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FirstEnergy Inc. (FE - Analyst Report) in a move to reduce the burden of compliance costs announced its decision to retire two coal-fired plants. The decision comes in the wake of more stringent environmental policies being implemented in the U.S. The plants proposed to be deactivated are situated in the state of Pennsylvania.

Operations at the Hatfield’s Ferry Power Station in Masontown and Mitchell Power Station in Courtney will cease on Oct 9, 2013. The lingering weak market prices of electricity also influenced FirstEnergy to shut down these facilities. In 2012, FirstEnergy decided to put the shutters down on nine coal plants.

The combined capacity of Ferry and Mitchell Power Stations was 2,080 megawatts (MW) and accounted for 10% of the company’s total generation capacity. However, the facilities are expected to incur about 30% of the projected $925 million regulatory cost, which FirstEnergy was supposed to incur to comply with the Mercury and Air Toxics Standards ("MATS") provisions.

FirstEnergy’s consolidated business would not be impacted by these plant retirements as it will still retain a sizeable generation capacity of over 18,000 MW. Moreover, the company will witness some rearrangement in its resource portfolio, which will be either non- or low-emitting, including nuclear, hydro, pumped-storage hydro, natural gas and scrubbed coal units.  

Even after the deactivations, FirstEnergy will be well positioned to maintain an effective generation mix of 56% coal, 22% nuclear, 13% renewables and 9% gas/oil.

FirstEnergy has been reacting well to pro-environment legislations over time and intends to further promote clean energy generation. This is evident from the $650 million capital outlay that it has planned for the installation of MATS-related control technology in its existing facilities.

The company expects these high-tech environment control equipment will curb nitrogen oxides, sulfur dioxide and mercury emissions by 84%, 95% and 91%, respectively, from 1990 levels. Carbon dioxide emission is estimated to decrease by 20% to 30% from the 1990 level by 2020.

We believe FirstEnergy’s encouraging growth prospects will be backed by its significant investments in transmission assets as well as major infrastructure initiatives.

However, the company will have to tread cautiously given the recent Obama Climate Plan which is expected to pose headwinds. The company currently holds a Zacks Rank #3 (Hold).

Other utilities looking good at the moment are Zacks Ranked #2 (Buy) DTE Energy Company (DTE - Analyst Report), Entergy Corp. (ETR - Analyst Report) and NiSource Inc. (NI - Analyst Report).

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