New Jersey Resources Corporation (NJR) Q4 2016 Earnings Report, Transcript and Summary

[Technical difficulty] second attempt at this meeting. Thanks for coming for the second attempt, and I promise you the story that we told you about why it got cancelled was true, but anyway, I do hope that didn't cause any inconvenience. Before we get started, I just want to cover the fact that our presentation today is being webcast, so that those who are on the webcast, if you have a question, please send it to dpuma -- you know Dennis, dpuma@njresources.com, and those questions will be announced, and then, we will answer them during the Q&A period. Now, what we're going to do today, we have a number of presenters as you know, what we'll do is we'll take questions at the end of each one of the presentations. I think that that's the most efficient process, and so that's what we will do and there will still be an opportunity for you to ask questions at the end of the presentation as well. So, let me begin by introducing our company attendees. We have Larry Barth who is our Director of Corporate Strategy. Larry spends a lot of his time in the Clean Energy business and has a very deep understanding of everything that's going on in that business, and particularly in the area of public policy in New Jersey, because as you know there are things that are under consideration and changing right now. Laura Conover, our Chief of Staff; Laura is in the back. Kathy Ellis, our Executive Vice President of Policy and Strategic Development. Joanne Fairechio, we all know in the back, Director of Investor Relations. Jamie Kent, our Treasurer; Jamie is a relatively new member of our team. Jamie is here today. There are a lot of people as you can tell, Mike Kinney, who is our Director of Corporate Communications. Mike is in the back as well. Stan Kosierowski who is our President of NJR Home Services, and Stan, I think as many of know is a really the architect of our Clean Energy business. So, Stan is joining us today as well. Everybody knows Dennis Puma; again if you use -- those of you on the webcast dpuma@njresources.com for questions, and Rich Reich, our Assistant General Counsel and Corporate Secretary, who will make sure that I don't say anything bad. So anyways, so I want to start today talking about our objectives, and I think first and foremost what we want to do is to talk about our strategy and not only the initiatives that we will be pursuing, but I want to do something little different and really share with you some of the thought behind the choices that we have made in the areas that we are going to focus and how we think that those choices that we've made will allow us to continue to grow the company. We'll also introduce our fiscal 2017 guidance, which will come as no surprise since we released that at about 7'o clock this morning. Then I'll turn it over to Pat Migliaccio, and Pat will review our fiscal 2016 earnings. Mariellen Dugan and Steve Westhoven will talk a little bit our business segments and give you updates there on New Jersey Natural Gas as well as our unregulated segments as well. Then, Pat will come back up. So after you've heard about our strategy and you heard about some of the initiatives in our company's, Pat will come back and he will give you a look-see through fiscal 2019 about not only our spending -- our capital spending, but also how we are going to pay for that, and then, I will wrap it up with what we like to call the Dennis slide which will lay out our path for our future growth. As I said, we will take questions as we -- after each one of the presentations, and then there will be time for Q&A at the end. So, one thing I would like to do, as I said, you'll be seeing Steve Westhoven and I think of Mariellen Dugan in different role today, is just to talk you about our speakers. I think you know Pat Migliaccio. He was appointed Senior Vice President and CFO last January; has been with us now since 2009. He has held a variety of positions in the financial area and most recently he was our Vice President and Treasurer, and I think over the course of the last two or three years, you have come to know Pat as he has taken an increasing role in our Investor Relations program. Mariellen Dugan, who you have seen in some of our meetings in the past, was promoted on October 1st to Senior Vice President and Chief Operating Officer of New Jersey Natural Gas. Mariellen has been with us since December 2005. She has served as our Senior Vice President and General Counsel, and in that role she had the opportunity to be involved with many different initiatives from a legal perspective throughout all of our companies, and particularly New Jersey Natural Gas Company. Prior to joining us, Mariellen served prominent roles in the units here at the New Jersey office as the Attorney of General. First he was Chief of Staff, and then she was the first assistant, which was effectively the number two position in the Attorney General's Office, and then prior to that she was in private practice. And then finally, Steve Westhoven, again, who I know you know from hearing him present on NJR Energy Services; Steve was promoted effective October 1, to Senior Vice President and Chief Operating Officer of not only NJR Energy Services, but also NJR Clean Energy Ventures. Steve has been with us now for just a little over 26 years. In fact, he joined us in November of 1990. Most of his time with the company has been spent in NJRES, where he was really the architect working with his colleagues in building that strategy into a very successful wholesale energy services business that has been able to evolve, and change, and address many changes that have gone on in the marketplace there. And I know Steve and his colleagues, as am I, am proud of the fact that every year, since 1995, despite all of those changes, NJRES has been profitable. So we're going to try and get all of this done by 11:30, and again, I'm delighted that you're all here. So let's get started. I have to start by reminding you that I'll be talking about the future today, and I will be making forward-looking statements. And as I said here every time that we meet, I tell you that that list gets longer and the print gets smaller. But these are the issues that we may encounter as we are executing our strategy. And what I would ask you to do is in the 10-K, they are listed out there, take a look at them. And think about them not only in the context of what we might face in the future and may even will be familiar to you, but we build beyond that in company, and we try to build these issues into not only our enterprise risk management, also our strategic planning process so that we get a sense of -- or thinking about the things that could happen to us, and how that could affect our strategy, but for purposes of today, I would ask you to please take some time to read those, and also, I will be making references to non-GAAP financial measures, the largest one of those is Net Financial Earnings, or NFE. As we've said to you many times before, NFE, we think, provides really a better metric of our financial performance. However, I would stress, it is not intended to be a substitute for GAAP. There is disclosure on that in Item 7 of our 10-K, and again I would encourage you to please take some time just to read that so you can see the elements that are in NFE, and how that compares with GAAP. So, I start by just reminding you who we are, who is New Jersey Resources. And then first and foremost, when you look at all of our operations, we are a diversified energy company. Our largest business, our most important business in New Jersey Natural Gas Company, a distribution company, as you know, and really the foundation of our business. And today, you're going to be reminded of the strong fundamentals of New Jersey Natural Gas Company. NJRE Midstream invests in storage and pipelines, and our objective there is not only to commit capital, and to do that profitably, but to take advantage of the environment in the natural gas industry right now of low-cost natural gas, and bring that to our customers. As you know, that portfolio consists of a number of legacy investments, but we're also an investor in the PennEast pipeline. Clean Energy Ventures, which we've been pursuing that business now for just about six or seven years is focused on onshore wind and solar. What we're trying to do there again is to commit capital profitably, but to take advantage of an opportunity to provide our customers with clean low-cost electricity, that's our objective. And then finally, NJR Energy Services, the best way to think about NJRES from a high level is, as we pursue our strategy we're learning a lot about the marketplace. We're learning a lot about the needs of customers, and through NJR Energy Services we are using the market knowledge to serve customers' both physical natural gas services, asset management services, and producers services. So that gives you a sense of who we are. I want to show to you in a little different way. And this of course, is a map of the United States, it's in green. It's not in red and blue -- well, New Jersey is blue. We got that color right anyway, given Ney Jersey. But that's where our headquarters is, of course, but when you look at all of the operations associated with the business that I just talked about between our BGSS sales through New Jersey Natural Gas, the activities of NJR Energy Services, our wind projects that we have and also solar which is now in New Jersey. New Jersey Resources does business in 43 different states throughout the United States. So we have been able to grow our business to do that profitably and to serve a much wider range of customers outside of New Jersey and this is what you will learn about more today. ,: From the dividend point of view, we think the continued strength in our earnings will allow us to continue to meet our annual dividend growth goal of 6% to 8%. The last increase was in September. It was 6.3% bringing the annual rate to $1.02, from a historical perspective going back to 1995, this year, this is our 23rd increase in the dividend. And what's important is not only our payout ratio which I think is an appropriate 60% to 65% but the reciprocal of that, if you will, is the earnings retention rate and the dollars that we are reinvesting into the company to continue to grow the base to increase our net financial earnings. This is a track record that we are very proud of. So when you think about the dividend strategy, it's got to be, I think, evaluated in the context of not only our earnings but also the dollars, the earnings have to be reinvested back into the company. Now, let me turn and talk a bit about our strategy, now as I said you from the outside, I want you to think about this not only in terms of the areas that we are pursuing but what are the choices that we have made and how did we make those choices, and here is just a couple of bullets, well first of all, strong demand for natural gas is the result of abundant supply and low prices. That has given us a very strong foundation and as you will see, there are choices within the natural gas value chain where we have decided to focus and there are areas that we are staying away from. Demand for clean energy generation, generation from clean energy investments that is increasing and there is what I consider to be a somewhat unique set of circumstances in New Jersey that is allowing us to pursue that business to support public policy, to help customers and to do that profitably. We think when you look at energy consumption right now, that the mix of energy sources that's going to continue to evolve. Public policy supports reliable, low cost and clean energy and the final bullet there about what are customers looking for. They are looking not only to save money and to help the environment. So it's that strategic background that