PSEG to retire its two New Jersey coal plants in June 2017

Public Service Enterprise Group announced Oct. 5 that its coal-fired Hudson Generation Station in Jersey City, N.J., and its coal-fired Mercer Generation Station in Hamilton Township, N.J., will be retired on June 1, 2017.

“The sustained low prices of natural gas have put economic pressure on these plants for some time. In that context, we could not justify the significant investment required to upgrade these plants to meet the new reliability standards,” said Bill Levis, president and chief operating officer-PSEG Power. “The plants have been infrequently called on to run and neither plant cleared the last two PJM capacity auctions. The plants’ capacity payments have been critical to their profitability and PSEG’s ability to continue to invest in modernizing them.”

PSEG said it remains committed to meeting the long-term energy needs of New Jersey and the region and currently is investing more than $600 million in a new state-of-the-art combined-cycled gas plant in Sewaren, N.J., as well as new plants in Connecticut and Maryland. Notable is that the Connecticut gas plant will replace a coal-fired unit at the Bridgeport Harbor plant. Currently, PSEG Power has gas facilities representing nearly 4,000 MW of generating capacity in New Jersey and owns 3,740 MWs of nuclear generation, of which approximately 2,500 MW are located in New Jersey.

PSEG has long been an advocate for fuel diversity, both in its generation fleet and in the PJM pool. With the announced closing of these coal plants, New Jersey’s energy now will be split almost evenly between nuclear and natural gas, with a small but growing amount of renewable energy.

“We continue to believe that it is unwise for New Jersey to become too overly dependent on one source of energy,” said Levis. “With the continued low cost of natural gas, it is important that we recognize and support the full value of non-carbon, non-polluting nuclear and renewable energy.”

PSEG noted that it is evaluating all options for future use of the power plant sites.

The decision to retire the Hudson and Mercer plants early triggers certain changes in accounting treatment that will have a material effect on PSEG’s and PSEG Power’s reported results. In the third quarter of 2016, PSEG and PSEG Power expect to recognize one-time charges in Energy Costs and Operation and Maintenance expense ranging from an estimated $40 million to $70 million and $35 million to $77 million, respectively, related to the cost of shutting down these units, including coal and other materials and supplies, inventory reserve adjustments, employee-related continuance, and severance benefits costs.

In addition to these one-time charges, there will be ongoing annual incremental non-cash charges to earnings of $560 million to $580 million in 2016 and $940 million to $960 million in 2017 due to the shortening of the expected economic useful lives of theHudson and Mercer plants. These charges are detailed in the Form 8K that PSEG and PSEG Power filed Oct. 5 and will be discussed in more detail when PSEG reports third quarter earnings on Oct. 31, 2016.

Mercer Generation Station was opened in 1960. It currently has a capacity of 632 MW. Hudson Generation Station was opened in 1968 and had a capacity of 620 MW.

PSEG Power has three gas-fired power projects under construction in Maryland, Connecticut and New Jersey, representing about 1,800 MW of new capacity, said the parent company in a Sept. 15 presentation. The in-construction, combined-cycle gas turbine (CCGT) projects are:

“-Maryland, Keys Energy Center, greenfield project, 755 MW, estimated cost $825 million-$875 million, Siemens technology, estimated to be in-service in April 2018;

“-New Jersey, Sewaren Unit 7, replacement of existing capacity at Sewaren plant, 540 MW, estimated cost $625 million-$675 million, General Electric technology, estimated to be in-service in June 2018; and

“-Connecticut, Bridgeport Harbor Unit 5, will replace coal unit at the site, 485 MW, estimated cost $525 million-$575 million, GE technology, estimated to be in-service in June 2019.

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