South Jersey Industries Management Discusses Q4 2012 Results - Earnings Call Transcript

Feb.28.13 | About: South Jersey (SJI)

South Jersey Industries (NYSE:SJI)

Q4 2012 Earnings Call

February 28, 2013 11:00 am ET

Executives

Stephen H. Clark - Vice President of Finance & Regulatory Affairs and Treasurer

David A. Kindlick - Chief Financial Officer and Senior Vice President

Edward J. Graham - Chairman, Chief Executive Officer, President and Chairman of Executive Committee

Michael J. Renna - Senior Vice President and President of South Jersey Energy Solutions

Analysts

Spencer E. Joyce - Hilliard Lyons, Research Division

Christopher R. Ellinghaus - The Williams Capital Group, L.P., Research Division

Operator

Good day, ladies and gentlemen, and welcome to the South Jersey Industries Fourth Quarter 2012 Earnings Conference Call. [Operator Instructions] I would now like to turn the presentation over to Mr. Steve Clark, SJI's Vice President, Finance and Treasurer. Please proceed.

Stephen H. Clark

Thank you, and good morning. I'd like to welcome you to South Jersey Industries Fourth Quarter 2012 Earnings Conference Call and Webcast. Joining me today on the call are: Ed Graham, our Chief Executive Officer; Dave Kindlick, SJI's CFO; Jeff DuBois, President of the utility; Mike Renna, President of our nonregulated businesses; and Ann Anthony, SJI's Director of Treasury and Investor Relations.

I'd like to remind all of you that during the course of this call, we may make various remarks about future expectations, plans and prospects 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 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. Further, we assume no duty to update these statements should actual events differ from expectations.

Now I'd like to turn the call over to Dave Kindlick for a discussion of 2012 performance. Dave?

David A. Kindlick

Thanks, Steve. As usual, we'll be discussing our business in the context of 3 business lines: regulated utility, Retail Energy and Wholesale Energy.

Before we review our results, I'd like to refer you to our fourth quarter 2012 earnings release, which was issued earlier this morning, for an in-depth discussion of our results on both a GAAP and Economic Earnings basis. In managing the company, we measure our performance based on Economic Earnings. Economic Earnings eliminates all unrealized gains and losses on both commodity and interest rate derivative transactions. In addition, adjustments were made for realized gains and losses attributed to hedges on inventory purchases and transactions or contractual arrangements for the true economic impact we'll realizing in the future period.

Now let's go to our 2012 financial results. Income from continuing operations on an Economic Earnings basis for the full year 2012 was $93.3 million, an increase of 7% as compared with $87 million for the same period last year. In 2012, Economic Earnings per share was $3.03 per share, an increase of 5%, as compared with Economic Earnings of $2.89 per share in 2011. The difference in growth rates for Economic Earnings and Economic Earnings per share reflects the issuance for approximately 1.4 million new shares during 2012. On an Economic Earnings basis for the fourth quarter of 2012, SJI reported income from continuing operations of $30.6 million or $0.98 per share as compared with $31.8 million or $1.05 per share during the same period last year. Key factors impacting annual performance were the net income benefits of the infrastructure investment programs and customer growth at our utility. And on the nonutility side, 2 significant energy projects coming online during the year, coupled with project-related investment tax credits.

Now we can move to the results by business line. Let's look first at South Jersey Gas. In 2012, the utility produced net income of $58.2 million, an increase of 10%, as compared with $52.9 million in 2011. Utility contributed over 60-plus percent of SJI's Economic Earnings in 2012. We expect to see at least that level of contribution going forward. Results were impacted by 2 key factors: higher net margins primarily from our interest infrastructure investment programs and customer growth. These gains were somewhat mitigated by increases in general operating expenses. During 2012, we spent approximately $49 million on utility infrastructure projects and recognized a $2 million net income benefit directly from these investments during the year. All-in-all through the end of 2012, we have invested approximately $200 million in infrastructure replacements since we began these projects in 2009. This is in addition to our historical normal system-related CapEx.

