Good morning. Thank you for attending today's New Jersey Resources second quarter fiscal 2022 conference call. My name is Amber, and I will be your moderator for today's call. All lines will be muted during the presentation portion of the call, with an opportunity for questions and answers at the end. If you would like to ask a question, please press star one on your telephone keypad at any time. I now have the pleasure of handing the conference over to our host, Dennis Puma, Director of Investor Relations with New Jersey Resources. Dennis, please proceed.
Thank you, Amber. Welcome to New Jersey Resources second quarter fiscal 2022 conference call and webcast. I'm joined here today by Steve Westhoven, our President and CEO, Roberto Bel, our Senior Vice President and Chief Financial Officer, as well as other members of our senior management team. 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 one.
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 the statement, assume any obligation to review or revise any particular forward-looking statement referenced herein in light of future events. We will also be referring to certain non-GAAP financial measures, such as net financial earnings or NFE. We believe that NFE, utility gross margin, and financial margin provide a more complete understanding of our financial performance. However, these non-GAAP financial measures are not intended to be a substitute for GAAP. Our non-GAAP financial measures are discussed more fully in item seven of our 10-K. Our agenda for today is found on slide two.
Steve will begin with this quarter's highlights, followed by Roberto Bel, who will give you our review of financial results. We will 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. For those of you following along, we'll begin with an overview of the quarter on slide three. With that said, I'll turn the call over to our President and CEO, Steve Westhoven. Steve.
Thanks, Dennis, and good morning, everyone. Thank you for joining us today. Our fiscal 2022 second quarter financial results exceeded our expectations, primarily driven by contributions from Energy Services segment that enabled us to increase our net financial earnings per share guidance for fiscal 2022 by $0.10. We also benefited from solid performance at New Jersey Natural Gas, which completed its first full quarter with new base rates in place and grew NFE by 28%. At Clean Energy Ventures, our portfolio now includes projects across three states, New Jersey, [Connecticut], and Rhode Island. I'll discuss our growing solar project pipeline and our long-term opportunities and some short-term challenges at CEV later in the presentation. Finally, at Storage and Transportation, our Adelphia Gateway project is now delivering natural gas to its south zone, serving the Philadelphia metro area.
Adelphia is on track to be fully operational by the end of this year. Moving to slide four, Energy Services' stronger-than-expected performance enabled us to increase our NFEPS guidance for fiscal 2022 to a range of $2.30-$2.40 per share, up from our original guidance of $2.20-$2.30 per share. Our team at Energy Services leveraged their portfolio of diversified and strategically located assets to generate a higher-than-expected NFEPS during periods of volatility this past winter. Moving to the next slide. On the left, you can see that we've invested $144 million so far this fiscal year at New Jersey Natural Gas, with approximately 40% of that capital providing near real-time returns.
New Jersey Natural Gas was the first utility in New Jersey to fully replace all cast iron pipe, and nearly 100% of our system is either plastic or protected steel. We continue to make investments to support energy conservation, reduce emissions, and enhance the safety and reliability of our distribution system for the benefit of our 568,000 customers. Through the first half of fiscal 2022, we added nearly 3,600 new customers. New Jersey Natural Gas expects these additions to contribute approximately $2.9 million of incremental utility gross margin on an annualized basis. On slide six, I want to discuss how CEV is positioning itself for success in a market with strong long-term fundamentals despite some short-term challenges. As you're aware, CEV was an early mover in the New Jersey solar market.
We developed operational expertise and a strong network of partners that allowed us to acquire shovel-ready projects. This strategy established us as a market leader in the state, growing our portfolio to over 350 MW as of our Analyst Day in 2020. At that time, we identified CEV as a core growth business for NJR and adjusted our commercial solar strategy to support the greater level of investment driven by aggressive public policy and corporate ESG goals. We leveraged our strong network to diversify our target investment market beyond New Jersey and enhanced our development capabilities to pursue projects earlier in the development cycle.
