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