FirstEnergy Shares Fall After Blackout

Shares and bonds of FirstEnergy Corp. fell sharply Monday as analysts said the utility could face credibility issues and credit-rating cuts after its system was identified as a likely origin of the worst blackout in North American history.

The Akron, Ohio-based company’s stock slumped $2.86, or 9.3%, to $27.75 on the New York Stock Exchange in heavy trading. Shares fell as low as $25.82.

On Saturday, a top industry investigator said the failure of three of FirstEnergy’s electric power lines in Ohio probably caused last week’s blackout, which hit seven states and the Canadian province of Ontario.

But FirstEnergy said Monday that “extensive data” needed to be gathered and analyzed to determine what triggered the outage. The company said events outside its power network might have contributed to the blackout.

FirstEnergy, which serves 4.3 million customers in parts of Ohio, Pennsylvania and New Jersey, has had its share of trouble this year. The firm cut its earnings forecast for 2003 this month and pushed back the restart of the troubled Davis-Besse nuclear reactor in Ohio several times.

Standard & Poor’s on Monday said it placed the company’s $15 billion in debt on watch for a potential downgrade.

“With all the potential liability from the blackouts and facing the wrath of regulators, I don’t see how they can keep an investment-grade rating,” said Dorothea Matthews, a utility analyst at CreditSights Inc. who rates FirstEnergy bonds at “underweight” and owns none.

FirstEnergy is the fifth-largest U.S. utility owner by sales, behind Duke Energy Corp., Exelon Corp., American Electric Power Co. and PG&E; Corp.

Merrill Lynch cut its rating on FirstEnergy stock to “neutral” from “buy” and said it viewed the speculation about the utility’s role in the blackout as a sign that the firm’s operations needed significant improvement.

Lehman Bros. analyst Daniel Ford said investors should be in no rush to buy FirstEnergy stock. Ford said that if the outage was a result of negligence, “there will no doubt be civil lawsuits for damages and potential regulatory fines.”

FirstEnergy’s two Ohio units are Cleveland Electric Illuminating and Ohio Edison.