New Jersey Resources Corporation (NJR) Q3 2021 Earnings Call Transcript

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New Jersey Resources Corporation (NJR -0.21%)
Q3 2021 Earnings Call
Aug 5, 2021, 10:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, good morning. Good afternoon. Good evening. My name is Zed and I'll be your conference operator today. At this time, I would like to welcome everyone to the nj resources q3 fy 21 conference call. [Operator Instructions]

Thank you. I now invite Kumar, head of investor relations europese to begin the conference, sir.

Dennis Puma -- Director of Investor Relations

Thank you, James. Good morning, everyone. Welcome to New Jersey resources third quarter fiscal 21 conference call and webcast. I'm joined here today by Steve Westerman. 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. wish to caution listeners of this call that the current expectations and beliefs for new 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 explained on slide one. These items can also be found in the forward looking statements section of today's earnings release first on form 8k, and in our most recent forms 10k 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 statement referenced here and in light of future events. We will also be referring to certain non GAAP financial measures such as Net Financial earnings or NSE. We believe that NSE or net financial loss provide a more complete understanding of our financial performance. However, they are not intended to be a substitute for gap or non gap financial measures are discussed more fully in this presentation in today's earnings release, and in item seven of our 10k. Our agenda for today is found on slide two. Steve will begin today's call with highlights from the quarter followed by Pac review, our clinic will review our financial results. We'll then open the call to your questions. The slides accompanying today's presentation are available on our website and were first on our form 8k filed with the SEC this morning.

With that said I'll turn the call over to our president and CEO Steve West. Steve.

Stephen D. Westhoven -- President and Chief Executive Officer

Thanks denniston. Good morning, everyone. Thank you for joining us today. This morning reported third quarter gap loss the dollar 16 cents per share the net financial loss of 50 cents per share. During the quarter we incurred a one time after tax impairment charge of $72.7 million related to our investment in the pennies project. Well, this is included her net income for the quarter it is excluded from and does not impact our net financial earnings. It remains our belief that pennies important and needed project to serve energy demands in the northeast. The impairment we've taken reflects the ongoing uncertainty around the projects in service state and the regulatory milestones needed to achieve it. As a reminder, in November, it removed pennies from our forecasts and the impairment has no bearing on our long term growth targets. Moving on to the highlights of the quarter we are increasing our fiscal 2021 and ftps guidance to a range of 210 to 220 per share. This guidance increased the third one for this year is driven by better than expected results in energy services and our ejss incentive program at New Jersey natural gas. We're also pleased to report that construction and final testing on the southern reliability link are complete with an expected in service date later this month.

Clean Energy ventures despite delays for some of the in service dates of some of our investments, our project pipeline remains robust. We now have more than 70% of our original 350 $15 million capex target for fiscal years 21 and 22 either operational under construction or under contract. We've river our natural gas storage facility in the city increased the long term commitments of new and existing customers significantly de risking our future revenues. And finally, Adelphi gateway received a first notice to proceed for construction of laterals and interconnects and the South Zone of the project. We expect to place a number of adelphia project facilities into service by the end of this year. Turning to slide four, we wanted to provide an update on the progress made on some of the initiatives we discussed during our analyst day last November. In New Jersey natural gas We completed the construction of SRL and filed the rape case. We're also excited to report that construction has begun on our first green hydrogen project. This is an important step in the decarbonisation strategy laid out during our handles day. It furthers our ongoing efforts to decarbonize our business, as we move toward a future that includes more low and zero carbon fuel sources. As promised, we began to diversify our CD project pipeline nearly 25% of our fiscal year 21 and 22 capacity target is expected to come from projects outside of New Jersey. We also took steps to reduce the volatility of CDs earnings by adopting furl method of accounting for IPC.

