Morgan Stanley                           Anthony J. Alexander
Global Electricity & Energy Conference   President & CEO
New...
Safe Harbor Statement under the
Private Securities Litigation Reform Act of 1995
Forward-Looking Statements: This presenta...
Strategic Vision: 2007 and Beyond
 Our strategic focus continues to be on the
 fundamentals…
    Realizing the full potent...
Generation Strategy
Realizing our full potential

    Pursue continuous improvement
                                      ...
Generation Strategy
Continued improvement of asset utilization
       (million MWh)            Nuclear
         100       ...
Generation Strategy
Fossil and nuclear fleet highlights
   Fossil Baseload Capacity Factor
   Fossil Baseload Capacity Fac...
Generation Strategy
Asset mining initiatives

             MW Additions                                    2005-2006 2007E...
Environmental Strategy
Our generation fleet is well positioned for the future
                   Fleet Emission Control St...
Environmental Strategy
AQCS expenditures estimated at $1.8B
                                 Capital Expenditures
     ($ ...
Commodity Operations Strategy
Effectively managing commodity margins and risks

    Deploy generation to capture market op...
Commodity Operations Strategy
Effectively hedging commodity positions

              % Hedged                             ...
Energy Delivery Strategy
Targeting improved operational & financial performance
   Continued focus on enhancing reliabilit...
Financial Strategy
2007 Focal Points

   Continue to use cash to benefit shareholders
    – Sustainable common stock divid...
Financial Strategy
Improved operations & strategic execution

   FirstEnergy’s financial accomplishments since 2004
    – ...
Financial Strategy
Aligning management and shareholder interests

   Stock ownership*
     – CEO = approx. 477,000 shares
...
Financial Strategy
Compelling long-term growth potential
                                                                 ...
FirstEnergy – Driving Performance & Delivering Results

WELL-PREPARED FOR THE FUTURE
   Effectively managing transition
  ...
Morgan Stanley
                                         Appendix
Global Electricity & Energy Conference
New York • March 1...
Generation
FirstEnergy Generation Sources
    Michigan                                                          Ashtabula
           ...
Realizing Full Potential of Asset Base
Generation – Capacity Additions & Opportunities
 Cost-effective capacity uprates   ...
Fulfilling Our Vision
Future Outages Focus on Reliability
                             Outage           Outage
           ...
Looking Forward
Continued Safe Operations through License Renewal

 License Renewal Schedule
                             ...
Looking Forward
Cost-effective Operations

                                     Fleet Production Costs
     $/MWh
       2...
Commodity Operations
Commodity Operations’ objective is to provide FE
with a predictable and profitable commodity margin.
                     ...
Purchased Power
  (million MWh)
    40
             34       16.6
    35

    30

    25

    20                          ...
Wholesale Sales
   (million MWh)
     25

              20.6     14.6
     20


     15


     10

                       ...
Balanced emission allowance position minimizes risks.
            SO2 Position (tons)
 330,000        Needed   Covered

 2...
Procurement of coal supply will be vital to asset
utilization and a “predictable” margin.

          Securing Open Coal
  ...
Secured fuel transportation position will be vital
to asset utilization and a “predictable” margin.

         Securing Ope...
Coal Delivery Options
Fuel and Transportation                                                                             ...
FOSSIL FUEL
                                                                                      ($ millions)            ...
Regulatory Matters
Retail Regulatory Structure
                          Generation               Transmission                 Distribution  ...
Regulatory Strategy
Managing the Transition to Competitive Markets
Pennsylvania

           Penn Power
               Succ...
Regulatory Strategy
Managing the Transition to Competitive Markets
Pennsylvania
           Summary: Met-Ed and Penelec
   ...
Regulatory Strategy
Managing the Transition to Competitive Markets

Ohio       Senate Bill 3 – Ohio Restructuring Legislat...
Regulatory Strategy
Managing the Transition to Competitive Markets

Ohio
           Rate shock experienced in other states...
Financial Matters
Sale and Leaseback – Mansfield Unit 1
   Structure of potential transaction under development
   Retain operating control ...
Share Repurchase
  On March 2, FE repurchased 14.4 million shares
   – Represents approx. 4.5% of outstanding shares
   – ...
Long-Term Dividend Policy
   Annual growth target of 4–5%
   Sustainable annual growth and a payout ratio appropriate
   f...
FE Solutions (FES)
   Targeting a debt ratio in the upper 50% range by 2008
   – Genco-level tax-exempt debt with 4% avera...
FirstEnergy Credit Metrics
                                                                                               ...
Capital Expenditures
     ($ millions)

