FirstEnergy's (FE) Units On Infrastructure Upgrade Drive

Diversified energy company FirstEnergy Corporation’s (NYSE:FE) units are making a slew of investments to upgrade infrastructure.

The objective of these investments is to modernize the electric system and thereby improve service reliability. This will not only ensure better customer retention but also attract new customers.

Details of the Projects

A FirstEnergy utility, Pennsylvania Electric Company, is allocating nearly $11 million for infrastructure improvements, which include rehabilitating and replacing power lines, and installing remote controlled devices and more durable protective devices on wires. The objective of these investments is to reduce disruptions in service to a customer base of nearly 600,000 in 31 Pennsylvania counties.

Another utility, Metropolitan Edison Company, serving nearly 560,000 customers, is commencing work, worth $7 million, on similar projects.

The Potomac Edison Company ("PE") is investing $5 million in building a 14.5 mile power line carrying a capacity of 34.5 kilovolt to minimize the number of affected customers in case of service disruptions. PE is also constructing a new substation consisting of three transformers with construction expected to be complete by 2017.

Outlook

These projects are part of FirstEnergy's ambitious "Energizing the Future" plan, which aims at upgrading and expanding the company’s transmission capabilities. The company remains on track to invest $4.2 billion over the 2014–2017 period, of which nearly $2.4 billion has already been spent through 2015.

Further, FirstEnergy has identified opportunities of over $15 million in infrastructure upgrades, work on which will commence in 2018.

FirstEnergy has been investing substantially in strengthening its regulated transmission and distribution operations, and believes these to be the major drivers of long-term growth and profitability.

Infrastructural Investments by Other Utilities

Utility operations are subject to adverse weather conditions in the form of cyclones and storms damaging transmission lines and delivery systems. Utilities also have to weather sudden outages, physical attacks, cyber hacking and normal wear and tear resulting from years of usage. As a result, utilities are scaling up investment in maintenance capital to conserve electricity lost from damage of lines. This will enhance their services and serve customers effectively.

NRG Energy, Inc. (NYSE:NRG) raised maintenance capital expenditure to $91 million in first-quarter 2016 from $85 million in the prior-year quarter. American Electric Power Co., Inc. (NYSE:AEP) spent $630 million on maintenance in the first quarter of 2016, up from $576 million in the prior-year period. NextEra Energy, Inc. (NYSE:NEE) too raised maintenance spending to $799 million in first-quarter 2016 from $735 million in the prior-year period.

Zacks Rank

FirstEnergy currently carries a Zacks Rank #3 (Hold).