first energy AnnualAnalystMtg2-01-07

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first energy AnnualAnalystMtg2-01-07

  1. 1. Analyst Meeting New York, NY • Feb. 1, 2007
  2. 2. Safe Harbor Statement These presentations include 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 our 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 Nuclear Regulatory Commission and the various state public utility commissions as disclosed in our Securities and Exchange Commission filings, generally, and heightened scrutiny at the Perry Nuclear Power Plant 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 implementation of the newly-approved share repurchase program announced today, the risks and other factors discussed from time to time in our Securities and Exchange Commission filings, including our annual report on Form 10-K for the year ended December 31, 2005, and other similar factors. We 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 Analyst Meeting • New York, NY • February 1, 2007
  3. 3. Today’s Agenda Performance Overview – Tony Alexander Regulatory Update – Leila Vespoli Operations Overview – Dick Grigg Fossil Operations – Charlie Lasky Environmental Compliance – Guy Pipitone Nuclear Operations – Gary Leidich – Break – Energy Delivery & Customer Service – Chuck Jones Commodity Operations – Ali Jamshidi Financial Outlook – Rich Marsh Closing Remarks – Tony Alexander Panel Q & A Today’s Agenda Analyst Meeting • New York, NY • February 1, 2007
  4. 4. Analyst Meeting New York, NY • Feb. 1, 2007 Performance Overview Tony Alexander President & CEO
  5. 5. Delivering Strong Results Our focus continues to be on the fundamentals… Improve operating performance Strengthen financial performance Enhance shareholder value Ensure a safe working environment for employees We delivered on these goals We’re in the best financial position I’ve seen in my 34 years with the company… …and delivering top-decile performance in key measures across our operations Performance Overview Analyst Meeting • New York, NY • February 1, 2007 2
  6. 6. Delivering Improved Operating Performance T&D Reliability: Distribution SAIDI* improved 20% across operating companies… more than 40% in some areas Transmission Outage Frequency per circuit is at 0.35 — top-decile performance in our industry * SAIDI (System Average Interruption Duration Index) Performance Overview Analyst Meeting • New York, NY • February 1, 2007 3
  7. 7. Delivering Improved Operating Performance Record Generation Fossil Generation (million MWh) Nuclear Generation 100 82 80 77 80 68 60 Record Output 40 20 0 2003 2004 2005 2006 Performance Overview Analyst Meeting • New York, NY • February 1, 2007 4
  8. 8. Delivering Strong Financial Results 2006 Non-GAAP Earnings Guidance:* Original (July ’05) $3.40 – $3.60** Final (Oct ’06) $3.75 – $3.85*** Preliminary Unaudited 2006 Non-GAAP Earnings Per Share $3.87 – $3.89*** * Three adjustments were made to the original guidance. ** Also reflected GAAP earnings guidance. *** See GAAP to Non-GAAP reconciliations in the Financial Outlook Appendix. Performance Overview Analyst Meeting • New York, NY • February 1, 2007 5
  9. 9. Delivering Enhanced Shareholder Value Four dividend increases over past 2 years Two programs to repurchase up to 26.5 million shares 2006 total shareholder return of 27.2% 3-year annualized TSR of 24.0% – Ranks 8/63 in EEI Index Performance Overview Analyst Meeting • New York, NY • February 1, 2007 6
  10. 10. Delivering World-Class Safety Results OSHA Incident Rate * 1.59 1.44 1.23 0.97 2003 2004 2005 2006 * Per 100 employees. Overall OSHA rate of 0.97 in 2006 – best ever for FirstEnergy, and one of best in industry Performance Overview Analyst Meeting • New York, NY • February 1, 2007 7
  11. 11. Building Long-Term Shareholder Value Enhance financial strength and flexibility Continue to deliver consistent and predictable financial results – 2007 Non-GAAP Earnings Guidance: $4.05 – $4.25* – Compelling long-term earnings growth potential – Transition to market-based generation rates – Phase out of transition cost amortization * See GAAP to Non-GAAP reconciliation in the Financial Outlook Appendix. Performance Overview Analyst Meeting • New York, NY • February 1, 2007 8
  12. 12. Strategic Vision: 2007 and Beyond Strategic Goals: Manage transition to competitive markets — Ohio/Pennsylvania Realize full potential of asset base Control commodity costs and risks Enhance financial strength and flexibility Performance Overview Analyst Meeting • New York, NY • February 1, 2007 9
