Q4 2021 New Jersey Resources Corp Earnings Call

November 18, 2021

Good morning. My name is Chad and I will be your conference operator today. At this time, I would like to welcome everyone to the New Jersey Resources fiscal 2021 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, please press star then two. Please note today's event is being recorded. Now, I would like to turn the conference call over to Dennis Puma. Sir, you may begin the conference.

All lines have been placed on mute to prevent any background noise.

After the Speakers' remarks, there will be a question and answer session.

I would like to ask a question. During this time simply press star followed by the number one on your telephone keypad.

If you would like to withdraw your question. Please press Star then two.

Please note today's event is being recorded.

Now I would like to turn the conference call over to Dennis Puma, Sir you may begin the conference.

Okay. Thank you Chad good morning, everyone and welcome to New Jersey resources fiscal '21 year-end 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.

I'm joined here today by Steve Western when our President and CEO, Pat <unk>, Our senior Vice President and Chief Financial Officer, as well as other members of our senior management team.

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 in the forward-looking statement section of today's earnings release furnished on Form 8-K. And in our most recent forms 10-K, and Q as filed with the SEC.

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 in the forward looking statement section of today's earnings release furnished on form 8-K.

And in our most recent forms 10-K, and Q as filed with the SEC.

We do not by including this statement assume any obligation to review or revise any particular forward-looking statements referenced herein in light of future events. I'll also be referring to certain non-GAAP financial measures, such as net financial earnings or NFE. We believe that NFE, net financial loss utility gross margin and financial margin provide a more complete understanding of our financial performance. However, non-GAAP measures are not intended to be a substitute for GAAP. Our non-GAAP financial measures are discussed more fully in item seven of our 10-K.

I'll also be referring to certain non-GAAP financial measures, such as net financial earnings or NFC.

We believe that NFC net financial loss utility gross margin and financial margin provide a more complete understanding of our financial performance. However, these non-GAAP items non-GAAP measures are not intended to be a substitute for GAAP or non-GAAP financial measures are discussed more fully in item seven of our 10-K.

Our agenda today is found on slide two. Steve will begin today's call with this year's highlights followed by Pat who will review our financial highlights. Then we will open the call up to your questions. The slides accompanying today's presentation are available on our website and were furnished on form 8-K filed this morning. With that said, I'll turn the call over to our President and CEO, Steve Westhoven. Steve.

Our agenda today is found on slide two Steve will begin.

Today's call with this year's highlights followed by Pat who will review our financial highlights.

Then we will open the call up to your questions. The.

The slides accompanying today's presentation are available on our website and were furnished on form 8-K filed this morning with that said I'll turn the call over to our President and CEO, Steve West hub Steve.

Thanks, Dennis and good morning, everyone. I'd like to begin today discussion on slide three with a review of the fiscal year-end results. This morning, we announced fiscal 2021 net financial earnings per share or EPS of $2.16, which is a 24% increase versus last years EPS of $1.74. Fiscal 2021 NFE is much stronger than expected exceeding the midpoint of our original guidance for the year by 35%. You may recall that last year's analyst day, we were expecting 2021 to be a reset year. This is mainly due to the change in accounting method for investment tax credits.

I'd like to begin todays discussion on slide three with a review of the fiscal year end results.

This morning, we announced fiscal 2021 net financial earnings per share or EPS of $2 16, which is a 24% increase versus last years EPS of $1 74.

Fiscal 2020, once NFC is much larger.

Are much stronger than expected exceeding the midpoint of our original guidance for the year by 35%.

You may recall that last year's analyst day, we were expecting 2021 to be a reset year. This is mainly due to the change in accounting method for investment tax credits.

However, the reset was negated by better than expected results in energy services as well as positive results from our [BTSs] incentive program in New Jersey natural gas. It's allowed us to raise guidance three times during the fiscal year. In September, we raised our dividend to an annualized rate of $1.45 per share, a 9% increase compared to 2021, reflecting stronger cash flows and confidence in our strategy. We have now raised our dividend every year for the last 26 years. As you can see on the charts, our track record of growing NFEPS and the dividend speak to the ongoing strength of our business. We have produced an NFPES CAGR of 8.3% over the last four years and with the recently announced increase to our dividend rate, our five-year dividend per share CAGR is a healthy 7.3%.

It's allowed us to raise guidance three times during the fiscal year.

In September we raised our dividend to an annualized rate of $1 45 per share a 9% increase compared to 2021, reflecting stronger cash flows and confidence in our strategy.

We have now raised our dividend every year for the last 26 years. As you can see on the charts, our track record of growing NFEPS and the dividend speak to the ongoing strength of our business. We have produced an NFPES CAGR of 8.3% over the last four years and with the recently announced increase to our dividend rate, our five-year dividend per share CAGR is a healthy 7.3%.

