Newjersey Resources Corporation · NYSE:NJR
Newjersey Resources — Investor Day (March 2011)
86 slides from Newjersey Resources's investor day presentation, Mar 8, 2011
Slide 1: New Sources of Earnings – A Primer on Our Solar Energy Strategy
“New Sources of Earnings – A Primer on Our Solar Energy Strategy” Exhibit 99.1
Slide 2: New Jersey Resources Corporate Overview
New Jersey Resources Corporate Overview Laurence M. Downes March 8, 2011
Slide 3: Agenda
AGENDA • Corporate Overview • NJR Strategy • Solar Information • Solar Project - Development Process • Break • NJRCEV Project Pipeline • The Sunlight Advantage (Residential Program) • SRECs • Hedging • ITC Accounting for Solar Transactions
Slide 4: Regarding Forward-Looking Statements
REGARDING FORWARD-LOOKING STATEMENTS Certain statements contained in this presentation are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward- looking statements can also be identified by the use of forward-looking terminology such as “may,
Slide 5: Disclaimer Regarding Non-GAAP Financial Measures
DISCLAIMER REGARDING NON-GAAP FINANCIAL MEASURES This presentation includes the non-GAAP measures net financial earnings (losses) and utility gross margin. As an indicator of the company’s operating performance, these measures should not be considered an alternative to, or more meaningful than, GAAP
Slide 6: Macro
Macro Economic Environment Interest Rates Regulation Environmental Policy Financial Commodity Profile Prices Organic Customer Growth lM: Resources!
Slide 7: First Quarter Fiscal 2011 Highlights
1 QUARTER FISCAL 2011 HIGHLIGHTS ST • Net Financial Earnings for the quarter – $.71 vs. $.66 last year, a 7.6 percent increase • NFE guidance announced – range of $2.50 to $2.65 per share – 60 to 70 percent from NJNG • Implemented a 5.9 percent dividend increase effective January 3, • Strong results
Slide 8: Slide 8
Slide 9: Key Financial Drivers
KEY FINANCIAL DRIVERS • New Jersey Natural Gas – Margin Growth from New Customers – Regulatory Programs • Accelerated Infrastructure Programs • Incentive Programs • Clean Energy Ventures • Midstream Assets – Steckman Ridge – Iroquois • Disciplined Wholesale Energy Services • Home Services
Slide 10: Our Business Model
OUR BUSINESS MODEL Safety and reliability Competitive pricing Steady customer growth Rate base investment opportunities Regulatory initiatives Natural Gas Distribution Clean Energy and Retail Services Residential solar programs Commercial solar projects and ground mount solar farms Residential and c
Slide 11: Consistent Financial Performance
CONSISTENT FINANCIAL PERFORMANCE NJR estimates net financial earnings of $2.50 to $2.65 per basic share in fiscal 2011 $1.88 $2.11 $2.24 $2.40 $2.46 $2.50 - $2.65 $1.30 $1.55 $1.80 $2.05 $2.30 $2.55 2011 Current Range September 30
Slide 12: 2011 Earnings Guidance
2011 EARNINGS GUIDANCE Infrastructure-based businesses expected to contribute up to 90 percent of fiscal 2011 NFE Clean Energy Ventures 10-20% Midstream 5-10% NJR Energy Services 5-10% New Jersey Natural Gas 60-70% Home Services & Other 2-5%
Slide 13: Dividend Growth
DIVIDEND GROWTH $0.96 $1.01 $1.12 $1.24 $1.36 $1.44* $0.50 $0.60 $0.70 $0.80 $0.90 $1.00 $1.10 $1.20 $1.30 $1.40 $1.50 * Effective January 3, 2011
Slide 14: Payout Ratio
PAYOUT RATIO Payout ratio provides continued dividend growth opportunities Based on Net Financial Earnings
Slide 15: Our Business Model: Natural Gas Distribution
OUR BUSINESS MODEL Safety and reliability Competitive pricing Steady customer growth Rate base investment opportunities Regulatory initiatives Natural Gas Distribution The Fundamentals: • Stakeholder Relationships • Strong Financial Profile • Disciplined Capital Allocation • Infrastructure, Asset Mg
