SJI
#Thank you, <UNK>, and good morning to everyone on the call and thanks for joining us.
Today we will discuss results framed in the context of our two major business segments, utility results from South Jersey Gas and nonutility results from South Jersey Energy Solutions.
Additionally, within our nonutility, we'll discuss the performance of our two primary businesses, South Jersey Energy Services and South Jersey Energy Group.
The measure we use to assess SJI's performance across all business lines is economic earnings.
Our full-year 2014 results reflect 7% growth in economic earnings at $104 million compared with $97.1 million in 2013.
Economic earnings per share for 2014 totaled $3.13 a share as compared with $3.03 for the prior year.
For the fourth quarter, economic earnings totaled $31.2 million compared with $39.9 million for the prior-year period.
Economic EPS for the fourth quarter of 2014 was $0.93 compared with a $1.23 for the same period in 2013.
This variance resulted in large part from reduced levels of ITC associated with solar project investments and from the impacts of the Revel Casino bankruptcy on our joint venture energy projects that provide energy to the facility.
We will review these items and the drivers of current and future growth in greater detail as we discuss the performance of our individual business lines.
Looking at the utility, South Jersey Gas' earnings for the full-year 2014 were up approximately 7% to $66.5 million, as compared with $62.2 million in 2013.
For the quarter, utility net income was $24 million, as compared with $22 million for the fourth quarter of 2013.
As in prior periods, infrastructure investment and customer growth remain the key drivers of utility earnings to date with additional benefit coming from the settlement of the base rate case at the end of the third quarter.
We closed out the year with accelerated infrastructure investments that totaled $54.8 million between our two tracker programs, the AIRP, which replaces aging [Bierst] steel and cast-iron main throughout our system and the Sharp, which replaces low-pressure mains specifically along the barrier islands with high-pressure main to better protect our system from water and sand intrusion during extreme weather.
These investments added $3.2 million in net income in 2014.
Also during 2014 we grew our year-over-year net customer count by 1.3% to nearly 367,000 customers.
The cornerstone for that growth was the record level of customers we obtained via conversions from other fuels.
We obtained almost 5,800 new customers in 2014 and as we look at that, that 5,800 is ---+ not only is it a record but it's 10% above the record we set last year for conversions.
So we continue to make good progress in that area.
With the margin increase from new rates that took effect in October, each residential heat customer is now worth $293 of annual net margin to SJG.
Combined with enhanced marketing efforts currently underway and natural gas' price advantage of 40% to 70% over other heating fuels.
We remain well-positioned to continue seeing significant benefits from strong customer growth over the next several years.
We value the customer growth that we produced this year at approximately $1.6 million on an annual basis.
Now I'm going to move over to the nonutility side of our business.
For the full year, our nonutility businesses added economic earnings of $37.6 million as compared with $34.7 million in 2013.
For the quarter, the nonutility businesses combined to generate economic earnings of $7.2 million as compared with $18 million in the fourth quarter of 2013.
The two business segments producing our nonutility results are South Jersey Energy Services, which largely reflects our energy production assets within Marina Energy and our energy project joint venture Energenic.
South Jersey Energy Group reflects our activities related to the supply, storage and transportation of natural gas in and around the Marcellus and our retail marketing of electric and natural gas in the mid-Atlantic and Northeastern portions of the US.
South Jersey Energy Services contributed $24.6 million in 2014 as compared with $40.6 million in 2013.
For the quarter, South Jersey Energy Services added $3 million as compared with $19.1 million for the fourth quarter of 2013.
As I noted earlier, reflected within these results is a $5.2 million bottom line impact that the Revel bankruptcy had on our energy facilities located at that property in 2014.
That total was comprised of a one-time hit of $4.6 million for receivables and legal fees and $600,000 of lost income contribution from the operation of the facilities.
Based upon ongoing negotiations among a number of interested parties, we remain optimistic that a buyer will soon complete the acquisition and reopen the casino and hotel facility.
Excluding this impact, our energy production portfolio performed well in 2014 with value added buyer CHP in solar business lines.
On a full-year basis, our CHP Thermal business contributed $1.8 million to economic earnings as compared with $8.6 million in the prior year.
For the quarter, our CHP Thermal business line produce a loss of $0.5 million as compared to income of $2.9 million for the same period last year reflecting the impacts of the Revel situation.
