Good morning. My name is Chad, and I will be your conference operator today. At this time, I would like to welcome everyone to the New Jersey Resources Fiscal 2021 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press star followed by the number 1 on your telephone keypad. If you would like to withdraw your question, please press star, then 2. Please note today's event is being recorded. Now I would like to turn the conference call over to Dennis Puma. Sir, you may begin the conference.
Okay. Thank you, Chad. Good morning, everyone, and welcome to New Jersey Resources Fiscal 2021 year-end conference call and webcast. I'm joined here today by Steve Westhoven, our President and CEO, Pat Migliaccio, 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 statement section of today'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'll also be referring to certain non-GAAP financial measures such as net financial earnings or NFE.
We believe that NFE, net financial loss, utility gross margin, and financial margin provide a more complete understanding of our financial performance. However, these non-GAAP items, non-GAAP 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 today is found on slide 2.
Steve will begin today's call with this year's highlights, followed by Pat, who will review our financial highlights. We'll open the call up to your questions. The slides accompanying today's presentation are available on our website and were furnished on Form 8-K filed this morning. With that said, I'll turn the call over to our President and CEO, Steve Westhoven. Steve?
Thanks, Dennis, and good morning, everyone. I'd like to begin today's discussion on slide 3 with a review of the fiscal year-end results. This morning we announced fiscal 2021 net financial earnings per share, or NFEPS, of $2.16, which is a 24% increase versus last year's NFEPS of $1.74. Fiscal 2021's NFE is much larger or much stronger than expected, exceeding the midpoint of our original guidance for the year by 35%. You may recall that last year's Analyst Day, we were expecting 2021 to be a reset year, and this is mainly due to the change in accounting method for investment tax credits.
However, the reset was negated by better than expected results in Energy Services, as well as positive results from our BGSS incentive program at New Jersey Natural Gas.
This allowed us to raise guidance 3 times during the fiscal year. In September, we raised our dividend to an annualized rate of $1.45 per share, a 9% increase compared to 2021, reflecting stronger cash flows and confidence in our strategy. We have now raised our dividend every year for the last 26 years. As you can see on the charts, our track record of growing NFEPS and the dividend speak to the ongoing strength of our business.
We have produced an NFEPS CAGR of 8.3% over the last 4 years, and with the recently announced increase to our dividend rate, our 5-year dividend per share CAGR is a healthy 7.3%. Turning to slide 4. It's been nearly a year since our 2020 Investor Day. We laid out our vision for strategy and growth.
At our core, NJR remains an energy infrastructure company with a portfolio of complementary businesses that leverage our utility experience. Our strategy for growth is grounded in three key principles, growing our regulated utility and renewable energy business, de-risking and increasing the predictability of our earnings, and investing to achieve a clean energy future through the decarbonization of our gas infrastructure. I'd like to discuss the significant headway we made in executing that strategy in fiscal 2021, beginning with our core operations. Last March, New Jersey Natural Gas filed the base rate case with the BPU, and just yesterday, the BPU approved the settlement of that case, resulting in a rate base of more than $2.5 billion and a rate increase of $79 million per year. We believe this is a fair and just settlement which acknowledges the long-term value of our infrastructure.
We'd like to thank the BPU, the Division of Rate Counsel, and their staffs for their work in reaching this resolution in a way that balances the interests of our customers and our company. After years of hard work, New Jersey Natural Gas placed the Southern Reliability Link into service. This 30-mile transmission main enhances the reliability and resiliency of our world-class distribution system and adds to its long-term value.
In October, we completed construction on a cutting-edge green hydrogen project in our service territory. We'll discuss later in more detail, the facility is producing 100% carbon-free hydrogen through electrolysis process using renewable electricity to create the zero carbon fuel.
Both the SRL and our hydrogen facility were included in our rate filing, with cost recovery approved as part of the settlement. This year, we also received BPU approval for 2 new regulatory programs that will help provide future margin growth. 1st is our new SaveGreen program, which began late in fiscal 2021. This new energy efficiency program is our largest ever. It authorizes $250 million in spending over 3 years and furthers our commitment to sustainability by helping customers lower their energy usage, save money, and reduce their carbon footprint.
