U.S. Markets open in 2 hrs 9 mins

Edited Transcript of SJI earnings conference call or presentation 9-May-19 3:00pm GMT

Q1 2019 South Jersey Industries Inc Earnings Call

Folsom May 21, 2019 (Thomson StreetEvents) -- Edited Transcript of South Jersey Industries Inc earnings conference call or presentation Thursday, May 9, 2019 at 3:00:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Ann T. Anthony

South Jersey Industries, Inc. - VP, Treasurer & Acting Corporate Secretary

* Cielo Hernandez

South Jersey Industries, Inc. - Senior VP & CFO

* Daniel Mark Fidell

South Jersey Industries, Inc. - VP of IR

* David Robbins

South Jersey Energy Company, Inc. - Treasurer

* Michael J. Renna

South Jersey Industries, Inc. - President, CEO & Director

* Steven R. Cocchi

South Jersey Industries, Inc. - Senior VP and Chief Strategy & Development Officer

================================================================================

Conference Call Participants

================================================================================

* David Keith Arcaro

Morgan Stanley, Research Division - Research Associate

* Dennis Paul Coleman

BofA Merrill Lynch, Research Division - Global Head of High Grade Debt Research and MD

* Tate H. Sullivan

Maxim Group LLC, Research Division - Senior VP & Senior Industrials Analyst

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Good day, ladies and gentlemen, and welcome to the Q1 2019 South Jersey Industries Earnings Conference Call. (Operator Instructions) As a reminder, this call may be recorded.

I would now like to introduce your host for today's conference, Dan Fidell. Please go ahead.

--------------------------------------------------------------------------------

Daniel Mark Fidell, South Jersey Industries, Inc. - VP of IR [2]

--------------------------------------------------------------------------------

Thanks, Chris. Good morning, everyone, and welcome to SJI's first quarter earnings conference call and webcast. I'm joined here 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 at www.sjindustries.com. The release and the associated 10-Q provide an in-depth review of earnings on both a GAAP and non-GAAP basis using our non-GAAP measure of economic earnings. Reconciliations of economic earnings to the comparable GAAP measures appear in both documents.

Let me note that through today's call, we will 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, which are on file with the SEC.

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

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

--------------------------------------------------------------------------------

Michael J. Renna, South Jersey Industries, Inc. - President, CEO & Director [3]

--------------------------------------------------------------------------------

Thanks, Dan. And thank you all for joining us today. Hopefully, you've had an opportunity to review our earnings release and our slide deck. Before we dig into first quarter details, I want to give you an update on our business transformation initiative. As you know, the last 2 years have been transformational for SJI bringing with them greater opportunity than in any time in our company's history. We've shifted our strategy and composition acquiring 2 well-run natural gas utilities and cementing our profile as a dynamic, yet still heavily regulated entity. As these utilities are integrated into SJI in conjunction with a broader business transformation effort, we remain focused on achieving best practices and continuous improvement across our combined organization. Simultaneously, we have shared our noncore, nonregulated solar and retail gas assets. These efforts are designed to reduce earnings volatility, improve our overall earnings quality and support our shift to a more utility-driven growth path. Further, we had to absorb and overcome the tighter spreads and limited opportunities for optimization in wholesale markets. It has been without question an exceptionally exciting time in the SJI story. While our first quarter results reflect some of the transition year timing pressures associated with our transformation, results overall met our expectations and those we set for the investment community. We have today reaffirmed our 2019 economic earnings guidance of $1.05 to $1.15 per share. More importantly, we're building on a foundation of solid regulated performance. And today, we are initiating 2020 economic earnings guidance of $1.53 to $1.67 per share, a 45% increase from our 2017 performance and our 2019 -- I'm sorry, from our 2019 midpoint.

Overall, we expect roughly half of our growth to be attributable to earnings improvement from customer growth and planned regulatory initiatives in our utilities with the balance owing to our midstream investment, improving our nonutility operations, productivity and efficiency gains stemming from our business transformation initiatives.

