Newjersey Resources Corporation · NYSE:NJR
Newjersey Resources — Investor Day (November 2016)
68 slides from Newjersey Resources's investor day presentation, Nov 17, 2016
Slide 1: Safe, Reliable Natural Gas at Our Core … and So Much More
SAFE, RELIABLE NATURAL GAS AT OUR CORE … AND SO MUCH MORE Financial Community Update – Strategic Outlook Laurence M. Downes Chairman and CEO
Slide 2: Our Objectives for Today
Fiscal 2016 Review & Financial Community Update Our Objectives for Today Share Our Strategy Introduce Our Fiscal 2017 Guidance Review Our Fiscal 2016 Earnings Provide Business Segment Updates Looking Forward: Fiscal Years 2017-2019 Our Path To Future Growth Q&A 2
Slide 3: Regarding Forward Looking Statements
Fiscal 2016 Review & Financial Community Update Regarding 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 am
Slide 4: Non-GAAP Measure: Net Financial Earnings
Fiscal 2016 Review & Financial Community Update This presentation includes the non-GAAP measure, Net Financial Earnings (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, n
Slide 5: Who We Are
Fiscal 2016 Review & Financial Community Update Who We Are New Jersey Resources is a diversified energy company New Jersey Natural Gas (NJNG) is a natural gas distribution company and the foundation of our business NJR Midstream (Midstream) invests in storage facilities and interstate pipeline p
Slide 6: New Jersey Resources – Energy Assets Across the Country
Fiscal 2016 Review & Financial Community Update New Jersey Resources – Energy Assets Across the Country 6
Slide 7: Initial Fiscal 2017 NFE Guidance: $1.65 to $1.75 Per Share
Fiscal 2016 Review & Financial Community Update Fiscal 2016A 55% 20% 16% 7% 2% Fiscal 2017E 55-65% 15-20% 5-15% 5-10% 1-3% Fiscal 2017 results are expected to be driven by strong performance from New Jersey Natural Gas New Jersey Natural Gas NJR Midstream NJR Energy Services NJR Home ServicesNJR Cle
Slide 8: Annual Dividend Growth Goal
Fiscal 2016 Review & Financial Community Update 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 $
Slide 9: NJR is Positioned to Grow
Fiscal 2016 Review & Financial Community Update NJR is Positioned to Grow Strong demand for natural gas due to abundant supply and low prices Demand for clean energy generation is increasing The mix of energy sources will continue to evolve Public policy supports reliable, low cost and clean
Slide 10: 2015 U.S. Energy Consumption by Source
Fiscal 2016 Review & Financial Community Update 2015 U.S. Energy Consumption by Source Coal 16% Hydroelectric & Renewables 10% Natural Gas 29% Petroleum 36% Nuclear 9% Total: 98 quadrillion Btu Source: U.S. Energy Consumption by Source, 2016 U.S. Energy Information Administration Monthly Energy Revi
Slide 11: U.S. Shale Production
Fiscal 2016 Review & Financial Community Update U.S. Shale Production Source: Energy Information Administration TC F 11
Slide 12: Declining Natural Gas Prices
Fiscal 2016 Review & Financial Community Update Declining Natural Gas Prices Source: Energy Information Administration 0 2 4 6 8 10 12 14 16 18 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Natural Gas Futures at Henry Hub 2016 2015 2014 Price Range 2006-2010 $ /M M B tu 12
Slide 13: Declining Solar Costs
Fiscal 2016 Review & Financial Community Update $9.12 $4.05 $2.30 $8.85 $3.52 $1.95 $7.79 $2.50 $1.48 $0 $1 $2 $3 $4 $5 $6 $7 $8 $9 $10 $ /W at t Residential Non-Residential ≤500 kW Non-Residential >500 kW Declining Solar Costs Source: Lawrence Berkeley Labs, Tracking the Sun IX, Aug 2016; IHS, U.S.
