Good day, and welcome to the New Jersey Resources Fiscal 2020 First Quarter Earnings Conference call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions.

[Operator Instructions] Please note, this event is being recorded.I would now like to turn the conference over to Dennis Puma, Director of Investor Relations. Please go ahead..

Thank you, Sharon. And good morning, everybody. Welcome to New Jersey Resources first quarter fiscal 2020 Conference Call and webcast.

I’m joined here today by Steve Westhoven, our President and CEO; 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. This could cause results to materially differ from our expectations, as found on Slide 1.

These items can also be found in our forward-looking statements section of today’s earnings release, first 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.We will also 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 Form 10-K.Our agenda is found on Slide 2.

Steve will begin today’s call with highlights from the quarter, followed by Pat, who will review our financial results, then we’ll open the call up to your questions.

The slides accompanying today’s presentation 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 CEO, Steve Westhoven.

Steve?.

Thanks, Dennis, and good morning. Before we get to our fiscal 2020 first quarter results, I’d like to talk briefly about New Jersey’s Energy Master Plan, which was released by Governor Murphy last week.The plan is a policy document that outlines the use, management and development of energy in New Jersey.

The goal of the plan is achieve 100% clean energy and to reduce emissions to 80% of 2006 levels by 2050.

We support the state’s submission and reduction goal, and recognize the opportunities it creates for a diversified energy company like ours.In fact, at our Annual shareowners Meeting last month, I outlined a sustainability agenda that aligns with the state’s 2050 target, including a voluntary reduction of our operational emissions in New Jersey to 50% of 2006 levels by 2030.Importantly, the E&P recognizes the role our infrastructure plays in meeting 75% of the state’s home heating needs.

It also recognizes the long-term value of this infrastructure in delivering decarbonized gas supply to our customers through technologies like renewable natural gas and green hydrogen.With the policies outlined in the Energy Master Plan, our planned capital expenditures and our long-term NFE growth rate of 6% to 8% remain unchanged.

New Jersey Resources has the assets, expertise and team to capitalize on these opportunities and grow our business while helping meet the state’s climate goals.We have a world-class gas distribution system that can be leveraged to deliver clean decarbonized fuel to heat homes and businesses.

We are a significant long-term investor in New Jersey solar market, and we manage one of the state’s most successful energy efficiency programs.These strengths, together with our own sustainability agenda, will be critical in helping the state reach its emission goals, and they will allow us to remain focused on growing the company and generating long-term results for our shareowners.Now let’s turn to the quarter.

Turning to Slide 4, you can see the highlights from the first quarter. We reported net financial earnings of $0.44 per share compared with $0.61 per share last year.

The difference is primarily due to the timing of SREC [ph] sales and lower results from energy services.Customer growth continued at New Jersey Natural Gas, adding nearly 2,300 new customers in the first quarter.

We are on track to reach our goal of adding 9,800 new customers this fiscal year.Adelphia Gateway received its Certificate of Public Convenience and Necessity from FERC. And now for the first time in our company’s history, we’re the operator of a FERC-regulated pipeline.

Conversion of the Southern end from oil to natural gas is expected to begin upon receipt of our final regulatory approvals and necessary permits.During the quarter, we completed the acquisition of the Leaf River Energy Center, and it performed in line with our expectations.

Clean Energy Ventures placed 2.9 megawatts commercial solar projects into service, and our solar portfolio is nearly 300 megawatts, and that’s enough energy to power approximately 27,000 homes.On Slide 5, while we are affirming our 2020 NFE guidance of $2.05 to $2.15 per share, we’ve adjusted the contributions from certain segments.

First, we expect our utility to contribute about 60% to NFE. That’s about a 3% increase from the midpoint of our prior guidance range and is primarily due to a reduction in O&M expense.Second, we expect energy services to contribute between 1% to 5%, down from our prior estimate of 5% to 15%.

This adjustment reflects the lack of volatility in natural gas prices through January due to mild weather in the Northeast.And third, we expect CEV to contribute between 25% to 30%, up from the prior estimate of 20% to 25%.

This is primarily due to additional investment opportunities this year.On Slide 6, we have summarized the key growth drivers for New Jersey Natural Gas.

In the upper left, you can see we expect steady customer growth, thanks to the favorable demographics in our service territory, and we are on track to achieve our annual 1.8% customer growth rate.In the top right is an update on the Southern Reliability Link. To date, we’ve completed over 65% of the project and expect it to be in service in 2021.

