FirstEnergy has record of financial, pollution troubles

and John Seewer ~ The Associated Press

It's been a bad month for FirstEnergy. The Ohio-based owner of power lines that may have triggered the largest blackout in U.S. history was found guilty of pollution in early August, warned about its staggering $12.5 billion debt, and forced to slash earnings estimates.

All this comes as the company is under close scrutiny for safety at its nuclear plant, which has been the subject of Congressional hearings and an investigation by the Nuclear Regulatory Commission.

The drain on the company's financing -- stemming mostly from clean-up of the shuttered nuclear plant -- could make it harder for FirstEnergy to tackle any financial fallout from the outage.

Company officials said Sunday they would concentrate on the blackout investigation and not other problems.

According to a preliminary analysis, FirstEnergy -- which owns four of the first five lines that failed -- was experiencing unusual electric conditions as much as four hours before the blackout hit Thursday, sweeping across eight states and parts of Canada.

"What happened on Thursday afternoon is much more complex than a few tripped power lines in our system," said Todd Schneider, a FirstEnergy spokesman.

Still, he said the company didn't consider shutting down lines before the blackout.

"At the time there was no reason to isolate it."

Efforts to nail down the source of Thursday's massive blackout have shifted to Ohio and FirstEnergy Corp., the nation's fourth-largest investor-owned utility and No. 159 on the Fortune 500 list.

FirstEnergy said a system that is supposed to flash a red warning on computer monitors at the company's control center was not operational when the lines began failing Thursday afternoon.

The Akron-based company has 16 power plants and an annual revenue of more than $12 billion with customers along an area that stretches from Ohio to New Jersey.

Although considered a utility, FirstEnergy operates as more of a conglomerate, handling many facets of the energy business from power plant operations to customer services. The company benefited enormously from deregulation of the industry -- which is being blamed, in part, for failed efforts to overhaul the power grid and modernize the lines.

Its Davis-Besse nuclear plant east of Toledo was shut in February 2002 for maintenance. A month later, it was discovered that boric acid ate through much of a 6-inch-thick steel cap on the plant's reactor vessel.

The company, waiting a decision by the NRC before the plant can reopen, has been forced to purchase power elsewhere to make up for the halt in productivity at Davis-Besse. It has cost the company $450 million since July for repairs and replacement power.

Troubles at the plant also caught the attention of Congress and the Environmental Protection Agency.

More problems began to pile up this summer.

On Aug. 7 a federal judge ruled that FirstEnergy violated pollution control laws when it rebuilt a power plant without installing state-of-the-art smog controls required under the Clean Air Act. A second trial will determine penalties.

The government argued the pollution from FirstEnergy and others winds up in the Northeast, where it causes acid rain and health problems.

Similar cases are pending against Columbus-based American Electric Power, Illinois Power Co., Duke Energy Corp. and Southern Co.

On the day of the court decision, Standard & Poor's held FirstEnergy's credit rating one notch above junk status but said the company's outlook remains negative, and that long-term debt should be reduced to $10 billion by year-end.

In early August, FirstEnergy reported a second-quarter loss of $57.9 million, or 20 cents per share, due to special charges. FirstEnergy also said it would restate 2002 financial statements.

On Saturday, a top investigator said the failure of three transmission lines in northern Ohio likely started Thursday's blackout that stretched into the weekend.

Investigators were "fairly certain" that the problem started in Ohio, said Michehl Gent, head of the North American Electric Reliability Council. "We are now trying to determine why the situation was not brought under control."

The council is a nonprofit, industry-sponsored group that oversees power line reliability.

Ohio regulators also said the blackout may have started in their state.

FirstEnergy executives spent the weekend in their offices to determine the extent of the utility's role in the outage. Lunches were brought in and entry into FirstEnergy's downtown brick headquarters was strictly controlled.

"We want to get to the bottom of this," said Schneider, the FirstEnergy spokesman.

He said the company is still investigating whether its warning system is working.

U.S. Rep. Dennis Kucinich, a Democratic presidential candidate from Cleveland and a FirstEnergy critic, said he was closely monitoring the situation.

"If press reports are accurate, and FirstEnergy once again failed to comply by federal standards, then I believe serious questions must be asked about FirstEnergy's ability to effectively serve," he said.