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Utility major FirstEnergy Corporation’s (FE - Analyst Report) business wings – Mon Power and Potomac Edison – announced electric rate cuts for their West Virginia customers. The decision comes after the Public Service Commission issued an order for the rate slash, effective January 1, 2013.

The reduction entails decreasing electric rates by $66 million which comes on the heels of lower fuel expenses and purchased power costs. This will act as a complementary factor to Mon Power’s and Potomac Edison’s businesses as coal costs form a major component of their cost of electricity production. It also includes a $5 million of synergy savings related to the merger of Allegheny and FirstEnergy.

With this verdict, West Virginia residential customers consuming 1,000 kilowatt-hours of power will witness a rate cut of around $5 which roughly translates to a 5% drop in their monthly bills. Also, FirstEnergy’s billing rates for the customers will be approximately 20% below the national average. The decline in electric rates is expected to help in customer retention and even attract new customers.

The rate changes fall under a cost recovery system that was put in place by the Public Service Commission in 2007 to adjust Mon Power’s and Potomac Edison’s consumer bills on an annual basis to reflect the rise or fall in fuel costs used to produce electricity as well as purchased power.

The company’s subsidiary, Jersey Central Power & Light (“JCP&L”), recently filed for modification in base rates. Upon receiving approval from the Jersey Board of Utilities, electric rates will rise 1.4% on an average for a JCP&L customer. Residential houses consuming 650 kilowatts hours of electricity will witness an increase of $1.51 in their per month billings depending on the amount of usage.

We believe these electric rate dynamics will lead to stable earnings, going forward.  FirstEnergy’s retail business will continue to hold its ground and perform well as evident from its rise in the customer count of 42% in the third quarter 2012.

However, the current slackness in the U.S. economic environment will weigh on the company’s profitability. FirstEnergy presently 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 forward to accruing higher returns from a rate case in its North Carolina business subject to regulatory approval.

The Zacks Consensus Estimates for the fourth quarter and full year 2012 are currently pegged at 85 cents and $3.34 per share, respectively.

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

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