South Jersey Industries, Inc.
Q1 2010 Earnings Call Transcript

Published: 10 May 2010

[Operator:]

Good day, ladies and gentlemen, and welcome to the first quarter South Jersey Industries earnings conference call. My name is Alicia and I will be your coordinator for today. At this time all participants are in listen-only mode. We will be conducting a question and answer session towards the end of the conference. (Operator instructions) As a reminder, this conference is being recorded for replay purposes. I would now like to turn the presentation over to Steve Clark, Treasurer of South Jersey Industries. Please proceed, sir.

[Steve Clark:]

Thank you, Alicia. Good morning. I would like to welcome you to the South Jersey Industries first quarter 2010 earnings conference call and webcast. Joining me today on the call are Ed Graham, our Chief Executive Officer, Dave Kindlick, our Chief Financial Officer. During the course of this call, we may make various remarks about future expectations, plans and prospects for South Jersey Industries. These remarks constitute forward-looking statements for the purposes of the Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by these statements as a result of various important factors, including those discussed in the company’s Form 10-K filed with the SEC and our 10-Q as well. Further, we assume no duty to update these statements should actual events differ from expectations. I’d also like to remind you about some changes to the way we present our results. As we did on our full year 2009 conference call we’ll be discussing our business in the context of three business segments. Wholesale Energy, Retail Energy and our Regulated Utility, South Jersey Gas. Wholesale Energy consisted South Jersey Research Group, which encompasses our pipeline and storage management activities and our Marcellus assets. Retail Energy is comprised of those non-utility, SJI entities that serve the ultimate consumer, which include Marina Energy projects, South Jersey Energy companies, commodity marketing and consulting services and the remaining non-utility businesses within South Jersey Energy Solutions. The Regulated Utilities, South Jersey Gas will continue to be presented as we were used to seeing it. I’d like to reemphasize that there’s no change to any of the legal entity structures within South Jersey Industries rather this is simply how we view the business from a management perspective. Now, I’d like to turn the call over to Dave Kindlick, who briefly walks you through the financial results for the first quarter of 2010. Dave?

[Dave Kindlick:]