This week, the New Jersey Board of Public Utilities approved a new 4-year accelerated infrastructure investment program, which permits investments of $35 million annually for a total of $140 million. This new program will run through the end of 2016. Gas company has had programs in place since 2009, which have accelerated planned capital expenditures that enhance delivery of safe and reliable service. These projects focus on the replacement of bare steel and cast-iron pipe, create jobs and allow the company to earn a return on infrastructure investments as we spend those dollars.

Gas company also continues to experience customer growth. During the 12-month period ended December 2012, we added over 6,000 net new customers, an increase of 1.7%, to over 357,000 customers. This is the highest number of net new customers added since 2006. On an annualized basis, these new customers will add an incremental $1.8 million in after-tax margin. Convergence from other fuels and natural gas continue to drive customer growth. When compared with the annual growth information supplied by the American Gas Association, our growth has consistently exceeded that of our peers.

Now let's look at the details of our nonutility businesses. 2012 nonutility operations produced Economic Earnings of $35.1 million as compared with $34.1 million last year. Composition of our nonutility earnings has continued to shift away from our wholesale commodity marketing business toward our Retail Energy project business. Retail Energy added $30.4 million in Economic Earnings for the full year 2012 compared with $28.3 million in 2011. This includes the recognition of $26 million of investment tax credits in 2012 as compared with $21.4 million last year. We also estimate that weather negatively impacted pretax margin by approximately $2.3 million across our retail nonutility businesses.

Marina Energy, our on-site energy production company, produced Economic Earnings of $28.1 million for the period ended December 31, 2012, versus $22 million last year. Excluding ITC, Marina contributed Economic Earnings of $2.1 million as compared with $600,000 last year. Marina's performance was positively impacted by the performance of several energy projects that came online during 2012.

As you know, last April, we closed on our acquisition of a Hartford district energy facility and we brought online the energy facility which serves Revel Entertainment in Atlantic City. In July, the cogen facility that serves Revel also came online. These energy facilities were significant contributors to Marina's results during the second half of the year. 2012 performance was negatively impacted by the depressed values that plagued the SREC market. Indications are this is starting to turn around this whole year, 2014 and beyond. This is due to the legislation that passed last summer that decelerated solar requirement also increase demand.

Finally, we estimate that between the expenses associated with preparing our thermal facilities in Atlantic City for Super Storm Sandy, as well as expense in the acquisition of Hartford, our pretax margin with negatively impacted by approximately $1.5 million. Investment tax credits I previously noted were generated by 16 solar projects that are producing an aggregate of 21.4 megawatt of electricity located throughout New Jersey and Massachusetts. These projects were completed by Marina at a cost of approximately $91 million. Combined with our previously operating solar projects, we are now managing approximately 49 megawatts of solar capacity, generating just under 60,000 SRECs annually.

Before I move over to South Jersey Energy, I'd like to provide a quick update to the potential Revel bankruptcy filed. As you may know, February 19, Revel indicated they intend to file for a prepackaged Chapter 11 bankruptcy. All of their disclosures indicate that they're just trying to facilitate a restructuring of their long-term debt and this will in no way impact vendors, customers or employees. Revel has been paying us under the terms of their agreement and all invoice payments are currently up-to-date. We have no reason to believe that this will change. Higher bankruptcy cases, the type of services which we provide, such as electricity, heated and chilled water in Revel's case, have been reaffirmed as essential services. Further, this facility doesn't have another source for these services. We believe that we are in a strong position as they work through this financial restructuring.

Now let's turn to South Jersey Energy, our electric and gas commodity marketing business. SJE generated Economic Earnings of $1.6 million in 2012 versus $3.7 million in 2011. Results were impacted by lower volumes, higher margin and weather impacts. As you know, 2012 was significantly warmer than 2011. Comparison to 2011 for retail electric results was also negatively impacted by a major electric contract, which served approximately 400 New Jersey school districts that ended in May 2012.