This strategic shift has resulted in the largest pipeline project in our history, with 680 MW of projects under construction, contract, or exclusivity through fiscal 2027, thus providing a runway for sustained investment over the coming years. While solar market fundamentals remain strong and support our long-term growth strategy, several factors are slowing CEV's ability to deploy capital in the short term. A number of regulatory transitions in New Jersey, which will broaden our solar investment opportunities and be favorable in the long run, are currently delayed. They include approval of final projects that are qualified for [audio distortion], a transition to a permanent incentive program for community solar, replacement of the [audio distortion] structure for projects of 5 MW or more, and the development of a dual-use pilot to allow for solar generation on farmlands.
In addition, there's been well-publicized backlog of projects awaiting interconnection at PJM, resulting in delays across multiple states. As a result, our fiscal year 2022 in-service timelines will be impacted, and we're taking a conservative view of our capital deployment estimates for fiscal 2023. We believe that efforts to streamline regulatory and interconnection processes, which are temporarily disrupting normal development cycles, will ultimately strengthen the long-term viability of the solar market. Given these challenges, we thought it was important to go beyond our usual capital expenditure forecast and walk you through our project pipeline, which is on slide seven. As you can see, we have a robust pipeline that will drive significant solar investment in coming years. In addition to the 75 MW under construction, we now have exclusivity and contractual rights to a portfolio of projects totaling 600 MW through fiscal 2027.
This pipeline of regionally diversified projects, many of which have existing PJM queue positions, is capable of almost tripling the current size of CEV's clean energy portfolio. Over the last quarter alone, CEV secured more than 420 MW of exclusive project options and high-priority policy-supported development areas. We have procured panels for most projects forecasted through fiscal 2023. Any supply chain issues we have experienced were delays from electrical components such as inverters and racking equipment, which we've been able to mitigate. Additionally, we're closely following the recent Department of Commerce investigation regarding the sourcing of certain solar materials, which has not impacted our suppliers to date. Overall, our team has done a nice job navigating this environment while continuing to grow the project pipeline and showing quality and long-term investment opportunities.
Moving to slide eight, the chart on the top shows CEV's second quarter revenue broken down by type, while the chart at the bottom shows capital investment projections for fiscal year 2022. Due to the reasons we've discussed, lower total CEV CapEx for the year. Despite any short-term delays in our in-service timeline, we anticipate no impact to NJR's long-term NFE growth estimates thanks to the strength of our complementary portfolio of businesses. I'll close my CEV update by highlighting two projects currently under construction. The first is an 8.9-MW floating solar installation in Millburn, New Jersey. Once complete, it will be the largest floating solar array in the United States and CEV's second floating solar project. Our Millburn location will be twice the size of our Sayreville project, which is pictured on the slide and was placed in service in fiscal 2020.
The second is a 25.6-MW facility located in Mount Olive, New Jersey, that upon completion will be the largest solar array on a capped landfill in the United States. It will generate enough electricity to power over 4,000 homes. On slide nine, I'll close with a quick discussion of our Storage and Transportation business. We continue to make progress in the construction of Adelphia Gateway, a converted oil pipeline. We recently placed in service a number of facilities, including the South Main Line, Tilghman Lateral, and TETCO Quakertown interconnect, and PECO metering stations. Adelphia is now flowing gas to the South Zone, which allows industrial customers in the Philadelphia metro area to utilize natural gas. This includes Kimberly-Clark, which replaced a coal-fired plant at its mill in Chester, Pennsylvania.
The conversion will reduce the mill's greenhouse gas emissions by 50% and support Kimberly-Clark's goal of cutting its carbon footprint in half by 2030. Adelphia is on track to be fully operational by the end of this year. With that, I'll turn the call over to Roberto for review of our financial results. Roberto?
Thank you, Steve, and good morning, everyone. As usual, I'll highlight a few of the operational and financial metrics for the second quarter. Slide 11 shows the main drivers of our net financial earnings or NFE. We reported NFE of $130.2 million, or $1.36 per share, compared to $170.6 million, or $1.37 per share last year. As a reminder, the second quarter of last year included unusually high net financial earnings at Energy Services due to increased natural gas prices that can be related to extreme cold weather in the U.S. during February 2021. When we go over NFE by business unit, NJNG saw an improvement of $22.2 million, primarily due to the impact of new base rates that went into effect on December 1st.