Thanks, Steve. Although we review our results I’d like to refer you to our first quarter 2010 earnings release which was issued earlier today for an in-depth discussion of our results both on a GAAP and economic earnings basis. Managing the company we measure our performance based upon economic earnings. Economic earnings eliminates all unrealized gains and losses on both commodity and ineffective portion of interest rate derivative transactions and adjust for realized gains and losses attributed to hedges on inventory transactions. The first quarter of 2010, SJI posted income from continuing operations on an economic earnings basis of $44.6 million or $1.49 per share. This represents an improvement over first quarter 2009 results of $43.7 million or $1.46 per share. Before we look at our businesses in detail, I’d like to make a few general comments. On the Wholesale side, we benefited from volatility, commodity pricing first quarter of ‘010 that was driven heavily by weather events. Our Retail businesses continue to see the impacts of the economic downturn. We’re also impacted by the same weather events that benefited the Wholesale business. However, despite these factors, these businesses remain overly profitable and should show significant growth for the balance of the year. This growth will be driven by renewable energy and electric marketing. On the Utility, new business remains relatively soft; however, the strong interest in conversion activities. CIRT and CIP regulatory mechanisms are performing as expected benefiting utility performance and our customers. Forward gas costs continue to provide working capital benefits as cash flow was positively impacted. This somewhat offset the additional CapEx required by CIRT. Looking specifically at our non-utility activities as a whole, these businesses contributed $18.7 million of economic earnings for the first quarter of 2010, equaling performance for the same quarter of last year. Economic earnings for the first three months of 2010 as for our Wholesale Energy segment totaled $16.3 million as compared with income of $16.1 million in the first quarter of '09. The contributing segment of this upstream business to-date has been our asset management marketing activity. We initially lock in margins and trade around the assets we control, as market price volatility occurs. Performance during the quarter provided a good example of trading around assets as we took advantage of weather-related volatility in January and February. With the 2009-2010 winter season our portfolio of storage and transportation assets produced pretax value of $42 million compared with $39.5 million the prior winter season. This business segment natural gas marketing has been a significant business line for SJI. During the first quarter companywide we’re marketing about 650,000 Dts per day. This number includes approximately 220,000 Dts per day of Marcellus gas, biggest growth driver for this activity. We’re currently one of the largest marketers of gas in the Marcellus, position achieved by being one of the early players into this market. Wholesale segment also includes our passive Marcellus production assets. If they didn’t impact the first quarter performance (inaudible) update you on our production activities. Retail Energy segment, our downstream business which encompasses all goods and services sold to end users, it had economic earnings of $2.4 million SJI’s bottom-line in the first quarter of 2010. This compares with 2.6 million in the prior year. Performance in the Retail segment comes from several different business lines. Looking first up Marina, our onsite energy production company, economic earnings for the first quarter were $300,000 versus $1.4 million in 2009. However, in 2009, we booked a solar investment tax credit of $1 million, which was not repeated in 2010. In addition, lower heating and cooling demand from our thermal plants and the impact of snowmelt on our landfill gas projects in the first quarter added to the variance. However, these results were offset by strong performance in electric marketing efforts of South Jersey Energy Company. SJE generated economic earnings of 1.7 million for the first quarter 2010 compared with $700,000 last year. Performance was driven by the contract that we won in April 2009 to provide electricity to over 400 school districts in New Jersey, as electric demand outpaced our forecast. Finally, our HVAC appliance installation and meter reading business generated $300,000 net income for the first quarter of 2010 versus $560,000 in the first quarter of '09. This business, in particular, continues to be impacted by the weak economy, but still remains overly profitable. Now, let’s look at South Jersey Gas. Utility posted first quarter 2010 net income of $25.9 million compared with $25 million last year. Higher net margin more than offset increases in depreciation and fees and labor costs incurred during the quarter. Few notable events in the quarter were a re-approval of the decoupling (inaudible) or CIP on filing of a base rate case opened January. CIP enables us to encourage our customers to conserve by protecting SJG from the financial impact with that conservation. Since the CIP was implemented in October 2006 and through the end of 2009 our customers had saved over $172 million and approximately $26 million of SJGs net income has been protected. I already discussed the potential timing and impacts of the base rate case, I will note that it is moving forward as expected and we’re currently wrapping up the discovery portion of the process. In summary, we’re pleased with our first quarter 2010 results; we’re hopeful that the market is demonstrating initial signs of economic recovery in South Jersey. I’d like to turn the call over to Ed Graham to talk about the remainder of 2010. Ed?

[Ed Graham:]

