New Jersey Resources Corp (NJR) 2016 Q4 法說會逐字稿

Second attempt at this meeting. Thanks for coming for the second attempt. And I promise you, the story that we told you about why it got canceled was true. But anyway, I do hope that that didn't cause any inconvenience.

Before we get started I just wanted to cover the fact that our presentation today is being webcast. So that -- those who are on the webcast, if you have a question, please send it to D. Puma, you know Dennis, dpuma@njresources.com and those questions will be announced and then we will answer them during the Q&A periods.

Now what we are going to do today, we have a number of presenters, as you know. What we will do is we will take questions at the end of each one of the presentations. I think that that is the most efficient process and so that is what we will do. And there will still be an opportunity for you to ask questions at the end of the presentation as well.

So let me begin by introducing our Company attendees. We have Larry Barth, who is our Director of Corporate Strategy. Larry spends a lot of his time in the clean energy business and has a very deep understanding of everything that is going on in that business. And particularly in the area of public policy in New Jersey, because, as you know, there are things that are under consideration and changing right now.

Laura Conover, our Chief of Staff. Laura is in the back. Kathy Ellis, our Executive Vice President of Policy & Strategic Development. Joanne Fairechio, who you all know, in the back, our Director of Investor Relations. Jamie Kent, our Treasurer. Jamie is a relatively new member of our team, but Jamie is here today. We have got a lot of people as you can tell.

Mike Kinney, who is our Director of Corporate Communications. Mike is in the back as well. Stan Kosierowski, who is our President of NJR Home Services. And Stan, I think as many of you know, is really the architect of our clean energy business. So Stan is joining us today as well. Everybody knows Dennis Puma, again those of you on the webcast, dpuma@njresources.com for questions. And Rich Reich, our Assistant General Counsel and Corporate Secretary, who will make sure that I don't say anything bad.

Anyway, so I want to start today talking about our objectives. And I think first and foremost what we want to do is to talk about our strategy, and not only the initiatives that we will be pursuing. But I want to do something a little different and really share with you some of the thought behind the choices that we have made and the areas that we are going to focus and how we think that those choices that we have made will allow us to continue to grow the Company.

We will also introduce our fiscal 2017 guidance which will come as no surprise since we released that about 7:00 this morning. Then I will turn it over to Pat Migliaccio and Pat will review our fiscal 2016 earnings. Mariellen Dugan and Steve Westhoven will talk a little bit about our business segments and give you a face there on New Jersey Natural Gas as well as our unregulated segments as well.

Then Pat will come back up -- so after you have heard about our strategy and you have heard about some of the initiatives in our Company, Pat will come back and he will give you a look see through fiscal 2019 about not only our spending, our capital spending but also how we will pay for that. And then I will wrap it up with what we like to call the Dennis slide, which will lay out our path for our future growth. As I said we will take questions after each one of the presentations and then there will be time for Q&A at the end.

So one thing I would like to do -- as I said, you will be seeing Steve Westhoven I think and Mariellen Dugan in different roles today -- is just talk to you about our speakers.

I think you know Pat Migliaccio; he was appointed Senior Vice President and CFO last January. Pat has been with us now since 2009. He has held a variety of positions in the financial area, most recently was our Vice President and Treasurer. I think over the course of the last two or three years you have come to know Pat as he has taken an increasing role in our Investor Relations program.

Mariellen Dugan, who you have seen at some of our meetings in the past, was promoted on October 1 to Senior Vice President and Chief Operating Officer of New Jersey Natural Gas. Mariellen has been with us since December of 2005, she has served as our Senior Vice President and General Counsel. And in that role she had the opportunity to be involved with many different initiatives from a legal perspective throughout all of our companies, in particular New Jersey Natural Gas Company.

Prior to joining us Mariellen served prominent roles in the New Jersey office of the Attorney General. First she was Chief of Staff and then she was the First Assistant which was effectively the number two position in the Attorney General's office. And then prior to that she was in private practice.

And then finally Steve Westhoven, again who I know you know from hearing him present on NJR Energy Services. Steve was promoted effective October 1 to Senior Vice President and Chief Operating Officer of not only NJR Energy Services but also NJR Clean Energy Ventures. Steve has been with us now for just over -- a little over 26 years. In fact he joined us in November of 1990.

Most of his time with the Company has been spent in NJRES where he was really the architect working with his colleagues in building that strategy into a very successful wholesale energy services business that has been able to evolve and change and address many changes that have gone on in the marketplace there. And I know Steve and his colleagues, as am I, are proud of the fact that every year since 1995, despite all of those changes, NJRES has been profitable.

So we are going to try and get all of this done by 11:30. And again, I am delighted that you are all here. So let's get started. I have to start by reminding you that I will be talking about the future today and I will be making forward-looking statements. And as I say to you every time that we meet, I tell you thought that list gets longer and the print gets smaller. But these are the issues that we may encounter as we are executing strategy.

And what I would ask you to do is in the 10-K they are listed out there, take a look at them. And think about them not only in the context of what we might face in the future. And many of them will be familiar to you, but we go beyond that in the Company and we try to build these issues into not only our enterprise risk management also over strategic planning process so that we get a sense of or thinking about the things that could happen to us and how that could affect our strategy. But for purposes of today I would ask you to please take some time to read those.

And also I will be making references to non-GAAP financial measures, the most -- the largest one of those is net financial earnings, or NFE. As we've said to you many times before, NFE we think provides really a better metric of our financial performance. However, I would stress it is not intended to be a substitute for GAAP. There is disclosure on that in Item 7 of our 10-K, and again, I would encourage you to please take some time just to read that so you can see the elements that are in NFE and how that compares with GAAP.

So anyway, so I'll start by just reminding you who we are, who is New Jersey Resources. And first and foremost when you look at all of our operations, we are a diversified energy Company. Our largest business, our most important business is New Jersey Natural Gas Company, a distribution Company, as you know, and really the foundation of our business. And today you are going to be reminded of the strong fundamentals of New Jersey Natural Gas Company.

NJR Midstream invests in storage and pipelines and our objective there is not only to commit capital and to do that profitably, but to take advantage of the environment in the natural gas industry right now of low-cost natural gas and bring that to our customers. As you know, that portfolio consists of a number of legacy investments, but we are also an investor in the PennEast pipeline.

Clean Energy Ventures, which we have been pursuing that business known for just about six or seven years, is focused on onshore wind and solar. What we are trying to do there again is to commit capital profitably, but to take advantage of an opportunity to provide our customers with clean, low-cost electricity. That is our objective.

And then finally, NJR Energy Services. The best way to think about NJRES from a high level is as we pursue our strategy we are learning a lot about the marketplace. We are learning a lot about the needs of customers. And through NJR Energy Services we are using that market knowledge to serve customers both from physical natural gas services, asset management services and producer services.

So that gives you a sense of who we are. I want to show it to you in a little different way. This of course is a map of the United States, it is in green, is not in red and blue -- well, New Jersey is blue, we got that color right anyway given New Jersey. But that is where our headquarters is of course.

But when you look at all of the operations associated with the businesses I just talked about between our BGSS sales through New Jersey Natural Gas, the activity of NJR Energy Services, our wind projects that we have and also solar which is now in New Jersey. New Jersey Resources does business and 43 different states throughout the United States. So we have been able to grow our business, to do that profitably and to serve a much wider range of customers outside of New Jersey and this is what you will learn about more today.

As you saw this morning we announced our initial earnings guidance for fiscal 2017, it is a range of $1.65 to $1.75 per share. We have given you two pie charts here that compare the initial guidance for fiscal 2017 with 2016. And as you can see, when you look at 2017 our expectation is that New Jersey Natural Gas will continue to provide the majority of our earnings.

It will be driven by, again, some of the fundamentals we will talk to you about today, but it will be driven also by our rate case, our expectation of the settlement of that rate case. And our expectation is that New Jersey Natural Gas will have a very strong year this year.