With regard to ETG and Elkton, the integration remains largely efficient and seamless process, thanks to the hard work of our dedicated employees with full integration on track to be completed in Q1 2020. Leveraging people, process and technology, we have been able to cost-effectively absorb Elizabethtown and Elkton, while simultaneously driving down costs and increasing efficiencies across all of our businesses. These efforts are the linchpin of our growth plans into 2020 and beyond.

On the regulatory front, we have 2 significant initiatives underway at Elizabethtown. In October, we filed an infrastructure replacement program proposal, very similar to the plan we have in place for SJG. We've begun settlement discussions and expect a final decision from the BPU in 2019.

In April, we also filed a petition with the NJBPU requesting a revenue increase of roughly $65 million to recover approximately $346 million in system improvements that are not currently reflected in base rates. We expect settlement discussions to begin later this year followed by a final order, in line with precedent from prior cases.

Finally, on the financial front, we continue to strengthen our balance sheet, the repayment of debt from noncore asset sales and remain focused on further improving our credit metrics. Looking forward, our priorities for the balance of 2019 remain unchanged. We are focused on completing our review of our remaining noncore, nonregulated businesses, continuing to effectively integrate our Elizabethtown and Elkton acquisitions, including the winding down of our TSA with Southern, achieving significant cost savings from our business transformation initiatives and effectively executing our pending regulatory proceedings, all of which provide the foundation for the anticipated 6% to 8% earnings per share growth annually.

With that, I'll now turn it over to Cielo to review our operational performance.

--------------------------------------------------------------------------------

Cielo Hernandez, South Jersey Industries, Inc. - Senior VP & CFO [4]

--------------------------------------------------------------------------------

Thank you, Mike. Good morning, everyone. As Dan noted earlier, both the economies with the earnings release and the slide deck we have made available, will provide you detailed information regarding GAAP earnings, and I encourage you to review that information as well.

For this call, we will focus our discussions on our non-GAAP measure of economic earnings, as management believe this measure provides valuable insight into our business performance.

SJI's first quarter's economic earnings per share totaled $1.09 as compared with $1.26 per share in 2018. In line with our expectations, 2019 economic earnings were $99.4 million as compared with 2018 economic earnings of $100.4 million. The quarterly variance reflects the addition of ETG and Elkton and improved results at South Jersey Gas, Midstream and Energy Services that were offset by lower results at Energy Group. Q1 2019 results also reflect the pressure of integration and acquisition financing costs as well as share dilution.

Now I will review the first quarter performance drivers of each of our business segments. Our gas utilities contributed earnings of $1.09 per share compared with $0.84 per share in 2018. The improvement primarily reflects the addition of ETG and Elkton operations acquired in July 2018 as well as the roll in of investments for infrastructure replacement and customer growth. Our net customer growth across our utilities was 1.4% over the last 12 months, a growth rate that remains above the national average. With close to 3 quarters of each additions coming from conversion, the South Jersey Gas growth rate reached 1.9%. These contributions reflect our commitment to growth from regulated investments and initiatives as well as our partnership with the BPU. We expect both South Jersey Gas and ETG to maintain these strong partnerships in support of our customers across New Jersey.

Midstream earnings were $0.01 per share reflecting AFUDC related to PennEast Pipeline Project, which was generally consistent with 2018.

Turning to our nonregulated operations. Energy Group contributed economic earnings per share of $0.08 compared to $0.45 last year. The declining result reflects several items. Lower margins of daily energy trading activities tied to tighter spreads. Less favorable weather and new pipeline operating rules that limited asset optimization opportunities. First quarter 2019 results were also impacted by headwinds associated with several legacy contracts, which seems to roll off in 2020.

First quarter 2019 results will also be evaluated in light of the various strong wholesale gas market conditions that existed during the same period in 2018. Energy services results improved by $0.02 per share versus last year, reflecting the announced sale of our solar assets to an entity managed my Goldman Sachs Asset Management in June 2018. Through the end of the first quarters, we've received over $300 million of the $350 million solar agreement.