Thanks, Dave. This morning we announced 2010 earnings guidance of target 5% to 10% growth in economic earnings per share over the $2.38 per share earned in 2009. Based on our first quarter results and what we see in the Q we believe we’re well positioned again to deliver strong results in 2010. Now, let me discuss what opportunities are in front of us in the context of our three business segments Wholesale Energy, Retail Energy and the Regulated Utility, South Jersey Gas. Looking at our Wholesale Energy segment, we continue to see opportunities to extract value all along the pipe with the focus on opportunities associated with Marcellus gas. The dynamics of the natural gas market are starting to shift through its presence of gas in the Marcellus, it’ll be important to note this market area. It is particularly true regarding transportation. In the past, gas flowing up from Louisiana and other places in the Southeast drove transportation values. Now, opportunities are arising associated with moving gas both within and out of the Marcellus, where producers, other wholesalers, and end users. We believe our mix of least storage and pipeline capacity provides us with flexibility that we need to adapt to the changing market. As a result, we are actively positioning ourselves to capture early mover advantage working with producers and end users in the area. We continue to view gas marketing in the Marcellus as a significant opportunity. We estimate that we are currently marketing about one-third of the gas produced in the Marcellus, working with most of the big production companies. In addition to marketing the 220,000 Dts per day of Marcellus gas that Dave mentioned earlier, we have now also signed a total of five long-term contract with major producers to move up to an additional 345,000 Dts per day. These five contracts are clearly focused on the future, as the gas begins to flow in the Marcellus. To put this in perspective we are currently marketing approximately 44,000 Dts per day of that potential 345,000 Dts per day. These contracts are index-based so we carry no forward fixed price risk. Now I want to update you on our Marcellus investments. Regarding those assets St. Mary’s has drilled two horizontal wells on our acreage in the King County at opposite ends of the property. St. Mary has constructed gathering lines of tie in the wells into the interstate pipeline and we expect one of those wells to be fully operational this month with the second coming online during the summer. This segment will begin contributing to earnings when the tie in of that first well is completed and gas begins to flow. St. Mary’s has announced plans to drill two more wells beginning this summer and we look forward to sharing those details with you as we receive them. Now let’s look at Retail Energy segment which I refer to as our downstream business. Again the Retail Energy segment is comprised of Marina Energy, South Jersey Energy Company and our remaining non-utility businesses. Our onsite energy production subsidiary, Marina Energy, with partnership of long-time business partner, DCO Energy, branded as Energenic recently announced a seven plant fill gas electricity project in Sussex County, New Jersey. This $10 million project will generate 3.2 MW of green electricity, when it becomes operational in mid-2011. Energenic also just announced the signing of a 15-year agreement with Seabrook Farm, a New Jersey-based produce grower. Seabrook has transformed the frozen vegetable business, as they were one of the first growers to use the flash freezing process. Under this agreement, Energenic will build and own a 21-acre solar array, which will produce six megawatts of green electricity when fully operational; we expect that to occur late in 2010. The development of our Apex Landfill Renewable Energy Generating Facility, a 11 MW power project located on Republic Services Apex Landfill in Las Vegas, Nevada is progressing, and we are targeting a in-service date of late 2011. This 20-year project will use landfill gas extracted from a series of wells at the landfill and that gas will be used to fire a state-of-the-art gas turbine providing green electricity to NV energy customers under a long-term purchase power agreement between NV Energy and Energenic. We expect to begin construction during the third quarter of 2010 Next, we’ve started construction of a solar ray at two locations in New Brunswick, New Jersey. This 15-year agreement with the New Brunswick Renewable Energy Consortium, identified over 10 potential solar locations throughout the city including parking garages, schools, water treatments plants and other city-owned facilities. Remaining locations are currently in design and permitting. This project may generate up to 8 MW of energy annually. First phase of the project which is expected to be completed by the end of the fourth quarter of 2010 will generate approximately 3 MW. Finally, our landfill gas to electricity project that are being developed in Maryland, is currently in test mode. This facility will commence operation during the second quarter of 2010. I’d like to take a moment to mention Echelon and Revel. Echelon, the project in Las Vegas, which was delayed by Boyd regaining, really there has been no change since our earnings call (inaudible) month ago. We continue to work with Boyd, address the delay and we look forward to restarting at some point in the future. Regardless of timing we believe there are contractual protections (inaudible) deal with payments commencing in November. Revel is yet to announce it has found financing completed its Atlantic City project and Morgan Stanley has announced its intent to sell its interests. While we continue to see an opportunity here, financing