Good morning. Thank you for attending today's New Jersey Resources Second Quarter Fiscal 2022 Conference Call. My name is Amber, and I will be your moderator for today's call. I now have the pleasure of handing the conference over to our host, Dennis Puma, Director of Investor Relations with New Jersey Resources. Dennis, please proceed.

Thank you, Amber. Welcome to New Jersey Resources Second Quarter Fiscal 2022 Conference Call and Webcast. I'm joined here today by Steve Westhoven, our President and CEO; Roberto Bel, our Senior Vice President and Chief Financial Officer; as well as other members of our senior management team. As you know, certain statements in today's call contain estimates and other forward-looking statements within the meaning of the securities laws. We wish to caution listeners of this call that the current expectations, assumptions and beliefs forming the basis for our forward-looking statements include many factors that are beyond our ability to control or estimate precisely. This could cause results to materially differ from our expectations as found on Slide 1. These items can also be found in the Forward-Looking Statements section of today's earnings release or furnished on Form 8-K and in our most recent Forms 10-K and Q as filed with the SEC. We do not, by including this statement, assume any obligation to review or revise any particular forward-looking statement referenced herein in light of future events. We will also be referring to certain non-GAAP financial measures such as net financial earnings or NFE. We believe that NFE, utility gross margin and financial margin provide a more complete understanding of our financial performance. However, these non-GAAP financial measures are not intended to be a substitute for GAAP. Our non-GAAP financial measures are discussed more fully in Item 7 of our 10-K. Our agenda for today is found on Slide 2. Steve will begin with this quarter's highlights, followed by Roberto, who will give a review of financial results. Then we will open the call to your questions. The slides accompanying today's presentation are available on our website and were furnished on Form 8-K filed this morning. For those who will be following along, we'll begin with an overview of the quarter on Slide 3. With that said, I'll turn the call over to our President and CEO, Steve Westhoven. Steve?

Thanks, Dennis, and good morning, everyone. Thank you for joining us today. Our fiscal 2022 second quarter financial results exceeded our expectations, primarily driven by contributions from Energy Services segment that enabled us to increase our net financial earnings per share guidance for fiscal 2022 by $0.10. We also benefited from solid performance of New Jersey Natural Gas, which concluded its first full quarter with new base rates in place and grew NFE by 28%. At Clean Energy Ventures, our portfolio now includes projects across 3 states: New Jersey, Connecticut and Rhode Island. I'll discuss our growing solar project pipeline and our long-term opportunities and some short-term challenges at CEV later in the presentation. And finally, at Storage & Transportation, our Adelphia Gateway project is now delivering natural gas to its South Zone, serving the Philadelphia metro area. Adelphia is on track to be fully operational by the end of this year. Moving to Slide 4. Energy Services' stronger-than-expected performance enabled us to increase our NFEPS guidance for fiscal 2022 to a range of $2.30 to $2.40 per share, up from our original guidance of $2.20 to $2.30 per share. Our team at Energy Services leveraged their portfolio of diversified and strategically located assets to generate higher-than-expected NFEPS during periods of volatility this past winter. Moving to the next slide. On the left, you can see that we've invested $144 million so far this fiscal year at New Jersey Natural Gas, with approximately 40% of that capital providing near real-time returns. New Jersey Natural Gas was the first utility to fully replace all cast iron pipe, and nearly 100% of our system is either plastic or protected steel. We continue to make investments to support energy conservation, reduce emissions and enhance the safety and reliability of our distribution system for…

Thank you, Steve, and good morning, everyone. As usual, I'll highlight a few of the operational and financial metrics for the second quarter. Slide 11 shows the main drivers of our net financial earnings or NFE. We reported NFE of $130.2 million or $1.36 per share compared to $170.6 million or $1.77 per share last year. As a reminder, the second quarter of last year included unusually high net financial earnings at Energy Services due to increased natural gas price volatility related to extreme cold weather in the U.S. during February of 2021. Moving to our NFE by business unit. NJNG saw an improvement of $22.2 million, primarily due to the impact of new base rates that went into effect on December 1. CEV's NFE improved by $2.4 million, primarily due to increased revenue from the sale of SRECs and higher electricity prices in the second quarter of fiscal 2022. Storage & Transportation reported NFE that was largely flat compared to the second quarter of the prior year. And as mentioned before, Energy Services NFE declined due to the unusual weather activity in 2021 but still reported strong NFE of $29.9 million for the quarter, including $10.2 million in revenues from the asset management agreements entered into during fiscal 2021. On Slide 12, we have highlighted the details of CEV's SREC hedging program. The sale of SRECs remains a large portion of CEV's revenue, and we lock in these cash flows by hedging our expected production of SRECs. As you can see, we're almost fully hedged through the year of 2024. And for energy year of 2025 and 2026, we now have 81% and 29% of our expected SREC generation hedged at prices over 95% of the Solar Alternative Compliance payment or SACP. I will now turn to our capital…

