Attached files
| file | filename |
|---|---|
| EX-99.1 - EXHIBIT 99.1 - EARNINGS RELEASE - NEW JERSEY RESOURCES CORP | pressrelease3q2017.htm |
| 8-K - 8-K - NEW JERSEY RESOURCES CORP | june2017earningsform8-k.htm |
Third Quarter Fiscal 2017 Update
August 2, 2017
2
Forward-Looking Statements
Certain statements contained in this presentation are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the
Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995. New Jersey Resources (NJR or the Company) cautions readers that the
assumptions forming the basis for forward-looking statements include many factors that are beyond NJR’s ability to control or estimate precisely, such as estimates of future market
conditions and the behavior of other market participants. Words such as “anticipates,” “estimates,” “expects,” “projects,” “may,” “will,” “intends,” “plans,” “believes,” “should” and similar
expressions may identify forward-looking statements and such forward-looking statements are made based upon management’s current expectations, assumptions and beliefs as of this
date concerning future developments and their potential effect upon NJR. There can be no assurance that future developments will be in accordance with management’s expectations
or that the effect of future developments on NJR will be those anticipated by management. Forward-looking statements in this presentation include, but are not limited to, certain
statements regarding NJR’s Net Financial Earnings (NFE) guidance for fiscal 2017 and NFE growth beyond fiscal 2017, forecasted contribution of business segments to fiscal 2017 NFE
and to NFE beyond fiscal 2017, dividend growth, growing energy demand, future New Jersey Natural Gas Company (NJNG) customer growth and margin growth, future capital plans
and expenditures and infrastructure investments, the effect of Solar Renewable Energy Certificate (SRECs) prices, supply, hedges and generation on NJR Clean Energy Ventures
Corporation (NJRCEV), the long-term outlook for NJCEV, diversification of NJRCEV’s strategy, energy efficiency opportunities, the effects of a hypothetical corporate tax rate reduction,
and the PennEast Pipeline project.
The factors that could cause actual results to differ materially from NJR’s expectations, assumptions and beliefs include, but are not limited to, weather and economic conditions;
demographic changes in NJR’s service territory and their effect on NJR’s customer growth; volatility of natural gas and other commodity prices and their impact on NJNG customer
usage, NJNG’s BGSS incentive programs, NJR Energy Services Company (NJRES) operations and on our risk management efforts; changes in rating agency requirements and/or
credit ratings and their effect on availability and cost of capital to our Company; the impact of volatility in the credit markets on our access to capital; the ability to comply with debt
covenants; the impact to the asset values and resulting higher costs and funding obligations of our pension and postemployment benefit plans as a result of potential downturns in the
financial markets, lower discount rates, revised actuarial assumptions or impacts associated with the Patient Protection and Affordable Care Act; accounting effects and other risks
associated with hedging activities and use of derivatives contracts; commercial and wholesale credit risks, including the availability of creditworthy customers and counterparties, and
liquidity in the wholesale energy trading market; the ability to obtain governmental and regulatory approvals and land-use rights such as those necessary for the PennEast Project,
electric grid connection (in the case of clean energy projects) and/or financing for the construction, development and operation of our unregulated energy investments and NJNG’s
infrastructure projects in a timely manner; risks associated with the management of our joint ventures and partnerships, and investment in a master limited partnership; risks associated
with our investments in clean energy projects, including the availability of regulatory and tax incentives, the availability of viable projects, our eligibility for Investment Tax Credits (ITC)
and Production Tax Credits (PTC), the future market for SRECs and electricity prices, and operational risks related to projects in service; timing of qualifying for ITCs and PTCs due to
delays or failures to complete planned solar and wind energy projects and the resulting effect on our effective tax rate and earnings; the level and rate at which NJNG’s costs and
expenses are incurred and the extent to which they are allowed to be recovered from customers through the regulatory process, including through future base rate case filings; access to
adequate supplies of natural gas and dependence on third-party storage and transportation facilities for natural gas supply; operating risks incidental to handling, storing, transporting
and providing customers with natural gas; risks related to our employee workforce; the regulatory and pricing policies of federal and state regulatory agencies; the costs of compliance
with present and future environmental laws, including potential climate change-related legislation; the impact of a disallowance of recovery of environmental-related expenditures and
other regulatory changes; environmental-related and other litigation and other uncertainties; risks related to cyber-attack or failure of information technology systems; and the impact of
natural disasters, terrorist activities and other extreme events on our operations and customers. The aforementioned factors are detailed in the “Risk Factors” section of our Annual
Report on Form 10-K filed with the Securities and Exchange Commission (SEC) on November 22, 2016, which is available on the SEC’s website at sec.gov. Information included in this
presentation is representative as of today only and while NJR periodically reassesses material trends and uncertainties affecting NJR's results of operations and financial condition in
connection with its preparation of management's discussion and analysis of results of operations and financial condition contained in its Quarterly and Annual Reports filed with the SEC,
NJR does not, by including this statement, assume any obligation to review or revise any particular forward-looking statement referenced herein in light of future events.