We have produced an <unk> CAGR of eight 3% over the last four years and with the recently announced increase to our dividend rate, our five year dividend per share CAGR, it's a healthy seven 3%.

Turning to slide four, it's been nearly a year since our 2020 Investor day, we laid out our vision for strategy and growth. At our core, NJR remains an energy infrastructure company with a portfolio of complementary businesses that leverage our utility experience. Our strategy for growth is granted three key principles. Growing our regulated utility and renewable energy business. De-risking and increasing the predictability of our earnings. And investing to achieve a clean energy future carbonization of our gas infrastructure.

Since our 2020 Investor day, we laid out our vision for strategy and growth.

At our core <unk> remains an energy infrastructure company with a portfolio of complementary businesses that leverage our utility experience.

Our strategy for growth is granted three key principles growing our regulated utility and renewable energy business de risking and increasing the predictability of our earnings and investing to achieve a clean energy future carbonization, our gas infrastructure.

I'd like to discuss the significant headway we made in executing that strategy in fiscal 2021, beginning with our core operations. Last March, New Jersey natural gas filed a base rate case with the BPU and just yesterday the BPU approved the settlement of that case. Resulting in a rate base of more than $2.5 billion and a rate increase of $79 million per year. We believe this is a fair and just settlement, which acknowledges the long term value of our infrastructure. I'd like to thank the BPU, the division of rate Council and their staff for their work in reaching this resolution in a way that balances the interest of our customers and our company. After years of hard work, New Jersey natural gas place the southern reliability link into service. This 30-mile transmission main enhances the reliability and resiliency of our world-class distribution system and adds to its long term value.

Last March New Jersey, natural gas filed a base rate case with the Btu and just yesterday the BPA approved settlement of that case.

Resulting in a rate base of more than $2 5 billion and a rate increase of $79 million per year.

We believe this is a fair and just settlement, which acknowledges the long term value of our infrastructure.

I'd like to thank the Btu the division of rate Council and their staff for their work in reaching this resolution in a way that balances the interest of our customers and our company.

After years of hard work, New Jersey natural gas place the southern reliability link into service. This 30 mile transmission main enhances the reliability and resiliency of our world class distribution system and add to its long term value.

In October, we completed construction on our cutting edge Green hydrogen project in our service territory. And as we'll discuss later in more detail, the facility is producing 100% carbon-free hydrogen through electrolysis process using renewable electricity to create a zero-carbon fuel. Both the SRL and the Hodgkin facility were included in our rate filings with cost recovery approved as part of the settlement. This year we also received BPU approval for two new regulatory programs that will help provide future margin growth. First is our new safety program, which began late fiscal 2021. This new energy efficiency program is our largest ever. It authorizes $250 million spending over three years and furthers our commitment to sustainability by helping customers lower their energy usage, save money and reduce their carbon footprint. Second is our $150 million accelerated recovery infrastructure investment program. Approved in October of 2020, this program follows [inaudible] programs that includes new infrastructure replacement and improvement projects that will add to the reliability and resiliency of our distribution system. And at CEV, we expanded our solar footprint outside of New Jersey by completing our first commercial solar project in Connecticut. CEV now has $150 million of projects under construction, including our 25 six megawatt facility and not all features. The project is north America's largest cap landfill solar and see these largest commercial project to date.

And as we'll discuss later in more detail the facility is producing 100% carbon free hydrogen through electrolysis process using renewable electricity to create a zero carbon fuel.

Both the <unk> Hodgkin facility were included in our rate filings with cost recovery approved as part of the settlement.

This year. We also received <unk> approval for two new regulatory programs that will help provide the future margin growth.

First is our new safety program, which began late fiscal 2021.

This new energy efficiency program, it's our largest ever.

It authorizes $250 million spending over three years and furthers our commitment to sustainability by helping customers lower their energy usage save money and reduce their carbon footprint.

Second is our $150 million accelerated recovery infrastructure investment program.

Approved in October of 2020. This program follows our safe II.

And Raj programs that includes new infrastructure replacement and improvement projects that will add to the reliability and resiliency of our distribution system.

And at <unk>, we expanded our solar footprint outside of New Jersey by completing our first commercial solar project in Connecticut.

CV now has $150 million of projects under construction, including our 25 six megawatt facility and not all features.

The project is north America's largest cap landfill solar and see these largest commercial project to date.

Turning to slide five our S&T business continued to execute its organic growth strategy, while also reducing risk. Adelphia Gateway commenced construction of its [inaudible], though and we expect to place a number of facilities into service by the end of the calendar year. At least river, we increase our contracted revenue with new and existing creditworthy counterparties by $46.5 million since November of 2020. Our energy services business entered into long term asset management agreements with an investment-grade utility executing on our goal for that business to deliver more predictable net financial earnings.

