New Jersey Resources Corp (NJR) 2013 Q1 法說會逐字稿

I think we will get started. We're doing things a little differently today in that we announced our quarterly numbers this morning, I think as everyone knows, but we will be webcasting this, so we will have people participating via the computer, as well. I have got a read and opening here, which I don't like to do that. So, good afternoon. You all figured that out. Welcome to our meeting today.

It is being conducted in conjunction with our earnings -- quarterly earnings telecast and webcast consist. Since we're combining this with the earnings call, all of the telephone participants will remain in the listen-only mode for the entire event, but for those joining us by webcast, they will have the opportunity to submit questions via the web. If you want to do that, you must log into the webcast player which is available at www.NJresources.com. Okay, so that's for the people on the phone, welcome.

Welcome to all of you here today. Thank you for joining us. You'll see that we gave you a gift that's a little different than usual. Normally, it's like a pen. The last time it was taffy, but this time we sent you -- we've given you a little bit of a lantern which has a little bit of a story. We had originally purchased these as our gift for our shareowners at our annual meeting which was two weeks ago today.

They got put to a use that we did not expect on October 29. So, we didn't have enough for today. We quickly had to reorder them, but our shareowners who many of them faithfully come to the annual meeting every year, the median age is about 75, they love these, but we started getting a lot of calls because they couldn't turn them on, okay. Seriously. The batteries they were saying were dead. So, they have -- I have as much technical ability as, I guess, they do. There is this little piece of plastic on one of the batteries, so you got to take that off before they actually go on. So, a little different than what we've done in the past.

I want to take a moment and introduce to you the members of our leadership team who are with me here today. Glenn Lockwood, our CFO. Stan Kosierowski. Stan heads up NJR Clean Energy Ventures and Home Services. Kathy Ellis, our Chief Operating Officer of New Jersey Natural Gas. Kathy is celebrating her fifth anniversary in that position with the Company. Mariellen Dugan, who is our General Counsel. Steve Westhoven who leads NJR Energy Services. Mark Sperduto, Head of Regulatory Affairs. We promoted Mark very deservedly to Senior Vice President in December. Craig Lynch who heads up our operations area and who is really the leader internally of what was a very successful response to Superstorm Sandy. Bill Foley, our Treasurer. Pat Migliaccio, who is our Corporate Controller. And, of course, Dennis Puma, our Head of Investor Relations.

So, I have a number of objectives today. First of all, we want to talk about the quarterly numbers and explain those in detail to you. Secondly, I want to talk about Sandy because there has been a lot written about that and I view this really as an opportunity to tell you with clarity exactly what has gone on with Sandy not only from an operational point of view, but also from a financial point of view so that everyone has a clear impact of the picture of Sandy on the Company. And then finally, and perhaps most importantly, to give you some insight about 2013 in total and to also talk about our strategy going forward.

As I do that I will be making reference to forward-looking statements, because I will be talking about the future. Here is a list of all of the items that could affect the future. If you think we've missed anybody, Dennis will take that afterwards. And I will also be referring to certain non-GAAP measures, the largest one being net financial earnings. Those are not meant to be a substitute for GAAP. This is discussed more in item 7 of our annual report and I would encourage you to take a look at that, as well.

But I think with everything that has gone on since I last was with you here in New York, particularly with Sandy, I think it's important to start out with just a reminder of our story and who New Jersey Resources really is. And as you look through what our team has been able to accomplish what you see is the consistent theme of performance and consistent growth over a long period of time. We are a company that has improved financial performance for the last 21 years, that's the longest streak in the industry.

We have increased the dividend 19 times in the last 17 years. When you look at our payout ratio, it is lower than our peer group meaning that we are not only increasing the dividend, but we are also reinvesting in the Company to maintain a strong financial profile. When you look at our bond ratings with both S&P and Moody's, you can see the strength of our financial profile which is obviously important, given our capital needs. When you look at our returns over a long period of time, really over any period over the last 21 years, a strong return annually of more than 10%.

And, finally, looking at our consolidated return on equity based upon net financial earnings, a return on equity of 13.5% in each of the last 8 years. Taken together, a strong story of performance.

Now, I want to talk very clearly about our financial goals and where we're trying to be in the longer term. From an earnings point of view, we're looking for growth in a range of 4% to 6%. We are looking for most of that to come from New Jersey Natural Gas and I will talk about the fundamentals of New Jersey Natural Gas that we think really supports that goal. We are looking for a minimum annual dividend growth of 5%, and we think that our earnings performance combined with the overall strength of our financial profile positions us to do just that. The payout ratio, which you'll see right now, is in the high 50%.

We want to make sure that that's lower than our peer group because we recognize it's important not only to be consistent with dividend increases but also, as I said, to reinvest in the Company. And then, finally, maintaining a strong financial profile. A minimum equity ratio of 50% to make sure that we've got access that we need to the capital that's going to be required to support our capital investment plans going forward.

