first energy analystmtg_120607
TRANSCRIPT
Analyst MeetingNew York, NY • December 6, 2007
Analyst MeetingNew York, NY • December 6, 2007
Welcome
Ronald E. SeeholzerVice President, Investor Relations
Analyst MeetingNew York, NY ▪ December 6, 2007
Safer Harbor Statement under the Private SecuritiesLitigation Reform Act of 1995These Presentations includes forward-looking statements based on information currently available to management. Such statements are subject to certain risks and uncertainties. These statements include declarations regarding our, or our management’s, intents, beliefs and current expectations. These statements typically contain, but are not limited to, the terms “anticipate,” “potential,” “expect,” “believe,” “estimate” and similar words. Forward-looking statements involve estimates, assumptions, known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Actual results may differ materially due to the speed and nature of increased competition in the electric utility industry and legislative and regulatory changes affecting how generation rates will be determined following the expiration of existing rate plans in Ohio and Pennsylvania, economic or weather conditions affecting future sales and margins, changes in markets for energy services, changing energy and commodity market prices, replacement power costs being higher than anticipated or inadequately hedged, the continued ability of FirstEnergy’s regulated utilities to collect transition and other charges or to recover increased transmission costs, maintenance costs being higher than anticipated, other legislative and regulatory changes including revised environmental requirements, the uncertainty of the timing and amounts of the capital expenditures needed to, among other things, implement the Air Quality Compliance Plan (including that such amounts could be higher than anticipated) or levels of emission reductions related to the Consent Decree resolving the New Source Review litigation or other potential regulatory initiatives, adverse regulatory or legal decisions and outcomes (including, but not limited to, the revocation of necessary licenses or operating permits and oversight by the Nuclear Regulatory Commission including, but not limited to, the Demand for Information issued to FENOC on May 14, 2007) as disclosed in our SEC filings, the timing and outcome of various proceedings before the PUCO (including, but not limited to, the Distribution Rate Cases and the generation supply plan filing for the Ohio Companies and the successful resolution of the issues remanded to the PUCO by the Supreme Court of Ohio regarding the Rate Stabilization Plan and the Rate Certainty Plan, including the deferral of fuel costs) and the PPUC (including the resolution of the Petitions for Review filed with the Commonwealth Court of Pennsylvania with respect to the transition rate plan for Met-Ed and Penelec), the continuing availability of generating units and their ability to continue to operate at or near full capacity, the ability to comply with applicable state and federal reliability standards, the inability to accomplish or realize anticipated benefits from strategic goals (including employee workforce initiatives), the ability to improve electric commodity margins and to experience growth in the distribution business, the ability to access the public securities and other capital markets and the cost of such capital, the outcome, cost and other effects of present and potential legal and administrative proceedings and claims related to the August 14, 2003 regional power outage, the risks and other factors discussed from time to time in our SEC filings, and other similar factors. The foregoing review of factors should not be construed as exhaustive. New factors emerge from time to time, and it is not possible for us to predict all such factors, nor can we assess the impact of any such factor on our business or the extent to which any factor, or combination of factors, may cause results to differ materially from those contained in any forward-looking statements. Dividends declared from time to time on FirstEnergy's common stock during any annual period may in aggregate vary from the indicated amounts due to circumstances considered by FirstEnergy's Board of Directors at the time of the actual declarations. Also, a security rating is not a recommendation to buy, sell or hold securities, and it may be subject to revision or withdrawal at any time and each such rating should be evaluated independently of any other rating. We expressly disclaim any current intention to update any forward-looking statements contained herein as a result of new information, future events, or otherwise.
Analyst MeetingNew York, NY ▪ December 6, 2007
Today’s Agenda
Corporate and Strategic Overview – Tony Alexander
Regulatory Update – Dave Blank
Operations Overview – Gary Leidich
Energy Delivery & Customer Service – Don Schneider
Generation and Commodity Operations – Chuck Jones
Commodity Operations – Ali Jamshidi
Financial Outlook – Rich Marsh
Closing Remarks – Tony Alexander
Q & A
Analyst MeetingNew York, NY • December 6, 2007
Analyst MeetingNew York, NY • December 6, 2007
Corporate and Strategic Overview
Tony AlexanderPresident and CEO
Analyst MeetingNew York, NY ▪ December 6, 2007
People and Culture– One company culture– Continuous learning and
leadership platforms
Financial Strength & Flexibility– Achieve targeted growth– Deploy cash effectively
Capital Management– Build on our existing generation
portfolio– Rebuild our T&D infrastructure
Regulatory– Recover cost of service– Transition to market prices
Objectives
Our objectives for 2007 and beyond continue to be based on the fundamentals.
Corporate and Strategic Overview
A strong and stable corporation with a focus on the fundamentals
– Operational excellence– Financial discipline– Management credibility– Continuous improvement
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Analyst MeetingNew York, NY ▪ December 6, 2007
FirstEnergy’s strategic focus is on making an orderly and effective transition to competitive market-based pricing.
Met-Ed and Penelec – Cost recovery
Penn Power POLR to market
2009–2010 20112004–2006
Rebuild the core
Rebuild financial stability
Start the transition to market (e.g., generation asset transfer)
2007–2008
OH POLR to market
Distribution rate cases
End of OE and TE transition cost amortization
Met-Ed and Penelec POLR to market
End of CEI transition cost amortization
Transition
Corporate and Strategic Overview
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Analyst MeetingNew York, NY ▪ December 6, 2007
Legislative Update: Ohio and Pennsylvania
Efforts are underway in both OH and PA on potential new energy legislation
FirstEnergy actively engaged in the legislative process
Multiple issues being considered…key is to assure a smooth transition to market in both states
PA still working to enact legislation by end of year
OH legislation likely in the first quarter of 2008
Corporate and Strategic Overview
FirstEnergy is positioned in each state FirstEnergy is positioned in each state to successfully transition to marketto successfully transition to market
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Analyst MeetingNew York, NY ▪ December 6, 2007
Successfully transitioned Penn Power to competitive generation market prices Filed distribution rate case requests and competitive generationprocurement proposal for Ohio utilities
Regulatory
In 2007, we continue to build on the fundamentals and deliver strong financial results…
Narrowed EPS guidance to top-half of the original range: $4.15–$4.25* Expecting to generate $1.7B of cash from operationsIncreased dividend 11.1% Completed accelerated repurchase of approx. 14.4 million sharesCompleted $1.3B sale and leaseback transaction on 779 MW of Mansfield Unit 1
Financial
Corporate and Strategic Overview
* See GAAP to Non-GAAP reconciliations in the Financial Outlook Appendix.
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Analyst MeetingNew York, NY ▪ December 6, 2007
Expecting generation output in excess of 81 million MWh –20% increase from 2003
Added over 300 MW of additional generating capacity through uprates, wind contracts and peaking enhancements – with significantly less risk than new plant construction
Continued improvement in T&D reliability metrics – SAIDI down 15%
Achieving top-decile safety performance – 0.89 YTD OSHA rate
On schedule and budget for Air Quality Control (AQC) projects at the Sammis Plant
NRC accepted Beaver Valley Units 1 & 2 license renewal applications for review
Operational
…And strong operational results.
Corporate and Strategic Overview
6
Analyst MeetingNew York, NY ▪ December 6, 2007
2008 – A Challenging Year
No expected rate increases
Higher Ohio transition cost amortization expense
Increased capital expenditures for AQC projects
Continued improvements in distribution reliability
Continued investments in generation fleet capacity and performance
Corporate and Strategic Overview
We have demonstrated our ability to deliver We have demonstrated our ability to deliver results and will continue to meet our objectivesresults and will continue to meet our objectives
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Analyst MeetingNew York, NY ▪ December 6, 2007
2008 – Expect Modest Improvement in Earnings
As we manage our transition to market, we will continue to drive performance and deliver results
Corporate and Strategic Overview
8
2007 Non-GAAP Earnings Guidance*
Original (Feb. 2007) $4.05 – $4.25
Revised (Oct. 2007) $4.15 – $4.25
Affirmed (Dec. 2007) $4.15 – $4.25
2008 Non-GAAP Earnings Guidance* $4.15 – $4.35* See GAAP to Non-GAAP reconciliations in the Financial Outlook Appendix. On a GAAP basis, 2008 EPS is expected to be
$4.23 to $4.43 reflecting an $0.08 gain on the planned sale of non-core assets.
