Morgan Stanley Electric Utilities
Corporate Access Day
Chicago, IL
October 9, 2007
Safe Harbor Statement under the
Private Securities Litigation Reform Act of 1995
Forward-looking Statements. This presenta...
Corporate Profile &
Strategic Vision
Corporate Profile

Diversified energy company headquartered in Akron, Ohio
Involved in Generation, Transmission and Distri...
Key Themes: 2007 and Beyond
Driving performance & delivering results
    Striving for continuous improvement
     – Realiz...
Generation
FirstEnergy Sources of Power
    Michigan                                                        Ashtabula
               ...
Striving for Continuous Improvement
Realize full generation potential
                                                    ...
Baseload units demonstrate consistent improvement

           Baseload Capacity Factor
                                   ...
Focus on total fleet output has positive impact
on fossil load following utilization
                      M NMWh         ...
Nuclear Generation
Strong plant reliability
     Reliability improvements during 2006 / 2007 outages
      – BV1 – New ste...
Nuclear Generation
Future refueling outages focus on reliability
                              Expected           Expected...
Nuclear Generation
Managing our used fuel
   Through 2006, 46 of 102 plants reached capacity in used fuel pools
   49 oper...
Nuclear Generation
Continued safe operations through license renewal
  License Renewal Schedule

                         ...
Striving for Continuous Improvement
Asset mining initiatives
                 MW Additions                                ...
Realizing Full Potential of Asset Base
Baseload capacity uprates
         (MW)           2005                  2006       ...
Environmental Strategy
Environmental Strategy
Our generation fleet is well positioned for the future
                      Fleet Emission Control...
Striving for Continuous Improvement
Ensure the long-term viability of the fleet
     AQCS expenditures estimated at $1.9B
...
Environmental Strategy
AQCS Construction Overview
    Sammis Plant (2,220 MW) – $1.65 Billion
    – SO2 control (scrubbers...
FirstEnergy’s Position on Global Climate Change
    Climate change is a global issue ultimately requiring
    a global sol...
Firstenergy’s Diverse Generation Provides
Strong Competitive Position
   Over 35% of generation from non-emitting nuclear
...
Current Greenhouse Gas Reduction Actions
   $100M in investments planned 2006–2010
    – $50M on products, programs and ac...
Environmental Strategy
FirstEnergy’s climate activities




                                                              ...
Additional Key Technologies FirstEnergy
is Actively Co-Funding
   Plug-in hybrid electric
   vehicles (PHEV)
    – Conside...
Commodity Operations
Commodity Operations Strategy
Effectively managing commodity margins and risks
    Manage commodity value chain
    Effect...
Commodity Operations Strategy
Effectively hedging commodity positions
                  % Hedged                          ...
Commodity Operations’ objective is to provide FirstEnergy
with a predictable and profitable commodity margin
             ...
Balanced emission allowance position minimizes risks
           SO2 Position (tons)
                                      ...
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 Open ...
Coal Delivery Options
Fuel and Transportation                                                                             ...
Coal Supply
Balanced and economic

         Coal Supply                                      2007E Coal Mix by Origin (ton...
Energy Delivery
FirstEnergy Service Areas


                                                                                  Pennsylvania...
Striving for Continuous Improvement
Improve distribution reliability and customer service
    Targeted reinvestment in T&D...
FirstEnergy’s Strengths
                    Attractive Customer Base
                       Large and Balanced

Electric C...
Energy Delivery Reliability Improvements
                                                                                 ...
Regulatory Matters
Retail Regulatory Structure
                          Generation                Transmission                  Distribution...
Successfully Manage Regulatory Transitions
Seek full and timely recovery of distribution costs
                 Ohio Ediso...
Successfully Manage Regulatory Transitions
Transition to competitive generation markets
         Generation asset transfer...
Successfully Manage Regulatory Transitions
Transition to competitive generation markets
         Bid structuring process
 ...
Successfully Manage Regulatory Transitions
Transition to competitive generation markets
         On August 29, Governor St...
Successfully Manage Regulatory Transitions
Supreme Court Remand on Rate Certainty Plan