Turning now to capital spending. First quarter spend totaled $108.8 million and will remain on track for approximately $530 million in capital spending in 2019. In 2019, we further strengthened our balance sheet. As of March 31, 2019, equity to total capitalization was 35.1%, up significantly compared with 28.9% at December 31, 2018. This reflects the issuance of our equity forward in January and $400 million in debt repayment using proceeds from noncore asset sales. As previously communicated, our growth plan embeds 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 39.1% at March 31, 2019, and 35.3% at December 31, 2018.

As a reminder, we remain committed to further strengthening our balance sheet. And we anticipated that any proceeds from potential sales of remaining noncore, nonregulated assets will be deployed for additional debt repayment.

That concludes my review of operational performance and the balance sheet. I will now turn it back to Mike for his concluding remarks. Thank you.

--------------------------------------------------------------------------------

Michael J. Renna, South Jersey Industries, Inc. - President, CEO & Director [5]

--------------------------------------------------------------------------------

Thank you, Cielo. As I conclude my remarks, I want to thank our approximately 1,100 dedicated employees for their outstanding work. As always they remain the driving force behind our results and our ability to execute the strong growth path we've outlined for you.

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

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) And our first question comes from the line of Dennis Coleman with Bank of America.

--------------------------------------------------------------------------------

Dennis Paul Coleman, BofA Merrill Lynch, Research Division - Global Head of High Grade Debt Research and MD [2]

--------------------------------------------------------------------------------

Maybe if we could just pick up on some of the priorities that you listed on Slide 3. You talked about reviewing remaining noncore assets and one of the questions we've heard is, would you consider divesting the wholesale business? You've done quite a lot already, but that's one of the ones that still has some growth to it?

--------------------------------------------------------------------------------

Michael J. Renna, South Jersey Industries, Inc. - President, CEO & Director [3]

--------------------------------------------------------------------------------

Thanks, Dennis. I think it's fair to say that with the exception of our utilities, we would certainly be open to considering anything as it relates to our nonutility businesses. And although we have identified our wholesale business as core, it is an area that despite some challenges currently in the market, it has performed well for us. Historically, it is a -- it's not a capital-intensive business. We have designed it to operate from a very low-risk platform. So right now, we do view it as being complementary and a critical part of our future. But that's not to say that if there was a market out there that we'd be able to capture and monetize the business with a commanding premium that we wouldn't consider, I mean, I think we'd have to consider any kind of opportunity like that.

--------------------------------------------------------------------------------

Dennis Paul Coleman, BofA Merrill Lynch, Research Division - Global Head of High Grade Debt Research and MD [4]

--------------------------------------------------------------------------------

Okay. I guess I was going to just switch to the redundancy project alternatives with the BL England offline, you've indicated you're pursuing different options and in the release, you talked about an equity issuance to support those efforts. I wonder if there's any more details you might be able to add there.

--------------------------------------------------------------------------------

Michael J. Renna, South Jersey Industries, Inc. - President, CEO & Director [5]

--------------------------------------------------------------------------------

Yes. We don't have specifics yet in terms of what a potential project would look like. Maybe I'll just kind of take a little bit of a step back. We view redundancy as having 2 components to it, one would be system redundancy that would be the kind of redundancy that would be afforded by a BL England replacement project that is to ensure that all of our customers have a redundancy and we maintain continuity of service, should there be some kind of interruption. Right now, we believe that we have some exposure and we believe that our regulators are supportive of us addressing that exposure when we have roughly 140,000 customers who are served off of a single aided distribution line. We are addressing that redundancy. That redundancy would have been addressed with the BL England project, so we are exploring alternatives and we are looking to do that with really 2 things in mind. The affordability, making sure that whatever we do minimizes the impact on customer bills, and expediency, making sure that we can get it permitted and in place in the shortest time possible.

