Successfully reported this slideshow.

first energy Citi652008

610 views

Published on

  • Be the first to comment

  • Be the first to like this

first energy Citi652008

  1. 1. Citi Investment Research Power, Gas and Utilities Conference Washington, D.C. • June 5-6, 2008 NYSE:FE
  2. 2. Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995 This presentation includes forward-looking statements based on information currently available to management. Such statements are subject to certain risks and uncertainties. These statements include declarations regarding our, or our management’s, intents, beliefs and current expectations. These statements typically contain, but are not limited to, the terms “anticipate,” “potential,” “expect,” “believe,” “estimate” and similar words. Forward- looking statements involve estimates, assumptions, known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward- looking statements. Actual results may differ materially due to the speed and nature of increased competition in the electric utility industry and legislative and regulatory changes affecting how generation rates will be determined following the expiration of existing rate plans in Ohio and Pennsylvania, economic or weather conditions affecting future sales and margins, changes in markets for energy services, changing energy and commodity market prices, replacement power costs being higher than anticipated or inadequately hedged, the continued ability of FirstEnergy’s regulated utilities to collect transition and other charges or to recover increased transmission costs, maintenance costs being higher than anticipated, other legislative and regulatory changes including revised environmental requirements and possible greenhouse gas emissions regulation, the uncertainty of the timing and amounts of the capital expenditures needed to, among other things, implement the Air Quality Compliance Plan (including that such amounts could be higher than anticipated) or levels of emission reductions related to the Consent Decree resolving the New Source Review litigation or other potential regulatory initiatives, adverse regulatory or legal decisions and outcomes (including, but not limited to, the revocation of necessary licenses or operating permits and oversight by the Nuclear Regulatory Commission including, but not limited to, the Demand for Information issued to FENOC on May 14, 2007) as disclosed in our SEC filings, the timing and outcome of various proceedings before the PUCO (including, but not limited to, the Distribution Rate Cases and the generation supply plan filing for the Ohio Companies and the successful resolution of the issues remanded to the PUCO by the Supreme Court of Ohio regarding the Rate Stabilization Plan and the Rate Certainty Plan, including the deferral of fuel costs) and Met-Ed’s and Penelec’s transmission service charge filings with the PPUC as well as the resolution of the Petitions for Review filed with the Commonwealth Court of Pennsylvania with respect to the transition rate plan for Met-Ed and Penelec, the continuing availability of generating units and their ability to continue to operate at or near full capacity, the ability to comply with applicable state and federal reliability standards, the ability to accomplish or realize anticipated benefits from strategic goals (including employee workforce initiatives), the ability to improve electric commodity margins and to experience growth in the distribution business, changing market conditions that could affect the value of assets held in our nuclear decommissioning trust fund, pension fund and other trust funds, the ability to access the public securities and other capital markets and the cost of such capital, the risks and other factors discussed from time to time in our SEC filings, and other similar factors. The foregoing review of factors should not be construed as exhaustive. New factors emerge from time to time, and it is not possible for us to predict all such factors, nor can we assess the impact of any such factor on our business or the extent to which any factor, or combination of factors, may cause results to differ materially from those contained in any forward-looking statements. Dividends declared from time to time on FirstEnergy's common stock during any annual period may in aggregate vary from the indicated amounts due to circumstances considered by FirstEnergy's Board of Directors at the time of the actual declarations. Also, a security rating is not a recommendation to buy, sell or hold securities, and it may be subject to revision or withdrawal at any time and each such rating should be evaluated independently of any other rating. We expressly disclaim any current intention to update any forward- looking statements contained herein as a result of new information, future events, or otherwise. 2 June 5-6, 2008 Citi Investment Research Power, Gas and Utilities Conference
  3. 3. Corporate Profile 3 June 5-6, 2008 Citi Investment Research Power, Gas and Utilities Conference
  4. 4. FirstEnergy 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. – 4.5 million customers in Ohio, Pennsylvania and New Jersey Controls over 14,000 MW of generating capacity Approx. $13B in annual revenues and more than $32B in assets Approx. $24B market capitalization Investment grade credit ratings PA OH NJ 4 June 5-6, 2008 Citi Investment Research Power, Gas and Utilities Conference
