1. Met-Ed and Penelec’s 2011 to 2013 Default Service Program: The October 2010 Solicitation Chantale LaCasse, Senior Vice President, NERA Amparo Nieto, Senior Consultant, NERA 9 September 2010

2. 2 Met-Ed and Penelec Default Service Program Disclaimer  Any statements describing or referring to documents and agreements are summaries only, and are qualified in their entirety by reference to such documents and agreements  The governing documents are:  Joint Petition for Settlement of Metropolitan Edison Company (“Met-Ed”) and Pennsylvania Electric Company (“Penelec”) for their Default Service Programs (Docket Nos. P-2009-2093053 and P-2009-2093054), as approved by the Pennsylvania Public Utility Commission (“PaPUC”) on Nov 6, 2009: http://www.puc.state.pa.us/general/search.aspx http://www.puc.state.pa.us/general/search.aspx  Metropolitan Edison Company/Pennsylvania Electric Company Default Service Program Fixed Auction Process and Rules 2011-2013  Metropolitan Edison Company/Pennsylvania Electric Company Default Service Program Hourly Auction Process and Rules 2011-2013  Met-Ed and Penelec Default Service Supplier Master Agreements for the Residential, Commercial, and Industrial Customer Classes

3. 3 Met-Ed and Penelec Default Service Program Agenda  Overview of Met-Ed and Penelec’s Default Service Program  Key Elements of the October 2010 Solicitation  Products and Supplier’s Business Opportunity  Auction Rules  Proposal Submission Process for the October 2010 Solicitation

4. 4 Met-Ed and Penelec Default Service Program Overview of the Program

5. 5 Met-Ed and Penelec Default Service Program  Met-Ed and Penelec Default Service (“DS”) Program procures power from customers that do not choose service from an Electric Generation Supplier (“EGS”) during the period January 1, 2011 to May 31, 2013  Three classes of customers by Company: Residential or R Class; Commercial or C Class (up to 400 kW); Industrial or LI Class (above 400 kW)  Full requirements products (energy, capacity, ancillary services, applicable Transmission Services) are procured through descending clock auctions

6. 6 Met-Ed and Penelec Default Service Program How Many Solicitations and When  DS Program includes a total of ten solicitations  All solicitations include a Fixed Auction while the Hourly Auction is only held once a year 2010FixedHourly2011FixedHourly2012FixedHourly Jan Jan Jan Mar Mar Mar May May May Oct Oct Oct

7. 7 Met-Ed and Penelec Default Service Program What Portion of Supply Is at Auction: Residential and Commercial  100% of supply in the stub period (Jan 1, 2011 to May 31, 2011)  From June 2011 until May 2013: Residential Class 75% full requirements supply through the Fixed Auction 25% block energy through RFP with Company balancing and other components from PJM markets Commercial Class 100% full requirements supply via Fixed Auction Industrial Class Full requirements supply for the remainder through the Hourly Auction Up to 50 MW supply eligible for Fixed Auction procurement for customers that enroll

8. 8 Met-Ed and Penelec Default Service Program Two Different Price Plans: Fixed Price Service  Fixed Auction is for a “Fixed Price Service” Plan:  Residential payments and rates:  Stub period: 95% based on the final auction price and 5% based on the real-time PJM price and a fixed $9/MWh adder  Starting June 1, 2011: 100% fixed at the final auction price  Commercial payments and rates:  90% based on the final auction price and 10% based on the real time PJM price and $9/MWh adder  Industrial opt-in option payments and rates:  100% fixed at the final auction price (October 2010 Solicitation only)  Seasonal billing factors apply

9. 9 Met-Ed and Penelec Default Service Program Seasonal Billing Factors under the Fixed Price Service SMAs SeasonPeriodsSeasonal Factor Winter Jan 1-May 31, 2011 0.970 Oct 1 2011-May 31, 2012 Oct 1 2012-May 31, 20130.995 Summer Jun 1-Sept 30, 20111.060 Jun 1-Sept 30, 20121.010

10. 10 Met-Ed and Penelec Default Service Program Two Different Price Plans: Hourly Priced Service  Hourly Auction is for service priced to the hourly PJM real- time market  Applicable to Industrial class  Industrial payments and rates are based on the final auction price, the real-time PJM price for energy, and a fixed $2 adder