Switching gears, Economic Earnings for 2012 at our Wholesale Energy business totaled $4.7 million, down from $5.8 million last year. Primary contributor to this upstream business has historically been our asset management and marketing activity. As we have noted for several years now, a relatively flat forward curve for natural gas and the depressed value of transportation asset has had a negative impact on performance. We have, however, shifted the focus of this business, managing producer services and gas marketing opportunities throughout the Northeast. Producer services is a key initiative for us.

And we are excited about the long-term contract we recently signed to supply fuel management services to LS Power Group for the West Deptford Energy Station. The station is a 740 megawatt natural gas-fired, combined-cycle electric generating facility in West Deptford Township, New Jersey. This is currently under construction and is expected to commence operations in 2014. Under the terms of the 15-year contract, Resources Group will provide natural gas supplies and services associated with managing those supplies. In addition, our Resources Group will hold exclusive rights to supply and serve a potential expansion of the facility for an incremental 400 megawatts. We have performed the same type of function for almost a decade for water, power and light at their facility in Marcus Hook, Pennsylvania. At this time, we are in active negotiation to provide services at several similar energy facilities.

Let me spend a moment now on the balance sheet before I turn the call over to Ed. SJI's equity to capitalization ratio averaged 44% for the 4 quarters ended December 31, 2012, as compared with 48% for the 4 quarters ended December 31, 2011. Several factors drove this change. At utility, the extremely warm weather last year impacted working capital as gas collections under regulatory clauses were delayed. Rates that determine how quickly we recover those clause balances were reset in October, so we see a roughly $50 million in collections in 2013 that were not realized in 2012. In addition, short-term borrowings to support energy project investments at the gas company, Marina, further added to the lower equity ratio. Our goal remains for this ratio to average approximately 50% annually.

In support of that goal, SJI has continued to use its dividend reinvestment plan to raise equity capital to support the balance sheet. Between dividend reinvestment and optional gas purchases made through the plan, SJI raised equity capital of over $70 million in 2012. In 2013, we anticipate raising up to $40 million to the dividend reinvestment plan to support our capital investment activity. Between the additional equity and cash collections at the utility, which I just mentioned, and some other positive liquidity developments we see on the horizon, we expect that the average equity to capitalization ratio will move back towards our goal level during 2013.

Now I'd like to turn the call over to Ed Graham to talk about what's ahead of us.

Edward J. Graham

Thanks, Dave. We are very pleased with the record results achieved during 2012. Performance was clearly rooted in the actions we took starting in 2009. But more importantly, 2012 results laid the groundwork for continued growth in 2013 and beyond.

Our incremental infrastructure investment continues to positively benefit the utility's bottom line. Game-changing nature of the Marcellus continues to benefit our nonutility business. The abundant supply and low price of natural gas continues to drive interest in developing energy projects, like thermal and CHP, throughout the country. Our demonstrated expertise in those projects drove the investment decisions over the past few years, and we continue to see many attractive opportunities. Finally, the proximity to the Marcellus and our relationship approach to a wholesale business has reshaped our focus away from the traditional storage and transportation spreads to one of producer marketing and fuel management.

We normally provide specific full year guidance when we report our first quarter results typically in early May. Looking ahead though, we believe that we are well positioned as we move into 2013 and beyond to achieve our longer-term goal of average of 6% to 7% growth in Economic Earnings per share.

So let's discuss the performance drivers for 2013 and the next few years. Beginning with utility, as Dave mentioned earlier, last week, the BPU approved a 4-year accelerated infrastructure investment program. I'd like to emphasize that these are incremental dollars over and above our historical normal CapEx of approximately $55 million to $60 million per year. Each $35 million investment, we are expected to produce approximately $1.6 million of incremental net income. Given the availability of the Marcellus Shale gas in the Northeast market area, we expect that this historically low natural gas price will continue, providing the headroom needed to make sure these investments will not have a significant effect on our customer bills.