The other type of redundancy is supply redundancy. And that would be a project design to protect us against an interstate supply interruption, particularly, in heavy usage months. So that's a different type of project. It's more capital-intensive and that would involve either -- there's really 2 options that we think. One would be another feed off of a third interstate pipeline, which we think would take a lot of time and, particularly, on the permitting and construction front or perhaps as we've mentioned before large-scale LNG. We are kind of finalizing our decision and our design around both of those projects. We have also said to the second point with that, the equity that we would raise would be to support redundancy projects and depending, again, on the size and the scope of, particularly, the supply redundancy project, we have targeted a $125 million of equity to support that project. Our guidance range reflects equity that may be less or may be a little bit more depending on the size of that project. So we have $125 million out there right now and that again is really designed, specifically related to that project. I can't say that any equity investment that we would -- or any additional equity that we would raise would be supported by a utility project and the revenues that would come from that project.

--------------------------------------------------------------------------------

Dennis Paul Coleman, BofA Merrill Lynch, Research Division - Global Head of High Grade Debt Research and MD [6]

--------------------------------------------------------------------------------

Okay. That's great. A couple of just a little more detail given that you mentioned the guidance and thanks for the 2020 guidance. I think that should help people understand this transition 2019, but I assume it is, but just to confirm, the Elizabethtown rate case is in that guidance and you've sort of guided or at least sort of stated, you think it will settle at some place along the lines of past rate cases. Is that how we should think about that being represented in the 2020 guidance?

--------------------------------------------------------------------------------

Michael J. Renna, South Jersey Industries, Inc. - President, CEO & Director [7]

--------------------------------------------------------------------------------

I'm going to ask Dave Robbins, the President of our Utilities, to speak to that.

--------------------------------------------------------------------------------

David Robbins, South Jersey Energy Company, Inc. - Treasurer [8]

--------------------------------------------------------------------------------

Yes. It's absolutely in the 2020 guidance, I mean, we've invested about $134 million of prudent capital into their system, which is really driving the filing of that case. We've filed it. We expect this covering to begin soon, so we expect it to be settled in a kind of a standard time frame and the 2020 numbers reflect that.

--------------------------------------------------------------------------------

Dennis Paul Coleman, BofA Merrill Lynch, Research Division - Global Head of High Grade Debt Research and MD [9]

--------------------------------------------------------------------------------

Right, right, okay. And then last one for me. I'm sorry for just to dig a little deeper, but there were some conversations or statements about pipeline rules limiting optimization as they have an impact on the quarter. Could you share a little more specifics on that?

--------------------------------------------------------------------------------

Steven R. Cocchi, South Jersey Industries, Inc. - Senior VP and Chief Strategy & Development Officer [10]

--------------------------------------------------------------------------------

Sure. Yes, Dennis. Hi, it's Steve Cocchi. Yes, this is something that we've talked about before, when we look back at the volatility and what we were able to take advantage of in the first quarter of 2018 in the wholesale business, a lot of the uptick that we saw in the numbers that year were related to being able to optimize our transportation and storage on certain pipelines. And because of the demand coming out of the extremely cold winter that we had at the beginning of 2018, the pipelines have changed their operating rules that don't allow us to take advantage of the ability to move secondary and things of that nature that kind of inhibit our ability to really maximize the value of some of the capacity that we own. It's really -- again, it's something that's the pipelines did coming out of the demand that they saw in an extremely cold early 2018.

--------------------------------------------------------------------------------

Operator [11]

--------------------------------------------------------------------------------

(Operator Instructions) And our next question comes from the line of Tate Sullivan with Maxim Group.

--------------------------------------------------------------------------------

Tate H. Sullivan, Maxim Group LLC, Research Division - Senior VP & Senior Industrials Analyst [12]

--------------------------------------------------------------------------------

Michael, a couple of questions to learn more about the Elizabethtown service territory. And are there any redundancy -- potential redundancy issues there? Or most of way you talked about redundancy is related to your legacy territory.

