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FirstEnergy to Invest $600M for Upgrading Infrastructure


FirstEnergy Corp. FE revealed plans of investing over $600 million in transmission projects through 2018 in the company's Pennsylvania Electric Company (Penelec) and Metropolitan Edison (Met-Ed) service areas. The projects will focus on rebuilding transmission lines and adding substations on the 230-kilovolt (kV) network, through its new transmission affiliate, Mid-Atlantic Interstate Transmission, LLC.

Under its "Energizing the Future" plan, FirstEnergy is actively planning to undertake over 336 projects, through the next year for modernizing transmission lines. Further, it will be introducing smarter technologies which are expected to boost the performance of electric system and benefit over one million customers along with preventing power outages.

FirstEnergy’s Expansion Strategy

FirstEnergy is persisting with its initiative to further upgrade and modernize transmission system. Through "Energizing the Future” program that the company had initiated during 2014 it aims to upgrade old transmission facilities with advanced technologies that will reinforce the power grid.

Under this initiative, the company is on track to invest nearly $1 billion in 2017. FirstEnergy’s transmission modernization drive will boost the company’s service reliability and lead to customer retention

Will it be Beneficial?

FirstEnergy being a major electric utility has been rigorously working on exiting the competitive energy market and becoming a fully regulated utility to tab the benefits of a regulated Utility Service Area.

In a regulated and highly competitive utility market, enhanced service reliability, reduced power outage and advanced technology are the keys to customer satisfaction.

FirstEnergy has spent approximately $2 billion in Regulated Transmissions in the last two years. As such, it has announced plans to begin the Phase-2 of their initiative through 2021, amounting to approximately $4.2-$5.8 billion over the next five years. These investments will benefit the communities on the whole by enhancing service reliability across the entire system.

FirstEnergy has been performing fairly well during the last three years, in addition it has taken initiatives to convert its competitive business to regulated business by mid- 2018. This strategic move is expected to provide more stability in its earnings over the long term.

Apart from First Energy other utilities like NextEra Energy, Inc. NEE, American Electric Power Company, Inc. AEP and Duke Energy Corporation DUK are all focusing to strengthen their infrastructure to provide better quality services to their customer base.

Price Performance

In the last 12 months, FirstEnergy has underperformed the Zacks categorized Utility – Electric Power industry. The company’s shares lost 13.4%, compared to industry’s gain of 0.5%.

The company’s underperformance can primarily be attributed to its aging infrastructure that it is currently replacing, higher debt/capital ratio compared with peers. Additionally, stringent regulatory norms and intensifying competition remain concerns.

Zacks Rank

FirstEnergy currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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