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New Jersey Resources Reports Third-Quarter Fiscal 2018 Results

August 7, 2018

WALL, N.J.--(BUSINESS WIRE)--Aug 7, 2018--Today, New Jersey Resources (NYSE:NJR) reported results for the third quarter of fiscal 2018:

Consolidated net loss of $14.3 million for the third quarter of fiscal 2018, compared with consolidated net income of $19 million for the same period in fiscal 2017. Consolidated net financial earnings (NFE), a non-GAAP financial measure, were a loss of $8 million for the third quarter of fiscal 2018, compared with NFE of $17.4 million during the same period in fiscal 2017. Fiscal 2018 NFE guidance increased to a range of $2.60 to $2.70 per share. Utility customer growth for fiscal 2018 to 2020 increased to 27,000 and 29,000 from 26,000 and 28,000. New Jersey Natural Gas (NJNG) received an easement from the Joint Base McGuire-Dix-Lakehurst for the Southern Reliability Link (SRL). Clean Energy Ventures (CEV) completed two commercial solar installations with a total capacity of 23 megawatts (MW); two additional commercial solar installations are expected to be completed in the fourth quarter of fiscal 2018.

Third-quarter fiscal 2018 net loss totaled $14.3 million, or a loss of $0.16 per share, compared with net income of $19 million, or $0.22 per share, during the same period in fiscal 2017. Fiscal 2018 year-to-date net income totaled $249.7 million, or $2.85 per share, compared with $168.6 million, or $1.95 per share, during the same period in fiscal 2017.

In the third quarter of fiscal 2018, net financial loss was $8 million, or a loss of $0.09 per share, compared with NFE of $17.4 million, or $0.20 per share, during the same period last year. Fiscal 2018 year-to-date NFE totaled $269.4 million, or $3.08 per share, compared with NFE of $161.9 million, or $1.88 per share, during the same period in fiscal 2017.

“NJR’s performance this year allowed us to increase earnings guidance, led by Energy Services, ” said Laurence M. Downes, chairman and CEO of New Jersey Resources. “Our portfolio of businesses performed in-line with our expectations due to the dedication of our team. We remain focused on executing our strategy to meet our customer’s expectations and deliver strong results for our shareowners.”

A reconciliation of net income to NFE for the three and nine months ended June 30 of fiscal years 2018 and 2017 is provided below.

*Results during the first nine months of fiscal 2018 include an estimated income tax benefit of $57.7 million, or $0.66 per share, due to the revaluation of deferred taxes resulting from the reduction in the corporate tax rate.

NFE is a financial measure not calculated in accordance with generally accepted accounting principles (GAAP) of the United States. It is a measure of earnings based on eliminating timing differences surrounding the recognition of certain gains or losses, net of applicable tax adjustments, to effectively match the earnings effects of the economic hedges with the physical sale of natural gas, Solar Renewable Energy Credits (SRECs) and foreign currency contracts. NFE eliminates the impact of volatility to GAAP earnings associated with unrealized gains and losses on derivative instruments in the current period. For further discussion of this financial measure, please see the explanation below under “Non-GAAP Financial Information.”

A table summarizing our key performance metrics for the three and nine months ended June 30 of fiscal years 2018 and 2017 is provided below.

A table detailing NFE for the three and nine months ended June 30 of fiscal years 2018 and 2017 is provided below.

NJR Increases Fiscal 2018 NFE Guidance:

NJR increased fiscal 2018 NFE guidance from $2.55 to $2.65 per share to $2.60 to $2.70, subject to the risks and uncertainties identified below under “Forward-Looking Statements.” NJR expects its regulated businesses to generate between 40 to 47 percent of total NFE, with NJNG continuing to be the largest contributor, excluding the impacts of tax reform. The following chart represents NJR’s current expected contributions from its subsidiaries, and the estimated benefits as a result of the revaluation of deferred taxes, due to tax reform for fiscal 2018:

In providing fiscal 2018 NFE guidance, management is aware there could be differences between reported GAAP earnings and NFE due to matters such as, but not limited to, the positions of our energy-related derivatives. Management is not able to reasonably estimate the aggregate impact or significance of these items on reported earnings and, therefore, is not able to provide a reconciliation to the corresponding GAAP equivalent for its operating earnings guidance without unreasonable efforts.

