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Annual Reporting 20 ANNUAL 12REPORT Financial hIghLIghts kEy AccOmplishments • maintained annual dividend of $2.20 per share • Achieved a 42 percent increase in the number of retail • Reduced our projected environmental spend to customers served by our competitive subsidiary, $975 million, down from an original estimate of FirstEnergy Solutions (FES) $2 billion to $3 billion • Grew competitive sales by 10 percent, to nearly • Strengthened our balance sheet by contributing 100 million megawatt-hours $600 million to the pension plan • Improved distribution reliability financials at A glancE (dollars in millions, except per share amounts) 2012 2011 2010 Total REvenues $15,303 $16,147 $13,339 NET INcOmE $771 $869 $718 BASIc EARNINgS per common share $1.85 $2.22 $2.44 DILuted earningS per common share $1.84 $2.21 $2.42 DIvidends paid per common share $2.20 $2.20 $2.20 BOOk value per common share $31.29 $31.75 $29.47 net cash from operatiNg ActivitieS $2,320 $3,063 $3,076 FES CuStomErS SErvEd (in millions) 2012 2.6 2011 1.8 2010 1.5 0 0.5 1 1.5 2 2.5 3 CompEtitivE rEtAiL sales (in millions of megawatt-hours) 2012 99.7 2011 90.1 2010 80.2 0 10 20 30 40 50 60 70 80 90 100 CompETITIVE gEnErAtion output (in millions of megawatt-hours) 2012 96.5 2011 96.5 2010 74.9 0 10 20 30 40 50 60 70 80 90 100 on the cover: Our Pleasants Power Station located along the Ohio River in Willow Island, W.Va. mESSAgE TO OUR ShAREhOLDERS The actions we took in 2012 will help position your company to compete and succeed. In the face of a continuing weak economy and new regulations that are increasing costs and adversely impacting competitive markets, we are focused on expanding our competitive business and aggressively managing our capital and operating expenses. Our competitive subsidiary, FirstEnergy Solutions (FES), achieved 42 percent growth in its customer base through the continued execution of its retail sales strategy. With more than 2.6 million customers, FES is now well positioned for future growth as market prices improve. We pursued cost-effective measures designed to enhance the reliability and efficiency of our regulated utility operations – including strategic investments that are expected to maintain the integrity of our transmission and distribution system while providing a solid base of revenue for our company. We also reorganized certain areas of our business to ensure more appropriate staffing levels, reduced operating expenses at several of our large fossil plants, and implemented other operational efficiencies and improvements to better position our fleet. In addition, we maintained our current, annual common-stock dividend of $2.20 per share as well as our investment-grade credit rating at each of our operating companies. BUILDINg ON A SOUND BUSINESS STRATEgy I’m confident we’re pursuing the right strategy for your company. By achieving strong performance in our three core businesses – generation, distribution and transmission – we can deliver greater financial stability and growth for our company and shareholders. This strategy builds on the diversity of our assets, one of our key advantages in the energy business. We have a clean and highly efficient generating fleet, 10 regulated utilities across multiple states, and one of the nation’s largest transmission systems. STRENgThENINg OUR cOmPETITIVE position On the competitive side of our business, we have pursued an asset-backed strategy that primarily targets customers within our regional footprint, including those outside our traditional regulated service area. Over the past three years, we’ve used this approach to achieve an increase of more than 300 percent in the number of retail customers served. 1 We’ve been especially successful in our efforts to sell electricity to governmental aggregation groups. In 2012, FES signed contracts with nearly 200 communities, including more than 150 in Illinois. By the end of the year, FES served these groups with 17.3 million megawatt-hours – a 10 percent increase over 2011. We also are focusing more of our efforts on residential mass markets. Using targeted marketing and advertising campaigns, we’ve grown our competitive business by adding 166,000 residential mass market customers since the start of 2012, primarily in Pennsylvania and Ohio. And, we intend to continue these efforts by expanding our reach into markets throughout our region. We are strong advocates of competitive markets and customer choice. In 2012, we successfully fought to remove several regulatory barriers to competition in all the states FES serves – particularly Ohio. These efforts helped create new retail sales opportunities for FES in Ohio’s central and southern regions and, importantly, made it easier for customers to choose their generation supplier. By providing more