Customer growth over the past few years has really been the driver for conversions. This is due to the natural gas' competitive advantage over other fuels. In fact, in recent comparisons, natural gas continues to be 1/4 or 1/2 the cost of other fuels, like fuel oil or propane. We have identified roughly 145,000 households in our service territory that don't currently heat with natural gas. By the ongoing extension of our distribution system that supports our conversion activity, we have estimated approximately 50,000 potential customers that are already on or near our gas mains.

Finally, our effort is in sync with the New Jersey Energy Master Plan, which specifically targets as an objective, replacement of fuel oil as an energy source. Our target is to add over 5,500 more conversions in 2013. The cost advantage coupled with the environmental benefit of natural gas are driving discussions around several gas-fired electric generation projects in both the utility service area and surrounding states. State and local governments recognize the price and environmental advantages of supporting these large-scale conversion projects from coal and other fuels to natural gas.

South Jersey Gas has recently filed a petition with the Board of Public Utilities to serve the B.L. England facility just outside of Ocean City, New Jersey. This 447 megawatt facility currently uses coal-fired generation to produce electricity but has environmental permits that are set to expire over the next few years. The State of New Jersey has been extremely supportive of converting this facility to natural gas. This would amount to a $90 million capital investment for the utility with the expectation that our pipe will be completed and in service by the end of 2014. This will allow us for testing and ramping up prior to the full commercial operation, which is planned in 2016.

Growth in 2013 and beyond for the utility business is clearly defined by 3 things: our incremental investment spending programs; customer growth; and substantial general capital investment, including the B.L. England project I just mentioned. These catalysts support the possibility of a rate case as well as the expectation for growth in utility to average about 7% over the next 5 years. It also bolsters our expectation that utility's contribution to earnings will be around 60%.

Now let's focus on our nonregulated business. Performance is clearly based upon both the continued development of our portfolio of energy projects as well as the continued shift in our wholesale business towards maximizing many opportunities associated with Marcellus gas throughout our market area and in the Northeast in general. Combined heat and power projects are the cornerstone of our energy project portfolio. Our business development activities are keenly focused on both design and build opportunities, as well as acquisitions like the Hartford Steam deal last year. As you know, these types of projects are clearly aligned with both the federal and state emphasis on renewable energy and distributed generation.

Solar generation has been and continues to be particularly attractive to develop as a direct result of the available 30% investment tax credit that is in place through the end of 2016. We also believe that the SREC legislation that Governor Christie signed late last summer should also benefit both existing and future solar projects beginning in July of 2013. We view the utility-like aspects of CHP and thermal projects as very attractive, given that these projects feature long-term annuity-like income streams that flow to moderate risk profiles.

On top of the attractive federal and state incentives available for CHP, the development of the Marcellus provides an inexpensive near-market supply of the primary fuel source for these facilities, natural gas. Natural gas in CHP plays a prominent role in the updated New Jersey Energy Master Plan. Our goal is to continue to add 1 to 2 CHP or thermal projects a year and selectively fill in the portfolio with renewable energy projects.

Workers are progressing on the Montclair State University project, where Energenic is developing a new combined heating, cooling and power system for the Montclair campus for a term of 30 years. This project, estimated approximately $91 million to complete, will provide natural gas-fired electric generation, chilled water and steam for heat. The steam, condensate and chilled water will be delivered to and return from campus buildings via the new energy distribution system. The majority of the campus' electric requirements will be satisfied by the on-site plant, which will be designed to operate on a continuously producing basis, producing electric power of approximately 5.4 megawatts. The construction project is expected to employ approximately 400 workers with an anticipated completion date in the second half of 2013.

Beyond that, Marina is currently developing 6 solar projects in New Jersey, which are scheduled to be completed in 2013. These projects, which range in size from 0.5 megawatt to 13 megawatts, will provide just over 24 megawatts when completed at an estimated cost of $74 million. Energenic's fuel cell project in Hartford, Connecticut is progressing with an anticipated completion date in 2014. This fuel cell will supply electricity to locations currently buying steam and chilled water from our Hartford Steam facility. Construction costs are estimated to be $8 million with an projected output of 1.4 megawatts. A second fuel cell by another Hartford Steam customer is being considered.