2nd is our $150 million Accelerated Recovery Infrastructure Investment program. Approved in October 2020, this program follows our SAFE One, SAFE Two, and RISE programs. It includes new infrastructure replacement and improvement projects that will add to the reliability and resiliency of our distribution system.
At CEV, we expanded our solar footprint outside of New Jersey by completing our 1st commercial solar project in Connecticut. CEV now has $150 million of projects under construction, including our 25.6 MW facility in Mount Olive, New Jersey. The project is North America's largest capped landfill solar array and CEV's largest commercial project to date. Turning to slide 5. Our S&T business continued to execute its organic growth strategy while also reducing risk.
Adelphia Gateway commenced construction of its South Zone, and we expect to place a number of facilities into service by the end of the calendar year. At Leaf River, we increased our contracted revenue with new and existing creditworthy counterparties by $46.5 million since November of 2020.
Our Energy Services business entered into long-term Asset Management Agreements with an investment-grade utility, executing on our goal for that business to deliver more predictable net financial earnings. Under the terms of the agreement, Energy Services will receive over $500 million in revenues, net of demand charges over the next 10 years in exchange for the release of contracted transportation in the Northeast. The AMAs became effective this month. Turning to slide 6. This morning, we reaffirmed our fiscal 2022 NFEPS guidance range of $2.20-$2.30 per share.
We expect that most of our net financial earnings will come from our utility business, followed by our infrastructure investments at our non-utility business areas. Importantly, we're only including the AMA contributions from our Energy Services segment guidance. This is consistent with our commitment to secure more fee-based revenues for Energy Services.
Given the progress we've made this past year in our efforts to de-risk our businesses, we believe that our net financial earnings are more predictable than a year ago. Accordingly, we are narrowing our expected long-term NFEPS growth range to 7% to 9% from our previous range of 6% to 10%. On slide 7, I'd like to spend a few minutes providing an update on our company's decarbonization journey with a focus on the utility. In the last 10 years, our company has made important progress towards a clean energy future.
New Jersey Natural Gas is a leader in energy efficiency with more than $230 million of investments in the SAVEGREEN program since inception. This program helps customers save money by reducing their energy consumption and will be critical to further reduce their carbon footprint over the coming decades.
We've also invested over $2.3 billion in safety, reliability, and emissions reduction on our natural gas delivery system. New Jersey Natural Gas was the 1st utility in New Jersey to replace all cast iron pipe. It is on track to be the 1st in the state to fully replace its unprotected steel infrastructure. By the end of the year, 100% of our system will be either plastic or protected steel. These efforts have allowed NJR to build the most environmentally sound system in the state as measured by leaks per mile and reduce its operational emissions in New Jersey by over 50% in 2006. This puts us in a strong position to start pursuing the use of decarbonized fuels like RNG and green hydrogen.
Today, we're announcing a goal of net zero emissions for our New Jersey operations by 2050. We will achieve this goal with actions such as transitioning our fleet of vehicles to low or no carbon fuels and continue to make investments that support the integration of RNG and hydrogen in our system over the coming decades. This will drive greater decarbonization of the energy we deliver to our customers.
Turning to slide 8. New Jersey Natural Gas stands on a strong foundation to start making immediate progress down this path. Our modern infrastructure is deploying decarbonized fuels today, and when paired with other carbon-reducing strategies, including aggressive energy efficiency, we see a viable path to eventually deliver a carbon neutral fuel supply to our utility customers.
In doing so, we will play a leading role in helping New Jersey reach its climate and carbon reduction goals, and we can get there more quickly, more affordably, and with greater reliability than other approaches. This will also complement the state's renewable energy ambitions. The advantages of this strategy are clear.
1st, this approach can accelerate and help New Jersey's goal of achieving lower emissions. The high customer penetration of our natural gas infrastructure gives us a broad platform to begin integrating RNG and green hydrogen into our system immediately, steadily decarbonizing the energy we deliver to our customers just as the electric grid has begun delivering zero carbon electrons from wind and solar. Second, this approach can help New Jersey reach its climate goals more affordably. Existing energy infrastructure in New Jersey is already built, paid for, and in service.
