OREANDA-NEWS. New Jersey utility Public Service Electric & Gas (PSE&G) expects electricity demand in its service territory this summer to peak at 10,306MW, up by 9pc from the unusually mild summer of 2014.

PSE&G should be able to generate more electricity from the Keystone and Conemaugh coal plants in Pennsylvania this summer than in 2014 after the recent completion of upgrades that allowed the 40-year-old units to meet the federal mercury and air toxics standards. The coal plants in the first quarter averaged a 91pc capacity factor, up from 83pc a year earlier. Each coal plants has 1,711MW of capacity, with multiple owners. PSE&G owns 391MW of capacity at Keystone and 385MW at Conemaugh.

By contrast, capacity factors at those plants in July-September 2014 were lower than normal at 71pc because of maintenance necessitated by environmental compliance work.

The utility relies on its own generation for the majority of its needs, with three nuclear units in Pennsylvania and New Jersey, as well as Keystone and Conemaugh, providing the baseload output.

PSE&G says it has hedged 100pc of its expected coal supply for Keystone and Conemaugh plants at the equivalent of mid-\$20s/MWh.

PJM West round-the-clock power assessments are \$44/MWh for the summer 2015 block, suggesting marginal profitability for those coal plants.

The company lists Northern Appalachian coal as the primary fuel type for Keystone and Conemaugh. But the plants last year received coal deliveries from Foresight Energy's Deer Run mine in Illinois, based on Energy Information Administration data.

PSE&G is part of the PJM Interconnection wholesale power market, where 7,901MW of coal capacity is expected to retire in January-June as a result of the federal environmental regulations. About 75pc of the retiring capacity is in Indiana, Michigan, Ohio, Virginia and West Virginia.

PSE&G does not expect "any kind of a fundamental shift in the market that we have not had over the past four years" in terms of coal generation dispatch in summer, parent company Public Service Enterprise Group Ralph Izzo told investors last week.

Another two of PSE&G power plants that are capable of burning coal, the 747MW Mercer and the 620MW Hudson in New Jersey, run infrequently and burn natural gas in summer and coal in winter, when natural gas pipeline delivery constraints are frequent in the northeast US. The ultimate fate of the plants, both located in New Jersey, will depend on the PJM proposal for enhancing the capacity revenue for power generators in the annual forward capacity auctions.

PJM's "capacity performance" plan will introduce stiff penalties for resources that are called for dispatch by grid operators but fail to come on line, while overperformers will be rewarded.

"The ability [of Hudson and Mercer] to perform in a capacity performance market and the rules ... are just not known. So the risk-reward profile of capacity performance changes thinking on those plants," according to Izzo.