                                                                          Estimate...
FirstEnergy Credit Ratings
                                           Corporate Credit Rating
                            ...
Strong Liquidity Position
    Company                              Type                    Term               Maturity    ...
2007 Non-GAAP Earnings Per Share Guidance
Issued January 31, 2007
      $5.00



                                         ...
2007 Cash Flow Drivers
    Wires Growth: $20M
    Gen Output/Mix: $15M
    Penn Power to Market: $40M
    Nuclear Outage O...
2008 Earnings Drivers
   Growth in delivery sales
   Increased generation margin
   Lower generation-related outage mainte...
2006 Earnings Per Share
Reconciliation of GAAP to Non-GAAP

 Issued on February 20, 2007

                                ...
2007 Non-GAAP Earnings Per Share Guidance
Reconciliation of GAAP to Non-GAAP

 As of February 20, 2007

                  ...
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first energy MorganStanley307

  1. 1. Morgan Stanley Anthony J. Alexander Global Electricity & Energy Conference President & CEO New York • March 15, 2007
  2. 2. Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995 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 quot;anticipate,quot; quot;potential,quot; quot;expect,quot; quot;believe,quot; quot;estimatequot; 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 the registrant’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 Energy Policy Act of 2005 (including, but not limited to, the repeal of the Public Utility Holding Company Act of 1935), 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, fines or other enforcement actions and remedies) of governmental investigations and oversight, including by the Securities and Exchange Commission, the United States Attorney’s Office, the Nuclear Regulatory Commission and the various state public utility commissions as disclosed in the registrant’s Securities and Exchange Commission filings, generally, and with respect to the Davis-Besse Nuclear Power Station outage in particular, the timing and outcome of various proceedings before the Public Utilities Commission of Ohio (including, but not limited to, the successful resolution of the issues remanded to the PUCO by the Ohio Supreme Court regarding the Rate Stabilization Plan) and the Pennsylvania Public Utility Commission, including the transition rate plan filings 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, the successful completion of the share repurchase program announced March 2, 2007, the risks and other factors discussed from time to time in the registrant’s Securities and Exchange Commission filings, including the registrant’s annual report on Form 10-K for the year ended December 31, 2006, 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 registrant expressly disclaims any current intention to update any forward-looking statements contained herein as a result of new information, future events, or otherwise. Morgan Stanley Global Electricity & Energy Conference New York • March 15, 2007 2
  3. 3. Strategic Vision: 2007 and Beyond Our strategic focus continues to be on the fundamentals… Realizing the full potential of our asset base Efficiently achieving environmental improvement Controlling commodity costs and risks Pursuing continuous improvement in all aspects of the business Managing transition to competitive markets Enhancing financial strength and flexibility DRIVING PERFORMANCE & DELIVERING RESULTS Morgan Stanley Global Electricity & Energy Conference New York • March 15, 2007 3
  4. 4. Generation Strategy Realizing our full potential Pursue continuous improvement – Benchmark analysis – Fleet reliability – Controlling costs – Outage execution – Excellence standards Explore opportunities to mine existing assets for cost-effective capacity additions Effectively implement environmental compliance strategy WELL-POSITIONED TO SUCCEED IN A COMPETITIVE GENERATION MARKET Morgan Stanley Global Electricity & Energy Conference New York • March 15, 2007 4
