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Posted on Fri, Feb. 14, 2003 story:PUB_DESC
FirstEnergy plant shock to earnings

Beacon Journal business writer

The hole in the Davis-Besse nuclear reactor burned a hole in owner FirstEnergy Corp.'s earnings.

The Akron utility said Thursday that it lost $30.8 million, or 10 cents a share, for the fourth quarter ending Dec. 31, after it had to pay $97 million in costs related to the troubled plant and had to write down other assets.

But those were one-time costs, the company said Thursday. Excluding those charges, FirstEnergy had a good quarter and fiscal year overall, executives said in a conference call with analysts.

FirstEnergy now says it will be ready to restart Davis-Besse by mid-April, pending approval by the Nuclear Regulatory Commission. The company has previously said the nuclear plant, in Oak Harbor along Lake Erie, would be ready to restart by April 1.

``I think April may be a little aggressive,'' said analyst Paul Ridzon, an associate vice president for McDonald Investments in Cleveland who covers First-Energy. But he thinks Davis-Besse actually may restart by early summer, when the demand for electricity begins to soar because of air conditioning needs.

Ridzon said he isn't allowed to trade energy-related stocks, but McDonald Investments does conduct investment banking business with FirstEnergy.

The utility's stock has dropped in the last couple of weeks, probably because investors feared a U.S. Senate subcommittee hearing on Thursday morning would reveal bad news about Davis-Besse, Ridzon said.

But the hearing, led by Ohio Sen. George Voinovich and involving the NRC, didn't have unexpected bad news. And there were no surprises, good or bad, in a conference call between FirstEnergy and analysts, Ridzon said.

As a result, FirstEnergy's shares rose $1.54 to $29.19 on Thursday. The stock is down 11.5 percent this year, and about 22 percent from a year ago.

The 883-megawatt Davis-Besse plant shut down Feb. 16, 2002, for a safety inspection and refueling. In early March, workers found a large, boric acid-created cavity that stretched nearly all the way through the steel vessel head on top of the reactor.

The utility hopes to begin loading nuclear fuel into the reactor next week as part of a test to see if there are any coolant leaks underneath the reactor.

FirstEnergy said it could spend $375 million in repairs and replacement electricity. It already spent $235 million in repairs and replacement power in 2002, plus another $65 million to buy and install a replacement head on top of the reactor. Plus, the company estimates it will spend another $50 million in repairs on top of the $25 million to buy replacement power in the first quarter of this year.

In fiscal 2002, FirstEnergy reported it earned $1 billion, or $3.42 a share, excluding one-time costs associated with Davis-Besse and two accounting changes. Including those one-time items, FirstEnergy had net income of $629.3 million, or $2.15 a share.

FirstEnergy had $12.2 billion in revenue for fiscal 2002, up 52.5 percent from fiscal 2001. Last year was the first full year since FirstEnergy acquired New Jersey-based utility GPU, which essentially doubled its customer base.

``We faced a number of challenges in 2002. However, we view the most significant ones, including those associated with the extended outage at Davis-Besse, primarily as short term,'' Richard Marsh, senior vice president and chief financial officer, said in a statement.

FirstEnergy's fourth quarter earnings included a 30-cent-per-share charge related to an accounting change because it didn't sell Emdersa, an electric distribution company in Argentina that it had expected to sell.

The company's earnings also were hurt because it wasn't able to sell four coal-fired power plants along Lake Erie. An agreement to sell the plants to NRG Energy Inc. for $1.5 billion fell through last year.

FirstEnergy retired, refinanced or repriced long-term debt and preferred stock by $2.6 billion, which the company said will save $125 million a year.


Jim Mackinnon can be reached at 330-996-3544 or jmackinnon@thebeaconjournal.com
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