The Delta Gateway commence construction of itself, though and we expect to place a number of facilities into service by the end of the calendar year.

At least river, we increase our contracted revenue with new and existing creditworthy counterparties by $46 $5 million since November of 2020.

Our energy services business entered into long term asset management agreements with an investment grade utility executing on our goal for that business to deliver more predictable net financial earnings.

Under the terms of the agreement, energy services will receive over $500 million in revenues net of demand charges over the next 10 years in exchange for the release of contracted transportation in the northeast. The AMAs became effective this month. Turning to slide six, this morning, we reaffirmed our fiscal 2022, NFEPS guidance range of $2.20 to $2.30 share. We expect that most of our net financial earnings will come from our utility business, followed by our infrastructure investments at our non-utility subsidiaries.

The Anh became effective this month.

Turning to slide six this morning, we are re.

<unk>, our fiscal 2022, Nf EPS guidance range of $2 20 to $2 30 sure.

We expect that most of our net financial earnings will come from our utility business, followed by our infrastructure investments at our non utility subsidiaries.

And importantly, we are only including the AMA contributions from our energy services segment guidance. This is consistent with our commitment to secure more fee-based revenue strategy services. Given the progress we've made this past year and our efforts to de-risk our businesses, we believe that our net financial earnings are more predictable than a year ago. And accordingly, we are narrowing our expected long term NFEPS growth range to 7% to 9% from our previous range of 6% to 10%.

Given the progress we've made this past year and our efforts to de risk our businesses. We believe that our net financial earnings are more predictable than a year ago and accordingly, we are narrowing our expected long term EPS growth range to 7% to 9% from our previous range of 6% to 10%.

On slide seven I'd like to spend a few minutes, providing an update on our company's decarbonization journey with a focus on the utility. In the last 10 years, our company has made important progress towards clean energy future. New Jersey natural gas is a leader in energy efficiency with more than $230 million of investments in the safety program since inception. This program helps customers save money by reducing their energy consumption and will be critical to further reduce their carbon footprint over the coming decades.

And the last 10 years, our company has made important progress towards clean energy future, New Jersey natural gas as a leader in energy efficiency with more than $230 million of investments in the safety program since inception.

This program helps customers save money by reducing their energy consumption and will be critical to further reduce their carbon footprint over the coming decades.

We've also invested over $2.3 billion in safety, reliability and emissions reduction on our natural gas delivery system. New Jersey natural gas is the first utility in New Jersey to replace all cast iron pipe that is on track to be the first in stage III to fully replace its unprotected steel infrastructure. And by the end of the year, 100% of our system will be either plastic or protected steel. These efforts have allowed NJR to build the most environmentally sound system in the state as measured by weeks per mile and reduce its operational emissions in new Jersey by over 50%.

The natural gas as the first utility in New Jersey to replace all cast iron pipe that is on track to be the first in stage III fully replace its unprotected steel infrastructure and by the end of the year of 100% of our system will be either plastic or protected steel.

These efforts have allowed NCR to build the most environmentally sound system in the state as measured by weeks per mile and reduced operational emissions in new Jersey by over 50%.

Six.

This puts us in a strong position to start pursuing the use of decarbonized fuels like [inaudible] and green hydrogen. And today, we're announcing a goal of net-zero emissions for our New Jersey operations by 2050. We will achieve this goal with actions such as transitioning our fleet of vehicles to low or no carbon fuels and continue to make investments that support the integration of [RNG] and hydrogen in our system over the coming decades. This will drive greater decarbonization of the energy we deliver to our customers.

We will achieve this goal with actions such as transitioning our fleet of vehicles to low or no carbon fuels and continue to make investments that support the integration of R&D and hydrogen in our system over the coming decades. This will drive greater decarbonization of the energy, we deliver to our customers.

Turning to slide eight. New Jersey natural gas stands on a strong foundation to start making immediate progress down this path. Our modern infrastructures deploy decarbonized fuels today, and when paired with other carbon-reducing strategies, including aggressive energy efficiency, we see a viable path to eventually deliver a carbon-neutral fuel supply to our utility customers. In doing so, we will play a leading role in helping New Jersey reach its climate and carbon reduction goals and we can get there more quickly more affordably and with greater reliability than other approaches.

New Jersey natural gas stands on a strong foundation to start making immediate progress down this path or.

Our modern infrastructures deploy decarbonize fuels today, and when paired with other carbon reducing strategies, including aggressive energy efficiency, we see viable path to eventually deliver a carbon neutral fuel supply to our utility customers.

