|Three Months Ended||Six Months Ended|
|June 30||June 30|
|(In thousands except per||(In thousands except per|
|share data)||share data)|
|Income from Continuing Operations||$||10,832||$||6,245||$||65,043||$||58,076|
|Unrealized Mark-to-Market (Gains)/Losses on Derivatives||(2,267||)||(352||)||(6,465||)||(3,470||)|
|Realized Losses/(Gains) on Inventory Injection Hedges||52||0||76||173|
|Earnings per Share from Continuing Operations||$||0.36||$||0.21||$||2.14||$||1.94|
|Unrealized Mark-to-Market (Gains)/Losses on Derivatives||(0.08||)||(0.01||)||(0.21||)||(0.12||)|
|Realized Losses(Gains) on Inventory Injection Hedges||0.00||0.00||0.00||0.01|
|Economic Earnings per Share||$||0.28||$||0.20||$||1.93||$||1.83|
- Regulatory Update – Work is progressing on the infrastructure projects approved in May by the New Jersey Board of Public Utilities as an extension of the CIRT. The program, which originally began in 2009 and was extended through 2012, accelerated planned capital expenditures that enhance the delivery of safe and reliable service. This program creates jobs and allows SJG to earn a return of, and a return on, these infrastructure investments as we spend those dollars. These projects focus on the replacement of aging bare steel and cast iron pipe in addition to other system improvements. Through the end of the second quarter 2012, SJG spent approximately $30 million on infrastructure replacement projects and experienced a net income benefit of just under $0.6 million. We anticipate spending an incremental $18 million by the end of 2012, producing a total net income contribution from 2012 infrastructure investments of $2.0 million this year and $2.7 million annually thereafter. SJG recovers the cost of these improvements through rate adjustments, consistent with previous infrastructure investment program approvals.In July, SJG filed with the NJBPU for a 5-year, $250 million extension of this accelerated infrastructure investment program. The filing requests a program that mirrors the existing CIRT and permits investments of $50 million annually for the life of the program. This multi-year accelerated infrastructure program would allow SJG to continue to focus on infrastructure investments designed to bolster the safety and integrity of our gas delivery systems.
- Customer Growth – South Jersey Gas increased its customer base during the 12-month period ended June 30, 2012, by 5,959 to a total of 354,305 customers. We achieved this 1.7 percent increase in total customers primarily through increased conversions to natural gas from other fuel sources. We added over 2,500 conversion customers during the first six months of 2012 with a target of an additional 2,500 customers via conversion in the second half of 2012 as we complete main extension projects. On an annualized basis, this customer growth is worth approximately $1.8 million in incremental margin. Also, we expect that continued development in Atlantic City will be supportive of customer growth in the surrounding areas over the next few years.
- Retail Energy – Retail Energy reported income from continuing operations on a GAAP basis of $9.1 million for the second quarter of 2012 as compared with $3.4 million for the same period in 2011. This downstream business added $5.9 million in Economic Earnings to SJI’s bottom line in the second quarter of 2012, compared with $2.9 million in the prior-year period. Second quarter 2012 results included the recognition of $4.8 million of investment tax credits associated with a number of renewable energy projects as compared with $0.6 million of ITC recognized in the second quarter of 2011. For the first six months of 2012, income from continuing operations on a GAAP basis was $22.5 million as compared with $16.9 million in 2011. Economic Earnings were $16.9 million for the first half of 2012 compared with $14.1 million in 2011. On a year-to-date basis, we have recognized a total of $15.1 million in ITC as compared with $8.2 million in the first half of 2011. Based upon our current project queue, we anticipate recognizing approximately $24 million of ITC for the full year 2012 as compared with a total of $21.4 million in 2011. We recognize ITC for projects under construction when we are confident that the project will be completed during the current calendar year.Retail Energy results for the second quarter as compared with the second quarter of 2011 were impacted by several items of note: -- Our retail commodity marketing business essentially broke even for the second quarter as compared with Economic Earnings of $0.7 million last year, primarily due to lower volumes and decreased margins driven in part by warmer weather, coupled with the end of a major electricity contract. -- Second quarter 2011 results for our South Jersey Energy Service Plus business included income of $1.2 million from the transaction where SJESP sold its service contracts to a third party. This transaction was not repeated during the second quarter of 2012. -- Excluding ITC’s, Marina Energy’s results increased almost 75 percent as compared