Ann T. Anthony - Treasurer Stephen H.

Clark - Chief Financial Officer Michael J. Renna - President, Chief Operating Officer and Director Edward J.

Graham - Chairman, Chief Executive Officer and Chairman of Executive Committee David A. Kindlick - Former Executive Vice President Jeffrey E.

DuBois - Senior Vice President and President of South Jersey Gas Gregory M. Nuzzo - Vice President

Spencer E. Joyce - Hilliard Lyons, Research Division Daniel M.

Fidell - U.S. Capital Advisors LLC, Research Division

Thank you, Whitley. Good morning, and welcome to the conference call for SJI's Fourth Quarter and Full Year Fiscal 2014 Results.

I'm Ann Anthony, Treasurer for South Jersey Industries and I'm joined today by Ed Graham, Chairman and CEO; Steve Clark, CFO; Mike Renna, President and COO of SJI; Jeffrey DuBois, President of South Jersey Gas; and Marissa Travaline, General Manager of Investor Relations. As you may know, we issued a news release this morning announcing the results we will be discussing on the call today.

That release includes an in-depth review of earnings on both a non-GAAP and GAAP basis using our non-GAAP measure of Economic Earnings. This measure eliminates all unrealized gains and losses on commodity and on the ineffective portion of interest rate derivative transactions.

It also adjusts for realized gains and losses attributed to hedges on inventory transactions and for the impact of transactions or contractual arrangements where the true economic impact will be realized in a future period. The news release is currently available on our website at www.sjindustries.com, in the Newsroom section.

Throughout today's call, we will be making references to future expectations, plans and opportunities for South Jersey Industries. These remarks constitute forward-looking statements for purposes of the safe harbor provisions under the Private Securities Litigation Reform Act of 1995.

Actual future results may differ materially from those indicated by these statements as a result of various important factors, including those discussed in the company's Form 10-K on file with the SEC. We assume no duty to update today's statements should actually events differ from expectations.

With that said, I'd like to turn the call over to our CFO, Steve Clark to present our full year and fourth quarter 2014 results.

Thank you, Ann, and good morning to everyone on the call and thanks for joining us. Today, we will discuss results framed in the context of our 2 major business segments: utility results from South Jersey Gas and nonutility results from South Jersey Energy Solutions.

Additionally, within our nonutility, we'll discuss the performance of our 2 primary businesses: South Jersey Energy Services and South Jersey Energy Group. The measure we use to assess SGI's performance across all business lines is Economic Earnings.

Our full year 2014 results reflects 7% growth in Economic Earnings at $104 million compared with $97.1 million in 2013. Economic Earnings per share for 2014 totaled $3.13 a share as compared with $3.03 for the prior year.

For the fourth quarter, Economic Earnings totaled $31.2 million compared with $39.9 million for the prior year period. Economic EPS for the fourth quarter of 2014 was $0.93 compared with $1.23 for the same period in 2013.

This variance resulted in large part from reduced levels of ITC associated with solar project investments and from the impacts of the Revel Casino bankruptcy on our joint venture energy projects to provide energy to the facility. We'll review these items and the drivers of current and future growth in greater detail as we discuss the performance of our individual business lines.

Moving to utility. South Jersey Gas' earnings for the full year 2014 were up approximately 7% to $66.5 million as compared with $62.2 million in 2013.

For the quarter, utility net income was $24 million as compared with $22 million for the fourth quarter of 2013. As in prior periods, infrastructure investment and customer growth remained the key drivers of utility earnings to date with additional benefit coming from the settlement of the base rate case at the end of the third quarter.

We closed out the year with accelerated infrastructure investments that totaled $54.8 million between our 2 tracker programs: The AIRP, which replaces aging bare steel and cast-iron main throughout our system and the SHARP, which replaces low-pressure mains specifically along the barrier islands with high-pressure main to better protect our system from water and sand intrusion during extreme weather. These investments added $3.2 million in net income in 2014.

Also, during 2014, we grew our year-over-year net customer camp by 1.3% to nearly 367,000 customers. The cornerstone for that growth was the record level of customers we obtained via conversions from other fuels.