has really led us to the choices that we have made because we think that sustainability and government policy are going to continue to be key drivers in the energy sector. So let's take a quick look at energy consumption in 2015, I'm not going to go through every one of these slices in the pie here but the two that I would draw your attention to are natural gas and hydroelectric and renewables. And if you look at those two pieces together that's approaching 40% of the total consumption right now. And now to put that I think into better context, if you look back at those numbers in 2009 and look at those two slices by themselves, the number was closer to 30%. So what we have is a situation where consumption will continue to grow, the slices of that pie are changing and the majority of that growth is coming from renewable and natural gas. And when you look at our strategy, that's where we are focusing right now. Why is that happening? I don't have to spend much time in this slide. It's obviously the shale. What is interesting for those of us who have been in the business for a long time if we look back in 2005 we were facing a very different set of circumstances in the industry. But of course, with the emergence of the shale for all the reasons that we are familiar with, the so-called game has really changed for natural gas and if we look at the impact on prices, we look at the gray shaded part going back to 2006 and 2010 much different price environment. It was August of 2008 where we were touching $10 a unit for natural gas and of course we have a very different story today in terms of prices which has clearly helped the natural gas and the role it plays in our total energy picture for the country. I will just make one point, if you look at 2016, it's interesting to note that you see prices continuing to be low, of course we had a warm winter but if you look at demand we were still experiencing high levels of demand. So the market is responding to those changed supply dynamics that I just mentioned. On the solar side, this is obvious we get a lot of questions about clean energy. I think it's important to look at what has happened going back to over the last decade to the cost of solar. Of course we are focused in the residential market and for purposes of this slide, in the less than 500 kilowatts non residential and if you look at both of those cost slides you can see that the prices have come down by 50% or more. The way I think about that, the way the company thinks about that is, yes, there's been incentives provided for that but the cost of solar continues to come down and when we look at projections out there right now, what we see is a continuation of that into the future. You will hear more about the Sunlight Advantage, our residential solar program this morning but I want to give you a little bit of a sense of how our offer right now of $0.11 compares with Atlantic City Electric, PSE&G and Jersey Central, and not surprisingly an increasing amount of our activity in the Sunlight Advantage is happening in Atlantic City. So the combinations, as I said to you, talking about our initial objectives of trying to not only promote clean energy but save customers money. This chart is showing you exactly how our team is able to do that. , : So with all of that backdrop, to give you kind of an idea where is the strategy? Well, you see those fundamentals which we have summarized on the left but where are the areas that we have decided to focus, on the natural gas side, regulated distribution, strong fundamentals in our service territory, a lot of collaboration with our regulators that you will hear about which has been an important part of our ability to grow New Jersey Natural Gas company, our focus on Midstream and recognizing that the changes in the natural gas marketplace are creating additional opportunities for us and then finally that market knowledge that we have built up not only over the years but even in more recent times with the changes going on in the marketplace, we have been able to build a strong service business to serve customers. Energy efficiency is an area that is emerging right now and one that we see opportunities in the longer term. Our focus right now has been on our regulated activities. You will learn more about the SAVEGREEN project today, where we are effectively committing capital to help customers use less energy, it has had additional benefits related to economic development, our Conserve To Preserve Program, it was just a little over a decade ago when we said publicly that one of our key objectives in New Jersey Natural Gas was going to be to help customers use less energy. That got quite a reaction as you may recall, but the fact of the matter is that has worked very well for us, and when you examine and as you'll see how our team has been able to execute that strategy in a way that has helped our customers save money, it has helped us support public policy in New Jersey, and it has been good for our shareowners, it has worked. An important part of that has been our Conservation Incentive Program, or CIP, effectively our decoupling program, which has worked hand-in-hand with the Conserve to Reserve program and has really made a difference for the company in how we've been able to serve all of our stakeholders. And then finally clean energy, our focus is very clear on that. We're involved in the solar market in New Jersey. We think there is very vibrant market for New Jersey. We think there has been a track record of support legislatively for that business in New Jersey. We are witnessing that right now, quite honestly. But also onshore wind, the question that we get frequently, because there is -- you know, hear about potential offshore opportunities in New Jersey, the answer to that question is absolutely not. We're focused on onshore winds, and Steve will talk to you about how we have built that portfolio, if not only in terms of the existing wind farms that we have, but what is the process by which we identify new opportunities. So, that is the strategy, just a few comments on each one of them and then my colleagues will dig into that much deeper. New Jersey Natural Gas, our fundamentals remain as strong as ever, growing regulated natural gas distribution company, that's the anchor, that's the foundation, that is and will be, continue to be the majority of our people, our assets, our investment, all of the foundation of the company. Our collaboration with our regulators has really served our customers and our company very well. You will see that over the long period of time, with a really shared understanding of what is best for customers and how that affects our state in the area of public policy and economic development, that has worked very well for our company and our shareholders as well. On the Midstream side, again the dynamic side that we continued growth in natural gas supply, that there is an opportunity for us to take advantage of that, to bring those benefits to our customers and then finally with NJRES, we see the opportunity with the changing dynamics in the marketplace that there is an opportunity to close out our understanding of the market, our relationships that we can help customers and provide them with additional services as well. Energy Efficiency, I think the title here really says it best; that's the best alternative to address growing demand, and we think that there will be opportunities to continue to grow in this space, and we are evaluating a lot of those right now. I have spoken to you about what we've been able to do on the regulated side, the results there are really obvious, the benefits that we have been able to create, and we think that there will be more opportunities to do that in the future. I would again emphasize to you that the public policy landscape of New Jersey is really supportive of energy efficiency, has been welcoming different proposals to help customers use less energy, but we think our positioning in the marketplace, our relationship with our customers will enable us to do more there as well. And then Clean Energy, the first point I would make here is that this is about providing customers with clean low-cost electricity. And there are opportunities to do that in New Jersey. There is strong support for that primarily in New Jersey through state policy, but also incentives at the Federal level, the recent decisions that were made with regard to tax incentives at the Federal level certainly supported new opportunities for us and created new investment opportunities. We've been focused on the diversity of our portfolio, so that we're not just focused on solar, and our team has a strategy that we laid out to you probably about two years ago, and our team has really done a very nice job of achieving that diversity in the portfolio. And as we look ahead, there will be new opportunities in technology for perhaps better utilization of those assets. So, we think this strategic decision that we made to get into this business; again, 2009-2010 was a good one. So what's the value proposition? And I think you are usually seeing this at the end, but as you're thinking about the numbers and the strategy and all of that, what do we see as the value proposition? Well, first of all, it's the solid regulated investment platform. Most of our earnings are coming from either regulated assets or long-term PPAs, and by that we are referring to our wind business. The collaboration, the ability to work with our regulators has been an important part of the execution of our strategy, and will be critical going forward. And specifically when you think about the recovery that we have on a number of our infrastructure investments, the acceleration of that is helping with our cash flow, which is obviously helping us because of the capital commitments that we expect. From an infrastructure perspective, I think you have diverse opportunities out there; most of those will still be coming from the regulated company supporting safety, resiliency, reliability, I'll make an obvious statement here that is the standards which New Jersey Natural Gas Company will ultimately held accountable. We're responsible for safety and reliability, and to do that right involves the investment of a lot of capital and we will continue to do that. Investments in the Midstream projects, again, I'm giving you a sense of -- I think we've got a good platform right now with the legacy investments that we have, and again, things like PennEast which are obviously longer term investments, that will complement that portfolio very well, and then Clean Energy, we still see opportunities to grow there, and to spend lot of this money without changing that basic relationship between the different sources of our earnings going forward. Obviously a capital-intensive company like we are, you need a strong financial profile. We have always maintained strong balance sheet to make sure that we have access to capital. Our credit ratings are investment grade right now, the outlook is stable, and that payout ratio that I have alluded to a number of times, keeping that below average, but making sure that we're reinvesting in the company as well. And then finally when you bring all of that together, the total return potential we put out there a long-term NFE growth rate of 5% to 9%, sometimes we get a question on why is that? That is really providing some room, if you will, for NJRES, you know the outstanding results that they've had over the -- in '14 and '15; and 21 consecutive years of dividend growth, attractive dividend yeah right now, about 3.1% and when you put all of that together, both the -- on the earnings side with the yield, we think that comes up to an attractive value proposition for investors. So with that, I want to turn it over to Pat, but before I do that, any questions for me before we get into the specifics? Okay, Pat, all yours.

