Participants

Adam Prior; Director - Investor Relations; New Jersey Resources Corp

Stephen Westhoven; President, Chief Executive Officer, Director; New Jersey Resources Corp

Roberto Bel; Chief Financial Officer, Senior Vice President; New Jersey Resources Corp

Patrick Migliaccio; Chief Operating Officer, Senior Vice President; New Jersey Resources Corp

Richard Sunderland; Analyst; JPMorgan

Jamieson Ward; Analyst; Jefferies

Travis Miller; Analyst; Morningstar, Inc.

Robert Mosca; Analyst; Mizuho Securities USA

Presentation

Operator

Hello, everyone. My name is Karen. I'll be your conference operator today. At this time, I would like to welcome everyone to the New Jersey Resources fiscal 2025 second quarter and first half financial results conference call. (Operator Instructions)
 I would now like to turn the call over to Adam Prior, Director of Investor Relations. Please go ahead.

Adam Prior

Thank you. Welcome to New Jersey Resources fiscal 2025 second quarter 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. 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 of our forward-looking statements, including 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 2.
 These items can also be found in the forward-looking statements section of yesterday's earnings release. furnished on Form 8-K and in our most recent Forms 10-K and 10-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 NFPA net financial loss, utility gross margin, financial margin, adjusted funds from operation and adjusted debt provide a more complete understanding of our financial performance. However, these non-GAAP measures are not intended to be a substitute for GAAP and non-GAAP financial measures are discussed more fully in Item 7 of our 10-K. The slides accompanying today's presentation are available on our website and were furnished on our Form 8-K filed yesterday.
 Steve will begin with this quarter's highlights, beginning on slide 4, followed by Roberto, who will review our financial results. Then we will open the call for your questions. With that, I'll turn the call over to our President and CEO, Steve Westhoven. Please go ahead, Steve.

Story Continues

Stephen Westhoven

Thanks, Adam, and good morning, everyone. At NJR, we recognize that affordability and reliability remain the foundation of our value proposition to our customers and our long-term strategy reflects that. In today's environment, delivering safe, affordable and reliable energy is more critical than ever. That's why we are focused on disciplined capital deployment, operational excellence and strategic innovation across all of our business segments. Our results this quarter once again demonstrate the strength of this approach.
 Fiscal 2025 continues to be a strong year for NJR. In the second quarter, we delivered solid results across all of our business segments. These results reflect the strength of our integrated portfolio and consistent execution by our team to drive long-term sustainable growth. In particular, our wholesale gas marketing business, NJR Energy Services reported strong performance during the winter by capitalizing on periods of pricing volatility through its long option strategy. As a result of this outperformance, we are raising our fiscal 2025 NFEPS guidance by $0.10 a share to a revised range of $3.15 to $3.30 per share. Looking at our other subsidiaries, we saw solid execution in the quarter from our entire portfolio of complementary businesses.
 At New Jersey Natural Gas, we completed the first full quarter of new rates following our base rate case settlement. We also initiated investments under the expanded SAFE Green program, our largest energy efficiency filing to date which earns near real-time returns. At Clean Energy Ventures, we are advancing our solar portfolio with new projects coming online and building a growing diversified project line. We continue to prioritize disciplined capital deployment and strategic expansion across multiple states. Our Storage and Transportation business also continued to make progress. We continue the capacity recovery project at Leaf River and remain engaged in the settlement process for Adelphia Gateway Section 4 rate case, which is proceeding as expected.
 Turning to slide 5 for more details on our guidance. We are raising our fiscal 2025 NFEPS guidance range to $3.15 to $3.30 per share, an increase of $0.10 from our prior range. This new outlook reflects our strong operating performance through the winter season for Energy Services and includes the gain from the sale of our residential solar portfolio at Clean Energy Ventures. Importantly, this revised guidance exceeds our long-term NFEPS growth target of 7% to 9%.
 On slide 6, we present our updated NFEPS guidance by segment. New Jersey Natural Gas remains the largest contributor, followed by Clean Energy Ventures and Energy Services. In the second quarter, we slightly narrowed the range of contributions across our business lines. consistent with our practice as the year progresses. These updates reflect outperformance in Energy Services and a modest change in the relative contributions for New Jersey Natural Gas and Clean Energy Ventures.
 Now, let's discuss our complementary business units, starting with New Jersey Natural Gas on slide 7. New Jersey Natural Gas continues to deliver consistent customer growth quarter after quarter. driven by a healthy mix of new construction activity, system expansions and steady conversions across our service territory. This underscores the ongoing demand for reliable, affordable natural gas service and supports long-term investment in our utility infrastructure. We also remain proactive in strengthening the relationship with all of our customers. Throughout the winter season, we regularly shared information on utility assistance programs and focused on maintaining our reputation as a responsive and dependable service provider. We continue to leverage mechanisms that help manage energy affordability. Most notably, our BGSS incentive programs, which allow us to temporarily release excess capacity or supply when it's not needed. The resulting margin benefits are largely credited to customers. helping to mitigate the impact of higher energy prices.
 In the last 10 years, New Jersey Natural Gas has saved customers nearly $800 million as a result of this program. Alongside these efforts, we remain focused on long-term investments that support system reliability, customer growth and New Jersey's clean energy goals. We've invested $254 million at New Jersey Natural Gas this year, with 46% of that CapEx, providing near real-time returns. And as I noted earlier, we began making investments under the latest iteration of our Save Green program. These investments assist our customers with affordability, helping them lower their energy usage, reduce admissions and manage bills more effectively, all while delivering timely returns to NJR through a proven regulatory construct.
 Moving to slide 8. We are consistently placing new projects into service at clean energy ventures adding 31 megawatts of solar capacity into service this fiscal year. In addition, we are moving projects through our pipeline with 60 megawatts currently under construction. Our project pipeline stands at over 1 gigawatt with the majority of those investment opportunities located outside of New Jersey. The CEV team was deliberate in their efforts to diversify the project pipeline, seeking to avoid an overreliance on any one market or policy regime. This strategy is proving more valuable as the renewable energy industry continues to navigate interconnection and policy-related complexities. Our robust pipeline of capital deployment opportunities, combined with the disciplined SREC hedging strategy positions us to continue generating stable predictable cash flows from our solar investments.
 Moving to slide 9. Storage and Transportation continued to deliver steady fee-based revenues. At Leaf River, we continued our capacity recovery project restoring capacity that had been impacted by salt creep over time. Separately, we are exploring the potential development of a fourth cabin and recently completed a nonbinding open season with encouraging interest as we evaluate the economics and design optimization. At Adelphia Gateway, we continue to advance through the FERC rate case process with settlement discussions ongoing as we move towards achieving resolution and recovering the significant investments we've made to the system. These assets represent strong long-term value proposition, particularly as system constraints highlight the critical role of existing natural gas infrastructure. So with that, I'll turn the call over to Roberto for a review of our financial results.

