Cleveland Electric Illuminating Co, et al. – ‘424B4’ on 12/14/01

On:  Friday, 12/14/01   ·   Accession #:  950152-1-506418   ·   File #s:  333-64776, -01

in

this entire Filing. an “Entity” Search.

Show

Documents searched

and

each “hit”. the 1st “hit”.

↓↑Hints

Prospectus   —   Rule 424(b)(4)
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 424B4       Cleveland Electric Illum./Cei Fin. Trust--424B4      105    473K 

Document Table of Contents

424B4
1st Page of 105
TOC
↑Top
Previous
Next
↓Bottom
Just 1st
 
                                              Filed Pursuant To Rule 424 (b) (4)
                                                     Registration Nos. 333-64776
                                                                    333-64776-01

PROSPECTUS                                                                      

4,000,000 Trust Preferred Securities

Cleveland Electric Financing Trust I

9% CUMULATIVE TRUST PREFERRED SECURITIES

(LIQUIDATION AMOUNT $25 PER PREFERRED SECURITY) 

FULLY AND UNCONDITIONALLY GUARANTEED BY 

The Cleveland Electric Illuminating Company 

------------------------                  
CLEVELAND ELECTRIC FINANCING TRUST I IS OFFERING PREFERRED SECURITIES WHICH WE  
WILL GUARANTEE TO THE EXTENT DESCRIBED IN THIS PROSPECTUS. FOR A MORE DETAILED  
DESCRIPTION OF THE PREFERRED SECURITIES, PLEASE REFER TO "DESCRIPTION OF THE    
PREFERRED SECURITIES" BEGINNING ON PAGE 19.                                     
------------------------

WE HAVE BEEN APPROVED, SUBJECT TO NOTICE OF ISSUANCE, TO LIST THE PREFERRED     
SECURITIES ON THE NEW YORK STOCK EXCHANGE UNDER THE TRADING SYMBOL "CVE PRU." WE
EXPECT THAT THE PREFERRED SECURITIES WILL BEGIN TRADING ON THE NEW YORK STOCK   
EXCHANGE WITHIN 30 DAYS AFTER THEY ARE FIRST ISSUED.                            
------------------------

INVESTING IN THE PREFERRED SECURITIES INVOLVES RISKS. PLEASE REFER TO "RISK     
FACTORS" BEGINNING ON PAGE 9.                                                   
------------------------

PRICE $25 PER PREFERRED SECURITY
------------------------

                                                                [Download Table]

                                                       Underwriting                
                                          Price to     Discounts and   Proceeds to 
                                           Public       Commissions     the Trust  
                                        -------------  -------------  -------------
                                                                                   
Per Preferred Security.................    $25.00        See below       $25.00    
Total.................................. $100,000,000     See below    $100,000,000 

The Securities and Exchange Commission and state securities regulators have not 
approved or disapproved these securities, or determined if this prospectus is   
truthful or complete. Any representation to the contrary is a criminal offense. 

The Trust will not pay any underwriting commissions.  We will pay underwriting  
commissions of $0.7875 per preferred security ($3,150,000 for all preferred     
securities). Any accumulated distributions from December 19, 2001 should be     
added to the price to public.                                                   

The underwriters expect to deliver the preferred securities to purchasers on or 
about December 19, 2001.                                                        
------------------------

MORGAN STANLEY                                                                  

SALOMON SMITH BARNEY                                  

WACHOVIA SECURITIES       

                             U.S. BANCORP PIPER JAFFRAY INC.

December 12, 2001                                                               

424B4
2nd Page of 105
TOC
1st
Previous
Next
↓Bottom
Just 2nd
 TABLE OF CONTENTS

                                                                            Page
                                                                            ----

ABOUT THIS PROSPECTUS.........................................................1 
WHERE YOU CAN FIND MORE INFORMATION...........................................1 
PROSPECTUS SUMMARY............................................................3 
SUMMARY CONSOLIDATED FINANCIAL INFORMATION....................................8 
RISK FACTORS..................................................................9 
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS.........................15 
CAPITALIZATION...............................................................16 
ACCOUNTING TREATMENT.........................................................16 
THE CLEVELAND ELECTRIC ILLUMINATING COMPANY..................................17 
RECENT DEVELOPMENTS..........................................................18 
CLEVELAND ELECTRIC FINANCING TRUST I.........................................18 
USE OF PROCEEDS..............................................................19 
DESCRIPTION OF THE PREFERRED SECURITIES......................................19 
DESCRIPTION OF THE GUARANTEE.................................................33 
DESCRIPTION OF THE SUBORDINATED DEBENTURES...................................36 
RELATIONSHIP AMONG THE PREFERRED SECURITIES, THE SUBORDINATED                   
DEBENTURES AND THE GUARANTEE................................................45
BOOK-ENTRY SECURITIES........................................................47 
UNITED STATES TAXATION.......................................................48 
UNDERWRITERS.................................................................52 
LEGAL OPINIONS...............................................................55 
EXPERTS......................................................................56 

Annex A - 2000 Annual Report to Stockholders of The                             
             Cleveland Electric Illuminating Company ......................A-1

Annex B - Form 10-Q for the Quarter ended September 30, 2001 of The             
             Cleveland Electric Illuminating Company ......................B-1

i 

424B4
3rd Page of 105
TOC
1st
Previous
Next
↓Bottom
Just 3rd
 ABOUT THIS PROSPECTUS

     This prospectus is part of a registration statement that we and the
Trust filed with the Securities and Exchange Commission. You should rely only on
the information incorporated by reference or provided in this prospectus. We    
have not authorized anyone else to provide you with different information. We   
are not making an offer of these securities in any state where the offer is not 
permitted. You should not assume that the information in this prospectus and the
documents we incorporate by reference is accurate as of any date other than the 
date of this prospectus or those documents, respectively.                       

 WHERE YOU CAN FIND MORE INFORMATION

        We are required by the Securities Exchange Act of 1934 to file annual,
quarterly and special reports and other information with the Commission. These  
reports and other information can be inspected and copied at the Commission's   
public reference room at Room 1024, 450 Fifth Street, N.W., Washington, D.C.    
20549. You may obtain information on the operation of the public reference room 
by calling the SEC at 1-800-SEC-0330. You may also read and copy these filings  
by visiting the Commission's Website at http://www.sec.gov. In addition, so long
as any preferred securities are outstanding, we will furnish to the holders of  
the preferred securities the annual and quarterly financial reports that we are 
required to file with the Commission, or similar reports if we are not at the   
time required to file these reports with the Commission.                        

We and the Trust have filed with the Commission a registration
statement on Form S-2 under the Securities Act of 1933 with respect to the      
securities offered by this prospectus. This prospectus does not contain all of  
the information included in the registration statement. For further information,
you should refer to the registration statement.                                 

         The Commission allows us to incorporate by reference the information we
file with them, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is  
considered to be part of this prospectus. The information included in this      
prospectus is not complete, and should be read together with the information    
incorporated by reference. We incorporate by reference in this prospectus our   
Annual Report on Form 10-K/A for the year ended December 31, 2000 and our       
Quarterly Reports on Form 10-Q for the quarters ended March 31, June 30, and    
September 30, 2001, and our Current Report on Form 8-K filed on November 30,    
2001.                                                                           

        WE ARE ALSO DELIVERING WITHOUT CHARGE A COPY OF OUR 2000 ANNUAL REPORT
TO STOCKHOLDERS AND OUR QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED     
SEPTEMBER 30, 2001 TOGETHER WITH THIS PROSPECTUS ON OUR ANNEXES A AND B,        
RESPECTIVELY. You may also request additional copies of that report or copies of
our Commission filings at no cost by writing or telephoning us at the following 
address:                                                                        

424B4
4th Page of 105
TOC
1st
Previous
Next
↓Bottom
Just 4th
 The Cleveland Electric Illuminating Company
76 South Main Street
 Akron, Ohio 44308
Attention: Corporate Secretary
 Telephone: (330) 384-5504

    We will not prepare separate financial statements of the Trust and
therefore none will be included in this prospectus. We do not consider that     
these financial statements will be material to the holders of the preferred     
securities because the Trust is a special purpose entity owned by us with no    
operating history or independent operations and has not engaged in and does not 
propose to engage in any activity other than:                                   

   -        holding as trust assets our subordinated debentures, and

-        issuing its common and preferred securities.         

2 

424B4
5th Page of 105
TOC
1st
Previous
Next
↓Bottom
Just 5th
PROSPECTUS SUMMARY

You should read the following summary together with the other 
information contained in this prospectus. References in this document to "we,"  
"us," "our," "Cleveland Electric" or the "Company" are references to The        
Cleveland Electric Illuminating Company.                                        

 THE CLEVELAND ELECTRIC ILLUMINATING COMPANY

We are a wholly owned electric utility operating subsidiary of
FirstEnergy Corp. We engage in the generation, distribution and sale of electric
energy in northeastern Ohio. We also engage in the sale, purchase and           
interchange of electric energy with other electric companies.                   

         Our service area has a population of 1.9 million. FirstEnergy also owns
seven other electric utility operating companies, namely, Ohio Edison Company,  
Pennsylvania Power Company, The Toledo Edison Company, Jersey Central Power &   
Light Company, Metropolitan Edison Company, Pennsylvania Electric Company and   
American Transmission Systems, Inc. (ATSI).                                     

       Pursuant to FirstEnergy's corporate separation plan implemented under
Ohio utility restructuring legislation, FirstEnergy transferred operational     
control of our non-nuclear generation assets to FirstEnergy Generation          
Corporation as of January 1, 2001. We expect that the transfer of ownership of  
those assets to FirstEnergy Generation will be completed by December 31, 2005,  
the end of the legislation's market development period. On November 29, 2001,   
FirstEnergy announced the sale of four coal-fired power plants, in which we hold
ownership interests, to NRG Energy, Inc. See "Recent Developments."             

      Our principal office is located at 76 South Main Street, Akron, Ohio
44308-1890. Our telephone number is (330) 384-5100.                             

CLEVELAND ELECTRIC FINANCING TRUST I

   Cleveland Electric Financing Trust I is a Delaware business trust
created for the exclusive purposes of:                                          

 -        issuing the preferred securities and common securities
                representing undivided beneficial interests in the assets of
the Trust,                                  

      -        investing the gross proceeds from the sale of the preferred
        securities and common securities in our subordinated
debentures, and                             

        -        engaging in only those other activities necessary, convenient
or incidental to these purposes.            

 We will own all of the common securities of the Trust having an
aggregate liquidation amount equal to at least 3% of the Trust's capital. The   
Trust has a term of approximately 55                                            

3 

424B4
6th Page of 105
TOC
1st
Previous
Next
↓Bottom
Just 6th
years, but may be dissolved earlier. We will conduct all business and affairs of
the Trust. As described above, the Trust will not engage in any business or     
activities other than as necessary, convenient or incidental to the issuance and
sale of the preferred securities and common securities and investment of the    
proceeds from the sale in the subordinated debentures. In this prospectus, we   
refer to the preferred securities and common securities collectively as the     
"trust securities." The principal place of business of the Trust is c/o The     
Cleveland Electric Illuminating Company, 76 South Main Street, Akron, Ohio      
44308, telephone number (800) 736-3402.                                         

              THE OFFERING

The issuer                                Cleveland Electric Financing Trust I, 
                                        a Delaware statutory business trust.

The securities offered                    4,000,000 preferred securities having 
                                   a liquidation amount of $25 per
                                     preferred security. The preferred
                                  securities represent preferred
                                         undivided beneficial interests in the
                                   assets of the Trust, which will
                                  consist solely of subordinated
                                          debentures. We will guarantee payments
                                      on the preferred securities to the
                                 extent of funds in the Trust.

The offering price                        $25 per preferred security.           

The payment of distributions              The Trust will pay distributions to   
                                        you on each preferred security at an
                                    annual rate of 9% or $0.5625 per
                                 quarter ($2.25 per year). The
                                          distributions will be cumulative, will
                                          accumulate from December 19, 2001, and
                                       will be payable in arrears on March
                                          15, June 15, September 15 and December
                                         15 of each year, commencing March 15,
         2002.

Subordinated debentures                   The Trust will invest the proceeds    
                                      from the issuance of the preferred
                                        securities and the common securities
                                     in an equivalent amount of our 9%
                            subordinated debentures.

Maturity                                  The subordinated debentures are       
                                       scheduled to mature on December 15,
                                      2031 unless we extend the maturity
                                    date. Certain conditions must be
                                      satisfied before we can extend the
                                        maturity date. The Trust must redeem
                                     the preferred securities when the
                                       subordinated debentures are paid on
                                      the maturity date or following any
                                          earlier redemption of the subordinated
               debentures.

4 

424B4
7th Page of 105
TOC
1st
Previous
Next
↓Bottom
Just 7th
We have the option to extend              At any time when we are not in default
the interest payment period               under the subordinated debentures, we 
                                          may extend the interest payment period
                                         on the subordinated debentures for up
                                       to 20 consecutive quarters, but not
                                          beyond their stated maturity date. The
                               Trust would defer quarterly
                                  distributions on the preferred
                                          securities during the extension period
                                   on the subordinated debentures.
                                         Deferred quarterly distributions will
                                          accumulate additional distributions at
                                   an annual rate of 9% compounded
              quarterly.

                                      During any extension period on the
                                       subordinated debentures, we may not
                                         declare or pay any cash distributions
                                on our capital stock or debt
                                          securities that are ranked equal to or
                               lower than the subordinated
                                        debentures. Once an extension period
                                      has ended and all amounts then due
                                      have been paid, we may start a new
                                extension period of up to 20
                                          consecutive quarters. If we extend the
                                  interest payment period on the
                                        subordinated debentures, you will be
                                         required to accrue interest income as
                                         original issue discount in respect of
                                  deferred distributions on your
                                         preferred securities and include that
                                         original issue discount in your gross
                                    income for United States federal
                                          income tax purposes before you receive
                               the deferred distributions.

Redemption of the preferred               The Trust will redeem the preferred   
securities is possible                    securities in whole or in part if we  
                                          redeem the subordinated debentures. We
                                          may redeem the subordinated debentures
                                     prior to their scheduled maturity

                                  -      at any time on or after
                                             December 19, 2006, in whole
                                               or in part from time to time,
                    or

                                     -      at any time, in whole, but
                                             not in part, within 90 days
                                         after the occurrence of
                                               certain adverse tax events or
                                        Investment Company Act
                               developments.

                              Upon any redemption of the
                                      subordinated debentures, the Trust
                                     will use the cash proceeds of the
                             redemption to redeem on a
                                 proportionate basis preferred
                                    securities and common securities
          having

5 

424B4
8th Page of 105
TOC
1st
Previous
Next
↓Bottom
Just 8th
                                         an aggregate liquidation amount equal
                                        to the aggregate principal amount of
                                         the subordinated debentures redeemed.
                                         The redemption price you will receive
                                    will be equal to the liquidation
                                        amount of $25 per preferred security
                                   plus any accumulated and unpaid
                                distributions to the date of
               redemption.

How the preferred securities              The preferred securities will rank    
will rank in right of payment             equally with the common securities.   
                                       The Trust will pay distributions on
                                    the preferred securities and the
                                        common securities pro rata. However,
                                   if we default by failing to pay
                                         interest payments on the subordinated
                                        debentures, then no distributions on
                                      the common securities will be paid
                                    until all accumulated and unpaid
                                  distributions on the preferred
                              securities have been paid.

                                          Our obligations under the subordinated
                                          debentures are unsecured and generally
                                       will rank junior in priority to our
                                 senior and other subordinated
                                        indebtedness. If we create any other
                                         trusts similar to the Trust, then the
                                     subordinated debentures will rank
                                       equally with any other subordinated
                                        debentures we issue to those trusts.
                                       As of September 30, 2001, our total
                               senior debt outstanding was
                                          approximately $2.5 billion. We have no
                                  subordinated debt outstanding.

                                       Our obligations under the guarantee
                                         are unsecured and will rank junior to
                                     our senior and other subordinated
                                       indebtedness. If we issue any other
                                        guarantees in the future relating to
                                      preferred securities issued by the
                                    other trusts, then the guarantee
                                        issued in this transaction will rank
                                        equally with those other guarantees.

The subordinated debentures               We may dissolve the Trust at any time.
may be distributed to you                If we dissolve the Trust, after      
                                      satisfaction of any liabilities to
                                        creditors, the Trust will distribute
                                          the subordinated debentures ratably to
                                       holders of the preferred securities
                          and common securities.

Our guarantee of payments                 We will fully and unconditionally     
                                      guarantee the preferred securities
             based on:

                                   -       our obligations to make
                                                payments on the subordinated
                               debentures;

6 

424B4
9th Page of 105
TOC
1st
Previous
Next
↓Bottom
Just 9th
                                   -       our obligations under a
                                              guarantee executed for the
                                                 benefit of the holders of the
                                             preferred securities; and

                                     -       our obligations under the
                                    trust agreement.

                                     If we do not make payments on the
                                      subordinated debentures, the Trust
                                          will not have sufficient funds to make
                                         payments on the preferred securities.
                                         The guarantee does not cover payments
                                when the Trust does not have
                     sufficient funds.

Limited voting rights                     You will have no voting rights except 
                             in limited circumstances.

The use of proceeds                       The Trust will invest all of the      
                                 proceeds from the sale of the
                                          preferred and the common securities in
                                        our subordinated debentures. We will
                                         use the proceeds from the sale of the
                                       subordinated debentures for general
                       corporate purposes.

New York Stock Exchange symbol            The NYSE symbol is "CVE PrU."         

Book-entry                                The preferred securities will be      
                                         represented by a global security that
                                         will be deposited with and registered
                                       in the name of The Depository Trust
                                       Company, New York, New York, or its
                                         nominee. This means that you will not
                                  receive a certificate for your
                         preferred securities.

Risk Factors                              Before purchasing the preferred       
                                         securities offered by this prospectus
                                     you should carefully consider the
                                       "Risk Factors" beginning on page 9.

7 

424B4
10th Page of 105
TOC
1st
Previous
Next
↓Bottom
Just 10th
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
 THE CLEVELAND ELECTRIC ILLUMINATING COMPANY

       The following consolidated financial information is derived from, and
should be read in conjunction with, the consolidated audited financial          
statements contained in our most recent Annual Report on Form 10-K/A and in our 
2000 Annual Report to Stockholders, a copy of which is being delivered with this
prospectus.                                                                     

       Cleveland Electric is a wholly owned subsidiary of FirstEnergy. Prior
to the merger in November 1997, Cleveland Electric and Toledo Edison were the   
principal operating subsidiaries of Centerior Energy. The merger was accounted  
for using the purchase method of accounting in accordance with accounting       
principles generally accepted in the United States, and the applicable effects  
were reflected on the separate financial statements of Centerior Energy's direct
subsidiaries as of the merger date. Accordingly, the post-merger financial      
statements reflect a new basis of accounting, and pre-merger period and         
post-merger period financial results (separated by a heavy black line) are      
presented. Cleveland Electric discontinued the application of Statement of      
Financial Accounting Standards No. 71, "Accounting for the Effects of Certain   
Types of Regulation" for its nuclear operations in October 1997. As a result,   
regulatory assets attributable to nuclear operations of $499.1 million ($324.4  
million after taxes) were written off as an extraordinary item.                 

      Net Income and Earnings on Common Stock for the period November 8 to
December 31, 1997 include net after tax charges of $5.8 million relating to a   
voluntary retirement program.                                                   

     "Earnings" for purposes of the calculations of Ratio of Earnings to
Fixed Charges and Ratio of Earnings to Combined Fixed Charges and Preferred     
Dividends have been computed by adding to "income before extraordinary item" all
taxes based on income or profits, total interest charges and the estimated      
interest element of rentals charged to income. "Fixed charges" include total    
interest charges and the estimated interest element of rentals.                 

                                                        [Enlarge/Download Table]


                                                                                                                TWELVE MONTHS
                                                           YEAR ENDED DECEMBER 31,(1)                               ENDED    
                                ----------------------------------------------------------------------------    SEPTEMBER 30,
                                 1996               1997                 1998           1999            2000        2001     
                                 ----               ----                 ----           ----            ----        ----     
      ($ IN THOUSANDS)                       JAN. 1-     NOV. 8-                                                             
                                             NOV. 7      DEC. 31                                                 (UNAUDITED) 
                                             ------      -------                                                             
                                                                                                                             
INCOME SUMMARY:                                                                                                              
  Operating Revenues         $1,798,850    $1,537,459     $254,892   $1,795,997      $1,864,954     $1,887,039    $2,085,839 
  Income Before                                                                                                              
   Extraordinary Item          $116,553       $95,191      $19,290     $164,891        $194,089       $202,950      $214,013 
  Net Income (Loss)            $116,553     $(229,247)     $19,290     $164,891        $194,089       $202,950      $214,013 
  Earnings (Loss) on Common                                                                                                  
   Stock                        $77,810     $(274,276)     $19,290     $140,097        $160,565       $182,107      $191,870 
  Ratio of Earnings to                                                                                                       
   Fixed Charges                   1.57          1.64         1.73         1.92            2.14           2.23          2.44 
  Ratio of Earnings to                                                                                                       
   Combined Fixed Charges                                                                                                    
   and Preferred Dividends         1.32          1.26         1.73         1.68            1.79           1.98          2.12 

1 The data corresponding to the years 1996 to 2000 were derived from audited    
financial statements.                                                       

8 

424B4
11th Page of 105
TOC
1st
Previous
Next
↓Bottom
Just 11th
RISK FACTORS

       An investment in the preferred securities involves a number of risks.
You should carefully consider the following information, together with the other
information in this prospectus and the documents that are incorporated by       
reference in this prospectus, about risks concerning the preferred securities,  
before buying any preferred securities.                                         

RISK FACTORS RELATING TO THE SECURITIES OFFERED                                 

IF WE DO NOT MAKE PAYMENTS ON THE SUBORDINATED DEBENTURES, THE TRUST WILL NOT BE
ABLE TO PAY DISTRIBUTIONS AND OTHER AMOUNTS DUE ON THE PREFERRED SECURITIES AND 
THE GUARANTEE WILL NOT APPLY.                                                   

      The Trust will depend solely upon our payment of amounts when due on
the subordinated debentures to pay amounts due to you on the preferred          
securities. If we fail to pay principal or interest when due on the subordinated
debentures, the Trust will not have funds to pay distributions on, or amounts   
due on redemption or liquidation of, the preferred securities or amounts due on 
the liquidation of the Trust. If this happens, holders of preferred securities  
will not be able to rely upon the guarantee for payment of those amounts because
the guarantee only guarantees that we will make distributions and redemption    
payments on the preferred securities if the Trust has the funds to do so itself 
but does not. Instead, you or the property trustee may proceed directly against 
us for payment of any amounts due on the preferred securities.                  

HOLDERS OF OUR SENIOR INDEBTEDNESS WILL GET PAID BEFORE YOU WILL GET PAID UNDER 
THE SUBORDINATED DEBENTURES OR THE GUARANTEE.                                   

  Our obligations to you under the subordinated debentures and the
guarantee are subordinate and junior in right of payment to all our existing and
future senior indebtedness. This means that we cannot make any payments to you  
on the subordinated debentures or the guarantee if we are in default on any of  
our senior indebtedness. Therefore, in the event of our bankruptcy, liquidation 
or dissolution, our assets must be used to pay off our senior indebtedness in   
full before any payments may be made on the subordinated debentures or the      
guarantee. As of September 30, 2001, we had approximately $2.5 billion principal
amount of indebtedness for borrowed money constituting senior indebtedness on a 
consolidated basis. None of the preferred securities, the subordinated          
debentures or the guarantee contains any provision that limits our ability to   
incur additional indebtedness, including indebtedness that would rank senior to 
the subordinated debentures and the guarantee.                                  

WE MAY EXTEND THE INTEREST PAYMENT PERIOD ON THE SUBORDINATED DEBENTURES.       

We have the right to extend the interest payment period on the
subordinated debentures, from time to time, for up to 20 consecutive quarters.  
At the end of an extension period, if all amounts due are paid, we may start a  
new extension period of up to 20 consecutive quarterly periods. No extension    
period may extend beyond the maturity date of the subordinated debentures.      

9 

424B4
12th Page of 105
TOC
1st
Previous
Next
↓Bottom
Just 12th
       During any extension period on the subordinated debentures, the Trust
will defer quarterly distributions on the preferred securities, which will      
continue to accumulate distributions at an annual rate of 9%, and unpaid        
distributions will accumulate additional distributions at the annual rate of 9% 
compounded quarterly from the relevant distribution payment date.               

         If we exercise this extension right, the preferred securities may trade
at a price that does not reflect fully the value of the accumulated but unpaid  
distributions. If you dispose of the preferred securities during an extension   
period, you might not recover the same return on your investment as someone who 
continues to hold the preferred securities. Even if we do not exercise this     
right, our right to do so could mean the market price for the preferred         
securities may be more volatile than that for debt instruments or other         
securities without similar deferral rights.                                     

YOU COULD HAVE ADVERSE TAX CONSEQUENCES IF WE EXTEND THE INTEREST PAYMENT PERIOD
ON THE SUBORDINATED DEBENTURES.                                                 

If we extend the interest payment period on the subordinated  
debentures, you will be required to accrue interest income as original issue    
discount in respect of the deferred distributions on your preferred securities. 
As a result, for United States federal income tax purposes, you will be required
to include that original issue discount in gross income before you receive the  
deferred distributions, regardless of your regular method of accounting. See    
"United States Taxation--Original Issue Discount."                              

      If you sell your preferred securities before the record date for the
payment of deferred distributions at the end of an extension period, you will   
not receive those distributions. Instead, the deferred and any accumulated      
distributions will be paid to the holder of record on the record date,          
regardless of who the holder of record may have been on any other date during   
the extension period. Moreover, accrued original issue discount will be added to
your adjusted tax basis in the preferred securities but may not be reflected in 
the amount you realize on the sale. To the extent the amount realized is less   
than your adjusted tax basis, you will recognize a capital loss for United      
States federal income tax purposes. The deductibility of capital losses is      
subject to limitations.                                                         

     Our right to extend the interest payment period on the subordinated
debentures could mean the market price of the preferred securities may be more  
volatile than that for securities that do not give their issuer that right.     

IN CERTAIN CIRCUMSTANCES, THE TRUST MAY REDEEM THE PREFERRED SECURITIES, WHICH  
MAY REQUIRE YOU TO REINVEST YOUR PRINCIPAL SOONER THAN EXPECTED.                

         We may redeem the subordinated debentures before their stated maturity:

        -    in whole or in part, at any time on or after December 19, 2006.

          -    in whole but not in part, at any time prior to maturity within 90
              days after certain tax events occur or become likely to occur or
             the Trust is or becomes likely to be deemed to be an investment
company under the Investment Company Act.         

10

424B4
13th Page of 105
TOC
1st
Previous
Next
↓Bottom
Just 13th
        Upon any redemption of the subordinated debentures, the Trust will use
the cash proceeds of the redemption to redeem on a proportionate basis preferred
securities and common securities having an aggregate liquidation amount equal to
the aggregate principal amount of the subordinated debentures redeemed. The     
redemption price you will receive will be equal to the liquidation amount of $25
per preferred security plus any accumulated and unpaid distributions to the date
of redemption. In that case, you may not be able to reinvest the money you      
receive for your preferred securities at a rate of return that is as high as the
rate of return you were earning on the preferred securities.                    

        The redemption of the preferred securities would be a taxable event to
you for United States federal income tax purposes. See "United States Taxation -
Receipt of Subordinated Debentures or Cash Upon Liquidation of the Trust" and " 
- Sale of the Preferred Securities."                                            

WE CAN DISSOLVE THE TRUST AND DISTRIBUTE THE SUBORDINATED DEBENTURES TO YOU,    
WHICH MAY HAVE ADVERSE TAX CONSEQUENCES FOR YOU.                                

        We may at any time dissolve the Trust. If we dissolve the Trust, after
satisfaction of any liabilities to creditors, the Trust will distribute the     
subordinated debentures ratably to holders of the preferred securities and      
common securities. Under current United States federal income tax law, a        
distribution of subordinated debentures to you upon the dissolution of the Trust
would not be a taxable event to you. However, if the Trust is classified for    
United States federal income tax purposes as an association taxable as a        
corporation at the time it is dissolved or if there is a change in law, the     
distribution of the subordinated debentures may be a taxable event to you. See  
"United States Taxation - Receipt of Subordinated Debentures or Cash Upon       
Liquidation of the Trust" and " - Sale of the Preferred Securities."            

THERE MAY BE NO TRADING MARKET FOR THE SUBORDINATED DEBENTURES IF THE TRUST     
DISTRIBUTES THEM TO YOU.                                                        

      If the subordinated debentures are distributed by the Trust, we will
use our best efforts to cause the subordinated debentures to be listed on the   
New York Stock Exchange or on any other exchange on which the preferred         
securities are then listed. However, we may not be able to achieve that listing 
and a market for the subordinated debentures may not develop.                   

Moreover, there is no assurance as to the market prices for   
subordinated debentures that may be distributed in exchange for preferred       
securities if we dissolve the Trust. Those subordinated debentures may trade at 
a discount to the price that you paid to purchase the preferred securities in   
this offer.                                                                     

       Because you may receive subordinated debentures upon a dissolution of
the Trust, you must also make an investment decision with regard to the         
subordinated debentures and should carefully review all the information         
regarding the subordinated debentures contained in this prospectus.             

YOU WILL HAVE ONLY LIMITED VOTING RIGHTS.                                       

You will have limited voting rights as a holder of preferred  
securities. You will have a right to vote to appoint a special administrative   
trustee upon the occurrence of certain events as                                

11

424B4
14th Page of 105
TOC
1st
Previous
Next
↓Bottom
Just 14th
described in this prospectus. You will not be entitled to vote to appoint,      
remove or replace, or to increase or decrease the number of, the Cleveland      
Electric trustees, as these voting rights are vested exclusively in the holder  
of the common securities, except if an event of default under the trust         
agreement occurs and continues.                                                 

THERE IS NO CURRENT ESTABLISHED TRADING MARKET FOR PREFERRED SECURITIES AND NO  
ASSURANCE THAT AN ACTIVE MARKET WILL DEVELOP.                                   

The preferred securities are a new issue of securities with no
established trading market. Although we have been approved to list the preferred
securities on the New York Stock Exchange, we cannot assure you that an active  
or liquid public trading market will develop or be maintained for the preferred 
securities.                                                                     

    If an active trading market does not develop, the market price and
liquidity of the preferred securities will be adversely affected. Even if an    
active public market does develop, we cannot assure you that the market price   
for the preferred securities will equal or exceed the price you pay for the     
preferred securities. Future trading prices of the preferred securities may be  
subject to significant fluctuations in response to prevailing interest rates,   
our future operating results and financial condition, the market for similar    
securities and general economic and market conditions.                          

RISK FACTORS RELATING TO CLEVELAND ELECTRIC                                     

THERE IS NO ASSURANCE OF MAINTAINING OUR FINANCIAL CAPABILITY.                  

WE HAVE SUBSTANTIAL DEBT AND OTHER OBLIGATIONS.                         

    At September 30, 2001, we had long-term debt of approximately $2.3
billion (64.2% of total capitalization), preferred stock not subject to         
mandatory redemption provisions of approximately $238.3 million, preferred stock
subject to mandatory redemption provisions of approximately $23.7 million,      
current maturities of approximately $324.6 million, and short-term borrowings of
$254.5 million from associated companies. We also have future minimum operating 
lease commitments (net of trust cash receipts) of approximately $74 million for 
the 2001-2005 period.                                                           

       At September 30, 2001, we had approximately $2.5 billion in aggregate
principal amount of first mortgage bonds outstanding under our mortgage. This   
consists of $870 million of first mortgage bonds outstanding included in the    
long term debt and current maturities discussed above, and other first mortgage 
bonds pledged to secure certain debt obligations. At September 30, 2001, we were
able to issue up to $568 million of additional first mortgage bonds on the basis
of property additions and retired bonds, however, there are no restrictions on  
our ability to issue preferred or preference stock.                             

        Based on our present plans, we could provide for our cash requirements
to service and, as required, to repay the obligations referred to above during  
the remainder of 2001 and 2002 from the following sources:                      

-    funds from operations;                                 

12

424B4
15th Page of 105
TOC
1st
Previous
Next
↓Bottom
Just 15th
          -    available cash and temporary cash investments (approximately $8.2
million as of September 30, 2001);                

-    proceeds of the offering of the preferred securities;  

     -    the issuance of long-term debt (for refunding purposes); and

      -    funds made available to us by FirstEnergy under its revolving
credit facilities.                                

If one or more of these sources is limited or unavailable, our ability to       
service our debt and other obligations could be materially adversely affected.  

WE FACE COMPETITIVE CHALLENGES DUE TO REGULATORY CONSTRAINTS AND OUR HIGH RETAIL
COST STRUCTURE.                                                                 

COMPETITIVE ENERGY SUPPLIERS.                                 

         Since January 1, 2001, when Ohio customers were first allowed to choose
their electric generation suppliers, competition has come from the entry of more
energy suppliers and existing municipal electric systems in our service area.   
Changes due to open competition legislation in Ohio have resulted in fundamental
alterations in the way traditional integrated utilities and holding company     
systems like FirstEnergy conduct their business. These changes have and are     
likely to continue to result in increased costs associated with transitioning to
new organizational structures and ways of conducting business.                  

COMPETITION IN RETAIL ELECTRICITY.                            

A number of states have enacted transitional legislation that 
encourages competition for retail electric businesses and the recovery of       
stranded investment. Investment is "stranded" when fixed costs approved for     
recovery under traditional regulatory methods become unrecoverable as a result  
of legislative changes that allow for widespread competition. Ohio's electric   
utility restructuring legislation, which allowed Ohio electric customers to     
select their generation suppliers beginning January 1, 2001, was signed into law
in July 1999.                                                                   

      On July 19, 2000, PUCO approved FirstEnergy's plan for transition to
customer choice on our behalf, as well as for its other Ohio electric utility   
operating companies--Ohio Edison and Toledo Edison. As part of its              
authorization, the PUCO approved the settlement agreement between FirstEnergy   
and major groups representing most of the parties in FirstEnergy's transition   
cost proceeding before the PUCO. Major parties to the approved settlement       
included the PUCO staff, the Ohio Consumers' Counsel, the Industrial Energy     
Users-Ohio, certain power marketers and others.                                 