Over the years, more than $17 billion has been spent to build and maintain more than 35,000 miles of delivery pipelines throughout the state, a massive investment by our customers. Using this vast pipeline energy delivery network as an asset will help avoid the cost of an immense build-out of new infrastructure, making the energy transition more affordable for New Jersey by potentially tens of billions of dollars. 3rd, from a reliability perspective, the benefits of using existing pipeline infrastructure in New Jersey are enormous.
Our pipeline system is designed to operate and meet peak demand on winter's coldest days when energy consumption is the highest. The natural gas network handles this energy load and does so with 70 times fewer outages than the electric system in a given year.
Our state's dual energy delivery systems, one gas and one electric, complement one another by sharing different energy loads, providing energy diversity and resiliency. If we were to migrate our state's entire energy demands to one system, it would come with significant financial costs and eliminate the resiliency and reliability of having two systems. Furthermore, as the state steps up its commitment to renewable generation, resiliency and reliability challenges will only grow.
New Jersey plans to install 7.5 gigawatts of offshore wind, 14 gigawatts of additional solar by 2035. At that scale, intermittency of renewables require long-duration storage solutions, not only to address hour-to-hour reliability, but also provide balancing and flexibility over days, weeks, and even across seasons. This is an area where gas infrastructure offers flexibility and support.
When renewable power generation exceeds demand, the surplus can be directed to green hydrogen production, providing a long-duration storage solution with virtually zero energy loss that supplements the shorter duration storage capacity of batteries. This helps address the reliability challenge of renewables and maximizes the state's investment in solar and offshore wind. It's all by utilizing our pipeline infrastructure that is built, paid for, and in service. Let's take this out of the abstract and look at how we're pursuing this on our system today.
Last month, a cutting-edge green hydrogen project in New Jersey Natural Gas' service territory was put into service, and clean burning hydrogen is being blended into our network to serve homes and businesses right now.
This small system alone will offset 180 tons of carbon emissions per year, the equivalent of eliminating 90 tons of coal or over 400,000 miles driven. As I mentioned before, this hydrogen displaces some fossil gas from the energy we are sending out with no action or change needed on our customers' part. This project demonstrates that this is not just a theoretical exercise. The technology works, it's available, and New Jersey Natural Gas is putting it to use now.
Just as importantly, our regulators see what we are doing with this investment and recognize its importance to emissions reductions goals. This is a tremendous credit to the BPU, and we acknowledge and thank them for their support. This is the clean energy future we seek.
With our hydrogen project now completed, it gives us weight and line of sight into the next generation of clean energy infrastructure investments for our company. With that, I'll turn the call over to Pat for his part of the presentation.
Thanks, Steve, and good morning, everyone. I'd like to begin with slide 11, showing the main drivers behind the NFE changes from fiscal 2020 to 2021. For 2021, we reported NFE of $207.7 million or $2.16 per share, compared to $165.3 million or $1.74 per share last year. NJNG reported fiscal 2021 NFE of $107.4 million, compared to NFE of $126.9 million during fiscal 2020.
T he decrease is due to higher one-time expenses, primarily related to increases in bad debt. Turning to our non-utility businesses, CEV's net financial earnings declined by $5.3 million, primarily due to lower SREC revenue, which was partially offset by lower depreciation expense.
The decrease in depreciation expense was due to a change in the useful life of CEV's assets. Storage and Transportation reported a fiscal 2021 NFE of $13 million compared with NFE of $18.3 million during fiscal 2020. The decrease in NFE was due primarily to lower contributions from our equity method investments, higher compensation and depreciation expense, which was partially offset by increased operating revenues at both Leaf River and Adelphia Gateway.
Finally, Energy Services reported NFE of $71.1 million compared with a net financial loss of $7.9 million in fiscal 2020. The increase is due primarily to the significant natural gas price volatility associated with Winter Storm Uri in February of this past year. Turning to slide 12.
As Steve mentioned, the BPU approved a settlement of NJNG's rate case with a $7.9 million annual revenue increase that will become effective on December 1. Under the terms of the settlement, our overall allowed rate of return is 6.84%, which includes a return on equity of 9.6% with a 54% equity ratio. Our composite depreciation rate also did not change, remaining at 2.78%. Importantly, the approved rate base of $2.5 billion includes SRL and our green hydrogen project.
