PSEG stopping work on plan to expand into New York City

"We've been exposed to significantly increased development costs as well as ongoing uncertainties," said Frank Cassidy, president of PSEG Power. "We regret, therefore, we can no longer justify pursuing the project."

The decision is not a negotiating tactic, PSEG spokesman Neil Brown said. "This is a business decision based on the conditions that we face right now."

In a separate action, PSEG and Exelon Corp. said Friday that they would divest some generating capacity to win regulatory approval of their $12.8 billion merger.

Included is the sale of 2,900 megawatts of generating capacity, including at least 550 megawatts from coal-fired plants, the companies said in a statement. But they have not offered to divest any nuclear plants "and do not anticipate doing so," they said.

Last month Exelon took over operation - but not ownership - of PSEG's three problem-plagued nuclear plants in Salem County.

In a separate filing Friday with New Jersey's Board of Public Utilities, the companies reaffirmed previously announced plans to keep Public Service Electric and Gas Co. as a separate company, based in Newark, and for Ralph Izzo to remain as president and chief operating officer. In addition, they pledged "to sustain PSE&G's record of charitable and civic contributions, as well as economic development and environmental commitments, at a level that is at least as substantial as PSE&G's current level."

The Cross Hudson Project was designed to send power from one of PSEG's gas-fired plants in Ridgefield to a Consolidated Edison substation on West 49th Street in Manhattan by way of a dedicated transmission line through Ridgefield and Edgewater. A portion of the line would have been embedded in the Hudson River.

The setback comes 10 months after PSEG lost out to Astoria Energy LLC, a subsidiary of SCS Energy LLC, in its bid for a 10-year, $1 billion contract to supply 500 megawatts of power directly to Con Ed.