Major provisions of the approved transition plan include:     

    -    The opportunity for us to recover transition costs as filed
through 2008;                                     

         -    A commitment to sell 400 megawatts of our generating capacity to
           marketers, brokers and aggregators at set prices for sales to
retail customers in our Ohio service area;        

13

424B4
16th Page of 105
TOC
1st
Previous
Next
↓Bottom
Just 16th
         -    A 5% reduction in the generation portion of residential customer
          bills, saving those customers between 2% and 3% on a typical
monthly bill;                                     

-    Additional incentives applied to shopping credits for  
              residential, commercial and industrial customers of 45%, 30% and
          15%, respectively, as reductions from their bills, when they
               select alternative energy providers (the credits exceed the price
              we will be offering to electricity suppliers relating to the 400
megawatts described above);                       

     -    Maintaining current rates for our customers for distribution
services through December 31, 2007; and           

   -    We assume the risk of not recovering up to $170 million of
         transition revenue if the rate of customers switching their
               service from us has not reached an average of 20% over any twelve
          month period ending between January 1, 2001 and December 31,
2005.                                             

         In addition, under the electric utility restructuring legislation, Ohio
utilities that offer both competitive and regulated retail electric services    
were required to implement a corporate separation plan approved by PUCO - one   
which provides a clear separation between regulated and competitive operations. 
In connection with FirstEnergy's transition plan, FirstEnergy separated its     
business into three distinct units - a competitive services unit, a utility     
services unit and a corporate support services unit. We are included in the     
utility services unit, which continues to deliver electricity through our       
existing distribution system and maintains the provider of last resort          
obligation under the transition plan. As a result of the transition plan,       
FirstEnergy's Ohio electric utility subsidiaries and Pennsylvania Power Company 
entered into power supply agreements whereby the competitive services unit      
purchases the generation from those electric utility subsidiaries' owned and    
leased generating plants and/or purchases power in wholesale power markets and  
then sells power to those electric utility subsidiaries who are now "full       
requirements" customers of the competitive services unit to enable them to meet 
their "provider of last resort" responsibilities in their respective service    
areas. CEI continues to provide power directly to wholesale customers under     
negotiated contracts as well as to alternative energy suppliers as part of CEI's
market support generation of 400 megawatts (383 megawatts committed as of       
September 30, 2001).                                                            

         We cannot predict the effect that all of these changes will have on our
business, particularly if state and federal regulatory initiatives are      
implemented that further increase our competition, threaten our cost and    
investment recovery or adversely impact our rate structures. For example, if
 tariff rates applicable to electricity we supply as "provider of last resort"
under state deregulation legislation are insufficient to cover our costs of 
generation or purchase of electricity or if costs associated with the       
implementation of our transition plan are greater than anticipated, our     
business, results of operations and financial condition may be materially   
 adversely affected. In addition, increased competition in general may cause a
reduction in energy prices that may adversely affect our results of         
operations.                                                                 

14

424B4
17th Page of 105
TOC
1st
Previous
Next
↓Bottom
Just 17th
OUR THREE NUCLEAR GENERATING UNITS MAY BE IMPACTED BY ACTIVITIES OR EVENTS      
BEYOND OUR CONTROL.                                                             

We currently have interests in three nuclear generating units:

- Beaver Valley Power Station Unit 2;                         
- Davis-Besse Nuclear Power Station; and                      
- Perry Nuclear Power Plant Unit 1.                           

        Another FirstEnergy subsidiary, FirstEnergy Nuclear Operating Company,
operates Davis-Besse, Perry Unit 1 and Beaver Valley Station, which was acquired
from Duquesne Light Company on December 3, 1999 in connection with an exchange  
of generating assets between Duquesne and Ohio Edison, Pennsylvania Power and   
us.                                                                             

   These three nuclear units may be impacted by activities or events
beyond our control. Operating nuclear units have experienced unplanned outages  
or extensions of scheduled outages because of equipment problems or new         
regulatory requirements. A major accident at a nuclear facility anywhere in the 
world could cause the United States Nuclear Regulatory Commission to limit or   
prohibit the operation or licensing of any domestic nuclear unit. An action of  
this kind would require us to purchase replacement power on the open market.    
Depending on prevailing market prices for replacement power, our financial      
condition, cash flows and results of operations could be materially adversely   
affected if this were to occur.                                                 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

        We caution you that this prospectus and the periodic reports and other
documents that are incorporated by reference in this prospectus contain         
forward-looking statements within the meaning of the Securities Exchange Act.   
They are statements about future performance or results (such as statements     
including, but not limited to, the terms "potential," "estimate," "believe,"    
"expect" and "anticipate" and similar words) when we discuss our financial      
condition, results of operations and business.                                  

   Forward-looking statements involve certain risks, assumptions and
uncertainties. They are not guarantees of future performance. Factors may cause 
actual results to differ materially from those expressed in these               
forward-looking statements. These factors include those identified in the       
section concerning Risk Factors, as well as the following possibilities:        

        -    if national and regional economic conditions are less favorable
than we had expected; and                         

        -    if there are disruptions in the wholesale power markets because
              of supply or delivery constraints that affect the ability of the
         competitive service unit to provide power to us to meet our
provider of last resort responsibilities.         

15

424B4
18th Page of 105
TOC
1st
Previous
Next
↓Bottom
Just 18th
   We believe that the expectations reflected in our forward-looking
statements are reasonable. However, we cannot assure you that these expectations
will prove to have been correct. You should consider the factors we have noted  
above and the "Risk Factors" section as you read the forward-looking statements 
in this prospectus.                                                             

CAPITALIZATION

         The following table shows our capitalization on a consolidated basis as
of September 30, 2001. The "As Adjusted" column shows our capitalization as of  
September 30, 2001, after giving effect to the sale of the preferred securities 
offered in this prospectus.                                                     

                                                        [Enlarge/Download Table]


                                                       (DOLLARS IN THOUSANDS)                                   
                                                    AS OF SEPTEMBER 30, 2001                                    

                                                             ACTUAL                          AS ADJUSTED        
                                                   -------------------------         -------------------------- 
                                                                             (UNAUDITED)                        
----------------------------------------------------------------------------------------------------------------
                                                   OUTSTANDING         RATIO          AMOUNT            RATIO   
                                                   -----------         -----          ------            -----   
                                                                                                                
CAPITALIZATION SUMMARY:                                                                                         

  Common Stockholder's Equity...............         $1,045,627        28.6%         $1,045,627         27.9%   
  Preferred Stock Not Subject to Mandatory                                                                      
     Redemption.............................            238,325         6.5%            238,325          6.4%   
  Preferred Stock Subject to Mandatory                                                                          
     Redemption(1)..........................             23,673         0.7%             23,673          0.6%   
  Cleveland Electric obligated mandatorily                                                                      
     redeemable preferred securities of                                                                         
     subsidiary trust holding solely Cleveland                                                                  
     Electric subordinated debentures.......                 --            --           100,000          2.7%   
  Long-Term Debt(2).........................          2,341,858        64.2%          2,341,858         62.4%   
                                                     ----------       -----          ----------        -----    
     Total Capitalization...................         $3,649,483       100.0%         $3,749,483        100.0%   
                                                     ==========       =====          ==========        =====    


--------------------------------------                                          

(1)  Excludes $69.7 million of preferred stock subject to mandatory redemption  
within one year.                                                      

(2)  Excludes $254.9 million of long-term debt due to be repaid or subject to   
put options within one year.                                          

ACCOUNTING TREATMENT

    For financial reporting purposes, the Trust will be treated as our
subsidiary. Accordingly, the accounts of the Trust will be included in our      
consolidated financial statements. The preferred securities will be reported as 
"CEI obligated mandatorily redeemable preferred securities of subsidiary trust  
holding solely CEI subordinated debentures" on a separate line item in our      
consolidated balance sheet. Appropriate disclosures about the preferred         
securities, the guarantee and the subordinated debentures will be included in   
the notes to our consolidated financial statements. For financial reporting     
purposes, we will classify distributions payable on the preferred securities as 
a deduction from net income in our consolidated statements of income.           

16

424B4
19th Page of 105
TOC
1st
Previous
Next
↓Bottom
Just 19th
 THE CLEVELAND ELECTRIC ILLUMINATING COMPANY

 Cleveland Electric is a wholly owned electric utility operating
subsidiary of FirstEnergy. We engage in the generation, distribution and sale of
electric energy in an area of approximately 1,700 square miles in northeastern  
Ohio. We were incorporated under the laws of the State of Ohio in 1892.         

         We also engage in the sale, purchase and interchange of electric energy
at wholesale with other electric companies and to two municipal electric systems
(directly and through AMP-Ohio) in our service area. At December 31, 2000, we   
served approximately 741,400 customers in an area with a population of          
approximately 1.9 million. Principal industries served by us include:           

-    those producing steel and other primary metals;        

-    automotive and other transportation equipment;         

-    chemicals;                                             

-    electrical and nonelectrical machinery;                

-    fabricated metal products; and                         

-    rubber and plastic products.                           

   Nearly all of our operating revenues are derived from the sale of
electric energy. We had 1,046 employees at December 31, 2000.                   

      In addition to us, the direct or indirect electric utility operating
subsidiaries of FirstEnergy are Ohio Edison Company, Pennsylvania Power Company,
The Toledo Edison Company, Jersey Central Power & Light Company, Metropolitan   
Edison Company, Pennsylvania Electric Company and ATSI. We operate as separate  
companies, each company, with the exception of ATSI, servicing the customers in 
its respective service area.                                                    

       Pursuant to FirstEnergy's corporate separation plan implemented under
Ohio utility restructuring legislation, FirstEnergy transferred operational     
control of the non-nuclear generation assets of its Ohio electric utility       
operating subsidiaries and Pennsylvania Power Company to FirstEnergy Generation 
Corp. as of January 1, 2001. We expect that the transfer of ownership of those  
assets to FirstEnergy Generation will be completed by December 31, 2005, the end
of the legislation's market development period.                                 

     Sources of generation for Cleveland Electric during 2000 were 53.4%
coal and 46.6% nuclear.                                                         

      Our principal executive offices are located at 76 South Main Street,
Akron, Ohio 44308, telephone number (800) 736-3402.                             

17

424B4
20th Page of 105
TOC
1st
Previous
Next
↓Bottom
Just 20th
 RECENT DEVELOPMENTS

        On November 29, 2001, FirstEnergy announced that it had agreed to sell
four coal-fired power plants located along Lake Erie in Ohio to NRG Energy, Inc.
Under terms of the agreement, our 376 megawatt (MW) Ashtabula Plant in          
Ashtabula, Ohio, 1,262 MW Eastlake Plant in Eastlake, Ohio and 249 MW Lake Shore
Plant in Cleveland, Ohio, and Toledo Edison's 648 MW Bay Shore Plant in Oregon, 
Ohio will be sold to NRG Energy for $1.355 billion in cash and the assumption of
$145 million in debt associated with the plants. In addition, NRG has agreed to 
sell at established prices up to 10.5 million megawatt-hours of electricity     
annually, similar to the average annual output of the plants, to FirstEnergy    
through 2005, the end of the market development period under Ohio utility       
restructuring legislation. Regulatory approvals will be required from the       
Securities and Exchange Commission and Federal Energy Regulatory Commission.    
FirstEnergy will use the proceeds for the redemption of higher-cost debt and    
preferred stock, and/or reinvestment in the business.                           

CLEVELAND ELECTRIC FINANCING TRUST I

       Cleveland Electric Financing Trust I is a Delaware business trust and
was created pursuant to a trust agreement among us, as depositor, The Bank of   
New York, as property trustee, The Bank of New York (Delaware), as Delaware     
trustee and two of our employees, as administrative trustees. The Trust exists  
for the exclusive purposes of:                                                  

-    issuing the preferred securities and common securities 
              representing undivided beneficial interests in the assets of the
Trust,                                            

  -    investing the gross proceeds from the sale of the Trust's
securities in our subordinated debentures, and    

         -    engaging in only those other activities necessary, convenient or
incidental to these purposes.                     

In connection with the issuance by the Trust of its preferred 
securities, we will amend and restate the trust agreement in substantially the  
form filed as an exhibit to the registration statement containing this          
prospectus. References in this prospectus to the "trust agreement" should be    
read to refer to that agreement as so amended and restated. The trust agreement 
will be qualified as an indenture under the Trust Indenture Act and the property
trustee will act as the indenture trustee for purposes of that Act. We refer to 
the administrative trustees, the Delaware trustee and the property trustee      
collectively as the "Cleveland Electric trustees" in this prospectus. The Bank  
of New York will also act as guarantee trustee and as indenture trustee under   
the subordinated indenture for our subordinated debentures.                     

   We will own all of the common securities of the Trust. The common
securities will rank equally, and will be paid pro rata, with the preferred     
securities, except that if an event of default under the subordinated indenture 
occurs and continues, the right to payment of the holders of the common         
securities will be subordinated to the rights to payment of the holders of the  
preferred securities. We will acquire common securities having an aggregate     
liquidation amount equal to                                                     

18

424B4
21st Page of 105
TOC
1st
Previous
Next
↓Bottom
Just 21st
3% of the Trust's capital. The Trust has a term of approximately 55 years, but  
may be dissolved earlier as provided in the trust agreement.                    

CONDUCT OF THE TRUST'S AFFAIRS.                               

     We will conduct all business and affairs of the Trust. As described
above, the Trust will not engage in any business or activities other than as    
necessary, convenient or incidental to issuance and sale of the trust securities
and investment of the proceeds from the sale in the subordinated debentures. The
Cleveland Electric trustees may be appointed, removed or replaced by:           

-    the holder of the common securities, or                

    -    if an event of default under the trust agreement occurs and
               continues, the holders of a majority in liquidation preference of
the preferred securities.                         

         We will pay all fees and expenses related to the Trust and the issuance
and sale of the trust securities.                                               

      The office of the Delaware trustee in the State of Delaware is White
Clay Center, Route 273, Newark, Delaware 19711. The principal place of business 
of the Trust is c/o The Cleveland Electric Illuminating Company, 76 South Main  
Street, Akron, Ohio 44308, telephone number (800) 736-3402.                     

 USE OF PROCEEDS

      We will use the proceeds from the sale of the securities for general
corporate purposes. Pending application of the proceeds, we may make short-term 
cash investments. The Trust will use the proceeds from the sale of its trust    
securities to acquire our subordinated debentures.                              

 DESCRIPTION OF THE PREFERRED SECURITIES

       The Trust will issue preferred securities and common securities under
the trust agreement. The preferred securities will represent undivided          
beneficial interests in the Trust's assets and entitle the holders to a         
preference over the common securities with respect to distributions and amounts 
payable on redemption or liquidation, as well as other benefits described in the
trust agreement. Selected provisions of the trust agreement are summarized      
below. This summary is not complete. A form of the trust agreement was filed    
with the Commission as an exhibit to the registration statement that contains   
this prospectus. You should read that document for a better understanding of all
of the provisions of the trust agreement that may be important to you. Since the
trust agreement will be qualified under the Trust Indenture Act, you should also
refer to the Trust Indenture Act for more information. Wherever particular      
sections or defined terms of the trust agreement are referred to in this        
description, those sections or defined terms are incorporated in this prospectus
by reference.                                                                   

19

424B4
22nd Page of 105
TOC
1st
Previous
Next
↓Bottom
Just 22nd
GENERAL                                                       

      We own all of the Trust's common securities, which rank equally, and
are paid pro rata, with the preferred securities except as described under "--  
Subordination of Common Securities" below. (Section 4.03). The property trustee 
will hold our subordinated debentures in trust for the benefit of the Trust and 
the holders of the trust securities. (Section 2.09). Our guarantee is a full and
unconditional guarantee with respect to the preferred securities but does not   
guarantee payment of distributions or amounts payable on redemption or          
liquidation of the preferred securities when the Trust does not have sufficient 
available funds to pay those distributions. In that event, the remedy of a      
holder of preferred securities is to vote, together with the holders of a       
majority in liquidation amount of the preferred securities, to appoint a special
administrative trustee and to direct the property trustee to enforce the        
property trustee's rights under the subordinated debentures.                    

DISTRIBUTIONS                                                 

Distributions on the preferred securities will:               

 -    be payable in U.S. dollars at 9% per annum of the stated
  liquidation amount of $25 per preferred security and
              distributions that are in arrears for more than one quarter will
         accrue interest at the rate per annum of 9% and interest so
          accrued at the end of each quarter and remaining unpaid will
              itself bear interest, to the extent permitted by applicable law,
until paid on the same basis;                     

         -    begin to accrue from, and include the date of original issuance;
and                                               

         -    be cumulative and payable quarterly in arrears on March 15, June
             15, September 15 and December 15 of each year, commencing March
15, 2002.                                         

       The term "distributions" as we use it in this prospectus includes any
interest payable on distributions as described above, unless we state otherwise.

       We will compute the amount of distributions payable for any period on
the basis of a 360-day year of twelve 30-day months. (Sections 4.01(a) and      
4.01(b)).                                                                       

  If any date on which a distribution is payable for any preferred
securities is not a business day, payment will be made on the following business
day, without any interest or other payment for the delay, unless that following 
business day is in the next calendar year. In that case, payment will be made on
the immediately preceding business day, in each case with the same force and    
effect as if made on that date. Each date on which distributions are otherwise  
payable in accordance with the foregoing is a "distribution date." A "business  
day" means a day other than:                                                    

-    a Saturday or a Sunday,                                

     -    a day on which banks in New York, New York are authorized or
      obligated by law or executive order to remain closed, or

20

424B4
23rd Page of 105
TOC
1st
Previous
Next
↓Bottom
Just 23rd
   -    a day on which the principal corporate trust office of the
             property trustee or the trustee for our subordinated debentures
is closed for business. (Section 4.01(a)).        

We have the right, under the subordinated indenture for our   
subordinated debentures, to extend the interest payment period from time to time
on the subordinated debentures for up to 20 consecutive quarters. If we do,     
quarterly distributions on the preferred securities would be deferred by the    
Trust during that period. The preferred securities would continue to accrue     
interest on the deferred distributions, including interest on unpaid interest,  
as described above. If we exercise this right, we may not, during this period:  

     -    declare or pay any dividends on, or make a distribution with
            respect to, or redeem, purchase, acquire or make a liquidation
             payment with respect to, any of our capital stock, other than a
             dividend in stock of the same class as the stock on which it is
paid, or                                          

          -    make any payment of interest, principal or premium, if any, on or
               repay, repurchase or redeem any debt securities issued by us that
            rank equally with or junior to the subordinated debentures, or

          -    make any guarantee payments with respect to any item described in
            the two preceding bullet points, other than payments under the
guarantee.                                        

     Before an extension period ends, we may further extend the interest
payment period so long as the extension period together with all previous and   
further extensions will not:                                                    

-    exceed 20 consecutive quarters at any one time, or     

   -    extend beyond the maturity of the subordinated debentures.

       Once an extension period has ended and all amounts then due have been
paid, we may start a new extension period in accordance with the above          
requirements. See "Description of the Subordinated Debentures -- Interest" and  
"-- Option to Extend Interest Payment Period."                                  

       The Trust's income available for distribution to preferred securities
holders will be limited to payments we make under the related subordinated      
debentures. See "Description of the Subordinated Debentures." If we do not make 
interest payments on the subordinated debentures, the property trustee will not 
have funds available to pay distributions on the preferred securities. We will  
guarantee the Trust's payment of distributions on a limited and subordinated    
basis, but only if and to the extent the Trust has funds legally available for  
the payment of those distributions and cash sufficient to make those payments.  
See "Description of the Guarantee."                                             

   The Trust will pay distributions to the registered holders of the
preferred securities as of the relevant record dates. As long as the preferred  
securities remain in book-entry-only form, the relevant record date will be one 
business day prior to the distribution payment date and payment will be made as 
described under "Book Entry Securities" below, subject to any applicable laws   
and regulations and to the provisions of the trust agreement. If the preferred  
securities do not                                                               

21

424B4
24th Page of 105
TOC
1st
Previous
Next
↓Bottom
Just 24th
remain in book-entry-only form, the relevant record date will be the 15th day   
prior to the distribution payment date. (Section 4.01(d)).                      

MANDATORY REDEMPTION                                          

      The subordinated debentures will mature on December 15, 2031, unless
the maturity is extended at our option under certain circumstances. The property
trustee will use the cash proceeds from any repayment of the subordinated       
debentures at maturity or upon earlier redemption to redeem on a proportionate  
basis preferred securities and common securities having an aggregate liquidation
amount equal to the aggregate principal amount of the subordinated debentures   
redeemed. The redemption price you will receive will be equal to the liquidation
amount of $25 per preferred security plus accumulated and unpaid distributions  
on the preferred security to the date of redemption. The administrative trustee 
will provide not less than 30 nor more than 60 days' notice to holders of       
preferred securities of any mandatory redemption. That payment in redemption    
shall be due without limitation and in all events. See "Description of the      
Subordinated Debentures -- Optional Redemption."                                

     We have the right to redeem the subordinated debentures on or after
December 19, 2006, in whole or in part, subject to the conditions described     
under "Description of the Subordinated Debentures -- Optional Redemption." We   
may also redeem the subordinated debentures, in whole but not in part, if a Tax 
Event or an Investment Company Event as described below occurs and continues.   
See "Description of the Subordinated Debentures -- Optional Redemption."        

SPECIAL EVENT REDEMPTION.                                     

      "Tax Event" means the administrative trustees' receipt of an opinion
from nationally recognized independent counsel experienced in these matters to  
the effect that, as a result of:                                                

         -    any amendment to, or change, including any announced prospective
            change, in, the laws or treaties, or any regulations under the
      laws and treaties, of the United States or any political
         subdivision or taxing authority of or in the United States,

          -    any amendment to or change in an interpretation or application of
       those laws or regulations by any legislative body, court,
        governmental agency or regulatory authority, including the
             enactment of any legislation or the publication of any judicial
              decision or regulatory determination on or after the date of the
issuance of the preferred securities,             

    -    any interpretation or pronouncement of any of those bodies,
               courts, agencies or authorities that provides for a position with
             respect to those laws or regulations that differs from the then
generally accepted position, or                   

  -    any action taken by any governmental agency or regulatory
authority,                                        

in each case occurring on or after the issuance date of the preferred           
securities, there is more than an insubstantial risk that:                      

22

424B4
25th Page of 105
TOC
1st
Previous
Next
↓Bottom
Just 25th
          -    the Trust is, or will be, subject to United States federal income
   tax with respect to income accrued or received on the
subordinated debentures,                          

         -    interest payable by us on the subordinated debentures is not, or
           will not be, fully deductible by us for United States federal
income tax purposes, or                           

    -    the Trust is, or will be, subject to more than a de minimis
          amount of other taxes, duties or other governmental charges.

       "Investment Company Event" means the administrative trustees' receipt
of an opinion of counsel experienced in practice under the Investment Company   
Act of 1940 to the effect that as a result of a change in law or regulation by  
any legislative body, court, governmental agency or regulatory authority, the   
Trust is or will be considered an "investment company" which is required to be  
registered under the Investment Company Act, where the change becomes effective 
after the issuance of the preferred securities.                                 

       If a Tax Event or an Investment Company Event occurs we will have the
right, upon not less than 30 nor more than 60 days notice, to redeem the        
subordinated debentures, in whole but not in part, for cash within 90 days      
following the occurrence of the Tax Event or Investment Company Event. Following
that redemption, a like amount of preferred securities and common securities    
will be redeemed by the Trust at the applicable redemption price on a pro rata  
basis.                                                                          

DISTRIBUTION OF THE SUBORDINATED DEBENTURES                   

     We will have the right at any time to dissolve the Trust, and after
satisfaction of the liabilities of creditors of the Trust as provided by        
applicable law, cause the subordinated debentures to be distributed to the      
holders of the preferred securities.                                            

      If the subordinated debentures are distributed to the holders of the
preferred securities, we will use our best efforts to list the subordinated     
debentures on the New York Stock Exchange or any other exchange on which the    
preferred securities are then listed. (Section 9.04(e)).                        

     After the date for any distribution of subordinated debentures upon
dissolution of the Trust:                                                       

-    the preferred securities will no longer be deemed to be
outstanding,                                      

  -    DTC or its nominee, as the record holder of the preferred
         securities, will receive a registered global certificate or
        certificate representing the subordinated debentures to be
delivered upon the distribution, and              

       -    any certificates representing preferred securities not held by
             DTC or its nominee will be deemed to represent a like amount of
             subordinated debentures, with an interest rate identical to the
            distribution rate of, and accrued and unpaid interest equal to
          the accumulated and unpaid distributions on, those preferred
           securities, until the certificates are presented to us or our
agent for transfer or reissuance.                 

23

424B4
26th Page of 105
TOC
1st
Previous
Next
↓Bottom
Just 26th
       If a dissolution and liquidation of the Trust were to occur, we could
not assure you as to the market prices for the subordinated debentures that may 
be distributed in exchange for the preferred securities. Accordingly, the       
subordinated debentures that you may receive if a dissolution and liquidation of
the Trust were to occur, may trade at a discount to the price that you paid to  
purchase the preferred securities offered by this prospectus.                   

As used in this prospectus, "like amount" means:              

        -    with respect to a redemption of preferred securities and common
          securities, preferred securities having a liquidation amount
            equal to the principal amount of subordinated debentures to be
            contemporaneously redeemed in accordance with the subordinated
         indenture and the proceeds of which will be used to pay the
           applicable redemption price of those preferred securities and
common securities, and                            

          -    with respect to a distribution to holders of preferred securities
            and common securities of subordinated debentures in connection
            with the Trust's liquidation, subordinated debentures having a
               principal amount equal to the liquidation amount of the preferred
          securities and common securities of the holder to whom those
subordinated debentures are distributed.          

REDEMPTION PROCEDURES                                         

        Preferred securities redeemed on each redemption date will be redeemed
at the applicable redemption price with the proceeds from the contemporaneous   
redemption of subordinated debentures. Redemptions of preferred securities will 
be made and the applicable redemption price will be deemed payable on each      
redemption date, but only to the extent that the Trust has funds legally        
available for the payment of that redemption price. (Section 4.02(c)). See also 
"--Subordination of Common Securities."                                         

         If the Trust gives a notice of redemption for any preferred securities,
then, by 12:00 noon, New York time, on the redemption date, so long as the      
preferred securities are in book-entry only form, the property trustee will:    

 -    irrevocably deposit with DTC funds sufficient to pay the
applicable redemption price and                   

   -    give DTC irrevocable instructions and authority to pay the
            redemption price to the holders of those preferred securities.
See "Book-Entry Securities."                      

          If any preferred securities are no longer in book-entry-only form, the
Trust will:                                                 

      -    irrevocably deposit with the paying agent for those preferred
          securities funds sufficient to pay the applicable redemption
price, and                                        

         -    give that paying agent irrevocable instructions and authority to
             pay the redemption price to holders of the preferred securities
               upon surrender of their certificates evidencing those securities.

24

424B4
27th Page of 105
TOC
1st
Previous
Next
↓Bottom
Just 27th
Distributions payable on or before the redemption date for any
preferred securities called for redemption will be payable to the holders of    
those preferred securities on the relevant record dates for the related         
distribution dates. If notice of redemption is given and funds deposited as     
required, then upon the redemption date:                                        

       -    all rights of holders of those preferred securities called for
             redemption will cease, except the right of the holders of those
               preferred securities to receive the redemption price, but without
interest on that redemption price, and            

 -    those preferred securities will cease to be outstanding.

   If any date fixed for redemption of preferred securities is not a
business day, then payment of the redemption price payable on that date will be 
made on the next business day, and without any interest or other payment for the
delay, except that, if the business day falls in the next calendar year, the    
payment will be made on the immediately preceding business day. If a redemption 
price payment for any preferred securities called for redemption is improperly  
withheld or refused and not paid either by the Trust or by us pursuant to the   
guarantee, distributions on those preferred securities will continue to accrue  
at the then applicable rate, from the original redemption date to the date of   
payment. In that case, the actual payment date will be considered the date fixed
for redemption for purposes of calculating the redemption price. (Section       
4.02(d)).                                                                       

       Subject to applicable law, including United States federal securities
law, we or our subsidiaries may from time to time purchase outstanding preferred
securities by tender, in the open market or by private agreement.               

      The redemption price on any preferred securities will be paid to the
holders of record of those preferred securities as they appear on the register  
for the preferred securities on the relevant record date. While the preferred   
securities are in book-entry only-form, the relevant record date will be the    
business day before the relevant redemption date. If, however, the preferred    
securities do not remain in book-entry-only form, the relevant record date will 
be the 15th day before the redemption date. (Section 4.02(e)).                  

       If less than all the trust securities of the Trust are to be redeemed
on a redemption date, then the aggregate liquidation amount of those securities 
will be allocated 3% to the common securities and 97% to the preferred          
securities. The property trustee will select the particular preferred securities
to be redeemed not more than 60 days prior to the redemption date by that method
which:                                                                          

-    the property trustee deems fair and appropriate, and   

    -    may provide for the redemption of portions of the preferred
securities in denominations of $25 or greater.    

     The property trustee will promptly notify the security registrar in
writing of the preferred securities selected for redemption and, in the case of 
a partial redemption, the liquidation preference of preferred securities to be  
redeemed. For all purposes of the trust agreement, unless                       

25

424B4
28th Page of 105
TOC
1st
Previous
Next
↓Bottom
Just 28th
the context otherwise requires, all provisions relating to the redemption of    
preferred securities shall relate, in the case of any preferred securities      
redeemed or to be redeemed only in part, to the portion of the liquidation      
amount of preferred securities that has been or is to be redeemed. (Section     
4.02(f)).                                                                       

SUBORDINATION OF COMMON SECURITIES                            

         Payment of distributions on, and the redemption price of, the preferred
securities and the related common securities will be made pro rata based on the 
liquidation amount of those trust securities. No distribution payment or other  
payment on account of the redemption, liquidation or other acquisition of any   
common security will be made, however, if an event of default under the         
subordinated indenture has occurred and is continuing on the distribution,      
redemption or other payment date unless payment in full in cash of all          
accumulated and unpaid distributions on all outstanding preferred securities or 
the full redemption price due on preferred securities, as applicable, is made or
provided for. The property trustee must first apply all available funds to      
payment in full in cash of all preferred securities distributions or redemption 
price then due and payable. (Section 4.03(a)).                                  

    In the case of a trust agreement event of default resulting from a
subordinated indenture event of default, the holder of common securities will be
deemed to have waived the trust agreement event of default until the effect of  
all trust agreement events of default has been cured, waived or otherwise       
eliminated. Until those trust agreement events of default have been so cured,   
waived or otherwise eliminated, the property trustee shall act solely on behalf 
of the holders of the preferred securities and not the holder of the common     
securities, and only the holders of the preferred securities will have the right
to direct the property trustee to act on their behalf. (Section 4.03(b)).       

LIQUIDATION DISTRIBUTION UPON DISSOLUTION                     

      Pursuant to the trust agreement, the Trust will dissolve and will be
liquidated by the Cleveland Electric trustees on the first to occur of:         

    -    December 15, 2056, the expiration of the term of the Trust;

-    our bankruptcy, dissolution or liquidation;            

 -    our election to dissolve the Trust and to distribute the
     subordinated debentures to the holders of the preferred
securities and common securities;                 

        -    the redemption of all of the preferred securities in connection
            with the redemption of all of the subordinated debentures; and

  -    the entry by a court of an order for judicial dissolution
(Sections 9.01 and 9.02).                         

      If an early dissolution occurs as described in the second, third and
fifth bullet points above, the Cleveland Electric trustees will expeditiously   
liquidate the Trust by causing the property trustee to distribute to each holder
of preferred securities and common securities a like amount of subordinated     
debentures, unless that distribution is determined by the property trustee      

26

424B4
29th Page of 105
TOC
1st
Previous
Next
↓Bottom
Just 29th
to be impractical. If that distribution is impractical, the holders will be     
entitled to receive out of the available assets of the Trust, after satisfaction
of creditors' liabilities, an amount equal to the aggregate of the stated       
liquidation preference per preferred security plus accumulated and unpaid       
distributions to the date of payment. If this liquidation distribution can be   
paid only in part because the Trust has insufficient assets to pay in full, then
the amounts payable directly by the Trust on the preferred securities will be   
paid on a pro rata basis. The holders of the common securities will be entitled 
to receive distributions upon any dissolution pro rata with the holders of the  
preferred securities, except the preferred securities will have a preference    
over the common securities if a trust agreement event of default has occurred   
and is continuing. (Sections 9.04(a) and 9.04(d)).                              

EVENTS OF DEFAULT; NOTICE                                     

        Any one of the following events constitutes a trust agreement event of
default:                                                      

     -    the occurrence of an event of default under the subordinated
           indenture (see "Description of the Subordinated Debentures --
Events of Default"); or                           

       -    default by the Trust in the payment of any distribution for 30
days after it becomes due and payable; or         

       -    default by the Trust in the payment of any redemption price of
               any preferred security or common security when it becomes due and
payable; or                                       

        -    default in the performance, or breach, in any material respect,
               of any covenant or warranty of the Cleveland Electric trustees in
               the trust agreement, other than a default or breach dealt with in
           the second and third bullet points above, and continuation of
      that default or breach for a period of 60 days after the
              defaulting trustee or trustees have been given written notice of
         by the holders of at least 10% in liquidation amount of the
outstanding preferred securities; or              

        -    the occurrence of a bankruptcy event with respect to the Trust.

       Within five business days after the occurrence of any trust agreement
event of default, the property trustee will send notice of any default actually 
known to it to the holders of preferred securities, the administrative trustees 
and the depositor, unless the default has been cured or waived. (Section 8.02). 

         The holder of the common securities may remove the property trustee and
appoint a successor at any time unless a trust agreement event of default has   
occurred and is continuing, in which case the holders of a majority in          
liquidation amount of the preferred securities may remove the property trustee  
and appoint a successor. No registration or removal of the property trustee and 
no appointment of a successor trustee will be effective until the successor     
property trustee accepts the appointment in accordance with the trust agreement.
(Section 8.10).                                                                 

27

424B4
30th Page of 105
TOC
1st
Previous
Next
↓Bottom
Just 30th
MERGERS, CONSOLIDATIONS OR AMALGAMATIONS OF THE TRUST         

      The Trust may not consolidate, amalgamate, merge with or into, or be
replaced by, or convey, transfer or lease its properties and assets             
substantially as an entirety, to any corporation or other body except as        
described below or under "-- Liquidation Distribution upon Dissolution."        

    The Trust may, with the consent of the administrative trustees and
without the consent of the holders of the trust securities, consolidate,        
amalgamate, merge with or into, or be replaced by a trust organized as such     
under the laws of any State, if it satisfies the following conditions:          

-    the successor entity either:                           

              -    expressly assumes all of the obligations of the Trust under
the trust securities, or                

            -    substitutes for the preferred securities other securities
                    having substantially the same terms as the trust securities,
                so long as the successor securities rank the same as the
               trust securities rank with respect to distributions and
            payments upon liquidation, redemption and otherwise,

   -    we expressly acknowledge a trustee of the successor entity
               possessing the same powers and duties as the property trustee, in
        its capacity as the holder of the subordinated debentures,

        -    the preferred securities or any successor securities are listed
             or quoted, or any successor securities will be listed or quoted
       upon notification of issuance, on any national securities
          exchange or with another organization on which the preferred
securities are then listed or quoted,             

        -    the merger, consolidation, amalgamation or replacement does not
     cause the preferred securities, including any successor
       securities, to be downgraded by any nationally recognized
statistical rating organization,                  

        -    the merger, consolidation, amalgamation or replacement does not
            adversely affect the rights, preferences and privileges of the
      holders of the trust securities, including any successor
              securities, in any material respect, other than for any dilution
of the holders' interest in the new entity,       

      -    the successor entity has a purpose substantially identical to
that of the Trust,                                

         -    prior to the merger, consolidation, amalgamation or replacement,
        the Trust has received an opinion of nationally recognized
             independent counsel to the Trust experienced in such matters to
the effect that:                                  

              -    the merger, consolidation, amalgamation or replacement does
                   not adversely affect the rights, preferences and privileges
of the holders of the trust securities, 

28

424B4
31st Page of 105
TOC
1st
Previous
Next
↓Bottom
Just 31st
                    including any successor securities, in any material respect,
                   other than any dilution of the holders' interest in the new
entity,                                 

       -    following the merger, consolidation, amalgamation or
                    replacement, neither the Trust nor the successor entity will
                    be required to register as an "investment company" under the
Investment Company Act,                 

       -    following the merger, consolidation, amalgamation or
                    replacement, the Trust, or the successor entity, will not be
                 classified as an association taxable as a corporation for
      United States federal income tax purposes, and

       -    we guarantee the obligations of the successor entity under the
         successor securities at least to the extent provided by the
guarantee.                                        

         However, the Trust will not, except with the consent of holders of 100%
in liquidation amount of the trust securities, consolidate, amalgamate, merge   
with or into, or be replaced by any other entity or permit any other entity to  
consolidate, amalgamate, merge with or into, or replace it, if in the opinion of
nationally recognized independent counsel experienced in such matters, the      
consolidation, amalgamation, merger or replacement would cause the Trust or the 
successor entity to be classified as an association taxable as a corporation for
United States federal income tax purposes. See "-- Special Event Redemption" and
"-- Liquidation Distribution Upon Dissolution."                                 