Analyst MeetingNew York, NY ▪ December 6, 2007
SignificantEarningsGrowth
Potential
Bottom Line –FirstEnergy is an attractive risk/reward opportunity
Effectively managing transitionto competitive markets
Realizing full potential of assets
Reinvesting for future growth
Effectively deploying strong cash flow
Striving for continuous improvement
Maintaining strategic flexibility
Well-positioned for climate legislation
Corporate and Strategic Overview
9
Analyst MeetingNew York, NY • December 6, 2007
Regulatory Update
Dave BlankVice President, Rates and Regulatory Affairs
Analyst MeetingNew York, NY ▪ December 6, 2007
Discussion Topics
Ohio regulatory update– Distribution rate cases– Competitive generation procurement proposal– Supreme Court of Ohio remand on Rate Certainty Plan
Pennsylvania regulatory update– Commonwealth Court appeal in Met-Ed/Penelec rate cases– Met-Ed/Penelec comprehensive generation procurement filing– Penn Power POLR II case
New Jersey regulatory update– Energy Master Plan
Regulatory Update
2
Analyst MeetingNew York, NY ▪ December 6, 2007
Ohio Edison, CEI and Toledo EdisonCase detail– Request: $332M increase (7% on overall rates)
– Distribution revenue requirements: $212M– Deferral recovery: $120M
Case schedule– Filed June 2007, with 2008 test period and
date certain of May 31, 2007– PUCO Staff report expected early December– Hearings expected 1st quarter 2008– 275-day timeline reached in March 2008– Rates to be effective January 2009 (CEI in May 2009)
Ohio
Ohio Regulatory UpdateDistribution Rate Requests
Regulatory Update
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Analyst MeetingNew York, NY ▪ December 6, 2007
Ohio Edison, CEI and Toledo EdisonOn July 10, 2007, filed a comprehensive supply plan for competitively priced generation service to implement market provisions of S.B. 3 effective January 1, 2009
Proposal includes:– Option to phase in generation price increases for residential
tariff groups that experience > 15% increase in avg. total price– Time-of-day and hourly pricing options– Renewable energy component
Competitive bid process (CBP) alternatives– By Customer Class, or– Slice of System
Ohio Regulatory Update
Ohio
Competitive Generation Procurement Proposal
Regulatory Update
4
Analyst MeetingNew York, NY ▪ December 6, 2007
CBP process– Descending clock bidding format– Full requirements product (energy, capacity, transmission)– Individual bidders limited to 75% of total customer load– Multiple solicitations; three-year ladder
Bids secured in 2008 would be for service beginning January 1, 2009, and ending:– May 31, 2010 (17-month)– May 31, 2011 (29-month)– May 31, 2012 (41-month)
Subsequent annual bids for 1/3 of load (3-year supply)
Ohio Regulatory Update
Ohio
Competitive Generation Procurement Proposal (continued)
Regulatory Update
5
Analyst MeetingNew York, NY ▪ December 6, 2007
Ohio Edison, CEI and Toledo EdisonAugust 29: Supreme Court of Ohio remanded recovery of deferred fuel costs in distribution rates to PUCO for further consideration
The Court reaffirmed all other aspects of the Rate Certainty Plan
September 10: Companies filed a Remand Application with the PUCO seeking generation-related fuel cost recovery rider
– Remand remains at PUCO
Ohio
Ohio Regulatory UpdateSupreme Court of Ohio Remand on Rate Certainty Plan
Regulatory Update
6
Analyst MeetingNew York, NY ▪ December 6, 2007
PAMet-Ed and Penelec
Commonwealth Court appeals of rate cases– $109M net increase effective January 2007– Pending appeals to Commonwealth Court
– ME & PN - denial of generation relief and tax expense adjustment– Industrials & OCA - transmission recovery– Oral arguments expected late 4Q or early 2008– Decision expected in 2008
Generation procurement filing plan– ME & PN transition to competitive generation market prices
on January 1, 2011– Plan to submit generation procurement proposal in 2008
Pennsylvania Regulatory UpdateCommonwealth Court Appeals & Generation Procurement Filing
Regulatory Update
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Analyst MeetingNew York, NY ▪ December 6, 2007
Penn Power successfully transitioned to competitive generation market prices on January 1, 2007– POLR I RFPs implemented for January 2007–May 2008– POLR II multiple RFP’s with staggered delivery
June 2008 through May 2011– Proposed full requirements product by class– Settlement Agreement filed in September 2007– Favorable ALJ Recommended Decision received in October 2007– Anticipate Commission Order in December 2007
– Industrial customers on hourly priced default service
4343431 yearCommercial0022222 yearResidential2200221 yearResidential
Jan 10Oct 09Jan 09Oct 08Mar 08Jan 08RFP Tranches (50 MW)TermGroup
PA
Pennsylvania Regulatory UpdatePenn Power POLR II Case
Regulatory Update
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Analyst MeetingNew York, NY ▪ December 6, 2007
NJ
Regulatory Matters
New Jersey Energy Master Plan – State goals
– Reduce total projected electricity demand by 20% by 2020– Meet 22.5% of electricity needs with renewable energy– Reduce air pollution and energy use– Encourage and maintain economic development– Achieve a 20% reduction in CAIDI and SAIFI by 2020– Unit prices at no more than +5% of the regional price level– Eliminate transmission congestion by 2020
– Detailed draft plan expected by year end 2007– JCP&L focus: Peak demand management and cost recovery
Jersey Central Power & Light
Regulatory Update
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Analyst MeetingNew York, NY ▪ December 6, 2007
Appendix
appendix
App-1
Analyst MeetingNew York, NY ▪ December 6, 2007
Retail Regulatory Structure
1 CEI fixed through April 2009.2 NUG recovery thru 2020.
Ohio Edison Stable ratesthru 2008“g + RSC”
RTC thru2008 – OE, TE2010 – CEI
Fixed ratesthru 20081
Pass thruMISO costs
Penn Power Market in2007
POLR ratesthru 2010
GenerationGeneration TransmissionTransmission DistributionDistribution Transition CostTransition Cost
Norestriction
JCP&L BGS Supply MTC thru 2018Norestriction
Met-Ed
Penelec
Toledo Edison
CEI
CTC endedJan. 2006
CTC thru 20102
CTC thru 20092
Pass thruPJM costs
Norestriction
InGeneration
App-2Appendix
Analyst MeetingNew York, NY ▪ December 6, 2007
* Assumes current Generation & Transmission rates
Proposed Changes in Revenues ($ millions) TotalCurrent "Distribution" Revenues $1,118Proposed Increase:
Associated with RCP Fuel Expense Deferrals 34Associated with RCP Infrastructure Expense Deferrals 40Associated with RCP DSM Deferrals (through a rider) 4Associated with ETP & Ohio Line Extension Deferrals 42"Base" Revenue Requirement Increases 212
Total Proposed Increase to "Distribution" Revenues $332Proposed "Distribution" Revenues $1,450Offsetting RTC Decrease ($594)Net Decrease, Including Offsets * ($262)% Decrease, Including Offsets to Total Current Revenues * -5.7%
Ohio Regulatory Matters
App-3Appendix
Distribution Rate Requests (as filed)
Analyst MeetingNew York, NY • December 6, 2007
Operations Overview –Strategies / Initiatives
Gary LeidichSenior Vice President, Operations
Analyst MeetingNew York, NY ▪ December 6, 2007
Operations Strategy
GenerationGeneration
Commodity OperationsCommodity Operations
Energy DeliveryEnergy Delivery
EnvironmentalEnvironmental
Operations Overview – Strategies / Initiatives
Maximizing generation fleet utilization is key to driving improved generation marginMaximizing margins by mitigating risks and minimizing supply costsMining existing assets for cost-effective capacity additionsEffectively implement environmental compliance strategyContinued focus on enhancing reliability and customer serviceImplement continuous improvement initiatives
Strategic ObjectivesStrategic Objectives
Driving Performance and Delivering Results
2
Analyst MeetingNew York, NY ▪ December 6, 2007
An Unwavering Commitment to Safety
“Make Safety A Way Of Life”
0.96 0.89
1.591.24
1.44
0.0
0.5
1.0
1.5
2.0
2.5
2003 2004 2005 2006 2007 YTD
OSH
A In
cide
nt R
ate*
*
FE Performance Top Decile* Top Quartile*
* Based on 2006 EEI industry benchmarks
** Per 100 employees
Operations Overview – Strategies / Initiatives