Slide 16: The NJNG Advantage
THE NJNG ADVANTAGE The NJNG Advantage is the price and value benefits provided to customers The NJNG Advantage is: • Core customer growth – New construction – Conversions • The SAVEGREEN Project ™ • Regulatory incentives
Slide 17: The NJNG Advantage - Our Service Area
THE NJNG ADVANTAGE - OUR SERVICE AREA • Over 490,000 customers • $943 million of rate base • 100 percent residential & commercial customers • Favorable demographics to support customer growth NYC Phila. Atlantic City
Slide 18: The NJNG Advantage - Service Area Demographics
THE NJNG ADVANTAGE - SERVICE AREA DEMOGRAPHICS 3.5% 3.9% 4.7% 12.3% 0.0% 5.0% 10.0% 15.0% NJ Morris Monmouth Ocean Population Change 2000-2009 Source: US Census Bureau County by County Customer Breakdown Morris 12% Ocean 44% Monmouth 44%
Slide 19: The NJNG Advantage - Fuel Price Comparison
THE NJNG ADVANTAGE - FUEL PRICE COMPARISON NJNG enjoys a distinct price advantage in its service area $1.28 $2.68 $4.63 $4.98 $0.00 $1.00 $2.00 $3.00 $4.00 $5.00 $6.00 NJNG Fuel Oil Propane Electricity Data as of January 2011. Based on 100,000 comparable BTUs
Slide 20: The NJNG Advantage - New Construction
THE NJNG ADVANTAGE - NEW CONSTRUCTION 89,838 7,600 2014-Build Out Potential New Customers = 97,438 2011-2013 • Estimates based on: • Local construction trends • Economic forecasts • New construction market improving
Slide 21: The NJNG Advantage – Conversion Markets
THE NJNG ADVANTAGE – CONVERSION MARKETS • Identifying and targeting communities for conversion – Close proximity to natural gas lines – Type of fuel and equipment • Age and size of house • To encourage conversions: – Provide custom fuel cost comparisons – SAVEGREEN rebates and incentives – Partner w
Slide 22: The NJNG Advantage Result - Steady Customer Growth
THE NJNG ADVANTAGE RESULT - STEADY CUSTOMER GROWTH • 1,640 new customers in Q1 fiscal 2011: a 14 percent increase over 1Q 2010 • 92 additional existing customer heat conversions • Q1 new customers and existing customer conversions will contribute approximately $.9 million of new NJNG utility gross m
Slide 23: The SAVEGREEN Project
THE SAVEGREEN PROJECT • Programs to encourage energy efficiency • Extended by BPU in September through 2011 • Contractor partners grew from 144 to 693 in 2010 • $10 million in incentives has created an estimated $40 million in economic activity • On-bill repayment plan – Allows customers to fund up
Slide 24: BGSS Incentives
BGSS INCENTIVES • Off-system sales and capacity release – In place since 1992 – Optimization of capacity contracts – Sharing formula of 85 percent customer; 15 percent NJNG • Storage Incentive (SI) – In place since 2004 – Promotes long-term price stability – Promotes cost efficiencies – Sharing form
Slide 25: Regulatory Initiatives
REGULATORY INITIATIVES Accelerated Infrastructure Programs (AIP) • Investment of $70.8 million on infrastructure projects – Since inception in 2009, NJNG has expended $56 million (December 2010) – $36.4 million of AIP expenditures now included in base rates – Rate recovery of program spending annual
Slide 26: Customer Satisfaction
CUSTOMER SATISFACTION J.D. Power and Associates 2010 Gas Utility Residential Customer Satisfaction Study • “Highest in Customer Satisfaction With Residential Natural Gas Service in the Eastern U.S. among Large Utilities” • Our Best Performance By Far – NJNG Score: 649 – East Region Large Utility Ave
Slide 27: Our Business Model: Wholesale Energy Services