Now, let me start out talking about Sandy. I'm going to talk very clearly about the financial impact of Sandy, but I have to start out by telling you that in my 28 years with the Company, and I believe in the history of the Company over 60 years, this was the Company's finest hour. We were hit by Sandy, there was no doubt about that, and we had to shut down two areas of our service territory affecting about 32,000 customers. But within an eight-week period, our team was able to conduct more than 120,000 assessments, fix 4,000 anomalies, go through the process of restoring those 32,000 customers, and doing all of that within eight weeks. That is a job that was done. It was absolutely outstanding.

It was difficult at first because we had trouble getting access to the areas that -- those areas that were affected by the storm and that, quite frankly, as we tried to get information out to you about what had happened with the storm, the information kept changing, and we wanted to be as transparent as possible in making sure that everyone understood exactly what had happened there. I think many of you probably saw some of the pictures from the Barrier Islands, to a lesser extent from Long Beach Island, but our team was able to respond to that and restore service to all customers who were able to have service, about 32,000, and do that in a period of eight weeks. Absolutely outstanding.

Now, from a financial point of view, the impact was lower than what we had originally estimated. And as we were actually doing the work on the Barrier Islands and on Long Beach Island, we were getting more and more information, and we were trying to update everyone on a regular basis, as I said, so you could understand exactly what was the situation with Sandy. Right now we expect that the total capital associated with this will be between $30 million and $40 million. Most of that will be this year. The rest of it will come over the next three fiscal years. But the important point is that capital will be treated as an addition to our rate base.

From an O&M point of view, we expect the incremental O&M associated with the storm is in the range of $15 million to $20 million. We have deferred those costs for recovery in our next best base rate case. So, when you look at the capital and the O&M associated with the storm, that will not have a direct impact on our fiscal 2013 earnings.

And my feeling is, having spoken to people externally, is that there was a fear that there would be an impact this year because of that capital and O&M. That is not the case. Now, both of those we will seek recovery of the capital and the O&M will be sought in a future base rate case, and I will talk about this as to the timing of that, but that has to be filed before November of 2015. So, that is where we are from a financial point of view.

Because of the Company's strong financial profile, the impact of this in terms of access to capital, because I'll be talking about our capital budgets, quite frankly, is something that we can handle. And, I think one of the things that it underscores is the Company's long-term strategy of maintaining a strong balance sheet to make sure that we have appropriate access to capital. The bottom line with regard to Sandy is the expenditures. Were they unexpected? Absolutely. Is it a level that we can handle? Absolutely. Is it going to affect this year? No, it is not.

Now, let me move on and talk about the first quarter which we announced today. We were down $0.85 a share versus $1.09. Now, let me just talk through some of the major items here. New Jersey Natural Gas, you can see, is basically flat despite the storm. We did lose some customers for the first quarter. They are now, the majority of those are back online. NJR Energy Services had lower transportation values in the first quarter. Our expectation for the balance of the year is NJRES will be higher than last year.

NJR Clean Energy Ventures. You may remember last year in the first quarter we had a very high level of capital spending. You may recall the McGraw-Hill project which came on almost $60 million. That was in the first quarter of last year. This year, as I will talk about more in just a few minutes, the spending level in Clean Energy Ventures will be between $70 million and $90 million. So, the result is that we were down for the quarter. However, and importantly, over the balance of the fiscal year we think it's going to be higher than fiscal 2012.

Let me just give a few extra comments on that. First of all, we expect that New Jersey Natural Gas is going to have another strong year. Our customer growth is strong. In fact, we have increased our estimate for the next two years. We continue to have accelerated infrastructure opportunities. In fact, we had one approved recently that I'll talk about. And we expect the results over the balance of this year to be higher than fiscal 2012.

We continue to make good progress on Clean Energy and retail, both of those businesses. We have seen some improvement in SREC prices, and I will talk to you about some of the important developments that have gone on in that business since the last time we spoke. That will cause a decline in our expected tax rate as additional projects come on. And NJR Home Services, because of what has gone on with the storm, we have seen an upswing in our Installation business. As you might imagine, our Generator business is very robust right now. And then, finally, both NJRES and our mid stream assets we think that the full year net financial earnings will be higher than fiscal 2012.

The point of that is that the focus should be on what the Company expects will happen for the entire fiscal year. We put our guidance out just about two weeks ago. We think that's in the range of $2.55 to $2.75. You get a sense of where that's coming from. The majority from New Jersey Natural Gas, but if you look more broadly you can see that we expected 90% of those earnings will come from our infrastructure-related businesses.

If we go back just a few years, I talked about more than 20 consecutive years of improved financial performance. If we are able to get to the higher point of the guidance, that would be our 22nd consecutive year of improved financial performance. So, we expect that despite what we experienced in the first quarter, that we are going to have another solid year of financial performance in fiscal 2013.

From a dividend point of view, you can see some of our history, where we are right now at $1.60 per share, which was the 19th increase in the last 17 years. But I feel strongly, and part of our strategy is, that we have to focus not only what that dividend rate is, but what is sustainability on a long-term basis. So, if you look at our payout ratio right now, we set a goal, a long-term goal, of 60% to 65%, but compared with our peer group is already approaching the mid 60s and I think you can see that when you look at the dividend growth rate of the Company relative to the peers reflecting the overall financial strength and performance of the Company.

