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Ohio utility FirstEnergy Corporation (FE - Analyst Report) inked a non-binding agreement with American Municipal Power, Inc. (“AMP”) for the construction and development of a natural gas peaking facility in the company’s Eastlake unit, subject to regulatory approval. The plant’s construction is scheduled to commence in the second half of 2014. The natural gas plant is projected to come online by early 2016.

Per the contract, FirstEnergy will oversee the construction phases of the four combustion turbine units having capacity generation of 873 megawatts.  Its venture partner, AMP will provide the necessary finances for the construction and will hold 75% of the output. FirstEnergy will bankroll the rest and own 25% of the aggregate production.

The Eastlake plant was strategically selected owing to the existence of its transmission system interconnections. The fresh generation project will gradually increase FirstEnergy’s need for some of the previously announced transmission projects. Additionally, the company is also expected to save $200 million in the transmission projects through 2016.

FirstEnergy is increasingly veering towards the development of its natural gas business due to regulatory pressures from the U.S. Environmental Protection Agency, while reducing its dependence on coal-fired units.

We believe lower transmission rates and cancellation of the Path transmission project will certainly not bode well with the company’s growth goals.

FirstEnergy narrowed its adjusted earnings expectation for 2012 to a range of $3.30–$3.40 per share from its prior expectation of $3.30–$3.60 per share. The Zacks Consensus Estimates for the fourth quarter and full year 2012 are currently pegged at 86 cents and $3.34 per share, respectively.  

Another operator in the utility space, American Electric Power Company Inc. (AEP - Analyst Report) is gradually shifting focus on the development of its natural gas assets. It recently idled three of its coal-fired facility to improve its gas business.

FirstEnergy through its subsidiaries engages in the generation, transmission, and distribution of electricity.

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