Slide 14: Residential Solar Pricing Comparisons
Fiscal 2016 Review & Financial Community Update $0.19 $0.18 $0.14 $0.11 $0.00 $0.02 $0.04 $0.06 $0.08 $0.10 $0.12 $0.14 $0.16 $0.18 $0.20 Residential Solar Pricing Comparisons Utility prices calculated from tariff rate schedules except NJR Per K w h 14
Slide 15: Efficiencies are Improving for Wind
Fiscal 2016 Review & Financial Community Update Efficiencies are Improving for Wind Source: Lawrence Berkeley Labs, 2015 Wind Technologies Market Report, Aug 2016; IHS, U.S. Wind and Solar Energy Price Outlook Update, June 2016 15
Slide 16: Natural Gas and Renewable Additions in 2015
Fiscal 2016 Review & Financial Community Update Natural Gas and Renewable Additions in 2015 Source: Energy Information Administration 16
Slide 17: Our Strategy
Fiscal 2016 Review & Financial Community Update Our Strategy Strong natural gas fundamentals drive infrastructure and energy services opportunities Energy efficiency is the most cost-effective option for reducing overall demand and lowering customers’ bills Clean energy provides new investment oppor
Slide 18: Natural Gas: Our Core Business
Fiscal 2016 Review & Financial Community Update Natural Gas: Our Core Business A growing, regulated natural gas distribution business anchors our portfolio Regulatory incentive programs benefit customers and shareowners Increasing natural gas supply and growing demand provide opportunities for
Slide 19: Energy Efficiency: Best Alternative to Address Growing Demand
Fiscal 2016 Review & Financial Community Update Energy efficiency benefits customers, shareowners and the environment Our Conservation Incentive Program enables us to encourage customers to use less while protecting utility gross margin SAVEGREEN offers customers incentives to invest in energy
Slide 20: Clean Energy: Growing Investment Opportunities
Fiscal 2016 Review & Financial Community Update Clean Energy: Growing Investment Opportunities Supports state and federal energy policy goals ITC/PTC extensions support new market opportunities Diverse portfolio of 236 MW* of solar and wind assets Emerging technologies offer additional inves
Slide 21: Investment Highlights
Fiscal 2016 Review & Financial Community Update Solid regulated investment platform • Investments in midstream projects that are predominantly regulated • Investments in clean energy projects with contracted long-term revenue streams • Significant regulated capital programs to support safety, resili
Slide 22: Fiscal Fourth Quarter 2016 Update
SAFE, RELIABLE NATURAL GAS AT OUR CORE … AND SO MUCH MORE Fiscal Fourth Quarter 2016 Update Patrick J. Migliaccio Senior Vice President and Chief Financial Officer
Slide 23: Fiscal Fourth Quarter and Year-End 2016 Results
Fiscal First Quarter 2016 Update 23Fiscal 2016 Review & Financial Community Update Net Financial Earnings* ($MM) Three Months Ended September 30, 12 Months Ended September 30, Company 2016 2015 2016 2015 New Jersey Natural Gas ($7.4) $(7.7) $76.1 $76.3 NJR Midstream 2.5 2.6 9.4 9.8 Subtotal $(4.9) $
Slide 24: Highlights
Fiscal 2016 Review & Financial Community Update Fiscal 2016 Highlights Financial Net Financial Earnings (NFE) of $1.61 per share Dividend increased by 6.3 percent to annual rate of $1.02 per share Total shareowner return was 12.6 percent NJNG 8,170 new customers added – the most since 2007
Slide 25: Highlights: NJR Midstream and NJRCEV
Fiscal 2016 Review & Financial Community Update Fiscal 2016 Highlights NJR Midstream Existing investments performed well FERC issued draft Environmental Impact Statement on PennEast Pipeline Concentric Energy Advisors report substantiated the primary advantages of Penn East PJM Interconnecti
Slide 26: NJNG's Regulated Growth Model
Fiscal 2016 Review & Financial Community Update NJNG’s Regulated Growth Model • Growing service area • Healthy conversion market Customer Growth • SAVEGREEN • CIP • SAFE • NJ RISE • SRL • Off-system sales • Capacity release Energy Efficiency BGSS Incentives Utility Gross Margin Infrastructure Fiscal
Slide 27: NJR Midstream's Growth Model
Fiscal 2016 Review & Financial Community Update NJR Midstream’s Growth Model • 50 percent interest in 12 Bcf storage facility in southwest PA • PennEast Pipeline • FERC issued DEIS on July 22, 2016 • Currently anticipated in service date by first quarter of fiscal 2019 • Investment value $46.7 milli
