Laurence M. Downes - Chairman and CEO Glenn C.

Lockwood - EVP and CFO Mark R. Sperduto - SVP, Regulatory and External Affairs, New Jersey Natural Gas Dennis Puma - IR

Mark Barnett - Morningstar Spencer Joyce - Hilliard Lyons Brian Brazinski - Bank of America Merrill Lynch

Thank you, Amy, and good morning, everybody. Welcome to New Jersey Resources' fiscal 2014 second quarter conference call and webcast.

I'm joined today by Larry Downes, our Chairman and CEO; Glenn Lockwood, our Chief Financial Officer, as well as other members of our senior management team. As you know, certain statements in our news release and on today's call contain estimates and other forward-looking statements within the Private Securities Litigation Reform Act of 1995.

We wish to caution readers of our news release and listeners to this call that the assumptions forming the basis for forward-looking statements include many factors that are beyond NJR's ability to control or estimate precisely which could cause results to materially differ from the company's expectations. A list of these items can be found, but is not limited to items in the forward-looking statements section of today's news release filed on Form 8-K, and in our Form 10-Q to be filed later today.

Both of these items can be found at sec.gov. 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.

I'd like to also point out that there are slides accompanying today's discussion that are available on our Website and that was also filed on our Form 8-K this morning. With that said, I'd like to turn the call over to our Chairman and CEO, Larry Downes.

Larry?

Thanks, Dennis. Good morning, everyone, and thank you for joining us today.

I want to start by reminding everyone that during my presentation, I will be making forward-looking statements, our actual results will be affected by many factors including those that are listed on Slide 1. The complete list is included in our 10-K and I would encourage you to please review them carefully.

Also as we note on Slide 2, I will be referring to certain non-GAAP measures such as net financial earnings, which I'll also refer to as NFE, as I'm discussing our results. We believe that NFE provides a better measure of our performance; however, it is not intended to be a substitute for GAAP.

Our non-GAAP measures are discussed more fully in Item 7 of our 10-K and again I would strongly encourage you to please review that disclosure as well. Moving to Slide 3.

You can see that we continue to record strong performance as the major components of our portfolio are turning in very solid results. We announced our second quarter results this morning with net financial earnings of $4.56 per share for the six months ended March 31 compared with $2.50 per share for the same period last year.

That represented an increase of 82%. For the quarter, our NFE were $3.61 per share that compared with $1.64 per share last year and that was 120% higher than last year.

We are also reaffirming our fiscal 2014 NFE guidance in a range of $3.90 a share to $4.10 per share. Our strong performance was primarily attributable to results from NJR Energy Services which benefited from the extreme cold weather this winter and successfully meeting the needs of its diverse customer base.

As you can also see, New Jersey Natural Gas and NJR Clean Energy Ventures recorded strong results for both the second quarter and the six-month period. Glenn will provide more details on our performance in just a few minutes.

Moving to Slide 4. This morning, as I said, we reaffirmed our earnings guidance range for fiscal 2014 of $3.90 to $4.10 per basic share and as we mentioned on our March 12 call, that increased guidance not only benefits this year but also supports our longer term growth strategy.

The specific impact of that is shown on Slide 5 where you can see that the increased earnings retention from NJRES strong performance will reduce the need for future equity issuances that were previously expected to finance our projected capital investment program. This earnings retention increases the per share profitability of our new investments and has given us the ability to increase our long-term NFE growth rate.

We also gained additional financial flexibility to utilize our share repurchase program depending on market conditions. As shown on Slide 6, we have increased our expected long-term average annual NFE growth rate to 5% to 9% from the previous range of 4% to 7%.

Based on that range, we would earn between $3.28 per share and $3.71 per share by fiscal 2017. On Slide 7, based upon our improved earnings outlook, we also raised our dividend growth rate objective to a range of 6% to 8% from our previous 5% objective.

