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New Jersey Resources Corporation [NJR] Conference call transcript for 2021 q3

2021-11-18 15:06:03

Fiscal: 2021 q4

Operator: Good morning. My name is Chad and I'll be your conference operator today. At this time, I would like to welcome everyone to the New Jersey Resources Fiscal 2021 Earnings Conference Call. Please note today's event is being recorded. Now I'd like to turn the conference call over to Dennis Puma. Sir, you may begin the conference.

Dennis Puma: Okay. Thank you, Chad. Good morning, everyone. Welcome to New Jersey Resources fiscal 2021 year end conference call and webcast. I'm joined here today by Steve Westhoven, our President and CEO; Pat Migliaccio, our Senior Vice President and Chief Financial Officer as well as other members of our senior management team. As you know, certain statements in today's call contain estimates and other forward-looking statements within the meaning of the securities laws. We wish to caution listeners of this call that the current expectations and beliefs form the basis for our forward-looking statements include many factors that are beyond our ability to control or estimate precisely, this could cause results to materially differ from our expectations, as explained on slide 1. These items can also be found in the forward-looking statements section of today's earnings release first on Form 8-K, and in our most recent Forms 10-K and Q as filed with the SEC. We do not by including the statement assume any obligation to review or revise any particular forward-looking statement referenced here and in light of future events. We will also be referring to certain non-GAAP financial measures such as Net Financial earnings or NSE. We believe that NSE or net financial, utility gross margin and financial margin provide a more complete understanding of our financial performance. However, these non-GAAP items, non-GAAP measures are not intended to be a substitute for GAAP. Our non-GAAP financial measures are discussed more fully in item 7 or 10-K. Our agenda for today is found on slide 2. Steve will begin today's call with this year's highlights followed by Pat who will review our financial results. Then we will open the call to your questions. The slides accompanying today's presentation are available on our website and were furnished on Form 8-K8 filed this morning. With that said I'll turn the call over to our President and CEO, Steve Westhoven. Steve?