And we're improving our cash returns by utilizing tax equity financing for our solar projects, helping to accelerate the monetization of our tax attributes. As I mentioned earlier, our storage and transportation business has the risk future revenue streams by increasing leaf rivers long term contracted revenues with high quality customers. And as we'll discuss later, our progress continues and adelphia gateways construction despite some regulatory delays, or energy services business entered into a series of asset management agreements that will significantly increase the predictability of that segments earnings, while still allowing them to retain the potential upside associated with our long options strategy. These accomplishments have led to solid financial results and strong cash flows that provide a clear pathway for achieving our long term earnings growth target of six to 10%. Turning to slide five, I'll provide an update on a rape case. Last month, we adjusted our filing to include nine months of actual results. Also, since we expect SRL to be in service by the end of this month, it will no longer be treated as a post test your adjustment. In total, we are now requested an increase to base rates of almost $164 million. The rape case is progressing as scheduled, and we hope that VPS review will be completed before the end of 2021. We will continue to work with them toward a resolution that balances the interest of our customers and the company.

Turning to the business unit results on slide six liters natural gas has invested $365 million so far this year with about 25% of the cap x providing a near real time return. And despite the pandemic we added over 5400 customers so far this fiscal year. to slide seven, as part of the decarbonisation strategy outlined in our analyst day, we discussed the important role hydrogen will play in our energy future. Our first power to gas project is now under construction, and will enable the blending of hydrogen into our distribution system. This will create awareness with our regulators and policymakers to build expertise to allow us to scale as the market continues to develop. using electricity source from adjacent solar facility will be separated into hydrogen and oxygen and the carbon free hydrogen will be blended into our distribution system. We expect the project being serviced this fall and once completed will be the first utility on the East Coast directly injecting green hydrogen into an existing natural gas distribution system. Green hydrogen isn't the only alternative fuel opportunity that New Jersey natural gas is pursuing. Now on slide eight, you see that we are working toward a broader sustainability strategy focused on decarbonizing our core infrastructure. In addition to our hydrogen project, we're exploring investment opportunities in renewable natural gas within our service territory.

This RNG and hydrogen technologies continue to scale we expect that our existing natural gas distribution system will to deliver more decarbonize fuel, dramatically reducing emissions without the need for a massive build out of costly infrastructure required for full application. by maximizing the benefit of our existing infrastructure, which is best in class, we see a practical path toward decarbonisation for both both New Jersey and ratepayers. Our team is focused on putting our strategy into action for new investments, we'll provide updates as we progress. During the CV of slide nine to the first nine months of the fiscal year, we had an 8.4 megawatts of incremental capacity, which is lower than originally anticipated. The inservice states have several of our commercial projects that shifted in fiscal to fiscal 2022 due to pandemic related permitting and interconnection issues. And while these challenges have significantly impacted project completion in fiscal 2021, we view these industry wide impacts is short term. Moving to slide 10, you'll see our commercial capex targets remains at $315 million dollars for fiscal years 21 and 22. As mentioned earlier, more than 70% of this capex target is already operational, under construction, or under contract. We will continue to monitor any potential ongoing pandemic factors as our pipeline of projects progresses, and in addition, TV continues to diversify and grow its project pipeline through expansion efforts outside of New Jersey during the slide 11 on July 28, the bpu approved the initial phase of the New Jersey As the solar successor program announcing incentives for landfill the net metered solar projects under five megawatts and size.

The second phase of the successor program will be based on a competitive bid process for projects greater than five megawatts. Both phases will be independent of the s Rec and P rec programs. The current t rep program will close new applications on August 27. And the new program as rec two will open to new applications on August 28. We are pleased to report that more than half of our fiscal 21 and 22 New Jersey projects have been secured under the T rec program. And that percentage may increase based on pending applications. New Jersey is committed to its solar industry targeting 750 megawatts per year new capacity through 23rd. And it's part of the new program rollout the state is committed to access assess progress after 12 months to ensure New Jersey is on track to meet its solar targets. The successor program will provide cdv with investment opportunities.

That combined with added state diversification allows to achieve the goal of doubling our installed capacity by 2024.