  5. 5. Generation Strategy Continued improvement of asset utilization (million MWh) Nuclear 100 Fossil & Hydro 84.4 82.3 81.6 79.8 76.4 80 66.8 32.0 29.0 31.2 28.7 29.9 60 21.1 40 52.6 52.4 51.1 51.1 46.5 45.7 20 0 2003 2004 2005 2006 2007E 2008E Note: Excludes JCP&L 2003 to 2006 = 22% INCREASE IN GENERATION OUTPUT 3 CONSECUTIVE RECORD YEARS Morgan Stanley Global Electricity & Energy Conference New York • March 15, 2007 5
  6. 6. Generation Strategy Fossil and nuclear fleet highlights Fossil Baseload Capacity Factor Fossil Baseload Capacity Factor Capacity Forced Loss Net Generation Nuclear Fleet 2006 Factor (% ) Rate (% ) (million MWh) 90% Beaver Valley Unit 1 80.4 1.16 5.8 88.6% 88% Beaver Valley Unit 2 87.7 1.75 6.3 85.9% 86% Davis-Besse 83.1 1.76 6.4 84.5% Top Decile 84% Perry 96.8 3.44 10.5 * 82.2% 82% Top Quartile Fleet 88.0 2.27 29.0 79.6% 80% 2002 – 2005 Avg 79.0 3.15 26.0 78% * Record Generation 76.0% 76% 74% Top decile nuclear performance in 2006 72% – OSHA Rate 70% – Fuel costs ($4.28 / MWh) 68% 2002 2003 2004 2005 2006 2007E – Corrective Maintenance backlog •Top performance came from Navigant benchmarking study Recognized for on-line dose control Top decile fossil baseload capacity Summer Capacity Factor = 97.6% factor in 2006 All units now under normal NRC oversight Fossil load following unit capacity factor reached 69% in 2006 Morgan Stanley Global Electricity & Energy Conference New York • March 15, 2007 6
  7. 7. Generation Strategy Asset mining initiatives MW Additions 2005-2006 2007E-2008E Cumulative Fossil baseload uprates 100 30 130 Nuclear baseload uprates 49 100 149 Peaking capacity enhancements* 0 197 197 Wind power contracts 30 284 314 Total MW additions 179 611 790 * Reflects 12 separate projects including returning 70 MW at Burger Unit 3 that has not been available since summer 2005. Mining existing asset base for low risk, cost-effective growth Wind power contracts helping to meet renewable portfolio standards Additional longer-term initiatives under review Morgan Stanley Global Electricity & Energy Conference New York • March 15, 2007 7
  8. 8. Environmental Strategy Our generation fleet is well positioned for the future Fleet Emission Control Status Capacity (MW) Fleet % Non-Emitting 4,530 33% Coal Controlled 2,569 19% (SO2/NOx – full control) Natural Gas Peaking 1,269 10% 8,368 62% Longer-term environmental considerations CO2 control – Approx. 40% 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, in compliance until 2015 Morgan Stanley Global Electricity & Energy Conference New York • March 15, 2007 8
  9. 9. Environmental Strategy AQCS expenditures estimated at $1.8B Capital Expenditures ($ millions) 563 600 496 380 400 178 200 136 54 0 2005 2006 2007E 2008E 2009E 2010E Construction Overview – Sammis Plant (2,220 MW) – SO2 and NOx controls – Mansfield Plant (2,460 MW) – SO2 control upgrades – Eastlake Unit 5 (600 MW) & Burger Units 4 & 5 (300 MW) – NOx controls – Bay Shore Unit 4 (215 MW) – SO2 and NOx controls Morgan Stanley Global Electricity & Energy Conference New York • March 15, 2007 9
  10. 10. Commodity Operations Strategy Effectively managing commodity margins and risks Deploy generation to capture market opportunities – Leverage presence in two RTOs – Leverage FES retail market competencies Enhance fuel supply optionality and flexibility Effectively hedge commodity positions Employ strict risk management controls and oversight – Volume and price risks – Generation availability risks – Transmission congestion risks Morgan Stanley Global Electricity & Energy Conference New York • March 15, 2007 10
  11. 11. Commodity Operations Strategy Effectively hedging commodity positions % Hedged 2007 2008 Coal only* 100% 98% Coal transportation* 100% 46% SO2* 100% 100% NOx* 100% 100% Nuclear fuel* 100% 100% * Represents the percentage hedged of total forecasted generation. Coal delivery optionality and fuel flexibility – At least 3 coal delivery options for each baseload plant – 8 units can burn any of 3 coal types and can switch quickly – 9 additional units can operate within a wide blending range Morgan Stanley Global Electricity & Energy Conference New York • March 15, 2007 11
