first energy morganstanleyconference_100907
TRANSCRIPT
Morgan Stanley Electric Utilities Corporate Access DayChicago, IL
October 9, 2007
Morgan Stanley Electric Utilities Corporate Access DayChicago, IL • October 9 ,2007
Forward-looking Statements. This presentation 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, 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, legislative and regulatory changes (including revised environmental requirements), and the legal and regulatory changes resulting from the implementation of the EPACT (including, but not limited to, the repeal of the PUHCA), 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, adverse regulatory or legal decisions and outcomes (including, but not limited to, the revocation of necessary licenses or operating permits and oversight) by the NRC (including, but not limited to, the Demand for Information issued to FENOC on May 14, 2007) and the various state public utility commissions as disclosed in the registrants’ SEC filings, the timing and outcome of various proceedings before the PUCO (including, but not limited to, the Distribution Rate Cases for the Ohio Companies and the successful resolution of the issues remanded to the PUCO by the Ohio Supreme Court regarding the Rate Stabilization Plan and the Rate Certainty Plan, including the deferral of fuel costs) and the Pennsylvania Public Utility Commission (including Penn’s default service plan filing), the resolution of the Petitions for Review filed with the Commonwealth Court of Pennsylvania with respect to the transition rate plan filing for Met-Ed and Penelec, the continuing availability and operation of generating units, the ability of generating units to continue to operate at, or near full capacity, the inability to accomplish or realize anticipated benefits from strategic goals (including employee workforce initiatives), the anticipated benefits from voluntary pension plan contributions, 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 successful structuring and completion of a potential sale and leaseback transaction for Bruce Mansfield Unit 1 currently under consideration by management, any purchase price adjustment under the accelerated share repurchase program announced March 2, 2007, the risks and other factors discussed from time to time in the registrants’ SEC filings, and other similar factors. 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. The registrants expressly disclaim any current intention to update any forward-looking statements contained herein as a result of new information, future events, or otherwise.
Safe Harbor Statement under thePrivate Securities Litigation Reform Act of 1995
Corporate Profile & Strategic Vision
Morgan Stanley Electric Utilities Corporate Access DayChicago, IL • October 9 ,2007
Corporate Profile
Diversified energy company headquartered in Akron, Ohio
Involved in Generation, Transmission and Distribution of electricity, as well as other energy-related services
Fifth largest investor owned electric utility in U.S based on customers served
4.5 million customers within 36,100 square miles of Ohio, Pennsylvania and New Jersey
Control more than 14,000 megawatts of generating capacity
$11.5B in annual revenues and more than $31B in assets
Approx. $19B market capitalization
2Corporate Profile & Strategic Vision
Morgan Stanley Electric Utilities Corporate Access DayChicago, IL • October 9 ,2007
Key Themes: 2007 and Beyond
Striving for continuous improvement– Realize full potential of generation assets – Mine existing opportunities for cost effective capacity additions– Reinvest to improve the long-term viability of our generation
fleet, distribution reliability and customer service
Successfully manage regulatory transitions– Seek full and timely recovery of distribution costs– Transition POLR load to competitive generation markets
Optimize financial strength and flexibility– Deploy cash effectively to increase shareholder value– Maintain strategic flexibility
3
Driving performance & delivering results
Corporate Profile & Strategic Vision
Generation
Morgan Stanley Electric Utilities Corporate Access DayChicago, IL • October 9 ,2007
Akron
Toledo
Reading
Beaver Valley1,779 MW
Davis-Besse893 MW
Perry1,258 MW
R. E. Burger413 MW
W. H. Sammis2,233 MW
Bruce Mansfield2,460 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
Plant Load Strategy
Towanda
MW MWMW
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 2,460Beaver Valley 1,2 1,779Perry 1,258Sammis 6,7 1,200Davis-Besse 893Eastlake 5 597Bay Shore 1 136
Total Baseload 8,323
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 30
Total 493
Other MW
FirstEnergy Power Sources
C Coal 7,439 MWN Nuclear 3,930 H Hydro 651 G Gas & O Oil 1,599
Other 493Total 14,112 MW
FirstEnergy Sources of Power
2Generation
Morgan Stanley Electric Utilities Corporate Access DayChicago, IL • October 9 ,2007
14,112 MW Capacity14,112 MW Capacity
Coal53%Coal53%
