PSEG To Explore Strategic Alternatives For PSEG Power's Non-Nuclear Fleet
July 31, 2020 Email This Story Copyright 2010-20 EnergyChoiceMatters.com
Reporting by Paul Ring • firstname.lastname@example.org
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Public Service Enterprise Group announced today that it is exploring strategic alternatives for PSEG Power’s non-nuclear generating fleet, which includes more than 6,750 megawatts of fossil generation located in New Jersey, Connecticut, New York and Maryland, as well as the 467-megawatt Solar Source portfolio located in various states.
PSEG Chairman, President and CEO Ralph Izzo, said, "Our intent is to accelerate the transformation of PSEG into a primarily regulated electric and gas utility -- a plan we have been executing successfully for more than a decade."
"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," Izzo said. "We recognize the shift in investor preference toward owning regulated utility businesses without commodity exposure to merchant generation and related earnings volatility. We believe PSE&G is among the best utilities in the country and that our valuation should align with that profile."
"PSEG continues to evaluate potential investments in offshore wind and expects to make a decision regarding the opportunity to invest in Ørsted’s Ocean Wind project later this year. In addition, the company is evaluating participation in upcoming offshore wind solicitations in New Jersey and other Mid-Atlantic states," the company said
PSEG intends to retain ownership of PSEG Power’s existing nuclear fleet.
While the company is in the preliminary stage of this evaluation, the marketing of a potential transaction in one or a series of steps, anticipated to launch in the fourth quarter, is expected to be completed sometime in 2021.
"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. Given the relatively small part of PSEG that the non-nuclear business represents, this decision will not have an impact on the company’s current shareholder dividend policy, which will continue to be subject to approval by the PSEG Board of Directors," the company said
"We are proud to have served the needs of our customers and key stakeholders for the last 117 years, and are excited to explore the opportunities that will shape PSEG’s future," Izzo said. "It is a future focused on advancing our business as a sustainable, customer-focused provider of essential electricity and natural gas service, delivered by a primarily regulated utility and contracted businesses."
PSE&G already is expected to comprise approximately 80% of PSEG’s 2020 Operating Earnings mix.
PSEG Power reported Net Income of $170 million ($0.34 per share) for the second quarter of 2020, non-GAAP Operating Earnings of $123 million ($0.24 per share), and non-GAAP Adjusted EBITDA of $258 million. A pre-tax adjustment of $9 million was made to reflect a partial reversal of a lower of cost or market write-down to oil inventory made in the first quarter, and is excluded from the non-GAAP measures of Operating Earnings and Adjusted EBITDA.
PSEG Power's second quarter non-GAAP Operating Earnings were positively affected by several items that produced results $0.11 per share higher than the year-ago quarter. A June 1st scheduled increase in PJM capacity revenue moderated non-GAAP Operating Earnings comparisons to a decline of $0.07 per share compared with Q2 2019. The addition of ZECs to second-quarter results added $0.02 per share. The net impact of generation volumes was flat, as new capacity additions at Bridgeport Harbor 5 were offset by the volume loss from the sale of Keystone and Conemaugh last fall. Re-contracting and market impacts lifted results by $0.03 per share, reflecting seasonal shape of hedging activity and lower cost to serve versus the year-ago quarter. Gas operations improved by $0.01 per share over the prior year quarter. Lower O&M expense was a favorable $0.06 per share comparison over last year's second quarter reflecting lower costs from the planned Salem 2 refueling outage in April versus the absence of last year's Salem Unit 1 extended outage, the absence of costs at Keystone and Conemaugh, and lower Fossil outage and maintenance expenses. Lower non-operating pension expense added $0.01 per share versus the year-ago quarter. Taxes and other items were $0.05 favorable compared to second-quarter 2019 driven by the settlement of federal audits for the 2011-2016 tax years
At PSEG Power, total generation output declined by 3% to total 12.7 TWh in the second quarter of 2020, reflecting the sale of the Keystone and Conemaugh units last fall. PSEG Power's CCGT fleet produced 4.9 TWh of output, up 3%, reflecting the addition of Bridgeport Harbor 5 which was placed into operation in June 2019. The nuclear fleet operated at a capacity factor of 91.9% for the quarter, producing 7.8 TWh, up 9% over Q2 2019, and representing 61% of total generation. This quarter's higher nuclear output reflects the absence of the extended Salem Unit 1 outage in Q2 2019 related to repair of reactor vessel bolts.
PSEG Power continues to forecast output for 2020 of 50 - 52 TWh. For the remainder of 2020 Power has hedged approximately 95% - 100% of production at an average price of $36 per MWh. For 2021, Power has hedged 65% - 70% of forecast production of 49 – 51 TWh at an average price of $35 per MWh. Power is also forecasting output for 2022 of 50 – 52 TWh. Approximately 25% – 30% of Power's output in 2022 is hedged at an average price of $35 per MWh.