3
Non-GAAP Financial Measures
This presentation includes the non-GAAP measure, NFE. As an indicator of the Company’s operating performance, this measure should not be considered an
alternative to, or more meaningful than, GAAP measures, such as cash flow, net income, operating income or earnings per share.
NFE excludes unrealized gains or losses on derivative instruments related to the Company’s unregulated subsidiaries and certain realized gains and losses on
derivative instruments related to natural gas that has been placed into storage at NJRES, net of applicable tax adjustments, as described below. Volatility
associated with the change in value of these financial and physical commodity contracts is reported in the income statement in the current period. In order to
manage its business, NJR views its results without the impacts of the unrealized gains and losses, and certain realized gains and losses, caused by changes in
value of these financial instruments and physical commodity contracts prior to the completion of the planned transaction because it shows changes in value
currently as opposed to when the planned transaction ultimately is settled. An annual estimated effective tax rate is calculated for NFE purposes and any
necessary quarterly tax adjustment is applied to NJRCEV, as such adjustment is related to tax credits generated by NJRCEV.
Management uses NFE as a supplemental measure to other GAAP results to provide a more complete understanding of the Company’s performance.
Management believes this non-GAAP measure is more reflective of the Company’s business model, provides transparency to investors and enables
period-to-period comparability of financial performance. In providing fiscal 2017 earnings guidance, management is aware that there could be
differences between reported GAAP earnings and NFE due to matters such as, but not limited to, the positions of our energy-related derivatives.
Management is not able to reasonably estimate the aggregate impact of these items on reported earnings and therefore is not able to provide a
reconciliation to the corresponding GAAP equivalent for its operating earnings guidance without unreasonable efforts. For a full discussion of our non-
GAAP financial measures, please see NJR’s most recent Form 10-K, Item 7. This information has been provided pursuant to the requirements of SEC
Regulation G.
4
Highlights
Financial
Performance
• 3Q 2017 Net Financial Earnings (NFE)* per share of $.20, an
increase of 54 percent; fiscal year-to-date NFE per share of $1.88
compared with $1.63 last year
• Reaffirmed 2017 NFE guidance of $1.65-$1.75 per share
Diversified
infrastructure
opportunities
• Customer and utility gross margin growth continues at NJNG
• 64 percent FYTD increase in NJRCEV residential solar customers
• Three new commercial solar projects in service; two others under
construction
• Southern Reliability Link and PennEast Pipeline projects remain on
track
• Annualized dividend of $1.02 per share; up 6.3 percent fiscal year-
over-year
• 21 consecutive years of dividend growth; attractive dividend yield
Total return
potential
Key Project
Milestones
Customer
Growth
Attractive
Dividend
* A reconciliation from NFE to net income is set forth in the
Appendix on Slide 17.
