Q2 2022 New Jersey Resources Corp Earnings Call
The 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 the statement assume any obligation to review or revise any particular forward looking statements referenced herein in light of future events.
We will also be referring to certain non-GAAP financial measures such as net financial earnings.
We believe the NFC utility gross margin and financial margin provide a more complete understanding of our financial performance. However, these non-GAAP financial 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.
Our agenda for today is found on slide two Steve will begin with this quarter's highlights followed by Robert who will give a review of financial results.
And then we will open the call up to your questions.
Slides accompanying today's presentation are available on our website and were furnished on form 8-K filed this morning.
Those will be following along I will begin with an overview of the quarter on slide three.
With that said I'll turn the call over to our President and CEO , Steve West of Steve.
Thanks, Pat and good morning, everyone and thank you for joining US today, our fiscal 2022 second quarter financial results exceeded our expectations, primarily driven by contributions from energy services has enabled us to increase our net financial earnings per share guidance for fiscal 2020 to attendance.
We also benefited from solid performance at New Jersey, natural gas, which completed its first full quarter with new base rates in place in Peru, NFC by 28%.
At clean energy ventures, our portfolio now includes projects across three states, New Jersey, Connecticut, and Rhode Island all.
I'll discuss our growing solar project pipeline, so our long term opportunities and some short term challenges at CEB later in the presentation.
And finally in storage and transportation, our Adelphia Gateway project is now delivering natural gas to adopt it.
Serving the Philadelphia Metro area.
It is on track to be fully operational by the end of this year.
Moving to slide four energy service was stronger than expected performance enabled us to increase our EPS guidance for fiscal 2022 to a range of 2% to $32 40 per share up from our original guidance of $2 20 to $2 30 per share.
Our team in energy services, leveraging our portfolio of diversified and strategically located assets to generate higher than expected earnings EPS during periods of volatility this past winter.
Moving to the next slide on the left you can see that we have invested $144 million. So far this fiscal year at New Jersey natural gas with approximately 40% of that capital providing near real time returns.
New Jersey natural gas was the first utility in nutrition.
We replaced all cast iron pipe in nearly 100% of our system is either plastic we're protected steel.
We continue to make investments to support energy conservation reduce emissions and enhance the safety and reliability of our distribution system for the benefit of our 568.
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Through the first half of fiscal 2022, we added nearly 3600 new customers each year.
The natural gas expect these editions to contribute approximately $2 9 million incremental utility gross margin on an annualized basis.
Yeah.
On slide six I wanted to discuss how CEB is positioning itself for success in a market with strong long term fundamentals. Despite some short term challenges.
As Youre aware <unk> was an early mover in the new Jersey southern market redevelop the operational expertise and a strong network of partners that allowed us to acquire shovel ready projects.
This strategy has established us as a market leader in growing our portfolio to over 350 megawatts as of our analyst day in 2020.
At that time, we identified <unk> as a core growth business for HII.
And adjusted our commercial solar strategy supports a greater level of investment driven by aggressive public policy and corporate ESG goals.
We leveraged our strong network to diversify our targeted divestment market beyond <unk> and enhanced our development capabilities to pursue projects earlier in the development side.
This strategic shift has resulted in the largest pipeline projects our history with 680 megawatts of projects under construction contract or exclusivity through fiscal 2027.
Thus, providing a runway for sustained investment over the coming years.
While solar market fundamentals remain strong and support our long term growth strategy.
Factors are slowing ceb's ability to deploy capital in the short term.
A number of regulatory transitions in new Jersey, which will broaden our solar investment opportunities and be favorable in the long run are currently delayed.
They include approval a final projects that are qualified for <unk>.
Transition to a permanent <unk>.
Program for community solar.
Replacement of the T Rex structure projects five megawatts and the development of a dual use pilot to allow for solar generation of Departmentalized.
In addition, it's been well publicized backlog projects waiting interconnection in PJM resulted in delays across multiple states.
As a result, our fiscal year 2022, and surface timelines will be impacted and we're taking a conservative view.
Of our capital deployment estimates for fiscal 2023.
We believe that efforts to streamline regulatory interconnection processes, which are temporarily disrupting normal development cycles will ultimately strengthen the long term viability solar market.
Given these challenges we thought it was important to go beyond our initial capital expenditure forecast and walk you through our project pipeline, which is on slide seven.
As you can see we have a robust pipeline that will drive significant solar investment in coming years.
In addition to the 75 megawatts under construction, we now have exclusivity contractual length to a portfolio of projects totaling 600 megawatts through fiscal 2027.
