Merrill Lynch Global Power & Gas Leaders Conference

Transcription

1 September 26, 2006 Merrill Lynch Global Power & Gas Leaders Conference Anthony J. Alexander President & CEO

2 Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995 Forward-looking Statements: This discussion 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 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 United States Attorney s Office, the Nuclear Regulatory Commission and the various state public utility commissions as disclosed in our Securities and Exchange Commission filings, generally, and with respect to the Davis-Besse Nuclear Power Station outage 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 completion of the share repurchase program announced August 10, 2006, 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. 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 by, the assigning rating organization. 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 declaration. 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 2

3 Strategic Focus Managing transition to competitive markets Transition from POLR to market based generation rates Active engagement in legislative and regulatory processes Realizing full potential of our asset base Reinvesting in generating fleet to provide platform for growth Investing in T&D to enhance system reliability and customer service Controlling commodity costs and mitigating supply risk Effectively hedging commodity positions Capitalizing on coal delivery optionality and fuel switching capability Enhancing financial strength and flexibility Providing consistent and predictable financial results Compelling long-term growth potential Strategic Focus 3

4 Managing Transition to Competitive Markets Pennsylvania Met-Ed and Penelec Transition Rate Plan Filings Addresses transmission, distribution, power supply, NUG and CTC recovery issues Met-Ed $216M ~19% Proposed Rate Increases Penelec $157M ~15% Phasing out of FES POLR supply through 2010 Initial RFP in process for residual POLR supply (12/01/06 12/31/08) Approximately 950 MW (Met-Ed 500 MW, Penelec 450 MW) Evidentiary hearings completed and main briefs filed Expected timeline: Reply Briefs (Oct 6) ALJ Recommended Decision (by Nov 8) Commission Order (by mid-january) Managing Transition to Competitive Markets 4

5 Managing Transition to Competitive Markets Pennsylvania Penn Power POLR to Market POLR load approximately 4.6 million MWh / 900 MW RFP conducted for POLR supply from 1/01/07 5/31/08 Results for all 18 tranches approved by PPUC Residential 7 tranches (up to 350 MW) Small Commercial 6 tranches (up to 300 MW) Large Commercial 5 tranches (up to 250 MW) Next steps: Final compliance filing and tariff approval Managing Transition to Competitive Markets 5

6 Managing Transition to Competitive Markets Ohio Senate Bill 3 Ohio Restructuring Legislation (July 1999) Generation Asset Transfer completed (Nov 2005) Rate Certainty Plan approved (Jan 2006) Stable transition for customers and companies through 2008 Ohio Supreme Court affirmed all major provisions of the Rate Stabilization Plan (July 2006) FE Ohio utilities expect to file plans for competitive RFP program for retail electric service in late September POLR loads to transition to market-based generation (Jan 2009) Managing Transition to Competitive Markets 6

7 Realizing Full Potential of Asset Base Generation Diversified, Balanced, and Cost-Effective Portfolio Focus on higher capacity utilization, improved reliability, and lower incremental production costs Managing to market conditions Forecasting on 8760 hour-per-year basis Daily review and reforecast allows for dynamic market scheduling Optimizing generation deployment across PJM and MISO Establishing New Output Records (million MWh) Fossil & Hydro E 84E 29 Nuclear Fleet well positioned for environmental compliance Over 60% of generation produced by non-emitting or low-emitting units AQCS Compliance Program - $1.6 $1.8B over Utilize outages to incorporate additional operational benefits Expected production costs increase less than $3/MWh on fleet basis Realizing Full Potential of Asset Base 7

8 Realizing Full Potential of Asset Base Generation Diversified, Balanced, and Cost-Effective Portfolio Cost-effective capacity uprates Renewable portfolio additions Long-term purchase power contracts from third-party wind-turbine facilities 360MW+ by end of 2007 Potential opportunities Re-powering projects Additional turbine upgrades License renewal for 20-year life extensions planned for all nuclear units (MW) Total Nuclear Davis-Besse Beaver Valley Beaver Valley Total Fossil Mansfield Mansfield Mansfield Total Total Uprates Realizing Full Potential of Asset Base 8

