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May 18, 2003

 



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Local Companies | Article published May 18, 2003
TOLEDO EDISON’S PARENT
Failed deal to sell coal-fired plants a boon for utility

By JON CHAVEZ
BLADE BUSINESS WRITER


FIRSTENERGY CORP.’s decision to keep its suburban Toledo Bay Shore and three other Lake Erie coal-fired power plants could help the company make money as energy prices rise, as well as ensure adequate electricity while it tries to restart its troubled Davis-Besse nuclear plant.

After a $1.5 billion deal a year ago to sell the four plants fell apart and renewed efforts to sell them last year produced no acceptable offers, the Akron utility that owns Toledo Edison said this month for the first time that it plans to keep operating the generators for years.

Some industry experts said that could be a contingency plan in case Davis-Besse stays out of operation for months.

Others, however, said increased energy prices mean FirstEnergy can make a tidy profit on excess electricity it can produce, so retaining the four plants, generating 2,535 megawatts of power, makes sense. Also, a glut of power plants for sale nationally makes profitable disposition of the local plants tougher.

‘‘It stands to reason that you don’t want to let go of the best power plants you’ve got," said Daniele Seitz, an analyst at Salomon Smith Barney. "And because of the extreme winter weather, they used a lot of these plants which operate at very attractive margins.’’

Generating a megawatt-hour of electricity in a coal-fired plant costs about $16. The average price on the open market is $40, up from $30 a year ago, making the plants more valuable to FirstEnergy. Generating a megawatt-hour in a nuclear plant costs about $5.

Considering that the announcement about retaining the Lake Erie plants was made amid doubts about when - if ever - Davis-Besse will reopen, there is some question about whether the coal-fired generators were to be kept as a contingency.

"It’s a possibility. The reasoning is correct,’’ said Joan Goodman, an analyst with the Pershing Division of Credit Suisse First Boston.

FirstEnergy, however, calls it coincidental.

‘‘If we had been offered $1.5 billion by someone else, they clearly would have been sold,’’ said company spokesman Ralph DiNicola.

FirstEnergy was on the brink last summer of selling the four plants, including Bay Shore in Oregon, to NRG Energy Inc. of Minneapolis. But NRG’s financial problems killed the deal, so FirstEnergy tried to market them through the rest of the year. It said late in the year it had no acceptable bids, but indicated the plants were still on the market.

The plants have provided a readily available generation source since Davis-Besse was shut down for routine maintenance in February, 2002. Within days, a corroded reactor head was discovered, which ultimately was replaced, and now the company is trying to get testing done and obtain approval from the Nuclear Regulatory Agency to restart the plant. The start-up has been delayed repeatedly, with the latest hoped-for date in August.

Davis-Besse, near Oak Harbor, generates 883 megawatts, or about a fourth of what is produced by the Ohio coal-fired plants in Oregon, Ashtabula, Cleveland, and Eastlake.

Ms. Seitz, of Smith Barney, said she is skeptical about a relationship between Davis-Besse and retention of the lakefront plants. But the increased price nationally of natural gas, which is used in standby power plants in northwest Ohio and elsewhere, is helping to push up the price of electricity, making generation from the coal plants even more valuable, she said.

Still, she added, with profit margins even bigger on nuclear-generated electricity, FirstEnergy will do all it can to get Davis-Besse operating.

FirstEnergy generates about 13,000 megawatts but has commitments to supply customers with 11,000 more, so use of the coal-plants can yield some financial benefits, said Warwick Busfield, an analyst with Fahnestock & Co.

Paul Kure, a staff engineer with the East Central Area Reliabilty Council, an industry group to ensure adequate electricity in a nine-state region that includes Michigan and Ohio, agreed that the Lake Erie plants have became greater assets to FirstEnergy. ‘‘Natural gas will be more expensive in the future, and that makes those plants more valuable,’’ he said.

Said FirstEnergy’s Mr. DiNicola: ‘‘We’re using them and they’re operating. Nobody’s building any coal-fired generation in the state of Ohio yet, so from that standpoint they have become more valuable.’’



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