Good morning, everyone. I'm Ron Seeholzer, Vice President of Investor Relations, and I want to thank you all for coming to FirstEnergy's Analyst meeting today. Before I review today's agenda, I'd like to point out that in your presentation book and up in our slide today, there's a Safe Harbor statement under the Private Securities Litigation Reform Act of 1995. I would ask that each of you review this document closely as you consider the comments we will be making today. As you can see in your books, we're going to have a full agenda today. We're going to start the meeting with Tony Alexander, our President and CEO, who will provide a corporate and strategic overview of FirstEnergy. Tony will be followed directly by Mark Clark, our Executive Vice President and CFO, who will provide our financial outlook. And after his presentation, Mark will take questions. Since today's meeting is being webcast, I would ask everyone wishing to ask a question to wait for a microphone to be brought to you before you start asking it so that everyone in the room and on the webcast can hear it at the same time. In our agenda, we provided for about 10 minutes of questions after each speaker, a process we will work hard to enforce in order to stay on schedule today. Also, in fairness, let's try to limit each person to just one question, instead of one question and 4 follow-ups. If we're unable to answer your question on the individual speakers, please hold them to the end of the meeting because Tony and his senior staff will come back up on stage at the close and take general questions at the end of the meeting. After Mark Clark's presentation today, Bill Byrd, our Vice President of Risk…

Thanks, Ron. Good morning, everyone, and thank you for joining us. I'm excited to be here today to talk about FirstEnergy and our plans to grow our business and increase shareholder value. It's only been about 9 weeks since we completed our merger with Allegheny Energy, and we're already making significant progress in realizing its benefits. Let me start by saying our strategy has not changed. We will continue to focus on our core businesses and on our commitment to operational excellence, retail sales growth, investment-grade credit ratings, and to delivering solid financial results, including maintaining our dividend. I believe this focus, combined with our competitive business, our diverse generating fleet and the scale of our utility operations, will help us become one of the best-positioned companies for growth in this industry. We also offer shareholders a solid and secure dividend with an attractive yield and the potential for very attractive total shareholder returns as the economy improves and we execute our strategy. We operate in 3 business segments and have a substantial position in each, which creates both financial stability and growth opportunities. Our Distribution business has the largest contiguous customer base in the United States, and it will continue to have that after all of the other mergers that have been announced are completed. Our Generation business is one of the largest and most diverse competitive generating fleets in the nation. And our Transmission business is the largest owner of transmission assets in PJM. And we are the only integrated company with significant, independently owned transmission assets. We do not need to grow our business by expanding our rate base. Instead, we are focused on growth through efficiencies, cost controls and making the most of the assets we already have. We will upgrade our facilities to meet increased…

Thank you, Tony. Good morning. Like Tony, I'm excited to be here today. And certainly, appreciate all of your interest in the company. Before I begin, I'd like to introduce the folks who are going to help me answer some questions later. From right to left, Ron Seeholzer, who's Vice President of Investor Relations; Bill Byrd, who is Vice President of Enterprise Risk; Jim Pearson, who is Vice President and Treasurer; and then Harvey Wagner, Vice President and Controller. As Tony mentioned, we have accomplished a lot in a very short period of time. Today, I'm going to discuss the first quarter results and provide a financial outlook for the next 3 years, as you know, a much longer time frame than we have done historically. I will also talk to you about the initiatives that we have in place to produce consistent earnings, positive cash flow and a significantly stronger balance sheet over the next 3 years. Let me start with the first quarter. As Tony alluded to, the first quarter was consistent with our overall expectations. GAAP earnings were $0.15 per share and non-GAAP earnings were $0.69 per share. Normalizing items totaled $0.54 per share. The vast majority of these had to deal with the merger. Either the transaction costs, the costs like legal, banking fees, the cost to achieve, which Gary will talk to a little bit later in terms of integration costs and then the regulatory charges, which are the state settlements. On the operating side, 3 noteworthy points. Residential sales were up 2% as a result of non-normal weather, colder weather. Industrial sales continued their steady climb and were up 6%. And the strongest positive for the quarter, where FirstEnergy Solutions was up a strong 37%. Donny's going to talk a little more about that…

I saw that you are making quite a large contribution for the pension program this year...

I'm sorry, the mic isn't on so I can't hear you. Okay. This is good. You're eating up all 10 minutes. Thank you.

[indiscernible]

No, it brings up the FirstEnergy pension to about 90%. That's in line with what we expect. If interest rates increase, the discount rate will go up and that will close the balance of that gap. Now that's FirstEnergy. Allegheny has some mandatory requirements that are little bit less. They are more around 80%, something in that range. We made the contributions on the FirstEnergy side because it's just tax efficient. We're not certain what the government's going to do in terms of some of the tax deductions and things like that. They encourage having these plans in place since the tax deductions, so we're pretty comfortable that 90% is the right number for FirstEnergy. And there are mandatory issues over the other side that we will address as appropriate.