David Johnson -- Vice President, Corporate Business Development

Now let's talk about our storage and transportation business beginning on slide 12. Critical federal and state approvals have been obtained for both phases one and two of the Adelphi gateway project. During the quarter the project received its first notice to proceed for phase two of the construction on the south. So which includes key laterals and interconnects with Columbia transcoding Pico. As you may recall, construction of phase one began last October. We expect a number of adelphia gateway facilities to be operational by the end of this year. And our expectation is the project will be fully in service by the end of 2022. I think he remains on track to achieve a four year adjusted EBIT a kegger of 20% as we discussed our analysts routine detail details the progress that we've made toward de risking storage and transportation future revenue streams. The team has done an excellent job of increasing the percentage of long term contracted revenue associated with our storage and transportation assets that we've river we've scored $45 million of additional contracts through fiscal 2024 with new and existing credit worthy customers.

I'll now turn the call over to pat for some details on the financials.

Patrick Migliacci -- Senior Vice President and Chief Financial Officer

Thanks, David. Good morning, everyone. Why 15 shows the main drivers are NFP for the third quarter. reporting the net potential loss of 14 point 1 million or 15 cents per share dividend of 2.7 million or three cents per share in the third quarter of fiscal 2020. And jG NSE was lower due to one of expenses to increase that debt and compensation expense. CVX saw a modest increase in equities and lower depreciation expense partially offset by increases in expenses that are project maintenance and leasing. As if he was more familiar with the the higher expense, delta gateway and deferred requisitions or services was down 5.9 million just timing and certain storage charges. Also, although excluded from the recruiting 92 million or 72 point 7 million after tax, the permit charge on investment independence project, since it previously removed pennies from our financial projections dependent has no impact on our ability to achieve our long term npps dividend cash flow from operations growth targets. Slide 16 or summarize the evolution of our NFP and fpps guidance for fiscal years 2021 and 2022 2021 was going to be reset here with lower NFV than fiscal 2022. primarily to the change they came in with the price of seeds going from closer to full method and also some regulatory lag with these items we expect to recover as part of our 2021 rape case filing in March. And then we increased our nfps guidance due to the outperformance of energy services resulting from winter storm Europe.

Today we're increasing our FISMA forward guidance again. The expected results from nj GS PG SS incentive program but also services through my volatility associate with slightly warmer than normal weather in the summer, coupled with certain interstate gas pipeline constraints fiscal year 2022 I think this guidance was originally in the range of 205 to 215 per share subsequent trials day, we know that energy services have entered into a number of asset management agreements with investment grade rated utility. Their q1 earnings call we raised our nspcs guidance from 2020 to carranger between 220 and 230, mostly driven by the NHS services. And today we're affirming our fiscal targets with the guidance range of 2.8 to 233 517. I'll take you through some highlights of our capital plan for fiscal 21 and 22. For njg, we expect our capital spend for those years to come in line with what projected during our November analysts day. As we mentioned earlier, we saw the insert of states for many of our CBD commercial project shifts with this for 2022. The capital of the province placed in service for the fiscal year the date is about 17 million. On the total capital spent, including construction work in progress for CV is approximately 50 million. we adjusted our capital plan accordingly.

For fiscal 21, we now expect to spend between 50 and 60 million CV compared to our prior forecasts are approximately 66 to 88 million. For 2022. We now expect to spend around 280 million in federal price of 250 million. Pretty exciting team, you can see the updates our cash flows and financial projections, or cash flow from operations remain strong with no block equities for the foreseeable future. For the quarter, we cash over the last portion of the equity for that we haven't placed really into our December 2019 equity options. On slide 19, we've highlighted the details or as our federal program will hatch the next 300 years. And now 94% of our 24th is the market fundamentals range is 2526 are supporting strong pricing, lift it's trading at or above 85% of the CCP. We're not 37 and 11% head for those years respectively.

The callback speaks closer, Lars.

Mark G. Kahrer -- Vice President, Regulatory Affairs

Thanks, Pat. Before I open the call questions, I'd like to summarize the quarter as your continues to deliver strong results the first nine months of this year, the strength of our business led by energy services and using natural gas has allowed us to increase and VPNs fdps guidance for the third time this year. Our rate case continues to progress on schedule, and we look forward to a resolution later this year. SRL is now complete. We expect it to be in service later this month. Our CV project pipeline remains strong with over 70% of our targeted capex either operational under construction or under contract, receive Burke approval and began construction on the second phase of the Delta gateway. And we river significantly buress its revenues going forward through long term contracts with new and existing customers. I want to thank all of our employees for their hard work throughout this year.