  12. 12. Energy Delivery Strategy Targeting improved operational & financial performance Continued focus on enhancing reliability and customer service – Targeted reinvestment in T&D infrastructure – Leveraging technology Implement “Energy Delivery Excellence Program” – Comprehensive review identified operational, technological, scheduling, and financial control opportunities for improvement Significant improvement in 2006 reliability metrics – Distribution SAIDI improved 20% – Transmission Outage Frequency per circuit is at top-decile Morgan Stanley Global Electricity & Energy Conference New York • March 15, 2007 12
  13. 13. Financial Strategy 2007 Focal Points Continue to 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) – Reinvest in business to generate future earnings Execute Mansfield Unit 1 sale and leaseback transaction – Capture benefit of $785M of expiring tax capital loss carryforwards – Projected after-tax cash proceeds of $1.2B Continue focus on capital structure management Deliver consistent and predictable financial results Morgan Stanley Global Electricity & Energy Conference New York • March 15, 2007 13
  14. 14. Financial Strategy Improved operations & strategic execution FirstEnergy’s financial accomplishments since 2004 – Achieved 3-year annualized total shareholder return of 24% – Increased market capitalization by $7.6B (66%) – Voluntarily contributed $1.3B to pension plan – Invested over $3B in capital expenditures – Reduced outstanding debt and preferred stock by over $1.2B – Restored investment grade credit ratings – Returned over $3B to shareholders in the form of share repurchases and common stock dividends – Increased common stock dividend 33% – Repurchased 25 million shares of common stock (7.6%) Morgan Stanley Global Electricity & Energy Conference New York • March 15, 2007 14
  15. 15. Financial Strategy Aligning management and shareholder interests Stock ownership* – CEO = approx. 477,000 shares – Executive Officers = approx. 1,754,000 shares CEO compensation – 80% of 2006 target total compensation was variable and delivered through annual incentives and equity-based opportunities Management incentive plan – Includes both short-term and long-term incentives – Tied to EPS, cash generation, safety, operational performance, and long-term stock performance * Includes shares beneficially owned and common stock equivalents Morgan Stanley Global Electricity & Energy Conference New York • March 15, 2007 15
  16. 16. Financial Strategy Compelling long-term growth potential 2010 & 2010 & 2007 2008 2009 2007 2008 2009 Beyond Beyond Managing the transition to competitive markets – Penn Power (2007) – Ohio Edison, Illuminating Company & Toledo Edison (2009) – Met-Ed & Penelec (2011) Phase-out of transition cost amortization Power uprates and capacity additions Wires growth and distribution rate cases Aggressive operating efficiencies / cost savings Well-positioned to succeed in a carbon-constrained world Morgan Stanley Global Electricity & Energy Conference New York • March 15, 2007 16
  17. 17. FirstEnergy – Driving Performance & Delivering Results WELL-PREPARED FOR THE FUTURE Effectively managing transition to competitive markets Mining full potential of efficient, Significant low-cost generation fleet Earnings Reinvesting for future growth Growth Potential Pursuing continuous improvement Disciplined risk-management approach Maintaining financial strength and flexibility Morgan Stanley Global Electricity & Energy Conference New York • March 15, 2007 17
  18. 18. Morgan Stanley Appendix Global Electricity & Energy Conference New York • March 15, 2007
  19. 19. Generation
  20. 20. FirstEnergy Generation Sources Michigan Ashtabula Perry 244 MW Seneca 1,258 MW Eastlake Sumpter 443 MW 1,262 MW 340 MW Bay Shore Stryker Erie 648 MW Lake Shore 18 MW Towanda Yards Creek 249 MW Toledo 200 MW Cleveland Pennsylvania New Castle Akron Davis-Besse Edgewater Morristown Richland Newark 898 MW 48 MW 432 MW West Lorain Johnstown Reading Harrisburg 545 MW Allenhurst Trenton W. H. Sammis 2,233 MW New Columbus Beaver Valley Bruce Mansfield York Haven Jersey R. E. Burger 1,722 MW 2,460 MW 19 MW 413 MW Mad River Forked River 60 MW Ohio 86 MW Plant Load Strategy Baseload Peaking Units Other Load Following MW MW MW MW Mansfield 1-3 2,460 Sammis 1-5 1,020 West Lorain 545 OVEC 463 Wind 30 Beaver Valley 1,2 1,722 Eastlake 1-4 636 Seneca 443 Perry 1,258 Bay Shore 2-4 495 Richland 432 Total 493 FirstEnergy Power Plants Sammis 6,7 1,200 Burger 4 -5 312 Sumpter 340 C Coal 7,439 MW Davis-Besse 898 Lake Shore 245 Yards Creek 200 N Nuclear 3,878 Eastlake 5 597 Ashtabula 244 Burger 3 & EMDs 101 H Hydro Bay Shore 1 136 Forked River 86 662 Total Load Following 2,952 G Gas & O Oil 1,599 York Haven 19 Mad River 60 Other 129 Total Baseload 8,290 Other 493 Total Peaking Units 2,336 Total 14,071MW Generation Morgan Stanley Global Electricity & Energy Conference New York • March 15, 2007 App-3