We obtained almost 5,800 new customers in 2014. And as we look at that, that 5,800 is -- not only is it a record, but it's 10% above the record we set last year for conversions.

So we're -- we continue to make good progress in that area. With the margin increase from new rates that took effect in October, each residential heat customer is now worth $293 of annual net margin to SJG.

Combined with enhanced marketing efforts currently underway and natural gas' price advantage of 40% to 70% over other heating fuels, we remain well positioned to continue seeing significant benefits from strong customer growth over the next several years. We valued the customer growth that we produced this year at approximately $1.6 million on an annual basis.

Now I'm going to move over the nonutility side of our business. For the full year, our nonutility businesses added Economic Earnings of $37.6 million as compared with $34.7 million in 2013.

For the quarter, the nonutility businesses combined to generate Economic Earnings of $7.2 million as compared with $18 million in the fourth quarter of 2013. The 2 business segments produced our non -- producing our nonutility results are South Jersey Energy Services, which largely reflects our energy production assets within Marina Energy and our energy project joint venture Energenic.

South Jersey Energy Group reflects our activities related to the supply, storage and transportation of natural gas in and around the Marcellus and our retail marketing of electric and natural gas in the mid-Atlantic and Northeastern portions of the U.S. South Jersey Energy Services contributed $24.6 million in 2014 as compared with $40.6 million in 2013.

For the quarter, South Jersey Energy Services added $3 million as compared with $19.1 million for the fourth quarter of 2013. As I noted earlier, reflected within these results is a $5.2 million bottom line impact that the Revel bankruptcy had on our energy facilities located at that property in 2014.

That total was comprised of a onetime hit of $4.6 million for receivables and legal fees and $600,000 of lost income contribution from the operation of the facilities. Based upon ongoing negotiations among a number of interested parties, we remain optimistic that a buyer will soon complete the acquisition and reopen the casino and hotel facility.

Excluding this impact, our energy production portfolio performed well in 2014 with value added by our CHP and solar business lines. On a full year basis, our CHP thermal business contributed $1.8 million to Economic Earnings as compared with $8.6 million in the prior year.

For the quarter, our CHP thermal business line produced a loss of $0.5 million as compared to income of $2.9 million for the same period last year, reflecting the impacts of the Revel situation. The comparison of full year results was also impacted by ITC and a state tax adjustment totaling $2.5 million of Economic Earnings that benefited 2013, but was not repeated in 2014.

Our solar business contributed $25.5 million for the full year of 2014 as compared with $33.9 million in 2013. The main driver for that change is that we have begun to scale back solar development, consistent with our target of reducing reliance on investment tax credits by 2017.

ITC contributions for 2014 totaled $30.3 million as compared with $36.9 million in 2013. I do want to note that we had 1 solar project that we expected to include in 2014, that was not completed until after year end.

That delay reduced 2014 ITC by $1.1 million, reflecting a $0.03 per share impact on economic EPS. When we combine that with the impact of the Revel impacts on our performance, the total of that would add up to $0.19 per share for the year.

For the full year and the quarter, our landfills produced losses totaling $3.3 million and $700,000 respectively in 2014 and losses of $2.3 million and $400,000 respectively in 2013. We continue working to improve the functionality of these projects.

Additionally, we remain active on legislation in New Jersey that would improve the profitability and encourage development of these types of projects by establishing a level 1 renewable energy credits associated with the output from landfill electric generation. The legislation is currently awaiting a vote by both houses of the legislature.

Turning over to the commodity segment of our business, 2014 was highly profitable for both the wholesale and retail arms at South Jersey Energy Group. Economic Earnings for the full year totaled $13 million in 2014 as compared with the loss of $5.8 million in 2013.

For the quarter, South Jersey Energy Group produced $4.2 million in Economic Earnings in 2014 as compared with the loss of $1.1 million in 2013. Performance was driven by the value that we realized from the pipeline transportation assets that we control, particularly in the first and fourth quarters.

While Mike will discuss the future prospects for this business in some greater detail, we are very comfortable saying that we expect this segment to continue making significant earning contributions for 2015 and beyond. Before I turn the call over to Mike, I'll provide a quick update on the balance sheet.

Our year-end equity cap ratio was 43%. We average 44% for most of the year, which is comparable with 2013 levels.