Believe you mentioned that Allegheny Supply would become a first-tier sub. What plans do you have on integrating Allegheny Supply and FES at some point in the future?

Right now, that's under study from a standpoint of tax. We can't put them together. We'll look at it 12 to 18 months from now, but Jim will address the fact that both AE Supply [Allegheny Supply] and his generation is being managed as one unit, even though, legally, they may be separate, and they will be for tax purposes for at least the next 12 months. And so at this point, there's really no issue for us to spend much time studying that, and we don't plan to.

Mark, could you just give us some insight into what's driving the working capital? Other line is consistently positive over the 3 years.

Really, 2 items. First is we believe we have too much inventory, and we're aggressively attacking the inventory. The second is accounts receivable. It's not so much an issue out at FES. They maybe have too strict a credit limit, but we plan on working aggressively. Chuck's group has done a fabulous job in the accounts receivable and aging process, but those would be the 2 areas that we believe that we can aggressively continue to reduce.

In terms of the other cash flows, you've got a TBD in terms of asset sales, as you get into '12 and '13. Tony inferred in his opening comments that one of the areas that you might be looking at was transmission. You've got almost $2 billion in rate base in your 2 different transmission businesses. Do you see an appetite out there if you chose to monetize those? And is that an area where you think you could raise a significant amount of cash for debt reduction?

That's a good question. First, we continue to own a small piece of OVEC. We also have a small piece coming in from Allegheny Energy. As we've always said, OVEC does not fit our strategy. We prefer to manage our own units, the results are some peaking units, Richland/Stryker which are around 400, 448 megawatts They're not core to the business when you put them in conjunction to the Allegheny assets. There are some small fiber type assets that we have sold ours off at FirstEnergy, we plan on selling Allegheny's office. And specific answer to your question on transmission, I think we get a phone call every day on transmission, but as Tony alluded to, that's under study. There is no need to look aggressively at that. We have a plan in place that produces positive cash flow for each of the next 3 years without doing anything with the Transmission business other than study it. And at this point, we're very pleased with it. It diversifies our earnings. It helps strengthen the dividend. And it's a great asset to own, and we plan on studying it as Tony alluded to.

In terms of the -- can you discuss at all the compliance strategy that -- for the supercritical units that you plan on pursuing in order to comply with the EPA regs, particularly mercury and HAPs [hazardous air pollutants]?

That's a great question, because I don't have to answer it. Jim Lash has all that detail in his presentation. But thank you for getting me off the hook on that last question.

Jim has a lot of detail. He has a specific PowerPoint slide on it. So I'll leave it to Jim to discuss, and you guys are off the hook. And Bill is going to come up and discuss the issue of how we manage our risk and the glide path, and why we believe we create more margin through our retail strategy. Thank you very much.

Good morning. I'd like to talk about 3 topics with you all this morning. First, I want to talk a bit about our retail strategy and the risk profile of that retail strategy at our competitive business units. Second, I want to update you on our formal commodity risk limits that have been updated reflecting the close of the merger. And third, I want to mention briefly our collateral outlook. First, on the risk profile of the retail strategy at our competitive business unit. And I call this chart the value proposition of the retail strategy. Looking at this stacked bar in the middle of the chart, starting at the bottom, we own power plants, we generate electricity, and we can sell that electricity to the wholesale market, and we could capture the wholesale price. And the difference between that price level and our production costs would just be the margin that accrues to a generator. And some companies, that is their business model, okay. They sell to the wholesale market and take that margin. But we are after a higher pricing level. We are after that retail price. But in order to get our product from the wholesale market down to that retail meter, we have to incur additional costs, okay. These cost components to provide the retail service are things like RTO charges. That's network integration service, the administrative charges of the RTO. Anybody serving a retail customer typically has to provide a quota of Renewable Energy. We have to provide capacity, shaping and balancing energy and line losses, all of these additional costs are incurred in order to capture that higher retail price. Those costs are incurred, we sell our product at the retail price and capture a margin, the retail price in excess of our cost.…

I wanted to ask about Slide 3. You have a variety of things in the retail margin that are often associated with the wholesale markets, like capacity, ancillary services. I'm just wondering whether -- what the actual additional margin that comes from retail? If you could sort of quantify just how important -- how much more you're going to be getting by sort of ramping up the retail -- if you could just give us a flavor as to what that means from a bottom line perspective? Do you follow me?

I understand completely and I will respectively refrain from providing any numbers. We view the numbers as a competitive issue. And what we're trying to do with that chart is explain the value proposition. We are not going to lay out specific numbers for each of those cost components; that would provide extremely useful information to our competitors in the marketplace in their pricing activity.

How about just sort of in the aggregate, though, I guess. I mean as opposed to breaking it out, as much as we all might like that. But how about just sort of just a general flavor as to just how critical, in terms of margin, this increase in retail activity is?

It's significant and it's a meaningful value proposition for us to pursue. But again, I respectfully want to refrain from quantifying.

Would legally combining FirstEnergy Solutions and Allegheny Supply sometime in the future be beneficial from the risk perspective; hedging, collateral posting, netting perspectives?