In doing so we will play a leading role in helping new Jersey regions climate and carbon reduction goals and we can get there more quickly more affordably and with greater reliability.

Other approaches.

This will also complement the state's renewable energy ambitions. The advantages of this strategy are clear. First, this approach can accelerate and help New Jersey's goals of achieving lower emissions. The high customer penetration of our natural gas infrastructure gives us a broad platform to begin integrating RNG and green hydrogen into our system immediately. Steadily decarbonizing the energy we deliver to our customers just as the electric grid has begun delivering zero-carbon electrons from wind and solar.

The advantages of this strategy are clear.

First this approach can accelerate and help features these goals of achieving lower emissions.

The high customer penetration of our natural gas infrastructure gives us a broad platform to begin integrating orange and green hydrogen into our system immediately step.

Italy, Decarbonizing the energy, we deliver to our customers just as the electric grid has begun delivering zero carbon electrons from wind and solar.

Second, this approach can help New Jersey to reach its climate goals more affordably. Existing energy infrastructure in New Jersey is already built paid for it in service. Over the years, more than $17 billion has been spent to build and maintain more than 35000 miles of deliberate pipelines throughout the steep, a massive investment by our customers. Using this vast pipeline energy delivery network as an asset will help avoid the cost of an immense buildout of new infrastructure, making the energy transition more affordable for New Jersey bucket by potentially tens of billions of dollars.

Existing energy infrastructure in New Jersey is already built paid for it in service.

Over the years more than $17 billion has been spent to build and maintain more than 35000 miles of deliberate pipelines throughout the steep a massive investment by our customers.

Using this vast pipeline energy delivery network as an asset will help avoid the cost of an immense buildout of new infrastructure, making the energy transition more affordable for new Jersey bucket by potentially tens of billions of dollars.

Third, from a liability perspective, the benefits of using existing pipeline infrastructure and New Jersey are enormous. Our pipeline system is designed to operate and meet peak demand on waitress coldest days when energy consumption is the highest. The natural gas network handles this energy load and does so with 70 times fewer outages in the electric system any given year. Our state's dual-energy delivery systems, one gas in one electric complement one another by sharing different energy loads, providing energy diversity and resiliency.

The natural gas network handles this energy load and does so with 70 times fewer outages in the electric system any given year.

Our state's dual energy delivery systems, one gas in one electric complement one another by sharing different energy loads, providing energy diversity and resiliency.

If we were to migrate our state's entire energy demands to one system. It would come with significant financial costs and eliminate the resiliency and reliability of having two systems. Furthermore, as the state steps up its commitment to renewable generation, resiliency and reliability challenges will only grow. New Jersey plants to install seven five gigawatts of offshore wind 14 Gigawatts of additional solar by 2035. At that scale intermittency of renewable to require long-duration storage solutions. Not only to address out our reliability, but also provide balance sheet flexibility over days weeks and even across seasons.

New Jersey plants to installed seven five gigawatts of offshore wind 14, Gigawatts of additional solar by 2035 at that scale intermittency of renewable to require long duration storage solutions.

Not only to address out our reliability, but also provide balance sheet flexibility over days weeks and even across seasons.

This is an area where gas infrastructure offers flexibility and support. When renewable power generation exceeds demand, surplus can be directed to green hydrogen production provided the long-duration storage solution virtually zero energy loss that supplements the shorter duration storage capacity batteries. This helps address the reliability challenge of renewables and maximizes sustained investment in solar and offshore wind. And it's all by utilizing our pipeline infrastructure, it's built paid for and in-service.

When renewable power generation exceeds demand surplus can be directed to green hydrogen production provided the long duration storage solution virtually zero energy loss that supplements the shorter duration storage capacity batteries. This helps address the reliability challenge of renewables and maximizes sustained investment in solar and offshore wind and it is.

All by utilizing our pipeline infrastructure, it's built paid for an in service.

So let's take this out of the abstract and look at how we're pursuing this on our system today. Last month, the cutting edge green hydrogen project to clean-burning hydrogen is being blended into our network to serve homes and businesses right now. The small system alone is the equivalent of eliminating 90 tons cole over 400000. And miles driven. And as I mentioned before this hydrogen into places displaces some fossil gas from the energy we are sending out with. With no action or change needed on our customers' part.

Last month, the cutting edge green hydrogen project to clean burning hydrogen is being blended into our network to serve homes and businesses right now the small system alone.

Equivalent of eliminating 90 tons cole over 400000.

And miles driven.

And as I mentioned before this hydrogen into places displaces some fossil gas from the energy we are sending out with.

With no action or change needed on our customers' part.