Our target payout ratio goal remains at 60% to 65% which will support the sustainability of the increased dividend growth objective and allow us to reinvest in the company to support future earnings growth. We believe our earnings and dividend growth rates are achievable with our current mix of regulated and non-regulated businesses.

What I'd like to do now is spend some time reviewing our strategy and our strong fundamentals. On Slide 8, I'll begin with New Jersey Natural Gas, our regulated utility, which I think as everyone knows is our core business comprising the majority of our assets, earnings, people and capital expenditures.

Our service territory is primarily residential, highlighted by 100 miles of coastline. We serve over 503,000 customers in Monmouth and Ocean counties and in parts of Burlington, Morris, Middlesex and Sussex counties which cover areas with an estimated population of 1.4 million people.

Our customer growth rate is about 1.5% which is well above average compared with other LDCs. We expect to add about 7,500 new customers annually with about half coming from conversions from other fuels over the next two years.

We have a long history of constructive regulatory relations based upon our ability to achieve balance between our customers, regulators and investors while supporting public policy. This is evident in the regulatory riders we have in place for programs such as SAVEGREEN and our accelerated infrastructure programs as well as our BGSS incentives.

Moving to Slide 9. Our customer growth remains strong in fiscal 2014, as the housing market continues to expand in our service territory.

We added 3,658 customers in the first six months of fiscal 2014 with good balance between new construction and conversions from other fuels, primarily fuel oil. We're seeing an increase in the pace of new construction, primarily in Ocean County.

Also 348 existing customers have converted to natural gas heat this year. As I mentioned earlier, we expect to add between 14,000 and 16,000 new customers over the next two fiscal years representing an annual new customer growth rate of about 1.5% which we believe is well above the national average.

On Slide 10, you can see that our optimism for future customer growth is supported by above average population growth in our services area, primarily in Ocean County. Natural gas enjoys a strong price advantage over other fuels which is supporting growth in the conversion market.

In addition, when we look to the future, we currently estimate over 84,000 new construction units and on the conversion side, we currently foresee a healthy inventory of over 114,000 future opportunities. On Slide 11, you can see that we expect an extensive regulated capital plan through fiscal 2017.

Capital invested by New Jersey Natural Gas since our last base rate case in 2008 through 2017 is expected to be more than $1.3 billion. Normal capital spending which includes customer growth and system maintenance comprises about half that total.

We're also focused on investments that will enhance the reliability and safety of our system. A number of our accelerated infrastructure programs are already contributing to earnings through regulatory riders.

An example is our SAFE program which allows us to replace 276 miles of cast iron and bare steel. We have the lowest amount of cast iron in our system of any LDC in New Jersey.

These expenditures along with the NGV advantage and SAVEGREEN project total about $647 million or more than half of the projected capital investments and are already earning a return. Through our NJ RISE filing, we're proposing to invest over $100 million for storm-hardening projects in most storm prone portions of our service territory.

Our Southern Reliability Link project will add a second interstate pipeline connection to our service area in Ocean County which will enhance both reliability and supplier diversity. Finally, our Howell liquefaction project will give us the ability to liquefy pipeline gas behind our city gate and will create benefits for both customers in the form of lower prices and shareowners through increased earnings.

We plan to have most of these expenditures included in our next base rate case, which will be filed no later than mid-November 2015. Moving to Slide 12.

As I mentioned earlier, NJRES strong results have driven our outstanding performance this year and strengthened our financial profile. What I want to do is to take a few moments to review the key strategies that we use to manage risk and position NJRES to deliver quality results.

I think it's first important to note that our business provides physical natural gas services to customers across North America. We serve these customers with our extensive portfolio of natural gas transportation and storage assets.

We have an experienced team with a proven track record of serving our customers. The extensive cold weather this year created record demand for natural gas services and caused periods of extreme price volatility.

But in addition to our physical natural gas services business, our producer services business generates a relatively stable stream of income which is not dependent on price volatility and which is based on volumes produced in the Marcellus. Our business is built on a long option strategy which minimizes commodity risk.