Limited. The merger closed February 25. As of February 25, those entities were managed as one. It was absolutely critical that we have one face in the marketplace. We've internally set up things so that, that is the fact. And that's the issue from a risk perspective. We have a consolidated position report. We manage as one. The legal structure is secondary from a risk perspective. There will be small benefits if we would consolidate, it's not a driver, it's not a high priority. As Mark mentioned, there's tax issues and all that sort of thing. But from a risk perspective, we view it as one already. The legal entities can stay separate.

You talked about hedging revenue. Is your approach to hedging fuel the same as approaching revenue? Are you using like the same percentages year-on-year?

Our philosophy is similar. The numbers will be different, and our metrics for our fuel book are still under development and being vetted with management.

I'm just wondering, I know you want to focus on the retail and signing customers up there, but if retail is going in slow, how willing are you to engage in wholesale hedges? As you're looking at the chart on Page 7, you're going along to that lower extreme, it seems like at some point, those might be easier to get. I mean is there a reason to maybe go that way in certain circumstances?

The lower bound of our glide path, if the retail portfolio does not bring in sufficient volume of contracts, or our participation in polar options does not provide a sufficient hedge percentage, then we would go to the wholesale market and hedge with pure wholesale contracts. It's not our desired mode of operation, but in order to meet our risk tolerance, we would do that. And in that activity, we would be very much cognizant of potential collateral needs and liquidity impacts, and the strength of our balance sheet.

And is that something that you would tell us, “Oh, of our hedges, a third of them are wholesale,” just so that we can kind of have an understanding that, that's going to have implications as to what the hedging results are going to do?

That's something we hadn't talked about. Something we'll consider soon. With that, let's take a break and maybe if we could reconvene at 9:30, and we would like to adhere to that time, mindful of the folks listening via the Internet. We'll reconvene at 9:30 promptly. Thank you. [Break]

Okay, good morning. Welcome back. I don't know if anybody else even notices, but when they turn the lights out in the room just prior to the utility guy getting up to talk, it kind of puts a little bit of a nervous edge on things, especially here in New York City. But anyhow, good morning. Over the next 15 minutes or so, I'll be updating you on our FirstEnergy Utilities and our transmission system. I'll cover a little bit about our scale and scope, operating philosophy and key financial determinants, and I'll wrap up with a discussion of some of our energy efficiency mandates. The merger with Allegheny has brought a broadened scope to our utility operations. We're now the largest investor-owned utility network in the United States, serving more than 6.1 million customers across 6 states. Our customer load profile is equally split between residential, commercial and industrial load, creating a well-balanced portfolio and strong stable regulated cash flow. Our footprint also provides us both geographic and regulatory diversity. Our utility strategy is fairly simple. Operating reliably and meeting customer service expectations ensures we remain in good stead with our regulators. In the first quarter, American Customer Satisfaction Index, FirstEnergy Utilities ranked sixth out of 26 participating companies, and we increased our percentage by 4 percentage points over 2010. This helps us achieve regulatory margin, which in turn, allows us to work to maximize our utility cap structures and our earnings. And we've already launched initiatives to ensure we capture all assigned merger benefits. As you can see from this slide, from 2006 to 2009, we have made steady improvement in distribution reliability in both the legacy FirstEnergy and the legacy Allegheny operating companies. 2010 was a little bit of an anomaly. We had 40-plus days of 90-degree…

How much spending are you doing on the energy efficiency program and then separately, on the ROEs for the Transmission business, you said for ATSI, it was 12.4% ROE on the new investments. Is it also that ROE on your legacy assets?

It's 12.4% return through a formula rate. So what basically works through ATSI is we look at our rate base. We earn 12.4% on that rate base that's within ATSI, which right now is a little over $600 million, and then we recover the expenses annually which drives the revenue requirement for ATSI on an annual basis. On the energy efficiency spending, that number is going to be probably for 2011 in excess of $200 million. We have a number of programs that are filed and awaiting approval. But if they all get approved, it could ramp up even as close to $250 million.

Yes, two things. First, on the transmission. If you look at the rate base you have and the ROEs, it would look like you'd get to about $0.25 of earnings, not $0.30 to $0.35. Are you able to lever up the transmission? Or can you actually do better than the allowed ROEs? And then the other question is on the regulated distribution businesses, can you stay out of any rate cases in all states for a pretty extended period? Do you have any commitments that have to come in or you pretty well can kind of stay out?

Okay. On the first question, I think the answer is that what I'm showing you is the allowed rate of return at the transmission company level. What Mark's talking about when he looks at earnings is how the earnings roll up to the Hold Co. level. So obviously, there are things that go on with re-leveraging, if you will, between the two, which drive that difference. On the distribution front, our allowed rate of returns vary from 9.75% to 12.9%, I think, where we tend to try to stay right around those. We might get a little above or a little below, but we manage our investments. That's one of the advantages of having the diversity that we have, is we can move our capital requirements around to kind of balance those needs almost on a real-time basis. So we try to keep them all. And I think on an aggregate basis, I think you would expect to see us kind of stay right around those allowed rate of returns, which should not drive too much in the way of new rate cases.

