Q2 2021 New Jersey Resources Corp Earnings Call
[music].
Good day and thank you for standing by welcome to the New Jersey resources second quarter fiscal 2021 conference call. At this time, all participants are in a listen only mode.
And the speaker's presentation, there will be a question and answer session to ask a question. During the session you will need to press star one on your telephone. Please be advised that today's conference is being recorded if youre, probably and you further assistance. Please press star zero and I would now like to hand, the conference or two districts today, and Dennis Puma Director of Investor Relations. Please go ahead.
Okay. Thank you Christy and good morning, everyone and welcome to New Jersey resources second quarter fiscal 'twenty, One conference call and webcast.
I'm joined here today by Steve West of and 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 one.
These items can also be found and forward looking statements section of today's earnings release furnished on form 8-K, and and our most recent forms 10-K and Q as filed with the SEC we.
We do not by including the statement assume any obligation to review or revise any particular forward looking statement.
References here and in light of future events.
We'll also be referring to certain non-GAAP financial measures such as net financial earnings from NFC. We believe that NFC provides a more complete understanding of our financial performance. However, it is not intended to be a substitute for GAAP and <unk>.
Non-GAAP financial measures are discussed more fully and item seven of our 10-K.
Our agenda for today is found on slide two and Steve will begin today's call with highlights from the quarter, followed by Pat will review our financial results.
And then we will open the call up for your questions.
The slides accompanying today's presentation are available on our website and were furnished on form 8-K filed with the SEC. This morning.
With that said and I'll turn the call over to our President and CEO, Steve <unk> Steve.
Thanks, Dennis and good morning, everyone. Thank you for joining us today.
Midway through fiscal 2020, one and Jr. Has delivered strong performance for our shareholders and on slide three I'll take you through the highlights. This morning, we reported second quarter net financial earnings of $1 77 per share more than doubling last year's second quarter results, primarily driven by performance at our energy services business.
During the second quarter periods of widespread cold across the U S led to an unusually high demand for natural gas and as in the past energy services strategically located and geographically diverse storage and transportation assets enabled debt business needs and its customers during a time about precedented volatility.
And the outsized performance of energy services illustrates the limited risk high upside value proposition our long option.
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The combination of this strategy and the generation of more fee based revenues such as the 10 year asset management agreement, we announced in December and provides for a powerful business model.
Pat will provide a more detailed look at the drivers behind and service performance later in the call.
The contribution from range of services enabled us to increase our NSE guidance for fiscal 2021 for the second time this year to a range of 205 to $2 15 per share.
From our original guidance of $1 55 per $1 65 per share.
I'll provide more color on the next slide.
And New Jersey natural gas, we filed a base rate case to recover almost $850 million of infrastructure investment since the settlement of our last rate case.
This includes costs associated with the southern reliability link, which is over 90% complete and expected to be placed into service this fiscal year.
New Jersey natural gas received approval for safe Green and 2020, our largest ever energy efficiency program.
This new program authorized $259 million and spending over three years, furthering our commitment to sustainability by helping customers lower their energy usage and save money and reduce their carbon footprint.
The rollout of the program is expected to begin this year.
Our clean energy ventures placed our first commercial solar project into service, adding $2 seven megawatts of installed capacity.
Yes.
We continued to develop our pipeline of projects to achieve our goal of doubling our installed capacity by the end of fiscal 2024.
Leaf River, our storage facility located in Mississippi performed well during the February weather and meeting all of our customer commitments under very challenging circumstances.
And finally, we continued construction and adelphia Gateway South zone.
Adelphia Gateway has received all necessary, Pennsylvania, TEP permits and is working to obtain FERC notice to proceed for construction of laterals, we expect to place the number of the project facilities into service by the end of the year.
Turning to slide four we are increasing our fiscal 2021 NSE guidance to 205 to $2 15 per share and increase of 26 per share compared to our March 15th update.
Our initial guidance increase incorporated estimated bad debt to account for any energy services customers negatively impacted by the February weather event.
Today's upward guidance revision reflects payment by all of energy services customers apart from one due to bankruptcy.