This project demonstrates that this is not just a theoretical exercise. The technology works, it's available and New Jersey natural gas has put it to use now. And just as importantly, our regulators see what we're doing with this investment and recognize its importance to emissions reduction goals. This is a tremendous credit to the BPU and we acknowledge and thank them for their support. This is the clean energy future we see and with our hydrogen project now completed it gives us wait in line of sight into the next generation of clean energy infrastructure investments for our company. So with that, I'll turn the call over to Pat for his part of the presentation.

And just as importantly, our regulators see what we're doing with this investment and recognize its importance to emissions reduction goals.

This is a tremendous credit to the Btu and we acknowledge and thank them for their support.

This is the clean energy future, we see and with our hydrogen project now completed it gives us wait in line of sight into the next generation of clean energy infrastructure investments for our company.

So with that I'll turn the call over to Pat for his part of the presentation.

Thanks, Steve and good morning, everyone I'd like to begin with slide 11 shows the main drivers behind the NFC changes from fiscal 2020 to 2021. 2021 reported NFE of $207.7 million or $216.74 per share last year. NJNG reported fiscal 2021 NFE of $107.4 million compared to $126.9 million during fiscal 2020. The decrease was due to higher O&M expenses, primarily related to increases in bad debt. Turning to our non-utility businesses, CEV's net financial earnings declined by $5.3 million, primarily due to lower revenue, which was partially offset by lower depreciation expense.

2021 reported NFC of $207 7 million or $216 74 per share last year.

And J&J reported fiscal 2021, NSE of $107 4 million compared to <unk> $126 9 million during fiscal 2020.

The decrease was due to higher O&M expenses, primarily related to increases in bad debt.

Turning to our non utility businesses Ceb's net financial earnings declined by $5 3 million, primarily due to lower <unk> revenue, which was partially offset by lower depreciation expense.

The decrease in depreciation expense was due to a change in useful life CEV's assets. Short term transportation reported fiscal 2021, NFE of $13 million compared with $18.3 million during fiscal 2020. The decrease in NFE was due primarily to lower contributions from our equity method investments, higher compensation depreciation expense, which was partially offset by increased operating revenues at [inaudible] and at Adelphia Gateway.

Short term transportation reported fiscal 2021, NFC of $13 million compared with $18 3 million during fiscal 2020.

The decrease in <unk> was due primarily to lower contributions from our equity method investments higher compensation depreciate expense, which was partially offset by increased operating revenues at both libre.

However, I don't know if you're a gateway.

Finally energy services reported <unk> of $71 1 million compared with a net financial loss of $7 9 million in fiscal 2020. This was due primarily to the significant natural gas price volatility associated with winter storm here in February of this past year.

This was due primarily to the significant natural gas price volatility associated with winter storm here in February of this past year.

Turning to slide 12, Steve mentioned, the <unk> approved the settlement of <unk> rate case with $79 million annual revenue increase that will become effective on the first. Under the terms of the settlement our overall allowed rate of return $6 eight 4%. Which includes a return on equity of nine 6% with a 54% equity layer. Our composite depreciation rate also did not change for meeting at 270%. Importantly, the approved rate base of $2 5 billion includes Srs and our green hydrogen project. Represents a 43% increase in our EPS as compared to our last settlement.

Under the terms of the settlement our overall allowed rate of return $6 eight 4%.

Which includes a return on equity of nine 6% with a 54% equity layer.

Our composite depreciation rate also did not change for meeting at 270%.

Importantly, the approved rate base of $2 5 billion includes Srs and our green hydrogen project.

Represents a 43% increase in our EPS as compared to our last settlement.

Turning to slide 13, given the recent increase in natural gas prices I wanted to take them out to discuss how end June.

To mitigate the risk of sudden and dramatic price changes and J&J has energy program.

Our policy at least 75% of our estimated winter somehow must be hedged prior to November one.

It is <unk> fastest hedge most of our winter needs with natural gas in storage.

We currently have approximately 90% of our estimate the winter needs already and storage prices.

More than a year ago.

As such our average hedge prices significantly below current spot prices.

By securing a cost effective supply leveraging with Etfs incentive and J&J has been able to keep the cost of natural gas low even after including the expected change in rates from our recent rate case settlement and <unk> average natural gas cash costs declined more than 23% in real terms since 2008.

Turning to slide 14, you see that our targets are placing commercial solar projects in service for 2021, and 2022 remains at $315 million.

Currently have a $150 million of projects under construction, our largest figure ever additional 94 million under contract.

However will be approximately $60 million worth of projects that are under evaluation and our ability to place those projects and service will depend on successfully closing the transactions on our construction timelines, which could be impacted by supply chain constraints.

Having said this view of these risks materialize the potential impacts to fiscal 2022 and F EPS would be minimal.

Finally, the large majority of the projects, we expect to place in service and New Jersey have qualified are expected to qualify for <unk>.