Nuclear28%
Nuclear28%
CT’s11%CT’s11%
Hydro 5%
Generation Output (MWh)Generation Output (MWh)
Other 3%
46.9 46.5 51.5 52.3
32.0
51.553.0
28.729.921.129.0 31.2
0
20
40
60
80
100
2003 2004 2005 2006 2007E 2008E
(mill
ion
MW
h)
Fossil & Other Nuclear
68.076.4 80.2 82.0 82.7 84.3
Striving for Continuous Improvement
Diverse and cost effective generation portfolio
– Over 35% of fleet is non-emitting
Continue improvement of asset utilization
– 2003 to 2006 = 22% increase in generation output
– 3 consecutive generation output records– Targeting new records in 2007 & 2008
Focus on reliability initiatives and outage execution
3
Realize full generation potential
Generation
Morgan Stanley Electric Utilities Corporate Access DayChicago, IL • October 9 ,2007
Baseload units demonstrate consistent improvement
Top decile base load capacity factor in 2006 compared to Navigant benchmark database
Increased capacity factors and reliability initiatives drive baseload units towards top decile in 2006 Equivalent Availability
4
87.8%88.6%
85.9%84.5%
79.6%
76.0%
80.9%
68%
70%
72%
74%
76%
78%
80%
82%
84%
86%
88%
90%
2002 2003 2004 2005 2006 2007E 2008E
Top Decile
Top Quartile
•Top performance came from Navigant benchmarking study
Baseload Capacity FactorBaseload Capacity Factor
Generation
Morgan Stanley Electric Utilities Corporate Access DayChicago, IL • October 9 ,2007
2006 generation reflects sustaining generation increase of close to 5M MWh over 2004Maximize operational flexibility for regulation, minimum loads and system rampingDispatch strategies focused on maximizing utilization in profitable markets
*Excludes the peaking units.
0
5
10
15
20M NMWh
0%
25%
50%
75%
100%Capacity Factor
Load Following 15.2 18.2 16.6 14.4 19.5 19.1 19.8Capacity Factor 54% 64% 59% 51% 69% 69% 70%
2001 2002 2003 2004 2005 2006 2007E
Focus on total fleet output has positive impact on fossil load following utilization
5Generation
Morgan Stanley Electric Utilities Corporate Access DayChicago, IL • October 9 ,2007
* Record generation
3.153.1526.079.02002-2005 Avg
5.642.2729.088.0Fleet
19.843.4410.5*96.8Perry
0.171.766.483.1Davis-Besse
0.081.756.387.7Beaver Valley Unit 2
0.001.165.880.4Beaver Valley Unit 1
Forced Loss Rate
Forced Loss Rate
Net Generation (million MWh)
Capacity Factor (%)Plant
YTD 20072006 Fleet Performance
6Generation
Nuclear Generation
Reliability improvements during 2006 / 2007 outages– BV1 – New steam generators and reactor vessel head, main generator rewind– BV2 – Weld overlay on pressurizer nozzles, enlarged containment sump– DB – Replaced two reactor coolant pumps, replaced low pressure turbine
rotors and diaphragms
Strong plant reliability
Morgan Stanley Electric Utilities Corporate Access DayChicago, IL • October 9 ,2007 7
Nuclear Generation
Refueling *25$30Beaver Valley 2R14
Replace Low Pressure Turbines (2) *Reactor Coolant System Loop Stop Valves (2)Reactor Vessel Head Inspection
30$30Beaver Valley 1R19
Refueling *10-year IVVI / Bioshield In-service InspectionRecirc Pump Motor Replacement
25$30Perry 1R12
2009
Split Pins *Low Pressre-2 Turbine Inspection *Reactor Vessel Head InspectionMain Cond Tube Replacement, Expansion Joints *Replace High Pressure Turbine *Type A Containment Pressurization Test
30$30Beaver Valley 2R132008
Rewind Main Generator *31$30Davis-Besse 1R15
Split Pins *Containment Sump Modifications*Reactor Vessel ISI *100% Eddy Current TestReactor Vessel Head InspectionPressurizer Overlay
28$32Beaver Valley 1R18
Refueling *IVVIActual Outage Period (4/2/07 – 5/13/07)
30$30Perry 1R11
2007
Scope Driving Duration(Items with asterisk* denote duration drivers)
Expected Outage Duration
(days)
Expected Outage Costs
($ millions)PlantYear
Future refueling outages focus on reliability
Generation
Morgan Stanley Electric Utilities Corporate Access DayChicago, IL • October 9 ,2007
Nuclear Generation
Through 2006, 46 of 102 plants reached capacity in used fuel pools49 operating plants built on-site dry cask fuel storage, 46 are under constructionPlans for federal repository for long-term storage – Yucca Mountain Congressional proposals for interim storage and reprocessing
8
FENOC PlanBV Unit 1BV Unit 1
BV Unit 2BV Unit 2
Davis-BesseDavis-Besse
PerryPerry
Implement dry storage by end of 2014
Criticality analysis frees up storage spaceRerack before 2011 to provide capacity through 2025Dry storage could then be implemented
Continue with wet storage until 2021Return to dry storage in 2022
Spent fuel pool campaign in 2007Implement dry storage before 2011
Managing our used fuel
Generation
Morgan Stanley Electric Utilities Corporate Access DayChicago, IL • October 9 ,2007
2046201520132026Perry
2037201220102017Davis-Besse
204720092007*2027Beaver Valley Unit 2
203620092007*2016Beaver Valley Unit 1
NewExpiration
Approval Expected
SubmitRequest
(NRC Docket)
Current Expiration
License Renewal Schedule
9
Nuclear Generation
* License renewal application submitted to the NRC on August 27, 2007.
