The shares of American Electric Power (AEP) - Get Report and First Energy  (FE) - Get Report are falling after a federal regulator said it would review contracts the companies received from Ohio. American Electric Power and First Energy own and operate power plants.

WHAT'S NEW: The Federal Energy Regulatory Commission, or FERC, said it would review contracts that American Electric Power and First Energy received from the state of Ohio, Bloomberg reported yesterday. Under the contracts, the companies are slated to receive "guaranteed rates" for their money losing coal and nuclear plants, the news service stated. The deals force consumers to pay charges, FERC stated, according to Bloomberg.

WHAT'S NOTABLE: A competing electric utility, Dynegy (DYN) , applauded FERC's decision to review the deals. The proposals accepted by Ohio regulators were "exorbitantly priced," Dynegy stated.

ANALYST REACTION: Jefferies analyst Anthony Crowdell downgraded FirstEnergy to Hold from Buy after FERC rescinded the company's Ohio power purchase agreement, as he views the stock as fairly valued with out the PPA. He lowered his price target for the shares to $35 from $40.50. RBC Capital also downgraded FirstEnergy to Sector Perform following the FERC's "effective rejection" of the Ohio PPA. The firm's analyst, Shelby Tucker, believes the company will have to issue around $2B of equity this year to strengthen its balance sheet and remain investment grade. The firm lowered its price target to $33 from $38 on FirstEnergy shares.

PRICE ACTION: In early trading, First Energy tumbled 11.5% to $31.92 and American Electric Power slid 2.5% to $62.34 per share.

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