  21. 21. Realizing Full Potential of Asset Base Generation – Capacity Additions & Opportunities Cost-effective capacity uprates (MW) 2005 2006 2007 2008 Total Nuclear Renewable portfolio additions Davis-Besse 14 12 26 Beaver Valley 1 25 43 68 – Long-term purchase power contracts Beaver Valley 2 10 45 55 from third-party wind-turbine facilities Total 49 43 57 149 – 314MW by end of 2007 Fossil Mansfield 1 50 50 Potential opportunities Mansfield 2 50 50 Mansfield 3 30 30 – Re-powering projects Total 50 50 30 130 – Additional turbine upgrades Total Uprates 50 99 73 57 279 License renewal for 20-year life extensions planned for all nuclear units Generation Morgan Stanley Global Electricity & Energy Conference New York • March 15, 2007 App-4
  22. 22. Fulfilling Our Vision Future Outages Focus on Reliability Outage Outage Scope Driving Duration Year Plant Costs Duration Items with asterisk* denote duration drivers ($ millions) (days) Perry Refueling * $30 30 1R11 IVVI Split Pins * Containment Sump Modifications* Beaver Valley Reactor Vessel ISI * 2007 $32 28 1R18 100% Eddy Current Test Reactor Vessel Head Inspection Pressurizer Overlay Davis-Besse 1R15 $30 31 Rewind Main Generator * Split Pins * Low Pressre-2 Turbine Inspection * 2008 Beaver Valley Reactor Vessel Head Inspection $30 30 2R13 Main Cond Tube Replacement, Expansion Joints * Replace High Pressure Turbine * Type A Containment Pressurization Test Refueling * Perry $30 25 10-year IVVI / Bioshield In-service Inspection 1R12 Recirc Pump Motor Replacement Replace Low Pressure Turbines (2) * 2009 Beaver Valley $30 30 Reactor Coolant System Loop Stop Valves (2) 1R19 Reactor Vessel Head Inspection Beaver Valley $30 25 Refueling * 2R14 Generation Morgan Stanley Global Electricity & Energy Conference New York • March 15, 2007 App-5
  23. 23. Looking Forward Continued Safe Operations through License Renewal License Renewal Schedule Submit Current Approval New Request Expiration Expected Expiration (NRC Docket) Beaver Valley Unit 1 2016 2007 2009 2036 Beaver Valley Unit 2 2027 2007 2009 2047 Davis-Besse 2017 2010 2012 2037 Perry 2026 2013 2015 2046 Generation Morgan Stanley Global Electricity & Energy Conference New York • March 15, 2007 App-6
  24. 24. Looking Forward Cost-effective Operations Fleet Production Costs $/MWh 25 20 15 10 5 0 2002 2003 2004 2005 2006 2007E 2008E 2009E 24.88 20.88 16.73 18.94 20.43 17.57 17.16 19.29 Fleet Production Costs includes O&M and Fuel. Generation Morgan Stanley Global Electricity & Energy Conference New York • March 15, 2007 App-7
  25. 25. Commodity Operations
  26. 26. Commodity Operations’ objective is to provide FE with a predictable and profitable commodity margin. + Generation Margin Commodity Commodity – Transmission Expense Margin Margin – RTO expense Commodity Margin + Generation Revenue – Fuel PJM // MISO PJM MISO – Purchased Power Expenses Expenses Generation Margin Regulated MWH Regulated Sales Sales MWH FENOC FENOC REV 80M MWh 80M MWh COST 31M MWh 31M MWh Competitive MWH Competitive Sales Sales REV MWH Generation 12M MWh 12M MWh Fossil Fossil Margin COST Wholesale 51M MWh MWH Wholesale 51M MWh Sales Sales REV 20M MWh 20M MWh Purchased Power MWH Purchased Power 34M MWh 34M MWh Losses & Losses & COST Pumping MWH Pumping 4M MWh 4M MWh Excludes JCP&L. Commodity Operations Morgan Stanley Global Electricity & Energy Conference New York • March 15, 2007 App-9
  27. 27. Purchased Power (million MWh) 40 34 16.6 35 30 25 20 10.3 15 10 4.4 5 2.7 0 2007E Committed To Be Spot Met-Ed Committed Penelec Commodity Operations Morgan Stanley Global Electricity & Energy Conference New York • March 15, 2007 App-10
  28. 28. Wholesale Sales (million MWh) 25 20.6 14.6 20 15 10 2.4 5 0.6 3.0 0 2007E Committed To Be Spot Transmission Committed Losses Commodity Operations Morgan Stanley Global Electricity & Energy Conference New York • March 15, 2007 App-11
