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Text: I'm joined today by Mike Renna, our President and Chief Executive Officer; Steve Cocchi, our Chief Financial Officer; as well as additional members of our senior management team.
Throughout today's call, we'll be making references to future expectations, plans and opportunities for SJI.
Reconciliations of economic earnings to the comparable GAAP measures appear in both documents.
Our CFO, Steve Cocchi, will then review our third quarter and year-to-date operational performance and financial outlook.
Mike will conclude by offering some closing remarks.
I am pleased to report that SJI, notwithstanding the continuing challenges of COVID, again delivered solid performance in the third quarter and through the first nine months of 2021, and we remain on-track to achieve our strategic and financial goals for the year.
Through the first nine months, we have seen economic earnings increase by 12% or approximately $12 million, reflecting solid performance in both our utility and nonutility businesses.
Consistent with our strategy, our utilities, South Jersey Gas and Elizabethtown Gas represent the bulk of our earnings.
Utility margin growth remained strong, reflecting above-average customer growth, positive rate case outcomes, infrastructure modernization programs and effective O&M management.
Natural gas remains in strong demand across New Jersey with our utilities adding more than 12,000 new customers over the last 12 months.
And while we are seeing increased new construction across the state, most of our growth continues to come from customers converting from heating oil and propane.
Our infrastructure modernization and energy efficiency investments, critical to assuring safe and reliable service to our customers, remain on-track and have the added benefit of significantly reducing methane emissions.
On October 1, in keeping with the cadence approved by the BPU, we began recovery of these investments made over the last 12 months.
I am also pleased to report that our regulatory initiatives continue to advance.
In August, the BPU approved South Jersey Gas' engineering and route proposal to construct needed system upgrades in support of a planned 2 Bcf liquefied natural gas facility.
As you know, the BPU has called utilities in New Jersey to evaluate preparedness for potential gas supply interruptions.
This investment is critical to ensuring service is not interrupted in the event of a significant outage, either behind our city gate or in one of the two interstate pipelines that serve the South Jersey Gas system.
Preliminary engineering and design of the project has commenced.
Regarding pending initiatives, we have requested $742 million in Phase 3 infrastructure modernization investments at South Jersey Gas.
This next phase of system modernization targets coated steel and vintage Aldyl-A plastic pipe, supporting the Murphy administration's safety and reliability, job creation and environmental goals.
The retirement of Rate Counsel in September and the leapfrogging of approval of our LNG redundancy proposal has extended our anticipated time line a bit.
But settlement discussions continue to progress, and we remain optimistic for a positive resolution soon.
With regard to pending legislation, the potential for rate base in RNG and hydrogen investments in New Jersey continues to enjoy strong bipartisan support that aligns with Governor Murphy's clean energy goals and is expected to be a priority item during the upcoming lame duck period.
As previously communicated, we believe this legislation will encourage innovation and accelerate New Jersey's decarbonization efforts.
Turning now to our nonutility operations.
Both our energy management and energy production segments delivered solid quarterly and year-to-date results.
Energy Management results reflect strong performance in both wholesale marketing and fuel management, while Energy Production reflects positive results from fuel cell and solar investments over the past 12 months, particularly our Staten Island fuel cell as well as contributions from our 35% equity interest in our RNG development partner, REV.
I am pleased with our progress on our clean energy and decarbonization goals.
Our five-megawatt fuel cell project in the Bronx that was announced in June is under development and moving forward.
Similar to our 2 Staten Island for cells that were brought online in 2020, this fuel cell, which will be our third catamaran is eligible under New York's VDER program, which fixes 75% of revenue and is supported by O&M agreement that guarantees 95% availability.
SJI will receive 92% of the investment tax credits, cash flows and net income from this project.
Our decarbonization investments to our partner REV, remain on-track as well.
Our 35% ownership of REV is now contributing nicely to our bottom line.
And our development of renewable natural gas from future ejection into SJI system and other utility systems across the country continues to move forward.
Engineering and design work at eight dairy farms is wrapping up with construction on deck and in service on-track for the second half of 2022.
As Mike noted, our business has performed very well in the latest period and through the first nine months of 2021.
For the third quarter, SJI posted a loss in economic earnings of $18.8 million compared with a loss of $6 million for the comparable period a year ago.
The latest period reflects improved results from utility operations, which was achieved despite the ongoing challenges of the pandemic and the inherent seasonality of our business.