And I'll now open the call for questions.

Questions and Answers:

Operator

Thank you very much. [Operator Instructions] The first question is from line of gabe Maureen from Mizuho, please go ahead.

Gabe Moreen -- Mizuho Securities -- Analyst

Morning, everyone.

Stephen D. Westhoven -- President and Chief Executive Officer

Good morning.

Gabe Moreen -- Mizuho Securities -- Analyst

Yeah, good morning, I just wanted to maybe start off and ask on sort of the hydrogen potential RNG investments, maybe a few things to speak to kind of how you view this hydrogen investment in terms of what the next steps would be? If this investment proved successful? Do you have room to potentially build additional plants on your existing sites, for example? And then as far as RNG goes, can you just remind us what the latest developments are in terms of regulatory treatment around RNG? Whether it's right basing your own investments, or being able to pass through RNG costs or costs of gas to customers and how to recover those costs? So I'm curious how you're thinking about kind of going down that orangey path?

Stephen D. Westhoven -- President and Chief Executive Officer

Okay, so I'll answer the first question just broadly. So you know, injecting hydrogen into our system, it's not a new technology, they're doing it over Europe. And in fact, in other parts of the US, they're doing it. So, you know, we're going to prove it out for our system. And you know, we expect it to be successful. And then we will have the ability to scale. And this is really pointed to the carbonization strategy for the fuel that we delivered to our customers. And really to prove out not only that we're able to do it, but we should be able to decarbonize and do it cheaply and effectively, in the future. We are pursuing a number of RNG opportunities within our service territory, but I'm going to ask Mark Harris, who's the senior vice president head of regulatory, they answer the question about how that will flow through essentially reduce regulatory trade.

Gabe Moreen -- Mizuho Securities -- Analyst

Thanks steve.

Stephen D. Westhoven -- President and Chief Executive Officer

There are two opportunities that we're looking at right now. One would be a direct investment in the processing plant. We believe we have the authority under what was the 2005 revenue legislation that enabled us to invest not only in efficiency, but also in renewables as well. And the definition of renewables modified by the state, a number of different types, which incorporates renewable natural gas. So we believe we have the authority will continue continue to have discussion with our regulators about that. There's also pending legislation that's been introduced in the state also to encourage the bpu to take a closer look at RNG cheering that not only direct investment and operation Have those assets, but also procurement of renewable natural gas would be under, you know, under their authority renewed and effectively within the state to begin decarbonizing the gas streams as well. So, the second opportunity would be a direct purchase from, from another facility that, you know, whether it's food waste, anaerobic digester, or another processing plant that's taking landfill gas and and cleaning it up, and having a very clear objective worldwide. And basically buying it like it's a third party appliance that third parties can inject directly into our system. So we believe we have authority to do all that now. But again, it's something that we'll continue to work with our regulators to ensure that everybody's on the same page that we go global. Thanks.

Patrick Migliacci -- Senior Vice President and Chief Financial Officer

But this is, just as a reminder, from a Capital Planning perspective, we've only included the one hydrogen pilot project and the potential RNG opportunity. those investments totaled between 30 and $40 million over the next two years, and ultimately support the double digit rate based kegger that we talked about.

Gabe Moreen -- Mizuho Securities -- Analyst

Thanks, everyone. And then maybe if I can switch a little bit to the midstream side of things, can you just maybe talk about some of these new contracts, that leaf river, do you think those were prompted mostly by winter storm, LNG, all of the above, and I'm just curious, relative to expectations, what the pricing has been on those contracts, whether you're seeing some sort of offload level to par contract.

Patrick Migliacci -- Senior Vice President and Chief Financial Officer

So you know, a number of those were in motion priority to Yuri occurring, but you know, certainly an extreme event like that doesn't hurt the contracting on a forward basis, you know, for any facilities, you know, down in that region. You know, I think it's gas becomes such an important part of making a reliable energy mix, that, you know, quick turn, storage is like, leave river will become, you know, even more valuable, but just a little bit of color, I think it's, it's probably similar to slightly ahead of what our existing contracts were. So you know, overall, supporting the investment thesis that we had for making the investment in leaf river, and it's certainly very supportive of essentially the market going forward.

