WALL, N.J.–(BUSINESS WIRE)–New Jersey Resources (NYSE:NJR) today reported net financial earnings (NFE) of $151.5 million, or $1.78 per share, for fiscal 2015 and announced NFE guidance for fiscal 2016.
A reconciliation of net income to NFE for the fourth quarter and fiscal years 2015 and 2014 is provided below.
For fiscal 2015, NJR reported NFE of $151.5 million, or $1.78 per share, compared with $176.9 million, or $2.10 per share, in fiscal 2014. During the fourth quarter of fiscal 2015, the company's net financial loss was $5.2 million, compared with a net financial loss of $19.4 million in the same period last year.
"Fiscal 2015 was another exemplary year, led by continued customer growth at NJR's regulated utility, New Jersey Natural Gas, and much better-than expected results for the second year in a row at NJR Energy Services, the company's wholesale provider of physical natural gas services. NJR Energy Services' results, in excess of our expectations over the last two years, have contributed $94 million of NFE to support future growth," said Laurence M. Downes, chairman and CEO of New Jersey Resources.
Additionally, increased capital investments at NJR Clean Energy Ventures (NJRCEV), NJR's non-regulated distributed power subsidiary, and improved results at NJR's regulated natural gas midstream segment, NJR Midstream, helped drive financial results.
Subject to the risks and uncertainties identified below under "Forward-Looking Statements," NJR expects fiscal 2016 NFE to be in a range of $1.55 to $1.65 per basic share.
NJR's average annual long-term NFE-per-share growth rate goal is 5 to 9 percent with fiscal 2013 as the base year. In addition, the company's annual dividend growth rate goal is 6 to 8 percent and its long-term payout ratio goal is 60 to 65 percent.
On September 1, 2015, our NJR board of directors unanimously approved a 6.7 percent increase in the quarterly dividend rate to $.24 per share from $.225 per share effective October 1, 2015. The new annual dividend rate is $.96 per share. NJR has increased its dividend rate 22 times since 1995. On November 11, 2015, the board of directors unanimously declared a quarterly dividend on its common stock of $.24 per share payable on January 4, 2016 to shareowners of record on December 15, 2015. The company has paid quarterly dividends continuously since its inception in 1952.
On a split-adjusted basis, NJR repurchased 348,200 shares of common stock under its share repurchase plan during fiscal 2015. The plan authorizes NJR to purchase its shares on the open market, or in negotiated transactions, based on market and other financial conditions. Since the plan's inception in September 1996, NJR has repurchased 16.8 million shares at an average price of $16.05 per share. Approximately 2.7 million shares remain authorized for repurchase under the NJR share repurchase plan.
Fiscal 2015 NFE at NJNG were $76.3 million, compared with $74.2 million in fiscal 2014. Results were driven primarily by higher utility gross margin from customer additions, Basic Gas Supply Service (BGSS) incentive programs and regulatory initiatives, such as The SAVEGREEN Project®. For the three-month period ended September 30, 2015, NJNG reported a net financial loss of $7.7 million, compared with a net financial loss of $5.4 million in the same period last year. The increased loss in the quarter was primarily due to an increase in the overall state tax rate at NJNG.
In fiscal 2015, NJNG added 7,858 new customers, compared with 7,599 in fiscal 2014, an increase of 3.4 percent. Of these customers, 3,966 were related to new construction, compared with 3,695 in the same period last year, a 7.3 percent increase. In fiscal 2015, total new and existing customer conversions were 4,528. These new and conversion customers, in addition to those commercial customers that switched from interruptible to firm natural gas service, will contribute approximately $4.5 million annually to utility gross margin, a 2.8 percent increase over the same period last year.
NJNG projects customer additions for fiscal 2016 through 2018 of 24,000 to 27,000, representing a new customer growth rate of about 1.6 percent. For more information on utility gross margin, please see "Non-GAAP Financial Information" below.
In fiscal 2015, The SAVEGREEN Project, NJNG's energy-efficiency program, invested nearly $26 million in grants, incentives and the On-Bill Repayment Program (OBRP) to help make investing in high-efficiency natural gas equipment and energy-efficient upgrades more affordable for NJNG customers. The SAVEGREEN team performed 4,407 home energy audits to identify additional energy-efficiency opportunities, with an emphasis on whole-house improvements to further increase energy savings for customers. In addition, 1,977 NJNG customers took advantage of the OBRP in fiscal 2015.