Continued safe operations through license renewal
Generation
Morgan Stanley Electric Utilities Corporate Access DayChicago, IL • October 9 ,2007
Striving for Continuous Improvement
Mining existing asset base for low risk, cost-effective growthWind power contracts helping to meet renewable portfolio standardsAdditional longer-term initiatives under review
* Reflects 12 separate projects including returning 70 MW at Burger Unit 3 that has not been available since summer 2005.
675496179Total MW additions21418430Wind power contracts 1821820Peaking capacity enhancements* 14910049Nuclear baseload uprates13030100Fossil baseload uprates
Cumulative2007E–2008E2005–2006MW Additions
10
Asset mining initiatives
Generation
Morgan Stanley Electric Utilities Corporate Access DayChicago, IL • October 9 ,2007
Realizing Full Potential of Asset Base
11
27957739950Total Uprates130305050Total3030Mansfield 35050Mansfield 25050Mansfield 1
Fossil149574349Total554510Beaver Valley 2684325Beaver Valley 1261214Davis-Besse
NuclearTotal2008200720062005(MW)
Baseload capacity uprates
Generation
Environmental Strategy
Morgan Stanley Electric Utilities Corporate Access DayChicago, IL • October 9 ,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
2
Environmental Strategy
Fleet Emission Control Status
60%8,4389%1,269Natural Gas Peaking
18%2,569Coal Controlled(SO2/NOx – full control)
33%4,600Non-EmittingFleet %Capacity (MW)
Our generation fleet is well positioned for the future
Environmental Strategy
Morgan Stanley Electric Utilities Corporate Access DayChicago, IL • October 9 ,2007
AQCS Capital Expenditures
$54$136
$387
$593$530
$180
$13$0
$200
$400
$600
2005 2006 2007E 2008E 2009E 2010E 2011E
($ m
illio
ns)
Environmental Strategy
3
Striving for Continuous Improvement
AQCS expenditures estimated at $1.9B
Ensure the long-term viability of the fleet
Morgan Stanley Electric Utilities Corporate Access DayChicago, IL • October 9 ,2007
Environmental Strategy
4
Environmental Strategy
Sammis Plant (2,220 MW) – $1.65 Billion– SO2 control (scrubbers) all units– NOx control (SCRs) Units 6 & 7 (1,200 MW)– NOx control (SNCR) Units 1–5 (1,020 MW)
completed
Mansfield Plant (2,460 MW) – $50 Million– SO2 control (scrubber) upgrades
– 1,660 MW completed, 800 MW to be completed in 2007
Burger Plant – $180 Million– NOx control (SNCR) and SO2 control (ECO)
Units 4 & 5 (312 MW)
NOx Controls (SNCR) – $6 Million– Eastlake Unit 5 (600 MW) completed
AQCS Construction Overview
Morgan Stanley Electric Utilities Corporate Access DayChicago, IL • October 9 ,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
5Environmental Strategy
Morgan Stanley Electric Utilities Corporate Access DayChicago, IL • October 9 ,2007
Firstenergy’s Diverse Generation Provides Strong Competitive Position
Over 35% of generation from non-emitting nuclear units in 2006
Uprates will further increase nuclear generating capacity
Long-term contracts for more than 200 MW of wind capacity
6Environmental Strategy
Morgan Stanley Electric Utilities Corporate Access DayChicago, IL • October 9 ,2007
Current Greenhouse Gas Reduction Actions
$100M in investments planned 2006–2010– $50M on products, programs and activities to help reduce greenhouse
gas emissions– $50M to support relicensing and capacity uprates at non-emitting
generating plants; renewable energy development
Fleet modernization a key strategy:– Increased ownership of nuclear generation and decreased ownership
of coal– 1,383 MW of older coal-based boilers out of service since 1990
(estimated annual CO2 avoidance of 1.5 million tons)– 1,155 MW of new natural gas-fired peaking capacity since 1999– > 200 MW of wind generation secured through long-term agreements
Overall efforts resulted in average annual reductions of 8.9 million tons of CO2 equivalent; 143 million tons since 1991
7Environmental Strategy
Morgan Stanley Electric Utilities Corporate Access DayChicago, IL • October 9 ,2007 8
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 Strategy
Environmental Strategy
FirstEnergy’s climate activities
Morgan Stanley Electric Utilities Corporate Access DayChicago, IL • October 9 ,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
9Environmental Strategy
Commodity Operations
Morgan Stanley Electric Utilities Corporate Access DayChicago, IL • October 9 ,2007
Commodity Operations Strategy
Manage commodity value chain
Effectively deploy generation to capture market opportunities
Enhance fuel supply / logistics to maximize optionality
Efficiently manage purchased power requirements
Employ strict risk management controls and oversight– Volume and price risks– Generation availability risks– Transmission congestion risks
Maximizing Margins byMitigating Risks And Minimizing Supply Costs
2
Effectively managing commodity margins and risks
Commodity Operations
Morgan Stanley Electric Utilities Corporate Access DayChicago, IL • October 9 ,2007
* Represents the percentage hedged of total forecasted generation.