  13. 13. Performance Overview Analyst Meeting • New York, NY • February 1, 2007 10
  14. 14. Analyst Meeting New York, NY • Feb. 1, 2007 Regulatory Update Leila Vespoli Sr. Vice President & General Counsel
  15. 15. Regulatory Objectives Generation Manage transition to market-based rates Delivery Full and timely recovery of costs Transmission: Recover volatile RTO costs Distribution: Maximize long-run equity return Transition: Full and timely stranded cost recovery Regulatory Update Analyst Meeting • New York, NY • February 1, 2007 2
  16. 16. FERC Strategy Principles for Wholesale Power Markets Operational excellence Leader in regulatory compliance Support development of electricity markets Encourage infrastructure development Timely cost recovery Active engagement and advocacy at FERC, PJM and MISO Regulatory Update Analyst Meeting • New York, NY • February 1, 2007 3
  17. 17. Regulatory Strategy Managing the Transition to Competitive Markets New Jersey Jersey Central Power & Light Completed projects: – $182M in transition bonds issued – BPU approved framework for full recovery of deferred costs — $110M annual increase [“NGC case”] BGS auction process as a model for successful transition to markets Regulatory Update Analyst Meeting • New York, NY • February 1, 2007 4
  18. 18. 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 retail price of $85/MWh replaced $55/MWh Met-Ed and Penelec Granted deferral of PJM transmission charges starting Jan. 2006 PUC Order on transition rate plan issued Jan. 11, 2007 NUG accounting case to be heard in Feb. 2007 Regulatory Update Analyst Meeting • New York, NY • February 1, 2007 5
  19. 19. 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 $84M; ROE set at 10.1% Restated FES Partial Requirements Agreement effective Jan. 1, 2007 Regulatory Update Analyst Meeting • New York, NY • February 1, 2007 6
  20. 20. Regulatory Strategy Managing the Transition to Competitive Markets Ohio Senate Bill 3 – Ohio Restructuring Legislation (July 1999) Generation Asset Transfer completed (4Q 2005) Rate Certainty Plan approved (Jan. 2006) – Stable transition for customers/companies through 2008 – Provides for synchronization of the following in 2009: – Distribution rate increase, including recovery of RCP deferrals – Market-based generation rates – Elimination/Reduction of transition cost recovery Regulatory Update Analyst Meeting • New York, NY • February 1, 2007 7
  21. 21. Regulatory Strategy Managing the Transition to Competitive Markets Ohio Illustrative Market Price Impact – 2009 Average Unbundled FirstEnergy Ohio Rates ($ / MWh) $88.00 $88.00 90.00 75.00 Gen Break-even Gen 60.00 Retail Price RSC approx. $61/ MWh 45.00 Trans Trans 30.00 RTC RTC 15.00 Dist Dist 0.00 12/31/2008* 01/01/2009 * Represents Non-Shopping Customers. Regulatory Update Analyst Meeting • New York, NY • February 1, 2007 8
  22. 22. 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 $15/MWh in 2008) will substantially mitigate any price increases to customers Well positioned to participate in development of the post-2008 market structure in Ohio Regulatory Update Analyst Meeting • New York, NY • February 1, 2007 9
  23. 23. appendix Regulatory Update Analyst Meeting • New York, NY • February 1, 2007 App-1
  24. 24. Retail Regulatory Structure Generation Transmission Distribution Transition Cost Generation Transmission Distribution Transition Cost Ohio Edison RTC thru Stable rates Pass thru Fixed rates thru 2008 2008 – OE, TE CEI thru 20081 MISO costs “g + RSC” 2010 – CEI Toledo Edison Market in No CTC ended In Penn Power 2007 restriction Jan. 2006 Generation CTC thru 20102 Met-Ed POLR rates Pass thru No thru 2010 PJM costs restriction CTC thru 20092 Penelec JCP&L BGS Supply No restriction MTC thru 2018 1 CEI fixed through April 2009. 2 NUG recovery thru 2020. Regulatory Update Analyst Meeting • New York, NY • February 1, 2007 App-2
  25. 25. Transition Case Detail – Pennsylvania Requested Granted ($ millions) Revenue Increase (Decrease) Distribution $ (21) $ (84) Transmission 193 193 Generation 219 0 Total Rate Increase $ 391 $ 109 Deferral Request CTC $ 1 $ 0 NUG Cost Recovery 92 0 Total Deferral $ 93 $ 0 Regulatory Update Analyst Meeting • New York, NY • February 1, 2007 App-3
  26. 26. Transition Case Detail – Met-Ed Requested Granted ($ millions) Revenue Increase (Decrease) Distribution $ (39) $ (75) Transmission 133 133 Generation 131 0 Total Rate Increase $ 225 $ 58 Deferral Request CTC $ 1 $ 0 NUG Cost Recovery 43 0 Total Deferral $ 44 $ 0 Regulatory Update Analyst Meeting • New York, NY • February 1, 2007 App-4