This represents a 43% increase in our rate bases compared to our last settlement. Turning to slide 13. Given the recent increase in natural gas prices, I wanted to take a moment to discuss how NJNG manages the cost of natural gas.
As a reminder, the cost of natural gas supply for NJNG is passed through to our customers. To mitigate the risk of sudden and dramatic price changes, NJNG has a hedging program. By policy, at least 75% of our estimated winter sendout must be hedged prior to November 1st. It is NJNG's practice to hedge most of our winter needs with natural gas in storage. We currently have approximately 90% of our estimated winter needs already in storage.
The prices were hedged more than a year ago. As such, our average hedge price is significantly below current spot prices. By securing a cost-effective supply and leveraging the BGSS incentive, NJNG has been able to keep the cost of natural gas low.
Even after including the expected change in rates from a recent rate case settlement, NJNG's average natural gas bill has declined more than 23% in real terms since 2008. Turning to slide 14, you see that our target for placing commercial solar projects in service for 2021 and 2022 remains at $315 million. We currently have $150 million of projects under construction, our largest figure ever. Additional $94 million under contract, followed by approximately $60 million worth of projects that are under evaluation.
Our ability to place those projects in service will depend on successfully closing the transactions and our construction timelines, which could be impacted by supply chain constraints. Having said this, even if these risks materialize, the potential impact to fiscal 2022 NFEPS would be minimal.
Finally, the large majority of projects we expect to place in service in New Jersey have qualified or expected to qualify for TRECs. Clean Energy Ventures continues to generate a significant portion of its revenues from the sale of SRECs. To minimize changes in its revenues, CEV hedges part of its expected production of SRECs through futures contracts. The current status of our SREC hedging program is highlighted on slide 15. As you can see, we're almost fully hedged through energy year 2024, and the market fundamentals for energy years 2025 and 2026 support strong pricing, with SRECs trading at or above 84% of the Solar Alternative Compliance Payment or SACP.
We now have 41% and 18% hedge for energy years 2025 and 2026, respectively. Turning to slide 16, I'll take you through some highlights of our capital plan, starting with New Jersey Natural Gas.
With SRL in rates, our capital spending at NJNG is expected to moderate somewhat over the next 2 years, but is still supportive of the double-digit rate base growth we communicated to you at our Analyst Day. Our current capital plan only contemplates our existing RNG opportunities and does not consider any additional ramp-up in RNG or hydrogen investments. We'll update our capital plans to get more visibility into potential projects. As discussed earlier, we have a large in-service solar CapEx target for this year, but given the risk to timely execution, we're widening the CapEx range for CEV. Finally, we expect to allocate around $100 million to our S&T segment in FY 2022, most of it to complete the construction of our Adelphia Gateway project.
Turning to our cash flows on slide 17, you can see the very strong cash flow from operations we generated in the fiscal year 2021. We're projecting the fiscal 2022 cash flows will be at around the same levels, even when considering that our forecasted contribution from Energy Services is only from the fee-based Asset Management Agreements that became effective earlier this month. For fiscal 2023, we expect cash flows from operations to further increase, mainly driven by NJNG.
Thanks, Pat. I'd like to finish up today with a few thoughts on what lies ahead for us in fiscal 2022. As New Jersey Natural Gas has discussed, the rate case is now behind us. SRL and our 1st hydrogen projects are included in those rates, which go into effect in December. Moving forward, we expect our customer growth numbers will return to pre-COVID levels of approximately 1.7% as the economy continues to recover. We are assessing sites for future hydrogen RNG projects and will continue to add low and zero carbon fuels to our system.
At CEV, we currently have $150 million of projects under construction, and we continue to grow outside of New Jersey as we seek to expand our pipeline of projects.
We expect that more of Adelphia will come online during fiscal 2022, and we'll continue to seek additional organic growth from that project. In Energy Services, our NFE projections only consider contracted AMA revenues and cash flows. We will continue to seek more fee-based transactions, allowing for more predictable NFE from this segment. To conclude and move into slide 19, we expect NJR to continue delivering long-term value for our shareholders, anchored by our regulated utility and the infrastructure investment opportunities provided by our other business segments.