CEV's NFE improved by $2.4 million, primarily due to increased revenue from the sale of SRECs and higher electricity prices in the second quarter of fiscal 2022. Storage and Transportation reported NFE that was largely flat compared to the second quarter of the prior year. As mentioned before, Energy Services NFE declined due to the unusual weather activity of 2021. Still report a strong result of $29.9 million for the quarter, including $10.2 million in revenues from the asset management agreement entered into in fiscal 2021. On slide 12, we have highlighted the details of CEV's SREC hedging program. The sale of SRECs remains a large portion of CEV's revenue, and we lock in these cash flows by hedging our expected production of SRECs. As you can see, we're almost fully hedged through energy year 2024.
For energy years 2025 and 2026, we now have 51% and 29% of our expected SRECs generation hedged at prices over 95% of the Solar Alternative Compliance Payment or SACP. I will now turn to our capital plan on slide 13. As discussed during the past call, we expect capital spending at NJNG to moderate somewhat now that the interconnection line is in service and the base rate case is behind us. At Storage and Transportation, the construction of Adelphia Gateway is approaching completion and represents the largest capital expenditure for this segment. At CEV, we have a robust and growing pipeline with strong long-term fundamentals.
However, as Steve mentioned earlier, we're adjusting our CapEx estimates for fiscal 2022 and widening the range for fiscal 2023, mostly due to delays in a number of important regulatory programs in New Jersey and in the PJM approval process. We expect CEV's CapEx for fiscal 2022 to be in the range of $139 million-$157 million. We will tighten our projections for fiscal 2023 as we get more clarity around the new PJM process and see more progress around the New Jersey regulatory programs. Turning to our projected cash flows on slide 14, we're incorporating in our estimates the impact that currently elevated natural gas prices will have in our cash flows from operations if sustained through the end of fiscal 2023.
The storage of higher-priced natural gas ahead of winter will be reflected as higher working capital needs, particularly at Energy Services, and to a lesser extent at New Jersey Natural Gas. As a reminder, the natural gas at Energy Services injected into storage is 100% hedged, removing the risk of a loss as a result of sudden changes in prices. In addition, and as discussed in a prior call, [NJNG] has an extensive hedging program under which much of the price risk of our injections into storage is hedged well in advance of the actual injection season, mitigating the impact of higher natural gas prices for customers. With that, I'd like to turn it back to Steve.
Thanks, Roberto. It was a strong first half of the year, with financial performance from Energy Services that allowed us to increase our NFEPS guidance for the year. We reported solid NFE growth from New Jersey Natural Gas. Our solar project pipeline has never been stronger. Despite some short-term challenges, CEV's long-term growth opportunities remain unchanged. Adelphia Gateway is flowing gas through the south zone, and we expect to complete construction by the end of 2022. Lastly, the strength of our complementary portfolio of businesses allows us to navigate CEV's short-term capital deployment challenges without affecting our projected dividend and NFE growth of 7%-9% per year. Before I open the call to questions, I'd like to close with a few thoughts on our sustainability efforts.
We are focused on achieving climate emissions reduction goals in the most affordable and reliable way for customers by leveraging our existing energy infrastructure to deliver decarbonized fuels. We are optimistic about the ongoing shift from state, federal, and international policymakers who increasingly recognize the value of existing pipeline infrastructure to meet climate goals in a faster, more affordable, and more reliable manner. Our world-class infrastructure assets puts us in a strong position to not only participate, but to play a significant role in New Jersey's clean energy transition. With that, I'll open the call for questions.
Thank you. If you would like to ask a question, please press star followed by one on your telephone keypad. If for any reason you would like to remove that question, please press star followed by two. Again, to ask a question, that's star one. As a reminder, if you are using a speakerphone, please remember to pick up your handset before asking your question. We will pause here briefly as questions are registered. Our first question comes from Richard Sunderland with JP Morgan. Richard, your line is now open.
Hi, good morning, and thank you for the time today. Appreciate the clarity on the changes around solar and would like to dig in there a little bit more. You know, what do you see as the timeline for these headwinds to ease? You know, I guess you talked about narrowing the range of 2023 CapEx, as that clarity emerges. Is this something you expect over the course of this year or maybe even into 2023? Any thoughts there would be helpful.