Clean energy ventures continues to generate a significant portion of its revenues from the sale of restaurants.

To minimize changes and Thats revenue CTV hedges part of its expected production of FX futures contracts. The current status of our hedging program is highlighted on slide 15.

As you can see we're almost fully hedged for energy year 2024 and.

The market fundamentals for energy years, 'twenty, five 'twenty six support strong pricing and.

And thats ex trading at or above 84% of the solar alternative compliance spending.

Thanks.

We now have 41% and 18% hedged 2025 and 2026, respectively.

Turning to slide 16, and I'll take it some highlights of our capital plan, starting with New Jersey natural gas.

So those are all now rates are capital spending at <unk> is expected to moderate somewhat in the next two years, but still supportive of the double digit <unk> growth, we communicated at our analyst day.

Our current capital plan only contemplates our existing R&D opportunities and does not consider any additional ramp up in R&D or hydrogen investments.

We'll update our capital plan as we get more visibility to potential projects.

As discussed earlier, we have a large and service solar capex target for this year, but given the rest of the time of execution, we're widening the capex range for CTV.

Finally, we expect to allocate around $100 million to our S&P segment in fiscal year 2022, most of it to complete the construction of our Delfi Cambria project.

Turning to our cash flows on slide 17, you can see the very strong cash flow from operations, we generated in fiscal year 2021.

We're projecting the fiscal 2022 cash flows will be around the same levels.

When considering that our forecasts and contribution from energy services is only from the fee based asset management agreements that became effective earlier this month.

And for fiscal 2023, we expect cash flow from operations to further increase mainly driven by and J&J.

Thanks Pat.

To finish up today with a few thoughts on what lies ahead for us in fiscal 2022.

In New Jersey natural gas as discussed rate cases, now behind us.

And our first hydrogen projects are included in those rates, which go into effect in December and moving forward. We expect our customer growth numbers will return to pre COVID-19 levels of approximately one 7% as the economy continues to recover.

We will reassess we are assessing sites for future hydrogen R&D projects will continue to add low and zero carbon fuels to our system.

And at Seabee, where credit we currently have $150 million of projects under construction, we continue to grow outside of insurers as we seek to expand our pipeline of projects.

We expect that more of Adelphia will come online during fiscal 2022 and will continue to seek additional organic growth from that project and in energy services, our NFC projections already consider contract today in <unk> revenues and cash flows we will continue to seek more fee based transactions, allowing for more predictable and a fee from this segment.

To conclude move into slide 19, we expect <unk> to continue delivering long term value for our shareowners anchored by our regulated utility infrastructure investment opportunities provided by our other business segments and to summarize we offer investors an attractive 11% to 13% expected total return based on our dividend yield of about four <unk>.

<unk> and our long term and EPS expected growth rate of 79%.

We appreciate that you took the time to join US here today and I'd like to recognize and thank our employees for all of their hard work and dedication that drives our performance.

So now let's open the call to questions.

Thank you at this time I would like to remind everyone in order to ask a question Chris Star then the number one on your telephone keypad.

Your question. Please press star two.

Paul just for a moment to compile the Q&A roster.

And the first question will come from Gabe Moreen from Mizuho. Please go ahead.

Hey, good morning, everyone.

Very good.

Yeah, a couple of quick questions for me just on the guidance. There you mentioned kind of more visibility to future stuff beyond the rate case, having just settled I.

I guess is there anything else that you'd kind of call out in terms of the upper or lower end of that range being narrowed and then also on a related note is it safe to assume that I guess the dividend growth guidance at this point is 79% as well.

So, yes, it's safe to assume.

I think there was a number of things so rate case being settled or certainly.

But in that was completing SRO, which the project that took a little while to complete so we're happy to say that it's operating.

Also adelphia gateway is under construction and we're getting close to some commercial operation for some of those facilities. So there's been a number of large projects that are that are coming into commercial operation or into rates that really allowed us to narrow the range.

Thanks, Steve and then maybe if I could follow up on the rate case settlement and future kind of green investments, whether it's on your hydrogen given the how facility and its performance. So far in its call just curious whether in discussions that could be pugh during a rate case or outside the rate case.

What's your appetite now is I guess.

On more hydrogen facilities, how should we think about the cost of those facilities.

Maybe an update in terms of your latest a little more on the latest R&D efforts, if you don't mind.

So I think thats great.

Great question and really.

The way I would want to describe this or explain to investors is that we're on a path to decarbonization and debt at the de carbonization. It's going to include high it's going to include renewable natural gas, we've got energy efficiency as part of it and then at some point in the future you can see carbon capture and storage evolve as well.

I think if youre looking for next steps most likely I think the next transaction we'd seen although we don't have anything to announce now is will have R&D being blended into our system.

