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South Jersey Industries Inc (SJI) Q4 2019 Earnings Call Transcript


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South Jersey Industries Inc (SJI) Q4 2019 Earnings Call Transcript

Image source: The Motley Fool. South Jersey Industries Inc (NYSE:SJI)Q4 2019 Earnings CallFeb 27, 2020, 11:00 a.m. ETContents: Prepared Remarks Questions and Answers Call Participants Prepared Remarks: OperatorLadies and gentlemen, thank you for standing by, and welcome to the Q4 2019 South Jersey Industries’ Earnings Conference Call. [Operator Instructions] Please be advised that today’s conference is being…

South Jersey Industries Inc (SJI) Q4 2019 Earnings Call Transcript

Motley Fool Transcribers

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Image source: The Motley Fool.

South Jersey Industries Inc (NYSE:SJI)

Q4 2019 Earnings Call

Feb 27, 2020, 11:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Q4 2019 South Jersey Industries’ Earnings Conference Call. [Operator Instructions] Please be advised that today’s conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your speaker today, Mr. Dan Fidell. Thank you. Please go ahead, sir.

Dan FidellVice President, Investor Relations

Thank you. Good morning, everyone, and welcome to SJI’s fourth quarter earnings conference call and webcast. I’m joined today by Mike Renna, our President and Chief Executive Officer as well as several additional members of our senior management team. Our earnings release and the presentation slides that accompany the call were issued yesterday after the close of the market and are also available on our website, excuse me, at www.sjindustries.com.

The release and the associated 10-K provide an in-depth review of earnings on both the GAAP and non-GAAP basis using our non-GAAP measure of economic earnings. Reconciliations of economic earnings with comparable GAAP measures appear in both documents. Throughout today’s call, we’ll be making references to future expectations, plans and opportunities for SJI. Actual results may differ materially from those indicated by these statements as a result of various important factors, including those discussed in the Company’s forms 10-K and 10-Q on file with the SEC.

With that said, I’m pleased to introduce our CEO, Mike Renna, who will review our current operations, significant initiatives and outlook. SJI’s Chief Financial Officer, Cielo Hernandez will then review the financial performance of our individual segments and our financial — and our financial outlook. Mike will then offer some final remarks. After that, we’ll be happy to take your questions.

With that introduction, let me now turn it over to Mike.

Mike RennaPresident and Chief Executive Officer

Thanks, Dan, and thanks for joining us today. I am pleased to report that our 2019 economic earnings came in at the higher end of our guidance range, a testament to — sorry, our 1,100 employees who deliver these results while advancing our integration to business transformation efforts. We accomplished all of our primary strategic objective in 2019. First and foremost, we successfully executed our system modernization plan with more than $500 million spent on safety and reliability improvements on behalf of our existing customers.

At South Jersey Gas, annual customer growth remained solidly above national averages, fueled primarily by conversions, while Elizabethtown Gas efforts to integrate our sales team and culture led to a nearly 30% improvement year-over-year in customer growth. I am extremely encouraged by these results with a nearly 9,500 new customers added in 2019, highlighting the sustained appeal of natural gas across geographies and across demographics.

The integration of Elizabethtown is also going very well. It remains the largely efficient process with full integration of services and systems, including the wind down of our TSA with Southern tracking in line with our expectations. On the regulatory front, we were busy in 2019 planning and executing several important long-term initiatives for Elizabethtown and South Jersey Gas. Last summer, the BPU approved a five-year $300 million infrastructure replacement program for Elizabethtown, authorizing replacement of 250 miles of aging cast iron and bare steel pipe. This important modernization program is very similar to South Jersey Gas’ AIRP program and includes annual rate true-ups each October.

Also last fall, the BPU approved a rate case settlement for ETG, authorizing an increase of $34 million in base rates with new rates effective on November 15, 2019. In December, we filed an engineering and route study with the BPU relating to a critical supply redundancy project. This non-pipeline solution will help ensure continuity of service to South Jersey Gas customers in the event of interstate pipeline interruption. A resolution is expected in coming months.

And lastly, on the financial front, the sale of our non-core assets over the past year as well as our refinancing activities is steadily improving our balance sheet. The sale of these assets generated more than $300 million in proceeds, which will be used to repay debt — which were used to repay debt. And last fall, we successfully completed a $200 million offering of junior subordinated notes due in 2079, long duration of which is viewed favorably by rating agencies from an equity perspective.