  27. 27. Transition Case Detail – Penelec Requested Granted ($ millions) Revenue Increase (Decrease) Distribution $ 18 $ (9) Transmission 60 60 Generation 88 0 Total Rate Increase $ 166 $ 51 Deferral Request CTC $ 0 $ 0 NUG Cost Recovery 49 0 Total Deferral $ 49 $ 0 Regulatory Update Analyst Meeting • New York, NY • February 1, 2007 App-5
  28. 28. Analyst Meeting New York, NY • Feb. 1, 2007 Operations Overview Dick Grigg Executive Vice President & COO 7
  29. 29. Operations Strategy: Leveraging assets and maximizing opportunities is our focus across all business units. Energy Fossil Delivery Commodity Operations Environmental Nuclear Compliance The key to our success will be: DRIVING PERFORMANCE & DELIVERING RESULTS Operations Overview Analyst Meeting • New York, NY • February 1, 2007 2
  30. 30. 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 1,712 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 1,712 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 3,868 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 8,280 Other 493 Total Peaking Units 2,336 Total 14,061MW Operations Overview Analyst Meeting • New York, NY • February 1, 2007 3
  31. 31. Diverse Generation Portfolio 2006 Actual 14,061 MW Generation Output Net Capacity 82.0 million MWh * Other CTs Hydro / CTs 3% 11% Hydro 2% Nuclear 5% 35% Nuclear 28% Coal Coal 53% 63% * Excluding Wind and OVEC Generation Operations Overview Analyst Meeting • New York, NY • February 1, 2007 4
  32. 32. Diverse Generation Portfolio 2007 Projected Generation Output 82.7 million MWh Hydro / CTs 2% Nuclear 38% Coal 60% * Excluding Wind and OVEC Generation Operations Overview Analyst Meeting • New York, NY • February 1, 2007 5
  33. 33. Operations Strategy Generation Drive continuous improvement – Increased reliability – Benchmark analysis – Outage execution – Controlling costs – 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 Operations Overview Analyst Meeting • New York, NY • February 1, 2007 6
  34. 34. Operations Strategy Commodity Operations Manage commodity value chain Effectively deploy generation to capture market opportunities Enhance fuel supply/logistics Efficiently manage purchased power requirements Employ strict risk management controls and oversight – Volume and price risks – Generation availability risks – Transmission congestion risks COMMODITY OPERATIONS IS MAXIMIZING MARGINS BY MITIGATING RISKS AND MINIMIZING SUPPLY COSTS Operations Overview Analyst Meeting • New York, NY • February 1, 2007 7
  35. 35. Operations Strategy Energy Delivery Continued focus on enhancing reliability and customer service – Targeted reinvestment in T & D infrastructure – Leveraging technology Implement “Energy Delivery Excellence Program” – Top-to-bottom review of entire operations – Identify operational, organizational, and technological opportunities for improvement – Enhance construction budgeting, planning, scheduling and oversight process Achieve timely rate recovery of regulated capital spend ENERGY DELIVERY IS WORKING THE PLAN AND ACHIEVING RESULTS Operations Overview Analyst Meeting • New York, NY • February 1, 2007 8
  36. 36. Operations Strategy Employees Unwavering commitment to safety Underlying all of our strategies is the recruitment and retention of a talented workforce To address an aging workforce, partnered with colleges across OH, PA and NJ to recruit and develop new talent: – Energy Delivery implemented a Power Systems Institute (PSI) Program offering degrees in line and substation work – Fossil Group initiated a 2-year Power Plant Technology program in 2003 – Nuclear Group started a 2-year associate’s degree program in nuclear engineering technology Operations Overview Analyst Meeting • New York, NY • February 1, 2007 9
  37. 37. Operations Strategy There are numerous opportunities to leverage our assets and build upon our strengths. Our team will discuss how we plan to execute and capture these opportunities. BUILDING LONG-TERM SHAREHOLDER VALUE Operations Overview Analyst Meeting • New York, NY • February 1, 2007 10
  38. 38. Analyst Meeting New York, NY • Feb. 1, 2007 Fossil Operations Charlie Lasky Vice President, Fossil Operations
  39. 39. Agenda Fossil Operations Overview 2006 Results Fossil Excellence Standards Fossil Operations Analyst Meeting • New York, NY • February 1, 2007 2
  40. 40. Fossil Excellence Standard Operating Systems Drive Consistent Performance in Critical Metrics Fossil Operations Analyst Meeting • New York, NY • February 1, 2007 3