--------------------------------------------------------------------------------

Michael J. Renna, South Jersey Industries, Inc. - President, CEO & Director [13]

--------------------------------------------------------------------------------

I'll let Dave speak a little bit more about that because he's got a greater familiarity and understanding of their -- the specifics as it relates to their territory. What I do know is that our -- the South Jersey Gas Company is served off of 2 interstate pipelines. So obviously, if you were to have an interruption on one of them, we would not be able to meet the needs of our customers, particularly in the winter. The demand is just it would outstrip the capacity of the interstate pipeline. There are a number of pipelines that serve our Elizabethtown territories, but they come into 3 different city gates, and so the redundancy issue may exist. I think it's something that they are evaluating right now, but I'll ask Dave to speak more on that.

--------------------------------------------------------------------------------

David Robbins, South Jersey Energy Company, Inc. - Treasurer [14]

--------------------------------------------------------------------------------

Yes, I mean it's not as pronounced as the need as South Jersey Gas because as Mike mentioned, we're only served by 2 interstates. That's probably a project that we're going to spend more time on a little bit further down the road because there is not as pressing a need, but it probably makes sense that somewhere around their system to put a large-scale LNG would make sense, but we haven't identified that opportunity just yet.

--------------------------------------------------------------------------------

Tate H. Sullivan, Maxim Group LLC, Research Division - Senior VP & Senior Industrials Analyst [15]

--------------------------------------------------------------------------------

Okay, that was related to my other question and you answered that you gave some detail on the Elizabethtown rate case, and I'm looking at your Slide 16. With the Elizabethtown CapEx guidance for '20, are there other projects, the potential projects you can talk about in the Elizabethtown service territory? Or is there a bit early beyond the pipe replacement effort?

--------------------------------------------------------------------------------

David Robbins, South Jersey Energy Company, Inc. - Treasurer [16]

--------------------------------------------------------------------------------

No. I think the CapEx at ETG just reflects new growth opportunity. It reflects compliance and baseband and then certainly it assumes that we receive approval of our infrastructure program. So they're really the 3 main components of the ETG capital numbers.

--------------------------------------------------------------------------------

Tate H. Sullivan, Maxim Group LLC, Research Division - Senior VP & Senior Industrials Analyst [17]

--------------------------------------------------------------------------------

Okay. And then last on Elizabethtown is, has the customer -- I see the customer growth rate in Elizabethtown versus the South Jersey Gases. Is the customer growth in Elizabethtown what you expected? And what are the different dynamics in the 2 service territories, please?

--------------------------------------------------------------------------------

David Robbins, South Jersey Energy Company, Inc. - Treasurer [18]

--------------------------------------------------------------------------------

I see the ETG number as opportunity. So I believe that under Southern ownership, there wasn't as much of a focus on growth. They were really focused on operating efficiency, which they've done very well. And if you look at our customer growth number at South Jersey Gas at 1.9%, we believe that we have a model that's portable. So we are transferring that model to ETG, ramping up the sales and marketing efforts. We believe there's ample opportunity for both conversion customers and new construction up there. So we expect to make the investments to significantly invest the ETG customer growth number.

--------------------------------------------------------------------------------

Michael J. Renna, South Jersey Industries, Inc. - President, CEO & Director [19]

--------------------------------------------------------------------------------

Tate, it's Mike. I'll jump in a little bit too. There are very different topographies as well. Southern New Jersey, it's flat, it's largely sand, so running new main and distribution as a different set of economics than it does at Elizabethtown and particularly if you look at the northern part or the sort of the central part of Elizabethtown, it's very densely populated. So things like street openings and a lot of that construction up there can be a little bit more costly than it is in southern New Jersey. But on the western part of the territory, the one that hugs the Delaware River, it's mountainous and very rocky. So again, it's just -- some of the growth is really driven by the actuals, the inherent differences in the service territory themselves.

--------------------------------------------------------------------------------

David Robbins, South Jersey Energy Company, Inc. - Treasurer [20]

--------------------------------------------------------------------------------

I think that's certainly true, but I do believe that we have the opportunity to significantly improve upon the 0.8% and we're already seeing some encouraging signs. So look for that number to go north as we move forward.