This pipeline of regionally diversified projects, many of which are existing PJM acute positions is capable of almost tripling. The current size of <unk> clean energy portfolio over.
Over the last quarter alone CEB secured more than 420 megawatts.
The project's options and high priority policy supported development areas.
We have procured the panels for most projects forecasted through fiscal 2023.
Any supply chain issues, we experienced were delays from electrical components, such as Inverters, and racking equipment, which we've been able to mitigate.
Additionally, we are closely following the recent department of Commerce investigation regarding the sourcing of certain solid materials, which has not impacted our suppliers to date.
Overall, our team has done a nice job navigating this environment, while continuing to grow the project pipeline.
The quality and long term investment opportunities moving to slide eight the chart on the top should Ceb's second quarter revenue broken down by type.
The chart at the bottom is just capital investment projections for fiscal year 2022.
Due to the reasons we've discussed.
Effect of lower total CEB capex for the year.
Despite any short term delays in service type work timeline, we anticipate no impact to <unk> long term NSE growth estimates, thanks to the strength of our complementary portfolio of businesses.
I'll close my CEB uptake by highlighting two projects currently under construction.
<unk> is at $8 90 megawatt solar installation in builder in New Jersey.
Once complete we will be the largest floating filter array in the United States and CEB second limiting solar projects are.
Milgram location.
The size of our <unk> project, which is pictured on slide and was placed into service in fiscal 2020.
The second is the 25 six megawatt facility located in Mount Olive new tricks that upon completion will be the largest solar array on cap landfill in the United States.
Generate enough electricity to power over 4000 homes.
On slide nine I'll close with a quick discussion of our storage and transportation business.
We continue to make progress on the construction of Adelphia gateway converted oil pipeline.
We recently placed in service a number of facilities, including the south mainline southern lateral and tech Coke Quaker tenant interconnect and Pico metering stations.
The Delta is now flowing gas to the south.
Which allows industrial customers in the Philadelphia Metro area to utilize natural gas.
This includes Kimberly Clark, which replaced the coal fired plant and its mill and Chester, Pennsylvania.
The conversion will reduce the Midlands greenhouse gas emissions by 50% and support Kimberly Clark's call covenants carbon footprint half by 2030.
The Delta is on track to be fully operational by the end of this year.
And with that I'll turn the call over to Roberto to review of our financial results.
Fair enough.
Hey, guys.
Good morning, everyone as usual I'll highlight a few operational and financial metrics for the second quarter.
Slide 11 shows the mean and drivers of our net financial earnings Accordingly.
We reported <unk> of $132 million or the 136 per share compared to $176 million or 30%.
Michelle next year.
As a reminder, the second quarter of last year, we've been usually kind of net financial earnings at the end of your targeted.
The increase in natural gas price volatility.
<unk> the recovery of 2021.
Moving to Orange, maybe by business unit, beginning Keystone improvement opportunity to dealing about work primarily due to the impact of new base rates that went into effect on December one.
Phebe can be improved by $2 $4 million.
Primarily due to increased revenue from the <unk> inherently tricky Brexit in the second quarter of fiscal 2022.
So obviously transportation reported MLP that was roughly flat compared to the second quarter of the prior year.
As mentioned before and you've heard me continually fee declined due to the unusual with infinity.
One, but still reported from the up to $9 $9 million for the quarter, including $10 2 million on our revenues from the asset management agreement entered into to repeat customers.
On slide 12, we have highlighted the details or CV fedrick hedging program.
<unk> remains a large portion of <unk> revenue and <unk>.
We're looking at these cash flows by hedging of our expected production of metrics.
As you can see we're almost fully hedged through inter year syndicated four.
And for energy here illegally site until the mistakes, we now have 51% and 29% of our respective remuneration picture prices over 95% of the total alternative compliance payment or ACP.
I will now turn it over capital plan on slide 13.
In discussing the basketball, we expect the capital spending at AEG to moderate somewhat now that the apparently conservative and a base rate case is behind us.
At first in transportation and construction.
Is approaching completion.
The language capital expenditure for the segment.
And the television we have a robust and growing pipeline with strong long term fundamentals.
However, as Steve mentioned earlier.
Getting our Capex estimate for fiscal two and what do you mean the range for fiscal 2023%, mostly due to delays in a number of important regulatory programs in New Jersey.
The game approval process, we expect TV capex for fiscal 'twenty, two to beat the range of $109 million to 157 million builder.
We will tighten our predictions for fiscal 2023, as we get more clarity around the new PJM process and see more progress around that in the European regulatory programs.
Turning to our predicted cash flows on slide 14, we are incorporating into our estimates.
