associated companies		85,128			9,237
Other		100,000			100,000
Accounts payable-
Associated companies		412,507			466,078
Other		236,720			245,363
Accrued taxes		109,082			83,158
Other		369,086			359,057

		2,694,306			2,813,820

CAPITALIZATION:
Common stockholders’ equity-
Common stock, without par value, authorized 750 shares, 7 shares outstanding		1,467,158			1,468,423
Accumulated other comprehensive loss		(98,775	)		(103,001	)
Retained earnings		2,363,000			2,149,149

Total common stockholders’ equity		3,731,383			3,514,571
Long-term debt and other long-term obligations		2,585,918			2,711,652

		6,317,301			6,226,223

NONCURRENT LIABILITIES:
Deferred gain on sale and leaseback transaction		976,012			992,869
Accumulated deferred investment tax credits		56,310			58,396
Asset retirement obligations		863,409			921,448
Retirement benefits		223,853			204,035
Property taxes		50,125			50,125
Lease market valuation liability		239,447			262,200
Other		152,113			221,672

		2,561,269			2,710,745

COMMITMENTS, GUARANTEES AND CONTINGENCIES (Note 8)
	$	11,572,876		$	11,750,788

The accompanying Combined Notes to the Consolidated Financial Statements are an integral part of these financial statements.

FIRSTENERGY SOLUTIONS CORP.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)


	Six Months Ended
	June 30
	2010			2009
	*(In thousands)*
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income	$	213,851		$	468,083
Adjustments to reconcile net income to net cash from operating activities-
Provision for depreciation		126,237			126,921
Nuclear fuel and lease amortization		78,324			53,265
Deferred rents and lease market valuation liability		(59,254	)		(55,493	)
Deferred income taxes and investment tax credits, net		113,978			63,309
Investment impairment		19,093			36,154
Accrued compensation and retirement benefits		7,132			(10,594	)
Commodity derivative transactions, net		(29,308	)		17,688
Gain on asset sales		(1,021	)		(9,635	)
Cash collateral, net		(38,211	)		40,471
Decrease (increase) in operating assets-
Receivables		(192,792	)		179,373
Materials and supplies		(28,470	)		16,609
Prepayments and other current assets		24,518			7,555
Increase (decrease) in operating liabilities-
Accounts payable		(31,610	)		(102,907	)
Accrued taxes		(8,462	)		(14,333	)
Accrued interest		(457	)		1,871
Other		24,907			(6,121	)

Net cash provided from operating activities		218,455			812,216


CASH FLOWS FROM FINANCING ACTIVITIES:
New Financing-
Long-term debt		—			681,675
Short-term borrowings, net		75,891			145,009
Redemptions and Repayments-
Long-term debt		(295,037	)		(622,853	)
Other		(686	)		—

Net cash provided from (used for) financing activities		(219,832	)		203,831


CASH FLOWS FROM INVESTING ACTIVITIES:
Property additions		(566,187	)		(634,967	)
Proceeds from asset sales		115,657			15,771
Sales of investment securities held in trusts		956,813			537,078
Purchases of investment securities held in trusts		(978,785	)		(550,730	)
Loans from (to) associated companies, net		631,172			(241,170	)
Customer acquisition costs		(104,795	)		—
Leasehold improvement payments to associated companies		(51,204	)		—
Other		(1,295	)		(22,034	)

Net cash provided from (used for) investing activities		1,376			(896,052	)


Net change in cash and cash equivalents		(1	)		119,995
Cash and cash equivalents at beginning of period		12			39

Cash and cash equivalents at end of period	$	11		$	120,034

The accompanying Combined Notes to the Consolidated Financial Statements are an integral part of these financial statements.

OHIO EDISON COMPANY

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(Unaudited)


	Three Months Ended						Six Months Ended
	June 30						June 30
	2010			2009			2010			2009
	*(In thousands)*
STATEMENTS OF INCOME

REVENUES:
Electric sales	$	415,437		$	647,224		$	895,362		$	1,367,235
Excise and gross receipts tax collections		23,949			24,948			52,424			53,928

Total revenues		439,386			672,172			947,786			1,421,163


EXPENSES:
Purchased power from affiliates		114,414			314,870			250,271			647,206
Purchased power from non-affiliates		98,462			98,330			210,513			236,143
Other operating expenses		88,275			111,938			177,130			269,768
Provision for depreciation		22,014			21,996			43,894			43,509
Amortization of regulatory assets, net		9,424			22,295			38,769			42,506
General taxes		43,362			43,903			90,854			93,023

Total expenses		375,951			613,332			811,431			1,332,155


OPERATING INCOME		63,435			58,840			136,355			89,008


OTHER INCOME (EXPENSE):
Investment income		6,309			10,149			11,553			19,511
Miscellaneous income		1,295			2,681			1,003			1,871
Interest expense		(22,155	)		(21,469	)		(44,465	)		(44,756	)
Capitalized interest		295			279			503			499

Total other expense		(14,256	)		(8,360	)		(31,406	)		(22,875	)


INCOME BEFORE INCOME TAXES		49,179			50,480			104,949			66,133

INCOME TAXES		11,856			16,852			31,465			20,857


NET INCOME		37,323			33,628			73,484			45,276


Noncontrolling interest income		130			143			262			289


EARNINGS AVAILABLE TO PARENT	$	37,193		$	33,485		$	73,222		$	44,987


STATEMENTS OF COMPREHENSIVE INCOME

NET INCOME	$	37,323		$	33,628		$	73,484		$	45,276


OTHER COMPREHENSIVE INCOME (LOSS):
Pension and other postretirement benefits		322			89,864			4,337			95,602
Change in unrealized gain on available-for-sale securities		520			728			811			(1,981	)

Other comprehensive income		842			90,592			5,148			93,621
Income tax expense (benefit) related to other
comprehensive income		(26	)		37,310			667			37,839

Other comprehensive income, net of tax		868			53,282			4,481			55,782


COMPREHENSIVE INCOME		38,191			86,910			77,965			101,058

COMPREHENSIVE INCOME ATTRIBUTABLE TO NONCONTROLLING INTEREST		130			143			262			289


COMPREHENSIVE INCOME AVAILABLE TO PARENT	$	38,061		$	86,767		$	77,703		$	100,769

The accompanying Combined Notes to the Consolidated Financial Statements are an integral part of these financial statements.

OHIO EDISON COMPANY

CONSOLIDATED BALANCE SHEETS
(Unaudited)


	June 30,			December 31,
	2010			2009
	*(In thousands)*
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	51,679		$	324,175
Receivables-
Customers (less accumulated provisions of $4,685,000 and $5,119,000, respectively, for uncollectible accounts)		202,983			209,384
Associated companies		68,005			98,874
Other (less accumulated provisions of $6,000 and $18,000, respectively, for uncollectible accounts)		13,065			14,155
Notes receivable from associated companies		106,232			118,651
Prepayments and other		14,748			15,964

		456,712			781,203

UTILITY PLANT:
In service		3,086,689			3,036,467
Less — Accumulated provision for depreciation		1,189,802			1,165,394

		1,896,887			1,871,073
Construction work in progress		36,866			31,171

		1,933,753			1,902,244

OTHER PROPERTY AND INVESTMENTS:
Investment in lease obligation bonds		204,812			216,600
Nuclear plant decommissioning trusts		126,405			120,812
Other		96,633			96,861

		427,850			434,273

DEFERRED CHARGES AND OTHER ASSETS:
Regulatory assets		422,559			465,331
Pension assets		36,199			19,881
Property taxes		67,037			67,037
Unamortized sales and leaseback costs		32,626			35,127
Other		17,765			39,881

		576,186			627,257

	$	3,394,501		$	3,744,977

LIABILITIES AND CAPITALIZATION
CURRENT LIABILITIES:
Currently payable long-term debt	$	7,975		$	2,723
Short-term borrowings-
Associated companies		—			92,863
Other		653			807
Accounts payable-
Associated companies		54,891			102,763
Other		31,087			40,423
Accrued taxes		55,976			81,868
Accrued interest		25,639			25,749
Other		79,382			81,424

		255,603			428,620

CAPITALIZATION:
Common stockholder’s equity-
Common stock, without par value, authorized 175,000,000 shares - 60 shares outstanding		949,822			1,154,797
Accumulated other comprehensive loss		(159,096	)		(163,577	)
Retained earnings		58,112			29,890

Total common stockholder’s equity		848,838			1,021,110
Noncontrolling interest		6,100			6,442

Total equity		854,938			1,027,552
Long-term debt and other long-term obligations		1,152,303			1,160,208

		2,007,241			2,187,760

NONCURRENT LIABILITIES:
Accumulated deferred income taxes		678,669			660,114
Accumulated deferred investment tax credits		10,882			11,406
Retirement benefits		171,056			174,925
Asset retirement obligations		81,941			85,926
Other		189,109			196,226

		1,131,657			1,128,597

COMMITMENTS AND CONTINGENCIES (Note 8)
	$	3,394,501		$	3,744,977

The accompanying Combined Notes to the Consolidated Financial Statements are an integral part of these financial statements.