OUR BUSINESS MODEL Wholesale Energy Services Physical natural gas marketer Producer services Manage storage and transportation assets Synergistic midstream investment opportunities The Fundamentals: • Stakeholder Relationships • Strong Financial Profile • Disciplined Capital Allocation • Infrastruct
Slide 28: Midstream Assets
MIDSTREAM ASSETS • Overall, midstream assets contributed $1.7 million to Q1 2011 NFE • Expected to contribute 5 to 10 percent to fiscal 2011 NFE • Approximately percent of Steckman Ridge capacity is now under long-term contracts
Slide 29: Midstream Investments: Iroquois Pipeline
MIDSTREAM INVESTMENTS: IROQUOIS PIPELINE • 411-mile pipeline system running from the Canadian border at Waddington, NY to Long Island & NYC • 78,100 HP of compression • 1.2 Bcf/d of peak deliverability • Commenced operations in 1991 $0.8 $0.7 $1.0 $1.1 $1.5 $1.8 $2.6 $2.6 $0.0 $0.5 $1.0 $1.5 $2.0 $2
Slide 30: NJRES Update
NJRES UPDATE • Value of capacity and storage has been affected by changing markets and additional supplies – Resulted in lower margins – Continued focus on a long-option strategy – Disciplined risk management • Greater focus on Producer Services – Fee-based asset management – Over 350,000 dth/day cu
Slide 31: Producer Services
PRODUCER SERVICES • Producers Services encompasses two distinct efforts – Service Based • New gas resource plays have created a growing need for small to mid- sized exploration and production companies to retain outside marketing services to ensure flow assurance – Term gas supply purchase – Managem
Slide 32: Our Business Model: Clean Energy and Retail Services
OUR BUSINESS MODEL Clean Energy and Retail Services Residential solar programs Commercial solar projects and ground mount solar farms Residential and commercial service contracts, installations and repair services The Fundamentals: • Stakeholder Relationships • Strong Financial Profile • Disciplined
Slide 33: NJR Home Services
NJR HOME SERVICES • Spun out from NJNG in 2000 • Not capital intensive • Principally a service business (i.e., labor intensive) • Strong organic growth opportunities • High customer service levels • High productivity
Slide 34: NJRHS – Growth in Services and Revenue
NJRHS – GROWTH IN SERVICES AND REVENUE 11% 89% $11.3 million $31.1 million 2% 21% 1% 72% 4% Service Contracts Chargeable Installations Plumbing Commercial
Slide 35: A Record of Consistent Performance
A RECORD OF CONSISTENT PERFORMANCE • We have: – The fundamentals in place to achieve long-term NFE growth • Customer growth • AIP and SAVEGREEN • Steckman Ridge • Solar Investments – The ability to increase dividends – A strong financial profile – A collaborative relationship with regulators – A tra
Slide 36: NJR Strategy
NJR Strategy
Slide 37: Regarding Forward-Looking Statements
REGARDING FORWARD-LOOKING STATEMENTS Certain statements contained in this presentation are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements can also be identified by the use of forward-looking terminology such as “may,”
Slide 38: NJR Solar Strategy
NJR SOLAR STRATEGY • Consistent with our core energy strategy • Three sources of investment value • Energy savings for customers • Promotes economic development and job creation (1) – Approximately 5 jobs created for each $1 million investment – $425,000 in NJ Gross State Product created for each $1
Slide 39: Why New Jersey?
WHY NEW JERSEY? • History of innovation in electricity markets • Deregulated power market with multiple utilities • High retail electric rates • Densely populated state with constrained ability for new generation and transmission capacity • High sensitivity to environmental issues • Strong support f
Slide 40: Why New Jersey?
