Good morning and welcome to the New Jersey Resources Third Quarter Fiscal 2019 Earnings Teleconference. All participants will be in listen-only mode. [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, Debbie. And good morning, everyone. Welcome to New Jersey Resources third 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 on this call that the current expectations and beliefs forming the basis of 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 be found in the forward-looking statement section of today's earnings release furnished on Form 8-K and in our most recent Form 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 financial 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 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 our financial results and projections. We'll then open the call up to your questions.

I'd also like to point out that there are slides accompanying today's discussion, which are available on our website and were furnished on our 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, everyone. Before we begin discussing our results, I wanted to take a moment to talk about Larry Downes' announcement that he will be retiring as CEO on September 30 of this year. He will remain Chairman until our Annual Meeting in January.

Thanks to Larry's leadership, we have a solid foundation and a talented team that will continue to grow our company. I joined New Jersey Resources in 1990 and have worked for Larry for nearly 30 years. I want to take this opportunity to thank him for all he has done for our company and for me personally.

I appreciate the confidence the board has placed in me to succeed Larry and I look forward to working with the employees of NJR to do what we do best, serve our customers and provide returns to our shareowners.

Turning to the quarter, we're pleased to announce SRL received the Burlington County road opening permits and we now have all major approvals to complete the project.

SRL is a critical project for our company to significantly strengthen our delivery system and enhance reliability and resiliency for over 1 million people in Ocean, Monmouth and Burlington counties. We will also support the critical mission of the joint base, McGuire-Dix-Lakehurst, which is the second largest employer in New Jersey.

As you know, we began construction last December, and so far we've installed approximately 50% of the 30-mile project. SRL has undergone a thorough and extensive regulatory and governmental review. And I would like to thank the various state agencies, local communities, as well as our team for their dedication and hard work throughout this process.

Our Midstream infrastructure investments also made progress during the quarter. For PennEast, all land surveys have been completed, which puts the partnership in a position to resubmit its New Jersey DEP application this month. This is an important step for the PennEast project to receive its final permits and approvals.

It is our expectation that the New Jersey DEP will conduct a full and thorough review of the project. Once PennEast has received all the necessary permits and approvals, we expect construction to begin. Turning to the Adelphia Gateway, we are awaiting Certificate of Public Convenience and Necessity from FERC.

This delay has impacted the original timing of construction. We now expect material NFEPS contribution from Adelphia in fiscal 2021.

While the regulatory approval delays that have affected our timetables, it doesn't change the fact that demand for natural gas in the Northeast continues to grow, driven by increased economic activity, residential growth and additional natural gas fired generation.

We believe that the combination of natural gas and renewable energy remains the best path forward as we move towards a cleaner energy future. Turning to our financial results, NJR reported a net financial loss for the quarter of $0.20 per share compared to a loss of $0.09 per share in 2018. Pat will provide some more details later in the call.

We are reaffirming our NFE guidance of $1.95 to $2.05 per share for this fiscal year and expect to be toward the low end of the guidance range due to the underperformance of Energy Services this year.

However, we believe our rate case, our new and existing infrastructure projects, new CEV projects and the final approvals of our midstream projects will all support our long-term NFE growth rate of 6% to 8%.

Moving to slide 6, while we've not made material changes to our guidance ranges, we made some adjustments to the contributions within our unregulated businesses. We have lowered the contribution range for Energy Services to 1% to 5% from our previous range of 5% to 10%.

This adjustment is due to the unusually low volatility and natural gas prices due to warmer-than-normal temperatures in the winter and a milder summer during the first nine months of 2019. And for CEV, we are increasing the NFE contribution range to 35% to 45% from our original range of 25% to 35%.

This increase is primarily due to higher volumes SREC sales this year. Turning to slide 7, I'll provide an update on New Jersey Natural Gas. In addition to the news I shared with you on SRL, our 30-mile redundancy project, we're on track to achieve our annual customer growth rate of 1.8%.

We filed our rate case in the second quarter of 2019, seeking a $128 million increase to base rates. Since that time, we filed an update with the BPU with actual data through the end of May. This requested increase was largely unchanged. The discovery phase is ongoing and preliminary negotiations with the BPU will begin later this month.

Also, in the second quarter this year, we filed for a new infrastructure investment program with the BPU. This $507 million program continues our ongoing efforts to strengthen the reliability of our distribution system and contains various infrastructure replacement and improvement projects.

The regulatory review process is ongoing and we will provide an update once more information is available. Our existing approved regulated infrastructure programs SAFE II and NJ RISE continue to make progress.

We've invested nearly $38 million through the first nine months of this year in our SAFE II Program to replace 48 miles of unprotected steel main. Through our NJ RISE program, we continue construction of a new distribution main to Long Beach Island, which is our last project under this program. On slide 8, we have an update on Clean Energy Ventures.

