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Will FirstEnergy Be Spared from the Utility Woes of 4Q15?

Vincent Kruger

Will FirstEnergy Be Spared from the Utility Woes of 4Q15?

FirstEnergy Corporation’s upcoming 4Q15 earnings

FirstEnergy Corporation (FE) is expected to report its 4Q15 earnings on February 16, 2016. Wall Street analysts estimate FirstEnergy will report EPS (earnings per share) of $0.57 for 4Q15. In 4Q14, FirstEnergy reported EPS of $0.80.

Performance highlights

The poor earnings expectations for the fourth quarter can be explained by milder weather conditions in the operational areas of FirstEnergy. It mainly operates in four states: Ohio, Pennsylvania, New Jersey, and West Virginia. Along with FirstEnergy, Duke Energy Corporation (DUK) and American Electric Power (AEP) have a noticeable presence in this area, and Public Service Enterprise Group (PEG) has a significant presence in New Jersey.

In 3Q15, FirstEnergy’s operating earnings stood at $0.98 per share, which was $0.06 above the top of management’s guidance range for the quarter. Given the better-than-expected results in the third quarter, FE raised and narrowed its 2015 earnings guidance from $2.40–$2.70 per share to $2.67–$2.75 per share.

FE’s pending electric security plan

FirstEnergy’s electric security plan in Ohio is meant to commit three regulated subsidiaries to buy all of their power for the next 15 years from the company’s Davis-Besse nuclear plant and Sammis coal plant. According to regulations, these regulated utilities (JXI) must buy their power from the competitive markets through auctions. The new plan would authorize FirstEnergy subsidiaries to buy all their power at very reasonable prices for the next 15 years. Regulators’ decision on FirstEnergy’s Ohio electric security plan is expected to come in 1H16 and may begin to have a substantial impact on the company’s earnings in 2H16.

This power is then expected to be sold in the wholesale markets. Critics are saying that this would raise electric rates by $3 billion to pay for low-efficiency power plants, while supporters are claiming that this low-cost power will save consumers $2 billion.

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