Q3 2022 New Jersey Resources Corp Earnings Call

With greater predictability for investing in renewable projects.

The team at TV exclusivity in contractual rates on 608 megawatts of capital deployment options through fiscal 2027 and.

In addition to another 67 megawatts of projects currently under construction.

This pipeline of regionally diverse projects with nearly tripled the size of Ceb's clean energy portfolio.

Moving to slide seven we recently placed into service an eight megawatt facility in Holland Township, New Jersey, which will be eligible for <unk> under the Gpus transition incentive program.

This site was built on the location of our former paper mill and required environmental remediation prior to construction.

This is an excellent example of how new Jersey could benefit from Repurposing land that would otherwise be vacant to produce renewable energy.

On slide eight I will briefly discuss the latest developments of Adelphia gateway.

Which is part of our storage and transportation business.

We're in the final stages of construction Adelphia converted oil pipeline. We recently completed construction at Marcus Hook, and Quakertown compressor stations, which keeps us on track to be fully operational by the end of the calendar year.

At leaf River Energy Center, we continue to benefit from a steady stream of contracted revenue with credit worthy Counterparties are excellent track record along with tightening market conditions bode well for long term value of the asset.

Had a chance to visit our team in Mississippi recently and cannot say enough good things about the work that they're doing.

With that I'll turn the call over to Roberto to review of the financial results.

Thank you, Steve and good morning, everyone as usual I'll highlight a few of the operational and financial metrics for the third quarter slide.

Slide 10 shows the main drivers of our net financial earnings or <unk>.

We reported a net financial loss of $3 6 million or <unk> per share compared with a net financial loss of $14 $1 million or <unk> 15 per share last year.

And <unk> improvement of $1 $1 million.

Primarily due to the impact of new base rates that went into effect on December one.

<unk> remained mostly flat compared to the prior year period as higher electricity sales were offset by lower revenues and higher depreciation expense.

As a reminder, <unk> has historically sold the majority of <unk> in the fourth quarter.

Energy services reported an improvement of $75 million largely driven by the contributions of EAA.

First one transportation reported an improvement of $1 $1 million during the quarter driven by increased revenues at Adelphia Gateway and leaf River.

Finally home services improved by $1 million, mostly driven by higher installation revenues.

On slide 11, we have highlighted that details of Cvs as Rick hedging program.

The <unk> remains a large portion of CV revenue, we look in these cash flows.

Expected production of <unk>.

As you can see our expected generation is almost fully hedged so ordinary year, 2025, and 29% hedged for energy year 2026.

I will now turn to our capital plan on slide 12.

For the current fiscal year, we expect capital spending in gmg to holding the range communicated during our last quarter's call.

Similarly, we expect Ceb's capex for fiscal 2022 to remain unchanged from last quarter's communication.

We will continue to tighten our projections for fiscal 2023, as we see more progress around on the European regulatory programs.

And at storage and transportation and construction of Adelphia Gateway is approaching completion and represents the largest capital expenditure for this segment.

Turning to our projected cash flows on slide 13, as we mentioned last quarter, we continued to face the impact of elevated gas prices, we have in our type of operations.

<unk> through the end of fiscal 2024.

Despite higher working capital needs at energy services in New Jersey natural gas, we remain in a strong position to execute on our growth objectives with that I'll turn the call to Steve.

Thanks Roberto.

We are pleased to report strong financial performance ahead of our financial targets and raise our guidance range for the second time. This fiscal year. These results reflect the great work of our team and the combined strength of our businesses where.

We are working to grow our existing assets through organic growth initiatives, while positioning our portfolio of businesses to take advantage of the clean energy future.

And as existing infrastructure becomes more valuable our assets will continue to deliver earnings growth as well as help achieve our de carbonization goals.

We see these as parallel paths that are not mutually exclusive.

Stability at our regulated utility and the complementary investment opportunities provided by our other business segments provide strong profile for growth and benefit to our shareholders.

And Jr. Currently offers investors an attractive 10% to 12% expected total return based on our dividend yield of about three 2% and our long term Nf EPS expected growth rate of 7% to 9%.

We appreciate that you took the time to join us today.

Before I turn the call over to questions I want to take a moment and highlight that after 38 years of service to our company our director of IR, Dennis Puma has decided to call it a career.

We recently celebrated the <unk> anniversary of our New York Stock exchange listing with a bell ringing at the exchange.

Much of that time, Dennis has led our IR efforts with exceptional professionalism and personal care Dennis I'd like to thank you and I know I speak for everyone here and wishing you well.

With that I'll open the call for questions.

Thank you we will now start today's Q&A session. If you would like to ask a question. Please press star followed by one of your telephone keypad now if you change your mind. Please press star followed by chain and Wednesday and talk to your question. We ask you. Please on mute you'll find likely.