and ownership issues would need to be settled for Energenic to make any commitment on its energy facility. We have a number of promising projects in the development queue. We expect to discuss with you in the not too distant future. Given our demonstrated experience in thermal plants, CHP, landfill gas electricity and solar, we’re well-positioned to take advantage of further opportunities as they arrive. Several of the projects in the queue are combined heat and power or CHP projects. (inaudible) administration in New Jersey is a big proponent of CHP both replacement and incremental electricity needs for the state. In addition to attract federal and state incentives available for CHP, development of the Marcellus gas provides a ready source in market supply of the primary fuel for these facilities. Further CHP facilities provide another potential end user for our retail marketing line. Considering the individual projects I’ve listed, in addition to two other, that are close to being announced, we have over $150 million of projects that we’re moving towards completion. Based upon what we’ve talked about the projects we see in a queue we expect that the project portion of our retail segment will be a key driver for the balance of 2010 and beyond. Commodity marketing portion of our retail segment also continues to expand, especially in New England. The first quarter of 2010, our electric load in New England increased to 61,455 MW hour, as compared to 26,912 MW hour for the first quarter of 2009. In January, we began serving load in Pennsylvania as well. The bid we won in April 2009 to provide electricity to over 400 school districts in New Jersey continues to add margin as forecasted. For the first quarter of 2010 this bid added approximately 1.2 million of pretax margin with an additional 2.2 million more expected through the end of the bid. The bid originally run until April 2011, however, just yesterday we concluded an extension of the contract through May 2012 at similar margin. That’s just another example of creating a next opportunity. Now, let’s change our focus over to opportunities in front of our utility business. The actions of the past you have laid out a significant growth strategy for the utility, as we’ve implemented several regulatory initiatives and filed a base rate case. Work is progressing on the infrastructure project under the capital improvement recovery tracker or CIRT. In the first quarter of 2010 we invested an additional $17 million with $26 million more planned for the remainder of 2010. Net income benefited the first quarter of 2010 associated with the cumulative CIRT spending to-date with just over $1 million. We spent a little over $2 million on the EET or Energy Efficiency Tracker. Both the CIRT and the EET we anticipate creating incremental net income of $4.5 million for the full year of 2010. The CIRT and the EET have allowed us to strengthen our gas supply system while encouraging customers to upgrade to energy efficient systems. These trackers also allow us to earn a return on our significant capital investments. As was mentioned previously we also have filed a base rate case. What makes this case a straightforward is that we now project gross utility plan assets and service at December 31, 2010? The $456 million higher than gross utility plan assets and service at the end of our last past year which was February 2004. That’s a 52% increase in gross utility plan and the rate case will allow us to earn a fair return on this investment part assets. We are hopeful that the case will be settled before the end of 2010. Adjusting for the roll in previously approved revenues covered under the CIRT and a CIP tracker into the base rate case, our request equates to an incremental net income of $19.6 million assuming the base rate case is approved as filed. South Jersey Gas also continues to experience customer growth. During the 12-month period that ended March 2010 we added over 3,400 new customers, an increase of 1%. While the new housing market slump continues, we are encouraged by the tremendous amount of interest in converting the natural gas from other fuels. The first quarter of 2010 we had almost 700 customers to conversion, due primarily to natural gases headed advantage over the other fuels. The most recent comparison shows a 60% savings when compared to electric, 50% savings when compared to propane and a 38% savings compared to fuel. We expect that this trend will continue throughout 2010. We are also encouraged as well by signs that we’re seeing in the residential new home construction market. Before we wrap up I’d like to mention the balance sheet. SJI’s equity to capitalization ratio is 53%, as of March 31, 2010, unchanged from the end of March 2009. Our goal has been for SJI’s equity to cap ratio, the average 50% on an annualized basis. We are committed to maintaining a strong balance sheet position so that we can take advantage of future business opportunities as they arrive. To sum it up, the prospect for SJI looks very bright for 2010 and beyond. Building on our first quarter results the project opportunities in the Wholesale and Retail Energy segments combined with the regulatory initiative and growth at South Jersey Gas, with our guidance of 5% to 10% growth in economic earnings per share for 2010. SJI is also well positioned to achieve our longer-term goal of average annual growth of at least 67%. I would also like to note that before we believe our goal of growing by at least 67% in the long-term will compromise existing core businesses that result from our pass at Marcellus investment are added in. Thank you for our time today. Now I will turn the call back over to the operator for the question and answer portion of this call.

