Attached files
| file | filename |
|---|---|
| 8-K - 8-K - SOUTH JERSEY INDUSTRIES INC | form8k-morganstanley.htm |
South Jersey Industries
Morgan Stanley Utilities Conference - NY
February 27, 2018
Certain statements contained in this presentation may qualify as “forward-looking statements” within
the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934. All statements other than statements of historical fact should be considered forward-looking
statements made in good faith and are intended to qualify for the safe harbor from liability established
by the Private Securities Litigation Reform Act of 1995. Words such as “anticipate”, “believe”, “expect”,
“estimate”, “forecast”, “goal”, “intend”, “objective”, “plan”, “project”, “seek”, “strategy” and similar
expressions are intended to identify forward-looking statements. Such forward-looking statements are
subject to risks and uncertainties that could cause actual results to differ materially from those
expressed or implied in the statements. These risks and uncertainties include, but are not limited to, the
following: general economic conditions on an international, national, state and local level; weather
conditions in our marketing areas; changes in commodity costs; changes in the availability of natural
gas; “non-routine” or “extraordinary” disruptions in our distribution system; regulatory, legislative and
court decisions; competition; the availability and cost of capital; costs and effects of legal proceedings
and environmental liabilities; the failure of customers or suppliers to fulfill their contractual obligations;
and changes in business strategies. These cautionary statements should not be construed by you to be
exhaustive. While SJI believes these forward-looking statements to be reasonable, there can be no
assurance that they will approximate actual experience. Further, SJI undertakes no obligation to update
or revise any of its forward-looking statements, whether as a result of new information, future events or
otherwise.
Forward Looking Statements
2
3
South Jersey Gas SJI Midstream
South Jersey Energy
Solutions
Regulated Natural
Gas Distribution
Company
FERC-Regulated
Gas Pipelines/Projects
SJ Energy
Services
SJ Energy
Group
• Energy production
portfolio (solar, CHP,
landfill gas to electric)
• Fuel supply
management services
• Wholesale and retail
natural gas and
electric commodity
marketing
2017 Economic Earnings = $77.2 million (1) 2017 Economic Earnings = $18.5 million (1)
Regulated Non-Utility
(1) 2017 reported results, excluding corporate segment results. SJI uses the non-GAAP measure of Economic Earnings. EE eliminates all unrealized gains and losses on
commodity and on the ineffective portion of interest rate derivative transactions; adjusts for realized gains and losses attributed to hedges on inventory transactions and for
the impact of transactions or contractual arrangements where the true economic impact will be realized in a future period. A full explanation and reconciliation of this non-
GAAP measure is provided in our Form 10K on file with the SEC.
Organizational Structure
Grow
Economic
Earnings
Improve
Quality of
Earnings
Maintain
Balance Sheet
Strength
Maintain Low
to Moderate
Risk Profile
2017 Highlights
Economic EPS of $1.23, Ahead of $1.14-1.20 Guidance
• Base Rate Case settlement added $6.0M to Economic Earnings
• AIRP II and SHARP investments totaling $94.5 million
• SJG added ~8,600 customers (gross)