  29. 29. Balanced emission allowance position minimizes risks. SO2 Position (tons) 330,000 Needed Covered 240,000 Based on projected generation: 150,000 Emission allowance 60,000 positions are well covered -30,000 2007 2008 NOx positions are completely covered NOx Position (tons) 2007 and 2008 net SO2 30,000 Needed Covered positions are covered 20,000 10,000 0 2007 2008 Commodity Operations Morgan Stanley Global Electricity & Energy Conference New York • March 15, 2007 App-12
  30. 30. Procurement of coal supply will be vital to asset utilization and a “predictable” margin. Securing Open Coal Commodity Positions Aggressively working to secure longer-term fuel 100% 2007 supply requirements Actively testing alternate fuel blends at various plants to 98% 2008 optimize plant economics Engaged in fuel flexibility 00 00 00 00 0 0 initiative to create more options 00 ,0 ,0 ,0 ,0 5, 10 15 20 25 Total Covered Tons Total Needed Tons Commodity Operations Morgan Stanley Global Electricity & Energy Conference New York • March 15, 2007 App-13
  31. 31. Secured fuel transportation position will be vital to asset utilization and a “predictable” margin. Securing Open Fuel Transportation Positions 2007 transportation positions 100% covered based on 2007 budgeted generation 2008 transportation positions 54% will be closed shortly — 2008 agreements reached Evaluating additional delivery 00 00 00 00 0 0 options to increase both 00 ,0 ,0 ,0 ,0 5, 10 15 20 25 capabilities and flexibility Total Open Tons Total Covered Tons Total Needed Tons Commodity Operations Morgan Stanley Global Electricity & Energy Conference New York • March 15, 2007 App-14
  32. 32. Coal Delivery Options Fuel and Transportation Rail Barge Vessel Truck options create leverage. Lake Shore Bay Shore Mansfield Sammis Ashtabula Burger Eastlake Planned & Potential 15 14 14 Mine Sources 13 12 10 # of Mines 10 7 6 5 0 Lake Shore Bay Shore Mansfield Sammis Ashtabula Burger Eastlake 3 3 0 3 4 3 5 PRB 0 0 10 3 3 5 3 NAAP 3 4 0 6 6 6 6 CAAP Commodity Operations Morgan Stanley Global Electricity & Energy Conference New York • March 15, 2007 App-15
  33. 33. FOSSIL FUEL ($ millions) ($/MWh) (excludes JCP&L) Fuel Costs 1,200 $25.00 Generation and Fuel Expense $20.00 ($ millions) ($/MWh) 900 1,500 $20.00 1,200 $15.00 900 $16.00 600 600 300 $10.00 0 $12.00 2006 2007E 2008E 1209.0 1231.7 1356.0 Total Fuel 120.4 140.2 146.8 Nuclear Fuel 300 1088.6 1091.5 1209.2 Fossil Fuel (excl JCPL) $5.00 $14.83 $15.23 $16.15 $'s per MWh 0 $0.00 2006 2007E 2008E 1,088.6 1,091.5 1,209.2 Total Fossil Fuel 1.4 1.5 1.5 Other 20.8 22.9 24.6 Fuel Handling 14.9 13.1 13.8 Ash Disposal 11.2 11.8 12.0 Oil 20.0 25.6 22.5 Natural Gas 57.3 34.8 45.9 Emission Allowances 52.8 58.6 62.5 Re-agents 254.6 358.8 402.2 Coal Transportation 655.6 564.4 624.2 Coal Commodity $21.20 $21.02 $23.26 Fuel per MWh Commodity Operations Morgan Stanley Global Electricity & Energy Conference New York • March 15, 2007 App-16
  34. 34. Regulatory Matters
  35. 35. Retail Regulatory Structure Generation Transmission Distribution Transition Cost Generation Transmission Distribution Transition Cost Ohio Edison RTC thru Stable rates Pass thru Fixed rates thru 2008 2008 – OE, TE CEI thru 20081 MISO costs “g + RSC” 2010 – CEI Toledo Edison Market in No CTC ended In Penn Power 2007 restriction Jan. 2006 Generation CTC thru 20102 Met-Ed POLR rates Pass thru No thru 2010 PJM costs restriction CTC thru 20092 Penelec JCP&L BGS Supply No restriction MTC thru 2018 1 CEI fixed through April 2009. 2 NUG recovery thru 2020. Regulatory Matters Morgan Stanley Global Electricity & Energy Conference New York • March 15, 2007 App-18
  36. 36. Regulatory Strategy Managing the Transition to Competitive Markets Pennsylvania Penn Power Successful transition to market-based generation rates RFP process for 900 MW from Jan. 2007 – May 2008 Average auction price of $85/MWh replaced $55/MWh for non-shoppers Met-Ed and Penelec PUC Order on transition rate plan issued Jan. 11, 2007 NUG accounting case heard in Feb. 2007 Regulatory Matters Morgan Stanley Global Electricity & Energy Conference New York • March 15, 2007 App-19
