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Local
Companies | Article published December 5, 2002
ANALYST CONFERENCE
FirstEnergy lowers profit expectation
CEO hints at shutdown, sale of Davis-Besse if losses go
on
By JON CHAVEZ
BLADE BUSINESS
WRITER
NEW YORK - FirstEnergy Corp. said yesterday
that increases in pensions and other labor costs have forced it to
lower its projected profit for next year to a range of $3.35 to
$3.55 a share, down from $3.70 to $3.90.
Expenses to fix its
troubled Davis-Besse nuclear plant, expected to be close to $300
million, haven’t helped.
‘‘While Davis-Besse is having a
significant impact on our company we will not allow it to define our
organization,’’ H. Peter Burg, FirstEnergy’s chairman and chief
executive officer, told industry analysts in a three-hour conference
yesterday.
‘‘We realize it can’t go on indefinitely and we
will not let it become a black hole for FirstEnergy. If we can’t get
it to back to reliable and safe operation, we will consider the
alternative,’’ he said, implying a shutdown or sale of the
24-year-old plant.
In its annual conference broadcast over
the Internet from New York, the Akron parent of Toledo Edison said
it is intent on restarting Davis-Besse next year, most likely in
March, and has received several bids to buy its four coal-fired
plants, including Bay Shore Road in suburban Toledo, that it tried
unsuccessfully to sell this year.
The wide-ranging conference
on corporate strategy and finances revealed that the utility expects
pension and post-employment costs to rise to $205 million next year,
from $40 million this year, as a result of recent staff
cuts.
It also expects to nearly triple its cash flow to $800
million next year because it has cut capital expenses and reduced
its debt.
The company is projecting earnings growth of 4 to 5
percent, down from 7 to 8 percent this year, officials told
analysts. Helping the bottom line, officials said, are the end to
building gas-fired standby plants for use during heavy electricity
demand, as well as little in more capital expenses from Davis-Besse,
which is near Oak Harbor.
Further, refinancing has trimmed
costs and the firm’s $16.4 billion debt has been reduced $1.9
billion this year, company officials said. By 2004, the firm expects
its debt to drop to $11.5 billion.
Meanwhile, FirstEnergy
executives said replacement of the damaged containment vessel head
at Davis-Besse is complete but other repairs and changes are to be
finished by early February. At that time, the company hopes to load
fuel into and pressurize the containment chamber for its first test
since the plant was shut down for routine maintenance nearly 10
months ago, officials told analysts.
During the shutdown, the
reactor head was found to be damaged by leaking boric acid,
necessitating an extended outage, repairs, and costs that will end
up being close to $300 million.
Gary Leidich, executive vice
president of the firm’s nuclear operating unit, said the company
expects to have Davis-Besse in operation by the end of the first
quarter of 2003.
Although the repairs are nearly
three-fourths finished, he said, the bigger challenge was to fix the
corporate culture that led to the problem. Management at the plant
was content to keep living with problemsthan resolving them, he
added.
FirstEnergy officials said they hope to complete the
sale of the coal-fueled plants by Dec. 31 but will keep them if the
bids are not high enough. In that case, officials said, the company
will take a one-time depreciation charge of $35 million, or 12 cents
a share, in the fourth quarter. The four plants carry a book value
of $775 million.
For the first time, FirstEnergy said it
might sue NRG Energy, Inc., and its parent firm, Xcel Energy, Inc.,
the Minneapolis companies that had signed a deal to buy the four
coal plants but backed out because of financial problems. The
lawsuit would seek to recover any difference between the new sale
price and the $1.355 billion in cash and assumption of $145 million
in debt for the plants.
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