PSEG Power is getting out of the Texas electricity market.
The Newark company yesterday announced it has agreed to sell two 1,000-megawatt gas-fired power plants in Texas for $687 million in two separate transactions.
The deal will allow PSEG Power, one of the largest power suppliers on the eastern seaboard, to focus on its core market in the northeast, where most of its generating plants are located, according to analysts and the company.
PSEG Power owns a diverse mix of 21 power plants, but the two stations covered by the transaction are the only ones it operates in Texas. That market has been a tough place for generators in recent years because of the drop in natural gas prices and the abundant wind power coming on line.
"They have no other operations in Texas," said Paul Fremont, an analyst who follows the company for Jefferies Co. "It would make sense for them to get bigger there or get out. It looks like they are leaving."
The two plants were formerly owned by a sister subsidiary, PSEG Global, but were transferred to PSEG Power after the former began strategically selling off its overseas assets.
The sale calls for the Odessa plant in west Texas to be sold to High Plains Diversified Energy Corp., a municipal utility group. MinnTex Power Holdings LLC has agreed to acquire 100 percent of the equity interests in the limited partnership that owns the Guadalupe facility in south Texas.
"These units are efficient, well-run assets, and there was substantial interest," said Caroline Dorsa, executive vice president and chief financial officer of PSEG in a statement released by the company. Cash from the sale will be used for general corporate purposes.
Fremont had projected the sale would bring in anywhere between $600 and $800 million when PSEG officials disclosed they were putting the two assets on the market.
"They didn’t make a whole lot of sense from a strategic purpose," noted Paul Patterson, an analyst who follows the company for Glenrock Associates. "The situation in Texas is not that great. They are probably consolidating their position."
Beyond that, the U.S. Environmental Protection Agency (EPA) told Texas it was taking over the state's air-permitting program, which governs large industrial and power projects. The move was triggered by the state's opposition to new regulations being pushed by the agency to regulate greenhouse gas emissions.
Even with electricity prices falling nationwide, PSEG Power has been able to increase its profits, in part, because it operates many plants in New Jersey, where congestion has spiked power prices. New Jersey Board of Public Utility (BPU) officials project consumers will pay between $1 billion and $1.9 billion because of a new tariff imposed by the PJM Interconnection aimed at incenting power suppliers to build new plants in the state.
The New Jersey legislature this week gave final approval to a controversial bill to have ratepayers subsidize up to 2,000 megawatts of new gas-fired power plants. Meanwhile, the BPU is proceeding with its own stakeholder meetings designed to determine how the state can increase power generation.
In May, PSEG Nuclear, a division of PSEG Power, filed an early site permit application with the Nuclear Regulatory Commission to build another unit at its facility in Salem County where there already are three nuclear generating stations.