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PSEG considers shedding its non-nuclear assets; cutting merchant generation

Highlights

Could put 6,750 MW of fossil generation on market

Looking to sell 467-MW solar portfolio

New York — Public Service Enterprise Group said July 31 that it is looking into selling over 6,750 MW of fossil generation, while retaining its nuclear plants as part of a plan to mostly exit the merchant power generation business and transition toward being a regulated utility.

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Although framed as an ESG enhancement, the plan also involves divesting its 467-MW solar portfolio located across several states, as well as maintaining its natural gas distribution business.

"A separation of the non-nuclear assets would reduce overall business risk and earnings volatility, improve our credit profile, and enhance an already compelling ESG position driven by pending clean energy investments, methane reduction, and zero-carbon generation," PSEG chairman, president and CEO Ralph Izzo, said in an emailed statement.

"Our intent is to accelerate the transformation of PSEG into a primarily regulated electric and gas utility," Izzo said.

The company has been seeing a shift in investor preference toward owning regulated utility businesses "without commodity exposure to merchant generation and related earnings volatility," he said.

Subsidiary PSEG Power's fossil fuel-fired generation assets are located in New Jersey, Connecticut, New York and Maryland.

PSEG is still evaluating potential offshore wind investments and expects to make a decision about investing in Ørsted's 1,100-MW Ocean Wind project in New Jersey later this year, according to the statement.

Additionally, PSEG is considering participating in upcoming offshore wind solicitations in New Jersey and other Mid-Atlantic states. On July 21, New York opened a solicitation for up to 2,500 MW of offshore wind power generation capacity.

PSEG intends to retain ownership of PSEG Power's existing nuclear fleet, which includes the 2,285-MW Salem and 1,173-MW Hope Creek Nuclear plants in Lower Alloways Creek, New Jersey and part ownership (1,275 MW) in the 2,549-MW Peach Bottom Nuclear plant located in Delta, Pennsylvania.

The New Jersey plants receive state subsidies in the form of zero-emissions credits, or ZECs. The addition of ZECs to PSEG's Q2 2020 results added $0.02 per share, according to PSEG's latest US Securities and Exchange Commission filing.

ZEC applications for the next three-year period are due in fall 2020 with a New Jersey Board of Public Utilities' decision expected in April 2021, according to PSEG's Q2 earnings presentation.

The New Jersey plants still operate on a merchant basis selling into the wholesale power market.

The company is in the preliminary stage of evaluating the potential non-nuclear divestment and marketing a transaction is anticipated to launch in Q4 with expected completion "sometime in 2021," PSEG said.

Any decision regarding the non-nuclear assets would not impact PSE&G or PSEG Long Island customers, operations or tariffs and would be subject to customary regulatory approvals, according to the statement.

Industry reactions

An exit from the fossil generation business would accelerate PSEG's transition to a primarily regulated and contracted business, with a zero-carbon generation platform, the statement said.

"I don't think the intent here is just carbon related, as they are also looking to sell the solar portfolio," said Manan Ahuja, S&P Global Platts Analytics senior director of North American Power.

The strategic decision appears to be in line with the industry trend of moving away from fossil fuel-fired generation, Matthew Cordaro, a former Midcontinent Independent System Operator CEO who now resides in New York, said in an email.

"PSEG's decision to sell its fossil generation is prudent and consistent with what many other utilities have done since the advent of deregulation," Cordaro said.

"Keeping ownership of the nuclear units is also wise since they represent a large source of clean, reliable and economic energy. Continuing to operate the gas system is a sound decision as well since it represents the cleanest alternative to other fossil sources," he said.

Though he was less certain about the potential offshore wind investment, saying "fortunately PSEG also has some time before it must make choices on offshore wind and perhaps that window will clear up many of the uncertainties now being argued about this source of energy supply and enable better decisions to be made."