Now, let me talk a little bit about our business model and then we'll talk about the amount of capital that will that we expect that's going to be invested in these businesses. The foundation of our Company, our main business, New Jersey Natural Gas, Natural Gas distribution, some of the attributes there, strong customer growth, continuation of infrastructure investments, as well as regulatory incentives driving growth going forward. Clean Energy where our focus right now is primarily on residential and commercial solar, but we also announced an investment in September in on-shore wind, and we are trying to learn more about the combined heat and power market in New Jersey which is from a policy point of view the State has placed focus on CHP.

Our wholesale Energy Services, which is successfully transitioning from -- to a much different market environment providing producer services, managing storage and capacity assets, as well as our midstream assets. And then, finally, retail Energy Services with service contracts, our installation business and repair services. So, that's the way the business model is constructed right now.

Let's look at the capital budget for fiscal 2013. Total of about $211 million. Almost $130 million of that will be from New Jersey Natural Gas, including Sandy, which is about $25 million. The balance right now we see coming from Clean Energy Ventures a range of $70 million to $90 million. Less than last year and you saw the impact on earnings in the first quarter.

Now, where is the money for that going to come from? We expect cash flow from operations right now to be about $243 million this year. Here's the breakout of the spending totaling to the $211 million. For purposes of this chart we've assumed the midpoint of Clean Energy Ventures, about $80 million.

And then, finally, our external financing activities we will issue about $7.5 million of new equity through our dividend reinvestment plan. We'll pay dividends of about $67 million and the net proceeds from the issuance of new debt, about $27.1 million, which, given the strength of our balance sheet, we will do that without any problems at all and continue to, we think, support our current credit rating.

So, you can see the total of all of that. We've got a strong capital budget that is really the nature of our Business, but we continue to have healthy internal cash generation to support that, as well as a relatively small need for new external capital all done in a way we maintain a strong balance sheet.

Let me move into some of the different segments right now, and talk about the attributes and where we see growth coming from starting with New Jersey Natural Gas. As many of you know, because some of you are customers, you see the areas that we serve, Morris and the areas of Monmouth and Ocean counties. Growth in that customer base continues primarily residential and small commercial. Our net plan property and equipment right now about $1.2 billion.

That number is, obviously, going to continue to increase as we see capital budgets that continue to exceed over $100 million. An important start of our strategy has been our ability to work collaboratively with our regulators understanding and balancing the needs between the different stakeholders, our shareowners, our customers obviously, and the overall impact of what we do on public policy in New Jersey. And then, finally, a very high customer satisfaction rate by really any metric of public or internally, we have the highest customer satisfaction rate, clearly in the State and, by some metrics, also in the entire Northeast and that is an important part of our overall strategy. But New Jersey Natural Gas, as I pointed out, will continue to provide the majority of our earnings going forward.

Let me focus on customer growth. I will go a little bit more deeply into that. In the first quarter we added about 1960 new customers with 62 existing customer heat conversions. This continued strength in the conversion market, as you might imagine, most of that is coming from oil, almost two-thirds. If you look at the two pie charts you can see in the first quarter about 57% of the new customers came from conversions, which was about the same as we saw in all of fiscal 2012. From a gross margin contribution, most of it coming from residential, about 68%. The majority of the balance coming from commercial and a small slice, but an important part, is the amount coming from existing customers who are converting to heat.

As we look forward, the expectation is continued strong growth. We think that new customer growth will add about $3.5 million to our gross margin annually. As we look out over the next two years, and we have increased these estimates, we think we are looking at a range of 12,500 and 14,500 over the next two years.

So, let's look a little more deeply as to why we think that we will be able to continue the growth and why we did increase that estimate. First of all, if you look at where the customers are right now, basically an even split between Monmouth and Ocean counties and a slice up in Morris County, as well. But if you examine population growth that's expected in the State going forward for all of New Jersey, it's been 4.5% between 2000 and 2010. When you look at the average of our service territory in total, it's 7.3%, and if you look into that number, Ocean County by itself is about 12.8%.

So, that expectation of continued population growth is really fueling our expectation of continued customer growth. In fact, when we look at the customer growth numbers, we think about half of that is going to come from Ocean County. So, as we update these charts going forward, you will see that Ocean County becomes a larger percentage of the total. Compared with our peer group and the peer group averages nationwide, still a very healthy customer growth rate going forward.

Conversions, as I said, have played an important part in our overall customer growth over the last several years and not surprisingly we have all seen what the Natural Gas prices have done. Here is a sense as -- to give you a sense how Natural Gas compares with the competing fuels out there. Fuel oil, propane, and electricity, that's a clear price advantage.

In fact, when you look at the impact of lower natural gas prices over the past several years, we have been able to save our customers about 30% on their bills, which has been certainly well received by them. But we think that we will continue to experience continued strength in the conversion market and that will be helped by the clear price advantage that we have versus other alternatives.

When we look to the future, two pie charts here. First, looking at new construction. You can see that what we expect in terms of build-out, and particularly over the next four years, that's just the piece of the new customer growth that's coming from new construction. And conversion, a very healthy inventory, and a diverse inventory, as well, as far as the types of conversion. But you can see we see a total potential of over 200,000 new customers going forward.