Coal delivery optionality and fuel flexibility– 3 coal delivery options for largest baseload plants– 8 units can burn any of 3 coal types and can switch quickly– 9 additional units can operate within a wide blending range
3
Commodity Operations Strategy
100%100%Nuclear fuel*
100%100%NOx*
94%100%SO2*
98%100%Coal transportation*
95%100%Coal only*
20082007% Hedged
Commodity Operations
Effectively hedging commodity positions
Morgan Stanley Electric Utilities Corporate Access DayChicago, IL • October 9 ,2007
Commodity Operations’ objective is to provide FirstEnergy with a predictable and profitable commodity margin
GenerationMargin
GenerationMargin
MWH
COST
FENOC
31M MWh
FENOC
31M MWh
MWH
COST
Fossil
51M MWh
Fossil
51M MWh
MWH
COST
Purchased Power34M MWh
Purchased Power34M MWh
MWH
REV
RegulatedSales
80M MWh
RegulatedSales
80M MWh
MWH
REV
CompetitiveSales
12M MWh
CompetitiveSales
12M MWh
MWH
REV
WholesaleSales
20M MWh
WholesaleSales
20M MWh
MWHLosses &Pumping4M MWh
Losses &Pumping4M MWh
+ Generation Revenue– Fuel– Purchased Power
Generation Margin
CommodityMargin
CommodityMargin
Excludes JCP&L and OVEC.
+ Generation Margin– Transmission Expense– RTO expense
Commodity Margin
PJM / MISOExpenses
PJM / MISOExpenses
4Commodity Operations
Morgan Stanley Electric Utilities Corporate Access DayChicago, IL • October 9 ,2007 5
Commodity Operations
Balanced emission allowance position minimizes risks
Based on projected generation:
Emission allowance positions are well covered2007 SO2 position is covered2008 SO2 is slightly short due to economic fuel switching decisions in recent strategic planning processNOx positions are completely covered
SO2 Position (tons)
Needed Covered Position
NOx Position (tons)
0
10,000
20,000
30,000
2007 2008
Needed Covered Position
-30,000
60,000
150,000
240,000
330,000
2007 2008
Morgan Stanley Electric Utilities Corporate Access DayChicago, IL • October 9 ,2007
Procurement of coal supply will be vital to asset utilization and a “predictable” margin
Continue working to secure long-term fuel supply contracts
Actively testing alternate fuel blends at various plants to optimize plant economics
Engaged in fuel flexibility initiative to create more options
6
0
5,000
10,00
015
,000
20,00
025
,000
2008
2007
Total Covered TonsTotal Needed Tons
95%
100%
Securing Open Coal Commodity Positions
Commodity Operations
Morgan Stanley Electric Utilities Corporate Access DayChicago, IL • October 9 ,2007
0
5,000
10,00
015
,000
20,00
025
,000
2008
2007
Total Covered Tons
Total Needed Tons
Secured fuel transportation position will be vital to asset utilization and a “predictable” margin
2007 transportation positions100% covered based on forecasted generation
2008 transportation positions will be closed shortly —agreements reached
Evaluating additional delivery options to increase both capabilities and flexibility
Actively working to close long term transportation position beyond 2009
7
98%
Securing Open Fuel Transportation Positions
100%
Commodity Operations
Morgan Stanley Electric Utilities Corporate Access DayChicago, IL • October 9 ,2007