I wonder if you could elaborate a little bit on your comments on the Smart Grid. If I remember correctly, you said that the company's view is that it doesn't want to impose costs on customers in excess of what -- the benefits that they might enjoy through operational and other savings. And then I think you also said that you're not planning to roll out the Smart Grid at a rate in excess of what's required by the regulatory authorities. Is...

Well, right now, what I said is we're approaching it from a customer-focused perspective, which means that we want to ensure that long term, the benefits exceed the costs. So on Smart Grid in particular, we did apply for and received a Department of Energy grant to do a Smart Grid pilot. We're actually doing 2 Smart Grid pilots, one in Pennsylvania and one in Ohio. And we're going to use those pilots to study the benefits. And there are 2 sets of benefits. There are benefits to the customer and there are benefits to the management of the grid that we're going to study. And you put them all together, and then based on those pilots, I think we'll be in a very better-informed position to decide, do Smart Grid investments really makes sense for both the industry and the customer?

Where do you see the principal savings and customer benefits being realized?

Well, I think from a customer's perspective, there could be a lot of benefits. You put a Smart Meter on the house, you give them real-time information about how they're using energy and at some point, real-time pricing as to what the pricing of that energy is. We've got customers right now that have a Smart Meter on their house, and they've got a little handheld device that they can carry from room to room and it tells them in real time how much they're using at that point in time. And it's driving behavior already even without the pricing to match. So I think that's the real benefit from a customer perspective, is they can get smarter about how and when they use their energy. And then that also translates back to the grid management benefit because if you can get customers to use it smarter and to be more flexible, then you can avoid investment that's needed to drive because our whole system is built to manage at a peak-load level. So the more you can do to manage around that peak, that's where the grid management benefits can come in. Okay. Thank you. Turn it over to my partner, Jim.

Well, good morning. First off, I'm joined on the stage by Charlie Lasky, who is our Vice President of Fossil Operations. Today, I plan to give you a short overview of the FirstEnergy's Generation fleet following the merger with Allegheny Energy. I will touch on the benefits of integrating fossil and nuclear plants, essentially managing all of our units as a single fleet. I will discuss our plans for improving performance of our generating units with the objective of operational excellence. I want to discuss briefly the important challenges that we face in terms of lessons learned from the Japanese nuclear event and the pending Environmental Protection Agency regulations. And finally, I will introduce some opportunities, noteworthy opportunities, afforded us by this new and larger generating fleet. As you can see, we have a diverse generating fleet that is spread over most of our service territory. The capacity of this fleet is just over 23,000 megawatts. And if you consider only the competitive capacity, we will be the second largest generator in PJM. As you know, we will complete our transition to PJM in June of this year. And finally, the merger has augmented our capacity to the East, affording us better access to those markets. Our fleet employs a balanced fuel mix. It is approximately 64% coal, 17% nuclear and 20% gas, hydro, wind and pumped storage. As a whole, the coal portion of our fleet is newer and more efficient than the national average. In fact, 3/4 of our fleet, fossil fleet, output, is provided by supercriticals, which are higher efficiency, newer and lower operating cost units. From an environmental control standpoint, as Tony has already said, more than 80% of our fleet from a capacity standpoint, and 90% of what we actually produce is low or non-emitting…

I was wondering if you could just share a little more thoughts, if you look at Slide 35, in the appendix, you show the movement in coal plant performance to first quartile, first decile for the entire fleet, which would be better than where you guys have been. Can you share a little more on how you anticipate getting to that higher level of performance out of the fleet?

Well, first off is we intend to improve those metrics to top quartile, top decile by, again, as I've said, focusing on the reliability of them; focusing on the material condition and eliminating the human performance issues that take them offline unexpectedly. And secondly, we are assuming that the market conditions will support running those units as they are available for achieving those capacity goals.

Okay. And just one other. On the $2 billion to $3 billion of potential EPA-related capital spending, how much of that money would be economic to spend today in the current market conditions? And how much of the capital is currently anticipated in the capital spending budget?

I couldn't hear the first part of your question, but the -- could you repeat it please?

Yes, how much of that $2 billion to $3 million would be economic to spend today in the current commodity price environment? So based on the current forwards, how much of that money would you actually spend where you get an economic return? And then how much of that is already in the capital spending budget?

Well, the cash flow on that $2 billion to $3 billion that I referred to, when we look at those modifications, it does enter into the 2012 and 2013 capital portfolio. Worst case scenario is the $3 billion, and that does put a little pressure on 2013. But a more reasonable scenario really falls within line on the capital portfolio that we've already presented.

On the 3 million extra megawatt-hours, to what extent are you using the forward curve or are you using a different set of assumptions? It sounds like based on your answer to Dan's question, that you were using something different than the forward curve. And can you also give a sense of how different from the forward curve are the assumptions that you're using and what the sensitivity is to those terawatt-hours?