        Ohio Edison, CEI, and Tole...
Successfully Manage Regulatory Transitions
Met-Ed and Penelec
          Transition Plan Rate Case
           – $109M incre...
Successfully Manage Regulatory Transitions
Penn Power

         POLR 1: transition to market-based generation rates
      ...
Regulatory Matters
Jersey Central Power & Light

          Generation supplied through BGS auction process

          Sale...
Financial Matters
Optimize Financial Strength and Flexibility
Maintain strategic flexibility
     Use cash to benefit shareholders
      – S...
Striving for Continuous Improvement
Reinvest in the business

                                                     2006   ...
Share Repurchase
   On March 2, FirstEnergy repurchased 14.4 million shares
   – Represents approx. 4.5% of outstanding sh...
Pension Contribution
   Previously contributed $1B to plan during 2004–2005
   Pension Protection Act of 2006 changed plan...
Long-Term Dividend Policy
   Annual growth target of 4–5%
   Sustainable annual growth and a payout ratio
   appropriate f...
FirstEnergy Solutions (FES)
   Wholly-owned competitive subsidiary
    – Holding company for FirstEnergy Genco and FirstEn...
FirstEnergy Solutions (FES) (cont.)
    Executed Mansfield Unit 1 sale and leaseback transaction
     – Traditional levera...
2007 Non-GAAP Earnings Per Share Guidance(2)
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...
FirstEnergy Credit Metrics
                                                                           Funds from Operation...
FirstEnergy Credit Ratings
      S&P’s outlook on all companies is stable
      Moody’s outlook on FE Solutions is stable ...
Strong Liquidity Position

           Company                       Type                    Term                    Maturi...
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 August 7, 2007
                       ...
Investment Highlights
FirstEnergy – Driving Performance & Delivering Results

An attractive risk/reward opportunity

   Effectively managing tra...
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first energy MorganStanleyConference_100907

