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Business News

Davis-Besse plant idling may cost investors

03/14/02

John Funk
Plain Dealer Reporter

The Davis-Besse Nuclear Power Station near Port Clinton will be down for repairs for up to 90 days, and FirstEnergy yesterday warned investors the down time will cut into earnings.

In a letter to investors, the company said repairs to the damaged reactor would cost between $5 million and $10 million. Buying power to replace the plant's 925 megawatts of generation will increase energy costs by $10 million to $15 million per month.

The company's earnings per share could be cut by up to 10 cents, said Terrance Howson, vice president for investor relations. Last year's earnings per share were $2.85.

Paul Ridzon, an analyst with McDonald Investments in Cleveland, said he lowered his 2002 earnings estimates for the company by 10 cents to $3.55 per share.

"I still have a buy on it," Ridzon said. "I am watching it closely. The challenge is getting timely [federal] approval for the repairs."

Daniel Poole, a utility analyst with National City Private Investment Advisors, said FirstEnegy's situation reminded him of the problems American Electric Power encountered in the late 1990s with a nuclear power plant. AEP had to shut Cook Power Station on Lake Michigan for three years to make safety repairs demanded by the Nuclear Regulatory Commission, at a total cost of $770 million.

"The point is that once you get into a project like this, you are dealing with an unknown," Poole said. "The situation certainly makes a lot of utility analysts worry that this is going to be the [AEP] case again, particularly since we are going into the summer, when demand will peak."

National City has had a "hold" on the stock, not because of the problems at the plant but because it had reached the target Poole and his associates had set of about $40 a share. The shares fell 76 cents yesterday to $36.23. They were above $38 a share last week, when the problem was reported.

The power plant's reactor head is badly corroded in one area and could have corrosion problems in two other areas.

Company engineers believe the corrosion was caused by boric acid that is normally in the reactor water but breached the head's stainless-steel liner. The problems were discovered during a refueling and inspection ordered by the NRC this month.

Company spokesman Todd Schneider said the main concern is how to make repairs safely. Whatever the company does must be approved by the NRC, which has specialists at the plant.

The company has already ordered a new reactor head, but it will not be ready for two years. Schneider said the company is not disclosing the cost of the 150-ton head.

Contact John Funk at:

jfunk@plaind.com; 216-999-4138


2002 The Plain Dealer. Used with permission.
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