OHIO EDISON COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)


	Six Months Ended
	June 30
	2010			2009
	*(In thousands)*
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income	$	73,484		$	45,276
Adjustments to reconcile net income to net cash from operating activities-
Provision for depreciation		43,894			43,509
Amortization of regulatory assets, net		38,769			42,506
Purchased power cost recovery reconciliation		(1,514	)		11,068
Amortization of lease costs		(4,619	)		(4,540	)
Deferred income taxes and investment tax credits, net		4,964			(11,252	)
Accrued compensation and retirement benefits		(16,154	)		(4,593	)
Accrued regulatory obligations		(2,309	)		18,350
Electric service prepayment programs		—			(4,603	)
Cash collateral from suppliers		1,215			6,380
Decrease (increase) in operating assets-
Receivables		49,250			(16,509	)
Prepayments and other current assets		5,072			(6,290	)
Increase (decrease) in operating liabilities-
Accounts payable		(57,208	)		(4,820	)
Accrued taxes		(25,685	)		(19,523	)
Accrued interest		(110	)		36
Other		(4	)		10,086

Net cash provided from operating activities		109,045			105,081


CASH FLOWS FROM FINANCING ACTIVITIES:
New Financing-
Long-term debt		—			100,000
Short-term borrowings, net		—			114,617
Redemptions and Repayments-
Long-term debt		(2,957	)		(100,984	)
Short-term borrowings, net		(93,017	)		—
Common stock dividend payments		(250,000	)		(125,000	)
Other		(881	)		(1,627	)

Net cash used for financing activities		(346,855	)		(12,994	)


CASH FLOWS FROM INVESTING ACTIVITIES:
Property additions		(71,698	)		(69,512	)
Lease improvement payments from associated companies		18,375			—
Sales of investment securities held in trusts		59,804			24,941
Purchases of investment securities held in trusts		(64,063	)		(30,877	)
Loan repayments from associated companies, net		12,420			51,803
Cash investments		11,774			7,929
Other		(1,298	)		1,098

Net cash used for investing activities		(34,686	)		(14,618	)


Net change in cash and cash equivalents		(272,496	)		77,469
Cash and cash equivalents at beginning of period		324,175			146,343

Cash and cash equivalents at end of period	$	51,679		$	223,812

The accompanying Combined Notes to the Consolidated Financial Statements are an integral part of these financial statements.

THE CLEVELAND ELECTRIC ILLUMINATING COMPANY

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(Unaudited)


	Three Months Ended						Six Months Ended
	June 30						June 30
	2010			2009			2010			2009
	*(In thousands)*
STATEMENTS OF INCOME
REVENUES:
Electric sales	$	280,180		$	458,287		$	592,677		$	889,692
Excise tax collections		15,495			16,799			33,068			35,119

Total revenues		295,675			475,086			625,745			924,811


EXPENSES:
Purchased power from affiliates		83,532			243,499			178,497			482,371
Purchased power from non-affiliates		48,541			49,414			100,367			121,160
Other operating expenses		28,937			39,177			60,172			104,007
Provision for depreciation		18,336			17,852			36,447			36,132
Amortization of regulatory assets		30,807			29,580			75,946			286,317
Deferral of new regulatory assets		—			(39,771	)		—			(134,587	)
General taxes		28,840			36,856			67,329			74,997

Total expenses		238,993			376,607			518,758			970,397


OPERATING INCOME (LOSS)		56,682			98,479			106,987			(45,586	)


OTHER INCOME (EXPENSE):
Investment income		6,605			7,614			14,152			16,034
Miscellaneous expense		675			798			1,257			2,792
Interest expense		(33,262	)		(32,757	)		(66,883	)		(66,079	)
Capitalized interest		7			51			33			118

Total other expense		(25,975	)		(24,294	)		(51,441	)		(47,135	)


INCOME (LOSS) BEFORE INCOME TAXES		30,707			74,185			55,546			(92,721	)

INCOME TAX EXPENSE (BENEFIT)		8,785			26,461			19,628			(35,045	)


NET INCOME (LOSS)		21,922			47,724			35,918			(57,676	)


Noncontrolling interest income		366			419			785			877


EARNINGS (LOSS) AVAILABLE TO PARENT	$	21,556		$	47,305		$	35,133		$	(58,553	)


STATEMENTS OF COMPREHENSIVE INCOME

NET INCOME (LOSS)	$	21,922		$	47,724		$	35,918		$	(57,676	)


OTHER COMPREHENSIVE INCOME (LOSS):
Pension and other postretirement benefits		3,228			43,903			(19,357	)		47,870
Income tax expense (benefit) related to other comprehensive income		976			17,936			(7,301	)		19,306

Other comprehensive income (loss), net of tax		2,252			25,967			(12,056	)		28,564


COMPREHENSIVE INCOME (LOSS)		24,174			73,691			23,862			(29,112	)

COMPREHENSIVE INCOME ATTRIBUTABLE TO NONCONTROLLING INTEREST		366			419			785			877


COMPREHENSIVE INCOME (LOSS) AVAILABLE TO PARENT	$	23,808		$	73,272		$	23,077		$	(29,989	)

The accompanying Combined Notes to the Consolidated Financial Statements are an integral part of these financial statements.

THE CLEVELAND ELECTRIC ILLUMINATING COMPANY

CONSOLIDATED BALANCE SHEETS
(Unaudited)


	June 30,			December 31,
	2010			2009
	*(In thousands)*
ASSETS

CURRENT ASSETS:
Cash and cash equivalents	$	245		$	86,230
Receivables-
Customers (less accumulated provisions of $4,809,000 and $5,239,000, respectively, for uncollectible accounts)		198,970			209,335
Associated companies		73,008			98,954
Other		10,377			11,661
Notes receivable from associated companies		24,480			26,802
Prepayments and other		4,390			9,973

		311,470			442,955

UTILITY PLANT:
In service		2,350,804			2,310,074
Less — Accumulated provision for depreciation		911,368			888,169

		1,439,436			1,421,905
Construction work in progress		30,665			36,907

		1,470,101			1,458,812

OTHER PROPERTY AND INVESTMENTS:
Investment in lessor notes		340,033			388,641
Other		10,108			10,220

		350,141			398,861

DEFERRED CHARGES AND OTHER ASSETS:
Goodwill		1,688,521			1,688,521
Regulatory assets		468,119			545,505
Pension assets (Note 5)		—			13,380
Property taxes		77,319			77,319
Other		12,912			12,777

		2,246,872			2,337,502

	$	4,378,584		$	4,638,130

LIABILITIES AND CAPITALIZATION

CURRENT LIABILITIES:
Currently payable long-term debt	$	137		$	117
Short-term borrowings-
Associated companies		224,031			339,728
Accounts payable-
Associated companies		35,605			68,634
Other		15,707			17,166
Accrued taxes		77,051			90,511
Accrued interest		18,557			18,466
Other		49,897			45,440

		420,985			580,062

CAPITALIZATION:
Common stockholders’ equity-
Common stock, without par value, authorized 105,000,000 shares, 67,930,743 shares outstanding		884,878			884,897
Accumulated other comprehensive loss		(150,214	)		(138,158	)
Retained earnings		532,380			597,248

Total common stockholders’ equity		1,267,044			1,343,987
Noncontrolling interest		18,017			20,592

Total equity		1,285,061			1,364,579
Long-term debt and other long-term obligations		1,852,488			1,872,750

		3,137,549			3,237,329

NONCURRENT LIABILITIES:
Accumulated deferred income taxes		632,696			644,745
Accumulated deferred investment tax credits		11,415			11,836
Retirement benefits		81,872			69,733
Other		94,067			94,425

		820,050			820,739

COMMITMENTS AND CONTINGENCIES (Note 8)
	$	4,378,584		$	4,638,130

The accompanying Combined Notes to the Consolidated Financial Statements are an integral part of these financial statements.

THE CLEVELAND ELECTRIC ILLUMINATING COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)


	Six Months Ended
	June 30
	2010			2009
	*(In thousands)*
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss)	$	35,918		$	(57,676	)
Adjustments to reconcile net income (loss) to net cash from operating activities-
Provision for depreciation		36,447			36,132
Amortization of regulatory assets, net		75,946			286,317
Deferral of new regulatory assets		—			(134,587	)
Purchased power cost recovery reconciliation		—			2,072
Deferred income taxes and investment tax credits, net		(18,083	)		(58,506	)
Accrued compensation and retirement benefits		5,421			2,092
Accrued regulatory obligations		(444	)		12,057
Electric service prepayment programs		—			(3,510	)
Cash collateral from suppliers		685			5,365
Decrease (increase) in operating assets-
Receivables		51,757			(84,469	)
Prepayments and other current assets		5,392			(1,145	)
Increase (decrease) in operating liabilities-
Accounts payable		(34,488	)		18,991
Accrued taxes		(11,317	)		(29,434	)
Accrued interest		91			232
Other		1,932			3,265

Net cash provided from (used for) operating activities		149,257			(2,804	)


CASH FLOWS FROM FINANCING ACTIVITIES:
New Financing-
Short-term borrowings, net		—			47,423
Redemptions and Repayments-
Long-term debt		(54	)		(368	)
Short-term borrowings, net		(136,013	)		—
Common stock dividend payments		(100,000	)		(25,000	)
Other		(3,367	)		(3,019	)

Net cash provided from (used for) financing activities		(239,434	)		19,036


CASH FLOWS FROM INVESTING ACTIVITIES:
Property additions		(44,373	)		(46,434	)
Loan repayments from (loans to) associated companies, net		2,322			(5,449	)
Redemptions of lessor notes		48,608			37,070
Other		(2,365	)		(1,415	)

Net cash provided from (used for) investing activities		4,192			(16,228	)


Net change in cash and cash equivalents		(85,985	)		4
Cash and cash equivalents at beginning of period		86,230			226

Cash and cash equivalents at end of period	$	245		$	230

The accompanying Combined Notes to the Consolidated Financial Statements are an integral part of these financial statements.