Thanks, Larry. Good morning everyone. As you saw, this morning we announced our fiscal 2016 earnings guidance -- fiscal 2016 earnings results of $138.1 million or $1.61 per share. This compares to 151.5 or $1.78 per share last year. Results of the lower year-over-year are in line with our earnings guidance as communicated earlier in the year. Importantly 2016 earnings reflect strong contributions from each one of our business segments, and I'm going into more details shortly in the presentation. But before I do that I want to cover some fiscal 2016 highlights. As Larry mentioned, we increased our dividend for the 23rd time in 21 years to a rate of $2.0 per share. Additionally, we provided shareholders with return of 12.6% this year. We grew our customer base, some of the base rate case, and invested $200 million in infrastructure at New Jersey Natural Gas this year. We received our draft environmental impact statement from FERC for the PennEast pipeline project, an important step forward for the project. And finally, we constructed five ITC-eligible commercial projects and added 1,123 customers to our Sunlight Advantage program. Looking at New Jersey Natural Gas on slide 26, you can see that we delivered net financial earnings of $76.1 million this year as compared to $76.3 million last year. By the decrease year-over-year, improvements of margin from customer growth and contributions from our infrastructure programs were offset by lower BGSS results and higher depreciation and O&M expenses. We saw an increase of 4% in customer additions this year. This customer additions combined with the conversion of a single large industrial customer from interruptible firm service added incremental utility of $5.4 million this year. We have invested $19 million in our SAFEGREEN program, and saw an increase of $800,000 in gross margin from that program this fiscal year. Our five-year $130 million infrastructure program designed for place bare steel and cast iron pipe in our service territory, this completed in fiscal 2016 and we're not collecting those amounts in rates. Finally, our BGSS incentives contributed $50 million to utilization gross margin this year as compared to 17.7 million last year. This is primarily a result of lower capacity values in sales. Slide 27, you can see a listing of our Midstream assets, which delivered net financial earnings of $9.4 million as compared with $9.8 million last year. The consistent but modestly lower results were driven by an increase in demand for hub services at Steckman Ridge that was offset by the sale of our minority interest pipeline exchange for the M units in September of last year. NJR Clean Energy Ventures delivered net financial earnings of 28.4 million as compared to 20.1 million last year. The increase year-over-year is a result of the increase in operating revenues, largely the number of solar sold as well as the average pricing we sold them for in fiscal 2016. As I mentioned earlier, we added -- we constructed five projects this year, totaling $51 million and invested $34.3 million in our Sunlight Advantage program. Sunlight Advantage now has over 5,000 customers, and we have a total portfolio of approximately 256 megawatts when you consider our investments in wind, commercial solar, and Sunlight Advantage program. NJR Energy Services provided $21.9 million of net financial earnings as compared to $42.1 million last year. The decrease year-over-year was expected, but I would add as many of you know that this was a warm winter, unusually warm for us. Despite that challenging market condition, Energy Services managed to exceed slightly during the guidance range that we provided in the beginning of the year, and contributed 16% to NJR's overall earnings. With that said, we are still targeting NJR Energy Services to contribute 5% to 15% in 2017. Now, I will turn it over to Mariellen, unless there are any questions. Brian? Oops, sorry…

