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August 01, 2002

 



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Local Companies | Article published August 1, 2002
Area utility could lose $1.3 billion plant sale
Picture
(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.


More articles on this subject »
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Coalition wants Davis-Besse plant shut permanently 07/25/2002
84-ton reactor head arrives at Davis-Besse 07/19/2002
Lake Erie security zones near 2 nuke plants now permanent 07/18/2002
Managers were lax at Davis-Besse facility, exec says 07/17/2002

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