We continue to see a robust array of energy project opportunities presented to us everyday. All solar, landfill generation and fuel cell projects qualify for 30% investment tax credits. CHP projects qualify for 10% investment tax credits. On top of these incentives, any project started in 2013 qualify for a 50% bonus depreciation.

Turning to our Wholesale Energy business. We spent most of 2012 repositioning this business from the storage and transportation optimization to one that longer-term extracts value from opportunities associated with Marcellus gas. The price advantage afforded by natural gas over other fuels like coal is driving discussions about an increasing number of electric generation projects in New Jersey, Pennsylvania and Ohio. Significant discussions are ongoing with 4 parties from potential supply arrangements for natural gas-fired power plants, which will produce over 4,800 megawatts of electricity. We expect that the total gas consumption for these plants would approximate 600,000 decatherms per day. Based on what we know today, these plants would be in service between 2015 and 2019. Resources Group is also marketing just over 1.5 Bcf per day for producers under both short-term and long-term agreements. Just under half of that gas is coming from the Marcellus, and we are actively seeking new relationships based on our Marcellus connections.

So looking into 2013 and beyond, we see many opportunities across all our businesses to build on the foundation which we achieved in 2012. Both regulatory initiatives and customer growth at South Jersey Gas sets stage for growth of at least 7% annually in the utility. In our nonutility businesses, we expect that CHP and thermal project, combined with wholesale producers services and fuel management for electric generation facilities, will drive growth and facilitate a move away from renewable energy projects. As a result, we believe strongly in our ability to achieve our stated longer-term goal of averaging annual growth in Economic Earnings per share of at least 6% to 7%. This earnings target also supports our stated goal of at least 6% to 7% growth in the dividend.

Thank you today for your time. Now I'd like to turn the call back over to the operator for the question-and-answer portion of the call.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from the line of Spencer Joyce with S. Joyce and Hilliard.

Spencer E. Joyce - Hilliard Lyons, Research Division

I wanted to talk first a little bit about the utility side. And congrats, a really good year there for the utility. I guess, quarters 1 through 3 looked pretty solid, and then just looking there at the earnings in Q4, a little bit of an increase over Q4 of '11. But what were maybe a driver or 2 that kept it relatively flat from the prior year?

Edward J. Graham

I guess, we tend to not compare quarter-to-quarter. But I think if I look at our performance, we saw some light treatment on our infrastructure program just by the method it’s installed. And also we, as in anticipation of the future, bolstered at our reserve fund collectible just to put us in a better position going forward as well. So I think we took some actions that really should benefit '13 and beyond. Likewise, we see a lot of activity on the customer growth side in the fourth quarter that will start to reap its benefits for the full year '13 and beyond as well.

Spencer E. Joyce - Hilliard Lyons, Research Division

Okay. Yes. That makes sense there. Also on the utility, the $35.3 million that we just got approved, how does that compare to the annual figures that we've been doing since '09? Is that a little more, a little less, about the same?

Edward J. Graham

It's a little less. I think we see that the state is very, very supportive of the program, but they're also being very conscious of how much they want you to spend incrementally each year. So the way we approach it is that we certainly have our plans to accelerate replacing infrastructure and expanding our system. And so to whatever degree it's slightly less amount in that program, we still look towards a base rate case in the future to recover those costs that we spent above that target.

Spencer E. Joyce - Hilliard Lyons, Research Division

Okay. And I don't know if you guys have disclosed this. But did you all sell any SRECs in the quarter? Or how many do you still hold there sort of in the inventory?

Edward J. Graham

Gee, Spencer, off the top, I know we did sell SRECs during the quarter. And quite frankly, I also know that we were active selling them in the beginning of this year as well. So I don't have an exact figure on the inventory. But all of our books reflect exactly what we did or we've accrued as current value. So as the value goes up, it actually creates an earnings opportunity to grow. We also -- a number of projects had presold SRECs several years ago at some very high prices that we'll likewise recognize this year as the cash close in.