Since its inception in 2009, SAVEGREEN grants, incentives and OBRP loans, totaling over $117.5 million, have helped more than 38,900 customers reduce energy consumption and lower their energy bills. This directly supports the state's environmental goals and its mandate to reduce energy costs for residents.
In total, NJNG has the approval to invest approximately $219.3 million in SAVEGREEN grants, financial incentives and the OBRP over the life of the program, which is in place through July 31, 2017. Currently, the company is authorized to earn an overall return on its SAVEGREEN investments, ranging from 6.69 to 7.76 percent, with a return on equity (ROE) ranging from 9.75 to 10.3 percent. The recovery period varies from two to 10 years, depending on the type of energy-efficiency investment.
In fiscal 2015, NJNG invested $32.8 million in its Safety Acceleration and Facilities Enhancement (SAFE) program, a planned $130 million, four-year infrastructure investment. Through SAFE, NJNG will replace 276 miles of its distribution main to further ensure the safety, reliability and resiliency of its natural gas delivery system. This will include the replacement of all of NJNG's cast iron main and approximately 50 percent of its unprotected bare steel distribution main, along with the associated services. To date, NJNG has replaced approximately 220 miles of distribution main through the SAFE program. NJNG expects to complete the cast iron main replacement by the end of first-quarter fiscal 2016. SAFE investments will earn a weighted average cost of capital of 6.9 percent, including a 9.75 percent ROE.
In addition, NJNG invested $7.4 million in fiscal 2015 in its Reinvestment in System Enhancement (NJ RISE) program, a five-year, $102.5 million investment in six capital projects, designed to improve NJNG's service disruption response and strengthen the overall safety, reliability and integrity of its natural gas distribution and transmission systems. These system enhancements are designed to help diminish the impact of future major weather events and align directly with the state's directive for improved energy resiliency and preparedness.
NJ RISE investments through July 31, 2015 were included in a May 2015 filing before the New Jersey Board of Public Utilities (BPU), with proposed recovery through an adjustment to base rates. On October 15, 2015, the BPU approved the base rate increase for NJNG to recover $3.2 million of capital investments, effective November 1, 2015. These investments will earn a weighted average cost of capital of 6.74 percent, including a 9.75 percent ROE. Cost recovery for NJ RISE investments after July 31, 2015, as well as SAFE investments, are addressed in NJNG's base rate case petition filed on November 13, 2015. Please see the "Rate Case Filing" segment below.
Construction continues on NJNG's Liquefied Natural Gas (LNG) plant in Howell, New Jersey. This approximately $28 million investment will enable the company to liquefy pipeline natural gas for peak-day use, ensure system integrity and reliability and reduce LNG transportation and capacity costs. In addition, this project will benefit customers by potentially lowering BGSS costs, help the environment by reducing emissions related to the transportation of LNG and create additional value for shareowners. NJNG expects the site to be operational in spring 2016.
The Southern Reliability Link (SRL) project, a 30-mile, 30-inch transmission main to support system reliability and resiliency, representing an estimated investment of between $175 million to $180 million, continues to move forward. On June 5, 2015, NJNG filed amended petitions with the BPU seeking (1) approval to construct and operate and (2) a determination that the SRL is reasonably necessary for the service, convenience and welfare of the public, as well as to find that certain ordinances, permits and regulations have no application to the project.
On October 27, 2015, NJNG announced it will provide BGSS bill credits totaling $76 million to its residential and small commercial customers. The bill credits will be issued beginning November 1, 2015 through February 29, 2016. A typical residential heating customer using 100 therms a month will save approximately $166, or 17 percent, on their annual bill. Since October 2008, typical residential heating customer bills have decreased over 42 percent.
NJNG's BGSS filing represents the commodity charge passed through to customers based on the company's cost to acquire natural gas. Any change in the BGSS rates does not represent a change in NJNG's gross margin.
