“New Sources of Earnings – A Primer on Our Solar Energy Strategy” Exhibit 99.1 |
New Jersey Resources Corporate Overview Laurence M. Downes March 8, 2011 |
AGENDA • Corporate Overview • NJR Strategy • Solar Information • Solar Project - Development Process • Break • NJRCEV Project Pipeline • The Sunlight Advantage (Residential Program) • SRECs • Hedging • ITC Accounting for Solar Transactions |
REGARDING FORWARD-LOOKING STATEMENTS Certain statements contained in this presentation are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward- looking statements can also be identified by the use of forward-looking terminology such as “may,” “intend,” “expect,” or “continue” or comparable terminology and are made based upon management’s current expectations and beliefs as of this date concerning future developments and their potential effect upon New Jersey Resources (NJR or the Company). There can be no assurance that future developments will be in accordance with management’s expectations or that the effect of future developments on the Company will be those anticipated by management. The Company cautions persons reading or hearing this presentation that the assumptions that form the basis for forward-looking statements regarding customer growth, customer usage, financial condition, results of operations, cash flows, capital requirements, market risk and other matters for fiscal 2011 and thereafter include many factors that are beyond the Company’s ability to control or estimate precisely, such as estimates of future market conditions, the behavior of other market participants and changes in the debt and equity capital markets. The factors that could cause actual results to differ materially from NJR’s expectations include, but are not limited to, weather and economic conditions; NJR’s dependence on operating subsidiaries; demographic changes in the New Jersey Natural Gas (NJNG) service territory; the rate of NJNG customer growth; volatility of natural gas and other commodity prices and their impact on customer usage, NJR Energy Services’ (NJRES) operations and on the Company’s risk management efforts; changes in rating agency requirements and/or credit ratings and their effect on availability and cost of capital to the Company; the impact of volatility in the credit markets that would result in the increased cost and/or limit the availability of credit at NJR to fund and support physical gas inventory purchases and other working capital needs at NJRES, and all other non-regulated subsidiaries, as well as negatively affect cost and access to the commercial paper market and other short-term financing markets by NJNG to allow it to fund its commodity purchases, capital expenditures and meet its short-term obligations as they come due; ability to comply with debt covenants; continued failures in the market for auction rate securities; the impact to the asset values and resulting higher costs and funding obligations of NJR’s pension and postemployment benefit plans as a result of downturns in the financial markets, and impacts associated with the Patient Protection and Affordable Care Act; accounting effects and other risks associated with hedging activities and use of derivatives contracts; commercial and wholesale credit risks, including the availability of creditworthy customers and counterparties and liquidity in the wholesale energy trading market; the ability to obtain governmental approvals and/or financing for the construction, development and operation of certain non-regulated energy investments; risks associated with the management of the Company’s joint ventures and partnerships; risks associated with the Company’s investments in solar energy projects, including the availability of regulatory and tax incentives, the development of the market for Solar Renewable Energy Certificates, the construction and regulatory risks and the availability of viable projects; the level and rate at which costs and expenses are incurred and the extent to which they are allowed to be recovered from customers through the regulatory process in connection with constructing, operating and maintaining NJNG’s natural gas transmission and distribution system; dependence on third-party storage and transportation facilities for natural gas supply; operational risks incidental to handling, storing, transporting and providing customers with natural gas; access to adequate supplies of natural gas; the regulatory and pricing policies of federal and state regulatory agencies; the costs of compliance with present and future environmental laws, including potential climate change-related legislation; the ultimate outcome of pending regulatory proceedings; the disallowance of recovery of environmental-related expenditures and other regulatory changes; and environmental-related and other litigation and other uncertainties. While the Company periodically reassesses material trends and uncertainties affecting the Company’s results of operations and financial condition in connection with its preparation of management’s discussion and analysis of results of operations and financial condition contained in its Quarterly and Annual Reports filed with the Securities and Exchange Commission, the Company does not, by including this statement, assume any obligation to review or revise any particular forward-looking statement referenced herein in light of future events. 3 |