As we noted in the last quarter's call, higher debt levels resulted from increased working capital requirements driven by deferred cost from high-priced natural gas last winter as well as by infrastructure investments across the business. SJG began collecting the $47 million under recovery associated with those deferred gas costs through rates on October 1, with full collection to occur between now and 2016.

We also raised just over $80 million of equity through our dividend reinvestment plan and optional cash purchases in 2014 compared to $54 million in the prior year. Now I'll turn the call over to Mike to discuss the opportunities we see for our business in the near term.

Thank you. Good morning.

As Steve just detailed in his remarks, 2014 was a profitable year for SJI, with 7% growth in Economic Earnings and 3.3% growth in Economic Earnings per share. But it was not a year without challenges and it is in evaluating those challenges that I am most encouraged by what the future holds for SJI.

Many times in speaking with all of you, we have highlighted the versatility and agility of our business. These characteristics have enabled us to build a business that not only maximizes its core utility investments, but one that also drives shareholder value from opportunities in energy production, fuel supply management, midstream investments and retail commodity services.

We built the business that can withstand short-term challenges without compromising long-term growth and profitability. The main driver of our long-term growth and earnings remains our regulated utility.

Looking out over the next 3 years in addition to our typical capital spend, we have accelerated investments planned totaling over $200 million. On top of the immediate return, these investments provide new trackers, they also expand our access to those on or near Main, enabling us to make bring natural gas to more homes and businesses.

With natural gas savings of 40% to 70% versus other heating alternatives, we intend to continue the kind of aggressive conversion marketing that has helped us convert almost 5,800 customers in 2014. We also remain committed to meeting the energy needs of the communities we serve through the construction of a 22-mile pipeline to serve the BL England generating facility and reinforce our natural gas distribution system.

We continue to look for ways to provide these important services while properly addressing the concerns of all interested parties. And we've seen steady progress towards the construction of a natural gas liquefier at our McKee City facility, which help us minimize the volatility that short-term spikes in gas costs can have on our customers and maximize the performance of our distribution system.

On the unregulated side of our business, our wholesale business benefited significantly from the transportation capacity we acquired throughout 2012 and 2013. In addition to driving a very strong 2014, this capacity is, again, helping to position us for a very profitable 2015 as well.

We are very excited by the prospect of adding new multiyear income streams starting in 2015 with 3 new supply management contracts adding to net income. The first of which began serving the LS Power facility in late 2014.

We also expect to see contribution from Panda Energies, Liberty and Patriot plants to further boost 2015 results. With additional contracts commencing service in 2016 and further announcement pending, this area of our business is expected to contribute between $8 million and $10 million in net income per year by 2018.

Moving on to South Jersey Energy Services, we remain very pleased with the operating performance of our on-site and distributed generation projects. This technology remains a valuable application for a number of entities we serve, including the Borgata Atlantic City, Montclair University and the downtown area of Hartford, Connecticut.

We continue to see great opportunity in CHP, particularly in district energy facilities. Others see the value in these facilities as well, as evidenced by the high multiples companies are paying to acquire proven systems.

The last area of our unregulated business I want to highlight is solar development. As Steve noted, we continue to see strong performance from our solar generation fleet, with more than 111,000 SRECs produced in 2014.

While we intend to scale back the impact of investment tax credits in advance of the expected 2017 reduction in the amount of these credits, solar development remains a key part of our energy production portfolio. With SRECs hovering around $220 in New Jersey and project development costs at their lowest levels yet, we expect to continue selecting -- selectively adding solar projects that will benefit both short and long-term profitability.

The last business segment I want to highlight is SJI Midstream. As we announced in our last call, this segment will house our 20% equity interest in an anticipated $1 billion interstate pipeline that will increase the level of regulated contributions to our earnings.

Planning activities around this projects are underway, including early discussions around financing as well as outreach and communication to the communities along the pipeline's proposed path. We believe our involvement in this project underscores our ability to continue the record of growth we have established over the last 10 years.

Before I turn the call over to Ed, I also want to take a minute to note that this will be his last earnings call with all of you before his April 30 retirement. Ed's nearly 35-year career, including the last 11 as our CEO, can best be characterized as exceptional.