  41. 41. Fossil continues top quartile safety performance Unwavering commitment OSHA Incident Rate to Safety 3.0 Continue drive towards consistent top decile 2.5 performance Focus Safety training on 2.0 Top Quartile 2.12 personal performance 2.16 improvements 1.71 1.5 Drive personal employee Top Decile 1.40 1.55 engagement in Safety 1.0 initiatives 1.02 Standardize fleet-wide 0.5 performance metrics that drive accountability 0.0 and engagement 2001 2002 2003 2004 2005 2006 Top quartile and decile performance 2005 Industry Performance is based on EEI’s Annual Safety Surveys. Top 10% = 1.17 or better Top 25% = 1.80 or better Fossil Operations Analyst Meeting • New York, NY • February 1, 2007 4
  42. 42. Maximizing fleet utilization key to driving improved generation margin. (million MWH) Fossil Generation 55 50 45 40 35 2001 2002 2003 2004 2005 2006 2007E 2006 record generation output with over 52.98 million MWh from Fossil Fleet Mansfield Plant record generation output with over 18.63 million MWh Steady growth of baseload generation with step improvement in load following generation Sustained generation levels demonstrate strong linkage between plants and market dispatch Fossil Operations Analyst Meeting • New York, NY • February 1, 2007 5
  43. 43. Baseload units demonstrate consistent improvement. Baseload Capacity Factor Baseload Eq. Availability Baseload Capacity Factor Baseload Eq. Availability 90% 94% 88.6% 88% 91.4% 92% 90.7% 85.9% 86% 84.5% 90% Top Decile 88.8% Top Decile 84% 82.2% 82% 88% Top Quartile Top Quartile 80% 86% 79.6% 84.3% 84.2% 78% 84% 76.0% 82.7% 76% 82% 74% 72% 80% 70% 78% 68% 2002 2003 2004 2005 2006 2007E 2002 2003 2004 2005 2006 2007E •Top performance came from Navigant benchmarking study •Top performance came from Navigant benchmarking study 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 Fossil Operations Analyst Meeting • New York, NY • February 1, 2007 6
  44. 44. Focus on total fleet output has positive impact on 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 Fossil Operations Analyst Meeting • New York, NY • February 1, 2007 7
  45. 45. 2006 Fossil incremental Non-Fuel Costs declined 29% since 2003. ($ millions) ($/NMWh) Non-Fuel O&M Expense 800 12 600 9 400 6 $443.8 $425.5 200 3 $396.4 $374.4 $357.9 $357.8 $355.1 - - 2001 2002 2003 2004 2005 2006 2007E $/Net MWh $9.01 $7.50 $9.47 $8.53 $7.27 $6.70 $8.26 3% Inflated $9.09 $9.35 $9.63 $9.92 $10.27 $10.59 Delivering value by driving down incremental costs and increasing generation output 2006 incremental operating costs are 34% below 2001 inflated levels 2007 Incremental costs reflect impact of scheduled outage cycle for units and emissions Fossil Operations Analyst Meeting • New York, NY • February 1, 2007 8
  46. 46. Bay Shore Plant pilots Fossil Excellence (FEx) to drive self-critical culture. Pilot at Bay Shore set clear path to achieve top level performance Industry-leading Performance Demonstrated significant improvement in key management areas Developed key elements of the FEx Standards – Continuous improvement approach including employee engagement Common – FEx tools demonstrated successfully; equipment strategy, standard operating responses, planning and scheduling, SMED Operating System Develop standard approach on embedding one common operating system at all FirstEnergy Fossil plants Integrate plant diagnostic and annual Business Plan development Continuous to define a 18- to 24-month roadmap for Bay Shore to achieve Improvement significant performance improvements Culture Set up performance dialogs to enable continuous improvement Successfully engaged multiple frontline personnel in defining plant Engaged vision and leading improvement initiatives & Motivated – 23 led initiatives and over 70 participated (out of ~200 employees at Plant) Workforce Trained and building FEx skills in more than 70 frontline employees Fossil Operations Analyst Meeting • New York, NY • February 1, 2007 9
  47. 47. Generation Strategy Committed to grow generation through base load up-rates (Cumulative MW) 300 279 Nuclear Fossil 222 149 200 92 149 49 100 130 130 100 50 0 2005 2006 2007E 2008E Fossil Operations Analyst Meeting • New York, NY • February 1, 2007 10
  48. 48. Generation strategy focused at growing earnings through potential opportunities linked to our existing asset base. Incremental Projects Potential enhancements to sustain or improve capacity and 1% 2% generation output 16% Leverage and grow a diverse gen- eration base to maximize earnings potential and meet load growth Create a strategy that supports 18% incremental generation growth while 63% minimizing environmental regulatory and capital recovery risks Auxiliary services markets and capacity revenues will impact gen- Coal Oil eration asset decisions in the future Gas Opportunistic Fuel Nuclear Technology enhancements will shape future fleet design and diversity Fossil Operations Analyst Meeting • New York, NY • February 1, 2007 11