Fuel and Transportationoptions create leverage
EastlakeBurgerAshtabulaSammisMansfieldBay ShoreLake Shore
TruckVesselBargeRailCoal Delivery Options
0
5
10
15
20
PRB 3 3 0 3 3 3 6NAAP 1 0 10 3 3 8 3CAAP 6 4 0 10 8 8 8
Lake Shore Bay Shore Mansfield Sammis Ashtabula Burger Eastlake
107
10
1614
1917
Planned & PotentialMine Sources
# of
Min
es
8Commodity Operations
Morgan Stanley Electric Utilities Corporate Access DayChicago, IL • October 9 ,2007
Annual requirementof 22–25 million tonsIncreasing usage ofPRB coal
2003 – 23%2004 – 25%2005 – 35%2006 – 37%2007E – 46%
Coal Supply 2007E Coal Mix by Origin (tons)
CAPP15%
PRB46%
NAPP39%
9
Coal Supply
Commodity Operations
Balanced and economic
Energy Delivery
Morgan Stanley Electric Utilities Corporate Access DayChicago, IL • October 9 ,2007
Ohio
Ohio Edison 1,042,000 7,000
Illuminating Company 762,000 1,600
Toledo Edison 314,000 2,300
Met-Ed 542,000 3,300
Penelec 589,000 17,600
Pennsylvania Power 159,000 1,100
Jersey Central Power & Light 1,082,000 3,200Total 4,490,000 36,100
Customers Square Miles
Pennsylvania
NewJersey
2
FirstEnergy Service Areas
Energy Delivery
Morgan Stanley Electric Utilities Corporate Access DayChicago, IL • October 9 ,2007
Striving for Continuous Improvement
Targeted reinvestment in T&D infrastructure – Focus on reducing outages, restoration time, and customers affected
Leveraging technology– Focus on customer service and outage management
Implement “Energy Delivery Excellence Program”– Comprehensive review identified operational, technological,
scheduling and financial control opportunities for improvement
Significant improvement in reliability metrics– In 2006, outage duration improved 20%– 2007 YTD through June, outage duration improved 13%; outage
frequency improved 7%– Transmission outage frequency per circuit is at top-decile
3Energy Delivery
Improve distribution reliability and customer service
Morgan Stanley Electric Utilities Corporate Access DayChicago, IL • October 9 ,2007
FirstEnergy’s Strengths
Residential35%
Commercial32%
Ohio2.1 million
Pennsylvania1.3 million
New Jersey1.1 million
Attractive Customer BaseLarge and Balanced
Industrial33%
4
Electric Customers – 5th Largest Balanced Sales Mix
Energy Delivery
Morgan Stanley Electric Utilities Corporate Access DayChicago, IL • October 9 ,2007
0.00
0.10
0.20
0.30
0.40
0.50
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Out
ages
per
Circ
uit
Energy Delivery Reliability Improvements
The Transmission Outage Frequency (TOF) is a measure of the average number of transmission circuit outages per circuit in the 230–500kV voltage classes.
Transmission Outage Frequency (TOF) Per Circuit
SAIDI represents the average total duration of outage minutes per customer in a year adjusted for major storms.
Distribution SAIDI (System Average Interruption Duration Index)
Industry Avg.* = 0.50Top Quartile* = 0.39Top Decile* = 0.31YTD = 0.30
2007YTD= 93.9
2006YE = 152
0
50
100
150
200
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
SAID
I (m
inut
es)
Threshold
2007
2006
2007 Commission Threshold = 148
5
* As defined by SGS benchmarking study.