  1. 1. Morgan Stanley Electric Utilities Corporate Access Day Chicago, IL October 9, 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 “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. Morgan Stanley Electric Utilities Corporate Access Day Chicago, IL • October 9 ,2007
  3. 3. Corporate Profile & Strategic Vision
  4. 4. 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 Morgan Stanley Electric Utilities Corporate Access Day Corporate Profile & Strategic Vision Chicago, IL • October 9 ,2007 2
  5. 5. Key Themes: 2007 and Beyond Driving performance & delivering results 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 Morgan Stanley Electric Utilities Corporate Access Day Corporate Profile & Strategic Vision Chicago, IL • October 9 ,2007 3
  6. 6. Generation
  7. 7. FirstEnergy Sources of Power Michigan Ashtabula Perry 244 MW Seneca 1,258 MW Eastlake Sumpter 451 MW 1,262 MW 340 MW Bay Shore Stryker Erie 648 MW Lake Shore 18 MW Yards Creek Towanda 249 MW Toledo 200 MW Cleveland Pennsylvania New Castle Akron Davis-Besse Edgewater Morristown Richland Newark 893 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 Jersey R. E. Burger 1,779 MW 2,460 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 1,779 Eastlake 1-4 636 Seneca 451 Perry 1,258 Bay Shore 2-4 495 Richland 432 Total 493 FirstEnergy Power Sources Sammis 6,7 1,200 Burger 4 -5 312 Sumpter 340 C Coal Davis-Besse 893 Lake Shore 245 Yards Creek 200 7,439 MW Eastlake 5 597 Ashtabula 244 Burger 3 & EMDs 101 N Nuclear 3,930 Bay Shore 1 136 Forked River 86 H Hydro Total Load Following 2,952 651 Mad River 60 G Gas & O Oil 1,599 Total Baseload 8,323 Edgewater 48 Other 493 Stryker 18 Other 63 Total 14,112 MW Total Peaking Units 2,344 Morgan Stanley Electric Utilities Corporate Access Day Generation Chicago, IL • October 9 ,2007 2
  8. 8. Striving for Continuous Improvement Realize full generation potential 14,112 MW Capacity Diverse and cost effective generation portfolio Nuclear – Over 35% of fleet is non-emitting 28% Continue improvement of Coal CT’s 53% 11% asset utilization – 2003 to 2006 = 22% increase in Hydro 5% generation output Other 3% – 3 consecutive generation output records Generation Output (MWh) – Targeting new records in 2007 & 2008 100 84.3 82.7 82.0 Focus on reliability initiatives 80.2 76.4 80 68.0 32.0 (million MWh) and outage execution 29.0 31.2 28.7 29.9 60 21.1 40 53.0 52.3 51.5 51.5 46.9 46.5 20 0 2003 2004 2005 2006 2007E 2008E Fossil & Other Nuclear Morgan Stanley Electric Utilities Corporate Access Day Generation Chicago, IL • October 9 ,2007 3
  9. 9. Baseload units demonstrate consistent improvement Baseload Capacity Factor Top decile base load 90% 88.6% capacity factor in 2006 87.8% 88% compared to Navigant 85.9% 86% 84.5% Top Decile benchmark database 84% 82% 80.9% Increased capacity factors Top Quartile 80% 79.6% and reliability initiatives 78% 76.0% drive baseload units 76% 74% towards top decile in 2006 72% Equivalent Availability 70% 68% 2002 2003 2004 2005 2006 2007E 2008E •Top performance came from Navigant benchmarking study Morgan Stanley Electric Utilities Corporate Access Day Generation Chicago, IL • October 9 ,2007 4
  10. 10. Focus on total fleet output has positive impact on fossil load following utilization M NMWh Capacity Factor 20 100% 15 75% 10 50% 5 25% 0 0% 2001 2002 2003 2004 2005 2006 2007E 15.2 18.2 16.6 14.4 19.5 19.1 19.8 Load Following 54% 64% 59% 51% 69% 69% 70% Capacity Factor *Excludes the peaking units. 2006 generation reflects sustaining generation increase of close to 5M MWh over 2004 Maximize operational flexibility for regulation, minimum loads and system ramping Dispatch strategies focused on maximizing utilization in profitable markets Morgan Stanley Electric Utilities Corporate Access Day Generation Chicago, IL • October 9 ,2007 5
  11. 11. Nuclear Generation Strong plant reliability 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 2006 Fleet Performance YTD 2007 Capacity Net Generation Forced Loss Forced Loss Plant Factor (%) (million MWh) Rate Rate Beaver Valley Unit 1 80.4 5.8 1.16 0.00 Beaver Valley Unit 2 87.7 6.3 1.75 0.08 Davis-Besse 83.1 6.4 1.76 0.17 Perry 96.8 10.5* 3.44 19.84 Fleet 88.0 29.0 2.27 5.64 2002-2005 Avg 79.0 26.0 3.15 3.15 * Record generation Morgan Stanley Electric Utilities Corporate Access Day Generation Chicago, IL • October 9 ,2007 6