On November 13, 2015, NJNG filed a request with the BPU seeking an increase of approximately $148 million to its delivery rates. The petition is requesting the recovery of capital investments related to NJNG's infrastructure investments and current operating costs. This proposed rate adjustment will help NJNG recover these costs to continue providing its customers with safe, reliable, resilient service. If approved, it would result in an overall increase of approximately 24 percent on the typical customer's annual bill.
From 2008 through 2015, NJNG has invested approximately $806 million in its natural gas transmission and distribution system. This includes expenditures for customer growth, as well as system improvements, reinforcements, replacements and retirements. The timing of this filing is driven by this substantial capital investment in infrastructure over the past seven years, as well as the company's agreement to file a base rate case no later than November 15, 2015 in accordance with the BPU's Order in the matter for approval of the SAFE and NJ RISE programs.
NJNG has not filed a general request to increase delivery rates since 2007. Over that time, the company has worked hard to manage its business efficiently and effectively, employing capital and cost-control strategies that have helped avoid the need to file for a change to its delivery rates.
Under normal conditions, the BPU's review could take up to 10 months.
In the fourth quarter of fiscal 2015, NJNG announced the opening of the first two public access compressed natural gas (CNG) fueling stations in its service territory located at the Waste Management, Inc. facility in Toms River, Ocean County and Shore Point Distributing Company, Inc., in Freehold, Monmouth County. A third CNG station at the Middletown Township Department of Public Works in Monmouth County is currently under construction. NJNG expects it to be operational in the first quarter of fiscal 2016.
"New Jersey Natural Gas is proud to work with Waste Management and Shore Point Distributing to provide New Jersey residents and businesses with 24/7 access to cleaner, cost-effective fuel options. Natural gas vehicles (NGVs) are a proven, energy-efficient alternative to gasoline and diesel-powered vehicles and today's abundant supply of natural gas provides cost advantages for its use as a transportation fuel. This additional fueling access will help stimulate the market for NGVs in alignment with the state's public policy goal," continued Downes.
The construction of these three CNG fueling stations are part of NJNG's unique pilot program, the NGV Advantage. With approval from the BPU, NJNG invested approximately $10 million to build, own and maintain the infrastructure for the three CNG fueling stations. The host companies will be required to initially use at least 20 percent of the refueling capacity and open the stations to the public on a 24/7 basis.
NJNG is authorized by the BPU to earn an overall return of 7.1 percent, including a 10.3 percent ROE on these investments.
In fiscal 2015, NJNG's gross margin-sharing BGSS incentive programs, which include off-system sales, capacity release, storage optimization and financial risk management programs, contributed $17.7 million to utility gross margin, compared with $16 million in fiscal 2014. The improved results were due primarily to an increase in value for pipeline capacity that was available for release. For the three-month period ended September 30, 2015, these incentives contributed $4.6 million to utility gross margin, compared with $5.6 million in the same period last year. The decrease was due primarily to a change in the storage incentive benchmark calculation.
NJNG shares the gross margin earned from these incentive programs with customers and shareowners, according to a gross margin-sharing formula authorized by the BPU. On October 15, 2015, the BPU approved the continuation of NJNG's incentive programs with slight modifications. The financial risk management incentive was terminated as of November 1, 2015 and the storage incentive benchmark calculation was updated to reflect current transportation and fuel costs. Since inception in 1992, these incentive programs have saved customers over $800 million and provided shareowners with $1.25 per share in NFE, which is an average of $.05 per share annually.
Fiscal 2015 NFE at NJRES were $42.1 million, compared with $79.7 million in fiscal 2014. The reduction in NFE is attributable primarily to extraordinary results in fiscal 2014 that were driven by greater market volatility across the United States, which did not recur to the same magnitude in fiscal 2015. However, fiscal 2015 NFE were the third highest in NJRES' history, resulting from better-than-expected volatility in the marketplace.
For the three-month period ended September 30, 2015, NJRES reported a net financial loss of $5.4 million, compared with a net financial loss of $10.4 million in the same period last year. These improved results are due primarily to a reduction in incentive compensation costs and the statutory state income tax rate due to changes in state apportionment factors.
"For the second consecutive year, our NJRES team identified key growth opportunities in ever-changing market conditions, achieving much better-than-anticipated results and providing additional value for our shareowners," said Downes.