Our fiscal 2022 and long term NSE guidance remains unchanged.
As a reminder guidance for fiscal 2022 is $2 20 to $2 30 per share.
And we are maintaining our long term annual growth rate of 6% to 10% off of our fiscal 2022, NSE excluding energy services.
Slide five provides additional detail on our base rate case filings.
March 30, we requested an increase to base rates of $165 7 million equivalent to an increase of $118 million and operating income.
Since the conclusion of our last case and 2019, New Jersey natural gas has invested nearly $850 million to upgrade and enhance the safety and reliability of our transmission and distribution systems.
This includes the installation of our southern reliability link and a cost of more than $300 million.
We hope that the <unk> review of our filing will be complete before the end of 2021, and we look forward to a successful conclusion that balances the interest of our customers and the company.
On slide six I'll take you through some operational highlights and new Jersey natural gas.
Looking at the top left we invested $198 million this fiscal year with about 26% of the Capex, providing near real time returns.
We added almost 3700, new customers over the first six months of the year below our regular growth rate due to the ongoing pandemic.
However, we still expect to add approximately 28000 to 30000, new customers during the three year period from fiscal 2021% to 2023.
As I mentioned earlier construction on <unk> continues to progress as well.
On slide seven I'll take you through the operational highlights with clean energy ventures.
During the quarter, we completed our first out of state project and Connecticut.
This is a small but noteworthy step towards executing on that regional solar investment strategy. We discussed during our November analyst day.
We now have over 360 megawatts of installed capacity.
Total invested capital and television for the first six months was $38 million.
We expect to see some in service date shift from the beginning of fiscal 2021 at the beginning of fiscal 2022 and.
As a result of permitting and interconnection delays related to the pandemic.
However, we remain on track to meet our goal of adding an incremental 160 to 180 megawatts of capacity by the end of fiscal year 2022.
The bottom right shows our expected CEB revenue.
For fiscal 2021, the significant portion of which is secured through our <unk> hedging program.
While we adjusted our capital forecast for this year. Most of these projects are scheduled to be and service towards the end of the fiscal year marginally affecting expected revenue.
And before I turn the call over to Pat and let me take a moment to provide and update our sustainability initiatives on slide eight.
And January we issued our 2020 corporate sustainability report.
And for the first time this year's report and.
Includes disclosures in line with SaaS and the sustainability accounting standards Board and the American Gas Association and frameworks, furthering our commitment to transparency and reporting on ESG matters.
And on Earth day. This past month, we launched a significant new sustainability program and Jr. Coastal climate initiative.
And this program supports local based climate solutions that have an impact on the communities we serve.
Cci's first endeavor will be to work with the New Jersey chapter the nature Conservancy to support the restoration of saltwater title wetlands and foreign and good day part of New Jersey Natural gas service territory. These.
These areas of coastline, our carbon sinks ecosystems that remove carbon dioxide from the atmosphere storing it and the ground soil.
And they also act as natural barriers that mitigate storm surge protecting people and property and our coastal communities.
And now I'll turn the call over to Pat to go through the financials.
Thanks, Steve and good morning, everyone Slide 10 shows the main drivers of our entity for the second quarter.
As a reminder, we are now utilizing the deferral method of accounting for investment tax credits and CEB and as such recast our financials from the comparable periods.
Reported and a fee of $176 million per $1 77 per share compared to <unk>, $84 3 million or EV per share and the second quarter and fiscal 2020.
<unk> and <unk> was lower due to higher O&M expenses, partially offset by utility gross margin.
Alright, and was primarily due to increased compensation and technology expense.
Tvs and if he was basically flat compared to last year.
Storage and transportation and an increase in net fee during the quarter, mostly related to increased operating income from leaf River leaves and hub services revenue.
And it services improved $94 million, primarily due to higher financial margin compared to last year. The details of which will take you through on the next slide.
Slide 11, I'll provide some detail around our new services performance during the quarter and.
And that illustrates our temperatures departed from normal during the February weather, then and the mid continent, and Gulf markets and also the storage assets and the new services hold to these regions.
