PSEG Power LLC, a unit of Public Service Enterprise Group Inc. (PEG) has terminated its agreement to sell a natural-gas fueled power plant in Texas as the buyer failed to arrange the required finance for the purchase. High Plains Diversified Energy Corporation (HPDEC) had agreed to buy the 1,000 MW plant for about $335 million.
PSEG Power’s Odessa plant is one of the two 1,000 MW gas-fired power plants it has in Texas. The company had agreed to sell the Odessa plant earlier this year and the deal was expected to close in the first quarter. The sale of the other facility, Guadalupe, was completed in the first quarter of 2011.
PSEG Power said it continues to seek offers from other bidders for the sale of Odessa with the goal of disposing the plant later this year.
Lubbock, Texas-based High Plains had planned to buy the Odessa plant through finances obtained from selling municipal bonds. The utility, created in 2008 by the West Texas Municipal Power Agency, was unable to get the municipal designation needed to tap such financing.
High Plains has also agreed to buy Constellation Energy Group Inc.’s (CEG) Quail Run power plant in Texas for $185.3 million.
Public Service Enterprise Group, based in Newark, New Jersey, is a diversified utility holding company. Its operations are mostly located in the Northeastern and Mid-Atlantic parts of the U.S.
Public Service reaffirmed its fiscal 2011 earnings per share guidance range of $2.50–$2.75. The Zacks Consensus Estimate for fiscal 2011 is $2.64, which is well within the company’s guidance.
Going forward, Public Service Enterprise’s robust portfolio of regulated and non-regulated utility assets, offers steady earnings and significant long-term growth prospects. The company remains focused on operational excellence, financial strength and disciplined investment. Also, the company’s earnings growth will be driven by a low-cost nuclear fleet, assumed rate relief and addition in generating capacities.
However, the increasing cost of coal, higher pension and financial costs, and power-price volatility are areas of concern. In the near term, we see shares of the company performing in line with the broader market and thus reiterate a short-term Zacks #3 Rank (Hold rating) on the stock, along with a longer-term Neutral recommendation.
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