10-QPeriod: Q2 FY2001

FIRSTENERGY CORP Quarterly Report for Q2 Ended Jun 30, 2001

Filed August 10, 2001For Securities:FE

Summary

FirstEnergy Corp. (FE) reported its financial results for the quarter and six months ended June 30, 2001. The company's net income saw an increase in the second quarter compared to the prior year, driven by a significant revenue boost from its competitive services segment. This segment's growth was primarily fueled by higher wholesale electric and expanded natural gas sales, indicating a successful diversification beyond traditional regulated utility services. However, the regulated utility segment experienced revenue declines due to lower kilowatt-hour sales, influenced by Ohio's new customer choice program and a 5% reduction in residential generation charges. The company is actively pursuing a significant strategic move with its pending merger with GPU, Inc., which is expected to close in the fourth quarter of 2001, pending final regulatory approvals. This merger, accounted for under the purchase method, will create a larger entity with expanded operational reach in New Jersey and Pennsylvania. Additionally, FirstEnergy is adapting to new accounting standards, including the adoption of SFAS 133 for derivatives and anticipating the impact of SFAS 141 and SFAS 142, the latter of which will cease goodwill amortization from 2002 onwards.

Key Highlights

  • 1Net income increased to $146.0 million ($0.67 EPS) in Q2 2001 from $134.6 million ($0.60 EPS) in Q2 2000, primarily driven by revenue growth in the competitive services segment.
  • 2Total revenues increased by $102.0 million in Q2 2001 and $479.9 million in the first half of 2001, largely due to increased wholesale electric and natural gas sales in the unregulated businesses.
  • 3Regulated electric utility revenues decreased by $88.2 million in Q2 2001 and $57.8 million in the first half of 2001, attributed to lower kilowatt-hour sales driven by Ohio's customer choice program and residential generation charge reductions.
  • 4The company is progressing with its pending merger with GPU, Inc., expecting to close by the fourth quarter of 2001, subject to remaining regulatory approvals from the New Jersey BPU and SEC.
  • 5FirstEnergy adopted SFAS 133 for accounting for derivative instruments and hedging activities, resulting in an $8.5 million after-tax charge. The company also noted the upcoming adoption of SFAS 141 and SFAS 142, which will require purchase accounting for the GPU merger and cease goodwill amortization.
  • 6The company incurred a charge of $8.5 million ($.04 per share) due to the adoption of SFAS 133.
  • 7Capital expenditures are planned, with approximately $640 million allocated for 2001 across various subsidiaries.

Frequently Asked Questions

FirstEnergy reported an increase in net income to $146.0 million ($0.67 per share) for the second quarter of 2001, up from $134.6 million ($0.60 per share) in the same period of 2000. This improvement was largely driven by a significant increase in revenues from its competitive services segment.

The merger with GPU, Inc. is progressing, with expected closure in the fourth quarter of 2001, pending final approvals from the New Jersey Board of Public Utilities and the Securities and Exchange Commission. Regulatory approvals from other key bodies have already been received.

Ohio's electric utility restructuring, which introduced customer choice and unbundled electricity prices, has led to a decrease in regulated electric utility revenues. This is due to lower kilowatt-hour sales as customers select alternative suppliers and a 5% reduction in residential generation charges, impacting revenues by approximately $12 million in the second quarter and $21 million in the first half of 2001.

FirstEnergy manages financial risks from fluctuations in interest rates and commodity prices (electricity, natural gas, coal) by using derivative instruments such as forward contracts, options, futures, and swaps. These are primarily used for hedging purposes, with oversight from a Risk Policy Committee.