  49. 49. Grouping of Incremental Projects Low cost capacity improvement “quick hits” Twelve projects supporting 197 MW of capacity improvements at an estimated capital cost of $12M ($61/kW) Projects focused largely around strengthening peak summer generation capacity from combustion turbines and continued operation of Burger Unit 3 Quick Hits Cumulative MW 200 150 100 50 0 2007 2008 2009 2010 CAPEX $M 6 6 0 0 Cumulative MW 175 197 197 197 Fossil Operations Analyst Meeting • New York, NY • February 1, 2007 12
  50. 50. Environmental considerations impact day-to-day as well as strategic decisions. Tactical Operation Managed compliance with environmental operating standards to achieve 100% compliance Optimized emission rates to maximize contribution to generation margin Strategic Operation Comprehensive environmental compliance and economic analysis for Fossil Fleet ready for implementation – Clean Air Interstate Rule and Clean Air Mercury Rule – effective March 2005 – New Source Review – effective July 1, 2005 – Clean Water Act, Section 316(b) Phase II – effective July 9, 2004 Air Quality Control Group focused to address environmental compliance implementation plans across the fleet with $1.8 billion investment through 2010 Long-Term Operation Actively partner with government agencies, EPRI, and equipment manufacturers to R&D new control technologies and system efficiency improvements to address potential future emissions regulations Fossil Operations Analyst Meeting • New York, NY • February 1, 2007 13
  51. 51. In Summary … Focus on Consistent Execution Fossil Excellence Unwavering commitment to achieve top decile in safety Drive for enhanced operational margin through higher capacity utilization, improved reliability, and thorough Fossil Operations equipment maintenance continues to drive $ Execute long-term environmental bottom-line compliance plan to ensure reliable EPS contribution for operation of fleet FirstEnergy… Drive continuous improvement in competitive operation through increased reliability, Fossil Excellence Standards and benchmark analysis Focus on building the next generation of our workforce Fossil Operations Analyst Meeting • New York, NY • February 1, 2007 14
  52. 52. appendix Fossil Operations Analyst Meeting • New York, NY • February 1, 2007 App-1
  53. 53. Fossil Excellence Environmental Safety Title V Awareness Reliability NPDES Accountability Initiatives CEMS Workforce Prevention SPCC Benchmarking Development Pred. Maintenance RCA/BTF/Water Chem. Workforce Manual Outage Execution Tech. Rotation Program Equipment Reliability Coop Program Oper. Procedures Core Skills Training Heat Rate Foreman’s Academy Continuous Substation Maint. Talent Talks Improvement Alarms Response 360 Development Protective Devices Employee Business Plan Engagement Performance Maintenance Generation Margin Business Plans PM Compliance SPOT System Schedule Compliance Budget Reports Backlog Management Materials Commitment Reports Tactical Outage Plans Asset Utilization Management Material Staging Operations “8760” Tool Planning Bill of Materials Fuel Strategies PM Compliance Staging Base load Strategy Operating Rounds Reverse Auctions Operating Availability Equip. Performance Stocking Environmental Central Warehouse Outage Support Contract Models Work Prioritization Fossil Operations Analyst Meeting • New York, NY • February 1, 2007 App-2
  54. 54. Analyst Meeting New York, NY • Feb. 1, 2007 Environmental Compliance Guy Pipitone Sr. Vice President, Operations Strategy & Development
  55. 55. Our Current Fleet Is Well Positioned 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% Excellent emission rate vs. competitors Excellent mix of nuclear, coal and natural gas NSR Consent Decree in place since March 2005 Analyst Meeting • New York, NY • February 1, 2007 2
  56. 56. Construction Overview Sammis Plant (2,220 MW) – SO2 control (scrubbers) all units – NOx control (SCRs) Units 6 & 7 (1,200 MW) – NOx control (SNCR) Units 1–5 (1,020 MW) Mansfield Plant (2,460 MW) – SO2 control (scrubber) upgrades all units – complete 2007 NOx Controls (SNCR) – Eastlake Unit 5 (600 MW) – Burger Units 4 & 5 (300 MW) Bay Shore Plant – NOx and SO2 control Unit 4 (215 MW) Environmental Compliance Analyst Meeting • New York, NY • February 1, 2007 3