--------------------------------------------------------------------------------

Operator [21]

--------------------------------------------------------------------------------

And that does conclude today -- we do have -- actually have a question that just came in from the line of Stephen Byrd with Morgan Stanley.

--------------------------------------------------------------------------------

David Keith Arcaro, Morgan Stanley, Research Division - Research Associate [22]

--------------------------------------------------------------------------------

This is Dave Arcaro on for Stephen. Had a bit of a clarification. Looking at the capital plan, looking into 2020, noticed some shifting in the proportions of CapEx between SJG and ETG. Wondering if you could talk a little bit about what was driving one up and the other down?

--------------------------------------------------------------------------------

Michael J. Renna, South Jersey Industries, Inc. - President, CEO & Director [23]

--------------------------------------------------------------------------------

I'll have Dave jump in and provide more detail. I think really fundamentally what you're seeing in 2020 in that shifts are identified larger scale, more capital intensive projects in South Jersey Gas, again, related to things like we just discussed with redundancy. And so there has been a little bit of a shift in spending as we try to, obviously, again optimize our capital structure and our balance sheet as well.

--------------------------------------------------------------------------------

David Robbins, South Jersey Energy Company, Inc. - Treasurer [24]

--------------------------------------------------------------------------------

Yes. I think one of the drivers of 2019, we had our SHARP 2 program approved last year. So there's going to be significant spend in our second accelerated program at SJG, and we have a large-scale compressor station that is in the '19 numbers as well. On the ETG side, there we're going to be spending quite a few dollars on staining up their IT systems, so there are some dollars in there for ETG as well.

--------------------------------------------------------------------------------

David Keith Arcaro, Morgan Stanley, Research Division - Research Associate [25]

--------------------------------------------------------------------------------

Okay. Got it. It's helpful color. I was also curious on the Midstream side of things. Looking at the outlook into 2020, it was a bit higher than we were expecting and looking back at the Analyst Day, but I was wondering if you could talk about -- on the Midstream side, if there are any drivers of an increase versus your expectations on the Analyst Day? Kind of what implied ROE is being baked in there or are there extra CapEx dollars? Any color on that would be helpful.

--------------------------------------------------------------------------------

Steven R. Cocchi, South Jersey Industries, Inc. - Senior VP and Chief Strategy & Development Officer [26]

--------------------------------------------------------------------------------

This is Steve. I don't have the Investor Day numbers at my fingertips at the moment, but I think anything that would have changed since then really is just the timing of CapEx. We've not changed our expectations as to the ROE. We would expect from that project once it's in service or the in-service date.

--------------------------------------------------------------------------------

David Keith Arcaro, Morgan Stanley, Research Division - Research Associate [27]

--------------------------------------------------------------------------------

Okay. Got it. And could you remind me what is the ROE that's expected and once the full -- once the project goes into service -- AFUDC period?

--------------------------------------------------------------------------------

Steven R. Cocchi, South Jersey Industries, Inc. - Senior VP and Chief Strategy & Development Officer [28]

--------------------------------------------------------------------------------

That's not something that we've disclosed publicly. It's something that is negotiated with FERC. So it's...

--------------------------------------------------------------------------------

Michael J. Renna, South Jersey Industries, Inc. - President, CEO & Director [29]

--------------------------------------------------------------------------------

Yes, we have a -- yes, the project is fully subscribed and 85% of those volumes are under confidential negotiated contracts with our base shippers. So what we have said is that we would expect to get FERC like returns, but we have not given any real detail as to what the exact ROE is. It's all negotiated.

--------------------------------------------------------------------------------

Operator [30]

--------------------------------------------------------------------------------

And we do have a follow-up question from the line of Tate Sullivan with Maxim group.

