Public Service considers split
September 22, 2006
Public Service considers split. Check it out:(Record, The (Hackensack, NJ) (KRT) Via Thomson Dialog NewsEdge) Sep. 21--Less than one week after regulators quashed its proposed sale to Exelon Corp., Public Service Enterprise Group is examining whether to split its power generation division from its regulated utility.
If Public Service splits into two companies, the power generation business could become an acquisition target for a competitor looking to add power plants.
CEO E. James Ferland said there are no immediate plans for splitting the company, but acknowledged Wednesday that "one has to examine that model" as a way to maximize shareholder value. He was responding to an analyst's question during a conference call.
The Newark-based company's proposed $17.8 billion sale to Exelon Corp. collapsed last week, partially due to the New Jersey Board of Public Utilities insistence that Public Service divest some of its generating plants as a condition of BPU approval.
As a separate company, the PSEG Power division would not be subject to BPU oversight, even as Public Service Electric and Gas Co., the operating utility, remains regulated by the BPU, Ferland said. PSE&G is New Jersey's largest utility with 2.1 million customers.
Ferland said the parent company's financial outlook is the strongest it has been in 20-plus years, and stressed there is no rush to undertake a major restructuring. "It's something we'd want to think through before we'd do it," he said.
Deregulation, which took effect in 1999, opened the market to third-party suppliers, leading New Jersey's three other utilities to sell off their generation businesses, as did New York's Consolidated Edison, to concentrate on delivery and service.
But Public Service decided to remain in the generation business, and its plants have supplied a significant percent of the company's earnings. The Public Service plants sell energy on the open market to utilities in several states, including PSE&G.
Although the BPU has no regulatory jurisdiction over the operation of Public Service's generating plants, they were a key and contentious factor in negotiations between the parties. The company agreed to sell off four plants to win approval of the sale from the U.S. Department of Justice, but the BPU called for selling two more.
Paul Patterson, an analyst with Glen Rock Associates, an independent research company based in New York, said splitting into separate companies isn't all that unusual in the industry.
Public Service and other companies "have to reflect on the regulatory environment, and whether they might be better to separate into two companies," Patterson said.
Ferland's comments came in a call intended to assure investors that the company remains on solid financial footing despite the collapse of the Exelon deal.
Last year Public Service earned $661 million.
The Exelon deal, as originally planned, was a very good strategic move for investors and the state of New Jersey, Ferland said. But those benefits disappeared under the terms being insisted upon by the BPU staff, he added.
Still, Ferland said the outlook for Public Service as a stand-alone company is extremely strong.
PSEG stock fell about $6 in the first trading session after Exelon's withdrawal was announced, but it has since held steady. It closed at $61.40 a share Wednesday, down 10 cents from Tuesday's close.
Several analysts expressed concern that the failed Exelon deal could portend tough times for Public Service in dealing with state regulators, but Ferland said he doesn't think that will happen.
"Over the years, New Jersey regulators have generally been quite fair," he said. "I'm quite confident this is the situation we'll return to once this merger is out of the way."
He said he will find out quickly, because the company has filed for $200 million in rate increases. Action had been put on hold pending the outcome of the Exelon discussions.
Despite the collapse of the deal to sell the company, Exelon will continue operating Public Service's three nuclear plants under an agreement reached almost two years ago, Ferland said. The Hope Creek and two Salem plants, which had frequent problems before Exelon got involved, have been operating at 96 percent of capacity and were performing near 100 percent during this summer's hottest days, he said.
Exelon owns 43 percent of the two Salem plants, so it has a vested interest beyond an operation contract, which Public Service can extend for another three years when the current agreement expires in January.
In addition, Public Service will explore swapping ownership interests in the plants with Exelon, including its 100 percent stake in Hope Creek, Ferland said. "I think that will be the subject of discussions."
He didn't say what Public Service might get in return.
To see more of The Record, or to subscribe to the newspaper, go to http://www.NorthJersey.com.
Copyright (c) 2006, The Record, Hackensack, N.J.
Distributed by McClatchy-Tribune Business News.
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Related Tags: public service, service, public, Public, Service, Exelon
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