AGM 2021

Jan 20, 2021

Good morning, and welcome to the New Jersey Resources Annual Shareholders' Meeting. We will now begin. Good morning. Before we begin, please take note that certain statements in the presentation during today's Annual Shareholders Meeting contain estimates and other forward looking statements within the meaning of the securities laws. We wish to caution persons attending today's meeting 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 2. These items can also be found in forward looking statements section in our most recent Forms 10 ks 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 NFV. We believe that these non GAAP financial measures provide a more complete understanding of our financial performance and liquidity. However, these measures are not intended to be a substitute for GAAP. NFE is discussed more fully in Item 7 of our Form 10 ks. We have also provided presentations of the most directly comparable GAAP financial measure and a reconciliation of these non GAAP financial measures in the appendix of the presentation used during the Annual Shareholders' Meeting. And now, please welcome the Chairman of the Board of New Jersey Resources Corporation, Don Correll. I'm Don Correll, Chairman of the Board of New Jersey Resources. On behalf of my Board colleagues, welcome to our 68 Annual Shareholders Meeting. While we would have preferred to be together in person for everyone's safety and in light of the state of emergency executive order in effect in New Jersey, today's Annual Shareholders Meeting is being held virtually. With the outbreak of COVID-nineteen, this has been a challenging year for all of us. Despite these extraordinary times we've all been living through, the men and women of New Jersey Resources continue to do an outstanding job. And this year was no exception. Thanks to the combined efforts across our company, we delivered another solid performance in fiscal 2020, which you'll hear about shortly. Before I turn things over to President and CEO, Steve Westhoven, who will preside over today's meeting, On behalf of the Board of Directors, I'd like to take this opportunity to thank you, our share owners, for your investment and confidence in New Jersey Resources. Steve will now share with you more detail on our fiscal 2020 results and our growth strategy. Thanks, Don. Good morning. I'm Steve Westhoven, President and Chief Executive Officer of New Jersey Resources. Thank you for joining us for our Annual Share Owners Meeting. Because of the pandemic, we changed to a virtual meeting format to provide an opportunity for our share owners to participate as they've done in the past. We welcome verified share owners to vote on the proposals and submit a question during the meeting using the question box located at the bottom of the screen. As a courtesy to others, we ask you to limit your questions or comments to 1 and we will respond to them later in the meeting. I think we can all agree this has been a year like no other. And in these extraordinary times, our team rose to the challenge. Thanks to their dedication, we executed our strategy and delivered another year of solid performance in fiscal 2020. Back in November, we detailed our growth strategy, focused on leveraging our position as a premier energy infrastructure company and sustainability leader. I'll provide more details on our fiscal 2020 performance and our long term growth strategy in just a few moments. But before we begin, with me today is Rich Reach, our Corporate Secretary Pat Migliaccio, our Chief Financial Officer and other members of our senior leadership team. I want to take this opportunity to welcome members of the New Jersey Board of Public Utilities in the Division of Rate Council, who are with us virtually. We appreciate the opportunity to work with you to advance a clean energy future for New Jersey. We'd like to recognize our senior leadership team, the members of our bargaining unit IBEW Local 1820 and all of our employees for their hard work that drives our results. I'd also like to introduce our Board of Directors, who are all attending virtually. Joining us today are the Chairman of our Board, Don Correll, who opened today's meeting Greg Ayleth, Chair of our Audit Committee James DeGraffenreich, Bobby Evans Susan Hardwick is our newest Director Reverend M. William Howard Jane Kenny, Chair of our Nominated and Corporate Governance Committee Tom O'Connor Sharon Taylor, Chair of our Leadership Development and Compensation Committee David Trice and George Zoppacher, our longest serving independent board member who joined in 1996. I want to thank our board for their outstanding leadership contributions to our company. With that, let's turn to our fiscal 2020 performance highlights. COVID-nineteen changed the world as we know it. Across New Jersey Resources, we executed our preparedness plans that adapted the way we do business, always putting the safety of our employees and customers first. Through it all, the response of our team has been nothing short of incredible. Our fiscal 2020 performance is a testament to our employees and the results I share with you reflect the exceptional work that they do. This year, we delivered net financial earnings of more