WHY NEW JERSEY? Year Action Electric Discount and Energy Competition Act (EDECA) law defines net metering, RPS, and SBC New Jersey Clean Energy Program (NJCEP) Solar rebate program initiated with $120 million over 4 years EDECA modified for solar RPS carve-out with Solar ACP (SACP) NJCEP solar rebat
Slide 41: Major Governmental Roles
MAJOR GOVERNMENTAL ROLES Issues Energy Master Plan that defines state direction and priorities; Board of Public Utilities reports to Governor Establishes EDECA which defines Renewable Portfolio Standard (RPS) and Solar Alternative Compliance Payment (SACP) Administers NJCEP SREC registration program
Slide 42: Strong RPS Creates Long-Term Solar Opportunities in New Jersey
STRONG RPS CREATES LONG-TERM SOLAR OPPORTUNITIES IN NEW JERSEY The RPS goes from 171 GWH in 2010 to 965 GWH in 2015, an increase of almost 6x in five years. Energy Year End
Slide 43: Strong RPS Creates Long-Term Solar Opportunities in New Jersey
The RPS requirement of 5,316 GWh in 2026 is a 451% increase from the 2015 requirement of 965 GWh. STRONG RPS CREATES LONG-TERM SOLAR OPPORTUNITIES IN NEW JERSEY Energy Year End
Slide 44: Asset Management Is a Key Skill Set
ASSET MANAGEMENT IS A KEY SKILL SET Solar value is maximized by operational excellence. Infrastructure reliability and performance are the key drivers for investment value. Nameplate Capacity Operational Performance Operational Capacity Panel degradation factors can decrease system output by approxi
Slide 45: Solar Renewable Energy Certificates (SREC)
SOLAR RENEWABLE ENERGY CERTIFICATES (SREC) New Jersey has moved from a rebate to a market based pricing incentive model. • A SREC represents the environmental benefits or attributes of one megawatt-hour of generation from a solar generating facility • Load Serving Entities (LSE) obtain SRECs to sati
Slide 46: Multi-Sector Solar Investment Strategy
MULTI-SECTOR SOLAR INVESTMENT STRATEGY
Slide 47: NJR Clean Energy Ventures – Lease Model
NJR CLEAN ENERGY VENTURES – LEASE MODEL Commercial Model Residential Model • NJRCEV acquires ground or rooftop control through lease agreement with landlord • Solar electricity sold to tenants (retail) or to grid (wholesale) • Landlord get lease payments • NJRCEV get ITC and monetizes SRECs • NJRCEV
Slide 48: Solar Market Participants
Potential Relationships Developers Manufacturers Contractors Support SOLAR MARKET PARTICIPANTS Spano American Capital Energy Uni-Solar Neuwing Renewable Energy Tioga Garden Solar Sunpower Green Oak Energy Gloria Solis Partners NERC Mercury Solar Dynamic Carlisle Energy Services Sun Farm Quadrillion
Slide 49: Solar Information
Solar Information
Slide 50: Solar Regional Market Comparison
SOLAR REGIONAL MARKET COMPARISON Solar markets are driven by two factors – retail energy rates (1) and solar panel yields (2) Solar Markets Analysis California Solar Yield 1470 kWh/kW Residential Electric Rate $0.1523 Commercial Electric Rate $0.1421 Arizona Solar Yield 1617 kWh/kW Residential Elect
Slide 51: Solar Generation Model
SOLAR GENERATION MODEL Generation Transmission Distribution Customer Jurisdiction FERC NJBPU NJBPU Method of Interconnection Pricing Mechanism Solar Array N/A Grid Connected Net Metered N/A Wholesale Rate set by Tariff OR Market Trade Retail Offset Distributed Model with differing off-take possibili
Slide 52: Net Metered Solar PV Configuration
NET METERED SOLAR PV CONFIGURATION Design considerations: • Site orientation • Shading and obstructions • Roof integrity or ground mounting space • Thin film or crystalline panels (cost and aesthetics) • System sizing
Slide 53: Matching Technology to Application
MATCHING TECHNOLOGY TO APPLICATION Advantages Disadvantages Crystalline (Mono and Multi) • High energy density • Good for space constrained applications • Temperature sensitive • Weight • Mounting may require roof penetration Thin Film • Wide spectrum of light • Building integrated product • Weight
Slide 54: System Production Monitoring