When you compare our other operations and you look at them compared with where we were in fiscal 2016, you can see we are generally in the same range for the different businesses. But again, the expectation is that New Jersey Natural Gas will drive another solid year for our Company.

The dividend point of view, we think the continued strength in our earnings will allow us to continue to meet our annual dividend growth goal of 6% to 8%. The last increase was in September, it was 6.3% bringing the annual rate to $1.02. From an historical perspective going back to 1995 this year -- this was our 23rd increase in the dividend.

And what is important is not only our payout ratio, which I think is an appropriate 60% to 65%, but the reciprocal of that, if you will, is the earnings retention rate and the dollars that we are reinvesting into the Company to continue to grow the base to increase our net financial earnings. This is a track record that we are very proud of.

So, when you think about the dividend strategy it has got to be I think evaluated in the context of not only our earnings but also the dollars, the earnings that are being reinvested back into the Company.

Now let me turn and talk a bit about our strategy. And as I said to you from the outside, I want you to think about this not only in terms of the areas that we are pursuing, but what are the choices that we have made and how did we make those choices? And here is just a couple of the bullets.

Well, first of all strong demand for natural gas is the result of abundant supply and low prices. That has given us a very strong foundation. And as you will see, there are choices within the natural gas value chain where we have decided to focus and there are areas that we are staying away from.

Demand for clean energy generation, generation from clean energy investments, that is increasing. And if there is a -- what I consider to be a somewhat unique set of circumstances in New Jersey that is allowing us to pursue that business to support public policy, to help customers and to do that profitably.

We think when you look at energy consumption right now that the mix of energy sources, that is going to continue to evolve. Public policy supports reliable, low-cost and clean energy. And the final bullet there about what are customers looking for. They are looking not only to save money and to help the environment.

So it is that strategic background that has really led us to the choices that we have made, because we think that sustainability and government policy are going to continue to be key drivers in the energy sector.

So let's start, let's take a quick look at energy consumption in 2015. I'm not going to go through every one of these slices in the pie here. But the two that I would draw your attention to are natural gas and hydroelectric and renewables. And if you look at those two pieces together, that is approaching 40% of the total consumption right now.

Now to put that I think into better context, if you look back at those numbers in 2009 and look at those two slices by themselves the number was closer to 30%. So what we have is a situation where consumption will continue to grow, the slices of that pie are changing and the majority of that growth is coming from renewables and natural gas. And when you look at our strategy that is where we are focusing right now.

Why is that happening? I don't have to spend much time on this slide, it is obviously the shale. What is interesting, for those of us who have been and the business for a long time, if we look back in 2005 we were facing a very different set of circumstances in the industry.

But of course with the emergence of the shale for all the reasons that we are familiar with, the so-called game has really changed for natural gas. And if we look at the impact on prices, we look at the gray, the shaded part going back to 2006 to 2010, much different price environment.

It was August of 2008 where we were touching $10 a unit for natural gas. And of course we have a very different story today in terms of prices, which has clearly helped natural gas and the role that it plays in our total energy picture for the country.

I'd just make one point -- if you look at 2016, it is interesting to note that you see prices continuing to be low. Of course we had a warm winter, but if you look at demand we were still experiencing high levels of demand. So the market is responding to those changed supply dynamics that I just mentioned.

On the solar side, obviously we get a lot of questions about clean energy. I think it is important to look at what has happened going back to -- over the last decade to the cost of solar. And of course we are focused in the residential market and, for purposes of this slide, in the less than 500 kilowatts non-residential. And if you look at both of those cost slides you can see that the prices have come down by 50% or more.

When you -- the way I think about that, the way the Company thinks about that is, yes, there are some -- there's been incentives provided for that, but the cost of solar continues to come down. And when we look at projections out there right now what we see is a continuation of that into the future.

You will hear more about the Sunlight Advantage, our residential solar program, this morning. But I want to give you a little bit of a sense of how our offer right now of $0.11 compares with Atlantic City Electric, PSE&G and Jersey Central. And not surprisingly an increasing amount of our activity in the Sunlight Advantage is happening in Atlantic City.

So the combination, as I said to you talking about our initial objectives of trying to not only promote clean energy but save customers money, this chart is showing you exactly how our team is able to do that.

And then finally, just a quick comment on wind, showing wind capacity factors going from back to 2002 where we are right now, when you look at those capacity factors and you see the increase approaching now almost 40% you are looking at a better utilization of capital as those assets are actually more productive. And again, in our own operations that you will hear about today from Steve Westhoven, that is exactly what we are of what we are seeing.

So that gives you a little bit of a backdrop. I would add one more point that I think brings all of this together. When you look at generating capacity retirements now, this is through September of 2015, a little over a year ago, but I think it makes the point very clearly. No surprise to see the amount of coal retirements, but where are those replacements coming from? Well, it's coming from natural gas, it's coming from wind, it's coming from solar.

But I think if you take this chart one step further and you combine the wind and the solar you will see that the largest source of new electric generation to replace what is happening with coal is coming from renewables. Another important point and one certainly that we consider in our strategy.

So with all of that backdrop to give you kind of an idea, where is the strategy? Well, you see those fundamentals, which we have summarized on the left, but where are the areas that we have decided to focus?

On the natural gas side regulated distribution, strong fundamentals in our service territory. A lot of collaboration with our regulators that you will hear about which has been an important part of our ability to grow New Jersey Natural Gas Company. Our focus on Midstream and recognizing that the changes in the natural gas market place are creating additional opportunities for us.

And then finally that market knowledge that we have built up not only over the years but even in more recent times with the changes going on in the marketplace, we have been able to build a strong service business to serve customers.

Energy efficiency is an area that is emerging right now and one that we see opportunities in the longer term. Our focus right now has been on our regulated activities. You will learn more about the SAVEGREEN Project today, where we are effectively committing capital to help customers use less energy; it has had additional benefits related to economic development.

Our conserve to preserve program, it was just a little over a decade ago when we said publicly that one of our key objectives in New Jersey Natural Gas was going to be to help customers use less energy. That got quite a reaction as you may recall.

But the fact of the matter is that has worked very well for us. And when you examine and as you will see how our team has been able to execute that strategy in a way that has helped our customers save money, it has helped us support public policy in New Jersey and it has been good for our share owners, it has worked.

An important part of that has been our conservation incentive program, or CIP, effectively our decoupling program, which has worked hand in hand with the Conserve to Preserve program and has really made a difference for the Company in how we have been able to serve all of our stakeholders.

And then finally clean energy. Our focus is very clear on that. We are involved in the solar market in New Jersey, we think there is a very vibrant market for New Jersey, we think there has been a track record of support legislatively for that business in New Jersey. We are witnessing that right now, quite honestly.

But also onshore wind, a question that we get frequently because there is -- you will hear about potential offshore opportunities in New Jersey. The answer to that question is, absolutely not. We are focused on onshore wind. And Steve will talk to you about how we have built that portfolio not only in terms of the existing wind farms that we have but what is the process by which we identify new opportunities.

So that is the strategy, just a few comments on each one of them and my colleagues will dig into that much deeper. New Jersey Natural Gas, our fundamentals remain as strong as ever. Growing regulated natural gas distribution Company, that is the anchor, that is the foundation. That is and will be, continue to be the majority of our people, our assets, our investment, all of the foundation of the Company.

Our collaboration with our regulators has really served our customers and our Company very well. You will see that, that over a long period of time with really a shared understanding of what is best for customers and how that affects our state in the area of public policy and economic development, that has worked very well for our Company and our share owners as well.

On the Midstream side, again, the dynamics are that we see continued growth in natural gas supply, that there is an opportunity for us to take advantage of that to bring those benefits to our customers.

And then finally with NJRES we see the opportunity with the changing dynamics in the marketplace, that there is an opportunity because of our understanding of the market, our relationships that we can help customers and provide them with additional services as well.

