BLACKOUT PROBE FirstEnergy's operations scrutinized

The power company has also been sued over Clean Air Act violations.
WASHINGTON POST
AKRON -- As investigators work to figure out where and how the nation's biggest blackout began, they are closely scrutinizing the operations of a Midwestern energy company that had been struggling with a series of setbacks long before the massive power failure.
In the past two years, FirstEnergy Corp. of Akron has discovered a gaping hole in the nuclear reactor at its Davis-Besse power plant, lost a lawsuit brought by the Environmental Protection Agency and announced plans to restate its earnings to correct mistakes in its accounting.
Then, over the weekend, investigators identified several power lines owned by FirstEnergy as the likely trigger point for the power failure Thursday that pulled the plug on a large swath of the Midwest, the Northeast and Canada.
The company's stock plunged Monday and at least one law firm filed suit against the company, seeking to represent everybody who lost electrical power that day.
Cause undetermined
The North American Energy Reliability Council, which is investigating the blackout, has since stressed that it has reached no conclusions on the cause, and FirstEnergy said Monday was too early to lay blame.
"What happened on Thursday afternoon is a very complex situation, far broader than the power line outages we experienced in our system," the company said in a statement.
Still, company officials concede the dispute comes at a bad time.
"We're the first to admit, we've been through a rough patch," Ralph DiNicola, FirstEnergy's director of communications, said in the lobby of his company's red-brick Akron headquarters. "And we've taken responsibility where it is due."
DiNicola disputed the theory that the company's lines could have left so many millions without power, saying, "It would be the equivalent of you plugging in a hair dryer and shutting down the entire city of Cleveland."
The company has admitted that its alarm system, which might have notified operators of mounting problems in its system Thursday, was not functioning. But the company has said its grid monitoring system was working.
DiNicola also said that on the day of the blackout, FirstEnergy noted "irregularities" throughout the Northeastern Interconnection, the power grid that was affected by the outages. Frequencies were fluctuating, as were voltages, he said.
"Our lines went down, but our customers didn't lose power until everyone else did. It is too soon to say that we were at fault. We don't think it is possible."
Explanation
FirstEnergy is a holding company that operates 16 power plants in Ohio, Pennsylvania and New Jersey, serving 4.4 million customers. It was formed in 1997 from the merger of several other power companies in the region.
Today regulators and some consumer advocates say that, while not necessarily a model utility, FirstEnergy has served its customers reliably.
"Their service quality has been good, their distribution system is solid, and they have a good reputation, overall," said Alan R. Schriber, chairman of the Public Utilities Commission of Ohio, which regulates electricity distribution in the state.
"As far as we are concerned, before this incident, their household customers have been served well," said Carah Brody of the Ohio Consumers' Council.
But the nation's fifth-largest power company has also been a lightning rod for criticism. "Historically, their rates are 30 to 60 percent higher than in the rest of the state, and they have admitted to prioritizing profit above maintenance and safety," said Shari Weir, head of Ohio Citizen Action, an environmental group with 100,000 members that has wrestled with the state's private utilities for some 25 years.
Termed a rogue
Glenn S. Krassen, general counsel for a consortium of northern Ohio municipalities that was formed to save citizens money by buying power in bulk, calls FirstEnergy a "rogue utility, shoddy and irresponsible." Like many of the company's detractors, he cites the litany of recent problems.
In February 2001, the company's Davis-Besse nuclear power plant, east of Toledo, was closed for routine maintenance. One month later, the company announced that a remote-controlled repair machine had found a pineapple-sized hole, caused by corrosion, in the reactor's lid.
A report published last year by the Nuclear Regulatory Commission concluded that FirstEnergy had ignored warning signs and improperly maintained the facility.
Davis-Besse, the NRC report said, was operating at the brink of a devastating accident on the scale of the disaster at the Three Mile Island nuclear plant, near Middletown, Pa., in 1979, the largest nuclear accident in American history.
Maintenance and the purchase of alternative power to compensate for the loss of Davis-Besse has cost FirstEnergy hundreds of millions of dollars, including $37.2 million so far this year, according to a recent earnings statement.
"We were wrong and we have tried to fix it," DiNicola said, adding that FirstEnergy hopes to reopen Davis-Besse later this fall. But at the request of Rep. Dennis Kucinich, D-Ohio, and three other congressmen, the General Accounting Office is investigating the NRC's oversight of FirstEnergy, a GAO spokesman confirmed Monday.
FirstEnergy was also targeted by the Environmental Protection Agency, which in 1999 sued the company along with six others over Clean Air Act violations.
Less than two weeks before the blackout, a federal judge found FirstEnergy in violation of clean air laws, declaring that some $136 million in improvements made over the years at one of its coal-burning plants should have been accompanied by installation of new pollution controls. Another trial will now be held to determine penalties.
Announced losses
And in early August, the company, which has annual revenue of some $12 billion, announced second-quarter losses of $57.9 million.
It also announced that irregularities in the way the company had amortized assets will result in a restatement of earnings, lowering them 23 cents per share for 2002, and 17 cents per share for the first half of 2003. The company said it also expects to restate 2001 and 2000 earnings, when auditors finish their inspection of its books.
"You take that all together, and it's a pretty damning picture" said Dan DiLiberto, mayor of Eastlake, a city northeast of Cleveland, and the founding head of the consortium.
The company's stock price fell $2.86, or 9 percent, to $27.75.