Steve Westhoven: Thanks Dennis, and good morning, everyone. I'd like to begin today's discussion on slide 3 with review of the fiscal year end results. This morning we announced fiscal 2021 net financial earnings per share or NFEPS of $2.16, which is a 24% increase versus last year's NFEPS of $1.74. Fiscal 2021's NFE is much larger or much stronger than expected, exceeding the midpoint of our original guidance for the year by 35%. You may recall that last year's Analysts Day we were expecting 2021 to be a reset year. And this is mainly due to the change in accounting method for investment tax credits. However, the reset was negated by better than expected results in energy services, as well as positive results from our BTS incentive program and New Jersey Natural Gas. This allowed us to raise guidance three times during the fiscal year. In September, we raised our dividend to an annualized rate of $1.45 per share, a 9% increase compared to 2021, reflecting stronger cash flows and confidence in our strategy. We have now raised our dividend every year for the last 26 years. As you can see on the charts our track record of growing NFEPS and the dividends speak to the ongoing strength of our business. We have produced an NFEPS CAGR of 8.3% over the last four years. With the recently announced increase to our dividend grade of five year dividend per share CAGR is a healthy 7.3%. Turning to slide 4; it's been nearly a year since our 2020 Investor Day, we laid out our vision for strategy and growth. At our core NJR remains an energy infrastructure company with a portfolio of complementary businesses that leverage our utility experience, our strategy for growth is granted three key principles, growing our regulated utility and renewable energy business, derisking and increasing the predictability of our earnings and investing to achieve a clean energy future through the decarbonization of our gas infrastructure. I'd like to discuss the significant headway we made in executing that strategy in fiscal 2021 beginning with our core operations. Last March, New Jersey Natural Gas filed the base rate case with the BPU and just yesterday the BPU approved settlement of that case, resulting in a rate base of more than $2.5 billion in a rate increase of $79 million per year. We believe it's the fair and just settlement which acknowledges the long term value of our infrastructure. We'd like to thank the BPU, the division of re counsel and their staffs for their work in reaching this resolution in a way that balances the interests of our customers and our company. After years of hard work, New Jersey Natural Gas placed The Southern Reliability Link in the service. This 30 mile transmission main enhances the reliability and resiliency of our world class distribution system and adds to its long-term value. In October, we completed construction on a cutting edge green hydrogen project in our service territory. And as we'll discuss later, in more detail, the facility is producing 100% carbon free hydrogen through electrolysis process, using renewable electricity to create the zero carbon fuel. Both the SRL and hydrogen facility were included in our rate filing with cost recovery approved as part of the settlement. This year, we also receive BPU approval for two new regulatory programs that will help provide future margin growth. First, is our new SAVEGREEN Program which began late in fiscal 2021. This new energy efficiency program is our largest ever. It authorizes $250 million in spending over three years and furthers our commitment to sustainability by helping customers lower their energy usage, save money and reduce their carbon footprint. Second is our $150 million accelerated recovery infrastructure divestment program, approved in October of 2020, this program follows our Save 1 and Save 2 rise programs includes new infrastructure replacement, and improvement projects that will add to the reliability and resiliency of our distribution system. And at CEV we expanded our solar footprint outside of New Jersey by completing our first commercial solar project in Connecticut. CEV now has $150 million of projects under construction, including our 25.6 megawatt facility in Monmouth, New Jersey. The project is the America's largest cap landfills solar array and CEV's largest commercial project to-date. Turning to slide 5; our S&T Business continued to execute its organic growth strategy while also reducing risk. Adelphia Gateway commenced construction of its South Zone and we expect to place a number of facilities into service by the end of the calendar year. At Leaf River we increase our contracted revenue with new and existing credit worthy counterparties by $46.5 million since November of 2020. Our energy services business entered into long term asset management agreements with an investment grade utility, executing on our goal for that business deliver more predictable net financial earnings. Under the terms of the agreement, energy services will receive over $500 million in revenues net of demand charges over the next 10 years in exchange for the release of contracted transportation in the Northeast. The AMAs became effective this month. Turning to slide 6 this morning, we are reaffirmed our fiscal 2022 NFEPS guidance range of 220 to 230 share, we expect that most of our net financial earnings will come from our utility business followed by our infrastructure investments and non utility areas. And importantly, we're only including the AMA contributions from energy services segment guidance. This is consistent with our commitment to secure more fee based revenue strategy services. Given the progress we've made this past year, our efforts to derisk our businesses; we believe that our net financial earnings are more predictable than a year ago. And accordingly we're narrowing our expected long term NFEPS growth range to 7% to 9% from our previous range of 6% to 10%. On slide 7, I'd like to spend a few minutes provide an update on our company's decarbonization journey with a focus on utility. In the last 10 years, our company has made important progress towards a clean energy future. New Jersey Natural Gas is a leader in energy efficiency with more than $230 million of investments in a SAVEGREEN program since inception. This program helps customers save money by reducing their energy consumption and will be critical to further reduce their carbon footprint over the coming decades. We've also invested over $2.3 billion in safety, reliability and emissions reduction on our natural gas delivery system. New Jersey Natural Gas is first utility in New Jersey to replace all cast iron pipe, it is on track to be the first in the to fully replace its unprotected steel infrastructure, and by the end of the year 100% of our system will be either plastic or protected steel. These efforts have allowed NJR to build the most environmentally sound system in the state as measured by leaks per mile and reduce its operational emissions in New Jersey by over 50% since 2006. This puts us in a strong position to start pursuing the use of decarbonize skills like RNG and green hydrogen. And today we're announcing a goal of net zero emissions for our New Jersey operations by 2050. We will achieve this goal with actions such as transitioning our fleet of vehicles to low or no carbon fuels and continue to make investments that support the integration of RNG and hydrogen in our system over the coming decades. This will drive greater decarbonization of the energy we deliver to our customers. Turning to slide 8; New Jersey Natural Gas stands on a strong foundation to start making immediate progress down this path, our modern infrastructures deploying decarbonized fuels today. And when paired with other carbon reducing strategies, including aggressive energy efficiency, we see a viable path to eventually deliver a carbon neutral fuel supply to our utility customers. In doing so, we will play a leading role in helping New Jersey reach its climate and carbon reduction goals. And we can get there more quickly, more affordably and with greater reliability than other approaches. This will also complement the state's renewable energy ambitions. The advantages of this strategy are clear. First, this approach can accelerate and help New Jersey's goal of achieving lower emissions. The high customer penetration of our natural gas infrastructure gives us a abroad platform to begin integrating RNG and green hydrogen into our system immediately, steadily decarbonizing the energy we deliver to our customers just as the Electric Grid has begun delivering zero carbon electrons from wind and solar. Second, this approach can help New Jersey reach its climate goals more affordably, existing energy infrastructure New Jersey is already built paid for and service. Over the years more than $17 billion has been spent to build and maintain more than 35,000 miles of delivery pipelines throughout the state, a massive investment by our customers. Using this vast pipeline energy delivery network as an asset will help avoid the cost of immense build out of new infrastructure, making the energy transition more affordable for New Jersey by potentially 10s of billions of dollars. Third, from reliability perspective, the benefits of using existing pipeline infrastructure in New Jersey are enormous. Pipeline system is designed to operate and meet peak demand on winter's coldest days when energy consumption is the highest. The natural gas network handles this energy load and does so with 70 times fewer outages in the electric system in a given year. Our state's dual energy delivery systems one gas and electric complement one another by sharing different energy loads, providing energy diversity and resiliency. If we were to migrate our state's entire energy demand to one system, it would come with significant financial costs and eliminate the resiliency and reliability of having two systems. Furthermore, as the state steps of its commitment to renewable generation, resiliency and reliability challenges will only grow. There are usually plans to install 7.5 gigawatts of offshore wind, 14 gigawatts of additional solar by 2035. At that scale intermittency of renewables require long duration storage solutions, not only to address out hour reliability, but also provide balancing and flexibility over days, weeks, and even across seasons. And this is an area where gas infrastructure offers flexibility and support. When renewable power generation exceeds demand that surpluses can be directed to green hydrogen production, providing the long duration storage solution for virtually zero energy loss that supplements the shorter duration storage capacity batteries. This helps address the reliability challenge of renewables and maximizes the state's investment in solar and offshore wind and it's all by utilizing our pipeline infrastructure it is built paid for and in service. So let's take this out of the abstract and look at how we're pursuing this on our system today. Last month, the cutting edge green hydrogen project in New Jersey Natural Gas and Service territory was put into service and clean burning hydrogen is being blended into our network to serve homes and businesses right now. The small system alone will offset 180 tons of carbon emissions per year, the equivalent of eliminating 90 tons of coal or over 400,000 miles driven. And as I mentioned before, this hydrogen displaces some fossil gas from the energy we are sending out with no action or change needed on our customers part. This project demonstrates that this is not just a theoretical exercise, the technology works. It's available in New Jersey Natural Gas is put into use now. And just as importantly, our regulators see what we're doing with this investment and recognize its importance to emissions reductions goals. This is a tremendous credit to the BPU and we acknowledge it and thank them for their support. This is the clean energy future we see. And with our hydrogen project now completed, it gives us wave line of sight to the next generation of clean energy infrastructure investments for our company. So with that, I'll turn the call over to Pat for his part of the presentation.