Roberto Bel

Thank you, Steve, and good morning, everyone. slide 11 shows the main drivers of our NFE for the second quarter and year-to-date period of fiscal 2025. In the second quarter, we reported an NFEPS of $1.78 per share compared with NFEPS of $1.41 per share last year. We saw higher NFE at New Jersey Natural Gas, driven by higher EUV gross margin as a result of our recent base rate case settlement, and Storage and Transportation reported improved performance versus the prior year driven by higher revenues at Leaf River.
 At Clean Energy Ventures, we reported higher NFE for the year-to-date period, primarily driven by the sale of our residential solar portfolio during our fiscal first quarter. For fiscal 2025, we expect that the sale of our residential solar assets will generate a net benefit of approximately $0.30 per share, reflecting both the gain on sale and the lack of earnings contribution from that business for the remainder of the year.
 Now, let's move to slide 12, where we will discuss in our capital plan. For fiscal 2025 and fiscal 2026 or planning capital expenditures ranging from $1.3 billion to $1.6 billion, which aligns with our long-term NFEPS growth target of 7% to 9%. We did not make any changes to our capital plan compared to our prior disclosure and expect spending between $610 million and $790 million in capital investments during fiscal 2025. These investments align with our long-term strategy to enhance utility infrastructure, expand clean energy investments and optimize our storage and transportation capabilities.
 As highlighted on slide 13, our strong balance sheet and liquidity position enable us to execute on our strategic priorities while maintaining financial flexibility. Our adjusted funds from operations or adjusted debt ratio is projected to range between 19% and 21% for fiscal 2025, which reflects our ability to generate solid operating cash flows and manage that effectively. These levels are consistent with maintaining our investment-grade credit rating at NJNG and a strong balance sheet at NJR. We expect our cash flow from operations to be between $460 million and $500 million in fiscal 2025, providing a solid foundation for our capital plan, dividends and other corporate needs.
 With that, I'll turn the call back to Steve for concluding remarks on slide 14.