To summarize, we offer investors an attractive 11% to 13% expected total return based on our dividend yield of about 4% and our long-term NFEPS expected growth rate of 7% to 9%.
We appreciate that you took the time to join us here today, and I'd like to recognize and thank our employees for all of their hard work and dedication that drives our performance. Now let's open the call to questions.
Thank you. At this time, I would like to remind everyone, in order to ask a question, press star then the number 1 on your telephone keypad. To withdraw your question, please press star 2. We'll pause just for a moment to compile the Q&A roster. The 1st question will come from Gabe Moreen from Mizuho. Please go ahead.
Hey, good morning, everyone.
Hey, Gabe.
Good morning, Gabe.
Yeah, a couple of questions for me just on the guidance narrowing. You mentioned kind of more visibility, I think, to future stuff. Beyond the rate case having just settled, I guess, is there anything else that you'd kind of call out in terms of the upper or lower end of that range being narrowed? On a related note, is it safe to assume that I guess the dividend growth guidance at this point is 7% to 9% as well?
Yes, it's safe to assume. I think, you know, there was a number of things. The rate case being settled is certainly, you know, a big one, but in that was, you know, completing SRL, you know, which is a project that took a little while to complete, so we're happy to say that's operating. Also, Adelphia Gateway, you know, is under construction and we're getting close to some commercial operations for some of those facilities.
There's been a number of large projects that are coming into commercial operation or into rates, that really allowed us to narrow the range.
Thanks, Steve. Maybe if I could follow up on the rate case settlement and future kind of green investments, whether it's RNG or hydrogen. Given the Howell facility and its performance so far and its cost, just curious whether in discussions with the BPU during the rate case or outside the rate case, what your appetite now is, I guess, to spend on more hydrogen facilities? How should we think about the cost of those facilities? Maybe an update in terms of your latest, a little more on the latest RNG efforts, if you don't mind.
I think that's a, you know, a great question. Really, you know, the way I'd want to describe this or explain it to investors is that we're on a path to decarbonization. That path to decarbonization, it's going to include hydrogen, it's gonna include renewable natural gas. We've got energy efficiency as part of it. Then at some point in the future, you're going to see carbon capture and storage, you know, evolve as well.
I think if you're looking for next steps, you know, most likely, and I think the next, you know, transaction we'd see, and although we don't have anything to announce now, is we'll have RNG, you know, being blended into our system. Scaling up, you know, all of those things will depend on a number of evolving factors. You know, when does hydrogen come to scale?
We need to work with our regulators and administration to determine timing and development. When will renewable resources come in and influence, you know, hydrogen production and other things. There's just a number of factors that come into view. Also, you know, we need to look and keep an eye on consumer costs as well. We need to balance all of these moving forward. I think, you know, we're gonna move forward. We certainly are on a path to decarbonization, but there's gonna be some innovation and, you know, you'll see us taking next steps. I think a few things have to come to clear view. Certainly scale and cost and things like that need to materialize.
That's fair. I think the last one for me would just be on Energy Services. I noticed that you're not providing or not including anything beyond the AMAs in guidance. I know you typically hadn't really had that much contribution from Energy Services and guidance as a matter of course. I just wanna ask, is there any change to business strategy there because of that? Are you just really leaving additional Energy Services upside as just that upside to guide?
I mean, short answer is, yeah, it's gonna be additional upside will be that. I think the one thing to note is that the portfolio is a little bit smaller, you know, from the release of some of these assets and certainly just tightening up that book. So I think that, you know, could be a consideration as well in view of that business.
Got it. Thanks for your honesty.
Thanks, Gabe.
Thanks, Gabe.
Your next question comes from the line of Shar Pourreza from Guggenheim. Please go ahead.
Hey, good morning, guys.
Morning, Shar.
Morning, Shar.
Just on RNG, I know you guys have highlighted, you know, opportunities more in terms of, like, third-party purchases. Kind of with the potential for, you know, New Jersey legislation to allow rate basing of RNG assets through Senate Bill 3526, how are you sort of thinking about your strategy with PPAs versus company-owned, assuming it's signed into law? Is there any status on the legislation?
I don't know the status of the legislation. You know, I know we're in lame duck now, and I guess it's anybody's guess whether you know, how quickly that could move through. I think about RNG for our purposes. You know, we've got a few you know, opportunities that are on our system, and we're certainly pursuing it and seeing how we can integrate those.