THE TOLEDO EDISON COMPANY

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(Unaudited)


	Three Months Ended						Six Months Ended
	June 30						June 30
	2010			2009			2010			2009
	*(In thousands)*
STATEMENTS OF INCOME

REVENUES:
Electric sales	$	114,691		$	219,911		$	240,122		$	456,996
Excise tax collections		6,059			6,297			13,100			14,026

Total revenues		120,750			226,208			253,222			471,022


EXPENSES:
Purchased power from affiliates		38,654			130,564			85,654			255,888
Purchased power from non-affiliates		23,675			18,244			49,784			58,781
Other operating expenses		25,499			35,480			51,044			80,484
Provision for depreciation		8,013			7,717			15,963			15,289
Amortization (deferral) of regulatory assets, net		(1,800	)		11,771			(10,299	)		21,668
General taxes		12,282			12,349			25,743			26,599

Total expenses		106,323			216,125			217,889			458,709


OPERATING INCOME		14,427			10,083			35,333			12,313


OTHER INCOME (EXPENSE):
Investment income		5,057			7,529			8,857			13,013
Miscellaneous income (expense)		(945	)		1,375			(2,351	)		35
Interest expense		(10,455	)		(9,262	)		(20,942	)		(14,795	)
Capitalized interest		80			50			158			92

Total other expense		(6,263	)		(308	)		(14,278	)		(1,655	)


INCOME BEFORE INCOME TAXES		8,164			9,775			21,055			10,658

INCOME TAXES		948			3,370			6,330			3,261


NET INCOME		7,216			6,405			14,725			7,397


Noncontrolling interest income		2			1			5			3


EARNINGS AVAILABLE TO PARENT	$	7,214		$	6,404		$	14,720		$	7,394


STATEMENTS OF COMPREHENSIVE INCOME

NET INCOME	$	7,216		$	6,405		$	14,725		$	7,397


OTHER COMPREHENSIVE INCOME (LOSS):
Pension and other postretirement benefits		714			19,016			1,010			19,149
Change in unrealized gain on available-for-sale securities		(330	)		(2,739	)		39			(3,548	)

Other comprehensive income		384			16,277			1,049			15,601
Income tax expense related to other comprehensive income		65			7,224			235			7,205

Other comprehensive income, net of tax		319			9,053			814			8,396


COMPREHENSIVE INCOME		7,535			15,458			15,539			15,793

COMPREHENSIVE INCOME ATTRIBUTABLE TO NONCONTROLLING INTEREST		2			1			5			3


COMPREHENSIVE INCOME AVAILABLE TO PARENT	$	7,533		$	15,457		$	15,534		$	15,790

The accompanying Combined Notes to the Consolidated Financial Statements are an integral part of these financial statements.

THE TOLEDO EDISON COMPANY

CONSOLIDATED BALANCE SHEETS
(Unaudited)


	June 30,			December 31,
	2010			2009
	*(In thousands)*
ASSETS

CURRENT ASSETS:
Cash and cash equivalents	$	77,843		$	436,712
Receivables-
Customers		128			75
Associated companies		52,068			90,191
Other (less accumulated provisions of $298,000 and $208,000, respectively, for uncollectible accounts)		18,866			20,180
Notes receivable from associated companies		95,919			85,101
Prepayments and other		3,503			7,111

		248,327			639,370

UTILITY PLANT:
In service		932,788			912,930
Less — Accumulated provision for depreciation		437,327			427,376

		495,461			485,554
Construction work in progress		7,906			9,069

		503,367			494,623

OTHER PROPERTY AND INVESTMENTS:
Investment in lessor notes		103,872			124,357
Nuclear plant decommissioning trusts		75,540			73,935
Other		1,539			1,580

		180,951			199,872

DEFERRED CHARGES AND OTHER ASSETS:
Goodwill		500,576			500,576
Regulatory assets		81,799			69,557
Property taxes		23,658			23,658
Other		38,655			55,622

		644,688			649,413

	$	1,577,333		$	1,983,278

LIABILITIES AND CAPITALIZATION

CURRENT LIABILITIES:
Currently payable long-term debt	$	216		$	222
Accounts payable-
Associated companies		16,535			78,341
Other		6,972			8,312
Notes payable to associated companies		—			225,975
Accrued taxes		20,069			25,734
Lease market valuation liability		36,900			36,900
Other		22,244			29,273

		102,936			404,757

CAPITALIZATION:
Common stockholders’ equity-
Common stock, $5 par value, authorized 60,000,000 shares, 29,402,054 shares outstanding		147,010			147,010
Other paid-in-capital		178,136			178,181
Accumulated other comprehensive loss		(48,989	)		(49,803	)
Retained earnings		99,210			214,490

Total common stockholders’ equity		375,367			489,878
Noncontrolling interest		2,590			2,696

Total equity		377,957			492,574
Long-term debt and other long-term obligations		600,463			600,443

		978,420			1,093,017

NONCURRENT LIABILITIES:
Accumulated deferred income taxes		112,670			80,508
Accumulated deferred investment tax credits		6,148			6,367
Retirement benefits		67,507			65,988
Asset retirement obligations		27,819			32,290
Lease market valuation liability		217,750			236,200
Other		64,083			64,151

		495,977			485,504

COMMITMENTS, GUARANTEES AND CONTINGENCIES (Note 8)
	$	1,577,333		$	1,983,278

The accompanying Combined Notes to the Consolidated Financial Statements are an integral part of these financial statements.

THE TOLEDO EDISON COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)


	Six Months Ended
	June 30
	2010			2009
	*(In thousands)*
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income	$	14,725		$	7,397
Adjustments to reconcile net income to net cash from operating activities-
Provision for depreciation		15,963			15,289
Amortization (deferral) of regulatory assets, net		(10,299	)		21,668
Purchased power cost recovery reconciliation		60			(4,197	)
Deferred rents and lease market valuation liability		(42,264	)		(40,697	)
Deferred income taxes and investment tax credits, net		16,503			(1,206	)
Accrued compensation and retirement benefits		2,600			711
Accrued regulatory obligations		(632	)		4,450
Electric service prepayment programs		—			(1,458	)
Cash collateral from suppliers		343			2,755
Decrease (increase) in operating assets-
Receivables		52,754			1,075
Prepayments and other current assets		3,608			(220	)
Increase (decrease) in operating liabilities-
Accounts payable		(61,195	)		5,533
Accrued taxes		(4,007	)		(2,936	)
Accrued interest		—			3,983
Other		(9,020	)		1,788

Net cash provided from (used for) operating activities		(20,861	)		13,935


CASH FLOWS FROM FINANCING ACTIVITIES:
New Financing-
Long-term debt		—			297,422
Short-term borrowings, net		—			59,938
Redemptions and Repayments-
Long-term debt		(111	)		(236	)
Short-term borrowings, net		(225,975	)		—
Common stock dividend payments		(130,000	)		(25,000	)
Other		(112	)		(247	)

Net cash provided from (used for) financing activities		(356,198	)		331,877


CASH FLOWS FROM INVESTING ACTIVITIES:
Property additions		(20,237	)		(21,661	)
Leasehold improvement payments from associated companies		32,829			—
Loans to associated companies, net		(10,818	)		(19,819	)
Redemptions of lessor notes		20,485			18,330
Sales of investment securities held in trusts		106,814			77,323
Purchases of investment securities held in trusts		(107,978	)		(78,700	)
Other		(2,905	)		(1,845	)

Net cash provided from (used for) investing activities		18,190			(26,372	)


Net change in cash and cash equivalents		(358,869	)		319,440
Cash and cash equivalents at beginning of period		436,712			14

Cash and cash equivalents at end of period	$	77,843		$	319,454

The accompanying Combined Notes to the Consolidated Financial Statements are an integral part of these financial statements.

