Good day, and welcome to the New Jersey Resources Second Quarter Fiscal 2019 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded.

I would now like to turn the conference over to Mr. Dennis Puma, Director of Investor Relations. Please go ahead..

Thank you, Sean and good morning, everyone. Welcome to New Jersey Resources second quarter fiscal 2019 conference call and webcast. I'm joined here today by Steve Westhoven, our President and Chief Operating Officer; Pat Migliaccio, our Senior Vice President and Chief Financial Officer; as well as other members of our senior management team.

As you know certain statements in today's call contain estimates and other forward-looking statements within the meaning of the securities laws.

We wish to caution listeners of this call that the current expectations, assumptions and beliefs forming the basis for our forward-looking statements include many factors that are beyond our ability to control or estimate precisely which could cause results to materially differ from our expectations as found on slide 1.

These items can also be found in the forward-looking statement section of today's earnings release furnished on Form 8-K and in our most recent Forms 10-K and Q as filed with the SEC. We do not by including this statement assume any obligation to review or revise any particular forward-looking statement referenced herein, in light of future events.

Turning to slide 2, we will be referring to certain non-GAAP measures such as Net Financial Earnings or NFE. We believe that NFE provides a more complete understanding of our financial performance. However, NFE is not intended to be a substitute for GAAP. Our non-GAAP financial measures are discussed more fully in the Item 7 of our 10-K.

Our agenda for today is found on slide 3. Steve will begin today's call with highlights from the quarter followed by Pat with a review of financial results and projections and then we'll open the call up to your questions.

I like -- also like to point out that there are slides accompanying today's discussion, which are available on our website and were also filed on Form 8-K filed this morning. With that said, I'd like to turn the call over to our President and Chief Operating Officer, Steve Westhoven.

Steve?.

Thanks, Dennis and good morning to everyone. Hopefully, you've had a chance to review this morning's earnings release. As a diversified energy company, New Jersey Resources invests in, manages and operates energy infrastructure and we continue to execute our strategy and deliver results.

We reported net financial earnings per share for the quarter of $1.27 compared with the $1.62 in 2018. Last year's results, included uplift from the outperformance of Energy Services. We're also reaffirming our guidance of $1.95 to $2.05 per share for fiscal 2019 with no material change to the segment NFE contributions.

Natural gas continues to be the preferred home heating choice for customers in New Jersey. In our service territory five out of six homes use natural gas for heat and we now serve over 546,000 customers across 5 counties.

Through the first six months of the fiscal year, we added over 5,000 new customers and expect to reach our goal to add between 28,000 to 30,000 customers through fiscal 2021. To meet this growing demand and our obligation to provide safe reliable service, New Jersey Natural Gas has made two significant filings with the New Jersey BPU.

First, we filed a rate case on March 29, seeking a $128 million increase to base rates. Since our base rates were last approved by the BPU in 2016, we've invested more than $600 million to enhance the safety and reliability of our transmission and distribution system.

We have also installed over 370 miles of new mains to support safe and reliable service for our customers. And in addition, we have retired or replaced approximately 200 miles of aging infrastructure.

Second, we filed for a 5-year $507 million infrastructure investment program, which continues our efforts to strengthen our pipeline network and technology systems. As you know, we've begun construction on the Southern Reliability Link last December, and have already completed more than six miles of the pipeline.

The project will provide resiliency and supply diversity to 83 towns in Ocean Monmouth and Burlington counties. It also benefits the Joint Base, New Jersey's second largest employer and will support its critical operations.

As we continue constructing the pipeline, we remain committed to minimizing the impact to our customers and the communities in the area. We also recognize that demand for natural gas is continuing to grow and more markets are becoming constrained.

Our infrastructure investments in the midstream sector will continue to make clean low-cost natural gas more accessible to customers. We continue to take steps to advance these projects. Natural gas will continue to play an important role in providing affordable reliable clean energy to customers.