  37. 37. Regulatory Strategy Managing the Transition to Competitive Markets Pennsylvania Summary: Met-Ed and Penelec Transition Plan Decision Overall: $109M increase effective Jan. 12, 2007 Transmission recovery granted in full ($193M increase) – Ongoing costs recoverable using a reconcilable rider – 10-year recovery of 2006 deferral with carrying charges Generation increase of $219M and NUG deferral of $92M denied Distribution decrease of $84M; ROE set at 10.1% Regulatory Matters Morgan Stanley Global Electricity & Energy Conference New York • March 15, 2007 App-20
  38. 38. Regulatory Strategy Managing the Transition to Competitive Markets Ohio Senate Bill 3 – Ohio Restructuring Legislation (July 1999) Generation Asset Transfer completed (4Q 2005) Rate Certainty Plan approved (Jan. 2006) – Stable transition for customers/companies through 2008 – Provides for synchronization of the following in 2009: – Distribution rate increase, including recovery of RCP deferrals – Market-based generation rates – Elimination/reduction of transition cost recovery Regulatory Matters Morgan Stanley Global Electricity & Energy Conference New York • March 15, 2007 App-21
  39. 39. Regulatory Strategy Managing the Transition to Competitive Markets Ohio Rate shock experienced in other states not likely for FirstEnergy Termination/reduction of transition cost recovery (average of $15/MWh in 2008) will substantially mitigate any price increases to customers Well positioned to participate in development of the post-2008 market structure in Ohio Regulatory Matters Morgan Stanley Global Electricity & Energy Conference New York • March 15, 2007 App-22
  40. 40. Financial Matters
  41. 41. Sale and Leaseback – Mansfield Unit 1 Structure of potential transaction under development Retain operating control of asset Projected after-tax cash proceeds of $1.2B – Current use of proceeds assumptions – $900M Share repurchase – $193M Pension contribution (after-tax) – $107M Short-term debt paydown NPV expected to exceed $500M Low-cost source of financing Potential capital structure impact – Maximum debt leverage impact of 200 bp Target closing early in 2nd Qtr 2007 Financial Matters Morgan Stanley Global Electricity & Energy Conference New York • March 15, 2007 App-24
  42. 42. Share Repurchase On March 2, FE repurchased 14.4 million shares – Represents approx. 4.5% of outstanding shares – $900M ASR at initial price of $62.63 per share Coupled with Aug. 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 Financial Matters Morgan Stanley Global Electricity & Energy Conference New York • March 15, 2007 App-25
  43. 43. 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: Payment Quarterly Change from Annualized Payment Quarterly Change from Annualized Date Rate Prior Period Rate Date Rate Prior Period Rate 1Q 2007 50.00¢ 11.1% $2.00 1Q 2006 45.00¢ 4.65% $1.80 4Q 2005 43.00¢ 4.24% $1.72 1Q 2005 41.25¢ 10.00% $1.65 4Q 2004 37.50¢ – $1.50 Financial Matters Morgan Stanley Global Electricity & Energy Conference New York • March 15, 2007 App-26
  44. 44. FE Solutions (FES) Targeting a debt ratio in the upper 50% range by 2008 – Genco-level tax-exempt debt with 4% average current cost comprises approx. 44% of debt portfolio – $1.4B of tax-exempt pollution control debt transferred from operating companies to Gencos ($700M still to be transferred) Targeting investment grade credit rating Investment grade rating will enable FES to guarantee – Mansfield 1 sale and leaseback performance and payment obligations – Letters of credit supporting tax-exempt debt at the Gencos (replacing FE guarantees) SEC registrant providing full financials during 2007 Financial Matters Morgan Stanley Global Electricity & Energy Conference New York • March 15, 2007 App-27
  45. 45. FirstEnergy Credit Metrics Funds from Operations /Interest Coverage Adjusted Total Debt / Total Capital 5 70% 67% 60% 4 60% 58% 58% 56% 50% 3.7 3.5 3.5 3 40% 3.0 30% 2.5 2 20% 1 10% 0% 0 2002 2003 2004 2005 2006* 2002 2003 2004 2005 2006 *Includes the equity reduction of approximately $409m from the implementation of FAS 158 Funds from Operations / Total Debt 20% 18% 18% 17% 15% 14% 10% 11% 5% 0% 2002 2003 2004 2005 2006 Maintaining Financial Strength and Flexibility Financial Matters Morgan Stanley Global Electricity & Energy Conference New York • March 15, 2007 App-28