3
Analyst MeetingNew York, NY ▪ December 6, 2007
Operational Performance TargetsOperational Performance 2004 2005 2006 2007F 2008F 2011
Targets
Total Generation (million MWh) 76.4 80.2 82.0 82.2 84.7 86.6
Fossil Reliability
Capacity Factor (Baseload %) 84.6 86.9 88.5 81.0 87.2 90.7
Nuclear Reliability
Capability Factor % 89.5 86.2 86.8 90.0 92.9 92.4
Energy Delivery Reliability
Distribution SAIDI (minutes) 159 191 152 128 118 103
Operations Overview – Strategies / Initiatives
4
Analyst MeetingNew York, NY ▪ December 6, 2007
Business Planning Principles
Playbook for each business unit
Emphasis on closing gaps to top performance
No ambiguity – clearly defined performance metrics
Issues/challenges identified
Risk management tools applied
Communication
Continuous Improvement initiatives and specific action plans
Operations Overview – Strategies / Initiatives
5
Analyst MeetingNew York, NY ▪ December 6, 2007
Improved Linkage
Improved Linkage of Operational Execution and Financial Results
Common template for metrics, assumptions, and initiatives improves communications“Sharpened” financials: more efficient and timely– <2% targeted O&M growth annually
Improved capital portfolio management– Stabilized Energy Delivery costs– Sequence Air Quality Control (AQC) costs with other major projects – Cross-functional peer reviews/challenges
Process for capturing Continuous Improvement initiatives
OperationalDecisions
FinancialResults
Operations Overview – Strategies / Initiatives
6
Analyst MeetingNew York, NY ▪ December 6, 2007
Operations Overview – Strategies / Initiatives
Reinvesting in the Business
* AQC annual expenditures include $500M (2009), $156M (2010), and $11M (2011)
2004 2005 2006 2007F 2008F2009F-2011F
Average
Energy Delivery
- Aged infrastructure rebuild- Pockets of load growth- Reliability improvements
$455 $724 $650 $746 $730 $730
Fossil- Improve managing operating risk- Upgrade aged equipment- Environmental / fuel enhancements
$106 $148 $116 $104 $96 $155
Nuclear- Availability improvements- Dry fuel storage / license renewal- Materials issues
$141 $173 $229 $149 $131 $260
Corporate - Information Technology, etc $29 $45 $39 $88 $86 $75
Sub-Total $731 $1,090 $1,034 $1,087 $1,043 $1,220
AQC- Compliance strategy totals - Sammis, Burger Units, Mansfield and Eastlake Unit 5
$0 $54 $136 $387 $650 $222 *
Total $731 $1,144 $1,170 $1,474 $1,693 $1,442
Capital Expenditures ($ millions)Project AreasBusiness
Unit
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Analyst MeetingNew York, NY ▪ December 6, 2007
Environmental Strategies
Tactical– Managed compliance with environmental operating standards to
achieve 100% compliance
Strategic– Comprehensive environmental compliance and economic analysis
for fossil fleet ready for implementation– Clean Air Interstate Rule and Clean Air Mercury Rule – effective March 2005– New Source Review – effective July 1, 2005– Clean Water Act, Section 316(b) Phase II – effective July 9, 2004
– AQC Group focused to address environmental compliance implementation plans across the fleet with $1.9B investment through 2011
Long Term– Actively partner with government agencies, EPRI and equipment
manufacturers to R&D new control technologies and system efficiency improvements to address potential future emissions regulations
Operations Overview – Strategies / Initiatives
8
Analyst MeetingNew York, NY ▪ December 6, 2007
AQC Construction OverviewEnvironmental Strategies
Sammis Plant (2,233 MW) – $1.65B– SO2 control (scrubbers) all units– NOx control (SCRs) Units 6 & 7 (1,200 MW)
NOx control (SNCR) Units 1–5 (1,033 MW) completed
Mansfield Plant (2,490 MW) – $50MSO2 control (scrubber) upgrades completed
Burger Plant – $180M– NOx control (SNCR) and SO2 control
Electro-Catalytic Oxidation (ECO) Units 4 & 5 (312 MW)
Eastlake Plant – $6MNOx control (SNCR) Unit 5 (597 MW) completed
Operations Overview – Strategies / Initiatives
9
Analyst MeetingNew York, NY ▪ December 6, 2007
Sammis Plant with computer overlay of Wet Flue Gas Desulphurization (WFGD) equipment
AQC Upgrades – Sammis PlantFlue Duct Work – 9,000 tons (9,000 ft.)
Electrical Cable – 9,120 circuits (530 miles)
Foundation Piles – 5,600 piles (445,000 LF)
Concrete – 51,000 cubic yards
Tons of Steel – 17,200 tons
DCS I/O Points – 8,200
Large Bore Pipe – 88,300 ft. (17 miles)
Small Bore Pipe – 13,000 ft. (2.5 miles)
Overland “Pipe” Conveyor – 3.0 miles long
Operations Overview – Strategies / Initiatives
10
Analyst MeetingNew York, NY ▪ December 6, 2007
Chimney Shell Completion
Chimney Shell and Overall Site Construction
Operations Overview – Strategies / Initiatives
11
Analyst MeetingNew York, NY ▪ December 6, 2007
Fiberglass Strands for Spinning
Flue Spinning Mandrill
Fiberglass Flue –Spinning Facility
Operations Overview – Strategies / Initiatives
12
Analyst MeetingNew York, NY ▪ December 6, 2007
“A&B” Absorber Foundations –Formwork and Underground in Building Areas
Absorber “C”Building Steel
Operations Overview – Strategies / Initiatives
13
Analyst MeetingNew York, NY ▪ December 6, 2007
Unit 6 SCR Inlet FluesUnit 6 SCR Inlet Flues
Operations Overview – Strategies / Initiatives
14
Analyst MeetingNew York, NY ▪ December 6, 2007
Ammonia Tank Farm Railroad Unloading Slab
Operations Overview – Strategies / Initiatives
15
Analyst MeetingNew York, NY ▪ December 6, 2007
CO2 control – Over 35% of annual fleet output is non-emitting– Involved in CO2 capture and sequestration R&D
Mercury control – Excellent reduction through “co-benefits”– Based on current rules and plans, additional equipment not required before 2018
Longer-term environmental considerations
Environmental Status
20102007
81%62%
9%9%
38%19%
34%34%
Fleet%
Fleet%
Fleet Emission Control Status
11,1588,490
1,2831,283Natural Gas Peaking
5,2372,626Coal Controlled(SO2/NOx – full control)
4,6384,581Non-Emitting
Capacity (MW)
Capacity (MW)
Our generation fleet is well-positioned for the future
Operations Overview – Strategies / Initiatives
16
Analyst MeetingNew York, NY ▪ December 6, 2007
Participating in Global Climate Change Policy• Global Roundtable on Climate Change• EPRI Global Climate Policy Costs & Benefits Research• EEI Climate Change Policy Subcommittee• NEI Climate Change Policy Subcommittee
GHG Reduction Technologies & Voluntary Actions• Asia-Pacific Partnership• EPA SF6 Reduction Partnership• EPRI GHG Reduction and Electric Transportation Research• Climate Vision• DOE 1605(b) Voluntary Reporting of GHGs Program• Powertree Carbon Company
Generation Initiatives• Fossil plant efficiencies • Nuclear plant uprates
CO2 Capture and Storage Technologies• MRCSP – R.E. Burger Plant Sequestration test well• ECO2 Carbon Capture – Powerspan• EPRI research• Power Partners• Oxy Fuel – B&W
End-user Energy Management• NJ Clean Energy Program• PA Sustainable Energy Fund• Ohio Energy-efficiency Programs
Renewables• 650 MWs Hydro• >200 MWs Wind Purchase Agreements
Renewal of Nuclear and Hydro Plant Operating Licenses
• Continued operation of non-emitting generation
Environmental StrategyFirstEnergy’s climate activities
Operations Overview – Strategies / Initiatives
17
Analyst MeetingNew York, NY ▪ December 6, 2007
90.787.281.0Capacity Factor (Baseload %)
54.652.751.5Total Generation (million MWh)
0.801.121.12OSHA Incident Rate (per 100 employees)
2011 Target2008F2007FFossil
Fossil Operating Performance
2007 Highlights– Top-quartile safety performance – New monthly all time generation
record set August 2007 (4.6 million MWh)
– Environmental projects (AQC) on track– Outage performance improving– Implemented Fossil Excellence at
Bay Shore and Sammis (continuous improvement)
– On track for workforce replenishment– Improved performance accountability– Mansfield Unit 3 uprate (30 MW)
2008 Look Ahead– Achieve top-decile safety performance – Drive continuous improvement
through fleet standardization of best practices, benchmarking and Fossil Excellence annual diagnostics
– Continue to focus on transitioning workforce knowledge and skills to a new generation of employees
– Execute Mining Our Assets strategies– Develop and implement a full start-up