Energy efficiency, I think the title here really says it best. That is the best alternative to address growing demand. And we think that there will be opportunities to continue to grow in this space. And we are evaluating a lot of those right now. I have spoken to you about what we have been able to do on the regulated side; the results there are really obvious, the benefits that we have been able to create. And we think that there will be more opportunities to do that in the future.

I would again emphasize to you that the public policy landscape of New Jersey is really supportive of energy efficiency and has been welcoming of different proposals to help customers use less energy. But we think our positioning in the marketplace, our relationship with our customers will enable us to do more there as well.

And then clean energy, the first point I would make here is that this is about providing customers with clean, low-cost electricity. And there are opportunities to do that in New Jersey. There is strong support for that primarily in New Jersey through state policy but also incentives at the federal level, the recent decisions that were made with regard to tax incentives at the federal level certainly supported new opportunities for us and created new investment opportunities.

We have been focused on the diversity of our portfolio so that we are not just focused on solar. And in our team it is a strategy that we laid out to you probably about two years ago and our team has really done a very nice job achieving that diversity in the portfolio.

And as we look ahead there will be new opportunities in the area of technology for perhaps better utilization of those assets. So we think the strategic decision that we made to get into this business again 2009-2010 was a good one.

So what is the value proposition? And I think you are used to seeing this at the end, but as you are thinking about the numbers and the strategy and all of that, what do we see as the value proposition? Well, first of all is the solid regulated investment platform, most of our earnings are coming from either our regulated assets or long-term PPAs and by that we are referring to our wind business.

The collaboration and the ability to work with our regulators has been an important part of the execution of our strategy and will be critical going forward. And specifically when you think about the recovery that we have on a number of our infrastructure investments, the acceleration of that is helping with our cash flow which is obviously helping us because of the capital commitments that we expect.

From an infrastructure perspective I think there are diverse opportunities out there. Most of those will still be coming from the regulated Company supporting safety, resiliency, reliability. I will make an obvious statement here, that is the standard to which New Jersey Natural Gas Company will ultimately be held accountable. We are responsible for safety and reliability and to do that right involves the investment of a lot of capital and we will continue to do that.

Investments in the Midstream projects, again, I've given you a sense of I think we have got a good platform right now with the legacy investments that we have. And again, things like PennEast which were obviously longer-term investments, that will complement that portfolio very well. And then clean energy, we still see opportunities to grow there and to spend all of this money without changing that basic relationship between the different sources of our earnings going forward.

Obviously with a capital intensive Company like we are you need a strong financial profile. We have always maintained a strong balance sheet to make sure that we have access to capital. Our credit ratings are investment grade right now, the outlook is stable. And that payout ratio that I have alluded to on a number of times, keeping that below average but making sure that we are reinvesting in the Company as well.

And then finally when you bring all of that together the total return potential we have put out there a long-term NFE growth rate of 5% to 9%, sometimes we get a question on why is it that wide. That is really providing some room, if you will, for NJRES. And you know the outstanding results that they have had over -- in 2014 and 2015. 21 consecutive years of dividend growth, attractive dividend yield right now of about 3.1%. And when you put all of that together both on the earnings side with the yield, we think that that comes up to an attractive value proposition for investors.

So with that, I want to turn it over to Pat. But before I do that any questions for me before we get into the specifics? Okay, Pat, all yours.

Thanks, Larry, good morning, everyone. As you saw, this morning we announced our fiscal 2016 earnings guidance of -- fiscal 2016 earnings results of $138.1 million or $1.61 per share. This compares to $151.5 million or $1.78 per share last year. The results of a lower year-over-year are in line with our earnings guidance as communicated earlier in the year.

Importantly, 2016 earnings reflect strong contributions from each one of our business segments and I'll go into more detail shortly in the presentation. But before I do that I want to cover some fiscal 2016 highlights.

As Larry mentioned, we increased our dividend for the 23rd time in 21 years, to a rate of $1.02 per share. Additionally, we provided shareholders with a return of 12.6% this year. We grew our customer base, settled the base rate case and invested $200 million in infrastructure at New Jersey Natural Gas this year.

We received our draft environmental impact statement from FERC for the PennEast Pipeline project, an important step forward for the project. And finally we constructed five ITC eligible commercial projects and added 1,123 customers to our Sunlight Advantage program.

Looking at New Jersey Natural Gas on slide 26, you can see that we delivered net financial earnings of $76.1 million this year as compared to $76.3 million last year. Why the decrease year over year? Customer -- improvements in margin from customer growth and contributions from our infrastructure programs were offset by lower BGSS results and higher depreciation and O&M expenses.

We saw an increase of 4% in customer additions this year. Those customer additions combined with the conversion of a single large industrial customer from interruptible to firm service added incremental utility margin of $5.4 million this year. We invested $19 million in our SAVEGREEN program and saw an increase of $800,000 in gross margin from that program this fiscal year.

SAFE, our five-year, $130 million infrastructure program designed to replace bare steel and cast-iron pipe in our service territory was completed in fiscal 2016 and we are now collecting those amounts in rates.

Finally our BGSS incentives contributed $15 million to utility gross margin this year as compared to $17.7 million last year, which is primarily a result of lower capacity values and also some sales.

Slide 27 you can see a listing of our midstream assets which delivered net financial earnings of $9.4 million as compared with $9.8 million last year. The consistent but modestly lower results were driven by an increase in demand for hub services at Steckman Ridge that was offset by the sale of our minority interest in Iroquois pipeline in exchange for DM units in September of last year.

NJR Clean Energy Ventures delivered net financial earnings of $28.4 million as compared to $20.1 million last year. The increase year over year is a result of the increase in operating revenues, largely the number of SRECs sold as well as the average price that we sold them for in fiscal 2016.

As I mentioned earlier, we added -- we constructed five projects this year totaling $51 million and invested $34.3 million in our Sunlight Advantage program. Sunlight Advantage now has over 5,000 customers and we have a total portfolio of approximately 256 megawatts when you consider our investments in wind, commercial solar and the Sunlight Advantage program.

NJR Energy Services provided $21.9 million of net financial earnings as compared to $42.1 million last year. The decrease year-over-year was expected, but I would add, as many of you know, that this was a warm winter, unusually warm for us.

Despite that challenging market condition, Energy Services managed to exceed slightly the earnings guidance range that we provided in the beginning of the year and contributed 16% to NJR's overall earnings. With that said we are still targeting NJR Energy Services to contribute 5% to 15% in 2017.

Now I will turn it over to Mariellen -- unless there is any questions. Brian?

Can you tell us what the BGS incentive assumption is in the 2017 guidance relative to the $15 million reported in 2016?

So we don't provide discrete BGSS incentive guidance given the uncertainties of the marketplace. I think it is fair to say that when you look at the midpoint of the guidance range for NJ&G as a whole and the midpoint of their expected earnings contribution that would translate into approximately $1.02 of NFEPS. Historically the BGSS incentives have contributed about $0.05, so that is probably from an assumption perspective would be fair for what you should assume.

So is the $15 million that you reported in 2016, is that considered normalized even though you had a warm winter?

No. If you look over the course of fiscal year 2014, 2015 and 2016, the BGSS incentive results have been higher than what they have been historically, which is in a range of about $10 million to $11 million.

Okay, thank you.

Yes.

Could you give us your GAAP earnings for the fourth quarter and full-year against last year? And through the first three quarters you were nursing some losses on derivatives, they were unrealized. Could you talk about what happened to those or what you see happening to those going forward?

So we will provide GAAP earnings as part of the reconciliation table; I have actually got a draft of the 10-K there. We do provide net financial earnings and the reason for that predominantly is because of the swings and derivatives. And we believe that net financial earnings is a more meaningful measure of our performance.

The derivatives that we engage in are generally related to Steve Westhoven's business in the energy services. So natural gas futures contracts and basis contracts. And it is difficult to predict with any accuracy what the ultimate value of those and will depend on the price and the time of month that they end it.