5
60-75 percent of 2017 NFE Expected from Regulated Businesses
Projected Diversified Sources of Fiscal 2017 NFE
New Jersey
Natural Gas
55-65%
NJR
Midstream
5-10%
NJR Energy
Services
5-15%
NJR Home
Services/
Other
1-3%
NJR Clean
Energy
Ventures
15-25%
Regulated
businesses
6
Annual Dividend Growth Goal of 6 to 8 Percent
• 6.3 percent increase to current $1.02 annual rate; approved on September 13, 2016
• 23 dividend increases over the last 21 years
• Dividend payout ratio goal of 60 to 65 percent
$.72 $.77
$.81
$.86
$.92
$.96 $1.02*
0%
10%
20%
30%
40%
50%
60%
70%
$0.00
$0.20
$0.40
$0.60
$0.80
$1.00
$1.20
2011 2012 2013 2014 2015 2016 2017E
Pa
you
t
R
ati
o
D
ivi
d
e
nd
s
Dividends and Payout
Ind. Div Rate Payout
* Current annual rate, dividend payout ratio based on midpoint of NFE guidance
Dividend Strategy Supported By NFE Growth
7
Fiscal 2017 Third Quarter and Year-To-Date NFE
Net Financial Earnings
($MM)
Company 2017 2016 Variance 2017 2016 Variance
New Jersey Natural Gas $6.0 $3.6 $2.4 $96.5 $83.5 $13.0
NJR Midstream 3.0 2.3 0.7 10.3 6.9 3.4
Subtotal $9.0 $5.9 $3.1 $106.8 $90.4 $16.4
NJR Clean Energy Ventures 6.3 2.4 3.9 31.9 21.9 10.0
NJR Energy Services 0.9 0.3 0.6 20.2 27.6 (7.4)
NJR H me Services/Other 1.2 2.4 (1.2) 3.0 0.2 2.8
Total $17.4 $11.0 $6.4 $161.9 $140.1 $21.8
Per basic share $.20 $.13 $.07 $1.88 $1.63 $.25
Three Months Ended
June 30,
Nine Months Ended
June 30,
8
Fiscal 2017 Third Quarter and Year-to-Date Bridge
$.6
-$1.2
$11.0
$2.4
$0.7
$3.9 $17.4
$5.0
$7.5
$10.0
$12.5
$15.0
$17.5
$20.0
June 30, 2016 NJNG NJR Midstream NJRCEV NJRES HS/Other June 30, 2017
M
ill
io
n
s
Three Months Ended June 30, 2017
New Base Rates
and customer
growth
Higher utility
gross margin
AFUDC from
PennEast
Lower operation
& maintenance
expense
Additional Tax
Credits
$161.9
-$7.4
$140.1
$13.0
$3.4
$10.0
$2.8
$100.0
$110.0
$120.0
$130.0
$140.0
$150.0
$160.0
$170.0
June 30, 2016 NJNG NJR Midstream NJRCEV NJRES HS/Other June 30, 2017
M
ill
io
n
s
Nine Months Ended June 30, 2017
New Base Rates
and customer
growth
Higher utility
gross margin
AFUDC from
PennEast
Additional Tax
Credits
Fewer market
opportunities
Variances are after tax
9
NJNG Capital Investment Update - June 30, 2017
CAPITAL INVESTMENT
($MM)
3Q
FYTD
2017 2017E ACTIONS STATUS
NJNG 11
Customer Growth $9.0 $27.8 $34.9 Added 2,101 customers in FY3Q2017 On target to add 9,000 customers in FY2017
Maintenance 11.3 30.0 41.4 Capital spending to enhance system safety and reliability On track
Cost of Removal/Other 8.4 26.8 48.6 Capital spending to take replaced/retired pipe out of service On track
SAFE II 9.4 24.7 35.0
Five year, $157.5 million SAFE
extension program approved by the
NJBPU effective October 2016 to
complete replacement of 276 miles of
unprotected steel pipe
Replaced 38.2 miles through
FY3Q2017
NJ RISE 5.0 6.1 15.8
Work continues on storm hardening
projects, including installing excess flow
valves to prepare for future weather
events
Sea Bright reinforcement
completed in April. Ship Bottom
regulator re-design on track to be
completed and operational by
September 2017.
