Charges cut FirstEnergy's profit by 46%

10/24/2003

FirstEnergy Corp.'s quarterly profits dropped 46 percent because of $43 million in charges from the prolonged shutdown of its Davis-Besse nuclear power plant and $81 million in charges for business operations which have lost value.

Its third quarter profit, released yesterday, slumped to $153 million, or 51 cents a share, from $285 million, or 97 cents a share, for the same period a year earlier. Much of the harm came from what FirstEnergy called unusual items. Revenues for the quarter were relatively flat at $3.44 billion, as mild summer weather held down demand for power.

Executives told analysts in a conference call yesterday they expect to have Davis-Besse operating by the end of year, apparently a month later than what executives said last week.

The power plant near Oak Harbor cannot operate without first getting the approval of the Nuclear Regulatory Commission, which has a hearing on it set for Nov. 12.

Investors did not seem dismayed by the earnings report. Stock in the Akron utility closed up 46 cents a share at $33.67 on the New York Stock Exchange.

“I think most people are less focused on the quarter numbers than on the large agenda,” said Paul Fremont, a New York-based analyst with Jeffries & Co.

“Davis-Besse is making progress. It still has some very significant hurdles left to face, but the most recent hurdles it's faced, including the pressure test, it seems to have come through positively.”

Mr. Fremont, who owns no FirstEnergy stock but has rated it a “buy” for investors, said most analysts also will await the outcome of the utility's proposal this week to state regulators to either continue a rate freeze or have customers get power through an auction in about two years when the current rate plan expires.

The Public Utilities Commission of Ohio has been asked to decide by year's end.

The parent of Toledo Edison said without the unusual items it would have a profit of $284 million for the quarter ending Sept. 30.

Those items included a charge of $43 million for replacement power and maintenance costs associated with Davis-Besse. The plant has been shut since early 2002 because of the discovery of an acid hole in the reactor head and subsequent operational problems.

FirstEnergy spokesman Ralph DiNicola said the Davis-Besse charges have been spelled out in quarterly reports for clarity, because the shutdown has been so long.

Another charge, for $81 million, was to reflect the diminished value of some of the nine electrical and mechanical contracting companies purchased in the late 1990s.

They have not been as profitable as expected. There also was a charge for $7.7 million relating to a New Jersey regulatory decision about rates this summer.