testing, training and operation strategy for AQC
Operations Overview – Strategies / Initiatives
18
Analyst MeetingNew York, NY ▪ December 6, 2007
2007 Highlights – Top-quartile safety performance– DB worked > 7.5 million hours
without a Lost Time Accident – Record Fleet Generation projected
(30.7 million MWh) – BV1 uprate (43 MW); BV2 uprate (24 MW)– No forced losses at BV1; BV2 top
quartile (0.24%)– PY returned to Standard Reactor
Oversight Process– NRC accepted BV license renewal application– Successful NRC Security drills at PY and BV– Lowest BV dose during fall outage
2008 Look Ahead– Maintain top-quartile safety performance– Targeting record generation
(32.0 million MWh) – Two outages – DB and BV2– Additional 12 MW from DB Caldon
modification– Additional 45 MW from BV power uprate– NRC Emergency Preparedness Evaluated
Exercises at BV and PY – Dry Cask Fuel Storage underway at PY
92.492.990.0Capability Factor (%)
32.032.030.7Total Generation (million MWh)
0.250.250.25OSHA Incident Rate (per 100 employees)
2011 Target2008F2007FNuclear
Nuclear Operating Performance
Operations Overview – Strategies / Initiatives
19
Analyst MeetingNew York, NY ▪ December 6, 2007
Tactical fuel managementAQC implementationClimate change
Maximize utilizationReinvest to manage reliabilityMining of assetsMaximize margins
Generation Generation (including (including
Commodity Operations)Commodity Operations)
Reliability improvementsReinvest in infrastructure
Transitioning to our Future
EnvironmentalEnvironmental
Energy DeliveryEnergy Delivery
Well-positioned to Succeed in Competitive Generation Markets
Operations Overview – Strategies / Initiatives
20
Analyst MeetingNew York, NY ▪ December 6, 2007
appendix
App-1Appendix
Analyst MeetingNew York, NY ▪ December 6, 2007
FirstEnergy’s Position on Global Climate Change
Climate change is a global issue ultimately requiring a global solution
Technology development is key – Energy efficiency and demand-side management– Clean coal technologies– Carbon capture and sequestration
Significant future impact on price of electricity whether states are regulated or deregulated– Be consistent over broad geographic region– Include reasonable compliance timeframes – Encourage new cost-effective technologies
Appendix
App-2
Analyst MeetingNew York, NY ▪ December 6, 2007
Additional Key Technologies FirstEnergy is Actively Co-Funding
Plug-in hybrid electric vehicles (PHEV)– Considerably cleaner than
internal combustion engine vehicle, including battery charging– 30% less GHG– 15% less SO2 and NOx
– Provides largely off-peak demand, an opportunity for growth
– Advanced meters are an enabling technology
Appendix
App-3
Analyst MeetingNew York, NY ▪ December 6, 2007
Generation – Implementing Plans for the Future
Nuclear license renewal
Nuclear steam generator replacements– Davis-Besse in 2014– Beaver Valley Unit 2 in 2017
20472009Submitted 2007*2027Beaver Valley Unit 2
2037201220102017Davis-Besse
2046
2036
New Expiration
201520132026Perry
Submitted 2007*
Submit Request (NRC Docket)
20092016Beaver Valley Unit 1
Approval Expected
Current Expiration
Appendix
App-4
* The NRC accepted the application for review
Analyst MeetingNew York, NY ▪ December 6, 2007
Nuclear spent fuel storage– Since 1983, FirstEnergy has collected $494M from the rate-payers
for the long-term storage of used nuclear fuel. At the federal level, Yucca Mountain has been proposed as a site for long-term storage and may be available as early as 2017 to receive used fuel, but this is not likely. If Yucca Mountain is available in 2017, FirstEnergy will be eligible to ship fuel starting in 2021.
Generation – Implementing Plans for the Future
Current ongoing criticality analysis will increase storage spaceRe-rack before 2011 to provide capacity through 2025 Dry storage could then be implemented
Beaver ValleyBeaver ValleyUnit 2Unit 2
Continue with wet storage until 2021Switch back to dry storage in 2022DavisDavis--BesseBesse
Implement dry storage before 2011PerryPerry
Implement dry storage by the end of 2014Beaver ValleyBeaver ValleyUnit 1Unit 1
Appendix
App-5
Analyst MeetingNew York, NY • December 6, 2007
Energy Delivery & Customer Service
Don SchneiderSenior Vice President, Energy Delivery & Customer Service
Analyst MeetingNew York, NY ▪ December 6, 2007
Discussion Topics
Energy Delivery & Customer Service (ED&CS) Vision, Mission and Focus Areas
Regulated rate base
Our “Game Plan”
Operational performance goals
Transitioning to our Future
Energy Delivery & Customer Service
2
Analyst MeetingNew York, NY ▪ December 6, 2007
Providing safe and reliable electric service at a reasonable cost by leveraging the resources, skills and diversity of our workforce
Mission
An industry leading performer that shapes the future of the energy delivery and customer service businessVision
ED&CS Vision, Mission and Focus Areas
Focus AreasSafetyCustomer SatisfactionReliabilityFinancial PerformanceEmployees
Energy Delivery & Customer Service
3
Analyst MeetingNew York, NY ▪ December 6, 2007
Regulated Rate Base and Sales Growth
$394
$9,800
2007F
$330$365Capital Expenditures, Net of Depreciation
$11,000
2011 Target
$10,100Net Plant for Rate Base
2008FProjected Rate Base –Regulated Companies (T&D)($ millions)
Growing asset base and increased distribution throughput Growing asset base and increased distribution throughput
$3,000$3,290$4,420Net Plant for Rate Base ($ millions)
1.1
2.2%
NJ
2.1
0.9%
OH
1.3# of Customers (millions)
1.7%Growth Rate (kWh)
PAAverage Annual (2009F – 2011F)
Projected Annual Growth
Energy Delivery & Customer Service
4
Analyst MeetingNew York, NY ▪ December 6, 2007
Our “Game Plan” is about Performance
Energy Delivery & Customer Service
* Top quartile** Per 100 employees
Safety
Consistently achieve top-decile (1.24) OSHA Incident Rate** 1.70* 1.62 1.00
Reliability
Distribution SAIDI (minutes) 128 118 103
TOF (per circuit) 0.39* 0.31 0.31
Financial Performance
Total Cost Per Customer $270 $265 $263
EmployeesAn environment where employees are valued and accountable for the performance of the business
Total Staffing 7,637 7,898 7,995
Focus Area Key Metrics
Top-quartile performance SAIDI and top-decile in TOF
Achieve top-quartile total spend per customer
2007F 2008F 2011 Target
5
Analyst MeetingNew York, NY ▪ December 6, 2007
Operational Performance Goals
Top Quartile
ED&CS
$150
$180
$210
$240
$270
$300
Tota
l CPC
2005 2006 2007 2008 2009 2010 2011 2012
Total Cost per CustomerSAIDI Performance
Top Quartile
ED&CS
10
40
70
100
130
160
190
220
SAID
I (M
inut
es)
2005 2006 2007 2008 2009 2010 2011 2012
Energy Delivery & Customer Service
Our strategy is to achieve topOur strategy is to achieve top--quartile operational performancequartile operational performance
6
Analyst MeetingNew York, NY ▪ December 6, 2007
Capital Planning Enhancements
Benchmarked leading performers in the area of capital allocation
Selected Navigant to help develop capital allocation tool based on fundamental engineering economics (quantified benefits)
E-CAT provides the granularity which drives our ability to prioritize thousands of projects based on predicted benefits
Energy Delivery Capital Allocation Tool (E-CAT)
Capital planning has undergone a fundamental change to Capital planning has undergone a fundamental change to enhance our financial discipline enhance our financial discipline
Energy Delivery & Customer Service
Game Plan:
Target spend with an emphasis on improving reliability
Continued focus on operational improvements
7
Analyst MeetingNew York, NY ▪ December 6, 2007
Assigned owner for each project
Detailed layout of milestones and subsequent activities for project completion (Primavera)
Monthly status reports – Narrative of project status– Enhanced financial rigor
Execution of our capital plan is being achieved Execution of our capital plan is being achieved by driving discipline and accountabilityby driving discipline and accountability
Project ManagementDriving Discipline and Accountability
Energy Delivery & Customer Service
8
Analyst MeetingNew York, NY ▪ December 6, 2007
Workforce Management