So we are -- I don't offhand know the GAAP earnings, but we will be filing the 10-K Wednesday of next -- sorry, Tuesday of next week. You will be able to see those at that point in time.

Hey, Pat, I think you mentioned with NJNG you saw some increased O&M. Can you elaborate on that at all? And is that kind of a one-off thing or something that we should expect (multiple speakers)?

More of a one-off thing. As a matter of fact, the primary driver through is really higher depreciation expenses. So if you look at the variance depreciation it was up year on year close to $4 million. That warm winter cut a couple different ways. So the advantage of the warm winter was we were able to do some work that we wouldn't otherwise normally be able to. And that accelerated to earlier in the year when we put some projects in service.

Thank you.

So seeing no more questions I will turn the presentation over to Mariellen.

Thank you, Pat. Good morning, everyone. This morning I am going to review some of the key attributes of our utility, New Jersey Natural Gas Company, including customer growth and infrastructure programs.

New Jersey Natural Gas has a vibrant service area. Our annual customer growth averages about 1.6%. And last year fiscal 2016 we added the highest number of customer additions since 2007. We continue to receive high customer satisfaction ratings and recently we were named most trusted utility brand and an environmental and utility champion by Cogent reports.

We have a collaborative and constructive relationship with our regulators, the New Jersey Board of Public Utilities. And we have several infrastructure programs that benefit our customers directly by providing resiliency and reliability to our system, but also promote state policy by creating jobs.

Now let's talk for a few minutes about why our territory, our service area is so attractive. We are located between two major metropolitan areas, New York and Philadelphia, both of which have strong job markets.

The median household income in our service area is above both the state and national averages and people like to live near the beach. We have 100 miles of beautiful New Jersey coastline area in our service area. And particularly what we are seeing is active adults and retirees are moving to our service area. We are seeing a lot of these communities spring up, particularly in Ocean County.

We capture 95% of the residential construction market. And we have a strong penetration in the multi-family market, which is one of the fastest customer segments growing across the country. We also have a strong conversion market.

Now there are several key trends that we think are going to support future customer growth in our area and I would like to talk about a few of those with you. In the first seven months of 2016 we saw roughly 3,100 building permits issued in the three counties that comprise most of our service area.

And as you can see most of those permits were issued in Ocean County where I said -- earlier alluded to the number of active adults and retiree communities springing up. Now we believe that this history of recent building permits being issued is a strong key indicator of future residential construction strength in our service area.

Now when we talk about conversions, natural gas continues to enjoy a nice price advantage. And this is a compelling point that we can make when marketing to potential conversion customers in our service area.

And as you can see from the pie chart on the lower right hand side of the slide in front of you, we continue to see a lot of opportunity in the conversion market in our area, particularly On Main. You can see that in yellow there is roughly 32,100 potential conversions in our service area. And On Main is important because in our experience we believe that these folks are more likely to convert given the additional price advantage that they have.

Now in fiscal year 2016 we saw 8,170 new customers added to our territory. This mix was roughly $56,000 -- I'm sorry, 56% new construction and 44% conversion. And we believe that this mix of slightly higher new construction is going to continue into the future.

We also believe that combined these new customer additions will add about $4.4 million to our gross utility margin annually until fiscal -- through fiscal year 2019. And you can see that set forth on this slide.

Now as Larry alluded to earlier, we have -- and as I alluded to earlier as well, we have a constructive collaborative relationship with our regulators, the New Jersey Board of Public Utilities. And through this relationship we forged and created the BPU has approved a number of regulatory mechanisms that benefit both our customers and our share owners and I would like to go through a few of these with you this morning.

The first is the Conservation Incentive Program, the CIP. This is a decoupling mechanism which was launched in 2006 and, as Larry alluded to earlier, this mechanism allows us to promote energy conservation while also protecting our gross margin.

The BGSS incentive is a program that complements our natural gas procurement activities while also providing savings for our customers and benefits for our share owners. And the earnings from this program do not count towards our allowable ROE in the utility.

And finally SAVEGREEN, which is a program that is in its seventh year, provides incentives and financing for our customers for energy efficiency solutions. And this program provides another source of gross margin for the Company.

Now since 2008 we have invested more than $800 million in our system. And I'd like to talk to you about two of our current accelerated infrastructure programs. The first, SAFE, was initially approved in 2012. It was extended as part of our rate case settlement that we recently achieved. Now this program over the next five years will allow us to replace all of the remaining bare steel in our system.

The next program, which is NJ RISE, was filed at the request of the Board of Public Utilities after Superstorm Sandy. And this program, which consists of six capital projects, is designed to harden our system against potential impacts of future storms.

Now importantly both of these systems -- both of these programs have annual recovery mechanisms. Now these replacements and investments in our system have resulted in New Jersey Natural Gas Company having the lowest number of leaks per mile of any gas utility in the state of New Jersey, we are really proud of that fact. And more than that that fact helps to show our regulators that dollars invested in our system are directly benefiting customers by making our system more reliable and safer.

I'd like to give you an update on the Southern Reliability Link. This is a 30-mile pipeline that is designed to bring a diversity of supply into our system. And specifically it is designed to provide a secondary feed to the southern portion of our system.

And as you can see on the map in front of you, the SRL begins in Burlington County, it works its way through the joint base McGuire, Ft. Dix, Lakehurst, it winds up in Ocean County where it connects to our system.

Now it is important to note that the joint base is the second largest employer in the state of New Jersey and that the SRL supports one of the bases -- joint base's important missions which is energy independence.

Now earlier this year we are achieved two important milestones in the SRL project when the Board of Public Utility issued two orders approving the construction and operation of the SRL as well as designating the root of the SRL. We also received a flood hazard permit from the New Jersey Department of Environmental Protection and we are currently working with the NJ DEP on two additional permits, a CAFRA permit and a wetlands permit.

We are also working with officials to receive road opening permits that will allow us to begin construction. Now we will seek rate treatment for this project in a future proceeding and that proceeding will be timed so to avoid regulatory lag. Back to you, Larry.

Thanks. So just to focus on the key messages for New Jersey Natural Gas Company, I think it is clear that long-term infrastructure investment, customer growth are going to drive the growth of New Jersey Natural Gas Company. And importantly, there are a lot of opportunities to continue to do that.

I think Mariellen mentioned the very important statistic going back to 2008 that number was over $800 million and the impact on our system in terms of its performance has been outstanding.

A lot of reasons for that. You get a better sense this morning of why we are optimistic about our ability to grow by 1.6%. The demographics in our service territory are excellent; we are being aided by the price of natural gas. The ability to work with our regulators continues to be important, as it has been really over a long period of time right now.

The SRL, which is an important part of our future infrastructure plan that we are working on right now that will help us promote resiliency with a feed into Ocean County, it has been approved by the Board of Public Utilities, we are going through the rest of that process right now.

And I think the main message from a financial point of view is that we continue to believe that as the Company grows that the majority of our net financial earnings will come from New Jersey Natural Gas Company. So with that let me open it up for questions. Barry?

After you receive all of the permit for the SRL how many months will it take to actually complete the project?

Mariellen?

We are predicting right now that -- estimating that we will have the project in service in fiscal 2018. And we have assumed into that the amount of time it will take us to construct the project.

Since so many of your new customers are retirees that love the New Jersey coast, are any of the recent tax changes thought to be helpful or harmful or they cancel each other out in terms of inflow of new people?

Do you want to take that --?

(Inaudible).

I think the way to look at it when we think of the retirement villages and when you look at the senior citizen population, recent statistics show that it is the greatest concentration of senior citizens in any county anywhere in the United States except for Florida.

So New Jersey, as you know, is a relatively high tax state right now. But that has really thought affected the growth in the senior citizen population. So based upon that and what we have seen in the past, I would not think that that would be a problem.

But it could be even better if changes were --.