On the bottom left, our infrastructure investment program is currently in the regulatory review process, and is expected to conclude this fiscal year.And finally, on the bottom right, about 37% of the capital we invested this quarter will provide returns with minimal regulatory lag.An update on Adelphia Gateway is on Slide 7.

During the quarter, the project received its FERC certificate, and we subsequently closed on the $166 million acquisition. These are significant milestones for our midstream business in the company.

The Northern end of the pipeline is already in service and supplying natural gas to the Martins Creek and lower mount battle generation facilities under a 10 year supply agreement.We will convert the Southern portion, which is already in the ground to cleaner natural gas to serve constrained markets in the Greater Philadelphia region.

Once we receive our final permits and regulatory approvals, we’ll begin adding compression, new laterals and interconnects to the Southern portion, which will be the largest driver of cash flow and earnings for the project.

Our capital investment to improve Adelphia Gateway is expected to be in the range of $180 million to $200 million.On Slide 8, I’ll take you through the latest developments for PennEast. On January 28, PennEast was granted the 30-day extension to submit a petition for review with the Supreme Court of United States.

The filing deadline for this petition is now March 4th of this year.On January 30, FERC issued a declaratory order supporting PennEast eminent domain rights. FERC support PennEast’s position as significant as the project pursues the U.S. Supreme Court review.

PennEast also filed an application to amend its FERC certificate, requesting approval to pursue the project through a phase-in approach, which is supported by shipper demand.First phase will consist of construction in Pennsylvania, with interconnections within the state.

Because PennEast does the majority of approvals and permits needed in Pennsylvania, construction is expected to begin soon after FERC approved the amendment.The second phase includes the remainder of the original New Jersey and Pennsylvania and will begin after PennEast to secure all the necessary approvals.

As we said before, we’re committed to the project and its important role in our energy future.Moving to Slide 9, I’ll take you through the operational highlights for CEV this quarter.

Pat will provide more context around our Q1 financial results in a moment.At the top, you’ll note that we placed one commercial solar project into service, adding about 3 megawatts of incremental capacity. We plan on placing eight projects into service this fiscal year, adding about 55 megawatts.

This will bring our total portfolio to about 350 megawatts of capacity.At the bottom left, you can see that our capital expenditures through the first quarter totaled $15.7 million, and we recognized $4.2 million in investment tax credits.

The bottom right shows our expected SREC revenue in 2020, which is anticipated to be approximately $80 million.Turning to Slide 10. I’d like to provide an update on the solar market in New Jersey.

As part of the 2018 Clean Energy Act, the BPU is required to close the existing SREC market when the installed solar capacity in the state reaches 5.1% of retail electric sales.In December, transitional market was approved to bridge the gap between the current SREC market and what will become the successor program.

The transitional credit will be called a TREC. So let me take you through some of the details.First, all the solar investments we made to date will continue to generate SRECs, and the market will function as it does today.

Projects eligible for TRECs will receive a 15 year fixed price subsidy.And as shown in the table, the transitional market will incent the development of certain types of projects.

We believe the transitional plan will allow NJR to meet its investment targets, and the BPU is refining successor program with more details to come.I’ll now turn the call over to Pat for details on the financial results..

Thanks, Steve. And good morning, everyone. Slide 12 shows the main drivers behind our quarterly NFE changes.

Reported NFE of $40.4 million or $0.44 per share compared to $54.1 million or $0.61 per share in 2019.On the regulated side, NJNG’s utility gross margin increased in the first quarter, due primarily to higher rates resulting from our rate case settlement.

In addition, NFE and NJR midstream slightly decreased during the first quarter through the recognition of a gain in the first quarter of 2019, on equity investment in Dominion that did not recur this year because we sold the shares.This decrease was partially offset by contributions from Leaf River, which with operating revenue of approximately $9 million, performed in line with our expectations.At CEV, NFE decreased for three reasons.

First, the timing of SREC sales. In fiscal 2019, a larger portion of our annual SREC sales occurred in the first quarter. Second, first quarter 2019 included contributions from the wind portfolio that was subsequently divested in February of 2019.Third, we recognized fewer ITC credits in the first quarter compared to last year.

As Steve mentioned, NFE and energy services declined due to narrow pricing spreads as caused by milder weather in the Northeast.Slide 13 outlines our capital spending for the first quarter of the next 3 years. There are a few points I’d like to highlight.

