10-QPeriod: Q1 FY2003

FIRSTENERGY CORP Quarterly Report for Q1 Ended Mar 31, 2003

Filed May 13, 2003For Securities:FE

Summary

FirstEnergy Corp. reported a significant increase in net income for the first quarter of 2003 compared to the same period in 2002, driven by higher revenues from both regulated and competitive service segments. This improvement was largely due to colder weather boosting electricity sales and favorable gas margins, although partially offset by increased employee benefit expenses and costs related to the Davis-Besse nuclear plant's extended outage. A notable accounting change related to asset retirement obligations resulted in a substantial after-tax credit, significantly boosting reported net income. The company continues to manage its diverse operations across Ohio, Pennsylvania, and New Jersey, with a focus on optimizing its generation portfolio, managing commodity risks, and reducing its cost structure. Despite progress in several areas, the company faces ongoing challenges, including regulatory proceedings in New Jersey concerning rate cases and potential disallowances of deferred energy costs. Furthermore, the company is closely monitoring the restart of the Davis-Besse nuclear plant, which is critical for its operational and financial performance. Credit rating agencies like S&P and Moody's are closely watching these developments, with S&P maintaining a negative outlook but improving FirstEnergy's business position.

Key Highlights

  • 1FirstEnergy reported a strong increase in net income for Q1 2003, reaching $241.0 million ($0.82/share) from $116.5 million ($0.40/share) in Q1 2002.
  • 2The company benefited from colder weather driving higher electricity sales and improved gas margins.
  • 3A significant after-tax credit of $102.1 million from the adoption of SFAS 143 (Asset Retirement Obligations) boosted Q1 2003 net income.
  • 4Operating expenses increased, largely due to higher purchased power costs and increased employee benefit expenses, including costs from the Davis-Besse nuclear plant outage.
  • 5The company continues to navigate regulatory proceedings, particularly in New Jersey concerning JCP&L's rate case and potential disallowances of deferred energy costs.
  • 6The restart of the Davis-Besse nuclear plant remains a key operational focus and is anticipated in the first half of summer 2003.
  • 7Credit rating agencies S&P and Moody's affirmed their ratings for FirstEnergy, with S&P maintaining a negative outlook but improving the business position assessment.

Frequently Asked Questions

The primary driver for the increase in net income was a combination of higher revenues from increased electricity sales (due to colder weather) and competitive service segments, along with a significant after-tax credit of $102.1 million resulting from the adoption of SFAS 143 (Accounting for Asset Retirement Obligations).

The Davis-Besse nuclear plant experienced an extended outage due to corrosion issues found in the reactor vessel head. The company has undertaken significant management and hardware improvements. While the restart is anticipated in the first half of summer 2003, delays could negatively impact credit ratings. The extended outage contributed to higher operating expenses in Q1 2003 due to replacement power costs and maintenance.

Yes, the company is navigating regulatory proceedings, most notably the JCP&L rate case in New Jersey, which involves potential disallowances of deferred energy costs and a decision from the NJBPU is expected in July 2003. Additionally, there are ongoing environmental matters and legal proceedings, such as the civil complaint against the Sammis Plant for alleged Clean Air Act violations.

The competitive services segment saw increased revenues driven by higher electric wholesale sales, largely due to supplying New Jersey's Basic Generation Service (BGS) requirements. However, this was partially offset by lower revenues from energy-related services due to divestitures and economic conditions. The segment reported a net loss, which decreased compared to the prior year's quarter.