This is supported by a lot of work that we do internally to understand what's going on in the service territory utilizing outside sources, and I think as we look back over the last several years and you look at what our performance has been, we have been pretty much been able to meet our goals. Obviously, the conversion market will continue to play a key role going forward.

I mentioned upfront the importance of working with our regulators and understanding the needs of various stakeholders and achieving balance. That is extremely important in any regulatory strategy. Here, I want to talk about two programs. First, our Conservation Incentive program which is in place through September 2013, the end of our fiscal year. And you may recall when that was first put in place going back to 2006 it had two main objectives. To protect the Company from declining usage and weather.

The weather normalization component goes back almost 20 years now. But also encouraging customer conservation. I think in many ways this particular program has been a model nationwide and I think the results have worked. Customers have saved almost $0.25 billion because our efforts to help them reduce their usage. And at the same time our bottom line has been helped as well by taking out the variability of the weather.

Our Accelerated Infrastructure program actually goes back almost four years to 2009 with two main objectives. First of all, system reliability but also to help the State's economy to support job growth, and both of those objectives have been met. Current return on investment on those -- on the AIP investments includes 10.3% ROE and through October we had invested about $131 million in 23 different projects. But what's important here, and what is underscored, is the importance of working together with our regulators with an eye towards public policy, as well as with an eye towards satisfying our customer's main objective of safety and reliability.

More recently, we approved in October our safe program, Safety Acceleration Facility Enhancement. That's a four-year program. It includes about $130 million of investment, and it is focused on unprotected steel and cast iron. The overall cost recovery is at a weighted average cost to CapEX of 6.9% and from a jobs point of view it should be -- it should enable us to create more than 1300 jobs. What we do is we work with Rutgers to come up with a model that will estimate the economic impact of these investments, but we must file as part of that agreement a base rate case no later than November of 2015, which I had mentioned before when I was speaking about Sandy.

I think when we're talking about any type of accelerated infrastructure program, as well as talking about capital budgets, it is equally important to look at how is the system performance being impacted and this is an important one. And you can see going back to 1996, so basically the last 16 years, the substantial improvement that we have had in the performance of our system as measured by both pending leaks and leaks per mile. And when we think -- when we talk about all of the capital that we have invested, I think what we can show is that the performance of our system has been improved measurably because of those investments. And I think that looking at those outcomes are important when we're talking about any type of accelerated infrastructure investments.

We've got a number of filings before the Board of Public Utilities right now. Our SAVEGREEN project which we've had in place for several years right now, again supporting our overall efforts in energy efficiency. You probably read recently that we reached an agreement with the Board to extend the existing program through the end of June. The Board will continue to look at the SAVEGREEN filing. But, again, when we're looking at these programs, we have to look at performance.

We've invested more than $30 million in incentives and rebates. We have gotten almost 1400 contractors into the program which has clearly helped economic development in the service territory. And, importantly, that has created about $144 million in economic activity for the state. So, we will continue to go through that process with the BPU.

And, as I mentioned earlier in talking about Sandy, seeking deferral for the incremental O&M related to Sandy we filed with the Board on November 19 to seek deferred accounting. There is some precedent in the state with Atlantic City Electric and Hurricane Irene, as well as PSE&G. So what we are doing right now is, we will defer the cost on the balance sheet and then they will be part of the next best base rate case, which has to happen before November 2015.

Another interesting regulatory filing that is actually in process of implementation right now is our NGV Advantage which was approved in June. It's basically our effort to support the use of natural gas in the transportation market in New Jersey where we will invest up to $10 million, install, own, and maintain the infrastructure and, as I said, try to support growth in the transportation market.

We received the interest from delivery fleets. It's been good so far. Hopefully, there will be a few announcements forthcoming about specific customers. But it's also important to think about this program in the context of the energy master plan. As we have spoken about publicly, natural gas is a key part of the most recent energy master plan with a recognition of the need for infrastructure to help support the state's energy goals going forward with reference to the transportation market, as well. And we believe that this program is an important initial step in trying to increase the usage of natural gas in the transportation market.

And then, finally, our BGSS incentives which have now been in place, it's hard to believe, almost 20 years. You can see the different types of incentives that we have. They have actually evolved over time as markets have evolved, but the real bottom line here is what has been produced in terms of results for customers and shareowners. Our customers have saved over $600 million since inception, that's about 5% a year from these incentives. And shareowners have realized earnings, total earnings, of $1.93 per share. It equates right now to about $0.09 annually. So, I don't like using phrases like win-win, but this is one that actually fits that definition and has done so over a long period of time.

So, as you can see, the fundamentals of New Jersey Natural Gas are very, very strong. We are comfortable with the growth prospects. We are comfortable with the opportunities to invest new capital appropriately, and we are comfortable with our ability to work with our regulators.

Let me move into our non-utility ventures starting with Clean Energy. As you know, this is a relatively new business for us and it is a business that has been in transition and has continued to evolve over the past several years. And since the last time we spoke with you, there have been a number of important developments that have affected that that I want to share with you this afternoon.

