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Stock is sold; starting plant next for utility

09/19/03

John Funk
Plain Dealer Reporter

FirstEnergy Corp. has completed the sale of 32.2 million new stock shares, raising $935 million to help pay down its staggering $14.5 billion debt, and is looking forward to better times next year.

But the utility's idled Davis-Besse power plant is the financial wild card, and H. Peter Burg, chairman and chief executive, could not say for certain yesterday when a test of the reactor will begin, or when the plant will restart. So far, FirstEnergy has spent nearly $500 million on repairs and replacement power, and Burg said the company needs to have the plant's output next year.

"I feel a great deal of empathy for our operators there. You have our own peer group looking over their shoulders, the NRC obviously looking over their shoulders," Burg told analysts at the eighth annual power conference sponsored by Merrill Lynch in New York City.

Burg and top executives from Columbus-based American Electric Power and Cinergy, with headquarters in Cincinnati, were panelists.

"We will have bumps and starts," Burg said of the struggle that engineers have faced for more than a week trying to heat up the plant's reactor by non-nuclear means to operating temperature and pressure to test for leaks.

The seven-day test of the reactor's integrity, its new head and thousands of plumbing connections, demanded by the Nuclear Regulatory Commission, cannot begin until operating conditions are reached.

"We are working through these things," Burg said. "They are not unexpected when you have a manufacturing facility out of service" for 19 months.

But financial analysts pressed for a timetable. "It's not a long period of time," Burg said. "I can't tell you whether it will be 3 p.m. today or 5 a.m. tomorrow. We just have to get through this."

Engineers last night were still grappling with a circuit breaker problem that held up things for two days. Workers hoped to begin the leak test last night.

The test also had been delayed by problems with a valve that appeared to be faulty, but the NRC determined an operator had erred, partly because procedures were not clear. Engineers developed a new sequence this week. Now, Davis-Besse's operators are taking a two-week class on a new procedure spelling out the sequence for opening valves, said FirstEnergy spokesman Todd Schneider.

Burg also took questions yesterday about the company's timetable to pay down its debt, which is largely the result of its $11 billion purchase of, and merger with, GPU Inc., an electric holding company, based in New Jersey.

Burg said the $935 million from the stock sale would be used immediately to pay on short-term debt, and $575 million more in debt will be paid off from available cash by year's end.

Some analysts have noted the company's strong cash flows will be less certain after 2005 unless it can negotiate an extension of current electric rates with the Public Utilities Commission of Ohio. Burg said FirstEnergy is "exploring" such an extension - to give the company "revenue stability" and customers "rate stability."

The extension would continue at least part of the so-called transition costs that consumers pay for past construction and charges the PUCO deferred before moving toward deregulation in 2000.

FirstEnergy is negotiating an extension with the PUCO, confirmed Alan Schriber, chairman of the commission. "There is not going to be rate shock," he said, explaining he has encouraged all of the utilities to negotiate an extension.

Last month's historic blackout could affect investor confidence in FirstEnergy if federal authorities determine its transmission line controllers caused it. Burg repeated the company's position that no one utility could have caused failure of so many lines.

Even if an Ohio utility did not directly cause the blackout, the PUCO may impose new maintenance and other requirements, said Schriber.

Plain Dealer reporter Teresa Dixon Murray contributed to this story.

To reach this Plain Dealer reporter:

jfunk@plaind.com, 216-999-4138


2003 The Plain Dealer. Used with permission.
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