Well, I don't think the assumption of the 3 million, and I'm repeating myself, I know, is that, that is what we think our capability of -- for the competitive supercritical units by dispatching them, changing the dispatch strategy, ensuring they are reliable, they're ready to run when called upon and that, again, is focused on the plant material condition and human performance, and that the market is there to place those units in service, based on it. And that dispatch strategy would reflect that.

So then you are assuming the forward curve when you dispatch those units, is that the right answer?

Yes, we are.

With regard to the last slide, growth opportunities 2011 to 2013, can you give us an idea of how much it will cost to achieve the entire package? And specifically, can you talk about the cost related to the compressed storage project if you were to go forward with that?

There's an asset team right now that is studying those options and I have seen some of the numbers for the projects. For example, the West Lorain project, there's a couple of options there, and they're in the $1,500 per kilowatt range, both of those. I do not have the cost numbers on the gas plant.

Just a clarification, I believe, on Dan's question from before. The $2 billion to $3 billion, are we to assume that -- how much of that is in the free cash flow, the corporate free cash flow projections for -- through 2013?

There is none of it captured specifically as projects, but as you have heard already, we have created some set-aside capital money to implement those projects. And as I've said, if we look at the $3 billion, which is the worst case scenario, the cash flow for those projects puts some pressure on that number for 2013. But again, a more reasonable rollout of that rule, and we won't know for sure until it goes final. But a more reasonable implementation of that rule does fit within our capital projections. Okay. I think that's it. And with that, I'll turn it over to Donny Schneider. Thank you.

Thank you, Jim. Good morning. I'm Donny Schneider, and I'm President of FirstEnergy Solutions. I have responsibility for retail sales, commercial operations, fuel procurement and unit dispatch. Joining me here on the stage is my staff, starting at this side. Jim Melody is my Vice President of Fuels and Unit Dispatch; Kevin Warvell is Vice President of Commercial Operations; Arthur Yuan is Senior Vice President of Sales and Marketing; and Dena McKee is our Controller. Here are the items that I'll be covering this morning. I'm going to start out by looking at our major initiatives. We'll then take a look at FirstEnergy Solution's strategy, the markets that we compete in, how we use a multichannel marketing approach to be successful in those markets. We'll take a look at our fuel cost, and then I'll wrap up by looking at our risk management strategy. Let me start by highlighting who FirstEnergy Solutions is. According to KEMA's most recent report, FirstEnergy Solutions is now the second largest nonresidential, and the sixth largest residential retailer in the nation. With total sales of approximately 100 terawatt-hours, FirstEnergy Solutions has more sales than 90% of the utilities in the United States. We have 1.5 million customers and our total revenue is $5.7 billion. If you were to look at FirstEnergy Solutions as a standalone company, we would rank number 370 on the Fortune 500 list. And more importantly, today, we're generating more margin than we did as a regulated utility. FirstEnergy Solutions is strategically located in the center of the eastern competitive markets and we use that position to offer better prices to customers and capture greater share and margin. And because our plants were designed to serve our customers, at the lowest cost, we now produce about 95% of what we sell. As…

It seems like one of the big opportunities with the Allegheny purchase was to essentially take their -- how they're selling their power and market it in a more efficient way. Could you maybe talk about the competitive landscape going forward? It seems like last week, we had another announcement that Constellation and Exelon are trying to achieve the same thing and how does that play into your strategy going forward and do you see risks in the competitive marketplace because of that?

That's a great question. Relative to Constellation and Exelon, two very, very good companies, obviously, they're going to be very competitive. But one thing that I look at it is that: A, it's good for the marketplace. Constellation and Exelon think very similar to us when it comes to the construct of the marketplace. And so in a lot of ways, I think that they'll be an ally in helping to push forward some of our initiatives on the way that marketplace ought to develop. So sure, they'll be a tough competitor. But in the main, I think it'll be good for us to have that help that we need to push the marketplace forward.

Have you guys, I guess, try to continue to expand the retail business and maybe go broaden markets, does that -- or would you guys have interest in acquiring further assets? Is that going to eventually lead to that strategy? I mean, obviously, that's at bat, so the areas where you don't have assets, it kind of leads to the conclusion that, that would be somewhere you would be going.

Yes, I think really your question is around growth. And I think initially, in the timeframe that we're talking about here, we would look at growth from our existing asset base as we mentioned, as I think Jim mentioned, we're looking at 3 terawatt hours of additional output. Obviously, within our home and close-to-home markets, there's ample opportunity to take those terawatt hours to the marketplace. In addition to that, we'll continue to work on reducing our costs to help grow our earnings contribution. So I think if there's anything from an asset procurement, it would probably be quite a ways down the line.

Yes, Donny, could you be a little more detailed on the coal strategies and just maybe a little more explicit on where can you source coal more effectively? And in that context, just the risk of higher transport costs given the energy environment we're in and have you encompassed that in your forecasts?