Southern Reliability
Link 1.2 3.0 6.0
Reduced FY2017 capital expenditure
estimate due to timing of permitting
process
Expected to be in service in late
FY2018
Total NJNG $44.3 $118.4 $181.7
10
Strong Customer Growth Continues
• FY3Q 2017: 2,101 new customers added
• 1,291 new construction
• 810 conversions
• 9 Months: 6,231 new customers added;
up nearly 18 percent over last year
• 3,994 new construction
• 2,237 conversions
• FY2017-2019: 60/40 percent new
construction and conversion mix
• Margin impact: Residential customers
contribute 70 percent of utility gross
margin
• Return of Superstorm Sandy customers
adds to growth rate in FY 2017 and beyond
5,289
6,231
7,599 7,858
8,170
9,000
0
2,000
4,000
6,000
8,000
10,000
12,000
FY14A FY15A FY16A FY17E FY3Q 16 FY3Q 17
C
u
st
o
m
e
rs
Customer Additions
New Construction Conversions
26,000-28,000 New Customers Expected from Fiscal 2017-2019;
A Growth Rate of 1.7 Percent
11
NJRCEV Assets Placed Into Service*
CAPITAL INVESTMENT
($MM)
3Q
FYTD
2017 2017E ACTIONS STATUS
NJRCEV 11
Commercial Solar $51.8 $52.7 $63.9
2.5 MW project for Brick Board of
Education (BOE) and 20 MW Pemberton
projects completed and in service
Two other projects under
construction
Residential Solar 8.4 27.8 38.5 328 new customers added in FY3Q2017, for total of 1,008 in first nine months
Approximately 6,100 Sunlight
Advantage® customers
Wind - 89.0 89.0 Ringer Hill wind farm completed Five wind farms in operation
Total NJRCEV* $60.2 $169.5 $191.4
* Based on projects qualifying for federal tax credits. As of June 30, 2017.
12
SREC Pricing and Hedging Strategy
Pct. Hedged: 98% 89% 75%
Average Price: $229 $225 $190
Current Price (EY): $248 $190 $175
As of June 30, 2017. Source: InterContinental Exchange (ICE)
179 195 169
-
20
40
60
80
100
120
140
160
180
200
220
240
260
EY17 EY18 EY19
Th
o
u
sa
n
d
s
o
f
SR
EC
s
Energy Year - Operational & Under Construction Facilities
Hedged Unhedged Operational
182
224219
NJRCEV mitigates price risk through an active hedging program to
stabilize revenue
13
NJR Capital Plan
($MM)
3Q
F2017A
FYTD
2017A
2017E 2018E 2019E
2017-2019
Total
New Customer $9.0 $27.8 $34.9 $34.7 $37.0 $106.6
Maintenance 11.3 30.0 41.4 45.4 53.6 140.4
Cost of Removal/Other 8.4 26.8 48.6 42.2 34.4 125.2
SAFE II 9.4 24.7 35.0 37.6 41.0 113.6
NJ RISE 5.0 6.1 15.8 27.4 22.6 65.8
Southern Reliability Link 1.2 3.0 6.0 149.9 - $155.9
Total NJNG $44.3 $118.4 $181.7 $337.2 $188.6 $707.5
Midstream $13.6 $24.1 $38.0 $138.8 $37.7 $214.5
Residential Solar $8.4 $27.8 $38.5 $41.6 $42.9 $123.0
Commercial Solar 51.8 52.7 63.9 59.0 69.5 192.4
Subtotal $60.2 $80.5 $102.4 $100.6 $112.4 $315.4
Wind - $89.0 $89.0 $121.8 $81.2 $292.0