than $196,000,000 and met our fiscal 2020 earnings guidance with an NFE of $2.07 per share. For the 25th consecutive year, we increased our dividend. We ranked number 1 in customer satisfaction in the East amongst large utilities according to J. D. Power. We are named the most trusted brand and customer champion by Escalant and 1 of America's most responsible companies by Newsweek. These recognitions reflect our commitment to delivering the highest levels of customer satisfaction. Natural gas continues to be the 3rd energy choice for home heating. In our service territory, 82% of the households rely on New Jersey Natural Gas for their home comfort. This year, we added more than 8,300 new utility customers. New Jersey Natural Gas now serves over 558,000 homes and businesses throughout the state and expects to achieve an average annual customer growth rate of 1.7% over the next 3 years. We continue to invest in strengthening our infrastructure and replace 70 miles of unprotected bare steel main and services in our delivery system. And by the end of the year, we expect to become the 1st natural gas utility in the state to eliminate all unprotected steel from our system. We also made progress on the Southern Reliability Link. Construction on this critical infrastructure project is now more than 86% complete. We expect to place it into service later in 2021, bringing a much needed second transmission feed into our service territory. We plan to invest $150,000,000 as part of our infrastructure investment program recently approved by the Board of Public Utilities. This will further enhance the safety and reliability of our system. And behind each of these investments is a commitment to safety, reliability and environmental responsibility. Because of the work we've done, we operate one of the most environmentally sound delivery systems in the country today. Through our successful energy efficiency programs, including the Save Green program, we've helped customers reduce their natural gas consumption by 12% since 2,006. In fiscal 2020, Clean Energy Ventures added 66 megawatts of residential and commercial solar capacity. Our total installed capacity now exceeds 3 57 megawatts, equivalent to powering nearly 56,000 homes or reducing 285,000 tons of greenhouse gas emissions annually. We completed the acquisition of the Leaf River Energy Center and Adelphia Gateway. And now for the first time in our company's history, we own and operate a FERC regulated interstate pipeline and natural gas storage facility. Our team in home services continued to provide essential services completing 78,000 service jobs and 4,000 HVAC and plumbing installations, all while maintaining a nearly 5 star customer rating. And we continue to make a difference in our communities, assisting nearly 1900 nonprofit community organizations this year alone. These are impressive accomplishments by themselves, but when you consider they were achieved during one of the worst pandemics in U. S. History, speaks volumes about our company and our team. So I also want to take a few moments to share my thoughts about our strategic outlook and what's on the horizon for New Jersey Resources. As we look ahead, our company is strong, our team is second to none, and I believe our future is bright. The foundation for our growth strategy is based on significant investment in our regulated utility business. A ramp up of our investment in clean energy ventures included an expansion of our footprint into solar markets beyond New Jersey. Increasing the predictability and stability of our growth projections across our businesses and advancing our sustainability plan. Let me start with our commitment to sustainability and the progress we've made in this area. At last year's Shareowners' Meeting, I detailed a far reaching sustainability agenda. Our approach is focused on innovations, emissions reductions, energy efficiency and conservation. In fiscal 2020, we reached a new milestone and surpassed our goal of reducing emissions from our New Jersey operations to 50% of 2,006 levels. This is a significant accomplishment that reflects the decades of investment and our strong commitment to sustainability. We are now going even further with the new emissions reduction target for New Jersey operations of 60% of 2,006 levels by 2,030. We believe this is achievable and in line with New Jersey's goal of an 80% reduction in emissions by 2,050. We're doing our part to reduce emissions, but our commitment goes well beyond that. And today, we are joining with The Nature Conservancy, a national leader on environmental conservation and climate issues and the fight against climate change. We are contributing $25,000 to support their essential work preserving saltwater tidal wetlands in New Jersey's Barnaby, which play a critical role in combating climate change and its effects. As a company located along the Jersey Shore, we believe these actions are important for our business, our customers and our future. In addition to our commitment to sustainability, we have a clear view for the future for our company and a plan to deliver predictable sustainable growth and long term value to our share owners. This includes a 6% to 10% long term annual growth in