Before I turn it over to Cielo to review our financials and guidance, I want to speak to you about an important event that will reshape our New Jersey and SJI think about energy. On January 27, Governor Murphy unveiled the state’s updated Energy Master Plan, outlining key strategy to reach the administration’s goal of carbon neutrality by 2050. The updated EMP varies dramatically from Governor Christie’s 2015 master plan, which centered on natural gas as abundant, clean and affordable, supporting aggressive expansion to homes and businesses across the state. SJI support the clean energy goals of the Energy Master Plan. We have spent more than decade modernizing our infrastructure, improving reliability and reducing fugitive emissions, encouraging conservation and efficiency through regulatory initiatives and investing in renewables.

At the outset, let me reiterate our core strategy SJI remains unwavering on our mission to provide safe, reliable and affordable energy to the nearly 700,000 customers we are honored to serve. And let me also assure you that since the release of the Energy Master Plan, we have working together with our Board and hard at work evaluating how best to strategically align with the master plan, while continuing to promote the clear, environmental and economic benefits of natural gas. As a result, we intend to initiate carbon reduction investments across both our utility and non-utility businesses over the next five years, investments that will be incremental to our prior utility capital plans. Specifically, we plan to focus on areas that reduce energy consumption and emissions, accelerate deployment of renewable energy, educate customers on maximizing energy efficiency and modernize via technology innovations.

As a starting point to further address emission reduction and renewable deployment, we plan to invest approximately $100 million of our $600 million capital budget in 2020 on solar installations, with a targeted focus on SJI corporate facilities, landfill properties, community solar and other development projects.

In our utilities, we remain committed to an acceleration and expansion of utility infrastructure modernization aimed at lowering fugitive methane emissions. But on a parallel path, our utilities will be aggressively developing renewable gas and power-to-gas opportunities while also bringing the benefits of smart meter technology to our 700,000 customers. Collectively, these investments not only advance the region’s energy goals, it reinforces our efforts to reduce the effects of greenhouse gases and to lower the carbon content of our energy. Across SJI, and particularly in our utilities, we are uniquely positioned and prepared to make critical investments in support of greenhouse gas reduction and sound energy policy, a policy that will transform how we develop and use energy.

Thank you. With that, I’ll turn it over to Cielo to review our operating performance and guidance.

Cielo HernandezSenior Vice President and Chief Financial Officer

Thanks, Mike. As Dan mentioned, the earnings release and slide deck provide detailed information regarding GAAP earnings. I encourage you to review that information. On this call, we will focus our discussion in our non-GAAP measure of economic earnings. We believe this measure provide valuable insight into our business performance. We have a structured representation of our response into two categories, utility and non-utility. We believe this format provides a more streamlined view of earnings drivers following the sale of non-core assets in 2019. Additional segment detail may be found in the appendix of our earnings presentation.

For 2019, SJI recorded economic earnings of $1.12 per share compared with $1.40 in 2018. The variance reflects increased gas utility operating performance that was up based on a decline in non-utilities and other operating performance. Overall, we are pleased with the full results, which fell above the midpoint of our guidance.

Our utilities contributed earnings of $1.33 per share compared to $1.05 per share in 2018. Results reflect full ownership of ETG, consumer growth, rate increases related to our SJG infrastructure organization products and the ETG rate increase that became effective in November. Our non-utilities operations contributed $0.15 per share, compared with $0.53 per share in 2018. The volumes primarily reflect lower wholesale marketing results driven by tight spreads, mild weather, new pipeline operating rules and headwinds from legacy contracts.

The wholesale marketing decline was partially offset by improved fuel management activities and the sale retail marketing operations in late 2018. Our Other segment contributed a loss in economic earnings of $0.36 per share compared with a loss of $0.21 per share last year, reflecting the impact of acquisition-related financing, partially offset by debt repayments from non-core asset sales and other refinancing [Phonetic] activity.

Turning to our results for the fourth quarter. SJI reported economic earnings of $0.47 per share compared with $0.39 in 2018. The balance was driven by a strong performance, including utility business. Non-utilities and other operations were in line with 2018 performance.