NJRES has a portfolio of storage and pipeline capacity assets that complement the changing dynamics in the natural gas industry and position the company to serve the growing market for physical natural gas services, including producer services. NJRES' asset portfolio currently consists of approximately 40 Bcf of firm storage contracts and 1.5 Bcf/day of firm transportation contracts.
Fiscal 2015 NFE at NJRCEV were $20.1 million, compared with $12.7 million in fiscal 2014. The higher results were due primarily to increased investment tax credits (ITCs) from solar capital investments, increased Solar Renewable Energy Certificate (SREC) revenue and returns on its first two onshore wind investments.
For the three-month period ended September 30, 2015, NJRCEV reported NFE of $1.9 million, compared with a net financial loss of $7.6 million in the same period last year. During fiscal 2015 and 2014, NJRCEV had a minority equity interest in Own Energy, Inc., an onshore wind developer which provided NJRCEV with the option to acquire wind farms that fit its investment profile. During the fourth quarter of fiscal 2015, Own Energy was acquired by a power producer and NJRCEV realized a $3 million pre-tax gain in exchange for its ownership interest.
During fiscal 2015, NJRCEV placed into service $68.8 million of ground-mounted commercial solar systems in New Jersey, totaling 26.5 megawatts (MW), growing its commercial solar portfolio to over 82 MW. In the fourth quarter of fiscal 2015, NJRCEV placed into service a $15.5 million, 6 MW ground-mounted, grid-connected system in North Hanover, New Jersey. These capital investments support the state's environmental and renewable energy goals, and its mandate to reduce energy costs in New Jersey.
In fiscal 2015, NJRCEV invested $25 million in The Sunlight Advantage®, the company's residential solar lease program, adding 829 customers and growing its residential solar portfolio to over 35 MW. In October, the company reached a milestone, adding its 4,000th customer to the program. The Sunlight Advantage provides savings to eligible homeowners through both roof- and ground-mounted solar systems with no upfront installation or maintenance costs.
As of the end of fiscal 2015, NJRCEV's wind portfolio had grown to nearly 30 MW. Currently, construction continues on the company's third onshore wind project, the Alexander Wind Farm, located in Rush County, Kansas, approximately 120 miles northwest of Wichita. NJRCEV will invest approximately $85 million to construct, own and operate the wind farm with a total capacity of 48.3 MW. Energy and renewable attributes produced at the Alexander Wind Farm will be sold under two long-term agreements. The Kansas City Board of Public Utilities has signed a 20-year power purchase agreement (PPA) for approximately 50 percent of the energy. Yahoo! Inc., the global Internet corporation headquartered in Sunnyvale, California, has signed a 15-year agreement for the additional 50 percent to offset much of its energy usage in the Great Plains region. NJRCEV expects the Alexander Wind Farm to also qualify for federal production tax credits (PTCs), which will be utilized by NJR. NJRCEV expects this project to be placed in service in the first quarter of fiscal 2016.
Over the next three years, NJRCEV expects a declining percentage of its NFE to come from ITCs associated with solar investments. Looking out through fiscal 2018, the company anticipates that it will benefit from higher SREC revenue and a diversified distributed power portfolio of small- to mid-sized onshore wind projects, supported by long-term PPAs and financial hedges, thereby reducing its reliance on ITCs.
NJR Midstream reported fiscal 2015 NFE of $9.8 million, compared with $7.5 million in fiscal 2014. For the three-month period ended September 30, 2015, NFE was $2.6 million, compared with $1.9 million in the fourth quarter of fiscal 2014. The increases were due to higher revenue associated with firm services at both Steckman Ridge and Iroquois Pipeline.
NJR's midstream segment, NJR Midstream, consists of Federal Energy Regulatory Commission (FERC)-regulated capital investments. In the fourth quarter of fiscal 2015, NJR Midstream diversified its portfolio through an exchange of its 5.53 percent equity ownership in the Iroquois Gas Transmission System, LP (IGTS) for 1.8 million common units in Dominion Midstream Partners, LP (NYSE: DM), a master limited partnership. The exchange generated a pre-tax gain of $24.6 million that will be deferred and recognized into income when and if the partnership units are sold in the future. NJR Midstream also includes a 50 percent equity ownership in Steckman Ridge, a 12 Bcf natural gas storage facility in southwestern Pennsylvania jointly owned with Spectra Energy.