Regulated Business Update:

New Jersey Natural Gas

NJNG reported third-quarter fiscal 2018 NFE of $2.4 million, compared with $6 million, during the same period in fiscal 2017. Fiscal 2018 year-to-date NFE at NJNG were $97 million, compared with $96.5 million during the same period last year. The decrease in NFE for the quarter was due primarily to higher O&M expenses.

NJNG Infrastructure Update:

The Southern Reliability Link, which is designed to provide a secondary interstate feed into the southern end of NJNG’s delivery system, received an easement from the Joint Base McGuire-Dix-Lakehurst during the third quarter. NJNG continues to make progress on gaining road opening permits to begin construction. NJNG expects the SRL to be in service during 2019, and plans to recover its capital costs through a future base rate case. Safety Acceleration and Facilities Enhancement (SAFE) II is the five-year program approved by the New Jersey Board of Public Utilities (BPU) in September 2016 designed to replace the remaining 276 miles of unprotected steel main and associated services in NJNG’s distribution system. During the first nine months of fiscal 2018, NJNG invested $27.8 million to replace 39 miles of unprotected steel main and services. New Jersey Reinvestment in System Enhancement (NJ RISE) program is the five-year, $102.5 million investment that began in 2014. During the third quarter, NJNG installed a distribution main under the Barnegat Bay, from Berkeley Township to the Borough of Seaside Park, to improve service resiliency into the southern portion of the Seaside Barrier Island. The SAFE II and NJ RISE programs are eligible for annual base rate increases. On March 29, 2018, NJNG filed its annual petition with the BPU, requesting a base rate increase for the recovery of these related capital costs through June 30, 2018. The filing was updated in July 2018 to reflect actual results through June 30, 2018, with an updated base rate change of $6.8 million expected to be effective October 1, 2018.

Customer Growth:

NJNG added 6,936 new customers during the first nine months of fiscal 2018, compared with 6,231 during the same period last year, primarily driven by the residential new construction market. In addition, 539 existing NJNG customers expanded their natural gas services. NJNG expects to add between 27,000 and 29,000 new customers through fiscal 2020, representing an average annual growth rate of 1.7 percent and a cumulative increase in utility gross margin of approximately $16 million. For more information on utility gross margin, please see “Non-GAAP Financial Information” below.

Basic Gas Supply Service (BGSS) Incentive Programs:

BGSS incentive programs contributed $3 million to utility gross margin in the third quarter of fiscal 2018, compared with $3.4 million during the same period in fiscal 2017. Fiscal year-to-date, these programs contributed $9.8 million, compared with $10.1 million during the same period in fiscal 2017. The lower results for both periods were due primarily to a decrease in capacity release volumes. Total savings for NJNG customers through the BGSS incentive programs for the first nine months of fiscal 2018 were approximately $55 million.

Energy Efficiency:

The SAVEGREEN Project ®, NJNG’s energy-efficiency program, invested $9.3 million during the first nine months of fiscal 2018 in grants and financing options designed to help customers with energy-efficiency upgrades for their homes and businesses. On March 28, 2018, NJNG filed a petition with the BPU requesting continuation of existing SAVEGREEN programs and the addition of new programs through December 2024, with investments of approximately $341 million.

Tax Reform Benefits Customers:

On March 26, 2018, the BPU approved NJNG’s filing to pass through the benefits of federal tax reform and reduce customers’ rates by $21 million, inclusive of sales tax, effective April 1, 2018, resulting in a $31, or a 3 percent, annual decrease for the typical customer. On May 22, 2018, the BPU approved NJNG’s request to provide a one-time refund to customers of approximately $31 million, which customers received in June 2018. Customers using approximately 1,000 therms per year will see an estimated overall reduction of $78, or 7.4 percent, on their bill this year.