Under his leadership, SJI's shareholder value has increased over 300%. Our market cap has nearly quadrupled.

Economic Earnings per share has grown from $1.31 to $3.13 a share and our dividend from $0.78 to $1.92. All of us here at SJI will greatly miss his leadership and his friendship.

With that said, I will turn the call over to Ed.

Thanks, Mike, for those kind words and before we move to the question-and-answer portion of the call, I just want to highlight a few areas of our business that I think are positioning us well for the future. First, when I look at our utility, the customer growth continues to double the national average and our infrastructure investment through our trackers will only add to the safety and reliability of our system and our profitability.

The exciting discussion about SJI Midstream, which is our significant investment in PennEast, which is fully subscribed, has the potential for expansion and earns record level returns and then moving to our non-reg side, with great growth opportunities we continue to have with CHP in thermal, the renewables and, of course, the newest area of growth, fuel management for large generators. And finally, I really do want to speak to the management team.

I think it's an incredibly talented group and in the future, led by Mike, will only capitalize on these and many other opportunities in the energy space and that confidence is further demonstrated as we split the stock 2-for-1 today, again, just showing the confidence in the future. And lastly, on a personal note, I want to thank all of you for the interest and the support that you've shown for SJI over the years and I can tell you I'm extremely confident that SJI's best years are ahead -- are ahead of us with this great management team.

So thank you and now let me turn the call back over to the operator for some question-and-answer portion.

First things first here, Ed, I just want to say congratulations and thank you. I know you've presided over some substantial wealth creation both for our clients here and across the country here, so I do want to wish you the best as you embark upon retirement, your next adventure, I'll call it.

Thank you, Spencer.

Moving on to some items from the quarter here. First I wanted to ask about guidance.

I know that prior to this past year, you all had typically waited until first quarter earnings to initiate guidance. But had it assumed, I guess, with the initiation in February of last year that we would see some guidance today, can you talk about what went into the decision to either perhaps revert back to a May initiation or perhaps it was -- perhaps some opacity here in the next couple of months that had you all not wanting to come out with something?

Spencer, I'll address that one. This is Ed.

I think last year, coming off such a cold January, we really wanted to give the investors a quick update so that on one hand, they recognize the great January we experienced, but on the other hand, to basically give them the right perspective on what the year would be. With regards to this year, I think we're really -- it's our normal guidance period of telling you after the first quarter, and I can tell you that there are a number of exciting things that can really boost our performance in the first quarter.

So with that said, I think we're back on the normal track of May guidance.

Okay. Yes, that makes sense.

Steve, this might be for you. I know you touched on it there late in the call about the DRiP and optional purchase, equity being about $80 million in '14, and you've been real forward and pretty granular with those estimates with us throughout the year and I'm just wondering how we should be thinking about that particular line item in '15.

I would assume you all still would look to raise some equity, but I know we have a couple of other special items that are going to help us on the cash flow side, beginning this year as well. So any color that you can give us there around that DRiP or optional purchase lines?

Yes. Sure, Spencer.

The -- as we look at it, as we look at the year and obviously there's a lot of things that can be happening during the course of the year that will either be sources of cash or require uses of cash, and presumably if we're using cash it's for some worthwhile investments. But as we look at what we have in front of this, the expectation is yes, we will be raising equity.

I would expect that we'll be well below the number that we have out for 2014, well below the $80 million. It's a little too early to get specific on that.

Most of that, you would expect to see more towards the second half of the year as we get a little bit more clarity on what some of the requirements are, but I'd expect it to be below where we were for '14.

Okay. Yes, that's beneficial.

So, be thinking below the $80 million and probably weighted towards the back half of the year a little bit. On the financing or the capital side as well, we're inching ever closer here to impact from PennEast and I guess, could you talk through when your all capital commitments, the roughly $200 million or so for that 20% interest may be spent by you guys and then perhaps the time frame for raising that capital?

I think the answer is, is we're spending a very small amount right now as a group, as we do all the preliminary work of the various approvals and the like. I believe that the real dollars are not really expected to be spent in a significant amount until 2017 -- I'm sorry, until 2016, sorry.