The comparison of full-year results was also impacted by ITC and a state tax adjustment totaling $2.5 million of economic earnings that benefited 2013, but was not repeated in 2014.
Our solar business contributed $25.5 million for the full-year of 2014, as compared with $33.9 million in 2013.
The main driver for that change is that we have begun to scale back solar development consistent with our target of reducing reliance on investment tax credits by 2017.
ITC contributions for 2014 totaled $30.3 million as compared with $36.9 million in 2013.
I do want to note that we have one solar project that we expected to include in 2014 that was not completed until after year end.
That delay reduced 2014 ITC by $1.1 million reflecting a $0.03 per share impact on economic EPS.
When we combined that with the impact of the Revel impacts on our performance, the total of that would add up to $0.19 per share for the year.
For the full-year in the quarter, our landfills produced losses totaling $3.3 million and $700,000 respectively in 2014 and losses of $2.3 million and $400,000 respectively in 2013.
We continue working to improve the functionality of these projects.
Additionally, we remain active on legislation in New Jersey that would improve the profitability and encourage the development of these types of projects by establishing a Level 1 renewable energy credits associated with the output from landfill electric generation.
The legislation is currently awaiting a vote by both houses of the Legislature.
Turning over to the commodity segment of our Business, 2014 was highly profitable for both the wholesale and retail arms of South Jersey Energy Group.
Economic earnings for the full-year totaled $13 million in 2014, as compared with a loss of $5.8 million in 2013.
For the quarter, South Jersey Energy Group produce $4.2 million in economic earnings in 2014 as compared with a loss of $1.1 million in 2013.
Performance was driven by the value that we realized from the pipeline transportation assets that we control particularly in the first and fourth quarters.
While Mike will discuss the future prospects for this business in some greater detail, we are very comfortable saying that we expect this segment to continue making significant earning contributions for 2015 and beyond.
Before I turn the call over to Mike, I'll provide a quick update on the balance sheet.
Our year end equity cap ratio was 43%.
We averaged 44% for most of the year, which is comparable to the 2013 levels.
As we noted in last quarter's call, higher debt levels resulted from increased working capital requirements driven by deferred costs for high priced natural gas last winter, as well as by infrastructure investments across the business.
SJG began collecting the $47 million under recovery associated with those deferred gas costs through rates on October 1 with book collection to occur between now and 2016.
We also raised just over $80 million in equity to our dividend reinvestment plan and up shell cash purchases in 2014 compared to $54 million in the prior year.
Now I'll turn the call over to Mike to discuss the opportunities we see for our business in the near-term.
Thank you.
Good morning.
As <UNK> just detailed in his remarks, 2014 was a profitable year for SJI: 7% growth in economic earnings and 3.3% growth in economic earnings per share but it was not a year without challenges.
And it is in evaluating those challenges that I am most encouraged by what the future holds for SJI.
Many times in speaking with all of you, we have highlighted the versatility and agility of our Business.
These characteristics have enabled us to build a business that not only maximizes its core utility investments but one that also drives shareholder value from opportunities in energy production, fuel supply management, midstream investments and retail commodity services.
We build a business that can withstand short-term challenges without compromising long-term growth and profitability.
The main driver of our long-term growth and earnings remains our regulated utility.
Looking out over the next three years, in addition to our typical capital spend, we've accelerated investments planned totaling over $200 million.
On top of the immediate return, these investments provide through trackers, they also expand our access to those on or near main enabling us to bring natural gas to more homes and businesses.
With natural gas savings of 40% to 70% versus other heating alternatives, we intend to continue the kind of aggressive conversion marketing that has helped us convert almost 5,800 customers in 2014.
We also remain committed to meeting the energy needs of the communities we serve through the construction of a 22 mile pipeline to serve the B.
L.
England generating facility and reinforce our natural gas distribution system.
We continue to look for ways to provide these important services while properly addressing the concerns of all interested parties.
And we've seen steady progress towards the construction of a natural gas liquefier at our Mckee City facility, which will helps us minimize the volatility that short-term spikes in gas costs can have our customers and maximize the performance of our distribution system.
On the unregulated side of our business, our wholesale business benefited significantly from the transportation capacity we acquired throughout 2012 and 2013.
In addition to driving a very strong 2014, this capacity has again helping to position us for a very profitable 2015, as well.
