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Public Service Enterprise to Shut Down 2 Coal Plants in 2017

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Public Service Enterprise Group Inc. (PEG - Free Report) , or PSEG, announced its decision to shut down the two remaining coal-fired plants in New Jersey on Jun 1, 2017 due to stringent environmental regulations and the ongoing shift to natural gas for power generation.

Reason for the Move

The move concerns the Hudson Generation Station in Jersey City and the Mercer Generation Station in Hamilton Township.This is because the plants are rarely used and have failed to clear the last two capacity auctions held by PJM Interconnection, the regional grid operator.

According to Bill Levis, the President and Chief Operating Officer of PSEG Power, these plants have been experiencing competitive pressure for quite some time now, thanks to persistently low prices of natural gas. Moreover, the company estimates huge investment in upgrading the two plants in order to meet the new reliability standards, which could be avoided entirely by closing them down instead.

Even though coal used to be the key catalyst behind industrial growth in the U.S., the scenario has changed dramatically now. Increasingly stringent pro-environmental regulations and growing demand for cleaner options have been hurting the prospects of coal. In the state of New Jersey, coal now contributes a mere 2% to the total electricity generated. These developments underscore the need to shutter the remaining coal-fired plants as soon as possible and instead focus on renewable expansion.

On Aug 3, 2015 the U.S. Environmental Protection Agency (EPA) finalized the Clean Power Plan, a regulation aimed at reducing carbon emissions from existing power plants 32% by 2030. This is another reason for the ongoing focus on cutting the usage of coal in power generation and increasing the share of renewables.

Impact of the Close-Down

In the third quarter of 2016,PSEG expects to record one-time charges related to the closuresof $40.0−$70.0 million for the Hudson plant and $35.0−$77.0 million for the Mercer plant as energy costs, and operation and maintenance expenses. The closure will also lead to non-cash charges of $560.0−$580.0 million this year and $940.0−$960.0 million in 2017.

The move would also affect nearly 200 employees at these facilities. The company has, however, reassured that it will relocate most of the employees to other facilities.

PSEG’s Presence in New Jersey

PSEG is forging ahead with several initiatives to support New Jersey’s renewable energy goals. In Mar 2016, the New Jersey Senate passed a bill that required utilities in the state to source 80% of their electricity from renewable energy by 2050. Under the bill, utilities have to generate 11% of their electricity from renewable sources in 2017. This proportion would increase by roughly 10% every five years, until the target of 80% by 2050 is met.

PSEG will also invest over $600 million in a new state-of-the-art combined-cycled gas plant in Sewaren, NJ, in addition to other new facilities in Connecticut and Maryland. Currently, PSEG Power has gas facilities with nearly 4,000 MW of generating capacity in New Jersey and nuclear plants of 3,740 MW capacity, of which approximately 2,500 MW are located in New Jersey.

Zacks Rank & Key Picks

PSEGcurrently has a Zacks Rank #3 (Hold). A few better-ranked stocks in the same industry include OGE Energy Corp. (OGE - Free Report) , DTE Energy Company (DTE - Free Report) and Empresa Distribuidora y Comercializadora Norte S.A. (EDN - Free Report) , each carrying a Zacks Rank #2 (Buy).You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

OGE Energy has witnessed a 8.5% rise in its stock price in the last six months. The expected EPS growth rate for the next five years is 5.2%.

DTE Energy’s share price was up 3.9% in its last six months. On an average, the company has delivered a positive earnings surprise of 6.94% in the trailing four quarters.

Empresa Distribuidora saw a 3.4% upside in its stock price in the last trading session. This company’s 2016 earnings estimates have improved 36.4% in the last 60 days.

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