DISCLAIMER REGARDING NON-GAAP FINANCIAL MEASURES 4 This presentation includes the non-GAAP measures net financial earnings (losses) and utility gross margin. As an indicator of the company’s operating performance, these measures should not be considered an alternative to, or more meaningful than, GAAP measures such as cash flow, net income, operating income or earnings per share. Net financial earnings (losses) exclude unrealized gains or losses on derivative instruments related to the company’s unregulated subsidiaries and certain realized gains and losses on derivative instruments related to natural gas that has been placed into storage at NJRES. Volatility associated with the change in value of these financial and physical commodity contracts is reported in the income statement in the current period. In order to manage its business, NJR views its results without the impacts of the unrealized gains and losses, and certain realized gains and losses, caused by changes in value of these financial instruments and physical commodity contracts prior to the completion of the planned transaction because it shows changes in value currently as opposed to when the planned transaction ultimately is settled. NJNG’s utility gross margin represents the results of revenues less natural gas costs, sales and other taxes and regulatory rider expenses, which are key components of the company’s operations that move in relation to each other. Management uses net financial earnings and utility gross margin as supplemental measures to other GAAP results to provide a more complete understanding of the company’s performance. Management believes these non-GAAP measures are more reflective of the company’s business model, provide transparency to investors and enable period-to-period comparability of financial performance. For a full discussion of our non-GAAP financial measures, please see Item 7 of our Annual Report on Form 10-K for the fiscal year ended September 30, 2010, filed on November 24, 2010. |
KEY INDUSTRY ISSUES 5 |
• Net Financial Earnings for the quarter – $.71 vs. $.66 last year, a 7.6 percent increase • NFE guidance announced – range of $2.50 to $2.65 per share – 60 to 70 percent from NJNG • Implemented a 5.9 percent dividend increase effective January 3, 2011 • Strong results from NJNG – Steady customer growth – AIP investments – Higher BGSS incentive margins • Positive earnings contribution from NJRES and midstream assets • Announced The Sunlight Advantage™ 1 QUARTER FISCAL 2011 HIGHLIGHTS 6 ST |
FIRST QUARTER NFE ($mm) Company Q1 2011 Q1 2010 Change New Jersey Natural Gas $24.4 $23.5 $0.9 NJR Energy Services 3.2 2.5 0.7 Midstream Assets 1.7 1.9 (0.2) Clean Energy/Retail/Other (0.2) (0.5) 0.3 Total $29.1 $27.4 $1.7 Per basic share $0.71 $0.66 $0.05 7 |
KEY FINANCIAL DRIVERS • New Jersey Natural Gas – Margin Growth from New Customers – Regulatory Programs • Accelerated Infrastructure Programs • Incentive Programs • Clean Energy Ventures • Midstream Assets – Steckman Ridge – Iroquois • Disciplined Wholesale Energy Services • Home Services 8 |
OUR BUSINESS MODEL Safety and reliability Competitive pricing Steady customer growth Rate base investment opportunities Regulatory initiatives Natural Gas Distribution Clean Energy and Retail Services Residential solar programs Commercial solar projects and ground mount solar farms Residential and commercial service contracts, installations and repair services Wholesale Energy Services Physical natural gas marketer Producer services Manage storage and transportation assets Synergistic midstream investment opportunities The Fundamentals: • Stakeholder Relationships • Strong Financial Profile • Disciplined Capital Allocation • Infrastructure, Asset Mgmt. & Service • Consistent Earnings and Dividend Growth 9 |
CONSISTENT FINANCIAL PERFORMANCE $1.88 $2.11 $2.24 $2.40 $2.46 $2.50 - $2.65 $1.30 $1.55 $1.80 $2.05 $2.30 $2.55 2006 2007 2008 2009 2010 2011 Current Range September 30 NJR estimates net financial earnings of $2.50 to $2.65 per basic share in fiscal 2011 10 |