  5. 5. FirstEnergy Overview Balanced Integrated Approach Competitive Regulated 7 Regulated Utilities FirstEnergy Solutions (FES), an unregulated subsidiary: – Fifth largest investor-owned electric utility in U.S. with 4.5 million customers in – Controls 14,000+ MW of FirstEnergy’s OH, PA and NJ generation capacity – Geographic and regulatory diversity – Separate SEC Registrant Strategic Focus Strategic Focus – Enhance reliability and customer service – Expand generation output – Invest in infrastructure – Transition to market-based rates – Pursue timely cost recovery – Effectively hedge commodity exposures – Control expenditures through continuous – Leverage proven skills to succeed in improvement culture competitive markets Objective: Maximize margins from each business 5 June 5-6, 2008 Citi Investment Research Power, Gas and Utilities Conference
  6. 6. Financial Performance Positioned for continued earnings growth Strong operations with financial discipline Integrated strategy that diversifies risks Annualized Total Shareholder Returns Annualized Dividend Per Share (Periods Ending December 31, 2007) $2.50 30% 26.4% 47% Increase 23.6% $2.25 25% Since End of 2004 21.3% 19.9% $2.20 20% 17.8% $2.00 16.6% $2.00 15% $1.75 $1.80 10% $1.72 $1.50 $1.50 5% $1.25 0% 1 year 3 years 5 years $1.00 YE 2004 YE 2005 YE 2006 YE 2007 Mar. 08 FE EEI Index 6 June 5-6, 2008 Citi Investment Research Power, Gas and Utilities Conference
  7. 7. Bottom Line – FirstEnergy is an attractive risk/reward opportunity Managing transition to competitive markets Continuing to mine our assets Reinvesting for future growth Minimizing financing risks Deploying strong cash flow Achieving continuous improvement Maintaining strategic flexibility Well-positioned for climate legislation 7 June 5-6, 2008 Citi Investment Research Power, Gas and Utilities Conference
  8. 8. Generation 9 June 5-6, 2008 Citi Investment Research Power, Gas and Utilities Conference
  9. 9. FirstEnergy Generation – Diversity & Scale Michigan Ashtabula Perry 244 MW Seneca 1,273 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 New Castle Pennsylvania Akron Davis-Besse Edgewater Morristown Richland 893 MW Newark 48 MW 432 MW West Lorain Johnstown Reading 545 MW Harrisburg Allenhurst Trenton W. H. Sammis 2,233 MW New Columbus Beaver Valley Bruce Mansfield Jersey R. E. Burger 1,779 MW 2,490 MW 413 MW Mad River 60 MW Ohio Unit Mission Strategy Baseload Peaking Units Other Load Following MW MW MW MW Mansfield 1-3 2,490 Sammis 1-5 1,020 West Lorain 545 OVEC 463 Wind 145 Beaver Valley 1,2 1,779 Eastlake 1-4 636 Seneca 451 Perry 1,273 Bay Shore 2-4 495 Richland 432 Total 608 FirstEnergy Power Sources* Sammis 6,7 1,200 Burger 4 -5 312 Sumpter 340 Davis-Besse 893 Lake Shore 245 Yards Creek 200 C Coal 7,469 MW Eastlake 5 597 Ashtabula 244 Burger 3 & EMDs 101 N Nuclear 3,945 Bay Shore 1 136 Mad River 60 H Hydro Total Load Following 2,952 651 Edgewater 48 G Gas & O Oil 1,599 Total Baseload 8,368 Stryker 18 Other 522 Other 63 Total 14,186 MW Total Peaking Units 2,258 * Does not reflect the Fremont plant 10 June 5-6, 2008 Citi Investment Research Power, Gas and Utilities Conference
  10. 10. FES Generation Fleet Overview Diversified and cost-effective generating fleet – Balanced fuel mix – Participates in both MISO and PJM markets Mission-driven strategy – Each unit plays a specific role in fleet: baseload, load-following, or peaking – Strategy optimizes performance and reliability Well-positioned for environmental regulations – CO2 control - over 35% of generation output is non-emitting 2007 Output Mix Generation Capacity (MWh) (MW)* Load- Following 22% Nuclear 37% Fossil Baseload Peaking and Other 61% 17% 63% * Based on May 2008 NDC 11 June 5-6, 2008 Citi Investment Research Power, Gas and Utilities Conference
  11. 11. Realizing Full Potential of Generating Fleet Fleet Characteristics and Mission-Driven Strategy Significant scale: FirstEnergy Solutions (FES) controls over 14,000 MW Fleet strategy optimizes performance and reliability – Each unit has a specific mission (baseload, load-following or peaking) – Increases efficiency and reduces wear and tear on baseload units Nuclear fleet produced a record 30.3 million MWh in 2007 Generation Output* 100 80 (million MWh) 60 40 20 0 2004 2005 2006 2007 2008F 2009F 2010F 2011F 29.9 28.7 29.0 30.3 32.0 31.0 32.2 32.0 Nuclear 46.5 51.5 53.0 50.7 52.7 52.4 53.7 54.6 Fossil * Does not reflect the Fremont plant. 12 June 5-6, 2008 Citi Investment Research Power, Gas and Utilities Conference
  12. 12. Realizing Full Potential of Generating Fleet Mining Our Assets – incremental, low-risk investment approach to fleet expansion Type of MW Addition 2005–2007 2008F–2011F Cumulative MW Fossil baseload uprates 130 44 174 Peaking unit uprates 16 0 16 Nuclear baseload uprates 152 93 245 Efficiency and capacity factor improvements 149* 129** 278 Total MW additions 447 266 713 *Reflects elimination of seasonal reductions in output due to summer temperatures on peaking units ** Reflects 45 MW baseload unit and 84 MW load-following unit efficiency and capacity factor improvements Mining Our Assets benefits: – ~$700/kW average capital cost is competitive vs. current market price of new capacity – Lower risk than large, long lead-time projects – Quicker to market Factors impacting future generation asset decisions: – Capacity and ancillary services market structure – Technological advances – Environmental regulations 13 June 5-6, 2008 Citi Investment Research Power, Gas and Utilities Conference