So it probably won't be a lot that goes out this year. We're also currently looking as a group as to exactly how we go about the financing of this process and those conversations are very early stage at this point, but obviously everybody will have the opportunity to weigh in as to what form of financing that takes.

Okay. Yes, that's good.

So nothing imminent here in '15. That's good, we can kind of set that to the side for a little while.

Also, Steve, you mentioned the way that $5.2 million expense or charge was split and noted $600,000 and correct me if I'm wrong in that number, would be due to lost operating results or lost income. Is that correct?

That's correct.

And what time frame would that be over? I realize it would be sort of for the full year, but I'm assuming the first half of the year was business as usual, so I'm trying to kind of back into a run rate for earnings there.

Spencer, you're absolutely right. The -- most of that relates to the CHP operation that we have there and that really didn't get impacted by the events at Revel until probably about a week or so, 10 days or so into the month of September.

So most of that, that you're seeing there is, in fact, fourth quarter.

Okay. And then the earnings contribution bell curve, well, for a lack of a better term, is that flattish?

Or was that flattish for that Revel? I mean, can we kind of linear extrapolate that to a full year?

I'm not sure I understood your question.

Well, if it's $600,000 from 10 days into September kind of through year-end, is that a fair run rate on kind of a per day? Or is there a more contribution in the winter months?

So I think, [indiscernible] Mike's motioning to me that it's a flat load, so I think we're in good shape there, straight line.

Let's see, the last and kind of housekeeping question that I have. Do you have -- and I'm sure it'll be in the K, but what the fourth quarter and then the full year solar investment capital expenditures were for the year, just so we can get a sense of what the decline was year-over-year.

The actual CapEx? I don't have the actual CapEx in front of me right now, do we?

Dave do you want to jump in? $133 million was the actual CapEx spend for this year for solar?

Yes.

Okay. There you go.

Okay. And do you have the year-over-year delta there?

If not, that's okay. I'll pull it from the K.

I don't have it handy right now, Spencer, but we can certainly get it for you.

Okay. I guess, actually one last follow-up.

Steve, of the $0.16 tied to Revel, that includes the $3.5 million -- the $3 million write-down in Q3, correct?

Correct.

You guys are talking about, I guess, the financing for next year. You've got the -- I just wanted to make sure I knew what sort of items were sort of happening, or you said you had the extra gas recovery or deferred gas cost that were going to be recovered.

What were the other items that would kind of sort of be above normal coming in for cash?

When you say cash potentially coming into the business?

Yes. It sounded like when you guys were talking about the financing for -- okay, you might have to raise some equity, but that you had some other items happening that would sort of maybe bump the cash up a little higher than usual.

There's a whole variety of things. The big governors there are exactly how much are we going to put into solar investment in a particular given year or any other project investments.

Obviously, the more we use, the more demand for capital, the less we do, the less demand for capital. Our wholesale gas business, obviously, has the ability to be a significant cash cow depending upon performance during the course of the year.

From a gas company perspective, from a utility perspective, clearly we're looking to recapture a lot of those deferred gas costs that are now being built out to customers and the pace of some of the construction projects that we do at that business and when they're approved and when they actually start putting shovels into the ground are going to drive the timing of the demand for capital. So there's a lot of factors that come into play there.

Okay. And do you guys have sort of a feel what CapEx would be for this year?

We do, one second. Are you talking in total or just the utility?

I guess, both.

Give me a second. I have the number, I just have to take it out.

Any other questions while we're -- while I'm rooting through my papers for that?

I guess, the one other thing I was kind of wondering about, you talked about the conversions this year -- or in 2014 were record levels. Going forward, do you see that sort of pace continuing?

Do you see it increasing? Or how should we be kind of thinking about how conversions are going in your territory?

This is Jeffrey DuBois. I can take that one.

We are looking to surpass that number in 2015 and do even better. We continue to have a lot of interest in conversion, even with oil prices coming down there's still a big price advantage in natural gas and we continue to offer 0% financing and there's no charge to get the line installed in someone's house.

So we still have a lot of interest and a lot of potential market out there.

Are most of the conversions sort of like nearby existing mains? Or you're having to have big main extensions to sort of get out to new areas or where are these conversions coming from?

