Fitch: PSEG Power's Ratings Unaffected by New Power Plant

CHICAGO--(BUSINESS WIRE)-- Fitch Ratings views the planned investment of more than $600 million to build a new merchant power plant as modestly negative but it does not affect the credit ratings of PSEG Power LLC (Power; 'BBB+'/Outlook Stable) and its parent Public Service Enterprise Group Inc. (PEG's; BBB+'/Outlook Stable). The investment will increase the company's already elevated capital spending plan and add to its external financing needs over the 2015-2017 horizon.

The construction of a new power plant at Sewaren, in addition to the recently announced Keys Energy Center, will increase Power's capex spending in 2015-2017 to about $1 billion annually compared to $650 million annually in 2011-2014. Fitch expects Power will remain modestly free cash flow positive over that period, given adjusted FFO of about $1.25 billion annually (excluding proceeds from insurance in 2015) based on the agency's forecast for commodity markets. Fitch assumes that Power and PEG will adjust inter-company dividend payments and debt financing plans to preserve financial profiles commensurate with their 'BBB+' ratings. PEG currently has good financial flexibility, including no outstanding debt and solid metrics for its ratings.

Power's credit metrics are currently very strong for the ratings, including adjusted debt / EBITDAR of 1.3x at second-quarter 2015, providing cushion for incremental debt financing and/or unexpected challenges in the operating environment while respecting Fitch's threshold of 2.75x. Fitch anticipates the ramp-up in Power's capex plans and dividends to its parent will result in a weakening of its credit metrics, including adjusted debt/EBITDAR close to 2.7x by 2017.

Power plans to build Sewaren 7, a new 540-MW combined-cycle power plant at its existing Sewaren Generation site in Woodbridge, New Jersey in time for Summer 2018. The plant should present a favourable economic profile with location in a constrained area, leverage of existing infrastructure, and dual-fuel capability (natural gas and oil). The plant cleared PJM's Reliability Pricing Model (RPM) auction for 2018/2019.

Additional information is available on www.fitchratings.com

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Fitch Ratings
Maude Tremblay, CFA
Director
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Fitch Ratings, Inc.
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or
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or
Media Relations:
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Source: Fitch Ratings

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