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Local
Companies | Article published August 1, 2002
Area utility could lose $1.3 billion plant
sale
(THE BLADE)
FirstEnergy plans to use
proceeds from the Bay Shore sale to help pay off its debts.
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By JON
CHAVEZ
BLADE BUSINESS WRITER
The sale of FirstEnergy Corp.’s Bay Shore power
plant in suburban Toledo and three other Ohio power plants could be
in jeopardy because of the buyer’s financial
difficulties.
Failure of that deal could pose significant
problems for FirstEnergy, which would keep operating the plants and
would have to do without about $1.3 billion from the sale, funds it
planned to use to pay off its sizable debts.
That the
purchase of the four coal-fired electric plants was threatened
became evident yesterday when Fitch Ratings service said it had
changed its outlook on FirstEnergy to negative from stable, in part
because it was unclear whether NRG Energy, Inc., could proceed with
its planned purchase from FirstEnergy, parent of Toledo
Edison.
NRG and its parent company, Xcel Energy, Inc., both
of Minneapolis, are being investigated by federal agencies regarding
energy trades made since 1999. Xcel said Sunday that NRG could face
default as a result of the investigations, and that announcement
prompted Standard & Poor’s to downgrade NRG’s bonds to junk
status.
The downgrade means NRG has about 12 days to post
about $1 billion in cash collateral to support its revolving lines
of credit and other obligations, Dow Jones news service reported.
NRG’s access to capital to make a purchase is "severely
constrained," analysts said, which in turn has raised concerns about
its ability to pay FirstEnergy.
Xcel said on its Web site
yesterday that its officials met with FirstEnergy’s bankers and
management last week to negotiate better terms on the
purchase.
NRG said in December it planned to buy Bay Shore, a
Toledo Edison plant, and FirstEnergy units in Ashtabula, Eastlake,
and Cleveland for $1.355 billion in cash and to assume $145 million
in debt from the plants. FirstEnergy was to purchase back much of
the 2,535 megawatts of power the four plants can produce. Bay Shore
has about 185 employees.
The deal, which received the final
required regulatory approval in June, was expected to close by this
month.
Ralph DiNicola, FirstEnergy’s spokesman, said that
although Xcel’s subsidiary has had difficulties, the company is
interested in the purchase.
‘‘We’ve had ongoing discussions
with Xcel and are looking at a number of options to complete the
sale,’’ he said. He declined to provide details.
If the deal
falls through, the bond raters are likely do be displeased. Fitch
said the money from the deal was to pay off "relatively high-cost
debt" of FirstEnergy and its subsidiaries. Fitch has FirstEnergy’s
various bonds rated from minimal investment grade to top speculative
grade. It made no changes in those ratings yesterday.
In its
rating outlook change, Fitch also expressed concern with
FirstEnergy’s problems at the Davis-Besse nuclear power plant. If
the repairs of the plant’s damaged reactor head are more costly or
take longer than expected, that could be a problem, the ratings
agency indicated.
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