South Jersey Industries, Inc.
Q4 2013 Earnings Call Transcript

Published: 28 Feb 2014

[Operator:]

Good day, ladies and gentlemen, and welcome to the Q4 2013 South Jersey Industries Earnings Conference Call. My name is Whitley, and I'll be your operator for today. [Operator Instructions] As a reminder, this call is being recorded for replay purposes. I would now like to turn the conference over to your host for today, Ms. Ann Anthony, Director of Finance and Investor Relations. Please proceed, ma'am.

[Ann Anthony:]

Thank you, Whitley. Good afternoon, and welcome to the conference call for SJI's fourth quarter fiscal 2013 results. I'm Ann Anthony, Director of Finance and Investor Relations. And I'm joined today by Ed Graham, Chairman and CEO; Steve Clark, CFO; Mike Renna, President and COO for SJI; Jeff DuBois, President of the Utility; Dave Kindlick, Executive Vice President; and Marissa Travaline, our General Manager of Investor Relations. We issued a news release this morning announcing the results that we'll be discussing on the call today, which includes an in-depth review of earnings on both a GAAP and non-GAAP basis, using our non-GAAP measure of Economic Earnings. You can access that release on our website at www.sjindustries.com in the Newsroom section. Before we get started today, I'd like to remind you that during the course of this call, we may make various remarks about future expectations, plans and opportunities for South Jersey Industries. These remarks constitute forward-looking statements for purposes of the Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995. Actual future results may differ materially from those indicated by these statements as a result of various important factors, including those discussed on the company's Form 10-K on file with the SEC. We assume no duty to update today's statements should actual events differ from expectations. With that said, I'd like to turn the call over to our CFO, Steve Clark, to present the fourth quarter and full year 2013 results.

[Stephen H. Clark:]

Thank you, Ann, and thanks, everyone, for joining us this afternoon. I'd like to start by reminding you that today, we'll be presenting our results in the context of 3 major business lines

[Michael J. Renna:]

Thanks, Steve, and good afternoon. Looking at 2014 and beyond, I want to start by highlighting the guidance offered in our news release, which indicates expected earnings per share growth for 2014 of 6% to 12%. We believe this guidance speaks to the abundance of opportunities for us in the near term, as well as the foundation we've laid for longer-term success of our business. At South Jersey Gas, customer growth in infrastructure investments that represent the core of our utility business, are being complemented by innovations that will drive the future of transportation. Enhancements continue to our gas distribution system that improves safety and reliability and move our infrastructure closer to customers looking for the opportunity to convert. We continue to wrap programs around the conversion process, simplifying it and minimizing the short-term financial impacts to customers wherever possible, so they can enjoy the long-term benefits of becoming a natural gas customer. Current savings of as much as 74% over other heating fuel sources, we have set an aggressive conversion target for 2014 of 6,500. We continue to work collaboratively with the New Jersey Board of Public Utilities at a time when residents most need the positive results associated with such cooperation. As we endure extreme weather conditions that demand reliability from our state utilities, South Jersey Gas is committed to delivering improvements through programs like our AIRP and the recently proposed SHARP program. This 7-year program would complement our existing 4-year Accelerated Infrastructure Replacement plan to a $280 million-investment over 7 years to replace lower pressure distribution systems along the barrier islands with higher pressure systems, making them less susceptible to water and sand intrusion. If approved as proposed, this program will extend our ability to make and earn on system reliability investments through 2021. As you know, South Jersey Gas has also filed a rate case in the fourth quarter of 2013, which represents $553 million in investments made since our last case was settled in September 2010. If approved as filed, this case could potentially add net operating income of up to $27.1 million, not including our request -- a request for recovery on investments associated with the B.L. England facility and liquefaction plant. We remain optimistic about the potential for this filing to benefit the bottom line by the fourth quarter of 2014. We look forward to continuing to provide the long-term solutions that benefit our growing customer base, well beyond the programs currently in place. We remain optimistic about the potential for a fair recovery of and return on the investments we've made in our system over the last 4 years. We are also moving forward our partnerships with 2 major gasoline service stations in the region that would expand access within our service area to compressed natural gas vehicles. We expect to make a formal announcement on this initiative very soon, and we are excited by the long-term potential we believe exists for CNG as a cost-effective fueling source for vehicle fleets in our region and beyond. Increased access to fueling infrastructure strengthens the case for conversion of private and government-owned fleets. As we advocate for programs that minimize the capital outlay needed for fleet conversion, the payback hurdle decreases with every station we build in our service area. Last but not least, we continue our efforts to secure approval for the construction of a 22-mile natural gas pipeline to the BL England generating facility in Upper Township, Cape May County. This project supports electric generation capabilities critically important to southeastern New Jersey, in addition to considerably increasing the reliability of South Jersey Gas' gas distribution system. While the project was not approved as initially proposed, South Jersey Gas is exploring alternatives to bring this much-needed pipeline project to fruition in a manner as environmentally friendly and cost efficient as possible. On the nonutility side of our business, the fourth quarter saw improving wholesale markets as regional capacity constraints that impacted profitability for the part of the year have been reduced. The availability and acquisition of additional pipeline capacity has benefited our commodity business line significantly. And as a result, our wholesale commodity business has experienced strong performance year-to-date in 2014. Looking forward, we see great potential from the continuing growth of our fuel supply management portfolio, serving the gas-fired generation market. This niche will add a steady multi-year stream of income into this business line. The 3 deals announced in 2013, we see tremendous upside from these long-term, fee-based contracts, taking effect with facilities coming online at full capacity in 2015 and 2016. Our retail commodity marketing business also continues to improve on 2013 results as aggressive marketing efforts in the second half of the year have resulted in several new contracts coming online in the first quarter of 2014. We expect to see tremendous improvement from both our commodity marketing businesses in 2014. In our Retail Energy business segment, on-site energy projects continue to return strong results, specifically, our CHP and cogeneration facilities. The existing model, which debuted with our flagship Marina thermal facility serving Borgata, continues to perform well as does our newest distribution -- distributed generation facility at Montclair State University, which provides the blueprint for public-private partnerships at colleges and universities in New Jersey and beyond. The continuity in earnings CHP projects provide will only grow as asset-hardening initiatives materialize with the potential to greatly expand the market. We are especially encouraged by the opportunity afforded by a pending proposal for $210 million in federal funds that will provide loans and incentives for CHP, solar and fuel subprojects at critical public facilities around the state. Additionally, we continue advocating a parallel proposal that will also incorporate utility funding as a resource to develop reliable on-site generation at critical facilities like hospitals, schools and wastewater treatment facilities. We remain confident in the future prospects, with one or both of these measures to be instituted in 2014. We also remain committed to strategically targeting solar projects that support our portfolio. In 2013, we brought 17 projects online, which added valuable investment tax credit. Equally important, the resulting increase in SREC production in an improving SREC market positions us to capitalize on these projects over the long term, while adding them at a time when development costs are at historically low levels. With a good portion of our 2014 SRECs hedged at/or above current market rates, the future of our solar business remains a valuable piece of our overall Retail business segment. To wrap up, we will continue seeing the majority of SJI's earnings generated through our utility as continuing infrastructure investment, customer growth and rate case impacts benefit near- and longer-term results. We also expect strong contributions for the first quarter and for the full year from our nonutility businesses. And as is historically the case, our Board of Directors will meet in November to review our policy of annual dividend growth of 6% to 7%. I will now turn the call over to Ed.