MERGER OR CONSOLIDATION OF A CLEVELAND ELECTRIC TRUSTEE       

         So long as it is otherwise qualified and eligible, any of the following
may be the successor to a Cleveland Electric trustee:                           

     -    any corporation into which any trustee that is not a natural
       person may be merged or converted or with which it may be
consolidated,                                     

    -    or any corporation resulting from any merger, conversion or
               consolidation to which any Cleveland Electric trustee is a party,
or                                                

   -    any corporation succeeding to all or substantially all the
         corporate trust business of any Cleveland Electric trustee.
(Section 8.12).                                   

VOTING RIGHTS                                                 

     Except as provided below and under "Description of the Guarantee --
Amendments and Assignment" and as otherwise required by law and the trust       
agreement, the holders of the preferred securities will have no voting rights.  
(Section 6.01(a)).                                                              

    A majority in liquidation amount of the holders of the outstanding
preferred securities, acting as a single class, may appoint a special           
administrative trustee if:                                                      

      -    the Trust fails to pay distributions in full on the preferred
             securities for 6 consecutive quarterly distribution periods, or

29

424B4
32nd Page of 105
TOC
1st
Previous
Next
↓Bottom
Just 32nd
     -    a trust agreement event of default occurs and is continuing.

 For purposes of determining whether the Trust has failed to pay
distributions in full for 6 consecutive quarterly distribution periods,         
distributions are deemed to remain in arrears until full cumulative             
distributions have been paid for all quarterly distribution periods ending on or
before the date of payment of the cumulative distributions. Any holders of      
preferred securities, other than us or any of our affiliates, will be entitled  
to nominate any person to be appointed as special administrative trustee.       

Not later than 30 days after the right to appoint a special   
administrative trustee arises, the administrative trustees will convene a       
meeting of the holders of preferred securities for the purpose of appointing a  
special administrative trustee. If the administrative trustees fail to convene  
this meeting within the 30-day period, the holders of not less than 10% of the  
aggregate stated liquidation amount of the outstanding preferred securities may 
convene that meeting. Any special administrative trustee appointment will end   
when an event described in either of the two immediately preceding bullet points
no longer continues. Notwithstanding the appointment of any special             
administrative trustee, we retain all rights under the subordinated indenture,  
including the right to defer payments of interest by extending the interest     
payment period as provided under "Description of the Subordinated Debentures -- 
Option to Extend Interest Payment Period." If an extension occurs, there will be
no subordinated indenture event of default and, consequently, no trust agreement
event of default, for failure to make any scheduled interest payment during the 
extension period on the date originally scheduled. Holders of a majority in     
liquidation amount of the outstanding preferred securities will have the right, 
however, in the circumstances described above, to appoint a special             
administrative trustee. (Section 6.01(d)).                                      

       If any proposed amendment to the trust agreement provides for, or the
Cleveland Electric trustees otherwise propose to effect:                        

          -    any action that would adversely affect the powers, preferences or
        special rights of the holders of any preferred securities,
              whether by way of amendment to the trust agreement or otherwise,
or                                                

       -    the dissolution, winding-up or termination of the Trust, other
than pursuant to the trust agreement,             

then the holders of outstanding preferred securities will be entitled to vote as
a class on the amendment or proposal which shall not be effective except with   
the approval of the holders of 66-2/3% in liquidation preference of the         
outstanding preferred securities. No amendment to the trust agreement may be    
made if, as a result of such amendment, the Trust would be classified as an     
association taxable as a corporation for the United States federal income tax   
purposes. (Section 6.01(c)).                                                    

  The holders of a majority in aggregate liquidation amount of the
outstanding preferred securities will have the right to:                        

30

424B4
33rd Page of 105
TOC
1st
Previous
Next
↓Bottom
Just 33rd
       -    direct the time, method and place of conducting any proceeding
               for any remedy available to the property trustee or to direct the
        exercise of any trust or power conferred upon the property
              trustee under the trust agreement, including the right to direct
              the property trustee to exercise the remedies available to it as
            a holder of the subordinated debentures under the subordinated
indenture;                                        

       -    waive any past subordinated indenture event of default that is
waivable under the subordinated indenture; or     

      -    exercise any right to rescind or annul a declaration that the
           principal of all the subordinated debentures shall be due and
payable;                                          

provided, however, that where a consent under the subordinated indenture        
requires the consent of all holders of the subordinated debentures affected, the
property trustee may only give that consent at the direction of all holders of  
the preferred securities. If the property trustee fails to enforce its rights   
under the subordinated debentures, to the fullest extent permitted by law, a    
holder of preferred securities may, after written request to the property       
trustee to enforce those rights, institute a legal proceeding directly against  
us to enforce those rights without first instituting any legal proceeding       
against the property trustee or any other person or entity. The property trustee
will notify all holders of the preferred securities of any notice of default    
received from the subordinated indenture trustee with respect to the            
subordinated debentures. Except with respect to directing the time, method and  
place of conducting a proceeding for a remedy, the property trustee will not    
take any of the actions described in the three bullet points above unless it has
received an opinion from nationally recognized independent counsel experienced  
in these matters to the effect that the Trust will not be classified as an      
association taxable as a corporation for United States federal income tax       
purposes on account of that action. (Section 6.01(b)).                          

        Holders of preferred securities are not required to vote or consent to
the Trust's redemption or cancellation of any preferred securities in accordance
with the trust agreement.                                                       

  For the purposes of voting or consenting by holders of preferred
securities, any of the preferred securities that are owned by us, the Cleveland 
Electric trustees or any affiliate of ours or of any Cleveland Electric trustee,
generally will be treated as if not outstanding.                                

      The procedures by which holders of preferred securities may exercise
their voting rights are described below. See "Book Entry Securities" below.     

       Except in connection with the appointment of a special administrative
trustee as described above or during a trust agreement event of default, holders
of the preferred securities will have no rights to appoint or remove the        
Cleveland Electric trustees. As the indirect or direct holder of all of the     
Trust's common securities, only we may appoint, remove or replace a Cleveland   
Electric trustee.                                                               

CO-PROPERTY TRUSTEES AND SEPARATE PROPERTY TRUSTEE            

  In general, unless a continuing trust agreement event of default
exists, the holder of the common securities and the administrative trustees may 
appoint, and upon the written request of                                        

31

424B4
34th Page of 105
TOC
1st
Previous
Next
↓Bottom
Just 34th
the administrative trustees, we, as depositor of the Trust, will join with the  
administrative trustees in the execution, delivery and performance of all       
instruments and agreements necessary or proper to appoint, one or more persons  
approved by the property trustee either to act as co-property trustee, jointly  
with the property trustee, of all or any part of the trust property, or to act  
as separate property trustee of any that property, in either case with the      
powers as may be provided in the instrument of appointment, and to vest in that 
person or those persons in that capacity, any property, title, right or power   
deemed necessary or desirable, subject to the provisions of the trust agreement.
If we do not join in the appointment within 15 days after our receipt of a      
request to do so, or if a continuing subordinated indenture event of default    
exists, the administrative trustees alone will have power to make that          
appointment. (Section 8.09).                                                    

PAYMENT AND PAYING AGENT                                      

         Payments of preferred securities will be made to DTC, which will credit
the relevant accounts at DTC on the applicable distribution dates or, if the    
preferred securities are not held by DTC, these payments will be made by check  
mailed to the address of the registered holder. The paying agent will initially 
be The Bank of New York. The paying agent may resign upon 30 days' written      
notice to the administrative trustees, the property trustee and us as depositor.
In the event that The Bank of New York chooses to no longer be the paying agent,
the administrative trustees will appoint a successor to act as paying agent,    
which will be a bank or trust company acceptable to the property trustee and the
depositor. (Sections 4.04 and 5.09).                                            

REGISTRAR AND TRANSFER AGENT                                  

       The Bank of New York will act as registrar and transfer agent for the
preferred securities.                                                           

    Registration of transfers of preferred securities will be effected
without charge by or on behalf of the Trust, but upon payment for any tax or    
other governmental charges which may be imposed in relation to it.              

      The Trust will not be required to register or cause to be registered
any transfer of preferred securities after they have been called for redemption 
or during a period of 15 days immediately preceding the date on which notice    
identifying the serial numbers for the preferred securities called for          
redemption is mailed.                                                           

CONCERNING THE PROPERTY TRUSTEE                               

  We and certain of our subsidiaries maintain deposit accounts and
conduct other banking transactions with the property trustee in the ordinary    
course of their businesses. The property trustee also acts as trustee under     
certain indentures relating to borrowings by or for the benefit of the lessors  
to finance their acquisition of our interest in the Perry Nuclear Power Plant   
and Beaver Valley Power Station in connection with the sale and leaseback of    
certain undivided interests in those plants. Under the sale/leaseback documents,
we are ultimately responsible for the payment of this indebtedness.             

32

424B4
35th Page of 105
TOC
1st
Previous
Next
↓Bottom
Just 35th
MISCELLANEOUS                                                 

        We have been approved to list the preferred securities on the New York
Stock Exchange, subject to official notice of issuance.                         

        The administrative trustees are authorized and directed to conduct the
affairs of the Trust and to operate the Trust so that the Trust will not be     
deemed to be an "investment company" required to be registered under the        
Investment Company Act or taxed as a corporation for United States federal      
income tax purposes and so that the subordinated debentures will be treated as  
our indebtedness for United States federal income tax purposes. In this case, we
as the depositor and the administrative trustees are authorized to take any     
action, not inconsistent with applicable law, the certificate of trust or the   
trust agreement, that we and the administrative trustees determine in our       
discretion to be necessary or desirable for those purposes, as long as that     
action does not adversely affect the interests of the holders of the preferred  
securities.                                                                     

   Holders of the preferred securities have no preemptive or similar
rights.                                                                         

DESCRIPTION OF THE GUARANTEE

       Selected provisions of the guarantee that we will execute and deliver
to the guarantee trustee for the benefit of holders of preferred securities are 
summarized below. This summary is not complete. A form of the guarantee was     
filed with the Commission as an exhibit to the registration statement that      
contains this prospectus. You should read that document for a better            
understanding of all of the provisions of the guarantee that may be important to
you. Since the guarantee will be qualified under the Trust Indenture Act, you   
should also refer to the Trust Indenture Act of 1939 for more information.      
Wherever particular sections or defined terms of the guarantee are referred to  
in this description, those sections or defined terms are incorporated in this   
prospectus by reference.                                                        

GENERAL                                                       

  We will fully and unconditionally agree, to the extent described
herein, to pay the guarantee payments described below in full to the holders of 
preferred securities as and when due. We must make these payments regardless of 
any defense, right of set-off or counterclaim available to or asserted by the   
Trust. We will make the following guarantee payments with respect to the        
preferred securities to the extent not paid by or on behalf of the Trust:       

        -    any accumulated and unpaid distributions required to be paid on
             the preferred securities, to the extent we have made a required
              payment of interest or principal on the subordinated debentures;

    -    the redemption price on any preferred securities called for
           redemption by the Trust, including all accumulated and unpaid
            distributions to the date of redemption, to the extent we have
     made a required payment of interest or principal on the
subordinated debentures; and                      

33

424B4
36th Page of 105
TOC
1st
Previous
Next
↓Bottom
Just 36th
   -    upon a voluntary or involuntary dissolution, winding-up or
         termination of the Trust (other than in connection with the
               distribution of the subordinated debentures to the holders of the
          preferred securities or a redemption of all of the preferred
            securities upon the maturity or redemption of the subordinated
debentures), the lesser of:                       

              -    the aggregate of the liquidation amount and all accumulated
                   and unpaid distributions on the preferred securities to the
                    date of payment, to the extent the Trust has funds available
therefor, and                           

            -    the amount of assets of the Trust remaining available for
          distribution to holders of preferred securities in
liquidation of the Trust.               

    Our obligation to make a guarantee payment may be satisfied by our
direct payment of the required amounts to the holders of preferred securities or
by causing the Trust to pay those amounts to those holders.                     

 The guarantee will be a full and unconditional guarantee of the
preferred securities issued by the Trust from the time of issuance of the       
preferred securities, but will not apply to any payment of distributions or     
redemption price due to the extent that the Trust lacks funds legally available 
therefor as a result of our failure to make required payments of interest,      
redemption price or principal on the subordinated debentures. If we do not make 
interest or redemption price payments on the subordinated debentures, the Trust 
will not have funds legally available for, and will not pay, distributions or   
redemption price on the preferred securities. The guarantee will rank           
subordinate and junior in right of payment to all our outstanding liabilities,  
except those made of equal rank by their terms. See "-- Status of the           
Guarantee."                                                                     

AMENDMENTS AND ASSIGNMENT                                     

        The terms of the guarantee may be changed only with the prior approval
of the holders of not less than 66-2/3% in liquidation amount of the outstanding
preferred securities, except that any changes that do not adversely affect in   
any material respect the rights of holders of preferred securities may be made  
with no vote required. All of our successors, assigns, receivers, trustees and  
representatives will be bound by all guarantees and agreements of the guarantee,
and those guarantees and agreements will inure to the benefit of the holders of 
the outstanding preferred securities.                                           

EVENTS OF DEFAULT                                             

  An event of default under the guarantee will occur if we fail to
perform any of our payment obligations under the guarantee. The holders of a    
majority in liquidation amount of the preferred securities have the right to    
direct the time, method and place of conducting any proceeding for any remedy   
available to, or the exercise of any trust or power conferred upon, the         
guarantee trustee under the guarantee.                                          

If an event of default under the guarantee has occurred and is
continuing, the guarantee trustee will enforce the guarantee for the benefit of 
the holders of the preferred securities. If the guarantee trustee fails to      
enforce the guarantee, any holder of preferred securities may institute a       

34

424B4
37th Page of 105
TOC
1st
Previous
Next
↓Bottom
Just 37th
legal proceeding directly against us to enforce the guarantee trustee's rights  
under the guarantee without first instituting a legal proceeding against the    
Trust, the guarantee trustee or any other person or entity.                     

     The guarantee requires us to annually provide the guarantee trustee
with:                                                                           

        -    a report as to our performance of our guarantee obligations and
as to any default in that performance and         

          -    an officer's certificate as to our compliance with all conditions
under the guarantee.                              

INFORMATION CONCERNING THE GUARANTEE TRUSTEE                  

     The guarantee trustee will perform only the duties specifically set
forth in the guarantee unless we are in default under the guarantee. In case of 
an uncured event of default under the guarantee, the guarantee trustee must     
exercise the same degree of care as a prudent individual would exercise in the  
conduct of his or her own affairs. Subject to this provision, the guarantee     
trustee is not obligated to exercise any of its powers under the guarantee at   
the request of any holder of preferred securities unless it is offered          
reasonable indemnity against costs, expenses and liabilities that might be      
incurred by the exercise of those powers.                                       

TERMINATION OF THE GUARANTEE                                  

    The guarantee will terminate and be of no further force and effect
upon:                                                                           

         -    full payment of the applicable redemption price of the preferred
securities,                                       

  -    the distribution of subordinated debentures to holders of
       preferred securities in exchange for all of the preferred
securities, or                                    

         -    upon full payment of the amounts payable upon liquidation of the
Trust.                                            

       The guarantee will continue to be effective or will be reinstated, as
the case may be, if at any time any holder of preferred securities must restore 
payment of any sums paid under the preferred securities or the guarantee.       

STATUS OF THE GUARANTEE                                       

    Our guarantee will constitute an unsecured obligation of ours and,
except with respect to compensation or reimbursement payments to the guarantee  
trustee, will rank                                                              

-    subordinate and junior in right of payment to all our  
            liabilities, except liabilities that may be made pari passu by
their terms,                                      

      -    pari passu with the most senior preferred or preference stock
        issued or to be issued by us and with any guarantee now or
         hereafter entered into by us in respect of any preferred or
preference stock of any of our affiliates, and    

35

424B4
38th Page of 105
TOC
1st
Previous
Next
↓Bottom
Just 38th
-    senior to our common stock.                            

       The trust agreement provides that each holder of preferred securities
by acceptance of the preferred securities agrees to the subordination provisions
and other terms of the guarantee.                                               

 The guarantee will constitute a guarantee of payment and not of
collection. Accordingly, the guaranteed party may institute a legal proceeding  
directly against us as the guarantor to enforce its rights under the guarantee  
without first instituting a legal proceeding against any other person or entity.

GOVERNING LAW.                                                

        The guarantee will be governed by and construed in accordance with the
laws of the State of New York.                                                  

DESCRIPTION OF THE SUBORDINATED DEBENTURES

       The Trust will use the proceeds of the issuance and sale of its trust
securities to invest in our subordinated debentures. Selected provisions of the 
subordinated debentures and the subordinated indenture between us and The Bank  
of New York, as subordinated debenture trustee, are summarized below. This      
summary is not complete. We filed forms of the subordinated debentures and      
subordinated indenture with the Commission as exhibits to the registration      
statement that contains this prospectus. You should read those documents for a  
better understanding of all of their provisions that may be important to you.   
Since the subordinated indenture will be qualified under the Trust Indenture Act
of 1939, you should also refer to the Trust Indenture Act for more information. 
Wherever particular sections or defined terms of the subordinated debentures or 
the subordinated indenture are referred to in this prospectus, those sections or
defined terms are incorporated in this prospectus by reference.                 

       If the Trust is dissolved, subordinated debentures may be distributed
to the holders of the trust securities in liquidation of the Trust. See         
"Description of the Preferred Securities --Distribution of the Subordinated     
Debentures."                                                                    

      If the subordinated debentures are distributed to the holders of the
preferred securities, we will use our best efforts to cause those subordinated  
debentures to be listed on the New York Stock Exchange or on any other exchange 
on which the preferred securities are then listed.                              

GENERAL                                                       

    The subordinated debentures will be limited in aggregate principal
amount to $103,093,000, approximately the sum of the aggregate stated           
liquidation preference of the preferred securities and the consideration paid by
us for the related common securities. The subordinated debentures will be our   
unsecured, subordinated obligations and will rank junior to all of our senior   
indebtedness, as described below. The subordinated debentures will not be       
subject to a sinking fund.                                                      

36

424B4
39th Page of 105
TOC
1st
Previous
Next
↓Bottom
Just 39th
        The entire outstanding principal amount of the subordinated debentures
will become due and payable, together with any accrued and unpaid interest and  
including any additional interest as described below, on December 15, 2031. That
date may be extended to a date no later than December 15, 2050 if we elect to   
extend the scheduled maturity date of those subordinated debentures and if we   
satisfy specified conditions. See "-- Option to Extend Maturity Date."          

OPTIONAL REDEMPTION                                           

        On or after December 19, 2006, we will have the right, at any time and
from time to time, to redeem the subordinated debentures, in whole or in part,  
at a redemption price equal to 100% of the principal amount of the subordinated 
debentures being redeemed, together with any accrued but unpaid interest to the 
redemption date, including any additional interest described below.             

         In general, we may redeem the subordinated debentures, in whole but not
in part, within 90 days after a Tax Event or Investment Company Event occurs at 
a redemption price of 100% of their principal amount, together with any accrued 
but unpaid interest, including any additional interest, to the redemption date. 
See "Description of the Preferred Securities -- Special Event Redemption."      

As long as the Trust holds all of the outstanding subordinated
debentures relating to the trust securities, it must use the proceeds of the    
redemption of those subordinated debentures to redeem the preferred securities  
in accordance with their terms. We cannot redeem any subordinated debentures    
unless all accrued and unpaid interest, including any additional interest, has  
been paid in full on all outstanding subordinated debentures for all quarterly  
interest periods ending on or before the redemption date.                       

   We must give at least 30 but not more than 60 days' notice of any
optional redemption of subordinated debentures to holders of those subordinated 
debentures.                                                                     

INTEREST                                                      

      The subordinated debentures will bear interest at the rate of 9% per
annum. Interest is payable every quarter in arrears on March 15, June 15,       
September 15 and December 15 of each year, commencing on March 15, 2002.        
Interest will be paid to the person in whose name a subordinated debenture is   
registered, subject to certain exceptions, at the close of business on the      
business day next preceding the interest payment date. Interest will accrue     
quarterly, to the extent permitted by applicable law, at the rate of 9% per     
annum on any interest installment in arrears for more than one quarter and on   
any interest on overdue interest.                                               

We anticipate that the Trust will be the sole holder of the   
subordinated debentures unless the Trust is liquidated.                         

       The amount of interest payable for any period will be computed on the
basis of a 360-day year of twelve 30-day months. If any date on which interest  
is payable on the subordinated debentures is not a business day, then we will   
pay the interest payable on that date on the next succeeding day which is a     
business day, without any interest or other payment for any delay. If that      
business day falls in the next succeeding calendar year, however, the payment   
will be made                                                                    

37

424B4
40th Page of 105
TOC
1st
Previous
Next
↓Bottom
Just 40th
on the immediately preceding business day. In each case, the payment will be    
made with the same force and effect as if made on the date the payment was      
originally payable.                                                             

OPTION TO EXTEND MATURITY DATE                                

    The stated maturity of the subordinated debentures is December 15,
2031. However, before the stated maturity of the subordinated debentures, we may
extend that maturity date no more than one time for up to an additional 19 years
from the original stated maturity; so long as:                                  

-    we are not in bankruptcy or otherwise insolvent,       

-    we are not in default on the subordinated debentures,  

        -    we have made timely payments on the subordinated debentures for
       the immediately preceding six quarters without deferrals,

        -    the Trust is not in arrears on payments of distributions on the
preferred securities, and                         

          -    the subordinated debentures are rated Ba1 or higher by Standard &
              Poor's Rating Group, BB+ or higher by Moody's Investors Service,
        Inc. or the equivalent for any other nationally recognized
statistical rating organization.                  

Pursuant to the trust agreement, the administrative trustees are required to    
give notice of our election to extend the stated maturity to the holders of the 
preferred securities.                                                           

OPTION TO EXTEND INTEREST PAYMENT PERIOD                      

        We will have the right at any time during the term of the subordinated
debentures to extend the interest payment period, from time to time, for an     
extension period of up to 20 consecutive quarters, during which interest will   
accrue but not be paid. Interest will accrue quarterly on accrued but unpaid    
interest during any extension period. At the end of the extension period, we    
must pay all interest then accrued and unpaid--including interest accrued on    
unpaid interest as described above at the rate specified for the subordinated   
debentures to the extent permitted by applicable law. During any extension      
period, we may not:                                                             

     -    declare or pay any dividends on, or make a distribution with
            respect to, or redeem, purchase, acquire or make a liquidation
             payment with respect to, any of our capital stock, other than a
             dividend in stock of the same class as the stock on which it is
paid, or                                          

          -    make any payment of interest, principal or premium, if any, on or
              repay, repurchase or redeem any of our debt securities issued by
     us that rank equally with or junior to the subordinated
debentures, or                                    

        -    make any guarantee payments with respect to any items described
               in the two preceding bullet points, other than payments under the
guarantee.                                        

38

424B4
41st Page of 105
TOC
1st
Previous
Next
↓Bottom
Just 41st
     Before an extension period ends, we may further extend the interest
payment period, so long as the extension period together with all previous and  
further extensions will not:                                                    

-    exceed 20 consecutive quarters at any one time, or     

        -    extend beyond the maturity date of the subordinated debentures.

Once an extension period has ended and all amounts then due have been paid, we  
may start a new extension period, subject to the above requirements. No interest
will be due and payable during an extension period, except at the end of the    
period. So long as the property trustee is the sole holder of the subordinated  
debentures, we must give the property trustee, the administrative trustees and  
the subordinated debenture trustee notice of our selection of the extension     
period at least one business day prior to the earlier of:                       

   -    the date the distributions on the preferred securities are
payable, or                                       

         -    the date the administrative trustees are required to give notice
to the New York Stock Exchange or other applicable
         self-regulatory organization or to holders of the preferred
    securities of the record date for the payment of these
             distributions or the date the distributions are payable, but in
           any event not less than one business day prior to that record
date.                                             

   Pursuant to the Trust Agreement, the administrative trustees must
notify the holders of the preferred securities of our selection of an extension 
period.                                                                         

ADDITIONAL INTEREST                                           

        If the Trust is ever required to pay any taxes, duties, assessments or
governmental charges of whatever nature -- other than withholding taxes --      
imposed by the United States or any other taxing authority, then, in any case,  
we will also pay as "additional interest" the amount required so that the net   
amounts received and retained by the Trust after paying those taxes, duties,    
assessments or governmental charges will be not less than the amounts the Trust 
would have received had no taxes, duties, assessments or governmental charges   
been imposed.                                                                   

SET-OFF                                                       

        Notwithstanding anything to the contrary in the subordinated debenture
indenture, we may set-off any payment we are otherwise required to make on the  
subordinated debentures to the extent we have already made, or are concurrently 
on the date of payment making, a payment under the guarantee.                   

SUBORDINATION                                                 

        Our subordinated debentures will be subordinate and junior in right of
payment to all our senior indebtedness, as defined below. The subordinated      
debentures rank equally with our obligations to trade creditors. No payment of  
principal of -- including redemption -- or interest on the subordinated         
debentures may be made if:                                                      

39

424B4
42nd Page of 105
TOC
1st
Previous
Next
↓Bottom
Just 42nd
          -    we have defaulted on any payment of senior indebtedness when due,
          any applicable grace period with respect to that default has
    ended and the default has not been cured or waived, or

        -    if the maturity of any senior indebtedness has been accelerated
because of a default.                             

(Section 11.02). If we are voluntarily or involuntarily dissolved, wound-up,    
liquidated or reorganized and our assets are distributed to creditors, whether  
in bankruptcy, insolvency, receivership or other proceedings, all principal of  
and interest due or to become due on, all senior indebtedness must be paid in   
full before the holders of the subordinated debentures are entitled to receive  
or retain any payment thereon. (Section 11.03). Subject to the prior payment of 
all senior indebtedness, the rights of the holders of the subordinated          
debentures will be subrogated to the rights of the holders of senior            
indebtedness to receive payments or distributions applicable to senior          
indebtedness until all amounts owing on the subordinated debentures are paid in 
full. (Section 11.04).                                                          

         Under the subordinated indenture, "senior indebtedness" means generally
the principal of, premium, if any, interest on and any other payment due        
pursuant to any of the following, whether outstanding at the date of execution  
of the subordinated indenture or incurred, created or assumed later:            

       -    all our indebtedness on a consolidated basis -- other than any
               obligations to trade creditors -- evidenced by notes, debentures,
           bonds, other securities or other instruments issued by us for
money borrowed and capitalized lease obligations; 

       -    all indebtedness of others of the kinds described in the first
             bullet point above assumed by or guaranteed in any manner by us
or in effect guaranteed by us; and                

      -    all renewals, extensions or refundings of indebtedness of the
               kinds described in either of the preceding first or second bullet
              point above, unless, in the case of any particular indebtedness,
         renewal, extension or refunding, the instrument creating or
            evidencing the same or the assumption or guarantee of the same
             expressly provides that the indebtedness, renewal, extension or
               refunding is not superior in right of payment to or is pari passu
with the subordinated debentures. (Section 1.01). 

   The subordinated indenture does not limit the aggregate amount of
senior indebtedness that we may issue. As of September 30, 2001, we had         
approximately $2.5 billion of principal amount of indebtedness for borrowed     
money constituting senior indebtedness on a consolidated basis.                 

  CERTAIN COVENANTS OF THE CLEVELAND ELECTRIC ILLUMINATING COMPANY

   We will covenant that we will not declare or pay any dividends or
distributions -- other than dividends or distributions payable in our common    
stock -- on, or redeem, purchase, acquire or make a liquidation payment with    
respect to, any of our capital stock, or make any guarantee payments with       
respect to the foregoing, other than payments under the guarantee, if at the    
time:                                                                           

40

424B4
43rd Page of 105
TOC
1st
Previous
Next
↓Bottom
Just 43rd
      -    any event of which we have actual knowledge has occurred that
            with the giving of notice or the lapse of time, or both, would
              constitute an event of default under the subordinated indenture,
  and that we have not taken reasonable steps to cure,

          -    we will be in default in our payment of any obligations under the
guarantee, or                                     

          -    we will have given notice of our selection of an extension period
          as provided in the subordinated indenture and that extension
        period, or any extension of that extension period, will be
continuing. (Section 10.05).                      

We will also covenant:                                        

          -    to maintain 100% ownership of the common securities of the Trust,
             provided, however, that any permitted successor of us under the
          subordinated indenture may succeed to our ownership of those
common securities, and                            

     -    to use our reasonable efforts, consistent with the terms and
               provisions of the trust agreement, to cause the Trust to remain a
    business trust and otherwise not to be classified as a
        corporation for United States federal income tax purposes.
(Section 10.05).                                  

EVENTS OF DEFAULT                                             

   Each of the following events constitutes an event of default with
respect to the subordinated debentures:                                         

-    failure for 30 days to pay interest on the subordinated
             debentures when due, including any additional interest, subject
         to the deferral of any due date in the case of an extension
period; or                                        

         -    failure to pay principal on the subordinated debentures when due
               whether at maturity, upon redemption by declaration or otherwise;
         provided, however, that an extension of the maturity of the
         subordinated debentures in accordance with the terms of the
              subordinated indenture and the subordinated debentures shall not
constitute an event of default; or                

        -    failure to observe or perform in any material respect any other
          covenant contained in the subordinated indenture for 90 days
        after written notice to us from the subordinated debenture
              trustee or to us and the subordinated debenture trustee from the
            holders of at least 25% in principal amount of the outstanding
subordinated debentures; or                       

    -    certain events in bankruptcy, insolvency or reorganization.
(Section 5.01).                                   

  The holders of a majority in outstanding principal amount of the
subordinated debentures have the right to direct the time, method and place of  
conducting any proceeding for any remedy available to the subordinated debenture
trustee. (Section 5.12). The subordinated debenture                             

41

424B4
44th Page of 105
TOC
1st
Previous
Next
↓Bottom
Just 44th
trustee or the holders of not less than 25% in aggregate outstanding principal  
amount of the subordinated debentures may declare the principal of and interest 
on the subordinated debentures due and payable immediately upon a subordinated  
indenture event of default, and should the subordinated debenture trustee or    
those holders of subordinated debentures fail to make that declaration the      
holders of at least 25% in aggregate liquidation preference of preferred        
securities then outstanding will have that right. The holders of a majority in  
aggregate outstanding principal amount of the subordinated debentures may annul 
the declaration if all defaults have been cured or waived and a sum sufficient  
to pay all matured installments of interest and principal due otherwise than by 
acceleration, as well as all sums paid or advanced by the subordinated debenture
trustee and its compensation, expenses and advances, have been deposited with   
the subordinated debenture trustee. (Section 5.02).                             

  The holders of a majority in outstanding principal amount of the
subordinated debentures affected may, on behalf of the holders of all the       
subordinated debentures, waive any past default, except a default in the payment
of principal or interest (unless the default has been cured and a sum sufficient
to pay all matured installments of interest and principal due otherwise than by 
acceleration has been deposited with the subordinated debenture trustee) or a   
default in respect of a covenant or provision which under the subordinated      
indenture cannot be modified or amended without the consent of the holder of    
each outstanding subordinated debenture. (Section 5.13). We must file annually  
with the subordinated debenture trustee a certificate as to our compliance with 
all the material terms, provisions and conditions applicable to us under the    
subordinated indenture. (Section 10.04).                                        

   In case any subordinated indenture event of default occurs and is
continuing, the property trustee will have the right to declare the principal of
and the interest, including any additional interest, on the subordinated        
debentures and any other amounts payable under the subordinated indenture to be 
due and payable and to enforce its other rights as a creditor with respect to   
the subordinated debentures.                                                    

         A voluntary or involuntary dissolution of the Trust prior to redemption
or maturity of the subordinated debentures would not constitute a subordinated  
indenture event of default. If the Trust is dissolved, an event both we and the 
Trust consider remote, any of the following, among other things, could occur:   

        -    a distribution of the subordinated debentures to the holders of
the preferred securities,                         

       -    a cash distribution to the holders of the preferred securities
          out of the sale of the Trust's assets, after satisfaction of
liabilities to creditors,                         

          -    a permitted redemption at par of the subordinated debentures, and
       a consequent redemption of a like amount of the preferred
               securities, at our option of under the circumstances described in
"-- Optional Redemption," or                      

      -    the rollover of the Trust's property into another entity with
similar characteristics.                          

42

424B4
45th Page of 105
TOC
1st
Previous
Next
↓Bottom
Just 45th
FORM, EXCHANGE AND TRANSFER                                   

       The subordinated debentures will be issuable only in registered form,
without coupons and only in denominations of $25 and multiples of $25. (Section 
3.02).                                                                          

  Subject to the terms of the subordinated indenture, subordinated
debentures may be presented for registration of transfer or exchange -- duly    
endorsed or accompanied by satisfactory instruments of transfer or exchange --  
at the office of the registrar for the subordinated debentures or at the office 
of any transfer agent designated by us for that purpose. No service charge will 
be made for any registration of transfer or exchange of subordinated debentures,
but we may require payment of a sum sufficient to cover any tax or other        
governmental charge payable in connection therewith except with respect to      
certain exchanges not involving any transfer. The transfer or exchange will be  
effected upon the registrar or the transfer agent, as the case may be, being    
satisfied with the documents of transfer, title and identity of the person      
making the request. We have appointed the subordinated debenture trustee as the 
registrar for the subordinated debentures. (Section 3.05).                      

        We may at any time designate additional transfer agents or rescind the
designation of any transfer agent or approve a change in the office through     
which any transfer agent acts. (Section 10.02).                                 

We will not be required to:                                   

        -    issue, register the transfer of or exchange of any subordinated
               debentures during the 15 days before the day notice of redemption
        identifying those subordinated debentures being called for
redemption is mailed or                           

  -    issue, register the transfer or exchange any subordinated
            debentures selected for redemption in whole or in part, except
         the unredeemed portion of any subordinated debentures being
redeemed in part. (Section 3.05).                 

PAYMENT AND PAYING AGENTS                                     

  We will pay interest on a subordinated debenture on any interest
payment date to the person in whose name the subordinated debenture, or one or  
more predecessor securities, is registered at the close of business on the      
regular record date for that interest payment date. (Section 3.07).             

