By Peter Key and Rory D. Sweeney

Public Service Enterprise Group CEO Ralph Izzo expressed confidence Friday that his company’s five nuclear units will receive the price supports he contends they need to keep them running.

Speaking during PSEG’s fourth-quarter earnings call, Izzo said he was pleased with the progress of New Jersey legislation to support the three reactors the company operates in the Garden State (A2850, S877), but he cautioned that the bills’ fate isn’t guaranteed. (See related story, NJ Lawmakers Advance Latest Nuke Subsidy Bills.)

Izzo also said he expects PJM’s response in FERC’s resilience proceeding to include a proposal to allow large, inflexible generation like nuclear units to set LMPs rather than seek out-of-market “uplift” cost recovery (AD18-7). “There have been very public conversations and statements by PJM that they believe, in particular, [that] their inflexible unit challenges are things that need to be corrected in the market,” he said.

Fourth-Quarter Rebound

PSEG reported net income of $956 million ($1.88/share) in the fourth quarter of 2017, compared to a loss of $98 million (-$0.19/share) in the same quarter a year prior. Its non-GAAP operating earnings were $289 million ($0.57/share), which beat the Zacks Investment Research consensus estimate by a penny and were up from $279 million ($0.54/share) the year before. PSEG’s revenue in the fourth quarter of 2017 was $2.1 billion, less than the Zacks consensus estimate of $2.36 billion, but slightly more than the $2.09 billion the company posted in the fourth quarter of 2016.

“We ended 2017 on a strong note with operating earnings for the year above the midpoint of our guidance,” Izzo said in PSEG’s earnings release. “The recent action by the board of directors to increase the common dividend by 4.7% to the indicative annual rate of $1.80/share is recognition of our financial strength and commitment to growth.”

PSEG enters 2018 “from a position of financial strength aided by a strong balance sheet, continued execution of our strategic growth objectives and tax reform,” Izzo said. “This is possible, despite the challenges we continue to face in wholesale power markets, especially at our nuclear plants.”

Public Service Electric and Gas, the company’s regulated electric and gas utility, was responsible for two thirds of PSEG’s non-GAAP operating earnings. “Despite the challenges we continue to face in the wholesale markets, especially at our nuclear units, the continued successful investment in regulated programs have provided reliability and quality service to our customers,” Izzo said.

Warnings on Nuclear Plants

Izzo’s rosy words about the company’s financial state were tempered by his warnings about the state of its nuclear operations: three generation units at Hope Creek Generation Station and Salem Nuclear Generation Station in New Jersey and two units at Peach Bottom Atomic Power station in Delta, Pa. PSEG shares ownership of Peach Bottom and Salem with Exelon.

The fleet had a capacity factor of 93.9% in 2017 and produced a record electric output of 31.8 TWh, up almost 8% from 29.6 GWh in 2016. But PSEG says its New Jersey nuclear units are profitable now only because of sales hedges that expire within two years.

The bills being considered by the New Jersey Legislature would make Salem and Hope Creek eligible for subsidies from a 0.4-cent/kWh charge to the state’s electric ratepayers if the Board of Public Utilities finds the units economically unviable.

Critics of previous versions of the bills have complained that PSEG hasn’t demonstrated that its nuclear plants are unprofitable.

Izzo insisted the legislation is needed and that the company will pull the plug on its nuclear plants if it isn’t passed.

“The loss of the approximately 32 TWh of clean electric energy produced by [PSEG’s] Power [unit’s] nuclear generation in 2017 would represent a severe setback to [New Jersey’s] ability to meet its clean-energy goals and result in crushing economic impacts due to resulting increases in electricity prices and major job losses,” Izzo said.

“But the risk of closure remains without a change in the financial condition of nuclear. To that end, Power recorded a $276 million increase in its asset retirement obligation liabilities at the end of 2017 to take into account a higher assumed probability of early retirement of its nuclear units.”

Izzo also was optimistic about other efforts that could increase the nuclear plants’ revenue.

“There’s multiple things going on at FERC that matter [to] PJM,” Izzo said in response to a question from an analyst. “There’s capacity market reform, there’s fast-start pricing, there’s price formation. So there’s multiple issues. … I think we’re all visiting with the commissioners and telling them how important it is. And I think we’re all seeing the same comments come out of PJM.”

PJM Stakeholders Debate Resilience Filing

At a special session of PJM’s Markets and Reliability Committee on Friday, stakeholders battled over what PJM’s response should be to FERC’s questions on resilience. Nuclear and coal proponents argued for rule changes on price formation and payments for “fuel diversity,” which would benefit aging coal and nuclear plants. Customers argued that fuel diversity should not be considered synonymous with resilience. PJM has until March 9 to file its comments.

FERC’s five commissioners all recently voiced their commitment to scrutinize any proposals purporting to address resilience. “It seems to me … that some RTOs are suggesting things that don’t necessarily [relate] to resilience,” Commissioner Richard Glick said at the National Association of Regulatory Utility Commissioners’ winter meetings on Feb. 13. (See Overheard at NARUC Winter Policy Meetings.)