First of all, let me just kind of level set where we are. Through December 31, 2012, we had about 47.5 megawatts of capacity and we're currently generating about 50,000 SRECs each year. This has done a number of things for us. First of all, with regard to customers, we have been able to save money on their electric bill. They obviously like that. We have seen a strong commitment from legislators in New Jersey which goes to the overall policy commitment for renewables in New Jersey, which is also very important.

For us it's an opportunity to grow earnings and this year. As you saw from the pie chart, we think that that number will be between 10% and 15%. So, we've got an opportunity here to create shareholder value and help customers at the same time.

Let me talk about SREC because, as you know, SREC prices have been a little bit of a roller coaster coming down. And I want to give you some context on all of that. New Jersey has clearly demonstrated its commitment to solar, and they have done that really over a long period of time. And when you look at what actually happened, the program worked too well. When it came out a combination of high SREC prices, some of the other incentives that are out there including tax credits, bonus depreciation, federal grants, brought a lot of capital into that market and that put pressure on SREC prices.

The legislature recognized that and after a lot of discussion back and forth and a lot of proposals, because there are a lot of different points of view that were expressed, they signed legislation in 2012 with the objective of trying to bring long-term stability to the solar market in New Jersey.

It increases the renewable portfolio standard starting in June of 2013. It mandates that the Board of Public Utilities create an approval process for grid-connected projects and extends the SREC life to five years, which has also been important for us. What has happened now with SREC prices coming down, the market has slowed. And what we're seeing is an improvement in SREC prices. Today, they were in the range of $120, but since during this fiscal year so far they have increased about 75%.

So, let me dig a little deeper on some of these, starting with the renewable portfolio standard, because that is obviously extremely important. And the long-term commitment to that is extremely important, because it creates the core of demand going forward. So, here's what it was when the original legislation was passed. And you can see that it ramps up, and a lot of it was actually put -- back loaded, if you will, out into the 2020s. What happened in the new legislation, is you can see a lot of that was moved forward.

Now, I gave you some of the reasons why SREC prices had gone down. And if you look here you can see -- you can see if you look here in 2012-2013 the amount of supply for that demand created by the RPS was higher, which has brought the SREC prices down. Now what we're seeing is the RPS has been moved forward and we're also seeing a slowing of monthly installations. So, you can see where we are, small print here but going out through December you can see the amount of installations have actually come down, and we are seeing a corresponding impact on SREC prices. When you -- excuse me. Okay. There it is.

I think another important point here as we're talking about SRECs and incentives in general is what is happening to solar costs, and how is that changing over the long term. Because that will be important when we talk about longer term sustainability. You can see, now this chart goes back to 1998, but you can see where average costs were going through 2012. But, importantly, you can see where Clean Energy Ventures was, and the result of that is solar is becoming more competitive. So, the market today, as you can see, we're seeing some improvement in SRECs. You can see what it's done to the legislation, that the renewable portfolio standard has been accelerated, and you can see what's happening with costs going forward.

Let me give you some details on our different programs starting with the Sunlight Advantage, which is the residential program. We have got over 100 homes added this year. We deployed about $3 million in capital. That number will increase as we go through the rest of the fiscal year. We're up to about 1300 customers in total. From an economic development point of view, we work with local contractors. So, this has been a tool, this capital that we're investing has also been a tool to support job creation and customers have saved about $630,000 on their electric bills.

On the commercial side we've got three projects right now already done, about $55 million of capital committed for fiscal 2013. As I said to you, our goal for the year is between $70 million and $90 million but the pipeline of potential projects is about $130 million and we've got new projects coming into that really on a regular basis. So, we're seeing, again, a market that is in transition, but I think one that, in terms of where we were when we last saw you in June, with a much firmer foundation for growth going forward starting with what had happened with the legislation. And we're seeing the reaction to SREC prices which is being driven by the amount of installations that are coming down.

Now, we announced in September an investment in on-shore wind, a company called OwnEnergy, about $9 million. And what will happen here is Own will actually develop the actual projects. We will get shovel-ready investment opportunities for consideration. We do not have to accept them. We have laid out some of the criteria for those projects, but what we try do in a couple of objectives here is reducing our reliance on SREC and investment tax credits and certainly the production tax credit was helpful for the future and the economics of these projects. But again the objective here is to diversify our portfolio of clean energy investments.

NJR Energy Services, again, I think has done a tremendous job transitioning a business model in the face of a market environment that has really changed dramatically over the last several years. In the first quarter they contributed $3 million in net financial earnings. I'll jump right down to the bottom to tell you that we expect their earnings for the entire year will be higher based upon the activity that we have seen to date.

NJRS has been consistent in the strategic approach that it takes. And that has helped us, because I think, as most of you in this room know, there has been a lot of people that have, A, not been successful this in business or, B, have been dropping out all together. We have been consistent with our focus on a long-option strategy, and just as importantly maintaining a disciplined approach to risk management inside the Company. Very much focused on energy solutions for our customers, a diverse base right now.

And one of the things that we've taken advantage of in a very different supply environment is to provide services to producers to help manage their assets. And we have built that business to a point where now 30% of our gross margin is coming from fee-based transactions, which obviously is telling you that it is not tied to volatility. So, we think this year, as I said, NJRES will be somewhere between 10% and 15%, but certainly higher than last year.

