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PSEG CEO expresses confidence NJ nuclear bills can pass

Public Service Enterprise Group Inc. CEO Ralph Izzo said the loss of emission-free power from its two nuclear plants in southern New Jersey could create setbacks for meeting the Garden State's clean energy goals.

During the utility's fourth-quarter 2017 earnings call on Feb. 23, Izzo reiterated the need for state assistance to support two plants which are struggling to cover their costs: the 1,172-MW Hope Creek, which Public Service Enterprise Group, or PSEG, owns, and the 2,328-MW Salem plant, which it co-owns with Exelon Corp.

The loss of that output per year would represent a "severe setback" and result in "crushing economic impact due to resulting increases in electricity prices and major job losses," Izzo said.

Subsidiary PSEG Power LLC continues to face challenges with maintaining operations as average energy prices decline, Izzo said. The average price at which PSEG Power has contracted to sell its baseload power, which includes coal and nuclear power, is $40/MWh in 2018 and forecast to drop to $38/MWh in 2019 and 2020, according to PSEG's fourth-quarter earnings presentation. This compares to an average of $45/MWh in 2017, Izzo said. The prices also account for PSEG's 50% ownership in the 2,584-MW Peach Bottom plant in Pennsylvania.

An S&P Global Market Intelligence analysis in early 2017 found that in 2016, the three plants' operation and maintenance expenses averaged below wholesale power market prices. PSEG's nuclear generation from the three plants rose to 31.8 million MWh in 2017 from 29.5 million MWh in 2016, but total generation for 2017 fell by 1% from the prior year to 51.1 million MWh.

A day before the earnings call, Izzo lobbied for two state bills that would offer assistance to existing nuclear plants. On Feb. 22, New Jersey state Assembly and Senate committees passed the bills, Senate Bill 877 and Assembly Bill 2850, which each create a zero-emission credit program to pay existing nuclear plants extra for the benefits they provide in avoiding fossil fuel emissions. The full Senate on Feb. 26 was scheduled to vote on S. 877 but did not end up voting.

Analysts asked about the timing and likelihood that the bills would get signed by New Jersey Gov. Phil Murphy, who targets having 100% of the state's electricity come from clean sources by 2050.

Izzo said he was confident about the outcome of the bills but less certain on the timing. "I feel pretty good about the nature of the conversation and the clearly earnest desire on the part of all stakeholders to preserve those plants, but timing is not something I can predict," he said.

His confidence stems in part from the fact that Murphy on multiple occasions has stated support for the two nuclear plants to serve as a "bridge" for the state's transition toward a renewable future, Izzo recalled.

Other analysts questioned how pricing reforms at the regional power grid operator PJM Interconnection and at the Federal Energy Regulatory Commission could change the situation for the two nukes, but the CEO said it was too early to predict.

Toward the end of 2017, PSEG Power recorded a $276 million increase in its asset retirement obligation and liabilities to take into account a "higher assumed probability of early retirement" of Salem and Hope Creek, Izzo said. The debate on whether to preserve the plants comes as the company has to decide whether to spend on refueling the reactors. A refueling outage is scheduled this spring at Hope Creek, said Daniel Cregg, PSEG's executive vice president and CFO.

In the fourth quarter of 2017, PSEG's operating earnings rose to $289 million, or 57 cents per share, from $279 million, or 54 cents per share, for the same quarter of 2016, according to its earnings release. The gain stemmed in part from recovery of transmission and distribution investments at its regulated electric and gas utility Public Service Electric and Gas Co., which were offset by an increase to operations and maintenance costs.

Over the full year, PSEG earned $1.49 billion, or $2.93 per share, beating the S&P Capital IQ estimates of $2.91 per share and 2016 results of $1.48 billion, or $2.90 per share.