  46. 46. Capital Expenditures ($ millions) Estimate Estimate 2006 2007 2008 2006 2007 2008 Energy Delivery $ 650 $ 729 $ 868 FENOC 229 145 131 Fossil 116 90 68 Environmental 136 389 579 Other 39 90 68 Total $ 1,170 $ 1,443 $ 1,714 Financial Matters Morgan Stanley Global Electricity & Energy Conference New York • March 15, 2007 App-29
  47. 47. FirstEnergy Credit Ratings Corporate Credit Rating (S&P) / Issuer Rating Senior As of March 7, 2007 (Moody's) / Issuer Default Senior Secured Unsecured Rating (Fitch) S&P Moodys Fitch S&P Moodys Fitch S&P Moodys Fitch FirstEnergy Corp. BBB Baa3 BBB - - - BBB- Baa3 BBB Ohio Edison BBB Baa2 BBB- BBB+ Baa1 BBB+ BBB- Baa2 BBB Cleveland Electric Illuminating Co. BBB Baa3 BB+ BBB Baa2 BBB BBB- Baa3 BBB- Toledo Edison BBB Baa3 BB+ BBB Baa2 BBB BBB- Baa3 BBB- Pennsylvania Power BBB Baa2 BBB- BBB+ Baa1 BBB+ BBB- Baa2 BBB Jersey Central Power & Light BBB Baa2 BBB BBB+ Baa1 A- - - - Metropolitan Edison BBB Baa2 BBB- BBB+ Baa1 BBB+ BBB Baa2 BBB Pennsylvania Electric Co. BBB Baa2 BBB- BBB+ Baa1 BBB+ BBB Baa2 BBB On February 2, 2007, Fitch upgraded the ratings of FE Corp, JCP&L, CEI, and TE. The Rating Outlook is Positive for CEI and TE and Stable for all other rated subsidiaries. The Ratings Outlook from Moody’s on all securities is Positive. The Ratings Outlook from S&P on all securities is Stable. Financial Matters Morgan Stanley Global Electricity & Energy Conference New York • March 15, 2007 App-30
  48. 48. Strong Liquidity Position Company Type Term Maturity Amount ($M) Company Type Term Maturity Amount ($M) FE Corp. RCA* 5-year Aug. 2011 $ 2,750 FE Corp. Bank Lines Various Various 370 OH & PA Utilities A/R Fin. 1-year Various 550 FE Solutions Bank Line 90 days 2007 250 Total $ 3,920 * Revolving Credit Agreement. Substantial liquidity available – $1.6B available borrowing capacity as of March 9, 2007 Financial Matters Morgan Stanley Global Electricity & Energy Conference New York • March 15, 2007 App-31
  49. 49. 2007 Non-GAAP Earnings Per Share Guidance Issued January 31, 2007 $5.00 $0.18 ($0.19) $4.50 $0.17 ($0.05) ($0.05) ($0.10) $0.08 Net Share ME/PE Repurchases Rate OH Trans- ($0.02) $4.15(1) $0.12 Depr. Case ition Cost Net T&D Infra- $0.06 Amort. Nuclear All (“D”) Benefit $0.07 structure $4.00 Outage Other Penn $3.88(1) Costs O&M Generation Power Wires Output & to Market Growth Mix $3.50 $3.00 Midpoint 2006 Midpoint 2007 Non-GAAP EPS Non-GAAP EPS Guidance See GAAP to non-GAAP reconciliation in the Appendix. 2007 EPS guidance, excluding unusual items, is $4.05 – $4.25. (1) On a GAAP basis, EPS is expected to be $4.10 – $4.30. Financial Matters Morgan Stanley Global Electricity & Energy Conference New York • March 15, 2007 App-32
  50. 50. 2007 Cash Flow Drivers 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 Net Pension Contribution: $373M ($90M tax benefit realized in 2006) Securitization/Asset Sales in 2006: $310M Higher Dividends / Capital Expenditures: $215M Financial Matters Morgan Stanley Global Electricity & Energy Conference New York • March 15, 2007 App-33
  51. 51. 2008 Earnings Drivers Growth in delivery sales Increased generation margin Lower generation-related outage maintenance costs Higher Ohio transition cost amortization T&D infrastructure investment Increased fuel and purchased power costs Financial Matters Morgan Stanley Global Electricity & Energy Conference New York • March 15, 2007 App-34
  52. 52. 2006 Earnings Per Share Reconciliation of GAAP to Non-GAAP Issued on February 20, 2007 2006 EPS Basic EPS (GAAP basis) $ 3.84 Excluding Unusual Items: Trust Securities Impairment 0.02 PPUC NUG Cost Reserve for Prior Years 0.02 Basic EPS (non-GAAP basis) $ 3.88 Financial Matters Morgan Stanley Global Electricity & Energy Conference New York • March 15, 2007 App-35
  53. 53. 2007 Non-GAAP Earnings Per Share Guidance Reconciliation of GAAP to Non-GAAP As of February 20, 2007 2007 EPS Basic EPS (GAAP basis) $4.10 – $4.30 Excluding Unusual Items: Benefit from New Regulatory Asset Authorized by PPUC (0.05) Basic EPS (non-GAAP basis) $4.05 – $4.25 Financial Matters Morgan Stanley Global Electricity & Energy Conference New York • March 15, 2007 App-36
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