Power Systems Institute (PSI)– Started in 2000; partnered with two colleges in Ohio to offer
lineworker training– Currently, partnerships with 11 local community colleges
and universities across OH, PA and NJ
Energy Delivery & Customer Service
296323386Total
8287110Substation Electricians
214236276Line Workers
HiredGraduatedStarted Program
Enrollment/Hires 2000–2007
237154
6031
177123
2009F2008F
9
Analyst MeetingNew York, NY ▪ December 6, 2007
Customer Satisfaction
Contact Center Survey– 81% of customers rated FirstEnergy with a score of 9 or 10
(out of 10)
Collection Effort– Reduced number of accounts in arrears by 29% since
May 2007– Deposits received from eligible customers have increased
62% since the beginning of the year– Justified complaints are down 13% from last year
Energy Delivery & Customer Service
Improving the interface with our customers Improving the interface with our customers supports our supports our ““Game PlanGame Plan””
10
Analyst MeetingNew York, NY ▪ December 6, 2007
Achieving Energy
Delivery and Customer Service’s
Vision
Transitioning to our Future
Safety– Consistently achieve top-decile
performance
Customer Satisfaction– A top performer in our industry
Reliability– Top-quartile performance SAIDI
and top-decile in TOF
Financial Performance– Achieve top-quartile total spend
per customer
Employees– An environment where employees
are valued and accountable for the performance of the business
Energy Delivery & Customer Service
11
Analyst MeetingNew York, NY • December 6, 2007
Generation & Commodity OperationsIntegrated Portfolio Overview
Chuck JonesPresident, FirstEnergy Solutions
Analyst MeetingNew York, NY ▪ December 6, 2007
Discussion Topics
Diversity and scale of generation fleet
Top-tier operational capability & ongoing commitment to operational excellence
Integrated Generation, Commodity & Retail operations
Leveraging the value of our existing generating fleet
FirstEnergy Solutions’ (FES) renewable energy strategy
Generation & Commodity OperationsIntegrated Portfolio Overview 2
Analyst MeetingNew York, NY ▪ December 6, 2007
Akron
Toledo
Reading
Beaver Valley1,779 MW
Davis-Besse893 MW
Perry1,258 MW
R. E. Burger413 MW
W. H. Sammis2,233 MW
Bruce Mansfield2,490 MW
Eastlake1,262 MW
Ashtabula244 MW
Seneca451 MW
Edgewater48 MW
Richland432 MW
Stryker18 MW Yards Creek
200 MW
Mad River60 MW
West Lorain545 MW
Lake Shore249 MW
Sumpter340 MW
Erie
Ohio
Pennsylvania
NewJersey
Harrisburg
MorristownNewark
Allenhurst
Trenton
Bay Shore648 MW
Columbus
New Castle
Cleveland
Johnstown
Forked River86 MW
Michigan
Baseload Load Following Peaking Units
Unit Mission Strategy
Towanda
MW MWMW
FirstEnergy Generation – Diversity & Scale
West Lorain 545Seneca 451Richland 432Sumpter 340Yards Creek 200Burger 3 & EMDs 101Forked River* 86Mad River 60Edgewater 48Stryker 18Other 63
Total Peaking Units 2,344
Mansfield 1-3 2,490Beaver Valley 1,2 1,779Perry 1,258Sammis 6,7 1,200Davis-Besse 893Eastlake 5 597Bay Shore 1 136
Total Baseload 8,353
Sammis 1-5 1,020Eastlake 1-4 636Bay Shore 2-4 495Burger 4 -5 312Lake Shore 245Ashtabula 244
Total Load Following 2,952
OVEC 463Wind 145
Total 608
Other MW
FirstEnergy Power Sources
C Coal 7,469 MWN Nuclear 3,930 H Hydro 651 G Gas & O Oil 1,599
Other 608Total 14,257 MW
Generation & Commodity OperationsIntegrated Portfolio Overview
* Sale pending
3
Analyst MeetingNew York, NY ▪ December 6, 2007
Diversity and Scale of Generation Fleet
Significant scale: FES controls about 14,000 MW
Balanced mix of fuel types– 38% nuclear; 62% fossil & other (2007F output)
Transportation optionality– Three delivery options for our largest baseload plants – barge, rail and truck
Geographic diversity– Participation in two RTOs (MISO and PJM) allows for price discovery and the
ability to take advantage of inter-market price differentials
Baseload/load following strategy optimizes fleet performance and reliability
– Each unit has a specific mission (baseload, load-following or peaking) that provides clear operating objectives
– Increases efficiency and reduces wear and tear on baseload units– More efficient plant operation drives increased output and cost reductions
Fleet Characteristics and Mission-Driven Strategy
Generation & Commodity OperationsIntegrated Portfolio Overview 4
Analyst MeetingNew York, NY ▪ December 6, 2007
Mission-driven strategy in Fossil has resulted in significant reductions in cost since 2004 as well as increased outputIn spite of increased AQC-related O&M in 2008–2010, non-fuel production costs are expected to remain stable Cost-effective execution of outages is expected to drive improvement and stability of nuclear non-fuel expenses
Focus on Cost Control Top-Tier Operational Capability
Fossil
2004 2005 2006 2007F 2008F
($ /
MW
h)
Non-Fuel Fuel
Nuclear
2004 2005 2006 2007F 2008F
($ /
MW
h)
Non-Fuel Fuel
Generation & Commodity OperationsIntegrated Portfolio Overview 5
Analyst MeetingNew York, NY ▪ December 6, 2007
Top-Tier Operational Capability
Garnered significant nuclear reliability improvements during 2006–2007 outages
Fossil fleet expected to return to top-quartile performance in 2008 – AQC-related outages will lower capacity factors in 2009 and 2010– Expect to reach top-decile performance levels by 2011
Baseload Capability/Capacity Factors
75%
80%
85%
90%
95%
100%
Fact
ors
(%)
Fossil baseload 84.6% 86.9% 88.5% 81.0% 87.2% 90.7%
Nuclear 89.5% 86.2% 86.8% 90.0% 92.9% 92.4%
2004 2005 2006 2007F 2008F 2011 Target
Continued Improvement of Asset Utilization
Generation & Commodity OperationsIntegrated Portfolio Overview 6
Analyst MeetingNew York, NY ▪ December 6, 2007
Integrated Generation, Commodity & Retail Operations
Real-time coordination of fuel burn and unit availability drives generation dispatch optimization
– Integrated approach maximizes unit profitability and asset value– Minimize costs when prices are low and maximize revenue when prices
are high
An integrated portfolio outperforms generation-only or retail-only models
– Mitigates the risk associated with independently managed positions
Proven experience and capabilities in wholesale markets– Skill, experience and influence in PJM and MISO– Successful participation in multiple auction structures (BGS, Penn Power RFP)
Strong presence in retail markets provides market intelligence and maximizes commodity margin
Generation & Commodity OperationsIntegrated Portfolio Overview 7
Analyst MeetingNew York, NY ▪ December 6, 2007
Integrated Generation, Commodity & Retail Operations
FES Retail provides a retail sales channel for FES generation– Maximize generation value through higher margin retail sales
FES Retail provides natural hedge for FES POLR obligations– Integrated wholesale/retail strategy provides natural hedge for shopping
risk inherent in POLR obligation– Successfully implemented integrated wholesale/retail strategy for
Penn Power market
Focus on competitive electric markets within MISO and PJM– FES Retail ranks #13 out of 81 competitive suppliers (1)
– Active participation since 1998 in OH, PA, NJ, MD and MI markets– Market leader in PA market (Duquesne Light, Penn Power)– Competitive expertise allows FES Retail to maximize opportunities as
markets transition
Execute wholesale/retail strategy in Ohio when market opens in 2009
Competitive Skills to Succeed in Competitive Generation Markets
Generation & Commodity OperationsIntegrated Portfolio Overview
(1) Non-residential market share (GW). Source: KEMA Semi-Annual Review of U.S. Retailer Rankings: August 2007
8
Analyst MeetingNew York, NY ▪ December 6, 2007
Maximizing Potential of Generating Fleet
Mining Our Assets benefits:– ~$700/kW average capital cost is competitive vs. current market price of new capacity– Lower risk than large, long lead-time projects– Quicker to market– Low technology and construction risk
Clarity on capacity and ancillary services market structure, technological advances, and environmental regulations will impact generation asset decisions in the future
* Reflects 12 separate projects including returning 70 MW at Burger Unit 3 that has not been available since summer 2005.