11. 11 Met-Ed and Penelec Default Service Program Supplier Risk Mitigation Features  Full requirements excludes Network Integration Transmission Service (“NITS”), which is paid by the Company and recovered from customers  Supplier is protected from the following risks:  Change in NITS rate  Changes in AEPS law  Risks of procurement of SPAECs  Supplier assumes other risks of full requirements product, including migration risks

12. 12 Met-Ed and Penelec Default Service Program Key Elements of the October 2010 Solicitation

13. 13 Met-Ed and Penelec Default Service Program Main Features of the October 2010 Fixed Auction 1.A Fixed Auction with a descending-clock format 2.A total of ten products in the Auction: Residential (R), Commercial (C), and Fixed Price Service Industrial (LI), each defined by three dimensions:  the Company/the Class/the supply period 3.LI customers will have the choice to opt-in to a 12-month Fixed Price Service in the October 2010 Solicitation  Open to the first 50 MW of LI DS Load that Opts-In 4.Each Class DS load divided into “tranches”  A tranche represents a fixed percentage of the DS load

14. 14 Met-Ed and Penelec Default Service Program The Residential and Commercial Products of the October 2010 Fixed Auction Products, Tranche Targets and Load Caps October 2010 Solicitation ProductSupply Period Total No. Tranches Load Cap Tranche Size (%) Met-Ed R-5 Jan 2011 – May 2011753.57 Met-Ed R-24Jun 2011 – May 2013433.57 Met-Ed C-5Jan 2011 – May 2011644.35 Met-Ed C-12Jun 2011 – May 2012534.35 Penelec R-5 Jan 2011 – May 2011534.76 Penelec R-24Jun 2011 – May 2013324.76 Penelec C-5Jan 2011 – May 2011535.00 Penelec C-12Jun 2011 – May 2012535.00 Total4026

15. 15 Met-Ed and Penelec Default Service Program The Industrial Fixed-Price Service Products of the October 2010 Fixed Auction Products, Tranche Targets and Load Caps October 2010 Solicitation ProductSupply Period Total No. Tranches Load CapTranche Size Met-Ed LI Jan - 2011 to Dec - 2011 11 Open to the first 50 MW of LI DS Load that Opts-In Penelec LI Jan - 2011 to Dec - 2011 11 Open to the first 50 MW of LI DS Load that Opts-In Total22

16. 16 Met-Ed and Penelec Default Service Program Auction Format is a Clock Auction  Multi-product design  Tranches for both Met-Ed and Penelec are procured at once  Multi-round design  Suppliers state how many tranches they want to supply at prices suggested by the Independent Evaluator  Prices tick down if there is excess supply  Suppliers could switch their bids from one product to another in a given Auction  All-in price in $/MWh

17. 17 Met-Ed and Penelec Default Service Program Fixed Auction Example: Prices Tick Down When There Is Excess Supply Round 1 Product Price ($/MWh) ME-R-5 100.00 ME-R-24100.00 ME-C-5100.00 ME-C-12100.00 #bid#to buy 577 294 566 305 Excess Supply Oversupply Ratio 500.7353 250.6098 500.9259 250.6250 ME-LI-12 100.00 PN-R-5 100.00 PN-R-24100.00 PN-C-5100.00 PN-C-12100.00 PN-LI-12 100.00 111 255 133 105 55 111 100.7143 200.5000 100.3704 50.1250 00.0000 100.7143 Round 2 Start Price 95.00 95.30 95.00 96.00 95.30 96.77 99.05 100.00 96.00

18. 18 Met-Ed and Penelec Default Service Program Fixed Auction Example: Prices Tick Down When There Is Excess Supply Round 2 ProductPrice ($/MWh) ME-R-5 95.00 ME-R-2495.30 ME-C-595.00 ME-C-1295.00 #bid#to buy 477 294 266 255 Excess Supply Oversupply Ratio 400.5882 250.6098 200.3704 200.5000 ME-LI-1296.00 PN-R-5 95.30 PN-R-2496.77 PN-C-599.05 PN-C-12100.00 PN-LI-1296.00 51 255 183 105 5 51 40.2857 200.5000 150.5556 50.1250 5 40.2857

