PRIVILEGED & CONFIDENTIAL — FOR INTERNAL USE ONLY

Shale Gas One Power Industry Perspective

Lauren QuamManager, Market Analytics

FirstEnergy Solutions

2

Who is FirstEnergy Solutions

Competitive subsidiary of FirstEnergy Corp.– Nation’s largest investor-owned electric utility based on serving six

million customers

– Ten utilities throughout OH, PA, NJ, MD, VA and WVA

Fourth largest retail supplier of electricity in US to C&I accounts

– Fifth largest retail supplier to residential electric accounts

FES’ family of companies owns approximately 21,000 MW of unregulated generating capacity

– Non-emitting nuclear, scrubbed baseload coal, natural gas, pumped-storage hydro and other renewables

3

FirstEnergy’s Unregulated Generating Sources

Coal

Gas/Oil

Hydro

Wind

Nuclear

Coal

Gas/Oil

Hydro

Wind

Nuclear

OhioOhio EdisonThe Illuminating CompanyToledo Edison

PennsylvaniaMet-EdPenelecPenn PowerWest Penn Power

West Virginia/Maryland/VirginiaMon PowerPotomac Edison

New JerseyJersey Central Power & Light

4

States We Serve

Michigan

Actively serving and selling

5

Natural Gas Industry Background Previously

– North America would be increasingly reliant on Liquefied Natural Gas (LNG) imports to:

– Meet a growing natural gas demand

– Replace declining domestic production

– Future natural gas prices would be strongly influenced by global gas/oil prices

– Natural gas as a fuel for power generation was limited to a peaking role

Today– Domestic gas reserves measured in decades and centuries

– Massive volumes for small increments in drilling expense

– Relatively low long-term gas prices – North American natural gas prices are effectively de-coupled from global gas prices

– Poised to become a “more baseload fuel” due to low emissions and cost

6

Outline

Power market mechanics

Historic gas and power prices

Key issues for the power industry

Role of natural gas in power sector

Impact of unconventional plays like Marcellus/Utica

7

Electricity Market Fundamentals

Demand Curve (Load)

Load Shape

Load Growth

Supply Curve (Generation):

Generation Stack Makeup

Generation Stack Costs

Baseload

Intermediate / Load Following

Peaking

Inc

rea

sin

g V

ari

ab

le (

Dis

pa

tch

) C

os

t -

$/M

Wh

Time – Hours (Months, Years)

8

$6.45 $6.94$9.04

$3.85 $4.56

0

5

10

2006 2007 2008 2009 2010

$6.45 $6.94$9.04

$3.85 $4.56

0

5

10

2006 2007 2008 2009 2010

$4.96$4.16$7.49$7.73 $10.36

0

5

10

2006 2007 2008 2009 2010

$4.96$4.16$7.49$7.73 $10.36

0

5

10

2006 2007 2008 2009 2010

Natural Gas “Spot” Price

Kingsgate

PG&E Citygate

Ventura

Panhandle

Tetco M2

Transco Z5Henry Hub

Dominion North Point

Source: Intercontinental Exchange 10x Day Ahead Natural Gas Pricing Report (Weighted Average Index $ per mmBtu.)

9

Electricity “Spot” Price (On-Peak)

Source: ISO Day-Ahead prices from PJM, ISO New England, CAISO, ERCOT, MISO and SPP where available. Otherwise daily physical power prices from Enerfax

10

Ozone (O3)

PM/PM2.5

'08 '09 '10 '11 '12 '13 '14 '15 '16 '17

Begin CAIR Phase I

Seasonal NOx Cap

HAPs MACT proposed

rule

Revised Ozone NAAQS

Begin CAIR Phase I Annual

SO2 Cap

-- Adapted from Wegman (EPA 2003) Updated 01-12-11

Next PM-2.5

NAAQS Revision

PM Transport

Rule

SO2 Primary NAAQS

SOX/NOxSecondary

NAAQS

NO2

Primary NAAQS

SOx/NOx

CAMR & Delisting

Rule vacated

Hg/HAPS

Transport Rule proposal issued (CAIR Replacement)

HAPs MACT final rule expected

CAIR Vacated

HAPS MACT Compliance 3 yrs

after final rule

CAIR Remanded

CAIR/Transport

Begin CAIR Phase I

Annual NOx Cap

316(b) proposed

rule expected

316(b) final rule

expected316(b) Compliance3-4 yrs after final rule

Effluent Guidelines

proposed ruleexpected

Water

Effluent GuidelinesFinal rule expected

Effluent GuidelinesCompliance 3-5 yrs

after final rule

Begin Compliance Requirements

under Final CCB Rule (ground

water monitoring, double liners,

closure, dry ash conversion)

Ash

Proposed Rule for CCBs

Management

Final Rule for CCBs Mgmt

Final Transport Rule Expected

(CAIR Replacement)

CO2

CO2 Regulation

(PSD/BACT)

Ozone NAAQS

Revision

Transport Rule Phase I

Reductions

Transport Rule Phase II

Reductions

Ozone Transport

Rule

GHG NSPS Proposal

GHG NSPS Final

Environmental Regulatory Timeline

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Expected Results of Environmental Regulation

Effect on coal plants:

– Estimated 9 GW to 90 GW coal plants will be retired

– Remaining plants retrofitted with environmental controls

Natural gas fired power plants:

– Existing plants will be required to generate more

– New natural gas fired power plants will be constructed, further adding to power sector gas demand

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Wide Range of Retirement Expectations

13

2010 PJM Supply Curve

14

2010 PJM Supply Curve Based on $9 Gas

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End result…Opportunities

Natural gas plants will play increasingly important role in setting the hourly price of electricity and in energy production in general

Power sector gas demand could increase by 8-9TCF/year (~25%) by 2020

– This represents about 1/3 of the total power sector electricity production and about 1/3 of the total US natural gas demand

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Final Points Marcellus/Utica shale production contributes to healthy

economies and strong domestic natural gas supply

– Strong economy benefits the power sector; however, lower gas prices lead to lower electricity prices

Power industry’s generation fleet is changing, with natural gas expected to become an increasingly important fuel

Local natural gas resources like Marcellus and Utica are key to future U.S. natural gas supply picture

New market dynamics set the stage to achieve “operational synergies”