84840Fossil load following uprates
622251371Total MW additions1490149Peaking capacity enhancements* 1707892Nuclear baseload uprates
21989130Fossil baseload uprates
Cumulative MW2008F–2011F2005–2007FType of MW Addition
Mining Our Assets – incremental, low-risk investment approach to fleet expansion
Generation & Commodity OperationsIntegrated Portfolio Overview 9
Analyst MeetingNew York, NY ▪ December 6, 2007
564 GWh215 MWTotal:
180 GWh70 MWIn-service 2008
384 GWh145 MWIn-service 2007
RECs/YearCapacityStatus
Generation & Commodity OperationsIntegrated Portfolio Overview
Maximizing Potential of Generating Fleet
FES Wind Energy Portfolio
Represents a minimal part of our renewable requirements
On the horizon and will impact our renewable strategy in the future
Drives our renewable strategy today
Overview
22.5% by 2020NJ
25% by 2025(Proposed)
OH
18% by 2020PA
Renewable MandateState
Leading the Way in Procuring Renewable Energy to Meet Growing Demand
Leading wind energy supplier in PAEvaluating expansion of current wind portfolio Considering other renewable technologies:
– Solar– Compressed air– Biomass– Land fill gas– Anaerobic digestion
10
Analyst MeetingNew York, NY ▪ December 6, 2007
Generation Output
0
20
40
60
80
100
(mill
ion
MW
h)
Nuclear 29.9 28.7 29.0 30.7 32.0 31.0 32.2 32.0Fossil 46.5 51.5 53.0 51.5 52.7 52.4 53.7 54.6
2004 2005 2006 2007F 2008F 2009F 2010F 2011F
Generation & Commodity OperationsIntegrated Portfolio Overview
Maximizing Potential of Generating Fleet
11
Analyst MeetingNew York, NY ▪ December 6, 2007
Transitioning to our Future
Diversity and scale of generation fleet
Top-tier operational capability and commitment to operational excellence
Integrated Generation, Commodity and Retail operations
Maximizing potential of generating fleet
Well-positioned in a carbon-constrained world
Generation & Commodity OperationsIntegrated Portfolio Overview
FES is well-positioned to succeed in competitive
markets
12
Analyst MeetingNew York, NY • December 6, 2007
Commodity Operations
Ali JamshidiVice President, Commodity Operations
Analyst MeetingNew York, NY ▪ December 6, 2007
Discussion Topics
Near-term commodity hedge positions
Market trends
MISO and PJM overview
Long-term readiness
Commodity Operations
2
Analyst MeetingNew York, NY ▪ December 6, 2007
Commodity Operations’ Objectives
Effectively manage commodity positions
Effectively deploy generation to meet retail obligations and capture market opportunities
Enhance fuel supply / logistics to maximize optionality
Efficiently manage purchased power requirements
Employ strict risk management controls and oversight to minimize exposure to MISO and PJM markets– Volume and price risks– Generation availability risks– Transmission congestion risks
Maximizing Margins by Mitigating Risks and Minimizing Supply Costs
Commodity Operations
3
Analyst MeetingNew York, NY ▪ December 6, 2007
Expected Total Supply
0
20
40
60
80
100(m
illio
n M
Wh)
Forward / Spot Purchases 11 7 9Nuclear 32 31 32Fossil, Hydro, Wind 52 52 53
2008F 2009F 2010F
Supply numbers exclude JCP&L and firm contract portion of ME/PN
Expected Supply Portfolio for FES*
Significant reductions in mostly on-peak energy purchases
95 90 94
Commodity Operations
•*Assumes move to open market in Ohio in 2009 and beyond
4
Analyst MeetingNew York, NY ▪ December 6, 2007
Expected Total Sales
020406080
100
(mill
ion
MW
h)
Retail Auction 1 31 29Competitive Retail 12 20 24Forward / Spot Sales 16 20 21ME/PN PRA Obligations 14 19 20OH PSA Obligations 52 0 0
2008F 2009F 2010F
Sales numbers exclude JCP&L and firm contract portion of ME/PN
Expected Sales Portfolio for FES*
Significant increases in higher margin sales
95 90 94
•*Assumes move to open market in Ohio in 2009 and beyond
Commodity Operations
5
Analyst MeetingNew York, NY ▪ December 6, 2007
PJM Capacity PositionME and PN have long-term capacity contractsBeaver Valley nuclear plant (1,779 MW) committed in PJM to cover capacity positionCovered capacity prior to RPM auction for planning year 2008-2009 to replace long-term contractsCommitted Seneca pumped storage (451 MW) to PJM as a capacity resource for planning year 2009 (commencing in June 2009)Continue to actively explore other options with our assets
PJM Net Capacity
(3500)(2800)(2100)(1400)(700)
0700
1400210028003500
Jan
Feb
Mar
Apr
May Jun
Jul
Aug
Sep
Oct
Nov
Dec Jan
Feb
Mar
Apr
May Jun
Jul
Aug
Sep
Oct
Nov
Dec Jan
Feb
Mar
Apr
May Jun
Jul
Aug
Sep
Oct
Nov
Dec
MW
FES View (continuing to serve the ME and PN PRA)
2008 2009
Includes Beaver Valley, Forked River and Seneca
2010
Commodity Operations
6
Analyst MeetingNew York, NY ▪ December 6, 2007
Commodity Positions – Policy / Strategy
Significantly close positions in the near term
Layer in longer physical term contracts to smooth out supply costs
Maintain some flexibility in hedging activities to take advantage of market opportunities
Continuously explore and enhance fuel blends and inventory management
Use financial hedges as necessary to manage variability
Trade around our assets – no speculative trading
Coal and Related Commodities
Commodity Operations
7
Analyst MeetingNew York, NY ▪ December 6, 2007
Coal Commodity Position
Continue working to secure long-term fuel supply contracts
Actively testing alternate fuel blends at various plants to optimize plant economics and flexibility
Engaged in fuel flexibility initiative to expand margins and fuel choices
Securing Open Coal Commodity Positions
0 5,000 10,000 15,000 20,000 25,000
2010
2009
2008
Total Needed Tons Total Covered Tons
91%
99%
100%
Commodity Operations
8
Analyst MeetingNew York, NY ▪ December 6, 2007
Coal Transportation PositionActively pursuing closure to long-term transportation positions – rail contract signed, 2010 barge contract agreement reachedContinuing to evaluate additional delivery options to increase both capabilities and flexibilityEnhanced rail unloading capabilities in process at Ashtabula, Bay Shore and Lake ShoreIn 2008, FES will manage PRB rail logistics previously outsourced
Securing Open Coal Transportation Positions
0 5,000 10,000 15,000 20,000 25,000
2010
2009
2008
Total Needed Tons Total Covered Tons
91%
97%
58%
Commodity Operations
9
Analyst MeetingNew York, NY ▪ December 6, 2007
Emission Allowance PositionBased on projected generation:
– SO2 emission allowance positions are well covered for 2008 and 2009
– Closed 2010 SO2 positions early to mitigate potential scrubber projects completion risks
– 2008 seasonal NOx is covered– 2009 – 2010 seasonal NOx
requirements are expected to be fully covered as allocations are made to states (OH due in Jan. 2008)
– Annual NOx allocations are beginning and markets are still thin
SO2 Position
-10,000
80,000
170,000
260,000
350,000
2008 2009 2010
(ton
s)
Needed Covered Position
Seasonal NOx Position
-10,000
0
10,000
20,000
30,000
2008 2009 2010
(ton
s)
Needed Covered Position
Commodity Operations
SO2 Position
10
Analyst MeetingNew York, NY ▪ December 6, 2007
Fuel Flexibility Creates Margin & Fuel ChoicesEnhanced systems, tools and processes providing the ability to react and adjust blends quickly to match market prices
“Fuel Flex” creates value by continuously increasing fuel blend choices– Maximize revenues when real-time market prices are favorable– Minimize costs when market prices are low