We are very excited by the prospects of adding new multi-year income streams starting in 2015 with three new supply management contracts adding to net income.
The first of which began serving the LS Power facility in late 2014.
We also expect to see contribution from Panda Energy's Liberty and Patriot plants further boost 2015 results.
With additional contracts commencing service in 2016 and further announcements pending, this area of our Business is expected to contribute between $8 million and $10 million in net income per year by 2018.
Moving on to South Jersey Energy Services, we remain very pleased with the operating performance of our on site and distributed generation projects.
This technology remains a valuable application for a number of entities we serve, including the Borgata in Atlantic City, Montclair University and the downtown area of Hartford, Connecticut.
We continue to see great opportunity in CHP, particularly district energy facilities.
Others see the value in these facilities as well, as evidenced by the high multiples companies are paying to acquire proven systems.
The last area of our unregulated business I want to highlight is solar development.
As <UNK> noted, we continue to see strong performance from our solar generation fleet with more than 111,000 S racks produced in 2014.
While we intend to scale back the impact of investment tax credits in advance of the expected 2017 reduction in the amount of these credits, solar development remains a key part of our energy production portfolio.
With S racks hovering around $220 in New Jersey and project development costs at their lowest levels yet, we expect to continue selectively adding solar projects that will benefit both short and long-term profitability.
The last business segment I want to highlight is SJI midstream.
As we announced in our last call, this segment will house our 20% equity interest in an anticipated $1 billion interstate pipeline that will increase the level of regulated contributions to our earnings.
Planning activities around this project are underway, including early discussions around financing as well as outreach and communication to the communities along the pipeline's proposed past.
We believe our involvement in this project underscores our ability to continue the record of growth we have established over the last 10 years.
Before I turn the call over to <UNK>, I also want to take a minute to note that this will be his last earnings call with all of you before his April 30 retirement.
<UNK>'s nearly 35 year career including the last 11 as our CEO can best be characterized as exceptional.
Under his leadership SJI shareholder value has increased over 300%, our market cap nearly quadrupled, economic earnings per share has grown from $1.31 to $3.13 a share and our dividend from $0.78 to $1.92.
All of us here at SJI will greatly miss his leadership and his friendship.
With that said, I will turn the call over to <UNK>.
Thanks Mike, for those kind words.
And before we move to the question and answer portion of the call, I just want to highlight a few areas of our business that I think are positioning us well for the future.
First, when I look at our utility, the customer growth continues to double the national average and our infrastructure investment through our trackers will only add to the safety and reliability of our system and our profitability, the exciting discussion about SJI midstream, which is our significant investment in PennEast, which is fully subscribed, has potential for expansion and earns FERC level returns.
And then, moving to our non regs side, what great growth opportunities we continue to have with CHP and thermal, [grunobles], and, of course the newest area of growth, fuel management for large generators.
And finally, I really do want to speak to the management team.
I think it's an incredibly talented group and in the future led by Mike, will only capitalize on these and many other opportunities in the energy space.
And that confidence is further demonstrated as we split the stock two for one today, again, just showing the confidence in the future.
And lastly on a personal note, I want to thank all of you for the interest and the support that you've shown SJI over the years.
I can tell you I'm extremely confident that SJI's best years are ahead of us with this great management team.
So, thank you.
And now let me turn the call back over to the operator for the question and answer portion.
Thank you, <UNK>.
<UNK>, I'll address that one.
This is <UNK>.
I think last year coming off such a cold January, we really wanted to give the investors a quick update so that in one hand they recognize the great January we experienced but on the other hand to basically give them the right perspective on what the year would be.
With regard to this year, I think we're really ---+ it's our normal guidance period of telling you after the first quarter.
And I can tell you that there are a number of exciting things that can really boost our performance in the first quarter.
So with that said, I think we're back on the normal track of May guidance.
As we look at it ---+ as we look at the year and obviously there's a lot of things that could be happening during the course of the year that will either be sources of cash or require uses of cash and then presumably if we're using cash, it's some worthwhile investments.
But as we look at what we have in front of us, the expectation is yes, we will be raising equity.
I would expect that we'll be well below the number that we have out for 2014, well below the $80 million.
It's a little too early to get specific on that.
Most value you would expect to see more towards the second half of the year as we get a little bit more clarity on what some of the requirements are.