  13. 13. Realizing Full Potential of Generating Fleet Leading the Way in Procuring Renewable Energy to Meet Growing Demand FES Wind Energy Portfolio Renewable State Overview Mandate Status Capacity RECs/Year In-service 2007 145 MW 384 GWh Drives our PA 18% by 2020 renewable strategy Forecasted 70 MW 180 GWh today In-service 2008 Total: 215 MW 564 GWh Leading wind energy supplier in PA Will impact our OH 12.5% by 2025 renewable strategy Evaluating expansion of current wind portfolio Considering other renewable technologies: – Solar Represents a – Compressed air minimal part of our – NJ 22.5% by 2020 Biomass renewable – Land fill gas requirements – Anaerobic digestion 14 June 5-6, 2008 Citi Investment Research Power, Gas and Utilities Conference
  14. 14. Reinvesting in the Business Enhancing Our Generation Portfolio for the Future FirstEnergy Generation Corp. acquired partially complete 707-MW natural gas, combined-cycle generating plant in Fremont, Ohio – Includes two combined-cycle combustion turbines and a steam turbine – 544 MW of load-following capacity and 163 MW of peaking capacity – Purchased in bankruptcy auction from Calpine Corporation for $253.6M – Aggregate construction costs expended to date exceeded $300M – Calpine has estimated that the plant is 70% complete – Based on this, FirstEnergy estimates cost to complete is approximately $150M - $200M* over 18-24 months Key benefits to FirstEnergy: – Plant is connected to two RTOs – MISO & PJM – Expands fleet capacity and further diversifies generation mix – Low-emitting characteristics will further reduce our average CO2 emission rate * Based on estimate from prior owner. Actual cost to complete subject to change following construction study. 15 June 5-6, 2008 Citi Investment Research Power, Gas and Utilities Conference
  15. 15. Fossil Operating Performance 2007 Highlights 2008 Look Ahead – Top-quartile safety performance – Achieve top-decile safety performance – New monthly all time generation record – Drive continuous improvement through set Aug. 2007 (4.6 million MWh) fleet standardization of best practices, benchmarking and Fossil Excellence – Environmental projects (AQC) on track annual diagnostics – Outage performance improving – Continue to focus on transitioning – Implemented Fossil Excellence at workforce knowledge and skills to a new Bay Shore and Sammis (continuous generation of employees improvement) – Execute Mining Our Assets strategies – On track for workforce replenishment – Develop and implement a full start-up – Improved performance accountability testing, training and operation strategy – Mansfield Unit 3 uprate (30 MW) for AQC Fossil 2007 2008F 2011 Target* OSHA Incident Rate (per 100 employees) 1.04 1.12 0.80 Total Generation (million MWh) 50.7 52.7 54.6 Capacity Factor (Baseload %) 80.4 87.2 90.7 * Does not reflect the Fremont plant. 16 June 5-6, 2008 Citi Investment Research Power, Gas and Utilities Conference
  16. 16. Nuclear Operating Performance 2007 Highlights 2008 Look Ahead – Top-quartile safety performance – Maintain top-quartile safety performance – DB worked > 7.6 million hours without – Targeting record generation a Lost Time Accident (32.0 million MWh) – Record Fleet Generation (30.3 million MWh) – Two outages – DB (Completed 2/14/08) and BV2 (Completed 5/22/08) – BV1 uprate (43 MW); BV2 uprate (24 MW) – 15 MW uprate at PY effective 1/1/08 – No forced losses at BV1; BV2 top quartile (0.05%) – Additional 12 MW from DB Caldon modification – NRC accepted BV license renewal application – Additional 45 MW from BV power uprate – Successful NRC Security drills at PY and BV – NRC Emergency Preparedness – Lowest BV dose during fall outage Evaluated Exercises at BV and PY – Dry Cask Fuel Storage underway at PY Nuclear 2007 2008F 2011 Target OSHA Incident Rate (per 100 employees) 0.29 0.25 0.25 Total Generation (million MWh) 30.3 32.0 32.0 Capacity Factor (%) 88.8 92.9 92.4 17 June 5-6, 2008 Citi Investment Research Power, Gas and Utilities Conference
  17. 17. Top-Tier Operational Capability Continued Improvement of Asset Utilization Garnered significant nuclear reliability improvements during 2006–2007 outages Fossil fleet expected to return to top-quartile performance in 2008 – AQC-related outages will lower capacity factors in 2009 and 2010 – Expect to reach top-decile performance levels by 2011 Baseload Capability/Capacity Factors 100% 95% Factors (%) 90% 85% 80% 75% 2004 2005 2006 2007 2008F 2011 Target 84.6% 86.9% 88.5% 80.4% 87.2% 90.7% Fossil baseload 89.5% 86.2% 86.8% 88.8% 92.9% 92.4% Nuclear 18 June 5-6, 2008 Citi Investment Research Power, Gas and Utilities Conference
  18. 18. Operational Performance Targets 2011 Operational Performance 2004 2005 2006 2007 2008F Targets* Total Generation (million MWh) 76.4 80.2 82.0 81.0 84.7 86.6 Fossil Reliability Capacity Factor (Baseload %) 84.6 86.9 88.5 80.4 87.2 90.7 Nuclear Reliability Capability Factor % 89.5 86.2 86.8 88.8 92.9 92.4 * Does not reflect the Fremont plant. 19 June 5-6, 2008 Citi Investment Research Power, Gas and Utilities Conference