  57. 57. AQCS Expenditures Capital Expenditures ($ millions) 563 600 496 380 400 178 200 136 54 0 2005 2006 2007E 2008E 2009E 2010E Confident in our cost estimate ($1.8B) – Early SCR engineering (contracted in 1999) – Detailed project development in 2005 – Early commitment by “premier” suppliers and subcontractors – Deeply experienced and highly qualified project teams Environmental Compliance Analyst Meeting • New York, NY • February 1, 2007 4
  58. 58. Project Management Contracts contain incentives and liquidated damages provisions Premier contractors whose project personnel were selected prior to award Highly detailed schedule (16,000 activities) – Fully integrated – Real-time access – Continuously analyzed and updated Cost control and monitoring – Scope containment – Performance measurement and trending – Targeted cost-reduction initiatives Environmental Compliance Analyst Meeting • New York, NY • February 1, 2007 5
  59. 59. Managing the Construction Process Material supply – Shops fully loaded – Long lead times – Mitigation strategy includes expediting, close interaction, and frequent updates On-site craft labor availability – In competition with many other projects – Levelized labor usage – Desirable site conditions – Close relationships with local unions – Labor availability is a consent decree “force majeure” provision Environmental Compliance Analyst Meeting • New York, NY • February 1, 2007 6
  60. 60. Longer-term Environmental Considerations CO2 control – Approx. 40% fleet output nuclear – Heavily involved in CO2 capture and sequestration R&D Mercury control – Excellent reduction through “co-benefits” – Based on current rules and plans, will be in compliance until 2015 Environmental Compliance Analyst Meeting • New York, NY • February 1, 2007 7
  61. 61. Analyst Meeting New York, NY • Feb. 1, 2007 Nuclear Operations Gary Leidich President & Chief Nuclear Officer
  62. 62. Topics Fulfilling Our Vision – Safety – Reliability – Outage Execution – Regulatory Status Looking Forward – Power Uprates – License Renewal – Fuel Management – Production Costs Summary Analyst Meeting • New York, NY • February 1, 2007 Nuclear Operations 2
  63. 63. Fulfilling Our Vision Continue to focus on: Safe and event-free plant operations Reliable plant operations Improvement in outage execution Analyst Meeting • New York, NY • February 1, 2007 Nuclear Operations 3
  64. 64. Fulfilling Our Vision Best Personal Safety Record in the U.S. Fleet OSHA Incident Rate 2005 Nuclear Industry Best = 0.26 0.50 Top Quartile = 0.39 0.40 Top Decile = 0.32 0.30 0.20 0.10 0.00 2002 2003 2004 2005 2006 2007E 2008E 2009E 0.33 0.36 0.32 0.41 0.03 0.30 0.30 0.30 Fleet Analyst Meeting • New York, NY • February 1, 2007 Nuclear Operations 4
  65. 65. Fulfilling Our Vision Strong Safety Culture Improving Safety Culture Assessment Scores – In 2006, aligned with Institute of Nuclear Power Operators Safety Culture Principles Safety Culture Performance Index Principles 100 Everyone is personally responsible for nuclear safety 75 Leaders demonstrate commitment to safety Trust permeates the organization 50 Decision-making reflects safety first Nuclear technology is recognized as special and unique 25 A questioning attitude is cultivated 0 Organizational learning is embraced Beaver Valley Davis-Besse Perry Nuclear safety undergoes constant examination 2004 Actual 2005 Actual 2006 Actual Analyst Meeting • New York, NY • February 1, 2007 Nuclear Operations 5
  66. 66. Fulfilling Our Vision Strong Safety Culture 2006 Safety Conscious Work Environment Survey Responses Survey Questions (average/site) Workers accepting responsibility for identifying problems 98% positive and adverse conditions Raising a nuclear safety or quality concern 97% positive Accepting personal responsibility for identification of errors 96% positive or mistakes regardless of the consequence Not being subjected to retaliation for raising nuclear safety, quality or compliance concerns while working here within 96% positive the last 6 months Not aware of instances that occurred on site within the last 6 months in which workers have been subjected to retaliation 95% positive for raising nuclear safety, quality, or compliance concerns Analyst Meeting • New York, NY • February 1, 2007 Nuclear Operations 6
  67. 67. Fulfilling Our Vision Strong Safety Culture Currently, three open Office of Investigations issues NRC Allegations are well below industry average Average NRC Allegations (per site) 15 10 5 0 2002 2003 2004 2005 2006 15.0 10.0 14.6 8.0 2.7 Fleet 6.3 5.4 6.2 6.9 5.9 Industry Analyst Meeting • New York, NY • February 1, 2007 Nuclear Operations 7