We also recognize that renewable energy is an integral part of our future. With over $700 million invested in our solar assets, we are committed to being a leader in the growing clean energy market. On slide 7, we have the details of our new infrastructure program that was filed with the BPU during the second quarter.

This $507 million filing continues our efforts to enhance the resiliency of our distribution system and continues various infrastructure replacement and improvement projects. It also includes the costs associated with the necessary replacement of our IT systems, which allows us to better serve our customers and strengthen our cybersecurity efforts.

Moving to slide 8, since 2009, Clean Energy Ventures has placed 37 commercial solar projects into service with a total of 184 megawatts of installed capacity. Already this fiscal year, we've completed two commercial installations and are on track to complete four additional projects this year.

In total, these installations will add over 50 megawatts of capacity and represent an investment of about $128 million. Our Sunlight Advantage program continues to be a success. We added 189 new customers this quarter and now serve over 7,600 residential solar customers.

As you can see we continue to invest in the reliability and resiliency of our systems, grow our business and deliver results for our customers and shareholders. With that, I'll turn the call over to Pat for some additional details of the quarter..

Thanks, Steve, and good morning, everyone. Slide 10 provides a breakdown of the NFE changes from year-to-year for both the three months and six months ended March 31. For both reporting periods, the utilities NFE were higher due to new customer growth and our infrastructure programs.

However, the increase in NFE for the six months was partially offset by higher O&M expenses. Our Midstream results increased during the quarter, primarily due to the gains associated with the sale of Dominion Energy securities and certain tax effects recognized in fiscal 2018 that did not reoccur in fiscal 2019.

The increase in Clean Energy Ventures during the quarter was due primarily to an increase in investment tax credits, recognized compared to last year as well as lower O&M expenses. For the six month period both, Midstream and Clean Energy Ventures earnings declined due to the effects of tax reform last year that did not recur this year.

Finally for Energy Services, the decrease in both periods was due to the lack of sustained cold weather and related price volatility as compared to last year. The results of our SREC hedging program are highlighted on slide 11. We hedge our SREC production to lock in revenue for future energy years.

For energy year 2021, we now hedged 99% of our expected SREC production from facilities currently operational and under construction, which has increased significantly from the 65% we reported last quarter. We also began hedging energy year 2022 and have 43% of expected production hedged at an average price of $196.

The significant increase in hedge percentages for both years was driven by increased market activity during the BGS auction coupled with our desire to hedge at attractive pricing levels. Our average hedge price for energy year 2022 reflects approximately 83% of the Solar Alternative Compliance Payment.

The pricing strength is likely due to the expectation of a balanced SREC market in the near term driven by the increased RPS from the Clean Energy Act that was passed last year Slide 12 shows our capital plan through the first half of this year. Looking at 2019 and beyond, we've made some changes since the last time we spoke with you.

Our capital plan now includes our infrastructure improvement program, filed with the BPU in February. A significant portion of the spending associated with IIP had already been included in the cost of removal and other line item. And as a result, there is no increase in the overall capital plan at New Jersey Natural Gas through 2021.

With the in-service date for SRL shifting later in 2020, we've adjusted the timing of our capital expenditures to align with that expectation. Moving to slide 13, I want to update you on our cash flows and financial projections. This quarter we completed the sale of the remaining wind assets for total proceeds of about $209 million.

We raised $22.3 million of new equity during the second quarter including proceeds from our dividend reinvestment program, and also successfully remarketed $35.8 million of municipal bonds in April of this year.

Our capital plans for fiscal 2020 and 2021 are anchored by strong cash flows from operations, as well as our dividend reinvestment program that will help finance our capital investments and dividend growth targets. I'll now turn the call back over to Steve..

Thanks, Pat. We appreciate the time that you took today to join us. And I'd like to recognize our employees for their hard work that drives our performance. Thanks to them. We're named the 2019 Environmental Champion according to Cogent Reports. We are proud of our sustainability efforts. And the work our team continues to do to deliver these results.