9 Realizing Full Potential of Asset Base T & D Investing to Enhance Reliability and Customer Service Transmission System Aggressive approach to vegetation management Increased aerial and foot patrols Infrastructure improvements Distribution System 5-year $600M Accelerated Reliability Improvement Program Targeted to reduce outages, restoration time, and customers affected Leveraging technology to enhance customer service New outage mapping tools pinpoint pockets of poor reliability and better manage storm restoration efforts Good system reliability and customer service Key to favorable regulatory outcomes Realizing Full Potential of Asset Base 9

10 Controlling Commodity Costs & Mitigating Supply Risk Effectively Managing Commodity Exposures % Hedged Electricity 100% 100% Coal only* 100% 100% Coal Transportation* 100% 100% SO 2 * 100% 100% NOx* 100% 100% Nuclear Fuel* 100% 100% * Represents the percentage hedged of total forecasted generation. Balanced, economic and flexible coal supply 2006 coal mix (42% NAPP, 38% PRB, 20% CAPP) Contract prices are below market, but escalate over time Controlling Commodity Costs & Mitigating Supply Risk 10

11 Enhancing Financial Strength and Flexibility Attractive Financial Position Strong cash generation profile Generating funds from operations of $2B+ Deploying cash to increase shareholder value Attractive dividend and growth targets $600M accelerated share repurchase implemented (10.6M shares) Effectively managing capital structure Maintaining investment grade credit profile Reducing holding company debt and appropriately capitalizing utilities for regulatory proceedings Maintaining substantial liquidity Increased and extended credit facility to $2.75B Enhancing Financial Strength and Flexibility 11

12 Managing Transition to Competitive Markets Compelling Long-Term Growth Potential Generation asset transfer OH rate plans, including approved Rate Certainty Plan (RCP) OH transmission rate rider PA transmission deferrals Met-Ed and Penelec Transition Plans Partial POLR RFP Penn Power POLR to market OH POLR to market OH distribution rate cases in 2008 Net reduction of transition cost amortization ($238M) 2011 Met-Ed & Penelec POLR to market End of transition cost amortization ($266M) Step-change events enable significant upside EPS potential Managing Transition to Competitive Markets 12

13 FirstEnergy Positioned for Success Effectively managing transition to competitive markets Efficient, low-cost generation fleet Realizing full potential of asset base Reinvesting for continued growth Controlling commodity costs and mitigating supply risk Financial strength and flexibility to seize strategic opportunities Significant Earnings Growth Potential Positioned for Success 13

14 September 26, 2006 Merrill Lynch Global Power & Gas Leaders Conference Appendix

15 2006 Key Accomplishments Regulatory Ohio Rate Certainty Plan approved Deferral of PJM transmission charges granted Met-Ed and Penelec Transition Rate Plan case in progress Penn Power RFP for POLR service completed Operational New generation output records set Air Quality Compliance strategy finalized Complex outage at Beaver Valley Unit 1 completed in world-record time App-2

16 2006 Key Accomplishments Commodity Supply Long-term coal contract with CONSOL Energy extended Commodity positions hedged through 2007 Financial 2006 EPS guidance increased 10.6 million shares of common stock repurchased $182.4M of JCP&L transition bonds issued App-3

17 FirstEnergy Service Territories Pennsylvania Ohio New Jersey Customers Square Miles Ohio Edison 1,038,000 7,000 Illuminating Company 763,000 1,600 Toledo Edison 314,000 2,300 Met-Ed 534,000 3,300 Penelec 588,000 17,600 Pennsylvania Power 158,000 1,100 Jersey Central Power & Light 1,072,000 3,200 Total 4,467,000 36,100 App-4

18 FirstEnergy s Strengths Attractive Customer Base Electric Customers 5th Largest Balanced Sales Mix Ohio 2.1 million Residential 35% Commercial 32% New Jersey 1.1 million Pennsylvania 1.3 million Industrial 33% App-5

