10-QPeriod: Q2 FY2002

FIRSTENERGY CORP Quarterly Report for Q2 Ended Jun 30, 2002

Filed August 8, 2002For Securities:FE

Summary

FIRSTENERGY CORP. (FE) reported solid financial results for the quarter and six months ended June 30, 2002. The company's net income saw a significant increase, driven by the inclusion of former GPU companies' results following the November 2001 merger, alongside improved performance in its competitive services segment. Despite facing challenges such as the extended outage at the Davis-Besse nuclear plant, which impacted earnings per share, FirstEnergy managed its operations effectively. The company is actively working on strategic divestitures, including former international operations, and managing its debt and capital structure, evidenced by new interest rate swap agreements. Investors should note the ongoing regulatory matters in Ohio, New Jersey, and Pennsylvania, which could impact future recovery of costs and rates. The company's proactive approach to managing its portfolio and financial health, including the sale of assets and strategic hedging, positions it to navigate the evolving energy landscape. The cancellation of the power plant sale agreement with NRG Energy Inc. is a notable development, and FirstEnergy is pursuing alternative buyers and potential legal action.

Key Highlights

  • 1Net income increased to $233.3 million ($0.80/share basic) in Q2 2002 from $146.0 million ($0.67/share basic) in Q2 2001, and year-to-date net income was $349.8 million ($1.19/share basic) compared to $243.7 million ($1.12/share basic) in the prior year, benefiting from the GPU merger.
  • 2FirstEnergy experienced a significant increase in total revenues to $2.95 billion in Q2 2002 and $5.75 billion year-to-date, largely due to the consolidation of former GPU companies.
  • 3The company is actively managing its business segments, with regulated services showing increased net income and competitive services moving from a loss to a net income position, driven by improved wholesale electricity sales.
  • 4The extended outage at the Davis-Besse nuclear plant is estimated to cost between $55-$75 million in capital expenditures and $130-$170 million in operating expenses (pre-tax) for 2002, impacting earnings by approximately $0.09 per share.
  • 5FirstEnergy has entered into interest rate swap agreements to convert a significant portion of its fixed-rate debt to floating-rate obligations, managing interest rate risk.
  • 6The planned sale of four coal-fired power plants to NRG Energy Inc. was canceled by FirstEnergy on August 8, 2002, due to NRG's inability to complete the transaction under original terms. FirstEnergy is reserving its right to pursue legal action and will seek other buyers.
  • 7Divestiture of former GPU international operations, including Argentina's Emdersa, is ongoing, with an expected completion or definitive agreement by November 6, 2002. Failure to do so would result in re-inclusion of Emdersa's results in FirstEnergy's income statement.

Frequently Asked Questions

The merger with GPU, Inc., effective November 7, 2001, significantly impacted FirstEnergy's financial results by consolidating the operations of GPU's former subsidiaries. This led to a substantial increase in revenues and net income for the periods ended June 30, 2002, as compared to the prior year, reflecting the inclusion of these new business units.

FirstEnergy is facing challenges including the extended outage at its Davis-Besse nuclear plant, which has incurred significant costs and negatively impacted earnings per share. The company is addressing this through extensive repairs, management changes, and independent oversight. Additionally, the cancellation of the sale of four power plants to NRG Energy Inc. presents a challenge, which FirstEnergy is addressing by seeking new buyers and considering legal action.

FirstEnergy's subsidiaries in Ohio, New Jersey, and Pennsylvania are involved in significant regulatory proceedings related to electricity industry deregulation. These include the recovery of transition costs, customer shopping incentives in Ohio, rate unbundling and securitization of stranded costs in New Jersey, and the appeal of a Pennsylvania court decision regarding deferred energy mechanisms. These matters could impact future customer rates and the company's financial condition.

FirstEnergy is actively managing its financial risk through various strategies. It has entered into interest rate swap agreements to convert a portion of its fixed-rate debt to floating-rate, hedging against interest rate fluctuations. Furthermore, the company is pursuing strategic divestitures of non-core international operations and working to reduce overall debt levels. The company also employs derivative instruments to manage commodity price risks.