  19. 19. Nuclear Generation Future Refueling Outages Focus on Reliability Expected Scope Driving Duration Year Plant Outage Duration (Items with asterisk* denote duration drivers) (days) Refueling * Davis-Besse In-vessel visual inspection (IVVI) Complete Rewind Main Generator 1R15 Reinforce welds on plant equipment 2008 Split Pins* Low Pressre-2 Turbine Inspection* Beaver Valley Complete Reactor Vessel Head Inspection Main Cond Tube Replacement, Expansion Joints* 2R13 Replace High Pressure Turbine* Type A Containment Pressurization Test Refueling* Perry 1R12 35 10-year IVVI / Bioshield In-service Inspection Recirc Pump Motor Replacement Replace Low Pressure Turbines (2)* Beaver Valley 2009F 30 Reactor Coolant System Loop Stop Valves (2) 1R19 Reactor Vessel Head Inspection Beaver Valley 25 Refueling* 2R14 20 June 5-6, 2008 Citi Investment Research Power, Gas and Utilities Conference
  20. 20. Generation – Implementing Plans for the Future Nuclear license renewal Current Submit Request Approval New Expiration (NRC Docket) Expected Expiration Beaver Valley Unit 1 2016 Submitted 2007* 2009 2036 Beaver Valley Unit 2 2027 Submitted 2007* 2009 2047 Davis-Besse 2017 2010 2012 2037 Perry 2026 2013 2015 2046 * The NRC accepted the application for review. Nuclear steam generator replacements – Davis-Besse in 2014 – Beaver Valley Unit 2 in 2017 21 June 5-6, 2008 Citi Investment Research Power, Gas and Utilities Conference
  21. 21. Generation – Implementing Plans for the Future Nuclear spent fuel storage – At the federal level, Yucca Mountain has been proposed as a site for long-term storage and may be available as early as 2017 to receive used fuel, but this is not likely. If Yucca Mountain is available in 2017, FirstEnergy will be eligible to ship fuel starting in 2021. Beaver Valley Implement dry storage by the end of 2014 Unit 1 Current ongoing criticality analysis will increase storage space Beaver Valley Re-rack before 2011 to provide capacity through 2025 Unit 2 Dry storage could then be implemented Continue with wet storage until 2021 Davis-Besse Switch back to dry storage in 2022 Perry Implement dry storage before 2011 22 June 5-6, 2008 Citi Investment Research Power, Gas and Utilities Conference
  22. 22. Environmental Strategy 23 June 5-6, 2008 Citi Investment Research Power, Gas and Utilities Conference
  23. 23. Reinvesting in the Business Our Generation Fleet is Well-Positioned for the Future Fleet Emission Control Status 2007 2010F* Capacity (MW) Fleet % Capacity (MW) Fleet % Non-Emitting 4,581 34% 4,653 34% Coal Controlled 2,626 19% 5,237 38% (SO2/NOx – full control) Natural Gas Peaking 1,283 9% 1,197 9% 8,490 62% 11,087 81% Longer-term environmental considerations: CO2 control – Over 35% of annual fleet output (MWh) is non-emitting – Involved in CO2 capture and sequestration R&D Mercury control – Excellent reduction through “co-benefits” – Participating in future mercury regulatory developments * Does not reflect the Fremont plant. 24 June 5-6, 2008 Citi Investment Research Power, Gas and Utilities Conference
  24. 24. Reinvesting in the Business AQC Construction Overview Sammis Plant (2,233 MW) – $1.65B – SO2 control (scrubbers) all units – NOx control (SCRs) Units 6 & 7 (1,200 MW) NOx control (SNCR) Units 1–5 (1,033 MW) completed Mansfield Plant (2,490 MW) – $50M SO2 control (scrubber) upgrades completed Burger Plant – $180M – NOx control (SNCR) and SO2 control Electro-Catalytic Oxidation (ECO) Units 4 & 5 (312 MW) Eastlake Plant – $6M NOx control (SNCR) Unit 5 (597 MW) completed 25 June 5-6, 2008 Citi Investment Research Power, Gas and Utilities Conference
  25. 25. AQC Upgrades – Sammis Plant Flue Duct Work – 9,000 tons (9,000 ft.) Electrical Cable – 9,120 circuits (530 miles) Foundation Piles – 5,600 piles (445,000 LF) Concrete – 51,000 cubic yards Tons of Steel – 17,200 tons DCS I/O Points – 8,200 Large Bore Pipe – 88,300 ft. (17 miles) Small Bore Pipe – 13,000 ft. (2.5 miles) Overland “Pipe” Conveyor – 3.0 miles long Sammis Plant with computer overlay of Wet Flue Gas Desulphurization (WFGD) equipment 26 June 5-6, 2008 Citi Investment Research Power, Gas and Utilities Conference
  26. 26. 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 27 June 5-6, 2008 Citi Investment Research Power, Gas and Utilities Conference
  27. 27. 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 28 June 5-6, 2008 Citi Investment Research Power, Gas and Utilities Conference
  28. 28. 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 29 June 5-6, 2008 Citi Investment Research Power, Gas and Utilities Conference
  29. 29. Commodity Operations 31 June 5-6, 2008 Citi Investment Research Power, Gas and Utilities Conference
  30. 30. Coal Commodity Position Continue working to secure long- Securing Open Coal term fuel supply contracts Commodity Positions Actively testing alternate fuel blends at various plants to 100% optimize plant economics and 2008 flexibility Engaged in fuel flexibility 98% 2009 initiative to expand margins and fuel choices 100% FirstEnergy is well positioned 2010 with respect to its total coal supply through 2010 0 5,000 10,000 15,000 20,000 25,000 Total Needed Tons Total Covered Tons As of May 13, 2008 32 June 5-6, 2008 Citi Investment Research Power, Gas and Utilities Conference
  31. 31. Coal Transportation Position All transportation positions Securing Open Coal including both rail and barge are Transportation Positions closed thru 2010 year end Continuing to evaluate additional 100% delivery options to increase both 2008 capabilities and flexibility Enhanced rail unloading 100% 2009 capabilities in process at Ashtabula, Bay Shore and Lake Shore 100% 2010 In 2008, FES is managing PRB rail logistics previously outsourced 0 5,000 10,000 15,000 20,000 25,000 Total Needed Tons Total Covered Tons As of May 13, 2008 33 June 5-6, 2008 Citi Investment Research Power, Gas and Utilities Conference