The winter of 2014, as everyone knows, was extreme, but of course we assume normal weather volatility in market dynamics when forecasting fiscal 2015 and beyond. Therefore, we are assuming that NJRES will contribute a range of between 5% and 15% of our net financial earnings in fiscal 2015 and beyond, which we believe is reasonable based upon our performance over the past several years.

At the same time, our business model remains positioned to take advantage of the potential upside that we saw this year. On Slide 13, I'll discuss our Clean Energy Ventures business which includes our residential and commercial solar investments as well as our onshore wind projects.

To give you some background, to-date we have invested over $230 million in 21 commercial and grid connected solar projects throughout New Jersey. We have also invested over $85 million in our residential Sunlight Advantage solar program through fiscal 2014 which represents approximately 3,000 home installations.

To diversify our investments in renewable energy, we are also investing in onshore wind projects. We have an approximate 19% interest in OwnEnergy which is a developer of small to midsized wind projects.

Along with this investment we have the option but not the obligation to purchase projects from Own that meet certain predetermined economic and operating criteria. Our strategy is to focus on midsized projects generally in a range of 10 to 60 megawatts supported by long-term power purchase contracts.

To-date, we have committed a total of $64 million to two projects, our 9.7 megawatt Two Dot project which is located in Two Dot, Montana is expected to begin commercial operation this summer and contribute to earnings in the fourth fiscal quarter of 2014. Our second project, Carroll Area, which is a 20.7 megawatt project located about 65 miles west of Des Moines, Iowa is currently under construction and expected to begin operating about a year from now.

We have 25-year power purchase agreements in place with NorthWestern Energy for Two Dot and MidAmerican Energy for Carroll Area. The current federal tax law is expected to lower the solar ITC from 30% to 10% in 2017.

As a result, over the next three years our plan is to reduce our reliance on solar investment tax credits. So when we look out to fiscal 2017, we currently expect that the majority of CEV's earnings are going to come from the generation and sale of over 174,000 SRECs from our portfolio of solar projects, higher SREC prices resulting from the combination of a reduced level of construction of solar projects and an annual increase in New Jersey's renewable portfolio standards and expected annuity-like returns from our wind investments.

Finally, we're continuing to look at combined heat and power investment opportunities with customers such as hospitals who are increasingly concerned about reliable electric service. The potential market opportunity and state policy for CHP in New Jersey is still evolving at the present time with an increasing emphasis due to the effects of Superstorm Sandy and the need for emergency power generation for critical facilities.

But in total when you look at all of that, we expect that Clean Energy Ventures will provide 10% to 20% of our annual net financial earnings in fiscal 2015 and beyond. So with that strategic overview, I want to turn the call over to Glenn and he's going to give you some more details on our quarter and our year-to-date results.

Glenn?

Thanks, Larry, and good morning, everyone. I'll review our results for each segment.

On Slide 14, you can see that we had approximately 5% increases in utility gross margin in both the three and six months ended March 31, 2014 compared with last year. This was due primarily to increases in revenue related to our infrastructure investments, the impact of customer growth, the return of Sandy affected customers and returns on our SAVEGREEN project.

We added a total of 3,658 new customers so far this fiscal year. As Larry mentioned, we are on track to achieve our goal of adding 14,000 to 16,000 new customers over the next two years.

We also remain on track to open our public refueling stations this summer. As we turn to Slide 15, you can see that the impact of these programs will have on NJNG's gross margin through fiscal 2017.

NJNG's incremental gross margin is expected to more than double with customer growth remaining the largest component. We will also see important contributions from the SAVEGREEN project, the NGV Advantage and our BGSS incentive programs.

Turning to Slide 16. That summarizes our two investments in NJR midstream which recorded three-month NFE of $2.3 million which was flat with last year and six-month NFE of $3.7 million compared with $4.1 million last year.

The year-to-date decrease was due primarily to lower revenues at both Iroquois and Steckman Ridge, partially offset by lower interest expense. Turning to NJRES.

