Fitch Upgrades FirstEnergy Corp. & Select Operating Subsidiary Debt.

NEW YORK -- Fitch has upgraded the Issuer Default Rating (IDR) and individual issue ratings of FirstEnergy Corp. (FE) and its subsidiaries Jersey Central Power & Light Co. (JCP&L), Cleveland Electric Illuminating Co. (CEI), and Toledo Edison Co. (TE). At the same time, Fitch has affirmed the ratings of Ohio Edison (OE) and its subsidiary Pennsylvania Power Co. (PPC). In addition, Fitch has raised the short-term rating of JCP&L to 'F2' from 'F3' and has assigned an 'F2' short-term rating to FE. (See complete list of the rating actions below.) Approximately $11.5 billion of long-term debt is affected by the rating action. The Rating Outlook is Positive for CEI and TE and Stable for FE, OE, PPC and JCP&L.

On Jan. 24, 2007, Fitch affirmed the ratings of FE subsidiaries Metropolitan Edison Co. (MetEd) and Pennsylvania Electric Co. (PenElec); for more information please see the Fitch press release issued on that date.

The FE's higher ratings and Stable Rating Outlook reflect the significantly improved operating performance of its generating fleet, balance sheet de-leveraging and relatively constructive regulatory environments in Ohio and, to a lesser degree, in Pennsylvania. Adoption of the company's proposed rate certainty plan in early 2006 by the Public Utility Commission of Ohio is expected to result in more predictable if somewhat lower earnings and cash flows. Fitch estimates consolidated debt to EBITDA and EBITDA-to-interest coverage ratios of 3.5 times (x) and 4.4x, respectively, in 2007. FE's ratings and Outlook capture the transfer of virtually all of FE's primarily coal- and nuclear-fueled generating capacity to subsidiaries of FE's unregulated wholly-owned generation affiliate, FirstEnergy Solutions (FES), and the related financial restructuring underway throughout the FE family of companies. The ratings also consider FE's significant infrastructure and environmental capital expenditure requirements over the next few years.

The increased Jersey Central Power & Light (JCP&L) ratings and Stable Outlook reflect anticipated improvement in the distribution utility's post-2006 cash flows in light of the recent New Jersey Board of Public Utilities (BPU) order approving recovery of deferred non-utility-generator costs. Fitch estimates that 2007 cash flow interest coverage will improve to 5.7x from 3.0x for the 12 months ended September 2006.

CEI and TE's higher ratings and Positive Outlook consider the utilities' improved credit metrics and anticipate reasonable regulatory decisions in future Ohio proceedings and maintenance of a balanced capital structure following the completion of FE's ongoing financial restructuring. Greater regulatory clarity and continued solid credit metrics could lead to positive rating actions.

Since the fourth-quarter 2005 transfer of FE's generating assets to subsidiaries of FES, FE has shifted approximately $1.4 billion of its PPC and Ohio utility operating companies' pollution control revenue refunding obligations (PCRBs) to FES' subsidiaries. Fitch expects FES' subsidiaries to refinance the remaining $700 million of utility PCRBs by the end of 2008. In 2006, FE also refinanced $1 billion of parent company debt at the operating company level. Fitch assumes completion of FE's financial restructuring and asset transfer will result in credit metrics supportive of the current rating category.

While New Jersey remains a challenging regulatory environment, in Fitch's view, the New Jersey Board of Public Utilities' December 2006 order approving recovery of approximately $165 million of deferred NUG costs is a significant positive development. Less constructive was the Pennsylvania Public Utilities Commission's (PUC) January 2007 order in MetEd and PenElec's rate case. The commission order, among other things, rejected FE subsidiaries MetEd and PenElec's proposed phase-in of market-based power supply costs and requested adjustments to NUG cost recovery and deferral accounting, while reducing distribution rates a combined $85 million. Positively, the PUC approved a combined transmission rate increase of approximately $194 million.

In Fitch's view, long-lived rate cap plans in Ohio and Pennsylvania are a potential source of future concern for FE fixed income investors. Multi-year rate caps set the stage for rate shock and potential political/regulatory resistance to recovery of significant post-transition rate increases in 2009 and 2011 in a high commodity cost environment, though the regulatory plan in Ohio mitigates the likelihood of significant customer rate shock. The ratings assume regulators will implement mechanisms that will allow full and timely recovery of utility power supply costs and reasonable outcomes in the utilities' pending and future transmission and distribution rate proceedings.

Conversely, a prolonged period of low post-transition plan natural gas (Fitch's low-case natural gas price estimate is $4 per million BTU) and power prices could adversely affect FES and lead to negative rating actions at FE in the longer term. However, a more likely scenario of cyclical price fluctuations within reasonable parameters should continue to support creditworthiness within the 'BBB' category in the foreseeable future, in Fitch's opinion. Rising operating and financing costs associated with environmental compliance initiatives and emerging regulations are also a source of concern for FE fixed income investors.

Fitch has upgraded the following:

FirstEnergy Corp.

-- Issuer Default Rating (IDR) to 'BBB' from 'BBB-';

-- Senior unsecured debt to 'BBB' from 'BBB-'.

Jersey Central Power & Light Co.

-- IDR to 'BBB' from 'BBB-';

-- FMB 'A-'from BBB+

-- Secured MTNs 'A-'from BBB+

-- Short term to 'F2' from 'F3'.

Cleveland Electric Illuminating Co. (CEI)

-- IDR to 'BB+' from 'BB';

-- Sr. secured FMBs to 'BBB' from 'BBB-';

-- Secured MTNs to 'BBB' from 'BBB-';

-- Sr. Unsecured to 'BBB-' from 'BB+'.

Ohio Air Quality Development Authority (CEI project)

-- Unsecured PCRBs to 'BBB-' from 'BB+'.

Beaver Valley II Funding Corp

-- Lease obligation bonds (CEI and TE as lessee) to 'BBB-' from 'BB+'.

Toledo Edison Co. (TE)

-- IDR to 'BB+' from 'BB';

-- Sr. secured FMBs to 'BBB' from 'BBB-';

-- Secured MTNs to 'BBB' from 'BBB-';

-- Unsecured notes to 'BBB-' from 'BB+'.

Ohio Water Development Authority (TE projects)

-- Secured PCRBs to 'BBB' from 'BBB-'.

In addition, Fitch affirms the following:

Ohio Edison Co.

-- IDR 'BBB-';

-- Sr. secured first mortgage bonds (FMBs) 'BBB+';

-- Sr. secured notes 'BBB+';

-- Unsecured notes 'BBB'

-- Short-term debt 'F2'.

Ohio Water Development Authority (OE projects)

-- Secured PCRBs 'BBB+'.

BVPS II Funding Corp.

-- Lease obligation bonds (OE as lessee) 'BBB'.

PNPP II Funding Corp

-- Lease obligation bonds (OE as lessee) 'BBB'.

Pennsylvania Power Co. (PPC)

-- IDR 'BBB-';

-- FMBs/Sr. secured notes 'BBB+'.

Ohio Air Quality Development Authority (PPC project)

-- Unsecured PCRBs 'BBB'.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.