Q2 2020 South Jersey Industries Inc Earnings Call
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Ladies and gentlemen, thank you for getting bye.
I stay high second quarter 2020 earnings conference call at this time, all participants' lines going to listen only mode.
The speakers presentation will be a question answer session.
Good question during the session you need to press Star then one on your telephone.
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Oh got like the hand, the conference over to your Speaker today, Mr., Dan Fido, Vice President of Investor Relations, Sir you may begin.
Thank you good morning, everyone and welcome to Astro <unk> second quarter 2020 earnings conference call and webcast.
I'm joined today by Microrna, our President and Chief Executive Officer role to several additional members of our senior management team.
Our earnings release in the presentation slides that accompany that fall reissued yesterday after the close of the market and are also available on our website at www Dot SJ industries dotcom.
The release and the associated 10-Q provide an in depth to review earnings on both a GAAP and non-GAAP basis, using our non-GAAP measure of economic earnings reconciliations of economic earnings to the comparable GAAP measures appear in both documents.
Throughout today's call will be making references to future expectations plans and opportunities for us.
Actual results could differ materially from those projected in our forward looking statements that include among others statements about the length in severity of a pandemic or other health crisis, such as the recent outbreak of covert 19.
For a discussion of factors that could cause actual results to differ please refer to our SEC filings.
With that said I'm pleased to introduce our CEO, Mike Renna, who will review our business operations and pandemic response.
Hi, guys Chief strategy Officer, and interim Chief Financial Officer, Steve Koji will then review our second quarter financial performance and financial outlook. Mike will then review our outlook on key priorities for the remainder of the year and offer some closing remarks after that we'll be happy to take your questions with that introduction, let me now turn it over to Mike.
Thanks, Dan and thanks for joining US today, let me begin by saying on behalf of all of US at Sci our thoughts remain with you and your families as the pandemic continues.
We hope you are all staying safe and well this summer we continue to hope that this crisis passive soon.
As I discussed last quarter, our priority. During this challenging time remains the safety of our employees and the shorten critical gas delivery to the more than 700000 customers who depend on us each day.
With that said I am pleased and thankful to report that our businesses continue to operate very effectively during the pandemic.
With a minimal financial impact thanks in large part to the dedication of our exceptional employees.
Through extensive planning any innovative use of technology, our workforce and business operations continue to operate safely and at a very high level.
We remain largely in a work remote posture at this time.
Our margins have remained steady across our utility segments, reflecting both strong customer growth and continued high demand for natural gas.
And the decoupling in weather normalization riders in our rate.
As expected, we have incurred incremental operating costs for emergency supplies cleaning services, enabling technology as well as incremental bad debt costs. During this crisis.
No in July our regulators unanimously approved an order authorizing the state utilities to establish a regulatory asset, allowing the deferral of these incremental expenses for future recovery.
Our modernization programs, replacing and upgrading critical infrastructure continue to move forward.
Construction activity that ceased in March in accordance with directives from the state resumed in June and we remain on track to achieve our capital spending projections.
Regarding our regulatory initiatives. The BBU continues to hold regular commission agenda meeting via teleconference.
At South Jersey gas, our base rate case filing as well as our engineering and Ral proposal for a critical redundancy projects remain on track for resolution later this year.
On the financial side as you'll hear from Stephen a moment, we have completed multiple steps in 2020 to strengthen our liquidity eliminate near term debt maturities and ensure the ongoing funding of our capital program.
Most recently in June we completed a 200 million aftermarket program, which resolved our plant equity needs for 2020.
Having taken these proactive steps, we feel confident in our ability to manage to be impacts of covert 19.
Lastly, this pandemic is obviously a very fluid situation.
Yes, sure that we're continually monitoring our business operations and are prepared to adjust as necessary as we have done throughout this crisis to keep the gas flowing in our employees and community safe.
Let me now turn it over to Steve to review, our second quarter results and guidance.
Thanks, Mike Good morning, everyone. As Mike noted Cobot 19 has had a significant impact around the world in this country and in our service territories.
Despite that our business performed well in the second quarter and year to date, and we've experienced no material financial impact from the pandemic.
As Dan noted earlier.
Both the earnings release and the slide deck. We've made available we'll provide you with detailed information regarding GAAP earnings and I would encourage you to review that information as well.
For the purposes, if this call as we normally do we'll focus our discussion on our non-GAAP measure of economic earnings as management believes this measure provides valuable insight into the performance of our business.
Second quarter 2020, economic earnings were a loss of one cents per diluted share compared with a loss of 13 cents per diluted share in the second quarter 2019.
Selecting improved profitability from both our utility and nonutility businesses.
Our utilities contributed second quarter earnings of three cents per share compared to a loss of two cents per share in 2019.
These improved results reflect the TG rate case that became effective last November.
Positive customer growth.
And the base rate Rowlands of ESG infrastructure modernization programs.
Our non utility operations contributed five cents per share compared to a loss of two cents per share in 2019.
Improved results were driven by increased profitability from wholesale operations, reflecting additional fuel management contracts that became operational over the last 12 months.
Improved wholesale optimization opportunities and a refund related to a transco rate case.