Thank you, Pat. Good morning everyone. This morning I'm going to review some of the key attributes of our utility New Jersey Natural Gas Company including customer growth and infrastructure program. New Jersey Natural Gas has a vibrant service area. Our annual customer growth average is about 1.6% and last year fiscal 2016 we had the highest number of customer additions since 2007. We continue to receive high customer satisfaction ratings and recently we were named most trusted utility brand and an environmental and utility champion by cogent report. We have a collaborative and constructive relationship with our regulators in New Jersey port of public utilities and we have several infrastructure programs that benefit our customers directly by providing resiliency and reliability to our system but also promote stay policy by creating jobs. Now let's talk for a few minutes about why our territory, our service area is so attractive. We are located between two major metropolitan areas, New York and Philadelphia both of which have strong job markets. The median household income in our service area is above both the state and national averages, and people like to live near the beach. We have 100 miles of beautiful New Jersey coastline area in our service area, and particularly what we're seeing is active adults and retirees are moving to our service area. We're seeing a lot of these communities spring up particularly in Ocean County. We captured 95% of the residential construction market and we have a strong penetration in the multifamily market which is one of the fastest customer segments growing across the country. We also have a strong conversion market. Now there are several key trends that we think are going to support future customer growth in our area and I'd like to talk about a few of those with you. In the first seven months of 2016 we saw roughly 3100 building permits issued in the three counties that comprise most of our service area. And as you can see most of those permits were issued in Ocean County where I said earlier alluded to the number of active adults and retiree community springing up. Now we believe that this history of recent building permits being issued is a strong key indicator of future residential construction strength in our service area. Now when we talk about conversion natural gas continues to enjoy a nice price advantage. And this is a compelling point that we can make when marketing two potential conversion customers in our service area. And as you can see from the pie chart on the lower right hand side of the slide in front of you we continue to see a lot of opportunity in the conversion market in our area. Particularly on Maine you can see that in yellow there is roughly 32,100 potential conversions in our service area. And on Maine is important because in our experience we believe that these folks are more likely to convert given the additional price advantage that they have. Now in fiscal year 2016 we saw 8170 new customers added to our territory. This mix was roughly 56,000 -- I'm sorry, 56% new construction and 44% conversion, and we believe that this mix of slightly higher new construction was going to continue into the future. We also believe that combined these new customer additions will add about $4 million -- $4.4 million to our gross utility margin annually until fiscal -- through fiscal year '19 and you can see that's at fourth on this slide. Now as Larry alluded to earlier we have and as I alluded to earlier as well we have a constructive collaborative relationship with our regulator, the New Jersey board of public utilities and through this relationship we forged and created and the VPO has approved a number of regulatory mechanisms that benefit both our customers and our share owners. And I'd like to go through a few of these with you this morning. The first is the conservation incentive program the CIA. This is a decoupling mechanism which was launched in 2006 and as Larry alluded to earlier this mechanism allows us to promote energy conservation while also protecting our gross margin. The BGSS incentive is a program that complements our natural gas procurement activities while also providing savings for our customers and benefits for our share owners. And the earnings from this program do not count towards our allowable ROA and utilities. And finally SAFEGREEN, which is a program that's in its seventh year provides incentives and financing for our customers for energy efficiency solutions and this program provides another source of gross margin for the company. Now since 2008 we have invested more than $800 million in our system. And I'd like to talk to you about two of our current accelerated infrastructure programs. The first SAFE was initially improved in 2012. It was extended as part of our rate case settlement that we recently achieved. Now this program over the next five years will allow us to replace all of the remaining bare steel on our systems. The next program with is NJ RISE was filed at the request of the board of public utilities after super storm Sandy. And this program which consisted of six capital projects is designed to harden our system against potential impacts of future storms. Now importantly both of these systems, both of these programs have annual recovery mechanisms. Now these replacements and investments in our system have resulted in New Jersey Natural Gas Company having the lowest number of leaks per mile of any gas utility in the state of New Jersey. We are really proud of that fact, and more than that, that fact helps us show our regulators that dollars invested in our system are directly benefiting customers by making our system more reliable and safer. I'd like to give you an update on this other reliability link. This is a 30 mile pipeline that is designed to bring a diversity of supply into our system and specifically it's designed to provide a secondary feed into the southern portion of our system. And as you can see on the map in front of you the SRL begins in Burlington County, it works its way through the joint base McGuire 46, Lake Hurst. It winds up in Ocean County where it connects to our system. Now it's important to note that the joint base is the second largest employer in the state of New Jersey. And that the SRL supports one of the bases, joint bases important missions which is energy independence. Now earlier this year we achieved two important milestones in the SRL project. When the Board of Public Utility issued two orders approving the construction and operation of the SRL as well as designating the root of the SRL, we also received a flood-houser permit from the New Jersey Department of Environmental Protection. And we're currently working with the NJDE pay on two additional permits, a casual permit and a wetlands permit. We're also working with officials to receive road opening permits that will allow us to begin construction. Now we will seek rate treatment for this project in the future proceeding and that proceeding will be timed so as to avoid regulatory tax.

Thanks. So just to focus on the key messages for New Jersey Natural Gas Company I think it's clear that long term infrastructure investment, customer growth are going to drive the growth of New Jersey Natural Gas Company and importantly there are a lot of opportunities to continue to do that. I think Mariellen mentioned a very important statistic going back to 2008 that number was over $800 million and the impact on our system in terms of its performance has been outstanding. A lot of reasons for that, you get a better sense this morning of why we're optimistic about our ability to grow by 1.6% demographics in our service territory are excellent. We're being aided by the price of natural gas; the ability to work with our regulators continues to be important as it has been really over a long period of time right now. The SRL which is an important part of our future infrastructure plan that we're working on right now that will help us promote resiliency with a feed into Ocean County. It's been approved by the board of public utilities. We're going through the rest of that process right now. And I think the main message from a financial point of view is that we continue to believe that as the company grows that the majority of our net financial earnings will come from New Jersey Natural Gas Company. So with that let me open it up for questions. Larry?