19. 19 Met-Ed and Penelec Default Service Program Commission Has Approved the SMAs  Different Supplier Master Agreement (“ SMA”) for each Class and Company  The parties to the SMA are the Company and the Default Service Supplier  Participants in the proceeding had the opportunity to submit comments and to propose modifications  Final Agreements are approved by the PaPUC and are non-negotiable

20. 20 Met-Ed and Penelec Default Service Program October 2010 Auction Timeline SEPTEMBER MondayTuesdayWednesdayThursdayFriday September 678 9 Webcast 10 1314151617 20 Final Decision on Alt Guaranty 21 Part 1 Window Opens 222324 27 28 Part 1 Date 2930

21. 21 Met-Ed and Penelec Default Service Program October 2010 Auction Timeline (cont.) OCTOBER MondayTuesdayWednesdayThursdayFriday October 1 Bidders Qualified 45 6 Trial Auction 7 8 11 12 Part 2 Date 1314 15 Part 2 Proposal Notification 18 AUCTION Begins 19 IE Submits Report to PaPUC * 20 PaPUC issues Decision * 2122 * Assumes the bidding closes on the18th.

22. 22 Met-Ed and Penelec Default Service Program Process After the Auction  Commission will consider the results of the Auction within one business day after the Independent Evaluator submits its report  Either the Commission approves all results (for both Companies and all Classes) or all results are rejected  If results are accepted, SMAs are executed within three business days  Any security required under the creditworthiness standards of the Agreement is posted upon execution of the Agreement  Any financial guarantees submitted as part of the Proposal process are returned to the Supplier

23. 23 Met-Ed and Penelec Default Service Program Supplier’s Role and Standard Contract

24. 24 Met-Ed and Penelec Default Service Program What is a Tranche?  A tranche is a set percentage of a Company’s Default Service load for a Class (R, C, or LI)  Winning suppliers will be serving the tranches of DS Supply for a specific Company and Class  Loads upon which Suppliers are paid are adjusted for losses to the zonal aggregate load bus and de-rated in accordance with PJM’s marginal loss implementation procedures  All Default Service customers are free to come and go from Default Service provided that they give notice at least 16 days before their next scheduled meter reading date

25. 25 Met-Ed and Penelec Default Service Program Each Company will inform PJM of each Supplier’s obligation for each category of ancillary service From PJM perspective, DS Suppliers are “Electric Generation Suppliers” (EGS) and must be registered as Load Serving Entities (LSE) by January 1, 2011 PJM’s Perspective of Suppliers Each Day: Unforced capacity obligation Each Company will inform PJM of the DS Supplier Responsibility Share of each Supplier’s Peak Load Capacity obligation, which PJM will use to determine that Supplier’s daily capacity obligation Each Hour: Energy at zone bus PJM will know each Company’s total zonal energy and each Company will transmit to PJM the share of each EGS and each DS Supplier’s Responsibility Share

26. 26 Met-Ed and Penelec Default Service Program Suppliers have the opportunity to:  Aggregate supply portfolio from wholesale sources  Assess and price load variability, market price volatility and migration risk Wholesale Sources may include: Power from owned-generation resources (in PJM or adjoining regions), bilateral energy transactions, PJM energy markets, financial and OTC, weather derivatives markets Wholesale Sources and Supplier’s Opportunities

27. 27 Met-Ed and Penelec Default Service Program Key Elements of Credit Provisions of SMAs  Security requirements are on a sliding scale on the basis of credit ratings and Tangible Net Worth (“TNW”)  Minimum Rating to obtain unsecured credit line is BB- from S&P / Fitch and Ba3 from Moody’s Credit Rating of Default Service Supplier Max. Credit Limit (lesser of the % of TNW and credit limit cap below) S&PMoody’sFitch% of TNWCredit Limit Cap BBB+ and above Baa1 and above BBB+ and above 16% of TNW$75,000,000 BBBBaa2BBB10% of TNW$50,000,000 BBB-Baa3 BBB-8% of TNW$25,000,000 BB+Ba1 BB+4% of TNW$15,000,000 BBBa2BB3% of TNW$10,000,000 BB-Ba3 BB-2% of TNW$5,000,000 Below BB-Below Ba3Below BB-0% of TNW$0