Our other segment contributed a loss in economic earnings of nine cents per share consistent with last year, reflecting interest on debt.
For 2020 year to date economic earnings were $1.14 cents per diluted share compared with 95 cents per diluted share for the comparable period, a year ago again, reflecting improved profitability from both our utility and non utility businesses and driven largely by the same.
Factors as the second quarter.
Our capital expenditures year to date were approximately $235 million, primarily reflecting investments for utility infrastructure upgrades system maintenance and customer growth.
We continue to expect capital spending of more than $600 million in 2020.
Approximately 80% for safety and reliability investments that are utilities.
And the remainder for non utility solar and other clean energy investments.
As Mike mentioned throughout 2020, we've completed steps to strengthen liquidity and ensure the ongoing funding of our 2020 capital program.
Most recently in June we completed a took 200 million aftermarket program, which resolves our planned equity funding need for 2020.
In July we refinanced a 200 million dollar 18 month term loan in two tranches with maturities of seven in 10 years, respectively.
And late last week, we closed on our sale of helped in gas to Chesapeake utilities for approximately $15 million in cash.
Proceeds of which will fuel further debt reduction.
As of July 30.
We have $1.25 billion in credit facilities.
$560 million available capacity on our revolvers and feel confident in our ability to manage through the impacts of cobot 19.
Our balance sheet continues to strengthen in 2020 inline with our expectations.
Equity to total capitalization was approximately 35% at June 32020, compared with approximately 30% at December 31 2019.
Reflecting debt and equity financing and repayment of debt using proceeds from asset sales.
Including conversion of mandatory convertible equity units due 2021 and.
And equity credit from rating agencies for long duration debt.
Our adjusted equity to total capitalization ratio a non-GAAP measure was approximately 43% at June 32020.
Compared with approximately 38% at December 31, 2019.
Turning now to guidance, our economic earnings for the first half of 2020 were inline with our expectations and we continue to expect 2020 ongoing economic earnings of $1.50 to $1.60 per diluted share with approximately 75% of earnings from our utility operations excluding.
Interest costs.
While we have thus far witnessed a minimal financial impact from the pandemic. We're continually monitoring all facets of our operations and we'll communicate any future impacts to our financial projections.
That concludes my remarks, and I'll now turn it back to Mike.
Thanks, Steve.
Before we conclude I want to review, our strategic priorities for the remainder of the year.
Above all else, we remain committed to the safety of our employees our families and our communities.
We are functioning very effectively from a large senior Merck remote platform and we'll continue to make decisions informed by directing from our leaders and health professionals at the highest levels.
As a prouder Jersey company, we stand ready to support economic recovery efforts and deliver shovel ready jobs again, our state back to work.
Safety reliability and sustainability or at the core of our mission.
Prioritizing critical infrastructure investments to modernize our system and reduce fugitive methane emissions.
Ensuring adequate supply system, redundancy, and making new clean energy investments that lower consumption and the carbon content of natural gas in support of the state and the region's energy goals.
Despite this pandemic we remain on track to execute our 600 million dollar capital plan, including roughly 100 million of target the renewable investments in support of the state's clean energy goals.
We expect to install solar at three of our corporate facilities. This year.
We closed on three solar projects in New Jersey that second quarter, and we expect to make announcements very soon on additional investments that drive us toward our goal.
We also remain on track to file two important regulatory initiatives with the BP you before the end of the year.
Focused on further reducing consumption and emissions and increasing the safety reliability for our customers.
The first filing relates to energy efficiency.
In June the BBU issued in order to that domestic utilities to file expanded energy efficiency and demand response programs.
By September 25th 2020, where the program effective date of July 1st 2021 for three year term.
The order authorizes us to recover our program costs through a surcharge, including recovery of capital investments at the capital structure established in South Jersey gas companies and Elizabethtown gas. His most recent base rate cases.
The second filing relates to an extension of South Jersey gas is accelerated infrastructure replacement program, which is set to expire in 2021. This program remains critical to ensuring the safety and reliability of our system.
This is an important driver reducing fugitive methane emissions and has provided hundreds of good paying jobs in new Jersey for more than a decade.
Let me conclude my remarks by once again thanking our 1100 employees for your commitment to each other and to our customers.
Her tireless work ethic throughout this crisis is why we continue to deliver on our mission.
Safe reliable economic and clean energy.
My continued admiration and deepest thanks to you all.
Operator that concludes our prepared remarks, we're now ready to open the lines for questions.
Thank you.
Ladies and gentlemen, if you have a question at this time. Please press the star followed by the number one key one does that sound telephone.
If your question has been answered all your which are moving from the kill please press the pound key once again the asked the question. Please press Star and then one now.
And our first question comes from Dave Marine from Mizuho. Your line is open.
Good morning, guys.
I can start out maybe by asking about the incremental corporate expenses can you talk just about how much of that was.
Uncollectibles and then also just.
Does that stuff coming out of last winter.
But had not been paid or.
Was it stuff you'd seen recently or in anticipation of going into the next winter heating season, just just curious how that's got all great stuff.
Sure Good morning gave but Steve coaching.