Our utilities contributed $0.50 per share compared to $0.42 in 2018. Positive contribution for the rate increase and customer growth were a primary driver on a year-over-year expansion in earnings. Our non-utility operations contributed $0.07 per share, which was like the 2018 results. Our Other segment contributed a loss in economic earnings of 0.36 per share compared with a loss of $0.21 per share last year, reflecting the impact of acquisition-related financing, but were partially offset by debt repayment, resulting from non-core asset sales and other refinancing activities.

In 2018[Phonetic], our capital spending was $504 million, which 93% invested in our utility operations and approximately 80% invested in critical safety and reliability programs.

Turning to our finances. We’ll remain committed to improving the strength of our balance sheet and credit metrics. As of December 31, 2019, equity-to-total capitalization was 29.6% compared with 28.9% at December 31, 2018. The improvement reflects the issuance of our equity forward, junior subs [Phonetic] equity content and more than $200 million in debt repayments from asset sales.

As you know, our growth plan includes our mandatory convertible equity units of $287.5 million due in 2021. Including conversion, our adjusted equity-to-total capitalization ratio, a non-GAAP measure, was 37.5% as of December 31, 2019 and 35.3% at December 31, 2018. As discussed in prior calls, we’re anticipating proceeds from the recent sales of our Marina Thermal Facility and the pending sale of Elkton will be used for other debt repayment and balance sheet is strengthening.

Turning now to our guidance. SJI expects 2020 economic earnings of $1.50 per diluted share to $1.60 per diluted share with guidance to midpoint of range. We have narrowed our guidance on our previous — prior year and wider range of our $1.53 per diluted share to $1.67 per diluted share. As previously communicated, our prior guidance embedded various scenarios, including our expectation to be at the lower end of the range given potential delays with PennEast Pipeline project. Our updated guidance remains consistent, reflecting recent regulatory and legal actions that have delayed PennEast. Updated guidance also incorporates new renewable energy and sustainability investments in support of the EMP and SJI’s goal of reducing its carbon footprint.

We expect 75% of the earnings coming from our utility operations with remaining from 25% of earnings coming from non-utility operations, lowering acquisition-related financing cost. Utility growth is expected to be driven by new customer growth, infrastructure modernization, execution of regulatory incentives and lower cost on our ongoing business transformation. Non-utility growth is expected to be driven by new solar investments in support of EMP and steady improvements in wholesales results from new fuel management contract, a reshaped portfolio and expiration of negative contracts.

Our 2020 capital spending guidance has been upgraded for more than $300 million compared with our previous guidance of $565 million [Phonetic], with approximately $500 million for utility growth, safety and reliability as well as approximately $100 million for non-utility solar investments in support of the EMP. Our capital plan for 2020 includes the need for approximately $465 million in financing with approximately a $100 million from asset sales, $260 million or more in debt issuance and a $150 million or more of equity in support of SJG redundancy projects.

That concludes my remarks. I will now turn it back to Mike. Thank you.

Mike RennaPresident and Chief Executive Officer

Thank you, Cielo. As we began 2020, our strategy and priorities remain focused on delivering the majority of our earnings for our utility operations with a heavy capital plan focused on critical safety and reliability projects, on regulatory initiatives including a base rate case filing for South Jersey Gas and advancing the critical supply redundancy projects I mentioned earlier, on continuing to effectively integrate Elizabethtown and achieving significant cost savings from our business transformation initiatives, on moving forward with targeted clean energy investments in support of our committed sustainability and the goals of the Energy Master Plan, and on further balance sheet strengthening and using proceeds from our non-core asset sales and additional refinancing activities.

As I conclude my remarks, my thanks is always to our 1,100 employees for their outstanding work. The transformation path that this company has been on for the last several years has required enormous dedication. This dedication throughout 2019 is worthy of high praise. On behalf of the entire senior team, our deepest thanks for your continued efforts to improve the lives of our customers and their families.

Operator, that concludes our prepared remarks. We are now ready to open the line for questions.

Questions and Answers:

Operator

[Operator Instructions] And your first question comes from the line of Tate Sullivan with Maxim Group.

Tate SullivanMaxim Group — Analyst

Good morning.

Mike RennaPresident and Chief Executive Officer

Hi Tate. Good morning.

Tate SullivanMaxim Group — Analyst

Hey, good morning. Focusing first please on Slide 21 on the non-utility economic earnings guidance and specifically on the $14 million non-utility to $45 million, I mean can you remind me of the current framework for — is it investment tax credits related to your solar installations primarily, and I mean will all that be recognized or what else is that? Can you just provide more context? Sorry, if I missed it.