  32. 32. Emission Allowance Position Based on projected generation: SO2 Position – Latest fuel assumptions for 2008 & 270,000 2009 have further solidified our SO2 (tons) length 180,000 – 2010 SO2 position was closed early 90,000 to mitigate potential scrubber 0 projects completion risks 2008 2009 2010 – Seasonal NOx is covered for 2008 Needed Covered Position & 2009; 2008 & 2009 length will secure a portion of the 2010 Seasonal NOx Position position; 2010 is expected to be 30,000 covered by the end of Q1 2009 20,000 – Majority of 2009 – 2010 annual NOx (tons) requirements are covered from 10,000 allocations made by states 0 2008 2009 2010 -10,000 Needed Covered Position As of May 13, 2008 34 June 5-6, 2008 Citi Investment Research Power, Gas and Utilities Conference
  33. 33. Fuel Flexibility Creates Margin & Fuel Choices Enhanced systems, tools and processes providing the ability to react and adjust blends quickly to match market prices “Fuel Flex” creates value by continuously increasing fuel blend choices – Maximize revenues when real-time market prices are favorable – Minimize costs when market prices are low The Right Fuel at the Right Time 35 June 5-6, 2008 Citi Investment Research Power, Gas and Utilities Conference
  34. 34. Managing Commodity Positions Expected Supply Portfolio for FES* Significant reductions in mostly on-peak energy purchases Expected Total Supply 120 97 94 90 100 (million MWh) 80 60 40 20 0 2008F 2009F 2010F 12 7 9 Forward / Spot Purchases 32 31 32 Nuclear 53 52 53 Fossil, Hydro, Wind Supply numbers exclude JCP&L and firm contract portion of ME/PN •*Assumes move to open market in Ohio in 2009 and beyond. Does not reflect the Fremont plant. 36 June 5-6, 2008 Citi Investment Research Power, Gas and Utilities Conference
  35. 35. Managing Commodity Positions Expected Sales Portfolio for FES* Transition from Power Supply Agreement (PSA) obligations to higher margin sales Expected Total Sales 120 97 94 90 (million MWh) 100 80 60 40 20 0 2008F 2009F 2010F 1 31 29 Retail Auction 12 20 24 Competitive Retail 18 20 21 Forward / Spot Sales 14 19 20 ME/PN PRA Obligations 52 0 0 OH PSA Obligations Sales numbers exclude JCP&L and firm contract portion of ME/PN •* Assumes move to open market in Ohio in 2009 and beyond. Does not reflect the Fremont plant. •PRA- Partial Requirements Agreement •NOTE: Supply includes generation output and forward/spot purchases 37 June 5-6, 2008 Citi Investment Research Power, Gas and Utilities Conference
  36. 36. PJM Capacity Position ME and PN have long-term capacity contracts Beaver Valley nuclear plant (1,779 MW) committed in PJM to cover capacity position Covered capacity prior to RPM auction for planning year 2008-2009 to replace long-term contracts Committed Seneca pumped storage (451 MW) to PJM as a capacity resource for planning year 2009 (commencing in June 2009) PJM Net Capacity FES View (continuing to serve ME and PN PRA) 3500 2500 1500 500 MW (500) (1500) (2500) (3500) 2008 2009 2010 Includes Beaver Valley, Forked River, and Seneca 38 June 5-6, 2008 Citi Investment Research Power, Gas and Utilities Conference
  37. 37. Energy Delivery 39 June 5-6, 2008 Citi Investment Research Power, Gas and Utilities Conference
  38. 38. FirstEnergy Utilities Strong and Stable Cash Flows Large and balanced sales mix – 35% residential, 32% commercial, 33% industrial Constructive regulatory environments – Achieve timely and full recovery of costs – Distribution rate cases pending for all three Ohio utilities – Requested $332M revenue increase (including $120M of deferred cost recovery) – PUCO Staff recommended $114M-$132M increase (including $46M of deferred cost recovery) – PUCO Staff recommended $115M be addressed in subsequent cases T&D infrastructure being upgraded to enhance system reliability and customer service Distribution outage duration reduced by 31% over past two years 40 June 5-6, 2008 Citi Investment Research Power, Gas and Utilities Conference
  39. 39. FirstEnergy Service Areas Customers Square Miles Toledo Edison 313,000 2,300 Ohio Edison 1,040,000 7,000 The Illuminating Company 756,000 1,600 Penelec 589,000 17,600 Penn Power 159,000 1,100 Met-Ed 542,000 3,300 Jersey Central Power & Light 1,087,000 3,200 Total 4,490,000 36,100 41 June 5-6, 2008 Citi Investment Research Power, Gas and Utilities Conference
  40. 40. Reinvesting in the Business Energy Delivery – Striving to Achieve Top-Quartile Performance 2011 Focus Area Key Metrics 2007 2008F Target Reliability Distribution SAIDI (minutes) 131 128 107 Top-quartile performance SAIDI and TOF TOF (per circuit) * 0.72 0.69 0.63 Financial Performance Achieve top-quartile total Total Cost Per Customer $273 $272 $277 spend per customer * TOF has been revised to include all circuits 69KV and above (previously 230KV and above) Total Direct Cost per Customer SAIDI Performance 220 $300 Total Direct CPC 190 SAIDI (Minutes) $270 160 $240 130 100 $210 70 $180 40 $150 10 2005 2006 2007 2008 2009 2010 2011 2012 2005 2006 2007 2008 2009 2010 2011 2012 ED&CS Top Quartile ED&CS Top Quartile 42 June 5-6, 2008 Citi Investment Research Power, Gas and Utilities Conference