Thanks, Roberto. It was a strong first half of the year with financial performance from Energy Services that allowed us to increase our NFEPS guidance for the year. We reported solid NFE growth from New Jersey Natural Gas. Our solar project pipeline has never been stronger. And despite some short-term challenges, CEV's long-term growth opportunities remain unchanged. Adelphia Gateway is flowing gas to the South Zone, and we expect to complete construction by the end of 2022. And lastly, the strength of our complementary portfolio of businesses allows us to navigate CEV's short-term capital deployment challenges without affecting our projected dividend and NFE growth of 79% per year. Before I open the call to questions, I'd like to close with a few thoughts on our sustainability efforts. We are focused on achieving climate emissions reduction goals, the most affordable and reliable way for customers by leveraging our existing energy infrastructure to deliver decarbonized fuels. We are optimistic about the ongoing shift from state, federal and international policymakers who increasingly recognize the value of existing pipeline infrastructure to meet climate goals in a faster, more affordable and more reliable manner. Our world-class infrastructure assets put us in a strong position to not only participate but to play a significant role in New Jersey's clean energy transition. And with that, I'll open the call for questions.

Our first question comes from Richard Sunderland with JPMorgan.

Appreciate the clarity on the changes around solar and would like to dig in there a little bit more. What do you see as the time line for these headwinds to ease? I guess you talked about narrowing the range of 2023 CapEx as that clarity emerges. Is this something you expect over the course of this year or maybe even into 2023? Any thoughts there would be helpful.

Richard, it's Steve. Thanks for the question. In looking at a number of the headwinds associated with the regulatory process in New Jersey and developing the successor program, looking at PJM, and they're analyzing and trying to streamline their interconnection process as well, we expect -- I would imagine over the next year or so at least to figure themselves out. And ultimately, the message we'd like to leave with you guys is that these are macro issues that are being solved by these regulatory agencies that should really accelerate the development, make this development more -- make it easier and certainly easier to forecast moving forward because they're eliminating log jams in the marketplace. So short answer, over the next year, and we're going to keep an eye on it and certainly push where we can to make sure that these issues are solved.

Understood. So I guess just thinking about kind of the risk, the high and the low end around 2023 CapEx. Is that largely timing then around the easing of those issues, meaning the timing of clarity emerging, say, this year versus next year for what would drive the high or low end? Is that at least a fair summary of how you see it right now?

Yes. It's a fair summary. And I think just to add to that, we've got a large pipeline projects that we've contracted for -- have commitment -- some sort of commitment. So we feel pretty good about the business moving forward. It's just a matter of just eliminating these log jams. So ultimately, when they are removed, there should be kind of a catch-up development at some point in this process as well.

Great. That helps. And maybe just to squeeze one last one in there. To your point about a catch-up, how do you see the earnings runway versus these issues and sort of the timing factors of when the slower development pace right now eventually becomes an earnings issue? Is it is it given kind of the shape of the SREC profile you have a couple of years before you need that catch-up to emerge? Just how do you see the outlook there?

So a few things. One, we've got a portfolio of companies. So we've got a number of levers here that give us an ability to make earnings and essentially continue to grow the company. From a 10,000-foot view, we need to deploy capital in order to grow the company. So that's certainly an important portion of it. Focusing on CEV just for a moment, we changed the accounting. And so remember, we've got to deploy the capital. But on a yearly basis, it makes it important what year it comes in, but ultimately, it needs to come in. That's certainly the case. So we've got a portfolio of companies. You've got growth and organic growth that has capability in all our businesses, the utility, Storage & Transportation, certainly CEV, and Energy Services has been able to contribute. We've got a large AMA. So we feel good about our forecast moving forward, relying on the portfolio of companies. And we've got some time for these things to work themselves out because of those companies. And ultimately, we think it will and we should be able to achieve the numbers that we've forecasted as far as guidance goes.

