Dennis Puma - IR Larry Downes - Chairman, President, and CEO Pat Migliaccio - SVP and CFO

Travis Miller - Morningstar Michael Gaugler - Janney Montgomery Scott

Thank you, Amy, and good morning everybody. Welcome to New Jersey Resources' third quarter fiscal 2017 conference call and webcast.

I’m joined here today by Larry Downes our Chairman and CEO; Pat Migliaccio our 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 the call that current expectations, assumptions and believes forming the basis for our forward-looking statements include many factors that are beyond our ability to control or estimate precisely, which 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 today news release furnished on Form 8-K and in our most recent Form 10-Q and Form 10-K filed with the SEC.

These items can also be found at sec.gov. We do not by including this statement assume any obligation to review or revise any particular forward-looking statements referenced herein in light of future events.

Turning to Slide 3, we will be referring to certain non-GAAP financial measures such as net financial earnings or NFE. We believe that NFE provides a more complete understanding of our financial performance.

However, NFE is not intended to be substitute for GAAP. Our non-GAAP financial measures are discussed more fully in the Item 7 of our 10-K.

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

Larry?

Thanks Dennis, and good morning everyone. We appreciate you taking the time to be with us this morning.

From our release we had another strong quarter thanks to the performance of our team. So let’s turn to slide 4 for the details.

As you can see we reported net financial earnings of $0.20 per share for the third quarter and that compared with $0.13 per share last year. For the nine months ended June 30, we reported $1.88 per share versus a $1.63 per share last year.

These results have put us on track to achieve our net financial earnings guidance range of a $1.65 to $1.75 per share for fiscal 2017 and as you saw in our release we reaffirm that guidance this morning. Results in New Jersey Natural Gas during the quarter were led by higher utility gross margin from higher base rates as well as new customer additions.

Overall, we expect our customer growth rate to be a strong 1.7% this year with 60:40 split between new construction and conversion customers. We continue to see new construction growth especially in Ocean County.

Our conversion markets also remain solid particularly from oil and heat conversions in Morris County. Also we recently reached several important milestones on our key infrastructure projects.

On July 26 the New Jersey Highlands Commission held a meeting to accept public comment on New Jersey Natural Gas Company, Southern Reliability Link project. The public comment period with the Highlands Commission closes today and revoked by the commission on the strategic to filing is expected this fall.

PennEast was expected to receive a certificate of public convenience and necessity from the FERC in the early summer however, I think as everyone knows the lack of quorum at FERC has delayed the process. But once a quorum is obtained and the FERC issues certificate, the project will move quickly to secure the remaining state permits.

PennEast expect the construction to begin in 2018 with an in service date of 2019. At NJR Clean Energy Ventures demand for residential solar remain strong.

In the third quarter along we completed more than 300 residential installations. Demand for residential solar in New Jersey is very strong in the southern part of the state.

We expect to increase on investment in our Sunlight Advantage residential solar program of $38.5 million this year that will compare with $34.3 million in fiscal 2016. Thus far this year we have spent nearly $28 million on residential solar and that compares with $16 million last year.

We would also point out that we placed three commercial solar projects into service in the quarter which added another 22.5 megawatts to our growing portfolio of solar assets that now totals nearly 127 megawatts. Moving to slide 5, you can see the breakdown of the expected net financial earning contributions from each of our businesses in fiscal 2017.

New Jersey natural gas continues to provide a majority of our total earnings. New hire base rates and higher utility gross margin from new customers are the principal earnings drivers.

We also anticipate that NJR Midstream will contribute between 5% and 10% of net financial earnings this year. These results will be driven by the performance or existing assets in the reporting of allowance for funds used during construction for PennEast.

In total our regulated businesses New Jersey Natural Gas and NJR Midstream are currently expected to contribute 60% to 75% of net financial earnings in fiscal 2017. We expect that NJR Clean Energy Ventures will contribute between 15% to 25% of the net financial earnings this fiscal year both new and existing residential and commercial solar projects and onshore wind projects will be the primary drivers.

And finally we expect that NJR Energy Services will perform within our guidance range and contribute between 5% and 15% of net financial earnings this year. Longer term we continue to target average net financial earnings growth of 5% to 9%.

And moving to slide 6, earlier this year we increased our dividend by very strong 6.3% which represented the 23rd increase in the last 21 years. Our dividend strategy targets an annual growth rate between 6% and 8% with a payout ratio of 60% to 65%.