2011 EARNINGS GUIDANCE Infrastructure-based businesses expected to contribute up to 90 percent of fiscal 2011 NFE Clean Energy Ventures 10-20% Midstream 5-10% NJR Energy Services 5-10% New Jersey Natural Gas 60-70% Home Services & Other 2-5% 11 |
$0.96 $1.01 $1.12 $1.24 $1.36 $1.44* $0.50 $0.60 $0.70 $0.80 $0.90 $1.00 $1.10 $1.20 $1.30 $1.40 $1.50 2006 2007 2008 2009 2010 2011 DIVIDEND GROWTH * Effective January 3, 2011 12 |
PAYOUT RATIO Based on Net Financial Earnings Payout ratio provides continued dividend growth opportunities 13 |
OUR BUSINESS MODEL Safety and reliability Competitive pricing Steady customer growth Rate base investment opportunities Regulatory initiatives Natural Gas Distribution The Fundamentals: • Stakeholder Relationships • Strong Financial Profile • Disciplined Capital Allocation • Infrastructure, Asset Mgmt. & Service • Consistent Earnings and Dividend Growth 14 |
THE NJNG ADVANTAGE The NJNG Advantage is: •Core customer growth – New construction – Conversions •The SAVEGREEN Project™ •Regulatory incentives 15 The NJNG Advantage is the price and value benefits provided to customers |
• Over 490,000 customers • $943 million of rate base • 100 percent residential & commercial customers • Favorable demographics to support customer growth THE NJNG ADVANTAGE - OUR SERVICE AREA NYC Phila. Atlantic City 16 |
THE NJNG ADVANTAGE - SERVICE AREA DEMOGRAPHICS 3.5% 3.9% 4.7% 12.3% 0.0% 5.0% 10.0% 15.0% NJ Morris Monmouth Ocean Population Change 2000-2009 Source: US Census Bureau County by County Customer Breakdown Morris 12% Ocean 44% Monmouth 44% 17 |
$1.28 $2.68 $4.63 $4.98 $0.00 $1.00 $2.00 $3.00 $4.00 $5.00 $6.00 NJNG Fuel Oil Propane Electricity THE NJNG ADVANTAGE - FUEL PRICE COMPARISON Data as of January 2011. Based on 100,000 comparable BTUs 18 NJNG enjoys a distinct price advantage in its service area |
89,838 7,600 2014-Build Out Potential New Customers = 97,438 2011-2013 THE NJNG ADVANTAGE - NEW CONSTRUCTION • Estimates based on: • Local construction trends • Economic forecasts • New construction market improving 19 |
• Identifying and targeting communities for conversion – Close proximity to natural gas lines – Type of fuel and equipment • Age and size of house • To encourage conversions: – Provide custom fuel cost comparisons – SAVEGREEN rebates and incentives – Partner with contractors THE NJNG ADVANTAGE – CONVERSION MARKETS 20 |
• 1,640 new customers in Q1 fiscal 2011: a 14 percent increase over 1Q 2010 • 92 additional existing customer heat conversions • Q1 new customers and existing customer conversions will contribute approximately $.9 million of new NJNG utility gross margin annually • Estimate 12,000 to 14,000 new customers over the next two years - a growth rate of 1.2 percent THE NJNG ADVANTAGE RESULT - STEADY CUSTOMER GROWTH 21 New 49% Conversions 51% Q1 Fiscal 2011 New Customer Breakdown Residental 60% Commerical 38% Existing 2% NJNG Gross Margin Contribution |
THE SAVEGREEN PROJECT • Programs to encourage energy efficiency • Extended by BPU in September through 2011 • Contractor partners grew from 144 to 693 in 2010 • $10 million in incentives has created an estimated $40 million in economic activity • On-bill repayment plan – Allows customers to fund up to $10,000 of HPwES energy-efficiency upgrades and repay it on their bills over a 10 year period with no interest. 22 |
• Off-system sales and capacity release – In place since 1992 – Optimization of capacity contracts – Sharing formula of 85 percent customer; 15 percent NJNG • Storage Incentive (SI) – In place since 2004 – Promotes long-term price stability – Promotes cost efficiencies – Sharing formula of 80 percent customer; 20 percent NJNG • Financial Risk Management (FRM) – In place since 1997 – Promote application of risk management techniques – Sharing formula of 85 percent customer; 15 percent NJNG BGSS INCENTIVES Total customer savings since inception: $504 million 23 |
REGULATORY INITIATIVES Accelerated Infrastructure Programs (AIP) • Investment of $70.8 million on infrastructure projects – Since inception in 2009, NJNG has expended $56 million (December 2010) – $36.4 million of AIP expenditures now included in base rates – Rate recovery of program spending annually at WACC of 7.76 percent – Has created an estimated 700 direct and indirect jobs • Filed with the NJ BPU for an additional $52.2 million in October – Amended filing increases total to $60.2 million in January – Decision expected by end of March Conservation Incentive Program • In place through September 30, 2013; encourages customer conservation • Customers have saved over $174 million since inception • Protects NJNG utility gross margin from declining usage and weather 24 |