  41. 41. Regulated Rate Base and Sales Growth Projected Annual Growth Projected Rate Base – 2011 Regulated Companies (T&D) 2008F Target ($ millions) Net Plant for Rate Base $10,100 $11,000 Capital Expenditures, Net of Depreciation $365 $330 Average Annual (2009F – 2011F) OH PA NJ Growth Rate (kWh) 0.9% 1.7% 2.2% Net Plant for Rate Base ($ millions) $4,420 $3,290 $3,000 # of Customers (millions) 2.1 1.3 1.1 Growing asset base and increased distribution throughput 43 June 5-6, 2008 Citi Investment Research Power, Gas and Utilities Conference
  42. 42. Capital Planning Enhancements Energy Delivery Capital Allocation Tool (E-CAT) Benchmarked leading performers in the area Game Plan: of capital allocation Selected Navigant to help develop capital Target spend with an emphasis on allocation tool based on fundamental improving reliability engineering economics (quantified benefits) Continued focus on operational improvements E-CAT provides the granularity which drives our ability to prioritize thousands of projects based on predicted benefits Capital planning has undergone a fundamental change to enhance our financial discipline 44 June 5-6, 2008 Citi Investment Research Power, Gas and Utilities Conference
  43. 43. Workforce Management Power Systems Institute (PSI) – Started in 2000; partnered with two colleges in Ohio to offer lineworker training – Currently, partnerships with 11 local community colleges and universities across OH, PA and NJ Enrollment/Hires Started 2008F 2009F Graduated Hired 2000–2007 Program Line Workers 276 236 214 123 177 Substation 110 87 82 31 60 Electricians Total 386 323 296 154 237 45 June 5-6, 2008 Citi Investment Research Power, Gas and Utilities Conference
  44. 44. Regulatory / Legislative Matters 47 June 5-6, 2008 Citi Investment Research Power, Gas and Utilities Conference
  45. 45. Retail Regulatory Structure Transition Generation Transmission Distribution Costs Ohio Edison Stable rates RTC thru: Pass thru Fixed rates CEI thru 2008 2008 – OE, TE thru 20081 MISO costs “g + RSC” 2010 – CEI Toledo Edison Market in In CTC ended Penn Power No restriction 2007 Generation Jan. 2006 CTC thru 20102 Met-Ed POLR rates Pass thru No restriction thru 2010 PJM costs CTC thru 20092 Penelec JCP&L BGS Supply No restriction MTC thru 2018 1 CEI fixed through April 2009. 2 NUG recovery thru 2020. 48 June 5-6, 2008 Citi Investment Research Power, Gas and Utilities Conference
  46. 46. Transitioning Generation to Market Prices Industry Restructuring Status New Jersey – Competitive generation service with market-based pricing in effect (Basic Generation Service auction process began in 2002) Pennsylvania – Transition to market-based pricing partially implemented – Penn Power transitioned to market-based pricing in Jan. 2007 – Met-Ed (ME) and Penelec (PN) maintain POLR obligations at fixed rates through year-end 2010 – ME and PN scheduled to transition to market-based pricing in Jan. 2011 Ohio – Utilities transferred generation assets to competitive affiliate FES in 2005 – Utilities maintain POLR obligations at fixed rates through year-end 2008 – Utilities scheduled to transition to market-based pricing in Jan. 2009 49 June 5-6, 2008 Citi Investment Research Power, Gas and Utilities Conference
  47. 47. Transitioning Generation to Market Prices Ohio Legislative Update Existing S.B. 3 – Enacted 1999 – Generation rates to be market-based on Jan. 1, 2009 Amended Sub. S.B. 221 – Signed by Governor on May 1, 2008 – Requires all utilities to file an electric security plan (ESP) – Could also file a market rate offer (MRO) with the following criteria: – Belongs to a FERC-approved RTO – RTO has a market-monitor function and the ability to mitigate market power – A published source exists that identifies information for traded electricity and energy products scheduled for delivery two years into the future – The Commission would test the ESP (pricing and all other terms and conditions) against the MRO and may only approve the ESP if it is more favorable to customers – Bill also contains advanced and renewable energy standards and energy efficiency – Requires annual progress toward 2025 goal of 25% alternative energy – Requires energy efficiency programs to achieve annual progress toward 2025 goal of cumulative energy usage reduction of 22% – Expect to file an ESP in the 2nd or 3rd quarter of 2008 50 June 5-6, 2008 Citi Investment Research Power, Gas and Utilities Conference
  48. 48. Ohio Regulatory Update Distribution Rate Requests Ohio Edison, CEI and Toledo Edison – Case detail (as filed) – Request: $332M increase (7% on overall rates) – Distribution revenue requirements: $212M – Deferral recovery: $120M – Case schedule – Filed June 2007, with 2008 test period and date certain of May 31, 2007 – PUCO Staff report issued Dec. 4, 2007 – Evidentiary hearings held Jan. 29, 2008 – Feb. 25, 2008 – Public hearings held Mar. 5 – Mar. 24 – Main briefs filed Mar. 28; reply briefs filed Apr. 18 – Rates to be effective Jan. 2009 (CEI in May 2009) – Expect PUCO Order in the 2nd or 3rd quarter of 2008 51 June 5-6, 2008 Citi Investment Research Power, Gas and Utilities Conference