As Larry mentioned in his remarks, on the March 12 call, we announced that this business was having an extremely strong quarter. On Slide 17 you can see their extraordinary results.

For the three-month period ended March 31, 2014, NFE were $91.4 million compared with $16.4 million in the same period last year. Year-to-date, NFE were $98.8 million compared with $19.2 million in the first six months of fiscal '13.

The increases in NFE in both periods were due to the increased financial margin and extremely cold weather especially in the Midwest caused increased demand resulting in high short-term prices. Because of the exceptional quarter, NJRES is expected to contribute 35% to 40% in fiscal 2014 NFE but I'd like to emphasize, as Larry did, that assuming a return to more normalized weather, we expect that NJRES' NFE contribution will return to the 5% to 15% level in fiscal '15 and beyond.

As you can see on the map on Slide 18, NJRES' portfolio of natural gas and storage and pipeline capacity contracts overlap nicely with the regions that had the severe weather. Our ability to meet the resulting need for natural gas led to the fivefold increase in NFE in both the quarter and year-to-date.

Slide 19 summarizes the financial results and SREC activity for NJR Clean Energy Ventures. For the three months period ended March 31, 2014, CEV reported NFE of $12.8 million compared with $5.2 million in the same period last year and fiscal 2014 year-to-date NFE at NJRCEV was 16.4 million compared to 10.5 million in the first six months of fiscal 2013.

During the first six months of fiscal '14, we placed $5.7 million in ground-mounted commercial solar systems into service totaling 1.7 megawatts. We currently have three grid connected solar projects under construction.

Two projects totaling 15.7 megawatts or $41.7 million are expected to be placed into service this fiscal year and a 10 megawatt project totaling $26.9 million is expected to be operational in fiscal 2015. The Sunlight Advantage in NJRCEV residential solar lease program added 403 customers representing 3.9 megawatts during the first six months of this fiscal year compared with 294 customers or 2.4 megawatts during the same period last year, an increase of 37%.

This brings the total number of customers to 2,484 since the program's inception. NJRCEV expects to invest approximately $31.5 million dollars in residential solar systems in fiscal 2014.

Overall, this activity resulted in an estimated effective tax rate through March for NFE purposes of 27.6% and $20.6 million of ITC was recognized. I want to take the opportunity to update you on current SREC prices and capacity additions.

On Slide 20 you see from the graph on the left that monthly construction have declined from its peak in early 2012 and there has been a corresponding increase in SREC prices shown on the graph on the right. We expect continued growth in a level of SRECs that we are generating and its trends on improvement SREC prices to continue.

On Slide 21 we focus on home services. Last year's results reflected the increased demand for installation work and generators in a wake of Superstorm Sandy.

Year-over-year decline in installation revenue resulted in lower results this year. However, we do see continued improvement in our premier service contract business as well as expanding the products we offer to our customers.

We expect home services to contribute between 2% and 5% of annual NFE in fiscal 2014 and beyond. Okay.

With that, I'll turn the call back to Larry.

Thanks, Glenn. So as we close our presentation this morning, I think you can see that our portfolio of energy-related businesses which is anchored by New Jersey Natural Gas is generating excellent results this year.

Our fundamentals remain strong in all of our businesses and we position New Jersey Resources for continued growth in earnings and dividends in the future. We have a growing LDC franchise that offers the opportunity for consistent long-term investment and comprises the majority of our earnings.

Our regulatory strategy is balanced and constructive and recognizes the importance of generating value for our customers, our shareowners and supporting public policy. Our energy-related non-regulated activities provide a source of incremental growth and we have a strong and efficient financial profile that will provide access to capital as needed.

Bringing all of this together we expect that these fundamentals will support long-term earnings and dividend growth and we believe will exceed our peers. But as I close, I need to point out that none of our results would been achieved without the hard work and dedication of our employees and on behalf of our Board of Directors and our entire leadership team, I want to thank them.

Their efforts drive our performance every day. We are a strong company with a bright future because of everything they do.

So with that, we would be happy to take your questions.