The significant portion of the the incremental cobot expense that we deferred is related to bad debt are.
Incremental owing has been.
Relatively a relatively minor.
Today, and we would expect that to continue.
The way that that the the dollars or are being calculated is really.
Based on historical averages and the the incremental impact.
Over and above historical averages that we've seen since.
In March so some of that could be.
Receivables that do go back into into some prior months, but whoops, it's really calculated as a comparison.
Bad debt that we're experiencing from March through June thus far in the deferral versus prior year averages.
Thanks to maybe then if I could switch to the energy efficiency filing is there any sense of how large that could be BSG and can you teach you levels over that three year timeframe.
We are we're putting together a day program proposal now.
We would expect that we would we would like to propose something in all likelihood that will be more robust than what we have proposed historically.
We've got existing programs.
Gee that our.
I believe about 12 million a year terms of E expenditures.
TG is is as much smaller so we would seek to get each CJIS curb program investment up to significantly higher level and perhaps even increase the size of ESG program is going to be driven by [noise].
You know the design of the program for type of offerings that we want to make under market demand for those offerings all of which we have our team focused on right now so it will be well be able to give them a little more more detailed color around that as we approach the filing in September.
Thanks, and then last question from news just in terms of.
100 million on solar spend certainly a lot of language around you don't in June and other opportunities can you talk about sort of that 100 million run rate.
Going forward and how much of that might be things other than solar and I know you acquire more to say on this in the future so feel free to put into until.
Hey, David It's Mike.
So what we what we have said is that they were committed.
Q supporting both state and not really the broader regionally.
And there are clean energy goals and so you know there are variety of different investment opportunity that that do support.
Those goals and.
In a cleaner.
You know energy economy, I think our priority has always been too.
To invest in our utility our utilities first so things like renewable natural gas things like smart meters ultimately, perhaps hydrogen based solutions like power to gas many of those particularly power to gas I'll, probably several years away, but things like.
Renewable natural gas and smart meters are much more near term.
And we believe that the biggest impact we can make is by decarbonizing, our our utility investments outside of our utility will be again focused on on the the regions goals.
And renewable energy type of a project solar being one of them, but there are there are other investments that debt would state and aligned with that would that strategy. So.
Nothing at this point time that we're prepared to take to announce or anything like that but we are.
We are we are open.
Two.
You know to alternative.
Solutions beyond just beyond just solar and I I do you also want to emphasize night.
A couple other things that did we were very specific about early on were all investments, we're going to be we're going to be targeted and we're gonna have to clear a.
Pretty high.
You know bar internally for us to commit investment dollars. This was not.
Not the same type of strategy had several years ago, where we were really aggressively building out a portfolio of renewable projects. These are gonna be highly selective very targeted.
Projects that we're going to be aligned with that de carbonization strategies. So.
None of that has really changed in terms of a run rate. We've always said between about 150 to 200 million over a two to three year period, and we're we're sort of.
That's nothing's changed there either.
Thanks, Mike I appreciate the color.
Thanks good.
Thank you and again, ladies and gentlemen to ask the question. Please press Star and then one now.
Our next question comes from Richard tick or at least from Bank of America. Your line is open.
Hey, guys. This is actually Harry on for a Ritchie.
Eric My thought.
Hey.
It's not it's on the solar subject.
Slide 11, it looks like you guys had a minimal capex in the first half associated with the solar but we're still committed to 100 million.
Are you in and that hundred million given its essentially can all be in the back half and.
Lets me facility the outline.
Earlier did that make up a large portion of this under nine.
Hey, Richie this is Steve so the three the three facilities that are reference specifically, our our corporate facilities and the Capex associated with those is is really not all that significant but it's really more of a part of our our strategy to deploy solar.
Strategically and we wanted to start with some of the more.
You have more more relevant opportunities upfront, including our own buildings and we're looking at some opportunities around our former landfill gas electric sites as we've talked about before.
In terms of the outlook for the remainder of the year.
We have a very robust Q of opportunities that we're looking at right now we maintain confidence that we're going to reach the target.
What we've talked about in our guidance for the year.
At this point I.
A number of an over a number of opportunities and developments that are that are actively being pursued.
Yeah.
Okay got it that's helpful.
What kind of looking out to Fourq, you and peak heating season.
Thinking about usage versus called it.
Ah you know.
Gas LDC that kind of in insulated so far just given the timing of endemic and how you any initiatives yellow taking too upset the kind of been extended impact of coal that if it goes into Fourq you.
I think any initiatives taking on to upset.
I'll take this one it's Dave Robbins, so rich we.
We really haven't seen a significant decrease in our on our volumes actually are our residential and small commercial margins are actually ahead of forecast.
The large volume is down a little bit, but the large volume.
Only consist about 6% of our total margin.
As far as being proactive as you know we're under a voluntary moratorium on shut off right now.
We have in collaboration with the other New Jersey utilities agreed to extend that to labor day.
So we'll evaluate that decision at that time, but I think as as long as we're in lock step with our regulators with the state would the other utilities.
Will will ease back into.
We are how we're presently at both utilities directing customers to the assistance programs.