  49. 49. Ohio Regulatory Update Distribution Rate Requests (as filed) Proposed Changes in Revenues ($ millions) Total Current quot;Distributionquot; Revenues $1,118 Requested Increase: Associated with RCP Fuel Expense Deferrals 34 Associated with RCP Infrastructure Expense Deferrals 40 Associated with RCP DSM Deferrals (through a rider) 4 Associated with ETP & Ohio Line Extension Deferrals 42 quot;Basequot; Revenue Requirement Increases 212 Total Requested Increase to quot;Distributionquot; Revenues $332 Proposed quot;Distributionquot; Revenues $1,450 Offsetting RTC Decrease ($594) Net Decrease, Including Offsets * ($262) % Decrease, Including Offsets to Total Current Revenues * -5.7% * Assumes current Generation & Transmission rates 52 June 5-6, 2008 Citi Investment Research Power, Gas and Utilities Conference
  50. 50. Ohio Regulatory Update Distribution Rate Requests (as filed) Company PUCO Staff Requested Increase in Revenues ($ Millions) Filing Testimony To be effective 1/09 for OE & TE 1/09; 5/09 for CEI Traditional distribution costs $212 $68 – $86 Recovery of costs deferred under prior rate plans 120 46 Total requested increase to quot;distributionquot; revenues $332 $114 – $132 Key PUCO Staff Testimony Differences Matters to be considered in other cases ($115)* ROE @ 10 to 11% (vs. Co. @ 11.75%) ($35) – ($16) Other issues (net) ($68) * $52M related to expenses in distribution case amount, $63M related to recovery of costs deferred for fuel and post date certain Expect PUCO Order in the 2nd or 3rd quarter of 2008 Timing of requested distribution rate increases coincides with reduction/ elimination of regulatory transition revenues and amortization expenses 53 June 5-6, 2008 Citi Investment Research Power, Gas and Utilities Conference
  51. 51. Ohio Regulatory Update Supreme Court of Ohio Remand on Deferred Fuel Recovery Rate Certainty Plan provided for the deferral of 2006 – 2008 incremental fuel costs – Recovery was planned to occur in distribution rates over 25 years, but Supreme Court of Ohio remanded the recovery mechanism to PUCO – On Jan. 9, 2008, the PUCO: – Authorized concurrent recovery of actual 2008 fuel costs via a fuel generation rider commencing Jan. 1, 2008 (currently projected at approx. $189M) – Directed the Companies to file an alternative recovery mechanism to collect the 2006-2007 deferred fuel costs ($220M) and carrying charges ($6M) – On Feb. 8, 2008, the Companies filed a separate fuel cost recovery rider for the 2006-2007 fuel and carrying charge deferrals – Proposed recovery periods ranging from 5 and 25 years – Evidentiary hearing scheduled for July 15, 2008 54 June 5-6, 2008 Citi Investment Research Power, Gas and Utilities Conference
  52. 52. Ohio Regulatory Update Competitive Generation Procurement Proposal Ohio Edison, CEI and Toledo Edison – On July 10, 2007, filed a comprehensive supply plan for competitively priced generation service to implement market provisions of S.B. 3 effective Jan. 1, 2009 – Proposal includes: – Option to phase in generation price increases for residential tariff groups that experience > 15% increase in avg. total price – Time-of-day and hourly pricing options – Renewable energy component – Competitive bid process (CBP) alternatives – By Customer Class, or – Slice of System 55 June 5-6, 2008 Citi Investment Research Power, Gas and Utilities Conference
  53. 53. Ohio Regulatory Update Competitive Generation Procurement Proposal (continued) CBP process – Descending clock bidding format – Full requirements product (energy, capacity, transmission) – Individual bidders limited to 75% of total customer load – Multiple solicitations; three-year ladder Bids secured in 2008 would be for service beginning Jan. 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) 56 June 5-6, 2008 Citi Investment Research Power, Gas and Utilities Conference
  54. 54. Pennsylvania Regulatory Update Commonwealth Court Appeals & Generation Procurement Filing Met-Ed (ME) and Penelec (PN) Commonwealth Court appeals of rate cases – $109M net increase effective Jan. 2007 – Pending appeals to Commonwealth Court – ME & PN – denial of generation relief and tax expense adjustment – Industrials & OCA – transmission recovery – Oral arguments before panel of judges scheduled for September 2008 Generation procurement filing plan – ME and PN transition to competitive generation market prices on Jan. 1, 2011 – Plan to submit generation procurement proposal in 2008 57 June 5-6, 2008 Citi Investment Research Power, Gas and Utilities Conference
  55. 55. Pennsylvania Regulatory Update Penn Power POLR II Case Penn Power successfully transitioned to competitive generation market prices on Jan. 1, 2007 POLR I RFPs implemented for Jan. 2007 – May 2008 POLR II (June 2008 – May 2011) – Multiple RFPs for residential and small commercial customers – Hourly pricing for large commercial and industrial customers RFP Tranches (50 MW) Group Term Feb 08 Mar 08 Apr 08 May 08 Oct 08 Jan 09 Oct 09 Jan 10 Residential 1 year 0 0 2 2 0 0 2 2 Residential 2 year 0 0 2 2 2 2 0 0 Small Commercial 1 year 3 4 0 0 3 4 3 4 Small Commercial Residential ■ RFPs held on Feb. 20 and Mar. 18 for June 2008 – May 2009 ■ RFPs held on Apr. 14 and May 14 for June 2008 – May 2010 ■ Average price of winning bids was $80.49/ MWH (before line ■ Average price of winning bids was $80.48/ MWH (before line losses, administration fees, and gross receipt taxes) losses, administration fees, and gross receipt taxes) 58 June 5-6, 2008 Citi Investment Research Power, Gas and Utilities Conference