28. 28 Met-Ed and Penelec Default Service Program Key Elements of Credit Provisions of SMAs (cont.) Fixed Auction SMAs: Independent Credit Requirement (“ICR”) as well as Mark-to-Market  ICR declines over the term of each of the SMAs (See Appendix B of the SMA)  Initial ICR for the October 2010 Solicitation  $375,000 per Tranche for a 5-month product  $750,000 per Tranche for a 12-month product  $1,500,000 per Tranche for a 24-month product  The Independent Credit Threshold (“ICT”) determined as a function of the Supplier’s credit ratings and % of TNW is used to either partially or fully cover the aggregate ICR amounts across all Default Service obligations to a given Company

29. 29 Met-Ed and Penelec Default Service Program Supply Payments for the October 2010 Solicitation Vary by Class  Industrial Class  100% Fixed at the final auction price  Commercial Class  90% Fixed at the final auction price. 10% varies based on the real-time PJM hourly energy price at the Company zone plus a fixed pre-specified adder of $9.00/MWh  Residential Class  100% Fixed for the 12- and 24-month products  For the 5-month products is:  95% Fixed at the final auction price and  5% varies based on the real-time PJM hourly energy price at the Company zone plus a fixed pre-specified adder of $9.00/MWh Rates for customers are determined on the same basis

30. 30 Met-Ed and Penelec Default Service Program Compliance with AEPS through AECs  Compliance with Tier I and II requirements must be demonstrated using Alternative Energy Credits or AECs issued by PJM-EIS GATS  Suppliers must use PJM-EIS GATS to transfer AECs to the Companies to meet their AEPS requirements  Prior to using the PJM-EIS GATS, Suppliers must register into GATS and open a Retail LSE Account  GATS Administrator is available to help Suppliers through process: For information and forms, see: www.pjm-eis.comwww.pjm-eis.com Phone: 610-666-2245; Fax: 610-771-4114  Suppliers will be responsible for any changes to non-solar Tier I and Tier II requirements prior to execution of a DS SMA, and for any increasing requirements permitted under existing law during the term of a DS SMA  Suppliers will not be responsible for future legislative or administrative changes to the Tier I and Tier II requirements that are imposed following the effective date of the DS SMA

31. 31 Met-Ed and Penelec Default Service Program Bidding in the Auction

32. 32 Met-Ed and Penelec Default Service Program Descending Clock Auction - Round Schematic Bids at Going Prices Information to Bidders Round and Bidding Start Round and Bidding Start Bidding Ends Round Ends  Total excess supply in the round and going prices for next round (Price for a product ticks down if total tranches bid are greater than the product target)

33. 33 Met-Ed and Penelec Default Service Program 1.Total number of tranches bid cannot increase:  Bidders can only maintain or reduce their total number of tranches bid from one round to the next 2.Bids are binding until the price ticks down again:  A bidder can only change the number of tranches bid on a product if the round price ticked down 3.Auction closes on all products at once:  Winners are determined for all products at the same time 4.Uniform price for all winners on a product Four Main Features

34. 34 Met-Ed and Penelec Default Service Program What is a Bid in Round 1?  Bid: number of tranches for each product that a supplier is willing to serve at the going prices of the round. E.g.:  Two rules:  the total number of tranches bid on all products cannot exceed bidder’s initial eligibility  the number of tranches bid on a product cannot exceed the load cap Fixed-Auction Bids at Round 1 Prices ME-R-5ME-C-12PN-R-5PE-C-12 3321

35. 35 Met-Ed and Penelec Default Service Program Round 1 Report The Bidder can see:  Range of total excess supply  Total excess supply is the sum of excess supply for all products  Range includes actual total excess supply  5-tranche range at start of Auction  The next round prices (round 2)  The bidder’s own bid in round 1 Bidder has no information about others’ bids, identities or eligibilities Fixed Auction Round 1 Total Excess Supply: 55-60 Product Round 2 Price ($/MWh) ME-R-5105.25 ME-R-24104.30 ME-C-5102.22 ME-C-1299.97 PN-R-598.24 PN-R-2498.22 PN-C-597.20 PN-C-597.20 ME-LI-1296.10 PN-LI-1296.35

