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FirstEnergy Unit Files for Rate Hike

FE D

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Utility major FirstEnergy Corporation’s (FE - Analyst Report) electric subsidiary, Jersey Central Power & Light (“JCP&L”), submitted an application to the Jersey Board of Utilities (“BPU”) for modification in base rates.

The filling entails cost recovery related to capital spending on infrastructure modernization projects. These upgrades are necessary for service reliability as well as technological modernization like advanced storm response systems, smart-grid projects and enhancement of distribution systems. The application also includes costs linked to restoration activities undertaken during Hurricane Irene and the October snowstorm in 2011. Later, cost associated with Hurricane Sandy will also be included in the rate filling.

The $31 million tender filed for rate amendment was in response to BPU’s previous order to the company to submit base rate case comprising details related to operation, maintenance and capital expenditures.

On receiving approval from BPU, electric rates will rise 1.4% on an average for a JCP&L customer. Residential customers consuming 650 kilowatts hours of electricity will witness an increase of $1.51 in their per month billings depending on the amount of usage.

The company will derive significant top-line benefits upon receiving the approval for electric base rate hikes and also secure stable margins. JCP&L customers will also stand to gain from the proposed rate changes as they will be charged the lowest among the four regulated electric companies in the state. This will help in customer loyalty retention and even attract new customers.

The Zacks Consensus Estimates for the fourth quarter and full year 2012 are currently pegged at 85 cents and $3.35 per share, respectively.

We believe that the challenging U.S. economic conditions notwithstanding, FirstEnergy’s retail business will continue to hold its ground and perform well. The company retains a short-term Zacks #3 Rank (Hold rating).

Another utility sharing a Zacks #3 Rank is Dominion Resources Inc. (D - Snapshot Report). Dominion is also looking to accrue high returns from rate case in its North Carolina business subject to regulatory approval.

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

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