Energy Delivery
Regulatory Matters
Morgan Stanley Electric Utilities Corporate Access DayChicago, IL • October 9 ,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 2018No restriction
Met-Ed
Penelec
Toledo Edison
CEI
CTC endedJan. 2006
CTC thru 20102
CTC thru 20092
Pass thruPJM costs
Norestriction
InGeneration
2Regulatory Matters
Morgan Stanley Electric Utilities Corporate Access DayChicago, IL • October 9 ,2007
Successfully Manage Regulatory Transitions
3Regulatory Matters
Seek full and timely recovery of distribution costsOhio Edison, CEI, and Toledo Edison
Comprehensive Distribution rate requests filed on June 7; Update filed on August 6
Proposed rates would be effective January 1, 2009 for OE and TE; expected to be effective in May 2009 for CEI
Ohio
Proposed increase:Traditional distribution costs 212Recovery of costs deferred under prior rate plans 120
Total proposed increase to "distribution" revenues $332Offsetting RTC decrease ($594)Net decrease, including offsets * ($262)% Decrease, including offsets to total current revenues * -5.7%
* Assumes current Generation & Transmission rates
Morgan Stanley Electric Utilities Corporate Access DayChicago, IL • October 9 ,2007
Generation asset transfer completed in 2005In July 2007, filed comprehensive generation supply plan for competitively priced service beginning January 2009Proposal includes:– Option to phase in generation price increases for residential tariff
groups with > 15% increase in average total price– Time-of-day and hourly pricing options– Renewable energy component
PUCO decision requested by November 1, 2007– Technical conference held on August 16– Initial Comments filed on September 5; PUCO Staff comments
filed on September 21; reply comments by October 12Competitive bid structuring alternatives– By Customer Class or Slice of System
4Regulatory Matters
Transition to competitive generation marketsSuccessfully Manage Regulatory Transitions
Ohio
Morgan Stanley Electric Utilities Corporate Access DayChicago, IL • October 9 ,2007
Bid structuring 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
Initial bids to be conducted:– January 2008 (Slice of System), or– March 2008 (Customer Class)
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)
5Regulatory Matters
Transition to competitive generation marketsSuccessfully Manage Regulatory Transitions
Ohio
Morgan Stanley Electric Utilities Corporate Access DayChicago, IL • October 9 ,2007
On August 29, Governor Strickland Proposes Energy, Job and Progress Plan – 7 Key Principles– Market Rate Plan or Electricity Security Plan– Advanced Energy Portfolio Standard – 25% by 2025– Transparency & Accountability – Promote aggregation, demand response and advanced metering– Modernizing electric infrastructure/single issue ratemaking– Energy Efficiency Standard – 25% of projected growth,
decoupling– Address global climate change
Plan introduced as SB 221 on September 25– http://www.legislature.state.oh.us/bills.cfm?ID=127_SB_221
6Regulatory Matters
Transition to competitive generation marketsSuccessfully Manage Regulatory Transitions
Ohio
Morgan Stanley Electric Utilities Corporate Access DayChicago, IL • October 9 ,2007 7
Ohio Edison, CEI, and Toledo Edison
On August 29, the Ohio Supreme Court remanded the recovery of deferred fuel costs in distribution rates back to the PUCO for further consideration
The Court reaffirmed all other aspects of the Rate Certainty Plan
On September 7, the Companies filed a Motion for Reconsideration with the Court
On September 10, the Companies filed an Application on Remand with the PUCO proposing generation-related fuel cost recovery riders
Regulatory Matters
Supreme Court Remand on Rate Certainty PlanSuccessfully Manage Regulatory Transitions
Ohio
Morgan Stanley Electric Utilities Corporate Access DayChicago, IL • October 9 ,2007
Transition Plan Rate Case– $109M 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
NUG Accounting Case– ALJ Initial Decision was to deny the Companies’ request– Awaiting PPUC Final Order
Generation transitions to market-based rates in 2011Governor’s Energy Independence Strategy – Special Legislative Session– PennSecurity Initiative (biofuel)– $850 million Energy Independence Fund – renewables and
efficiency
8
Successfully Manage Regulatory TransitionsMet-Ed and Penelec
Regulatory Update
Morgan Stanley Electric Utilities Corporate Access DayChicago, IL • October 9 ,2007
POLR 1: transition to market-based generation rates– RFP process for 900 MW from January 2007–May 2008
POLR 2: continuation starting June 2008– Proposed full requirements product by class– Multiple RFPs with staggered delivery through 2011– Three year phase-out of promotional generation rates– Settlement Agreement filed on September 28, 2007– Anticipate commission order by November 29, 2007
Successfully Manage Regulatory TransitionsPenn Power
9Regulatory Update