consolidated net financial earnings per share beginning in fiscal 2022, a 6% to 10% long term annual dividend growth, and approximately 25% growth in annual cash flows from operations through fiscal 2024 and approximately 11% rate based compounded annual growth rate between fiscal 2019 and fiscal 2024 at New Jersey Natural Gas. As part of our plan to achieve this long term growth, we reset our NF EPS guidance for fiscal 2021, which we believe is necessary to set a solid foundation for sustainable growth in the years to come. After this reset year, we expect fiscal 2022 IF EPS to rebound to the fiscal 2020 level, supported by a successful conclusion of NJNG's SRL rate case, the Delphi Gateway coming into service and an increase in our solar investments. From fiscal 2022 on, our long term projected NFE growth rate of 6% to 10% is strong, stable and achievable. For more detail on our strategy, I encourage you to look at our Analyst Day presentation located on the Investor Relations page of our website. I want to be clear, there will be no reduction in our current dividend. We've actually increased our expected dividend growth guidance. Going forward, New Jersey Natural Gas and Clean Energy Ventures will be the core growth engines of our company, accounting for 90% of our total business mix. We will look to invest in these areas that make sense for our business and are already pursuing opportunities to utilize our pipeline network to provide decarbonized fuels such as renewable natural gas and green hydrogen. Continued investments in our infrastructure will not only ensure the safety and reliability today, will also position us to deliver cleaner fuels in the future. Clean Energy Ventures will also capitalize on clean energy market opportunities both inside and outside New Jersey. Our expansion outside the state has already begun with projects in Rhode Island already underway. We've also taken steps to de risk the contributions from Energy Services. For example, last month Energy Services entered into an asset management agreement with an investment grade public utility. Over the agreement's 10 year period, NJR will receive approximately $500,000,000 in cash proceeds net of applicable demand charges in exchange for the release some of the natural gas transportation contracts it controls. The strategy we are executing across our company positions us well for the future. The fundamentals of our business, our assets, assets to capital and expertise are strong. And with our talented team of employees, I am confident our best days are ahead. I have certified the Board of Directors at the meeting held on November 11, 2020, determining the issues to be submitted for shareowner approval and setting the close of business on November 30, 2020 as the record date for shareowners entitled to notice of and to vote at this meeting. I also have an affidavit from Broadridge, our proxy services agent regarding mailing of the notice of meeting and the proxy statement. Available for inspection for shareowners through the meeting portal is a list of the company's share owners as of November 30, 2020, showing names, addresses and number of shares held by each share owner. The list shows that as of the update, there were 96,132,544 shares of common stock issued and outstanding and entitled to vote at this meeting. A certified copy of the resolution fixing the record date of this meeting, the affidavit regarding the mailing the notice of meeting and the proxy statement will be filed with the records of this meeting. Linda Piscaglia of Broadridge and Mary Pat Bolan of NJR have been duly appointed as the Inspectors of Election and prior to this meeting each has taken her oath of office. Practices of share owners solicited by the Board and such share owners as are present at today's virtual meeting represent a majority of the stock entitled to vote at this meeting. Therefore, we have reached a quorum. The minutes of the previous shareowners meeting are available through the meeting portal for inspection by any shareowner who would like to do so. Tim Bilhelmi, a partner from Deloitte and Touche LLP, our outside auditors is also in attendance virtually at this meeting. Any verified shareowner may submit a question for Deloitte using the question box located at the bottom of the screen. Questions to Deloitte will be read out loud and responded to by Tim during the question and answer section of this meeting. Thanks, Rich. The polls are open for voting. Now let's move to the items requiring action at today's meeting. The first item of business is the election of directors. We will elect 5 directors today. The Board of Directors has nominated Bill Howard for a 1 year term that will expire in 2022, given that he will have reached his mandatory retirement age at the conclusion of his term. In addition, Don Correll, James McGrathenwright, George Zoffinger and Susan Hardwick, each have been nominated for 3 year terms that will expire in 2024. Susan was previously elected to Director by the Board effective September 9, 2020. Based on the advanced notice provision in our bylaws, the nominations are closed. The second item on our agenda is the approval of a non binding advisory resolution approving the compensation