Pat Migliaccio: Thanks Steven, and good morning, everyone. Let's begin with slide 11 showing the main drivers behind the NFE changes from fiscal 2020 to 2021. The 2021 reported NFE of $207.7 million or $2.16 per share, compared to $165.3million or $1.74 per share last year. NJNG report its fiscal 2021 NFE of $107.4 million compared to NFE of $126.6 million during fiscal 2020. The decrease is due to the higher volume expenses and mainly related to increases of bad debt. Turning to our non-utility businesses; CEV's net financial earnings declined by $5.3 million, primarily due to lower SREC revenue, which was partially offset by lower depreciation expense. The decrease in depreciation expense was a due to a change in the useful life of CEV's assets. Storage and transportation reported fiscal 2021 NFE of $13 million, compared with the NFE of $18.3 million during fiscal 2020. The decrease in NFE was due primarily to lower contributions from our equity method investments, higher compensation depreciation expense, which is partially offset by increased operating revenues at both Leaf River and Adelphia Gateway. Finally, energy services reported NFE of $71.1 million compared with net financial loss of $7.9 million in fiscal 2020. The decrease is due primarily to the significant natural gas price volatility associated with a strong Uri in February this past year. Turning to Slide 12. As Steve mentioned, the BPU approved a settlement of NJNG's rate case with a $79 million annual revenue increase that will become effective on December 1st. Under the terms of the settlement, our overall allowed rate of return is 6.84%, which includes a return on equity of 9.6% with a 54% equity letter. Our composite depreciation rate also did not change, remaining at 2.78%. Importantly, the improved rate base of $2.5 billion includes SRL and our Green Hydrogen Project. This represents a 43% increase on a rate basis, compared to our last settlement. Turning to Slide 13. Given the recent increase in natural gas prices, I wanted to take a moment to discuss how NJNG manages the cost of natural gas. As a reminder, the cost of natural gas supply for NJNG's pass-through to our customers to mitigate the risk of sudden and dramatic price changes, NJNG has hedging program. Our policy, at least 75% of our estimated winter send-out must be hedged prior to November 1st. It is NJNG's practice to hedge most of our winter needs with natural gas and storage. We currently have approximately 90% of our estimated winter needs already in storage. The prices were hedged more than a year ago. As such, our average hedge price is significantly below current spot prices. By securing a cost effective supply leveraging the BGSS incentive, NJNG is able to keep the cost metric as low even after including the expected change in rates more recent rate case settlement, NJNG's average natural gas cost declined more than 23% in real terms since 2008. Turning to slide 14, you see that our target for placing commercial solar projects in service for 2021 and 2022 remains at $315 million. We currently have $150 million of projects under construction, our largest figure ever, additional $94 million under contract, however approximately $60 million worth of projects that are under evaluation. And our ability to place those projects in service will depend on successfully closing the transactions and construction timelines which could be impacted by supply chain constraints. Having said this, even these risks materialized, the potential impacts to fiscal 2022 NFEPS would be minimal. Finally, the large majority of projects we expect to place in service in New Jersey have qualified or expected to qualify for TREC. Clean Energy Ventures continues to generate a significant portion of its revenue from the sale of SREC. Driven by changes in its revenue, CEV hedge its part of expected production of SREC to future contracts. The current status of our asset hedging program is highlighted on slide 15. As you can see, we're almost fully hedged through energy year 2024. And the market fundamentals for energy is '25 and '26 support strong pricing with SREC trading at or above 84% of the Solar Alternative Compliance Payment, or SACP. We now have 41% and 80% hedge range years 2025 and 2026 respectively. Turning to slide 16. I'll take you some highlights of our capital plan starting with New Jersey Natural Gas. With this around out rates, our capital spending in NJNG is expected to moderate somewhat in the next two years, but still supportive of the double digit rate base growth we communicated to you at our Analysts Day. Our current capital plan fully contemplates our existing RNG opportunities and does not consider any additional ramp up in RNG or hydrogen investments. We allow that our capital plans to get more visibility to potential projects. As discussed earlier, we have a large and service solar CapEx target for this year, but given the risk of timely execution, we are widening the CapEx range for CEV. Finally, we expect to allocate around $100 million to our S&T segment in fiscal year 2022. Most of it to complete the construction of our Adelphia Gateway project. Turning to our cash flow on slide 17, you can see the very strong cash flow from operations we generated in the fiscal year 2021. We're projecting the fiscal 2022 cash flows will be at around the same levels. Even when considering that our forecasted contribution from energy services is only from the fee based asset management agreements that became effective earlier this month. And for fiscal 2023, we expect cash flow from operations to further increase, mainly driven by NJNG.