But scaling up all of those things will depend on a number of evolving factors when does hydrogen come to scale.

We need to work with our regulators administration to determine timing and development.

And when will renewable resources come in and influence hydrogen production and other things. So that there's just a number of factors that come into come into view.

Also we need to we need to look and keep an eye on consumer cost as well so we need to balance all of these moving forward. So I think we're going to we're going to move forward, we certainly arent a passage carbonization, but theres going to be some innovation.

Youll see us taking next steps, but I think a few things have to come to clear view, certainly scale and cost and things like that.

Materialise.

That's fair and then I think last one for me would just be on the energy services I noticed that you are not providing are not leaving anything beyond the amazing guidance I know you've typically had really.

How it got much contribution from energy services guidance.

Kind of a normal amount of course, but I just wanted to ask is there any change to the business strategy there because of that or are you guys.

We're really leaving additional introduced service upside is upside.

Upside to that.

I mean, the short answer is yes, it's going to be additional upside will be that I think the one thing to notice that the portfolio is a little bit smaller.

From the release of some of these assets and certainly just tightening up that book, So I think that.

It could be a consideration as well in view of that business.

Got it thanks very much.

Thanks Gabe.

And your next question comes from the line of Shark Rosa from Guggenheim. Please go ahead.

Hey, good morning, guys good.

Good morning, Sean.

Just on R&D I know.

You guys have highlighted.

Opportunities more in terms of like third party purchases.

Kind of what the potential for new Jersey legislation to allow rate basing of R&D asset through Senate Bill three to six how are you sort of thinking about your strategy with Ppas versus company owned assuming it's signed into law and is there any status on the legislation.

So I don't know the status of the legislation I know we're in a lame duck now I guess, it's anybody's guess, whether how quickly that could that could move through but.

I think about <unk> for our purposes, we've got a few opportunities that are on our system and we're certainly pursuing it and seeing how we can integrate those.

Of course part of the process like I was saying.

Gabe this is off a multi pronged approach de carbonization. So, we'll we will pursue RMG and getting those lower carbon fuels on our system and we'll wait and see how the legislation occurs and certainly what types of transactions will fit us at R. R.

And our customers as far as cost goes with being able to decarbonize the fuel stream.

I would ask Mark Caray, if any thoughts associated with.

No.

R&D and kind of the legislative side of things, Yes, I think thats from so from our standpoint right now with respect to our investments we already have the authority to be able to do that under the revenue legislation that was passed a number of years ago.

An important part to understand that that enabled us to make that investment in the green hydrogen plant as well so the opportunity already for our investment the aspect that the legislation.

It would be up a little bit more with respect to third party purchases.

China, we're pretty confident on and working with our commission.

Talk through these situations.

As long as we can it reach reasonable accommodation thoughts on the transaction and working into our supply portfolio, it's aligned with where the governor strategy and where we want to be.

Got it perfect. Thank you for that and then just on <unk> I mean, obviously, Steve you highlighted a lot of the growth.

Capital.

Has been de risked at least through 'twenty two rate.

Do we sort of think about may be prospective growth opportunities for <unk> in light of sort of the input cost pressures.

You touched on a little bit on the prepared whether it's labor transport panels, we've seen in the space and I guess do you have some purchasing flex like larger developers to sort of avoided or could we see some slowdown in CEB, maybe under an assumption these cost pressures and more long term in nature, especially as we're thinking about post <unk>.

Three right I mean, I guess how are you.

Are the conversations going with your suppliers.

So certainly there is tightened it as you go farther and farther out in the market I think the group's done a RCV groups that a good job of kind of looking around the curve is being able to pre contract for the projects that we currently have under construction and make sure that the supplies are available a little bit of tightness in some of the other components that we're seeing in the marketplace.

I guess as we move forward and go farther and farther out little bit.

Les view of that but I'm, assuming this is a short term issue short term being measured in maybe a year or two and then we can get back to normal for our capital plan. Now you can see we've got $150 million under construction almost $100 million that are under contract.

Right now we are prepared to execute on that and not change that.

Perfect that was it.

Thanks, guys alright.

Alright, Thank you sure sure.

And your next question will come from the line of Travis Miller from Morningstar. Please go ahead.

Good morning, everyone. Thank you haven't evidence.

Kind of stick on the whole LNG and hydrogen theme.

And then thinking about coming into the winter here.

What are you seeing in terms of as you blend are you displacing some of the traditional natural gas supply that you need.

Coming at a lower cost for customers.

Storage and thinking through kind of the benefits.

Of either displacing traditional natural gas or being able to supply at a lower cost through hydrogen in R&D versus natural gas are those any considerations that are.

Happening right now.