You know, it's an important part of the process, like I was just saying, where we gauge you know, this is all, you know, a multi-pronged approach to decarbonization. We'll pursue you know, RNG and getting those lower carbon fuels on our system.
You know, we'll wait and see, you know, how the legislation occurs and certainly, you know, what types of transactions will fit us and our customers, you know, as far as cost goes and being able to decarbonize the fuel stream. You know, I'd ask Mark Kahrer if he has any thoughts associated with, you know, RNG and kind of the legislative side of things.
From our standpoint right now with respect to our investments, we already have the authority to be able to do that under the RGGI legislation that was passed a number of years ago. That's an important part to understand that, again, that enabled us to make that investment in the green hydrogen plant as well. The opportunity already exists for our investment.
The aspect that the legislation will try to clean up a little bit more is with respect to 3rd-party purchases and how they get done and ensuring that those go forward. We're pretty confident on and working with our commission to talk through these situations.
As long as we can reach reasonable accommodations on some of the transactions and work it into our supply portfolio, it's aligned with where the governor's strategy is and where we wanna be.
Got it. Perfect. Thank you for that. Just on CEV, I mean, obviously, you know, Steve, you highlighted a lot of the growth capital, you know, has been, you know, de-risked at least through 2022, right? How do we sort of think about maybe prospective growth opportunities for CEV in light of sort of the input cost pressures? You kind touched on a little bit in the prepared, whether it's labor or transport panels we've seen in the space. I guess, do you have some purchasing flex like larger developers to sort of avoid it? Or could we see some slowdown at CEV maybe under an assumption these cost pressures are more long-term in nature, especially as we're thinking about post 2023, right? I mean, I guess how are the conversations going with your suppliers?
You know, certainly there's, you know, tightness as you go farther and farther out in the market. You know, I think our CEV group's done a good job of kind of looking around the curve and being able to pre-contract for the projects that we currently have under construction and make sure that the, you know, supplies are available.
A little bit of tightness in some of the other components that we're seeing in the marketplace, but, you know, I guess as we move forward and go farther and farther out, you know, a little bit less view of that, but I'm assuming this is a short-term issue, short-term being measured in, you know, maybe a year or two, and then we can get back to normal. Plan now.
You can see we've got $150 million under construction, you know, almost $100 million that are under contract. You know, right now, you know, we're prepared to execute on that and not change that.
Perfect. That was it. Thanks, guys.
All right, thank you.
Sure. Sure.
Your next question will come from the line of Travis Miller from Morningstar. Please go ahead.
Morning, everyone. Thank you.
Good morning, Travis.
Yeah, I got kind of stuck on the whole RNG and hydrogen theme. Then thinking about coming into the winter here, what are you seeing in terms of as you blend, are you displacing some of the more traditional natural gas supply that you need? Is it coming at a lower cost for customers? You know, thinking through kind of the benefits and of either displacing traditional natural gas or being able to supply at a lower cost through hydrogen and RNG versus natural gas. Are those any considerations that are happening right now?
I think, you know, thinking about at least the hydrogen component of it, you know, it's a proof of concept. You know, the volume is pretty small compared to our own system. You know, really it's a minimal impact, you know, on pricing and such. As far as, you know, looking ahead of the winter, you know, what are we gonna displace? There's not enough volume there to really make any impacts, you know. I think we're a few years off before we get to scale where you see numbers.
I think where you're going and want to talk about is how this is impacting the overall supply chain, you know, both natural gas, you know, coming to the system.
I think it's too small, you know, right now to really predict or talk about the way that you're asking that question.
Yeah. Okay. Did you see it ultimately being able to, I don't know if save is the correct word, but offset some of the extra infrastructure costs using hydrogen or RNG?
I mean, certainly.
In addition, obviously, the environmental benefits, right? Is there a cost component there that would be beneficial?
I mean, you're definitely, you know, for moving towards, you know, a low carbon or decarbonized product being delivered to customers, you're gonna have to have energy efficiency, which is gonna reduce their usage. You know, you're gonna have renewable natural gas, which is, you know, similar to natural gas and its components and being able to be consumed and then have hydrogen as part of it.