  12. 12. Nuclear Generation Future refueling outages focus on reliability Expected Expected Scope Driving Duration Year Plant Outage Costs Outage Duration (Items with asterisk* denote duration drivers) ($ millions) (days) Refueling * IVVI Perry 1R11 $30 30 Actual Outage Period (4/2/07 – 5/13/07) Split Pins * Containment Sump Modifications* 2007 Reactor Vessel ISI * Beaver Valley 1R18 $32 28 100% Eddy Current Test Reactor Vessel Head Inspection Pressurizer Overlay Rewind Main Generator * Davis-Besse 1R15 $30 31 Split Pins * Low Pressre-2 Turbine Inspection * Reactor Vessel Head Inspection Beaver Valley 2R13 2008 $30 30 Main Cond Tube Replacement, Expansion Joints * Replace High Pressure Turbine * Type A Containment Pressurization Test Refueling * 10-year IVVI / Bioshield In-service Inspection Perry 1R12 $30 25 Recirc Pump Motor Replacement Replace Low Pressure Turbines (2) * 2009 Reactor Coolant System Loop Stop Valves (2) Beaver Valley 1R19 $30 30 Reactor Vessel Head Inspection Refueling * Beaver Valley 2R14 $30 25 Morgan Stanley Electric Utilities Corporate Access Day Generation Chicago, IL • October 9 ,2007 7
  13. 13. Nuclear Generation Managing our used fuel Through 2006, 46 of 102 plants reached capacity in used fuel pools 49 operating plants built on-site dry cask fuel storage, 46 are under construction Plans for federal repository for long-term storage – Yucca Mountain Congressional proposals for interim storage and reprocessing FENOC Plan Implement dry storage by end of 2014 BV Unit 1 Criticality analysis frees up storage space BV Unit 2 Rerack before 2011 to provide capacity through 2025 Dry storage could then be implemented Continue with wet storage until 2021 Davis-Besse Return to dry storage in 2022 Spent fuel pool campaign in 2007 Perry Implement dry storage before 2011 Morgan Stanley Electric Utilities Corporate Access Day Generation Chicago, IL • October 9 ,2007 8
  14. 14. Nuclear Generation 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 * License renewal application submitted to the NRC on August 27, 2007. Morgan Stanley Electric Utilities Corporate Access Day Generation Chicago, IL • October 9 ,2007 9
  15. 15. Striving for Continuous Improvement 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* 0 182 182 Wind power contracts 30 184 214 Total MW additions 179 496 675 * 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 Electric Utilities Corporate Access Day Generation Chicago, IL • October 9 ,2007 10
  16. 16. Realizing Full Potential of Asset Base Baseload capacity uprates (MW) 2005 2006 2007 2008 Total Nuclear Davis-Besse 14 12 26 Beaver Valley 1 25 43 68 Beaver Valley 2 10 45 55 Total 49 43 57 149 Fossil Mansfield 1 50 50 Mansfield 2 50 50 Mansfield 3 30 30 Total 50 50 30 130 Total Uprates 50 99 73 57 279 Morgan Stanley Electric Utilities Corporate Access Day Generation Chicago, IL • October 9 ,2007 11
  17. 17. Environmental Strategy
  18. 18. Environmental Strategy Our generation fleet is well positioned for the future Fleet Emission Control Status Capacity (MW) Fleet % Non-Emitting 4,600 33% Coal Controlled 2,569 18% (SO2/NOx – full control) Natural Gas Peaking 1,269 9% 8,438 60% Longer-term environmental considerations 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 Morgan Stanley Electric Utilities Corporate Access Day Environmental Strategy Chicago, IL • October 9 ,2007 2
  19. 19. Striving for Continuous Improvement Ensure the long-term viability of the fleet AQCS expenditures estimated at $1.9B AQCS Capital Expenditures $593 $600 $530 $387 ($ millions) $400 $180 $200 $136 $54 $13 $0 2005 2006 2007E 2008E 2009E 2010E 2011E Environmental Strategy Morgan Stanley Electric Utilities Corporate Access Day Chicago, IL • October 9 ,2007 3
  20. 20. Environmental Strategy AQCS Construction Overview 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 Environmental Strategy Morgan Stanley Electric Utilities Corporate Access Day Chicago, IL • October 9 ,2007 4
  21. 21. 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 Morgan Stanley Electric Utilities Corporate Access Day Environmental Strategy Chicago, IL • October 9 ,2007 5