Mike RennaPresident and Chief Executive Officer

That would — yeah, that would include actually wholesale, that would include Midstream because we’re putting Midstream in the non-utility. So, it would be AFUDC related to PennEast and it would also include ITC related to our projects sold in that.

Tate SullivanMaxim Group — Analyst

Right. Just I’m trying to break down that figure. I thought it would include ITCs. Okay. And then on the fuel management — list of fuel management contracts you put in the back, is there any changes to those compared to — I think I’ve noticed one contract, a small contract, was not in there or can you give an update on those contracts, please?

Mike RennaPresident and Chief Executive Officer

Yeah. That — hold on. I’m just trying to get the last page.

Tate SullivanMaxim Group — Analyst

Okay. Thank you.

Mike RennaPresident and Chief Executive Officer

I’m not sure. Do you know which one fall in those?

Dan FidellVice President, Investor Relations

No.

Mike RennaPresident and Chief Executive Officer

Calpine?

Dan FidellVice President, Investor Relations

Yeah.

Mike RennaPresident and Chief Executive Officer

Do yo want to speak [Indecipherable].

Dan FidellVice President, Investor Relations

Yeah. There was one on their previously for Calpine that was a contract that it rolled off, it was a very small contributor. And we have in our guidance numbers for 2020 the addition of the TYR Energy Hickory Run project. And then we are also working on the renewal of several of the contracts that will be coming up for expiration in ’20 and ’21.

Tate SullivanMaxim Group — Analyst

Okay. Thank you. Mike, back to solar, sorry — I mean, are there operations still in place from the solar efforts you had from a couple of years ago, or is it a new — I mean, or what do you have to do to go back to investing in solar?

Mike RennaPresident and Chief Executive Officer

So, we have a couple of assets that are still being held for sale that were part of the original Goldman deal that we were not able to successfully close on, but we are actively looking for — and have — are in discussions with other potential buyers. Now this would be a clean reentry, Tate.

Tate SullivanMaxim Group — Analyst

Okay.

Mike RennaPresident and Chief Executive Officer

It’s something that we started thinking about last year around this time, really specifically thinking about how do we — targeting our own sustainability, right, finding ways with which we could green our buildings and our facilities, and obviously solar was one of those options. We’ve also been looking at as a solution to replace the engines at the landfill operations that we have, which is, as you know, they have been underperforming now for several years, and we believe that solar is a viable means with which to reposition those contracts, while still providing energy to the counties and to the landfills, but also now do it in a way that’s profitable. And so that was really kind of our first thoughts about a reentry. But then when the state released it’s Energy Master Plan, it became very clear that we had to rethink our position in the state and specifically how SJI was going to align itself with the goals of the state.

So it would require — it is going to require a reentry. We begun some business development activities. And as I said, I mean, our target, really in terms of priority of our own buildings, landfills, community solar, which we think is a great way to align ourselves with the state and our landfills would actually be — well, the landfills — the sites where we have our landfill gas operations would be a great option for community solar, and we’re looking at other C&I opportunities that fit our risk profile and think our strategic reentry into this market.

Tate SullivanMaxim Group — Analyst

Okay. Thank you very much for that additional color. Thank you.

Operator

[Operator Instructions] Your next question comes from the line of Scott [Phonetic] with ExodusPoint.

ScottExodusPoint — Analyst

Good morning. Thanks. Just one quick follow-up on the solar assets that you’re going to be spending on for this year. Will they all be entering into service this year at some point or another or some of that in this year and some in next year?

Mike RennaPresident and Chief Executive Officer

Yes. It’ll be — it’ll probably be both. There’s obviously always risk around getting to be ready for intended use status or meeting that criteria. I think that certainly we would — I think, I feel pretty comfortable about our own facilities being something that would be ready for intended use by the end of this year. There are a few other projects that we’re looking at right now that would be constructed in 2020. Some of the other ones could potentially stretch into 2021.

ScottExodusPoint — Analyst

Okay. And then the ones that — are you, I’m sorry, contracting to yourself? Of course, there’s another party that you’re contracting to for some of the facilities on your sites?

Mike RennaPresident and Chief Executive Officer

On our sites, yeah, we would contract to ourselves.