We have probably in the range of about 50,000 customers -- potential customers that are on or near our main. And as we continue to extend our main for those that are near it, we get closer and closer to other customers.

So we're not looking at major main extensions, we are looking at those customers that are easily reachable.

Okay, great and yes, just the CapEx number would be great.

Yes. As I look at the number for industries, it could be as much as $378 million in 2015.

The gas company number, I don't have it in my fingertips, but I can certainly provide that to you.

Okay. I'll follow up on that one.

Sorry, I take it back, it's $240 million. So, that's [indiscernible] the other number.

First up, just let me start by also offering my congrats to you, Ed, on a job very well done. Certainly, miss your dynamic style and wish you all the best.

I had to get the dynamic in there for you. I promised you a long time ago, so there it is.

Both my questions are asked and answered, I believe, I apologize, I joined the call just a few minutes late. But I just wanted to ask again, just -- did you give some color on kind of the guidance for 2015 for, not necessarily just on solar spend but your expectation modeling for solar ITCs in total?

I know that number is coming down, you're scaling back, but did you have something a little bit more concrete that you're willing to offer?

Dan, it's Mike. I think we still see solar offering strong enough economics that we'll continue to invest in it with the SRECs trading over $220 in New Jersey and even higher in Massachusetts and with prices continuing to come down, there's value that goes well beyond the ITC, but we really do look at it on a case-by-case basis.

So a lot will be -- how much opportunity is out there and how many of those types of projects fit our hurdle rates. But I think, you're probably safe to assume somewhere in the neighborhood, plus or somewhere between the 85% and 100% of what we did last year.

Great. And then just switching topics over to the marketing side.

Did I -- do I have this right, I sort of guiding '15 flat versus '14 for the -- for Wholesale -- the energy marketing side, the roughly $13 million or so, is that right?

That's correct.

Yes, I think that's fair.

Okay, Great. And then just on conversions, maybe a question for Jeff just real quickly, you mentioned that expecting the conversions continue to ramp in '15 versus '14 despite the oil price slide.

Have you noticed any kind of contraction, just kind of in the December, January, February period? In other words, are you kind of -- have things slowed down a bit, but you're expecting kind of oil price kind of rebound a little bit and a little stronger growth in the second half?

Just a little bit more granularity in kind of how you think the conversion should come in through the year.

We really have not seen much of a slowdown. We've had some issues in January with the weather, actually getting customers services installed and that's caused somewhat of a decline but as far as customers actually applying to get gas service, we're pretty much on target.

So we're not seeing a slowdown at all due to oil prices.

That's great. Just last question for me on -- just an update on PennEast, I apologize again if you covered this a little bit, just the -- how is that looking?

Are we on track for, I guess, previously formal FERC filing third quarter, so this year. Any additional color you can add just in the last several weeks, several months in terms of how the project is progressing.

I'm going to ask Greg, who's been heading up our efforts, to speak to where we stand.

We have filed, prefiling under FERC and it is a robust process, as you may know, but that process typically takes about 12 months. Refining our route, meeting with communities, doing certain studies around that.

But we're still on pace, still feeling positive about our 2017 start date. But I think our official FERC approval doesn't happen until 2016 when you receive the FERC certificate.

My questions have mostly been answered, but just to understand that to make sure I understand this correctly. On the solar spend going forward as we look out into '15 and '16 leading up into the '17 reduction in the ITC, did we say that we expect to spend 85% to 100% of the prior year amounts?

So for example, if we spend $100 million in '15, we expect to spend $85 million in '16 and then as we get into '17, that expects to drop off?

I think that's fair, yes.

The 85% to 100% was really focused on '15. You could -- we'll look at '16 independently depending upon what's happening in the legislation with regard to the ITCs.

But the expectation is that nothing changes, we continue to see decline, a reduction in the amount of spend we do there.

Well, thank you. And again, if any other questions arise, please feel free to either contact Marissa Travaline or Ann Anthony.

They both can be reached at area code (609) 561-9000. Marissa's extension is 4227 and Ann is 4143.

Likewise, you also can reach Marissa by email at [email protected] or at [email protected]. And again, thank you for your continued interest in our company.

Have a nice day.