Our next question comes from Travis Miller with Morningstar.

One more on the solar here. Obviously, the whole industry and the market is talking about the Department of Commerce and the issues there on the tariffs. Apart from what you talked about policy-wise in New Jersey and PJM, what are you seeing on that side, either in higher cost with the tariffs or just pure supply availability?

So the team -- the CEV team has done a nice job of hedging out solar panels for the CapEx that we have in our immediate future, for this year and for a portion of next year, most of next year. So we don't have the same experience and insight right now into the log jam of that market. So good news for us, but we certainly acknowledge that there is something going on there, right? Department of Commerce is doing an investigation. And we're thinking and we're hopeful that that's going to work itself out such that by the time our hedges roll off, we'll be able to roll into a market that's a little more normal than what we're accustomed to. So that's how we're looking at it now relative to our business plan and our ability to deploy capital in that space.

Okay. So you're able to -- in terms of hedging, you're able to get the actual panels at effectively the similar price you contracted at. Is that fair to say? Until 2024, roughly.

Yes. Close to 2023 so...

Yes. Okay. And then second question is with everything globally and move toward energy security and gas markets, et cetera, LNG. What's your appetite for more midstream investments, whether it's pipelines or like your Leaf River type of facility?

Travis, this is -- yes, same story. We're executing on the plan that we've had and we rolled out in our November Investor Day and getting Adelphia Gateway up and running, which you saw in today that we're flowing gas in the Southern portion. We still have some expansion or some construction to complete and put the rest of that into service down there. So at this point, we're just digesting the assets that we had. And certainly, we'll look at some organic growth around these assets going forward. Nothing to announce right now. But it's constructive for the market, right? Energy security, natural gas, the long-term value of these assets is being proved out in a real way. And certainly, we recognize that.

Our next question comes from Julien Dumoulin-Smith with Bank of America.

Steve and Roberto, this is Kody Clark on for Julien. So first, you mentioned mid- to high single-digit returns. So I'm curious if you can describe kind of what you're seeing in terms of PPA pricing and also incremental demand for commercial and distributed solar given the power backdrop, I guess, related -- thanks for the disclosure around your pipeline. Can you talk about the growth trends that you've been seeing in that pipeline? What sort of growth have you seen over the past year or 2 years? And what do you see for growth going forward?

So I'll take that into parts, right? The inflationary pressures, higher gas prices have certainly driven up electric prices and have driven up the longer-term curve, which has been supportive for PPAs and your -- I guess, the cost that you're competing against, the traditional electric providers. So that's been constructive in this market. And I think that's going to continue to be constructive in this market. As far as the growth going forward, we shared this morning what we have in hand as far as the projects that we have clear line of sight on developing. And you can see how that compares to our CapEx plan. We need to execute a portion of that in order to achieve what we need to into the future. So ultimately, I think that, that speaks for itself. We still think we've got a good line of sight on projects and development. And we feel pretty good that once some of these log jam issues and regulatory issues are cleared that we should be able to develop at the rates and the returns that we've spoken about.

Okay. Got it. And then just second, can you discuss in a little bit more detail the driver of the shift in utility CapEx from '22 to '23? And kind of related to that also, curious how you're viewing the inflationary backdrop as it relates to your budget and also customer bills just on the utility side.

Yes. We had a few projects that have taken a little bit longer to develop at the utility related to RNG specifically. So ultimately, since we are updating guidance and our CapEx with CEV, we figured we made the full update there. I wouldn't read too much into that. I feel like those projects will move forward, and we'll get them completed as well. I think going to your second question on inflation, we haven't really had any impacts. Or it will be a minor impact. We've got a bunch of -- a number of pluses and minuses. You spoke earlier and asked a question about -- or someone asked a question about the escalation in electric prices and things like that. We've got certain exposures where we get pluses in this inflationary period. Higher volatility could be a plus for energy services and certainly incentive margins at the gas company. Higher electric prices in the electric output from our solar panels and things like that, largely offset, or hopefully, we'll outrun some of the other negatives according to portfolio. But currently, even after acknowledging all those, we expect very minor impacts to us that we'll be able to mitigate in our longer-term plan.

