Very quietly one of the biggest changes in the American economic landscape is about to hit the electricity producing sector and by extension every business and consumer in America.
We will have a lot to say as implementation nears.
From Barron's Investors Soapbox A.M.:
Credit Suisse likes Southern, American Electric and others.
The Environmental Protection Agency's finalization of the Toxics Rule (now Mercury and Air Toxics Standards) will, in our opinion, lead to significant coal-plant closures and investment to retrofit/replace emitting plants, helping to rebalance power market supply-demand fundamentals.
We see the rule broadly consistent with our expectations in Growth From Subtraction (Sept. 23, 2010) that favored Competitive Generators with cleaner fleets in dirtier markets (PJM [regional transmission organization] in the West, MISO [another RTO] in the East) and Regulated Utilities that will accelerate rate-base growth with capital expenditures to bring fleets into compliance.
We still see the biggest prospective beneficiaries from the new rules as FirstEnergy (ticker: FE) and GenOn Energy (GEN) with higher-capacity prices; for Regulated Utilities we will wait for capital-expenditures updates although large-cap opportunity could be in Southern Co. (SO) and American Electric Power (AEP). Catalyst-wise, watch for updated capital expenditure/closure plans and the May 2012 reliability pricing model (RPM) capacity auction. We think the final rule made life a little easier for generators but not to the point of substantively changing the structural impact on coal-generation.
We remain comfortable with our original base estimate of 60 gigawatts (GW) of U.S. coal-plant closures and could see the number go higher considering the awful relative economics of running a coal plant versus gas at forward curves....MORE