      Principal of and any interest on the subordinated debentures will be
payable at the office of the paying agent or agents designated by us for this   
purpose from time to time. We may at our option, however, pay interest by check 
mailed to the address of the person entitled to that interest as that address   
appears in the security register or by wire transfer. The subordinated debenture
trustee is The Bank of New York and we have designated The Bank of New York as  
our initial paying agent and The Bank of New York's corporate trust office in   
The City of New York as our sole paying agency for payments on the subordinated 
debentures. We may at any time designate additional paying agents or rescind the
designation of any paying agent or approve a change in the office through which 
any paying agent acts. (Section 10.02).                                         

43

424B4
46th Page of 105
TOC
1st
Previous
Next
↓Bottom
Just 46th
MODIFICATION OF THE SUBORDINATED INDENTURE                    

      The subordinated indenture contains provisions permitting us and the
subordinated debenture trustee, with the consent of the holders of not less than
66-2/3% of the principal amount of the outstanding subordinated debentures, to  
modify the subordinated indenture in a manner affecting the rights of the       
holders of the subordinated debentures. However, no modification may, without   
the consent of the holder of each outstanding subordinated debenture:           

     -    change the fixed maturity of the subordinated debentures, or
               reduce the principal amount thereof, or reduce the rate or extend
             the time of payment of interest thereon, or change the place of
     payment where or the currency in which the subordinated
              debentures or their interest are payable, or impair the right to
      institute a suit for enforcement on or after maturity or
       redemption, or modify the subordination provisions in the
              subordinated indenture in a manner adverse to the holders of the
subordinated debentures, or                       

  -    reduce the percentage of principal amount of subordinated
             debentures, the holders of which are required to consent to any
modification of the subordinated indenture, or    

         -    modify certain provisions of the subordinated indenture relating
           to the waiver of our past defaults or our compliance with our
covenants in the subordinated indenture.          

Under the subordinated indenture, the consent of the holders of the preferred   
securities is also required for some amendments to or the termination of the    
subordinated indenture and in respect of our compliance with certain covenants  
in the subordinated indenture. (Section 9.02).                                  

CONSOLIDATION, MERGER AND SALE                                

         We may not consolidate with or merge into, or convey, transfer or lease
our properties and assets substantially as an entirety to, any person, and may  
not permit any person to merge into, or convey, transfer or lease its properties
and assets substantially as an entirety to, us unless:                          

-    the successor person, if any:                          

               -    is a corporation, partnership or trust organized and validly
                 existing under the laws of any domestic jurisdiction, and

             -    assumes our obligations on the subordinated debentures and
under the subordinated indenture,       

         -    immediately after giving effect to the transaction, and treating
               any indebtedness which as a result of the transaction becomes our
               obligation or the obligation of any of our subsidiaries as having
           been incurred at the time of the transaction, no subordinated
             indenture event of default, and no event which, after notice or
          lapse of time or both, would become a subordinated indenture
     event of default, will have occurred and be continuing,

44

424B4
47th Page of 105
TOC
1st
Previous
Next
↓Bottom
Just 47th
        -    the consolidation or merger or conveyance, transfer or lease of
           our properties or our assets is permitted under, and does not
             give rise to any breach or violation of, the trust agreement or
the guarantee, and                                

-    other conditions are met. (Section 8.01).              

SATISFACTION AND DISCHARGE                                    

      Under the terms of the subordinated indenture, we will be discharged
from our obligations under the subordinated debentures if we deposit with the   
subordinated debenture trustee, in trust, moneys in an amount sufficient to pay 
all the principal of, and interest on, the subordinated debentures on the dates 
those payments are due in accordance with the terms of those subordinated       
debentures, provided that those subordinated debentures have become due and     
payable, or will become due and payable within one year whether at maturity or  
through redemption. Even if we make the deposit as described in the preceding   
sentence, however, our obligations to register the transfer or exchange of      
subordinated debentures, replace stolen, lost or mutilated subordinated         
debentures and hold moneys for payment in trust will not be discharged. (Section
4.01).                                                                          

GOVERNING LAW                                                 

    The subordinated indenture and the subordinated debentures will be
governed by, and construed in accordance with, the laws of the State of         
New York.  (Section 1.12).                                                      

RELATIONSHIP AMONG THE PREFERRED SECURITIES,
 THE SUBORDINATED DEBENTURES AND THE GUARANTEE

         As long as payments of interest and other payments are made when due on
the subordinated debentures, those payments will be sufficient to cover         
distributions and other payments due on the preferred securities, primarily     
because:                                                                        

          -    the aggregate principal amount of subordinated debentures will be
             equal to the sum of the aggregate stated liquidation preference
    of the preferred securities and the common securities;

      -    the interest rate and interest and other payment dates on the
          subordinated debentures will match the distribution rate and
    distribution and other payment dates for the preferred
securities;                                       

        -    the trust agreement obligates us, and not the Trust, to pay for
              any, costs, expenses and liabilities of the Trust, including any
              income taxes, duties and other governmental charges, and related
               costs and expenses, to which the Trust may become subject, except
             for United States withholding taxes and the Trust's obligations
    to holders of preferred securities under the preferred
securities; and                                   

45

424B4
48th Page of 105
TOC
1st
Previous
Next
↓Bottom
Just 48th
         -    the trust agreement further provides that the Cleveland Electric
         trustees will not cause or permit the Trust to, among other
            things, engage in any activity that is not consistent with the
limited purposes of the Trust.                    

        We are guaranteeing the payment of distributions and other amounts due
on the preferred securities to the extent the Trust has funds available for the 
payment of those distributions as and to the extent set forth under "Description
of the Guarantee." If and to the extent that we do not make payments on the     
subordinated debentures, the Trust will not pay distributions or other amounts  
due on the preferred securities.                                                

        If the guarantee trustee fails to enforce the guarantee, a holder of a
preferred security may institute a legal proceeding directly against us to      
enforce its rights under the guarantee without first instituting a legal        
proceeding against the Trust or any other person or entity.                     

    The preferred securities evidence the rights of the holders of the
preferred securities to the benefits of the Trust, which exists for the sole    
purpose of issuing its trust securities and investing the proceeds in our debt  
securities, while the subordinated debentures represent our indebtedness. A     
principal difference between the rights of a holder of a preferred security and 
a holder of a subordinated debenture is that a holder of a subordinated         
debenture will accrue, and is entitled to receive, subject to permissible       
extensions interest periods, interest on the principal amount of subordinated   
debentures held, while a holder of preferred securities is only entitled to     
receive distributions if and to the extent the Trust has funds legally available
for the payment of those distributions.                                         

Upon any voluntary or involuntary dissolution, winding-up or  
termination of the Trust, the holders of preferred securities will be entitled  
to receive in cash, out of assets legally available for distribution to holders,
the liquidation distribution described under "Description of the Preferred      
Securities -- Liquidation Distribution Upon Dissolution." Upon our voluntary or 
involuntary liquidation or bankruptcy, the Trust, as holder of the subordinated 
debentures, would be a subordinated creditor of ours, subordinated in right of  
payment to all senior indebtedness, but entitled to receive payment in full of  
principal and interest, before any of our stockholders receive payments or      
distributions. Since we are the guarantor under the guarantee and have agreed to
pay for all costs, expenses and liabilities of the Trust (other than United     
States withholding taxes and other than the Trust's obligations to holders of   
preferred securities under the preferred securities), the positions of a holder 
of preferred securities and a holder of subordinated debentures relative to     
other creditors and to our stockholders in the event of our liquidation or      
bankruptcy would be substantially the same.                                     

       A default or event of default under any senior indebtedness would not
constitute a default or subordinated indenture event of default. In the event of
payment defaults under, or acceleration of, senior indebtedness, the            
subordination provisions of the subordinated debentures provide that no payments
may be made on the subordinated debentures until that senior indebtedness has   
been paid in full or any payment default has been cured or waived. Failure to   
make required payments on the subordinated debentures would constitute a        
subordinated indenture event of default.                                        

46

424B4
49th Page of 105
TOC
1st
Previous
Next
↓Bottom
Just 49th
 BOOK-ENTRY SECURITIES

The preferred securities will trade through DTC. The preferred
securities will be represented by a global certificate and registered in the    
name of Cede & Co., DTC's nominee.                                              

         DTC is a New York clearing corporation and a clearing agency registered
under Section 17A of the Securities Exchange Act of 1934. DTC holds securities  
for its participants. DTC facilitates settlement of securities transactions     
among its participants, through electronic computerized book-entry changes in   
the participants' accounts. This eliminates the need for physical movement of   
securities certificates. The participants include securities brokers and        
dealers, banks, trust companies and clearing corporations. DTC is owned by a    
number of its participants and by the New York Stock Exchange, Inc., the        
American Stock Exchange, Inc., and the National Association of Securities       
Dealers, Inc. Others who maintain a custodial relationship with a participant   
can use the DTC system. The rules that apply to DTC and those using its systems 
are on file with the Commission.                                                

      Purchases of preferred securities within the DTC system must be made
through participants, which will receive a credit for the preferred securities  
on DTC's records. The beneficial ownership interest of each purchaser will be   
recorded on the participants' records. Beneficial owners will not receive       
written confirmation from DTC of their purchases, but beneficial owners should  
receive written confirmations of the transactions, as well as periodic          
statements of their holdings, from the participants through which they purchased
preferred securities. Beneficial owners will not receive certificates for their 
preferred securities, unless use of the book-entry system for the preferred     
securities is discontinued.                                                     

  To facilitate subsequent transfers, all the preferred securities
deposited by direct participants with DTC are registered in the name of DTC's   
nominee, Cede & Co. The deposit of preferred securities with DTC and their      
registration in the name of Cede & Co. effect no change in beneficial ownership.
DTC has no knowledge of the actual beneficial owners of the preferred           
securities. DTC's records reflect only the identity of the participants to whose
accounts those preferred securities are credited. These participants may or may 
not be the beneficial owners. Participants will remain responsible for keeping  
account of their holdings on behalf of their customers.                         

        Conveyance of notices and other communications by DTC to participants,
and by participants to indirect participants and beneficial owners, will be     
governed by arrangements among them.                                            

       Redemption notices will be sent to Cede & Co. If less than all of the
preferred securities are being redeemed, DTC's practice is to determine by lot  
the liquidation amount of each participant to be redeemed.                      

         Although voting with respect to the preferred securities is limited, in
those cases where a vote is required, neither DTC nor Cede & Co. will itself    
consent or vote with respect to preferred securities. Under its usual           
procedures, DTC would mail an omnibus proxy to the Trust as soon as possible    
after the record date. The omnibus proxy assigns the consenting or voting rights
of Cede & Co. to those participants to whose accounts the preferred securities  
are credited on the                                                             

47

424B4
50th Page of 105
TOC
1st
Previous
Next
↓Bottom
Just 50th
record date. We and the Trust believe that these arrangements will enable the   
beneficial owners to exercise rights equivalent in substance to the rights that 
can be directly exercised by a holder of a beneficial interest in the Trust.    

        Distribution payments on the preferred securities will be made to DTC.
DTC's practice is to credit participants' accounts on the relevant payment date 
in accordance with their respective holdings shown on DTC's records unless DTC  
has reason to believe that it will not receive payments on that payment date.   
Payments by participants to beneficial owners will be governed by standing      
instructions and customary practices. Payments will be the responsibility of    
participants and not DTC, the Trust or us. Payment of distributions to DTC is   
the responsibility of the Trust. Disbursement of those payments to participants 
is the responsibility of DTC, and disbursement of those payments to the         
beneficial owners is the responsibility of participants.                        

       Except as provided in this prospectus, a beneficial owner will not be
entitled to receive physical delivery of preferred securities. Accordingly, each
beneficial owner must rely on the procedures of DTC to exercise any rights under
the preferred securities.                                                       

     DTC may discontinue providing its services as securities depositary
with respect to the preferred securities at any time by giving reasonable notice
to the Trust. In the event no successor securities depositary is obtained,      
preferred securities certificates will be printed and delivered. If the         
administrative trustees and we decide to discontinue use of the DTC system of   
book-entry transfers, certificates for the preferred securities will be printed 
and delivered.                                                                  

     The information in this section concerning DTC and DTC's book-entry
system has been obtained from sources that we believe to be accurate, but we    
assume no responsibility for its accuracy. Neither we nor the Trust has any     
responsibility for the performance by DTC or its participants of their          
respective obligations as described above or under the rules and procedures     
governing their respective operations.                                          

UNITED STATES TAXATION

      The following summary describes certain United States federal income
tax consequences of the purchase, ownership and disposition of preferred        
securities as of the date of this prospectus, and represents the opinion of     
Pillsbury Winthrop LLP, our special tax counsel, insofar as it relates to       
matters of law or legal conclusions. Except where noted, it deals only with     
preferred securities held as capital assets within the meaning of sec. 1221 of  
the Internal Revenue Code of 1986, as amended, and does not deal with special   
situations, like those of tax-exempt organizations, dealers in securities or    
currencies, banks, financial institutions, life insurance companies, real estate
investment trusts, regulated investment companies, persons holding preferred    
securities as a part of a hedging or conversion transaction or a straddle,      
persons who mark to market securities, United States holders (as defined below) 
whose "functional currency" is not the United States dollar, or persons who are 
not United States holders. In addition, this discussion does not address any tax
consequences to persons who purchase preferred securities other than pursuant to
their initial issuance and distribution. It also does not include any           
description of any alternative minimum tax consequences or of the tax laws of   
any state, local or foreign jurisdiction. Furthermore, the discussion below is  
based upon the provisions of the                                                

48

424B4
51st Page of 105
TOC
1st
Previous
Next
↓Bottom
Just 51st
Internal Revenue Code and income tax regulations, administrative rulings and    
judicial decisions under the Internal Revenue Code as of the date of this       
prospectus, and those authorities may be repealed, revoked or modified, possibly
with retroactive effect, so as to result in United States federal income tax    
consequences different from those discussed below.                              

       PROSPECTIVE PURCHASERS OF PREFERRED SECURITIES, INCLUDING PERSONS WHO
ARE NOT UNITED STATES HOLDERS AND PERSONS WHO PURCHASE PREFERRED SECURITIES IN  
THE SECONDARY MARKET, ARE ADVISED TO CONSULT WITH THEIR OWN TAX ADVISORS AS TO  
THE UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND
DISPOSITION OF PREFERRED SECURITIES IN LIGHT OF THEIR PARTICULAR CIRCUMSTANCES, 
AS WELL AS THE EFFECTS OF ANY STATE, LOCAL, FOREIGN OR OTHER TAX LAWS.          

UNITED STATES HOLDERS                                         

         As used in this prospectus, a "United States holder" means a beneficial
owner of a preferred security that is, for United States federal income tax     
purposes:                                                                       

-    a citizen or resident of the United States,            

    -    a corporation, or other entity treated as a corporation for
             United States federal income tax purposes, created or organized
        in or under the laws of the United States or any political
subdivision thereof,                              

          -    an estate the income of which is subject to United States federal
income taxation regardless of its source, or      

      -    a trust the administration of which is subject to the primary
               supervision of a court within the United States and for which one
             or more United States persons have the authority to control all
substantial decisions.                            

If a partnership holds preferred securities, the United States federal income   
tax treatment of a partner generally will depend upon the status of the partner 
and the activities of the partnership. Partners of partnerships holding         
preferred securities should consult their tax advisors.                         

CLASSIFICATION OF THE TRUST                                   

    Pillsbury Winthrop LLP, our special tax counsel, is of the opinion
that, under current law and assuming full compliance with the terms of the      
subordinated indenture, the instruments establishing the Trust, and certain     
other documents, the Trust will be classified as a "grantor trust" for United   
States federal income tax purposes and will not be classified as an association 
taxable as a corporation. Accordingly, each United States holder will be treated
as owning an undivided beneficial interest in the subordinated debentures.      
Investors should be aware that the opinion of Pillsbury Winthrop LLP is not     
binding on the Internal Revenue Service or the courts.                          

CLASSIFICATION OF THE SUBORDINATED DEBENTURES                 

         Based on the advice of Pillsbury Winthrop LLP, we believe and intend to
take the position that the subordinated debentures will constitute indebtedness 
for United States federal                                                       

49

424B4
52nd Page of 105
TOC
1st
Previous
Next
↓Bottom
Just 52nd
income tax purposes. No assurance can be given that this position will not be   
challenged by the Internal Revenue Service or, if challenged, that the challenge
will not be successful. If the Internal Revenue Service successfully challenged 
the treatment of the subordinated debentures as indebtedness, the preferred     
securities would be subject to redemption at our option as described under the  
caption "Description of the Preferred Securities -- Special Event Redemption."  
By purchasing and accepting preferred securities, each United States holder     
covenants to treat the subordinated debentures as indebtedness and the preferred
securities as evidence of an indirect beneficial ownership in the subordinated  
debentures. The remainder of this discussion assumes that the subordinated      
debentures will be classified as indebtedness for United States federal income  
tax purposes.                                                                   

PAYMENTS OF INTEREST                                          

Except as set forth below, stated interest on the subordinated
debentures will generally be taxable to a United States holder as ordinary      
income at the time it is paid or accrued in accordance with the United States   
holder's method of accounting for tax purposes. No portion of that income will  
be eligible for the dividends-received deduction.                               

ORIGINAL ISSUE DISCOUNT                                       

   Under the subordinated indenture, we have the right to extend the
interest payment period on the subordinated debentures at any time or from time 
to time for a period not exceeding 20 consecutive quarters with respect to each 
extension period, provided, however, that no extension period may extend beyond 
the stated maturity (as defined in the subordinated indenture) of the           
subordinated debentures.                                                        

      We believe that the likelihood of our extending the interest payment
period on the subordinated debentures is "remote" within the meaning of         
applicable income tax regulations, in part because doing so would prevent us    
from making certain payments with respect to our capital stock and certain of   
our debt securities. See "Description of the Subordinated Debentures--Option to 
Extend Interest Payment Period." Consequently, we believe that the subordinated 
debentures will not be treated as having been issued with original issue        
discount for United States federal income tax purposes. It should be noted that 
the regulations have not yet been addressed in any rulings or other             
interpretations by the Internal Revenue Service. Accordingly, it is possible    
that the Internal Revenue Service could take a different position.              

     If we exercised our right to extend an interest payment period, the
subordinated debentures would at that time be treated as having been retired and
reissued with original issue discount. As a result, United States holders would 
be required, for the remaining term of the subordinated debentures, to accrue   
interest income even if they used the cash method of accounting. Consequently,  
in the event that the payment of interest was deferred, a United States holder  
would be required to include original issue discount in income on an economic   
accrual basis, notwithstanding that we would not make any interest payments on  
the subordinated debentures during the extension period.                        

50

424B4
53rd Page of 105
TOC
1st
Previous
Next
↓Bottom
Just 53rd
    RECEIPT OF SUBORDINATED DEBENTURES OR CASH UPON LIQUIDATION OF THE
TRUST                                                                           

         As described under the caption "Description of the Preferred Securities
-- Distribution of Subordinated Debentures," the subordinated debentures may be 
distributed to holders in exchange for the preferred securities in liquidation  
of the Trust. Under current law, for United States federal income tax purposes, 
that distribution would be treated as a non-taxable event to each United States 
holder, and each United States holder would receive an aggregate tax basis in   
the subordinated debentures equal to the holder's aggregate tax basis in its    
preferred securities. A United States holder's holding period for the           
subordinated debentures received in liquidation of the Trust would include the  
period during which the holder held the preferred securities. However, if the   
Trust is classified for United States federal income tax purposes as an         
association taxable as a corporation at the time it is dissolved or if there is 
a change in law, the distribution of the subordinated debentures may be a       
taxable event to United States Holders. See "-- Sale of the Preferred           
Securities" below.                                                              

Under certain circumstances, as described under the caption   
"Description of the Preferred Securities -- Special Event Redemption," the      
subordinated debentures may be redeemed for cash and the proceeds of the        
redemption distributed to holders of preferred securities in redemption of the  
preferred securities. Under current law, that redemption would, for United      
States federal income tax purposes, constitute a taxable disposition of the     
preferred securities, and a holder would recognize gain or loss as if the holder
had sold the redeemed preferred securities. See "--Sale of the Preferred        
Securities" below.                                                              

SALE OF THE PREFERRED SECURITIES                              

   Upon a sale, exchange, redemption or other taxable disposition of
preferred securities, a United States holder will recognize gain or loss equal  
to the difference between the amount realized upon the disposition, excluding   
amounts attributable to accrued and unpaid interest, and the holder's adjusted  
tax basis in the preferred securities. A United States holder's adjusted tax    
basis in a preferred security generally will equal the issue price of the       
preferred security, increased by the amount of any original issue discount      
previously includible in the gross income of the holder and decreased by the    
amount of any subsequent payments received on the preferred security. The gain  
or loss will be capital gain or loss and will be long-term capital gain or loss,
if at the time of the disposition, the preferred securities have been held for  
more than one year. Generally, for non-corporate United States holders, net     
long-term capital gains are subject to United States federal income tax at a    
maximum rate of 20%.                                                            

   The preferred securities may trade at a price that does not fully
reflect the value of accrued but unpaid interest with respect to the underlying 
subordinated debentures. If you sell your preferred securities between record   
dates for payments of distributions, you will not receive subsequent            
distributions but will nevertheless be required to include in gross income for  
United States federal income tax purposes your ratable share of accrued and     
unpaid interest on the subordinated debentures through the date of the sale. To 
the extent the selling price is less than your adjusted tax basis in the        
preferred securities sold, you will recognize a capital loss. Subject to certain
limited exceptions, capital losses cannot be applied to offset ordinary income  
for United States federal income tax purposes.                                  

51

424B4
54th Page of 105
TOC
1st
Previous
Next
↓Bottom
Just 54th
INFORMATION REPORTING AND BACKUP WITHHOLDING                  

        In general, information reporting will apply to distributions paid and
original issue discount accrued on the preferred securities, and to the proceeds
of a sale of preferred securities, except in the case of an exempt holder, such 
as a corporation. A 30.5% backup withholding tax (subject to phased-in rate     
reductions until the rate equals 28% for payments after 2005) will apply to such
payments if a holder fails to provide a taxpayer identification number and to   
satisfy other requirements, unless the holder has provided a certificate of     
exempt status.                                                                  

UNDERWRITERS

       Under the terms and conditions of an underwriting agreement dated the
date of this prospectus, the underwriters named below, for whom Morgan Stanley &
Co. Incorporated, First Union Securities, Inc., Salomon Smith Barney Inc. and   
U.S. Bancorp Piper Jaffray Inc. are acting as representatives, have severally   
agreed to purchase, and the Trust has agreed to sell to them, the respective    
number of preferred securities indicated below:                                 

52

424B4
55th Page of 105
TOC
1st
Previous
Next
↓Bottom
Just 55th
                                                             NUMBER OF
                                                             PREFERRED
NAME                                                             SECURITIES   
----                                                             ----------   

Morgan Stanley & Co. Incorporated ................................ 1,054,000    
First Union Securities, Inc. ..................................... 1,053,000    
Salomon Smith Barney Inc. ........................................ 1,053,000    
U.S. Bancorp Piper Jaffray Inc. ..................................   300,000    
A.G. Edwards & Sons, Inc. ........................................    20,000    
Bear, Stearns & Co. Inc. .........................................    20,000    
CIBC World Markets Corp. .........................................    20,000    
Dain Rauscher Incorporated .......................................    20,000    
Deutsche Banc Alex. Brown Inc. ...................................    20,000    
Janney Montgomery Scott LLC ......................................    20,000    
Legg Mason Wood Walker Incorporated ..............................    20,000    
McDonald Investments Inc., a KeyCorp Company .....................    20,000    
Prudential Securities Incorporated ...............................    20,000    
Quick & Reilly, Inc. .............................................    20,000    
Tucker Anthony Incorporated ......................................    20,000    
Wells Fargo Van Kasper, LLC ......................................    20,000    
ABN Amro Incorporated ............................................    10,000    
Advest Inc. ......................................................    10,000    
Robert W. Baird & Co. Incorporated ...............................    10,000    
BB&T Capital Markets, a Division of Scott & Stringfellow .........    10,000    
Comerica Securities ..............................................    10,000    
Crowell, Weedon & Co. ............................................    10,000    
Credit Suisse First Boston Corporation ...........................    10,000    
Davenport & Company LLC ..........................................    10,000    
D.A. Davidson & Co. ..............................................    10,000    
Doley Securities Inc. ............................................    10,000    
Fahnestock & Co., Inc. ...........................................    10,000    
Gibraltar Securities Co. .........................................    10,000    
Gruntal & Co., L.L.C .............................................    10,000    
J.J.B. Hilliard, W.L. Lyons, Inc. ................................    10,000    
J.P. Morgan Securities Inc. ......................................    10,000    
C.L. King & Associates, Inc. .....................................    10,000    
McGinn, Smith & Co., Inc. ........................................    10,000    
Mesirow Financial, Inc. ..........................................    10,000    
NatCity Investments, Inc. ........................................    10,000    
Ormes Capital Markets Inc. .......................................    10,000    
Parker/Hunter Incorporated .......................................    10,000    
Pershing/a Division of Donaldson, Lufkin & Jenrette ..............    10,000    
Pryor, McClendon, Counts & Co. ...................................    10,000    
SBK-Brooks Investment Corp. ......................................    10,000    
Muriel Siebert & Co., Inc. .......................................    10,000    
Southwest Securities, Inc. .......................................    10,000    
Stifel, Nicolaus & Company Incorporated ..........................    10,000    
Utendahl Capital Partners L.P. ...................................    10,000    
William Blair & Co. ..............................................    10,000    
The Williams Capital Group, L.P. .................................    10,000    
     Total ................................................... 4,000,000
                                                               =========

53

424B4
56th Page of 105
TOC
1st
Previous
Next
↓Bottom
Just 56th
         The underwriters are offering the preferred securities subject to their
acceptance of the preferred securities from the Trust and subject to prior sale.
The underwriting agreement provides that the obligations of the several         
underwriters to pay for and accept delivery of the preferred securities are     
conditioned on the delivery of legal opinions by their counsel. The underwriters
are obligated to purchase all the preferred securities if any are purchased.    

   The underwriters initially propose to offer part of the preferred
securities directly to the public at the public offering price set forth on the 
cover page of this prospectus. The underwriters may also offer the preferred    
securities to securities dealers at a price that represents a concession not in 
excess of $0.50 per preferred security. Any underwriter may allow, and dealers  
may reallow, a concession not in excess of $0.45 per preferred security to other
underwriters or to securities dealers. After the initial offering of the        
preferred securities, the offering price and other selling terms may from time  
to time be changed by the representatives.                                      

 Because the National Association of Securities Dealers, Inc. is
expected to view the preferred securities as interests in a direct participation
program, the offering of the preferred securities is being made in compliance   
with Rule 2810 of the National Association of Securities Dealers' Rules of      
Conduct.                                                                        

      Because the proceeds of the sale of the preferred securities will be
invested in the subordinated debentures, the underwriting agreement provides    
that the Company will pay as Underwriter's compensation to underwriters for     
their arranging the investment of the proceeds, $0.7875 per preferred security  
(or $3,150,000 in the aggregate) for the accounts of the several underwriters.  

         We and the Trust have agreed that, without the prior written consent of
Morgan Stanley & Co. Incorporated, on behalf of the underwriters, we will not,  
during the period beginning on the date of the underwriting agreement and       
continuing to and including the closing under the underwriting agreement:       

  -    offer, pledge, sell, contract to sell, sell any option or
            contract to purchase, purchase any option or contract to sell,
               grant any option, right or warrant to purchase, lend or otherwise
            transfer or dispose of, directly or indirectly, any securities
           that are substantially similar to the preferred securities or
            securities convertible into or exercisable or exchangeable for
such securities; or                               

   -    enter into any swap or other arrangement that transfers to
               another, in whole or in part, any of the economic consequences of
ownership of such securities,                     

whether any transaction described above is to be settled by securities, in cash 
or otherwise, except in this offering.                                          

 Prior to this offering, there has been no public market for the
preferred securities. The preferred securities will be listed on the New York   
Stock Exchange under the trading symbol "CVE PrU." In order to meet one of the  
requirements for listing the preferred securities on the New York Stock         
Exchange, the underwriters intend to sell preferred securities to a minimum of  
400 beneficial holders in lots of 100 or more. Trading of the preferred         
securities on the New                                                           

54

424B4
57th Page of 105
TOC
1st
Previous
Next
↓Bottom
Just 57th
York Stock Exchange is expected to begin within a 30-day period after the date  
of this prospectus. The representatives have advised the Trust that they        
presently intend to make a market in the preferred securities prior to the      
commencement of trading on the New York Stock Exchange. The representatives are 
not obligated to make a market in the preferred securities, however, and may    
cease market-making activities at any time. We cannot give any assurance as to  
the liquidity of any trading market for the preferred securities.               

        We, the Trust and the underwriters have agreed to indemnify each other
against certain liabilities, including liabilities under the Securities Act.    

      In order to facilitate the offering of the preferred securities, the
underwriters may engage in transactions that stabilize, maintain or otherwise   
affect the price of the preferred securities. Specifically, the underwriters may
over allot in connection with the offering, creating a short position in the    
preferred securities for their own account. In addition, to cover over          
allotments or to stabilize the price of the preferred securities, the           
underwriters may bid for, and purchase, preferred securities in the open market.
Finally, the underwriting syndicate may reclaim selling concessions allowed to  
an underwriter or a dealer for distributing the preferred securities in the     
offering, if the syndicate repurchases previously distributed preferred         
securities in transactions to cover syndicate short positions, in stabilization 
transactions or otherwise. Any of these activities may stabilize or maintain the
market price of the preferred securities above independent market levels. The   
underwriters are not required to engage in these activities, and may end any of 
these activities at any time.                                                   

       From time to time, some of the underwriters and their affiliates have
engaged in, and may in the future engage in commercial banking and investment   
banking transactions with us and our affiliates.                                

       It is expected that delivery of the preferred securities will be made
on or about the date specified on the cover page of this prospectus, which will 
be the fifth business day following the date of this prospectus. Under Rule     
15c6-1 of the SEC under the Exchange Act, trades in the secondary market        
generally are required to settle in three business days, unless the parties to  
any such trade expressly agree otherwise. Accordingly, the purchasers who wish  
to trade the preferred securities on the date of this prospectus or the next    
succeeding business day will be required to specify an alternate settlement     
cycle at the time of any such trade to prevent failed settlement. Purchasers of 
preferred securities who wish to trade the preferred securities on the date of  
this prospectus or the next succeeding business day should consult their own    
advisors.                                                                       

LEGAL OPINIONS

        Richards, Layton & Finger, P.A., special Delaware counsel to the Trust
and us, will pass upon certain matters of Delaware law relating to the validity 
of the preferred securities, the validity of the trust agreement and the        
formation of the Trust. Gary D. Benz, Esq., Akron, Ohio, who is our Associate   
General Counsel, Pillsbury Winthrop LLP, One Battery Park Plaza, New York, N.Y. 
10004-1490, our outside counsel, will render opinions to any underwriters or    
agents as to the legality of the guarantee and the subordinated debentures, and 
Calfee, Halter &                                                                

55

424B4
58th Page of 105
TOC
1st
Previous
Next
↓Bottom
Just 58th
Griswold LLP, 800 Superior Avenue, 1400 McDonald Investment Center, Cleveland,  
Ohio 44114, counsel for the underwriters, will pass upon certain other legal    
matters for the underwriters. Calfee, Halter & Griswold LLP provides legal      
services to FirstEnergy Corp., our parent company, on a regular basis.          

         As of December 1, 2001, Mr. Benz beneficially owned approximately 2,095
shares of FirstEnergy common stock and held options to purchase 26,000          
additional shares of FirstEnergy common stock.                                  

 EXPERTS

    The audited consolidated financial statements and related schedule
incorporated by reference or included in our Annual Report on Form 10-K/A for   
the year ended December 31, 2000, which is incorporated by reference in this    
prospectus, have been audited by Arthur Andersen LLP, independent public        
accountants, as indicated in their reports dated February 16, 2001 with respect 
thereto, and are included or incorporated by reference in this prospectus in    
reliance upon the authority of said firm as experts in accounting and auditing  
in giving said reports.                                                         

With respect to the unaudited interim consolidated financial  
information for the quarters ended March 31, June 30, and September 30, 2001 and
March 31, June 30, and September 30, 2000, included or incorporated by reference
in this prospectus, Arthur Andersen LLP has applied limited procedures in       
accordance with professional standards for reviews of that information. However,
their separate reports thereon state that they did not audit and they do not    
express opinions on that interim consolidated financial information.            
Accordingly, the degree of reliance on their reports on that information should 
be restricted in light of the limited nature of the review procedures applied.  
In addition, the accountants are not subject to the liability provisions of     
Section 11 of the Securities Act of 1933 for their reports on the unaudited     
interim consolidated financial information because these reports are not        
"reports" or "parts" of the registration statement prepared or certified by the 
accountants within the meaning of Sections 7 and 11 of such Act.                

       The statements as to matters of law and legal conclusions included in
our Annual Report on Form 10-K/A and Forms 10-Q for the quarters ended March 31,
June 30, and September 30 2001 incorporated by reference in this prospectus, and
those statements included in this prospectus, have been prepared under the      
supervision of, and reviewed by, Gary D. Benz, Esq., Akron, Ohio, who is our    
Associate General Counsel, and those statements have been incorporated by       
reference or included in this prospectus upon his authority as an expert.       

56

424B4
59th Page of 105
TOC
1st
Previous
Next
↓Bottom
Just 59th
                                                                   ANNEX A

THE CLEVELAND ELECTRIC
ILLUMINATING COMPANY

2000 ANNUAL REPORT TO STOCKHOLDERS

        The Cleveland Electric Illuminating Company is a wholly owned electric
utility operating subsidiary of FirstEnergy Corp. It engages in the generation, 
distribution and sale of electric energy in an area of approximately 1,700      
square miles in northeastern Ohio. It also engages in the sale, purchase and    
interchange of electric energy with other electric companies. The area it serves
has a population of approximately 1.9 million.                                  

