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FirstEnergy Lands Large Energy Service Deal

FirstEnergy Lands Large Energy Service Deal

Continuing the expansion beyond its core utility operations, FirstEnergy Corp. made a splash in the unregulated sector last week when its energy services marketing arm, FirstEnergy Services, announced a management and supply deal with Republic Technologies International, Inc. (RTI), one of the largest producers of special bar-quality steel products in the U.S. The deal, which is the largest service agreement FirstEnergy has ever signed, could produce more than $1 billion in commodity and energy service sales over the span of the five-year contract.

FirstEnergy Services will manage the supply and delivery of all of RTI's electric and natural gas needs during the life of the contract, which went into effect last Tuesday. In addition, FirstEnergy Services will provide consolidated billing and analyses; heating, ventilation, air-conditioning; and other energy-related services. A spokesman for the company said that other affiliates, besides FirstEnergy Services, will likely carry out the supply and management functions of the contract. RTI has numerous facilities in the eastern half of the U.S. Due to competitive reasons, FirstEnergy would not disclose how much gas or power RTI consumes.

With a market share of approximately 23%, RTI's special bar-quality steel products are hot-rolled and cold-finished carbon and alloy steel bar and rod used primarily in critical applications in automotive and industrial equipment. RTI has aggregate annual steel melting capacity of 3.4 million tons, hot-rolling production capacity of approximately 2.9 million tons and 550,000 tons of cold-finishing production.

"FirstEnergy Services presented RTI with a comprehensive energy supply and service package that went well beyond what we've seen from other suppliers. We were very impressed with the potential energy savings and productivity enhancements available through FirstEnergy Services," said David Stockman, senior managing director of The Blackstone Group, RTI's parent company.

The deal represents a shift in emphasis for FirstEnergy, whose core operating states, Pennsylvania and Ohio, are both actively engaged in gas and electric deregulation. "Right now, you'd still have to say the utilities are our core businesses," said Dave Poeppelmeier, a FirstEnergy spokesman. The company's four electric utility operating companies - Ohio Edison and its Pennsylvania Power subsidiary, The Illuminating Co. and Toledo Edison - serve 2.2 million customers. "But this deal clearly demonstrates our ability to offer not only effective regulated services, but also unregulated services as well."

Although the RTI deal is FirstEnergy's largest energy services contract to date, the Akron, OH-based company is not inexperienced in energy management. FirstEnergy's Facilities Services Group is the largest energy services operation of its kind in the Northeast according to FirstEnergy. It includes 11 mechanical construction, contracting and energy management companies, with revenues exceeding $400 million.

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