<unk> elevated natural gas prices with economic cash flow from operations is sustained through the end of fiscal 2023.
The threshold higher price gap I think the sweetener review reflected higher working capital needs, particularly at <unk>.
Services and deliberate.
And the European natural gas.
As a reminder, that natural gas I think you said with <unk>, 100% hedged removing the risk of problems as a result of certain changes in prices.
In addition, and as discussed in our prior call <unk> has an extensive hedging program.
Which much of the price risk of a reaction to the story you think willing at bank of the actual injection season mitigating the impact of higher natural gas prices for customers.
With that I'd like to turn it back to Steve.
Thanks Robert.
With a strong first half of the year with financial performance from energy services that allowed us to increase our GAAP EPS guidance for the year, we reported solid <unk> growth from New Jersey natural gas.
Our solar project pipeline has never been stronger despite some short term challenges ceb's long term growth opportunities remain unchanged.
Adelphia Gateway is flowing gas in the South zone, and we expect to complete construction by the end of 2022.
And lastly, the strength of our complementary portfolio of businesses allows us to navigate CDB short term capital deployment challenges without affecting our protected dividend and NFC growth of 79% per year.
Before I open the call to questions I'd like to close with a few pause on our sustainability efforts.
We are focused on achieving climate emissions reduction goals, and most affordable and reliable way for customers by leveraging our existing energy infrastructure to deliver decarbonize fuels.
We are optimistic about the ongoing shift from state federal and international policymakers will increasingly recognize the value of existing pipeline infrastructure meet climate goals in a faster more affordable and more reliable manner.
Our world class infrastructure assets puts us in a strong position to not only participate.
Play a significant role in new Jersey's clean energy transition.
And with that I'll open the call for questions.
Thank you. Thank you I would like to ask a question. Please press star followed by one on your telephone keypad.
Any reason you would like to remove a question. Please press star followed by Tim again to ask a question Thats Star one.
As a reminder, if you are using a speaker phone. Please remember to pick up your handset before asking your question, we will pause briefly ask questions registered.
Our first question comes from Richard Sunderland with J P. Morgan.
Richard Your line is now open.
Hi, good morning, and thank you for the time today I appreciate the clarity on the changes around solar and we'd like to dig in there a little bit more.
What do you see as the timeline for these headwinds to be I guess.
You've talked about narrowing the range of 2023 Capex as clarity emerges is this something you expect over the course of this year or maybe even into 2023 any thoughts there would be helpful.
Hey, Richard and Steve Thanks for the question.
And looking at a number of the headwinds.
Associated with the regulatory process in New Jersey, and developing the successor program.
Looking at PJM.
And they are analyzing and trying to streamline their interconnection process as well.
We expect I would imagine over the next year or so.
Figure themselves out and ultimately the message we'd like to leave with you guys is that these are macro.
Issues that are being solved by these regulatory.
Regulatory agencies that should really accelerate the development this development more.
Make it easier and certainly.
Easier to forecast moving forward, because they're eliminating log jams in the marketplace.
So short answer yes over the next year.
We're going to keep an eye on it and certainly push where we can to make sure that these that these issues are solved.
Understood. So.
I guess, just thinking about kind of the risk the high and the low end around 2023 Capex is that is that largely timing then around using a those issues, meaning the timing of clarity emerging say this year versus next year for what would drive the higher low end is that is that at least a fair summary of how you see it right now.
Yes, it's a fair summary, and I think just to add to that that we've got a large pipeline of projects that we've contracted for half commitments of sort of committed so we feel pretty good about the business moving forward. It's just a matter of just eliminating logjams. So ultimately when they are removed.
Should be kind of a catch up development at some point in this process as well.
Great that helps and maybe just to squeeze one last one in there to your point about a catch up how do you see the earnings runway versus these issues and sort of the timing factors of when the slower development pace right. Now eventually becomes an earnings issue is it.
Given kind of a good shape of the abstract profile you have a couple of years before you would need that catch up to emerge.
How do you see the outlook there.
So a few things one we've got a portfolio of company. So we've got a number of levers here that.
Give us an ability to make earnings and essentially continue to grow the company.
From.
10000 foot view, we need to deploy capital in the odor in order to grow the company. So that's certainly an important portion of it focusing on CEB just for a moment.
We changed the accounting so remember we've got to deploy the capital, but on a yearly basis. It makes them less important than what youre. It comes in but ultimately it needs to come in.
That's certainly the case so we've got a portfolio of companies you've got growth in organic growth that has capability and all of our businesses the utility storage and transportation certainly CEB.