  22. 22. 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 Morgan Stanley Electric Utilities Corporate Access Day Environmental Strategy Chicago, IL • October 9 ,2007 6
  23. 23. 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 Morgan Stanley Electric Utilities Corporate Access Day Environmental Strategy Chicago, IL • October 9 ,2007 7
  24. 24. Environmental Strategy FirstEnergy’s climate activities CO2 Capture and Storage Technologies Participating in Global Climate Change Policy • MRCSP – R.E. Burger Plant Sequestration test well • Global Roundtable on Climate Change • ECO2 Carbon Capture – Powerspan • EPRI Global Climate Policy Costs & Benefits Research • EPRI research • EEI Climate Change Policy Subcommittee • Power Partners • NEI Climate Change Policy Subcommittee • Oxy Fuel – B&W GHG Reduction Technologies & Voluntary Actions End-user Energy Management • Asia-Pacific Partnership • NJ Clean Energy Program • EPA SF6 Reduction Partnership • PA Sustainable Energy Fund • EPRI GHG Reduction and Electric Transportation Research • Ohio Energy-efficiency Programs • Climate Vision Renewables • DOE 1605(b) Voluntary Reporting of GHGs Program • 650 MWs Hydro • Powertree Carbon Company • >200 MWs Wind Purchase Agreements Generation Initiatives Renewal of Nuclear and Hydro Plant • Fossil plant efficiencies Operating Licenses • Nuclear plant uprates • Continued operation of non-emitting generation Morgan Stanley Electric Utilities Corporate Access Day Environmental Strategy Chicago, IL • October 9 ,2007 8
  25. 25. 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 Morgan Stanley Electric Utilities Corporate Access Day Environmental Strategy Chicago, IL • October 9 ,2007 9
  26. 26. Commodity Operations
  27. 27. Commodity Operations Strategy Effectively managing commodity margins and risks 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 by Mitigating Risks And Minimizing Supply Costs Morgan Stanley Electric Utilities Corporate Access Day Commodity Operations Chicago, IL • October 9 ,2007 2
  28. 28. Commodity Operations Strategy Effectively hedging commodity positions % Hedged 2007 2008 Coal only* 100% 95% Coal transportation* 100% 98% SO2* 100% 94% NOx* 100% 100% Nuclear fuel* 100% 100% * 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 Morgan Stanley Electric Utilities Corporate Access Day Commodity Operations Chicago, IL • October 9 ,2007 3
  29. 29. Commodity Operations’ objective is to provide FirstEnergy with a predictable and profitable commodity margin Commodity + Generation Margin – Transmission Expense Margin – RTO expense Commodity Margin + Generation Revenue – Fuel PJM / MISO – Purchased Power Expenses Generation Margin Regulated MWH Sales MWH FENOC REV 80M MWh 80M MWh COST 31M MWh 31M MWh Competitive MWH Sales REV MWH Generation 12M MWh 12M MWh Fossil Margin COST Wholesale 51M MWh 51M MWh MWH Sales REV 20M MWh 20M MWh Purchased Power MWH 34M MWh 34M MWh Losses & COST Pumping MWH 4M MWh 4M MWh Excludes JCP&L and OVEC. Morgan Stanley Electric Utilities Corporate Access Day Commodity Operations Chicago, IL • October 9 ,2007 4
  30. 30. Balanced emission allowance position minimizes risks SO2 Position (tons) Based on projected Needed Covered Position 330,000 generation: 240,000 Emission allowance 150,000 positions are well covered 60,000 2007 SO2 position is covered -30,000 2007 2008 2008 SO2 is slightly short due to economic fuel NOx Position (tons) switching decisions in 30,000 Needed Covered Position recent strategic planning process 20,000 NOx positions are 10,000 completely covered 0 2007 2008 Morgan Stanley Electric Utilities Corporate Access Day Commodity Operations Chicago, IL • October 9 ,2007 5
  31. 31. Procurement of coal supply will be vital to asset utilization and a “predictable” margin Securing Open Coal Commodity Positions Continue working to secure long-term fuel 100% 2007 supply contracts Actively testing alternate fuel blends at various 95% plants to optimize plant 2008 economics Engaged in fuel flexibility 00 00 00 00 0 0 00 ,0 ,0 ,0 ,0 initiative to create more 5, 10 15 20 25 options Total Covered Tons Total Needed Tons Morgan Stanley Electric Utilities Corporate Access Day Commodity Operations Chicago, IL • October 9 ,2007 6
