FirstEnergy Sells Production Stakes - Analyst Blog

FirstEnergy Generation Corp., a subsidiary of FirstEnergy Corporation (FE), sold its 6.65% stake in the output of the Ohio Valley Electric Corporation (OVEC) to Peninsula Generation Co-operative, in order to focus its attention on building its electricity generation business. The company announced that the sale will take effect on December 31, 2010.

As part of the deal, FirstEnergy has sold 150 megawatts (MW) of capacity from OVEC's generating facilities in southern Ohio and southern Indiana. The company has retained its remaining 4.85% interest in OVEC. The transaction received approval from the Federal Energy Regulatory Commission on December 15, 2010. 

OVEC owns and operates five 217-MW units at Kyger Creek in Gallia County, Ohio, and six 217-MW units at Clifty Creek near Madison, Indiana.  OVEC was formed by a group of utilities. It built the plants in the mid-1950s to serve the Atomic Energy Commission's uranium-enrichment facilities in Portsmouth, Ohio. When those plants were decommissioned, the OVEC-sponsoring companies began receiving the full output from the plants. 

Peninsula Generation Co-operative is a subsidiary of Wolverine Power Supply Co-operative Inc. Headquartered in Cadillac, Michigan, Wolverine is a generation and transmission co-operative that provides wholesale electricity to six members in that state. The company had also purchased FirstEnergy's Sumpter plant in Michigan last year.

Headquartered in Akron, Ohio, FirstEnergy Corp. is a diversified electric utility holding company operating within a 36,100-square-mile contiguous service territory, including parts of Ohio, Pennsylvania and New Jersey. Through its subsidiaries and affiliates, the company engages in the generation, transmission and distribution of electricity, as well as energy management and other energy-related services.

Going forward, FirstEnergy is on its way to becoming the leading regional energy provider, with ten regulated electric utilities serving 6 million customers in 7 states, on completion of its ongoing merger deal with Allegheny Energy Inc. (AYE). The merger is expected to be completed in the first half of 2011.

In the most recent quarter, FirstEnergy posted operating earnings of $1.28 per share, surpassing the Zacks Consensus of $1.09 and year-ago earnings of $1.11. For 2010, the company expects operating earnings to be in the range of $3.60–$3.70 per share, which is in sync with the Zacks Consensus Estimate of $3.64. The Zacks Consensus Estimate for 2011 is $3.17 per share.

FirstEnergy currently has a short term Zacks #3 Rank. We maintain our long term Neutral recommendation on the stock.

 
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