Is Coal Dead? Not a Chance

by Investing Daily
Norfolk Southern
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Is Coal Dead? Not a Chance

By: Roger Conrad

The Environmental Protection Agency (EPA) has “no plans” to develop regulations on carbon dioxide (CO2) emissions for currently operating coal-fired power plants. That’s according to EPA Administrator Lisa Jackson, who spoke after a ruling that capped only CO2 emissions for coal plants not yet under construction, and then only to the level of a new natural gas-fired plant.

The upshot is CO2 regulation will have no real impact on even the most prolific producers of coal-fired power. In fact, the only coal plants being built in the US will run on integrated gasification combined cycle (IGCC) technology. This includes Southern Company’s (NYSE: SO) Kemper plant in Mississippi, which regulators are allowing to go forward despite an ambiguous ruling from the state supreme court.

Coal does have an Achilles’ heel in rising costs due to aging plants. Another challenge is the enforcement of existing laws on particulate matter, mercury and acid rain gases. And coal is also losing ground to chief competitor natural gas because of the latter’s falling price.

Cheap gas is the reason utilities across the board are switching from coal, mostly by accelerating the closure of older, less efficient plants. This will no doubt dampen US demand for coal going forward. But it’s far from a death sentence for the black mineral, particularly with demand still surging in emerging Asia.

And this means the recent mini-crash in coal mining stocks is well overdone.

Florida utility TECO Energy (NYSE: TE) should stand to benefit from a return to reason in this market. TECO mines coal in Appalachia that’s roughly half metallurgical (used in steel manufacture) and half thermal (burned to generate electricity).

The company has done a good job holding down costs and maintaining output, which contributes a little less than 20 percent of profit. The recent dividend boost is another sign of strength.

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