  32. 32. Secured fuel transportation position will be vital to asset utilization and a “predictable” margin Securing Open Fuel 2007 transportation positions Transportation Positions 100% covered based on forecasted generation 100% 2007 2008 transportation positions will be closed shortly — agreements reached 98% 2008 Evaluating additional delivery options to increase both capabilities and flexibility 00 00 00 00 0 0 00 ,0 ,0 ,0 ,0 5, 10 15 20 25 Actively working to close long term transportation position Total Covered Tons beyond 2009 Total Needed Tons Morgan Stanley Electric Utilities Corporate Access Day Commodity Operations Chicago, IL • October 9 ,2007 7
  33. 33. Coal Delivery Options Fuel and Transportation Rail Barge Vessel Truck options create leverage Lake Shore Bay Shore Mansfield Sammis Ashtabula Burger Eastlake Planned & Potential Mine Sources 19 20 17 16 # of Mines 14 15 10 10 10 7 5 0 Lake Shore Bay Shore Mansfield Sammis Ashtabula Burger Eastlake 3 3 0 3 3 3 6 PRB 1 0 10 3 3 8 3 NAAP 6 4 0 10 8 8 8 CAAP Morgan Stanley Electric Utilities Corporate Access Day Commodity Operations Chicago, IL • October 9 ,2007 8
  34. 34. Coal Supply Balanced and economic Coal Supply 2007E Coal Mix by Origin (tons) Annual requirement CAPP of 22–25 million tons 15% Increasing usage of NAPP 39% PRB coal 2003 – 23% 2004 – 25% 2005 – 35% PRB 2006 – 37% 46% 2007E – 46% Morgan Stanley Electric Utilities Corporate Access Day Commodity Operations Chicago, IL • October 9 ,2007 9
  35. 35. Energy Delivery
  36. 36. FirstEnergy Service Areas Pennsylvania New Ohio Jersey Customers Square Miles 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 3,200 Total 4,490,000 36,100 Morgan Stanley Electric Utilities Corporate Access Day Energy Delivery Chicago, IL • October 9 ,2007 2
  37. 37. Striving for Continuous Improvement Improve distribution reliability and customer service 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 Morgan Stanley Electric Utilities Corporate Access Day Energy Delivery Chicago, IL • October 9 ,2007 3
  38. 38. FirstEnergy’s Strengths Attractive Customer Base Large and Balanced Electric Customers – 5th Largest Balanced Sales Mix Ohio Commercial Residential 2.1 million 32% 35% Pennsylvania New Jersey Industrial 1.3 million 1.1 million 33% Morgan Stanley Electric Utilities Corporate Access Day Energy Delivery Chicago, IL • October 9 ,2007 4
  39. 39. Energy Delivery Reliability Improvements 0.50 Transmission Outage Frequency Industry Avg.* = 0.50 (TOF) Per Circuit 0.40 Top Quartile* = 0.39 Outages per Circuit Top Decile* = 0.31 The Transmission Outage Frequency (TOF) is a 0.30 YTD = 0.30 measure of the average number of transmission 0.20 circuit outages per circuit in the 230–500kV voltage classes. 0.10 0.00 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec * As defined by SGS benchmarking study. 2006 Distribution SAIDI 200 YE = 152 (System Average Interruption 150 Duration Index) 2007 Comm ission SAIDI (minutes) Threshold = 148 Threshold SAIDI represents the average 100 2007 total duration of outage 2007 50 minutes per customer in a year 2006 YTD= 93.9 adjusted for major storms. 0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Morgan Stanley Electric Utilities Corporate Access Day Energy Delivery Chicago, IL • October 9 ,2007 5
  40. 40. Regulatory Matters
  41. 41. Retail Regulatory Structure 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. Morgan Stanley Electric Utilities Corporate Access Day Regulatory Matters Chicago, IL • October 9 ,2007 2
  42. 42. Successfully Manage Regulatory Transitions Seek full and timely recovery of distribution costs Ohio Edison, CEI, and Toledo Edison Ohio 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 Proposed increase: Traditional distribution costs 212 Recovery of costs deferred under prior rate plans 120 Total proposed increase to quot;distributionquot; revenues $332 Offsetting 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 Day Regulatory Matters Chicago, IL • October 9 ,2007 3