JERSEY CENTRAL POWER & LIGHT COMPANY

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(Unaudited)


	Three Months Ended						Six Months Ended
	June 30						June 30
	2010			2009			2010			2009
				*(In thousands)*
REVENUES:
Electric sales	$	709,606		$	697,061		$	1,400,998		$	1,457,981
Excise tax collections		11,012			11,031			23,364			23,762

Total revenues		720,618			708,092			1,424,362			1,481,743


EXPENSES:
Purchased power		410,470			423,950			824,486			905,191
Other operating expenses		75,177			70,876			170,837			156,746
Provision for depreciation		27,093			25,301			55,064			50,404
Amortization of regulatory assets, net		81,326			80,018			150,774			166,849
General taxes		14,902			12,587			31,338			30,083

Total expenses		608,968			612,732			1,232,499			1,309,273


OPERATING INCOME		111,650			95,360			191,863			172,470


OTHER INCOME (EXPENSE):
Miscellaneous income		1,649			2,007			3,482			2,812
Interest expense		(30,041	)		(29,671	)		(59,464	)		(57,539	)
Capitalized interest		156			218			289			280

Total other expense		(28,236	)		(27,446	)		(55,693	)		(54,447	)


INCOME BEFORE INCOME TAXES		83,414			67,914			136,170			118,023

INCOME TAXES		33,521			29,848			57,051			52,399


NET INCOME		49,893			38,066			79,119			65,624


OTHER COMPREHENSIVE INCOME:
Pension and other postretirement benefits		4,135			20,918			20,063			25,039
Unrealized gain on derivative hedges		69			69			138			138

Other comprehensive income		4,204			20,987			20,201			25,177
Income tax expense related to other comprehensive income		1,441			11,059			7,999			12,489

Other comprehensive income, net of tax		2,763			9,928			12,202			12,688


TOTAL COMPREHENSIVE INCOME	$	52,656		$	47,994		$	91,321		$	78,312

The accompanying Combined Notes to the Consolidated Financial Statements are an integral part of these financial statements.

JERSEY CENTRAL POWER & LIGHT COMPANY

CONSOLIDATED BALANCE SHEETS
(Unaudited)


	June 30,			December 31,
	2010			2009
	*(In thousands)*
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	99		$	27
Receivables-
Customers (less accumulated provisions of $3,362,000 and $3,506,000, respectively, for uncollectible accounts)		345,136			300,991
Associated companies		11,778			12,884
Other		25,626			21,877
Notes receivable — associated companies		17,883			102,932
Prepaid taxes		146,898			34,930
Other		11,357			12,945

		558,777			486,586


UTILITY PLANT:
In service		4,524,706			4,463,490
Less — Accumulated provision for depreciation		1,651,304			1,617,639

		2,873,402			2,845,851
Construction work in progress		55,825			54,251

		2,929,227			2,900,102


OTHER PROPERTY AND INVESTMENTS:
Nuclear plant decommissioning trusts		166,148			166,768
Nuclear fuel disposal trust		204,088			199,677
Other		2,209			2,149

		372,445			368,594


DEFERRED CHARGES AND OTHER ASSETS:
Goodwill		1,810,936			1,810,936
Regulatory assets		800,898			888,143
Other		29,849			27,096

		2,641,683			2,726,175

	$	6,502,132		$	6,481,457


LIABILITIES AND CAPITALIZATION
CURRENT LIABILITIES:
Currently payable long-term debt	$	31,508		$	30,639
Short-term borrowings-
Associated companies		57,850			—
Accounts payable-
Associated companies		15,158			26,882
Other		202,049			168,093
Accrued taxes		1,786			12,594
Accrued interest		18,189			18,256
Other		82,524			111,156

		409,064			367,620


CAPITALIZATION:
Common stockholders’ equity-
Common stock, $10 par value, authorized 16,000,000 shares, 13,628,447 shares outstanding		136,284			136,284
Other paid-in capital		2,507,003			2,507,049
Accumulated other comprehensive loss		(230,810	)		(243,012	)
Retained earnings		189,194			200,075

Total common stockholders’ equity		2,601,671			2,600,396
Long-term debt and other long-term obligations		1,787,235			1,801,589

		4,388,906			4,401,985


NONCURRENT LIABILITIES:
Accumulated deferred income taxes		705,219			687,545
Nuclear fuel disposal costs		196,623			196,511
Retirement benefits		132,565			150,603
Asset retirement obligations		104,878			101,568
Power purchase contract liability		378,448			399,105
Other		186,429			176,520

		1,704,162			1,711,852

COMMITMENTS, GUARANTEES AND CONTINGENCIES (Note 8)
	$	6,502,132		$	6,481,457

The accompanying Combined Notes to the Consolidated Financial Statements are an integral part of these financial statements.

JERSEY CENTRAL POWER & LIGHT COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)


	Six Months Ended
	June 30
	2010			2009
	*(In thousands)*
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income	$	79,119		$	65,624
Adjustments to reconcile net income to net cash from operating activities-
Provision for depreciation		55,064			50,404
Amortization of regulatory assets, net		150,774			166,849
Deferred purchased power and other costs		(67,664	)		(50,542	)
Deferred income taxes and investment tax credits, net		(1,425	)		3,440
Accrued compensation and retirement benefits		2,608			(2,883	)
Cash collateral paid, net		(23,400	)		(209	)
Decrease (increase) in operating assets-
Receivables		(46,788	)		41,228
Prepayments and other current assets		(112,155	)		(145,740	)
Increase (decrease) in operating liabilities-
Accounts payable		11,924			(19,321	)
Accrued taxes		10,368			(14,007	)
Accrued interest		(67	)		9,373
Tax collections payable		—			(9,714	)
Other		(6,192	)		4,555

Net cash provided from operating activities		52,166			99,057


CASH FLOWS FROM FINANCING ACTIVITIES:
New Financing-
Long-term debt		—			299,619
Short-term borrowings, net		57,850			—
Redemptions and Repayments-
Common stock		—			(150,000	)
Long-term debt		(13,830	)		(13,093	)
Short-term borrowings, net		—			(56,267	)
Common stock dividend payments		(90,000	)		(88,000	)
Other		—			(2,260	)

Net cash used for financing activities		(45,980	)		(10,001	)


CASH FLOWS FROM INVESTING ACTIVITIES:
Property additions		(80,727	)		(78,401	)
Loan repayments from (loans to) associated companies, net		85,049			(1,341	)
Sales of investment securities held in trusts		281,242			244,880
Purchases of investment securities held in trusts		(289,454	)		(252,856	)
Other		(2,224	)		(1,266	)

Net cash used for investing activities		(6,114	)		(88,984	)


Net change in cash and cash equivalents		72			72
Cash and cash equivalents at beginning of period		27			66

Cash and cash equivalents at end of period	$	99		$	138

The accompanying Combined Notes to the Consolidated Financial Statements are an integral part of these financial statements.

METROPOLITAN EDISON COMPANY

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(Unaudited)


	Three Months Ended						Six Months Ended
	June 30						June 30
	2010			2009			2010			2009
				*(In thousands)*
REVENUES:
Electric sales	$	422,030		$	360,022		$	873,590		$	769,708
Gross receipts tax collections		20,629			17,586			42,196			37,569

Total revenues		442,659			377,608			915,786			807,277


EXPENSES:
Purchased power from affiliates		149,000			78,652			310,080			178,729
Purchased power from non-affiliates		85,276			123,299			177,204			247,210
Other operating expenses		90,151			51,309			192,134			157,666
Provision for depreciation		13,440			12,919			26,198			25,058
Amortization of regulatory assets, net		48,589			61,548			97,389			89,139
General taxes		19,894			22,034			41,634			43,969

Total expenses		406,350			349,761			844,639			741,771


OPERATING INCOME		36,309			27,847			71,147			65,506


OTHER INCOME (EXPENSE):
Interest income		880			2,769			2,097			5,955
Miscellaneous income		1,381			1,058			3,554			1,914
Interest expense		(13,002	)		(14,763	)		(26,775	)		(28,122	)
Capitalized interest		159			62			285			77

Total other expense		(10,582	)		(10,874	)		(20,839	)		(20,176	)


INCOME BEFORE INCOME TAXES		25,727			16,973			50,308			45,330

INCOME TAXES		8,618			6,968			20,884			18,703


NET INCOME		17,109			10,005			29,424			26,627


OTHER COMPREHENSIVE INCOME:
Pension and other postretirement benefits		2,162			27,369			11,871			31,922
Unrealized gain on derivative hedges		84			84			168			168

Other comprehensive income		2,246			27,453			12,039			32,090
Income tax expense related to other comprehensive income		724			13,592			4,901			15,385

Other comprehensive income, net of tax		1,522			13,861			7,138			16,705


TOTAL COMPREHENSIVE INCOME	$	18,631		$	23,866		$	36,562		$	43,332

The accompanying Combined Notes to the Consolidated Financial Statements are an integral part of these financial statements.