Next question comes from Richard Sunderland from J P. Morgan Your line is now like to Richard.

Hi, good morning, Thanks for taking my questions today.

Maybe starting with the inflation reduction.

And potential benefits since their impact.

Could you speak to what Youre seeing at this point, both in terms of impact to existing opportunities.

Is there any.

Janssen opportunities of some of the new tax credits considering legislation.

Hey, Richard.

So.

We're thinking about it right now.

Early to say exactly what's being under that legislation.

I'll speak to some of this down by inventory related.

Yes, generally we think it's very positive for our business.

Look at it and then you talked about extending the ITC support for clean energy and solar and battery storage support for hydrogen so a number of those initiatives if they come through in the legislation is important for us. So we're going to keep an eye on it and we'll certainly.

As information becomes available.

Right now, it's just too early to say anything definitive.

Got it understood.

And then with the renewables.

Were there any changes in terms of your timing expectations, either on the PJM front or the Btu fraud, and how are you thinking about line of sight to 2023 capital I guess, you don't over the over <unk> or into 2023.

We got the last laugh.

During this call we changed the capital plan, a little bit and I think reflective of some of these challenges going forward, the PJM accelerating or going to redo their process in order to accelerate the review of interconnections.

And the state of New Jersey is looking at putting in place.

Third the successor program and moving forward, we believe all of these to be constructive we adjusted our capital plan.

There were some delays going forward.

I would say that the fact that I want to leave you with is that we've got a very large pipeline.

Suggest going forward. So when this logjam and finally, the need that that we'll be able to develop we feel very confident.

And appropriate.

Our business going forward and you can tell from our earnings release today.

Tom mentioned portfolio businesses this quarter, our capital programs going forward.

Got it got it that's helpful color and then maybe one last one on my end the capsule.

The impact from higher gas prices given that brought down both 2022 and 2023 does that mean, you expect some normalization or I guess, even reverse in 'twenty four or could you just speak to the timing of both normalizing recovery and reverting some of the near term impacts.

Every future vertical.

Now what your assumptions are.

So we reduced our cash flows from operations.

Our $10 million.

Okay.

Sorry.

You mean, beckman coring gas prices remain in place until the end of the meeting before.

So that's definitely the Romanian gas.

Gas prices.

Significantly.

Thank you Marco.

Okay, Okay understood.

I'll leave it there for the time today and again best of luck.

Thank you.

Thanks Rich.

Our next question comes from Gabe Moreen from Mizuho. Your line is now open.

Likewise, one echo congrats to Dennis.

If I can start off with energy surfaces.

One understand how much benefit there may be in poor Q clearly theres been a lot of volatility and I. Just wanted to confirm is there any expectation that energy services' earnings share being drawn a little bit forward relative to.

Say, the traditional introduce services, earning profile of earning in the winter time.

Given the volatility we're seeing now or you could still see the same upside and went through as usual.

The last part of that question could you ask that again, you are asking whether the energy.

We're not necessarily pulling earnings forward here, Steve in terms of some of the volatility you're capturing now in the market versus kind of leaving yourself position for the winter.

No I'd say, it's just the opposite I mean, it's really a short term volatility in flows and you can see the inflationary pressures raising gas prices electricity prices there has been.

Natural hedge with data our portfolio of businesses, where we've been able to.

<unk> had some offsets to some of those inflationary pressures.

Some benefit to the company because of that and you see that the energy prices and increased volatility.

And I think what Youre seeing here is that the portfolio of assets outside of the EMEA continued to perform and provide value for NAR and we're also seeing it over at CEB, We're increasing electric prices has benefited for the amount of electricity that we sell into the wholesale markets.

On a daily and monthly basis as well so.

Certainly what I would like to see the inflation, but it is nice to see the businesses as they come together, we're able to work in concert and creating value.

Great and then maybe if I can ask kind of again on the CEB capex visibility I'm, just curious kind of what's your I guess ordering strategy is around components that you'll need for your future projects, maybe how that has changed and how that that wide capex range you have for 'twenty three.

So whether you could point to the low end or the higher end. It at this point in time.

It's too early to point to either.

Let's say the same things that we've said before that we have reserved and purchased another solar panels ahead of our construction schedule.

Pretty good hedging in place for a period of not only for the remaining part of this fiscal year.

These projects start to move into the next year's construction as well so feeling good about that.

And ultimately.

We think as we've said before we're talking to rich.

Some of these launches that are associated with the PJM process the state of New Jersey process.

Clearly, we've been able to develop that.

A large pipeline of projects that are.

Currently it's just a matter of just working through the process to get the development pilot construction.

Got it.

Steve You mentioned you took a visit to leaf River I'm wondering if you could give a little more color on <unk>.