Morgan Stanley Electric Utilities Corporate Access DayChicago, IL • October 9 ,2007
Generation supplied through BGS auction process
Sale of Forked River Generating Station– Proceeds approximately $20M
Energy Master Plan – 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
10
Regulatory MattersJersey Central Power & Light
Regulatory Update
Financial Matters
Morgan Stanley Electric Utilities Corporate Access DayChicago, IL • October 9 ,2007
Optimize Financial Strength and Flexibility
Use cash to benefit shareholders– Sustainable common stock dividend growth
– 11.1% increase (March 1, 2007)– Share repurchase
– 14.4 million ASR (March 2, 2007)
Continue focus on capital structure management– Additional transfers of tax-exempt debt from operating companies– Appropriately capitalize operating companies
Remain flexible to capitalize market opportunities– Executed Mansfield Unit 1 sale and leaseback transaction on July 13
Deliver consistent and predictable financial results
2Financial Matters
Maintain strategic flexibility
Morgan Stanley Electric Utilities Corporate Access DayChicago, IL • October 9 ,2007
$ 1,744$ 1,464$ 1,170Total
5910439Other
609396136Environmental
7058116Fossil
110126229FENOC
$ 896$ 780$ 650Energy Delivery
2008E2007E2006($ millions)
* Total capital expenditures forecast for 2009–2011 estimated to be approx. $4.7B
3Financial Matters
Reinvest in the businessStriving for Continuous Improvement
Morgan Stanley Electric Utilities Corporate Access DayChicago, IL • October 9 ,2007
Share Repurchase
On March 2, FirstEnergy repurchased 14.4 million shares– Represents approx. 4.5% of outstanding shares– $900M ASR at initial price of $62.63 per share– Final purchase price to be adjusted to reflect volume-weighted
average price of stock during acquisition period (up to approximately one year)
Coupled with August 2006 ASR program of 10.6 million shares, total buy-backs equal approx. 7.6% of shares outstanding
Projected net earnings impact from both buy-backs is approx. $0.18 per share in 2007 vs. 2006
4Financial Matters
Morgan Stanley Electric Utilities Corporate Access DayChicago, IL • October 9 ,2007
Pension Contribution
Previously contributed $1B to plan during 2004–2005
Pension Protection Act of 2006 changed plan funding rules
$300M contribution ($193M after-tax) made in January
Increases plan funding– Improves PBO funded ratio to 105%
Financial impact of contribution equates to 15% pre-taxcash return, 9% after-tax return
Accretive to annual earnings by approx. $0.05 per share
FAS 87/106 cost: 2006 $ 94 M2007E (89) M
$ (183) M
5Financial Matters
Morgan Stanley Electric Utilities Corporate Access DayChicago, IL • October 9 ,2007
Long-Term Dividend Policy
Annual growth target of 4–5%
Sustainable annual growth and a payout ratio appropriate for our level of earnings
Dividend Changes:
6
$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
11.1%50.00¢1Q 2007
Change fromPrior Period
QuarterlyRate
PaymentDate
Financial Matters
Morgan Stanley Electric Utilities Corporate Access DayChicago, IL • October 9 ,2007
FirstEnergy Solutions (FES)
Wholly-owned competitive subsidiary– Holding company for FirstEnergy Genco and FirstEnergy
Nuclear Genco– Provides energy-related products and services to wholesale
and retail customers in MISO and PJM
Generation assets transferred in 2005
Investment grade ratings (BBB/Baa2) received in March
SEC registrant providing full financials
Targeting a debt ratio in the upper 50% range by 2008– $1.4B of genco-level tax exempt debt (4% avg. cost)
comprises approx. 45% of debt portfolio
7Financial Matters
Morgan Stanley Electric Utilities Corporate Access DayChicago, IL • October 9 ,2007
FirstEnergy Solutions (FES) (cont.)
Executed Mansfield Unit 1 sale and leaseback transaction– Traditional leveraged lease structure: approx. 85% / 15%
debt/equity– After-tax proceeds of $1.2B used to repay short-term debt drawn
to fund share repurchases and voluntary pension contribution– Equivalent to borrowing at 3.6% for a term of 33 years
Additional transfers of tax-exempt debt from utilities– Planning to issue $455M insured Genco auction rate securities– Subsequent to this transaction, $1.9B of PCRBs will have been
transferred to FES with $265M PCRBs remaining at utilities to be transferred
8Financial Matters
Morgan Stanley Electric Utilities Corporate Access DayChicago, IL • October 9 ,2007
$3.00
$3.50
$4.00
$4.50
$5.00
$3.88(1)
($0.05)
$0.07
($0.05)$4.15(1)
$0.18
Midpoint 2006 Non-GAAP EPS
GenerationOutput &
MixWiresGrowth
T&D Infra-structure
Midpoint 2007 Non-GAAP
EPS Guidance
$0.06
$0.17
($0.19)
NetBenefitCosts
ME/PERate Case (“D”)
OH Trans-ition Cost
Amort.
2007 Non-GAAP Earnings Per Share Guidance(2)
Issued January 31, 2007
(1) See GAAP to non-GAAP reconciliations in subsequent slides. (2) 2007 EPS guidance, excluding unusual items, is $4.05 – $4.25. On a GAAP basis, EPS is expected to be $4.09 – $4.29.
Net Share Repurchases Depr.