METROPOLITAN EDISON COMPANY

CONSOLIDATED BALANCE SHEETS
(Unaudited)


	June 30,			December 31,
	2010			2009
	*(In thousands)*
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	126		$	120
Receivables-
Customers (less accumulated provisions of $3,877,000 and $4,044,000, respectively, for uncollectible accounts)		188,771			171,052
Associated companies		45,551			29,413
Other		13,221			11,650
Notes receivable from associated companies		11,207			97,150
Prepaid taxes		46,475			15,229
Other		649			1,459

		306,000			326,073

UTILITY PLANT:
In service		2,196,713			2,162,815
Less — Accumulated provision for depreciation		830,042			810,746

		1,366,671			1,352,069
Construction work in progress		30,214			14,901

		1,396,885			1,366,970

OTHER PROPERTY AND INVESTMENTS:
Nuclear plant decommissioning trusts		263,752			266,479
Other		881			890

		264,633			267,369

DEFERRED CHARGES AND OTHER ASSETS:
Goodwill		416,499			416,499
Regulatory assets		385,392			356,754
Power purchase contract asset		120,436			176,111
Other		42,546			36,544

		964,873			985,908

	$	2,932,391		$	2,946,320


LIABILITIES AND CAPITALIZATION
CURRENT LIABILITIES:
Currently payable long-term debt	$	28,500		$	128,500
Short-term borrowings-
Associated companies		17,898			—
Accounts payable-
Associated companies		51,308			40,521
Other		30,997			41,050
Accrued taxes		20,689			11,170
Accrued interest		16,085			17,362
Other		28,588			24,520

		194,065			263,123

CAPITALIZATION:
Common stockholders’ equity-
Common stock, without par value, authorized 900,000 shares, 859,500 shares outstanding		1,197,014			1,197,070
Accumulated other comprehensive loss		(136,413	)		(143,551	)
Retained earnings		33,824			4,399

Total common stockholders’ equity		1,094,425			1,057,918
Long-term debt and other long-term obligations		713,920			713,873

		1,808,345			1,771,791

NONCURRENT LIABILITIES:
Accumulated deferred income taxes		454,777			453,462
Accumulated deferred investment tax credits		7,090			7,313
Nuclear fuel disposal costs		44,416			44,391
Retirement benefits		29,194			33,605
Asset retirement obligations		186,373			180,297
Power purchase contract liability		158,987			143,135
Other		49,144			49,203

		929,981			911,406

COMMITMENTS AND CONTINGENCIES (Note 8)
	$	2,932,391		$	2,946,320

The accompanying Combined Notes to the Consolidated Financial Statements are an integral part of these financial statements.

METROPOLITAN EDISON COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)


	Six Months Ended
	June 30
	2010			2009
	*(In thousands)*
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income	$	29,424		$	26,627
Adjustments to reconcile net income to net cash from operating activities-
Provision for depreciation		26,198			25,058
Amortization of regulatory assets, net		97,389			89,139
Deferral of regulatory assets		(38,358	)		(47,592	)
Deferred income taxes and investment tax credits, net		(12,079	)		30,135
Accrued compensation and retirement benefits		(1,573	)		3,250
Cash collateral received (paid), net		50			(6,800	)
Decrease (increase) in operating assets-
Receivables		(29,439	)		346
Prepayments and other current assets		(30,436	)		(39,068	)
Increase (decrease) in operating liabilities-
Accounts payable		733			(18,624	)
Accrued taxes		9,519			(1,754	)
Accrued interest		(1,277	)		10,230
Other		6,743			7,870

Net cash provided from operating activities		56,894			78,817


CASH FLOWS FROM FINANCING ACTIVITIES:
New Financing-
Long-term debt		—			300,000
Short-term borrowings, net		17,898			—
Redemptions and Repayments-
Long-term debt		(100,000	)		—
Short-term borrowings, net		—			(15,003	)
Other		—			(2,267	)

Net cash provided from (used for) financing activities		(82,102	)		282,730


CASH FLOWS FROM INVESTING ACTIVITIES:
Property additions		(54,405	)		(48,464	)
Sales of investment securities held in trusts		376,610			63,086
Purchases of investment securities held in trusts		(381,219	)		(67,668	)
Loans from (to) associated companies, net		85,943			(306,448	)
Other		(1,715	)		(2,072	)

Net cash provided from (used for) investing activities		25,214			(361,566	)


Net change in cash and cash equivalents		6			(19	)
Cash and cash equivalents at beginning of period		120			144

Cash and cash equivalents at end of period	$	126		$	125

The accompanying Combined Notes to the Consolidated Financial Statements are an integral part of these financial statements.

PENNSYLVANIA ELECTRIC COMPANY

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(Unaudited)


	Three Months Ended						Six Months Ended
	June 30						June 30
	2010			2009			2010			2009
				*(In thousands)*
REVENUES:
Electric sales	$	350,335		$	316,881		$	736,271		$	688,174
Gross receipts tax collections		16,162			14,804			33,686			32,096

Total revenues		366,497			331,685			769,957			720,270


EXPENSES:
Purchased power from affiliates		152,945			72,166			321,345			168,247
Purchased power from non-affiliates		86,829			125,317			178,252			252,483
Other operating expenses		67,070			46,301			139,464			123,590
Provision for depreciation		16,605			15,581			31,287			30,036
Amortization (deferral) of regulatory assets, net		(10,522	)		18,113			(20,488	)		26,889
General taxes		18,647			18,251			35,181			38,844

Total expenses		331,574			295,729			685,041			640,089


OPERATING INCOME		34,923			35,956			84,916			80,181


OTHER INCOME (EXPENSE):
Miscellaneous income		1,310			911			2,923			1,709
Interest expense		(17,630	)		(11,843	)		(34,920	)		(25,076	)
Capitalized interest		183			29			323			51

Total other expense		(16,137	)		(10,903	)		(31,674	)		(23,316	)


INCOME BEFORE INCOME TAXES		18,786			25,053			53,242			56,865

INCOME TAXES		5,812			10,232			22,969			23,354


NET INCOME		12,974			14,821			30,273			33,511


OTHER COMPREHENSIVE INCOME:
Pension and other postretirement benefits		1,830			29,400			10,377			32,355
Unrealized gain on derivative hedges		16			16			32			32
Change in unrealized gain on available-for-sale securities		—			6			—			(16	)

Other comprehensive income		1,846			29,422			10,409			32,371
Income tax expense related to other comprehensive income		483			15,100			3,767			16,155

Other comprehensive income, net of tax		1,363			14,322			6,642			16,216


TOTAL COMPREHENSIVE INCOME	$	14,337		$	29,143		$	36,915		$	49,727

The accompanying Combined Notes to the Consolidated Financial Statements are an integral part of these financial statements.

PENNSYLVANIA ELECTRIC COMPANY

CONSOLIDATED BALANCE SHEETS
(Unaudited)


	June 30,			December 31,
	2010			2009
	*(In thousands)*
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	10		$	14
Receivables-
Customers (less accumulated provisions of $3,428,000 and $3,483,000, respectively, for uncollectible accounts)		137,450			139,302
Associated companies		88,612			77,338
Other		10,934			18,320
Notes receivable from associated companies		14,092			14,589
Prepaid taxes		56,450			18,946
Other		758			1,400

		308,306			269,909

UTILITY PLANT:
In service		2,481,942			2,431,737
Less — Accumulated provision for depreciation		918,963			901,990

		1,562,979			1,529,747
Construction work in progress		22,319			24,205

		1,585,298			1,553,952

OTHER PROPERTY AND INVESTMENTS:
Nuclear plant decommissioning trusts		140,611			142,603
Non-utility generation trusts		96,988			120,070
Other		283			289

		237,882			262,962

DEFERRED CHARGES AND OTHER ASSETS:
Goodwill		768,628			768,628
Regulatory assets		138,557			9,045
Power purchase contract asset		6,031			15,362
Other		20,245			19,143

		933,461			812,178

	$	3,064,947		$	2,899,001

LIABILITIES AND CAPITALIZATION
CURRENT LIABILITIES:
Currently payable long-term debt	$	69,310		$	69,310
Short-term borrowings-
Associated companies		66,786			41,473
Accounts payable-
Associated companies		48,876			39,884
Other		28,460			41,990
Accrued taxes		5,071			6,409
Accrued interest		17,625			17,598
Other		24,696			22,741

		260,824			239,405

CAPITALIZATION:
Common stockholders’ equity-
Common stock, $20 par value, authorized 5,400,000 shares, 4,427,577 shares outstanding		88,552			88,552
Other paid-in capital		913,460			913,437
Accumulated other comprehensive loss		(155,462	)		(162,104	)
Retained earnings		121,774			91,501

Total common stockholders’ equity		968,324			931,386
Long-term debt and other long-term obligations		1,072,199			1,072,181

		2,040,523			2,003,567

NONCURRENT LIABILITIES:
Accumulated deferred income taxes		296,829			242,040
Retirement benefits		167,288			174,306
Asset retirement obligations		94,933			91,841
Power purchase contract liability		153,603			100,849
Other		50,947			46,993

		763,600			656,029

COMMITMENTS, GUARANTEES AND CONTINGENCIES (Note 8)
	$	3,064,947		$	2,899,001

The accompanying Combined Notes to the Consolidated Financial Statements are an integral part of these financial statements.

