Upside for FirstEnergy Corp. (NYSE:FE), PPL Corporation (NYSE:PPL) Says FBR

Commenting on energy policy and the impact on coal and coal retirements, FBR Capital says they see upside for FirstEnergy Corp. (NYSE:FE) and PPL Corporation (NYSE:PPL).

FBR said, "A forthcoming round of EPA regulations targeting unscrubbed coal plants could affect approximately 100 GW of operating capacity and could lead to an acceleration in coal retirements and further investment in environmental control equipment. Based on our discussions with utilities and environmental regulators, however, we believe that the most likely path to compliance is not a step-function change in coal capacity but a broad-based adaptation by the industry using all available means. In addition, political pushback, EPA bandwidth issues, legal challenges, and reliability concerns could slow the pace of coal retirements. We envision a base-case scenario in which 45 GW of coal capacity is retired (including 12 GW announced), varying widely between 30 GW and 70 GW, depending on the level of natural gas prices and the severity of proposed rules. Up to 60 GW of capacity could eventually be scrubbed. All-in industry costs could exceed $80 billion, 75%–80% of which will likely be borne by regulated utilities. The main beneficiaries that could see their earnings boosted are large coal-heavy regulated utilities. While power markets are likely to tighten gradually by 2014 under our current assumptions, we see plausible potential upside for FirstEnergy Corp. (Market Perform) and PPL Corporation (Market Perform), selling into PJM Interconnection (PJM) or The Midwest Independent Transmission System Operator, Inc. (MISO)."

First Energy was trading at $35.80, up $0.15, or 0.42 percent, as of 11:42 AM EST. PPL was trading at $25.42, up $0.17, or 0.67 percent.