Our midstream assets, again, consistent performance contributing a little less than $2 million in fiscal first quarter of this year. Those assets are Steckman Ridge and Iroquois. We think that they will be somewhere between 5% and 10% for the entire year. A lot of those assets are contracted services, so that we think we have a pretty good sense of where those earnings will come from for the year.

And then, finally, Home Services. Again Home Services had some challenges in the storm in responding to customers, but also some opportunities. And that, as I mentioned, we've seen a pickup in the Installation business. Serving now about 128,000 customers. And what we've done over the last several years is to expand the services that we are offering, and we are looking to diversify outside of New Jersey Natural Gas Company service territory, looking into different counties, Sussex, Warren, and Hunterdon, and we think that those numbers will be coming somewhere between 2% and 5% based upon the activity we've seen so far this year.

So, how do we wrap all of that up? First of all, I want to emphasize again the impact of Sandy. The main message is the dollars that we have had to spend capital and O&M are not going to affect our results this year. I make that point very clearly and very forcefully. We expect that our financial performance in fiscal 2013 will be solid and it will be strong. We expect that we will be able to increase the dividend without impacting in any way our overall financial profile, and we've communicated that to you through the goals that I laid out to you earlier.

New Jersey Natural Gas will continue to provide the majority of our earnings. That will be driven by customer growth, our infrastructure investment opportunities, as well as our regulatory incentives. Clean Energy will spend less money than they did last year. It will be consistent with our tax appetite, about $70 million to $90 million this year. And we're seeing improvement in the SREC market, and we think that the fundamentals are supporting that improvement going forward.

And then, finally, we think that NJRES, our midstream assets and Home Services will also contribute positively to our earnings. When we put all of that together and go all the way back to the beginning when I talked to you about the NJR story, we continue to believe that the Company's fundamentals will position our Company for continued consistency and growth in our performance. And I think I have to read something else now to the people on the phone. Right? Yes. Okay.

We will now move to the question and answer portion of this meeting. Please remember that this event is being virtually broadcast and recorded. And so for those of you joining us virtually, question can be submitted via the webcast player only. The webcast player is available at www.njresources.com. I hope the people on the phone understand what all that means because I sure don't. So, just a -- this is for all of you.

A quick reminder, please wait for a microphone before starting your questions so that everybody on the phone can hear this. And if there are questions from the audience, they are going to send them via e-mail and I will read them to you. Right? Okay. Got it. Thanks. Questions? Comments? Paul.

I have a question on your natural gas infrastructure build for vehicles which seems like natural gas vehicles should be taken off, but I'm just wondering if you are seeing -- because you said some of the customers are talking to you about doing that, are they waiting for potential incentives from the government to get them to utilize or -- I'm trying to look at how you lay it out and what's happening in the industry because there is a lot of money that's spent for solar and electric cars? It seems like Natural Gas is where it should be going.

Absolutely.

It's huge for you.

And the issue has been when the -- I wish it was as simple as the price of natural gas has come down. That should stimulate the market, but the missing ingredient has been infrastructure and that's the purpose of the filing is to create that infrastructure and create those incentives to begin to grow the market. So, there is a process of education, negotiation that's going on with them right now but, Kathy, you may want to add something to that as well.

Yes. We are very close with two customers on an agreement to build those stations and we're pretty confident that we'll be able to spend the $10 million that we're able to spend via that filing on between five and seven stations in the next year.

So, the objective is to make sure we're addressing the infrastructure side of the question to begin to develop the infrastructure that will stimulate that market.

And -- sorry, Paul. I don't know how detailed you want to get. To do that, what the filing does is require the host to take 20% of the take from that station and make it open to the public. So, it should stimulate both business use and individual customer use.

Just curious. On the government side in terms of getting vehicles and trucks to convert, are you seeing any incentives coming down the pike there which would obviously really expand the marketplace? And then, secondarily, is there going to be any natural gas tax on the -- because it's very cheap compared to fuel right now and I'm just wondering if that comes in, what impact that might have?

I will answer the second question first. I am not aware of any natural gas tax. Certainly in New Jersey there is a lot of discussion going on about a lot of things at the federal level. But to -- for your first question is what we're trying to do here is really step one, is to let's start with this infrastructure right now. Let's see how customers react to that. And I think that will then give us some insight about the broader market potential in New Jersey.

Related to that and also, more importantly, I think to the conversion process, what is the -- would the difference in prices as an attraction to the people who are converting and should be an attraction to people putting in C&J into their fleets because it's cheaper than gasoline.

Right.

What's the profitability to you on an immediate basis and on a long-run basis, if they're different?

On the natural gas side we'll earn on that investment that we're making in infrastructure on the NGV side. On the conversion side, a lot of that is broken equipment where people actually they've got to make the -- they've got to make that conversion. Once again, the amount of money that we earn is ultimately a function of the investment but also obviously that's increased sales to us as well.

You are selling the equipment?

The New Jersey Natural Gas is not selling the equipment. Home Services may be selling the equipment. The biggest piece is what New Jersey Natural Gas will make on that. And that will be part --

(multiple speakers)

Well, the sale of the gas and actually going down to it, it's the infrastructure itself. And if you look at the number that I gave earlier, that will be part of the $3.5 million that we expect from all of our customer growth going forward.