J.D. Power and Associates 2010 Gas Utility Residential Customer Satisfaction Study CUSTOMER SATISFACTION • “Highest in Customer Satisfaction With Residential Natural Gas Service in the Eastern U.S. among Large Utilities” • Our Best Performance By Far – NJNG Score: 649 – East Region Large Utility Average: 612 • Our 4 J.D. Power Award – 2002 Residential Customer Satisfaction – 2007 Founder’s Award – 2009 Residential Customer Satisfaction – 2010 Residential Customer Satisfaction New Jersey Natural Gas received the highest numerical score among large utilities in the Eastern U.S. in the proprietary J.D. Power and Associates 2010 Gas Utility Residential Customer Satisfaction Study . Study based on 61,026 online interviews ranking 10 providers in the Eastern U.S. (CT, DC, MD, MA, NH, NJ, NY, PA, RI, VA). Proprietary study results are based on experiences and perceptions of consumers surveyed September 2009- July 2010. Your experiences may vary. Visit jdpower.com. 25 SM th |
OUR BUSINESS MODEL Wholesale Energy Services Physical natural gas marketer Producer services Manage storage and transportation assets Synergistic midstream investment opportunities The Fundamentals: • Stakeholder Relationships • Strong Financial Profile • Disciplined Capital Allocation • Infrastructure, Asset Mgmt. & Service • Consistent Earnings and Dividend Growth 26 |
• Overall, midstream assets contributed $1.7 million to Q1 2011 NFE • Expected to contribute 5 to 10 percent to fiscal 2011 NFE • Approximately 30 percent of Steckman Ridge capacity is now under long-term contracts MIDSTREAM ASSETS 27 |
• 411-mile pipeline system running from the Canadian border at Waddington, NY to Long Island & NYC • 78,100 HP of compression • 1.2 Bcf/d of peak deliverability • Commenced operations in 1991 $0.8 $0.7 $1.0 $1.1 $1.5 $1.8 $2.6 $2.6 $0.0 $0.5 $1.0 $1.5 $2.0 $2.5 $3.0 2003 2004 2005 2006 2007 2008 2009 2010 September 30 NJR's Iroquois Ownership Earnings MIDSTREAM INVESTMENTS: IROQUOIS PIPELINE 28 |
NJRES UPDATE • Value of capacity and storage has been affected by changing markets and additional supplies – Resulted in lower margins – Continued focus on a long-option strategy – Disciplined risk management • Greater focus on Producer Services – Fee-based asset management – Over 350,000 dth/day currently under management • Contributed $3.2 million to Q1 2011 NFE vs. $2.5 million last year • Lower expected contribution to overall fiscal 2011 NFE 29 |
PRODUCER SERVICES • Producers Services encompasses two distinct efforts – Service Based • New gas resource plays have created a growing need for small to mid- sized exploration and production companies to retain outside marketing services to ensure flow assurance – Term gas supply purchase – Management of pipeline and storage assets – Nominations, scheduling and other operations functions – Hedging and risk management – Negotiation of gathering, processing, transport and other commercial agreements – Asset Based • NJRES focus on producers with production where NJRES’ transportation and storage assets bring added value • Current efforts focused primarily on Marcellus Shale 30 |
OUR BUSINESS MODEL Clean Energy and Retail Services Residential solar programs Commercial solar projects and ground mount solar farms Residential and commercial service contracts, installations and repair services The Fundamentals: • Stakeholder Relationships • Strong Financial Profile • Disciplined Capital Allocation • Infrastructure, Asset Mgmt. & Service • Consistent Earnings and Dividend Growth 31 |
• Spun out from NJNG in 2000 • Not capital intensive • Principally a service business (i.e., labor intensive) • Strong organic growth opportunities • High customer service levels • High productivity NJR HOME SERVICES 32 |
2000 11% 89% $11.3 million $31.1 million NJRHS – GROWTH IN SERVICES AND REVENUE 33 2010 2% 21% 1% 72% 4% Service Contracts Chargeable Installations Plumbing Commercial |
• We have: – The fundamentals in place to achieve long-term NFE growth • Customer growth • AIP and SAVEGREEN • Steckman Ridge • Solar Investments – The ability to increase dividends – A strong financial profile – A collaborative relationship with regulators – A track record of growth and consistent results A RECORD OF CONSISTENT PERFORMANCE 34 |
NJR Strategy |