CONTENTS                                                               PAGE     
--------                                                               ----     

SELECTED FINANCIAL DATA..............................................  A-2      
MANAGEMENT'S DISCUSSION AND ANALYSIS ................................  A-3-9    
CONSOLIDATED STATEMENTS OF INCOME....................................  A-10     
CONSOLIDATED BALANCE SHEETS..........................................  A-11     
CONSOLIDATED STATEMENTS OF CAPITALIZATION............................  A-12-13  
CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDER'S EQUITY...............  A-14     
CONSOLIDATED STATEMENTS OF PREFERRED STOCK...........................  A-14     
CONSOLIDATED STATEMENTS OF CASH FLOWS................................  A-15     
CONSOLIDATED STATEMENTS OF TAXES.....................................  A-16     
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS...........................  A-17-30  
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS.............................  A-31     

A-1 

424B4
60th Page of 105
TOC
1st
Previous
Next
↓Bottom
Just 60th
                                                        [Enlarge/Download Table]


                                    THE CLEVELAND ELECTRIC ILLUMINATING COMPANY                                                    

                                              SELECTED FINANCIAL DATA                                                              
                                                                                        NOV. 8-          JAN. 1 -                  
                                               2000          1999          1998      DEC. 31, 1997    NOV. 7, 1997       1996      
-----------------------------------------------------------------------------------------------------------------------------------
                                                                   (DOLLARS IN THOUSANDS)                                          

GENERAL FINANCIAL INFORMATION:                                                                                                     

                                                                                                                                   
Operating Revenues .....................   $ 1,887,039    $ 1,864,954    $ 1,795,997    $   254,892    $ 1,537,459     $ 1,798,850 
                                           ===========    ===========    ===========    ===========    ===========     =========== 

Operating Income .......................   $   390,094    $   394,766    $   382,523    $    50,431    $   315,777     $   367,509 
                                           ===========    ===========    ===========    ===========    ===========     =========== 

Income Before Extraordinary Item .......   $   202,950    $   194,089    $   164,891    $    19,290    $    95,191     $   116,553 
                                           ===========    ===========    ===========    ===========    ===========     =========== 

Net Income (Loss) ......................   $   202,950    $   194,089    $   164,891    $    19,290    $  (229,247)    $   116,553 
                                           ===========    ===========    ===========    ===========    ===========     =========== 

Earnings (Loss) on Common Stock ........   $   182,107    $   160,565    $   140,097    $    19,290    $  (274,276)    $    77,810 
                                           ===========    ===========    ===========    ===========    ===========     =========== 

Total Assets ...........................   $ 5,964,631    $ 6,208,761    $ 6,318,183    $ 6,440,284                    $ 6,962,297 
                                           ===========    ===========    ===========    ===========                    =========== 
CAPITALIZATION:                                                                                                                    
Common Stockholder's Equity ............   $ 1,064,839    $   966,616    $ 1,008,238    $   950,904                    $ 1,044,283 
Preferred Stock-                                                                                                                   
   Not subject to Mandatory                                                                                                        
Redemption .............................       238,325        238,325        238,325        238,325                        238,325 
   Subject to Mandatory                                                                                                            
Redemption .............................        26,105        116,245        149,710        183,174                        186,118 
Long-Term Debt .........................     2,634,692      2,682,795      2,888,202      3,189,590                      2,523,030 
                                           -----------    -----------    -----------    -----------                    ----------- 
Total Capitalization ...................     3,963,961      4,003,982      4,284,475      4,561,993                    $ 3,991,756 
                                           ===========    ===========    ===========    ===========                    =========== 
CAPITALIZATION RATIOS:                                                                                                             
Common Stockholder's Equity ............          26.9%          24.1%          23.5%          20.9%                          26.2%
Preferred Stock-                                                                                                                   
   Not Subject to Mandatory                                                                                                        
   Redemption ..........................           6.0            6.0            5.6            5.2                            6.0 
   Subject to Mandatory                                                                                                            
   Redemption ..........................           0.6            2.9            3.5            4.0                            4.6 
Long-Term Debt .........................          66.5           67.0           67.4           69.9                           63.2 
                                           -----------    -----------    -----------    -----------                    ----------- 
Total Capitalization ...................         100.0%         100.0%         100.0%         100.0%                         100.0%
                                           ===========    ===========    ===========    ===========                    =========== 
KILOWATT-HOUR SALES (MILLIONS)                                                                                                     
Residential ............................         5,061          5,278          4,949            790          4,062           4,958 
Commercial .............................         6,656          6,509          6,353            893          4,990           5,908 
Industrial .............................         8,320          8,039          8,024          1,285          6,710           7,977 
Other ..................................           167            166            165             89            476             522 
                                           -----------    -----------    -----------    -----------    -----------     ----------- 
Total Retail ...........................        20,204         20,022         19,491          3,057         16,238          19,365 
Total Wholesale ........................         4,632          2,607          1,275            575          2,408           2,155 
                                           -----------    -----------    -----------    -----------    -----------     ----------- 
Total ..................................        24,836         22,629         20,766          3,632         18,646          21,520 
                                           ===========    ===========    ===========    ===========    ===========     =========== 
CUSTOMERS SERVED:                                                                                                                  
Residential ............................       667,115        667,954        668,470        671,265                        663,130 
Commercial .............................        69,103         69,954         68,896         74,751                         70,886 
Industrial .............................         4,851          5,090          5,336          6,515                          6,545 
Other ..................................           307            223            221            278                            446 
                                           -----------    -----------    -----------    -----------                    ----------- 
Total ..................................       741,376        743,221        742,923        752,809                        741,007 
                                           ===========    ===========    ===========    ===========                    =========== 
NUMBER OF EMPLOYEES (a) ................         1,046          1,694          1,798          3,162                          3,282 

(a)  Reduction in 2000 reflects transfer of responsibility for generation       
operations to FirstEnergy Corp.'s competitive services unit.          

A-2 

424B4
61st Page of 105
TOC
1st
Previous
Next
↓Bottom
Just 61st
 THE CLEVELAND ELECTRIC ILLUMINATING COMPANY

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

This discussion includes forward-looking statements based on  
information currently available to management that is subject to certain risks  
and uncertainties. Such statements typically contain, but are not limited to,   
the terms anticipate, potential, expect, believe, estimate and similar words.   
Actual results may differ materially due to the speed and nature of increased   
competition and deregulation in the electric utility industry, economic or      
weather conditions affecting future sales and margins, changes in markets for   
energy services, changing energy and commodity market prices, legislative and   
regulatory changes (including revised environmental requirements), and the      
availability and cost of capital.                                               

Results of Operations                                                           

       Earnings on common stock increased 13% to $182.1 million in 2000 from
$160.6 million in 1999. Results in 2000 were favorably affected by higher       
operating revenues and reduced depreciation and amortization, net interest      
charges and preferred stock dividend requirements. In 1999, earnings on common  
stock increased 15% to $160.6 million from $140 million in 1998 primarily due to
higher operating revenues, the absence of unusually high purchased power costs  
experienced in 1998, reduced general taxes and lower net interest charges.      
Partially offsetting the improved earnings in both 2000 and 1999 were higher    
nuclear and other operating costs.                                              

         Operating revenues increased by $22.1 million in 2000 following a $69.0
million increase in 1999. The sources of increases in operating revenues during 
2000 and 1999, as compared to the prior year, are summarized in the following   
table.                                                                          

                                                        [Enlarge/Download Table]


SOURCES OF REVENUE CHANGES                                             2000               1999  
------------------------------------------------------------------------------------------------
    INCREASE (DECREASE)                                                  (IN MILLIONS)          

                                                                                                
 Increase in retail kilowatt-hour sales ...................           $  15.6          $  46.1  
 Change in average retail price ...........................             (37.9)            (1.5) 
 Increase in wholesale sales ..............................              56.1             15.2  
 All other changes ........................................             (11.7)             9.2  
 ---------------------------------------------------------------------------------------------- 
 Net Increase in Operating Revenues .......................           $  22.1          $  69.0  
 ============================================================================================== 

Electric Sales                                                                  

         Additional kilowatt-hour sales to the wholesale market were the largest
source of the increase in operating revenues in 2000, compared to the prior     
year, due in part to additional available generating capacity. Operating        
revenues from increased kilowatt-hour sales to retail customers were more than  
offset by a reduction in average retail unit prices in 2000, compared to 1999.  
While sales to commercial and industrial customers both increased in 2000, sales
to residential customers decreased in part due to the cooler summer weather, as 
compared to the above normal temperatures experienced during 1999. Other        
electric revenues were also lower in 2000 as a result of the elimination of     
steam sales and the absence of joint ownership billings to                      

A-3 

424B4
62nd Page of 105
TOC
1st
Previous
Next
↓Bottom
Just 62nd
Duquesne Light Company (Duquesne) in 2000 resulting from the asset swap with    
Duquesne in early December 1999. The decline in other revenues was partially    
offset by additional transmission-related revenues in 2000, compared to the     
prior year.                                                                     

   Operating revenues in 1999 increased from the preceding year as a
result of kilowatt-hour sales growth in both the retail and wholesale markets.  
Strong consumer-driven economic growth, and to a lesser extent the weather,     
contributed to the increased retail sales. Weather-induced electricity demand in
the wholesale market and additional available internal generation combined to   
more than double sales to wholesale customers in 1999, compared to 1998. Changes
in kilowatt-hour sales by customer class in 2000 and 1999 are summarized in the 
following table:                                                                

                                                        [Enlarge/Download Table]


    CHANGES IN KWH SALES                                               2000               1999 
---------------------------------------------------------------------------------------------- 
       INCREASE (DECREASE)                                                                     

                                                                                               
Residential ...................................................        (4.1)%             6.6% 
Commercial ....................................................         2.3%              2.5% 
Industrial ....................................................         3.1%              0.6% 
---------------------------------------------------------------------------------------------  

Total Retail ..................................................         0.9%              2.7% 
Wholesale .....................................................        77.6%            104.5% 
-----------------------------------------------------------------------------------------------

Total Sales ...................................................         9.8%              9.0% 
===============================================================      ======             =====  

Operating Expenses and Taxes                                                    

        Total operating expenses and taxes increased $26.8 million in 2000 and
$56.7 million in 1999, compared to the respective preceding year. Collectively, 
nuclear and other operating costs represented a majority of the increased costs 
in 2000 and all of the increase in 1999. General taxes were also higher in 2000.

     Fuel and purchased power costs increased a moderate $4.8 million in
2000, compared to 1999. The slightly higher costs resulted from a $44.8 million 
increase in purchased power costs which was significantly offset by a $40.0     
million decrease in fuel expense. Most of the increase in purchased power costs 
occurred in the second quarter as generating unit refueling and maintenance     
outages reduced internal generation during that period. The reduction in fuel   
expense in 2000 from the preceding year occurred despite a 3.4% increase in     
internal generation. Factors contributing to the lower fuel expense included:   

        -    A higher proportion of nuclear generation (which has lower unit
             fuel costs than fossil fuel) due to increased nuclear ownership
              from the exchange of generating assets with Duquesne in December
1999;                                             

      -    The expiration of an above-market coal contract at the end of
1999; and                                         

          -    Continued improvement of coal-blending strategies, which resulted
       in the use of additional lower-cost coal and enhanced the
           efficiency and cost-competitiveness of our fossil generation.

      In 1999, lower purchased power costs accounted for almost all of the
$26.5 million reduction in fuel and purchased power costs from the prior year.  
Much of the decrease in                                                         

A-4 

424B4
63rd Page of 105
TOC
1st
Previous
Next
↓Bottom
Just 63rd
purchased power costs occurred in the second quarter of 1999 due to the absence 
of unusual conditions experienced in the summer of 1998. The higher purchased   
power costs were incurred during a period of record heat and humidity in late   
June 1998, which coincided with a regional power shortage resulting in high     
prices for purchased power. Unscheduled outages at Beaver Valley Unit 2, the    
Davis-Besse Plant and Avon Lake Unit 9 required us to purchase significant      
amounts of power on the spot market during that period. Although above normal   
temperatures were also experienced in 1999, we maintained a stronger capacity   
position compared to the previous year and better met customer demand from our  
own internal generation.                                                        

      Nuclear operating costs increased $12.9 million in 2000, compared to
1999, primarily due to additional refueling outage costs associated with three  
unit outages in 2000 versus two during the previous year and increased ownership
of the Perry Plant resulting from the Duquesne asset swap. Nuclear refueling    
outage costs at Beaver Valley Unit 2 and the Perry Plant were primarily         
responsible for the $40.8 million increase in 1999 nuclear operating costs from 
the preceding year. Other operating costs rose $6.7 million in 2000, compared to
1999, with most of the increase resulting from additional leased portable diesel
generators, acquired as part of our summer supply strategy, and voluntary early 
retirement costs. Partially offsetting these higher costs were increased gains  
of $7.8 million realized from the sale of emission allowances in 2000. Other    
operating costs increased $32.5 million in 1999 from 1998 due to higher customer
and sales expenses including expenditures for energy marketing programs,        
information system requirements and other customer-related costs.               

       Approval of our transition plan by the Public Utilities Commission of
Ohio (PUCO) resulted in a net reduction of depreciation and amortization in     
2000, compared to 1999. As part of the transition plan, generating plant assets 
were reviewed for possible impairment. Impaired nuclear plant investments were  
recognized as regulatory assets, for which recovery as transition costs began in
January 2001. This reduction in plant investment resulted in a corresponding    
reduction to depreciation expense beginning in July 2000 and accounted for most 
of the $10.3 million reduction in depreciation and amortization in 2000 from the
preceding year. Higher general taxes in 2000, compared to the prior year,       
resulted from favorable Ohio and Pennsylvania property tax settlements in 1999. 

Net Interest Charges                                                            

   Net interest charges decreased by $10.1 million in 2000 and $19.6
million in 1999, compared to the prior year. We continue to redeem our          
outstanding debt, thus maintaining the downward trend in our financing costs    
during 2000. Net redemptions of long-term debt totaled $175 million in 2000.    

Preferred Stock Dividend Requirements                                           

         Preferred stock dividend requirements were $12.7 million lower in 2000,
compared to the prior year, as a result of preferred stock maturities and the   
amortization of fair market value adjustments recognized under purchase         
accounting in 1997. In 1999, preferred stock dividend requirements were $8.7    
million higher due to a reduction in 1998 resulting from the declaration of $9  
million of preferred dividends as of the 1997 merger date, for dividends        
attributable to 1998.                                                           

A-5 

424B4
64th Page of 105
TOC
1st
Previous
Next
↓Bottom
Just 64th
EFFECTS OF SFAS 71 DISCONTINUATION AND IMPAIRMENT                               

        The application of the Statement of Financial Accounting Standards No.
(SFAS) 71, "Accounting for the Effects of Certain Types of Regulation," was     
discontinued for our nonnuclear generation business effective with approval by  
the PUCO of the Ohio transition plan. We continue to bill and collect cost-based
rates for transmission and distribution services, which remain subject to       
cost-based regulation; accordingly, it is appropriate that we continue the      
application of SFAS 71 to those operations. All generating plant investments    
were reviewed for impairment due to anticipated changes to our cash flows       
resulting from the transition plan. The June 30, 2000 balance sheet reflects the
effect of that review with nuclear plant investment being further reduced by a  
total of $304 million with a corresponding recognition of regulatory assets for 
the impaired plant, which is recoverable through future regulatory cash flows.  

FINANCIAL CONDITION, CAPITAL RESOURCES AND LIQUIDITY                            

      On September 1, 2000, FirstEnergy Corp.'s electric utility operating
companies transferred $1.2 billion of their transmission assets to American     
Transmission Systems, Inc. (ATSI), an affiliated company. ATSI represents a     
first step toward the goal of establishing a larger independent, regional       
transmission organization. As part of the transfer, we sold to ATSI $328.1      
million of our transmission assets, net of $155.2 million of accumulated        
depreciation and $3.4 million of investment tax credits for $76.3 million in    
cash and $93.2 million in long-term notes.                                      

Through net debt redemptions and preferred stock sinking fund 
maturities, we continued to reduce the cost of debt and preferred stock, and    
improve our financial position in 2000. During 2000, we reduced our total debt  
by approximately $245 million. Our common stockholder's equity percentage of    
capitalization increased to 27% as of December 31, 2000 from 21% at the end of  
1997. We have reduced the average capital cost of outstanding debt from 8.88% in
1995 to 8.07% in 2000. Net redemptions of long-term debt and preferred stock    
completed in 2000 are expected to generate annual savings of about $15 million. 
Also, approval by the PUCO of our transition plan on July 19, 2000 (see         
Outlook), was cited as an important reason that Moody's Investors Service and   
Fitch upgraded our debt ratings during the second half of 2000. The improved    
credit ratings should lower the cost of future borrowings. Our credit ratings   
remain under review for further possible upgrades by Moody's. The improved      
credit ratings are summarized in the following table:                           

                                                        [Enlarge/Download Table]


CREDIT RATINGS                             BEFORE UPGRADE                      AFTER UPGRADE   
---------------------------------------------------------------------------------------------- 
                                      MOODY'S                         MOODY'S                  
                                     INVESTORS                        INVESTORS                
                                      SERVICE        FITCH            SERVICE            FITCH 
-----------------------------------------------------------------------------------------------

                                                                                               
First mortgage bonds ............         Ba1             BB+             Baa3          BBB-   
Preferred Stock .................         b1              B               baa1          BB     

    Our cash requirements in 2001 for operating expenses, construction
expenditures and scheduled debt maturities are expected to be met without       
issuing additional securities. We have cash requirements of approximately $1.1  
billion for the 2001-2005 period to meet scheduled maturities of long-term debt 
and preferred stock. Of that amount, approximately $137.0 million relates to    
2001.                                                                           

A-6 

424B4
65th Page of 105
TOC
1st
Previous
Next
↓Bottom
Just 65th
       We had about $3.2 million of cash and temporary investments and $28.6
million of short-term indebtedness to associated companies on December 31, 2000.
Under our first mortgage indenture, as of December 31, 2000, we would have been 
permitted to issue up to $829 million of additional first mortgage bonds on the 
basis of property additions and retired bonds. We have no restrictions on the   
issuance of preferred stock.                                                    

       Our capital spending for the period 2001-2005 is expected to be about
$455 million (excluding nuclear fuel), of which approximately $103 million      
applies to 2001. Investments for additional nuclear fuel during the 2001-2005   
period are estimated to be approximately $114 million, of which about $8 million
relates to 2001. During the same periods, our nuclear fuel investments are      
expected to be reduced by approximately $144 million and $32 million,           
respectively, as the nuclear fuel is consumed. Also, we have operating lease    
commitments net of trust cash receipts of approximately $74 million for the     
2001-2005 period, of which approximately $22 million relates to 2001.           

INTEREST RATE RISK                                                              

        Our exposure to fluctuations in market interest rates is reduced since
a significant portion of our debt has fixed interest rates, as noted in the     
table below. We are subject to the inherent interest rate risks related to      
refinancing maturing debt by issuing new debt securities. As discussed in Note 2
our investment in the Shippingport Capital Trust effectively reduces future     
lease obligations, also reducing interest rate risk. Changes in the market value
of our nuclear decommissioning trust funds are recognized by making             
corresponding changes to the decommissioning liability, as described in Note 1. 

         The table below presents principal amounts and related weighted average
interest rates by year of maturity for our investment portfolio, debt           
obligations and preferred stock with mandatory redemption provisions.           

                                                        [Enlarge/Download Table]


COMPARISON OF CARRYING VALUE TO FAIR VALUE                                                                               
-------------------------------------------------------------------------------------------------------------------------
                                                                                            THERE-                 FAIR  
                                         2001      2002       2003       2004      2004      AFTER      TOTAL     VALUE  
------------------------------------- --------- ---------- ---------- --------- ---------- --------- ---------- ---------
                                                                    (DOLLARS IN MILLIONS)                                

                                                                                                                         
Investments other than Cash and                                                                                          
  Cash Equivalents:                                                                                                      
Fixed Income.....................      $    16   $    38    $    48    $     1   $    21    $   525   $   649    $   656 
  Average interest rate..........          7.8%      7.7%       7.6%       7.8%      7.9%       7.3%      7.4%           
------------------------------------- --------- ---------- ---------- --------- ---------- --------- ---------- ---------
Liabilities                                                                                                              
------------------------------------- --------- ---------- ---------- --------- ---------- --------- ---------- ---------
Long-term Debt:                                                                                                          
Fixed rate.......................      $    57   $   228    $   115    $   280   $   300    $ 1,395   $ 2,375    $ 2,467 
  Average interest rate..........          8.6%      7.7%       7.4%       7.7%      9.5%       7.4%      7.7%           
Variable rate....................                                                           $   188   $   188    $   188 
  Average interest rate..........                                                               4.6%      4.6%           
Short-term Borrowings............      $    29                                                        $    29    $    29 
  Average interest rate..........          6.4%                                                           6.4%           
------------------------------------- --------- ---------- ---------- --------- ---------- --------- ---------- ---------
Preferred Stock..................      $    80   $    19    $     1    $     1   $     1    $     3   $   105    $   105 
  Average dividend rate..........          8.9%      8.9%       7.4%       7.4%      7.4%       7.4%      8.8%           
------------------------------------- --------- ---------- ---------- --------- ---------- --------- ---------- ---------

A-7 

424B4
66th Page of 105
TOC
1st
Previous
Next
↓Bottom
Just 66th
OUTLOOK                                                                         

       On July 19, 2000, the PUCO approved FirstEnergy's plan for transition
to customer choice in Ohio (see Note 1), filed on our behalf, as well as for our
affiliated Ohio electric utility operating companies - OE and TE. As part of its
authorization, the PUCO approved a settlement agreement between FirstEnergy and 
major groups representing most of FirstEnergy's Ohio customers regarding the    
transition to customer choice in selection of electricity suppliers. On January 
1, 2001, electric choice became available to FirstEnergy's Ohio customers. Under
the plan, we continue to deliver power to homes and businesses through our      
existing distribution system, which remains regulated. However, our rates have  
been restructured to establish separate charges for transmission and            
distribution, transition cost recovery and a generation-related component. When 
one of our Ohio customers elects to obtain power from an alternative supplier,  
we reduce the customer's bill with a "generation shopping credit," based on     
market prices plus an incentive, and the customer receives a generation charge  
from the alternative supplier.                                                  

       The transition cost portion of rates provides for recovery of certain
amounts not otherwise recoverable in a competitive generation market (such as   
regulatory assets). The transition costs will be paid by all customers          
regardless of whether or not they choose an alternative supplier. Under the     
plan, we assume the risk of not recovering up to $170 million of transition     
revenue if the rate of customers (excluding contracts and full-service          
accounts), switching their service from us has not reached an average of 20%    
over any consecutive twelve-month period by December 31, 2005 - the end of the  
market development period. We also committed under the transition agreement to  
make available 400 MW of our generating capacity to marketers, brokers and      
aggregators at set prices, to be used for sales only to retail customers in our 
Ohio service areas. Through February 8, 2001, approximately 305 MW of the 400 MW
supply commitment had been secured by alternative suppliers. We began accepting 
customer applications for switching to alternative suppliers on December 8,     
2000; as of February 8, 2001, we had been notified that about 51,000 of our     
customers requested generation services from other authorized suppliers,        
including FirstEnergy Services Corp. (FE Services), an affiliated company.      

   Beginning in 2001, Ohio utilities that offer both competitive and
regulated retail electric services must implement a corporate separation plan   
approved by the PUCO -- one which provides a clear separation between regulated 
and competitive operations. Since FirstEnergy's regionally-focused retail sales 
strategy envisions the continued operation of both regulated and competitive    
operations, its transition plan included details for its corporate separation.  
The approved plan is consistent with the way FirstEnergy managed its businesses 
in 2000, through a competitive services unit, a utility services unit and a     
corporate support services unit. FE Services provides competitive retail energy 
services while we continue to provide regulated transmission and distribution   
services. FirstEnergy Generation Corp. (FE Generation), an associated company,  
operates and leases fossil plants from us. We expect that the transfer of our   
fossil generating assets to FE Generation will be completed by the end of the   
market development period. All of our power supply requirements are provided by 
FE Services to satisfy our "provider of last resort" obligation under the       
FirstEnergy transition plan, as well as grandfathered wholesale contracts.      

A-8 

424B4
67th Page of 105
TOC
1st
Previous
Next
↓Bottom
Just 67th
      We are in compliance with current sulfur dioxide and nitrogen oxides
(NOx) reduction requirements under the Clean Air Act Amendments of 1990. In     
1998, the EPA finalized regulations requiring additional NOx reductions in the  
future from our Ohio and Pennsylvania facilities (see Note 5). We continue to   
evaluate our compliance plans and other compliance options.                     

         In July 1997, the EPA changed the National Ambient Air Quality Standard
(NAAQS) for ozone emissions and proposed a new NAAQS for previously unregulated 
ultra-fine particulate matter. In May 1999, the U.S. Court of Appeals found     
constitutional and other defects in the new NAAQS rules. In February 2001, the  
U.S. Supreme Court upheld the new NAAQS rules regulating ultra-fine particulates
but found defects in the new NAAQS rules for ozone and decided that the EPA must
revise those rules. The future cost of compliance with these regulations may be 
substantial and will depend on the manner in which they are ultimately          
implemented, if at all, by the states in which we operate affected facilities.  

     Under federal environmental law and related federal and state waste
regulations, certain fossil-fuel combustion waste products, such as coal ash,   
were exempted from hazardous waste disposal requirements pending the EPA's      
evaluation of the need for future regulation. The EPA has issued its final      
regulatory determination that regulation of coal ash as a hazardous waste is    
unnecessary. On April 25, 2000, the EPA announced that it will develop national 
standards regulating disposal of coal ash as a nonhazardous waste.              

In December 2000, the EPA announced it would proceed with the 
development of regulations regarding hazardous air pollutants from electric     
power plants. The EPA identified mercury as the hazardous air pollutant of      
greatest concern. The EPA established a schedule to propose regulations by      
December 2003 and issue final regulations by December 2004. The future cost of  
compliance with these regulations may be substantial.                           

        We have been named as a "potentially responsible party" (PRP) at waste
disposal sites which may require cleanup under the Comprehensive Environmental  
Response, Compensation and Liability Act of 1980. Allegations of disposal of    
hazardous substances at historical sites and the liability involved, are often  
unsubstantiated and subject to dispute. Federal law provides that all PRPs for a
particular site be held liable on a joint and several basis. We have an accrued 
liability totaling $3.4 million as of December 31, 2000, based on estimates of  
the total costs of cleanup, the proportionate responsibility of other PRPs for  
such costs, and the financial ability of other PRPs to pay. We believe that     
waste disposal costs will not have a material adverse effect on our financial   
condition, cash flow or results of operation.                                   

        On August 8, 2000, our parent company, FirstEnergy Corp., entered into
an agreement to merge with GPU, Inc, a Pennsylvania corporation, headquartered  
in Morristown, New Jersey. The target date for completing the merger is by the  
end of the second quarter of 2001. We will continue to be a wholly owned        
subsidiary of FirstEnergy Corp.                                                 

A-9 

424B4
68th Page of 105
TOC
1st
Previous
Next
↓Bottom
Just 68th
                                                        [Enlarge/Download Table]


                                    THE CLEVELAND ELECTRIC ILLUMINATING COMPANY                                    

                                         CONSOLIDATED STATEMENTS OF INCOME                                         

FOR THE YEARS ENDED DECEMBER 31,                                    2000              1999              1998       
-------------------------------------------------------------------------------------------------------------------
                                                                                 (IN THOUSANDS)                    

                                                                                                                   
OPERATING REVENUES ........................................   $ 1,887,089       $ 1,864,954       $ 1,795,997      

OPERATING EXPENSES AND TAXES:                                                                                      
  Fuel and purchased power ................................       414,127           409,282           435,752      
  Nuclear operating costs .................................       151,571           138,686            97,914      
  Other operating costs ...................................       374,818           368,103           335,621      
                                                              -----------       -----------       -----------      
     Total operation and maintenance expenses .............       940,516           916,071           869,287      
  Provision for depreciation and amortization .............       220,915           231,225           234,348      
  General taxes ...........................................       222,297           211,636           221,077      
  Income taxes ............................................       113,217           111,256            88,762      
                                                              -----------       -----------       -----------      
     Total operating expenses and taxes ...................     1,496,945         1,470,188         1,413,474      
                                                              -----------       -----------       -----------      

OPERATING INCOME ..........................................       390,094           394,766           382,523      

OTHER INCOME ..............................................        12,568             9,141            11,772      
                                                              -----------       -----------       -----------      

INCOME BEFORE NET INTEREST CHARGES ........................       402,662           403,907           394,295      
                                                              -----------       -----------       -----------      

NET INTEREST CHARGES:                                                                                              
  Interest on long-term debt ..............................       199,144           211,842           234,795      
  Allowance for borrowed funds used during construction ...        (2,037)           (1,755)           (2,079)     
  Other interest expense (credit) .........................         2,295              (269)           (3,312)     
                                                              -----------       -----------       -----------      
  Net interest charges ....................................       199,712           209,818           229,404      
                                                              -----------       -----------       -----------      

  NET INCOME ..............................................       202,950           194,089           164,891      

  PREFERRED STOCK DIVIDEND REQUIREMENTS ...................        20,843            33,524            24,794      
                                                              -----------       -----------       -----------      

  EARNINGS ON COMMON STOCK ................................   $   182,107       $   160,565       $   140,097      
                                                              ===========       ===========       ===========      

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

A-10

424B4
69th Page of 105
TOC
1st
Previous
Next
↓Bottom
Just 69th
                                                        [Enlarge/Download Table]


                                    THE CLEVELAND ELECTRIC ILLUMINATING COMPANY                                       

                                            CONSOLIDATED BALANCE SHEETS                                               

AS OF DECEMBER 31,                                                                        2000               1999     
--------------------------------------------------------------------------------- ----------------- ------------------
                                     ASSETS                                                                           

                                                                                                                      
UTILITY PLANT:                                                                                                        
   In service..............................................................         $ 4,036,590       $ 4,479,098     
   Less-Accumulated provision for depreciation.............................           1,624,672         1,498,798     
                                                                                    -----------                       
                                                                                      2,411,918         2,980,300     
                                                                                    -----------       -----------     
   Construction work in progress-                                                                                     
      Electric plant.......................................................              66,904            55,002     
      Nuclear fuel.........................................................              24,145               408     
                                                                                    -----------       -----------     

OTHER PROPERTY AND INVESTMENTS:                                                                                       
   Cash and cash equivalents...............................................               2,855               376     
   Receivables-                                                                                                       
      Customers............................................................              14,748            17,010     
      Associated companies.................................................              81,090            18,318     
      Other (less accumulated provisions of $1,000,000 for uncollectible                                              
         accounts at both dates)...........................................             127,639           171,274     
   Notes receivable from associated companies..............................                 384                 -     
   Materials and supplies, at average cost-                                                                           
      Owned................................................................              26,039            39,294     
      Under consignment....................................................              38,673            23,721     
   Prepayments and other...................................................              59,377            56,447     
                                                                                    -----------       -----------     

DEFERRED CHARGES:                                                                                                     
   Regulatory assets.......................................................             816,143           539,824     
   Goodwill................................................................           1,408,869         1,440,283     
   Property taxes..........................................................              64,230           132,643     
   Other...................................................................              11,177            12,606     
                                                                                    -----------       -----------     
                                                                                      2,300,419         2,125,356     
                                                                                    -----------       -----------     
                                                                                    $ 5,964,631       $ 6,208,761     
                                                                                    ===========     =============     

                         CAPITALIZATION AND LIABILITIES                                                               

CAPITALIZATION (See Consolidated Statements of Capitalization):                                                       
   Common stockholder's equity.............................................         $ 1,064,839       $   966,616     
   Preferred stock-                                                                                                   
      Not subject to mandatory redemption..................................             238,325           238,325     
      Subject to mandatory redemption......................................              26,105           116,245     
   Long-term debt..........................................................           2,634,692         2,682,795     
                                                                                    -----------       -----------     

CURRENT LIABILITIES:                                                                                                  
   Currently payable long-term debt and preferred stock....................             165,696           240,684     
   Accounts payable-                                                                                                  
      Associated companies.................................................             102,915            85,950     
      Other................................................................              54,422            50,570     
   Notes payable to associated companies...................................              28,586           103,471     
   Accrued taxes...........................................................             178,707           177,006     
   Accrued interest........................................................              56,142            60,740     
   Other...................................................................              82,195            83,292     
                                                                                    -----------       -----------     

DEFERRED CREDITS:                                                                                                     
   Accumulated deferred income taxes.......................................             591,748           567,478     
   Accumulated deferred investment tax credits.............................              79,957            86,999     
   Nuclear plant decommissioning costs.....................................             198,997           192,484     
   Pensions and other postretirement benefits..............................             227,528           220,731     
   Other...................................................................             233,777           335,374     
                                                                                    -----------       -----------     
                                                                                      1,332,007         1,403,066     
                                                                                    -----------       -----------     
COMMITMENTS AND CONTINGENCIES                                                                                         
   (Notes 2 and 5).........................................................                                           
                                                                                    -----------       -----------     
                                                                                    $ 5,964,631       $ 6,208,761     
                                                                                    ===========       ===========     

The accompanying Notes to Consolidated Financial Statements are an integral part
of these balance sheets.                                                        

A-11

424B4
70th Page of 105
TOC
1st
Previous
Next
↓Bottom
Just 70th
                                                        [Enlarge/Download Table]


                                    THE CLEVELAND ELECTRIC ILLUMINATING COMPANY                                         

                                     CONSOLIDATED STATEMENTS OF CAPITALIZATION                                          

AS OF DECEMBER 31,                                                                                 2000        1999     
----------------------------------------------------------------------------------------------- ----------- ------------
                                     (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)                                   

                                                                                                                        
COMMON STOCKHOLDER'S EQUITY:                                                                                            
   Common stock, without par value, authorized 105,000,000 shares                                                       
      79,590,689 shares outstanding.......................................................      $ 931,962    $931,932   
   Retained earnings (Note 3A)............................................................        132,877      34,654   
                                                                                                 --------    --------   
      Total common stockholder's equity...................................................       1,064,839    966,616   
                                                                                                 ---------   --------   


                                              NUMBER OF SHARES               OPTIONAL                                   
                                                OUTSTANDING              REDEMPTION PRICE                               
                                                -----------              ----------------                               
                                              2000        1999           PER SHARE   AGGREGATE                          
                                              ----        ----           ---------   ---------                          
                                                                                                                        
PREFERRED STOCK (NOTE 3B):                                                                                              
Cumulative, without par value-                                                                                          
Authorized 4,000,000 shares                                                                                             
   Not Subject to Mandatory Redemption:                                                                                 
     $  7.40       Series A............       500,000     500,000   $     101.00     $  50,500      50,000      50,000  
     $  7.56       Series B............       450,000     450,000         102.26        46,017      45,071      45,071  
     Adjustable Series L...............       474,000     474,000         100.00        47,400      46,404      46,404  
     $42.40        Series T............       200,000     200,000         500.00       100,000      96,850      96,850  
                                            ---------   ---------                    ---------    --------   ---------  
       Total Not Subject to Mandatory                                                                                   
         Redemption....................     1,624,000   1,624,000                    $ 243,917     238,325     238,325  
                                            =========   =========                    =========    --------   ---------  

Subject to Mandatory Redemption (Note                                                                                   
3C):                                                                                                                    
     $  7.35        Series C...........        80,000      90,000         101.00     $   8,080       8,041       9,110  
     $88.00        Series E............            --       3,000          --               --          --       3,000  
     $91.50        Series Q............        10,716      21,430       1,000.00        10,716      10,716      21,430  
     $88.00        Series R............        50,000      50,000          --               --      51,128      55,000  
     $90.00        Series S............        36,500      55,250          --               --      36,686      61,170  
     Redemption Within One Year                                                        (80,466)    (33,464)             
                                                                                     ---------    --------              
       Total Subject to Mandatory                                                                                       
         Redemption....................       177,216     219,680                    $  18,796      26,105     116,246  
                                            =========   =========                    =========    --------   ---------  

LONG-TERM DEBT (NOTE 3D):                                                                                               
   First mortgage bonds:                                                                                                
     7.625% due 2002.....................................................................          195,000    195,000   
     7.375% due 2003.....................................................................          100,000    100,000   
     9.500% due 2005.....................................................................          300,000    300,000   
     6.860% due 2008.....................................................................          125,000    125,000   
     9.000% due 2023.....................................................................          150,000    150,000   
                                                                                                  --------   --------   
       Total first mortgage bonds........................................................          870,000    870,000   
                                                                                                  --------   --------   

     Unsecured notes:                                                                                                   
     *  5.580% due 2033..................................................................           27,700     27,700   
                                                                                                  --------   --------   

A-12

424B4
71st Page of 105
TOC
1st
Previous
Next
↓Bottom
Just 71st
                                                        [Enlarge/Download Table]


                                    THE CLEVELAND ELECTRIC ILLUMINATING COMPANY                                         

                                CONSOLIDATED STATEMENTS OF CAPITALIZATION (CONT'D)                                      

AS OF DECEMBER 31,                                                                                2000          1999    
-------------------------------------------------------------------------------------------- ---------------------------
                                                                                                    (IN THOUSANDS)      

                                                                                                                        
LONG-TERM DEBT (CONT'D):                                                                                                
  Secured notes:                                                                                                        
    7.000% due 2001-2009...............................................................            1,820         1,850  
    7.190% due 2000....................................................................               --       175,000  
    7.420% due 2001....................................................................           10,000        10,000  
    8.540% due 2001....................................................................            3,000         3,000  
    8.550% due 2001....................................................................            5,000         5,000  
    8.560% due 2001....................................................................            3,500         3,500  
    8.680% due 2001....................................................................           15,000        15,000  
    9.050% due 2001....................................................................            5,000         5,000  
    9.200% due 2001....................................................................           15,000        15,000  
    7.850% due 2002....................................................................            5,000         5,000  
    8.130% due 2002....................................................................           28,000        28,000  
    7.750% due 2003....................................................................           15,000        15,000  
    7.670% due 2004....................................................................          280,000       280,000  
    7.130% due 2007....................................................................          120,000       120,000  
    7.430% due 2009....................................................................          150,000       150,000  
    8.000% due 2013....................................................................           78,700        78,700  
*   4.206% due 2015....................................................................           39,835        39,835  
    7.880% due 2017....................................................................          300,000       300,000  
*   4.171% due 2018....................................................................           72,795        72,795  
*   4.950% due 2020....................................................................           47,500        47,500  
    6.000% due 2020....................................................................           62,560        62,560  
    6.100% due 2020....................................................................           70,500        70,500  
    9.520% due 2021....................................................................            7,500         7,500  
    6.850% due 2023....................................................................           30,000        30,000  
    8.000% due 2023....................................................................           46,100        46,100  
    7.625% due 2025....................................................................           53,900        53,900  
    7.700% due 2025....................................................................           43,800        43,800  
    7.750% due 2025....................................................................           45,150        45,150  
    5.375% due 2028....................................................................            5,993         5,993  
    5.350% due 2030....................................................................           23,255        23,255  
    4.600% due 2030....................................................................           81,640        81,640  
                                                                                              ----------    ----------  
Total secured notes....................................................................        1,665,548     1,840,578  
                                                                                              ----------    ----------  

Capital lease obligations (Note 2):....................................................           93,422        79,204  
                                                                                              ----------    ----------  
Net unamortized premium on debt........................................................           63,252        72,533  
                                                                                              ----------    ----------  
Long-term debt due within one year.....................................................          (85,230)     (207,220) 
                                                                                              ----------    ----------  
     Total long-term debt..............................................................        2,634,692     2,682,795  
                                                                                              ----------    ----------  
TOTAL CAPITALIZATION...................................................................       $3,963,961    $4,003,982  
                                                                                              ==========    ==========  

* Denotes variable rate issue with December 31, 2000 interest rate shown.       