Slide 28: NJR Clean Energy Ventures' Growth Model
Fiscal 2016 Review & Financial Community Update NJR Clean Energy Ventures’ Growth Model • Four operating wind farms • Additional 39.9 MW-Ringer Hill under construction • Fiscal 2017 wind capital expenditures - $83.4 million • 5,085 Sunlight Advantage® customers • Fiscal 2017 residential solar capita
Slide 29: NJR Energy Services' Growth Model
Fiscal 2016 Review & Financial Community Update NJR Energy Services’ Growth Model Pipeline Capacity (1.7 Bcf/d) NFE Storage Capacity (44 Bcf) Fiscal 2016 NFE of $21.9 million vs $42.1 million last year Producer Services Utility Asset Management Electric Generation Supply 29
Slide 30: New Jersey Natural Gas
SAFE, RELIABLE NATURAL GAS AT OUR CORE … AND SO MUCH MORE New Jersey Natural Gas Mariellen Dugan Senior Vice President and Chief Operating Officer
Slide 31: New Jersey Natural Gas Company
Fiscal 2016 Review & Financial Community Update New Jersey Natural Gas Company Strategic Value • Attractive service territory • Constructive regulation • Regulatory incentives • Infrastructure investments Disciplined Execution • Safe, reliable service • High customer satisfaction Growth Opport
Slide 32: Targeted Marketing Based on Key Advantages
Fiscal 2016 Review & Financial Community Update Targeted Marketing Based on Key Advantages Geographic Advantage • Located between two major metropolitan areas Demographic Advantage • Median household income above state and national averages • Retirees/Active Adults New Customer Growth Advantag
Slide 33: Key Trends Support Future Customer Growth
Fiscal 2016 Review & Financial Community Update 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 $1.77 $3.58 $4.1
Slide 34: Customer Growth and Mix Trends
Fiscal 2016 Review & Financial Community Update Customer Growth and Mix Trends FY2016: 8,170 new customers added • 4,587 new construction • 3,583 conversions • Highest number since 2007 FY2013-2016: 50/50 new construction and conversion mix FY2017-2019: 55/45 new construction and conversion mi
Slide 35: Incremental Utility Gross Margin from Customer Additions
Fiscal 2016 Review & Financial Community Update Incremental Utility Gross Margin from Customer Additions and Conversions $4.4 $9.3 $14.3 $19.4 $0 $5 $10 $15 $20 $25 FY16A FY17E FY18E FY19E Milli o n s 35
Slide 36: Constructive Regulation Creates New Growth Opportunities
Fiscal 2016 Review & Financial Community Update Constructive Regulation Creates New Growth Opportunities New base rates – effective October 1, 2016 Conservation Incentive Program (CIP) Decoupling mechanism Protects utility gross margin from declining usage and weather Encourages customer conse
Slide 37: Current Infrastructure Investment Programs
Fiscal 2016 Review & Financial Community Update Current Infrastructure Investment Programs Safety Acceleration and Facilities Enhancement Program (SAFE) SAFE I approved in 2012 SAFE II approved as part of 2016 rate case settlement • Five-year, $157.5 million program to eliminate unprotected bare
Slide 38: Infrastructure Investment Improves System Performance
Fiscal 2016 Review & Financial Community Update 0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 0 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 4,500 5,000 Le ak s p er Mi le Pe nd ing Le ak s Leaks per Mile and Pending Leaks Pending Leaks Leaks per Mile Infrastructure Investment Improves System Performance 3
Slide 39: Southern Reliability Link
Fiscal 2016 Review & Financial Community Update Southern Reliability Link A 30-mile pipeline to improve system integrity and reliability Will add resiliency to system through a second feed • 85 percent of NJNG supply is transported through a single interstate pipeline system • Maintains system p
Slide 40: SRL: Progress to Date
Fiscal 2016 Review & Financial Community Update SRL: Progress to Date Approvals Received: • NJBPU Construction, operation and route designation approved in January 2016 Finding that SRL is necessary for the safety, welfare and convenience of the public in March 2016 • NJ Department of Environm
Slide 41: Key Messages