REGARDING FORWARD-LOOKING STATEMENTS 35 Certain statements contained in this presentation are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements can also be identified by the use of forward-looking terminology such as “may,” “intend,” “expect,” or “continue” or comparable terminology and are made based upon management’s current expectations and beliefs as of this date concerning future developments and their potential effect upon New Jersey Resources (NJR or the Company). There can be no assurance that future developments will be in accordance with management’s expectations or that the effect of future developments on the Company will be those anticipated by management. The Company cautions persons reading or hearing this presentation that the assumptions that form the basis for forward-looking statements regarding the Company's clean energy strategy, particularly our solar energy projects for fiscal 2011 and thereafter include many factors that are beyond the Company’s ability to control or estimate precisely, such as estimates of future market conditions and the behavior of other market participants. The factors that could cause actual results to differ materially from NJR’s expectations include, but are not limited to, weather and economic conditions; the impact of volatility in the credit markets that would result in the increased cost and/or limit the availability of credit at NJR to fund and support working capital needs at its non-regulated subsidiaries; accounting effects and other risks associated with hedging activities and use of derivatives contracts; risks associated with the Company’s investments in solar energy projects, including the availability of regulatory and tax incentives, logistical risks and potential delays related to construction, permitting, regulatory approvals and electric grid interconnection, the availability of viable projects and NJR's eligibility for federal investment tax credits (ITCs) and the future market for Solar Renewable Energy Credits (SRECs) that are traded in a competitive marketplace in the state of New Jersey; the regulatory and pricing policies of federal and state regulatory agencies; the costs of compliance with present and future environmental laws, including potential climate change-related legislation; and environmental-related and other litigation and other uncertainties. Projects referred to as “under evaluation” in this presentation are not under contract and are subject to negotiation of final terms and all of the aforementioned risks. Additional information and other factors are contained in NJR's filings with the Securities and Exchange Commission (SEC), including NJR's Annual Reports on Form 10-K and subsequent Quarterly Reports on Form 10-Q, recent Current Reports on Form 8-K, and other SEC filings, which are available at the SEC's web site, http:.//www.sec.gov. Information included in this presentation is representative as of today only and while the Company periodically reassesses material trends and uncertainties affecting the Company’s results of operations and financial condition in connection with its preparation of management’s discussion and analysis of results of operations and financial condition contained in its Quarterly and Annual Reports filed with the Securities and Exchange Commission, the Company does not, by including this statement, assume any obligation to review or revise any particular forward-looking statement referenced herein in light of future events. |
NJR SOLAR STRATEGY • Consistent with our core energy strategy • Three sources of investment value • Energy savings for customers • Promotes economic development and job creation (1) – Approximately 5 jobs created for each $1 million investment – $425,000 in NJ Gross State Product created for each $1 million investment • Supports New Jersey’s environmental goals 37 (1) Edward J. Bloustein School of Planning and Public Policy, Rutgers, The State University of New Jersey, Economic Impacts of Energy Infrastructure Investments, July 2010 |
WHY NEW JERSEY? • History of innovation in electricity markets • Deregulated power market with multiple utilities • High retail electric rates • Densely populated state with constrained ability for new generation and transmission capacity • High sensitivity to environmental issues • Strong support for renewable energy 38 |
WHY NEW JERSEY? Year Action 1999 Electric Discount and Energy Competition Act (EDECA) law defines net metering, RPS, and SBC 2001 New Jersey Clean Energy Program (NJCEP) Solar rebate program initiated with $120 million over 4 years 2003 EDECA modified for solar RPS carve-out with Solar ACP (SACP) 2004 NJCEP solar rebate budget renewed at $270 million for next four years 2005 EDECA modified to limit SREC’s to only NJ facilities, extended RPS to 2021, required LSE’s to meet RPS via SREC’s 2007-8 Solar Market Transition from rebates to SREC’s; SACP increased from $300 to $711 2009 Board of Public Utilities enforces $40 million SACP penalty; initiates utility securitization programs 2010 Solar Fair Competition Act (A3520) doubles solar RPS and the established solar RPS and SACP cannot be reduced by BPU action 39 |
MAJOR GOVERNMENTAL ROLES Issues Energy Master Plan that defines state direction and priorities; Board of Public Utilities reports to Governor Establishes EDECA which defines Renewable Portfolio Standard (RPS) and Solar Alternative Compliance Payment (SACP) Administers NJCEP SREC registration program and implements EDECA 40 |