with second quarter 2011. This was due to both the Hartford acquisition and the thermal plant serving the Revel resort coming on-line during the second quarter 2012. Offsetting this increase were higher business development and acquisition costs, the impacts of extremely low energy prices on our landfill gas and solar projects and the absence of income associated with the energy facility at Resorts Casino, which was sold in the third quarter of 2011.Two solar projects came on-line during the second quarter; both feature 15-year contract terms. These Marina Energy solar projects are located at manufacturing facilities in northern New Jersey and produce an aggregate 1.63 megawatts of electricity.In April, Energenic-US, LLC, the long-term partnership between Marina Energy LLC and DCO Energy LLC, completed the acquisition of The Energy Network, LLC, the holding company for TEN Companies, Hartford Steam Company and CNE Power I, LLC from Iberdrola USA, Inc. for approximately $50.5 million. These key assets provide district energy services to a variety of tenants. The downtown cogen system provides chilled and heated water plus electric generation to 44 buildings. The South-end cogen system provides electric generation, and chilled and heated water to two tenants, Hartford Hospital and The Learning Corridor, a multi-building campus housing several educational institutions and a performing arts center.Energenic began providing for the energy needs at the Revel resort complex in Atlantic City which opened to the public in April, two months ahead of schedule. This $162.0 million district energy facility was project financed and provides all heating, chilling, and electricity to this upscale, destination resort.Energenic’s cogeneration facility at the district energy facility that serves Revel Resort in Atlantic City became operational in July. This $23.0 million plant provides 7.8 megawatts of additional capacity to the district energy facility.In June, Energenic announced a major public-private construction project with Montclair State University. The project, launched under the 2009 New Jersey Economic Stimulus Act, will develop a new combined heating, cooling, and power system for the Montclair State campus on property leased from the University for a term of 30 years.This up-to $99 million project will provide natural gas-fired electric generation, chilled water, and steam for heat. The steam, condensate, and chilled water will be delivered to and returned from campus buildings via the new energy distribution system. The majority of the campus’ electricity requirements will be satisfied by the onsite plant, which will be designed to operate continuously producing electric power of approximately 5.4 megawatts. The 18-month construction project is expected to employ approximately 400 workers.In addition to the Montclair project, the Marina/Energenic project construction queue consists of 10 solar projects that are projected to come on-line by the end of 2012. The 10 solar projects range in size from 0.5 megawatt to 7.4 megawatts and will provide over 23.0 megawatts when completed. These projects will become operational during the third and fourth quarters of 2012. Legislation recently signed by New Jersey’s Governor Christie which accelerates the renewable portfolio standard requirement is expected to support higher prices for Solar Renewable Energy Credit levels in the future. As a result, we anticipate that the profitability of both existing and future solar projects will benefit.Demand for renewable and natural gas-fired energy projects also remains strong. Given our demonstrated expertise in the design, construction and operation of complex energy projects, we are engaged in a number of active discussions on additional projects totaling over 35 megawatts on both the local and national levels.
- Wholesale Energy – For the second quarter, wholesale energy reported a loss from continuing operations on a GAAP basis of $1.5 million compared with income of $1.2 million in the same period last year. Economic Earnings for the second quarter 2012 reflected a loss of $0.5 million for this upstream business, as compared with income of $1.3 million in the second quarter of 2011. For the first six months of 2012, income from continuing operations on a GAAP basis was $4.3 million compared with $7.3 million for the same period in 2011. The wholesale energy business produced Economic Earnings of $3.5 million in the first half of 2012, as compared with $6.7 million in during the first half of 2011. Wholesale gas marketing continues to be impacted by the same thin storage spreads experienced industry-wide as seasonal variations in natural gas prices and the value of transportation assets are not as robust as in prior years. The focus of our wholesale business has shifted to gas marketing opportunities throughout the Northeast with less emphasis on traditional storage and transportation optimization strategies. As a result we anticipate this business will recoup much of the year-over-year shortfall in the second half of 2012.