NewJersey Resources Corporation

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

Okay. Thank you, Chad. Good morning, everyone, and welcome to New Jersey Resources Fiscal 21-Year-End Conference Call and Webcast. I'm joined here today by Steve Westoven, 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. We wish to caution listeners of this call that the current expectations, assumptions, and beliefs forming the basis for our forward-looking statements include many factors that are beyond our ability to control or estimate precisely. This could cause results to materially differ from our expectations as found on slide one. These items can also be found in the forward-looking statement section of today's earnings release, first on Form 8K, and in our most recent Forms 10K and Q as filed with the SEC. We do not, by including this statement, assume any obligation to review or revise any particular forward-looking statement referenced herein in light of future events. We'll also be referring to certain non-GAAP financial measures, such as net financial earnings or NFE. We believe that NFV, net financial loss, utility gross margin, and financial margin provide a more complete understanding of our financial performance. However, these non-GAAP items, non-GAAP measures, are not intended to be a substitute for GAAP. Our non-GAAP financial measures are discussed more fully in item 7 of our 10-K. Our agenda today is found on slide two. Steve will begin today's call with this year's highlights, followed by Pat, who will review our financial highlights. Then we'll open the call up to your questions. The slides accompanying today's presentation are available on our website and were furnished on Form 8-K filed this morning. With that said, I'll turn the call over to our President and CEO, Steve Westover. Steve?