STRONG RPS CREATES LONG-TERM SOLAR OPPORTUNITIES IN NEW JERSEY Energy Year End 41 The RPS goes from 171 GWH in 2010 to 965 GWH in 2015, an increase of almost 6x in five years. 306 596 772 965 442 15 |
Energy Year End 42 The RPS requirement of 5,316 GWh in 2026 is a 451% increase from the 2015 requirement of 965 GWh. STRONG RPS CREATES LONG-TERM SOLAR OPPORTUNITIES IN NEW JERSEY |
ASSET MANAGEMENT IS A KEY SKILL SET 43 Nameplate Capacity Operational Performance Operational Capacity Panel degradation factors can decrease system output by approximately 0.5% per year Equipment Degradation Maintenance Equipment Performance Shading and soiling concerns can inhibit system production Inverter or array downtime can severely impact system output _ = Solar value is maximized by operational excellence. Infrastructure reliability and performance are the key drivers for investment value. |
SOLAR RENEWABLE ENERGY CERTIFICATES (SREC) • A SREC represents the environmental benefits or attributes of one megawatt-hour of generation from a solar generating facility • Load Serving Entities (LSE) obtain SRECs to satisfy their RPS requirements • An alternate to purchasing SRECs is for LSEs to pay a Solar Alternate Compliance Payment (SACP) 44 New Jersey has moved from a rebate to a market based pricing incentive model. |
MULTI-SECTOR SOLAR INVESTMENT STRATEGY 45 |
NJR CLEAN ENERGY VENTURES – LEASE MODEL 46 Commercial Model • NJRCEV acquires ground or rooftop control through lease agreement with landlord • Solar electricity sold to tenants (retail) or to grid (wholesale) • Landlord get lease payments • NJRCEV get ITC and monetizes SRECs Residential Model • NJRCEV acquires rooftop control through lease agreement with homeowner • Homeowner gets benefit of solar produced electricity • NJRCEV gets lease payments from homeowner • NJRCEV gets ITC and monetizes SRECs |
Potential Relationships Developers Manufacturers Contractors Support Spano American Capital Energy Uni-Solar Neuwing Renewable Energy Tioga Garden Solar Sunpower Green Oak Energy Gloria Solis Partners NERC Mercury Solar Dynamic Carlisle Energy Services Sun Farm Quadrillion Con Edison Development Mercury Solar Carlisle Energy Services Ray Angellini Four Point Solar AGT All Season Solar Solis Partners GeoGenix Sun Farm NJ Solar Power RPS Advanced Solar Products Uni-Solar Gloria SMA MX Solar Trina SatCon Andalay Solyndra PV Powered Kyocera Suntech Schuko Enphase UniRac Sunpower Draker Labs DPW Locus Energy Noveda Technologies The Dayhill Group MVM Advisors Innovative Engineering KZA Engineering Broadlands EnTech Cooper Electric Supply Duffy Dolcy McManus & Roesch SOLAR MARKET PARTICIPANTS 47 |
Solar Information |
SOLAR REGIONAL MARKET COMPARISON Solar Markets Analysis California Solar Yield 1470 kWh/kW Residential Electric Rate $0.1523 Commercial Electric Rate $0.1421 Arizona Solar Yield 1617 kWh/kW Residential Electric Rate $0.1105 Commercial Electric Rate $0.0952 Florida Solar Yield 1364 kWh/kW Residential Electric Rate $0.1150 Commercial Electric Rate $0.0977 New Jersey Solar Yield 1250 kWh/kW Residential Electric Rate $0.1661 Commercial Electric Rate $0.1398 (2) Annual solar yield based on optimum PV Watts default orientation and tilt Solar markets are driven by two factors – retail energy rates (1) and solar panel yields (2) 49 (1) 2010 Commercial electric rate as per U.S. Energy Information Administration – Electric Power Monthly |
Generation Transmission Distribution SOLAR GENERATION MODEL 50 Customer Jurisdiction FERC NJBPU NJBPU Method of Interconnection Pricing Mechanism Solar Array N/A Grid Connected Net Metered N/A Wholesale Rate set by Tariff OR Market Trade Retail Offset Distributed Model with differing off-take possibilities |
NET METERED SOLAR PV CONFIGURATION 51 Design considerations: • Site orientation • Shading and obstructions • Roof integrity or ground mounting space • Thin film or crystalline panels (cost and aesthetics) • System sizing |
MATCHING TECHNOLOGY TO APPLICATION Advantages Disadvantages Crystalline (Mono and Multi) • High energy density • Good for space constrained applications • Temperature sensitive • Weight • Mounting may require roof penetration Thin Film • Wide spectrum of light • Building integrated product • Weight • Energy density • Module degradation Thin Film (Solyndra) • Weight • Potential for added performance • Less impact from snow and soil • Energy density • Applicable only to certain roof types 52 |