Oh, absolutely. No, it could be. I think the point is that when you look at that population, they spend a lot of time down in Florida, come back up to New Jersey. But we haven't seen any degradation in that growth rate at all.

Thank you.

Yes, in regards to the SRL project, when might we expect the remaining permit from the DEP to be issued?

Right now based upon the schedule that the DEP has in place we expect to receive those permits in the spring of 2017.

Okay. And just based on the updated CapEx forecast, it looks like there's roughly $55 million of SRL spend in 2018. So would you assume kind of a second half 2018 type operational (inaudible)?

Yes, it will happen at some point during 2018. I don't think that is unreasonable, what you suggested.

And then lastly, just remind us why it was stripped out of the general rate case settlement and targeted for a separate regulatory filing?

We actually hadn't begun the construction. So in order to get rate treatment for that you need to have started the -- have the construction in the ground. So that is why it was taken out. But I am glad you raised that because there was some reporting that it was denied. That statement is false; it was taken out because it wasn't ready for rate treatment.

Thank you.

At current oil prices, $50 oil and around $3.00 natural gas, how do the conversion economics look in your territory?

Do you want to take that?

Even at $50 oil, Barry, the conversion economics continue to be favorable. The slide that Mariellen had that showed the cost advantage, I think it is still on a per therm basis, roughly half or a third of the cost natural gas.

And never minding the environmental issues and logistic issues, I think what we find is from an environmental perspective there is additional rules around heating oil, tanks that are kept in the ground that cause issues when people try to sell homes in New Jersey.

And then even just from a logistical perspective navigating -- of course you always run out of heating oil when you need it most. And so for that reason natural gas remains the fuel of choice, that is why we capture 95% of new construction and expect to have conversions to continue.

And, Barry, even if you go back to the days of double-digit natural gas prices, we really never saw a drop in the conversion [market]. In fact the only ones that we don't get is our infrastructure is not there yet. Steve, you're up.

Thanks, Larry. Good morning, everybody. This morning I am going to be reviewing a few of our non-utility businesses. First I'm going to start with Clean Energy Ventures and talk about Midstream and PennEast and then move onto NJR Energy Services and discuss some of the market conditions that we are seeing there.

CEV is focused on developing, owning and operating a portfolio of renewable energy power projects. We concentrate in three specific categories: commercial solar, residential solar, and onshore wind. Energy Ventures was established in 2010 and since that time has met the needs of our customers for clean, reliable and affordable power. It leverages NJR's brand recognition and diversifies NJR into one of the fastest growing segments in the electric business.

CEV takes advantage of NJR's strength to execute a plan. We've delivered approximately 27 commercial solar facilities, five wind farms and over 5,000 residential solar customers. Over the past five years we have invested $600 million in the clean energy market. These assets provide many sources of revenue, among them tax savings from ITC and PTC; solar renewable energy certificates, or SRECs; lease payments from our residential customers or energy sales, electric sales from our wind and solar fields.

Last December, Congress extended the ITC and the PTC. The ITC is a tax credit utilized when investments in solar are made. PTC is a production tax credit that is utilized when a windmill produces electricity. And as a result of this we have developed a new strategy to take advantage of the opportunities afforded by this extension. The details of the extension are listed here, but generally speaking they add certainty to the energy investments in our planning horizon.

So what are the major impacts of these extensions? The IT extension has done a number of things. It has increased the viability of large-scale grid connected solar projects. It is also increased the number of commercial net metered projects and it has improved the economics of our residential solar program.

PTC is similar in that it expands the markets where wind is competitive. Prior to the extension renewable portfolio standards, like the ones in PJM, New York ISO and New England, would drive development. And now wind is also competitive in the western regions and in Texas.

Ultimately RPS standards should drive investments in renewable energy generation regardless of the tax incentives. So let's talk about SREC market fundamentals. For every megawatt that a solar facility produces it also produces a solar renewable energy credit or certificate, which is an SREC.

SRECs have value because they are used to comply with New Jersey's renewable portfolio standard or the RPS. The RPS level is a percentage of New Jersey's total annual electric sales. In 2016 this equated to 2 million SRECs that were needed to meet the RPS standard. So let's get into the details of how this works.

Load serving entities are required to buy SRECs as proof that a portion of the power that they use to serve their customers is coming from renewable energy and that it is generated within the state of New Jersey. The LSEs can either produce these SRECs by building their own solar facilities and then producing these solar renewable energy credits or they can buy them from the open market from companies like ourselves.

So this leads us to the SRECs marketplace. You can see on the chart that is here that we have the amount of solar renewable energy credits that are needed in order to satisfy the RPS for each energy year that is listed here.

The green part of these bars in the bar charts are the third-party suppliers, the third party suppliers who serve the unbundled electric market. The blue part of this bar are the BGS or the basic generation service. BGS providers offer electricity to the utilities through an auction process and this is the way that electric utilities purchase wholesale electricity for their customers.

Both of these type suppliers are load serving entities, or LSEs. Third-party suppliers typically roll over their customers on a yearly basis. So they don't know their SREC's needs until they get near to the year of delivery for their customers and consequently they don't buy SRECs until they need them.

BGS providers participate in yearly auctions that sell one-third of the power three years out. You will see on the chart that a majority of the demand is not created until the energy year is near. And the result is illiquidity in the future SREC market. And that illiquidity is represented by the white portions of the bar and you can see that in energy years 2018 and energy years 2019 up on the chart.

The market has needs but these needs develop slowly for these reasons. And this is meaningful when we discuss our SREC portfolio and we look at how we hedge it.

So moving on to our SREC hedging strategy. You can see on the chart that is in front of us that we have got energy years 2017 through energy years 2019. The green portion of the bar are the SRECs that we've sold, the SRECs that we have hedged in our portfolio. The blue represents the number of SRECs that we have yet to sell. And it is no coincidence that we have more SRECs to sell in 2019 and this corresponds to the chart previously that showed that there was a lack of liquidity in those markets.

Underneath this chart we show the average -- the percentage hedge for the year and also the corresponding SREC prices. Notice that there is a difference on the bottom right-hand corner of this chart between the market price and the plan price that we have at NJR. This is to take into account the liquidity that we have discussed on the previous slide. Note that our plan is to continue to actively hedge our SRECs as the market allows.

As discussed earlier, the RPS level is established by legislation. This slide shows the current RPS standard in blue. You can see a marked increase in that RPS standard between the years 2013 and 2014 and this was a result of solar legislation of 2012.

The new legislation is in the green on the top of the chart. The effects of this new legislation should help us keep pace with the projected solar build in New Jersey and complete -- and keep SRECs in balance with the amount of build. This legislation has broad support by both environmentalists and labor and currently it is scheduled to go before the New Jersey assembly on November 21.

Next we are going to talk about the CEV project pipeline and the progress we have made towards achieving our targets. We are entering fiscal year 2017 with over half the residential leases required to meet our goal of $35 million and we have a strong pace of weekly sales that should meet our target.

We've identified commercial solar projects needed to meet our fiscal year 2017 capital investment and the target of $62 million. In addition, we already have solar projects identified for fiscal year 2018 and continue to grow our pipeline of opportunities.

Moving to wind, our 2017 capital target is going to be largely met by our Ringer Hill Wind Farm. That facility is expected to be completed and operating in the end of December of this year. In addition to that we also have a pipeline of approximately $400 million of projects that we are currently evaluating towards our 2018 timeframe and beyond.

In summary, we have developed a strong track record of executing our plan over the past six years. And we have grown our resources, our network and our experience to meet our investment targets. The market and regulatory climate are supportive of renewable energy investments and we have a robust pipeline of projects to meet our plan.

Now let's take a look at CEV as a whole. We launched the business in 2009 and since that time we have invested over $600 million in the clean energy space. By 2019 we will have assembled a clean energy generation fleet of almost 500 megawatts. And as we discussed, the current asset base contributes a significant amount of operating cash flow. And this provides a platform for NJR's growth into the future.