Sure. That's a great question, Steve and I'll take the 30,000-foot shot at it and then I might ask Jim to get a little more specific. Over the last 15 years, one of the things that we've really perfected at FirstEnergy Solutions is being able to take advantage of fuels that are not necessarily attractive to most of the generators. We were one of the first movers to step into Powder River Basin in a big way, and we were able to do that with much less capital investment than some of our competitors. Years ago, we were burning some distressed coals. At one point, when I was running the Mansfield plant, we even burned petroleum coke. It's very high heat. There's some downsides to it. But the bottom line is, is that we will take advantage of every opportunity we can find to reduce our fuel cost.

As Donny said, we're going to look at all of the opportunities, all the different types of fuel blends. I can't give a lot of specifics. We have an RFP on the Street right now for a very wide spec of fuels and we will evaluate those on a delivered basis. Our strategy is to say, "What is the cheapest cost fuel delivered to the boiler?" So we're going to take the transportation costs into account in finding and executing the opportunities to create the value here.

Yes, my question is more on retail competition. As you increase your market share and penetrate other service areas, how are they reacting from a pricing point of view? Could this lead to a price war in the industry and lose the margins?

That's a great question about a price war, and I might ask Arthur, our Senior VP of Sales and Marketing to help me on that. Generally, we're not seeing that today. I don't know what the future would hold, but today, in a lot of cases where we've established long-term relationships, sometimes we'll go head-to-head against the competitor. Other times the customer, as long as the customer feels like we're treating them fairly and that our price is kind of in the range that they want to see, we're not seeing a lot of competition. So with that, maybe, Arthur, would you like to add anything?

I would just say that it depends on the marketplace. I mean we're -- we see a lot of competition maybe in -- out east, for example, you'll see in PJM territories, specifically like in PT&L you may have 10 competitors, whereas in Duquesne you might have 3 or 4 competitors going after one RFP or one particular customer. So it really depends on the marketplace. Even in Illinois, for example, you'll see many competitors in ComEd territory. But you'll see quite a few less in Amory. So it really depends on the marketplace. And yes, we do expect to see more competition, but we've actually been holding our own pretty well without a lot of price compression in the marketplace, in the markets that we consider home.

Donny, two quick questions. The incremental 3 terawatt hours from running the Allegheny plants more efficiently, that's on top of the 110, so 113 ultimately? Or is that baked into that 110?

Jim's numbers and my numbers are consistent. So when you look at the slide, I think the 3 terawatt hours are burnt into the slides in 2013.

Got you. And then the second part is, relative to your revenue slide, it looks like the 110 terawatt hours and $6.6 billion of revenue somewhere in the neighborhood of $60, which looks like that $59 that you're expecting. How do you maintain those revenues flat over time from '11, '12 and '13 with capacity prices falling somewhere near $450 million, $470 million.

Yes, so that's a great question. And I would have been surprised if I didn't get that question. I think you're probably referring to Slide 38 in the appendix, Slide 37 in the appendix. So on Slide 37 of our appendix, we provided more detail than we have in the past. You can see by year, by sales channel, what our volumes are, what our rates are expected to be and, of course, then the resulting revenue. And so the real question comes down to this: What is my level of confidence of being able to achieve those sales rates at those prices? And it's a very high. If you look at those glide paths that I showed earlier, and that Bill Byrd showed earlier, for 2012, today we have about 66% of the volume locked down. We didn't show the corresponding revenue, but I look at it every week, and today we have about 66% of the revenue locked down. For 2013, we have about 1/3 of our volume locked down. We have about 1/3 of our revenue. So right now, we're right on glide path for both volume and revenue. So confidence is very high.

On the government aggregation, you have your projected volumes growing by 30%. It's my understanding, some of the states are not, like Pennsylvania, are not in favor of aggregation. So is this primarily in Ohio, outside of your existing territory?

Well, let me address the Pennsylvania piece first. Pennsylvania is obviously working through a process. I think their objective is to figure out how to bring savings to retail customers. And we look forward to working with the state. I think our interests are aligned there. We would like to serve more customers and bring savings to those customers in Pennsylvania. But we'll just have to see how that plays out. State of Ohio, obviously, we've had good penetration. There's still quite a bit that we can do in the state of Ohio. In our Southern Ohio, what we refer to as close to home, we've made penetration in all but one EDC. From a government aggregation perspective, we're going to continue to push in those EDCs. And of course, Illinois has a government aggregation. And with that, I think I'll turn it over to Gary Leidich. Thank you.