SYSTEM PRODUCTION MONITORING System production information is monitored by NJRCEV and is actively processed in order to achieve recognition of SREC revenue in a timely fashion. • The system meter is monitoring energy production flow continually • The system meter is read on a monthly basis for the purposes of SREC reporting • SREC generation data is uploaded into the PJM – Generation Attribute Tracking System (PJM-GATS) • The following month PJM – GATS credits NJR with the appropriate SREC production 53 |
Solar Project - Development Process |
BUSINESS DEVELOPMENT STRATEGY Project Closeout Installation Final Engineering Design & Permitting Sales Commitment Relative Times by Project Category Residential Retail Commercial Wholesale Commercial Solar Farms Timeline (Illustrative) Estimated Completion 3-4 months Estimated Completion 4-8 months Estimated Completion 6-12 months Estimated Completion 12-24+ months Residential and commercial projects have similar processes. Time frames and complexity are dependent on project. 55 |
PROJECT PROFILE: A CONTINUUM OF APPROVAL POINTS Project Operation Project Closeout Installation Final Engineering Design & Permitting Site Control NJR Approval NJCEP Initial Application Local/Regional Permit Application Interconnection Phase I NJR QC/QA NJCEP QC/QA Local/Regional Permit Approval Interconnection Phase II NJCEP “As-Built” Application NJCEP Final Application SREC Registration PJM GATS Initiation NJR Close-out Once project documents are executed a detailed process of permits and approvals are required to interconnect and construct. This process varies widely by location and utility region. 56 |
PJM INTERCONNECTION PROCESS OVERVIEW All generation projects interconnecting through a PJM transmission owner must follow the same process for requesting approval to connect to the system. 3 Months 4 Months 6 Months 57 * Interconnection Service Agreement/Construction Service Agreement Interconnection Request Studies Execution of ISA/CSA * ISA/CSA Implementation Commercial Operation Feasibility Study Impact Study Facility Study The study phases highlighted above are regulated by FERC. • All projects follow the same timeline • Study process is 12 to 18 months • Actual construction of the interconnect can range from several months to years if transmission line upgrade work is required |
NJRCEV Project Pipeline |
COMMERCIAL PROJECT – DRIVERS/VALUES 59 |
COMMERCIAL PROJECT – DRIVERS/VALUES 60 |
COMMERCIAL SOLAR MODEL • Real estate brokers, property managers, land developers – Project development opportunities • Engineering Procurement Construction (EPC) contractors – Lead generation – System design and engineering – Installation • NJR Clean Energy Ventures – Oversee construction process • Owner’s representative support – Meter and monitor system performance 61 |
OVERVIEW OF COMMERCIAL PROJECT PIPELINE General Summary • $17 million closed and in construction phase • $250 million of projects under evaluation • Contract commitments are not finalized, stage is determined by status of our contract negotiations, customer acceptance, permitting, approvals and date of commercial operations • Annual capital currently estimated at $40 - $60 million • Robust mix of project types to balance portfolio – Rooftop vs. ground mount – Wholesale vs. retail $110 MM $54 MM $86 MM 62 |
PROJECTS IN CONSTRUCTION PHASE • NJRCEV is currently constructing a number of commercial projects along with building out its residential program Location Size (MW) Capital ($MM) Project Type Edison, NJ * 0.5 2.2 Rooftop Avenel, NJ 1.5 6.6 Rooftop Cranbury, NJ 0.9 3.9 Rooftop South Brunswick, NJ 1.0 4.3 Rooftop TOTAL 3.9 17.0 63 * Completed in February 2011 |
MID AND LATE STAGE PROJECTS UNDER EVALUATION Location Size (MW) Capital ($MM) Project Type Southern, NJ 5.0 27.4 Ground Central, NJ 3.6 17.2 Ground Central, NJ 10.0 43.0 Ground Southern, NJ 4.2 18.0 Ground Central, NJ 0.5 2.5 Rooftop Northern, NJ 0.36 1.8 Rooftop Northern, NJ 0.5 2.5 Rooftop Central, NJ 1.5 6.4 Rooftop Southern, NJ 10.0 45.0 Ground TOTAL 35.7 163.8 64 Projects are pending completion of due diligence and final contract negotiations |
RESIDENTIAL LEASE PROGRAM DRIVERS 66 |
RESIDENTIAL PROJECT – DRIVERS/VALUES 67 2011 Goals • $9.4 million capital • 2.2 MW • 350 projects |
RESIDENTIAL SOLAR LEASING MODEL • Installation channel partners – Lead generation – Sales – Installations • NJR Clean Energy Ventures – Marketing – Material procurement – Quality assurance – Metering and monitoring 68 |
TRANSFORMING THE RESIDENTIAL MARKET From To High income Moderate income High risk tolerance Low risk tolerance Be green Save green Construction/techno savvy Less expensive electricity NJR is appealing to a new type of customer by shifting solar from a capital expenditure to a service model 69 |
Clean & Green No Money Down Fixed Monthly Cost No Fine Print We Manage Everything $100 per month $1,200 per year $20,000 system life Backed By A Company You Trust PRODUCT POSITIONING 70 |