  68. 68. Fulfilling Our Vision Improving Reliability 2006 Nuclear Fleet Performance Achieve top decile – OSHA Rate – Fuel costs – Corrective Maintenance backlog Recognized for on-line dose control Summer Capacity Factor = 97.6% Capacity Forced Loss Net Generation Factor (% ) Rate (% ) (million MWh) Beaver Valley Unit 1 80.4 1.16 5.8 Beaver Valley Unit 2 87.7 1.75 6.3 Davis-Besse 83.1 1.76 6.4 Perry 96.8 3.44 10.5 * * Record Fleet 88.0 2.27 29.0 generation 2002 – 2005 Avg 79.0 3.15 26.0 Analyst Meeting • New York, NY • February 1, 2007 Nuclear Operations 8
  69. 69. Fulfilling Our Vision Strong Plant Reliability 2006 Capability Factor with Planned Outages % 99 97 94 94 100 75 50 25 0 Beaver Valley 1 Beaver Valley 2 Davis-Besse Perry Reliability improvements during 2006 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 Analyst Meeting • New York, NY • February 1, 2007 Nuclear Operations 9
  70. 70. Fulfilling Our Vision Reduced Maintenance Backlogs Beaver Valley 1 Beaver Valley 2 Davis-Besse Perry 140 120 Top Quartile = 10 Corrective Corrective 100 Maintenance Maintenance 80 Open Work 60 Orders 40 20 0 Jan '04 Jun '04 Jan '05 Jun '05 Oct '05 Dec Dec Dec Dec Dec '05 '06 '07 '08 '09 2000 1800 Top Quartile = 250 1600 1400 Elective Open Elective Work 1200 Maintenance Maintenance Orders 1000 800 600 400 200 0 Jan '04 Jun '04 Jan '05 Jun '05 Oct '05 Dec '05 Dec '06 Dec '07 Dec '08 Dec '09 Analyst Meeting • New York, NY • February 1, 2007 Nuclear Operations 10
  71. 71. Fulfilling Our Vision Outage Execution – Beaver Valley 1 Steam Generator and Reactor Head Replacement Outage World Class Performance Safety: No FENOC OSHA Recordables, under stretch dose goal by 2 rem Duration: 65 days vs. a target of 76 Costs: Under O&M budget by $7M Significant Scope: – 3 new steam generators – New simplified reactor vessel closure head – Atmospheric containment conversion – Main unit generator rotor and stator rewind – Long-range plan motor, valve and breaker maintenance – Generator exciter replacement (emergent) Enabled 3% power uprate in August 2006 and 5% in 2007 Analyst Meeting • New York, NY • February 1, 2007 Nuclear Operations 11
  72. 72. Fulfilling Our Vision Future Outages Focus on Reliability Outage Outage Scope Driving Duration Year Plant Costs Duration Items with asterisk denote duration drivers ($ 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 $30 25 Refueling * 2R14 Analyst Meeting • New York, NY • February 1, 2007 Nuclear Operations 12
  73. 73. Fulfilling Our Vision Regulatory Status Successfully completed the NRC Component Design Basis Inspection with no findings or non-cited violations, Beaver Valley an industry “first” for these types of inspections White NRC Finding in Emergency Preparedness Successful Independent Assessments — working with Davis-Besse NRC Region III to modify Confirmatory Order Additional inspections complete Perry Close Confirmatory Action Letter and return to Standard Oversight Third annual combined NRC Regional meeting held Fleet Fleet January 24, 2007 Analyst Meeting • New York, NY • February 1, 2007 Nuclear Operations 13
  74. 74. Looking Forward Growth Opportunities through Power Uprates Implementing 170 new MW ahead of schedule Power Uprates Power Uprates Beaver Valley Unit 1 25 MW in 2006 43 MW in 2007 Beaver Valley Unit 2 10 MW in 2006 45 MW in 2008 Davis-Besse 14 MW in 2006 12 MW in 2008 Perry 21 MW in 2011 Analyst Meeting • New York, NY • February 1, 2007 Nuclear Operations 14
  75. 75. Looking Forward Increasing Generation Fleet Generation GWh 2004 Record 32,500 Fleet Generation 30,000 27,500 25,000 22,500 20,000 2002 2003 2004 2005 2006 2007E 2008E 2009E 2010E Fleet 24,455 21,093 29,907 28,758 28,982 31,215 32,001 31,296 32,197 Analyst Meeting • New York, NY • February 1, 2007 Nuclear Operations 15
  76. 76. Looking Forward Continued Safe Operations through License Renewal License Renewal Schedule Submit Current Approval New Request Expiration Expected Expiration (NRC Docket) Beaver Valley Unit 1 2016 2007 2009 2036 Beaver Valley Unit 2 2027 2007 2009 2047 Davis-Besse 2017 2010 2012 2037 Perry 2026 2013 2015 2046 Analyst Meeting • New York, NY • February 1, 2007 Nuclear Operations 16
