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FirstEnergy Adds Substation, Fortifies Ohio Infrastructure

Zacks Equity Research

FirstEnergy Corp. FE announced that its subsidiary, Ohio Edison, is set to start operating a new $2.4-million substation near West Jefferson, OH. The project will go live by the end of May.

Ohio Edison serves more than a million customers across 34 counties of Ohio.

A Customer-Centric Approach

The new project is expected to benefit more than 28,000 customers in the Madison and Franklin county areas by enhancing service reliability and will help the company to prepare for future demand in electricity. Built in less than 10 months, this cost-effective substation has animal protection devices made from polymer material on key parts of the equipment, which will help in reducing outages caused by squirrels and other animals.

Two pre-built underground circuits connect the substation with the existing Ohio Edison system. Additionally, with the help of specialized communications equipment, the substation can be remotely monitored. Also, to reduce the duration of the outage, circuit breakers or other relay devices can be reset automatically.

Bigger Picture

This is the sixth and the latest modular substation completed by the company in the Ohio Edison area in the last few years.

The substation is a step towards FirstEnergy’s plans of investing $371 million in the Ohio Edison service area. With this investment, the company intends to strengthen its distribution and transmission infrastructure.

FirstEnergy aims at boosting its service reliability which is expected to help in customer retention. Under the company’s “Energizing the Future” initiative, it has made an ambitious plan of investing nearly $1 billion in 2017 and $3.2–$4.8 billion over the 2017–2021 period.

The utility companies face tough competition from each other and the best way to stay in the business is to focus on customer satisfaction. In first-quarter 2017, FirstEnergy saw a 3% and 1% drop in sales in residential and commercial customers, respectively. However, on a weather-adjusted basis, sales witnessed a slight improvement because of growth in customer count on both quarterly as well as yearly basis.

Investments: A Key to Success

Other companies from the industry are also not lagging behind when it comes to regular investments to upgrade and maintain their infrastructure. These investments ensure reliability of services and will benefit millions of customers.

PPL Corp. PPL has a capital investment plan, which primarily focuses on infrastructure construction projects for generation, transmission and distribution. The company projects total capital expenditure to be approximately $15.9 billion between 2017 and 2021.

Similarly, Alliant Energy LNT plans to invest nearly $11.3 billion during the 2016–2025 period with nearly $1.40 billion of capital expenditure planned for 2017. This company is successfully completing major construction projects on time and at or below budget.

Price Movement

In the last three months, FirstEnergy lost 7.8% while the Zacks categorized Utility - Electric Power Industry gained 2.8%.

Though the company is highly focused on investment and growth, its high debt to capital ratio amid a rising interest environment remains a concern, given its current ratio of 0.36.

Zacks Rank and Other stocks to consider

FirstEnergy currently has a Zacks Rank #3 (Hold). A better-ranked stock in the utility space is CenterPoint Energy, Inc. CNP, carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

CenterPoint Energy, Inc. delivered a positive earnings surprise of 2.78% in the first quarter.  Its Zacks Consensus Estimate for 2017 moved up nearly 5.3% to 20 cents per share in the last 60 days.

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