Public Service Enterprise Group’s (NYSE: PEG) coal-fired Mercer and Hudson plants in New Jersey have barely run at all this year as the company looks to cheaper gas-fired generation to meet power demand.
Ralph Izzo, PSEG Chairman, CEO and President, said during a Nov. 1 earnings call: “The value of our generating assets, it just continues to be demonstrated by the flexibility associated with having a low-cost, well-run nuclear baseload generating fleet, coupled with a large set of combined-cycle gas power-generating assets in PJM and a very efficient fleet, all capable of responding to the market’s demands. The flexibility has allowed us to take advantage of market opportunities as we remain diligent in managing our costs.”
Izzo said the capacity factor of the nuclear fleet has improved on the strength of continued excellent performance at Hope Creek and improvements at Salem. Salem, in particular, performed at its second highest level ever this past summer. The company’s combined-cycle generating assets also operated at historically high levels in the third quarter. And 267 MW of new, more efficient generating capacity at Kearny were available to meet the summer peak demand as well.
Caroline Dorsa, PSEG Chief Financial Officer and Executive Vice President, said the availability of the natural gas-fired combined-cycle fleet allowed PSEG Power to capture higher power prices. Output from PSEG Power’s generating fleet increased 3% in the quarter from year-ago levels.
Production from PSEG Power’s combined-cycle natural gas fleet increased 17% in the quarter to represent 32% of total generation. This represented the highest summer output ever achieved by the combined-cycle fleet, Dorsa said. The fleet’s capacity factor improved to about 67% from 57% in the year-ago quarter. The PJM fossil fleet also benefited from the incremental dispatch of 267 MW from the Kearny site in June.
“The improved dispatch from the combined cycle fleet and peaking fleet more than offset the decline in the dispatch of Power’s coal-fired fleet, which continues to be affected by low gas prices relative to coal,” Dorsa added. “When the New Jersey coal units, Hudson and Mercer, did run this summer, they ran on coal more than half of the time they were on operation. And the decision to operate these units on coal took into consideration the increase in the cost of gas throughout the summer, as well as the cost of not burning coal under contract. PSEG Power has renegotiated the terms of its coal contracts to more closely reflect the anticipated fuel burn at the stations over the next two years.”
Production from the nuclear fleet, which represents more than 50% of PSEG Power’s generation, increased 2% from the year-ago quarter, Dorsa said. “The fleet benefited from strong operations at the Salem station, which recorded its second-highest level of output during its operating life for a summer period,” Dorsa explained. “The good performance from Salem and continued excellent operations at Hope Creek lifted the nuclear fleet’s average capacity factor in the quarter to 92% from 90.6% in the year-ago quarter. The performance in the quarter has resulted in a year-to-date capacity factor for the fleet of 92.5%. The scheduled refueling at Salem 2, which began in mid-October, was interrupted by activity at the site in preparation for the hurricane. In addition, Salem 1 was taken out of service to reduce the impact of storm surge on its operations. Taking this into account, the fleet is expected to operate at a capacity factor of about 91%, taken for the full year.”
Power plant damage from Sandy looks to be fairly light
Izzo, in answering an analyst question about power plant damage from Hurricane Sandy, said the company has some issues at some of its peakers at Essex, Kearny and Sewaren. The combined-cycle at Linden was also somewhat affected, he added, cautioning that assessment work is ongoing. The nuclear units are fine, he added. “Salem 2 is back into its refueling outage. Salem 1, we just finished some inspections yesterday. They show no damage to turbines, the water screens are restored. And that looks like it’s on schedule to come back very soon. I want to be careful. I haven’t checked what we’ve posted on the PJM website. That’s the only public disclosure I’m comfortable making. So I would say there’s a little bit of work to do with some of the northern New Jersey gas. The new Carney peakers, I’m pleased to say, are in good shape.”
Dorsa, asked about the renegotiated coal contracts, said: “We are doing some renegotiated coal contracts to better match our needs. Certainly, if we had done anything that resulted in a penalty, today, you would have seen that already, right? So if anything occurs going forward, we’ll certainly give you a price and break that out. But right now, I think, just kind of stand with where we are, and we’ve been done some renegotiations and are kind of pleased with those results that pull things out a little bit.”
Izzo answered a question about whether PSEG is taking into account new EPA air rules, like the Cross-State Air Pollution Rule (CSAPR) and the Hazardous Air Pollutants-Maximum Achievable Control Technology (HAPs-MACT, also known as MATS) rule, in its forward projections.
Said Izzo about actions by a federal court: “We’ve seen CSAPR rejected twice. Okay? We all believe HAPs-MACT is going to go into effect in 2015. We know it’s being litigated, maybe the market is not giving it 100% credit, very likely the case. We’ve talked about the weakest recovery from the deepest recession since the Great Depression. Maybe the housing market is recovering, and we haven’t seen that fully reflected in price. We’re seeing a robust demand for natural gas in the industrial section. And perhaps we’re not seeing that fully reflected in price. We have an election coming up in a few days. Could that result in a change in direction at EPA? Maybe that’s not fully reflected in price. So my colleagues are very smart. Everything I just said could give you some optimism that prices would change going forward, but we’re just believers in the collective wisdom of the market, and therefore we run the place based on the forward price curve.”