For the quarter, utility spend was up 28% year-over-year, primarily due to increases in SRL and the combined investment in SAFE II and NJ RISE.

For fiscal 2020, over 70% of total capital spend will be at NJNG, helping to port a rate based CAGR of approximately 10%.With PennEast pursuing a phase-in approach to the project, we’re reducing our capital expenditure estimates for 2021 and 2022.

We now expect to spend between $105 million to $115 million to construct Phase I in Pennsylvania.Energy Venture’s projected capital spend for the year increased about $10 million due to an additional investment opportunity.Moving to Slide 14, you can see an update on our cash flows and financing projections.

Cash flow from operations in the first quarter was negative $43 million, which reflects the seasonality of our business. As you can see, we expect a significant improvement for the full year due to new higher rates at NJNG.

As a reminder, these rates went into effect on November 15.Early in fiscal 2020, we acquired the Leaf River Energy Center for $367.5 million, which was initially financed through a $350 million bridge facility.

We’ve issued the equity needed as part of the acquisition’s permanent funding and partially repaid the bridge loan.Our equity raise result in the issuance of 5.3 million shares of common stock, with net proceeds of $213 million. We tend to issue 1.2 million common shares later in the year as part of the forward sale portion of our equity raise.

The equity division satisfies our planned needs for fiscal 2020 and 2021, excluding the DRIP.The results of our SREC hedging program are highlighted on Slide 15. As we approach the BGS auction in February, we saw an increase in SREC prices for energy years 2022 and 2023.

For those years, prices have increased 8% to 12%, respectively, since our last earnings call.With the increase in prices, we’ve been actively hedging and now have 71% of our SREC revenues hedged for 2022, an increase from 50% when we last reported data.For energy year 2023, we’re now 22% hedged, and we’ll continue to monitor the market to add to our hedge position.

For energy years 2020 and 2021, we are nearly 100% hedged. At these ratios, our SREC revenues will be largely unaffected by future changes in SREC prices.I’ll turn the call back to Steve.

Steve?.

Thanks, Pat. Before I open the call to questions, I want to thank our employees for all their hard work and dedication that drives our performance, and I appreciate you taking the time to join us today.I’ll now open the call for questions..

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

Good morning. Thank you..

Good morning, Travis..

I just want a technical question here. I saw that your earnings share from the Clean Energy Ventures segment went up a little bit for your projection this year.

Anything there that’s notable that drove that increase?.

Travis, this is Pat Migliaccio. It’s really the increase of approximately $10 million in our expected spend on commercial solar projects, we’d drive the good portion of that increase to the range of 25% to 30%..

Okay.

Is that - are those from opportunities that you’re seeing now in the market that might not have been as economic before, or something else going on there?.

No. Just a further change in the pipeline..

Okay. And then a higher-level question. Obviously, there’s been a lot of talk about the potential opposition in residential side and natural gas use.

And I think AGA had come out with some statements.And I wonder if you’re seeing that either in any of your neighborhood, local towns, anything in the policy discussions? Usually, we went through its environmental policy, debates, anything along those lines in terms of cutting back residential gas use..

Travis, this is Steve. And no, we haven’t seen any of that to date. In fact, our customer growth, as we’ve just said, continues on pace. We expect, over the next 3 years, to add 27,000, 30,000 new customers to our customer base.

And given the demographics of our service territory and certainly the price of natural gas compared to all other ways to heat your home, we expect that to continue..

Okay, great. Thanks. That’s all I had..

Thanks, Travis..

[Operator Instructions] At this time, there are no further questions. I would like - pardon me, I see we have Richard [indiscernible] from Bank of America. Please go ahead..

Hi, morning.

Can you guys hear me?.

Yes..

Hey, Richard..

Hi. I was just wondering, with your guidance range, you just reaffirmed it. It seems like a pretty big miss relative to expectations.

Just how do you see yourself trending within that range?.

Richard, this is Pat Migliaccio. I mean, we reaffirm the guidance range of $2.05 to $2.15 [ph]. At this point, it would be premature for us to give any more refined guidance than that..

Okay.

So just reaffirming the guidance, but not necessarily trending higher or lower?.

Yes, I think that’s a fair statement..

Okay. Thanks a lot..

This concludes our question-and-answer session. I would like to turn the conference back over to Dennis Puma for any closing remarks..

All right, Sarah. I want to thank everybody for joining us this morning. As a reminder, a recording of this call is available for replay on our website. As always, we appreciate your interest in investing in New Jersey Resources. Good-bye..

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