Stephen Westhoven

Thanks, Roberto. Before we move to Q&A, I'd like to briefly address NJR's positioning in light of the evolving macroeconomic environment, specifically in relation to tariffs. As many of you know, the situation remains fluid. New Jersey Natural Gas is our largest business unit. And because our business activities are domestic, we are largely insulated from the impact of imported goods and materials. Almost all of our gas supply comes from domestic suppliers, including many of the nation's largest interstate pipelines.
 Additionally, New Jersey Natural Gas's capital program uses domestically sourced materials such as plastic pipe and infrastructure components. minimizing exposure to current tariffs. At Clean Energy Ventures, we are proactive when it comes to project cost containment. Most of our contracts incorporate structured provisions to preserve returns in the event of cost increases. As a result, we do not expect the uncertainty around tariffs will materially impact our near-term investments. Our solar investment pipeline remains broad and diverse, giving us meaningful flexibility in how and when we deploy capital. It's also important to emphasize that NJR's strong balance sheet continues to support our strategy and is well positioned in any short-term market dislocation.
 We are not relying on equity issuances to fund our capital plan. We have substantial liquidity and healthy cash flows and our debt maturity profile is staggered with no term debt due at the holdco level in fiscal 2025. To conclude, NJR is poised for sustained long-term growth across our diverse portfolio of businesses. Our balanced mix of regulated and nonregulated investments continues to support peer-leading performance. We raised our initial NFEPS guidance for the fifth consecutive year and our revised range of $3.15 to $3.30 per share reflects the strength of our business model and our ability to navigate dynamic market conditions. So with that, let's open up the line for questions.

Question and Answer Session

Operator

(Operator Instructions) Richard Sunderland, JPMorgan.

Richard Sunderland

Good morning, and thank you for the time today. Starting with the Leaf River expansion, what is the timing of a potential decision to advance that project. Also curious how much capital would that require and what sort of returns you're targeting?

Stephen Westhoven

So just comparing the open season and evaluating those bids and doing that at the same effect, time as the costs associated with expansion really proving the entire transaction. We don't have a finite time line set right now. We don't have a determined point in which we actually go because you don't know whether you're going to complete the contracts or not. As far as total capital costs I'm going to estimate it somewhere between $175 million to $200 million total costs. Don't hold me to that, but it will probably be similar in that area.
 And then as far as the returns go, they'd be in line with what you'd expect for a midstream invest. I think that's as far as we'll probably go with that right now. But yes, it's from the positive side, it's great. markets very supportive down in that region. It's a great asset. I think we're in a good position to move forward. We just need to put all these pieces together to make that capital investment.

Richard Sunderland

Understood. That's very helpful. And then I appreciate the tariff commentary. I just wanted to drill in a little bit more for -- so at the sort of project level, do you see cost exposure to tariffs, which is then covered by the contractual protections you referenced. I guess I'm just trying to think how do you see development pace if costs do increase even if your returns are protected?

Stephen Westhoven

It's too early to say. I mean it's such a slowing situation. You put that commentary in place, just to kind of give a view of how we're thinking about it and also that we've already thought about changes to this market. If you remember, we panels, we've had changes in ITC. We've had a number of issues over the past about 15 years that we've been in this market developing this market. So safe harboring provisions, certainly offer us some protection. As you can imagine, if you look at our capital plan, the construction for many is already happy to even know their commercial operation is going to happen until fiscal year 2026 or 2027.
 So if these things are done well in advance, and we're just trying to convey to the market that -- we thought about this. We've got some protections in place. And given the fact that from a state perspective, variants. Solar's been one place where -- it's been a successful program, driving down costs. We've been able to develop and be able to deploy capital. So we feel for all those reasons. It's a good place to stay. And I think with the tariffs and all the other things that could happen, we're trying to compare hesitant, but we don't really see any impact over the next like 12, 24 months or so.

Operator

Jamieson Ward, Jefferies.

Jamieson Ward

Good morning. It was great hosting you guys recently in Texas and nicely done on the beat and raise. If I could just expand on Richard's Leaf River question here. How should we think about the expected economics in terms of how they compare to your existing caverns and also just given current storage market dynamics.

Stephen Westhoven

Yes. The way to think about that, this is something that we're only going to build if we get the returns that are appropriate for the investments that we're making, right? So what I'm trying to say there is that we've got to make the contracts in place -- we've got to be able to lock in a significant portion of materials and that clear line of sight on what our construction costs are and then have a little bit of an extra in order to test safety factor through probably a multiyear cycle of developing out that cavern.
 So hope that gives you a flavor for how we're thinking about this and the types of returns that we would have to have in order to make all that happen. I don't know if it's comparable to our initial investment because that investment was up and running. It was already contracted. It was already done. It was larger largely derisked. This is a little bit different from that.