  43. 43. Successfully Manage Regulatory Transitions Transition to competitive generation markets Generation asset transfer completed in 2005 Ohio In July 2007, filed comprehensive generation supply plan for competitively priced service beginning January 2009 Proposal 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 12 Competitive bid structuring alternatives – By Customer Class or Slice of System Morgan Stanley Electric Utilities Corporate Access Day Regulatory Matters Chicago, IL • October 9 ,2007 4
  44. 44. Successfully Manage Regulatory Transitions Transition to competitive generation markets Bid structuring process Ohio – 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) Morgan Stanley Electric Utilities Corporate Access Day Regulatory Matters Chicago, IL • October 9 ,2007 5
  45. 45. Successfully Manage Regulatory Transitions Transition to competitive generation markets On August 29, Governor Strickland Proposes Energy, Job and Progress Plan – 7 Key Principles Ohio – 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 Morgan Stanley Electric Utilities Corporate Access Day Regulatory Matters Chicago, IL • October 9 ,2007 6
  46. 46. Successfully Manage Regulatory Transitions Supreme Court Remand on Rate Certainty Plan Ohio Edison, CEI, and Toledo Edison Ohio 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 Morgan Stanley Electric Utilities Corporate Access Day Regulatory Matters Chicago, IL • October 9 ,2007 7
  47. 47. Successfully Manage Regulatory Transitions Met-Ed and Penelec 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 2011 Governor’s Energy Independence Strategy – Special Legislative Session – PennSecurity Initiative (biofuel) – $850 million Energy Independence Fund – renewables and efficiency Morgan Stanley Electric Utilities Corporate Access Day Regulatory Update Chicago, IL • October 9 ,2007 8
  48. 48. Successfully Manage Regulatory Transitions Penn Power 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 Morgan Stanley Electric Utilities Corporate Access Day Regulatory Update Chicago, IL • October 9 ,2007 9
  49. 49. Regulatory Matters Jersey Central Power & Light Generation supplied through BGS auction process Sale of Forked River Generating Station – Proceeds approximately $20M Energy Master Plan – Goals – Reduce total projected electricity demand by 20% by 2020 – Meet 22.5% of electricity needs with renewable energy – Reduce air pollution and energy use – Encourage and maintain economic development – Achieve a 20% reduction in CAIDI and SAIFI by 2020 – Unit prices at no more than +5% of the regional price level – Eliminate transmission congestion by 2020 Morgan Stanley Electric Utilities Corporate Access Day Regulatory Update Chicago, IL • October 9 ,2007 10
  50. 50. Financial Matters
  51. 51. Optimize Financial Strength and Flexibility Maintain strategic flexibility Use cash to benefit shareholders – Sustainable common stock dividend growth – 11.1% increase (March 1, 2007) – Share repurchase – 14.4 million ASR (March 2, 2007) Continue focus on capital structure management – Additional transfers of tax-exempt debt from operating companies – Appropriately capitalize operating companies Remain flexible to capitalize market opportunities – Executed Mansfield Unit 1 sale and leaseback transaction on July 13 Deliver consistent and predictable financial results Morgan Stanley Electric Utilities Corporate Access Day Financial Matters Chicago, IL • October 9 ,2007 2
  52. 52. Striving for Continuous Improvement Reinvest in the business 2006 2007E 2008E ($ millions) Energy Delivery $ 650 $ 780 $ 896 FENOC 229 126 110 Fossil 116 58 70 Environmental 136 396 609 Other 39 104 59 Total $ 1,170 $ 1,464 $ 1,744 * Total capital expenditures forecast for 2009–2011 estimated to be approx. $4.7B Morgan Stanley Electric Utilities Corporate Access Day Financial Matters Chicago, IL • October 9 ,2007 3
  53. 53. 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 Morgan Stanley Electric Utilities Corporate Access Day Financial Matters Chicago, IL • October 9 ,2007 4
  54. 54. 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-tax cash return, 9% after-tax return Accretive to annual earnings by approx. $0.05 per share FAS 87/106 cost: 2006 $ 94 M 2007E (89) M $ (183) M Morgan Stanley Electric Utilities Corporate Access Day Financial Matters Chicago, IL • October 9 ,2007 5
  55. 55. 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 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 Morgan Stanley Electric Utilities Corporate Access Day Financial Matters Chicago, IL • October 9 ,2007 6