You're going to push back on natural, you know, fossil fuel, if you will. That's definitely, you know, going to happen, you know, in the future as we continue on this journey. You know, at what point in time does this get up to a size that you can, you know, discern that in the marketplace?
I think that's yet to be determined, you know, from some of the things that I had mentioned to Gabe earlier. You know, there's a number of things that have to come to scale. We've got to work with the administration. We've got to work with the BPU. We've got to be conscious of customer costs and things like that. I think, you know, those questions are difficult to accurately predict right now. You know, key takeaway is we are starting this journey right now. We are delivering some decarbonized fuel to our customers, and we're proving that essentially our infrastructure, you know, is gonna be used long into the future, and there's good reason to do so.
Sure. Okay. Well, great. You answered all my other questions. I appreciate the time.
All right. Thanks, Travis.
Again, if you would like to ask a question, please press star then one. The next question will be from the line of Julien Dumoulin-Smith from Bank of America. Please go ahead.
Hey, it's Cody Clark on for Julien. Good morning.
Hey, Cody.
Good morning, Cody.
1st on Clean Energy Ventures, how are you thinking about geographic mix and the return profile across different states going forward? Are you still seeing that 7% to 7.5% IRR kinda across the board, or is there a mix between New Jersey and some of the other states that you're looking at?
I think, you know, the way we're looking at it strategically, you know, and I think we've said this before, you know, we started in New Jersey. We've made relationships, you know, with suppliers, with contractors, with developers, and that's been a natural progression to go into other states. Certainly in the Northeast, you've got, you know, all the same, you know, suppliers and contractors and developers operating in many different states. In thinking about it was a natural move for us to be able to make the investments. Each state has a slightly different construct, and you've got some different risk profiles in that.
You know, whether it's a feed-in tariff in another state, you know, obviously, you know, in New Jersey, you've got a, you know, what's now our TREC or the second coming of TREC. I think when we look at it, you know, slightly different returns based on risk profiles, but I think, you know, by and large, you know, you're in the ballpark there. Pat, I don't know if you have any other comments.
I just echo what Steve said. I think you're accurate there, and it's a mix. You know, recall quoting we really only have our first project up and down in Connecticut. This year, we've got some others that are slated in Rhode Island for next year. Those feature feed-in tariff slash PPA type arrangements. As you build up a cost of capital, if you've got something that looks like a 20 to 25-year PPA that's providing the revenue support with a credit quality utility, you might see the IRRs trend down a little lower on something like that. Flipped to New Jersey, we're still fairly comfortable with the IRR probably at the 7% range.
Remember, we have some competitive advantages in the state and that we've, you know, 10% of the market share, and so we get some efficiencies in the state of New Jersey that we don't necessarily see external to New Jersey.
Okay, got it. Just 2nd, wondering if you're embedding any assumptions around the solar successor program within that New Jersey return profile and the narrowed CAGR going forward, given some of the reductions in the subsidies that we saw earlier this summer and some clarity still needed on projects over 5 MW.
Cody, it's Patrick Migliaccio again. I think as we communicate our Analyst Day, we expected that roughly half of our projects would be in state, roughly half of them out of state. As we sit here today, that has trended more towards New Jersey projects, probably closer to 2/3 to 75%. That's really a function of the deep relationships we have in the state and the very attractive TREC subsidy.
That's the case for 2022. As we think about the capital plan for 2023 and identifying those, I'd expect to see a bigger shift potentially out of state. That's one of the benefits of diversification. As you know, the successor program for projects over 5 MW is now targeted for finalization sometime this winter.
There lies one of the benefits of diversification. We can arbitrage between New Jersey and other states.
Okay, got it. That's all I had. Thanks, Steve and Pat.
Thank you. Ladies and gentlemen, this concludes our question and answer session. At this time, I would like to turn the conference back over to Dennis Puma for any concluding remarks.
Okay, thank you, Chad. I want to thank everybody for joining us this morning. As a reminder, a recording of this call is available for replay on our website. As always, we appreciate your interest and investment in New Jersey Resources. See you next quarter. Goodbye.
Thank you. This concludes today's conference call. You may now disconnect your lines.