So I think thinking about at least the hydrogen component of it. It's a proof of concept the volume is pretty small compared to our system. So really a de minimis impact.

Pricing as such and as far as looking ahead of the winter what are we going to displace there's not enough volume there to really make any impacts and I think we're a few years off before we get to scale, where you see numbers I think where you're going and when you talk about how this is impacting the overall supply chain.

Both natural gas coming to the system. So I think it's too small right now to really predictor.

Talk about.

The way that you are asking that question.

Okay.

You will see it ultimately.

Being able to.

I don't know if it would save is the correct word but.

Offset some of the extra week.

Restructure costs.

Using hydrogen RMG.

I mean, certainly as its been in addition to obviously the environmental benefits right, but is there a cost component there that would be beneficial.

Youre definitely.

We're moving towards.

Our low carbon decarbonize product being delivered to customers and youre going to have that energy efficiency, which is going to reduce their usage youre going to have renewable natural gas, which is similar to natural gas and its components and being able to be conservative in that half hydrogen is part of it so youre going to have pushed back on natural.

Fossil fuel if you will so that's definitely going to happen.

I'm curious we continue on this journey at what point in time does this get up to a size that you can discern that in the marketplace I think that that's yet to be determined for some of the things that I mentioned to Gabe earlier.

A number of things that have to come to scale. Its got to work with the administration. We've got to work with the <unk>, we've got to be conscious of customer costs and things like that so I think those questions are difficult to accurately predict right now, but key takeaway is we are starting this journey right now we are delivering some decarbonize fuel to our customers and we are.

We're proving that essentially our infrastructure is going to be used long into the future and there is good reason to do so.

Sure. Okay, Great you answered all my other questions I appreciate the time alright.

Alright, Thanks Scott.

And again, if you would like to ask a question. Please press Star then one.

The next question will be from the line of Julien Dumoulin Smith from Bank of America. Please go ahead.

Hey, it's Gary Clark on for Julien Good morning.

Hey, good morning.

So first on clean energy ventures, how are you thinking about geographic mix in the return profile across different states going forward.

Are you still seeing that 7% to 7% IRR kind of across the board or is there a mix between new Jersey and some of the other states that you are looking at it.

So so I think the way we're looking at it strategically.

I think we've said this before.

Starting new Jersey, we've made relationships with suppliers with contractors with developers and that's been a natural progression to go into other other states and certainly in the northeast you've got all the same suppliers.

<unk> developers operated in many different states. So in thinking about it it was a natural move for us to be able to make the investments each state has a slightly different construct and you've got some different risk profiles and that whether it's a feed in tariff in another state obviously, new Jersey <unk> got.

What's now our T Rex or the second coming of T. Rex and I think when we look at it.

Slightly different returns based on risk profile, but I think by and large youre in the ballpark. There at 100, if you have any other comments.

I would just echo what Steve said, I think I think you're accurate there and Thats a mix.

What do we really only have our first project up and down in Connecticut. This year. We've got some others that are slated to Rhode Island for next year those future feed in tariff slash PPA type arrangements and as you build up cost of capital.

If you've got something that looks like a 2025 year.

PPA, that's providing the revenue support with the credit quality utility you might see the irr's trends out of lower or something like that.

The New Jersey, we're still fairly comfortable that are probably in the 7% range.

And but remember we have some competitive advantages in the state and that tempers.

10% of our market share and so we've got some a lot of inefficiencies in the thinking here is that we don't necessarily see external to editors.

Okay got it and just second wondering if you're embedding any assumptions around the solar successive program within that New Jersey.

And then there going forward given some of the reductions and the subsidies that we saw earlier this summer and some clarity still muted on projects over five megawatts.

So I think we actually again.

I think as we.

Should we look at our analyst day, we expected that roughly half of our projects will be in state roughly half of Nevada state as we sit here today.

She has trended more towards new Jersey projects, probably closer to two thirds to 75% and Thats really a function of the deep relationships, we havent speak very attractive T Rex subsidy.

So that's the case for 2022 as we think about the capital plan for 2023 and identifying those I would expect to see a bigger shift potentially out of state.

And Thats one of the benefits of diversification as you know the successor program for projects over five megawatts.

Now targeted for Finalization will sometime.

Winter.

And so they are.

And therein lies what had been a certification we can car between new Jersey and other states.

Okay got it that's all I had thanks Steven.

And thank you ladies.

And gentlemen, this concludes our question and answer session. At this time I would like to turn the conference back over to Dennis Puma for any concluding remarks.

Okay. Thank you Chad 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 and as always we appreciate your interest and investment in New Jersey resources.

Next quarter Goodbye.

Thank you. This concludes today's conference call you may now disconnect your lines.

Thanks.

Okay.

[music].

Okay.

Thank you.

Okay.

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