PENNSYLVANIA ELECTRIC COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)


	Six Months Ended
	June 30
	2010			2009
	*(In thousands)*
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income	$	30,273		$	33,511
Adjustments to reconcile net income to net cash from operating activities-
Provision for depreciation		31,287			30,036
Amortization (deferral) of regulatory assets, net		(20,488	)		26,889
Deferred costs recoverable as regulatory assets		(38,955	)		(46,349	)
Deferred income taxes and investment tax credits, net		42,943			24,700
Accrued compensation and retirement benefits		4,216			490
Cash collateral		(3,613	)		2
Decrease (increase) in operating assets-
Receivables		3,266			42,494
Prepayments and other current assets		(36,864	)		(35,750	)
Increase (decrease) in operating liabilities-
Accounts payable		(4,603	)		(10,108	)
Accrued taxes		(1,339	)		(7,629	)
Accrued interest		28			(1,669	)
Other		9,559			2,302

Net cash provided from operating activities		15,710			58,919


CASH FLOWS FROM FINANCING ACTIVITIES:
New Financing-
Short-term borrowings, net		25,313			146,654
Redemptions and Repayments-
Long-term debt		—			(100,000	)
Common stock dividend payments		—			(35,000	)
Other		5			—

Net cash provided from financing activities		25,318			11,654


CASH FLOWS FROM INVESTING ACTIVITIES:
Property additions		(58,293	)		(59,606	)
Loans from associated companies, net		498			63
Sales of investment securities held in trusts		133,934			53,504
Purchases of investment securities held in trusts		(113,067	)		(60,378	)
Other		(4,104	)		(4,168	)

Net cash used for investing activities		(41,032	)		(70,585	)


Net change in cash and cash equivalents		(4	)		(12	)
Cash and cash equivalents at beginning of period		14			23

Cash and cash equivalents at end of period	$	10		$	11

The accompanying Combined Notes to the Consolidated Financial Statements are an integral part of these financial statements.

COMBINED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. ORGANIZATION AND BASIS OF PRESENTATION

FirstEnergy is a diversified energy company that holds, directly or indirectly, all of the outstanding common stock of its principal subsidiaries: OE, CEI, TE, Penn (a wholly owned subsidiary of OE), ATSI, JCP&L, Met-Ed, Penelec, FENOC, FES and its subsidiaries FGCO and NGC, and FESC.

FirstEnergy and its subsidiaries follow GAAP and comply with the regulations, orders, policies and practices prescribed by the SEC, the FERC and, as applicable, the PUCO, the PPUC and the NJBPU. The preparation of financial statements in conformity with GAAP requires management to make periodic estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and disclosure of contingent assets and liabilities. Actual results could differ from these estimates. The reported results of operations are not indicative of results of operations for any future period. In preparing the financial statements, FirstEnergy and its subsidiaries have evaluated events and transactions for potential recognition or disclosure through the date the financial statements were issued.

These statements should be read in conjunction with the financial statements and notes included in the combined Annual Report on Form 10-K for the year ended December 31, 2009 for FirstEnergy, FES and the Utilities, as applicable. The consolidated unaudited financial statements of FirstEnergy, FES and each of the Utilities reflect all normal recurring adjustments that, in the opinion of management, are necessary to fairly present results of operations for the interim periods. Certain prior year amounts have been reclassified to conform to the current year presentation. Unless otherwise indicated, defined terms used herein have the meanings set forth in the accompanying Glossary of Terms.

FirstEnergy and its subsidiaries consolidate all majority-owned subsidiaries over which they exercise control and, when applicable, entities for which they have a controlling financial interest. Intercompany transactions and balances are eliminated in consolidation. FirstEnergy consolidates a VIE when it is determined that it is the primary beneficiary (see Note 6). Investments in affiliates over which FirstEnergy and its subsidiaries have the ability to exercise significant influence, but are not the primary beneficiary and do not exercise control, follow the equity method of accounting. Under the equity method, the interest in the entity is reported as an investment in the Consolidated Balance Sheets and the percentage share of the entity’s earnings is reported in the Consolidated Statements of Income.

2. EARNINGS PER SHARE

Basic earnings per share of common stock is computed using the weighted average of actual common shares outstanding during the respective period as the denominator. The denominator for diluted earnings per share of common stock reflects the weighted average of common shares outstanding plus the potential additional common shares that could result if dilutive securities and other agreements to issue common stock were exercised. The following table reconciles basic and diluted earnings per share of common stock:


	Three Months				Six Months
Reconciliation of Basic and Diluted Earnings per Share	Ended June 30				Ended June 30
of Common Stock	2010		2009		2010		2009
	*(In millions, except per share amounts)*

Earnings available to FirstEnergy Corp.	$	265	$	414	$	420	$	533


Weighted average number of basic shares outstanding		304		304		304		304
Assumed exercise of dilutive stock options and awards		1		1		1		2

Weighted average number of diluted shares outstanding		305		305		305		306


Basic earnings per share of common stock	$	0.87	$	1.36	$	1.38	$	1.75

Diluted earnings per share of common stock	$	0.87	$	1.36	$	1.37	$	1.75

3. FAIR VALUE OF FINANCIAL INSTRUMENTS

(A) LONG-TERM DEBT AND OTHER LONG-TERM OBLIGATIONS

All borrowings with initial maturities of less than one year are defined as short-term financial instruments under GAAP and are reported on the Consolidated Balance Sheets at cost, which approximates their fair market value, in the caption “short-term borrowings.” The following table provides the approximate fair value and related carrying amounts of long-term debt and other long-term obligations as of June 30, 2010 and December 31, 2009:


	June 30, 2010				December 31, 2009
	Carrying		Fair		Carrying		Fair
	Value		Value		Value		Value
			*(In millions)*
FirstEnergy	$	13,346	$	14,992	$	13,753	$	14,502
FES		3,932		4,386		4,224		4,306
OE		1,166		1,378		1,169		1,299
CEI		1,853		2,110		1,873		2,032
TE		600		682		600		638
JCP&L		1,826		2,013		1,840		1,950
Met-Ed		742		840		842		909
Penelec		1,144		1,233		1,144		1,177

The fair values of long-term debt and other long-term obligations reflect the present value of the cash outflows relating to those securities based on the current call price, the yield to maturity or the yield to call, as deemed appropriate at the end of each respective period. The yields assumed were based on securities with similar characteristics offered by corporations with credit ratings similar to those of FES and the Utilities.

(B) INVESTMENTS

All temporary cash investments purchased with an initial maturity of three months or less are reported as cash equivalents on the Consolidated Balance Sheets at cost, which approximates their fair market value. Investments other than cash and cash equivalents include held-to-maturity securities, available-for-sale securities, and notes receivable.

Available-For-Sale Securities

The following table summarizes the amortized cost basis, unrealized gains and losses and fair values of investments held in nuclear decommissioning trusts, nuclear fuel disposal trusts and NUG trusts as of June 30, 2010 and December 31, 2009:


	June 30, 2010⁽¹⁾								December 31, 2009⁽²⁾
	Cost		Unrealized		Unrealized		Fair		Cost		Unrealized		Unrealized		Fair
	Basis		Gains		Losses		Value		Basis		Gains		Losses		Value
	*(In millions)*
Debt securities
FirstEnergy	$	1,404	$	40	$	—	$	1,444	$	1,727	$	22	$	—	$	1,749
FES		702		18		—		720		1,043		3		—		1,046
OE		119		1		—		120		55		—		—		55
TE		14		—		—		14		72		—		—		72
JCP&L		278		11		—		289		271		9		—		280
Met-Ed		130		5		—		135		120		5		—		125
Penelec		161		5		—		166		166		5		—		171

Equity securities
FirstEnergy	$	250	$	24	$	—	$	274	$	252	$	43	$	—	$	295
JCP&L		74		4		—		78		74		11		—		85
Met-Ed		117		14		—		131		117		23		—		140
Penelec		59		6		—		65		61		9		—		70


⁽¹⁾		Excludes cash balances: FirstEnergy — $463 million; FES — $388 million; OE — $6 million; TE — $61 million; JCP&L — $3 million; Met-Ed — $(2) million and Penelec - $7 million.

⁽²⁾		Excludes cash balances: FirstEnergy — $137 million; FES — $43 million; OE - $66 million; TE — $2 million; JCP&L — $3 million and Penelec — $23 million.

Proceeds from the sale of investments in available-for-sale securities, realized gains and losses on those sales, and interest and dividend income for the six-month period ended June 30, 2010 and 2009 were as follows:


June 30, 2010		FirstEnergy		FES		OE		TE		JCP&L		Met-Ed		Penelec
					*(In millions)*
Proceeds from sales	$	1,916	$	957	$	60	$	107	$	281	$	377	$	134
Realized gains		83		54		2		3		9		9		6
Realized losses		86		58		—		—		9		12		7
Interest and dividend income		37		22		1		1		7		3		3


June 30, 2009		FirstEnergy		FES		OE		TE		JCP&L		Met-Ed		Penelec
					*(In millions)*
Proceeds from sales	$	1,001	$	537	$	25	$	77	$	245	$	63	$	54
Realized gains		30		24		-		3		3		1		-
Realized losses		91		58		3		-		11		12		7
Interest and dividend income		30		14		2		1		7		3		3

Held-To-Maturity Securities

The following table provides the amortized cost basis, unrealized gains and losses, and approximate fair values of investments in held-to-maturity securities as of June 30, 2010 and December 31, 2009 (excluding emission allowances, employee benefits, cost method investments and equity method investments of $251 million and $264 million, respectively, that are not required to be disclosed):


	June 30, 2010								December 31, 2009
	Cost		Unrealized		Unrealized		Fair		Cost		Unrealized		Unrealized		Fair
	Basis		Gains		Losses		Value		Basis		Gains		Losses		Value
	*(In millions)*
Debt Securities
FirstEnergy	$	487	$	93	$	—	$	580	$	544	$	72	$	—	$	616
OE		205		55		—		260		217		29		—		246
CEI		340		38		—		378		389		43		—		432

Notes Receivable

The following table provides the approximate fair value and related carrying amounts of notes receivable as of June 30, 2010 and December 31, 2009:


	June 30, 2010				December 31, 2009
	Carrying		Fair		Carrying		Fair
	Value		Value		Value		Value
	*(In millions)*
Notes Receivable
FirstEnergy	$	36	$	34	$	36	$	35
FES		—		—		2		1
TE		104		117		124		141

The fair value of notes receivable represents the present value of the cash inflows based on the yield to maturity. The yields assumed were based on financial instruments with similar characteristics and terms.