36. 36 Met-Ed and Penelec Default Service Program Changes in Round 2 Bidding  If the price for a product has ticked down, a bidder will be able to:  Withdraw tranches from the product  Switch tranches to another product, by reducing tranches bid on that product and increasing tranches bid on another  Both withdraw and switch tranches

37. 37 Met-Ed and Penelec Default Service Program What Are The Rules In Round 2?  The total number of tranches bid on all products combined cannot exceed eligibility in round 2 (the number of tranches bid in round 1)  The number of tranches bid on any one product cannot exceed the load cap for that product

38. 38 Met-Ed and Penelec Default Service Program Bidders Must Name an Exit Price When Withdrawing a Tranche  A bidder must enter an exit price (a final and best offer):  Above current going price  Below or equal to the going price of the previous round Fixed Auction– Example with Residential and Commercial only ProductME-R-5ME-C-12PN-R-5PE-C-12 Price Round 195.00 92.5097.50 Bid Round 13321 Price Round 291.7392.02 96.09 Bid Round 23221 Exit Price94.51

39. 39 Met-Ed and Penelec Default Service Program A Bidder May Be Asked to Provide Switching Priority Information  A bidder may reduce the tranches bid on one or more products and increase the tranches bid on more than one product  In case not all requested switches can be granted, the bidder will be asked for a switching priority Switching Priority 12 Fixed Auction – Example with Residential and Commercial only ProductME-R-5ME-C-12PN-R-5PE-C-12 Price Round 195.00 92.5097.50 Bid Round 13321 Price Round 291.7392.02 96.09 Bid Round 24131

40. 40 Met-Ed and Penelec Default Service Program A Bidder Could Be Asked to Indicate Which Tranche is Being Withdrawn  A bidder may want to reduce the number of tranches bid on several products but only switch some of the tranches  The bidder will need to designate which tranches are being withdrawn and name an exit price Exit Exit Price93.753 Fixed Auction – Example with Residential and Commercial only ProductME-R-5ME-C-12PN-R-5PE-C-12 Price Round 195.00 92.5097.50 Bid Round 13321 Price Round 291.7392.02 96.09 Bid Round 22131

41. 41 Met-Ed and Penelec Default Service Program Changes in Round 2 Calculating Phase  A bidder may have requested a switch or a withdrawal – but it may not be granted if necessary to fill the tranche targets  The Independent Evaluator fills tranche target in this order:  first with tranches bid at the going price  then by retaining exits (if necessary to fill the target)  then by denying switches (if still necessary)

42. 42 Met-Ed and Penelec Default Service Program Changes in Round 2 Reporting  Each bidder gets this information:  A range of total excess supply  The prices for next round  The bidder’s own bid, including:  Any tranches requested to be withdrawn that were retained (retained at the exit price)  Any tranches requested to be switched that were denied (retained at the last price freely bid)

43. 43 Met-Ed and Penelec Default Service Program Same Rules Apply for Rounds 3, 4…  Eligibility in round 3 is equal to eligibility in round 2 minus tranches withdrawn in round 2 (even if any of those exits were denied)  Bidder can reduce number of tranches bid on a product (via switching or withdrawal) only if price has ticked down in that round  Exit price must still be above current going price and equal to or below previous going price

44. 44 Met-Ed and Penelec Default Service Program When Does The Auction Close?  The Auction closes when total excess supply equals zero and none of the prices have ticked down  Bidding on all products will stop at the same time and the final auction prices will be calculated then  All bidders who win tranches of a product will be paid the final auction price for that product

45. 45 Met-Ed and Penelec Default Service Program Bids Are Submitted Online  Bidding is done through online Internet bidding through specialized auction software  Bidders access an Internet link  Bidders log in to the auction software using a Login ID and password provided by the Independent Evaluator to the Authorized Representative  Bids are submitted and round results received through the auction software