Thanks, Larry, good morning everybody, this morning I am going to be reviewing a few of our non-utility businesses. First I am going to start with clean energy ventures and talk about mid-stream and PennEast and move on to NJR Energy Services and discuss some of the market conditions that we are seeing there. EV is focused on developing, owning and operating portfolio of renewable energy power projects. We concentrate on three specific categories -- commercial solar, residential solar and onshore wind. Energy Ventures was established in 2010 and since that time, has met the needs of our customers to clean and reliable and affordable power. It leverages NJR brand recognition and diversify NJR into one of the fastest growing segments in the electric business. EV takes advantage of NJR's strength to execute plan. We have delivered approximately 27 commercial solar facilities, five wind farms, and over 5,000 residential solar customers. Over the past five years we have invested $600 million in the clean energy market. These assets provide many sources of revenue among them, tax savings from ITC and PTC, solar renewable energy certificates or SRECs. These payments from residential customers are energy sales or electric sales from wind and solar fields. Last December congress extended the ITC and the PTC. The ITC is tax credit utilized when investments in solar are made. PTC is a production tax grade that's utilized when windmill produces electricity and as a result of this we have developed a new strategy to take advantage of the opportunities afforded by these extensions. The details of the extensions are listed here, but generally speaking they add certainty, the energy investments in our planning horizon. So what are the major impacts of these extensions? The IT extension has done number of things. It has increased the viability of large scale group of grid connected solar projects. It has also increased number of commercial net-metered projects and has improved the economics of our residential solar programs. PTC is similar in that it expands the markets where wind is competitive. Prior to the extension, renewable portfolio standards like the ones in PJM- New York-ISO in New England, we drive development and now wind is also competitive in western regions in Texas. Ultimately RPS standards should drive investments in renewable energy and renewable energy generations regardless of the tax incentives. Let us talk about SRECs market fundamentals, for every megawatt that a solar facility produces it also produces solar renewable energy credit or a certificate which is an SREC. SRECs have value because they are used to comply with New Jersey's renewable portfolio standards or the RPS. The RPS level is a percentage of New Jersey's total annual electric sales. In 2016 this equated to 2 million SRECs that were needed to meet the RPS standards. So let us get into the details of how this works, load serving entities are required to buy SRECs as a proof that a portion of power they use serve their customers is coming from renewable energy and that its generated within the state of New Jersey. The LSCs can either produce these SRECs by building their own solar facilities and then producing these solar renewable energy credits or they can buy them from the open market from companies like ourselves. So this leads us to the SREC market place. You can see on the chart that's here that we have the amount of solar renewable energy credits that are needed in order to satisfy the RPS for each energy year that is listed here. The green part of these bar in the bar charts are the third party suppliers. The third party suppliers serve the unbundled electric market. The blue parts of this bar are the BGS or the basic generation service. BGS providers offer electricity to the utilities through an auction process. And this is the way that electric utilities purchase wholesale electricity for their customers. Both these type suppliers are load serving entities or LSEs. Third party suppliers typically roll over their customers on a yearly basis. So they don't know their SREC needs until they get near to the year of delivery for their customers. And consequently, they don't buy SRECs until they need them. BGS providers participate in yearly auctions that sell one third of the power three years out. You'll see on the chart that a majority of the demand is not created until the energy year is near, and the result is illiquidity in the future SREC market, and that illiquidity is represented by the white portions of the bar, and you can see that in energy years '18 and energy years '19 upon the chart. The market has needs, but these needs develop slowly for these reasons. And this is meaningful when we discuss our RSEC portfolio and we look at how we hedge it. So moving on to our RSEC hedging strategy, you can see on the chart that's in front of us that we've got energy years '17 through energy years '19. The green portion of -- the green portion of the bar are the SRECs that we sold, the SRECs that we hedged in our portfolio. The blue represents the number of SREC -- number of SRECs that we are yet to sell. It's no coincidence that we have more SRECs to sell in 2019, and this corresponds to the chart previously that shows that there was a lack of liquidity in those markets. Underneath this chart, we show the average, the percentage hedge for the year, and also the corresponding SREC prices. Notice that there is a difference in the bottom right-hand corner of this chart between the market price and the S and the plan price that we have in NJR. This is to take into account the liquidity that we've discussed on the previous slide. Note that our plan to continuously actively hedge our SRECs as the market allows. As discussed early, the RPS level is established by legislation. This slide shows current RPS standard in blue. You can see a marked increase in that RPS standard between the years 2013 and 2014, and this was result of solar legislation in 2012. The new legislation is in the green on the top of the chart. The effects of this new legislation should help us keep space with the projected solar bills in the New Jersey and keep SRECs in balance with the amount of bill. This legislation has brought support by both environmentalists and labor, and currently is scheduled to go before Jersey Assembly in November 21. Next we are going to talk about the CEV project pipeline and the progress we've made towards achieving our targets. We are entering fiscal year '17 with over half of the residential leases required to meet our goal of $35 million. And we have a strong space of weekly sales that should meet our target. We have identified commercial solar projects needed to meet our fiscal year '17 capital investments in the target of $62 million. In addition, we already have solar projects identified for fiscal year 2018 and continue to grow our pipeline of opportunities. Moving to wind, our 2017 capital target is going to largely met by our Ringer Hill Wind Farm. That facility is expected to be completed and operated in the end of December this year. In addition to that, we also have a pipeline of approximately $400 million of projects that we're currently evaluating towards our 2018 timeframe and beyond. In summary, we have developed a strong track record of executing our plan over the past six years. And we've grown our resources, our network, and our experience to meet our investment targets. The market and regulatory climate are supported by renewable energy investments, and we have a robust pipeline of projects to meet our plan. Now let's take a look at CEV as a whole. We've launched the business in 2009. And since that time, we've invested over $600 million in the clean energy space. By 2019, we will assemble the clean energy generation fleet of almost 500 megawatts. And as we discuss, the current asset base contributes significant amount of operating cash flow. And this provides a platform for NJR's growth into the future. Moving to NJR Midstream, the Midstream business is closely related to our core businesses at NJR. The utility New Jersey Natural Gas relies on Midstream in order to supply gas to its customers. NJR Energy Services relies on Midstream to assemble assets in a portfolio of these transportation storages to create value and profit volatility. The Midstream market is attracted due to the constraints from the new shale plays and also due to the growing natural gas market that Larry had talked about before. We worked with experienced partners to execute and operate these assets. And these assets generate relatively strong cash flows at appropriate returns. Let's talk about the PennEast pipeline. We have a 20% interest in the PennEast pipeline. And it stretches from Northeast Pennsylvania down to market centre in New Jersey. The PennEast pipeline is different from other expansion projects and that is the demand pull pipeline. And what I mean by this is that it's contracted for by customers that need the natural gas. In fact, a majority of its capacity is contracted by LDCs in Pennsylvania, New Jersey, and New York. PennEast will also provide access to low cost supply and will also supply -- and will also have diversity and - will also add supply diversity and security to our customers. PJM is a large electric grid operator in the east coast, and recently, they had a meeting where they stressed the need for additional need of gas supplies. And this is to have a -- promote grid certainty and reliability. They also sighted during that meeting, said the importance of Midstream projects like PennEast. As you know, we received a draft environmental impact statement in July 2016. And recently, FERC has announced that we should receive our final impact statement in February 2017. And we currently expect the pipeline to be constructed and in service in our fiscal year 2019. Moving on to NJR Energy Services, it's a wholesale natural gas business and it concentrates on the physical natural gas market in U.S. and Canada. We just sampled the geographically diverse portfolio of these transportation storage contracts to take advantage of our wholesale natural gas market opportunities. We provide asset management services to LDCs, power generators, and producers. We maintain strong relationships with our customers. And we have a very experienced staff that manages this business with an appropriate level of risk. Profits are derived from management fees as well as training the physical assets in volatile markets. So looking forward to this winter so far, it's been pretty warm. I know that the weather forecasters have said that it's going to be a normal winter and we haven't experienced that yet, but as recent as yesterday they are still insisting that. So, I am hoping that's going to be the case. Production has come under pressure which has caused some to increase the forecast in price and the levels of electric generation continue to be impressive. LNG exports as well as export in Mexico continue to grow. In fact recently the U.S. has become a net exporter of natural gas for the first time in history according to Bentech. These types of scenarios create uncertainty and volatility, and drive value in natural gas assets, and consequently produce earnings for NJR Energy Services. With that, I'll turn it back over to Larry for the key messages. Thank you.