ScottExodusPoint — Analyst

Okay. And so, some of that is obviously the ITC coming in, then does that — going forward will that then — do you get recovery of the purchases and rates for your gas distribution utilities or that foot to a[Phonetic] loss in the future? How should we think about that?

Mike RennaPresident and Chief Executive Officer

We would be doing it through the parent company. So the parent company would make the investment to put the solar facilities on — solar assets on our facilities and we would pass on the energy savings to the different facilities, maybe a gas or a utility.

ScottExodusPoint — Analyst

Got you. Great. Thank you very much.

Mike RennaPresident and Chief Executive Officer

Yeah.

Operator

[Operator Instructions] Your next question comes from the line of Steven D’Ambrisi with Granite Lane.

Steven D’AmbrisiGranite Lane — Analyst

Hey guys. How are you? Thanks for taking my question. I just had a quick one or two quick ones, I guess. First question, restarting the solar, do you guys expect this to be like an ongoing spend of $100 million or is this just for this year as a bridge or how should I think about that?

Mike RennaPresident and Chief Executive Officer

It’s great question, Steve. I think — look, as I mentioned before, this is a decision that we have made in an attempt to better align SJI with the Energy Master Plan. So the way we’re looking at this is we made the decision to exit solar five years ago. It was a very different solar market, but it was a very different New Jersey energy market as well.

Now, fast forward five years, and what was once a plan that called for the rapid expansion of natural gas is now calling for the rapid expansion of renewable energy, in particular solar and wind. And we think that — well, to be completely frank and honest, we’re in New Jersey utility. The Energy Master Plan, it informs and shapes our strategy, and maybe more importantly, it shapes and informs how we’re regulated. And so, I think we have to be responsive and agile.

We can’t be an outlier. We can’t be seen as a business, we have to be seen as a partner, and I think that includes solar. So I would expect us to make very modest, very targeted investments in solar, where we think that it can have a direct line of sight to the state and really to the region. And this isn’t just something that’s isolated to New Jersey, this is a broader regional and around renewables. What I can tell you is, this — we are not returning to the day where solar represents 40% of our earnings. It’ll be much more modest and much more targeted.

Steven D’AmbrisiGranite Lane — Analyst

Okay. So — but for a baseline assumption, it does sound like there will be some ongoing spend, but targeted…

Mike RennaPresident and Chief Executive Officer

I’d say for two or three years there’ll be probably some. Yeah.

Steven D’AmbrisiGranite Lane — Analyst

Okay. And so, I guess the other question I had was just from a funding standpoint. Obviously, you guys have talked about $125 million plus of equity previously, now it’s $150 million to $175 million. I understand you’ve taken up spending, so I get that. But going forward, if you’re going to be having these spending levels, what do you look — what do you — I guess, what are you guys projecting in terms of equity needs on a go-forward basis? Obviously, this year is helped a little bit by the asset sale proceeds. So just trying to level set for expectations going forward.

Mike RennaPresident and Chief Executive Officer

Another great question. The way we are looking at it is we’re certainly trying to remain flexible. A lot of what I’ve talked about particularly in these, what I’ll call — it’s called non-traditional utility investments. Investments that weren’t more contemplated we put this original plan together and our original financing plan, things like RNG, things like smart meters, things like power-to-gas, and also this modest reentry into solar. We’re going to protect the balance sheet.

These were the investments that fell outside of our original plan and what we thought were our — what we thought were our original equity needs. We — particularly with utility investments, we believe this to be consistent with what we’ve done in the past, which is that we will protect our balance sheet, particularly when it relates to utility investments, and that would be our plan.

We can’t quantify that at this point in time because again, we have — these are all initiatives that we’re in the process of developing. Don’t really have a lot of specificity here around cost and timeline, but these are all fundamental to our five-year strategy going forward. More to come, I mean, I think by — I think a lot from this year, we’ll be able to speak with more specificity around cost and timing and equity concerns, but suffice it to say that we will certainly protect our balance sheet to make these investments.

Steven D’AmbrisiGranite Lane — Analyst

Okay. Perfect. Thank you guys very much for the time. Appreciate it.

Mike RennaPresident and Chief Executive Officer

Thank you, Steve.

Dan FidellVice President, Investor Relations

Thank you.

Operator

Your next question comes from the line of Phil Covello with ExodusPoint.

Phil CovelloExodusPoint Capital Management — Analyst

Hi, guys. Thanks for taking my question.

Mike RennaPresident and Chief Executive Officer

Hi, Phil.