Okay.

Now, if I didn't -- if I'm not making that --

No. I'm a little bit confused. I don't live in your service area, okay? I'm the president of my condominium here in the City of New York. We have 200 some odd units in the condominium and we found someone who was willing to do the conversion --

Right.

-- of our building from oil to gas --

Right.

-- based on the savings that we would have over a period of years. And they're taking 95% of those savings every year to repay themselves and 5% to the building to incentivize us to do it. Whether that's a good deal or bad deal, I don't know. We will have to see what the savings are. I'm just thinking about the individual customer. You are talking about primarily residential in terms of this conversion.

The majority.

So, what is the impact on the individual customer? They have to go out and buy the equipment and do the conversion that way and spend thousands of dollars for what they will then see as a pay-back over the period of years?

It will be the investment that New Jersey Natural Gas has to make and then there will be the investment in the equipment. If you go back to the slide where I was comparing natural gas versus the others, that's what's really going to affect the pay-back period then.

Okay.

From what we get, New Jersey Natural Gas in this context, it will be that increase throughput to support that infrastructure going forward and those economics are very good for us.

And the follow-up to this gentleman's question. You say New Jersey Natural Gas has to make an investment but isn't that just connecting the street line into the house?

Absolutely -- when the street line is there, absolutely. That's what I'm saying. Those are very profitable for us. And when you look at the pie chart, that's why we've got it broke -- we've got those slices are showing you exactly where those conversions are relative to where, for example, our main is. Craig, you may want to add something to that. This is Craig Lynch, our head of operations.

No. Larry is saying -- you hit it -- nail on the head. When we have the main -- when we have infrastructure on the street, we're converting. Those types of conversions are very profitable. Not a lot of heavy investment in the underground infrastructure.

I don't live in your area. I live in Westchester County. I am a ConEd customer. ConEd and the state I think are coming up with credits if you convert. I think ConEd has one. I am a natural gas customer anyways, so I am not a potential convert, but getting back to the service area. If you have like 100 customers in your service area, just throw out a number, and 30% are natural gas, does that mean you have a potential conversion of the other 70 that have propane, electricity, fuel oil? What are the numbers there? Is there room for tremendous improvement as long as natural gas prices stay the way they are?

Let me just -- first of all, I think -- let me just go back to that slide. It will be a lot easier to explain it. Okay. Here we go. That's obviously the relative cost, but here's the conversion market, okay? And you can see the total there, all right? As we continue to develop our system, okay, as we expand our mains and all of that, we would expect that some of the pieces in the near the main and the off the main would become potential conversions for us, which is why we feel optimistic about the longer term potential for that market.

The focus right now is on non-heat, okay. These are customers who have natural gas service not for heat, that's the non-heat, but also those on the main. We are trying to convert those as quickly and economically as possible. And clearly the decision to do that will be influenced by this relationship, but it will also be influenced by equipment that has broken now and has to be replaced. And on that basis this is actually -- this makes it very clear what the customer should do.

Thank you.

You are welcome. Thanks. I knew we should have brought the marketing guy with us. We'll come right back to you, Karl.

Mark Barnett from Morningstar. Just a couple of questions on the regulatory front.

Right.

You might have mentioned it a little earlier but I missed it. When would you be filing for or have you already filed for renewal of the CIP program?

That will happen later this year.

Okay. And, secondly, do you have a timetable on the O&M deferral filing that you made as part of your --?

That will be a part of the next base rate filing and there is not a plan do that right now. We have to do that by November 2015, but when we look at the company's overall profile, its performance and all of that, we don't have a plan to file a rate case right now.

Maybe I was mistaken, but I thought you were waiting for approval to use that accounting treatment?

That won't drive. We have filed right now for the approval to defer those costs. We're comfortable based upon precedent in New Jersey that we can defer those. And that's why I mentioned Ace and [PS], but then once those are deferred, that will go into the analysis of when to actually file the case. Mark, do you want to add something to that? Mark Sperduto.

Mark, you hit it on the head. Basically, we requested the filing. There is strong precedent in New Jersey to defer storm-related costs, even though it's unusual for a gas company to do so. PSE&G in its approval for Sandy-related costs had some gas costs associated with it. So, we're comfortable that the asset is good and it will be subject to review and recovery in the future base rate.

So, it will be a part of the overall review of what then drives us. And when we figure out the timing of when the base rate case will be filed, but no later than November 2015. So, a little over three years.

This is as much a complement as a question.

I'll take those.

In the same as Sherlock Holmes novel, the dog that didn't bark that should have has been the clue, and we have heard a lot of barking from the governor of New York and the mayor of New York about various entities they felt didn't perform their function as well as should have been performed. I won't mention them by name. Everybody knows who they are. I don't recall hearing your Company -- actual my Company, I'm a shareholder, being criticized. So, is that part of the reason you're standing with such confidence now talking about the rate case and other forthcoming elements that you really do feel you have a good relationship with your regulators and political factors, governor, et cetera, of New Jersey?

