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FirstEnergy Files for Approval of Stake Sale, Capacity Hike
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FirstEnergy Corp.’s (FE - Free Report) affiliate, Mon Power has filed two requests for proposals (RFP) for increasing its generation capacity and the sale of its stake in a hydroelectric generating station.
Increase in Generation Capacity
New energy usage projections reveal rapid load growth owing to the expansion of the Marcellus shale gas industry in West Virginia. Meanwhile, Mon Power anticipates generation capacity to fall to 1,400 megawatts (“MW”) by 2027. As a result, the first RFP seeks for the approval of 1,300 MW of additional generation capacity and up to 100 MW of demand-response resources.
Upon selection of the proposal, Mon Power will seek regulatory approval from the Public Service Commission of West Virginia and the Federal Energy Regulatory Commission.
Sale of Ownership Interest
The second RFP involves soliciting bids for the sale of Mon Power’s ownership stake in the Bath County Pumped Storage Hydroelectric Generating Station, located in Warm Springs, VA. The company is considering the sale as recent changes in the Pennsylvania New Jersey Maryland capacity market are expected to lead to a decline in the cost efficiency of the facility.
PJM Interconnection is a regional transmission organization that coordinates the movement of wholesale electricity in all or parts of 13 states and the District of Columbia in the U.S., so as to ensure long-term grid reliability by securing the appropriate amount of power supply resources needed to meet the anticipated energy demand in the future.
On identifying a suitable buyer for its stake, Mon Power will seek the requisite regulatory approvals.
Utility Industry Outlook
The Federal Open Market Committee’s announcement of raising the target federal funds rate by a quarter of a percentage point from the range of 0.25–0.5% to 0.5–0.75% does not bode well for utilities. This is because companies operating in this space are characterized by their need for huge investments in setting up generation facilities, and transmission and distribution infrastructure.
While these companies have been benefiting from a low interest rate environment so far, a rate hike makes this sector far less appealing. This is because the resulting increase in cost of capital will push the cost of operations for these companies, severely hurting their profitability. Major utilities like Avista Corp. (AVA - Free Report) , Ameren Corporation (AEE - Free Report) and Exelon Corporation (EXC - Free Report) may have to lower dividends and suspend share buybacks to cope with the new set of challenges.
Price Movement
FirstEnergy has underperformed the Zacks categorized Utility - Electric Power industry over the past 12 months. Shares of the company have gained 2.3%, compared with the industry’s 7.6% improvement.
This is because FirstEnergy, like most other unregulated utilities, has been grappling with its 13,162 MW competitive energy business over the last few quarters, despite consistent efforts to expand the regulated generation mix.
We note that the competitive energy business exposes FirstEnergy to market volatilities. Even though natural gas prices are on the rise, wholesale power prices have not benefitted from the trend, thus adversely affecting competitive power players.
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FirstEnergy Files for Approval of Stake Sale, Capacity Hike
FirstEnergy Corp.’s (FE - Free Report) affiliate, Mon Power has filed two requests for proposals (RFP) for increasing its generation capacity and the sale of its stake in a hydroelectric generating station.
Increase in Generation Capacity
New energy usage projections reveal rapid load growth owing to the expansion of the Marcellus shale gas industry in West Virginia. Meanwhile, Mon Power anticipates generation capacity to fall to 1,400 megawatts (“MW”) by 2027. As a result, the first RFP seeks for the approval of 1,300 MW of additional generation capacity and up to 100 MW of demand-response resources.
Upon selection of the proposal, Mon Power will seek regulatory approval from the Public Service Commission of West Virginia and the Federal Energy Regulatory Commission.
Sale of Ownership Interest
The second RFP involves soliciting bids for the sale of Mon Power’s ownership stake in the Bath County Pumped Storage Hydroelectric Generating Station, located in Warm Springs, VA. The company is considering the sale as recent changes in the Pennsylvania New Jersey Maryland capacity market are expected to lead to a decline in the cost efficiency of the facility.
PJM Interconnection is a regional transmission organization that coordinates the movement of wholesale electricity in all or parts of 13 states and the District of Columbia in the U.S., so as to ensure long-term grid reliability by securing the appropriate amount of power supply resources needed to meet the anticipated energy demand in the future.
On identifying a suitable buyer for its stake, Mon Power will seek the requisite regulatory approvals.
Utility Industry Outlook
The Federal Open Market Committee’s announcement of raising the target federal funds rate by a quarter of a percentage point from the range of 0.25–0.5% to 0.5–0.75% does not bode well for utilities. This is because companies operating in this space are characterized by their need for huge investments in setting up generation facilities, and transmission and distribution infrastructure.
While these companies have been benefiting from a low interest rate environment so far, a rate hike makes this sector far less appealing. This is because the resulting increase in cost of capital will push the cost of operations for these companies, severely hurting their profitability. Major utilities like Avista Corp. (AVA - Free Report) , Ameren Corporation (AEE - Free Report) and Exelon Corporation (EXC - Free Report) may have to lower dividends and suspend share buybacks to cope with the new set of challenges.
Price Movement
FirstEnergy has underperformed the Zacks categorized Utility - Electric Power industry over the past 12 months. Shares of the company have gained 2.3%, compared with the industry’s 7.6% improvement.
This is because FirstEnergy, like most other unregulated utilities, has been grappling with its 13,162 MW competitive energy business over the last few quarters, despite consistent efforts to expand the regulated generation mix.
We note that the competitive energy business exposes FirstEnergy to market volatilities. Even though natural gas prices are on the rise, wholesale power prices have not benefitted from the trend, thus adversely affecting competitive power players.
Zacks Rank
FirstEnergy carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Best Place to Start Your Stock Search
Today, you are invited to download the full list of 220 Zacks Rank #1 "Strong Buy" stocks – absolutely free of charge. Since 1988, Zacks Rank #1 stocks have nearly tripled the market, with average gains of +26% per year. Plus, you can access the list of portfolio-killing Zacks Rank #5 "Strong Sells" and other private research. See these stocks free >>