[Edward J. Graham:]

Thanks, Mike, and I'd like to wrap up with a brief overview of what to expect from the future of SJI. Our utility continues to focus on enhancing safety and reliability all throughout our system through our accelerating infrastructure investments. We continue to work on the construction of the 22-mile pipeline intended to serve the BL England generating station and improve system reliability for a portion of our system serving Cape May County. We have laid significant groundwork for the future expansion of our compressed natural gas vehicle fueling business line, making sure that we have the framework in place to support what we believe will be a dynamic component of our business over the next 10 years. We'd also -- while we're doing these initiatives going forward, we still are committed to converting customers throughout South Jersey and have ample opportunity there. With our nonutility business, we also remain competitive and poised for the future. We added another successful quarter of performance at our CHP projects, which remain a key part of our future for all of our energy projects, in fact, as we brought online a model facility for colleges and universities at Montclair State. We also remain competitive and ultimately profitable in the sale of commercial natural gas and electric commodities. And our wholesale commodity business remains well positioned for growth, by that which Mike noted earlier. And this, we thank, in large part, to the strategic planning and leadership on our nonutility business side that enabled us to capture a lot of valuable pipeline capacity that are yielding the benefits we've spoken of so far this year. So to sum it up, our continuing confidence in the future of SJI is a driving force behind our 2014 guidance of 6% to 12% growth in Economic Earnings per share. With a rapidly growing customer utility base and a team of nonutility businesses focused on many attractive growth opportunities in the energy field, we remain well positioned to continue the outstanding performance that we've demonstrated over the last 10 years. So at this time, I'd like the call -- to turn the call back to the operator for the question-and-answer portion of our call.

[Operator:]

[Operator Instructions] Our first question comes from the line of Joyce, Spencer with Hilliard Lyons.

[Spencer E. Joyce:]

Just 2 real quick ones for me here. Steve, I apologize if I missed this, but I guess you said we did 54-or-so million on the DRiP and optional purchase this year. Did you say that, that's about what we might expect to see last -- or excuse me, next year?

[Stephen H. Clark:]

Spence, we didn't really give an indication for next year. But the guidance that we provided builds in what we would expect to raise during the course of the year.

[Spencer E. Joyce:]

Okay. So that's 6% to -- or yes, 6% to 12% would incorporate what you expect to see possibly on the dilution side.

[Stephen H. Clark:]

Right, exactly.

[Spencer E. Joyce:]

Okay. Fantastic. Only other brief one is the -- or will the K be out this afternoon, or are we looking possibly Monday?

[Stephen H. Clark:]

We're expecting this afternoon.

[Operator:]

[Operator Instructions] There are no questions in the queue at this time. I'd now like to turn the conference back over to Ed for closing remarks.

[Edward J. Graham:]

Well, at this time, before I wrap up the call, I'd like to take a moment to acknowledge Dave Kindlick. Dave, our CFO for the last 12 years, has been an incredible force behind our success and we'll surely miss him. And at this point, we wanted to make that comment to him because we assume he'll be off vacationing in some sunny place on our next call. So again, we wish Dave well in his retirement, and we thank him greatly for his contribution to our company. I'll let the room show that we slightly clap for Dave. So at this point, if there are no further questions, really, I thank you for joining us on the call. But if anything arises after the call that you'd like to follow further on, you can reach either Marissa Travaline, our General Manager of Investor Relations, or Ann Anthony, our Director of Finance and Investor Relations. Marissa can be reached at [phone], extension 4227 or at [e-mail]. Ann can be reached at extension 4143 or by email at [e-mail]. And again, thank you for joining us on the call, and enjoy the weekend.

[Operator:]

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect. Have a great day.