In fiscal 2014, NJR announced its participation in the PennEast Pipeline and currently has a 20 percent ownership interest in the project. This 118-mile pipeline is designed to bring lower cost natural gas produced in the Marcellus Shale region to homes and businesses in Pennsylvania and New Jersey, and provide greater system reliability for local utilities. PennEast filed a formal application with FERC in the fourth quarter of fiscal 2015 and currently estimates an in-service date of fiscal 2018.
In fiscal 2015, NFE at NJR Home Services (NJRHS), the company's unregulated retail and appliance service subsidiary, were $2.4 million, compared with $2.5 million in fiscal 2014. NJRHS generated NFE of $2.7 million in the fourth quarter, compared with $2.3 million in the same period last year. The higher fourth quarter results were primarily driven by increases in service contract and solar revenue.
NJRHS offers customers home comfort solutions, including equipment sales and installations, solar lease and purchase plans and a service contract product line, including heating, cooling, water heating, electric and standby generator contracts. NJRHS' service territory includes Monmouth, Ocean, Middlesex, Morris, Sussex, Warren and Hunterdon counties in New Jersey. Currently, NJRHS serves more than 116,500 service contract customers.
This news release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. NJR cautions readers that the assumptions forming the basis for forward-looking statements include many factors that are beyond NJR's ability to control or estimate precisely, such as estimates of future market conditions and the behavior of other market participants. Words such as "anticipates," "estimates," "expects," "projects," "may," "will," "intends," "plans," "believes," "should" and similar expressions may identify forward-looking information and such forward-looking statements are made based upon management's current expectations and beliefs as of this date concerning future developments and their potential effect upon NJR. There can be no assurance that future developments will be in accordance with management's expectations or that the effect of future developments on NJR will be those anticipated by management. Forward-looking information in this release includes, but is not limited to, certain statements regarding NJR's NFE for fiscal 2015, forecasted contribution of business segments to fiscal 2016 NFE, NJR's long-term NFE and dividend growth goals, NJR's future dividend payout ratio, expected contribution by NJNG's new customers to utility gross margin, expected number of new customers of NJNG, SREC revenues, estimated capital expenditures in fiscal 2016 and beyond by NJNG, including those related to SAVEGREEN, SAFE and NJ RISE, NJNG's base rate case filing, planned compressed natural gas fueling stations, the liquefaction and SRL projects, the long-term outlook for NJRCEV, NJRCEV's solar and wind projects and the PennEast Pipeline.
The factors that could cause actual results to differ materially from NJR's expectations include, but are not limited to, weather and economic conditions; changes in the rate of NJNG's customer growth; volatility of natural gas and other commodity prices; changes in rating agency requirements and/or credit ratings; the impact of volatility in the credit markets; the ability to comply with debt covenants; the impact to the asset values and resulting higher costs and funding obligations of NJR's pension and post-employment benefit plans as a result of downturns in the financial markets, lower discount rates, revised actuarial assumptions or impacts associated with the Patient Protection and Affordable Care Act; accounting effects and other risks associated with hedging activities and use of derivatives contracts; commercial and wholesale credit risks, including the availability of creditworthy customers and counterparties and liquidity in the wholesale energy trading market; the ability to obtain governmental and regulatory approvals, land-use rights, electrical grid connection and/or financing for the construction, development and operation of NJR's non-regulated energy investments and NJNG's planned infrastructure projects in a timely manner; risks associated with the management of the company's joint ventures, partnerships and investment in a master limited partnership; risks associated with our investments in renewable energy projects, including the availability of regulatory and tax incentives, the availability of viable projects and NJR's eligibility for ITCs and PTCs, the future market for SRECs and operational risks related to projects in service; timing of qualifying for ITCs and PTCs due to delays or failures to complete planned solar and wind energy projects; the level and rate at which NJNG's costs and expenses are incurred and the extent to which they are allowed to be recovered from customers through the regulatory process, including through the base rate case filing; access to adequate supplies of natural gas and dependence on third-party storage and transportation facilities for natural gas supply; operating risks incidental to handling, storing, transporting and providing customers with natural gas; risks related to our employee workforce; the regulatory and pricing policies of federal and state regulatory agencies; the costs of compliance with present and future environmental laws, including potential climate change-related legislation; risks related to changes in accounting standards; the disallowance of recovery of environmental-related expenditures and other regulatory changes; environmental-related and other litigation and other uncertainties; risks related to cyber-attack or failure of information technology systems; and the impact of natural disasters, terrorist activities, and other extreme events on our operations and customers. The aforementioned factors are detailed in the "Risk Factors" sections of our most recent Annual Report filed on Form 10-K with the Securities and Exchange Commission (SEC), which is available on the SEC's website at sec.gov. Information included in this release is representative as of today only, and while NJR periodically reassesses material trends and uncertainties affecting NJR's results of operations and financial condition in connection with its preparation of management's discussion and analysis of results of operations and financial condition contained in its Quarterly and Annual Reports filed with the SEC, NJR does not, by including this statement, assume any obligation to review or revise any particular forward-looking statement referenced herein in light of future events.