This approach provides a competitive return to our share owners while allowing us to reinvest earnings in the company that will support future growth in net financial earnings. And with that I will turn the call over to Pat to go over the specifics about the quarter, Pat?

Thanks Larry and good morning everyone. I'd like to begin on Slide 7.

This morning, we reported third quarter NFE of $17.4 million or $0.20 per share compared with a $11 million or $0.13 per share last year. For the nine months ended June 30, we reported NFE of $161.9 million or $1.88 per share versus $140.1 million or $1.63 per share last year.

The main drive of our improved performance for the quarter was NJR Clean Energy Ventures. New Jersey Natural Gas remains the primary driver for the fiscal year.

Turning to slide 8, you can see the specifics of our improved quarterly and year-to-date results. For both periods NJNG benefited from the impact of new base rates and customer growth.

NJR Midstream continued to recognize AFUDC associated with the capital spent on the PennEast project of which NJR Midstream is a 20% owner. We began recognizing AFUCD earlier this fiscal year and reported approximately 600,000 in the third quarter and $2.7 million for the fiscal year-to-date period.

For the nine months ended June 30, the increases at NJRCEV due largely due to additional investment tax credits compared with the prior year. NJR Energy Services reported NFE of 933,000 for the fiscal third quarter of 2017 compared with 276,000 last year.

The higher quarterly results were due primarily to lower operations and maintenance expense. Fiscal year-to-date the solar performance NJRES due primarily to fewer market opportunities was added to our transportation assets.

But as Larry said earlier, we are maintaining our NFE guidance range for fiscal 2017 at 5% to 15%. Slide 9 shows our capital spending update for NJNG for the third quarter and first nine months of fiscal 2017.

I will highlight the progress on our infrastructure programs. For SAFE II we have invested $24.7 million in the first nine months of fiscal 2017 to replace 30 miles or bare steel pipe.

Today under NJ RISE, NJNG has installed approximately 9,400 excess flow valves in storm prone areas of our service areas. These valves restrict the flow of natural gas when there is a change in pressure on the service line.

Our first project under NJ RISE, the secondary feed into Sea Bright in Monmouth County was completed in April. Our Ship Bottom Regulator redesign is on track to be completed and operational in September of this year.

Turning to slide 10, our customer growth remains strong. For the nine months ended June 30, we added 6231 new customers an increase of nearly 18% over last year.

We believe we will add about 9000 new and conversion customers in fiscal 2017 with an anticipated utility gross margin contribution of 5.2 million annually. In total we expect to spend approximately 107 million in capital between fiscal 2017 and 2019 to add 26,000 to 28,000 new customers representing a growth rate of 1.7%.

About 60% of that growth will come from new construction and 40% from conversions and to natural gas from other fuel sources. Turing to our Clean Energy segment, you can see our capital spending and project status on slide 11.

During the quarter we placed three commercial projects in the service totaling 22.5 megawatts. We also have two other commercial projects under construction in New Jersey representing a total investment this fiscal year of about $64 million with an aggregate installed capacity of 27 megawatts.

By the end of fiscal 2017, our commercial solar portfolio is expected to approximate 131 megawatts. As Larry alluded to, the warm weather this winter allowed us to add residential customers at a greater pace than planned.

As a result, we expect to invest about $3.5 million of additional capital of original plan in the Sunlight Advantage program for a total of about $30.5 million. We added 1008 residential customers during the first nine months of fiscal 2017 compared with 614 a year ago.

We now have nearly 6100 home owners who have taken advantage of our program. We actively hedge our SRECs to lock in revenue for future energy years.

The results of the strategy are shown on slide 12. You can see on the chart that nearly 90% of our SRECs sales that are currently operational or under construction are hedged for energy year 2018 an average price of about $225 per SREC.

And 75% of energy for 2019 was hedged on an average price of $190. Slide 13 brings together our capital plan for NJR for the next three years.

As you can see, our investment in NJNG approximates nearly $708 million from fiscal 2017 to fiscal 2019, which equates to rate based growth of about 6% annually. We have no material changes to the plan at this time other than a slight increase in residential solar spending this year from our last quarter.

Moving to Slide 14, you can see that our capital plan is anchored by strong cash flows from operations as well as our dividend reinvestment program. We plan to issue approximately $166 million of equity over our fiscal 2017 to 2019 planning period.

We believe our cash flows and financing plans will continue to support a strong financial profile now and into the future. I'll now turn the call back to Larry for some final thoughts.