Gabe Moreen -- Mizuho Securities -- Analyst

Great. And then last one for me, if I can just on the CV side of things, if I'm hearing you correctly, it doesn't sound like the shifting regulatory landscape in New Jersey, is altering either your capex plan in the state versus out of state? And can you just speak to whether or not you know, you think the shifting landscape authors of the earnings trajectory significantly here over the next call, 24 months over the five year plan?

Stephen D. Westhoven -- President and Chief Executive Officer

It doesn't, it doesn't alternate, you know, I think, what we expect the New Jersey's been a strong supporter of solar for quite some period of time. And if you look at the target capacity that they want to install every year, it's about 750 megawatts per year, and typically of installing about 300 megawatts per year, you know, the past 10 years. So I think that that's a statement in itself. And we expect that the programs that they're rolling out that we'll be able to participate in, you know, we're optimistic for the future. So, you know, we're not expected to change any, any guidance that we've given in the past due to this.

Gabe Moreen -- Mizuho Securities -- Analyst

Great Thanks to you. Thanks, everyone.

Stephen D. Westhoven -- President and Chief Executive Officer

Thank you.

Patrick Migliacci -- Senior Vice President and Chief Financial Officer

Thank you.

Operator

Thank you. Our next question is from the line of Travis Miller from Morningstar, please go ahead.

Travis Miller -- Morningstar -- Analyst

Morning, everyone.

Stephen D. Westhoven -- President and Chief Executive Officer

Hey, Travis

Travis Miller -- Morningstar -- Analyst

Assuming you're going to constructive outcome, in the right case, and as you look at the capital plan, what's your thought in terms of medium term timing on going back to regulators for either rate relief, or potentially even some kind of project specific type of tracker, something like that?

Stephen D. Westhoven -- President and Chief Executive Officer

So I'm gonna ask mark, Kara, to answer that question. Because we are we we are taking a look at the timing of our next rate case, the next base rate case, that was in our investor day, we think that somewhere out in the 2324 timeframe, that hinges upon the completion of the VIP projects, where we're basically expanding substantial capital on both the replacement of the working asset management system and the customer information system with respect to other infrastructure trackers that we might have. We're right now. Setting as we wrap up our safe to program, what a successful program, what that may look like. So we do have vintage code. South Dakota existing right now it is hypnotically protected. So assessing both the timing of that investment, and the timing of that event infrastructure tracker as well.

Travis Miller -- Morningstar -- Analyst

Okay, great. And then just to follow up on the previous question about the incorporation of the hydrogen system, do you think there's regulatory backing or imports to put a tracker in for those type of projects? Or is that something that you foresee going through future base rate cases?

David Johnson -- Vice President, Corporate Business Development

So Travis, I mean, it certainly aligns itself with the governor's energy master plan. And, you know, certainly decarbonizing, you know, our fuel stream and delivery to our customers. So, you know, I think the way the way to answer that question is that we're working through the process. Now, you know, we've got an ongoing rate case, and certainly a project that's active. we're optimistic that due to the alignment with the administration, that we should be able to receive some regulatory treatment that, you know, for our customers.

Travis Miller -- Morningstar -- Analyst

Okay. And then just real quick clarification, would you anticipate putting that the project that's going on right now, the power to guess, in a future rate case? Or have you already talked about a potential tracker, if UVC, stuff like that?

David Johnson -- Vice President, Corporate Business Development

That project is part of our filed rate case, that will hopefully conclude at the end of this calendar year?

Travis Miller -- Morningstar -- Analyst

Okay. Great. Thanks so much.

David Johnson -- Vice President, Corporate Business Development

Thank you.

Stephen D. Westhoven -- President and Chief Executive Officer

Thank you.

Operator

Thank you very much. [Operator Instructions] Our next question is from the line of Julian Smith from Guggenheim partners, please go ahead.