During this period of cold weather, there was high demand for natural gas, which under new services able to satisfy I, usually get storage assets, despite natural gas to a variety of customers.
The unusually high demand resulted in strong profit pricing, which in turn drove energy services profitability.
Turning to slide 12, and I'll take you through some of the changes and our capital plans for fiscal 2020, one and 2022.
As Steve mentioned earlier, we're starting to see some of the in service dates for certain CEB projects shifted and fiscal 2022 through the permitting and interconnection delays related to the pandemic, we've adjusted our capital plan Accordingly.
For fiscal 2021, we now expect to spend between 96 and $118 million and CEB compared to our prior forecast of approximately $165 million. However, the capital simply shifting to fiscal 2022, and we still expect to reach our goal of adding 160 to 100 and then what's the capacity over the two year period.
It's also important to note that the NFA from fiscal 2021 will largely unaffected by the shift and cap.
Revenues will be minimally impacted given the majority of our projects have expected in service dates towards the end of the fiscal year and with the change and financing and accounting methods the impact related to <unk> will be a fraction of what it would have been previously.
On Slide 13, you can share product pipeline for fiscal 2021, and 2022 was about $255 million, which represents 80% of our targeted capex for the next two years.
Approximately one quarter of our project pipeline is currently out of state projects.
And so there's probably some new Jersey, we expect and earn an average two X factor of volume per kilowatt hour.
Turning to slide four you can see the update to our cash flows and privacy protections.
So from operations remained strong with no equity needs for the foreseeable future aside for normal drip program.
Demonstrating the strength of our cash flows Fitch recently affirmed and <unk> investment grade credit rating with a stable outlook.
And on Slide 15, we've highlighted the details of our MSR hedging program.
And you can see we are well hedged and the next three energy years without 93% of our 2024 planes hedged.
And for the first time, we've been able to hedge out for export and five years out the market fundamentals for end of the year is 2025, and 26 are supporting strong pricing and the stock's trading at or above 85% of the CCP grew.
<unk> 36, and 10% hedged for 2025 and 2026, respectively.
I'll now turn the call back to Steve for some closing remarks.
Thanks, Pat before I open the call to questions I'd like to summarize the quarter through.
Through the first half of the year and Jr. Delivered strong results yogurt performance from energy services allowed us to increase our guidance for the fiscal year and it provides the flexibility to reinvest and our business. We filed the rate case to recover our infrastructure investments, including the costs associated with that <unk> received approval for safety and 2020, our largest ever energy.
ANSI program.
<unk> has a strong pipeline of projects that will allow us to reach our goal of adding 160 to 180 megawatts of capacity by the end of fiscal 2022 and.
And we have received all necessary, Pennsylvania, TEP permits and filed with FERC for a notice to proceed for construction of laterals per adelphia gateway.
I want to thank all of our employees for their hard work through the first half of this year and now I'll open the call for questions.
As a reminder to ask a question you will need to press star one on your telephone to withdraw your question press the pound key please standby, while we compile the Q&A roster.
The first question will come from the line of Gabriel Moreen with Ms and too.
Hey, good morning, everyone.
And for the reset so much from the recent year.
I wanted to.
I wanted to ask first just from a cash flow from ops guidance.
And I think compared to last quarter, you raised the midpoint by $20 million from.
Moving that way.
Obviously, that's a little less from you.
The benefit from energy services, but I'm just wondering if you can speak to that a little bit first.
Hi, Dave This is Pat Migliaccio Youre correct.
From operations increased by about 20 million and which is just a little bit less than what the ultimate guidance range. There are a couple of other minor tweaks and there, but the majority of the change was related to energy services.
Okay.
Maybe if I could.
Some of your projects on SRO and those are the costs moved up a little debt is not something.
First of all are you confident this was greater costs kind of stay with the last couple percentage you kind of just finish up on the project and then in terms of Recoverability.
Those cost increases can you speak to that too.
Yes, Gabe this is Steve so the products about 97% complete so almost finished at this point and.
And yes, we expect to recover all of those costs and I remember. This project has been approved by the <unk> received all necessary permits and relative was born.
