PSEG, Others Ask Biden for Aggressive Clean Energy Plan

We are reaffirming our $53 fair value estimate for Public Service Enterprise Group PEG after the company joined 13 other utilities asking President Joe Biden to support national clean energy policies that would reduce power generation carbon emissions by 80% from 2005 levels by 2030. This represents the most aggressive clean energy push from U.S. utilities to date.

We're not surprised that PSEG signed on, given its plan to divest its fossil fuel power plants, which it has been marketing for more than a year. PSEG has already cut its 2005 emissions in half and would effectively eliminate its carbon emissions without the fossil fleet. We think an 80% national emissions reduction by 2030 is too technically challenging and costly for most other U.S. utilities.

Aggressive nationwide standards would benefit PSEG by preserving the value of its nuclear fleet and boosting potential clean energy investments like its $2 billion Clean Energy Future plan. But we don't think PSEG needs national standards to create shareholder value. We already expect PSEG to invest $3 billion annually in clean energy and system upgrades to support New Jersey's 100% clean energy goal by 2050. This drives our 5% average annual earnings and dividend growth outlook through 2025.

PSEG's nuclear fleet also appears set to continue receiving New Jersey's zero emission credit subsidies after a state appellate court ruled in favor of the ZECs in March. PSEG has asked to raise the $10 per megawatt-hour subsidy starting in 2022, but we don't think an increase is immediately necessary to preserve the fleet's long-term economics. A ruling could come in the next few weeks.

We believe PSEG's 25% stake in Orsted's Ocean Wind project, which New Jersey regulators approved on March 31, is value-neutral. We think shareholders are best off if PSEG invests in onshore infrastructure rather than offshore projects, given the regulatory and development risk.

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