Hey, Richard, Steve. Thanks for the question. You know, in looking at you know a number of the headwinds you know associated with the regulatory process in New Jersey in developing the successor program, looking at you know PJM and they're analyzing and trying to streamline their interconnection process as well. You know we expect I would imagine over the next year or so these to figure themselves out.
Ultimately, the message we'd like to leave with you guys is that, you know, these are, you know, macro issues that are being solved, you know, by these, you know, regulatory agencies that should really accelerate the development and make it easier and certainly easier to forecast, you know, moving forward, because they're, you know, eliminating logjams in the marketplace. Short answer, yeah, over the next year. We're gonna keep an eye on it and certainly push where we can to make sure that these issues are solved.
Understood. You know, I guess just thinking about kind of the risks, the high and the low end around 2023 CapEx, is that largely timing, then around the easing of those issues? Meaning the timing of clarity emerging, say, this year versus next year, for what would drive the high or low end? Is that at least a fair summary of how you see it right now?
Yeah, it's a fair summary. I think just to add to that, you know, we've got a large pipeline of projects, you know, that we've contracted for, you know, have commitment, some sort of commitment. We feel pretty good about the business moving forward. It's just a matter of just eliminating these logjams. You know, ultimately, you know, when they are removed, you know, there should be, you know, kind of a catch-up development at some point in this process as well.
Great. That helps. Maybe just to squeeze one last one in there. You know, to your point about a catch-up, how do you see the earnings runway versus these issues and sort of the timing factors of when the slower development pace right now eventually becomes an earnings issue? Is it, you know, given kind of the shape of the SREC profile, you have a couple years before you need that catch-up to emerge? Just, yeah, how do you see the outlook there?
You know, a few things. You know, one, we've got a portfolio of companies, so we've got a number of levers here that give us an ability to make earnings and essentially continue to grow the company. You know, from a you know, 10,000-ft view, we need to deploy capital in order to grow the company. That's certainly an important portion of it. You know, focusing on CEV just for a moment, you know, we changed the accounting. Remember, we've got to deploy the capital, but on a yearly basis, it makes it less important what year it comes in. Ultimately, it needs to come in. You know, that's certainly the case. We've got a portfolio of companies.
You know, you've got, you know, growth and organic growth that has capability in all of our businesses. You know, the utility, you know, Storage and Transportation, you know, certainly CEV and Energy Services has been able to contribute. We've got the large [AMA]. We feel, you know, good about our forecasts, moving forward, relying on the portfolio of companies. You know, we've got some time for these things to work themselves out, because of the portfolio of companies. Ultimately, you know, we think it will, and we should be able to achieve the numbers that we've forecast as far as guidance goes.
Perfect. Thank you for the time today.
All right. Thanks, Richard.
Thank you, Richard. Our next question comes from Travis Miller with Morningstar. Travis, your line is now open.
Good morning, everyone. Thank you.
Hey, Travis.
One more on the solar here. Obviously, the whole industry and the market's talking about the Department of Commerce and the issues there on the tariffs. Apart from what you talked about policy-wise in New Jersey and PJM, what are you seeing on that side, either in higher costs with the tariffs or just pure supply availability?
Hey, Travis. The team, the CEV team's done a nice job of hedging out solar panels for the CapEx, you know, that we have in our immediate future, you know, for this year and for a portion of next year, most of next year. We don't have the same experience and insight right now into, you know, the logjam of that market. You know, good news for us, but we certainly acknowledge that, you know, there is something going on there, right? You know, the Department of Commerce is doing an investigation, and we're thinking and we're hopeful that that's gonna work itself out such that by the time our hedges roll off, we'll be able to roll into a market that's a little more normal than what we're accustomed to.
That's how we're looking at it now relative to our, you know, business plan and our ability, you know, to deploy capital in that space.
In terms of hedging, you're able to get the actual panels at effectively a similar price what you contracted at. Is that fair to say? Until 2024.
That's right.
