Public Service Enterprise Group’s (NYSE:PEG) departing CEO Ralph Izzo said Tuesday he is optimistic that the Democrats’ proposed climate bill will pass Congress and provide stable, long-term support for the utility’s three nuclear plants, now subsidized by New Jersey ratepayers to the tune of $300 million a year.

As proposed, the federal subsidy, which would run for six years from 2024, includes the Nuclear Production Tax Credit that “we have advocated for over the last two years,” Izzo said during the company’s second quarter earnings call.

PSEG President & CEO Ralph Izzo | © RTO Insider LLLC

He also cited several other recent green energy developments that will put the company in a strong position for the future. They include the New Jersey Board of Public Utilities’ (BPU) June 29 approval of the company’s $511 million Infrastructure Advancement Program, spending largely intended to upgrade the “last mile” of the company’s distribution system, he said. The company, through its environmental, social and governance strategy, is also finalizing company-wide emissions reduction goals to be submitted to the United Nations by September 2023 for validation that they meet the requirements of the Paris climate agreement, he said.

Izzo, who steps down as CEO Sept. 1 after 30 years at the company, will be succeeded by current Chief Operating Officer Ralph LaRossa. Izzo will continue as executive chair of the board until his retirement on Dec. 31.

He told the conference call that the company sees a growing recognition that nuclear plants are necessary to cut carbon emissions.

“We continue to observe a positive shift in public sentiment in support of preserving these nuclear plants,” he said. “This pricing floor for nuclear generation squarely addresses our need for a longer-term framework within which we can continue to own and operate our fleet with extended revenue visibility beyond the current three-year zero-emission certificate cycle.”

Solid Cash Flow

The enactment of the Democrats’ Inflation Reduction Act  (HR 5376),  is far from certain, with a possible Senate vote planned for this week. (See What’s in the Inflation Reduction Act, Part 2.) But its passage and the delivery of a federal nuclear subsidy would relieve PSEG of the pressure to secure state nuclear subsidies, at least for a while. The BPU in 2019 and 2021 awarded the company three-year subsidy packages of $300 million a year under the zero-emission certificate program. The state created ZECs to support nuclear plants that otherwise could be forced to close because they are financially unviable, undermining the state’s effort to meet its clean energy goals. The PSEG subsidies stoked criticism, however, that the company did not need a $10/MWh rate, the maximum allowed under New Jersey’s law creating the subsidies, to remain open.

According to an analysis by Taxpayers for Common Sense, the maximum subsidy awarded under the IRA would be $15/MWh, which the nuclear operator could only receive if it paid prevailing wage levels and met apprenticeship requirements.

Izzo said he is “very encouraged” by the bill, adding that based on his talks with legislators the “odds are looking quite good” that it could be passed. If that happens, and all goes to plan, he said, the nuclear plant will provide a “very predictable earnings stream with a very solid cash flow generation that I think serves the state of New Jersey very well, serves the company very well, serves the planet very well.”

PSEG officials said the company would no longer receive the state subsidy if it was getting the federal tax credit. Izzo said that talks continue with New Jersey legislators over future nuclear subsidies, should they be needed.

Those “policy level” talks with legislators include discussions with state legislators about “a longer duration alternative to the current zero-emission certificate framework for nuclear should the price levels contained in the [federal] reconciliation bill prove elusive,” he said.

OSW Investment or Sale

Izzo’s departure comes as the company faces a rapidly changing environment, which includes the sale earlier this year of the last of its 6,750-MW portfolio of 13 fossil generating units. The company owns 25% of 1,100-MW Ocean Wind 1, the first New Jersey offshore wind project to be developed, which is co-owned with Danish developer Ørsted.

And the company is awaiting the BPU’s decision on whether to adopt any of the 80 proposals for grid upgrades that would tie future offshore wind projects to the grid, among them several submitted by PSEG. Izzo has said in the past that the company’s proposals could be worth $1 billion to $3 billion.

Izzo said its part-ownership of the offshore project will have no bearing on whether the BPU adopts any of the utility’s projects to upgrade the grid.  He added that “as related to the opportunity to co-invest with Ørsted, we continue to have conversations on a variety of fronts.”

Under questioning from an analyst, he elaborated, saying the company would evaluate whether it should sell its share of the offshore project.

“It should be obvious to everyone, New Jersey is going to build seven and a half gigawatts of offshore wind.  I think half a dozen states are going to build 30 gigawatts of offshore wind,” he said. “That’s going to have a significant impact on power markets,” he said, adding that it would present “opportunities to grow earnings per share for companies. So it’s something that we want to make sure we are taking the long view in terms of the role we should or shouldn’t play in that.”

PSEG reported net income of $131 million ($0.26/share) in the second quarter, compared with a net loss of $177 million ($0.35/share) a year earlier. Non-GAAP operating earnings for the second quarter of 2022 were $320 million ($0.64/share) compared to non-GAAP operating earnings of $356 million ($0.70/share) in 2021.