And then this is Robert to complete a question on CapEx. When you take a look at the combined -- and I'm excluding CEV here, our combined CapEx for 2022 and 2023, you see that the totals are pretty much the same. So what we have is the small movement that we understand better that come from some of our projects.

Our next question comes from Robert Mosca with Mizuho Securities.

So understand the trajectory of CEV -- so understand the trajectory may have changed for CEV a little bit, at least in the medium term. And in your opening remarks, you kind of reiterated that 5-year outlook for the overall portfolio. Just wondering if you could dig a little bit more into the specifics, what you're seeing is the offset to CEV, what some of those specific levers are? Is it better rates at Leaf River, Energy Services uplift? Hoping to get a little bit more detail there.

Yes, you answered some of the questions. You mentioned it right there pretty well. You do -- as a portfolio of companies, remember the Energy Services group did a pretty large AMA, which we publicized some of the cash flows from that. And certainly, inflationary pressures, we've talked about earlier. You've got a number of items in the income line that are going to have pressures on the upside from the incentives at the utility and certainly anywhere that you've got additional volatility even beyond the AMA Energy Services could contribute as well. And like we talked about before, higher electric prices, it's certainly going to support additional solar development and PPAs also. So there's a little bit of pressure to the upside, allow us to fill the gaps. It's really, I think, the power of having a portfolio of companies and being able to utilize each and every one as you build your forecast going forward.

Got it. That's helpful. And then last year, I think there was a lot of focus on coming up with solutions to decarbonize the gas stream within New Jersey Natural Gas. And can you talk about whether that might be deemphasized just given the expected increase in the commodity component of customer bills? And also more broadly, just wondering how you're managing the customer bill impacts from rising gas prices.

So 2 ways to -- I guess 2 answers to that. One is I think the decarbonization narrative and the things that we're doing are going to continue to move forward. And you've got some short-term pricing issues that are occurring now. And certainly, it's going to impact people and customers. And we acknowledge that. But I think the decarbonization effort, bringing hydrogen, renewable natural gas, energy efficiency and eventually carbon capture and storage to utilize our pipelines far into the future, is going to be a walk that we're going to walk for a long time. I think just talking about short term, how gas pricing is going to impact our customers, we've got a pretty well-established hedging program at the gas company. And one of the numbers I was looking at last night, we've got 31 Bcf of gas in storage at a price of about $3.60, which, as you guys all know, is far below where the NYMEX system or current market pricing is now. So largely, our customers will be insulated. As much as our price will be slightly higher than last year, they're going to be insulated from the market realities of right now. And that -- and for what we're talking, that gas that's in storage right now is going into next winter, that's winter '22 and '23. So we've got quite a bit of time to be able to have prices normalize and market to work out some of the issues and prices to come down, so our customers don't feel those impacts. So I think currently, we're in a pretty good place, far below where the market is, a little bit higher than last year but largely insulated from some of the price moves that you're seeing currently.

Great. That's awesome color. And maybe just one last one. Just hoping you could maybe discuss the next milestones for Adelphia. You mentioned that it should be fully in service by the end of the year, but wondering if there's any specific milestones you would call out from now to then.

So I've got Amy Cradic here. She's the Chief Operating Officer of our nonutility companies and has been over that project for some time. And I'd ask her to take that question, Amy?

Yes, we really have just a couple more facilities to bring into service over the next several months, before the end of the year. We really have mitigated any supply chain issues, and we just have to get it done from a construction perspective. But good regulatory support, and again, just a few more facilities left. So it's been moving very well through the process.

Great. Looking forward to catching up at AGA.

That concludes today's Q&A session. I will now pass the conference back over to Dennis Puma for any closing remarks.

Okay. Thank you, Amber. I'd like to thank everyone for joining us this morning. As a reminder, a recording of this call is available on our website for replay. We also look forward to seeing many of you in person at this year's AGA or next year's -- next quarter's call. As always, we want to thank you for your interest and investment in New Jersey Resources. Goodbye.

That concludes today's New Jersey Resources Second Quarter Fiscal 2022 Conference Call. Thank you for your participation. You may now disconnect your lines.