FirstEnergy-LS Power Equity Revise Asset Sale Agreement

FirstEnergy Corporation (NYSE:FE) announced that the agreement for the sale of competitive natural gas and hydroelectric generation assets to LS Power Equity Partners III, LP has been revised by both companies. Per the revised agreement, FirstEnergy’s subsidiaries, Allegheny Energy Supply Company, LLC, and Allegheny Generating Company, will sell 1,615 megawatts (MW) of assets located in Pennsylvania and Virginia to a subsidiary of LS Power Equity Partners III, LP for $825 million.

According to the previous agreement that was signed in January 2017, FirstEnergy agreed to sell assets with 1,572 MW capacity for $925 million.

Terms of the Agreement

The power stations which will be the part of the transaction are Springdale Generating Facility Units 1-5 (Springdale Township, PA), Chambersburg Generating Facility Units 12-13 (Guildford Township, PA), Gans Generating Facility Units 8-9 (Hunlock Creek, PA) and Hunlock Creek (Hunlock Creek, PA).

Apart from these four facilities, the deal also includes a part of Allegheny Generating Company's ownership interest in the Bath County Hydro station and the indirect interest of Allegheny Energy Supply in a joint venture with Buchanan Generating Facility (Oakwood, VA).

The agreement also states that all the 20 employees working at these power stations will retain their jobs with the new owner.

Moving Away From Competitive Generation

This step is a part of FirstEnergy’s earlier mentioned strategy to reduce merchant fleet generation so as to cushion itself from market volatilities. With the sale of these assets, the company will move a step closer toward its strategy of operating as a fully regulated utility company and exit from commodity-exposed generation.

Once the entire transition is complete, the company’s owned or generating capacity will be approximately 15,337 MW from nuclear, coal, gas, hydro, wind and solar facilities. The company is aiming to transform into a regulated company by mid 2018.

Growing Amid Steep Competition

FirstEnergy’s modernization drive has given rise to its ambitious plan “Energizing the Future”. As a part of this plan, the company wants to upgrade and expand its regulated transmission capabilities. Under this initiative, the company is poised to invest nearly $1 billion in 2017 and $4.2-$5.8 billion over the 2017-2021 time period.

The company revealed plans of investing over $600 million in transmission projects through 2018 in the company's Pennsylvania Electric Company (Penelec) and Metropolitan Edison (Met-Ed) service areas. (Read More: FirstEnergy to Invest $600M for Upgrading Infrastructure)

Utility is a regulated, yet highly competitive market. Upgrading and modernizing the existing infrastructure is important for giving better service to the customers. Therefore, apart from FirstEnergy other utility firms like NextEra Energy, Inc. (NYSE:NEE) , American Electric Power Company, Inc. (NYSE:AEP) and Duke Energy Corporation (NYSE:DUK) are strengthening their infrastructure to provide better-quality services to their customer base.

Price Movement

Shares of FirstEnergy have returned 11.9% outperforming Zacks Categorized industry’s return of 2.3% in the last three months.

The focus on increasing service reliability and customer retention has boosted performance to a great extent. More focus on upgrading the aging infrastructure is expected to further boost the company’s performance in the future.

Zacks Rank

FirstEnergy currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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