Phil CovelloExodusPoint Capital Management — Analyst

Just wanted to — I mean, I guess, you’ve kind of answered it there. I was just looking for more color around the equity. If you could tell us anything about potential timing or the conduit whether that makes a block or ATM and whether it’s a forward sale or not, but it sounds like we have to stay tuned for that unless there’s something else you can offer there?

Cielo HernandezSenior Vice President and Chief Financial Officer

So, Phil, this is Cielo. We are looking at different vehicles to issue our equity, including ATM programs, equity owners [Phonetic], operating owners. And we plan to issue the equity as we retain additional clarity on timing of the project and in conjunction with the market conditions. But we assure you is that, any equity that we contemplate will be tied to a specific project and with a revenue stream attached to it.

Mike RennaPresident and Chief Executive Officer

Yeah. A lot of the timing I think will be — for this — at least for 2020 it will be driven by the BPU decision around our LNG project. We’re expecting that to be somewhere around mid-year.

Phil CovelloExodusPoint Capital Management — Analyst

Okay. And then just to be clear on the sizing, so whether it’s $150 million or $175 million, is that just a function of the capex need or is there also a balance sheet consideration in?

Mike RennaPresident and Chief Executive Officer

It’s capex related to the LNG project that we discussed earlier.

Phil CovelloExodusPoint Capital Management — Analyst

Okay. That’s all I had. Thank you.

Mike RennaPresident and Chief Executive Officer

Great. Thank you.

Cielo HernandezSenior Vice President and Chief Financial Officer

Thank you.

Operator

[Operator Instructions] Your next question comes from the line of Matthew Davis with Carlson Capital.

Matthew DavisCarlson Capital — Analyst

Hey, good morning, guys. Thanks for taking my question.

Mike RennaPresident and Chief Executive Officer

Hi, Matt.

Matthew DavisCarlson Capital — Analyst

I just — just quickly can you first-off just remind us what the targeted credit metrics are in terms of whether you’re looking at FFO-to-debt or debt-to-cap?

Cielo HernandezSenior Vice President and Chief Financial Officer

Thank you. It’s Cielo again. 2020, we expect our FFO-to-debt to be around 10% and we continue to trending forward to 12% in the coming — upcoming years. And the reward rating agencies would like to see us as BBB+ and this is contemplated in our five-year plan.

Matthew DavisCarlson Capital — Analyst

Did they give you a targeted FFO-to-debt?

Cielo HernandezSenior Vice President and Chief Financial Officer

Yes, it’s 12% around that.

Matthew DavisCarlson Capital — Analyst

Okay. And then secondly, as you think about the Energy Master Plan in New Jersey, how do you see that if at all impacting the core LDC business in New Jersey, over the medium and long-term?

Mike RennaPresident and Chief Executive Officer

Great question. There is — we’re still in kind of a — to-be-determined phase, I think. Certainly, there’s a big push toward renewable. The language — I’m encouraged by some of the language in the Energy Master Plan that calls for carbon neutrality versus a complete elimination of carbon. I think the important thing for all of us to think about is how critical our infrastructure is to advancing the State’s Energy Master Plan objectives. The things that we can do, the investments that we can make, particularly as it relates to renewable gas and power to gas, they really do support this move toward clean energy. And that’s where our focus is. At the end of the day it’s — we’re an infrastructure company and our infrastructure is just critical and invaluable, not only to serving the customers today, and for the next 30 years, but also going forward in terms of how much value it can bring to this renewable energy future.

So, I think a little bit more specific in terms of the very near-term, look, critical utility investments in terms of safety and reliability, I fully expect we’re going to have 100% support from the regulators and from the administration, as well as from the legislature in the State of New Jersey. I do not see any kind of impact to that. I think that we’re still going to be able to add customers. And I don’t see anything in the immediate future that’s going to prevent us from achieving our customer growth targets, longer-term. I mean, that could certainly be something that could be a risk, but I certainly don’t see it anytime in this five-year horizon.

And then, I think the biggest thing is, I believe that the state understands that these big redundancy-based, supply based investments that not only South Jersey Gas, Elizabethtown Gas has to make but every gas utility in the state has to make. They understand the business case, they understand the immediacy of it, and they understand the necessity of these investments. And I really believe that we will have support for these non-pipe supply and redundancy solutions. And that’s our focus, that’s at the basis of our five-year plan, it’s safety and reliability-type investments, the modernization investments, and it’s these big incredible redundancy investments.