• FERC issued certificate of public convenience and necessity for the PennEast
Pipeline project
• Agreed to acquire Elizabethtown Gas and Elkton Gas
The Path to Growth
4
2018 Guidance
Business Line
Percent of
Total SJI Economic Earnings
2017A 2018 Target
South Jersey Gas 75% 63% - 67%
SJI Midstream 5% 2% - 5%
Non-Utility 20% 27% - 36%
2018 Economic EPS Guidance of $1.57 to $1.651
1 Excluding impact from pending acquisitions; inclusive of tax reform and January cold weather impacts.
5
6
Improving the Quality of Earnings
$0
$20,000
$40,000
$60,000
$80,000
$100,000
$120,000
2013 2014 2015 2016 2017
Economic Earnings
Non-ITC ITC
$98.1
$38.3
$98.1
$60.2 $73.7 $60.7
$36.9
$30.3
$97.1
$104.0
$99.0
$102.8
$mm
$60.7
$38.3
$93.7
$9.1
36.00%
38.00%
40.00%
42.00%
44.00%
46.00%
48.00%
50.00%
2015 2016 2017
Equity to Capitalization
7
Equity to Cap = 43.7%
Commitment to a strong
balance sheet
SJI & SJG rated BBB+ by S&P
SJG rated A2 by Moody’s
Strong Financial Position
FFO to Debt ≈ 16.9%
Strong cash flow from energy
production assets
Growth from utility
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
2015 2016 2017
Funds from Operations to Debt
Capex Drives Economic Earnings
$1.9B of planned Cap Ex 2017-20201
Focused on regulated utility and FERC regulated growth
2017A-2020E
% Utility and FERC
regulated:
97%
1 Capital expenditures shown are inclusive of affiliate investments and reflect any projections for pending acquisition
2017A 2018E 2019E 2020E
Regulated Utility FERC regulated Non-Utility
$402M
$651M
$530M
$303M
8
$1,484M
$352M
$49M
SJG Base Rate Case and
Infrastructure Investment
Base Rate Case Outcome
Rate of Return 6.8%
Return on Equity 9.6%
Equity-to-capital ratio 52.5%
Annual Net Income
Impact
$20.8M
2017 Incremental Net
Income Impact
$6.0M
2018 Incremental Net
Income Impact
$14.8M
AIRP II (Accelerated Infrastructure Replacement Program)
Earn ROI with annual roll-in to base rates each October
$4.7M increase in annual revenues effective Oct. 1,
based on $46.1M investment
Currently in year two of 5-year, $302.5M program
SHARP (Storm Hardening and Reliability Program)
Earn ROI with annual roll-in to base rates each October
$3.4M increase in annual revenues effective Oct. 1, based
on $33.3M investment
Phase II petition filed November 1
Proposed investment of $110M from 2018-2021
BL England
Proposed ≈ $115M pipeline to supply natural gas to the
former BL England generating facility
Legal appeal process continues, with a favorable
resolution anticipated
9
Utility Customer Growth
12 Months Ending
December 31, 2017
Margin Growth from Customer Additions $2.4M
Conversions 6,108
New Construction 2,528
Total Gross Customer Additions 8,636
Net Customer Additions 6,008
Year Over Year Net Growth Rate 1.6%
10
PennEast Pipeline Project
• $200M investment, 20% equity
owner in $1.0B+, 1 BCF, 118-mile
interstate pipeline from Marcellus
region of PA into NJ
• Contributed $4.6M to 2017 earnings
from AFUDC
• FERC approved on January 19, 2018
• Additional state permits required
• Construction expected to begin in
2018
11
Fuel Supply Management
Counterparty Location
Capacity
(MW)
Volume
(Dth/day) Start Date Term
Starwood Marcus Hook, PA 750 80,000 In service 2016 - evergreen
LS Power West Deptford, NJ 738 36,000 In service 15 Years
LS Power II West Deptford, NJ 400 31,000 In service 15 Years
Moxie - Liberty Bradford Co, PA 825 137,655 In service 5 Years
Moxie - Patriot Lycoming Co, PA 825 137,655 In service 4 Years
Panda - Stonewall Leesburg, VA 750 110,000 In service 4 Years
Moxie - Freedom Luzerne, PA 1,029 157,000 2018 10 Years
Lordstown Trumbell, OH 1,029 160,000 2018 5 Years
Invenergy - Lackawanna Jessup, PA 1,045 210,000 2018 10 Years
Hickory Run Lawrence County, PA 1,000 162,000 2020 5 years
To Be Announced TBA 990 121,000 TBA 4 Years 12
Current Performance
Economic Earnings – 2017 v 2016
For the twelve months ended December 31
Q4 2017 Q4 2016 Variance FY 2017 FY 2016 Variance
In millions except per share data
Gas Utility $29.6 $22.9 $6.7 $72.6 $69.0 $3.6
Midstream $0.9 ($0.1) $1.0 $4.6 ($0.2) $4.8
SJ Energy Group $11.7 $7.3 $4.4 $21.3 $17.7 $3.6
SJ Energy Services ($2.8) $3.3 ($6.1) ($2.8) $16.5 ($19.3)
SJI Other $0.6 ($0.2) $0.8 $2.4 ($0.2) $2.6
SJI $40.0 $33.2 $6.8 $98.1 $102.8 ($4.7)
SJI EPS
$0.50 $0.42 $0.08 $1.23 $1.34 ($0.11)
*SJI uses the non-GAAP measure of Economic Earnings when discussing results. A full explanation and reconciliation of this non-GAAP measure is provided under
“Explanation and Reconciliation of Non-GAAP Financial Measures” in the Earnings Release.
14
South Jersey Gas
In millions¹ Q4 FY Performance Notes
2016 Net Income $22.9 $69.0
Customer Growth $0.8 $2.4 1.6% YOY customer growth
Accelerated Infrastructure
Investments
$1.4 $4.2
AIRP and SHARP investments
Rate Case Investments $6.0 $6.0 Rate Case investments roll-in to base rates
November 1
Off System Sales $0.1 $0.2
O&M Expenses² ($0.9) ($4.8) Resource investments supporting future growth;
increased reserve for uncollectible accounts
Depreciation³ ($0.7) ($2.4) Additional assets placed in service
Interest Charges – Net of Capitalized³ ($0.6) ($1.8)
Other $0.6 $0.2
2017 Net Income $29.6 $72.6
¹ Slide depicts changes to period over period net income, it is not intended to be a substitute for financial statements
² Excludes expenses where there is a corresponding credit in operating revenues (i.e., no impact on our financial results)
³ Expenses associated with accelerated infrastructure investments are reflected within that line item 15
South Jersey Energy Group
Economic Earnings
For the twelve months ended December 31
Q4 2017 Q4 2016 Variance FY 2017 FY 2016 Variance
Economic Earnings, in millions
SJ ENERGY GROUP $11.7 $7.3 $4.4 $21.3 $17.7 $3.6
Retail Commodity ($0.7) $0.0 ($0.7) ($0.5) $1.3 ($1.8)
Fuel Management1 $1.7 $1.2 $0.5 $5.8 $4.2 $1.6
Wholesale Mktg / Asset
Optimization2
$10.7 $6.1 $4.6 $15.8 $12.2 $3.6
SJ Exploration $0.0 $0.0 $0.0 $0.2 $0.0 $0.2
1 Fuel Management benefited from the additional contract that came on-line earlier in the year
2 YTD improvement driven by optimization of storage and capacity. Results partly offset by record low spreads from warmer weather in Q1.