($0.10)
Penn Power
to Market
$0.12All
OtherNuclear Outage O&M
$0.08($0.02)
9Financial Matters
Morgan Stanley Electric Utilities Corporate Access DayChicago, IL • October 9 ,2007
Net Pension Contribution: $373M ($90M tax benefit realized in 2006)
Securitization/Asset Sales in 2006: $310M
Higher Dividends / Capital Expenditures: $215M
Wires Growth: $20M
Gen Output/Mix: $15M
Penn Power to Market: $40M
Nuclear Outage O&M: $25M
PA Rate Increase: $60M
JCP&L NUG Recovery: $100M
Net Collateral: $80M
10
2007 Cash Flow Drivers
Financial Matters
Morgan Stanley Electric Utilities Corporate Access DayChicago, IL • October 9 ,2007
Higher Ohio transition cost amortization
T&D infrastructure investment
Increased fuel and purchased power costs
Growth in delivery sales
Increased generation margin
Lower generation-related outage maintenance costs
11
2008 Earnings Drivers
Financial Matters
Morgan Stanley Electric Utilities Corporate Access DayChicago, IL • October 9 ,2007
Adjusted Total Debt / Total Capital Funds from Operations / Interest Coverage
Funds from Operations / Total Debt
Maintaining Financial Strength and FlexibilityMaintaining Financial Strength and Flexibility
3.53.53.53.73.0
2.5
0
1
2
3
4
5
2002 2003 2004 2005 2006 2007E
17%17%18%18%
14%
11%
0%
5%
10%
15%
20%
2002 2003 2004 2005 2006 2007
60%58%56%58%60%67%
0%
10%
20%
30%
40%
50%
60%
70%
2002 2003 2004 2005 2006 2007E
FirstEnergy Credit Metrics
12Financial Matters
Morgan Stanley Electric Utilities Corporate Access DayChicago, IL • October 9 ,2007
FirstEnergy Credit RatingsS&P’s outlook on all companies is stable
Moody’s outlook on FE Solutions is stable and positive for all other companies
13
Business Profile
Corporate Credit Rating (S&P) / Issuer Rating
(Moody's)
Senior Secured Senior Unsecured
S&P S&P Moodys S&P Moodys S&P MoodysFirstEnergy Corp. 7 BBB Baa3 - - BBB- Baa3
FirstEnergy Solutions 8 BBB Baa2 - - - -
Ohio Edison 5 BBB Baa2 BBB+ Baa1 BBB- Baa2
Cleveland Electric Illuminating Co. 5 BBB Baa3 BBB+ Baa2 BBB- Baa3
Toledo Edison 5 BBB Baa3 BBB Baa2 BBB- Baa3
Pennsylvania Power 5 BBB Baa2 A- Baa1 BBB- Baa2
Jersey Central Power & Light 4 BBB Baa2 BBB+ Baa1 BBB Baa2
Metropolitan Edison 4 BBB Baa2 BBB+ Baa1 BBB Baa2
Pennsylvania Electric Co. 4 BBB Baa2 BBB+ Baa1 BBB Baa2
As of September 7, 2007
Financial Matters
Morgan Stanley Electric Utilities Corporate Access DayChicago, IL • October 9 ,2007
Strong Liquidity Position
Substantial liquidity available– $3.0B available borrowing capacity as of September 13, 2007
14
$ 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
Financial Matters
Morgan Stanley Electric Utilities Corporate Access DayChicago, IL • October 9 ,2007
Issued on February 20, 2007
2006 Earnings Per Share
2006 EPSBasic EPS (GAAP basis) $ 3.84Excluding Unusual Items:
Trust Securities Impairment 0.02PPUC NUG Cost Reserve for Prior Years 0.02
Basic EPS (non-GAAP basis) $ 3.88
15Financial Matters
Reconciliation of GAAP to Non-GAAP
Morgan Stanley Electric Utilities Corporate Access DayChicago, IL • October 9 ,2007
As of August 7, 2007
2007 Non-GAAP Earnings Per Share Guidance
2007 EPSBasic EPS (GAAP basis) $4.11 – $4.31Excluding Unusual Items:
Benefit from 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) $4.05 – $4.25
16Financial Matters
Reconciliation of GAAP to Non-GAAP
Investment Highlights
Morgan Stanley Electric Utilities Corporate Access DayChicago, IL • October 9 ,2007
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
Significant Earnings Growth
Potential
Significant Earnings Growth
Potential
An attractive risk/reward opportunity
FirstEnergy – Driving Performance & Delivering ResultsFirstEnergy – Driving Performance & Delivering Results
2Investment Highlights