Steve Westhoven: Thanks Pat. I'd like to finish up today with a few thoughts on what lies ahead for us in fiscal 2022. At New Jersey Natural Gas as discussed rate case is now behind us. SRL and our first hydrogen project are including those rates, which go into effect in December. And moving forward, we expect our customer growth numbers will return to pre COVID levels approximately 1.7% as the economy continues to recover, we are reassessed -- we are assessing sites for future hydrogen RNG projects and we'll continue to add low and zero carbon fuels to our system. And at CEV, we currently have $150 million of projects under construction. We continue to grow outside New Jersey as we seek to expand our pipeline of projects. We expect that more of Adelphia will come online during fiscal 2022. And we'll continue to seek additional organic growth from that project. In an energy services, our NFE projections only consider contracted AMA revenues and cash flows. We will continue to seek more fee based transactions, allowing for more predictable NFE from the segment. To conclude moving to slide 19, we expect NJR to continue delivering long-term value for our shareholders anchored by our regulated utility and the infrastructure investment opportunities provided by our other business. And to summarize, we offer investors an attractive 11% to 13% expected total return based on our dividend yield of about 4% and our long-term NFEPS expected growth rate of 7% to 9%. We appreciate that you took the time to join us here today. And I'd like to recognize and thank our employees for all their hard work and dedication that drives our performance. So now let's open the call for questions.