Fiscal 2016 Review & Financial Community Update Key Messages NJNG will continue to drive our long-term growth through customer additions and infrastructure investment Customer growth outlook remains strong Collaborative regulatory programs generate earnings and customer savings Infrastructure
Slide 42: NJR Clean Energy Ventures, NJR Midstream, NJR Energy Services
SAFE, RELIABLE NATURAL GAS AT OUR CORE … AND SO MUCH MORE NJR Clean Energy Ventures, NJR Midstream, NJR Energy Services Stephen Westhoven Senior Vice President and Chief Operating Officer
Slide 43: NJR Clean Energy Ventures (NJRCEV)
Fiscal 2016 Review & Financial Community Update NJR Clean Energy Ventures (NJRCEV) Strategic Value • Meet customer needs for clean, affordable and reliable power • Leverage our brand, balance sheet and expertise • Diversify business into growth segment of electric industry Disciplined Execution
Slide 44: ITC and PTC Extensions
Fiscal 2016 Review & Financial Community Update ITC and PTC Extensions Approved by Congress in December 2015 ITC extended with sunset provisions (solar projects in service within two years of start date) • 30 percent ITC for projects under construction by December 2019; declines 4 percentage poi
Slide 45: Benefits of the ITC/PTC Extensions for NJRCEV
Fiscal 2016 Review & Financial Community Update Benefits of the ITC/PTC Extensions for NJRCEV ITC • Grid-connected projects, previously uneconomic, now viable • Increases future pipeline of commercial, net-metered projects • Improves economics for previously-planned residential solar projects PT
Slide 46: SREC Market Fundamentals
Fiscal 2016 Review & Financial Community Update SREC Market Fundamentals Supply • Number of SRECs available to satisfy Renewable Portfolio Standard (RPS) Determined based on actual solar electric generation in NJ Demand • RPS establishes requirement • Basic Generation Service (BGS) auction iden
Slide 47: Contracted Load by Energy Year Sets Market Demand
Fiscal 2016 Review & Financial Community Update Contracted Load by Energy Year Sets Market Demand Annual BGS auction occurs in early February Two common buying periods • Leading up to, and during, BGS auction • Leading up to compliance Third Party Supplier (TPS) Source: New Jersey Statewide Basi
Slide 48: SREC Hedging Strategy Stabilizes Revenue
Fiscal 2016 Review & Financial Community Update SREC Hedging Strategy Stabilizes Revenue Pct. Hedged: 91% 63% 15% Average Price: $230 $226 $221 Current Price (EY): $210 $190 $125 Plan Price: $227 $184 $165 As of November 10, 2016. Source: InterContinental Exchange (ICE) 167 152 41 183 242 270 0 50 1
Slide 49: Proposed New Jersey Legislation
Fiscal 2016 Review & Financial Community Update Proposed New Jersey Legislation 0.2% 0.3% 0.4% 0.7% 2.1% 2.5% 2.8% 3.0% 3.3% 3.6% 3.8% 4.1% 4.1% 4.1% 4.1% 4.1% 4.1% 4.1% 4.1% 0.00% 0.50% 1.00% 1.50% 2.00% 2.50% 3.00% 3.50% 4.00% 4.50% 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Slide 50: Renewable Market Fundamentals and Pipeline
Fiscal 2016 Review & Financial Community Update Conditions are favorable for the continued build out of solar and wind assets Solar Market Pipeline Executed agreements for both commercial and residential solar projects entering FY2017 Evaluating a $100 million pipeline of additional commercial s
Slide 51: NJRCEV Portfolio Growth
Fiscal 2016 Review & Financial Community Update NJRCEV Portfolio Growth A diversified renewable asset base provides a platform for expansion in addition to contributing significant growth 22 22 24 27 10 11 14 15 57 40 60 40 89 73 98 82 - 20 40 60 80 100 120 FY16A FY17E FY18E FY19E M W Annual Megawat
Slide 52: NJR Midstream
Fiscal 2016 Review & Financial Community Update NJR Midstream Strategic Value • FERC-regulated infrastructure business • Storage and pipeline demand driven by lower cost supply • Proximity to attractive markets Disciplined Execution • Reliable, experienced partners Profit Opportunities • Inves
Slide 53: PennEast Pipeline
Fiscal First Quarter 2016 Update 53Fiscal 2016 Review & Financial Community Update 20 percent ownership in 120-mile transmission pipeline connecting Marcellus shale region supply to Northeast Demand pull project with capacity of up to 1.1 MMdth/day Nearly fully subscribed by 12 shippers; 72 pe
Slide 54: NJR Energy Services (NJRES)