46. 46 Met-Ed and Penelec Default Service Program Location  Bidding teams in two geographical locations Standard PC  Windows 98, Windows Me, Windows NT 4.0, Windows 2000, Windows XP, or Windows Vista Internet Connection  Primary access through a company network  Secondary access through an alternative ISP Web Browser  Internet Explorer 7, Internet Explorer 8, Firefox 3.0, Firefox 3.1, Firefox 3.5, Safari 4, or Chrome 2 Backup Systems  Backup laptop and backup connection  Dedicated fax machine for back-up bidding System Technical Requirements Are Minimal

47. 47 Met-Ed and Penelec Default Service Program Pauses  A bidder can request an extension to the bidding phase two times during the Auction  Typically due to technical problems  Bidders will be advised of length of extension (typically 15 min)  All bidders will benefit from the extended bidding phase  The Independent Evaluator can call a “time-out” any time  For example, in case of general technical difficulty  Generally no more than 15 minutes

48. 48 Met-Ed and Penelec Default Service Program Proposal Submission Process

49. 49 Met-Ed and Penelec Default Service Program 1.Alternate Guaranty Process (Optional) 2.Part 1 Proposal: Basic Contact Information and financial information  New Bidders use the “Long Part 1 Form” to submit the Part 1 Proposal  Bidders that submitted a successful Part 1 Proposal in any of the previous DS Solicitations may use the “Short Part 1 Form” for the October 2010 Auction 3.Part 2 Proposal: Indicative Offers and Financial Guarantees 4.Submission of Bids: Auction Starts Stages of Proposal Submission Process

50. 50 Met-Ed and Penelec Default Service Program Key Dates 1 September 2010 Deadline to submit initial Alternate Guaranty Form and supporting documents 28 September 2010 Part 1 Proposal deadline 1 October 2010 Part 1 Proposal Notification 12 October 2010 Part 2 Proposal deadline 15 October 2010 Part 2 Proposal Notification 18 October 2010 Auction starts

51. 51 Met-Ed and Penelec Default Service Program Requirements for Part 1 1.Applicant’s Contact Information  Designated Representative: point of contact for Independent Evaluator  Officer of the Bidder makes certifications in Proposal 2.Licensing requirements  No state licensing required  Supplier must be an LSE in PJM by January 1, 2011 3.Agree to Auction Rules and SMAs 4.Financial Information for creditworthiness evaluation  Annual and quarterly financial information  Senior unsecured debt ratings 5.Comments on Pre-Bid Letter of Credit (optional) Part 1 Forms are available for completion on the Web site

52. 52 Met-Ed and Penelec Default Service Program  A Supplier with a successful Part 1 Proposal may submit a Part 2 Proposal  Need to provide an indicative offer and preliminary interest at the maximum starting price and minimum starting price  The indicative offer at the maximum starting price sets:  The maximum number of tranches that the bidder can bid in the auction (initial eligibility)  The amount of pre-bid security required with the bidder’s Part 2 Application  The Companies may use the indicative offer information in setting prices for round 1 of the Auction Requirements for Part 2

53. 53 Met-Ed and Penelec Default Service Program Pre-Bid Security Requirements  Pre-Bid Security must be proportional to indicative offer at maximum starting price  Bidders relying on their own financial standing and qualifying for an unsecured credit line must submit Letter of Credit or cash of $125,000 per tranche  Bidders relying on the financial standing of a guarantor submit a Letter of Credit or cash of $125,000 per tranche and a Letter of Intent to Provide a Guaranty of $250,000 per tranche  Bidders that do not qualify for an unsecured credit line under the SMA and that do not have a Guarantor submit a Letter of Credit or cash of $375,000 per tranche

54. 54 Met-Ed and Penelec Default Service Program Auction Web Site  Auction web site will be your main source of information: www.firstenergycorp.com/mepnauction www.firstenergycorp.com/mepnauction  Web site includes:  All solicitation documents and forms  Relevant Commission decisions  Data Room  Link to submit questions (Penn-Auction@nera.com)  Frequently Asked Questions page  Please direct all questions relating to the Auctions to NERA (the Independent Evaluator) and not to FirstEnergy personnel

55. QUESTIONS???