Okay. So, just to give a summary of some of the main points of Steve's presentation, I think we've made clear in clean energy ventures the area that we are going to focus on and the areas that we are going to stay away from and that is solar in New Jersey as well as on to our wind and you could see how we are executing those projects. When Pat speaks in just a few minutes here, you'll get a sense of the capital that we expect to invest in that over the next several years. The areas that we are investing, New Jersey is one of the fastest growing solar markets in the country and that is obviously because of the favorite -- favorable policy environment that we have in New Jersey. Steve alluded to the legislation that's currently pending in New Jersey that's past the senate. The assembly will be voting on that on Monday. The extensions of the tax incentives at the end of the last year, I know there was some uncertainty with that, but those ultimately were extended and that gave us more certainty as far as those incentive goes. We take what I consider to be very conservative approach to our SREC hedging strategy to take as much risk out of that as we possibly can, and I think a topic that we are talking about here this morning, we tend to focus on the RPS which is obviously important which I have referred to as really the centre of the universe in New Jersey as far as clean energy investments go. But, it is very important to understand the demand side of that equation and understand the buying patterns that go along with that. I think Steve has laid that out very well. But when you're looking at the forward price of SRECs, it's important to understand both the demand and the supply. And as you said and as you saw in my opening comments, that we expect the NFE contribution to be in the range of 15 to 25% in fiscal 2017 and beyond. With regard to Midstream, obviously most of the discussion right now is on PennEast. I think that when you look at PennEast, you see there are a lot of different opinions being expressed about that, but the FERC process that's going on right now is moving along. FERC is evaluating the project. They are asking questions. The project is responding to those questions. And FERC has given indication when we will see things like the environmental impact statement. So, that continues to move along. The further reality is that that these infrastructure projects are going to take time. But at the end of the day, we believe that the burden of proof is going to be in the market there. And as Steve has pointed out, when we look at that, it is based upon demand when it comes to PennEast. We continue to look at other Midstream opportunities. Again I have said this to you in the past, there was quite a bit of capital that -- cashing those projects which have driven down the returns and we really stay away from that. We've not been willing to compete with those dollars and those are not appropriate in returns. Having said that, I think that there are -- there are advantages that we bring to the table in terms of our knowledge of the marketplace which will lend itself to Midstream opportunities. So we continue to evaluate those opportunities. And again, right now our expectation is that NFE contribution will be between 5 and 10%. And then finally, NJRES leveraging its expertise will continue to provide physical natural gas services. You will hear from Steve's comment that we are very focused on what is going on in the marketplace right now, what will drive demand, what will drive volatility. As I said to you at the beginning of the presentation, there is really a process of evolution that is going on right now. But, our team has demonstrated over a long period of time that they are able to not only understand those changes, adjust our strategy and turn that into value in form of earnings for our shareowners. And right now, as we have done for the last years with some of the early uncertainties about the factors that will drive value into our energy services, we've kept that NFE range in a 5% to 15% range. So that is an update there now. So that is an update there. Now -- so what Pat is going to come back to do -- you've gotten the sense of really the key initiatives that we expect. Pat is going to come back and give to you a sense of the capital that we expect as well as where the money is going to come from. But before I do that, let's take some questions on Steve's presentation.

So, Mariellen and Steve walked you through many of our long-term infrastructure projects. You see those, and in addition we got our capital expenditures we have planned for NJR on slide 60. We plan on spending $700 million at New Jersey Natural Gas to serve new customers, to maintain safety and reliability and to prove resiliency. Importantly, and as you can see here, our combination of our new customer spend, SAFE II and NJ RISE which equates approximately 40% of the anticipated capital expenditures over this planning horizon are earnings current returns. Looking now to the non-regulatory business segments, we will continue to build on the success of our residential solar program Sunlight Advantage, where as you saw from the slide early in the presentation, demand for the product, which has been competitively priced and offer Clean Energy to new customers, continues. We will spend $35 million to $43 million over the course of 2017 through 2019 on new residential solar customers. Additionally and subsequent to our last update, because of the ITC/PTC expansion, we are going to be investing in incremental $160 million in both meter commercial and some good connected solar projects to the 2017 through 2018 timeframe. We remain committed to the wind space as well, and you can see in '17 and '18 and '19, we will invest $200 million in wind investments, in wind projects, predominantly in areas where the energy prices are supportive or baring that where we expect the renewal policies will drive our investments. All told, we will invest $600 million over the '17 to '19 timeframe in renewable energy investments, which as Steve alluded to earlier will result in nearly 500 megawatts of installed solar capacity during that timeframe. How we're going to pay for it? With strong cash flow operations for one, 2016 was a bit of anomalous year from a cash flow perspective. We saw the impact phonetically of a warm winter, as well as a voluntary pension contribution of approximately $30 million, which we don't expect to repeat for the planning horizon. When you look at the impact of the base rate case, we get some more normalized cash flow from operations of between $250 million to $270 million. Additionally, we've got some modest equity needs over that timeframe. We plan to invest $200 million of equity between 2017 and 2019. The combination of our strong sort of for operations and our appropriate financing plans, we believe will result in maintaining our existing credit rating. So, I will head on capital expenditures and cash flows. Does anyone have any questions? I think Brian or someone had a -- by a fraction.

Can you tell us what the BGSS incentive assumption is in the 2017 guidance relative to the $50 million reported in 2016?

So, we will provide discrete BGSS incentive guidance given the uncertainties of the marketplace. I think it's fair to say that when you look at the midpoint of the guidance range for NJNG as a whole and are --- midpoint of their expected earnings contribution, that would translate into approximately a $1.2 of NFEPS [ph]. Historically, the BGSS incentives have contributed about $0.05, so that's probably you know, from an assumption perspective would be fair for what you should assume.

So it was the 50 million that you reported in 2016, is that considered normalized even though you had a warm winter?

No, if you look over the course of, say, fiscal year 2014, '15 and '16, the BGSS incentive results have been higher than what they have been historically, excuse me, which is in a range of about $10 million to $11 million.

Okay, thank you.

Yes.

Hi. Could you give us your GAAP earnings for the fourth quarter and full year against last year, and through the first three quarters you were nursing some losses on derivatives they were unrealized, could you talk about what happened to those or what you see happening to those going…

So, we will provide GAAP earnings as part of the reconciliation table. I've actually got it -- excuse me, we do provide net financial earnings, and the reason for that predominantly is because of the swings and derivatives, and we believe that net financial earnings is a more meaningful measure of our performance. The derivatives that we engage in are generally related to Steve Westhoven's businesses and the Energy Services. So, natural gas futures contracts and basis contracts, and it's difficult to predict with any accuracy what the ultimate value of those and will depend on the price and the time of month at the end. So we are at a -- I don't offhand know the GAAP earnings but we'll be filing the 10K by Wednesday of next - sorry, Tuesday of next week. You'll see this at the point in time. Oh sorry Sam.