Roughly. Okay. Okay.
Yeah.
And then second-
Most of 2023, so.
Yep. Okay.
Go ahead.
Oh, okay. Second question is, you know, with everything globally and, you know, move toward energy security and gas markets, et cetera, LNG, what's your appetite for more midstream investments, whether it's pipelines or, like your Leaf River type of facility?
You know, you know, Travis, this is, yeah, same story. We're executing on the plan that we've had, and we rolled out in our November investor day, and getting, you know, Adelphia Gateway up and running, which, you know, you saw in today is that, you know, we're flowing gas in the southern portion. We still have some expansion or some construction, you know, to complete and put the rest of that into service down there. So at this point, we're just, you know, digesting the assets that we have. And certainly, you know, we'll look at some organic growth around those assets going forward. Nothing to announce right now. But it's constructive for the market, right?
Energy security, you know, natural gas, the long-term value of these assets is being, you know, proved out in a real way. Certainly we recognize that.
Okay. That's all I had. Appreciate the time.
Thanks, Travis.
Thank you, Travis. As a reminder, to submit a question, that's star one on your telephone keypad. Our next question comes from Julien Dumoulin-Smith with Bank of America. Julien, your line is now open.
Hey, Steve and Roberto. This is Kody Clark on for Julien. Good morning.
Hey, Kody.
First you mentioned mid high single-digit returns, and I'm curious if you can describe kind of what you're seeing in terms of PPA pricing and also incremental demand for commercial and distributed solar given the power backdrop? I guess related, you know, thanks for the disclosure on your pipeline. Can you talk about the growth trends that you've been seeing in that pipeline? What sort of growth have you seen over the past year or two years, and what do you see for growth going forward?
You know, I'll take that in its parts, right? You know, the inflationary pressures, higher gas prices have certainly, you know, driven up electric prices and have driven up, you know, the longer term curve, which has been, you know, supportive, you know, for, you know, PPAs and, you know, your, you know, I guess the cost that you're competing against, you know, the traditional electric providers. That's been constructive in this market and I think that's going to, you know, continue to be constructive in this market. You know, as far as the growth going forward, you know, we shared, you know, this morning, you know, what we have in hand as far as the projects that we have clear line of sight on developing, and you can see how that compares to our CapEx plan.
You know, we need to execute a portion of that in order to achieve what we need to into the future. Ultimately, you know, I think that speaks for itself. You know, we feel like we've got a good line of sight on projects, on development and you know, we feel pretty good that once some of these log jam issues and regulatory issues are cleared, that we should be able to develop at the rates and the returns that we've spoken about.
Okay. Got it. Then just second, can you discuss in a little bit more detail the driver of the shift in utility CapEx from 2022 to 2023? And kind of related to that also, curious how you're viewing the inflationary backdrop as it relates to your budget and also customer bills, just on the utility side.
Yeah. We had a few projects that have taken a little bit longer to develop at the utility, related to RNG, you know, specifically. Ultimately since we were updating guidance in our CapEx with CEV, you know, we figured we'd make the full update there. You know, I wouldn't read too much into that. I feel like those projects will, you know, move forward and we'll get them completed as well. I think, you know, going to your second question on inflation, you know, we haven't really had any impacts or, you know, it's, it'll be a minor impact. We've got a number of pluses and minuses.
You know, someone asked a question about the escalation of electric prices and things like that. You know, we've got certain exposures where we get pluses in this inflationary period. You know, higher volatility could be a plus for Energy Services and certainly incentive margins at the gas company. You know, higher electric prices and the electric output from our solar panels and things like that largely offset or hopefully will outrun some of the other negatives according to the portfolio. Currently, even after acknowledging all those, we expect very minor impacts to us that we'll be able to mitigate in our longer term plan.
Cody, this is Roberto. Just to complete a question on CapEx. When you take a look at the combined, and I'm excluding CEV here, our combined CapEx for 2022 and 2023, you see that the totals are pretty much the same. What we had is more movement that we understand better the timing of some of our projects.
Okay. Understood. Thanks for the time.
All right. Thanks, Kody.