Total NJRCEV * $60.2 $169.5 $191.4 $222.4 $193.6 $607.4
GRAND TOTAL $118.1 $312.0 $411.1 $698.4 $419.9 $1,529.4
* Based on projects qualifying for federal tax credits
As of June 30, 2017
Regulated Sources to Generate 60 -75 Percent of Fiscal 2017 NFE
14
NJR Sources and Uses of Capital
$0.0
$100.0
$200.0
$300.0
$400.0
$500.0
$600.0
$700.0
$800.0
$900.0
Sources Uses Sources Uses Sources Uses
M
ill
io
n
s
Cash Flows
LT Debt Equity CFFO Capex Dividends
Capital Plan Supports Infrastructure Investments,
While Maintaining Strong Balance Sheet
2017E 2018E 2019E
15
Creating Long-Term Value
• Growing customer base generates incremental utility gross
margin of approximately $5 million annually
• Projected annual rate base growth of approximately 6 percent
• Collaborative regulatory relations
Diversified
infrastructure
opportunities
• Continued investment in infrastructure projects totaling nearly
$450 million over the next three years
• Invest in regulated Midstream projects
• Public policy supports investments in clean energy projects
• Capital allocation strategy supports long-term growth
• Efficient financial profile supports access to capital and
maintains investment grade credit ratings
• Solid earnings performance supports strong dividend growth
Strong financial
profile and
access to capital
Diversified
infrastructure
opportunities
Solid utility
investment
platform
16
APPENDIX
17
Reconciliation to Non-GAAP Measures
A reconciliation of NFE for the three and nine months ended June 30, 2017 and 2016 to net income is provided below:
18
Key Trends Support Future Customer Growth
On Main,
32,100
Near Main,
28,300
Off Main,
42,200
Non Heat,
5,600
Residential Conversions4 = 108,200
4. Source: NJNG
$0.00
$1.00
$2.00
$3.00
$4.00
$5.00
NJNG Fuel Oil Propane Electricity
$0.97
$1.91
$4.10 $4.10
Equivalent Customer Cost2
2. Source: US Energy Information Administration. As of March 2017. Based
on 100,000 comparable BTUs.
2017 – 2019
= 11,775
2020 - Buildout
= 69,176
3. Source: A.D. Little
-
2,000
4,000
6,000
8,000
NJNG Monmouth Ocean Morris
5,419
1,952
2,624
843
Building Permits Issued1
2016
1. Source: US Bureau of Census
Residential New Construction3 = 80,951
19
NJR Projected Cash Flows
$MM 2017E 2018E 2019E
Cash Flow from Operations $228.5 $276.1 $258.1
Uses of Funds
Capital expenditures - NJNG ($181.7) ($337.2) ($188.6)
Capital expenditures - PennEast (38.0) (138.8) (37.7)
Capital expenditures - NJRCEV (132.3) (223.4) (202.0)
Dividends (86.5) (91.2) (98.4)
Total Uses of Funds ($438.5) ($790.6) ($526.7)
Financing Activities
Common stock proceeds, net $16.0 $100.0 $50.0
Debt proceeds, net 194.0 414.5 219.2
Total Financing Activities $210.0 $514.5 $269.2
As of June 30, 2017.