--------------------------------------------------------------------------------

Tate H. Sullivan, Maxim Group LLC, Research Division - Senior VP & Senior Industrials Analyst [31]

--------------------------------------------------------------------------------

Mike, I think you mentioned earlier the wind down of the transition service agreement with Southern. Can you describe a little more how that work? Is it based on -- do you make a bulk of cash payments related to that? Or is it within the income that you repeat on Elizabethtown on a consistent basis over the year?

--------------------------------------------------------------------------------

Michael J. Renna, South Jersey Industries, Inc. - President, CEO & Director [32]

--------------------------------------------------------------------------------

The actual mechanics of the TSA, that it's a part of the settlement agreement. The assets purchase agreement was basically a rate that we expected based on the amount of services that we would be receiving from Southern, which over the past -- or over the 18 months or so, that we are expecting to be under the TSA would reflect, again, our migration off of the TSA. I think the 2 really important things, Tate, are we would expect to be off the services component of it somewhere around the middle of this year, that's the dispatch function, that's the customer service support function and a number of the other services that were provided out of either Atlanta or Chicago that were really kind of essential to utility operations. We have -- we are continuing to progress in terms of overstating those service or those functions up and allowing us to migrate off of them. With the other big piece, which is a little bit longer of a runway is the -- are the systems. We had to basically build all of the systems necessary to run a utility. So from customer billing to a financial system, to work management system, all of those systems, they're Southern property, they're remaining with Southern. So before we can exit fully off the TSA, we have to have those systems up and running. And then that is probably -- I think right now, we're targeting a first quarter -- early first quarter 2020 exit from the systems.

--------------------------------------------------------------------------------

Tate H. Sullivan, Maxim Group LLC, Research Division - Senior VP & Senior Industrials Analyst [33]

--------------------------------------------------------------------------------

Okay. And real quickly cash flow from operations in the quarter was $200 million that usually drops in the second quarter. Was there something abnormal in the quarter?

--------------------------------------------------------------------------------

Cielo Hernandez, South Jersey Industries, Inc. - Senior VP & CFO [34]

--------------------------------------------------------------------------------

No, no. There is nothing abnormal in the quarter.

--------------------------------------------------------------------------------

Operator [35]

--------------------------------------------------------------------------------

And we do have a follow-up from the line of Stephen Byrd with Morgan Stanley.

--------------------------------------------------------------------------------

David Keith Arcaro, Morgan Stanley, Research Division - Research Associate [36]

--------------------------------------------------------------------------------

Dave Arcaro again here. Just had one more quick question around Elizabethtown. I was just wondering if you were to get the equity layer of 52% as requested, wondering if you'd be able to fit that into your current financing plans or if that might require potentially just equity? Or how you might go about financing such an equity layer?

--------------------------------------------------------------------------------

Ann T. Anthony, South Jersey Industries, Inc. - VP, Treasurer & Acting Corporate Secretary [37]

--------------------------------------------------------------------------------

Sure. This is Ann Anthony. So I don't think we would envision additional equity needs in order to actually achieve that equity layer down at Elizabethtown. We will be able to accommodate that within the current financing plan.

--------------------------------------------------------------------------------

Operator [38]

--------------------------------------------------------------------------------

And that does conclude today's question-and-answer session. We'd now like to turn the call back to Dan Fidell for any further remarks.

--------------------------------------------------------------------------------

Daniel Mark Fidell, South Jersey Industries, Inc. - VP of IR [39]

--------------------------------------------------------------------------------

Great. Thank you all for joining us this morning. We look forward to meeting with many of you at the upcoming AGA Financial Forum, and we wish you all safe travels, of course. As a reminder, a recording of our call today is -- will be available on our website. As always, please feel free to contact either myself, Dan Fidell, or Eric Jacobson for analyst and investor questions or Marissa Travaline for media inquiries. Our contact information may be found on our earnings release and earnings presentation materials. 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 [40]

--------------------------------------------------------------------------------

Ladies and gentlemen, thank you for participating in today's conference. This does conclude your today's program. You may all have a great day. And please disconnect.