FirstEnergy Looking Past Dark Days

He did, however, acknowledge that FirstEnergy may need to spend considerable amounts of cash to upgrade its system. But he downplayed the potential impact on the company's credit rating.

Standard & Poor's was less kind. Four days after Ford's report, S&P warned that FirstEnergy's senior unsecured debt -- rated just one notch above junk -- would remain on CreditWatch with negative implications due to the task force findings.

"Standard & Poor's is concerned that the negative findings could affect FirstEnergy's relations with state and federal regulatory agencies, adversely affecting Standard & Poor's assessment of the company's business profile, resulting in lower ratings," S&P analyst Aneesh Prabhu wrote.

S&P cited the Davis-Besse subpoena as yet another concern.

"It is Standard & Poor's understanding that the request is independent to the restart process and the unit can restart without the investigation's completion," the rating agency wrote. "However, from a practical standpoint, if the investigation delays the restart, it could result in a Standard & Poor's rating action."

FirstEnergy is counting on lower financing costs -- which could disappear with a credit downgrade -- to help it meet current 2004 targets.

Fleishman acknowledges that FirstEnergy faces "serious problems." But he still sees them as manageable.

"The Davis-Besse outage and Aug. 14th blackout keep pointing to the same main weakness at FirstEnergy -- operational management," Fleishman wrote. "While these are serious problems, we believe this is a very fixable issue, either through renewed operational focus or through a change in management."