Moving to NJR Midstream, the Midstream business is closely related to our core businesses at NJR. The utility, New Jersey Natural Gas, relies on Midstream in order to supply gas to its customers. NJR Energy Services relies on Midstream to assemble assets in a portfolio of lease transportation of storage to create value and profit from volatility.

The Midstream market is attractive due to the constraints from the new shale plays and also due to the growing natural gas market that Larry talked about before. We worked with experienced partners to execute and operate these assets. And these assets generate relatively strong cash flows at appropriate returns.

Let's talk about the PennEast Pipeline. We own a 20% interest in the PennEast Pipeline and it stretches from Northeast Pennsylvania down to a market center in New Jersey. The PennEast Pipeline is different from other expansion projects in that it is a demand pull pipeline. And what I mean by this is that it is contracted for by customers that need the natural gas.

In fact, a majority of its capacity is contracted by LDCs in Pennsylvania, New Jersey and New York. PennEast will also provide access to low-cost supply and will also supply -- and will also have diversity -- and will also add supply diversity and security to our customers.

PJM is a large electric grid operator on the East Coast and recently they've had a meeting where they stressed the need for additional need of gas supplies. And this is to promote grid certainty and reliability. They also incited -- during that meeting cited the importance of Midstream projects like PennEast.

As you know, we received our draft environmental impact statement on -- in July of 2016 and recently FERC has announced that we should receive our final impact statement in February of 2017. And we currently expect the pipeline to be constructed and in-service in our fiscal year 2019.

Moving on to NJR Energy Services, that is our wholesale natural gas business and it concentrates in the physical natural gas market in the US and Canada. We have assembled a geographically diverse portfolio of lease transportation storage contracts that take advantage of our wholesale natural gas market opportunities.

We provide asset management services to LDCs, power generators and producers. We maintain strong relationships with our customers and we have a very experienced staff that manages this business with an appropriate level of risk. Profits are derived from management fees as well as the trading the physical assets in the volatile markets.

So looking forward to this winter, so far it has been pretty warm. I know that the weather forecasters have said that it is going to be a normal winter and we haven't experienced that yet, but as recent as yesterday they are still insisting that. So I am hoping that is going to be the case.

Drilling and production have come under pressure which has caused some to increase the forecast in price, and the levels of electric generation continue to be impressive. LNG exports as well as exports in Mexico continue to grow. In fact, recently the US has become a net exporter of natural gas for the first time in history according to [Bentech].

These types of scenarios create uncertainty and volatility and drive the value of natural gas assets and consequently produce earnings for NJR Energy Services. With that I will turn it back over to Larry for the for the key messages.

Thank you. Okay so just to give a summary of some of the main points from Steve's presentation. I think we made clear in Clean Energy Ventures the area that we are going to focus on and the areas that we are going to stay away from and that is solar and in New Jersey as well as onshore wind. And you can see how we are executing those projects. When Pat speaks in just a few minutes here you will get a sense of the capital that we expect to invest in that over the next several years.

The areas that we are investing in New Jersey is one of the fastest-growing solar markets in the country, and that is obviously because of the favorable policy environment that we have in New Jersey. Steve alluded to the legislation that is currently pending in New Jersey that is passed the Senate, the assembly will be voting on that on Monday.

The extensions of the -- the tax incentives at the end of last year, I know there was some uncertainty with that. But those ultimately were extended and that gave us more certainty as far as those incentive goes. We take what I consider to be a very conservative approach to our SREC hedging strategy, to take as much risk out of that as we possibly can.

And I think a topic that we are talking about here this morning, we tend to focus on the RPS, which is obviously important which I have referred to as really the center of the universe in New Jersey as far as clean energy investments go. But it is very important to understand the demand side of that equation and understand the buying patterns that go along with that. And I think Steve has laid that out very well.

But when you are looking at the forward price of SRECs it is important to understand both the demand and the supply. And as I said, and you saw in my opening comments, that we expect the NFE contribution to be in a range of 15% to 25% in fiscal 2017 and beyond.

With regard to Midstream, obviously most of the discussion right now is on PennEast. I think that when you look at PennEast, obviously there are a lot of different opinions being expressed about that. But the FERC process that is going on right now is moving along.

FERC is evaluating the project, they are asking questions, the project is responding to those questions, and FERC has given an indication when we will see things like the environmental impact statement. So that continues to move along.

The further reality is that these infrastructure projects are going to take time, but at the end of the day we believe the burden of proof is going to be is the market there. And as Steve has pointed out, when we look at it it is based upon demand when it comes to PennEast.

We continue to look at other Midstream opportunities. Again I have said this to you in the past, there was quite a bit of capital that had been chasing those projects which have driven down the returns and we have really stayed away from that. We have not been willing to compete with those dollars, that those are not appropriate returns.

Having said that I think that there are advantages that we bring to the table in terms of our knowledge of the marketplace which will lend itself to Midstream opportunities. So we continue to evaluate those opportunities. And again right now our expectation is that NFE contribution will be between 5% and 10%.

And then finally NJRES, leveraging its expertise will continue to provide physical natural gas services. You hear from Steve's comments that we are very focused on what is going on in the marketplace right now and what will drive demand, what will drive volatility.

As I said to you at the beginning of the presentation, there is really a process of evolution that is going on right now. But our team has demonstrated over a long period of time that they are able to not only understand those changes, adjust our strategy and turn that into value in the form of earnings for our share honors.

And right now, as we have done for the last several years with some of the really uncertainties about the factors that will drive value at NJR Energy Services, we have kept that NFE range in a 5% to 15% range. So that is an update there.

So what Pat is going to come back to do, you have gotten a sense of really the key initiatives that we expect. Pat is going to come back and give you a sense of the capital that we expect as well as where the money is going to come from. But before I do that let's take some questions on Steve's presentation.

Can you just talk a little bit about the outlook of the CEV segment and the 20% corporate tax scenario? Do you sort of see any kind of an impact to your pipeline and sort of the behavior of your customers on the solar side?

And then on the legislative front, are you hearing any kind of movement about New Jersey potentially rejoining [Reggie] in the outer years -- if there is any opportunities there?

I didn't hear the -- did you hear that? I didn't hear the first question?

The first question was -- is there -- what is the impact of CEV to growth in that segment in a 20% corporate tax scenario.

Pat, do you want to take that?

Yes, I will take that. With a 20% corporate tax rate or any corporate tax rate for that matter would do it [would] take longer for us to harvest the investment and production tax credits that we are currently generating. Those have a 20-year life though and so certainly not in danger of losing those.

Clearly there would be a benefit to CEV of the lower tax rate. And one of the things that may occur depending upon the nature of the legislation, as I am sure you can appreciate there is a book [first] tax difference from a depreciation perspective. Those deferred tax liabilities are recorded on the balance sheet at the current tax rate. So if you did see a lower tax rate result from that we would re-measure those liabilities and you may see a one-time benefit associated with that re-measurement.

And if I could just ask you to repeat the second question. I was having trouble hearing you. I'm sorry.

Just on the legislative side, are you hearing any sort of movement with New Jersey rejoining Reggie in the outer years?

I will give you my personal opinion on that. I would be shocked if that happened anytime between now and 2018. I do think, based on what we know right now, that that could be a possibility after 2018.

Could you just talk about what is driving the noticeable decline in SREC pricing since your last update in October?

I think what we -- and I think you are alluding to going to the out years into 2018 and 2019. And that is the point; I am going to ask Steve to comment on that. But that is -- what we have added to the presentation today is to give you a sense of the demand and the buying patterns through not only the basic generation service but also the third-party suppliers.

Because it is important to understand that so that we can make a -- really a -- give a logical explanation as to why SREC prices would come down in 2019. So I am going to ask Steve to comment on that and then we will come back and talk about how we try to deal with that through our -- I will ask Pat to comment on our hedging strategy. Steve?