The Right Fuel at the
Right Time
Commodity Operations
11
Analyst MeetingNew York, NY ▪ December 6, 2007
Energy Forward Prices – 2008
2008 Calendar Strips - Power
$20
$30
$40
$50
$60
$70
$80
$90
Nov-06 Dec-06 Jan-07 Feb-07 Mar-07 Apr-07 May-07 Jun-07 Jul-07 Aug-07 Sep-07 Oct-07
$/M
Wh
PJM WH On Cinergy On PJM WH Off Cinergy Off
Commodity Operations
12
Analyst MeetingNew York, NY ▪ December 6, 2007
Energy Forward Prices – 2009
2009 Calendar Strips - Power
$20
$30
$40
$50
$60
$70
$80
$90
Jan-07 Feb-07 Mar-07 Apr-07 May-07 Jun-07 Jul-07 Aug-07 Sep-07 Oct-07
$/M
Wh
PJM WH On Cinergy On PJM WH Off Cinergy Off
Commodity Operations
13
Analyst MeetingNew York, NY ▪ December 6, 2007
Energy Forward Price – Outlook
Natural Gas Forward Average Price and Heat Rates(12-month, last day of month)
4.005.006.007.008.009.00
10.0011.0012.0013.00
11/3
0/20
05
12/3
0/20
05
1/30
/200
6
2/28
/200
6
3/30
/200
6
4/30
/200
6
5/30
/200
6
6/30
/200
6
7/30
/200
6
8/30
/200
6
9/30
/200
6
10/3
0/20
06
11/3
0/20
06
12/3
0/20
06
1/30
/200
7
2/28
/200
7
3/30
/200
7
4/30
/200
7
5/30
/200
7
6/30
/200
7
7/30
/200
7
8/30
/200
7
9/30
/200
7
10/3
0/20
07
$/D
th o
r Dth
/MW
h
NG Price CIN Heat rate PJM Heat Rate
Commodity Operations
14
Analyst MeetingNew York, NY ▪ December 6, 2007
Commodity Forward Prices – Overview
Demand continues to outpace supply
Reserve margins shrinking
Underlying commodity prices increasing
Environmental requirements increasing
Construction costs escalating
Heat rates and dark spread exhibiting growth
Prices / Outlook– Energy– Capacity– Ancillary Services
Commodity Operations
15
Analyst MeetingNew York, NY ▪ December 6, 2007
Transitioning to our Future
Near-term commodity positions well hedged
Proven skills in managing commodity risks
Track record in maximizing asset utilization
Well positioned in MISO and PJM
Proven retail/wholesale skills in MISO and PJM
Commodity Operations
16
Analyst MeetingNew York, NY ▪ December 6, 2007
Appendix
appendix
App-1
Analyst MeetingNew York, NY ▪ December 6, 2007
Generation by Type – 2006Coal plants nearing their maximum capacity factorsExpect gas units to be on the dispatch margin more oftenDispatch prices should trend upward
•Source: EIA database & EPA
RFC Capacity (MW)
28%
13%
5% 3% 1%
49%
CoalGasNuclearOilHydroOther
RFC Net Energy (MMWh)
68%
6%
24%
1% 1%
RFC – Reliability First Corporation (ECAR, MAIN, MAAC)
App-2Appendix
Analyst MeetingNew York, NY ▪ December 6, 2007
Resource adequacy needed to maintain reliabilityMISO portion of RFC reserve margins continue to be unfavorable to the PJM portionMISO capacity value opportunities
Reserve Margin Outlook
Based on the November 2007 RFC Long Term Resource Assessment, 2007-2016
Existing Generation Only:
2008 2009 2010 2011Total RFC 18.8% 16.4% 14.7% 12.9%
MISO Portion of RFC 11.5% 10.2% 9.0% 7.5%PJM Portion of RFC 20.3% 17.6% 15.8% 14.0%
Existing Generation + Planned Resources:
2008 2009 2010 2011Total RFC 19.5% 17.7% 16.3% 14.8%
MISO Portion of RFC 12.3% 11.7% 11.4% 10.0%PJM Portion of RFC 21.0% 18.7% 16.8% 15.5%
App-3Appendix
Analyst MeetingNew York, NY ▪ December 6, 2007
RPM and Resource Adequacy in PJM
Reliability Pricing Model (RPM) has increased capacity pricing, however not enough generation is being built yet
MISO capacity value, particularly ECAR portion, will demand premium
RPM Base Residual Auction Capacity Prices
0
50
100
150
200
250
Planning Year
$/M
W D
ay SWMAAC
EMAAC
MAAC + APS
RTO
2007/08A 2008/09A 2009/10F
App-4Appendix
Analyst MeetingNew York, NY ▪ December 6, 2007
Resource Adequacy in MISO
Current operating reserve requirements met by Designated Network Resources (DNR)
DNR, while not an organized market, are purchased and sold
Planning Reserve Sharing Group to meet planning requirements underway
Reliability requirements will force deliverability tests
Reserve short zones/areas will demand premium
App-5Appendix
Analyst MeetingNew York, NY ▪ December 6, 2007
Ancillary Service Market (ASM) in MISO
ASM market set to start next June
Market-based ASM is good for the MISO market and good for reliability
Some generators will see an upside
•*Figures are estimates only
•**Rate amounts are estimates based on MISO Tariff Schedule 3,5, & 6
Rate ($/MWH)FES Current
Rate* **PJM
Market*
Regulation $0.13 $0.78
Spinning & Suplemental $0.29 $0.10
Total $0.42 $0.88
App-6Appendix
Analyst MeetingNew York, NY • December 6, 2007
Financial Outlook
Rich MarshSenior Vice President and Chief Financial Officer
Analyst MeetingNew York, NY ▪ December 6, 2007
Discussion Topics
Review of Key 2007 Financial Accomplishments
2008 Financial Overview
Major Earnings and Cash Drivers 2009–2011
Capital Expenditures 2009–2011
Finance Plans
Conclusions
Financial Outlook
2
Analyst MeetingNew York, NY ▪ December 6, 2007
2007 – Key Financial Accomplishments
Consistent financial results– Narrowed Non-GAAP 2007 earnings guidance to $4.15 to $4.25*,
the top half of original guidance range
Continued strong cash flow– Expect net cash from operating activities of $1.7B
– Includes pension contribution of $300M
Enhanced capital structure– Transferred $427M of tax-exempt pollution control debt from utilities to
unregulated Gencos– Issued approximately $1.1B of operating company debt
Strengthened pension fund– Voluntary $300M contribution– Plan well funded
Financial Outlook
* See GAAP to Non-GAAP reconciliations in the Financial Outlook Appendix.
3
Analyst MeetingNew York, NY ▪ December 6, 2007
2007 – Key Financial Accomplishments (continued)
Positioned FirstEnergy Solutions (FES) as an independent capital raising entity– Investment grade credit ratings (BBB/Baa2) received in March 2007– Completed $1.3B sale and leaseback transaction on 779 MW portion
of Unit 1 of the Bruce Mansfield Plant– Captured benefit of $752M of expiring tax capital loss carryforwards– Equivalent to borrowing at 3.6% for a term of 33 years
– Upsized FES’ borrowing capacity under FirstEnergy’s revolver to $1.0B
Increased shareholder value– Year-to-date stock price appreciation of 13.7% (through Nov. 2007)– Three year annualized TSR of 21.5% (through Nov. 2007)– Dividend increase of 11.1% (March 2007)– Accelerated repurchase of approx. 14.4 million shares (March 2007)
Financial Outlook
4
Analyst MeetingNew York, NY ▪ December 6, 2007
2007 / 2008 Earnings Guidance
Establishing 2008 Non-GAAP earnings guidance of $4.15 to $4.35 per share*– Normalized to exclude anticipated gain on the planned
sale of non-core assets, currently estimated at $0.08 per share in 2008
Financial Outlook
5
2007 Non-GAAP Earnings Guidance*
Original (Feb. 2007) $4.05 – $4.25
Revised (Oct. 2007) $4.15 – $4.25
Affirmed (Dec. 2007) $4.15 – $4.25
* See GAAP to Non-GAAP reconciliations in the Financial Outlook Appendix. On a GAAP basis, 2008 EPS is expected to be $4.23 to $4.43 reflecting an $0.08 gain on the planned sale of non-core assets.
Analyst MeetingNew York, NY ▪ December 6, 2007
$3.50
$4.00
$4.50
$5.00
Midpoint 2007 Non-GAAP
EPS Guidance
Midpoint 2008Non-GAAP
EPS Guidance
2008 Earnings Per Share Guidance
Financial Outlook
* See GAAP to Non-GAAP reconciliations in the Appendix. 2008 EPS guidance, excluding special items, is $4.15 to $4.35.On a GAAP basis, 2008 EPS is expected to be $4.23 to $4.43 reflecting an $0.08 gain on the planned sale of non-core assets.