Operator: And the first question will come from Gabe Moreen from Mizuho.

GabeMoreen: Hey, good morning, everyone. Yes, couple of questions for me just some of the guidance there. You mentioned kind of more visibility, I think to future stuff beyond the rate case having just settled, I guess, is there anything else that you'd kind of call out in terms of the upper or lower end of that range being narrowed? And then also on a related note, is it safe to assume that I guess the dividend growth guidance at this point is 7% to 9% as well.

SteveWesthoven: So yes, it's safe to assume. I think there was a number of things so rate case being settled, certainly a big one, but in that was completing SRL which is the project that took a little while to complete. So we're happy to say that's operating. Also Adelphia Gateway, it's under construction, and we're getting close to some commercial operations for some of those facilities. So there have been a number of large projects that are coming into commercial operation, or into rates, that really allowed us to narrow the range.

Gabe Moreen: Thanks Steve. And then maybe if I could follow up on the rate case settlement and future kind of green investments, whether it's RNG, or hydrogen, given the how facility, and its performance so far, and its cost, just curious whether in discussions with the BPU, during the rate case or outside the rate case. What's your appetite now is I guess, to spend on more hydrogen facilities, how should we think about the cost of those facilities? And then maybe and update in terms of your latest, a little more on the latest RNG efforts, if you don't mind?

Steve Westhoven : So I think that's a great question. And really the way I've wanted to describe this or explain it to investors is that we're on a path to decarbonization, and that after decarbonization, it's going to include hydrogen, it's going to include renewable natural gas, we've got energy efficiency, as part of it, and then at some point in the future, you're going to see carbon capture and storage evolve as well. I think if you're looking for next steps most likely, I think the next transaction we've seen, although we don't have anything to announce now, is we'll have RNG being blended into our system. But scaling up all those things will depend on a number of all the factors when does hydrogen come to scale? We need to work with our regulators and administration to determine timing and development. And when will renewable resources come in and influence hydrogen production and other things. So there are just a number of factors that come into view. Also we need to look and keep an eye on consumer costs as well. So we need to balance all these moving forward. So I think we're going to move forward, we certainly are in a passage carbonization. But there's going to be some innovation, and you'll see us taking next steps. But I think a few things have to come to clear view. Certainly scaling cost and things like that need to materialize.

Gabe Moreen: That's fair, and I think last one, for me would just be on energy services, I noticed that you're not providing or not including anything beyond AMAs and guidance. I know you typically hadn't really had that much contribution from energy services and guidance. And kind of normal matter, of course, but I just want to ask, is there any change to business strategy there because of that? Or you just really are leaving additional energy service upside? Is that just out of sigh again?

Steve Westhoven : I mean, short answer is yes, it's going to be additional upside will be that. I think the one thing to note is that the portfolio is a little bit smaller from the release of some of these assets, and certainly just tighten up that book. So I think that could be a consideration as well and in view of that business.

Operator: And your next question comes from the line of Shahriar Pourreza from Guggenheim.

