FirstEnergy to reduce debt by $1.5 billion; sell competitive hydro fleet

By Betty Lin-Fisher, Beacon Journal business writer

Published: February 25, 2013 | Updated: February 26, 2013 

As part of its quarterly and 2012 annual financial report issued in February, Akron-based FirstEnergy Corp. said it plans to reduce debt in 2013 by $1.5 billion.

To do that, the company wants to speed up the sale of some assets it acquired in a merger with western Pennsylvania-based Allegheny Energy. Allegheny plants powered by water, known as the company’s “hydro fleet,” were being studied for sale in 2015, FirstEnergy said.

 James F. Pearson, senior vice president and chief financial officer, said the moves are aimed to “improve the balance sheet, enhance liquidity and maintain investment grade credit metrics.”

The debt reduction will take place at subsidiaries called FirstEnergy Solutions and Allegheny Supply, the company said.

“The assets we intend to sell are primarily our competitive hydro fleet, which includes nearly 1,180 megawatts that were initially in our plans to be sold in 2015,’’ he said. The plants, powered by water, were picked up during the company’s merger with Allegheny Energy and are located in Pennsylvania, West Virginia, Maryland and Virginia.

The utility company and parent company of Ohio Edison also said it would:

• Retire a combination of both tax-exempt bonds and taxable debt to achieve the debt reductions.

• Work to refinance short-term borrowings with long-term debt.

• Work with banks to extend the maturity of existing credit facilities totaling $5.5 billion for an additional year to 2018.

• Consider another program valued at $300 million to further strengthen its balance sheet.

These steps would help with growth initiatives the company has, including transmission expansion plans, company President and Chief Executive Officer Anthony J. Alexander said. He cited several plans to increase the capacity at some of its nuclear plants through new turbines, including upgrades this year at both Perry and Beaver Valley 2 or Beaver Valley 1.

FirstEnergy said its net income for the full 2012 year was down 11.3 percent to $771 million, or $1.84 per share, compared with $869 million and $2.21 per share in 2011.

The company reported a net loss of $148 million, or a loss of 35 cents per share, in the fourth quarter of 2012. That compares with a net income of $99 million, or 23 cents per share, the same period a year ago.

The company said it had an annual adjustment for what it called “pension and other post-employment benefits actuarial assumptions,” which reduced fourth quarter 2012 earnings by 91 cents per share, resulting in the loss for the quarter. Spokeswoman Tricia Ingraham said the company changed an accounting method in early 2012 to “recognize gains and losses in those plans in the year they incurred instead of amortizing them over time.”

This was the second time the company took the charge, which it will take annually, she said. In 2011, the 74 cents-per-share adjustment “was more than offset by a one-time gain from the sale of non-core assets.”

The company also reaffirmed its 2013 earnings guidance of $2.85 to $3.15 per share.