choices to customers, we’re working to ensure the output of our generating plants is closely aligned with the load we’re adding through competitive markets, and that we can efficiently serve the energy needs of our retail customers. To improve the productivity of our generating fleet, we initiated more efficient fuel and dispatch strategies, reduced our maintenance costs, and enhanced our operational flexibility. For example, at Unit 2 of our Beaver Valley Power Station, we took advantage of a scheduled outage to install new low-pressure turbines that are expected to enhance plant efficiency, lower costs and increase output. In addition, we opened new Emergency Operations Facilities for our Perry, Beaver Valley and Davis-Besse nuclear power stations. In the unlikely event of an emergency, these facilities would be used to monitor environmental conditions and support efficient communications with state and local emergency officials. 2 INVESTINg IN OUR REgULATED OPERATIONS maintaining the integrity of our transmission and distribution system not only helps deliver reliable service to our customers, but also helps support our dividend by providing a stable source of revenue. This has become more challenging, with electric sales in our utility service area remaining essentially flat over the last five years, primarily due to difficult economic conditions. Nevertheless, we have been able to find opportunities to improve our service, stabilize revenues, and position the system to meet the requirements of our customers. Toward that end, we expect to invest $700 million through 2016 in transmission upgrades to help us maintain system reliability following the deactivation of several older coal-based power plants. These projects include construction of a transmission line from our Bruce mansfield Plant to a new substation near cleveland. An additional $300 million in transmission projects are planned this year for northern Ohio, Pennsylvania, West Virginia, New Jersey and maryland. In addition, we’re building a new transmission operations facility in Akron for our American Transmission Systems, Inc. (ATSI) subsidiary. The center will feature advanced computer systems to monitor grid reliability across our service area. Eventually, we will move the transmission and subtransmission operations of several FirstEnergy utilities to the new facility to maximize efficiency. We’re also enhancing the reliability of our distribution system through targeted investments in new technologies that provide us with greater information on system conditions and customer usage. And, we’ve introduced new features – including our online 24/7 Power center and greater functionality on mobile devices – that make it easier for customers to manage their accounts and stay informed when outages occur. Several recent actions are designed to help ensure timely and appropriate recovery of these and other investments in our regulated operations while offering significant benefits to customers. For example, the Public Utilities commission of Ohio approved an extension of our Ohio utilities’ Electric Security Plan through may 31, 2016, which will enable us to continue offering market-based prices to our customers during the next three years. To improve plant efficiency, new low-pressure turbines were installed during a planned refueling outage at Unit 2 of our Beaver Valley Power Station in Shippingport, Pa. hatfield’s Ferry Power Station, masontown, Pa. 3 In West Virginia, our mon Power and Potomac Edison utilities submitted a proposal to the Public Service commission that, if approved, would transfer full ownership of the harrison Power Station to mon Power. The move would help ensure a continued supply of reliable, low-cost power to West Virginia customers, using coal mined in the state. RESPONDINg TO WEAThER EmERgENcIES Several major storms battered our service area in 2012, including the most destructive storm we’ve ever faced, hurricane Sandy. In June, an unusually powerful and long-lasting thunderstorm, known as a derecho, affected approximately 1.4 million customers across our mon Power and Potomac Edison service areas, as well as parts of West Penn Power and Ohio Edison. hurricane Sandy made landfall on October 29, inflicting unprecedented and widespread damage across our service area. Following the storm, nearly 2.6 million of our customers were without service, and we experienced significant outages in every state we serve. In New Jersey, damage from the hurricane was compounded by a nor’easter that impacted our service area during the restoration effort on November 7. Disciplined planning and preparation in advance of hurricane Sandy resulted in the largest mobilization of crews, equipment, material and support in our company’s history. more than 20,000
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