Shahriar Pourreza: Hey, good morning, guys. Just on RNG, energy guys have highlighted opportunities more in terms of like third party purchases, kind of with the potential for New Jersey legislation to allow rate basing of RNG assets through Senate Bill 3526, how are you sort of thinking about your strategy with PPAs versus company owned? Assuming it's signed into law? And is there any status on the legislation?

Steve Westhoven : So I don't know the status of the legislation. And I know we're in lame duck now. And I guess it's anybody's guess, of whether or how quickly that could move through. But I think about RNG for our purposes we've got a few opportunities that are on our system. And we're certainly pursuing it and seeing how we can integrate those. It's an important part of the process, like I was just saying, where to gate this is all a multi pronged approach to decarbonization. So we will pursue RNG, and getting those lower carbon fuels on our system. And we'll wait and see how the legislation occurs and certainly what types of transactions will fit us and our customers as far as cost goes to being able to decarbonize the fuel stream. I'll ask Mark Kahrer, if he has any thoughts associated with RNG, kind of the legislative side of things?

Mark Kahrer: Yes, thanks, so from our standpoint, right now, with respect to our investments, we already have the authority to be able to do that, under the regi legislation that was passed a number of years ago, that's an important form to understand that, again, that enabled us to make that investment in the green hydrogen plant as well. So the opportunity already exists for our investments, the aspects of the legislation, we will try to clean up a little bit more is with respect to third party purchasers, and how that gets done and ensuring that those going forward. We are pretty confident on and working with our commission to talk through these situations. And as long as we can reach reasonable accommodation on the transactions and work into our supply portfolio, it's aligned with where the governor strategy is and where we want to be.

Shahriar Pourreza: Got it. Perfect. Thank you for that, and then just on CEV, I mean, obviously Steve, you highlighted a lot of the growth. Capital has been derisked at least through '22, right? How do we sort of think about maybe prospective growth opportunities for CEV in light of sort of the input cost pressures that you kind of touched on a little bit on the prepared, whether it's labor or transport panels? We've seen the space and I guess do you have some purchasing flex like larger developers to sort of avoid it? Or can we see some slowdown at CEV? Maybe under an assumption these cost pressures are more long term in nature, especially as we're thinking about post '23, right? I guess what, how are the conversations going with your suppliers?

Steve Westhoven : So certainly there's tightness as you go farther and farther out in the market. I think the group's done, our CEV groups done a good job of kind of looking around the curve and being able to pre contract for the projects that we currently have under construction and make sure that the supplies are available, and a little bit of tightness in some of the other components that we're seeing in the marketplace. But I guess as we move forward and go farther and farther out a little bit less view of that, but I'm assuming this is a short term, issue, short term being measured in maybe a year or two, and then we can get back to normal for a capital plan. Now, you can see you've got $150 million under construction almost $100 million that are under contract. And right now we're prepared to execute on that, and not change that.

Operator: And your next question will come from the line of Travis Miller from Morningstar.

Travis Miller: Good morning, everyone. Thank you. I get kind of stuck on the whole RNG and hydrogen theme. And then thinking about coming into the winter here. What are you seeing in terms of as you blends? Are you displacing some of the traditional natural gas supply that you need? Is it coming at a lower cost for customers, their storage, and thinking through kind of the benefits and of either displacing traditional natural gas or being able to supply at a lower cost through hydrogen and RNG versus natural gas? Are those any considerations that are happening right now?

Steve Westhoven : So I think thinking about at least the hydrogen component it's a proof-of-concept, the volume is pretty small compared to our own system. So really the minimus impact on pricing and such, and as far as looking ahead of the winner what are we going to displace, there's not enough find there to really make any impacts and I think we're a few years off, before we get to scale where you see numbers, I think, where you're going and what to talk about is how this is impacting the overall supply chain both natural gas coming to the system. So I think it's too small right now to really predict or talk about the way that you're asking that question.

Travis Miller: Yes, okay, do you see it ultimately, being able to, I don't know, save as the correct word, but offset some of the extra infrastructure costs using hydrogen, RNG?