  56. 56. 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 Morgan Stanley Electric Utilities Corporate Access Day Financial Matters Chicago, IL • October 9 ,2007 7
  57. 57. 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 Morgan Stanley Electric Utilities Corporate Access Day Financial Matters Chicago, IL • October 9 ,2007 8
  58. 58. 2007 Non-GAAP Earnings Per Share Guidance(2) 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 (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. Morgan Stanley Electric Utilities Corporate Access Day Financial Matters Chicago, IL • October 9 ,2007 9
  59. 59. 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: $215M Morgan Stanley Electric Utilities Corporate Access Day Financial Matters Chicago, IL • October 9 ,2007 10
  60. 60. 2008 Earnings Drivers Growth in delivery sales Increased generation margin Lower generation-related outage maintenance costs Higher Ohio transition cost amortization T&D infrastructure investment Increased fuel and purchased power costs Morgan Stanley Electric Utilities Corporate Access Day Financial Matters Chicago, IL • October 9 ,2007 11
  61. 61. FirstEnergy Credit Metrics Funds from Operations / Interest Coverage Adjusted Total Debt / Total Capital 5 70% 67% 60% 4 60% 60% 58% 58% 56% 50% 3.7 3.5 3.5 3.5 3 40% 3.0 30% 2.5 2 20% 1 10% 0% 0 2002 2003 2004 2005 2006 2007E 2002 2003 2004 2005 2006 2007E Funds from Operations / Total Debt 20% 18% 18% 15% 17% 17% 14% 10% 11% 5% 0% 2002 2003 2004 2005 2006 2007 Maintaining Financial Strength and Flexibility Morgan Stanley Electric Utilities Corporate Access Day Financial Matters Chicago, IL • October 9 ,2007 12
  62. 62. FirstEnergy Credit Ratings S&P’s outlook on all companies is stable Moody’s outlook on FE Solutions is stable and positive for all other companies Corporate Credit Senior Business Rating (S&P) / Senior Secured As of September 7, 2007 Profile Issuer Rating Unsecured (Moody's) S&P S&P Moodys S&P Moodys S&P Moodys FirstEnergy Corp. 7 BBB Baa3 - - BBB- Baa3 FirstEnergy Solutions 8 BBB Baa2 - - - - Ohio Edison 5 BBB Baa2 BBB+ Baa1 BBB- Baa2 Cleveland Electric Illuminating Co. 5 BBB Baa3 BBB+ Baa2 BBB- Baa3 Toledo Edison 5 BBB Baa3 BBB Baa2 BBB- Baa3 Pennsylvania Power 5 BBB Baa2 A- Baa1 BBB- Baa2 Jersey Central Power & Light 4 BBB Baa2 BBB+ Baa1 BBB Baa2 Metropolitan Edison 4 BBB Baa2 BBB+ Baa1 BBB Baa2 Pennsylvania Electric Co. 4 BBB Baa2 BBB+ Baa1 BBB Baa2 Morgan Stanley Electric Utilities Corporate Access Day Financial Matters Chicago, IL • October 9 ,2007 13
  63. 63. Strong Liquidity Position Company Type Term Maturity Amount ($M) FirstEnergy Corp. RCA* 5-year Aug. 2011 $ 2,750 FirstEnergy Corp. Bank Lines Various Various 120 OH & PA Utilities A/R Fin. 1-year Various 550 Total $ 3,420 * Revolving Credit Agreement Substantial liquidity available – $3.0B available borrowing capacity as of September 13, 2007 Morgan Stanley Electric Utilities Corporate Access Day Financial Matters Chicago, IL • October 9 ,2007 14
  64. 64. 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 Morgan Stanley Electric Utilities Corporate Access Day Financial Matters Chicago, IL • October 9 ,2007 15
  65. 65. 2007 Non-GAAP Earnings Per Share Guidance Reconciliation of GAAP to Non-GAAP As of August 7, 2007 2007 EPS Basic EPS (GAAP basis) $4.11 – $4.31 Excluding Unusual Items: Benefit from New Regulatory Asset Authorized 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 Morgan Stanley Electric Utilities Corporate Access Day Financial Matters Chicago, IL • October 9 ,2007 16
  66. 66. Investment Highlights
  67. 67. FirstEnergy – Driving Performance & Delivering Results An attractive risk/reward opportunity Effectively managing transition to competitive markets Realizing full potential of assets Significant Reinvesting for future growth Earnings Growth Effectively deploying strong cash flow Potential Striving for continuous improvement Maintaining strategic flexibility Well-positioned for climate legislation Morgan Stanley Electric Utilities Corporate Access Day Investment Highlights Chicago, IL • October 9 ,2007 2

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