Thanks, Dennis, and good morning, everyone. I'd like to begin today's discussion on slide three with a review of the fiscal year-end results. This morning, we announced fiscal 2021 net financial earnings per share, or NFVPS, of $2.16, which is a 24% increase versus last year's NFVPS of $1.74. Fiscal 2021's NFV is much larger or much stronger than expected, exceeding the midpoint of our original guidance for the year by 35%. You may recall that last year's Analyst Day, we were expecting 2021 to be a reset year, and this is mainly due to the change in the accounting method for investment tax credits. However, the reset was negated by better-than-expected results in energy services, as well as positive results from our BGSS incentive program at New Jersey Natural Gas. This allowed us to raise guidance three times during the fiscal year. In September, we raised our dividend to an annualized rate of $1.45 per share, a 9% increase compared to 2021, reflecting stronger cash flows and confidence in our strategy. We have now raised our dividend every year for the last 26 years. As you can see on the charts, our track record of growing NFVPS in the dividend speak to the ongoing strength of our business. We have produced an NFEPS CAGR of 8.3% over the last four years. And with the recently announced increase to our dividend rate, our five-year dividend per share CAGR is a healthy 7.3%. Turning to slide four, it's been nearly a year since our 2020 Investor Day. We laid out our vision for strategy and growth. At our core, NJR remains an energy infrastructure company with a portfolio of complementary businesses that leverage our utility experience. Our strategy for growth is grounded in three key principles, growing our regulated utility and renewable energy business, de-risking and increasing the predictability of our earnings, and investing to achieve a clean energy future through the decarbonization of our gas infrastructure. I'd like to discuss the significant headway we made in executing that strategy in fiscal 2021, beginning with our core operations. Last March, New Jersey Natural Gas filed the base rate case with the BPU, and just yesterday, the BPU approved the settlement of that case, resulting in a rate base of more than $2.5 billion and a rate increase of $79 million per year. We believe this is a fair and just settlement, which acknowledges the long-term value of our infrastructure. We'd like to thank the BPU, the Division of Rate Council, and their staffs for their work in reaching this resolution in a way that balances the interests of our customers and our company. After years of hard work, New Jersey Natural Gas placed the Southern Reliability Link into service. This 30-mile transmission main enhances the reliability and resiliency of our world-class distribution system and adds to its long-term value. In October, we completed construction on a cutting-edge green hydrogen project in our service territory. And as we'll discuss later in more detail, the facility is producing 100% carbon-free hydrogen through electrolysis process using renewable electricity to create the zero carbon fuel. Both the SRL and our hydrogen facility were included in our rate filing, with cost recovery approved as part of the settlement. This year, we also received BPU approval for two new regulatory programs that will help provide future margin growth. First is our new SAVE Group program, which began late fiscal 2021. This new energy efficiency program is our large step. It authorizes $250 million in spending over three years and furthers our commitment to sustainability by helping customers lower their energy usage, save money, and reduce their carbon footprint. Second is our $150 million accelerated recovery infrastructure investment program. Approved in October of 2020, this program follows our SAFE 1 and SAFE 2 and RISE programs. It includes new infrastructure replacement and improvement projects that will add to the reliability and resiliency of our distribution system. And at CEV, we expanded our solar footprint outside of New Jersey by completing our first commercial solar project in Connecticut. CEB now has $150 million of projects under construction, including our 25.6 megawatt facility in Mount Olive, New Jersey. The project is North America's largest cap landfill solar array and CEB's largest commercial project to date. Turning to slide five, our S&T business continued to execute its organic growth strategy while also reducing risk. The Delphia Gateway commends construction of itself, though, and we expect to place a number of facilities into service by the end of the calendar year. At Lead River, we increase our contracted revenue with new and existing creditworthy counterparties by $46.5 million since November of 2020. Our energy services business entered into long-term asset management agreements with an investment-grade utility, executing on our goal for that business to deliver more predictable net financial earnings. Under the terms of the agreement, energy services will receive over $500 million in revenues, net of demand charges, over the next 10 years in exchange for the release of contracted transportation in the Northeast. The AMAs became effective this month. Turning to slide six, this morning we reaffirmed our fiscal 2022 NFEPS guidance range of 220 to 230 share. We expect that most of our net financial earnings will come from our utility business, followed by our infrastructure investments at our non-utility areas. And importantly, we're only including the AMA contributions from our energy services segment guidance. This is consistent with our commitment to secure more fee-based revenues for energy services. Given the progress we've made this past year in our efforts to de-risk our businesses, we believe that our net financial earnings are more predictable than a year ago. And accordingly, we are narrowing our expected long-term NFVPS growth range to 7% to 9% from our previous range of 6% to 10%. On slide 7, I'd like to spend a few minutes providing an update on our company's decarbonization journey with a focus on the utility. In the last 10 years, our company has made important progress towards a clean energy future. New Jersey Natural Gas is a leader in energy efficiency with more than $230 million of investments in a Save Green program since inception. This program helps customers save money by reducing their energy consumption and will be critical to further reduce their carbon footprint over the coming decades. We've also invested over $2.3 billion in safety, reliability, and emissions reduction on our natural gas delivery system. New Jersey Natural Gas is the first utility in New Jersey to replace all cast iron pipe. It is on track to be the first in the state to fully replace its unprotected steel infrastructure. And by the end of the year, 100% of our system will be either plastic or protected steel. These efforts have allowed NJR to build the most environmentally sound system in the state as measured by weeks per mile and reduce its operational emissions in New Jersey by over 50% in 2006. This puts us in a strong position to start pursuing the use of decarbonized fuels like RNG and green hydrogen. And today, we're announcing a goal of net zero emissions for our New Jersey operations by 2050. We will achieve this goal with actions such as transitioning our fleet of vehicles to low or no carbon fuels and continue to make investments that support the integration of RNG and hydrogen in our system over the coming decades. This will drive greater decarbonization of the energy we deliver to our customers. Turning to slide eight, New Jersey Natural Gas stands on a strong foundation to start making immediate progress down this path. Our modern infrastructure is deploying decarbonized fuels today. And when paired with other carbon reducing strategies, including aggressive energy efficiency, we see a viable path to eventually deliver a carbon neutral fuel supply to our utility customers. In doing so, we will play a leading role in helping New Jersey reach its climate and carbon reduction goals. and we can get there more quickly, more affordably, and with greater reliability than other approaches. This will also complement the state's renewable energy ambitions. The advantages of this strategy are clear. First, this approach can accelerate and help New Jersey's goal of achieving lower emissions. The high customer penetration of our natural gas infrastructure gives us a broad platform to begin integrating RNG and green hydrogen into our system immediately. steadily decarbonizing the energy we deliver to our customers just as the electric grid has begun delivering zero carbon electrons from wind and solar. Second, this approach can help New Jersey reach its climate goals more affordably. Existing energy infrastructure in New Jersey is already built, paid for, and in service. Over the years, more than $17 billion has been spent to build and maintain more than 35,000 miles of delivery pipelines throughout the state, a massive investment by our customers. Using this vast pipeline energy delivery network as an asset will help avoid the cost of an immense build-out of new infrastructure, making the energy transition more affordable for New Jersey by potentially tens of billions of dollars. Third, from a reliability perspective, the benefits of using existing pipeline infrastructure in New Jersey are enormous. Our pipeline system is designed to operate and meet peak demand on winter's coldest days when energy consumption is the highest. The natural gas network handles its energy load and does so with 70 times fewer outages in the electric system in a given year. Our state's dual energy delivery systems, one gas and one electric, complement one another by sharing different energy loads, providing energy diversity and resiliency. If we were to migrate our state's entire energy demands to one system, it would come with significant financial costs and eliminate the resiliency and reliability of having two systems. Furthermore, as the state steps up its commitment to renewable generation, resiliency and reliability challenges will only grow. New Jersey plans to install 7.5 gigawatts of offshore wind and 14 gigawatts of additional solar by 2035. At that scale, intermittency of renewables will require long-duration storage solutions, not only to address hour-to-hour reliability, but also provide balancing and flexibility over days, weeks, and even across seasons. And this is an area where gas infrastructure offers flexibility and support. When renewable power generation exceeds demand, the surplus can be directed to green hydrogen production, providing the long-duration storage solution for virtually zero energy loss that supplements the shorter-duration storage capacity of batteries. This helps address the reliability challenge of renewables and maximizes the state's investment in solar and offshore wind. And it's all by utilizing our pipeline infrastructure that is built, paid for, and in service. So let's take this out of the abstract and look at how we're pursuing this on our system today. Last month, a cutting-edge green hydrogen project in New Jersey Natural Gas and Service Territory was put into service, and clean burning hydrogen is being blended into our network to serve homes and businesses right now. This small system alone will offset 180 tons of carbon emissions per year, the equivalent of eliminating 90 tons of coal or over 400,000 miles driven. And as I mentioned before, this hydrogen displaces some fossil gas from the energy we're sending out with no action or change needed on our customers' part. This project demonstrates that this is not just a theoretical exercise. The technology works, it's available, and New Jersey Natural Gas is putting it to use now. And just as importantly, our regulators see what we are doing with this investment and recognize its importance to emissions reductions goals. This is a tremendous credit to the BPU, and we acknowledge and thank them for their support. This is the clean energy future we see. And with our hydrogen project now completed, it gives us weight and line of sight into the next generation of clean energy infrastructure investments for our company. So with that, I'll turn the call over to Pat for his part of the presentation.