(C) RECURRING FAIR VALUE MEASUREMENTS

Fair value is the price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between willing market participants on the measurement date. A fair value hierarchy has been established that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted market prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy are as follows:

Level 1 — Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. Active markets are those where transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis. FirstEnergy’s Level 1 assets and liabilities primarily consist of exchange-traded derivatives and equity securities listed on active exchanges that are held in various trusts.

Level 2 — Pricing inputs are either directly or indirectly observable in the market as of the reporting date, other than quoted prices in active markets included in Level 1. FirstEnergy’s Level 2 assets and liabilities consist primarily of investments in debt securities held in various trusts and commodity forwards. Additionally, Level 2 includes those financial instruments that are valued using models or other valuation methodologies based on assumptions that are observable in the marketplace throughout the full term of the instrument and can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace. These models are primarily industry-standard models that consider various assumptions, including quoted forward prices for commodities, time value, volatility factors, and current market and contractual prices for the underlying instruments, as well as other relevant economic measures. Instruments in this category include non-exchange-traded derivatives such as forwards and certain interest rate swaps.

Level 3 — Pricing inputs include inputs that are generally less observable from objective sources. These inputs may be used with internally developed methodologies that result in management’s best estimate of fair value. FirstEnergy develops its view of the future market price of key commodities through a combination of market observation and assessment (generally for the short term) and fundamental modeling (generally for the long term). Key fundamental electricity model inputs are generally directly observable in the market or derived from publicly available historic and forecast data. Some key inputs reflect forecasts published by industry leading consultants who generally employ similar fundamental modeling approaches. Fundamental model inputs and results, as well as the selection of consultants, reflect the consensus of appropriate FirstEnergy management. Level 3 instruments include those that may be more structured or otherwise tailored to customers’ needs. FirstEnergy’s Level 3 instruments consist exclusively of NUG contracts.

FirstEnergy utilizes market data and assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated, or generally unobservable. FirstEnergy primarily applies the market approach for recurring fair value measurements using the best information available. Accordingly, FirstEnergy maximizes the use of observable inputs and minimizes the use of unobservable inputs.

The following tables set forth financial assets and financial liabilities that are accounted for at fair value by level within the fair value hierarchy as of June 30, 2010 and December 31, 2009. Assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. FirstEnergy’s assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the fair valuation of assets and liabilities and their placement within the fair value hierarchy levels.


	Recurring Fair Value Measures as of June 30, 2010
					Level 1
	FirstEnergy		FES		OE		TE		JCP&L		Met-Ed		Penelec
	*(In millions)*
Assets
Nuclear Decommissioning Trust Investments
Equity securities — consumer products	$	122	$	—	$	—	$	—	$	35	$	58	$	29
Equity securities — technology		51		—		—		—		15		24		12
Equity securities — utilities & energy		52		—		—		—		15		25		12
Equity securities — financial		42		—		—		—		12		20		10
Equity securities — other		8		—		—		—		2		4		2

Total Assets⁽¹⁾	$	275	$	—	$	—	$	—	$	79	$	131	$	65


Liabilities
Derivatives — commodity contracts	$	5	$	5	$	—	$	—	$	—	$	—	$	—

Total Liabilities	$	5	$	5	$	—	$	—	$	—	$	—	$	—


	Level 2
	FirstEnergy		FES		OE		TE		JCP&L		Met-Ed		Penelec
	*(In millions)*
Assets
Nuclear Decommissioning Trust Investments
U.S. government debt securities	$	538	$	265	$	121	$	14	$	36	$	92	$	10
U.S. state debt securities		94		—		—		—		31		2		61
Foreign government debt securities		297		297		—		—		—		—		—
Corporate debt securities		225		158		—		—		20		42		5
Other		458		388		5		62		1		1		1

Total nuclear decommissioning trust investments	$	1,612	$	1,108	$	126	$	76	$	88	$	137	$	77


Rabbi Trust Investments
Equity securities — financial	$	1	$	—	$	—	$	—	$	—	$	—	$	—
Other		12		—		1		—		—		—		—

Total rabbi trust investments	$	13	$	—	$	1	$	—	$	—	$	—	$	—


Nuclear Fuel Disposal Trust Investments
U.S. state debt securities	$	196	$	—	$	—	$	—	$	196	$	—	$	—
Other		8		—		—		—		8		—		—

Total nuclear fuel disposal trust investments	$	204	$	—	$	—	$	—	$	204	$	—	$	—


NUG Trust Investments
U.S. state debt securities	$	97	$	—	$	—	$	—	$	—	$	—	$	97

Total NUG trust investments	$	97	$	—	$	—	$	—	$	—	$	—	$	97


Derivatives
Commodity contracts	$	111	$	102	$	—	$	—	$	2	$	5	$	2
Interest rate contracts		62		—		—		—		—		—		—

Total derivatives contracts	$	173	$	102	$	—	$	—	$	2	$	5	$	2

Total Assets⁽¹⁾	$	2,099	$	1,210	$	127	$	76	$	294	$	142	$	176


Liabilities
Derivatives
Commodity contracts	$	273	$	273	$	—	$	—	$	—	$	—	$	—

Total Liabilities	$	273	$	273	$	—	$	—	$	—	$	—	$	—


	Level 3
	FirstEnergy		FES		OE		TE		JCP&L		Met-Ed		Penelec
	*(In millions)*
Assets
Derivatives — NUG contracts⁽²⁾	$	134	$	—	$	—	$	—	$	7	$	121	$	6


Liabilities
Derivatives — NUG contracts⁽²⁾	$	691	$	—	$	—	$	—	$	378	$	159	$	154


⁽¹⁾		Excludes $(7) million of receivables, payables and accrued income.

⁽²⁾		NUG contracts are subject to regulatory accounting and do not impact earnings.


	Recurring Fair Value Measures as of December 31, 2009
	Level 1
	FirstEnergy		FES		OE		TE		JCP&L		Met-Ed		Penelec
	*(In millions)*
Assets
Nuclear Decommissioning Trust Investments
Equity securities — consumer products	$	130	$	—	$	—	$	—	$	38	$	59	$	33
Equity securities — technology		57		—		—		—		17		26		14
Equity securities — utilities & energy		59		—		—		—		17		27		15
Equity securities — financial		39		—		—		—		12		17		10
Equity securities — other		9		—		—		—		3		4		2

Total Assets⁽¹⁾	$	294	$	—	$	—	$	—	$	87	$	133	$	74


Liabilities
Derivatives — commodity contracts	$	11	$	11	$	—	$	—	$	—	$	—	$	—

Total Liabilities	$	11	$	11	$	—	$	—	$	—	$	—	$	—


	Level 2
	FirstEnergy		FES		OE		TE		JCP&L		Met-Ed		Penelec
	*(In millions)*
Assets
Nuclear Decommissioning Trust Investments
U.S. government debt securities	$	558	$	306	$	118	$	72	$	23	$	30	$	9
U.S. state debt securities		188		15		—		—		41		82		50
Foreign government debt securities		279		279		—		—		—		—		—
Corporate debt securities		484		443		—		—		15		20		6
Other		35		29		2		—		1		2		1

Total nuclear decommissioning trust investments	$	1,544	$	1,072	$	120	$	72	$	80	$	134	$	66


Rabbi Trust Investments
Equity securities — financial	$	1	$	—	$	—	$	—	$	—	$	—	$	—
Other		9		—		—		—		—		—		—

Total rabbi trust investments	$	10	$	—	$	—	$	—	$	—	$	—	$	—


Nuclear Fuel Disposal Trust Investments
U.S. state debt securities	$	189	$	—	$	—	$	—	$	189	$	—	$	—
Other		11		—		—		—		11		—		—

Total nuclear fuel disposal trust investments	$	200	$	—	$	—	$	—	$	200	$	—	$	—


NUG Trust Investments
U.S. state debt securities	$	101	$	—	$	—	$	—	$	—	$	—	$	101
Other		19		—		—		—		—		—		19

Total NUG trust investments	$	120	$	—	$	—	$	—	$	—	$	—	$	120


Derivatives — Commodity Contracts	$	34	$	15	$	—	$	—	$	5	$	9	$	5

Other	$	1	$	—	$	—	$	—	$	—	$	—	$	—

Total Assets⁽¹⁾	$	1,909	$	1,087	$	120	$	72	$	285	$	143	$	191


Liabilities
Derivatives — commodity contracts	$	224	$	224	$	—	$	—	$	—	$	—	$	—

Total Liabilities	$	224	$	224	$	—	$	—	$	—	$	—	$	—


	Level 3
	FirstEnergy		FES		OE		TE		JCP&L		Met-Ed		Penelec
	*(In millions)*
Assets
Derivatives — NUG contracts⁽²⁾	$	200	$	—	$	—	$	—	$	9	$	176	$	15


Liabilities
Derivatives — NUG contracts⁽²⁾	$	643	$	—	$	—	$	—	$	399	$	143	$	101


⁽¹⁾		Excludes $21 million of receivables, payables and accrued income.

