- Facing continued pressure from low natural gas prices, PSEG today announced it would retire two New Jersey coal plants early.
- The utility will replace the capacity (a combined 1,252 MW) with more natural gas, and the state's portfolio will now be largely split between gas and nuclear, with a small amount of renewables.
- Both retiring plants began generating in the 1960s, and they have a combined 200 employees. PSEG said it will work to find other employment for them.
PSEG is another utility joining the rush to invest in natural gas, while shuttering coal plants in the process.
Neither the 620 MW Hudson Generation Station in Jersey City or the 632 MW Mercer Generation Station in Hamilton Township cleared the last PJM Interconnection capacity auction, which was apparently the last straw for PSEG.
“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,” PSEG Power President and COO Bill Levis said in a statement. “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.”
The utility said it is committed to meeting New Jersey's energy needs, and is investing more than $600 million in a new combined-cycled gas plant in Sewaren, N.J. PSEG is also developing new plants in Connecticut and Maryland.
Retiring the two plants will trigger certain changes in accounting treatment that will have a material effect on PSEG and PSEG Power’s reported results. In the third quarter, the two entities expect to recognize one-time charges 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.
In addition to one-time charges, PSEG said 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 the Hudson and Mercer plants.
The U.S. Energy Information Administration expects 8 GW of gas generation capacity additions in 2016, reflecting the recent trend of utilities shifting to gas fired generation. From 2000 through 2015, the U.S. added 284.36 GW of gas capacity — nearly 70% of the 410.28 GW of total utility-scale capacity added to the grid.