  56. 56. New Jersey Regulatory Matters Jersey Central Power & Light Draft New Jersey Energy Master Plan (Apr. 17, 2008) – Plan goals – Maximize energy conservation and energy efficiency – Reduce peak electricity demand – Meet 22.5% of the State’s electricity needs from renewable resources – Develop new low carbon emitting, efficient power plants to help close the gap between supply and demand of electricity – Invest in innovative clean energy technologies and businesses to stimulate the industry’s growth in New Jersey – Public meetings held Apr. 28 and May 1 – Public roundtable discussions with state and national energy experts tentatively scheduled for late June – Public hearings to be held in July JCP&L focus: Peak demand management and cost recovery 59 June 5-6, 2008 Citi Investment Research Power, Gas and Utilities Conference
  57. 57. Financial Matters 61 June 5-6, 2008 Citi Investment Research Power, Gas and Utilities Conference
  58. 58. Reinvesting in the Business Projected 2008 – 2012 Capital Expenditures* 2009F – 2012F 2008F** ($ millions) Average** Energy Delivery $730 $730 Nuclear 132 259 Fossil 354 168 Corporate/ Other 173 66 Subtotal without AQC $1,389 $1,223 Total with AQC $2,038 ($ millions) 2008F 2009F 2010F 2011F 2012F Air Quality Control (AQC) $649 $500 $156 $11 $4 Change from Prior Year $263 ($149) ($344) ($145) ($7) * Per 2007 10-K **Reflects Fremont plant purchase price of $253.6 million in 2008, but does not yet reflect additional construction costs under study to complete the facility. 62 June 5-6, 2008 Citi Investment Research Power, Gas and Utilities Conference
  59. 59. Reinvesting in the Business Capital Expenditure Forecast* Capital Expenditures ($ millions) Business Project Area 2009F-2012F Unit 2004 2005 2006 2007 2008F** Average** – Aged infrastructure rebuild Energy – Pockets of load growth $445 $724 $650 $746 $730 $730 Delivery – Reliability improvements – Improve managing operating risk – Upgrade aged equipment Fossil $106 $148 $116 $106 $354** $168** – Environmental / fuel enhancements – Availability improvements – Dry fuel storage / license renewal Nuclear $141 $173 $229 $150 $132 $259 – Materials issues – Information Technology, etc. Corporate $29 $45 $39 $108 $173 $66 Sub-Total $731 $1,090 $1,034 $1,110 $1,389 $1,223 Compliance strategy totals - Sammis, AQC $0 $54 $136 $386 $649 $168*** Burger Units, Mansfield and Eastlake Unit 5 Total $731 $1,144 $1,170 $1,496 $2,038 $1,391 * Per 2007 10-K ** Reflects Fremont plant purchase price of $253.6 million in 2008, but does not yet reflect additional construction costs under study to complete the facility. *** AQC annual expenditures include $500M (2009), $156M (2010), $11M (2011), $4M (2012). 63 June 5-6, 2008 Citi Investment Research Power, Gas and Utilities Conference
  60. 60. Conversion of Auction Rate Bonds In early 2008, FirstEnergy’s debt portfolio included $530M of long-term debt sold at auction rates Auction rate market severely impacted by loss of liquidity and weak investor demand – Resulted in higher auction rate resets and failed auctions Securities were repurchased and are currently held in Treasury – Initially funded with short-term facilities – Exposure capped at short-term borrowing rate, currently around 3% On Apr. 22, Met-Ed ($28.5M) and Penelec ($45M) remarketed their former auction-rate bonds into a variable-rate mode supported by an LOC Subject to market conditions, plan to refinance remainder of these securities over the balance of the year in either a fixed-rate or variable-rate mode 64 June 5-6, 2008 Citi Investment Research Power, Gas and Utilities Conference
  61. 61. Acquiring Additional 18.26% Equity Interest in Beaver Valley 2 On Mar. 3, 2008, notice of intent was given that FirstEnergy Nuclear Generation Corp. (NGC) would acquire ownership of an additional 18.26% undivided interest in Beaver Valley Unit 2 (BV2) – NGC is exercising an early purchase option under certain existing BV2 leases originally entered into in 1987 – Purchase price is higher of specified lease casualty values (approx. $239M for equity portion of all nine leases) or fair market value of such interests. – Proposed structure: NGC purchases equity portion from current owners/lessors and becomes the new lessor. The lessor notes of the nine owner trusts that secure lease obligation bonds associated with the debt portion of the original sale and leaseback transactions would remain in place. – Alternative structure: NGC would purchase the equity and terminate the lease. Would require an additional payment of approx. $236M to prepay the outstanding principal of the lessor notes. The bonds are not subject to prepayment. If prepayment of the notes is insufficient to pay the bonds when due, NGC would provide a mechanism to address any such potential shortfall in a timely manner. 65 June 5-6, 2008 Citi Investment Research Power, Gas and Utilities Conference
  62. 62. Achieving Targeted Growth 2008 Earnings Guidance Issued on Dec. 5, 2007 $5.00 Ohio Transition Cost Amortization $0.14 Depreciation & $4.50 General Taxes $0.03 $0.06 $0.05 Other ($0.13) $4.25* Generation $0.04 2007 $4.20* Output Financing Share ($0.10) Outage ($0.04) Costs Buyback Wires O&M Sales Costs $4.00 Growth $3.50 Midpoint 2007 Midpoint 2008 Non-GAAP Non-GAAP EPS Guidance EPS Guidance * See GAAP to Non-GAAP reconciliations in the Appendix. 2008 EPS guidance, excluding special items, is $4.15 to $4.35. On a GAAP basis, 2008 EPS is expected to be $4.23 to $4.43 reflecting $0.08 of special items. 66 June 5-6, 2008 Citi Investment Research Power, Gas and Utilities Conference

×