19 FirstEnergy Generation Stryker 18 MW Michigan Sumpter 340 MW Toledo Bay Shore 648 MW Lake Shore 249 MW Cleveland Eastlake 1,262 MW Perry 1,260 MW Ashtabula 244 MW Seneca 435 MW Erie Towanda Yards Creek 200 MW Richland 432 MW Davis-Besse 897 MW West Lorain 545 MW Edgewater 48 MW Akron New Castle Johnstown Pennsylvania Harrisburg Reading Morristown Newark Allenhurst Trenton Mad River 60 MW Columbus Ohio W. H. Sammis 2,233 MW R. E. Burger 413 MW Beaver Valley 1,667 MW Bruce Mansfield 2,410 MW Plant Load Strategy York Haven 19 MW New Jersey Forked River 86 MW Baseload MW Load Following MW Peaking Units MW FirstEnergy Power Plants C Coal 7,389 MW N Nuclear 3,824 H Hydro 654 G Gas & O Oil 1,599 Total 13,466MW Mansfield 1-3 2,410 Beaver Valley 1,2 1,667 Perry 1,260 Sammis 6,7 1,200 Davis Besse 897 Eastlake Bay Shore York Haven 19 Total Baseload 8,186 Sammis 1-5 1,020 Eastlake Bay Shore Burger Lake Shore 245 Ashtabula 244 Total Load Following 2,952 West Lorain 545 Seneca 435 Richland 432 Sumpter 340 Yard s Creek 200 Burger 3 & EMDs 101 Forked River 86 Mad River 60 Other 129 Total Peaking Units 2,328 App-6

20 FirstEnergy s Strengths Competitive Generation Portfolio 13,466 MW Balanced Mix Expected 2006 Output Nuclear 28% Hydro 5% CT 12% Baseload 60% Intermediate 23% Nuclear 36% Fossil 55% Peaking 17% Fossil 62% Peaking 2% App-7

21 Nuclear Refueling Outage Schedule 2006 BV Unit 1 Steam Generator Replacement DB Refueling Outage BV Unit 2 Refueling Outage 2007 PY Refueling Outage BV Unit 1 Refueling Outage 2008 DB Refueling Outage BV Unit 2 Refueling Outage App-8

22 Coal Supply Balanced, Economic, and Flexible Contract prices are below market but escalate over time Coal Supply 2006 Coal Mix by Origin (tons) Annual requirement of million tons Increasing usage of PRB coal % % % % NAPP 42% PRB 38% CAPP 20% App-9

23 Fuel & Transportation Optionality Ability to adjust to market conditions Coal Delivery Optionality MW Rapid Rotary Lake Discharge Dump Barge Freighter Rail Rail Truck Mansfield 2,410 Sammis 2,233 Eastlake 1,262 Bay Shore 648 Ashtabula 244 Additional rail car capacity added to facilitate higher rail delivery tonnage Fuel Flexibility 8 units can burn any of 3 coal types and can switch quickly 9 additional units can operate within a wide blending range App-10

24 Improving Reliability and Customer Service Accelerated Reliability Improvement Program Targeted at reducing outages, restoration time, and customers affected Implementing right-of-way vegetation management reclamation project Initiative began 1/01/05 Leveraging technology to enhance the quality of customer service Initiated interactive voice response technology (IVR) New outage mapping and analytical tools to pinpoint pockets of poor reliability and better manage storm restoration efforts App-11

25 Retail Regulatory Structure Generation Transmission Distribution Transition Cost Ohio Edison CEI Toledo Edison Stable rates thru 2008 g + RSC Pass thru MISO costs Fixed rates thru RTC thru 2008 OE, TE 2010 CEI Penn Power Market in 2007 Met-Ed Penelec POLR rates thru No restriction No restriction 3 CTC ended Jan 06 CTC thru CTC thru JCP&L BGS Supply No restriction MTC thru CEI fixed through April CTC recovery can be extended; NUG recovery thru Comprehensive transition rate plan filed, including requests for general rate increases. App-12

26 Regulatory Update New Jersey JCP&L Non-Utility Generation Cost Request Filed for $165M increase in NUG cost recovery Increase in cash flow; earnings neutral Evidentiary hearings held Sept , 2006 App-13

27 Enhancing Financial Strength and Flexibility Capital Structure Management Ohio Edison issued $600M unsecured notes (6/06) Proceeds used to redeem all OE preferred stock and repurchase common equity from parent FirstEnergy redeemed $400M of its $1B senior notes due Nov 2006 (7/06) JCP&L securitized $182M of transition bonds (8/06) Proceeds used to redeem all JCP&L preferred stock and reduce short-term debt Renewed and upsized FirstEnergy and Subsidiaries Credit Facility (8/06) Increased from $2B to $2.75B App-14