That are available and being very proactive that way, so even going into the heating season, I I think that the trends we're seeing will continue.
Got it appreciate it and if I could sneak in one more quick one I'm on the LNG LNG redundancy project that I think we're supposed to get outcome on that in the next month or two.
Any.
Update their specific date, which should be watching.
Yeah, what we've we've had preliminary discovery on the the LNG tank filing.
Not a ton of movement right. Now however, we do have a meeting scheduled would staff for September to discuss the filing I think that we had.
The state, particularly MPP, you, having some furloughs to deal with.
That project is is it not risen to the top kinda like the way our rate case as so I expect a little more momentum on that filing.
The next few weeks, but you know not a ton of progress to report on that as of right now.
Awesome, Thanks present time guys.
Thanks, Eric.
Thank you.
Our next our next question comes from Richard I'm going from JP Morgan Your line is open.
Hi, Thanks for taking my questions today, just wanted to start off with the solar investments as well just be contemplated alternatives or or you know projects of similar kind of clean energy bench I'm curious if we expect.
Good earnings contribution from those types of investments would be.
Consistent with the 2020 2021 expectations that you.
Alluded to before on the solar side.
Yeah, It's Mike Yes. They are as I said, it's not just solar that we've applied this high bar too. So it has to meet.
You know certain.
Certain hurdles internally much of which is obviously you know the economics on the of the underlying investment so we.
We would expect any any investment that we make in renewable energy.
To earn the kind of you know to earn a return ultimately that is above what we would we would realize in our in our utility certainly because there's a different risk profile than that in the non utility and there is the utility so.
Rest assured that any investment that we make is gonna be accretive to earnings.
Got it. Thank you and then just attendees few you reference some of the FERC action there.
Curious, what what milestones to look for next for phase one.
Well certainly you know receiving the a worker was a significant mild arm.
Milestone will be getting the final Sir cert from.
From FERC, which.
You know we're expecting to happen.
In the coming months.
And at that point in time, we would.
We would have all of I think I believe we'll have all of the necessary.
Permits and approvals that we would need to began.
Construction the other thing that's going on on a parallel path is we do you know we have a petition in front of the the Supreme Court right now.
And if they have they've asked the solicitor general to opine. So we're waiting for for that as well, but again I think.
The merits of our case are very strong and and we believe that there will be a positive outcome there as well so.
And if anything it's Melissa I just want to add one more thing that with the environmental assessment that we received there's a 30 day comment period that has already started.
So were on track.
For the time line that's been labor.
Got it. Thank you and then just on one final one if I may be the wholesale marketing performance I'm. Just curious if you could provide a little bit more color around that and maybe frame. It against the you know the plan to spend in place for a little bit while now about.
Improving results. They are in that you exited some some legacy contracts.
Yeah, well, there's been a there's been quite a few initiatives that we've taken in wholesale is.
As I as we've talked about now for for a couple of years really since 2018, there's been a there's been a compression in the in the spreads between the production area and the market area.
Which you know with had a direct.
Impact on on the value of our of our block and and you're seeing that in the difference in earnings between 2018, and then 2019 and now certainly 2020 and then we have not had any type of meaningful winner for the last two winters either that create additional volatility.
So what we've really done is we've we've repositioned our book.
To just shed.
A lot of what we consider to be are less productive less valuable assets.
And so we're not incurring those demand charges anymore, we've got a lower cost base.
A lot of what we've done is.
Is take evolve as a result is take the Valeant and again to your point to a lot of the.
Those legacy contracts some of which date back to the you know the 2010 2011 timeframe.
Those have expired and run off and we certainly didn't renew any of those so are the combination of repositioning that assets, we have in our portfolio and food and then the run off of the legacy contracts has really lowered our cost base.
To the point, where I think we've taken a lot of the volatility out of our wholesale business.
So.
Really what your what you see now is is there is still some expectation that when we when there are spikes in the market that are our weather driven there's an opportunity for us to take advantage of those.
But you know there's again because there there's less assets in our booking on less volatility in our block there's also less upside.
Well, we've significantly limited the downside so I think what you'll see going forward is.
It's a much more predictable.
Level of performance out of our out of our wholesale business.
One other thing too is that the contribution from our fuel management contracts continues to be an increasingly bigger.
Percentage of overall earnings in Wholesales and then it was certainly is you know recently just 2018.
Got it appreciate the color there thanks.
Thanks Rich.
Thank you.
And I'm showing no further questions smartphone mindful not to turn the conference back over to Dan Fido for any closing remarks.
Great Great questions I want to thank you all for joining us this morning.
As a reminder, reporting them or call today is going to be available on our website as always please feel free to contact me, Dan, but ill for analyst and investor questions or recent traveling for media inquiries are contact information may be found on the earnings release in the earnings presentation materials again, thanks for joining us today.
Thanks for your continued interest in investment industry I, certainly hope you all stay safe and well and look forward to speaking with you again soon.
That concludes our call for today. Thanks.
Ladies and gentlemen, thank you participating in today's conference. This does conclude the program you may now disconnect everyone have a wonderful day.
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Ladies and gentlemen, thanks bye.