Spencer E. Joyce - Hilliard Lyons, Research Division

Okay. Yes. I was going to ask if there was anything there as far as the hedge book maybe. It sounds like there maybe a little benefit. One kind of minutia item, I noticed an adjustment to Economic Earnings for unrealized loss on PP&E. Can you explain a little bit what that is exactly?

Edward J. Graham

Sure. In some of the testing we do on any of our projects every year, we have a project where our assumptions would cause us to be close to a breakeven or slightly a loss on cash flow from one of our nonregulated projects. So accounting rules require you to immediately discount all those income streams. And so we, for GAAP processes, reduced our earnings, but we recognize it's noncash and unrealized. So for Economic Earnings purposes, we did not change earnings. And that's an item that will adjust each year as assumptions change and as the cash comes in.

Spencer E. Joyce - Hilliard Lyons, Research Division

Okay. I guess, you said it was for a nonregulated project?

Edward J. Graham

Yes.

Spencer E. Joyce - Hilliard Lyons, Research Division

Okay. So I guess, this, as far as I know, is the first quarter we've seen that adjustment. So that will be a somewhat regular adjustment going forward possibly?

Edward J. Graham

No. Probably not, in that really it's only when events change for a particular type of business do you do this impairment test. And unless there's new facts surfaced, it's really done for any project you have. So unless there's something material that changes that would affect any of our go-forward projects, I really don't anticipate new ones. So it really is stemmed by some new event.

Spencer E. Joyce - Hilliard Lyons, Research Division

Okay. That makes sense. So it will be a major sort of regime change as opposed to mark-to-market type thing.

Edward J. Graham

That's correct.

Spencer E. Joyce - Hilliard Lyons, Research Division

Okay. That makes sense there. Of the $26 million in ITCs that we got for this year, I'm assuming most of those were solar. Do you have the piece that may have been the CHP or anything besides the solar investment?

Edward J. Graham

Your assumption is right. In '12, the majority was solar. I think it was $1 million or less that was nonsolar. However, I think as we look at 2013 and '14, we'll see a bit more shift to whatever level we do towards the Montclair CHP or the fuel cell up in the Hartford Steam loop or some of the other projects will be nonsolar-related.

Spencer E. Joyce - Hilliard Lyons, Research Division

Okay. And this may be more towards the guidance that I know you all will come out with here in a couple of months. But I mean, do you have a sort of rough feel of over whether the ITCs will trend upwards or downwards for '13? Just sort of my back of the napkin, if we're going to put in $74 million versus $91 million in solar, it looks like that almost 1/2 to come down at least a little bit?

Edward J. Graham

Yes. Our expectation would be they will be flat to a decline. We are seeing some of our projects that we are starting up this year, a full year of Hartford. Also as I said, some of the ITC were clearly related to Montclair and potentially Hartford. And so we really start to see some of those CHP and thermal projects going a full year in operation this year.

Spencer E. Joyce - Hilliard Lyons, Research Division

Okay. And just what was the full year '12 CapEx number? You don't have that? I know it will be in the K.

David A. Kindlick

About $250 million at the SJI level.

Operator

[Operator Instructions] Your next question comes from the line of Chris Ellinghaus with Williams Capital.

Christopher R. Ellinghaus - The Williams Capital Group, L.P., Research Division

Going back to the solar question. You're actually doing more capacity this year but at a lower cost. Has there anything been happening in terms of the cost profile?

Edward J. Graham

Mike, maybe you can touch on what you're saying.

Michael J. Renna

Yes. The per kilowatt cost to construct projects has come down pretty dramatically over the last 12 to 16 months. We're starting to see numbers that are sub-3,000 kW, whereas just 16, 18 months ago, they were well over 8,000. So they've come down considerably. Of course, that improves the overall economics of the project.

Christopher R. Ellinghaus - The Williams Capital Group, L.P., Research Division

Okay, great. Ed, you didn't talk too much about Atlantic City. Have you got any color on what's going on in terms of development?

