FirstEnergy Corp. (FE) is on track to complete its acquisition of Pennsylvania's Allegheny Energy Inc. (AYE) in the first quarter, the company's chief executive said Wednesday.

The Akron, Ohio-based company has received approval from federal regulators and three states for its roughly $4.4 billion acquisition of the Pennsylvania company, which would create one of the largest U.S. electricity producers with 6.1 million customers.

Pennsylvania's utility regulator needs to sanction the deal. The commission is expected to discuss the issue at a meeting next week.

CEO Tony Alexander said he is hopeful that the deal will be approved. "We continue to expect the transaction to close this quarter," he said in a conference call.

FirstEnergy is the fifth largest public utility in the U.S., serving 4.5 million customers in Ohio, Pennsylvania and New Jersey and a generation business selling power from 17 plants with 14,000 megawatts of capacity.

Cold weather and higher demand from industrial and commercial customers boosted electricity sales in the fourth quarter, but these gains were offset by higher-than-expected expense and costs related to work moved up from later periods. Profits fell 24% during the quarter, falling short of Wall Street estimates.

Alexander said that the slow economy, lower electricity sales and uncertainty about what shape new federal environmental regulations will take continue to be significant headwinds. Late last year, the company shut down some biomass facilities, for example.

The Allegheny acquisition is expected to bolster growth and reduce costs at the company.

"We believe the combined companies' 2011 outlook is solid and we are confident that we will have substantial synergies," Chief Financial Officer Mark Clark said.

Meanwhile efforts to divest non-core assets are ongoing and any cash from those sales will be used to reduce debt and improve financial flexibility.

Executives said they expect to see at least an additional $1 billion of cash flow on the balance sheet through 2012 thanks to tax benefits and asset sales, which will be used to pay down debt and improve the company's overall financial condition. The company doesn't expect to issue more equity this year.

Shares were recently down 2.65% at $38.16.

-By Naureen S. Malik and Drew FitzGerald, Dow Jones Newswires; 212-416-4210; naureen.malik@dowjones.com
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