Future Direction of the Nuclear Industry Developing a

Future Direction of the Nuclear Industry: Developing a Path Forward Paul Harden Sr VP & Chief Operating Officer First. Energy Nuclear Operating Company April 2018 Spring 2018 LLW Forum Meeting

The Markets for Electricity First. Energy Nuclear Operating Company Spring 2018 LLW Forum Meeting April 17, 2018 2

Regional Transmission Organizations (RTOs) ■ About 60% of U. S. power supply is managed by RTOs – Independent, membership-based, nonprofit organizations – Ensure transmission reliability and optimize supply and demand bids for wholesale energy and capacity markets Midcontinent ISO First. Energy Nuclear Operating Company Independent Electricity System Operator Spring 2018 LLW Forum Meeting April 17, 2018 3

Restructuring Map First. Energy Nuclear Operating Company Spring 2018 LLW Forum Meeting April 17, 2018 4

U. S Electricity Generation Fuel Sources* 2014 13% 1% 27% 2016 39% 20% Natural Gas Nuclear Coal Renewables 15% 1% Oil In April 2015, natural gas overtook coal as top fuel for electricity generation for the first time ever at U. S. generating stations with 31% gas, 30% coal and 20% nuclear** 34% 30% 20% *Source: U. S. Energy Information Administration ** Source: New York Times, July 13, 2015, with data from U. S. Dept. of Energy First. Energy Nuclear Operating Company Natural Gas Nuclear Spring 2018 LLW Forum Meeting Coal Renewables April 17, 2018 Oil 5

Available Generating Capacity RTO Capacity Margins* 70, 0% 60, 0% 50, 0% 40, 0% 30, 0% 20, 0% 10, 0% 2014 2015 2016 PJM MISO 2017 E NE+NY ISO 2018 E ERCOT 2019 E 2020 E 2021 E WECC Markets forecasts point to continued over supply of generation *Source: U. S. Energy Information Administration First. Energy Nuclear Operating Company Spring 2018 LLW Forum Meeting April 17, 2018 6

Natural Gas Forwards (as of 1/19/18) Henry Hub Spot Gas Monthly History and Historical Monthly Forwards $14 $12 $10 $8 $6 $4 $2 $0 янв- янв- янв- янв- янв- янв- янв 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 Historical forwards always showed upward price expectations but are now relatively flat First. Energy Nuclear Operating Company Spring 2018 LLW Forum Meeting April 17, 2018 7

Market Conditions AD Hub RTC Average Forward Energy Price & PJM RTO Cleared Capacity Price $50 $180 2018 - 2019 $160 2017 - 2018 2016 - 2017 $140 $40 2019 - 2020 $35 $100 2020 - 2021 2016 - 2017 Capacity Price (MWd) $120 $80 $60 $40 $30 $20 ма р1 ма в- 3 й 13 ию л 13 се н 13 но я 13 ян в 14 ма р14 ма й 14 ию л 14 се н 14 но я 14 ян в 15 ма р15 ма й 15 ию л 15 се н 15 но я 15 ян в 16 ма р16 ма й 16 ию л 16 се н 16 но я 16 ян в 17 ма р17 ма й 17 ию л 17 $0 13 $25 ян Avg Forward Price (MWh) $45 Avg Energy Price (All Years) Capacity Price MWd Linear(Avg Energy Price (All Years)) Cleared capacity prices have declined from $165/MWd in 2018/2019 to $77/MWd in 2020/2021 planning years Data: Forward energy prices are the average, AD Hub around-the-clock price forwards as of each date in the periods above First. Energy Nuclear Operating Company Spring 2018 LLW Forum Meeting April 17, 2018 8

Market Conditions | Forward Energy Prices AD Hub RTC Forward Energy Price 2017 – 2021 as of July 20, 2017 $50 $40 $35 $30 $25 8 й 18 ию л 18 се н 18 но я 18 ян в 19 ма р19 ма й 19 ию л 19 се н 19 но я 19 ян в 20 ма р20 ма й 20 ию л 20 се н 20 но я 20 ян в 21 ма р21 ма й 21 ию л 21 се н 21 но я 21 ма р1 в- 18 ма 17 ян я- 17 н- но се л 1 7 $20 ию Avg Forward Price (MWh) $45 RTC Forward Pricing Linear(RTC Forward Pricing) The forward trendline suggests that energy prices will remain at currently depressed levels through 2021 First. Energy Nuclear Operating Company Spring 2018 LLW Forum Meeting April 17, 2018 9

Market Effects on Nuclear Operators First. Energy Nuclear Operating Company Spring 2018 LLW Forum Meeting April 17, 2018 10