CEV has already completed four commercial installations, is on track to complete two additional projects this year. These six installations will add over 50 megawatts of capacity to our solar portfolio and represent an ITC eligible investment of approximately $128 million. The Sunlight Advantage program continues to be successful.

This quarter, we added 190 new customers and now serve over 7,800 residential solar customers in New Jersey. Since 2009, CEV has grown its portfolio of commercial and residential solar projects to over 270 megawatts of installed capacity. With that, I'll turn the call over to Pat for some additional details on 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 nine months ended June 30. In the third quarter of fiscal 2019, the net financial loss was $17.5 million or $0.20 per share compared with a loss of $8 million or $0.09 per share during the same period last year.

As you can see from the chart, third quarter results from our regulated businesses were lower due to increased O&M, mostly related to our new technology investments and related consulting costs.

For our unregulated businesses, the net decrease in NFE is primarily due to the absence of NFE contributions from the wind portfolio, which was sold in February of this year. For the nine months ended June 30, NFE totaled $149 million or $1.67 per share compared with $269.4 million or $3.08 per share during the same period in fiscal 2018.

The New Jersey Natural Gas was also basically flat, with lower BGSS incentives and higher O&M, offset by increases in margin from our infrastructure programs. Both Midstream and CEV earnings declined largely due to the effects of tax reform last year.

Excluding tax reform, Midstream NFE increased nearly $2 million and CEV earnings increased $8 million over the nine-month period last year. As Steve mentioned before, Energy Services results decreased due to lower price volatility compared to the prior 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 years 2020 and 2021, our SREC revenues for existing projects are hedged and, therefore, unaffected by changes in SREC prices. For energy year 2022, over 40% of the expected output is hedged at about 83% of the Solar Alternative Compliance Payment.

We'll continue to monitor the markets and add to our future hedge positions. Slide 12 shows our capital spending update and we have made some changes since the last time we spoke. Steve mentioned earlier the delay in the issuance of the certificate from FERC has impacted our ability to begin construction on the Adelphia Gateway project.

Our capital plan now reflects payment of the remaining purchase price of $156 million and capital to date spend of approximately $28 million in fiscal 2019, while balance of capital expenditures for interconnections [indiscernible] will occur in fiscal 2020.

Also, with the resubmission of the application to the New Jersey DEP expected to occur this month, but in our fourth fiscal quarter, we've adjusted our capital plans for PennEast, shifting the majority of the spend from fiscal 2020 to 2021. Moving to slide 13, I'd like to update you on our cash flows and financial projections.

Through the first nine months of fiscal 2019, we raised $70.6 million of new equity and remarketed approximately $36 million of municipal bonds. Also in July, we released $335 million through a new long-term debt issuance.

Of those issuances, $85 million was with a 40-year tenure and $150 million were issued as green bonds to support our solar investments. I'll now turn the call back over to Steve..

Thanks, Pat. We appreciate the time that you guys took to join us today. We'd like to recognize our employees for their hard work that drives our performance. And I'd now like to open the call for questions..

[Operator Instructions]. The first question comes from Travis Miller with Morningstar. Please go ahead..

Good morning..

Hi, Travis..

Can you hear me okay there?.

Okay..

Okay, great. I just wonder if you could go through a little more on that CEV and that shift to the higher percentage of earnings.

Was that something that was temporary or is that something that is more structural or something else going on there?.

Travis, this is Pat Migliaccio. For this year, we are seeing some increased SREC sales both from the generation side as well as some projects came on a little earlier than we anticipated. The earnings contribution of 35% to 45% is really only for this year. You'll see on the materials today, we provided long-term guidance.

We would expect CEV to be more in the 10% to 25% range..

Okay, great. And then, kind of similar, that $150 million green bond, are there restrictions around that or different terms and then a typical bond issue that you guys would do? Just wonder if you could talk through that a little bit and even the decision to do that..

No restrictions other than the fact it must be used for green investment and we will have to get our auditors to review and make sure that that's in compliance with the provisions in the private placement agreement.

Other than that, the coupon, the all-in rate was similar to what we'd expect to get if it wasn't a green bond, although we did see a slight uptick in demand for the private placement paper..

Okay.

And does this give you more firepower, for lack of a better word, to build on the solar projects, maybe up the CapEx in 2020, 2021?.

No, Travis. This is part of our planned debt issuance for this year..

Okay, great. I appreciate the help..

[Operator Instructions]. At this time, there are no further questions. This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Dennis Puma for any closing remarks..

All right, Debbie. Thank you all for joining us this morning. I just want to remind everyone that a recording of this call is available for replay on our website. And as always, we appreciate your interest and investment in New Jersey Resources. Goodbye..

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