Thank you, Cody. Again, as a reminder, to submit a question, it's star one on your telephone keypad. Our next question comes from Robert Mosca with Mizuho Securities. Robert, your line is now open.
Hi. Good morning, everyone. Understand the trajectory.
Hey, Robert.
Hey, guys. So I understand the trajectory may have changed for CEV a little bit, at least in the medium term. In your opening remarks, you kind of reiterated that five-year outlook for the overall portfolio. Just wondering if you could dig a little bit more into the specifics of what you're seeing as the offsets to the CEV, what some of those specific levers are. Is it better rates at Leaf River, Energy Services uplift? Hoping to get a little bit more detail there.
Yeah. You answered it right there, you know, pretty well. You know, you do. As a portfolio of companies, remember, the Energy Services group did a pretty large AMA, which we published, publicized some of the cash flows from that. Certainly, inflationary pressures we talked about earlier. You know, you've got a number of items in the income line that are gonna have pressures on the upside from them. You know, incentives at the utility. Certainly, anywhere that you've got additional volatility even beyond the AMA, Energy Services could contribute as well.
You know, like we talked about before, higher electric prices is certainly gonna support, you know, additional solar development and PPAs, you know, also. There's a little bit of pressure to the upside allow us to fill the gaps. It's really the power of having, you know, portfolio of companies and being able to utilize, you know, each and every one as you know you build your forecast going forward.
Got it. That's helpful. Last year I think there was a lot of focus on coming up with solutions to decarbonize the gas stream within New Jersey Natural Gas. Can you talk about whether that might be de-emphasized, just given the expected increase in the commodity component of customer bills? Also more broadly, just wondering how you're managing the customer bill impacts from rising gas prices. Thanks.
You know, two ways to I guess two answers to that. You know, one is, I think the decarbonization narrative and the things that we're doing are gonna continue to move forward. You've got some short-term, you know, pricing issues that are occurring now. Certainly, you know, it's going to impact, you know, people and customers and we've we acknowledge that. I think the decarbonization effort, you know, bringing hydrogen, renewable natural gas, you know, energy efficiency and eventually carbon capture and storage to utilize our pipelines far into the future, it's gonna be a walk that we're gonna walk for a long time. I think, just talking about, you know, short-term, how gas pricing is going to impact our customers.
You know, we've got a pretty well-established hedging program at the gas company. You know, one of the numbers I was looking at last night, we've got 31 BCF of gas in storage at a price of about $3.60, which as you guys all know, is far below where the NYMEX system or current market pricing is now. Largely our customers will be insulated, as much as our price will be slightly higher than last year. They're gonna be insulated from the market realities of right now. For what we're talking, that gas that's in storage, you know, right now is going into next winter, and that's winter 2022 and 2023.
We've got quite a bit of time to be able to have, you know, prices normalize and market to work out, you know, some of its issues, and prices to come down, so our customers don't feel those impacts. I think, you know, currently, you know, we're in a pretty good place. You know, far below where the market is. A little bit higher than last year, but largely insulated from some of the price moves that you're seeing currently.
Great. That's awesome color. Maybe just one last one. Just hoping you could, maybe discuss the next milestones for Adelphia. You mentioned that it should be fully in service by the end of the year, but wondering if there's any specific milestones you would call out, from now to then.
I've got Amy Cradic is here. She's the Chief Operating Officer over our non-utility companies and has been over that project for some time. I'd ask her to take that question. Amy?
Yeah. We really have just a couple more facilities to bring into service over the next several months before the end of the year. We really have mitigated any supply chain issues, and we just have to get it done from a construction perspective. You know, good regulatory support, and you know, again, just a few more facilities left. It's been moving very well through the process.
Great. Thanks everyone. Looking forward to catching up at AGA.
Agreed. Thank you.
Thank you, Robert. That concludes today's Q&A session. I'll now pass the conference back over to Dennis Puma for any closing remarks.
Okay, thank you, Amber. I'd like to thank everyone for joining us this morning. As a reminder, a recording of this call is available on our website for replay. We also look forward to seeing many of you in person at this year's AGA conference or on next quarter's call. As always, we wanna thank you for your interest and investment in New Jersey-