of our named executive officers. And the final agenda item is the ratification of the audit committee's appointment of Deloitte and Touche LLP as our company's independent registered public accounting firm. If you've already voted, you do not need to take any action. If you have not yet voted or wish to change your vote, please do so now using the vote button on the screen. Since all matters of business to be acted upon have been presented, I declare the polls close and ask the inspectors of election to tabulate the results. Rich, will you please read the preliminary report of the inspectors? The preliminary results from the inspectors of the election will be made a part of the records of today's meeting. The results indicate that Bill Howard has been elected for a 1 year term that will expire in 2022 and each of Don Correll, James DeGraffenreit, Susan Hardwick and George Soffinger have been reelected to the Board for 3 year terms that will expire in 20 24. The Board's recommendation regarding the non binding advisory vote on executive compensation has been approved. And finally, the selection of Deloitte and Touche LLP as our independent registered accounting firm has been ratified. Thanks, Rich. This completes the formal business of today's Annual Shareowners Meeting. Before we go to questions, I would like to ask Rich to review the guidelines for shareowner questions. Rich? Please direct your attention to the rules of conduct for this meeting, which can be accessed via the meeting materials section on your screen. Since this is our annual shareowners meeting, we will take questions only from our verified shareowners using the question box located at the bottom of your screen. If you are a guest, you will not be permitted to ask a question. As set forth in the rules of conduct, only questions that are germane to the meeting will be addressed. As a courtesy to others, we ask that you limit your question or comment to 1. Matters of personal business, grievances or other issues that do not relate to shareowners will be provided to our employees who will address them after the meeting. Now, I'd like to turn the meeting back over to Steve. Thanks, Rich. So we have a few questions, so I'm going to get started. Our first question, I'm going to read them in the order that they've come in. Our first question is a financial question and it states, your ratio of debt to total capitalization is the highest in the decade. And it asks, do you have sufficient capital to pursue growth our growth agenda and maintain sufficient flexibility to respond to changes in the operating environment. So I'm going to ask Pat to answer the second part of this question and kind of give some technical specifics to the describing the balance sheet and our flexibility. But I want to start off by saying that the balance sheet and our credit metrics are very important to us as a growing infrastructure company. And to answer the question, yes, we do have sufficient capital and we do have sufficient flexibility to operate in this environment. So with that, Pat, could you just give a little bit more details around that, please? Sure, Steve, and good morning, everyone. This is Pat Migliaccio, the CFO of New Jersey Resources. As you're aware, we are in a heavy investment cycle right now with the Delphi Gateway under construction as well as SRL. With both of those expected to be in service in 2022, we'll begin to reap the cash flow benefits associated with putting those projects in service. Our cash flow from operations is expected to grow 25% between now and the time we get to 2024, which will help support the investment grade credit rating that we have at New Jersey Natural Gas and investment grade credit rating equivalent at NJR broadly. Thanks, Pat. So the next two questions are somewhat related. So the first question asks us to update the status of PennEast and SRL. Second question related to PennEast, it asked to discuss the carrying value and the risk of future impairment with PennEast. And that's in light of some of the uncertainties of projects. And then also add Stedman Ridge to the same question, what's carrying value and the risk of future impairment. So let me start off with saying that PennEast is extremely important project. We've got a constrained gas market in the Northeast and certainly a need for more supply to come in. As you know, on our Investor Day on November 30, we removed PennEast from our forward CapEx guidance. And the reason we did so was there was just so much uncertainty around when that project would come into commercial operation. So to address the status, they're still moving through the Supreme Court process and that has to do with basically being able to use properties in the state of New Jersey for construction for PennEast and that's being contested by the state and they're going to go through that process. But like I said, very important project for the Northeast, one that we would like to see built and really the Northeast very much needs. So as far as the impairment charges and such, I'm again, I'm going to ask Pat Migliaccio to answer that, but I'm going to jump on to SRL and the status of that first. SRL, which as you know, the pipeline that's bringing another feed