Superstorm Sandy and the need for resiliency. So a lot of support for the project will go through the process for the rate case, there to receive recovery and see how it turns out but.
Occasions.
And certainly towards recovery.
Got it thanks, Steven and on.
And the Delta.
In terms of and getting the permits from the FERC here to start construction.
And the collateral as Youre expecting and service timing shifted at all in terms of the project.
I think it hasnt shifted too much maybe by a month or two so we have adjusted our board and slightly.
Certain portions of the project are going to start going in service at the end of the year.
But a little bit of detail associated with the contracts that will come in.
We're not changing anything from a financial guidance on the project, but construction is with construction and it has been shifting slightly if you will that gave you probably noticed the capex schedules and get a chance to take a look and that we did shift a modest amount of capital at $25 $26 million on the Delta Gateway project from fiscal 'twenty, one to fiscal 2020.
Two just reflecting that minor change and.
Some of those components of the project.
That's helpful and just last one on news and maybe give us an update on the rig.
Clearly it sounds like they also performed well during the winter storm I know, it's mostly contracted but.
What are you seeing from customers there as far as I guess interest and either expansion or I guess.
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And contract value growth.
Yeah.
And the asset performed very well and everybody knows it and extreme weather events took place debt in that region.
February so we're pretty pleased with it.
The bumps and.
And <unk>.
Some earnings due to some short term services day will able to provide.
As you look forward you would expect that that need.
Need for reliability and that market will drive some higher asset values and we don't have anything to report yet.
But I would expect that certainly all the utilities and real users physical users down and that area are looking to bring more reliability and to their book going forward.
Thank you.
Your next question comes from the line of Chavez with Morningstar.
Good morning, everyone. Thank you Robert.
Kirk.
You've talked in the past you originally about Derisking.
Energy services, and I guess two questions on that one and one.
Have you already derisked it such that year gains would have been even larger and youre not gone through the Derisking process are started and then too.
Is this kind of.
Delta I guess over a normal level.
And we would expect and future extreme events and even on the Derisking.
The scenario as you've laid out.
I wish I could answer that question accurately as far as what would be the delta of what would be the naphtha and you would expect and a period of high volatility, but you can you can see if you go back and look at prices down and that area.
They were up and the $1000 per and then Btu type range and we've never experienced that before I think if you look across the U S. Even historically, you have kind of $250 or something so.
It was definitely multiple times higher so I think trying to predict forward volatility is something that would be very very hard to predict and in the future and to go back to the first part of your question.
We had all the assets in our book and the agreement doesn't start until the end of 2021 and 2022 timeframe. So all the assets and the book so kind of a full portfolio from that perspective.
But.
Going forward we've got.
Number of assets that we're going to see.
Net are going to be utilized and the future and debt.
Storage was the largest component and contributor to this year.
To the P&L and the book and remember that the asset management group and it's really centered around transport assets.
Okay. So you do still have the <unk>.
Optionality, even under your from Derisking strategy, we want to keep that Optionality.
There is still going to be a significant portfolio that needs to be managed and the future yes.
Okay and then.
On the clean energy ventures, how are you thinking about financing debt as it becomes a larger and larger share of your Capex program.
As the project debt or do you plan on taking that on your balance sheet.
Good morning, John.
Pat Migliaccio.
So our plan that we laid out at the analyst day is to finance all of our commercial solar projects with tax equity sale leaseback and that is still considered on balance sheet, although it does receive.
What I'll describe the receivable treatment from Fitch and because of our capital methodology.
And once you get out to a number of years out $25 46, and that's more optionality in terms of how we think about the.
Debt financing, but for now it's all going to be sale leaseback financing tax equity structures from commercial and the residential we financed.
From the private placement market as we have our other non regulated investments.
Okay great.
Very good and that's all I had thank you.
Alright, Thanks Travis.
There are no further questions at this time are there any closing remarks.
Yes, Thank you Christie and I want to thank everyone for joining us. This morning as a reminder, a recording of this call is available on our website.
And also I want to thank you for your interest and investment and New Jersey resources. Thank you Goodbye.
This concludes today's conference call. Thank you for participating you may now disconnect.
Ooh.