Critical Success Factor NJRCEV Strategy Obtain and sustain rapid market penetration • Create superior customer value to accelerate sales cycles • Add channel partners to increase market coverage • Leverage local contacts to speed permitting processes Leverage scale to drive down cost of installations • Standardized installations with limited customization • Adopt bulk purchasing model • Set prices with channel partners with expected reductions • Ongoing in-source of functions where scale and standardization add value Maximize system performance at minimum cost • Maintain flexibility to source best of breed technologies • Implement remote monitoring tools • Leverage NJR best practices in customer service, billing and warranty management DRIVING SUSTAINABLE COMPETITIVE ADVANTAGE 71 |
SRECs |
SREC REGISTRATION AND TRANSFERS Energy Producer GATS SREC Registry Monetization Load Serving Entity 73 Electronic exchanges and retail providers create liquidity for SREC monetization Bi-lateral agreements Electronic Exchange Utility Auctions Spot Sales Term Sales Aggregator Broker |
As SREC’s Created Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan SREC MONETIZATION 135 135 117 100 72 47 36 67 78 105 117 128 135 270 387 487 559 606 642 709 787 892 1,009 1,137 Monetize in current energy year – transact by 8/31 Cumulative SREC Credited Monetize in following energy year or SREC expires Balance Carries Forward…………………… 74 Energy Year Timeline (Illustrated for a 1 MW project) |
INDICATIVE VALUE OF SRECS 75 $300 $350 $400 $450 $500 $550 $600 $650 $700 2011 2012 2013 2014 2015 2016 SACP JCP&L/ACE Solicitation (10 Yr) Broker market 2011-2013 $350 Spot Price $655 $425 Broker market 2012-2014 PSEG Solar Loan II (15 Yr) |
Hedging |
HEDGING OBJECTIVES • Maximize SREC revenue while protecting project payback returns • Develop a portfolio approach as SREC volumes increase with additional projects • Mitigate SREC revenue uncertainty 77 |
TYPICAL PROJECT HEDGING • Hedge through pay-back period – Approximately 5 years • Hedging results of three-year strip strategy – 70% of capital commitment • Selling a three-year strip of SRECs at market prices • ITC recognition • After each year of operation, additional SREC sales to be evaluated 78 |
Accounting for Investment Tax Credits (ITC) |
80 ITC - BACKGROUND INFORMATION • The Emergency Economic Stabilization Act of 2008 extends 30 percent investment tax credit on solar facilities through the end of 2016 (tax basis reduced by 50 percent of the credit) • American Recovery and Reinvestment Act of 2009 provides for a 30 percent cash grant in lieu of ITC • The 30 percent cash grant option recently extended to December 2011 Project owners have a choice of cash grant or ITC |
81 ITC - BACKGROUND INFORMATION • ITC Process • Qualifying investments claimed as a credit on federal income tax return • Results in a reduction of tax payment (i.e., cash saved at time of estimated tax payment) • Subject to review customarily associated with audit of tax return by IRS • Grant • Application filed for each project with Department of Treasury – Includes engineering design documents, costing of project, and independent auditor certification if over $500,000 • Payment is received 60 days after application is deemed complete Companies with liquidity and tax appetite prefer ITC |
82 ACCOUNTING FOR ITC – BACKGROUND • Accounting literature for ITC dates back to 1962, and has not changed from original conclusions – APB 2: Accounting for the “Investment Credit” – APB 4: Accounting for the “Investment Credit” • Under the guidance there are two methods to account for ITC – Tax reduction (“flow through”) – immediate recognition of the tax benefit – Cost reduction (“deferred”) – recognized over the life of the asset NJR has elected the “flow through” method of accounting for ITC |
83 EXAMPLE – ACCOUNTING FOR $10 MM SOLAR INSTALLATION Tax credit on investment ($10mm x 30%) $3,000,000 Tax basis reduction ($1.5 mm x 40%) (600,000) Net tax benefit $2,400,000 The resulting Day 1 tax benefit from solar is 24 percent of the qualifying investment |
ANNUAL EFFECTIVE TAX RATE • Under ASC 740, an entity is required to calculate an annual effective tax rate and use that rate to estimate tax expense/benefit during interim annual periods • Annual Effective Tax Rate (“AETR”) calculations must include anticipated Investment Tax Credits (“ITC”) Quarterly effective tax rate dependent on forecast of expected ITC eligible capital expenditures 84 |
SUMMARY • Consistent with NJR strategy • Strong NJ RPS goals / incentives • Potentially large market opportunities • Diversified network of suppliers, developers and installers • Tax appetite for ITC • Short (4-5 year) payback mitigates capital at risk • Strong contributor to NJR earnings 85 |