Julian Smith -- Guggenheim partners -- Analyst

Hey, it's actually voti Clark from Bank of America. So So maybe if we can go back to the solar successor program quickly, and I think previously, you're assuming point nine factor on the tea rack going forward, and you had that revenue mix out through 2024 of those around 20%? Just from T Rex. You know, I'm wondering how you're thinking about that going forward with this new incentive level? What are you assuming for new projects when it sets the level? Are you assuming and then I guess, you know, how does that revenue mix? Change going forward?

Stephen D. Westhoven -- President and Chief Executive Officer

So Cody, Pat's gonna answer the question on the details with the T rec factors. Reporting, it's basically up to you, I think, obviously, there are a number of various incentives underneath the successor program. And so our prior assumption, as of the analyst day we baked in was that roughly 50% of our projects live in source within New Jersey 50%, outside of New Jersey, as we communicated as a planning assumption, ultimately, what we've actually seen today is that 20% of the projects travesty leaving the majority in state, the successor program is broadly supportive of continued investment. And at the end of the day, we're going to direct our investments toward those projects that allow us to preserve the returns closer to that seven, seven half percent IRR. And so that's the way that I think you're getting to a modeling question here, which is, just think about a support level to get you that seven to seven half percent IRR.

Julian Smith -- Guggenheim partners -- Analyst

Okay, got it. And then just on the the 750 megawatt goal that New Jersey has outlined versus kind of what we've been seeing, historically, that's 300 megawatt level. wondering what's your seen, historically, and market share of that 300 megawatts, and then what you're seeing going forward?

David Johnson -- Vice President, Corporate Business Development

I think historically, we've been about 10% of the market share. So we will see how it ends up, ends up playing out. The BP will be doing a certification for larger projects, and we'll be participating in that. But you know, as things progress, we'll certainly keep keep everybody informed how we're doing.

Julian Smith -- Guggenheim partners -- Analyst

Okay, and then, sorry to stick with the Clean Energy ventures being here, but it looks like you've narrowed your your catbacks estimates On the commercial solar side, just quarter over quarter, you know, what's driving that confidence and being able to narrow your your capex range? Then, you know, second to that, how are you seeing the kind of inflationary backdrop that we've seen the panels and freight and everything? How is that playing into that?

David Johnson -- Vice President, Corporate Business Development

We're just motioning, to take the question. So I'll take the second part of the question as far as inflationary. So if you look at the projects that we have, in the pipeline, for the next few years, we largely have, I guess, a majority of the materials, you know, purchased or locked up as far as it goes. So we're, we'd be dipping into late 20 to early 23. into the kind of the inflationary pressures if there are any at that point, as far as the cap x now in the guidance range path you take that is clearly in terms of their the range that really ties back to the fact that we've got, you know, over 70% of the projects identified in the pipeline, so clear line of sight on what those projects look like, what they'll cost and so you know, that confidence, the pipeline allows us to narrow the range of the capital plan.

Julian Smith -- Guggenheim partners -- Analyst

Okay, understood. Thanks so much for your time.

David Johnson -- Vice President, Corporate Business Development

Thank you.

Stephen D. Westhoven -- President and Chief Executive Officer

Thank you.

Operator

Thank you very much. There are no further questions. I now hand the conference over to the presenters. Please go ahead.

Mark G. Kahrer -- Vice President, Regulatory Affairs

Okay, thank you. I want to thank everyone for joining us this morning. As a reminder, a recording of this call is available for replay on our website. As always, we appreciate your interest in investing in new jersey resources. Please stay safe, everyone. Goodbye.

Operator

[Operator Closing Remarks]

Duration: 32 minutes

Call participants:

Dennis Puma -- Director of Investor Relations

Stephen D. Westhoven -- President and Chief Executive Officer

David Johnson -- Vice President, Corporate Business Development

Patrick Migliacci -- Senior Vice President and Chief Financial Officer

Mark G. Kahrer -- Vice President, Regulatory Affairs

Gabe Moreen -- Mizuho Securities -- Analyst

Travis Miller -- Morningstar -- Analyst

Julian Smith -- Guggenheim partners -- Analyst

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