PSEG Closes Texas Asset Sale

PSEG Power LLC, a unit of Public Service Enterprise Group Inc. (PEG - Analyst Report) announced that it has closed the sale of its 1,000 MW Odessa gas fired generating plant to Odessa Power, LLC, a subsidiary of Energy Capital Partners II, LP for approximately $335 million.

The closing of the Odessa sale completes the Texas asset sale announced by PSEG Power in early 2011. PSEG Power’s Odessa plant is one of the two 1,000 MW gas-fired power plants it has in Texas. The sale of the other facility, Guadalupe, was completed in the first quarter of 2011. In March 2011, PSEG Power closed the sale of the 1,000 MW Guadalupe plant located in South Texas to MinnTex Power Holdings LLC, a unit of Wayzata Investment Partners LLC, for approximately $352 million.

Earlier the Odessa Plant was slated to be taken over by High Plains Diversified Energy Corporation (“HPDEC”) for about $335 million. However, the deal was shelved in early June 2011, as the buyer failed to arrange the required finance for the purchase.

Lubbock, Texas-based High Plains had planned to buy the Odessa plant from funds raised by selling municipal bonds. However, the utility, created in 2008 by the West Texas Municipal Power Agency, was unable to get the municipal designation needed to tap such financing.

Public Service Enterprise Group, based in Newark, New Jersey, is a diversified utility holding company. Its operations are mostly located in the Northeastern and Mid-Atlantic parts of the U.S.

Going forward, Public Service Enterprise’s robust portfolio of regulated and non-regulated utility assets offers steady earnings and significant long-term growth prospects. The company remains focused on operational excellence, financial strength and disciplined investment. Also, the company’s earnings growth will be driven by a low-cost nuclear fleet, assumed rate relief and addition to generating capacities.

However, the increasing cost of coal, higher pension and financial costs, and power-price volatility are areas of concern. In the near term, we see shares of the company performing in line with the broader market and thus reiterate a short-term Zacks #3 Rank (Hold rating) on the stock, along with a longer-term Neutral recommendation. This is in line with peers like American Electric Power Company Inc. (AEP - Analyst Report) and Ameren Corporation (AEE - Analyst Report).

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