⁽²⁾		NUG contracts are subject to regulatory accounting and do not impact earnings.

The determination of the above fair value measures takes into consideration various factors. These factors include nonperformance risk, including counterparty credit risk and the impact of credit enhancements (such as cash deposits, LOCs and priority interests). The impact of nonperformance risk was immaterial in the fair value measurements.

The following tables set forth a reconciliation of changes in the fair value of NUG contracts classified as Level 3 in the fair value hierarchy for the three and six months ended June 30, 2010 and 2009 (in millions):


	FirstEnergy			JCP&L			Met-Ed			Penelec
Balance as of January 1, 2010	$	(444	)	$	(391	)	$	33		$	(86	)
Settlements⁽¹⁾		146			70			36			40
Unrealized losses⁽¹⁾		(259	)		(50	)		(107	)		(102	)

Balance as of June 30, 2010	$	(557	)	$	(371	)	$	(38	)	$	(148	)


Balance as of April 1, 2010	$	(590	)	$	(394	)	$	(30	)	$	(166	)
Settlements⁽¹⁾		68			30			19			19
Unrealized losses⁽¹⁾		(35	)		(7	)		(27	)		(1	)

Balance as of June 30, 2010	$	(557	)	$	(371	)	$	(38	)	$	(148	)


	FirstEnergy			JCP&L			Met-Ed			Penelec
Balance as of January 1, 2009	$	(332	)	$	(518	)	$	150		$	36
Settlements⁽¹⁾		179			90			43			47
Unrealized losses⁽¹⁾		(383	)		(38	)		(170	)		(176	)

Balance as of June 30, 2009	$	(536	)	$	(466	)	$	23		$	(93	)


Balance as of April 1, 2009	$	(476	)	$	(518	)	$	76		$	(34	)
Settlements⁽¹⁾		96			44			26			27
Unrealized gains (losses)⁽¹⁾		(156	)		8			(79	)		(86	)

Balance as of June 30, 2009	$	(536	)	$	(466	)	$	23		$	(93	)


⁽¹⁾		Changes in fair value of NUG contracts are subject to regulatory accounting and do not impact earnings.

4. DERIVATIVE INSTRUMENTS

FirstEnergy is exposed to financial risks resulting from fluctuating interest rates and commodity prices, including prices for electricity, natural gas, coal and energy transmission. To manage the volatility relating to these exposures, FirstEnergy uses a variety of derivative instruments, including forward contracts, options, futures contracts and swaps. The derivatives are used for risk management purposes. In addition to derivatives, FirstEnergy also enters into master netting agreements with certain third parties. FirstEnergy’s Risk Policy Committee, comprised of members of senior management, provides general management oversight for risk management activities throughout FirstEnergy. The Committee is responsible for promoting the effective design and implementation of sound risk management programs and oversees compliance with corporate risk management policies and established risk management practices.

FirstEnergy accounts for derivative instruments on its Consolidated Balance Sheets at fair value unless they meet the normal purchases and normal sales criteria. Derivatives that meet those criteria are accounted for at cost under the accrual method of accounting. The changes in the fair value of derivative instruments that do not meet the normal purchases and normal sales criteria are included in purchased power, other expense, unrealized gain (loss) on derivative hedges in other comprehensive income (loss), or as part of the value of the hedged item. Based on derivative contracts held as of June 30, 2010, an adverse 10% change in commodity prices would decrease net income by approximately $9 million ($6 million net of tax) during the next twelve months. A hypothetical 10% increase in the interest rates associated with variable-rate debt would decrease net income by less than $1 million for the three and six months ended June 30, 2010.

Cash Flow Hedges

FirstEnergy has used forward starting swap agreements to hedge a portion of the consolidated interest rate risk associated with anticipated issuances of fixed-rate, long-term debt securities of its subsidiaries. These derivatives were treated as cash flow hedges, protecting against the risk of changes in future interest payments resulting from changes in benchmark U.S. Treasury rates between the date of hedge inception and the date of the debt issuance. As of June 30, 2010, no forward starting swap agreements were outstanding.

Total unamortized losses included in AOCL associated with prior interest rate cash flow hedges totaled $109 million ($71 million net of tax) as of June 30, 2010. Based on current estimates, approximately $11 million will be amortized to interest expense during the next twelve months. The table below provides the activity of AOCL related to interest rate cash flow hedges as of June 30, 2010 and 2009.


	Three Months Ended						Six Months Ended
	June 30						June 30
	2010			2009			2010			2009
	*(In millions)*						*(In millions)*
Effective Portion
Gain Recognized in AOCL	$	—		$	2		$	—		$	—
Reclassification from AOCL into Interest Expense		(3	)		(6	)		(6	)		(11	)

Fair Value Hedges

FirstEnergy uses fixed-for-floating interest rate swap agreements to hedge a portion of the consolidated interest rate risk associated with the debt portfolio of its subsidiaries. These derivatives are treated as fair value hedges of fixed-rate, long-term debt issues, protecting against the risk of changes in the fair value of fixed-rate debt instruments due to lower interest rates. In May of 2010, FirstEnergy terminated fixed-for-floating interest rate swap agreements with a notional value of $3.15 billion, which resulted in cash proceeds of $43.1 million. These proceeds will generally be amortized to earnings over the life of the underlying debt.

Effective June 1, 2010, FirstEnergy executed multiple fixed-for-floating interest rate swap agreements with a combined notional value of $3.2 billion, which essentially replaced the swap agreements terminated in May of 2010. As of June 30, 2010, the debt underlying the $3.2 billion outstanding notional amount of interest rate swaps had a weighted average fixed interest rate of 6%, which the swaps have converted to a current weighted average variable rate of 4%.

On July 16, 2010, FirstEnergy terminated these fixed-for-floating interest rate swap agreements with a notional value of $3.2 billion, which resulted in cash proceeds of $83.6 million. These proceeds will be amortized to earnings over the life of the underlying debt. While FirstEnergy currently does not have any interest rate swaps outstanding, costs associated with entering into future swap transactions may be increased as a result of the recent passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which requires increased regulation of swaps, swap dealers and major swap participants.

The following tables summarize the fair value of interest rate swaps in FirstEnergy’s Consolidated Balance Sheets:


Derivative Assets					Derivative Liabilities
	Fair Value					Fair Value
	June 30,		December 31,			June 30,		December 31,
	2010		2009			2010		2009
	*(In millions)*					*(In millions)*
Fair Value Hedges					Fair Value Hedges
Interest Rate Swaps	$	62	$	—	Interest Rate Swaps	$	—	$	—

Noncurrent Assets	$	62	$	—	Noncurrent Liabilities	$	—	$	—

Commodity Derivatives

FirstEnergy uses both physically and financially settled derivatives to manage its exposure to volatility in commodity prices. Commodity derivatives are used for risk management purposes to hedge exposures when it makes economic sense to do so, including circumstances where the hedging relationship does not qualify for hedge accounting.

The following tables summarize the fair value of commodity derivatives in FirstEnergy’s Consolidated Balance Sheets:


Derivative Assets					Derivative Liabilities
	Fair Value					Fair Value
	June 30,		December 31,			June 30,		December 31,
	2010		2009			2010		2009
	*(In millions)*					*(In millions)*
Cash Flow Hedges					Cash Flow Hedges
Electricity Forwards					Electricity Forwards
Current Assets	$	40	$	3	Current Liabilities	$	50	$	7
NonCurrent Assets		57		11	NonCurrent Liabilities		54		12
Natural Gas Futures					Natural Gas Futures
Current Assets		—		—	Current Liabilities		4		9
NonCurrent Assets		—		—	NonCurrent Liabilities		—		—
Other					Other
Current Assets		—		—	Current Liabilities		1		2
NonCurrent Assets		—		—	NonCurrent Liabilities		—		—

	$	97	$	14		$	109	$	30

Derivative Assets

Derivative Liabilities

Fair Value

June 30,

December 31,

June 30,

December 31,

2010

2009

2010

2009

(In millions)

Economic Hedges

NUG Contracts

Power Purchase

Contract Asset

134

200

Contract Liability

691

643

Other

Current Assets

—

Current Liabilities

114

106

NonCurrent Assets

NonCurrent Liabilities