Edward J. Graham

There isn't any new casinos on the market, but we see some potential changes in ownership. But the most significant event that just happened is the governor signed a bill to approve Internet gaming in Atlantic City. The way that would work is the servers have to be housed in Atlantic City, which will -- there's expectations of the governor, I think, has in his budget, couple of hundred million for the next fiscal year of taxes earned off of that incremental. That maybe optimistic, but I think it will add substantially over the next few years to Atlantic City's income stream. In terms of the properties themselves, some have changed hands, that some of the weaker properties. In the case of resorts, now I guess, there's a project underway, with Margaritaville being built, a couple of projects and a new operator in there, I think -- Mike, who is the new operator of the Resorts Casino?

Michael J. Renna

One of the travel [ph], I guess.

Edward J. Graham

One of the casinos out of Connecticut, I think.

Michael J. Renna

I think it's Mohegan.

Edward J. Graham

Mohegan Sun. So we're seeing some change in the properties, some improvements being made. And with specifically, Dave did touch on Revel, where obviously we're sitting in a very strong place. They've likewise had some management changes to try to bolster some of their activities. So we would expect that they would be well positioned for the coming summer to perform better. So overall, I think one of the challenges that the casino market has experienced most recently is the media led most of the country to believe that Atlantic City was devastated by the storm and that it was inoperational. And I think there's been a lot of activity by the city to say, "We feel very badly for the damage that happened north of us, but Atlantic City really did not experience that type of damage, and they're fully open for business." So I think right now, still feeling the competitive challenges, but there's a lot of positive improvements being made.

Christopher R. Ellinghaus - The Williams Capital Group, L.P., Research Division

Are you expecting server farm type-sized development in Atlantic City as a result?

Edward J. Graham

It's interesting. I don't yet know how each of the casinos. I would expect fully that each of the casinos would plan to have a server farm of their own. How they house them and where they locate them, I don't think that they necessarily have to be contiguous to the property. They just have to be within the boundaries of Atlantic City.

Christopher R. Ellinghaus - The Williams Capital Group, L.P., Research Division

I was just wondering if you're expecting that to be any kind of cooling load growth that might benefit you.

Edward J. Graham

I think there's certainly maybe small applications. I don't know that they're all going to house them in 1 location. But certainly, it's an incremental opportunity for us.

Christopher R. Ellinghaus - The Williams Capital Group, L.P., Research Division

And then can you just go over the Hartford fuel cell details again? When do you expect that to be completed?

Edward J. Graham

We, right now, are thinking it's out into 2014. We're still in negotiations, trying to finalize the contract terms. And it's again, instead of purchasing electricity for customers that we already serve off of the loop, we'll be able to generate directly for them. And obviously, that will also qualify for an investment tax credit treatment. We're seeing with the Hartford Steam loop, customers that are now either new potential customers or those that want to expand service with us that really haven't had the opportunity under the previous owners.

Christopher R. Ellinghaus - The Williams Capital Group, L.P., Research Division

Okay. So in terms of an investment tax credit, it sounds like this year, it's flat to down a little bit. But next year, you probably would have an uptick with the fuel cell.

Edward J. Graham

Well, we don't really know yet. We haven't provided any guidance as to how much renewable projects and how many other projects we might have. So again, our goal is to actually reduce that over time and replace it with the output of these thermal and CHP plants as well as, for that matter, the growth in utility.

Operator

With no further question in queue, I will turn the call back over to Mr. Ed Graham for closing remarks. Please proceed.

Edward J. Graham

Thank you, all, for your questions and your interest today. And if you have any further questions or for further clarity, please feel free to call Steve Clark, our Treasurer; or Ann Anthony, our Director of Finance and Investor Relations. Steve can be reached at (609) 561-9000 extension 4260 or by email at sclark@sjindustries.com. Ann can be reached at extension 4143 or by email at aanthony@sjindustries.com. Again, thank you for joining us on the call today and have a nice day.

Operator

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect, and have a great day.

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