Domestic Nuclear’s Greatest Challenge ■ Nuclear facing competition from renewables, low-priced natural gas – Natural gas plants or renewables setting the market price for electricity – Renewables can be profitable at negative market prices due to tax subsidies ■ Flat demand growth for electricity & rising generating capacity – Suppresses electricity market prices ■ Reactors at risk of premature shutdown despite safe and efficient operations – Nuclear plants in competitive markets face the greatest near term risk exposure – Some nuclear plants facing challenges in regulated markets as well ■ Imperative to remain focused on improving performance – In the past 5 years industry average performance has improved O&M ↓ >6%, Capex ↓>38%, Fuel ↓>10%, Capacity Factor ↑>6% – During same period competitive market prices have declined more than 30% First. Energy Nuclear Operating Company Spring 2018 LLW Forum Meeting April 17, 2018 11

Cash Flow | Illustrative Example ($ per MWh) Coal Nuclear CC Gas Revenue per MWh 1 $23 $30. 2 Fuel 26 7 24 O&M 16 21 3 Cap. Ex 4 5 1 $47 $34 $28 1000 MWe Plant Costs per MWh 2 Assuming energy and capacity prices of $27/MWh and $77/MWd with industry average capacity factors of 60% for coal, 92% for nuclear & 87% for gas 2 Average cost data from U. S. Energy Information Administration 1 Even ignoring market impacts from renewables, gas can set an unsustainable price for coal & nuclear First. Energy Nuclear Operating Company Spring 2018 LLW Forum Meeting April 17, 2018 12

Nuclear Plants Closing in Restructured States Nuclear plant that has closed / announced closure Nuclear plant seeking / received assistance Operational nuclear plant Restructured state First. Energy Nuclear Operating Company Spring 2018 LLW Forum Meeting April 17, 2018 13

Nuclear Plants Are Closing Prematurely Plant Location MW License Expiration Premature Closing Date Reason for Closure Kewaunee Wisconsin (MISO) 556 2033 2013 PPA ended, low energy and capacity prices Vermont Yankee Vermont (ISO-NE) 620 2032 2014 Low energy and capacity prices Fort Calhoun Nebraska 478 2033 December 2016 Cheaper to purchase elsewhere Fitz. Patrick New York (NYISO) 838 2034 February 2017* Low energy and capacity prices Ginna New York (NYISO) 610 2029 March 2017 * Low energy and capacity prices Clinton Illinois (MISO) 1, 098 2026 May 2017** Low energy and capacity prices Quad Cities Illinois (PJM) 1, 880 2032 May 2018** Low energy and capacity prices Oyster Creek New Jersey (PJM) 625 2029 October 2018 Palisades Michigan (MISO) 800 2031 2022 Pilgrim Massachusetts (ISONE) 690 2032 May 2019 Low energy and capacity prices Indian Point New York (NYISO) 2, 080 2035 (renewal April 2021 Low energy prices, public opposition Perry Ohio (PJM) 1, 260 2026 (eligible for May 2021 Davis-Besse Ohio (PJM) 900 2037 May 2020 Beaver Valley Pennsylvania (PJM) 1, 800 2036 / 2047 May/Oct 2021 Low energy and capacity prices. On March 31, 2018 First. Energy Solutions, all of its subsidiaries, and FENOC voluntarily filed petitions under Chapter 11 of the Federal Bankruptcy Code. Three Mile Island 1 Pennsylvania (PJM) 803 2034 September 2019 pending) license renewal) Cost to comply water discharge rules Upon PPA termination; cheaper to purchase elsewhere Low energy and capacity prices * Fitz. Patrick and Ginna closures were announced, however recent actions by the New York State Public Service Commission will provide additional compensation to the plants allowing for their continued operation ** Clinton and Quad Cities closures were announced, however the Illinois legislature passed SB 2814, providing additional compensation and allowing for their continued operation First. Energy Nuclear Operating Company Spring 2018 LLW Forum Meeting April 17, 2018 14

Unfavorable Outlook for Nuclear Power in U. S. Year-over-year nuclear capacity changes (Reference case) gigawatts 2 assumed uprates new reactors 1 additions 0 -1 retirements -2 projected retirements -3 -4 actual/announced retirements 2015 2020 2025 2030 2035 2040 2045 2050 *Source: U. S. Energy Information Administration First. Energy Nuclear Operating Company Spring 2018 LLW Forum Meeting April 17, 2018 15

Planning for Future Waste Management Needs ■ Plant closure announcements = unpredictability ■ Closure decision can change if financial conditions change ■ Many factors impact timing of decommissioning after closure – Regulated utility versus non-regulated ownership – Nuclear Decommissioning Trust Fund value – State permitting and other requirements – Number of decommissioning projects underway in parallel ■ Approach to spent fuel management will typically be similar – Move all spent fuel to ISFSI as expeditiously as possible following shutdown (taking 3 to 7 years) First. Energy Nuclear Operating Company Spring 2018 LLW Forum Meeting April 17, 2018 16

What, if anything, will alter the course? Uncertain & Complex Federal Policy? State Policy? New York Yes - so far in Illinois Connecticut But waiting to see in Ohio New Jersey First. Energy Nuclear Operating Company Pennsylvania Spring 2018 LLW Forum Meeting Others? April 17, 2018 17

Questions? First. Energy Nuclear Operating Company Spring 2018 LLW Forum Meeting April 17, 2018 18