Okay. Well, thank you very much, Donny, and good morning, everybody. It's delightful to see you all today. What I'd like to do is talk a little bit about kind of where we are with the Allegheny Energy and FirstEnergy integration process. Little bit of review on the process and kind of what we said we were going to do last May and what we are doing. Quite a bit on projected merger benefits and costs to achieve and how we measure those. Try to give you some very specific examples on some opportunities across the enterprise, probably you've already heard from a number of speakers on what we're doing in, particularly in the operating side of the business. I want to spend a little bit of time in tracking the merger benefits. Most companies go through these grand announcements, and as they're end of the merger, they declare victory about how well they're doing, but they really have a hard time trying to figure out if they're really getting what they said they were going to do. And I want to talk about the process that we have in place to ensure that we do what we say we're going to do and that the merger benefits are very real and they're tangible, and they're highly transparent within the organization. And then finally, what I'm going to do is a little bit of translation because most of my presentation is in cash. And then, of course, you're all interested in earnings, so we'll do a little bit of translation from how we look at it from a team perspective with cash, and then translating that to the earnings benefit. Talk a little bit about the process. So let me start with that. A number of us have been involved…

Well, thanks again for joining us today. I'd also like to thank my team, not only for their presentations today but for their diligence in executing our strategy. This team has a track record of doing what they say it's going to do. We said we'd separate our generating assets and we did, and we're the only utility in Ohio to do so. We said we'd successfully transition to competitive electric markets in Ohio. We did and now the others in the state are scrambling to catch up. When the economy dropped in 2009, we said we'd achieve $350 million in O&M savings. We did, and those savings are still benefiting our company because they produced a lower cost structure. And we said we'd complete our merger even when the regulatory environment seemed unreceptive to M&A activity. We did, and the merger will be accretive this year ahead of our initial expectations. Today, we've described our plans for achieving strong financial results with consistent earnings, positive cash flow and a strong balance sheet. We've described how we'll grow our competitive business, accomplish steady improvement in our distribution business and achieve the benefits of the merger. And I'm very confident that this team will, in fact, deliver on these commitments. It is an exciting time for FirstEnergy, and we're looking forward to taking advantage of the opportunities this market, this new organization, this business and our industry will bring to us. Thank you very much. Now I'll take some questions, if you have any.

Tony, just one clarification I wanted. To what extent are those merger benefits on the commodity side based upon current forwards?

There's been a lot of confusion with respect to forwards and how they look at our commodity margin that we're showing as merger savings. The fact of the matter is, the way we look at it is where the margin opportunity is, and the forward prices are not impacting the margin expectations that we laid out initially, or the margin expectations that we're using today with respect to our ability to capture those as part of the merger benefits. So it's really a margin analysis difference between what Allegheny could achieve given their strategy versus our strategy of going to retail.

So that $59 of expected revenue is good at the current curve?

Yes, it is. As Donny said, he's already locked down about 33%-or-more of it. Well, while I'm waiting for another question, there's one thing I'd like to clarify for everyone. There was a question asked earlier, I think to Jim about the timing associated with capital expenditures for environmental expenditures that we might anticipate as the result of the new rules. Obviously, the 2012 and 2013 capital budgets have a line item that say it could be up to $100 million, and that is burned into the numbers that you've seen today. What we're looking at from the standpoint of additional cost to cover the $2 billion to $3 billion that we may have to spend depending on how the rules work out. The way we're looking at those is basically, we're not likely to see those in this time frame in any significant or substantial amount above what we've already identified. We probably wouldn't start construction on any of those types of facilities until very late in 2013, if then. So it's more likely a 2014 and '15 type of event or beyond. So I hope that clarifies how we're looking at it at this point in time. Right now, we think the $100 million that we have in the budgets for '12 and '13 will help us get through probably the initial kinds of engineering work that's going to be necessary before you can decide what you're going to do at each specific site.

And Tony, just to further clarify on the $2 billion to $3 billion of environmental. How much of that would potentially be in the merchant business as opposed to regulated generation?

Well, at this point, almost all of that would be in the competitive side of the business. It's all dealing with supercritical plants. We would not anticipate expenditures on the non-supercritical facilities.

Okay. Is there -- would you care to speculate on sort of where that money would be spent? Would it be on scrubbers or bag houses, and sort of what units?

I don't -- every unit's going to have to be looked at individually. We only have one supercritical unit that is not scrubbed at this point. Every other supercritical unit we have is scrubbed. Many of them have SCRs on them. Many of them have advanced precipitation equipment on them. Some of our facilities already have bag houses on them. So much of what's going to take place over the next year or so is to understand how all the rules work at a specific site because there's site averaging allowed in some of the rules and how you apply them. So as we look at each facility, each unit, then we'll decide what's the best compliance strategy to meet the requirements that may be in existence for that facility. So again, it's very, very site-specific in the main. You're probably talking about bag houses in many areas and that type of retrofit. But the rest of the basic equipment on our supercritical fleet is in pretty good shape in terms of having scrubbers on, having SCRs on many of the units, having cooling towers on many of the facilities. I mean, we're -- our fleet itself is fairly modern with respect to pollution control equipment at this point.

I was wondering if you could discuss the funds from operation forecast. It trails down between '11 through '13. And I want to make sure that the roll down is basically, I think, a loss of depreciation like regulatory mechanics, is that right?

I'll have Mark get into that, but I think the largest component of that drop off in cash is the bonus depreciation going away. So you're seeing increased federal income taxes at that point, which are not otherwise offset in '11 and '12.