Look, and then every five years we have a new Energy Master Plan. So, we could be in a totally different place in the next five years, but I think from an SJI perspective, the most important thing that we can be is market responsive and agile.

Matthew DavisCarlson Capital — Analyst

And then just — thank you for that. And then just going back to the solar build out, given it’s more, I guess, directed investment in targeted year. How do you see the earnings profile from that business going forward? Meaning do you anticipate being able to maintain the same level of earnings contribution in 2021 as 2020, or will it be more variable given the timing of investment and value of ITCs?

Steven R. CocchiSenior Vice President and Chief Strategy and Development Officer

Yeah. I think as Mike mentioned earlier, I think as we get into future years, we’ll be continuously evaluating the level of those investments. I don’t think the $100 million of capex that we’ve targeted for this year is just that a target for this year. In the next coming years, I think we can expect to remain involved in the market because of the goals of the energy master plan. But ultimately those earnings contributions will be — will not, as Mike said, get up to the level that they had been historically when we’re really investing heavily in solar, and will ultimately be replaced by some of the other renewable-type investments that we intend to make at the utility level, things like renewable, natural gas, and other things.

Mike RennaPresident and Chief Executive Officer

Again, I think our plan really does support the move within our — from a contribution perspective, for our utilities to be 85% of our earnings. And again, a lot of that’s going to come from kind of a parallel traditional utility investment and then now some of these more renewable-based utility investment. But to Steve’s point, I think you can expect the utility to continue to grow as a relative percentage of our earnings.

Matthew DavisCarlson Capital — Analyst

Thank you.

Mike RennaPresident and Chief Executive Officer

Yes.

Operator

Your next question is a follow-up question, and it comes from the line of Tate Sullivan with Maxim Group.

Tate SullivanMaxim Group — Analyst

Thank you. And the detail on the solar is helpful too. And, I mean, I understand EMP, it’s every five years and you did mention there’s another way to address that planned installation of smart meters. What is that for the natural gas meters? And can that be a spending on the utility side that can get approved quickly? Can you give more context to that, please?

David RobbinsSenior Vice President

Tate, this is Dave Robbins. I think the way we’re looking at smart meters is, smart meters has many benefits. It’s going to help encourage conservation, which is perfectly aligned with EMP. As far as greenhouse emissions, it’s going to eliminate a lot of truck roll as we do not have to send crews out to take the meters, it’ll all be done automatically. So lot of benefits from that program. And as Mike said earlier, we’re in our — really exploring how this is going to work. We’ve talked to a couple of gas utilities who have the program. So we’re getting a lot of good information. And the way we see this investment in both of our utilities, we believe it would work kind of as a tracker, because it will take probably our estimate, maybe five years to put the program in across our customer base. So we think it’s a great opportunity for our utilities.

Tate SullivanMaxim Group — Analyst

Okay. All right. Thank you. Have a good rest of day.

Mike RennaPresident and Chief Executive Officer

Thanks.

Steven R. CocchiSenior Vice President and Chief Strategy and Development Officer

Thanks, Tate.

Operator

Ladies and gentlemen, I would now like to turn the call over to Mr. Fidell. There are no further questions at this time. Are there any closing remarks you would like to make at this time, sir?

Dan FidellVice President, Investor Relations

Yes. Thank you all for joining us this morning. As a reminder, a recording of our call today will be available on our website. And as always, please feel free to contact me, Dan Fidell, for analysts and investor questions or Marissa Travaline for media inquiries. Our contact information may be found on our earnings release in the earnings presentation material. So, again, thank you for joining us today and for your continued interest and investment in SJI. This concludes our call. Have a good day.

Operator

[Operator Closing Remarks]

Duration: 42 minutes

Call participants:

Dan FidellVice President, Investor Relations

Mike RennaPresident and Chief Executive Officer

Cielo HernandezSenior Vice President and Chief Financial Officer

Steven R. CocchiSenior Vice President and Chief Strategy and Development Officer

David RobbinsSenior Vice President

Tate SullivanMaxim Group — Analyst

ScottExodusPoint — Analyst

Steven D’AmbrisiGranite Lane — Analyst

Phil CovelloExodusPoint Capital Management — Analyst

Matthew DavisCarlson Capital — Analyst

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