<unk> second quarter 2020, <unk> earnings conference call at this time, but that's why.
No.
Because presentation will be a question and answer session.
Good question during the session you will need to press Star then one on your telephone.
Please be advised the today's conference maybe recorded if you require any further.
Let's start and then zero.
I'd like to helicopter, what's your speaker today, Mr., Dan Fido, Vice President of Investor Relations, Sir you may begin.
Thank you good morning, everyone and welcome to <unk> second quarter 2020 earnings conference call and webcast I'm joined today by micro our President and Chief Executive Officer, as well as several additional members of our senior management team.
Earnings release in the presentation slides that accompany that Paul reissued yesterday after the close of the market and are also available on our website at www Dot SJ industries dotcom.
The release and the associated 10-Q provide an in depth review earnings up all the GAAP and non-GAAP basis, using our non-GAAP measure of economic earnings reconciliations of economic earnings to the comparable GAAP measures appear in both documents.
Throughout today's call will be making references to future expectations plans and opportunities restaurant.
Actual results could differ materially from those projected in our forward looking statements and include among others statements about the lengthen severity of endemic rather health crisis, such as the recent outbreak of Cobot 19.
Or discussions of factors that could cause actual results to differ please refer to our SBC filings.
That said I'm pleased to introduce our CEO, Mike Renna Who'll review, our business operations and pandemic response, that's chief strategy Officer, an interim Chief Financial Officer, Steve Koji will then review our second quarter financial performance and financial outlook. Mike will then review our outlook on key priorities for the remainder of the year and offer some.
Closing remarks after that we'll be happy to take your questions with that introduction, let me now turn it over to Mike.
Thanks, Dan and thanks for joining us today.
Let me begin by saying on behalf of all of US at S.J. I like our thoughts remain with you and your families at the pandemic continues.
We hope you are all stay safe and well this summer we continue to hope that this crisis passes.
As I discussed last quarter, our priority. During this challenging time remains the safety of our employees and the shorten critical gas delivery to the more than 700000 customers who depend on us each day.
With that said I am pleased and thankful to report that our businesses continue to operate very effectively during the pandemic.
With a minimal financial impact thanks in large part to the dedication of our exceptional employees.
Through extensive planning any innovative use of technology, our workforce and business operations continue to operate safely and at a very high level.
We remain largely in a work remote posture at this time.
Our margins have remained steady across our utility segments, reflecting both strong customer growth and continued high demand for natural gas and the decoupling in weather normalization writers in our rates.
As expected, we haven't current incremental operating costs for emergency supplies cleaning services, enabling technology as well as incremental bad debt cost during this crisis.
No in July our regulators unanimously approved an order authorizing the state's utilities to establish a regulatory asset, allowing the deferral of these incremental expenses for future recovery.
Our modernization programs, replacing and upgrading critical infrastructure continue to move forward.
Construction activity, that's east in March in accordance with direct or some of the state resumed in June and we remain on track to achieve our capital spending projections.
Regarding our regulatory initiatives. The BP you continues to hold regular commission agenda meeting via teleconference.
South Jersey gas, our base rate case filing as well as our engineering and Ralph proposal for a critical redundancy project.
And on track for resolution later this year.
And the financial side as you'll hear from Stephen a moment, we have completed multiple steps in 2020 to strengthen our liquidity eliminate near term debt maturities and ensure the ongoing funding of our capital program.
Most recently in June we completed a 200 million aftermarket program, which result, our plant equity needs for 2020.
Having taken these proactive steps, we feel confident in our ability to manage through the impacts of Kobin 19.
Lastly, this pandemic is obviously a very fluid situation.
Yes, sure that we are continually monitoring our business operations and are prepared to adjust.
As necessary as we have done throughout this crisis to keep the gas flowing and our employees and community safe.
Let me now turn it over to Steve to review, our second quarter results and guidance.
Thanks, Mike Good morning, everyone. As Mike noted Cobot 19 has had a significant impact around the world and this country and in our service territories.
Despite that our business performed well in the second quarter and year to date, and we've experienced no material financial impact from the pandemic.
As Dan noted earlier.
But the earnings release and the slide deck, we've made available.
Viju with detailed information regarding GAAP earnings and I would encourage you to review that information as well.
For the purposes, if this call as we normally do we'll focus our discussion on our non-GAAP measure of economic earnings as management believes this measure provides valuable insight into the performance of our business.
Second quarter, 2020, economic earnings or loss of one cents per diluted share compared with a loss of 13 cents per diluted share in the second quarter of 2019.
Selecting improved profitability from both our utility and nonutility businesses.
Our utilities contributed second quarter earnings of three cents per share compared to a loss of two cents per share in 2019.
These improved results reflect the TG rate case that became effective last November.
Positive customer growth.
And the base rate Rowlands, a best Jgbs infrastructure modernization programs.
Our non utility operations contributed five cents per share.
Fair to a loss of two cents per share in 2019.
Improved results were driven by increased profitability from wholesale operations, reflecting additional fuel management contracts that became operational over the last 12 months.
Improved wholesale optimization opportunities and a refund related to a transco rate case.
