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Ohio utilities of FirstEnergy Corporation (FE - Analyst Report) have received approval to extend their Electric Rate Plan for two more years that was set to expire on May 31, 2014. As a result of the approval, FirstEnergy Ohio utilities – Ohio Edison, Cleveland Electric Illuminating and Toledo Edison – can now establish electricity prices for their customers through May 31, 2016.

In December 2009, the Ohio Companies had filed their three-year portfolio plan to meet the energy efficiency and peak demand reduction requirements for the 2010-2012 period. Under the provisions of Senate Bill 221, the Ohio Companies had to implement energy efficiency programs that will achieve a total annual energy savings equivalent of approximately 470,000 MWH in 2012 and 530,000 MWH in 2013, with additional savings required through 2025.

The terms of the electric security plan include generation supplied through a Competitive Bidding Process (“CBP”) commencing June 1, 2011, a load cap of not less than 80% so that no single supplier is awarded more than 80.0% of the tranches, a 6.0% generation discount to certain low income customers provided by the Ohio Companies through a bilateral wholesale contract with First Energy Solutions, no increase in base distribution rates through May 31, 2014, and, a new distribution rider, Rider Delivery Capital Recovery (“DCR”), to recover a return of, and on, capital investments in the delivery system.

The company had filed for the extension of the current successful plan in the first quarter of 2012. The extension will benefit 19 signatories that include parties that represent residential, low-income, commercial and industrial customers, as well as competitive retail electric suppliers, schools and hospitals.

The benefits these parties would get include continuing to provide economic development and assistance to low-income customers for the two-year extension period at levels established in the existing Electric Security Plan (“ESP”), providing Percentage of Income Payment Plan (“PIPP”) customers with a 6% generation rate discount, freezing the current base distribution rates through May 31, 2016, and providing capacity to shopping and non-shopping customers at a market-based price set through an auction process.

Also, it will allow conducting additional power auctions to secure generation supply over a longer duration of time for non-shopping customers which will protect them from potential price volatility.

Other important benefits include continuing Rider Delivery Capital Recovery that allows continued investment in the distribution system for the benefit of customers, securing generation supply over a longer period of time to mitigate any potential price spikes for FirstEnergy Ohio utility customers who do not switch to a competitive generation supplier; and extending the recovery period for costs associated with purchasing renewable energy credits through the end of the new ESP period which will reduce the monthly renewable energy charge for all FirstEnergy Ohio utility customers.

The company wanted to extend the current plan as it has led to price certainty and has helped in generating more than $10 million in annual economic development funding for Ohio communities and low-income assistance to utility customers.

FirstEnergy focuses on enhanced customer service, reliability and operational flexibility. This approval will allow Ohio customers to continue to benefit from affordable electric rates that reflect competitive market prices. The company will be able to take more benefits from the existing plan and leverage additional opportunities and provide long-term stability to its customers.

However, regulatory obstacles, a rise in fuel input costs and demand volatility arising out of weather irregularities are matters of concern. The company presently retains a short-term Zacks #2 Rank (Buy). We have a long-term Neutral recommendation on the stock.

Based in Akron, Ohio, FirstEnergy Corporation is a diversified energy company. Through its subsidiaries and affiliates, the company engages in the generation, transmission and distribution of electricity, as well as energy management and other energy-related services. Following its recent merger with Allegheny Energy Inc., FirstEnergy operates in seven states, including Ohio, Pennsylvania, New Jersey, New York, Virginia, Maryland and West Virginia.

The company mainly competes with NextEra Energy, Inc. (NEE - Analyst Report) and PG&E Corporation (PCG - Analyst Report).

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