Public Service Enterprise Group (PSEG) has agreed to sell its 6.8-GW portfolio of non-nuclear generating assets—a fleet of 13 gas plants—to a fund controlled by ArcLight Capital Partners LLC for about $1.92 billion. The sale, which effectively sets up its exit from the competitive generation business, is expected to be completed late in the fourth quarter of 2021 or the first quarter of 2022.
The divestiture revealed on Aug. 12 follows PSEG’s announcement in August 2020 that it would shed part of its merchant generation fleet to reduce overall business risk and earnings volatility; improve its corporate credit profile; and enhance its environmental, social, and governance (ESG) position. “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 over a decade,” Ralph Izzo, PSEG chairman, president, and CEO, said in a statement at the time.
On Thursday, Izzo said the sale to newly formed subsidiaries of ArcLight Energy Partners Fund VII L.P. resulted from a “robust sale process.” PSEG is on track “to realize a more predictable earnings profile. Further, this transaction continues our evolution toward a clean energy infrastructure-focused company that will enable our increasingly low-carbon economy,” he said.
The New Jersey-based power giant’s non-nuclear generation assets are currently overseen by subsidiary PSEG Power, a firm created in 1999 after New Jersey embarked on its landmark electricity deregulation and restructuring—an event frequently cited as a crucial driver that led to the dramatic transformation of the state’s energy landscape. The 6,750 MW of assets to be sold are held by PSEG Fossil and include fossil-fired generation in New Jersey, Connecticut, New York, and Maryland. The fleet comprises 13 generation units, which include about 5.1 GW of combined cycle gas turbines, about 1.2 GW of combustion turbines, and a 450-MW peaking plant. The fleet currently competes primarily in the PJM, ISO-New England, and New York ISO wholesale electric markets.
On May 31, notably, PSEG Power retired its 400-MW Bridgeport Harbor Station Unit 3 power plant, its last remaining coal plant. In June, it also closed on the sale of its Solar Source portfolio to Quattro Solar, an affiliate of LS Power. PSEG has meanwhile ramped up its acquisition of wind energy assets. In April, it absorbed a 25% equity interest from Ørsted in Ocean Wind, a 1,100-MW offshore wind farm planned 15 miles off the coast of southern New Jersey.
Transactions for the gas fleet’s sale are, however, subject “to the expiration or early termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (as amended); approval by the Federal Energy Regulatory Commission and certain state regulatory bodies; and other customary closing conditions,” the company noted on Thursday.
“In connection with the transaction, beginning in the third quarter of 2021, the assets and liabilities of PSEG Fossil will be classified as assets held for sale. As a result, PSEG expects to record a pre-tax impairment charge of approximately $2,150 million to $2,225 million, employee severance and retention costs up to $25 million, debt redemption costs including a make-whole premium of approximately $280 million to $340 million, and potential impacts on employee pension and other post retirement plans, environmental remediation costs and other items,” it said.
PSEG, however, plans to hold onto its merchant nuclear fleet. That includes its wholly owned 1,240-MW single-unit Hope Creek plant and the two-unit 2,486-MW Salem plant in New Jersey, which it operates but co-owns with Exelon. It also co-owns (with Exelon) the two-unit 2,549-MW Peach Bottom plant in Pennsylvania. Its New Jersey plants are bolstered by state-furnished zero-emission certificates (ZEC). In April, the New Jersey Board of Public Utilities voted unanimously to extend ZECs of $10/MWh for PSEG Nuclear’s Hope Creek and Salem plants until May 2025.