Our other segment contributed a loss in economic earnings of nine cents per share consistent with last year, reflecting interest on debt.
For 2020 year to date economic earnings were one dollar in 14 cents per diluted share compared with 95 cents per diluted share for the comparable period, a year ago again, reflecting improved profitability from both our utility and non utility businesses.
And driven largely by the same factors as the second quarter.
Our capital expenditures year to date were approximately $235 million, primarily reflecting investments for utility infrastructure upgrades.
System maintenance and customer growth.
We continue to expect capital spending of more than $600 million in 2020.
With approximately 80% for safety and reliability investments at our utilities.
And the remainder for non utility solar and other clean energy investments.
As Mike mentioned throughout 2020, we've completed steps to strengthen liquidity and ensure the ongoing funding of our 2020 capital program.
Most recently in June we completed a took 200 million aftermarket program, which resolves our planned equity funding need for 2020.
In July we refinanced 200 million dollar 18 month term loan in two tranches with maturities of seven in 10 years, respectively.
And late last week, we closed on our sale of Elkton gas to Chesapeake utilities for approximately $15 million in cash.
Proceeds of which will fuel further debt reduction.
As of July 30.
We have $1.25 billion and credit facilities.
And $560 million available capacity on our revolvers and feel confident in our ability to manage through the impacts of cope at 19.
Our balance sheet continues to strengthen in 2020 inline with our expectations.
Equity to total capitalization was approximately 35% at June 32020.
Compared with approximately 30% at December 31, 2019.
Reflecting debt and equity financing and repayment of debt using proceeds from asset sales.
Including conversion of mandatory convertible equity units due 2021 and equity credit from rating agencies for long duration debt.
Our adjusted equity to total capitalization ratio a non-GAAP measure was approximately 43% at June 32020.
Compared with approximately 38% at December 31, 2019.
Turning now to guidance, our economic earnings for the first half of 2020 were in line with our expectations and we continue to expect 2020 ongoing economic earnings of $1.50 to $1.60 per diluted share.
Approximately 75% of earnings from our utility operations, excluding interest costs.
While we have thus far witnessed a minimal financial impact from the pandemic. We're continually monitoring all facets of our operations and we'll communicate any future impacts to our financial projections.
That concludes my remarks, and I'll now turn it back to Mike.
Thanks, Steve.
Before we conclude I want to review, our strategic priorities for the remainder of the year.
Above all else, we remain committed to the safety of our employees our families and our communities.
We are functioning very effectively from a largely remark remote platform and we'll continue to make decisions and formed by directives from our leaders and health professionals at the highest levels.
As a prouder Jersey company, we stand ready to support economic recovery efforts and deliver shovel ready jobs that get our state back to work.
Safety reliability and sustainability or at the core of our mission.
Sure ties in critical infrastructure investments to modernize our system and reduce fugitive methane emissions.
Ensuring adequate supply system, redundancy, and making new clean energy investments that lower consumption and the carbon content of natural gas in support of the state and the region's energy goals.
Despite this pandemic we remain on track to execute our 600 million dollar capital plan, including roughly 100 million of target of renewable investments in support of the stays clean energy goals.
We expect to install solar at three of our corporate facilities. This year.
We closed on three solar projects in New Jersey, the second quarter, and we expect to make announcements very soon on additional investments that drives us toward our goal.
We also remain on track to file two important regulatory initiatives with the beep you before the end of year.
Focused on further reducing consumption at admissions and increasing the safety reliability for our customers.
The first filing relates to energy efficiency.
Through the BBU issued in order to that domestic utilities to file expanded energy efficiency and demand response programs.
At September 25th 2020, with a program effective date of July 1st 2021 for three year term.
The order authorizes us to recover our program costs through a surcharge, including a recovery of capital investments at the capital structure established in South Jersey gas companies and Elizabethtown gas. His most recent base rate cases.
The second filing relates to an extension of South Jersey gas is accelerated infrastructure replacement program, which is set to expire in 2021.
This program remains critical to assuring the safety and reliability of our system.
This is an important driver reducing fugitive methane emissions and.
Provided one hundreds of good paying jobs in new Jersey for more than a decade.
Let me conclude my remarks by once again thanking our 1100 employees for your commitment to each other add to our customers.
You are tireless work ethic throughout this crisis is why we continue to deliver on our mission.
Safe reliable economic and clean energy.
My continued admiration and deepest thanks to you all.
Operator that concludes our prepared remarks, we're now ready to open the line for questions.
Thank you.
Ladies and gentlemen, if you have a question at this time. Please press the star followed by the number one key one other question on telethon.
If your question has been answered already which are moving from the kill please press the pound key once again the asked the question. Please press Star and then one now.
My first question comes from Dave Marine from Mizuho. Your line is open.
Good morning, guys.
I can start out maybe about asking about the incremental corporate expenses can you talk just about how much of that was.
Uncollectibles and then also just.
Is that stuff coming out of last winter.
That had not been paid or.
For the stuff you've seen recently or an anticipation is going to the next winter heating season, just just curious how that got all breaks down.
Sure Good morning gave but Steve Koji.
