Ohio Edison, Cleveland Electric Illuminating and Toledo Edison — affiliates of diversified energy company FirstEnergy Corp. (FE - Free Report) — have received a disappointing verdict from the Public Utilities Commission of Ohio (PUCO), which made modifications to the initial proposal approved in March for subsidizing the utilities’ ageing power plants.
FirstEnergy filed for a "retail rate stability rider’ to collect $558 million per year through eight years via surcharges on customer’s bills. It essentially included power purchase agreements for the Davis-Besse Nuclear Power Station in Oak Harbor and the W.H. Sammis coal-fired facility in Stratton for a cumulative capacity of 3,300 megawatts (“MW”). These plants have been finding it increasingly difficult to compete with the modern natural gas-fuelled power plants.
The PUCO’s approval of the proposal was rejected by the Federal Energy Regulatory Commission (FERC) on grounds that the increase in utility bills to subsidize the two old power plants would be unreasonably high for customers.
Following the FERC’s rejection of the proposal, the PUCO changed its stance and instead authorized a Distribution Modernization Rider (“DMR”), which allowed the utilities to collect up to $132.5 million annually through bill surcharges for the next three years. After taxes, the net amount stands at $204 million a year.
The utilities were, however, allowed to file for a two-year extension in 2018. The PUCO opined that the DMR’s primary purpose is to allow FirstEnergy to recuperate a certain degree of financial health for investing in future distribution modernization efforts.
What’s the Rate Hike Impact
The final approval would result in a $3 increase in monthly utility bills for residential customers who consume 750 MW of electricity. Despite this increase, total monthly bills for FirstEnergy customers will be lower on a year-over-year basis and the company will continue to boasts the lowest utility bills in Ohio.
FirstEnergy is presently evaluating the decision and contemplating the steps ahead.
FirstEnergy’s modernization drive will boost the company’s service reliability and lead to customer retention. This led to the conception of its ambitious “Energizing the Future” plan aimed at upgrading and expanding the transmission capabilities.
Under this initiative, the company remains on track to invest $4.2 billion over the 2014–2017 period, of which nearly $3 billion have been spent so far. The utility identified additional $15 billion worth of investment opportunities to improve reliability in 2018 and beyond.
Zacks Rank & Key Picks
FirstEnergy carries a Zacks Rank #3 (Hold). A few better-ranked stocks in the same space include Pinnacle West Capital Corporation (PNW - Free Report) , DTE Energy Company (DTE - Free Report) and Black Hills Corporation (BKH - Free Report) .
DTE Energy with a Zacks Rank #2 (Buy) has witnessed four upward estimate revisions for the full year over the last 60 days. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Black Hills with a Zacks Rank #2, has seen one upward estimate revision for 2016 over the last 60 days.
Pinnacle West Capital has a Zacks Rank #2 and has seen one upward estimate revision for 2016 over the last 60 days.
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