he 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
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
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