$4.20*$0.04
$0.06$0.03
$0.14
($0.13)
($0.10)$4.25*
Financing Costs
Generation Output
Wires Sales
Growth
2007 Share
Buyback
Ohio Transition
Cost Amortization
Depreciation & General
Taxes
Outage O&M Costs
$0.05 Other
($0.04)
6
Analyst MeetingNew York, NY ▪ December 6, 2007
Common Dividend
Management will recommend that the Board of Directors declare a quarterly dividend of $0.55 per share payable March 2008 at their December 18 meeting
Dividend Increases:
$2.2010.00%55.00¢1Q 2008
$1.50
$1.65
$1.72
$1.80
$2.00
AnnualizedRate
–37.50¢4Q 2004
10.00%41.25¢1Q 2005
4.24%43.00¢4Q 2005
4.65%45.00¢1Q 2006
11.10%50.00¢1Q 2007
Change fromPrior Period
QuarterlyRate
PaymentDate
Financial Outlook
7
Analyst MeetingNew York, NY ▪ December 6, 2007
Capital Expenditures Forecast
$1,693
650
$1,043
86
96
131
$730
2008F
$219
263
$(44)
(2)
(8)
(18)
$(16)
Change
387AQC
$1,087Subtotal
88Corporate
$1,474
104
149
$746
2007F
Fossil
Total
FENOC
Energy Delivery
($ millions)
Financial Outlook
8
Analyst MeetingNew York, NY ▪ December 6, 2007
Available Cash Forecast
$395
(136)
(1,693)
$2,224
2008F
$265
(42)
(219)
$526
Change
$130
(94)
(1,474)
$1,698
2007F
Capital Expenditures
Nuclear Fuel Fabrication
Available Cash before Dividends
Net Cash from Operating Activities
($ millions)
Financial Outlook
9
Analyst MeetingNew York, NY ▪ December 6, 2007
Major Earnings & Cash Drivers 2009 – 2011
Distribution rate case in OH effective 2009
Market generation prices in OH in 2009
Market generation prices in PA in 2011
Asset mining / realizing full potential of generation assets
Further operational enhancements
Timely recovery of regulated costs and capital investments
Financial Outlook
10
Analyst MeetingNew York, NY ▪ December 6, 2007
Major Earnings & Cash Drivers 2009 – 2011(continued)
Declining margin from Ohio transition plans
Impact of expiring Met-Ed/Penelec third-party power contract in 2009
Increasing fuel and purchased power costs
Increasing O&M costs
Higher depreciation expenses (non-cash)
Financial Outlook
11
Analyst MeetingNew York, NY ▪ December 6, 2007
Projected 2008 – 2011 Capital Expenditures
$1,220
75
155
260
$730
2009F – 2011F Average
86Corporate
$1,043
96
131
$730
2008F
Fossil
Subtotal without AQC
FENOC
Energy Delivery
($ millions)
Financial Outlook
$261$650
2008F
($150)$500
2009F
($145)$11
2011F
($344)$156
2010F
Change from Prior YearAQC
($ millions)
12
Analyst MeetingNew York, NY ▪ December 6, 2007
Projected 2008 – 2011 Capital Expenditures
FENOC capital incorporates Davis-Besse steam generator replacement in 2014 and power uprates at Davis-Besse, Perry and Beaver Valley
Fossil capital reflects $17M for generator work at Mansfield and Sammis in 2008 and $33M for asset mining initiatives over 2008 – 2010 period
Financial Outlook
$55$52$34—2013 & 2014$34$15$8$42008 – 2011
Power Uprates$65$62$41$3Steam Generator
2011F2010F2009F2008F($ millions)
13
Analyst MeetingNew York, NY ▪ December 6, 2007
Finance Plans: 2008 and Beyond
Maintain financial flexibility– Investment grade credit metrics at all entities
– Metrics maintained over near-term – Metrics improved as AQC capital spend winds down post-2009
– Maintain substantial liquidity– $3.4B total capacity
Reduce holding company debt while appropriately capitalizing operating companies and FirstEnergy Solutions– Utility debt maturities of only $685M over 2008 – 2011 period– Opportunistically transfer remaining $263M of utility tax-
exempt debt to Generating Companies– $1.9B already transferred
– $1.5B, 6.45% Series B FE Notes due November 2011
Financial Outlook
14
Analyst MeetingNew York, NY ▪ December 6, 2007
Finance Plans: 2008 and Beyond (continued)
Efficient funding of capital program – Capital expenditures financed largely through internal cash
flow, even during peak AQC spend– New tax-exempt financings of approximately $200M planned to
support Sammis AQC project
Potential uses of substantial growth in free cash following completion of AQC projects– Dividend growth– Potential for share repurchases– Invest for future growth– Ability to take advantage of strategic opportunities
Financial Outlook
15
Analyst MeetingNew York, NY ▪ December 6, 2007
Transitioning to our Future
Flexible and agile financial strategy – avoid “big bets”
Favorable competitive generation assets; well-positioned regarding potential carbon legislation
“Asset mining” provides low-risk, low-capital approach to increasing generation capacity
Proven record of operational performance
Aggressive plan to drive further efficiencies
Manageable capital spending program
Financial Outlook
16
Analyst MeetingNew York, NY ▪ December 6, 2007
Transitioning to our Future (continued)
Potential to change earnings and cash flow growth trajectory through transition to competitive generation markets
Financial flexibility and ample liquidity
Competitive and growing dividend
Substantial free cash flow following completion of AQC projects
Management and employees incentivized to drive value growth for investors
Financial Outlook
17
Analyst MeetingNew York, NY ▪ December 6, 2007
Appendix
appendix
App-1
Analyst MeetingNew York, NY ▪ December 6, 2007
Share Repurchase Summary
$0.32*$0.19*$0.13Annual EPS Benefit
$62.68*$65.39*$58.99Avg. Price per Share
$1,567*$940*$627Cost ($ millions)
7.7%4.5%3.2%% Reduction
304.8304.8319.2Ending Shares
25.014.410.6Shares Repurchased
329.8319.2329.8Beginning Shares
Cumulative2007F2006
(Shares in millions)
* Estimate subject to settlement
App-2Appendix
Analyst MeetingNew York, NY ▪ December 6, 2007
FirstEnergy Credit Ratings
On October 18, S&P revised the outlook of FE and its subsidiaries to negative from stable
On November 2, Moody’s revised the outlook of FE and its subsidiaries to stable from positive
Corporate Credit Rating (S&P) / Issuer Rating
(Moody's)
Senior Secured Senior Unsecured
S&P Moodys S&P Moodys S&P MoodysFirstEnergy Corp. BBB Baa3 - - BBB- Baa3
FirstEnergy Solutions BBB Baa2 - - BBB Baa2
Ohio Edison BBB Baa2 BBB+ Baa1 BBB- Baa2
Cleveland Electric Illuminating BBB Baa3 BBB+ Baa2 BBB- Baa3
Toledo Edison BBB Baa3 BBB Baa2 BBB- Baa3
Pennsylvania Power BBB Baa2 A- Baa1 BBB- Baa2
Jersey Central Power & Light BBB Baa2 BBB+ Baa1 BBB Baa2
Metropolitan Edison BBB Baa2 BBB+ Baa1 BBB Baa2
Pennsylvania Electric BBB Baa2 BBB+ Baa1 BBB Baa2
As of December 6, 2007As of November 30, 2007
App-3Appendix
Analyst MeetingNew York, NY ▪ December 6, 2007
FFO Calculation and Coverage Ratios
= Regulatory Capitalization= Rating Agency Capitalization
Capitalization:+ Regulatory Debt+ Common stockholders’ equity
Capitalization:+ Rating Agency Debt+ Common stockholders’ equity
= Regulatory Debt= Rating Agency Debt
Debt:+ Long-term debt
Debt:+ Short-term borrowings+ Long-term debt+ Present Value of sale and
leasebacks- Securitization bonds
Regulatory ViewRating Agency ViewDebt / Capitalization
FFO Calculation
= FFO
Net IncomeAdd back non-cash items:
+ Depreciation, amortization (incl. nuclear fuel and lease amortization), and deferral of regulatory assets
+ Deferred purchased power and other costs+ Deferred income taxes and investment tax credits+ Investment impairments+ Deferred rents and lease market valuation liability+ Accrued compensation and retirement benefits- AFUDC
FFO + Adjusted InterestAdjusted Interest
FFO Interest Coverage
= Adjusted Interest
Adjusted Interest:+ Interest expense (before AFUDC)+ Interest portion of leases- JCP&L securitization bond expense
FFOAdjusted Debt
FFO Debt Coverage
= Adjusted Debt
Adjusted Debt:+ Short-term borrowings+ Long-term debt+ Present value of sale and leasebacks- Cash and cash equivalents- JCP&L securitization bonds
=
=
App-4Appendix
Analyst MeetingNew York, NY ▪ December 6, 2007
Strong Liquidity Position
Substantial liquidity available– $3.1B available borrowing capacity at November 30, 2007
$ 3,420
550
120
$ 2,750
Amount ($M)
Total
Various
Various
Aug. 2011
Maturity
* Revolving Credit Agreement
1-yearA/R Fin.OH & PA Utilities
VariousBank LinesFirstEnergy Corp.
5-yearRCA*FirstEnergy Corp.
TermTypeCompany
App-5Appendix
Analyst MeetingNew York, NY ▪ December 6, 2007
2007 Non-GAAP Earnings Per Share Guidance
App-6Appendix
Reconciliation GAAP to Non-GAAP
Affirmed on December 5, 2007
2007 EPS
Basic EPS (GAAP basis) $4.21 – $4.31Excluding Special Items:
New Regulatory AssetAuthorized by PPUC (0.05)Gain on sale of non-core assets (0.04)Trust Securities Impairment 0.03
Basic EPS (Non-GAAP basis) $4.15 – $4.25
Analyst MeetingNew York, NY ▪ December 6, 2007
2008 Non-GAAP Earnings Per Share Guidance
App-7Appendix
Reconciliation GAAP to Non-GAAP
Issued on December 5, 2007
2008 EPSBasic EPS (GAAP basis) $4.23 – $4.43Excluding Special Items:
Gain on sale of non-core assets (0.08)Basic EPS (Non-GAAP basis) $4.15 – $4.35
Analyst MeetingNew York, NY • December 6, 2007
Analyst MeetingNew York, NY • December 6, 2007
Closing Marks
Tony AlexanderPresident and CEO
Analyst MeetingNew York, NY ▪ December 6, 2007
SignificantEarningsGrowth
Potential
Bottom Line –FirstEnergy is an attractive risk/reward opportunity
Effectively managing transitionto competitive markets
Realizing full potential of assets
Reinvesting for future growth
Effectively deploying strong cash flow
Striving for continuous improvement
Maintaining strategic flexibility
Well-positioned for climate legislation
Corporate and Strategic Overview