  77. 77. Looking Forward Managing Uranium Prices Uranium Pricing – Historical Year-End U3O8 Spot Prices ($/lb U308) Then-Current $ 120 Constant 2006 $ High Forecast 100 Low Forecast 80 Range of 2006 Forecast YE 60 40 20 0 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 Note: Value for 2006 reflects UPIS U3O8 Spot Price Indicator as of end of Dec 2006. Conversion of Then-Current $ to Constant 2006 $ based on U.S. GNP-IPD. Sources: 1973-1989: NUEXCO/TradeTech Exchange Value 1990-2006: Uranium Price Information System (UPIS) U3O8 Spot Price Indicator, which reflects NAC’s judgment of the spot price at the end of each month and excludes CIS/Russian-origin uranium. Analyst Meeting • New York, NY • February 1, 2007 Nuclear Operations 17
  78. 78. Looking Forward Fuel Cost Management FENOC Fuel Cost Projections Current Fuel Contract Coverage (includes Letters of Intent) Uranium: 100% coverage through 2009; 69% coverage in 2010 Enrichment: 100% coverage through 2010; 76% coverage in 2011 BV1 – 5 additional reloads under contract Fabrication PY – life of unit contract BV2 – 5 additional reloads under contract DB – 1 additional reload under contract Negotiations for extension of DB fabrication contract are ongoing. ($/MWh) Disposal & Other Enrichment 6.00 Fabrication Uranium 5.12 4.57 5.00 4.48 4.28 4.00 3.00 2.00 1.00 0.00 2006 2007E 2008E 2009E Analyst Meeting • New York, NY • February 1, 2007 Nuclear Operations 18
  79. 79. Looking Forward 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 BV Unit 1 Criticality analysis frees up storage space BV Unit 2 Rerack before 2011 to provide capacity through 2025 BV Unit 2 Dry storage could then be implemented Continue with wet storage until 2021 Davis-Besse Davis-Besse Return to dry storage in 2022 Spent fuel pool campaign in 2007 ($7M) Perry Perry Implement dry storage before 2011 ($26M) Analyst Meeting • New York, NY • February 1, 2007 Nuclear Operations 19
  80. 80. 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. Analyst Meeting • New York, NY • February 1, 2007 Nuclear Operations 20
  81. 81. Summary Maintaining best in class in personal and nuclear safety Focusing on Operational Excellence Closing the gaps to top industry performance Analyst Meeting • New York, NY • February 1, 2007 Nuclear Operations 21
  82. 82. Analyst Meeting New York, NY • Feb. 1, 2007 Energy Delivery & Customer Service Chuck Jones Sr. Vice President, Energy Delivery & Customer Service
  83. 83. Our future plans will help us build upon recent success. Employee safety record that is top decile Across the board improvement in customer satisfaction Significant improvement in distribution reliability Top decile transmission reliability performance Solid financial results Energy Delivery & Customer Service Analyst Meeting • New York, NY • February 1, 2007 2
  84. 84. Four factors are driving our overall planning. Aging Infrastructure Aging Workforce Reliability Cost Recovery Energy Delivery & Customer Service Analyst Meeting • New York, NY • February 1, 2007 3
  85. 85. While our plan is straightforward… Optimize capital investment Increase project management oversight Fill 100% of vital positions Transition “institutional memory” Build regulatory “margin” Deliver expected financial results Timely recovery of regulatory spend Energy Delivery & Customer Service Analyst Meeting • New York, NY • February 1, 2007 4
  86. 86. … each aspect of our “plan” has unique characteristics. Operations People Operations People Issues: Reliability Issues: Aging Workforce Capacity Planning “Institutional Memory” Capacity Compliance Orderly Transition Customer Service Financial Customer Service Financial Issues: Reliability Issues: Cost Recovery Service Rate Implications Technology Financial Management Energy Delivery & Customer Service Analyst Meeting • New York, NY • February 1, 2007 5
  87. 87. Our 2007 infrastructure capital is not significantly different than recent years — the difference is the acceleration of selected capital projects. 2006 2005 2007E 184 Infrastructure 220 264 100 197 97 Capacity 132 131 New Business 138 109 120 122 Forced Other 89 104 103 Total 735 650 725 Energy Delivery & Customer Service Analyst Meeting • New York, NY • February 1, 2007 6
  88. 88. We continue to “fine-tune” our management structure. Two recent changes were specifically targeted to asset management and financial oversight. Asset Management Develop long-term asset strategy Asset and circuit health analysis and tracking Integrated investment planning Asset performance tracking and analysis Financial Management State and Operating Company controllers Increased financial skills throughout ED&CS 5-year financial planning Commitment tracking and management reporting Regulatory focus to ensure full recovery Energy Delivery & Customer Service Analyst Meeting • New York, NY • February 1, 2007 7

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