These improved results from our utility business were offset by decreased profitability from nonutility operations, largely related to year-over-year timing of the recognition of ITCs from renewable investments.
Our utilities contributed a narrower third quarter loss in earnings of $17.2 million compared to a loss of $18.4 million in the third quarter last year.
Improved results primarily reflect rate relief at South Jersey Gas, strong customer growth, and base rate roll-ins related to infrastructure modernization and energy efficiency investments under our authorized plans.
Our nonutility operations contributed third quarter economic earnings of $8.1 million compared to $21.6 million last year.
Energy Management contributed third quarter economic earnings of $4.4 million compared to $6.6 million last year, reflecting solid profits from asset optimization activities, albeit less robust than last year and improved profitability from our retail consulting activities.
Energy Production contributed third quarter economic earnings of $3.9 million compared with $13.8 million last year.
As previously mentioned, the decrease largely reflects timing associated with the recognition of ITCs from renewable energy investments, which was partially offset by positive contributions from fuel cell and solar investments made over the past 12 months as well as contributions from decarbonization investments through our 35% equity ownership in REV.
Midstream contributed a loss in third quarter earnings of $300,000 compared to earnings of $1.2 million last year, reflecting the absence of AFUDC related to the cessation of development activity for the PennEast Pipeline project.
Our other segment contributed a loss in economic earnings of $9.6 million compared to a loss of $9.2 million last year, reflecting higher interest and bank fees partially offset by lower outstanding debt.
For the nine months year-to-date, economic earnings were $112.1 million compared with $100 million last year.
Improved utility results and consistent nonutility results largely reflect the same factors as previously discussed, that impacted third quarter results.
Our capital expenditures and clean energy investments for the year-to-date were approximately $434 million with more than 80% of this amount allocated for regulated utility investments in support of utility infrastructure upgrades, system maintenance and customer growth.
Our balance sheet, debt and credit metrics have all improved over the past year and support our growth plans.
And as always, we remain committed to a capital structure that supports our regulated, focused capital spending plan while maintaining a balanced equity to total capitalization, ample liquidity and a solid investment-grade credit rating.
Our GAAP equity to total capitalization improved to 35% as of September 30, compared with 32.2% on December 31, 2020, reflecting debt and equity financing and repayment of debt using proceeds from asset sales.
Our non-GAAP equity to total cap, which adjusts for mandatory convertible units and other long-duration debt, improved to 43.4% at September 30 compared with 39.7% at December 31, 2020.
We continue to have ample liquidity at both SJI and our utilities with approximately $1.3 billion in total cash credit capacity and available through our equity forward and approximately $1.1 billion available as of September 30.
In addition, with the proactive refinancing efforts we've undertaken over the past year, as well as repayment of debt from our transactions and the remarketing of our prior mandatory convertible units, SJI has no significant debt maturities due in the near term.
Turning now to guidance.
Based on solid operational performance through the first nine months of the year, we are reaffirming our expectation for 2021 economic earnings of $1.55 to $1.65 per diluted share.
Our long-term economic earnings-per-share growth target remains 5% to 8%, with significant step-ups expected in 2023 and 2025, driven by timing associated with utility rate cases and clean energy investments.
We're also affirming our five-year capital expenditures outlook through 2025 of approximately $3.5 billion.
As you know, PennEast capex in our five-year plan was relatively small, approximately $100 million, and we've identified a variety of utility and clean energy investments that match our current strategic growth requisites to take its place.
We are excited by the progress we've made in 2021 and remain highly confident in our ability to execute on our plan to safely and reliably deliver the clean decarbonized energy of the future through a fully modernized 21st century system.
But before opening up for Q&A, let me address a question that may be on your minds.
With regard to the recent rise in gas commodity prices, let me remind you that SJI has a prescriptive hedging plan in place approved by the BPU and designed to minimize the kind of pricing volatility our sector has witnessed in recent months.
Based on this program, any impact to customer bills would largely be resolved in our next BGSS discussions with the regulators with new rates effective next October.
I know many of you have gotten to know and engaged with Dave over the years.
He has served our company admirably and with great distinction for many years, including most recently with the responsibility of leading our utilities.

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south jersey industries reaffirms guidance.
reaffirming 2021 economic earnings guidance of $1.55 - $1.65 per diluted share.

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