16
South Jersey Energy Services
Economic Earnings
For the twelve months ended December 31
Q4 2017 Q4 2016 Variance FY 2017 FY 2016 Variance
Economic Earnings, in millions
SJ ENERGY SERVICES ($2.8) $3.3 ($6.1) ($2.8) $16.5 ($19.3)
CHP1 $0.0 $0.5 ($0.5) $0.5 $6.2 ($5.7)
Solar2 ($2.1) ($0.8) ($1.3) $0.4 $3.0 ($2.6)
Landfills ($0.8) ($1.1) $0.3 ($3.7) ($2.6) ($1.1)
ITC3 $0.0 $4.5 ($4.5) $0.0 $9.1 ($9.1)
Other $0.1 $0.2 ($0.1) $0.0 $0.8 ($0.8)
1 CHP comparison YTD impacted by non-recurring $4.3M settlement that benefited 2016
2 Solar comparison YTD impacted by reduced revenue from MD projects and increased interest expense
3 No ITC in 2017 earnings
17
Solar SREC Generation
MW DC Number of SRECs
26,193
55,766
111,908
136,379
224,737
240,333
-
50,000
100,000
150,000
200,000
250,000
300,000
0
50
100
150
200
250
2012 2013 2014 2015 2016 2017
SRECs generated MWs Installed
18
Appendix
GAAP Earnings – 2017 v 2016
For the twelve months ended December 31
Q4 2017 Q4 2016 Variance FY 2017 FY 2016 Variance
In millions except per share data
Gas Utility $29.6 $22.9 $6.7 $72.6 $69.0 $3.6
Midstream $0.9 ($0.1) $1.0 $4.6 ($0.2) $4.8
SJ Energy Group1 $5.1 $19.5 ($14.4) ($21.8) $33.6 ($55.4)
SJ Energy Services2 ($30.9) $3.9 ($34.8) ($59.8) $16.8 ($76.6)
Acquisition Expenses ($12.0) $0.0 ($12.0) ($12.0) $0.0 ($12.0)
SJI Other ($0.1) ($0.2) $0.1 $1.6 ($0.1) $1.7
Tax Adjustments3 $11.4 $0.0 $11.4 $11.4 $0.0 $11.4
SJI $4.0 $46.0 ($42.0) $(3.4) $119.1 ($122.5)
SJI EPS $0.05 $0.58 ($0.53) $(0.04) $1.56 ($1.60)
1 Includes after-tax charges related to legal proceedings
2 Reflects after-tax charges related to solar impairments and write-down of landfill assets
3 Represents one-time tax adjustments made throughout the year, most notably for Tax Reform, which was signed into law in December 2017
20
South Jersey Energy Group
GAAP Earnings – 2017 v 2016
For the twelve months ended December 31
Q4 2017 Q4 2016 Variance FY 2017 FY 2016 Variance
GAAP Earnings, in millions
SJ ENERGY GROUP $5.1 $19.5 ($14.4) ($21.8) $33.6 ($55.4)
Retail Commodity $1.9 $3.0 ($1.1) $1.4 $7.4 ($6.0)
Fuel Management $1.7 $1.2 $0.5 $5.8 $4.2 $1.6
Wholesale Mktg / Asset
Optimization1
$1.5 $15.3 ($13.8) ($29.2) $21.9 ($51.1)
SJ Exploration $0.0 $0.0 $0.0 $0.2 $0.1 $0.1
1 YOY wholesale results impacted by previously noted legal disputes with suppliers
21
South Jersey Energy Services
GAAP Earnings – 2017 v 2016
For the twelve months ended December 31
Q4 2017 Q4 2016 Variance FY 2017 FY 2016 Variance
GAAP Earnings, in millions
SJ ENERGY SERVICES1 $(30.9) $3.9 ($28.8) ($59.9) $16.8 ($70.6)
CHP ($17.4) $1.1 ($18.5) ($18.4) $6.5 ($24.9)
Solar $3.2 ($0.8) $4.0 ($21.7) $3.0 ($24.7)
Landfills ($11.5) ($1.1) ($10.4) ($14.4) ($2.6) ($11.8)
ITC $0.0 $4.5 ($4.5) $0.0 $9.1 ($9.1)
Other $0.8 $0.2 $0.6 $0.7 $0.8 ($0.1)
1 Reflects after-tax charges related to solar impairments and write-down of landfill assets
22
2017 GAAP to Economic Earnings Reconciliation
-$3,404
$98,065
$56,048
$34,308
$12,032
$10,303 $199
$11,420
-$5,000
$15,000
$35,000
$55,000
$75,000
$95,000
$115,000
$135,000
USD $Thousands
23