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

A-13

424B4
72nd Page of 105
TOC
1st
Previous
Next
↓Bottom
Just 72nd
                                                        [Enlarge/Download Table]


                                        THE CLEVELAND ELECTRIC ILLUMINATING COMPANY                                    

                              CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDER'S EQUITY                                   

                                                            COMPREHENSIVE       NUMBER       CARRYING      RETAINED    
                                                               INCOME         OF SHARES        VALUE       EARNINGS    
                                                                              (DOLLARS IN THOUSANDS)                   
                                                                                                                       
Balance, January 1, 1998.............................                         79,590,689     $  931,614   $    19,290  
   Purchase accounting fair value adjustment.........                                               348                
   Net income........................................        $   164,891                                      164,891  
                                                             ===========                                               
   Cash dividends on preferred stock.................                                                         (21,947) 
   Cash dividends on common stock....................                                                         (85,958) 
-----------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1998...........................                         79,590,689        931,962        76,276  
   Net income........................................        $   194,089                                      194,089  
                                                             ===========                                               
   Cash dividends on preferred stock.................                                                         (36,737) 
   Cash dividends on common stock....................                                                        (198,974) 
-----------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1999...........................                         79,590,689        931,962        34,654  
   Net income........................................        $   202,950                                      202,950  
                                                             ===========                                               
   Cash dividends on preferred stock.................                                                         (20,727) 
   Cash dividends on common stock....................                                                         (84,000) 
-----------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2000...........................                         79,590,689     $  931,962   $   132,877  
=======================================================================================================================


                                    CONSOLIDATED STATEMENTS OF PREFERRED STOCK                                         

                                                      NOT SUBJECT TO                SUBJECT TO                         
                                                   MANDATORY REDEMPTION        MANDATORY REDEMPTION                    
                                                 ------------------------     ----------------------                   
                                                   NUMBER       CARRYING       NUMBER        CARRYING                  
                                                 OF SHARES       VALUE        OF SHARES       VALUE                    
                                                 ---------      ---------     ---------      -------                   
                                                                (DOLLARS IN THOUSANDS)                                 

                                                                                                                       
Balance, January 1, 1998..................        1,624,000    $  238,325       285,858     $  197,888                 
   Redemptions-                                                                                                        
     $  7.35 Series C.....................                                      (10,000)        (1,000)                
     $88.00 Series E......................                                       (3,000)        (3,000)                
     $91.50 Series Q......................                                      (10,714)       (10,714)                
--------------------------------------------------------------------------------------------------------               
Balance, December 31, 1998................        1,624,000       238,325       262,144        183,174                 
   Redemptions-                                                                                                        
     $  7.35 Series C.....................                                      (10,000)        (1,000)                
     $88.00 Series E......................                                       (3,000)        (3,000)                
     $91.50 Series Q......................                                      (10,714)       (10,714)                
     $90.00 Series S......................                                      (18,750)       (18,750)                
--------------------------------------------------------------------------------------------------------               
Balance, December 31, 1999................        1,624,000       238,325       219,680        149,710                 
   Redemptions-                                                                                                        
     $  7.35 Series C.....................                                      (10,000)        (1,000)                
     $88.00 Series E......................                                       (3,000)        (3,000)                
     $91.50 Series Q......................                                      (10,714)       (10,714)                
     $90.00 Series S......................                                      (18,750)       (18,750)                
   Amortization of fair market                                                                                         
   value adjustments-                                                                                                  
     $  7.35 Series C.....................                                                         (69)                
     $88.00 Series R......................                                                      (3,872)                
     $90.00 Series S......................                                                      (5,734)                
--------------------------------------------------------------------------------------------------------               
Balance, December 31, 2000................        1,624,000    $  238,325       177,216     $  106,571                 
========================================================================================================               

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

A-14

424B4
73rd Page of 105
TOC
1st
Previous
Next
↓Bottom
Just 73rd
                                                        [Enlarge/Download Table]


                                    THE CLEVELAND ELECTRIC ILLUMINATING COMPANY                                         

                                       CONSOLIDATED STATEMENTS OF CASH FLOWS                                            

FOR THE YEARS ENDED DECEMBER 31,                                      2000               1999               1998        
--------------------------------------------------------------- ------------------ ------------------ ------------------
                                                                                    (IN THOUSANDS)                      
                                                                                                                        
CASH FLOWS FROM OPERATING ACTIVITIES:                                                                                   
Net Income.................................................           $ 202,950          $ 194,089          $ 164,891   
Adjustments to reconcile net income to net                                                                              
   cash from operating activities:                                                                                      
     Provision for depreciation and amortization...........             220,915            231,225            234,348   
     Nuclear fuel and lease amortization...................              37,217             33,912             35,361   
     Other amortization....................................             (11,635)           (10,730)           (12,677)  
     Deferred income taxes, net............................              22,373             33,060             13,031   
     Investment tax credits, net...........................              (3,617)            (3,947)            (5,185)  
     Receivables...........................................             (16,875)           (31,544)           (38,527)  
     Materials and supplies................................              (1,697)            18,818             (8,933)  
     Accounts payable......................................              20,817             26,525            (10,481)  
     Other.................................................             (44,188)           (11,283)           (22,772)  
                                                                      ---------          ---------          ---------   
       Net cash provided from operating activities.........             426,260            480,125            349,056   
                                                                      ---------          ---------          ---------   
CASH FLOWS FROM FINANCING ACTIVITIES:                                                                                   
New Financing-                                                                                                          
     Long-term debt........................................                  --             26,355            232,919   
     Ohio Schools Council prepayment program...............                  --                 --            116,598   
     Short-term borrowings, net............................                  --             22,853             23,816   
Redemptions and Repayments-                                                                                             
     Preferred stock.......................................              33,464             33,464             14,714   
     Long-term debt........................................             212,771            214,405            488,610   
     Short-term borrowings, net............................              74,885                 --                 --   
Dividend Payments-                                                                                                      
     Common stock..........................................              84,000            198,974             85,958   
     Preferred stock.......................................              30,518             33,524             34,841   
                                                                      ---------          ---------          ---------   
       Net cash used for financing activities..............             435,638            431,159            250,790   
                                                                      ---------          ---------          ---------   
CASH FLOWS FROM INVESTING ACTIVITIES:                                                                                   
Property additions.........................................              96,236            122,194             72,130   
Loans to associated companies..............................              93,106                 --             53,509   
Loan payments from associated companies....................                  --            (53,509)                --   
Capital trust investments..................................             (25,426)           (25,905)           (31,923)  
Sale of assets to associated companies.....................            (197,902)                --                 --   
Other......................................................              22,129             25,336             18,799   
                                                                      ---------          ---------          ---------   
       Net cash used for (provided from) investing activities           (11,857)            68,116            112,515   
                                                                      ---------          ---------          ---------   
Net increase (decrease) in cash and cash equivalents.......               2,479            (19,150)           (14,249)  
Cash and cash equivalents at beginning of year.............                 376             19,526             33,775   
                                                                      ---------          ---------          ---------   
Cash and cash equivalents at end of year...................           $   2,855          $     376          $  19,526   
                                                                      ---------          ---------          ---------   
SUPPLEMENTAL CASH FLOWS INFORMATION:                                                                                    
Cash Paid During the Year-                                                                                              
     Interest (net of amounts capitalized).................           $ 208,085          $ 221,360          $ 238,950   
                                                                      =========          =========          =========   
     Income taxes..........................................           $ 109,212          $  92,555          $ 100,107   
                                                                      =========          =========          =========   

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

A-15

424B4
74th Page of 105
TOC
1st
Previous
Next
↓Bottom
Just 74th
                                                        [Enlarge/Download Table]


                                    THE CLEVELAND ELECTRIC ILLUMINATING COMPANY                                         

                                         CONSOLIDATED STATEMENTS OF TAXES                                               

FOR THE YEARS ENDED DECEMBER 31,                                      2000               1999               1998        
--------------------------------------------------------------- ------------------ ------------------ ------------------
                                                                                    (IN THOUSANDS)                      
                                                                                                                        
GENERAL TAXES:                                                                                                          
Real and personal property.................................          $131,331           $120,725            $130,642    
State gross receipts.......................................            79,709             78,197              78,344    
Social security and unemployment...........................            11,464             10,941               9,029    
Other......................................................              (207)             1,773               3,062    
                                                                     --------           --------            --------    
       Total general taxes.................................          $222,297           $211,636            $221,077    
                                                                     ========           ========            ========    

PROVISION FOR INCOME TAXES:                                                                                             
Currently payable-                                                                                                      
   Federal.................................................          $106,986           $ 92,627            $ 90,690    
   State...................................................               959              2,129               2,158    
                                                                     --------           --------            --------    
                                                                      107,945             94,756              92,848    
                                                                     --------           --------            --------    
Deferred, net-                                                                                                          
   Federal.................................................            23,265             33,369              12,981    
   State...................................................              (892)              (309)                 50    
                                                                     --------           --------            --------    
                                                                       22,373             33,060              13,031    
                                                                     --------           --------            --------    
Investment tax credit amortization.........................            (3,617)            (3,947)             (5,185)   
                                                                     --------           --------            --------    
       Total provision for income taxes....................          $126,701           $123,869            $100,694    
                                                                     ========           ========            ========    

INCOME STATEMENT CLASSIFICATION                                                                                         
OF PROVISION FOR INCOME TAXES:                                                                                          
Operating income...........................................          $113,217           $111,256            $ 88,762    
Other income...............................................            13,484             12,613              11,932    
                                                                     --------           --------            --------    
       Total provision for income taxes....................          $126,701           $123,869            $100,694    
                                                                     ========           ========            ========    

RECONCILIATION OF FEDERAL INCOME TAX                                                                                    
EXPENSE AT STATUTORY RATE TO TOTAL                                                                                      
PROVISION FOR INCOME TAXES:                                                                                             
Book income before provision for income taxes..............          $329,651           $317,958            $265,585    
                                                                     ========           ========            ========    
Federal income tax expense at statutory rate...............          $115,378           $111,285            $ 92,955    
Increases (reductions) in taxes resulting from-                                                                         
     Amortization of investment tax credits................            (3,617)            (3,947)             (5,185)   
     Amortization of tax regulatory assets.................               693                693                 693    
     Amortization of goodwill..............................            13,359             13,282              13,447    
     Other, net............................................               888              2,556              (1,216)   
                                                                     --------           --------            --------    
       Total provision for income taxes....................          $126,701           $123,869            $100,694    
                                                                     ========           ========            ========    

ACCUMULATED DEFERRED INCOME TAXES AT                                                                                    
DECEMBER 31:                                                                                                            
Property basis differences.................................          $495,588           $663,294            $672,283    
Deferred nuclear expense...................................           126,213            128,008             132,818    
Impaired generating assets.................................           107,063                 --                  --    
Deferred sale and leaseback costs..........................          (100,028)          (106,611)           (113,884)   
Unamortized investment tax credits.........................           (35,341)           (38,172)            (40,241)   
Unused alternative minimum tax credits.....................           (27,115)           (71,130)           (124,459)   
Deferred gain for asset sale to affiliated company.........            46,583                 --                  --    
Other......................................................           (21,215)            (7,911)             (2,232)   
                                                                     --------           --------            --------    
       Net deferred income tax liability...................          $591,748           $567,478            $524,285    
                                                                     ========           ========            ========    

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

A-16

424B4
75th Page of 105
TOC
1st
Previous
Next
↓Bottom
Just 75th
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                                      

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:                                  

The consolidated financial statements include The Cleveland Electric      
Illuminating Company (Company) and its wholly owned subsidiary, Centerior       
Funding Corporation (CFC). All significant intercompany transactions have been  
eliminated. The Company is a wholly owned subsidiary of FirstEnergy Corp.       
(FirstEnergy). FirstEnergy holds directly all of the issued and outstanding     
common shares of the Company and its other principal electric utility operating 
subsidiaries, Ohio Edison Company (OE) and The Toledo Edison Company (TE). On   
September 1, 2000, the Company sold its transmission assets to FirstEnergy's    
wholly owned subsidiary, American Transmission Systems, Inc. (ATSI). As a       
result, ATSI owns and operates FirstEnergy's major high-voltage transmission    
facilities and has interconnections with other regional utilities.              

 The Company follows the accounting policies and practices prescribed by the
Public Utilities Commission of Ohio (PUCO) and the Federal Energy Regulatory    
Commission (FERC). The preparation of financial statements in conformity with   
accounting principles generally accepted in the United States (GAAP) requires   
management to make periodic estimates and assumptions that affect the reported  
amounts of assets, liabilities, revenues and expenses.                          

REVENUES-                                                                       

 The Company's principal business is providing electric service to customers
in northeastern Ohio. The Company's retail customers are metered on a cycle     
basis. Revenue is recognized for unbilled electric service through the end of   
the year.                                                                       

Receivables from customers include sales to residential, commercial and   
industrial customers located in the Company's service area and sales to         
wholesale customers. There was no material concentration of receivables at      
December 31, 2000 or 1999, with respect to any particular segment of the        
Company's customers.                                                            

The Company and TE sell substantially all of their retail customer        
receivables to CFC. CFC subsequently transfers the receivables to a trust under 
an asset-backed securitization agreement. The trust completed a public sale of  
$150 million and private sales of $50 million of receivables-backed investor    
certificates in 1996 and 2000, respectively, in transactions that qualified for 
sale accounting treatment. CFC's retained interest in the pool of receivables   
held by the trust (15.15% as of December 31, 2000) is stated at fair value      
reflecting adjustments for anticipated credit losses. Collections of receivables
previously transferred to the trust used to purchase new receivables from CFC   
during 2000 totaled approximately $2.5 billion. Expenses associated with the    
factoring discount related to the sale of receivables were $13 million in 2000. 
As of December 31, 2000, the Company's receivables recorded on its Consolidated 
Balance Sheet were reduced by $90 million due to these sales.                   

REGULATORY PLAN-                                                                

  The PUCO approved FirstEnergy's Rate Reduction and Economic Development Plan
for the Company in January 1997. The regulatory plan was to maintain then       
current base electric                                                           

A-17

424B4
76th Page of 105
TOC
1st
Previous
Next
↓Bottom
Just 76th
rates for the Company through December 31, 2005. At the end of the regulatory   
plan period, the Company's base rates were to be reduced by $217 million        
(approximately 15 percent below then current levels). The regulatory plan also  
revised the Company's fuel cost recovery method such that the Company's fuel    
rate would be frozen through the regulatory plan period, subject to limited     
periodic adjustments. As part of the regulatory plan, transition rate credits   
were implemented for customers, which were expected to reduce operating revenues
for the Company by approximately $280 million during the regulatory plan period.
The regulatory plan was terminated at the end of 2000 concurrent with the       
implementation of the FirstEnergy transition plan as described further below.   

In July 1999, Ohio's electric utility restructuring legislation, which    
allowed Ohio electric customers to select their generation suppliers beginning  
January 1, 2001, was signed into law. Among other things, the legislation       
provides for a five percent reduction on the generation portion of residential  
customers' bills and the opportunity to recover transition costs, including     
regulatory assets, from January 1, 2001 through December 31, 2005. The period   
for the recovery of regulatory assets only can be extended up to December 31,   
2010. The PUCO was authorized to determine the level of transition cost         
recovery, as well as the recovery period for the regulatory assets portion of   
those costs, in considering each Ohio electric utility's transition plan        
application.                                                                    

FirstEnergy, on behalf of its Ohio electric utility operating companies --
the Company, OE and TE -- filed its transition plan under Ohio's new electric   
utility restructuring law in late 1999. The filing also included additional     
information on FirstEnergy's plans to turn over control, and perhaps ownership, 
of its transmission assets to the Alliance Regional Transmission Organization.  
The transition plan itemized, or unbundled, the current price of electricity    
into its component elements -- including generation, transmission, distribution 
and transition charges. As required by the PUCO's rules, FirstEnergy's          
transition plan also included its proposals on corporate separation of its      
regulated and unregulated operations, operational and technical support changes 
needed to accommodate customer choice, an education program to inform customers 
of their options under the new law, and how FirstEnergy's transmission system   
will be operated to ensure access to all users. Customer prices would be frozen 
through a five-year market development period (2001-2005), except for certain   
limited statutory exceptions including the five percent reduction in the price  
of generation for residential customers. The plan proposed recovery of          
generation-related transition costs of approximately $1.9 billion ($1.6 billion,
net of deferred income taxes) and transition costs related to regulatory assets 
aggregating approximately $1.9 billion ($1.4 billion, net of deferred income    
taxes).                                                                         

   On July 19, 2000, the PUCO approved FirstEnergy's transition plan as modified
by a settlement agreement with major parties to the transition plan. Major      
parties to the settlement agreement included the PUCO staff, the Ohio Consumers'
Counsel, the Industrial Energy Users-Ohio, certain power marketers and others.  
Major provisions of the settlement agreement consisted of approval of recovery  
of transition costs in the amounts filed in the transition plan through no later
than 2008 for the Company, except where a longer period of recovery is provided 
for in the settlement agreement. The Company will also give preferred access    
over FirstEnergy's subsidiaries to nonaffiliated marketers, brokers and         
aggregators to 400 megawatts of generation capacity through 2005 at established 
prices for sales to the Company's retail customers. The base electric rates for 
distribution service for the Company under its prior regulatory plan will be    
extended from December 31, 2005 through December 31, 2007. The                  

A-18

424B4
77th Page of 105
TOC
1st
Previous
Next
↓Bottom
Just 77th
transition rate credits for customers under its prior regulatory plan will also 
be extended through the transition cost recovery period.                        

   The application of Statement of Financial Accounting Standards (SFAS) No. 71,
"Accounting for the Effects of Certain Types of Regulation" (SFAS 71), to the   
nonnuclear generation business of the Company was discontinued with the issuance
of the PUCO transition plan order. The Securities and Exchange Commission (SEC) 
issued interpretive guidance regarding asset impairment measurement that        
concluded any supplemental regulated cash flows such as a competitive transition
charge (CTC) should be excluded from the cash flows of assets in a portion of   
the business not subject to regulatory accounting practices. If those assets are
impaired, a regulatory asset should be established if the costs are recoverable 
through regulatory cash flows. Consistent with the SEC guidance $304 million of 
impaired plant investments were recognized by the Company as regulatory assets  
recoverable as transition costs through future regulatory cash flows.           

The settlement agreement provides to the Company's customers an additional
incentive applied to the generation shopping credit of 45% for residential      
customers, 30% for commercial customers and 15% for industrial customers as     
reductions from their bills, when they select alternative energy providers (the 
credits exceed the price the Company will be offering to electricity suppliers  
relating to the 400 megawatts described above). The amount of the incentive will
serve to reduce the amortization of transition costs during the market          
development period and will be recovered over the remaining transition cost     
recovery period. If the customer switching targets established in the settlement
agreement are not achieved by the end of 2005, the transition cost recovery     
periods could be shortened for the Company to reduce recovery by as much as $170
million, but any such adjustment would be computed on a class-by-class and      
pro-rata basis.                                                                 

All of the Company's regulatory assets will continue to be recovered under
provisions of the Ohio transition plan. The Company recognized a fair value     
purchase accounting adjustment to reduce nuclear plant by $1.71 billion in      
connection with the 1997 FirstEnergy merger; that fair value adjustment         
recognized for financial reporting purposes satisfied the $1.4 billion asset    
reduction commitment contained in the regulatory plan. For regulatory purposes, 
the Company recognized the applicable accelerated amortization over the period  
that its rate plan was in effect.                                               

   Application of SFAS 71 was discontinued in 1997 with respect to the Company's
nuclear operations and in mid-2000, as discussed above, with respect to the     
Company's nonnuclear generation business. The Company's net assets included in  
utility plant relating to operations for which the application of SFAS 71 was   
discontinued were $1.556 billion as of December 31, 2000.                       

UTILITY PLANT AND DEPRECIATION-                                                 

Utility plant reflects the original cost of construction (except for the  
Company's nuclear generating units which were adjusted to fair value), including
payroll and related costs such as taxes, employee benefits, administrative and  
general costs, and interest costs.                                              

The Company provides for depreciation on a straight-line basis at various 
rates over the estimated lives of property included in plant in service. The    
annualized composite rate was approximately 3.4% in 2000, 1999 and 1998.        

A-19

424B4
78th Page of 105
TOC
1st
Previous
Next
↓Bottom
Just 78th
 Annual depreciation expense includes approximately $11.7 million for future
decommissioning costs applicable to the Company's ownership interests in three  
nuclear generating units. Annual decommissioning costs will increase by         
approximately $17 million from implementing the Company's transition plan in    
2001. The Company's future decommissioning costs reflect the 1999 increase in   
its ownership interests related to the exchange of certain generating assets    
with Duquesne Light Company. The Company's share of the future obligation to    
decommission these units is approximately $606 million in current dollars and   
(using a 4.0% escalation rate) approximately $1.6 billion in future dollars. The
estimated obligation and the escalation rate were developed based on site       
specific studies. Payments for decommissioning are expected to begin in 2016,   
when actual decommissioning work begins. The Company has recovered approximately
$134 million for decommissioning through its electric rates from customers      
through December 31, 2000. The Company has also recognized an estimated         
liability of approximately $9.0 million related to decontamination and          
decommissioning of nuclear enrichment facilities operated by the United States  
Department of Energy, as required by the Energy Policy Act of 1992.             

  The Financial Accounting Standards Board (FASB) issued a proposed accounting
standard for nuclear decommissioning costs in 1996. If the standard is adopted  
as proposed: (1) annual provisions for decommissioning could change; (2) the net
present value of estimated decommissioning costs could be recorded as a         
liability; and (3) income from the external decommissioning trusts could be     
reported as investment income. The FASB subsequently expanded the scope of the  
proposed standard to include other closure and removal obligations related to   
long-lived assets. A final pronouncement is expected in the second quarter of   
2001 and is anticipated to be implemented on January 1, 2002.                   

COMMON OWNERSHIP OF GENERATING FACILITIES-                                      

The Company, together with TE and OE and its wholly owned subsidiary,     
Pennsylvania Power Company (Penn), own and/or lease, as tenants in common,      
various power generating facilities. Each of the companies is obligated to pay a
share of the costs associated with any jointly owned facility in the same       
proportion as its interest. The Company's portion of operating expenses         
associated with jointly owned facilities is included in the corresponding       
operating expenses on the Consolidated Statements of Income. The amounts        
reflected on the Consolidated Balance Sheet under utility plant at December 31, 
2000 include the following:                                                     

                                                        [Enlarge/Download Table]

                                                           UTILITY       ACCUMULATED    CONSTRUCTION     OWNERSHIP/
                                                            PLANT       PROVISION FOR      WORK IN       LEASEHOLD 
                   GENERATING UNITS                       IN SERVICE    DEPRECIATION      PROGRESS        INTEREST 
-------------------------------------------------------------------------------------------------------------------
                                                                                (IN MILLIONS)                      
                                                                                                                   
W. H. Sammis Unit 7.................................     $    181.8      $    120.1     $      0.2         31.20%  
Bruce Mansfield Units 1, 2 and 3....................           72.9            31.2           --           20.42%  
Beaver Valley Unit 2................................            1.7             0.3            3.8         24.47%  
Davis-Besse.........................................          210.1            22.0            3.3         51.38%  
Perry...............................................          617.5           107.9           10.7         44.85%  
-------------------------------------------------------------------------------------------------------------------
Total...............................................     $  1,084.0      $    281.5     $     18.0                 
===================================================================================================================

The Bruce Mansfield Plant is being leased through a sale and leaseback    
transaction (see Note 2) and the above-related amounts represent construction   
expenditures subsequent to the transaction.                                     

A-20

424B4
79th Page of 105
TOC
1st
Previous
Next
↓Bottom
Just 79th
NUCLEAR FUEL-                                                                   

 The Company leases its nuclear fuel and pays for the fuel as it is consumed
(see Note 2). The Company amortizes the cost of nuclear fuel based on the rate  
of consumption.                                                                 

INCOME TAXES-                                                                   

   Details of the total provision for income taxes are shown on the Consolidated
Statements of Taxes. Deferred income taxes result from timing differences in the
recognition of revenues and expenses for tax and accounting purposes. Investment
tax credits, which were deferred when utilized, are being amortized over the    
recovery period of the related property. The liability method is used to account
for deferred income taxes. Deferred income tax liabilities related to tax and   
accounting basis differences are recognized at the statutory income tax rates in
effect when the liabilities are expected to be paid. Alternative minimum tax    
credits of $27 million, which may be carried forward indefinitely, are available
to reduce future federal income taxes. The Company is included in FirstEnergy's 
consolidated federal income tax return. The consolidated tax liability is       
allocated on a "stand-alone" company basis, with the Company recognizing any tax
losses or credits it contributed to the consolidated return.                    

RETIREMENT BENEFITS-                                                            

 FirstEnergy's trusteed, noncontributory defined benefit pension plan covers
almost all of the Company's full-time employees. Upon retirement, employees     
receive a monthly pension based on length of service and compensation. The      
Company uses the projected unit credit method for funding purposes and was not  
required to make pension contributions during the three years ended December 31,
2000. The assets of the FirstEnergy pension plan consist primarily of common    
stocks, United States government bonds and corporate bonds.                     

The Company provides a minimum amount of noncontributory life insurance to
retired employees in addition to optional contributory insurance. Health care   
benefits, which include certain employee deductibles and copayments, are also   
available to retired employees, their dependents and, under certain             
circumstances, their survivors. The Company pays insurance premiums to cover a  
portion of these benefits in excess of set limits; all amounts up to the limits 
are paid by the Company. The Company recognizes the expected cost of providing  
other postretirement benefits to employees and their beneficiaries and covered  
dependents from the time employees are hired until they become eligible to      
receive those benefits.                                                         

A-21

424B4
80th Page of 105
TOC
1st
Previous
Next
↓Bottom
Just 80th
The following sets forth the funded status of the plans and amounts       
recognized on FirstEnergy's Consolidated Balance Sheets as of December 31:      

                                                        [Enlarge/Download Table]

                                                                                                         OTHER         
                                                                      PENSION BENEFITS          POSTRETIREMENT BENEFITS
                                                                      ----------------          -----------------------
                                                                     2000          1999            2000          1999  
-----------------------------------------------------------------------------------------------------------------------
                                                                                     (IN MILLIONS)                     
                                                                                                                       
Change in benefit obligation:                                                                                          
Benefit obligation as of January 1                                $  1,394.1    $  1,500.1     $    608.4   $    601.3 
Service cost                                                            27.4          28.3           11.3          9.3 
Interest cost                                                          104.8         102.0           45.7         40.7 
Plan amendments                                                         41.3          --             --           --   
Actuarial loss (gain)                                                   17.3        (155.6)         121.7        (17.6)
Net increase from asset swap                                            --            14.8           --           12.5 
Voluntary early retirement program expense                              23.4          --             --           --   
Benefits paid                                                         (102.2)        (95.5)         (35.1)       (37.8)
-----------------------------------------------------------------------------------------------------------------------
Benefit obligation as of December 31                                 1,506.1       1,394.1          752.0        608.4 
-----------------------------------------------------------------------------------------------------------------------
Change in plan assets:                                                                                                 
Fair value of plan assets as of January 1                            1,807.5       1,683.0            4.9          3.9 
Actual return on plan assets                                             0.7         220.0           (0.2)         0.6 
Company contribution                                                    --            --             18.3          0.4 
Benefits paid                                                         (102.2)        (95.5)          --           --   
-----------------------------------------------------------------------------------------------------------------------
Fair value of plan assets as of December 31                          1,706.0       1,807.5           23.0          4.9 
-----------------------------------------------------------------------------------------------------------------------
Funded status of plan                                                  199.9         413.4         (729.0)      (603.5)
Unrecognized actuarial loss (gain)                                     (90.9)       (303.5)         147.3         24.9 
Unrecognized prior service cost                                         93.1          57.3           20.9         24.1 
Unrecognized net transition obligation (asset)                          (2.1)        (10.1)         110.9        120.1 
-----------------------------------------------------------------------------------------------------------------------
Prepaid (accrued) benefit cost                                    $    200.0    $    157.1     $   (449.9)  $   (434.4)
=======================================================================================================================
Company's share of accrued benefit cost                           $    (34.6)   $    (39.9)    $   (188.8)  $   (179.0)
=======================================================================================================================
Assumptions used as of December 31:                                                                                    
Discount rate                                                           7.75%         7.75%          7.75%        7.75%
Expected long-term return on plan assets                               10.25%        10.25%         10.25%       10.25%
Rate of compensation increase                                           4.00%         4.00%          4.00%        4.00%

FirstEnergy's net pension and other postretirement benefit costs for the  
three years ended December 31, 2000 were computed as follows:                   

                                                        [Enlarge/Download Table]

                                                                                                     OTHER               
                                                             PENSION BENEFITS               POSTRETIREMENT BENEFITS      
                                                             ----------------               -----------------------      
                                                        2000       1999        1998       2000        1999       1998    
-------------------------------------------------------------------------------------------------------------------------
                                                                                (IN MILLIONS)                            

                                                                                                                         
Service cost.....................................     $   27.4    $   28.3   $   25.0    $   11.3   $    9.3    $    7.5 
Interest cost....................................        104.8       102.0       92.5        45.7       40.7        37.6 
Expected return on plan assets...................       (181.0)     (168.1)    (152.7)       (0.5)      (0.4)       (0.3)
Amortization of transition obligation (asset)....         (7.9)       (7.9)      (8.0)        9.2        9.2         9.2 
Amortization of prior service cost...............          5.7         5.7        2.3         3.2        3.3        (0.8)
Recognized net actuarial loss (gain).............         (9.1)       --         (2.6)       --         --          --   
Voluntary early retirement program expense.......         17.2        --         --          --         --          --   
-------------------------------------------------------------------------------------------------------------------------
Net benefit cost.................................     $  (42.9)   $  (40.0)  $  (43.5)   $   68.9   $   62.1    $   53.2 
=========================================================================================================================
Company's share of total plan costs..............     $   (5.3)   $  (14.4)  $   (2.7)   $   21.3   $   22.0    $   14.5 
=========================================================================================================================

A-22

424B4
81st Page of 105
TOC
1st
Previous
Next
↓Bottom
Just 81st
The FirstEnergy plan's health care trend rate assumption is 7.2% in 2001, 
7.0% in 2002 and 6.5% in 2003, trending to 5.0%-5.5% in later years. Assumed    
health care cost trend rates have a significant effect on the amounts reported  
for the health care plan. An increase in the health care trend rate assumption  
by one percentage point would increase the total service and interest cost      
components by $7.5 million and the postretirement benefit obligation by $94.4   
million. A decrease in the same assumption by one percentage point would        
decrease the total service and interest cost components by $8.5 million and the 
postretirement benefit obligation by $111.0 million.                            

TRANSACTIONS WITH AFFILIATED COMPANIES-                                         

Operating revenues, operating expenses and interest charges include       
transactions with TE, OE, Penn and ATSI. Primary transactions include purchased 
power and transmission facilities rent expenses of $15.0 million from ATSI      
starting in 2000. CFC serves as the transferor in connection with the accounts  
receivable securitization for the Company and TE.                               

The Company is buying 150 megawatts of TE's Beaver Valley Unit 2 leased   
capacity entitlement. Purchased power expense for this transaction was $104.0   
million, $104.3 million and $98.5 million in 2000, 1999 and 1998, respectively. 
This purchase is expected to continue through the end of the lease period. (See 
Note 2.)                                                                        

Fuel and purchased power expenses on the Consolidated Statements of Income
include the total costs of power purchased from TE of $106.8 million, $106.1    
million and $104.7 million in 2000, 1999 and 1998, respectively.                

   FirstEnergy and, prior to 1999, the Centerior Service Company (CSC), a wholly
owned subsidiary of FirstEnergy, provides support services at cost to the       
Company and other affiliated companies, for which the Company was billed $97.9  
million in 2000 and $109.1 million in 1999 by FirstEnergy, and $80.6 million in 
1998 by CSC.                                                                    

SUPPLEMENTAL CASH FLOWS INFORMATION-                                            

All temporary cash investments purchased with an initial maturity of three
months or less are reported as cash equivalents on the Consolidated Balance     
Sheets. The Company reflects temporary cash investments at cost, which          
approximates their fair market value. Noncash financing and investing activities
included capital lease transactions amounting to $52.0 million, $26.2 million   
and $32.3 million in 2000, 1999 and 1998, respectively.                         

 All borrowings with initial maturities of less than one year are defined as
financial instruments under GAAP and are reported on the Consolidated Balance   
Sheets at cost, which approximates their fair market value. The following sets  
forth the approximate fair value and related carrying amounts of all other      
long-term debt, preferred stock subject to mandatory redemption and investments 
other than cash and cash equivalents as of December 31:                         

A-23

424B4
82nd Page of 105
TOC
1st
Previous
Next
↓Bottom
Just 82nd
                                                        [Enlarge/Download Table]

                                                                                 2000                   1999          
----------------------------------------------------------------------------------------------------------------------
                                                                         CARRYING      FAIR      CARRYING     FAIR    
                                                                          VALUE       VALUE       VALUE       VALUE   
----------------------------------------------------------------------------------------------------------------------
                                                                                        (IN MILLIONS)                 

                                                                                                                      
Long-term debt.....................................................      $  2,563    $  2,655    $  2,738   $  2,711  
Preferred stock....................................................      $    107    $    105    $    150   $    139  
Investments other than cash and cash equivalents:                                                                     
    Debt securities                                                                                                   

    -(Maturing in more than 10 years)..............................      $    585    $    568    $    517   $    476  
    All other......................................................           202         210         193        200  
----------------------------------------------------------------------------------------------------------------------
                                                                         $    787    $    778    $    710   $    676  
======================================================================================================================

The fair values of long-term debt and preferred stock subject to mandatory
redemption 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 year. The yields   
assumed were based on securities with similar characteristics offered by a      
corporation with credit ratings similar to the Company's ratings.               