So just referring back to that original slide where it showed the amount of demand of SRECs really being in your front years. As you move out a number of years the liquidity starts to dry up. And you can imagine there is a number of entities that produce SRECs, they want to sell SRECs, but the only players out there are those that have essentially firmed up their commitments with your BGSS suppliers and also your third-party suppliers.

So, I think a portion of it is a lack of liquidity in that market. And as we move towards it we will see -- you could see prices move up. But I think it takes time for that market to materialize.

The slide here, Brian, I think says it all. When you are looking at going out into the later periods into energy 2018 -- energy year 2018 and 2019. Actually I am going to ask my colleague Larry Barth to comment on that as well. I want to stay on this because this is an important point that we have not emphasized in the past and it is important that you understand that. Go ahead, Larry.

Right. So it is important to note that the buyers of SRECs, they are really just focused on the next couple of months, the current energy year. That is where the focus is. When you start to get out two years, three years, there is not a lot of buyers.

There might be some speculators there, but the compliance buyers that are really behind the RPS you are not going to find a lot of them. And so sometimes we even look at some of those prices and we even question how real they are when you get out to those periods because there is not a lot of transaction volume.

And I think what we're trying to do, Brian, with this slide is to answer the question, why are there not a lot of buyers out there and give a better sense of where the demand is coming from when we get out to those years. Go ahead.

So just to summarize, are you saying that we are already approaching December of 2016, are you saying that 2017 is an illiquid SREC market?

Steve, do you want to take that?

No, it's not -- can you just move us ahead one slide?

Sure.

So, if you look at this slide, notice that we have almost all of our SRECs hedged for 2017 and that matches up with the slide prior as well because the market is developed for that. If you look at fiscal year 2018, which is almost 22 months away, we have got a good chunk of that hedged as well because that market has materialized by looking at fiscal year 2019 there is not a lot of hedging in this space because there is just not a lot of buying out in the marketplace.

The only way we would be able to essentially, I guess for lack of a better word, shove those into the market would be in the arms of speculators, who really don't need if they are just buying them for profit because the market hasn't developed yet.

Okay, that is helpful. And also on CEV, we have heard a number of utilities recently announce a shift in strategy to build, own and operate more renewables to grow rate base, etc. How does that play into your strategy? And where -- how does CEV counter that or what is the competitive advantage for CEV to assign PPAs with entities?

A couple of questions there. First of all, we think that the solar market in New Jersey still has a lot of opportunity. We think that that opportunity is diverse between not only for residential market but also the commercial market.

From the tax incentive point of view we think that the extension that we saw there is obviously helpful. We think that the legislative support is there through the -- not only the RPS but the response of the legislature to the things that we are learning in the marketplace.

On the wind side, which I think is what you're alluding to. It is important to understand where we are focusing. We are not focusing on the larger projects, we are not focusing on offshore wind. We have found a market that is basically referred to as community wind.

The smaller size projects, we've built the operational capability internally, we have developed the relationships that we need with firms like [Martinson]. So we think in that space that we can compete but for the larger rate based projects that is not the market that we are going after.

Larry, we have a question from a webcast participant. PennEast was recently pushed back two months by the FERC --.

I can't hear you, Dennis. A little louder, please.

PennEast was recently pushed back two months in the FERC process, but our CapEx projections haven't changed. How should we be thinking about this going forward?

Pat, you want to take that?

FERC issued a notice that they were going to issue our final environmental impact statement approximately 90 days than originally planned. That being said, we are still holding to our original commitment of an in-service date sometime in our first fiscal quarter of 2019. Many of the partners of the project are calendar year so you will see the end of calendar year 2018 in their releases. I don't know if Steve has anything else to add on the project.

Yes, basically the project timeline hasn't changed in light of that FERC delay.

That makes sense.

Just keying off of that, you have got that portion of your business at 5% to 15% of your [core] earnings growth. What portion of that is represented by PennEast and maybe if we just consider that the scenario in which PennEast completely went away, how much would that move your forward earnings guidance if you can comment on that?

Midstream is 5% to 10%. PennEast, when it comes into construction, is roughly half of that overall earnings guidance. But in terms of how that would affect forward -- kind of long-term guidance growth, we are still committed to the 5% to 9%. So we would clearly have to find alternative investment vehicles to support that. Hopefully that answers your question, Sam.

Looking at 2016 actuals for the renewables business and then comparing with kind of the midpoint of 2017 guidance. It looks like it is roughly flattish and just thinking about there is more spend on solar, SREC prices are up, you are selling more SRECs. Are we missing anything in terms of growth or any offset [there]?

Pat?

One would be incremental (inaudible) associated with now what will be five fully operational wind projects. And so you will see those coming in. SREC price -- spending in the -- ITC spending, as you point out, is slightly up. But the CapEx schedule is based on CapEx not necessarily placed in service, so sometimes you have a disconnect between when we recognize the ITCs in a particular fiscal year versus when the actual CapEx occurs. And so that may be masking some of the growth.

I've got one more question. What is the base year for your 5% to 9% NFE growth objective?

Well, fiscal year 2016 now is the base year.

My question in the background is the electric grid cyber vulnerability versus a gas distribution system cyber vulnerability. Several weeks ago I heard the New Jersey US attorney address this point for about an hour.

And a takeaway point was that in order to assess the vulnerability of common appliances, usually those where the manufacturer's default settings are never changed, they ran a test with a common kitchen appliance, I believe it was a grid connected toaster, but don't hold me to that.

Oh I won't, don't worry (laughter).

And within 10 hours there had been in excess of 300 attempted hacks on that appliance. So it is real. And I am wondering if the legislature and the regulatory side is assessing the risk properly which ought to be a tailwind for distributed generation and the gas distribution system generally?

If I don't answer the question properly [I want you to] come back to me on that. When you look at New Jersey and you look at the Department of Homeland Security and you look at the coordination between the various industry sectors on issues related not only to cyber but overall security, that is a very robust process, a lot of communication on all of that.

I didn't see the comments that you are referring to, so I can't comment on those except we know what that process is. And quite frankly the experience of Superstorm Sandy is one that is fresh on the minds of everybody in the state. So even when there's a hint of for example a hurricane the different protocols are implemented.

There has been, and you have seen this in energy master plans, discussion of the importance of distributed generation. As you would not be surprised to learn, there was a higher level of awareness and interest in that after Superstorm Sandy. That has obviously waned. But my expectation, now speaking personally, is that as we move into 2018 and beyond you will see more discussion specifically on that point.

Inside the Company when -- and I alluded to this in my comments on CEV. When we talk about technology and we talk about changes in technology and how that might create additional opportunities for CEV down the road, that is one of the things that we are alluding to. Okay, Pat is going to now, as I said, talk to you about the money that is going to be spent and where it is coming from.

So Mariellen and Steve walked you through many of our long-term infrastructure projects. You see those listed here in addition to the other capital expenditures we have planned for NJR on slide 60. We plan on spending $700 million at New Jersey Natural Gas to serve new customers, to maintain safety and reliability and to improve resiliency.

And importantly, and as you can see here are a combination of our new customer spend, SAFE II and NJ RISE which equates to approximately 40% of the anticipated capital expenditures over this planning horizon are going to earn -- will earn a current return.

Looking now to the non-regulated business segments. We will continue to build on the success of our residential solar program, Sunlight Advantage, where, as you saw from the slide early in the presentation, demand for the product, which is competitively priced and offers clean energy to new customers, continues. We'll spend $35 million to $43 million over the course of 2017 through 2019 on new residential solar customers.

Additionally, and subsequent to our last update, because of the ITC PTC extension we are going to be investing an incremental $160 million in both [debt] meter commercial and some grid connected solar projects to the 2017 through 2018 timeframe.

We remain committed to the wind space as well and you can see in 2017 -- or rather in 2018 and 2019, we will invest $200 million in wind investments -- in wind projects predominantly in areas where the energy prices are supportive. Or barring that where we expect that renewable policies will drive our continued investment.