This press release includes the non-GAAP measures NFE (losses), financial margin and utility gross margin. A reconciliation of these non-GAAP financial measures to the most directly comparable financial measures calculated and reported in accordance with GAAP can be found below. As an indicator of the company's operating performance, these measures should not be considered an alternative to, or more meaningful than, operating income as determined in accordance with GAAP. This information has been provided pursuant to the requirements of SEC Regulation G.
NFE (losses) and financial margin exclude unrealized gains or losses on derivative instruments related to the company's unregulated subsidiaries and certain realized gains and losses on derivative instruments related to natural gas that has been placed into storage at NJRES. Volatility associated with the change in value of these financial and physical commodity contracts is reported in the income statement in the current period. In order to manage its business, NJR views its results without the impacts of the unrealized gains and losses, and certain realized gains and losses, caused by changes in value of these financial instruments and physical commodity contracts prior to the completion of the planned transaction because it shows changes in value currently instead of when the planned transaction ultimately is settled. An annual estimated effective tax rate is calculated for NFE purposes and any necessary quarterly tax adjustment is applied to NJRCEV, as such adjustment is related to tax credits generated by NJRCEV.
NJNG's utility gross margin represents the results of revenues less natural gas costs, sales and other taxes and regulatory rider expenses, which are key components of the company's operations that move in relation to each other. Natural gas costs, sales and other taxes and regulatory rider expenses are passed through to customers and, therefore, have no effect on gross margin. Management uses these non-GAAP financial measures as supplemental measures to other GAAP results to provide a more complete understanding of the company's performance. Management believes these non-GAAP measures are more reflective of the company's business model, provide transparency to investors and enable period-to-period comparability of financial performance. A reconciliation of all non-GAAP financial measures to the most directly comparable financial measures calculated and reported in accordance with GAAP, can be found below. For a full discussion of NJR's non-GAAP financial measures, please see NJR's most recent Form 10-K, Item 7 and most recent Form 10-Q, Part I, Item 2.
New Jersey Natural Gas is NJR's principal subsidiary that operates and maintains over 7,000 miles of natural gas transportation and distribution infrastructure to serve over half a million customers in New Jersey's Monmouth, Ocean and parts of Burlington, Morris and Middlesex counties.
NJR Energy Services manages a diversified portfolio of natural gas transportation and storage assets and provides physical natural gas services to its customers across North America.
NJR Clean Energy Ventures invests in, owns and operates solar and onshore wind projects with a total capacity of over 147 megawatts, providing residential and commercial customers with low-carbon solutions.
NJR Midstream serves customers from local distributors and producers to electric generators and wholesale marketers through its equity ownership in a natural gas storage facility and its stake in Dominion Midstream Partners, L.P.
NJR Home Services provides heating, central air conditioning, standby generators, solar and other indoor and outdoor comfort products to residential homes and businesses throughout New Jersey and serves approximately 116,500 service contract customers.
NJR and its nearly 1,000 employees are committed to helping customers save energy and money by promoting conservation and encouraging efficiency through Conserve to Preserve® and initiatives such as The SAVEGREEN Project® and The Sunlight Advantage®.