  The fair value of investments other than cash and cash equivalents represent
cost (which approximates fair value) or 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. Investments other than cash 
and cash equivalents include decommissioning trust investments. Unrealized gains
and losses applicable to the decommissioning trusts have been recognized in the 
trust investment with corresponding changes to the decommissioning liability.   
The Company has no securities held for trading purposes.                        

REGULATORY ASSETS-                                                              

 The Company recognizes, as regulatory assets, costs which the FERC and PUCO
have authorized for recovery from customers in future periods. Without such     
authorization, the costs would have been charged to income as incurred. All     
regulatory assets will continue to be recovered from customers under the        
Company's transition plan. Based on that plan, the Company continues to bill and
collect cost-based rates for its transmission and distribution services, which  
will remain regulated; accordingly, it is appropriate that the Company continues
the application of SFAS 71 to those operations. The application of SFAS 71 to   
the Company's nonnuclear generation business was discontinued effective with the
PUCO's approval of FirstEnergy's transition plan. All generating plant          
investments were reviewed for impairment due to the anticipated regulatory cash 
flows under the transition plan. The effect of that review was reflected on the 
financial statements as of June 30, 2000, with the reduction of plant investment
and the corresponding recognition of regulatory assets recoverable through      
future regulatory cash flows for generating assets that were impaired of        
approximately $304 million for the Company.                                     

   Net regulatory assets on the Consolidated Balance Sheets are comprised of the
following:                                                                      

                                                        [Enlarge/Download Table]

                                                                                                     2000       1999     
------------------------------------------------------------------------------------------------------------------------ 
                                                                                                      (IN MILLIONS)      

                                                                                                                         
Nuclear unit expenses.........................................................................     $   276.1   $   287.1 
Customer receivables for future income taxes..................................................          18.1        23.0 
Rate stabilization program deferrals..........................................................         251.7       263.9 
Sale and leaseback costs......................................................................        (131.9)     (136.4)
Loss on reacquired debt.......................................................................          70.5        75.9 
Impaired generating assets....................................................................         304.3        --   
Other.........................................................................................          27.3        26.3 
------------------------------------------------------------------------------------------------------------------------ 
     Total....................................................................................     $   816.1   $   539.8 
======================================================================================================================== 

A-24

424B4
83rd Page of 105
TOC
1st
Previous
Next
↓Bottom
Just 83rd
2. LEASES:                                                                      

  The Company leases certain generating facilities, nuclear fuel, office space
and other property and equipment under cancelable and noncancelable leases.     

   The Company and TE sold their ownership interests in Bruce Mansfield Units 1,
2 and 3 and TE sold a portion of its ownership interest in Beaver Valley Unit 2.
In connection with these sales, which were completed in 1987, the Company and TE
entered into operating leases for lease terms of approximately 30 years as      
co-lessees. During the terms of the leases, the Company and TE continue to be   
responsible, to the extent of their combined ownership and leasehold interest,  
for costs associated with the units including construction expenditures,        
operation and maintenance expenses, insurance, nuclear fuel, property taxes and 
decommissioning. The Company and TE have the right, at the end of the respective
basic lease terms, to renew the leases. The Company and TE also have the right  
to purchase the facilities at the expiration of the basic lease term or renewal 
term (if elected) at a price equal to the fair market value of the facilities.  

  As co-lessee with TE, the Company is also obligated for TE's lease payments.
If TE is unable to make its payments under the Beaver Valley Unit 2 and Bruce   
Mansfield Plant leases, the Company would be obligated to make such payments. No
such payments have been made on behalf of TE. (TE's future minimum lease        
payments as of December 31, 2000 were approximately $1.2 billion, net of trust  
cash receipts.)                                                                 

   Nuclear fuel is currently financed for the Company and TE through leases with
a special-purpose corporation. As of December 31, 2000, $142 million of nuclear 
fuel ($86 million for the Company) was financed under a lease financing         
arrangement totaling $150 million from bank credit arrangements. The bank credit
arrangements expire in August 2001. Lease rates are based on bank rates and     
commercial paper rates.                                                         

Consistent with the regulatory treatment, the rentals for capital and     
operating leases are charged to operating expenses on the Consolidated          
Statements of Income. Such costs for the three years ended December 31, 2000 and
are summarized as follows:                                                      

                                                        [Enlarge/Download Table]

                                                                                         2000        1999        1998    
-------------------------------------------------------------------------------------------------------------------------
                                                                                                (IN MILLIONS)            
                                                                                                                         
Operating leases                                                                                                         
    Interest element.............................................................      $    36.8   $    38.6   $    32.4 
    Other........................................................................           29.8        30.7        74.4 
Capital leases                                                                                                           
    Interest element.............................................................            5.9         6.9         7.0 
    Other........................................................................           37.4        41.3        36.1 
-------------------------------------------------------------------------------------------------------------------------
Total rentals                                                                          $   109.9   $   117.5   $   149.9 
=========================================================================================================================

A-25

424B4
84th Page of 105
TOC
1st
Previous
Next
↓Bottom
Just 84th
The future minimum lease payments as of December 31, 2000 are:            

                                                        [Enlarge/Download Table]

                                                                                            OPERATING LEASES          
                                                                        CAPITAL       LEASE      CAPITAL       NET    
                                                                        LEASES       PAYMENTS     TRUST               
----------------------------------------------------------------------------------------------------------------------
                                                                                       (IN MILLIONS)                  

                                                                                                                      
2001.............................................................      $   41.0     $     71.7    $   50.2   $   21.5 
2002.............................................................          28.1           76.4        70.6        5.8 
2003.............................................................          17.3           77.5        77.9       (0.4)
2004.............................................................          10.2           55.7        28.2       27.5 
2005.............................................................           3.7           66.7        47.5       19.2 
Years thereafter.................................................           8.4          653.8       488.7      165.1 
----------------------------------------------------------------------------------------------------------------------
Total minimum lease payments.....................................         108.7     $  1,001.8    $  763.1   $  238.7 
Interest portion.................................................          15.3                                       
----------------------------------------------------------------------------------                                    
Present value of net minimum lease payments......................          93.4                                       
Less current portion.............................................          28.7                                       
----------------------------------------------------------------------------------                                    
Noncurrent portion...............................................      $   64.7                                       
==================================================================================                                    

The Company and TE refinanced high-cost fixed obligations related to their
1987 sale and leaseback transaction for the Bruce Mansfield Plant through a     
lower cost transaction in June and July 1997. In a June 1997 offering           
(Offering), the two companies pledged $720 million aggregate principal amount   
($575 million for the Company and $145 million for TE) of first mortgage bonds  
due through 2007 to a trust as security for the issuance of a like principal    
amount of secured notes due through 2007. The obligations of the two companies  
under these secured notes are joint and several. Using available cash,          
short-term borrowings and the net proceeds from the Offering, the two companies 
invested $906.5 million ($569.4 million for the Company and $337.1 million for  
TE) in a business trust, in June 1997. The trust used these funds in July 1997  
to purchase lease notes and redeem all $873.2 million aggregate principal amount
of 10-1/4% and 11-1/8% secured lease obligation bonds (SLOBs) due 2003 and 2016.
The SLOBs were issued by a special-purpose-funding corporation in 1988 on behalf
of lessors in the two companies' 1987 sale and leaseback transaction. The       
Shippingport capital trust arrangement effectively reduces lease costs related  
to that transaction.                                                            

3. CAPITALIZATION:                                                              

(A) RETAINED EARNINGS-                                                    

  There are no restrictions on retained earnings for payment of cash dividends
on the Company's common stock. The 1997 FirstEnergy merger purchase accounting  
adjustments included resetting the retained earnings balance to zero at the     
November 8, 1997 merger date.                                                   

(B) PREFERRED AND PREFERENCE STOCK-                                       

The Company's $88.00 Series R preferred stock is not redeemable before    
December 2001 and its $90.00 Series S has no optional redemption provision. All 
other preferred stock may be redeemed by the Company in whole, or in part, with 
30-90 days' notice.                                                             

The preferred dividend rate on the Company's Series L fluctuates based on 
prevailing interest rates and market conditions. The dividend rate for this     
issue was 7% in 2000.                                                           

The Company has three million authorized and unissued shares of preference
stock having no par value.                                                      

A-26

424B4
85th Page of 105
TOC
1st
Previous
Next
↓Bottom
Just 85th
(C) PREFERRED STOCK SUBJECT TO MANDATORY REDEMPTION-                      

Annual sinking fund provisions for preferred stock are as follows:        

                                                        [Enlarge/Download Table]

                                                            REDEMPTION                                                     
                                                            PRICE PER                                                      
              SERIES                   SHARES                 SHARE                        DATE                 BEGINNING  
---------------------------------------------------------------------------------------------------------------------------
                                                                                                                           
            $   7.35C                   10,000               $   100                                                (i)    
               91.50Q                   10,714                 1,000                                                (i)    
               90.00S                   18,750                 1,000                                                (i)    
               88.00R                   50,000                 1,000                     December 1                2001    
---------------------------------------------------------------------------------------------------------------------------

(i) Sinking fund provisions are in effect.                                

   Annual sinking fund requirements for the next five years are $80.5 million in
2001, $18.0 million in 2002 and $1.0 million in each year 2003-2005.            

(D) LONG-TERM DEBT-                                                       

The first mortgage indenture and its supplements, which secure all of the 
Company's first mortgage bonds, serve as direct first mortgage liens on         
substantially all property and franchises, other than specifically excepted     
property, owned by the Company.                                                 

Sinking fund requirements for first mortgage bonds and maturing long-term 
debt (excluding capital leases) for the next five years are:                    

                                                             (IN
                                                               MILLIONS)
                         -------------------------------------------------
                        2001.............................       $   56.5
                        2002.............................          228.0
                        2003.............................          115.0
                        2004.............................          307.7
                        2005.............................          300.0
                         -------------------------------------------------

The Company's obligations to repay certain pollution control revenue bonds
are secured by several series of first mortgage bonds. Certain pollution control
revenue bonds are entitled to the benefit of an irrevocable bank letter of      
credit of $48.1 million and noncancelable municipal bond insurance policies of  
$112.6 million to pay principal of, or interest on, the pollution control       
revenue bonds. To the extent that drawings are made under the letter of credit, 
the Company is entitled to a credit against its obligation to repay that bond.  
The Company pays an annual fee of 1.375% of the amount of the letter of credit  
to the issuing bank and is obligated to reimburse the bank for any drawings     
thereunder.                                                                     

The Company and TE have letters of credit of approximately $222 million in
connection with the sale and leaseback of Beaver Valley Unit 2 that expire in   
May 2002. The letters of credit are secured by first mortgage bonds of the      
Company and TE in the proportion of 40% and 60%, respectively (see Note 2).     

4.       SHORT-TERM BORROWINGS:                                                 

         The Company may borrow from its affiliates on a short-term basis. As of
December 31, 2000, the Company had total short-term borrowings of $28.6 million 
from its affiliates with a weighted average interest rate of approximately 6.4%.

A-27

424B4
86th Page of 105
TOC
1st
Previous
Next
↓Bottom
Just 86th
5. COMMITMENTS AND CONTINGENCIES:                                               

CAPITAL EXPENDITURES-                                                           

The Company's current forecast reflects expenditures of approximately $455
million for property additions and improvements from 2001-2005, of which        
approximately $103 million is applicable to 2001. Investments for additional    
nuclear fuel during the 2001-2005 period are estimated to be approximately $114 
million, of which approximately $8 million applies to 2001. During the same     
periods, the Company's nuclear fuel investments are expected to be reduced by   
approximately $144 million and $32 million, respectively, as the nuclear fuel is
consumed.                                                                       

NUCLEAR INSURANCE-                                                              

The Price-Anderson Act limits the public liability relative to a single   
incident at a nuclear power plant to $9.5 billion. The amount is covered by a   
combination of private insurance and an industry retrospective rating plan.     
Based on its ownership and leasehold interests in Beaver Valley Unit 2, the     
Davis-Besse Station and the Perry Plant, the Company's maximum potential        
assessment under the industry retrospective rating plan (assuming the other     
affiliate co-owners contribute their proportionate shares of any assessments    
under the retrospective rating plan) would be $106.3 million per incident but   
not more than $12.1 million in any one year for each incident.                  

 The Company is also insured as to its respective interests in Beaver Valley
Unit 2, Davis-Besse and Perry under policies issued to the operating company for
each plant. Under these policies, up to $2.75 billion is provided for property  
damage and decontamination and decommissioning costs. The Company has also      
obtained approximately $255.2 million of insurance coverage for replacement     
power costs for its respective interests in Beaver Valley Unit 2, Davis-Besse   
and Perry. Under these policies, the Company can be assessed a maximum of       
approximately $11.8 million for incidents at any covered nuclear facility       
occurring during a policy year which are in excess of accumulated funds         
available to the insurer for paying losses.                                     

  The Company intends to maintain insurance against nuclear risks as described
above as long as it is available. To the extent that replacement power, property
damage, decontamination, decommissioning, repair and replacement costs and other
such costs arising from a nuclear incident at any of the Company's plants exceed
the policy limits of the insurance in effect with respect to that plant, to the 
extent a nuclear incident is determined not to be covered by the Company's      
insurance policies, or to the extent such insurance becomes unavailable in the  
future, the Company would remain at risk for such costs.                        

ENVIRONMENTAL MATTERS-                                                          

   Various federal, state and local authorities regulate the Company with regard
to air and water quality and other environmental matters. The Company estimates 
additional capital expenditures for environmental compliance of approximately   
$41 million, which is included in the construction forecast provided under      
"Capital Expenditures" for 2001 through 2005.                                   

The Company is required to meet federally approved sulfur dioxide (SO2)   
regulations. Violations of such regulations can result in shutdown of the       
generating unit involved and/or civil or criminal penalties of up to $27,500 for
each day the unit is in violation. The Environmental                            

A-28

424B4
87th Page of 105
TOC
1st
Previous
Next
↓Bottom
Just 87th
Protection Agency (EPA) has an interim enforcement policy for SO2 regulations in
Ohio that allows for compliance based on a 30-day averaging period. The Company 
cannot predict what action the EPA may take in the future with respect to the   
interim enforcement policy.                                                     

 The Company is in compliance with the current SO2 and nitrogen oxides (NOx)
reduction requirements under the Clean Air Act Amendments of 1990. SO2          
reductions are being achieved by burning lower-sulfur fuel, generating more     
electricity from lower-emitting plants, and/or using emission allowances. NOx   
reductions are being achieved through combustion controls and the generation of 
more electricity at lower-emitting plants. In September 1998, the EPA finalized 
regulations requiring additional NOx reductions from the Company's Ohio and     
Pennsylvania facilities. The EPA's NOx Transport Rule imposes uniform reductions
of NOx emissions (an approximate 85% reduction in utility plant NOx emissions   
from projected 2007 emissions) across a region of twenty-two states and the     
District of Columbia, including Ohio and Pennsylvania, based on a conclusion    
that such NOx emissions are contributing significantly to ozone pollution in the
eastern United States. In March 2000, the U.S. Court of Appeals for the D.C.    
Circuit upheld EPA's NOx Transport Rule except as applied to the State of       
Wisconsin and portions of Georgia and Missouri. By October 2000, states were to 
submit revised State Implementation Plans (SIP) to comply by May 31, 2004 with  
individual state NOx budgets established by the EPA. Pennsylvania recently      
submitted a SIP that requires compliance with the NOx budgets at the Company's  
Pennsylvania facilities by May 1, 2003 and Ohio submitted a "draft" SIP that    
requires compliance with the NOx budgets at the Company's Ohio facilities by May
31, 2004. A Federal Implementation Plan accompanied the NOx Transport Rule and  
may be implemented by the EPA in states which fail to revise their SIP. In      
another separate but related action, eight states filed petitions with the EPA  
under Section 126 of the Clean Air Act seeking reductions of NOx emissions which
are alleged to contribute to ozone pollution in the eight petitioning states.   
The EPA position is that the Section 126 petitions will be adequately addressed 
by the NOx Transport Program, but a December 17, 1999 rulemaking established an 
alternative program which would require nearly identical 85% NOx reductions at  
392 utility plants, including the Company's Ohio and Pennsylvania plants, by May
2003, in the event implementation of the NOx Transport Rule is not implemented  
by a state. Additional Section 126 petitions were filed by New Jersey, Maryland,
Delaware and the District of Columbia in mid-1999 and are still under evaluation
by the EPA. FirstEnergy continues to evaluate its compliance plans and other    
compliance options.                                                             

   In July 1997, the EPA promulgated changes in the National Ambient Air Quality
Standard (NAAQS) for ozone emissions and proposed a new NAAQS for previously    
unregulated ultra-fine particulate matter. In May 1999, the U.S. Court of       
Appeals found constitutional and other defects in the new NAAQS rules. In       
February 2001, the U.S. Supreme Court upheld the new NAAQS rules regulating     
ultra-fine particulates but found defects in the new NAAQS rules for ozone and  
decided that the EPA must revise those rules. The future cost of compliance with
these regulations may be substantial and will depend on the manner in which they
are ultimately implemented, if at all, by the states in which the Company       
operates affected facilities.                                                   

  In December 2000, the EPA announced it would proceed with the development of
regulations regarding hazardous air pollutants from electric power plants. The  
EPA identified mercury as the hazardous air pollutant of greatest concern. The  
EPA established a schedule to propose regulations by December 2003 and issue    
final regulations by December 2004. The future cost of compliance with these    
regulations may be substantial.                                                 

A-29

424B4
88th Page of 105
TOC
1st
Previous
Next
↓Bottom
Just 88th
As a result of the Resource Conservation and Recovery Act of 1976, as     
amended, and the Toxic Substances Control Act of 1976, federal and state        
hazardous waste regulations have been promulgated. Certain fossil-fuel          
combustion waste products, such as coal ash, were exempted from hazardous waste 
disposal requirements pending the EPA's evaluation of the need for future       
regulation. The EPA has issued its final regulatory determination that          
regulation of coal ash as a hazardous waste is unnecessary. On April 25, 2000,  
the EPA announced that it will develop national standards regulating disposal of
coal ash under its authority to regulate nonhazardous waste.                    

The Company has been named as a "potentially responsible party" (PRP) at  
waste disposal sites which may require cleanup under the Comprehensive          
Environmental Response, Compensation and Liability Act of 1980. Allegations of  
disposal of hazardous substances at historical sites and the liability involved,
are often unsubstantiated and subject to dispute. Federal law provides that all 
PRPs for a particular site be held liable on a joint and several basis. The     
Company has accrued a liability of $3.4 million as of December 31, 2000, based  
on estimates of the total costs of cleanup, the proportionate responsibility of 
other PRPs for such costs and the financial ability of other PRPs to pay. The   
Company believes that waste disposal costs will not have a material adverse     
effect on its financial condition, cash flows or results of operations.         

6. SUMMARY OF QUARTERLY FINANCIAL DATA (UNAUDITED):                             

The following summarizes certain consolidated operating results by quarter
for 2000 and 1999.                                                              

                                                        [Enlarge/Download Table]

                                                                   MARCH 31,   JUNE 30,     SEPTEMBER 30,   DECEMBER 31,
THREE MONTHS ENDED                                                   2000        2000          2000            2000     
------------------------------------------------------------------------------------------------------------------------
                                                                                      (IN MILLIONS)                     
                                                                                                                        
Operating Revenues............................................     $  423.7    $  470.6       $ 525.4        $  467.3   
Operating Expenses and Taxes..................................        336.9       383.7         396.0           380.3   
------------------------------------------------------------------------------------------------------------------------
Operating Income..............................................         86.8        86.9         129.4            87.0   
Other Income..................................................          3.4         2.9           3.8             2.5   
Net Interest Charges..........................................         51.5        50.5          49.2            48.5   
------------------------------------------------------------------------------------------------------------------------
Net Income....................................................     $   38.7    $   39.3       $  84.0        $   41.0   
========================================================================================================================
Earnings on Common Stock......................................     $   30.9    $   32.6       $  80.3        $   38.3   
========================================================================================================================


                                                                   MARCH 31,   JUNE 30,     SEPTEMBER 30,   DECEMBER 31,
THREE MONTHS ENDED                                                   2000        2000          2000            2000     
------------------------------------------------------------------------------------------------------------------------
                                                                                      (IN MILLIONS)                     
                                                                                                                        
Operating Revenues............................................     $  418.8    $  481.9       $ 534.5        $  429.7   
Operating Expenses and Taxes..................................        337.3       375.3         395.6           362.0   
------------------------------------------------------------------------------------------------------------------------
Operating Income..............................................         81.5       106.6         138.9            67.7   
Other Income (Expense)........................................          6.5        (1.2)          1.3             2.7   
Net Interest Charges..........................................         53.1        52.8          52.2            51.8   
------------------------------------------------------------------------------------------------------------------------
Net Income....................................................     $   34.9    $   52.6       $  88.0        $   18.6   
========================================================================================================================
Earnings on Common Stock......................................     $   26.4    $   44.1       $  79.7        $   10.4   
========================================================================================================================

A-30

424B4
89th Page of 105
TOC
1st
Previous
Next
↓Bottom
Just 89th
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS                                        

TO THE STOCKHOLDERS AND BOARD OF DIRECTORS OF THE CLEVELAND ELECTRIC            
ILLUMINATING COMPANY:                                                           

We have audited the accompanying consolidated balance sheets and consolidated   
statements of capitalization of The Cleveland Electric Illuminating Company (an 
Ohio corporation and wholly owned subsidiary of FirstEnergy Corp.) and          
subsidiary as of December 31, 2000 and 1999, and the related consolidated       
statements of income, common stockholder's equity, preferred stock, cash flows  
and taxes for each of the three years in the period ended December 31, 2000.    
These financial statements are the responsibility of the Company's management.  
Our responsibility is to express an opinion on these financial statements based 
on our audits.                                                                  

We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free  
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit    
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement       
presentation. We believe that our audits provide a reasonable basis for our     
opinion.                                                                        

In our opinion, the financial statements referred to above present fairly, in   
all material respects, the financial position of The Cleveland Electric         
Illuminating Company and subsidiary as of December 31, 2000 and 1999, and the   
results of their operations and their cash flows for each of the three years in 
the period ended December 31, 2000, in conformity with accounting principles    
generally accepted in the United States.                                        

ARTHUR ANDERSEN LLP                                                             
Cleveland, Ohio,                                                                
February 16, 2001.                                                      

A-31

424B4
90th Page of 105
TOC
1st
Previous
Next
↓Bottom
Just 90th
                                                                     ANNEX B

 FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D. C. 20549

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

 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2001

OR

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

FOR THE TRANSITION PERIOD FROM                  TO                              
           -----------------  ----------

                                                                [Download Table]

COMMISSION           REGISTRANT; STATE OF INCORPORATION;   I.R.S. EMPLOYER  
FILE NUMBER           ADDRESS; AND TELEPHONE NUMBER       IDENTIFICATION NO.
-----------           -----------------------------       ------------------
                                                                            
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                                        

[ANNEX B consists of the financial statements and other relevant sections of the
Form 10-Q which pertain to The Cleveland Electric Illuminating Company. For the 
complete Form 10-Q filed by FirstEnergy Corp. and its registered subsidiaries,  
please refer to the Securities and Exchange Commission web site (www.sec.gov)   
for the combined EDGAR filing.]                                                 

B-1 

424B4
91st Page of 105
TOC
1st
Previous
Next
↓Bottom
Just 91st
     Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange  
Act of 1934 during the preceding 12 months (or for such shorter period that the 
registrant was required to file such reports), and (2) has been subject to such 
filing requirements for the past 90 days.                                       

Yes  X    No                                                                    
----    -----                                                           

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

                                                                [Download Table]

                                                                OUTSTANDING      
           CLASS                                           AS OF NOVEMBER 6, 2001
           -----                                           ----------------------
                                                                                 
The Cleveland Electric Illuminating Company, no par value        79,590,689      

The Cleveland Electric Illuminating Company is a wholly-owned subsidiary of     
FirstEnergy Corp.                                                               

 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 typically contain, but are not
limited to, the terms "anticipate", "potential", "expect", "believe", "estimate"
and similar words. Actual results may differ materially due to the speed and    
nature of increased competition and deregulation in the electric utility        
industry, economic or weather conditions affecting future sales and margins,    
changes in markets for energy services, changing energy and commodity market    
prices, legislative and regulatory changes (including revised environmental     
requirements), the availability and cost of capital, inability to accomplish or 
realize anticipated benefits of strategic goals and other similar factors.      

B-2 

424B4
92nd Page of 105
TOC
1st
Previous
Next
↓Bottom
Just 92nd
 TABLE OF CONTENTS

                                                                         PAGES
                                                                         -----
PART I.  FINANCIAL INFORMATION                                                  

THE CLEVELAND ELECTRIC ILLUMINATING COMPANY                   

            Consolidated Statements of Income..........................  B-4
            Consolidated Balance Sheets................................  B-5
            Consolidated Statements of Cash Flows......................  B-7
            Report of Independent Public Accountants...................  B-8
Management's Discussion and Analysis of Results of  
              Operations and Financial Condition.......................  B-9
             Notes to Financial Statement...............................  B-12

PART II.      OTHER INFORMATION..........................................  B-15 

B-3 

424B4
93rd Page of 105
TOC
1st
Previous
Next
↓Bottom
Just 93rd
PART I.  FINANCIAL INFORMATION                                                  

 THE CLEVELAND ELECTRIC ILLUMINATING COMPANY

 CONSOLIDATED STATEMENTS OF INCOME
 (UNAUDITED)

                                                        [Enlarge/Download Table]

                                                                THREE MONTHS ENDED              NINE MONTHS ENDED     
                                                                   SEPTEMBER 30,                   SEPTEMBER 30,      
                                                             ------------------------        ------------------------ 
                                                                2001          2000              2001          2000    
                                                             ----------    ----------        ----------    ---------- 
                                                                                  (IN THOUSANDS)                      
                                                                                                                      
OPERATING REVENUES........................................    $603,332      $525,423         $1,618,515    $1,419,715 
                                                              --------      --------         ----------    ---------- 

OPERATING EXPENSES AND TAXES:                                                                                         
   Fuel...................................................      19,685        47,616             54,438       134,510 
   Purchased power........................................     135,156        61,554            543,251       171,320 
   Nuclear operating costs................................      27,236        31,578            105,865       110,016 
   Other operating costs..................................      72,923        96,889            223,622       271,909 
                                                            ----------    ----------        -----------   ----------- 
       Total operation and maintenance expenses...........     255,000       237,637            927,176       687,755 
   Provision for depreciation and amortization............      51,705        53,566            161,433       169,091 
   General taxes..........................................      37,261        56,584            109,211       167,508 
   Income taxes...........................................      86,087        48,254            115,381        92,254 
                                                            ----------    ----------      -------------  ------------ 
       Total operating expenses and taxes.................     430,053       396,041          1,313,201     1,116,608 
                                                             ---------     ---------         ----------    ---------- 

OPERATING INCOME..........................................     173,279       129,382            305,314       303,107 

OTHER INCOME..............................................       3,991         3,849              9,549        10,134 
                                                           -----------   -----------      -------------  ------------ 

INCOME BEFORE NET INTEREST CHARGES........................     177,270       133,231            314,863       313,241 
                                                             ---------     ---------        -----------   ----------- 

NET INTEREST CHARGES:                                                                                                 
   Interest on long-term debt.............................      47,717        48,248            144,319       151,091 
   Allowance for borrowed funds used during construction..        (594)         (404)            (1,667)       (1,476)
   Other interest expense (credit)........................       1,257         1,385               (818)        1,660 
                                                           -----------   -----------     -------------- ------------- 
       Net interest charges...............................      48,380        49,229            141,834       151,275 
                                                            ----------    ----------        -----------   ----------- 

NET INCOME................................................     128,890        84,002            173,029       161,966 

PREFERRED STOCK DIVIDEND REQUIREMENTS.....................       6,316         3,733             19,438        18,138 
                                                           -----------   -----------       ------------  ------------ 

EARNINGS ON COMMON STOCK..................................    $122,574     $  80,269         $  153,591    $  143,828 
                                                              ========     =========         ==========    ========== 


The accompanying Notes to Financial Statements as they relate to The Cleveland  
Electric Illuminating Company are an integral part of these statements.         

B-4 

424B4
94th Page of 105
TOC
1st
Previous
Next
↓Bottom
Just 94th
 THE CLEVELAND ELECTRIC ILLUMINATING COMPANY

 CONSOLIDATED BALANCE SHEETS
 (UNAUDITED)

                                                        [Enlarge/Download Table]

                                                                              SEPTEMBER 30,      DECEMBER 31, 
                                                                                  2001               2000     
                                                                              -------------     --------------
                                                                                      (IN THOUSANDS)          
                                                                                                              
                              ASSETS                                                                          

UTILITY PLANT:                                                                                                
   In service................................................................  $4,054,835         $4,036,590  
   Less--Accumulated provision for depreciation..............................   1,690,596          1,624,672  
                                                                               ----------         ----------  
                                                                                2,364,239          2,411,918  
                                                                               ----------         ----------  
   Construction work in progress-                                                                             
     Electric plant..........................................................      62,124             66,904  
     Nuclear fuel............................................................          42             24,145  
                                                                               ----------         ----------  
                                                                                   62,166             91,049  
                                                                               ----------         ----------  
                                                                                2,426,405          2,502,967  
                                                                               ----------         ----------  

OTHER PROPERTY AND INVESTMENTS:                                                                               
   Shippingport Capital Trust................................................     475,551            491,830  
   Nuclear plant decommissioning trusts......................................     206,234            189,804  
   Long-term notes receivable from associated companies......................     103,531             92,722  
   Other.....................................................................      24,589             36,084  
                                                                               ----------         ----------  
                                                                                  809,905            810,440  
                                                                               ----------         ----------  

CURRENT ASSETS:                                                                                               
   Cash and cash equivalents.................................................       7,743              2,855  
   Receivables-                                                                                               
     Customers...............................................................      17,016             14,748  
     Associated companies....................................................     122,955             81,090  
     Other (less accumulated provisions of $1,000,000 for                                                     
     uncollectible accounts at both dates)...................................     189,298            127,639  
   Notes receivable from associated companies................................         504                384  
   Materials and supplies, at average cost-                                                                   
     Owned...................................................................      22,295             26,039  
     Under consignment.......................................................      27,517             38,673  
   Prepayments and other.....................................................      43,799             59,377  
                                                                               ----------         ----------  
                                                                                  431,127            350,805  
                                                                               ----------         ----------  

DEFERRED CHARGES:                                                                                             
   Regulatory assets.........................................................     842,784            816,143  
   Goodwill..................................................................   1,380,197          1,408,869  
   Other.....................................................................      73,397             75,407  
                                                                               ----------         ----------  
                                                                                2,296,378          2,300,419  
                                                                               $5,963,815         $5,964,631  
                                                                               ==========         ==========  

B-5 

424B4
95th Page of 105
TOC
1st
Previous
Next
↓Bottom
Just 95th
 THE CLEVELAND ELECTRIC ILLUMINATING COMPANY

 CONSOLIDATED BALANCE SHEETS
 (UNAUDITED)

                                                        [Enlarge/Download Table]

                                                                       SEPTEMBER 30,     DECEMBER 31,
                                                                           2001             2000     
                                                                       ------------      ------------
                                                                            (IN THOUSANDS)           
                                                                                                     
             CAPITALIZATION AND LIABILITIES                                                          

CAPITALIZATION:                                                                                      
   Common stockholder's equity-                                                                      
     Common stock, without par value, authorized 105,000,000 shares -                                
       79,590,689 shares outstanding ................................  $  931,962         $  931,962 
     Retained earnings ..............................................     113,665            132,877 
                                                                       ----------         ---------- 
         Total common stockholder's equity ..........................   1,045,627          1,064,839 
   Preferred stock-                                                                                  
     Not subject to mandatory redemption ............................     238,325            238,325 
     Subject to mandatory redemption ................................      23,673             26,105 
   Long-term debt ...................................................   2,341,858          2,634,692 
                                                                       ----------         ---------- 
                                                                        3,649,483          3,963,961 
                                                                       ----------         ---------- 

CURRENT LIABILITIES:                                                                                 
   Currently payable long-term debt and preferred stock .............     324,626            165,696 
   Accounts payable-                                                                                 
     Associated companies ...........................................      48,998            102,915 
     Other ..........................................................      13,003             54,422 
   Notes payable to associated companies ............................     254,452             28,586 
   Accrued taxes ....................................................     227,231            178,707 
   Accrued interest .................................................      62,128             56,142 
   Other ............................................................      51,501             82,195 
                                                                       ----------         ---------- 
                                                                          981,939            668,663 
                                                                       ----------         ---------- 

DEFERRED CREDITS:                                                                                    
   Accumulated deferred income taxes ................................     589,399            591,748 
   Accumulated deferred investment tax credits ......................      77,049             79,957 
   Nuclear plant decommissioning costs ..............................     215,428            198,997 
   Pensions and other postretirement benefits .......................     230,529            227,528 
   Other ............................................................     219,988            233,777 
                                                                       ----------         ---------- 
                                                                        1,332,393          1,332,007 
                                                                       ----------         ---------- 

COMMITMENTS, GUARANTEES AND CONTINGENCIES (NOTE 2) ..................  $5,963,815         $5,964,631 
                                                                       ==========         ========== 


The accompanying Notes to Financial Statements as they relate to The Cleveland  
Electric Illuminating Company are an integral part of these balance sheets.     

