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Questions Arise When Companies Move Away from Core Geographies

By John Licata – Jan 10, 2014 at 11:05AM

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PSE&G is expanding outside its core area of focus, and that is a bit concerning when you consider what they are facing in their own backyard.

I have been optimistic about the future of PSE&G (PEG -1.47%) and its efforts to modernize. However, is the company's move to buy two solar plants totaling 4.4MW from Canadian Solar (CSIQ -4.89%) through its PSE&G Solar Source subsidiary a sign that maybe the growth expectations in the New Jersey area won't be as strong as I was thinking? The company just took over the Long Island, NY, power operations from LIPA at the start of 2014, so with the expansion of solar in Northern California's Shasta County, could PSE&G be making a mistake by leaving its core area of operations? I like the diversity but fear the move is ill-timed with so much happening back in its home service area and management still waiting for a decision on the proposed $3.9 billion "Energy Strong" modernization initiative. 

Previously, PSE&G Solar Source, which falls under the company's PSE&G Energy Holdings division, has worked with partner Juwi Solar to develop five solar projects totaling 69.2 MW but only one (Phoenix, AZ) is located out west (the others are in Florida, Ohio, Delaware, and New Jersey). In PSE&G's November 19th marketing materials for the Barclays European Investor Meetings, the company dedicated two full slides to the company's locational advantage to shale deposits in Pennsylvania and Ohio as well as strategic pipeline and storage capacity. So it is a bit of head-scratcher to see the company spend money to boost its solar presence outside its core area of operations. PSE&G Energy Holdings may be a small part of PSE&G's overall operating earnings at ~1.2%, but it's going to take a lot of capital to acquire new assets for this sector, and that begs the question, is it worth growing?

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John Licata has no position in any stocks mentioned. You can follow John on Twitter @bluephoenixinc. The Motley Fool has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Canadian Solar Stock Quote
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$34.00 (-4.89%) $-1.75
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