All told we will invest $600 million over the 2017 through 2019 timeframe in renewable energy investments, which, as Steve alluded to earlier, will result in nearly 500 megawatts of installed solar capacity during that timeframe.

How are we going to pay for it? With strong cash flow operations for one. 2016 was a bit of an anomalous year from a cash flow perspective. We saw the impact thematically of a warm winter as well as a voluntary pension contribution of approximately $30 million which we don't expect to repeat for the planning horizon. When you look at the impact of the base rate case we get some more normalized cash flow from operations of between $250 million to $270 million.

Additionally, we have got some modest equity needs over that timeframe. We plan on issuing $200 million of equity between 2017 and 2019. The combination of our strong cash flow from operations and our appropriate financing plans we believe will result in maintaining our existing credit rating.

That is all I had on capital expenditures and cash flows. Does anyone have any questions? I think Brian Russo might have had his hand up just by a fraction.

The CapEx for Clean Energy Ventures doesn't [tie] from the capital plan to the cash flows.

Timing difference in terms of when the actual project will be placed in service versus when the CapEx will actually be made.

Correct me if I am wrong, but it looked like you shifted your CapEx primarily due to delays in PennEast. But it looks like your financing activities have remained constant from your last update. And just curious as to why you didn't shift the financing as well.

You mean the last update on October 20? It is fairly consistent with October --.

Yes.

It is consistent with October 20 which reflected a change from our earlier capital plan that was released in this fiscal year. So we have added $72 million of incremental equity as compared to that earlier capital plan. And we had shifted the expectations of debt issuance. So, you are correct, there is no change from our earnings call -- or earnings call -- analyst call on the 20th. It should be the same information because we had already factored in those shifts.

Okay, thank you.

Just doing some rough math on your CapEx -- forward CapEx outlook. It looks like that drives kind of a low-double-digit compound growth rate out over the next couple years. How do we reconcile -- what are the factors to reconcile that to your 5% to 9% core earnings growth guidance?

I would have to think a little more carefully about that to give you a robust answer. But keep in mind that a number -- a significant portion, even though we are earning at a current return of 40% of the NJNG CapEx, the balance of 60% isn't contributing to earnings.

And so, as part of the SAFE II extension we are required to file a base rate case in November of 2019, it is at that point you would start to see the recovery of some of those expenditures at the utility.

Is the question you are asking the percentage growth rate on the CapEx is not lining up with the earnings?

That is basically it. And I understand that I lot of the investments you are making particularly outside the utility are not rate based. And so there is a lag involved -- an inherent lag involved in that, that is basically what I was --.

Yes. I think just looking at the [math], those numbers, those percentage growth rates may not line up perfectly with each other, because you're coming off different bases and all that. And I see that when sometimes rate base growth of X% is equated to earnings growth of X%. Those percentages may not necessarily line up with each other I think just looking at the basic math.

Larry, when we say we are evaluating $100 million pipeline of additional pipeline commercial solar investments on slide 50, would this be incremental to our capital -- our CapEx projections on slide 60?

No. No, the pipeline that we are referring to would be the investments that would support the capital plan here on slide 60. One point I wanted to make on the capital budget here is what you are seeing is and I think the way you should think about this is in terms of a portfolio.

There are items in there right now where we have got to make estimates as far as the timing goes, some of the larger pipeline projects. But the point is in that portfolio there is flexibility that we have really across the board to continue to invest properly.

This is our best estimate right now. But there are opportunities to continue to invest. And when I say properly I mean at an appropriate cost of capital. This is something, as you know, we started giving several years ago, we will continue to update this as we learn more and that will be particularly helpful I think as we learn more about things like PennEast and the SRL.

But our team in building that portfolio really has built I think an appropriate and diverse base of potential investment opportunities. And I always bring this back to what we said really at the beginning as to our expectation of the distribution of earnings that under any scenario that is going to be -- the majority of that is going to be in New Jersey Natural Gas Company.

So let me wrap up here with again the so-called Dennis slide and to take everything that you have seen and what does that mean and where are we going to be focusing our activities over the next three years to implement this plan.

Well, fiscal 2016, obviously that was a busy year for us, completing the base rate case, continuing customer growth, those numbers have become more positive going forward. The CIP now in its 10th year, really showing its benefit not only to customers but also to share owners. And in this year of course with the weather the way it was.

The BGSS incentives had an outstanding year in 2016. We continue to invest in our accelerated infrastructure programs. We didn't mention this in a lot of detail today, but we have said to you in the past about the Howell liquefaction plan, roughly a $35 million investment. Our team did an outstanding job getting that in place. That is now fully operational and we are seeing the operational benefits of that already.

On the clean energy side, continuing the development of the portfolio and diversifying the portfolio between solar and wind. We are increasing the base of SRECs, Steve alluded to that in some of his comments. And we were able to complete a number of wind farms.

Along with that I would say that we have increased the -- expanded the base of partners that we have and building the internal operational capability. And quite frankly it is impressive what our team has been able to do in that regard.

Midstream, we made some progress with PennEast, as Steve talked about, and Energy Services in 2016, despite the warm weather, exceeded our expectations. So now we roll forward to 2017, new base rates are in effect. That will be one of the drivers of what we expect to be a very strong year for New Jersey Natural Gas. Mariellen mentioned SAFE II and the extension of that infrastructure program.

Clean energy, again you see the consistency, what we are doing with the clean energy strategy, the solar and wind investments continue. I think importantly today Steve gave you a sense of the pipeline of potential projects that we have continuing to build our SRECs, I think one of the main messages today is to give you a deeper understanding of the SREC market and not only focus on the supply but the demand and the patterns of the buyers and how that will affect the price of SRECs particularly as we go out several years.

We completed the Ringer Hill project, actually brought the Board of Directors out to visit that in September. And then we made some project on Midstream -- we made some progress, excuse me, on PennEast and Midstream.

So we go to 2018 now. As we see it right now the SRL will be in service. We will continue SAFE II, that accelerated infrastructure program. NJ RISE expenditures which are related to Superstorm Sandy, that those will begin to -- this will increase clean energy. Very consistent strategy with solar and wind. Those investments will continue. The base of the SRECs continues to increase. And Midstream we think that the PennEast construction will commence.

And then going out to fiscal 2019 we still have accelerated infrastructure investments from SAFE II. We will begin to think about the next rate case that we will file -- that we will be filing. There is a lot of preparation, as you all know, that goes into that. And then consistency with what we will pursue in clean energy.

More SRECs, a common theme and then Midstream, PennEast in service. So, beyond all of the strategy that we have talked to you about today there are very specific tactical plans that are going out to fiscal 2019 to implement that plan and deliver results not only for our share owners of course, we have given you our goals there and how we intend to pursue those goals but also for all of our stakeholders including our customers, including our communities, including our regulators.

And so that is it. We are pretty much on schedule, but I would be happy to take any other questions that you might have. No, that is easy. Okay.

I want to say thank you not only for you all being here today, but I want to say thank you to Dennis, to Joanne, to Mike Kinney who I don't think you have met before, and the newest member of our team, Laura Conover.

As you might imagine, we got quite a curveball from the -- from that other place where we were supposed to have this. So you probably won't see us there again. But our team was able to deal with that change and come up with a seamless meeting here today.

So one of the things I would ask you though, it is important to us to get your feedback. We made some changes in the presentation today, not only in terms of the information, but trying to give you a better sense of not only the strategy but how we are making these choices.

And also as we look out into the future we need your feedback on that -- what you think of the presentation, are there other areas that we should be covering. And I would personally be grateful for that.

So we will not see you before the end of the year. So I thank you for your support of our Company, which many of you have done that for a long period of time. And I wish you and your families the best for a wonderful holiday season and in the next week or so have a very blessed Thanksgiving. Thanks very much.