Midstream

Midstream reported third-quarter fiscal 2018 NFE of $3.5 million, compared with $3 million during the same period in fiscal 2017. The quarterly increase is due to an increase in Allowance for Funds Used During Construction (AFUDC) from the PennEast project. Fiscal 2018 year-to-date NFE were $22.3 million, compared with $10.3 million during the same period last year. The higher fiscal year-to-date results reflect the benefits of tax reform.

Infrastructure Projects:

PennEast Pipeline - On January 19, 2018, the Federal Energy Regulatory Commission (FERC) issued a Certificate of Public Convenience and Necessity for the PennEast Pipeline. PennEast is working through the details of gaining access to land to complete surveys in order to submit certain permit applications. PennEast has advised that it currently expects construction on the pipeline to begin in 2019. However, any delays in the permitting process may result in construction commencing later than currently expected. Adelphia Gateway - On January 15, 2018, NJR filed with FERC seeking a Certificate of Public Convenience and Necessity for the Adelphia Gateway natural gas pipeline. On January 23, 2018, FERC formally noticed the application. This re-purposed pipeline will deliver natural gas to under-served areas in the greater Philadelphia market, and NJR expects it to be in service in fiscal 2019 and contribute materially to earnings in fiscal 2020.

Non-Regulated Businesses Update:

Energy Services

Energy Services reported third-quarter fiscal 2018 net financial losses of $15.1 million, compared with NFE of $933,000 during the same period in fiscal 2017. The quarterly decrease in NFE was due primarily to increased demand fees and O&M expenses during the quarter compared to the same period last year. The higher fees were partially offset by additional gross margin from favorable price spreads due to temperatures deviating from normal during April and June of this year. Fiscal 2018 year-to-date NFE were $78 million, compared with $20.2 million during the same period in fiscal 2017. The fiscal 2018 year-to-date increase was primarily due to colder weather that resulted in increased storage withdrawals to meet higher demand coupled with higher volatility, which allowed Energy Services to capture additional financial margin.

Clean Energy Ventures

CEV reported a net financial loss of $829,000 in the third quarter of fiscal 2018, compared with $6.3 million in the same period in fiscal 2017. The lower quarterly results were due primarily to an expectation of fewer Investment Tax Credits (ITC), compared with the same period in fiscal 2017, as a result of the planned sale leaseback financings for all fiscal 2018 commercial solar projects. Fiscal 2018 year-to-date NFE were $80.5 million, compared with $31.9 million during the same period in fiscal 2017. The improved fiscal year-to-date results were due primarily to an estimated benefit of $63.8 million related to the revaluation of deferred income taxes associated with tax reform.

CEV expects total solar-related capital expenditures during fiscal 2018 to be between $130 million and $144 million, of which $96.4 million will utilize sale leaseback financing. This compares with total solar-related capital expenditures of $120.3 million in fiscal 2017, which included $33 million of sale leaseback financing.

Quarterly highlights:

Two commercial solar projects were placed into service during the third fiscal quarter. The two projects, located in Raritan and South Brunswick, NJ, total 23 MW of capacity. CEV expects two additional commercial solar projects located in Old Bridge and Springfield Township, N.J. to be placed into service in the fourth quarter of fiscal 2018. The four projects will add a total of 42.9 MW of capacity and represent an investment of $96.4 million. The Sunlight Advantage ®, CEV’s residential solar leasing program, added 221 residential customers during the third quarter of fiscal 2018 and now serves approximately 7,000 residential customers, representing an investment of $207.7 million. On March 2, 2018, CEV entered into a purchase and sale agreement for its 9.7 MW wind farm in Two Dot, Montana for a total sale price of $18.5 million. The sale closed on June 1, 2018, and CEV realized a pre-tax gain of approximately $965,000. In March 2018, CEV announced a plan to sell its remaining wind assets. CEV expects a potential sale to close in the first quarter of fiscal 2019.

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