FirstEnergy Corp. (NYSE: FE) had a rough trading day on Thursday on news that it and American Electric Power Co. Inc. (NYSE: AEP) are facing a regulatory review of Ohio power plant contracts. The drop is on the heels of a positive earnings report from FirstEnergy. Its first-quarter operating earnings of $0.80 per common share compared to $0.62 per share a year ago. AEP reported that its operating earnings was $1.021 per share versus a consensus analyst of $1.04 per share.

FirstEnergy had attributed its increase in operating earnings due to higher commodity margin at the competitive business, the net impact of rate cases resolved in 2015 and increased transmission earnings, and it said an offset was seen by the impact of mild temperatures on distribution deliveries and higher net financing costs.

American City Business Journals reported that First Energy had sought income guarantees for plants that will be profitable this year. Bloomberg reported that U.S. regulators fear that the utilities customers would be captive and that the power contracts are now subject to federal review and approval. Bloomberg also noted that the two won guaranteed rates for coal-fired and nuclear plants last month that their competitors argued was a consumer-funded bailout.

24/7 Wall St. could not help but notice how many analysts on Wall Street were lowering expectations or throwing in the towel for FirstEnergy. Elsewhere, the move on AEP may be just fine, when considering things.

Jefferies lowered its rating on FirstEnergy to Hold from Buy and lowered the price target to $35 from $40.50. Anthony Crowdell of Jefferies said:

We are downgrading FirstEnergy to Hold from Buy following FERC rescinding the Ohio PPA. Our Buy rating was predicated on our belief the stock was a free option on FERC approving the PPA and without it we now believe FirstEnergy is fair value. We are lowering our estimates to reflect the loss of PPA earnings and have included $2.0 billion of equity issuances to support the company’s balance sheet.

S&P Capital IQ downgraded its FirstEnergy rating to Hold from Buy, but it raised its target price by $2 to $37 in the call, due to higher peer valuations and a discount to peers. The analyst said:

We trim our 2016 and 2017 EPS estimates by $0.01 each to $2.83 and $2.69. We think FirstEnergy’s capital spending program will help lead to eventual earnings growth, but see pressure on 2017 EPS… The first quarter benefited from a higher margin at the competitive business and last year’s rate increases.

Bank of America Merrill Lynch outlined a long road ahead and forecast the next steps for AEP and FirstEnergy. The Merrill Lynch utilities team has a $68 price objective on AEP and a $44 price objective for FirstEnergy. Its regulated utilities report said:

Both AEP and FirstEnergy will file requests to FERC that the Ohio PPAs are valid under Section 205 of the Federal Power Act following analysis under the Edgar and Allegheny standards. While the approval process will cause delays, in our view similar agreements already exist for similar entities. The more likely outcome is this setback could initiate a push by the Ohio legislature back towards a hybrid model with a split of deregulated and regulated generation. AEP and FirstEnergy remain focused on becoming regulated-only utilities and investing capital in those businesses; reiterate Buy rating on AEP and FirstEnergy shares as we believe current valuations underappreciate both companies’ respective transitions towards becoming more purely regulated business models.

Barclays downgraded FirstEnergy to Equal Weight from Overweight and cut its target price to $33 from $39.

RBC Capital Markets downgraded FirstEnergy to Sector Perform from Outperform and lowered its target to $33 from $38 in that call.

FirstEnergy shares were down a sharp 10.25% to $32.35 in late morning trading on Thursday. Its 52-week trading range is $28.89 to $37.05. FirstEnergy’s market cap is $13.7 billion after the drop, and its dividend yield is now back to just under 4.50% again, for new investors looking at this price.

AEP shares were down 1.7% at $62.84, in a 52-week range of $52.29 to $67.19. Its market cap is now just under $31 billion, and its dividend yield is 3.56%.

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