SYSTEM PRODUCTION MONITORING System production information is monitored by NJRCEV and is actively processed in order to achieve recognition of SREC revenue in a timely fashion. • The system meter is monitoring energy production flow continually • The system meter is read on a monthly basis for the p
Slide 55: Solar Project - Development Process
Solar Project - Development Process
Slide 56: Business Development Strategy
BUSINESS DEVELOPMENT STRATEGY Project Closeout Installation Final Engineering Design & Permitting Sales Commitment Relative Times by Project Category Residential Retail Commercial Wholesale Commercial Solar Farms Timeline (Illustrative) Estimated Completion 3-4 months Estimated Completion 4-8 months
Slide 57: Project Profile: A Continuum of Approval Points
PROJECT PROFILE: A CONTINUUM OF APPROVAL POINTS Project Operation Project Closeout Installation Final Engineering Design & Permitting Site Control NJR Approval NJCEP Initial Application Local/Regional Permit Application Interconnection Phase I NJR QC/QA NJCEP QC/QA Local/Regional Permit Approval Int
Slide 58: PJM Interconnection Process Overview
PJM INTERCONNECTION PROCESS OVERVIEW Interconnection Request Studies Execution of ISA/CSA * ISA/CSA Implementation Commercial Operation All generation projects interconnecting through a PJM transmission owner must follow the same process for requesting approval to connect to the system. 3 Months 4 M
Slide 59: NJRCEV Project Pipeline
NJRCEV Project Pipeline
Slide 60: Commercial Project – Drivers/Values
COMMERCIAL PROJECT – DRIVERS/VALUES
Slide 61: Commercial Project – Drivers/Values
COMMERCIAL PROJECT – DRIVERS/VALUES
Slide 62: Commercial Solar Model
COMMERCIAL SOLAR MODEL • Real estate brokers, property managers, land developers – Project development opportunities • Engineering Procurement Construction (EPC) contractors – Lead generation – System design and engineering – Installation • NJR Clean Energy Ventures – Oversee construction process •
Slide 63: Overview of Commercial Project Pipeline
OVERVIEW OF COMMERCIAL PROJECT PIPELINE General Summary • $17 million closed and in construction phase • $250 million of projects under evaluation • Contract commitments are not finalized, stage is determined by status of our contract negotiations, customer acceptance, permitting, approvals and date
Slide 64: Projects in Construction Phase
PROJECTS IN CONSTRUCTION PHASE • NJRCEV is currently constructing a number of commercial projects along with building out its residential program Location Size (MW) Capital ($MM) Project Type Edison, NJ * 0.5 2.2 Rooftop Avenel, NJ 1.5 6.6 Rooftop Cranbury, NJ 0.9 3.9 Rooftop South Brunswick, NJ 1.0
Slide 65: Mid and Late Stage Projects Under Evaluation
MID AND LATE STAGE PROJECTS UNDER EVALUATION Projects are pending completion of due diligence and final contract negotiations Location Size (MW) Capital ($MM) Project Type Southern, NJ 5.0 27.4 Ground Central, NJ 3.6 17.2 Ground Central, NJ 10. 0 43.0 Ground Southern, NJ 4.2 18.0 Ground Central, NJ
Slide 66: The Sunlight Advantage
A ™ The Sunlight Advantage
Slide 67: Residential Lease Program Drivers
RESIDENTIAL LEASE PROGRAM DRIVERS
Slide 68: Residential Project – Drivers/Values
RESIDENTIAL PROJECT – DRIVERS/VALUES 2011 Goals • $9.4 million capital • 2.2 MW • 350 projects
Slide 69: Residential Solar Leasing Model
RESIDENTIAL SOLAR LEASING MODEL • Installation channel partners – Lead generation – Sales – Installations • NJR Clean Energy Ventures – Marketing – Material procurement – Quality assurance – Metering and monitoring
Slide 70: Transforming the Residential Market
TRANSFORMING THE RESIDENTIAL MARKET From To High income Moderate income High risk tolerance Low risk tolerance Be green Save green Construction/techno savvy Less expensive electricity NJR is appealing to a new type of customer by shifting solar from a capital expenditure to a service model
Slide 71: Product Positioning
PRODUCT POSITIONING Clean & Green No Money Down Fixed Monthly Cost No Fine Print We Manage Everything $100 per month $1,200 per year $20,000 system life Backed By A Company You Trust
