(PEG) Public Service Enterprise Group to Sell Texas Power Plant

PSEG Power LLC, a unit of Public Service Enterprise Group Inc. (PEG) announced that it has agreed to the sale of its 1,000 MW gas-fired Odessa generating facility in West Texas. The facility would be sold to Odessa Power, LLC, a subsidiary of Energy Capital Partners II, LP for $335 million.

Public Service Enterprise expects to close the sale during the third quarter of 2011. PSEG Power’s Odessa plant is one of the two 1,000 MW gas-fired power plants it has in Texas. The sale of the other facility, Guadalupe, was completed in the first quarter of 2011.

Earlier the Odessa Plant was slated to be taken over by High Plains Diversified Energy Corporation (“HPDEC”) for about $335 million. However, the deal was shelved in early June 2011, as the buyer failed to arrange the required finance for the purchase.

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.

Public Service Enterprise Group, based in Newark, NJ, 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 to 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. This is in line with its peers like American Electric Power Co. Inc. (AEP) and Ameren Corporation (AEE)

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