Energy services has been able to contribute at the large <unk>. So we feel good about our forecast moving forward rely on the portfolio of companies and we've got some time for these things to work themselves out because both companies and ultimately we think it will and we should be able to achieve the numbers that we have.
Forecast as far as guidance goes.
Perfect. Thank you for your time today.
Alright, Thanks Richard.
Thank you Richard.
Our next question comes from.
Travis Miller with good.
Good morning Star.
Tavis Your line is now open.
Good morning, everyone and thank you.
Hey, Joe more on this.
Alright, one more on the solar here, obviously the whole industry.
The market is talking about the department of Commerce and the issue there on the tariffs apart from what you talked about policy was in New Jersey in PJM.
Are you seeing.
On that side, either in higher cost with the tariffs or just pure supply availability.
Yes.
So the team the CE team's done a nice job of hedging out solar panels for the Capex that we have in our immediate future for this year and for a portion of next year. Most of next year. So we don't have the same experience and insight right now into the logjam of that.
Market so.
As for us, but we certainly acknowledge that.
There is something going on there right.
The department of Commerce is doing in diversification and we're thinking and we're hopeful that that's going to work itself out such that by the time, our hedges roll off will be able to roll into a market. That's a little more normal than what we're accustomed to so that's how we're looking at it now relative to our business plan and our ability to deploy capital in that space.
Okay. So you are able to in terms of hedging you are able to get the actual panels.
That effectively.
Similar price are you what's your contract today.
Fair to say until 2020 roughly.
Yeah.
Okay.
So just a 2023.
Yes, okay.
And then.
Okay second question is with everything.
Globally.
<unk> move.
Move toward energy security in gas markets or LNG.
What's your appetite for more midstream investments.
Other its pipelines or like your leaf River facility.
Travis This is same story and we're executing on the plan that we've had and we rolled out in our November Investor day.
And getting.
Adelphia gateway up and running which you saw today as it.
We're flowing gas to the southern portion, we still have some expansion or some construction.
To complete and put the rest of that into service down there. So at this point, we're just digesting the assets that we've had.
Certainly we'll look at some organic growth around those assets going forward nothing to announce right now, but it's constructive for the market right.
Energy security natural gas the long term value of these assets is.
Is being proved out on it in a real way and then certainly we recognize that.
Okay. That's all I had I appreciate the time.
Thanks, Jonathan.
Thank you Travis.
As a reminder to submit a question Thats star one on your telephone keypad.
Our next question comes from.
Julien Dumoulin Smith with Bank of America.
Julien Your line is now open.
Hey, Stephen Burke co to Clark on for Julien Good morning.
Hey, good.
So first you mentioned mid to high single digit returns I am curious if you can describe kind of what youre seeing in terms of PPA pricing and also incremental demand for commercial and distributed solar given the power of backdrop I guess related.
Thanks for the disclosure on your pipeline can you just talk about the growth trends that you've been seeing in that pipeline.
Growth have you seen over the past year or two years and what do you see for growth going forward.
So I'll take that and its parts right.
Sherri pressures higher gas prices, certainly driven up electric prices that have driven up the longer term curve, which has been supportive.
For Ppas.
Your I guess the.
The cost that youre competing against the traditional electric providers. So that's been constructive in this market and I think that's going to continue to be constructive in this market.
Or is the growth going forward. We shared this morning, what we have in hand as far as the projects that we have clear line of sight on developing and and you can see how that compares to our Capex plan.
Need to execute a portion of that in order to achieve what we need to into the future. So ultimately I think that speaks for itself.
We feel like we've got good.
Line of sight on projects in development, and we feel pretty good that once some of these logjam issues and regulatory issues are cleared that we should be able to develop.
At the rates and the returns that we bet that we spoken about.
Okay got it and then just second can you discuss in a little bit more detailed the driver of the shift in utility Capex from 'twenty two to 'twenty three.
Kind of related to that also curious how you're viewing the inflationary backdrop as it relates to your budget and also customer bills just on the utility side.
Yes, we had we had a few projects that have that.
Take it a little bit longer to develop that the utility related to RMG, specifically, so ultimately since we're updating guidance on our capex with CEB, we figured we'd make the full update there.
I wouldn't I wouldn't read too much into that I feel like those projects will move forward and we will get them completed as well I think.
Going to your second question on inflation.
We haven't really had any impacts or.
It will be a minor impact we've got a bunch of a number of pluses and minuses.
You spoke earlier asked a question about their someone asked a question about the.
Escalation electric prices and things like that we've got certain exposures when we'd get pluses in this inflationary period higher volatility could be a plus for energy services and certainly incentive margins at the gas company.
Higher electric prices.
