Corporation, an electric utility holding company that has been
buffeted by bad news this summer, reported yesterday that its cash
position had fallen sharply during the second quarter. The company
also warned that its loss of a pollution case in federal court could
cost it a lot of money but did not estimate an amount.
FirstEnergy, which has said that one of its power plants and four
of its transmission lines in Ohio shut down before the widespread
power failure on Thursday, said in a regulatory filing that even
after those developments it had seen no need to isolate its system
from the rest of the electric grid in the Midwest. It said that
other transmission lines outside its system also failed and that
more study would be needed to determine the cause of the
Suspicions that FirstEnergy might have caused the blackout led to
a sell-off of its stock on Monday, when shares fell 9 percent. But
the price recovered some of that loss yesterday, rising 21 cents, to
The company filed its second-quarter financial statement with the
Securities and Exchange Commission minutes before the 5:30 p.m.
deadline and said that meant that it would be able to issue
securities without having to go through a long registration
procedure. The company has said it wants to sell stock soon to help
reduce its debt.
FirstEnergy has been engulfed by numerous problems this summer,
even before the blackout. In early August, a federal judge ruled
that the company had violated the Clean Air Act at a coal-power
plant, setting the stage for a second trial on damages. In the
S.E.C. filing, FirstEnergy said that "the potential penalties that
may be imposed, as well as the capital expenditures necessary to
comply with the substantial remedial measures that may be required,
may have a material adverse impact on the company's financial
condition and results of operations."
The financial statements showed that FirstEnergy had $64.2
million in cash on hand on June 30, down from $290 million on March
31 and $359.1 million the previous June.
The company reported positive operating cash flow of $21.7
million in the second quarter, but that was dwarfed by its needs for
capital spending and for debt repayment. It had to step up its
short-term borrowing in the quarter even to maintain that amount of
Just why the company took in so little cash on an operating basis
was not clear. When it reported a net loss early this month, it
stressed that it came from noncash items.
In the financial statement, the item shown as contributing the
most to the decline in operating cash flow — which had been $262.1
million in the same quarter a year ago — was labeled "other" and was
not further defined. A call to a company spokeswoman seeking
information on the cash position was not returned.
FirstEnergy has been under pressure from bond rating agencies to
reduce its debt substantially. But it has found that difficult to do
in part because its Davis-Besse nuclear plant in Ohio remains closed
after the discovery that acid had eaten through much of the steel in
a reactor. The company said it thought the plant would be ready to
reopen in the fall but did not know when the Nuclear Regulatory
Commission would permit this to happen.
The financial statements filed yesterday included revised reports
for the first quarter and for 2002. The restatements came about
because auditors from PricewaterhouseCoopers said accounting needed
to be changed for the expected recovery on some Ohio assets and
certain other items. They reduced earnings for previous periods a
little more than FirstEnergy had estimated in early August. For
example, profit in 2002 came to $552.8 million, or $1.88 a share. It
earlier estimated that figure at $1.91 a share. The original
earnings statement showed profit of $629.3 million, or $2.14 a