Jamieson Ward

I appreciated your comments in the prepared remarks around affordability -- just wanted to also expand on that just with your core utility business now contributing about 65% to 68% of earnings and after successful November 2024 rate case settlement. Just given the affordability concerns and legislative initiatives highlighted recently in the state, how do you view the regulatory environment over the next 12 to 24 months and then maybe heading into your next rate case? And are there any specific regulatory mechanisms you're pursuing to further reduce lag between investment and recovery beyond SAVEGREEN and IIP?

Stephen Westhoven

Jason, we're a good spot from a regulatory hold perspective. Having completed our rate case and having completed our energy efficiency filing and having that done really did some clear error for the next 12, 24, 36 months, not our next rate case, which come out. There's a lot of legislation that's being put forth right now around affordability. I'd say that in any years expect 10,000 pieces of legislation that are submitted. So what's going to make it through and then what's not, it's hard to say right now. But I can tell you from our perspective, as a company.
 We've been very focused on affordability. We're focused on making sure that the way that we invest has a minimal impact on our customers and everything that we do for hedging programs to BGSS that deploying capital at times is really, really conscious around affordability for our customers. Natural as still an achieved this way to heat your home and state in New Jersey. And we don't want to give up that position willingly. So we're going to work on making certain that we still maintain that position going forward.

Operator

Travis Miller, Morningstar.

Travis Miller

Thank you. Two more quick ones on Leaf River. One, is there any equipment or supplies that you need to order to complete that project, if you decide to go forward?

Stephen Westhoven

Yes. I mean we certainly have to order compressors to the piping associated with a big chunk of the dollars is just the order in a that is there. Sorry.

Travis Miller

I mean you broke up a little bit there. But anyway, so you do have to order is there risk then the implication there? Is there a risk in terms of supply chain or tariffs or anything else in terms of getting what you need to build that?

Stephen Westhoven

I think it's too early to tell on right now. We're still working through signs and things like that, trying to find those upper contracts. So for even an optimistic time frame, those orders would be out multiple months or maybe even year. I think it would take a while to determine whether this is going to be impactful and because the environment is so fluid it's a brownfield site. So we don't have to order as much. We don't have to put as much infrastructure in place as to somebody building a greenfield site, so that's certainly a positive to our point.
 And given the fact that we've already had the wells in place for order, and we've got the brine facilities in place, which is a big part of construction puts us in an advantage. So we're in a good place from that perspective. But too early to tell on things of that nature of this two.

Travis Miller

And then a higher-level question, the utility you continue to see customer growth over and over and over. What's going on there, right? What are some of the fundamentals where we don't necessarily see that at some other utilities -- is there a business mix change in terms of residential to business or business to residential? What are some of the fundamental shifts you're seeing here in terms of still continuing to get customer growth?

Patrick Migliaccio

This is Pat Migliaccio. So to answer your question, there's been no change in the mix. We are predominantly residential service direction rate, so 93% insinential, 7% commercial. I would say that we have a really attractive service there, sorry, principally Monmouth, Ocean and Morris Counties, Animal room for development, great demographics in terms of some of the highest per capita income brackets in the state of New Jersey and just a great base live hit those well by the short traps.
 And on the flip side, though, we are also constantly advocated for ways we can save customers' money and that's through our Cambornergy efficiency program larger center in the state, but that really provides customers an opportunity to conduct an Don their own and figure out when they've done warranty efficient for those on that are already to disrupt. So Hope that answered your question, but we do believe that we continue to see fantastic customer base.

Operator

(Operator Instructions) Robert Mosca, Mizuho Securities.

Robert Mosca

Just one from me. I think there was maybe an updated draft to the proposed energy master plan a little bit after your 1Q update. Just wondering if there's anything in particular you're focused on during the comment period? And anything that might change just given some of the recent affordability legislation proposed in New Jersey, kind of open-ended question, but curious to get your thoughts there.

Stephen Westhoven

Thanks, Rob. So there was a presentation that was put forth on the energy master brand, but there was not a whole traffic document of the energy master plan issued. They did allow for a comment period, which we did submit comments on. I'm not sure what the follow-up will be on that.
 Just as a reminder, we are going to go through (inaudible) election. There's November. So you're going to change the administration -- so I fully expect the new administration this fall will be drafting probably annuity energy master plan. So I think as far as you're concerned at a stage in moment to see how this plays out next year or so on seen evictions focus and goals are.

Operator

This concludes our Q&A section. I will now turn the call back over to Adam Prior for closing remarks. Please go ahead.

Adam Prior

I'd like to thank you all for joining us. We hope to see many of you at our AGA later this month. And as always, we appreciate your interest and investment in NJR. Good day.

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