The significant portion of the the incremental Kogut expense that we deferred is is related to bad debt our incremental.
Has been.
Relatively a relatively minor today and we would expect that to continue.
The way that that the the dollars or are being calculated is really.
Based on historical averages and the the incremental impact over and above historical averages that we've seen since.
In March so some of that could be.
Receivables that do go back into the into some prior months, but it's it's really calculated as a comparison.
Bad debt that we're experiencing from March through June thus far in the deferral versus.
Prior year averages.
Thanks to maybe then if I could switch to the energy efficiency filing is there any sense of how large that could be BSG and EPG levels over that three year timeframe.
We are we're putting together a day program proposal now.
We would expect that we would we would like to propose something in all likelihood that will be more robust than what we have proposed historically.
We've got existing programs at ESG that are I believe about 12 million a year terms of E expenditures STG is is as much smaller so we would seek to get each CJIS Herbert program investment up to significantly higher level and perhaps.
You can increase the size of ESG program, it's going to be driven by [noise].
The design of the program for type of offerings that we want to make under market demand for those offerings all of which we have our team focused on right now so we'll be well be able to give them a little more more detailed color around that as we approach the filing in September.
Thanks, and then last question from news just in terms of.
100 million on solar spend certainly a lot of language around looking at our in June and other opportunities can you talk about sort of that hundred million run rate.
Going forward and how much of that might be things other than solar I know you tied more to say on this in the future so feel free to fundamentals.
Hey, David It's Mike.
So what we what we have said is that we're committed.
Supporting both state and not really the broader region you.
And they're clean energy goals and so there are variety of.
Different investment opportunities that that do support.
Those goals and.
In a cleaner.
Energy economy.
I think our priority has always been too.
You invest in our utility our utilities first.
So things like renewable natural gas things like smart meter is ultimately perhaps.
Hydrogen based solutions like power to gas.
Many of those particularly power to gas all probably several years away, but things like renewable natural gas and smart meters are much more near term.
And we believe that the biggest impact we can make is by decarbonizing, our our utility investments outside of our utility will be again focused on on the regions goals.
And renewable energy type of a project solar being one of them, but there are there are other investments that deadwood state and aligned with that with that strategy. So.
Nothing at this point in time that we're prepared to.
To announce or anything like that we are.
We are we are open.
Two.
To alternative.
Solutions beyond just beyond just solar and I I do you also want to emphasize that.
A couple other things that did we were very specific about early on were all investments, we're going to be we're going to be targeted and we're gonna have to clear.
Pretty high.
You know bar internally for us to commit investment dollars that's why not.
Not the same type of strategy, we had several years ago, where we were really aggressively building out a portfolio of renewable projects. These were gonna be highly selective very targeted.
Project that we're going to be aligned with that de carbonization strategies. So.
None of that is really changed in terms of a run rate.
We've always said between about 150 to 200 million over a two to three year period, and we're we're sort of.
That's nothing has changed there either.
Thanks, Mike appreciate the color.
Thanks good.
Thank you and again, ladies and gentlemen to ask the question. Please press Star and then one now.
And our next question comes from start to pick or at least from Bank of America. Your line is open.
Hey, guys. This is actually Harry on for a Ritchie.
Eric My thought.
Hey.
It's not it's on the solar subject.
On slide 11, it looks like you guys had a minimal capex in the first half associated with the solar.
But it's 100 million.
How confident are you in and that hundred million, given essentially and I'll be in the back half and lets me facility the outline.
Earlier did that make up a large portion of this 100 million.
Hey, Richie this is Steve so the three the three facilities that are referenced specifically, our corporate facilities and the capex associated with those is really not all that significant.
Really more about part of our our strategy to deploy solar strategically and we wanted to start with some of the more.
You have more more relevant opportunities upfront, including our own buildings and we're looking at some opportunities around our former landfill gas electric sites as we've talked about before.
In terms of the outlook for the remainder of the your.
We have.
Very robust Q of opportunities that we're looking at right now we maintain confidence that we're going to reach the target.
And that we've talked about in our guidance for the year.
At this point.
Number of an over a number of opportunities and developments that are that are actively being pursued.
Okay got it that's helpful.
Looking now to Fourq, you and peak heating season.
Are you thinking about usage versus called it.
You know.
Gas LDC that kind of in insulated so far just given the timing of the endemic and how you any initiatives taken too upset the kind of been extended impact of coal that goes into fall like you.
I think any initiatives taking on to upset.
I'll take this why it's Dave Robbins, so rich we.
We really havent seen a significant decrease in our on our volumes actually arps, our residential and small commercial margins are actually ahead of forecast.
The large volume is down a little bit, but the large volume.
Only consist about 6% of our total margin.
As far as being proactive as you know we're under a voluntary moratorium on shut off right now.
We have in collaboration with the other New Jersey utilities agreed to extend that to labor day.
So we'll evaluate that decision at that time, but I.
I think as as long as we're in lock step with our regulators with the state with the other utilities.
I will will ease back into.
The use of shut off and be a little more aggressive in our collection efforts.
We are how we're presently at both utilities directing customers to the assistance programs.