B-6 

424B4
96th Page of 105
TOC
1st
Previous
Next
↓Bottom
Just 96th
 THE CLEVELAND ELECTRIC ILLUMINATING COMPANY

 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (UNAUDITED)

                                                        [Enlarge/Download Table]

                                                              THREE MONTHS ENDED               NINE MONTHS ENDED   
                                                                 SEPTEMBER 30,                  SEPTEMBER 30,      
                                                           ------------------------        ------------------------
                                                              2001          2000              2001          2000   
                                                           ----------    ----------        ----------    ----------
                                                                                (IN THOUSANDS)                     
                                                                                                                   
CASH FLOWS FROM OPERATING ACTIVITIES:                                                                              
Net income................................................ $ 128,890    $   84,002         $ 173,029     $ 161,966 
   Adjustments to reconcile net income to net                                                                      
     cash from operating activities-                                                                               
       Provision for depreciation and amortization........    51,705        53,566           161,433       169,091 
       Nuclear fuel and lease amortization................     7,627        10,038            21,741        27,654 
       Other amortization.................................    (3,111)       (2,851)          (10,783)       (9,469)
       Deferred income taxes, net.........................    (5,910)       (6,069)           (1,250)       (8,681)
       Investment tax credits, net........................      (969)         (633)           (2,908)       (2,597)
       Receivables........................................  (120,852)       (1,903)         (105,792)       40,704 
       Materials and supplies.............................      (657)        6,217            14,900         3,111 
       Accounts payable...................................   (49,155)      (47,940)          (95,336)      (40,005)
       Other..............................................   100,047        66,338             6,278        41,052 
                                                           ---------   -----------        ----------  ------------ 
         Net cash provided from operating activities......   107,615       160,765           161,312       382,826 
                                                           ---------   -----------        ----------  ------------ 

CASH FLOWS FROM FINANCING ACTIVITIES:                                                                              
   New Financing-                                                                                                  
     Short-term borrowings, net...........................    97,280            --           225,866            -- 
   Redemptions and Repayments-                                                                                     
     Preferred stock......................................     1,000         1,000            11,716        14,714 
     Long-term debt.......................................    17,735       184,427            47,639       203,167 
     Short-term borrowings, net...........................        --        11,061                --       100,720 
   Dividend Payments-                                                                                              
     Common stock.........................................    70,100        20,000           175,900        50,000 
     Preferred stock......................................     6,793         7,479            20,870        23,058 
                                                           ---------   -----------        ----------  ------------ 
         Net cash used for (provided from) financing                                                               
             activities...................................    (1,652)      223,967            30,259       391,659 
                                                           ---------   -----------        ----------  ------------ 

CASH FLOWS FROM INVESTING ACTIVITIES:                                                                              
   Property additions.....................................    93,062        17,638           108,642        62,113 
   Loans to associated companies..........................        --        82,583            11,117       110,283 
   Loan payments from associated companies................        --            --              (188)           -- 
   Capital trust investments..............................        --            --           (16,279)      (25,418)
   Sale of assets to associated companies.................        --      (172,931)          (11,117)     (172,931)
   Other..................................................     8,700         9,525            33,990        17,335 
                                                           ---------   -----------        ----------  ------------ 
         Net cash used for (provided from) investing                                                               
             activities ..................................   101,762       (63,185)          126,165        (8,618)
                                                           ---------   -----------        ----------  ------------ 

Net increase (decrease) in cash and cash equivalents......     7,505           (17)            4,888          (215)
Cash and cash equivalents at beginning of period .........       238           178             2,855           376 
                                                           ---------   -----------        ----------  ------------ 
Cash and cash equivalents at end of period................ $   7,743   $       161        $    7,743  $        161 
                                                           =========   ===========        ==========  ============ 


The accompanying Notes to Financial Statements as they relate to The Cleveland  
Electric Illuminating Company are an integral part of these statements.         

B-7 

424B4
97th Page of 105
TOC
1st
Previous
Next
↓Bottom
Just 97th
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To The Cleveland Electric Illuminating Company:                                 

We have reviewed the accompanying consolidated balance sheet of The Cleveland   
Electric Illuminating Company (an Ohio corporation and wholly owned subsidiary  
of FirstEnergy Corp.) and subsidiary as of September 30, 2001, and the related  
consolidated statements of income and cash flows for the three-month and        
nine-month periods ended September 30, 2001 and 2000. These financial statements
are the responsibility of the Company's management.                             

We conducted our reviews in accordance with standards established by the        
American Institute of Certified Public Accountants. A review of interim         
financial information consists principally of applying analytical procedures to 
financial data and making inquiries of persons responsible for financial and    
accounting matters. It is substantially less in scope than an audit conducted in
accordance with auditing standards generally accepted in the United States, the 
objective of which is the expression of an opinion regarding the financial      
statements taken as a whole. Accordingly, we do not express such an opinion.    

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

We have previously audited, in accordance with auditing standards generally     
accepted in the United States, the consolidated balance sheet of The Cleveland  
Electric Illuminating Company and subsidiary as of December 31, 2000 (not       
presented herein), and, in our report dated February 16, 2001, we expressed an  
unqualified opinion on that statement. In our opinion, the information set forth
in the accompanying consolidated balance sheet as of December 31, 2000, is      
fairly stated, in all material respects, in relation to the balance sheet from  
which it has been derived.                                                      

ARTHUR ANDERSEN LLP                                                             

Cleveland, Ohio,                                                                
November 12, 2001.                                                        

B-8 

424B4
98th Page of 105
TOC
1st
Previous
Next
↓Bottom
Just 98th
 THE CLEVELAND ELECTRIC ILLUMINATING COMPANY

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

CORPORATE SEPARATION                                                            

Beginning in 2001, Ohio electric customers can select their generation suppliers
as a result of legislation which restructured the electric utility industry.    
That legislation also required unbundling the price for electricity into its    
component elements - including generation, transmission, distribution and       
transition charges. Also, Ohio utilities that offer both competitive and        
regulated retail electric services were required to implement a corporate       
separation plan approved by the PUCO -- one which provides a clear separation   
between regulated and competitive operations. In connection with FirstEnergy's  
transition plan, FirstEnergy separated its businesses into three distinct units 
-- a competitive services unit, a utility services unit and a corporate support 
services unit. CEI is included in the utility services unit which continues to  
deliver power to homes and businesses through its existing distribution system  
and maintains the PLR obligation under its rate plan.                           

As a result of the transition plan, the EUOC entered into power supply          
agreements whereby FES purchases all of the EUOC nuclear generation, as well as 
generation from leased fossil generating facilities. FGCO, a wholly owned       
subsidiary of FES, leases fossil generating units owned by the EUOC. The EUOC   
are "full requirements" customers of FES to enable them to meet their PLR       
responsibilities in their respective service areas. CEI continues to provide    
power directly to wholesale customers under negotiated contracts as well as to  
alternative energy suppliers as part of CEI's market support generation of 400  
megawatts (383 megawatts committed as of September 30, 2001).                   

The effect on CEI's reported results of operations during the third quarter and 
first nine months of 2001 from FirstEnergy's corporate separation plan and CEI's
sale of transmission assets to ATSI in September 2000, are summarized in the    
following tables:                                                               

                                                        [Enlarge/Download Table]

                                                 THREE MONTHS ENDED SEPTEMBER 30, 2001    
INCOME STATEMENT EFFECTS                                                                  
                                               CORPORATE                                  
   INCREASE (DECREASE)                         SEPARATION          ATSI            TOTAL  
                                               ----------          ----            -----  
                                                                                          
Operating Revenues:                                                                       
   Power supply agreement with FES............  $ 88.1            $ --             $ 88.1 
   Generating units rent......................    14.8              --               14.8 
   Ground lease with ATSI.....................    --                 0.7              0.7 
                                                ------            ------           ------ 

   TOTAL OPERATING REVENUES EFFECT............  $102.9            $  0.7           $103.6 
                                                ======            ======           ====== 

Operating Expenses and Taxes:                                                             
   Fossil fuel costs..........................  $(24.4)  (a)      $ --             $(24.4)
   Purchased power costs......................   111.3   (b)        --              111.3 
   Other operating costs......................   (29.8)  (a)         2.5  (d)       (27.3)
   Provision for depreciation and                                                         
     amortization.............................    --                (1.3) (e)        (1.3)
   General taxes..............................    (0.8)  (c)        (2.4) (e)        (3.2)
                                                ------            ------           ------ 

   TOTAL OPERATING EXPENSES EFFECT............  $ 56.3            $ (1.2)          $ 55.1 
                                                ======            =======          ====== 

Other Income..................................  $ --              $  1.5  (f)      $  1.5 
                                                ======            ======           ====== 


B-9 

424B4
99th Page of 105
TOC
1st
Previous
Next
↓Bottom
Just 99th
                                                        [Enlarge/Download Table]

                                                 THREE MONTHS ENDED SEPTEMBER 30, 2001    
                                               ------------------------------------------ 
INCOME STATEMENT EFFECTS                                                                  
                                               CORPORATE                                  
   INCREASE (DECREASE)                         SEPARATION          ATSI          TOTAL    
                                               ----------          ----          -----    
                                                                                          
Operating Revenues:                                                                       
  Power supply agreement with FES.............  $241.9            $ --             $241.9 
  Generating units rent.......................    44.4              --               44.4 
  Ground lease with ATSI......................    --                 4.3              4.3 
                                                ------            ------           ------ 

  TOTAL OPERATING REVENUES EFFECT.............  $286.3            $  4.3           $290.6 
                                                ======            ======           ====== 

Operating Expenses and Taxes:                                                             
  Fossil fuel costs...........................  $(68.3)  (a)      $ --             $(68.3)
  Purchased power costs.......................   469.9   (b)        --              469.9 
  Other operating costs.......................   (70.3)  (a)        23.7  (d)       (46.6)
  Provision for depreciation and amortization.    --                (5.2) (e)        (5.2)
  General taxes...............................    (2.4)  (c)        (7.0) (e)        (9.4)
                                                ------            ------           ------ 

  TOTAL OPERATING EXPENSES EFFECT.............  $328.9            $ 11.5           $340.4 
                                                ======            ======           ====== 

Other Income..................................  $   --            $  5.1  (f)      $  5.1 
                                                ======            ======           ====== 

(a)   Transfer of fossil operations to FGCO.                            
(b)   Purchased power from power supply agreement (PSA).                
(c)   Payroll taxes related to employees transferred to FGCO.           
(d)   Transmission services received from ATSI.                         
  (e)   Depreciation and property taxes on transmission assets sold to ATSI.
(f)   Interest on note receivable from ATSI.                            

RESULTS OF OPERATIONS                                                           

Excluding the effect shown in the tables above, operating revenues decreased by 
$25.7 million or 4.9% in the third quarter and by $91.8 million or 6.5% in the  
first nine months of 2001, compared to the same periods of 2000. CEI's electric 
sales to retail customers decreased by $1.0 million in the third quarter and by 
$30.2 million in the first nine months of 2001, compared with the same periods  
of 2000, primarily due to lower sales of electric generation reflecting the     
effects of customer choice in Ohio. Sales of electric generation provided by    
other suppliers in CEI's service area increased to 17.4% and 10.8% of total     
energy delivered in the third quarter and first nine months of 2001,            
respectively, with no energy delivered by alternative suppliers in the          
comparable periods of 2000. As part of Ohio's electric utility restructuring    
law, the implementation of a 5% reduction in generation charges for residential 
customers also contributed to the lower electric sales revenues. The lower      
residential rate reduced electric sales revenues by approximately $6.0 million  
in the third quarter and by $12.7 million in the first nine months of 2001.     
Electric sale revenues in the third quarter and year-to-date periods were also  
reduced, compared to the corresponding periods of 2000, by the absence of       
revenues associated with a low-income payment plan now administered by the Ohio 
Department of Development. Revenues from kilowatt-hour sales to wholesale       
customers (excluding the PSA sales to FES) declined by $20.9 million in the     
third quarter and by $53.3 million in the first nine months of 2001 from the    
same periods last year. Transmission revenues also declined in the third quarter
and first nine months of 2001, compared to the same periods of 2000, but were   
offset in part by additional ATSI ground lease revenues.                        

Kilowatt-hour deliveries to franchise customers increased by 0.5% in the third  
quarter of 2001 and by 0.6% in the first nine months of 2001 compared to the    
same periods of 2000 due to warmer than normal weather in the third quarter of  
2001 after an unusually mild period of weather in the third quarter of 2000. The
warmer weather's effect on air-conditioning load contributed to a 14.8% increase
in third quarter kilowatt-hour deliveries to residential customers compared to  
the same quarter last year. The higher third quarter kilowatt-hour deliveries in
2001 accounted for all of the 4.4% year-to-date increase in residential sales   
compared to the same period last year. The increase in deliveries to residential
customers in the third quarter of 2001 was substantially offset by a net        
decrease of 4.3% in sales to commercial and industrial customers that reflects a
softening in the national economy which has affected CEI's service area economy.
The decline in third quarter kilowatt-hour sales to commercial and industrial   
customers resulted in a year-to-date decline of 0.6% from the same period last  
year.                                                                           

Operating Expenses and Taxes                                                    

Total operating expenses and taxes increased by $34.0 million in the third      
quarter and by $196.6 million in the first nine months of 2001, compared to the 
same periods of 2000, due to the effects shown in the preceding tables.         
Excluding these effects on operating expenses, fuel expense declined by $3.5    
million in the third quarter and by $11.8 million in the first nine months of   
2001 from the same periods last                                                 

B-10

424B4
100th Page of 105
TOC
1st
Previous
Next
↓Bottom
Just 100th
year. The lower fuel expense resulted from reduced fossil and nuclear           
generation. Planned maintenance activities at the Mansfield Plant contributed to
the reduced fossil generation while lower nuclear generation resulted from      
scheduled nuclear refueling outages and several unplanned outages at the Perry  
Plant. Purchased power costs decreased by $37.7 million in the third quarter and
by $98.0 million in the first nine months of 2001, compared to the same periods 
last year, reflecting principally all of CEI's power requirements now being     
provided under the PSA (in the preceding tables) rather than from alternative   
sources.                                                                        

There were no planned nuclear refueling outages in the third quarter of 2001,   
resulting in a $4.3 million decrease in nuclear operating costs in the third    
quarter of 2001 from last year's third quarter. The third quarter of 2000       
included the first eight days of a refueling outage at Beaver Valley Unit 2     
(24.47% owned) which added outage-related costs to that period. In the first    
nine months of 2001 nuclear operating costs were $4.2 million lower than the    
same period last year due to the lower nuclear operating costs in the third     
quarter of 2001. Other operating costs increased by $3.3 million in the third   
quarter, compared to the same period of 2000. This increase resulted principally
from the absence in 2001 of gains from the sale of emission allowances          
recognized in 2000, partially offset by reductions in low-income payment plan   
customer costs and decreased storm damage costs.                                

Excluding the effects shown in the preceding tables, charges for depreciation   
and amortization were nearly unchanged in the third quarter and $2.5 million    
lower in the first nine months of 2001 from the same periods last year; new     
deferrals for shopping incentives offset incremental transition cost            
amortization under CEI's transition plan (see Note 4).                          

General taxes decreased by $19.3 million in the third quarter and by $58.3      
million in the first nine months of 2001, compared to the same periods of 2000, 
primarily due to reduced property taxes and other state tax changes associated  
with the Ohio electric industry restructuring.                                  

Other Income                                                                    

Excluding the effects shown in the preceding tables, other income decreased by  
$5.7 million in the first nine months of 2001 from the same period last year due
to a reduction in interest income on investments and the absence in 2001 of     
supplier settlement income received in 2000.                                    

Net Interest Charges                                                            

Net interest charges continued to trend lower, decreasing by $849,000 in the    
third quarter and by $9.4 million in the first nine months of 2001, compared to 
the same periods in 2000, primarily due to prior debt redemptions. During the   
first nine months of 2001, debt redemptions totaled $41.7 million and will      
result in annualized savings of $3.6 million.                                   

CAPITAL RESOURCES AND LIQUIDITY                                                 

CEI has continuing cash needs for planned capital expenditures and maturing     
debt. During the last quarter of 2001, capital requirements for property        
additions and capital leases are expected to be about $38 million, including $10
million for nuclear fuel. CEI also has sinking fund requirements for preferred  
stock and maturing long-term debt of $95.3 million during the remainder of 2001.
These requirements are expected to be satisfied with internal cash and/or       
short-term credit arrangements.                                                 

As of September 30, 2001, CEI had approximately $8.2 million of cash and        
temporary investments and $254.5 million of short-term indebtedness to          
associated companies. Under its first mortgage indenture, as of September 30,   
2001, CEI had the capability to issue up to $568 million of additional first    
mortgage bonds on the basis of property additions and retired bonds. CEI has no 
restrictions on the issuance of preferred stock.                                

Following approval of the merger of FirstEnergy and GPU by the NJBPU on         
September 26, 2001, Standard & Poor's upgraded CEI's credit ratings. Following a
period of review and after the SEC's approval of the merger on October 29, 2001,
Moody's also upgraded CEI's credit ratings. The improved credit ratings should  
lower the cost of future borrowings. The following table summarizes the changes:

CREDIT RATINGS BEFORE AND AFTER UPGRADE                       

                                                                [Download Table]

                                    BEFORE UPGRADE              AFTER UPGRADE     
                                        MOODY'S                    MOODY'S        
                                STANDARD       INVESTORS  STANDARD       INVESTORS
                                & POORS         SERVICE    & POORS        SERVICE 
                                -------         -------    -------        ------- 
                                                                                  
Corporate/Issuer...............    BB+           Ba1        BBB            Baa3   
Senior Secured Debt............    BB+           Baa3       BBB            Baa2   
Preferred Stock................    B+            Ba3        BB+            Ba2    

B-11

424B4
101st Page of 105
TOC
1st
Previous
Next
↓Bottom
Just 101st
THE CLEVELAND ELECTRIC ILLUMINATING COMPANY AND SUBSIDIARY

 NOTES TO FINANCIAL STATEMENTS
 (UNAUDITED)

1 -  FINANCIAL STATEMENTS:                                                      

The principal business of FirstEnergy Corp. (FirstEnergy) is the holding,       
directly or indirectly, of all of the outstanding common stock of its five      
principal electric utility operating subsidiaries (prior to the November 7, 2001
merger with GPU, Inc. (GPU) discussed in Note 3), Ohio Edison Company (OE), The 
Cleveland Electric Illuminating Company (CEI), The Toledo Edison Company (TE),  
Pennsylvania Power Company (Penn) and American Transmission Systems, Inc.       
(ATSI). These utility subsidiaries are referred to throughout as "Companies."   
Penn is a wholly owned subsidiary of OE. FirstEnergy's other principal          
subsidiaries include FirstEnergy Solutions Corp. (FES) (formerly FirstEnergy    
Services Corp.); FirstEnergy Facilities Services Group, LLC (FEFSG); MARBEL     
Energy Corporation, FirstEnergy Nuclear Operating Company (FENOC) and           
FirstEnergy Service Company. FES provides energy-related products and services  
and has two subsidiaries, Penn Power Energy, Inc., which provides electric      
generation services and other energy services to Pennsylvania customers and     
FirstEnergy Generation Corp. (FGCO), which operates the Companies' nonnuclear   
generating facilities. FENOC operates the Companies' nuclear generating         
facilities.                                                                     

The condensed unaudited financial statements of CEI reflect all normal recurring
adjustments that, in the opinion of management, are necessary to fairly present 
results of operations for the interim periods. These statements should be read  
in connection with the financial statements and notes included in the combined  
Annual Report on Form 10-K for the year ended December 31, 2000 for FirstEnergy 
and the Companies. Significant intercompany transactions have been eliminated.  
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make periodic    
estimates and assumptions that affect the reported amounts of assets,           
liabilities, revenues and expenses. Actual results could differ from those      
estimates. The reported results of operations are not indicative of results of  
operations for any future period. Certain prior year amounts have been          
reclassified to conform with the current year presentation.                     

2 -  COMMITMENTS, GUARANTEES AND CONTINGENCIES:                                 

CAPITAL EXPENDITURES-                                     

FirstEnergy's forecast (before factoring in the merger with GPU) reflects       
expenditures of approximately $2.55 billion (OE-$360 million, CEI-$455 million, 
TE-$218 million, Penn-$153 million, ATSI-$112 million, FES-$830 million and     
other subsidiaries - $422 million) for property additions and improvements from 
2001-2005, of which approximately $633 million (OE-$69 million, CEI-$81 million,
TE-$59 million, Penn-$28 million, ATSI-$18 million, FES-$301 million and other  
subsidiaries-$77 million) is applicable to 2001. Investments for additional     
nuclear fuel during the 2001-2005 period are estimated to be approximately $441 
million (OE-$119 million, CEI-$140 million, TE-$98 million and Penn-$84         
million), of which approximately $61 million (OE-$18 million, CEI-$13 million,  
TE-$9 million and Penn-$21 million) applies to 2001.                            

ENVIRONMENTAL MATTERS-                                    

Various federal, state and local authorities regulate the Companies with regard 
to air and water quality and other environmental matters. FirstEnergy estimates 
additional capital expenditures (before factoring in the merger with GPU, Inc.) 
for environmental compliance of approximately $201 million, which is included in
the construction forecast provided under "Capital Expenditures" for 2001 through
2005.                                                                           

The Companies are required to meet federally approved sulfur dioxide (SO2)      
regulations. Violations of such regulations can result in shutdown of the       
generating unit involved and/or civil or criminal penalties of up to $27,500 for
each day the unit is in violation. The Environmental Protection Agency (EPA) has
an interim enforcement policy for SO2 regulations in Ohio that allows for       
compliance based on a 30-day averaging period. The Companies cannot predict what
action the EPA may take in the future with respect to the interim enforcement   
policy.                                                                         

The Companies are in compliance with the current SO2 and nitrogen oxides (NOx)  
reduction requirements under the Clean Air Act Amendments of 1990. SO2          
reductions are being achieved by burning lower-sulfur fuel, generating more     
electricity from lower-emitting plants, and/or using emission allowances. NOx   
reductions are being achieved through combustion controls and the generation of 
more electricity at lower-emitting plants. In September 1998, the EPA finalized 
regulations requiring additional NOx reductions from the Companies' Ohio and    
Pennsylvania facilities. The EPA's NOx Transport Rule imposes uniform reductions
of NOx emissions (an approximate 85% reduction in utility plant NOx emissions   
from projected 2007 emissions) across a region of twenty-two states and the     
District of Columbia, including Ohio and Pennsylvania, based on a conclusion    
that such NOx emissions are contributing significantly to ozone pollution in the
eastern United States. In March 2000, the U.S. Court of Appeals for the D.C.    
Circuit upheld EPA's NOx Transport Rule except as applied to the State of       
Wisconsin and portions of Georgia and Missouri. By October 2000, states were to 
submit revised                                                                  

B-12

424B4
102nd Page of 105
TOC
1st
Previous
Next
↓Bottom
Just 102nd
State Implementation Plans (SIP) to comply by May 31, 2004 with individual state
NOx budgets established by the EPA. Pennsylvania submitted a SIP that requires  
compliance with the NOx budgets at the Companies' Pennsylvania facilities by May
1, 2003 and Ohio submitted a "draft" SIP that requires compliance with the NOx  
budgets at the Companies' Ohio facilities by May 31, 2004. A Federal            
Implementation Plan accompanied the NOx Transport Rule and may be implemented by
the EPA in states which fail to revise their SIP. In another separate but       
related action, eight states filed petitions with the EPA under Section 126 of  
the Clean Air Act seeking reductions of NOx emissions which are alleged to      
contribute to ozone pollution in the eight petitioning states. The EPA position 
is that the Section 126 petitions will be adequately addressed by the NOx       
Transport Program, but a December 17, 1999 rulemaking established an alternative
program which would require nearly identical 85% NOx reductions at 392 utility  
plants, including the Companies' Ohio and Pennsylvania plants, by May 2003, in  
the event the NOx Transport Rule is not implemented by a state. On August 24,   
2001, the U.S. Court of Appeals for the D.C. Circuit delayed the implementation 
of this Section 126 NOx control program until the EPA resolves issues involving 
electric generating units. Additional Section 126 petitions were filed by New   
Jersey, Maryland, Delaware and the District of Columbia in mid-1999 and are     
still under evaluation by the EPA. The Companies continue to evaluate their     
compliance plans and other compliance options.                                  

In July 1997, the EPA promulgated changes in the National Ambient Air Quality   
Standard (NAAQS) for ozone emissions and proposed a new NAAQS for previously    
unregulated ultra-fine particulate matter. In May 1999, the U.S. Court of       
Appeals for the D.C. Circuit found constitutional and other defects in the new  
NAAQS rules. In February 2001, the U.S. Supreme Court upheld the new NAAQS rules
regulating ultra-fine particulates but found defects in the new NAAQS rules for 
ozone and decided that the EPA must revise those rules. The future cost of      
compliance with these regulations may be substantial and will depend if and how 
they are ultimately implemented by the states in which the Companies operate    
affected facilities.                                                            

In 1999 and 2000, the EPA issued Notices of Violation (NOV) or a Compliance     
Order to nine utilities covering 44 power plants, including the W. H. Sammis    
Plant. In addition, the U.S. Department of Justice filed eight civil complaints 
against various investor-owned utilities, which included a complaint against OE 
and Penn in the U.S. District Court for the Southern District of Ohio. The NOV  
and complaint allege violations of the Clean Air Act based on operation and     
maintenance of the Sammis Plant dating back to 1984. The complaint requests     
permanent injunctive relief to require the installation of "best available      
control technology" and civil penalties of up to $27,500 per day of violation.  
Although unable to predict the outcome of these proceedings, FirstEnergy        
believes the Sammis Plant is in full compliance with the Clean Air Act and the  
NOV and complaint are without merit. Penalties could be imposed if the Sammis   
Plant continues to operate without correcting the alleged violations and a court
determines that the allegations are valid. The Sammis Plant continues to operate
while these proceedings are pending.                                            

In December 2000, the EPA announced it would proceed with the development of    
regulations regarding hazardous air pollutants from electric power plants. The  
EPA identified mercury as the hazardous air pollutant of greatest concern. The  
EPA established a schedule to propose regulations by December 2003 and issue    
final regulations by December 2004. The future cost of compliance with these    
regulations may be substantial. As a result of the Resource Conservation and    
Recovery Act of 1976, as amended, and the Toxic Substances Control Act of 1976, 
federal and state hazardous waste regulations have been promulgated. Certain    
fossil-fuel combustion waste products, such as coal ash, were exempted from     
hazardous waste disposal requirements pending the EPA's evaluation of the need  
for future regulation. The EPA has issued its final regulatory determination    
that regulation of coal ash as a hazardous waste is unnecessary. On April 25,   
2000, the EPA announced that it will develop national standards regulating      
disposal of coal ash under its authority to regulate nonhazardous waste.        

CEI and TE have been named as "potentially responsible parties" (PRPs) at waste 
disposal sites which may require cleanup under the Comprehensive Environmental  
Response, Compensation and Liability Act of 1980. Allegations of disposal of    
hazardous substances at historical sites and the liability involved, are often  
unsubstantiated and subject to dispute. Federal law provides that all PRPs for a
particular site be held liable on a joint and several basis. CEI and TE have    
accrued liabilities of $2.9 million and $0.2 million, respectively, as of       
September 30, 2001, based on estimates of the total costs of cleanup, the       
proportionate responsibility of other PRPs for such costs and the financial     
ability of other PRPs to pay. CEI and TE believe that waste disposal costs will 
not have a material adverse effect on their financial condition, cash flows or  
results of operations.                                                          

3 -  MERGER WITH GPU:                                                           

MERGER -                                                      

On November 7, 2001, FirstEnergy merged with GPU, a Pennsylvania corporation,   
with FirstEnergy being the surviving company. The application of FirstEnergy to 
the Securities and Exchange Commission under the Public Utility Holding Company 
Act of 1935 to acquire all of the outstanding shares of GPU's common stock for  
approximately $4.5 billion in cash and FirstEnergy common stock was approved on 
October 29, 2001. This was the last regulatory approval needed for the merger.  
Approximately $7 billion of debt and preferred securities of GPU's former       
subsidiaries is still outstanding. The transaction is being accounted for by the
purchase method. The combined company's principal electric utility operating    
companies include OE, CEI, TE, Penn and ATSI, as well as the former GPU electric
utility operating companies - Jersey Central Power & Light Company, (JCP&L)     
Metropolitan Edison Company (MetEd) and Pennsylvania Electric Company (Penelec),
which serve customers in New Jersey and Pennsylvania.                           

B-13

424B4
103rd Page of 105
TOC
1st
Previous
Next
↓Bottom
Just 103rd
Under the terms of the Merger Agreement, GPU shareholders could elect to        
receive, for each share of GPU common stock that they own, either $36.50 in cash
or shares of FirstEnergy common stock. The number of FirstEnergy shares that a  
GPU shareholder will receive in exchange for a GPU share depends upon the       
average closing price of FirstEnergy common stock over a pre-determined 20-day  
trading period, but is limited to 1.2318 shares if that average price is        
$29.6313 or higher. With the November 7, 2001 merger effective date, the 20-day 
trading period ended on October 29, 2001, and resulted in an average closing    
price of $35.67. Consequently, GPU shareholders electing FirstEnergy shares will
receive 1.2318 shares of FirstEnergy common stock for each share of GPU common  
stock that they own. The elections by GPU shareholders are subject to proration 
if the total elections received result in more than one-half of the GPU common  
stock being exchanged for either cash or FirstEnergy shares.                    

4 -  REGULATORY MATTERS:                                                        

In July 2000, the Public Utilities Commission of Ohio (PUCO) approved           
FirstEnergy's transition plan as modified by a settlement agreement with major  
parties to the transition plan, which it filed on behalf of its Ohio electric   
utility operating companies - OE, CEI and TE - under Ohio's new electric utility
restructuring law. Major provisions of the settlement agreement included        
approval for recovery of transition costs in the amounts filed in the transition
plan through no later than 2006 for OE, mid-2007 for TE and 2008 for CEI, except
where a longer period of recovery is provided for in the settlement agreement.  
FirstEnergy also gives preferred access over FirstEnergy's subsidiaries to      
nonaffiliated marketers, brokers and aggregators to 1,120 megawatts of          
generation capacity through 2005 at established prices for sales to the Ohio    
operating companies' retail customers. The base electric rates for distribution 
service for OE, CEI and TE under their prior respective regulatory plans will be
extended from December 31, 2005 through December 31, 2007. The transition rate  
credits for customers under their prior regulatory plans will also be extended  
through the Companies' respective transition cost recovery periods.             

The transition plan itemized, or unbundled, the current price of electricity    
into its component elements -- including generation, transmission, distribution 
and transition charges. As required by the PUCO's rules, FirstEnergy's          
transition plan also included its proposals on corporate separation of its      
regulated and unregulated operations, operational and technical support changes 
needed to accommodate customer choice, an education program to inform customers 
of their options under the law, and how FirstEnergy's transmission system will  
be operated to ensure access to all users. Customer prices are frozen through a 
five-year market development period (2001-2005), except for certain limited     
statutory exceptions including a 5% reduction in the price of generation for    
residential customers.                                                          

Ohio's electric utility restructuring law allowed Ohio electric customers to    
select their generation suppliers beginning January 1, 2001. FirstEnergy's Ohio 
customers electing alternative suppliers receive an additional incentive applied
to the shopping credit of 45% for residential customers, 30% for commercial     
customers and 15% for industrial customers. The amount of the incentive serves  
to reduce the amortization of transition costs during the market development    
period and will be recovered through the extension of the transition cost       
recovery periods. If the customer shopping goals established in the agreement   
are not achieved by the end of 2005, the transition cost recovery periods could 
be shortened for OE, CEI and TE to reduce recovery by as much as $500 million   
(OE-$250 million, CEI-$170 million and TE-$80 million), but any such adjustment 
would be computed on a class-by-class and pro-rata basis.                       

5 -  NEW ACCOUNTING STANDARDS:                                                  

The FASB approved SFAS 141, "Business Combinations," and SFAS 142, "Goodwill and
Other Intangible Assets," on June 29, 2001. These new standards are effective   
beginning July 1, 2001. SFAS 141 requires all business combinations initiated   
after June 30, 2001, to be accounted for using purchase accounting. The         
provisions of the new standard relating to the determination of goodwill and    
other intangible assets have been applied to the GPU acquisition, is being      
accounted for by the purchase method, and will not materially affect the        
accounting for this transaction. Under SFAS 142, amortization of existing       
goodwill by FirstEnergy will cease on January 1, 2002. Instead, goodwill will be
tested for impairment at least on an annual basis, and no impairment of goodwill
is anticipated as a result of the initial impairment review process. Currently, 
FirstEnergy amortizes about $57 million ($.25 per share of common stock) of     
goodwill annually. There will be no goodwill amortization in 2001 associated    
with the GPU acquisition under the provisions of the new standard.              

In July 2001, the FASB issued SFAS 143, "Accounting for Asset Retirement        
Obligations." SFAS 143 provides the accounting requirements for retirement      
obligations associated with tangible long-lived assets. SFAS 143 is effective   
for fiscal years beginning after June 15, 2002, with early adoption encouraged. 
FirstEnergy is currently assessing the new standard and has not yet determined  
the impact on its financial statements.                                         

In September 2001, the FASB issued SFAS 144, "Accounting for the Impairment or  
Disposal of Long-Lived Assets." SFAS 144 supersedes SFAS 121, "Accounting for   
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed    
Of." The Statement also supersedes the accounting and reporting provisions of   
Accounting Principles Board (APB) Opinion No. 30, "Reporting the Results of     
Operations - Reporting the Effects of Disposal of a Segment of a Business and   
Extraordinary, Unusual and Infrequently Occurring Events and Transactions." SFAS
144 is effective for fiscal years beginning after June 15, 2001, with early     
adoption encouraged. FirstEnergy is currently assessing the new standard and has
not yet determined the impact on its financial statements.                      

B-14

424B4
104th Page of 105
TOC
1st
Previous
Next
↓Bottom
Just 104th
PART II.  OTHER INFORMATION                                                     

ITEM 6.    EXHIBITS AND REPORTS ON FORM 8-K                                     

(a)  Exhibits                                             

EXHIBIT                                                   
NUMBER                                                    
------                                                    

CEI                                                       

15  Letter from independent public accountants.     

         Pursuant to paragraph (b)(4)(iii)(A) of Item 601 of Regulation S-K,
CEI has not filed as an exhibit to this Form 10-Q any instrument with respect to
long-term debt if the total amount of securities authorized thereunder does not 
exceed 10% of the total assets of CEI, but hereby agrees to furnish to the      
Commission on request any such documents.                                       

(b)  Reports on Form 8-K                                  

CEI                                                       

None                                            

 SIGNATURE

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

November 13, 2001                                                               

                                  THE CLEVELAND ELECTRIC
                                  ILLUMINATING COMPANY
                                Registrant

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

B-15

424B4
Last Page of 105
TOC
1st
Previous
Next
↓Bottom
Just 105th
                                                                  EXHIBIT 15

November 12, 2001                                                               

The Cleveland Electric                                                          
Illuminating Company                                                            
76 South Main Street                                                            
Akron, OH  44308                                                                

Gentlemen:                                                                      

We are aware that The Cleveland Electric Illuminating Company has incorporated  
by reference in its Registration Statements No. 33-55513, No. 333-47651, No.    
333-72891 and No. 333-64776 its Form 10-Q for the quarter ended September 30,   
2001, which includes our report dated November 12, 2001 covering the unaudited  
interim financial information contained therein. Pursuant to Regulation C of the
Securities Act of 1933, that report is not considered a part of the registration
statements prepared or certified by our firm or a report prepared or certified  
by our firm within the meaning of Sections 7 and 11 of the Act.                 

 Very truly yours,

 ARTHUR ANDERSEN LLP

B-16

Dates Referenced Herein   and   Documents Incorporated by Reference

				Referenced-On Page
This ‘424B4’ Filing		Date		First		Last			Other Filings
		12/15/31		6		40
		12/31/10		76					10-K
		12/31/07		16		103			10-K,  10-K/A
		12/19/06		7		39
		12/31/05		5		103			10-K
		5/31/04		87		102
		5/1/03		87		102			8-K
		6/15/02		103
		3/15/02		6		39
		1/1/02		78		103			3
		12/19/01		1		6
Filed on:		12/14/01
		12/12/01		1
		12/1/01		58
		11/30/01		3					8-K
		11/29/01		5		20
		11/13/01		104					10-Q
		11/12/01		97		105
		11/7/01		101		103			3
		11/6/01		91
		10/29/01		100		103
		9/30/01		2		105			10-Q
		9/26/01		100
		8/24/01		102
		7/1/01		103
		6/30/01		103					10-Q
		6/29/01		103
		6/15/01		103
		2/16/01		58		97
		2/8/01		66
		1/1/01		5		103
		12/31/00		3		101			10-K/A
		12/8/00		66
		9/30/00		58		97			10-Q
		9/1/00		64		75
		8/8/00		67
		7/19/00		15		76
		6/30/00		64		82			10-Q
		4/25/00		67		102
		12/31/99		72		89			10-K,  10-K/A
		12/17/99		87		102
		12/3/99		17
		12/31/98		72					10-K
		1/1/98		72
		12/31/97		10		60			10-K405
		11/8/97		84
									List all Filings