[Operator:]

(Operator instructions) Your first question comes from Ryan Rosenthal from Sidoti & Co. Please proceed.

[Ryan Rosenthal:]

Good morning, everyone.

[Dave Kindlick:]

Good morning, Ryan.

[Ryan Rosenthal:]

My first question concerns the $42.1 million in pre-tax earnings that you were able to generate during the 2009-2010 winter season. I wanted to get a sense if I could kind of what the earnings contribution was relative to your legacy dekatherm capacity and what benefits there may have been for the additional Marcellus assets, and also looking at the $38.1 million you’d mentioned you’d locked in as of your February call.

[Dave Kindlick:]

Ryan, that was really old legacy. The Marcellus part will be added into that. A combination of the historical storage and transportation of it.

[Ryan Rosenthal:]

Okay, great. So it sounds like there’s certainly some upside there going forward. I believe you’ve mentioned in the past that you expect roughly about $0.05 per dekatherm on an annualized basis. Is that something you’re still receiving in the market or are you more positive or bearish on that?

[Ed Graham:]

Well, I guess in terms of margins on those activities of the $0.05 was an hypothetical example, not that we’re thinking that that’s not reasonable to expect, but that’s not something we want to disclose in terms of the market.

[Dave Kindlick:]

I guess the piece to get along with that Ryan is that as you do long-term deals you think there will be more margin those that really short-term deals

[Ryan Rosenthal:]

Okay. Great. And then turning to the utility, I understand there was a $1 million year-over-year benefit from the CIRT but overall if you subtract that then utility earnings were down year-over-year. Looking forward I was curious about what the puts and takes are for the remainder of the year for the utility.

[Ed Graham:]

I guess as we look at all through the year it wouldn’t be unreasonable to expect that utility would be somewhere near flat plus the $4.5 million benefit from reserve that’s not an unreasonable target and of course the unknown over and above that is the timing of a rate case settlement.

[Ryan Rosenthal:]

Great. And then considering your guidance it’s my understanding currently that there is no rate case accretion baked into that at this point; is that right?

[Dave Kindlick:]

I think right now it’s any degree rate case would be (inaudible) it would be the very end of the year; we can see there’s a significant part of the number.

[Ryan Rosenthal:]

Great. And then one final question concerning the $150 million in Marina Energy projects you guys have mentioned. Could you give us a sense of kind of the timing of when those will be spent? And also the $150 million is that the joint amount along with DCO Energy, so you’d have a 50% stake in those?

[Ed Graham:]

The $150 million are all projects that will come online this year, next year and some are sold Marina projects and some are also a joint project. (inaudible) will be probably at a AGA Financial Forum try to give you a little bit more detail as to the parts.

[Ryan Rosenthal:]

Great, thanks for your time everybody.

[Operator:]

Your next question comes from the line of Jim Lykins from Hilliard Lyons. Please proceed.

[Jim Lykins:]

Good morning, everyone. And congrats on a quarter in a difficult environment. First, a couple of Marcellus questions. Do you guys have an idea when the tie-in to the sales pipeline might be completed?

[Ed Graham:]

Yes, I think the first well we expect to be on line during May and the second one to be on line during the summer then I guess commented their plans now during summer will be drill the additional two wells but I don’t have an estimate as to when they’d be tied in.

[Jim Lykins:]

Well, that’s what I was getting ready to ask next. At least could you give us a rough estimate what you think the probability is of those two discretionary wells being drilled?

[Ed Graham:]

Well, I guess the reason is a day two ago St. Mary’s is continuing to report in their quarterly call that they are moving to do those this year. We’re facing all our update on what St Mary’s is saying.

[Jim Lykins:]

Okay. So we’ve got the two that are definite, but the additional two, you think that’s likely going to happen as well?

[Ed Graham:]

As far as what we’re hearing from St. Mary’s right now we’re expecting that to happen.

[Dave Kindlick:]

Just to clarify, Jim, is the two that you’re referring to is a definite; those are the ones that are already drilled, right?

[Jim Lykins:]

Yes. We got the two they were not sure about, but it sounds like that that probably is going to happen?

[Dave Kindlick:]

Yes, that’s (inaudible) not yet.

[Ed Graham:]

That’s what we’re being told, yes.

[Jim Lykins:]

Okay. When do you guys think you might have an idea of what production is going to look like?

[Ed Graham:]

Again, I think once the tie-in happens we’ll start to see flowing gas. The only thing we can comment on is their movement to run the gathering lines is a very positive step in terms of how they feel about the first two wells drilled.

[Jim Lykins:]

Okay. And it’s probably too early, but do you have any idea what the number of drilled wells might look like in 2011?

[Ed Graham:]

They really haven’t disclosed for us anything beyond what we’re describing now. So we continue to look at we think there’s a significant amount of recoverable gas here and as I highlighted at the end of my comments we expect to grow on average of at least 6% to 7% without considering the Marcellus so that’s going to be added (inaudible) flows it comes on, but really don’t have a breakdown of timing yet.

[Jim Lykins:]

Okay. One of the things you guys talked about in the press release and also on your prepared comments was the opportunities with solar, in the press release the word ‘Material’ was used in 2010. Just wondering if you could maybe give us an idea of what you think that might represent as a percentage of overall earnings this year and next year?