I'd like now to open the call for questions – for open yeah open the call for questions..

We will now begin with the question-and-answer session. [Operator Instructions] Our first question comes from Travis Miller with Morningstar. Please go ahead..

Good morning. Thank you..

Hi Travis..

When you think about clean energy and being clean energy leader, what's your appetite for offshore wind participation if any, especially in New Jersey obviously?.

So Travis this is Steve. Obviously, it's going to be a big part of the clean energy plan going forward and a big part of the governor's plan, and there is auctions that are taking place right now, in developing that offshore wind. We have not participated to date. These projects are pretty large.

and I think if we were able to find a niche place in that market, our service territory does line up along almost the entire -- good portion of the coastline in New Jersey, then we would participate, but would have to come in just the right way in order to fit our risk appetite and investment size..

Okay. Great.

And then on the midstream side what do you see as kind of the next round of projects? If not specific just generally where you might find them? How you might get those 2021 and beyond capital uses up on the midstream side?.

So, Travis, I'll look at that in two ways. One we need to get the projects that we have on our plate up and building commercially operable. And I think that once we do that then those are going to provide for some organic growth opportunities in and around those assets. Natural gas is very economic. It's in great demand.

We've got constrained markets in the region. So those organic growth opportunities should come along once we put them in place. The second one, I'll look at it is we are constantly participating in the marketplace for assets that become available for sale that we find interesting and we think could provide for additional value.

We don't have anything to announce at this point, but know that we are very active in that market and hopefully we'll be able to come to the investor community with something soon..

Okay. Great. Appreciate it..

Our next question comes from Dennis Coleman with Bank of America. Please go ahead..

Good morning, everyone. Thanks for taking my question..

Hey, Dennis..

If I could start O&M expense came in quite a bit lower than we have been modeling.

I wonder if you might just talk about the trajectory there and how we should think about that quarter-to-quarter?.

Overall, Dennis or for any specific segment in your mind?.

Overall, I guess, just to start, but if you want to break down into specific segments all information is welcomed..

Sure. So for New Jersey Natural Gas, if you look they actually had modest O&M increase on the six months comparable period March to March that's largely driven by some shared services costs associated with the IT investments that we're making partially offset by some changes in our collective bargaining agreement.

Those details will be in our Q later today. Maybe one of the biggest drivers might be, of course, year-on-year we no longer have the wind assets so those in January and those drive O&M expenses of the Clean Energy Ventures segment. So those are probably the two large drivers and offsets.

By and large some of the other details will be available in our Q later today..

Right. We'll look for that.

I guess the second thing with your rate filing we -- it sort of had been toggling off the SRL project and whether it will be completed within the 6-month post-filing window and obviously, you've moved past that? Can you just talk about are there examples of sort of second phase filing that you anticipate for SRL? Or how has the BPU handled that kind of filing in the past?.

Hey, Dennis. This is Steve. I'm going to ask Mark Kahrer, who is the Executive In-Charge of our Regulatory Affairs to take that question..

Hi, Dennis. Generally speaking it's not a standard that they would reopen the docket. We have had dialogue with the BPU staff and with Rate Counsel.

They are amenable to listening to our arguments as the need for rather than filing a full single rate case around the SRL is to consider that but we'll make a determination later on this year when we have a little bit more certainty around the in-service date, but again, that's something that we've asked for.

They haven't outright said no, but it's something that we need to talk to as we go through the process..

Okay, that’s very helpful. Thank you. .

[Operator Instructions] At this time, there are no further questions. And this will conclude our question-and-answer session. I would like to turn the conference back over to Mr. Michael Price for any closing remarks..

Well, thank you, Sean. I just wanted to say thank everyone for joining us this morning. As a reminder, a replay of this call will be uploaded on our website. As always, we appreciate your interest and investment in New Jersey Resources. Thanks. Bye..

The conference has now concluded. Thank you for attending today's presentation. And you may now disconnect..