Okay. So the 3 to 3.2, that would be barring any material changes in market prices, et cetera. That is kind of a good steady state number to think about?

Yes.

Okay. With your asset sale proceeds of $800 million to $900 million, does that incorporate -- is that just true cash or does that incorporate like if you had debt on Signal Peak that, that debt may be retired? Like how do I think about that number?

Well, that is the cash component of it. The Signal Peak, as you know, we do consolidate the debt at Signal Peak even though we don't own 100% of that asset. That debt on sale would be deconsolidated. So it would no longer be part of the debt structure of the company.

But then that would be in your debt reduction target of like $1.5 billion to $2.2 billion?

Yes.

Okay. And then you didn't -- I see debt-to-cap targets but I didn't see any FFO-to-debt numbers, and I was wondering if you could talk to where you expect FFO-to-debt to trend towards at the different, like at the unregulated, the corp and maybe the utility generally.

I'm going to turn that over to Mark. I think they're all going to be with inside the credit rating metrics. So Mark, if you want to add any more color than that, go ahead.

You did so well on the first 2 questions. We are targeting investment grade, our desire is to move it to the middle of the B range across the board, and the FFO targets that we have would align to that.

Tony, you talked in the generation discussion about deferring certain Allegheny capital projects. Could you, a, maybe quantify how much of that is a benefit? And secondly, are they deferred or a combination of deferred and canceled? And in what sort of time frame for the deferred would that come back to you?

That's why I asked Gary to be up here. I'm not -- again, I look at the company from the standpoint of overall processes. Obviously, things get deferred, they get pushed back, they might be added in at a later point. Things have, in fact, been canceled. And I think it's a balance overall every year as we look at the capital budgets. Gary, do you have anything else you want to add on that or have some examples?

Yes, it's a combination of deferred and canceled projects. And the range is about $200 million to $250 million over the 3-year period. A number of different things, not any one big thing sticks out. But I will tell you in the early years, particularly in '12, there were some environmental projects that Allegheny was going to do that we're not going to do. We're going to see how the game gets played. And so consistent with our environmental strategy, which is let's see how this plays out, as Tony alluded to, those expenditures are more likely to come in, in the '14, '15 time frame. So we're not going to do anything we don't need to do. It's that simple.

Tony, Mark had mentioned earlier that the debt paydown would -- may or may not happen depending on how big a premium it would be to pay down some of the debt and it would be a net-type number where you kind of keep cash on the balance sheet. How can you help us mitigate the potential temptation to deploy that cash while it's on the balance sheet? And how long would you expect to kind of keep that cash there to maintain that net number that Mark was talking about?

I'll like, lay it out for you, that is our expectation, that is in fact how we're going to manage this business. So whether or not we have opportunities to take out longer-term debt with high premiums, that's just a function of what's the best use of your cash. We clearly have opportunities to take out pollution-control notes that can also be issued at a later date when it becomes more advantageous, if you will, to take and pay additional call premiums on longer-term debt. So there are ways to balance it. We'll hold the debt. We know what we need to accomplish over the next several years. We've laid out a game plan for you, and that's the game plan we're going to follow.

Just some clarification on your unscrubbed coal plants. Are you -- am I interpreting you correctly that you're still trying to ascertain how many of those plants you might scrub or shut depending on how the final rules come out? Or do you have an idea in your mind of how many megawatts do you might ultimately shut? And then additionally, about your competitors sort of around you, as you look at the competitive market, how many megawatts do you think will be shutting around you based on HAP/MACT?

I think somebody already earlier today talked about how many megawatts they think people will shut down potentially in PJM. I'm more focused on what we need to do as a company. And as I look at our options right now, many of the smaller older coal fire fleet just simply would not be economic to put on additional environmental equipment. It's far more economic for us to use that capital that we would have otherwise deployed in a 50-year-old plant to either modernize the fleet someplace else along the mining of the asset strategy that we've laid out, to spend more dollars in terms of making the plants that we already have more efficient, the ones that will in fact survive or to add to the fleet by either expanding at the compressed air facility or expanding our gas facility at West Lorain. So I think those are the trade-offs you make. The best part about FirstEnergy portfolio at this point is that, in fact, it has options within its fleet to replace the generation that might otherwise be lost as a result of these new environmental requirements. And that loss, I think, is identified as about 9 million megawatt hours a year, so not a significant part of the overall fleet generation and well within our capability of increasing the performance of our other facilities to cover.

Just a follow-up on the debt reduction and having this net debt number. Have you considered actually defeasing some of the debt because that would actually accomplish the same thing?

We've looked at all the different options. We also think interest rates are going to go up, premiums will come down. There are some issues that we can get today. There's $500 million due at Allegheny Energy Supply next year, $300 million due at CEI. So there's a lot of debt already coming due, not significant, but still out there. And we have looked at that specifically.

Okay. Again, thank you very much for your support. We truly do appreciate it at FirstEnergy. And we are working to make this company a very special place to work and a very special place for our shareholders. Thank you for your interest.