28 Enhancing Financial Strength and Flexibility Common Share Repurchase On June 20, FirstEnergy s Board authorized a share repurchase program up to 12 million shares On August 10, FirstEnergy repurchased common shares through an Accelerated Share Repurchase program 10.6 million shares at $56.44 ($600M) Funded with short-term debt Long-term funding based on markets conditions App-15

29 Enhancing Financial Strength and Flexibility Providing Consistent & Predictable Financial Results 2006 EPS Guidance* Initial Guidance $3.45 $3.65 PA Transmission Deferrals + Distribution throughput Projected lower wholesale prices Revised Guidance: Aug 1, 2006 $3.65 $3.85 Cash Generation** Aug 1, 2006 $460M Note: See GAAP to non-gaap reconciliation on Investor Relations section of website ( * Excluding unusual items. ** After payment of capital expenditures and common dividends. App-16

30 Strong Liquidity Position Company Company Type Type Term Term Maturity Maturity Amount ($M) Amount ($M) FE Corp. RCA* 5-year August 2011 $ 2,750 FE Corp. Bank Lines Various Various 120 OH & PA Utilities A/R Fin. 1-year 2006 / * Revolving Credit Agreement. Total $ 3,420 Substantial liquidity available $2.2B available borrowing capacity as of Sept. 15, 2006 App-17

31 Credit Ratings Summary As of December 2005 Corporate Credit Rating (S&P) / Issuer Rating (Moody's) / Issuer Default Rating (Fitch) Senior Secured Senior Unsecured Preferred Stock S&P Moodys Fitch S&P Moodys Fitch S&P Moodys Fitch S&P Moodys Fitch FirstEnergy Corp.* BBB Baa3 BBB BBB- Baa3 BBB Ohio Edison BBB Baa2 BBB- BBB+ Baa1 BBB+ BBB- Baa2 BBB BB+ Ba1 BBB- Cleveland Electric Illuminating Co. BBB Baa3 BB BBB Baa2 BBB- BBB- Baa3 BB Toledo Edison BBB Baa3 BB BBB Baa2 BBB BB+ Ba2 BB Pennsylvania Power BBB Baa2 BBB- BBB+ Baa1 BBB+ BBB- Baa2 BBB BB+ Ba1 BBB- Jersey Central Power & Light BBB Baa2 BBB- BBB+ Baa1 BBB BB+ Ba1 BBB- Metropolitan Edison BBB Baa2 BBB- BBB+ Baa1 BBB+ BBB Baa2 BBB Pennsylvania Electric Co. BBB Baa2 BBB- BBB+ Baa1 BBB+ BBB Baa2 BBB On July 18, 2005, Moody s revised its outlook on all companies to Positive from Stable. On Oct. 3, 2005, S&P raised its corporate credit rating on all companies to 'BBB' from 'BBB '. S&P also raised the senior unsecured ratings at the holding company to 'BBB ' from 'BB+'. On Dec. 23, 2005, Fitch raised Rating Outlook to Positive from Stable. App-18

32 Deploy Cash to Increase Shareholder Value Dividend Policy Annual growth target of 4 5% Long-term payout ratio target of 50 60% Dividend Increases: Payment Quarterly Change from Annualized Date Rate Prior Period Rate 4Q $1.50 1Q % $1.65 4Q % $1.72 1Q % $1.80 App-19

33 Capital Expenditures ($ millions) E Energy Delivery $ 724 $ 631 FENOC 173 * 225 * Fossil Corporate/Other Subtotal $ 1,088 $ 1,021 AQC** Total $ 1,144 $ 1,156 * Includes capital costs of $73M in 2005 and $119M in 2006 associated with steam generator and vessel head replacement at Beaver Valley Unit 1. ** Air Quality Compliance App-20

34 Capital Expenditures Excluding AQCS expenditures, annual capital expected to remain at approx. $1B in 2007 and 2008 Energy Delivery: approx. 65% of total (including Accelerated Reliability Program of approx. $125M per year) Nuclear 15% Fossil 15% Corporate 5% AQCS Compliance Program Encompasses both CAIR compliance and NSR settlement Current projection in the range of $ B over Peak spending expected to occur during App-21