Pat, I think you mentioned with NJNG you saw some increased O&M can you elaborate on that at all? And is that kind of a one off thing or something that we should expect?

More of a one off thing, as a matter of fact the primary driver that was really higher depreciation expenses, so if you look at the variance depreciation it was up year on year close to $4 million. That warm winter cut a couple of different ways so the advantage of that is we were able to do some work that we wouldn't otherwise normally able to and that accelerated to earlier in the year with some projects and services.

Thank you.

Yes. Did Barry have a question? Okay. So seeing no more questions I'll turn the presentation over to Mariell.

After you receive all the permits for the SRL how many months will it take to actually complete the project?

Mariellen?

We are predicting right now that estimating that we will have the project in service in fiscal 2018, and we have assumed into that the construct, the amount of time it will take to construct the project.

Hi, since so many of your new customers are retirees that love the New Jersey coast are any of the recent tax changes thought to be helpful or harmful or they cancel each other out in terms of inflow of new people?

Okay. I think the way to look at it when we think of the retirement villages and when you look at the senior citizen population; recent statistics show that it's the greatest concentration of senior citizen in any county as anywhere in United States except for Florida. So New Jersey as you know is a relatively high tax state right now. But that has really not affected the growth in the senior citizen population. So based upon that and what we have seen in the past I would not think that that would be a problem.

But it could be even better of the changes for…

Oh absolutely. No, it could be. I think the point is that you know the when you look at that population they spent a lot of time down in Florida come back up to New Jersey. But we haven't seen any degradation in that growth rate at all.

Thank you.

You're welcome, thank you.

Yes. In regards to the SRL project when might we expect the remaining permit from the DEP to be issued?

Right now based upon the schedule that the DEP has in place we expect to receive those permits in the spring of 2017.

Okay and just based on the updated CAPEX forecast looks like there's roughly 55 million of SRL spend in '18. So would you assume kind of a second half 2018 type operational date?

Yes, it will happen at some point during 2018. I don't think that's unreasonable what you suggest.

And then last just remind us why it was stripped out of the general rate case settlement and targeted for a separate regulatory filing?

We actually hadn't begun the construction so in order to get rate treatment for that you need to have started the have the construction in the ground. So that's why it was taken out. But I'm glad you raised that because there was some reporting that it was denied. That statement is false it was taken out because it wasn't ready for rate treatment.

Thank you. At current oil prices $50 oil and around $3 natural gas how does the conversion economics look in your territory?

Even at $50 oil bearer the conversion economics continue to be favorable. The slide that Mariellen had that showed that cost advantage, I think it's still on a per therm basis roughly half or a third of the cost natural gas and never minding the environmental issues and logistic issues. I think what we find is from an environmental perspective there's additional rules around heating oil, tanks that are kept in the ground that cause issues when people try to sell homes in New Jersey. And then even just from a logistical perspective navigating, of course you always run out of heating oil when you need it most. And so for that reason natural gas remains the fuel of choice. That's what we captured 95% of new construction and expect conversions to continue.

Barry, even if you go back to the days of double digit natural gas prices, we really never saw a drop in the conversion market in fact the only ones that we don't get is our infrastructure is not there yet. Okay. Steve you're up.

Hey, guys. Can you just talk a little bit about the outlook of the CEV segment and the 20% corporate tax scenario vis-à-vis sort of do you see any kind of impact to your pipeline sort of the behavior, your customers on the solar side? And then, on a legislative front, are you hearing any kind of movement about New Jersey potentially rejoining Reggie in the outer years and if there's any opportunities there?

I didn't hear the first question.

First question was, is there -- what's the impact of CEV to growth within that segment in the 20% corporate tax scenario?

Pat will take that.

Yes, I'll take that. So it is -- what a 20% corporate tax rate or any other corporate tax rate for that matter would do, it would take longer for us to harvest the investment and production tax credits that we are currently generating. Those have a 20 year life though and so certainly not in danger of losing those, clearly there will be a benefit to see the lower tax rate and one of the things that may occur depending upon the nature of the legislation, as I am sure you can appreciate there is a book first tax difference from a depreciation perspective, those deferred tax liabilities are recorded on the balance sheet at the current tax rates. So if you did see a lower tax rate result from that, we remeasure those liabilities and you may see a onetime benefit associated with that re-measurement. And if I can ask you to repeat the second question, I was having trouble hearing you, I am sorry.

Just on the legislative side, are you hearing any sort of movement with majority rejoining Reggie?

I will give you my personal opinion on that. I would be shocked if that happened anytime between now and 2018. I do think based on what we know right now that that could be a possibility after 2018.

Could you just talk about what's driving the noticeable decline in SREC price since your last update in October?

I think what we -- I think you are alluding to going to the out years into 2018 and 2019 and that's the point. I am going to ask Steve to comment on that, but that's what we have added to the presentation today is to give you a sense of the demand and the buying patterns through, not only the basic generation service but also the third party suppliers because it is important to understand that so that we can make really a logical explanation as to why SREC prices would come down in 2019. So I am going to ask Steve to comment on that, and then we will come back and talk about how we try to deal with that through our, I will ask Pat to comment on our hedging strategy. Steve?

So just referring back to that original slide where it showed the amount of demand of SRECs really being in your front years, as you move out number of years, the liquidity starts to dry up and you can imagine there is a number of entities that produce SRECs, they want to sell SRECs but the only buyers out there are those that have essentially burned up their commitments with the UBGSS suppliers and also your third party suppliers. So I think a portion of it is lack of liquidity in that market as we move towards it. We will see a, you could see prices move up but I think it takes time for that market to materialize.

This slide here, Brian, I think it says it all, when you are looking at going out into the later periods of energy 18 and 19 actually I am going to ask my colleague Larry Barth to comment on that as well. I want to stay on this because this is an important point that we have not emphasized in the past and it is important that you understand that. Go ahead, Larry.

Right, and it is important to note that the buyers of SRECs, they are really just focused on the next couple of months, the current energy year that's where the focus is. When you start to get out two years, three years there is not lot of buyers, there might be some speculators there. The compliance buyers that are really behind the RPS, you are not going to find a lot of them. And so sometimes we even look at some of those prices and we even question how real they are when you get out into those periods, because there is not lot of transactions volume.

And I think what we are trying to do, Brian, with this slide is answer the questions why are there not lot of buyers out there and to give a better sense of where the demand is coming from when we get out to those years. Go ahead.

To summarize are you saying that, we are already approaching December 2016, are you saying that 2017 isn't liquid SREC market?

Steve, you want to take that?

No, that's not, can you just move ahead one slide.

Sure.