The reason on the superstorm -- I'm not supposed to call it a hurricane, but Superstorm Sandy side is what our people actually did. This was tough, very tough. The decision to shut down those areas was a very difficult decision, but the way our people responded, absolutely inspirational. One of the things that we did when we were putting that strategy together is said we are going to communicate with the governor's office, with our regulators, with the local mayors of every one of those towns and the media every single day, which is what we did. So, I think it was more of the response.

You may have read, and for those of you who live in the service territory, there were estimates out there as to how long this was going to take. Had no idea where that was coming from. The bottom line is -- and quite frankly, when it first started we didn't know because we had not had the opportunity to actually get on to the Barrier Islands and get into Long Beach Island to see what this was, but our team this done and exceeded expectations. Yes, we weren't mentioned but the credit for that goes to our employees because they did that. You detect a passion in how I'm talking about this today because when you look at our stock we went with the whole group, we went down after the fiscal year and I think there were many reasons for that, fiscal cliff and dividend taxes and all of that, but we have under performed since the hurricane. And as we got into -- we got to a 52 week low on November 16 and the feedback we have been getting is because of a fear of what's going to happen with the hurricane and the passion that you are seeing from me here today is I don't agree with that statement.

And what I was trying to do today is to get the message out very clearly that from an operational point of view our team did a tremendous job. From a financial point of view, it's manageable. And here are the numbers and here's how it fits into our rate case strategy. I think if I was saying to you, yes, we have to file a rate case now in the next three months, it would be a different story. This isn't going to affect the regulatory strategy, and there is a lot of reasons for that. The strength of the balance sheet, all of that, that I went through today.

But that's where the passion is coming from because I don't like it when we under perform the way we have. And as I said, the message today is Sandy is not something from a financial point of view that anybody should be concerned about. We managed that. Was it tough? Yes, it was very tough to do that. But the second message, just as important, is the fundamentals of this company are as strong as they were on October 28 before that even came along.

Larry, my question is involving the Energy Services area and the broader picture, the implications of what's happening with additional load and additional opportunities. A number of us remember not that long ago Energy Services was a significant driver of the bottom line for the Company and that's not in our forebrain's right now but NJNG is picking up additional load. The conversions, the new. This is happening in other places in the northeast. We have nuclear and coal capacity which is scheduled for shutting down. That may be something we should start focusing on. So, I guess are you seeing in a cold snap like last month, is there buoyancy in pricing and capacity values which could reopen the opportunity that was so interesting a few years ago?

Let me make a couple of points. When you go back to the years -- first of all, the team at NJRES has done a tremendous job in the face of a market that has changed dramatically. In your slide deck you can see we put a slide in there that goes through how we have benefited from lower natural gas prices. And what our team has been able to do is to remain profitable in that difficult environment which is something that a lot of people have not been able to do that. We have seen a lot of changes but they have also been able to expand that business model to producer services and all that. That's number one. Team driven. Have done a great job at that.

Second, when you go back to 2008, NJRES had a tremendous year but the utility was going through the regulatory cycle. New Jersey Natural Gas had been in a rate case from 1994 to 2007 and that was beginning to show up on its results which, for 2008, the relationship between the two, the regulator and unregulated earnings, it changed. You have seen since that, once we came out of the regulatory cycle, that has gone back. Looking longer term, and I am to ask Steve Westhoven to talk in a moment, we are looking carefully as to what the dynamics are showing. There is still new infrastructure that's coming on there. There is demand. We had a very good January. It did react to weather and I'm communicating that through my expressing to you my view of where those earnings are going to be relative to last year.

Steve, why don't you add a couple of points to that?

Just to answer your question, yes. I think that the cold weather that we've experienced recently in sharp contrast to what we experienced last year when it was very warm and over that period you saw a tremendous price action in the market and certainly a real need for services in the natural gas market. And I think some of that growth that you just mentioned by the retirement of nuclear plants, retirement of coal is really coming through the market. And that was essentially demonstrated by that price action. And looking forward you continue to see growth in production and I think there is going to be tremendous growth to use that production within the US in the electric gen market and the industrial market and the needs and the services that, that market needs to do well, we're going to be well positioned to take care of that. So, we're encouraged looking forward.

Okay. Other questions?

Larry, we have one question from those attending by webcast. [Spencer Joyce] First of all, he apologizes. He would liked to have been here. Couldn't make it today. Then he asks, thanks for getting us the CEV revenue breakout between SREC sales and energy and other. That's very helpful. My question pertains to Q1. What went into the decision to make the 25,000 of SREC sales? Was most of that pulled forward?

I'll let Glenn take that.

Yes. On Q1 sales, the vast majority of those sales were forward sales of SRECs we had hedged the year before and that's why the Q1 sales, which again were about 25,000, is a lot more than you would expect when you have about 50,000 a year being generated. So, yes, a lot of that was due to some hedging we had done the prior fiscal year.

Thanks. Glenn. Is that it, [Patty]?

That's it.

Okay. I think we are done. Thank you so much for joining us here today and for your support. We appreciate it. Thanks.

Ladies and gentlemen, that concludes today's conference call. You may now disconnect your telephone lines.