The New York Times The New York Times Business August 19, 2003


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Ohio Utility Cited in Blackout Has Had a Troubled Summer

FirstEnergy, which serves Ohio, Pennsylvania and New Jersey with seven electric utility companies, operates this plant in Eastlake, Ohio.
Bloomberg News
FirstEnergy, which serves Ohio, Pennsylvania and New Jersey with seven electric utility companies, operates this plant in Eastlake, Ohio.


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FirstEnergy's Difficult Summer
Chart: FirstEnergy's Difficult Summer
The Companies of First Energy
Chart: The Companies of First Energy


. Forum: Join a Discussion on Power Failure in the Northeast



Electric Light and Power

Blackouts (Electrical)

FirstEnergy Corporation

North American Electric Reliability Council

Richard H. Marsh said FirstEnergy has had a hard summer.

The summer of 2003 was proving to be a disaster for the FirstEnergy Corporation, with angry customers, hostile state regulators, a forced reduction of its reported profits and a court loss in a major pollution case.

Then came the blackout. Early reports traced the problem to failures at FirstEnergy transmission lines in Ohio. The company acknowledged that an alarm system had not been working at the time.

FirstEnergy, one of the largest electric utilities in the nation, with operations in Ohio, Pennsylvania and New Jersey, tried yesterday to deflect blame for the widespread power failure, saying there were problems in other parts of the nation's electrical system before its lines began to fail.

The company's position drew some support from the North American Electric Reliability Council, a group created by utilities to set standards for reducing the risks of disruption, which had called public attention to FirstEnergy's problems over the weekend.

"It's a more complicated problem than just one utility," said David R. Nevius, the council's senior vice president. "They may be a link in the chain, but it's not the only link and maybe not the first link. We just don't know yet."

Investors, though, were worried. The company's stock price fell 9 percent, bringing its decline since the end of June to 28 percent.

"We had a number of unfortunate episodes this summer," said Richard H. Marsh, the chief financial officer of FirstEnergy, a company once known as Ohio Edison that has expanded rapidly through acquisitions.

Those episodes included the following:

¶Blackouts in coastal New Jersey communities over the July 4 weekend, which may have played a role in the decision by state regulators to order the company to reduce its electricity rates rather than raise them, as it had requested.

¶A ruling by a federal judge in Ohio that the company had violated the Clean Air Act by not installing pollution-control equipment at a coal-powered power plant when it performed what it called routine maintenance.

¶Delays in getting the Davis-Besse nuclear power plant in Ohio back in operation. It was closed early last year after the discovery that an acid leak had eaten through steel in a reactor.

¶A decision by its auditors to require it to restate profits over the last three years, forcing it to report lower earnings. The company subsequently failed to file its financial statement on time, although it says it will meet an extended deadline of today.

The problems come at a time when FirstEnergy is under pressure to reduce its debt, which soared in 2001 when it bought GPU, the old General Public Utilities, with significant operations in New Jersey. That company was best known as the operator of Three Mile Island, which suffered the worst nuclear accident in American history in 1979. By the time of the acquisition, GPU had sold the lone operating unit at Three Mile Island, but it still owns the mothballed one, and has not completely resolved its liability from the accident. Mr. Marsh said yesterday that he did not think it would be significant.

Even after the recent troubles, Mr. Marsh said, the company still hoped to pay down debt by selling stock to the public "in the relatively near future." Analysts expect it to try to raise as much as $750 million from a stock issue.

Selling shares may be difficult before the causes of Thursday's power failure are clearer. Mr. Marsh said the immediate costs to FirstEnergy from the blackout were not significant, but he declined to discuss potential costs if it was deemed responsible.

"At this point, nobody knows" what caused the blackout, he said, adding that "as more information becomes available, the situation seems to be becoming more complex."

FirstEnergy pointed yesterday to suggestions that there were problems outside its system before its own problems began, involving three transmission lines it owned and a fourth it jointly owned with American Electric Power.

"Contrary to misinterpretations that identified FirstEnergy as the cause of the widespread outage," the company said, "it is clear that extensive data needs to be gathered and analyzed in order to determine with any degree of certainty the circumstances that led to the outage."

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