20
NJRCEV – Commercial Solar Portfolio
Net
In-Service Capital Cost Total Metered Wholesale
Facility Location Date ($MM) MW MW MW
FY2011 Fieldcrest Edison Township Feb-11 $2.3 0.5 0.5
Blair Road II Woodbridge Township Mar-11 6.9 1.3 0.3 1.0
Herrod Solar Facility South Brunswick Township Jul-11 4.7 1.0 1.0
South River Road Cranbury Jul-11 4.4 0.9 0.3 0.6
$18.3 3.6 2.1 1.6
FY2012 Brunswick* Edison Nov-11 $3.1 0.6 0.7
160 Raritan* Edison Township Nov-11 3.6 0.7 0.7
The Vineland Vineland Nov-11 22.3 4.7 4.7
McGraw-Hill Windsor Township Dec-11 61.8 14.1 14.1
Manalapan Village Manalapan Township Dec-11 18.1 3.6 3.6
$108.9 23.8 14.1 9.7
FY2013 Reeves Station Road East Medford Oct-12 $19.7 6.7 6.7
Wakefern 5000 Riverside* Woodbridge Township Dec-12 6.6 2.4 2.4
Medford Wastewater Treatment Plant Medford Jul-13 4.5 1.5 1.5
Abescon Community Schools Complex Abescon Sep-13 2.6 0.9 0.9
$33.4 11.5 4.8 6.7
FY2014 Woolrich Township Municipal Complex Woolrich Township Dec-13 $1.0 0.3 0.3
Reeves Station South Medford Dec-13 4.8 1.4 1.4
West Pemberton Pemberton Township Jun-14 22.4 9.2 9.2
Jacobstown North Hanover Township Jul-14 15.4 6.1 6.1
$43.6 17.0 0.3 16.7
FY2015 Rock Solid Howell Township Dec-14 $25.8 9.9 9.9
North Run North Hanover Township Jan-15 15.8 6.3 6.3
Franklin Township Board of Education Pittstown Apr-15 1.6 0.4 0.4
Harmony Phillipsburg Jun-15 10.1 3.9 3.9
Hanover North Hanover Township Sep-15 15.1 6.0 6.0
$68.4 26.5 0.4 26.1
FY2016 East Amwell East Amwell Township May-16 $7.3 2.3 2.2
Junction Road Raritan May-16 12.4 5.4 5.4
Sharon Station Upper Freehold May-16 8.0 3.3 3.3
Bernards Landfll Bernardsville Sep-16 9.9 3.7 3.7
Cedar Branch Buena Vista Township Sep-16 16.8 7.2 7.2
$54.4 21.8 0.0 21.7
FY2017 Pemberton Township (Phase 1) Burlington County May-17 $22.3 10.0 10.0
Pemberton Township (Phase 2) Burlington County May-17 22.3 10.0 10.0
Brick Township Schools Brick Township Jun-17 6.6 2.5 2.5
Westfield Township Board of Education* Union County Aug-17 4.4 1.6
Stonybrook Sewage Authority* Princeton Aug-17 8.4 3.0
$51.1 22.5 2.5 20.0
Total Commercial Solar $378.1 126.7 24.2 102.4
* Project not included in totals until it is in service.
21
NJRCEV: Onshore Wind Farm Portfolio
Capital
In-Service Cost Total Capacity Hedge
Wind Farm Location Date ($MM) MW Factor Percentage
FY2014 Two Dot Two Dot, Montana Jun-14 $20.7 9.7 42.8 100.0
$20.7 9.7
FY2015 Carroll Area Carroll, Iowa Jan-15 $42.0 20.0 49.7 100.0
$42.0 20.0
FY2016 Alexander Rush County, Kansas Dec-15 $84.5 50.7 49.2 100.0
Medicine Bow Carbon County, Wyoming Sep-16 3.9 6.3 32.5 100.0
$88.4 57.0
FY2017 Ringer Hill Somerset County, PA Dec-16 $88.9 39.9 35.0 67.0
$88.9 39.9
Total Onshore Wind $240.0 126.6
22
Effects of Hypothetical Corporate Tax Rate Reduction on NJR
Income Statement EPS Impact
NJNG net income* Flat
Non-regulated net income Annual Increase
Revaluation of net deferred tax liabilities, non-regulated One-Time Increase
Balance Sheet Balance Sheet Impact
Equity
(Impact of one-time revaluation of non-regulated deferred tax
liabilities + earnings increase)
Increase
Net deferred tax liabilities Decrease
Other Impact
Tax Appetite Decrease
* Assumes similar treatment as in 1986 corporate tax reduction
Third Quarter Fiscal 2017 Update
August 2, 2017