Hi. Good morning, guys.

Hi, Mark.

Good morning, Mark.

Just a couple of items on the utility. I know it's going to be a small item, more of a full year, given NJRES results, but can you talk a little bit about what drove the increase in incentive margin of the utility?

And is this like storage optimization type activity that's kind of driven by some of the same things that drove your exceptional profit so far in the year, NJRES?

Glenn, do you want to take…

Yes, that was a combination of some increased sales, again in part obviously associated with the cold weather. And we actually had some good opportunities with our storage incentive program.

Okay. And then second, just a minor note, what sort of timeline are we looking at for a decision on the RISE program later this year?

Mark, do you want to take that? I'll ask Mark Sperduto, our Regulatory Senior VP to take that.

As of last week we've been negotiating to try to resolve NJ RISE and we at this point in time have a term sheet circulating amongst the [party] (ph), so we anticipate that stage would be completed in the next one to two months.

Great, thanks for that.

Thanks, Mark.

Good morning, guys, and congratulations on just a fantastic quarter.

Good morning, Spencer. Thanks.

I also have one kind of nuance question on the New Jersey Natural Gas side. You all noted that about 800,000 in margin on a year-over-year basis sort of through the first couple of fiscal quarters is due to some of the Sandy affected customers coming back on line and my question is how close are we to getting back to normal?

Is there a couple of hundred thousand more in margin dollars there we could recoup or is it maybe another 1 million or 800,000 there?

Spencer, it's Glenn. I'll answer it this way.

We have about 75% of the customers back on line. The majority of the customers were basically out those two months and then they came back on fairly quickly after that and have pretty much been fairly steady now at about that 75% level.

So that's telling us that the remaining 25% are the very damaged buildings and houses that need to be rebuilt, so that's going to be a couple of year process before we get fully back to where we were. So in total we lost about $2.5 million to $3 million in total gross margin last year and it will be a couple of years before we get back to 100% of that.

Okay. So the 800 versus that 2.5 million to 3 million, is there still a pretty material chunk there or it's going to trickle in over the next couple of years?

Is that the right way to think about it?

It will trickle in over the next couple of years.

Okay, got you. And then one just short follow-up.

Glenn, do you have the CapEx number for the quarter?

Not handy, Spencer. We'll be filing our 10-Q later today and obviously it will be very clear in the 10-Q.

Okay, great. Thanks, guys.

Thanks, Spencer.

Hi, guys. This is actually Brian Brazinski from Gabe's team calling in.

How are you?

Fine, Brian. How are you?

Good, good. Just two questions, first being, just give us an update on the liquefaction project Howell, like where we are on that?

Mark Sperduto, do you want to take that?

The liquefaction project is well underway. The materials have been ordered.

The fabrication is a 12 to 15-month process, so we expect to begin putting the unit in place in 2015.

Okay.

Brian, you can see that when you look at the CapEx chart the way we've got the timing of that spending laid out there.

Right, perfect. And the other question I have is so you guys recognized NFEPS of $4.56 for the first six months and are still reiterating guidance for the top end of which is $4.10.

So, are you being conservative there or are we [supposed] (ph) to think that there's a $0.56 NFEPS loss that you're implying for the back half of the year?

Brian, this is Glenn. It's a combination of factors.

One in RES we typically do lose money over the last six months of the year due to the nuances of our capacity, obligations and what I'll call a normal summer assumption weather-wise. Obviously that would change if we had a very hot summer.

The rest of the business is seasonal. The utility typically breaks even in the third quarter and moves some money in the fourth quarter, again because of seasonality.

And we'll be looking for appropriate investments to make in the year we're having that would provide future benefits and we factor some of that into our forecast as well.

All right, great. Thank you very much.

Thanks, Brian.

Okay. Thank you, Amy.

Thank you, everyone, for joining us today. As a reminder, a recording of this call is available for replay on our Website.

Again, we appreciate your interest and investment in New Jersey Resources. Thank you very much.

Good-bye.