So if you look at this slide, you will notice that we have almost all SRECs hedged for 2017 and that matches up with the slide prior as well because markets develop for that. If you look at this period 2018 which is almost 22 months away, we have got good chunk of that hedged as well because that market is materialized but looking fiscal year 2019 there is not a lot of hedging takes place because there is not a lot of buying in the marketplace. The only way we would be able to actually, I guess for lack of better words, shove those into the market at the end of the arm some speculators who really don't need and they are just buying it for profit because the market hasn't developed yet.

Okay, that's helpful. And also want CEV -- we put a number of utilities, recently announced shift in strategies field-own and operate more renewables to grow like this, et cetera. How does that play into your strategy and where -- how does the CEV encounter that over what's the competitive advantage for CEV to sign PPAs with entities?

Well, there are a couple of questions there. First of all, we think that the solar market in New Jersey still has a lot of opportunity. We think that opportunity is diverse between not only the residential market but also the commercial market. From the tax incentive point of view, we think that the extension that we saw there was obviously helpful. We think that the legislative support is there through the -- not only the RPS, but the responsible legislature to the things that we are learning in the marketplace. On the wind side, I think what you are alluding to, it's important to understand where we are focusing. We are not focusing on the larger projects. We are not focusing on offshore wind. We have found a market that is basically referred to as community wind, the smallest size projects. We have built the operational capability internally. We've developed the relationships that we need with firms like Morris. So, we think in that space that we can compete, but to the larger rate base projects, that's not the market that we're going after.

Thanks. Larry, we have a question from a webcast participant. PennEast was recently pushed back two months in the FERC process, but our CapEx projections haven't changed. How should we be thinking about this going forward?

Okay. You want to take that?

The FERC issue, notice that there going to issue our final environmental impact statement approximately 90 days than originally planned. That being said, we are still holding to our original commitment of in-service state sometime in our first fiscal quarter of '19. Many of the partners of the project are calendar years, so you will see the end of calendar year 2018 and there are leases -- I don't know Steve has something else to add on the project.

Yes, basically the project timeline hasn't changed in light of that FERC.

Yes. Thanks. Just keying off that, you've got that portion of your business at 5% to 15% of your forward earnings growth, what portion of that is represented by PennEast? And maybe if we just consider the scenario what PennEast completely went away, how much would that move your forward earnings guidance, if you can comment on that?

Yes, Midstream is 5% to 10%. PennEast would come in a construction is roughly half of that overall earnings guidance, but in terms of how that would affect either for this kind of long-term growth, we are still committed to 5% to 9%. So, we clearly have the final turnout investment vehicles to support that. Hope that answers your question, Sam.

Looking at '16 actual for the renewables businesses and then comparing with kind of the midpoint of '17 guidance, it looks like it is roughly flattish, and just thinking about there is more spend on solar, SREC prices are up, you are selling more SRECS. Are we missing anything in terms of growth to offset those?

Okay. One is it would be incremental on [indiscernible] associated with now what will be five fully operational wind projects. And so, you see those coming in at a price that spending in the -- ITC spending as you point you is slightly up, the CapEx schedule is based on CapEx, not necessarily placed in service. So, sometimes we have a disconnect between when recognize the ITCs in a particular fiscal year versus when the actual CapEx occurs, and so that maybe masking some of the growth.

We have one more question. What is the base to your 5% to 9% NFE growth objective?

Well, fiscal year '16 now is the base year.

My question in the background is -- should be in the electric grid cyber vulnerability versus a gas distribution system cyber vulnerability. Several weeks ago I heard that New Jersey U.S. attorney addressed this point for about an hour, and the takeaway point was that in order to assess the vulnerability of common appliances, usually those were the manufacturer's default settings are never changed. There ran a test with the common kitchen appliance, I believe, it was a grid connected toaster, but don't pull me into that.

Oh, I won't; don't worry.

And within 10 hours there were an excess of 300 attempted hacks on that appliance. So, it's real and I'm wondering if the legislature and the regulatory side is assessing the risk properly which want to be a tailwind for distributed generation and the gas distribution system generally.

If I don't answer the question properly, you can back to me. When you look at New Jersey and you look at the Department of Homeland Security and you look at the coordination between various industry sectors on issues related not only the cyber, but overall security, that is a very robust process, a lot of communication on all of that, okay? I didn't see the comments that you are referring to, I can't -- I really comment on those accepting -- we know what that process is, and quite frankly the experience of super storm Sandy is one that is one that is in the minds of everybody in the States. So even there is a hint of -- for example, a hurricane, the different protocols are implemented. There has been and you have seen this in energy master plans discussion of the importance of distributed generation. As you would not be surprised to learn there was a higher level of awareness and interest in that after super storm Sandy that is obviously weighing, but my expectation personally is that as we move into 2018 and beyond you'll see more discussion specifically on that point. Inside the company, I alluded to this in my comments honestly, when we talk about technology and we talk about changes in technology and how that might create additional opportunities for CEV down the road, that's one of the things that we are alluding to.

Okay.

Pat is going to now, as I said, talk to you about the money is going to be spend, where it's coming from. So, please…

The CapEx for Clean Energy Ventures doesn't tie from the capital plan to the cash flows, timing difference in terms of when the actual project replacement service versus when the CapEx will actually be made? Correct me if I'm wrong, but it looks like you shifted your CapEx primarily due to the delays in PennEast, but it looks like your financing activities have remained constant from your last update and I'm just curious as to why you didn't shift the financing as well?

You mean the last update on October the 20? It's fairly consistent with October; October the 20th which reflected a change from our earlier capital plan that was released in this fiscal year. So we have that in $72 million of incremental equity as compared to that earlier capital plan. And we had shifted the expectations of debt insurance. So, you are correct, there is no change from our earnings call -- analyst call from the 20th. It should be the same information, because we already factored in those shifts.

Okay, thank you.

Yes.

Just doing some rough math on your CapEx, former CapEx outlook, it looks like that drives kind of a low double-digit compound growth rate over the next couple of years. How we reconcile -- what are the factors to reconcile that to your 5% to 9% quarter earnings growth guidance?

I have to think little more carefully about that to give you a robust answer, but you know, keep in mind that a number of -- a significant portion -- even though we're earning and our current return on 40% of the NJNG CapEx, the balance of 60% isn't contributing to earnings. And so, as part of the SAFE II expansion, we'll require to file a base rate case in November of 2019, at that point we would start to see the recovery of some of those expenditures of utility.

Stan, the question you are asking, the percentage growth rate on the CapEx is not lining up with the earnings.

That's basically -- I understand a lot of the investments you are making, particularly outside of utility are not rate case, and so you know, there is a lag in thought in that basis, is what I…

Yes, I think just looking at the math, those numbers, those percentage growth rates may not line up perfectly with each other. It's coming with different bases and all that. And I see that when sometimes rate base growth of X percent is equated to earnings growth of X percent. Those percentages may not necessarily line up with each other. I think just looking at the basic math.

All right. When we say we are valuing a $100 million pipeline, additional pipeline commercial solar investments on slide 50, would this be incremental to our capital or CapEx projections on slide 60?

No. The pipeline that we are referring to would be the investments that would support the capital plan here on slide 60.

Okay, thank you.