Public Service Enterprise Group is looking to sell off or divest its fleet of fossil-fuel plants, a decision that aligns with its oft-stated goal to transform the company into primarily a regulated gas and electric utility.
The decision reflects the declining profitability and volatility of the power-supply market and the fact that Public Service Electric & Gas, the company’s utility, already accounts for roughly 80% of PSEG’s operating earnings. PSEG plans to retain its nuclear units — awarded $300 million in annual ratepayer subsidies two years ago.
The company’s non-nuclear generating fleet includes more than 6,720 megawatts of fossil generation in New Jersey, Connecticut, New York and Maryland, as well as 467 megawwatts of solar energy in 17 states. For most of the company’s 117 years, its fossil-fuel facilities supplied a significant share of the electricity used to keep the lights on for customers.
Sell-off no surprise
But selling off the plants has long been expected, with Ralph Izzo, the company’s CEO, president and chairman, often being asked by analysts during earnings calls when it would happen.
“We recognize the shift in investor preference toward owning regulated utility businesses without commodity exposure to merchant generation and related earnings volatility,’’ Izzo said in a statement Friday.
In the company’s second-quarter earnings call for 2020 on Friday, Izzo expressed frustration that the discount in valuation of the plants reflected in the company’s stock prices grew to the point that the company decided it was time to explore strategic alternatives for the fleet.
“They feel like they were being penalized for owning them,’’ said Paul Patterson, an energy analyst for Glenrock Associates in New York. “They feel like their stock has been undervalued.’’
In deciding to retain its fleet of nuclear plants in South Jersey, Izzo noted the units are necessary for New Jersey to meet its long-term carbon reduction goals, supplying more than 90% of the carbon-free electricity used by customers in the state. The company had threatened to close the plants if financial incentives to help keep them running were not forthcoming.
Renewing nuclear subsidies
The company is expected to seek a renewal of those subsidies later this fall, with a decision by the New Jersey Board of Public Utilities not anticipated until next year. Given what has happened in the energy markets, Izzo said the need for the nuclear subsidies is greater than ever in his call with analysts.
Meanwhile, the company has moved the majority of its capital spending to the utility, as well as filing numerous proposals that will boost revenue and profits if approved by state regulators.
They include the company’s $3.5 billion Clean Energy Future filing, which would allow the utility to spend money in energy efficiency programs, building out the infrastructure for electric vehicles and installing advanced-metering infrastructure in customers’ homes.
Izzo said he expected the board to make a decision on the filing sometime in September.
“Around the country, it’s been a big trend,’’ noted Patterson. More energy companies with utility subsidiaries have concentrated on growing their regulated businesses as prices in the wholesale energy markets have either dropped or experienced huge volatility, he said.
Following bread crumbs
“PSEG has been dropping bread crumbs on this for years,’’ agreed Doug O’Malley, director of Environment New Jersey. “The electric-generating market is becoming unprofitable for fossil fuel plants because of the rise of renewables.’’
PSEG also is considering investing in the state’s first offshore wind project, as well as additional solicitations to build more wind farms off the Jersey coast, according to Izzo. Offshore wind is viewed as a top priority for the Murphy administration to achieve its clean-energy goals. In another indication of this trend, New Jersey’s pension system has decided to invest $100 million in alternative-energy infrastructure.
“The big message here is they’re moving away from fossil fuels — and so should New Jersey,’’ said Jeff Tittel, director of the New Jersey Sierra Club.