But I'd expect it to be below where we were for 2014.
I think the answer is we're spending a very small amount right now as a group as we do all the preliminary work at the various approvals done and the like.
I believe that the real dollars are not really expected to be spent in a significant amount until 2017.
I'm sorry, until 2016.
Sorry.
So it probably won't be a lot that goes out this year.
We're also currently looking as a group as to exactly how we go about the financing of this process.
And those conversations are very early stages at this point but obviously everybody will have the opportunity to weigh in as to what form of financing that takes.
That's correct.
<UNK>, you're absolutely right.
Most of that relates to the CHP operation that we have there and that really didn't get impacted by the events at Revel until probably about a week or so, 10 days or so, into the month of September.
So most of that that you're seeing there is in fact fourth quarter.
I'm not sure I understood your question.
No.
Mike's motioning to me that it's a flat load so I think we're in good shape there.
Straight line.
The actual CapEx.
I don't have the actual CapEx in front of me right now.
Do we.
Dave, do want to jump in.
[$133 million] was the actual CapEx spend for this year for solar.
Okay.
There you go.
I don't have it handy right now, <UNK>.
We can certainly get it for you.
Correct.
When you say cash potentially coming into the business.
There's a whole variety of things.
The big governors, they are exactly how much are we going to put into solar investments in a particular given year or any other project investments.
Obviously the more we use the more demand for capital.
The less we do the less demand for capital.
Our wholesale gas business obviously has the ability to be a significant cash cow depending upon performance during the course of the year.
From a gas company perspective, from a utility perspective, clearly we're looking to recapture a lot of those deferred gas costs that are now being billed out to customers.
And the pace of some of the construction projects that we do at that business and when they're proved and when they actually start putting shovels in the ground are going to drive the timing of the demand for capital.
So, there's a lot of factors that come into play there.
We do.
One second.
Are you talking total or just the utility.
Give me a second.
I have the number.
I just have to dig it out.
Any other questions while we're, while I'm rooting through my papers.
This is <UNK> <UNK>.
I can take that one.
We are looking to surpass that number in 2015 and do even better.
We continue to have a lot of interest in conversion.
Even with oil prices coming down, there's still a big price advantage in natural gas and we continue to offer 0% financing and there's no charge to get the line installed in someone's house.
So we still have a lot of interest and a lot of potential market out there.
We have probably in the range of about 50,000 customers, potential customers, that are on or near our main.
And as we continue to extend our main for those that are near it, we get closer and closer to other customers.
So we're not looking at major main extensions.
We are looking at those customers that are easily reachable.
Yes.
As I look at the number for industries, it could be as much as $378 million in 2015.
The gas company number I don't have at my fingertips, but I could certainly provide that to you.
I think it back.
It's $240 million.
(technical difficulties) at the other number.
Hi, <UNK>.
It's Mike.
I think we still see solar offering strong enough economics that we'll continue to invest in it.
With the S racks trading over $220 in New Jersey and even higher in Massachusetts and with prices continuing to come down, there's value that goes well beyond the ITC.
But we really do look at it on a case by case basis.
So a lot will be how much opportunity is out there and how many of those types of projects fit our [hubble] rates.
But I think you're probably safe to assume somewhere in the neighborhood, plus ---+ somewhere between 85% and 100% of what we did last year.
That's correct.
Yes, I think that's fair.
We really have not seen much of a slowdown.
We've had some issues in January with the weather actually getting customers services installed and that's caused somewhat of a decline.
But as far as customers actually applying to get gas service, we're pretty much on target.
So we're not seeing the slowdown at all due to oil prices.
I going to ask Greg who's been heading up our efforts to speak to where we stand.
I think that's fair.
Yes.
The 85% to 100% was really focused on 2015.
We'll look at 2016 independently depending upon what's happening in legislation with regard to the ITCs.
But the expectation is if nothing changes we continue to see decline or reduction in the amount of spend we do there.
Thank you, and again, if any other questions arise please feel free to either contact Marissa Travaline or <UNK> <UNK>.
They can both be reached at 609-561-9000.
Marissa's extension 4227 and <UNK> is 4143.
Likewise, also can reach Marissa by e-mail at mtraveline@sjindustries.com or aanthony@sjindustries.com.
And again, thank you for your continued interest in our company.
Have a nice day.