Slide 72: Driving Sustainable Competitive Advantage
DRIVING SUSTAINABLE COMPETITIVE ADVANTAGE Critical Success Factor NJRCEV Strategy Obtain and sustain rapid market penetration • Create superior customer value to accelerate sales cycles • Add channel partners to increase market coverage • Leverage local contacts to speed permitting processes Leverag
Slide 73: SRECs
SRECs
Slide 74: SREC Registration and Transfers
SREC REGISTRATION AND TRANSFERS Energy Producer GATS SREC Registry Monetization Load Serving Entity Electronic exchanges and retail providers create liquidity for SREC monetization Bi-lateral agreements Electronic Exchange Utility Auctions Spot Sales Term Sales Aggregator Broker
Slide 75: SREC Monetization
SREC MONETIZATION As SREC’s Created Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan 1,009 1,137 Monetize in current energy year – transact by 8/31 Cumulative SREC Credited Monetize in following energy year or SREC expires Balance Carries Forward…………………… Energy Year Ti
Slide 76: Indicative Value of SRECs
INDICATIVE VALUE OF SRECS $300 $350 $400 $450 $500 $550 $600 $650 $700 SACP JCP&L/ACE Solicitation (10 Yr) Broker market 2011-2013 $350 Spot Price $655 $425 Broker market 2012-2014 PSEG Solar Loan II (15 Yr)
Slide 77: Hedging
Hedging
Slide 78: Hedging Objectives
HEDGING OBJECTIVES • Maximize SREC revenue while protecting project payback returns • Develop a portfolio approach as SREC volumes increase with additional projects • Mitigate SREC revenue uncertainty
Slide 79: Typical Project Hedging
TYPICAL PROJECT HEDGING • Hedge through pay-back period – Approximately 5 years • Hedging results of three-year strip strategy – 70% of capital commitment • Selling a three-year strip of SRECs at market prices • ITC recognition • After each year of operation, additional SREC sales to be evaluated
Slide 80: Accounting for Investment Tax Credits (ITC)
Accounting for Investment Tax Credits (ITC)
Slide 81: ITC - Background Information
ITC - BACKGROUND INFORMATION Project owners have a choice of cash grant or ITC • The Emergency Economic Stabilization Act of 2008 extends 30 percent investment tax credit on solar facilities through the end of 2016 (tax basis reduced by 50 percent of the credit) • American Recovery and Reinvestment
Slide 82: ITC - Background Information
ITC - BACKGROUND INFORMATION Companies with liquidity and tax appetite prefer ITC • ITC Process • Qualifying investments claimed as a credit on federal income tax return • Results in a reduction of tax payment (i.e., cash saved at time of estimated tax payment) • Subject to review customarily associ
Slide 83: Accounting for ITC – Background
ACCOUNTING FOR ITC – BACKGROUND NJR has elected the “flow through” method of accounting for ITC • Accounting literature for ITC dates back to 1962, and has not changed from original conclusions – APB 2: Accounting for the “Investment Credit” – APB 4: Accounting for the “Investment Credit” • Under th
Slide 84: Example – Accounting for $10 MM Solar Installation
EXAMPLE – ACCOUNTING FOR $10 MM SOLAR INSTALLATION The resulting Day 1 tax benefit from solar is 24 percent of the qualifying investment Tax credit on investment ($10mm x 30%) $3,000,000 Tax basis reduction ($1.5 mm x 40%) (600,000) Net tax benefit $2,400,000
Slide 85: Annual Effective Tax Rate
ANNUAL EFFECTIVE TAX RATE Quarterly effective tax rate dependent on forecast of expected ITC eligible capital expenditures • Under ASC 740, an entity is required to calculate an annual effective tax rate and use that rate to estimate tax expense/benefit during interim annual periods • Annual Effecti
Slide 86: Summary
SUMMARY • Consistent with NJR strategy • Strong NJ RPS goals / incentives • Potentially large market opportunities • Diversified network of suppliers, developers and installers • Tax appetite for ITC • Short (4-5 year) payback mitigates capital at risk • Strong contributor to NJR earnings