Steve Westhoven : I mean, certainly --

Travis Miller: In addition, obviously, the environmental benefits, right, but are there a cost component there, that would be beneficial.

Steve Westhoven : I mean, you're definitely for moving towards a low carbon, a decarbonized product being delivered to customers, you're going to have to have energy efficiency, which is going to reduce their usage. You're going to have renewable natural gas, which is similar to natural gas, and its components and being able to be consumed and then have hydrogen as part of it. So you're going to push back on natural fossil fuel, if you will. So that's definitely going to happen in the future as we continue on this journey at what point in time, does this get up to a size that you can discern that in the marketplace? I think that's yet to be determined from some of the things that I mentioned and gave earlier. There's a number of things that have to come to scale, we've got to work with administration, we've got to work with the BPU, we've got to be conscious of customer costs, and things like that. So I think those questions are difficult to accurately predict right now. But key takeaway is, we are starting this journey right now, we are delivering some decarbonize fuel to our customers. And we're proving that essentially, our infrastructure is going to be used long into the future. And there are good reasons to do so.

Operator: The next question will be from the line of Julian Smith from Bank of America.

Kody Clark: Hey, it's Kody on for Julian. Good morning. So first on Clean Energy Ventures, how are you thinking about geographic mix in the return profile across different states going forward? Are you still seeing that 7% to 7.5% IRR kind of across the board? Or is there a mix between New Jersey and some of the other states that you're looking at?

Steve Westhoven : So I think the way we're looking at it strategically. I think we've said this before we started in New Jersey, we've made relationships with suppliers, with contractors with developers and that's been a natural progression to go into other states and certainly in the Northeast, you've got all the same suppliers and contractors and developers operated in many different states. So in thinking about it, it was a natural move for us to be able to make investments. Each state has a slightly different construct. And we've got some different risk profiles in that whether it's a feed in tariff in another state obviously in New Jersey, you've got what's now our TREC or the second coming of TREC and I think when we look at it slightly different returns based on risk profiles. But I think by and large you're in the ballpark, there. Pat, I don't know if you have any other comments?

Pat Migliaccio : I just echo what Steve said, I think you're accurate there. And it's a mix, Kody, we really only have our first project up and down in Connecticut. This year, we've got some others that are slated and rely on to next year. Those features feed in tariff/ PPA type arrangements, as you build up a cost of capital. If you've got something that looks like a 2025 year, PPA that's providing the revenue support for the credit quality utility, you might see the IRR is turned down a little lower on something like. But to New Jersey, we're still fairly comfortable that are probably at the 7% range. And but remember, we have some competitive advantages in the state and that we've 10% of the market share. And so we got lot of efficiencies in the state of New Jersey that we don't necessarily see external to New Jersey.

Kody Clark: Okay, got it. And just second, wondering if you're embedding any assumptions around the solar successor program within that New Jersey return profile, and the narrowed CAGR going forward, given some of the reductions in the subsidies that we saw earlier this summer. And some clarity still needed on projects over five megawatts.

Pat Migliaccio : So, Kody, it's Pat Migliaccio, again, I think as we communicate our Analysts Day, we expected that roughly half of our projects will be in state, roughly half of them out of state, as we sit here today, that has trended more towards New Jersey projects, probably closer to two thirds to 75%. And that's really a function of the deep relationships we have the state from the very attractive TREC subsidy. And so that's the case for 2022 as we think about the capital plan for 2023, and identifying those I expected to see a bigger shift potentially out of state. And that's one of the benefits of diversification. As you know, the successor program for projects over five megawatts is now targeted for finalization will sometime this winter. And so that's their line on benefit certification we can are between New Jersey and other states. And thank you, ladies and gentlemen, this concludes our question-and-answer session. This time, I would like to turn the conference back over to Dennis Puma, for any concluding remarks.

Dennis Puma : Okay, thank you, Chad. I want to thank everybody for joining us this morning. As a reminder, the recording of this call is available for replay on our website. And as always, we appreciate your interest in investment in New Jersey Resources. See you next quarter. Goodbye.

Operator: Thank you. This concludes today's conference call. You may now disconnect your lines.