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FirstEnergy Rises as Utilities Agree to Pay More for Power

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May 16 (Bloomberg) -- FirstEnergy Corp., which completed a $4.7 billion takeover of Allegheny Energy Inc. in February, rose after utilities agreed to pay four times more than last year for access to power generation in seven states.

FirstEnergy, which earlier gained as much as 7.7 percent, climbed $1.95, or 4.6 percent, to $44.48 at 1:07 p.m. in New York Stock Exchange composite trading.

PJM Interconnection Interconnection LLC., which manages most of the electric grid from Washington D.C. to Chicago, announced capacity generation prices Friday, following an auction. The price for generating capacity in the western part of PJM Interconnection LLC, rose to $125.99 per megawatt day in the 2014 to 2015 period, the grid manager said in a statement on May 13. That compares with a price of $27.73 per megawatt day in the 2013 to 2014 period set in a 2010 auction.

FirstEnergy, which owns power plants in the western part of the PJM including Pennsylvania and Ohio, is the “biggest winner in this auction,” Michael Worms, a New York-based analyst for BMO Capital Markets, wrote today in a note to investors. The rates were twice as much as the $40 a megawatt to $60 a megawatt a day that analysts expected, according to the note.

Expenses to comply with the U.S. Environmental Protection Agency’s pollution regulations likely increased the bidding price for western generators, Worms wrote.

The PJM auction allows utilities to bid on power plant capacity, to secure enough capacity to serve their customers during the time period covered in the auction. The price of the electric power will be set later.

PJM and other wholesale markets devised the system as a way to compensate power generation companies for investments in their plants.

FirstEnergy, based in Akron, Ohio, owns about 24,000 megawatts of capacity, according to its website.

To contact the reporter on this story: Mark Chediak in San Francisco at mchediak@bloomberg.net

To contact the editor responsible for this story: Susan Warren at susanwarren@bloomberg.net

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