Public Service Enterprise Group announced Thursday that it has agreed to sell its fleet of 13 fossil-fuel plants for approximately $1.92 billion to a Boston-based private equity company focused on energy infrastructure investments.
The deal with ArcLight Energy Partners Fund VII, controlled by ArcLight Capital Partners, LLC, continues PSEG’s transition to a primarily regulated gas and electric utility, other than three nuclear plants in South Jersey now partly subsidized by ratepayers.
“A year ago, we announced the strategic review of PSEG’s non-nuclear generating assets in line with our long-term focus on regulated utility growth, improving our business mix and enhancing an already compelling environmental, social and governance profile,’’ said Ralph Izzo, PSEG chairman, president and CEO.
A hundred-year heritage
The company’s non-nuclear generating fleet includes more than 6,720 megawatts of fossil-fuel generation in New Jersey, Connecticut, New York and Maryland. In June, the company also sold off 467 megawatts of solar energy in 14 states. In New Jersey, the fleet supplied a significant share of the energy to keep the lights on for customers for the past century.
New Jersey is pressing ahead with plans to eventually have all its electric power from renewable sources. The sale does not mean these fossil-fuel plants all will close, just that if they continue to produce electricity it will be under new ownership.
Company will keep its nuclear plants, which New Jersey previously agreed to back with $300M annual subsidy
From the sale of these 13 power plants, PSEG expects to receive approximately $2.15 billion in after-tax net proceeds, a price less than half of the $4.5 billion book value of the fossil fleet listed in the company’s Securities and Exchange Commission filings. The company also sold off solar resources but at an undisclosed price.
“The write-off sort of indicates the devaluation in the generation space,’’ said Paul Patterson, an energy analyst with Glenrock Associates in New York. “It is part of PSEG’s transformation to a more regulated company.’’
Pre-tax impairment charge
In connection with the transaction, beginning in the third quarter of 2021, the assets and liabilities will be classified as asset held for sale. As a result, PSEG expects to record a pre-tax impairment charge of approximately $2.15 billion to $2.25 billion, employee severance and retention costs up to $25 million and debt retention costs including a make-whole premium of approximately $280 million-$340 million.
PSEG updated its full-year 2021 operating earnings guidance to $3.50 to $3.65 per share, from $3.40 to $3.55 per share, reflecting the cessation of depreciation expense and lower interest expense related to the sale of PSEG fossil assets and repayment of PSEG Power’s outstanding debt.
In recent years, the collapse in wholesale energy prices spurred by a dramatic fall in natural gas costs have led some big energy companies like PSEG to focus on growing their regulated businesses where earnings growth is steadier, and less subject to volatility than the energy-supply sector.
Ralph Izzo wants to focus on reducing energy use while making it more environmentally friendly to produce.
In the past year, PSEG had expanded that strategy by winning approval for $1 billion energy efficiency program and a $700 million advanced metering infrastructure program from state regulators. The company also has invested in helping to build the state’s first offshore wind farm.
“This sale is another in a series of accomplishments that position PSEG for the future — leading the energy sector and serving our customers by enhancing our clean-energy and climate-centered profile,’’ Izzo said.
This past March, Generation Bridge, a wholly owned subsidiary of ArcLight Energy Funds VII, agreed to buy approximately 4,850 megawatts of generating assets from Princeton-based NRG Energy.