8-KFinancial EventsExhibits & Filings

FIRSTENERGY CORP 8-K Report, Material Impairment (Nov 17, 2010)

Filed November 17, 2010For Securities:FE

Summary

FirstEnergy Corp. (FE) has announced a significant strategic shift regarding its R. E. Burger Plant in Shadyside, Ohio. On November 17, 2010, the company revealed that its subsidiary, FirstEnergy Generation Corp., will permanently shut down units 4 and 5, which have a combined generating capacity of 312 megawatts, by December 31, 2010. This decision stems from unfavorable market conditions, specifically a significant decline in electricity prices that no longer support the previously planned repowering of these units to generate electricity using biomass. This operational change is expected to result in a material impairment charge of up to approximately $75 million for the fourth quarter of 2010, translating to an estimated $0.15 per share reduction in earnings. Importantly, management anticipates no future cash expenditures related to this impairment. On the positive side, the cancellation of the biomass repowering project is projected to reduce capital requirements by approximately $190 million through 2012, offering a more favorable outlook for capital allocation.

Key Highlights

  • 1FirstEnergy Corp. is permanently shutting down Units 4 and 5 at the R. E. Burger Plant by December 31, 2010.
  • 2The decision is driven by significantly fallen electricity market prices, making the biomass repowering project uneconomical.
  • 3The shutdown affects two units with a combined generating capacity of 312 megawatts.
  • 4An estimated impairment charge of up to $75 million is expected for Q4 2010, reducing earnings by $0.15 per share.
  • 5No future cash expenditures are anticipated for the impairment charge.
  • 6The cancellation of the repowering project is expected to reduce capital requirements by approximately $190 million through 2012.

Frequently Asked Questions

FirstEnergy is shutting down these units because the significant decline in electricity market prices has made the planned repowering project to generate electricity using biomass uneconomical. The expected market prices no longer support the project's viability.

The company anticipates an impairment charge of up to approximately $75 million in the fourth quarter of 2010. This is expected to reduce FirstEnergy's earnings per share by an estimated $0.15.

Management has indicated that no future cash expenditures are expected to result from the impairment charge itself. However, the cancellation of the repowering project is expected to lead to reduced capital requirements.

The cancellation of the biomass repowering project is projected to reduce FirstEnergy's capital requirements by approximately $190 million through 2012, freeing up capital for other uses or reducing the need for external financing.