Thanks, Pat and before we open the call for questions, I just wanted to take a few moments to summarize our plan for creating long term value for our share owners. And I will start by saying that natural gas is and will continue to be the cornerstone of our strategy.

We expect strong and balanced customer growth at New Jersey Natural Gas and that growth should add more than $5 million of utility gross margin each year and we also project rate based growth of about 6% annually. Working in partnership with our regulators we will continue to advance the infrastructure projects many of which we have spoken about today including SAFE, NJ RISE and Southern Reliability Link.

Over the next three years we expect to invest more than $450 million on infrastructure projects that will provide safe, affordable and resilient service to our customers. We have also taken a leadership position in our energy efficiency in New Jersey and for almost a decade now we’ve built a strong energy efficiency platform through our SAVE GREEN program.

Since 2009 our energy efficiency efforts has saved our customers more than $370 million. Going forward, we will look for ways to expand our offerings for residential and commercial customers.

These offerings may include investments in smart thermostats as well as other energy efficiency opportunities to help our customers manage their energy usage. We are also considering the expansion of our lower interest payment program for customers to pay their energy efficiency bills through their New Jersey Natural Gas bill.

To create additional long term share owner value, we are looking for opportunities to invest in non-regulated diversified energy infrastructure assets, this strategy will allow us to serve growing customer demand for natural gas and support public policy goals to cleaner energy. And our investment in Clean Energy and Midstream projects ensure that we can deliver clean, competitively priced energy future that our customers expect.

These investments will allow us to satisfy our customer preferences for natural gas and clean energy and to do that at reasonable prices. And then finally, to support our long term net financial earnings growth goal we will pursue a disciplined capital allocation strategy that is focused on achieving an appropriate risk adjusted cost to capital.

We will maintain a strong and efficient financial profile that provides access to external capital as needed. And before we go to questions as always I want to say thank you to the outstanding work of our more than 1000 employees, these dedicated women and men are not only the foundation of our company but they are the driving force behind all we do and I am proud of all they do for our company every single day.

So again I thank you for joining us and we would welcome your questions and comments.

Good morning, thank you.

Good morning Travis.

On the commercial solar side, what opportunities do you see in the market to acquire along with your growth opportunities there and would you have any interest in acquiring growth?

Travis you are talking about acquiring companies or acquiring projects.

Either way, just instead of new build just doing an acquisition some kind.

Right. So far we found it better in many respects financially and other ways just to focus on additional projects to think as part of what we do is to work with developers in the state and that model has worked well for us as far as getting new projects.

Steve, you want to add something to that?

I believe there is also a little bit of a challenge with the taxes, tax incentives associated with the projects also. But yes, to-date we are going to stick with developing these projects with our developers and growing the business that way.

Okay. Are you seeing people come to you or opportunities in the market, other kind of commercial solar businesses available for sales out there?

No we haven't, but to be honest we haven't been looking for those either. For the most part like we said, we have been developing these projects Greenfield.

Yes okay. And then, was that –

Travis this is Pat Migliaccio. I just want to remind you that the way our strategy works, we work with developers that have already brought the commercial solar projects to a point where they have already cleared permitting phase or have power purchase agreements on them.

So in a sense to certain extent we are already doing what you are suggesting, so we are acquiring the projects from developers and have taken that long lead time developmental risk.

Okay. And then you had mentioned that in the remarks, an interest in the unregulated energy assets, I just wonder if you could expand on that?

Travis this is A - Stephen Westhoven. Yes, we continually look at Midstream opportunities and both pipelines to origin and anything that would fit our book.

To-date we haven't found any, but when we do will certainly, we would pursue those.

Okay. So still within the gas?

That's right.

Okay, very good, thanks so much.

Thanks Travis.

Good morning everyone.

Good morning Mike.

Just one question. I was wondering if you consider participating from an investment perspective in the Massachusetts [indiscernible] and if so why you decided to pass?

So typically Michael similar to solar we work with developers to develop these projects and put them in place with permits and with power purchase agreements prior to us acquiring those assets. So we would be working with developers that may participate in that process but we wouldn't directly participate in that process.

And that's the way we have developed our assets to-date.

Okay. So that's still something that might be a potential opportunity for you going forward?

Yes.

Great, that's all I have. Thanks.

Thanks Mike.

Okay, thank you Amy. I want to thank everybody for joining us this morning.

As a reminder, a recording of this call is available for reply on our website. As always, we appreciate your interest and investment in New Jersey Resources.

Have a great day. Thanks.

Bye.