The electric output from our solar panels, and things like that largely offset or hopefully will outrun some of the other negatives. According to portfolio, but currently even after acknowledged and others. We don't expect.
We expect very minor impact us that we'll be able to mitigate and our longer term plan.
And then could even work.
A question on Capex when you take a look at the combined and I am excluding CV here, our combined capex organically new three duties.
A few months ago. So what we have is.
There is more movement that we understand better.
Some of our projects.
Okay understood. Thanks for the time.
Alright, Thanks, Greg.
Thank you Kevin.
Again as a reminder to submit a question Thats star one on your telephone keypad.
Our next question comes from.
Robert Moskow with Mizuho Securities.
Robert Your line is now open.
Hi, good morning, everyone. So understand the trajectory of CEB.
Hey, guys.
I understand the trajectory may have changed for phebe, a little bit at least in the medium term and in your opening remarks, you kind of reiterated that five year outlook for the overall portfolio. Just wondering if you could take a little bit more into the specifics as what youre seeing is the offset to the CEB.
Some of the specific levers or is it better rates at leaf River energy services uplift.
Can you get a little bit more detail there.
Yeah.
Yeah, you answered some of the questions you may have said it right there pretty well.
As the portfolio of companies remember Andrew.
Energy services scripted pretty large A&H.
Which we publish publicized.
Some of the some of the cash flows from that and certainly inflationary pressures. We've talked about earlier you have got a number.
Items and the.
The income line.
We're going to have pressures on the upside from that incentives at the utility.
And certainly anywhere that you've got additional volatility even beyond the energy services.
<unk> contributed as well.
And like a like.
We've talked about before higher electric prices is certainly going to support.
Additional solar development Ppas also so there is some.
There's a little bit of pressure to the upside allows us to fill the gap that's really the I think the power of having a portfolio of companies and being able to utilize each and every one as you as you build your forecast going forward.
Got it that's helpful and.
And then lastly, I think theres a lot of focus on coming up with solutions to Decarbonize. The casting, but then new Jersey natural gas and can you talk about whether that might be deemphasize just given the expected increase in the commodity component of customer builds in north and more broadly just wondering how youre managing the customer customer bill impacts.
From rising gas prices.
Yes.
So so.
Two ways.
Two answers to that one is I think the carbonization narrative and the things that we're doing are going to continue to move forward and you've got some short term pricing issues that are occurring now and certainly that's going to impact people and customers.
We acknowledge that but I think the de carbonization effort, bringing hydrogen renewable natural gas energy efficiency, and eventually carbon capture and storage to utilize our pipeline as far as the future is going to be is going to be a work that we're going to work for a long time.
I think just talking about short term how gas pricing is going to impact our customers. We've got a pretty well established hedging program that the gas company and.
One of the numbers I was looking at last night.
We got 31 Bcf of gas in storage at a price of about $3 60, which as you guys. All know is far below where the Nymex is and where current market pricing is now so largely our customers will be insulated as much as our price will be slightly higher than last year, they're going to be insulated from the market.
Realities of right now in that.
For what we're talking that gas into storage right now is going into next winter and Thats, what our 'twenty two 'twenty three so we got quite a bit of time to be able to have prices normalize market to work out some of the tissues and prices to come down so our customers don't feel those impacts so I think currently.
We're in a pretty good place far below where the market is a little bit higher than last year, but but largely insulated from some of the price moves that youre seeing currently.
Great.
Some color and maybe just one last one just hoping you could.
Maybe discuss the next milestones for Delta.
You mentioned that it should be fully in service by the end of the year, but wondering if there's any specific milestones you would call out.
From from now to then.
So I've got any traffic is here. She is the chief operating officer of our non utility companies and.
I know for that project for some time.
Let's turn to take that question Amy Yes.
Yes, we really have just a couple more facilities to bring into service cover the next.
At several several months before the end of the year.
We really have mitigated any chain issues and can we detect it.
From a construction perspective, but.
Good good regulatory support.
And.
Again, just a few more facilities and moving and moving very well through the process.
Great. Thanks, everyone looking forward to catching up at Agi.
Thank you.
Thank you Robert.
That concludes today's Q&A session I will now pass the conference back over to Dennis Puma for any closing remarks.
Okay. Thank you Andrew I'd like to thank everyone for joining us. This morning as a reminder, a recording of this call is available on our web site for replay.
We also look forward to seeing many of you in person at this year's <unk>.
Or on next year's next quarter's call.
As always we want to thank you for your interest and investment in New Jersey resources Goodbye.
Okay.
That concludes today's new Jersey resources second quarter fiscal 2022 conference call. Thank you for your participation you may now disconnect your lines.