[Ed Graham:]

I don’t have yet the a breakdown for what it will contribute but I can tell you it’s number of projects we know about plus are working on the Q is a significant ramp up and I would say the largest of our growth areas, the balance of the year, I would look forward on the Retail side. My intent though is that AGA to give you a final breakdown of the projects that are already committed to and some ideas, the size and the magnitude of the going forward and how we think that might impact '010, '011 and beyond.

[Dave Kindlick:]

Jim just for those who listen the AGA presentation will be webcast so obviously it will be available for everybody.

[Jim Lykins:]

Okay. One last one I'll let someone else ask a question. The $150 million in the pipeline for projects you mentioned a few minutes ago. Is that in addition to everything planned to be spent for the CIRT?

[Ed Graham:]

Yes.

[Dave Kindlick:]

Yes.

[Jim Lykins:]

Okay.

[Operator:]

Your next question comes from the line of John Hanson from Praesidis. Please proceed.

[John Hanson:]

Good morning, guys. Just want to follow-up. Most of the questions have been answered already but let me follow-up a little bit on the Marcellus. The area you guys are in, is that kind of a dryer or you have a good liquids content kind of area?

[Ed Graham:]

We are in the part out of Northeastern no Northwestern part of Pennsylvania and it’s dry.

[John Hanson:]

Dry block, okay. Good on that count. Let’s see, I had one other one here on – oh, in terms of (inaudible) doing some partnerships and I know you guys have got your deal there with St. Mary’s. So what’s your sense as to all this talk of pairing up and with different kinds of entities? And then what’s your perspective on that? Are you kind of paired up now or do you see other opportunities with other potential partners in the area?

[Ed Graham:]

Well, in terms of a lot of the activity I think it’s just showing the heightened interest in the Marcellus and parties wanting to get in and capitalize on that. As far as our opportunities we’re constantly in conversation with owners near us, other parts of Marcellus, whether or not that leads to any more passive investment I can’t speak to. But what it does do is as more players come into the market it really creates a lot of opportunity for our marketing activities for producers.

[John Hanson:]

Excellent. Right. See you guys down here in Florida shortly.

[Ed Graham:]

Yes.

[Dave Kindlick:]

Okay.

[Operator:]

Your next question comes from the line of Kathleen Vuchetich from W. H. Reaves. Please proceed.

[Kathleen Vuchetich:]

I was wondering two things. First of all, the contracts you’re signing for marketing in the Marcellus, what is the term of those? Are those multi-year or single year contracts?

[Ed Graham:]

The contracts range from three years to ten years, and as I was describing we’re taking no fixed price risk, they’re all index-based and again, we think it’s attractive to be on the early end of this.

[Kathleen Vuchetich:]

Yes, I would agree. With those contracts, do you market mostly to other utilities or do they just go into a pool? How’s the sale of those contracts work?

[Ed Graham:]

I guess we’re fortunate in that. We certainly do market the utilities, but we also have our retail businesses with customers based in Pennsylvania, New York, now some in Delaware as well as quite a few in New Jersey. So we’re serving combination of utilities, retail users as well as we manage supply for large co-generators and so the supply goes there as well.

[Kathleen Vuchetich:]

Wonderful. Wonderful. In some earlier regulatory agreements you’ve released pipeline and storage capacity to the unregulated side of the business. Is there any of that contemplated in the current rate case?

[Ed Graham:]

The current rate case really doesn’t own address the release of pipeline capacity. That really happens through our fuel clause, but rate case will set the use factor levels for going forward for our CIP program. So, it will roll in all of the profit we’ve been earning incrementally through the CIP will become part of the base rate case going forward.

[Kathleen Vuchetich:]

Yes. I read the rate case. And it seems freely, fairly a straightforward rate case. I couldn’t see any rate design changes, is that correct?

[Ed Graham:]

Again, the only issues we have in the case are earning on the capital we put in the ground and proposing in the future replacement pipe tracker not unlike the CIRT. Beyond that there’s really no issues of any significance for us.

[Kathleen Vuchetich:]

Great, thanks, Ed.

[Ed Graham:]

Okay, thank you.

[Operator:]

Your next question comes from the line of Dan Fidell from Brean Murray, Carret. Please proceed.