Contracting there or what the profile looks or what.

What the uplift might be in contract terms or tenure of relative to what you've been seeing before.

The current volatility is certainly extremely supportive right.

Look after the aftermath of the storm.

Storm, Gary, which I noticed in the.

In the rearview mirror now, but ultimately it does impact that you've got forward volatility that continues storage and being able to balance that region as it becomes under more and more stress is going to be extremely important and we have seen increases in contracting and a lot of our contracts go out quarter multiyear term so.

Content revenue streams third quarter, but as those come to rollover and renegotiate.

We're expecting to get higher prices for that facility into the future so very constructive.

There is a fourth cabin and develops or if the market does get up to the point that there is more capital that can be.

We will certainly look at that as well so.

It's a good market to be in at this point.

Great. Thanks, Steve.

Just to remind everyone. If you would like to ask a question. Please press star followed by one on your telephone keypad now if you change your mind. Please press star followed by chain.

Next question comes from Travis Miller from Morningstar. Your line is now ladies and gentlemen.

Good morning, everyone.

Again congratulations.

Dennis has always been a pleasure here over the years working with you I appreciate all the help.

Thank you for that.

Yes sure.

In terms of customer bills I Wonder if you could talk a little bit about the trajectory you see going into the winter. Obviously, you had the gas prices.

Peak here earlier this year, and then going into the winter maybe coming down do you have those kind of hedging program through New Jersey system, what are customer bills looking like going into the winter months do you think.

And I mean, just speaking generally to the Travis Yes, we've got a pretty robust hedging program that's been in place for a very long time.

The majority of the gas supplies are purchased well ahead of the winter. So we've been able to largely insulate customers as much as we had customer bill increase that no one likes to see those increases.

We had.

Submitted to the GPU increased bills like 13%.

16.

And so ultimately you don't like to see it but if you compare that against wholesale gas market, which is up almost 200 or.

250% it was relatively nominal so insulating customer so that is good.

And certainly we will see how the marketplace that hopefully it normalizes back down.

More normal gas price at least in recent history.

<unk> customers will be largely insulated from the large increases in natural gas in place.

Okay. Okay. So I figured okay, and then second more high level.

What do you see right now even in the market in general not even necessarily for yourselves.

The constraints on green hydrogen where in the system.

Are you seeing those constraints or the production level people just aren't producing enough green hydrogen midstream.

Or is it something technical within your system or even at the distribution level in general.

Is that constraint right now.

I think I would describe the hydrogen market is evolving certainly maturing and then there is a lot of support for it.

<unk> Shah at the federal level.

And green hydrogen driving down the prices from their current levels that would like a dollar per kilogram, which is around $8 per data point on equivalent basis.

And I think once those prices come down and want us further development.

Then youre going to be able to bring.

That technology that fuel at a scale to be and Youll see that use integrated way. So I think it's a balancing act going forward, we've got a very high quality pipeline system and then Jr.

We believe we can deliver decarbonize fuels in the future. It's just a matter for these technologies to kind of the scale and over time like any of the creating and clean technologies as they come to scale, we will start to implement and drive our way towards a lower carbon impact future. So that's the way we're thinking about.

It's going to come over some time, but ultimately it is moving forward and there is a lot of.

I'll say third party effort outside of our company driving down this cost.

There's a lot of companies that are looking at it which is going to be helpful for us in the app for the whole industry.

Sure Okay, great. That's all I had thanks.

Thanks, Jonathan.

Thank you that does conclude today's Q&A session I will now hand, you back to Dennis for closing remarks.

Okay. Thank you operator.

Thank you for joining us today as a reminder, a recording of this call is available on our website.

As Steve said I'll be retiring in September . So this will be my last call and I wanted to take a few minutes to say a few words.

To my friends and colleagues and the financial community I want to thank you for the opportunity to work with your long term view and get to annuity over the past years.

It's been an amazing journey and there's no denying we've had a few laughs along way.

Also wanted to thank our entire management team one of the best in the industry for their support and always being available when I needed a question and answer or listening as we discuss the financial community and perspective on our initiatives.

Finally, I want to thank my family further unending support patients over the years guys. I can assure you that they won't be doing a number of November call is lessening.

As I transition into <unk>.

Comment why western I'll be doing some travelling perhaps back to some of those places where our volumes didn't come to terms and therefore.

<unk>.

Enjoying life with family and friends and this is news decided to finally forgive golf for doing so.

Hello, Unforgiving to me over the years and take another shot at it.

Let me know how that goes so thanks for the memories everyone.

Our path for cross again in the future, but until then and as always I. Appreciate we appreciate your interest and investment in New Jersey resources Goodbye.

Hi.

Okay.

That does conclude today's call you may now disconnect your lines.

Yeah.