into New Jersey Natural Gas' service territory. Again, another very important project for reliability and redundancy feed to our service territory. And that project, it's taken a while to get that in the ground, but we're moving along with it. We expect to have that completed by this fall, end of summer this fall. And just so you know, we're about 90% complete as of right now. And construction is ongoing. So SRL moving forward and we're looking forward to bringing that into service and bringing that additional reliability and redundancy to our system. So then I'm going to turn I'm going to ask Pat again, the question here asks about the carrying values and the risk of future So the accounting rules require that we evaluate assets for impairment whenever a triggering event occurs. In Penny's case, as Steve noted, the legal challenges and regulatory uncertainty are those triggering events. And the case of Stecman Ridge, there was a re contracting of a major holder in the storage field that required us to evaluate that asset for impairment as well. The carrying value of PennEast as of our most recently filed 10 ks was approximately $95,000,000 and for Stackley Ridge approximately $112,000,000 In the event that we were to record an impairment charge that would be non cash in nature and that would not require us to raise any additional debt or equity to finance that charge. As we sit here today, we will continue to evaluate those assets for impairment. It's difficult, if not impossible to precisely estimate what an impairment charge might look like in the future. Thanks, Pat. All right. So the next question, asks or states, natural gas prices have been low and range bound for more than a decade. That can change quickly as we've seen recently with the spike in seaborne LNG prices. How may your business be affected by a sustained rise in natural gas prices? And what adjustments might have you to make? So you're absolutely right. Natural gas prices have been range bound for more than a decade. Certainly, the abundant supply in Marcellus has kept the volatility in natural gas relatively low for quite a long period of time. And there has been a spike in LNG impacted by weather that's overseas. So to address how this has affected our business, that the cost of natural gas is just to pass through to customers. That's not to say that customers aren't impacted, but we aren't impacted by natural gas pricing. Volatile natural gas prices, as we look at some of our other parts of our business, could positively impact NJR Energy Services and certainly additional demand in natural gas that sometimes can be caused by volatility, case in point being the LNG increase in need, could possibly impact our storage and transportation assets as well. So as a recap, won't impact the utility. I know customers will see a rise in prices. But again, we make no money on really the price of natural gas at the utility and we could see some positive benefits in other parts of our businesses. All right. So the last question that I have here is how much leakage is in the storage field. So I'm going to make an assumption that they're asking a question about maybe fugitive emissions or something of that nature, not being able to ask to clarify the question. So I think it's a good way to segue into our ESG agenda, our sustainability and our overall drive total as a company to reduce fugitive emissions. And when we can talk about this broadly over the whole company, you can see you've seen in graphs previously leaks per mile at the utility going way down, we replaced all of our cast iron, we're on track to replace all of our bare steel as well. And certainly reducing fugitive emissions has been a priority of yours of ours. And I can assure you through the other parts of our business, we're going to be doing as much as we can to reduce those emissions as well. So if the question is really directed on fugitive emissions and things like that, hopefully I have answered that question. And again, I'd ended up very solid environmental record, very responsible company in the way that we manage our assets and it's going to be a focus of ours. And I encourage you to look at our sustainability report, which was just posted online and you can read all about the details and some of the actions that we're taking in order to really improve the company as much as we can in this new environment. So that was the last question we have. I'll wait a few seconds here, see if there's anything else that pops up. All right. Well, I don't see any other questions coming up. So I just want to say thank you to those that asked questions. I certainly appreciate that and being interested in the company. I'm going to conclude the meeting today by saying thank you for being part of our first virtual annual Shareholders Meeting and thank you for your investment in New Jersey Resources. We're committed to executing our strategy, delivering our results and rewarding your confidence in our company. So on behalf myself, Board of Directors and our entire company, I wish everyone a safe and healthy New Year. Thanks again for joining the call and take care. Thank you. This concludes New Jersey Resources Annual Shareholders Meeting. You may now disconnect.