That are available and being very proactive that way, so even going into the heating season, I I think that the trends we're seeing will continue.
Got it appreciate it and if I could sneak in one more quick one.
On the LNG LNG redundancy project that I think we're supposed to get an outcome on that in the next month or two.
Any.
Update there are specific day, we should be watching.
Yeah, what we've we've had preliminary discovery on the the LNG tank filing.
Not a ton of movement right. Now however, we do have a meeting scheduled would stat for September to discuss the filing I think that we had.
The state, particularly NBP, you, having some furloughs to deal with.
That project is is it not risen to the top kind of like the way our rate case has so I expect a little more momentum on that filing.
In the next few weeks, but you know not a ton of progress.
Report on that as of right now.
Awesome. Thanks appreciate it guys.
Thanks here.
Thank you.
Our next our next question comes from Richard Sunderlin from JP Morgan Your line is open.
Hi, Thanks for taking my questions today, just wanted to start off with the solar investments as well just be contemplated alternatives or order.
The projects of similar kind of clean energy guidance Im curious if we expected earnings contribution from those types of investments would be.
Consistent with the 2020 2021 expectations that you.
Alluded to before on the solar side.
Correct, Yes, it's Mike yes, they are.
As I said, it's not just solar that we've applied that high bar too. So it has to meet.
Certain.
Certain hurdles internally.
Much of which is obviously the economics on the of the underlying investment so.
We would expect any any investment that we make in renewable energy.
Thank you earn the kind of to earn a return ultimately that is above what we would we would realize in our in our utilities, certainly because theres a different risk profile than that in the non utility in risk the utility so.
Rest assured that any investment that we make is going to be accretive.
Earnings.
Got it. Thank you and then just.
Penalties few you reference some of the FERC action there.
Curious, what what milestones to look for next for phase one.
[music].
Well, certainly receiving the EA, where there was a significant milestones.
Milestone will be getting the final sure circ from.
For arc, which.
We're expecting to happen.
In the coming months.
And at that point in time, we would.
We would have all of that I think I believe we'll have all of the necessary.
Permits and approvals that we would need to began.
Construction the other thing that's going on on a parallel path is we do we have a petition in front of the Supreme Court right now.
And if they have.
They've asked the solicitor general to opine, so we're waiting for for that as well, but again I think.
The merits of our case are very strong and.
We believe that there will be a positive outcome there as well so.
And if anything it's Melissa I just want to add one more thing that with the environmental assessment that we receive their that 30 day comment period that has already started.
So were on track.
For the Palm line, that's been labor.
[music].
Got it. Thank you and then just not one final one if I may be the wholesale marketing performance I'm. Just curious for you to provide a little bit more color around that and maybe frame it against the.
The plan to spend in placed a little bit while now about.
Improving results layering that you exited some some legacy contracts.
Yeah, well, there's been a there's quite a few initiatives that we've taken in wholesale is.
As I as we've talked about now for.
A couple of years really since 2018, there's been a there's been a compression in the in the spreads between the production area and the market area.
Which you know we've had a direct.
Impact on on the value of our of our blocking and you're seeing that in the difference in earnings between 2018, and then 2019 and now certainly 2020, and we have not had any type of meaningful winner for the last two winters either that create additional volatility.
So what we've really done is we've we repositioned our book.
Q.
Just shed.
A lot of what we consider to be are less productive less valuable assets.
And so we're not incurring those demand charges anymore, we've got a lower cost base.
A lot of what we've done is.
Is take the volume as a result is take the Valeant and again.
Pointing to a lot of the.
Those legacy contracts, some of which date back to the the 2010 2011 timeframe.
Those have expired and run off and we certainly didn't renew any of those so.
The combination of repositioning that assets, we have in our portfolio.
And and then the run off of the legacy contracts has really lowered our cost base.
To the point I think we've taken a lot of the volatility out of our wholesale business.
So.
Really what your what you see now is is there is still some expectation that.
When we when there are spikes in the market that are our weather driven there's an opportunity for us to take advantage of though.
But you know there's again because there there's less assets in our booking on less volatility in our book, there's also less upside.
Well, we've significantly limited downside, so I think what you'll see going forward in.
I'm much more predictable.
Level of performance out of our out of our wholesale business.
One other thing too is that the contribution from our fuel management contracts continues to be an increasingly bigger.
Percentage overall earnings in wholesale then that it was certainly is recently just 2018.
Got it appreciate the color there thanks.
Thanks Rich.
Thank you.
And I'm showing no further questions from outside Alliance I like to turn the conference back over to Dan Fido for any closing remarks.
Great Great questions I want to thank you all for joining us this morning.
As a reminder, reporting them or call today is going to be available on our website.
As always please feel free to contact me, Dan Fido for analyst and Investor questions or recent traveling for media inquiries are contact information may be found on the earnings release in the earnings presentation materials again, thanks for joining us today and for your continued interest and investment in SG I certainly hope you all stay safe.
Well and look forward to speaking with you again soon.
That concludes our call for today. Thanks.
Ladies and gentlemen, thank you participating in today's conference. This does conclude the program you may all disconnect everyone have a wonderful day.