PSEG welcomes proposed federal nuclear production tax credits

Outgoing Public Service Enterprise Group Inc. Chairman, President and CEO Ralph Izzo praised the package of nuclear tax incentives included in a climate bill introduced by U.S. Senate Democrats.

The Inflation Reduction Act contains a zero-emission production tax credit aimed at existing nuclear plants of up to 0.3 cents per kWh, starting in 2024 and ending in 2032, for which the industry has long lobbied. Izzo emphasized in May that a new U.S. Energy Department program to subsidize financially struggling nuclear plants was not enough on its own to support continued nuclear fleet ownership. Public Service Enterprise Group, or PSEG, owns more than 4,000 MW of nuclear capacity.

"So the nuclear assets begin, to me at least, to look a lot like a rate base rate of return and piece of infrastructure ... with a steady and attractive cash flow that makes them economically viable," Izzo said during an Aug. 2 second-quarter earnings conference call. "And then there's the need to see what investor reaction will be if it's interpreted the same way that we interpret it."

Executive Vice President and CFO Daniel Cregg called the incentives "value additive."

Izzo noted that the bill, which is expected to pass a narrowly divided Senate, essentially provides for a $44/MWh nuclear energy price as long as "power prices in the market don't drop below $25 and as long as power prices in the market don't go above $44."

PSEG is working with the bill's sponsors on "some technical amendments ... because of some language that is inconsistent with what people have told us they're trying to achieve," Izzo said.

PSEG's nuclear fleet is completely hedged in 2022 and 2023 and over 50% hedged in 2024, according to management. The utility holding company "should begin to see higher prices layer in as we continue to incrementally sell power forward into 2024 and 2025 and assuming that prices remain at today's higher levels."

Nuclear generation output for the second quarter grew over 3.7% to 7.5 TWh. But recontracting about 8 TWh "at a $3/MWh lower average price" contributed to reduced electric gross margins.

PSEG reported non-GAAP operating earnings for the second quarter of $320 million, or 64 cents per share, compared with $356 million, or 70 cents per share, in the second quarter of 2021. The S&P Capital IQ consensus normalized EPS estimate for the quarter was 64 cents.

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