Fiscal 2016 Review & Financial Community Update NJR Energy Services (NJRES) Strategic Value • Geographically diverse portfolio of contracted storage and pipeline capacity • Energy management services throughout North America Disciplined Execution • Strong customer relationships • Risk management
Slide 55: Looking Forward
Fiscal 2016 Review & Financial Community Update Looking Forward Normal winter temperatures forecasted this year Natural gas prices may rise moderately Record natural gas-fired electric generation experienced this summer expected to continue LNG export facilities continue to expand - 1.8 bcf/
Slide 56: Key Messages: NJRCEV
Fiscal 2016 Review & Financial Community Update NJRCEV will pursue residential solar, commercial net- metered solar and onshore wind projects and will build out its inventory of state-approved, grid-connected commercial projects NJRCEV continues to invest in one of the nation’s fastest-growing ene
Slide 57: Key Messages: NJR Midstream
Fiscal 2016 Review & Financial Community Update Key Messages NJR Midstream will continue to invest in and develop storage and transportation projects to provide access to lower-cost supply, increase reliability and stabilize energy prices PennEast will provide access to lower-cost natural gas and
Slide 58: Key Messages: NJRES
Fiscal 2016 Review & Financial Community Update Key Messages NJRES, leveraging their expertise in a constantly changing marketplace, will continue to provide physical and producer natural gas services Winter of 2016 was warmer than normal, but NFE exceeded expectations NFE not assumed to match r
Slide 59: Financial Update
SAFE, RELIABLE NATURAL GAS AT OUR CORE … AND SO MUCH MORE Financial Update Patrick J. Migliaccio Senior Vice President and Chief Financial Officer
Slide 60: NJR Capital Plan
Fiscal 2016 Review & Financial Community Update NJR Capital Plan ($MM) 2016A 2017E 2018E 2019E 2017-2019 Total New Customer $35.3 $33.3 $34.7 $37.0 $105.0 Maintenance 40.8 41.4 45.4 53.6 140.4 Cost of Removal/Other 47.1 46.1 42.2 34.4 122.7 SAFE/SAFE II 34.7 35.0 37.6 41.0 113.6 NJ RISE 11.4 15.8 27
Slide 61: Cash Flows
Fiscal 2016 Review & Financial Community Update Cash Flows $MM 2016A 2017E 2018E 2019E Cash Flow from Operations $142.6 $273.8 $247.0 $258.1 Uses of Funds Capital expenditures - NJNG ($203.0) ($275.0) ($239.8) ($188.6) Capital expenditures - Penn East (11.2) (22.3) (149.1) (37.7) Capital expenditure
Slide 62: Our Path to Future Growth
Fiscal 2016 Review & Financial Community Update Our Path to Future Growth Fiscal 2016 NJNG Base rate case completed Customer growth CIP BGSS incentives SAFE Liquefaction in service SAVEGREEN NJ RISE Clean Energy Continued solar and wind investment More SRECs Carroll Area and Medicine Bow
Slide 63: Appendix
Fiscal 2016 Review & Financial Community Update APPENDIX 63
Slide 64: Reconciliation to Non-GAAP Measures
Fiscal 2016 Review & Financial Community Update Reconciliation to Non-GAAP Measures Three Months Ended Twelve Months Ended September 30, September 30, (Thousands) 2016 2015 2016 2015 Net income $ 25,400 $ 4,197 $ 131,672 $ 180,960 Add: Unrealized (gain) loss on derivative instruments and related tra
Slide 65: Mutually Beneficial Regulatory Programs
Fiscal 2016 Review & Financial Community Update Mutually Beneficial Regulatory Programs * No expiration, but subject to periodic review. Benefits Program Description Customer/ Societal Shareholder Inception BGSS: Basic Gas Supply Service Incentives* Off-system sales, capacity release, and storage in
Slide 66: NJ RISE – Secondary Feeds & Reinforcements
Fiscal 2016 Review & Financial Community Update NJ RISE – Secondary Feeds & Reinforcements 66 Location of projects and investments on the barrier islands
Slide 67: PTC and ITC Extensions Provide Long-Term Support
Fiscal 2016 Review & Financial Community Update Solar ITC Rate 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 30% 26% 22% 10% Permanent 10% ITC ITC Rate for New Projects In Service Requirement Wind PTC Rate 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 $23 $17 $9 No PTC No PTC PTC and ITC E
Slide 68: Onshore Wind Portfolio
Fiscal 2016 Review & Financial Community Update Onshore Wind Portfolio 68 Two Dot Carroll Alexander Ringer Hill Under Construction Project Location Capacity Capital Cost ($mm) Two Dot Montana 9.7 MW $20.3 Carroll Iowa 20 MW $42.1 Alexander Kansas 50.7 MW $84.9 Medicine Bow Wyoming 6.3 MW $3.7 Ringer