[Dan Fidell:]

Just a few questions on my side. Most of them have been asked and answered. But first I guess if you could give us a little bit of additional color on some of these project announcements that you’re talking about. Can you give us some just idea on size, general size, are they going to be sort of in keeping with what you’ve done in the past?

[Ed Graham:]

Sure, if I look at, in some cases, on the landfill projects, I guess we kind of gave a size in terms of total investments for those. In terms of solar projects I think if we look at the Seabrook project, as an example, Seabrook is a six MW project and investment could be up to $37 million. And of course what makes solar so attractive as well as (inaudible) like the landfill generating projects is we receive a 30% investment tax credit as well as the solar rec market that supports New Jersey’s investment. So they’ve been greatly enhanced from these projects. So that relationship you probably could apply, they need a solar thing, that’s about what it cost for a megawatt if you divide by six, I think that’s reasonable.

[Dan Fidell:]

Great. And maybe just on the O&M line. Can you just talk about the trends you’re seeing maybe through the rest of the year and whether or not you guys had – and I don't know if this is in the release or not. I read through it. I don’t know if I saw it on. Whether or not you had any impact from the healthcare legislation?

[Dave Kindlick:]

Healthcare legislation what’s for in some people is the post-healthcare retirement benefits that are subsidized by federal taxes and ours did not have that. We met with our actuaries, and our first cut is that we expect basically no impact from healthcare at this point in time. And so we’re in pretty good shape with that. On the O&M side all this additional plant would be putting on quite O&M, but on the expense side, the additional plant we are putting is running up our depreciation a little bit and then funding on our bank lines has increased the tad on that so the things you would expect. We’re also looking at an increase that we sign last year with our union, so there’s a little bit of a wage labor increase, but certainly, all within region all that we can control and then to the extent any of these are in the utility what they would be reflected in the base rate case.

[Ed Graham:]

I guess along the expenditure line this relates to a little bit to Jim’s question. We’ve already spent $74 million of the $100 million related to the service, not more, so when you’re looking at our capital expenditures, there is only really $26 million left incremental for the utility and then we have adequate financial capability to do all the projects we’re talking about going forward. In fact, interestingly enough, absorbing that incremental capital expenditure spend over the last year or so, were still it could be per 3% equity.

[Dan Fidell:]

Great, thank you. It’s very helpful. Last question, maybe just a broader question on what you’d mentioned about improvement in the housing market in your area, a little bit that you’re seeing here lately. Can you sort of translate that for us a little bit into what you think that will work its way into new customer growth as we look into 2011 and beyond?

[Ed Graham:]

I think it’ll have a modest improvement in 2010 and hopeful that has a more meaningful improvement in 2011, but where we’ve been averaging growth, I guess, last year, between 1% and 1.5%, I would think it would push up the upper end of that for '010, if it continues, as we see. Converging markets incredible, we’re having trouble keeping pace with the demand on that side.

[Dan Fidell:]

Great. Thank you very much. We’ll see you in a few weeks.

[Dave Kindlick:]

Sounds good.

[Ed Graham:]

Good.

[Operator:]

(Operator instructions) Your next question comes from the line of Igor Grinman from Zimmer Lucas Partners. Please proceed.

[Igor Grinman:]

Hi, good morning, guys. I’m sorry if I missed this, but does the '10 guidance include any earnings from the development of the Marcellus acreage, I guess the amortization of the upfront lease payment of $0.02 or so?

[Ed Graham:]

The upfront lease payment amortization is part of the guidance. However, anything from the production side in their past investment is not included in the guidance.

[Igor Grinman:]

Okay, great. Thanks a lot.

[Ed Graham:]

Thank you.

[Operator:]

There are no further questions at this time.

[Ed Graham:]

I guess at this point if there are no further questions I’d like to thank everyone for joining us on the call today and certainly if things arise after the call please contact Steve Clark, our Treasurer, for any questions you may have and Steve can be reached at area code (609)-561-9000, Ext. 4260 or by e-mail at [e-mail]. Thank you again for joining us and have a nice day

[Operator:]

Ladies and gentlemen, this concludes the presentation. Thank you for your participation in today’s conference. You may now disconnect. Have a great day.