New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
(Thousands)
|
|
|
|
|
|
Fiscal years ended September 30,
|
2017
|
|
2016
|
|
2015
|
CASH FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
Net income
|
$
|
132,065
|
|
|
$
|
131,672
|
|
|
$
|
180,960
|
|
Adjustments to reconcile net income to cash flows from operating activities
|
|
|
|
|
|
Unrealized (gain) loss on derivative instruments
|
(11,241
|
)
|
|
46,883
|
|
|
(38,681
|
)
|
Gain on sale of property and available for sale securities, net
|
(7,287
|
)
|
|
—
|
|
|
—
|
|
Depreciation and amortization
|
81,841
|
|
|
72,748
|
|
|
61,399
|
|
Allowance for equity used during construction
|
(3,867
|
)
|
|
(4,375
|
)
|
|
(3,825
|
)
|
Allowance for bad debt expense
|
2,023
|
|
|
1,616
|
|
|
2,859
|
|
Deferred income taxes
|
41,442
|
|
|
27,721
|
|
|
45,934
|
|
Manufactured gas plant remediation costs
|
(10,934
|
)
|
|
(8,106
|
)
|
|
(6,805
|
)
|
Distributions received from equity investees, net of equity in earnings
|
(462
|
)
|
|
4,534
|
|
|
6,663
|
|
Cost of removal - asset retirement obligations
|
(484
|
)
|
|
(403
|
)
|
|
(1,034
|
)
|
Contributions to postemployment benefit plans
|
(6,077
|
)
|
|
(33,359
|
)
|
|
(5,778
|
)
|
Tax benefit of delivered shares from stock based compensation
|
1,285
|
|
|
1,755
|
|
|
881
|
|
Changes in:
|
|
|
|
|
|
Components of working capital
|
17,081
|
|
|
(123,325
|
)
|
|
81,817
|
|
Other noncurrent assets
|
14,740
|
|
|
3,933
|
|
|
38,716
|
|
Other noncurrent liabilities
|
(2,079
|
)
|
|
21,336
|
|
|
27,841
|
|
Cash flows from operating activities
|
248,046
|
|
|
142,630
|
|
|
390,947
|
|
CASH FLOWS (USED IN) INVESTING ACTIVITIES
|
|
|
|
|
|
Expenditures for:
|
|
|
|
|
|
Utility plant
|
(144,106
|
)
|
|
(176,067
|
)
|
|
(140,797
|
)
|
Solar and wind equipment
|
(149,400
|
)
|
|
(149,063
|
)
|
|
(151,002
|
)
|
Real estate properties and other
|
(2,434
|
)
|
|
(1,896
|
)
|
|
(209
|
)
|
Cost of removal
|
(32,143
|
)
|
|
(29,066
|
)
|
|
(28,078
|
)
|
Acquisition of retail and wholesale energy contracts
|
(55,661
|
)
|
|
—
|
|
|
—
|
|
Investments in equity investees
|
(27,070
|
)
|
|
(11,176
|
)
|
|
(5,780
|
)
|
Distributions from equity investees in excess of equity in earnings
|
2,749
|
|
|
2,351
|
|
|
2,620
|
|
Withdrawal from (payment to) restricted cash construction fund
|
1,322
|
|
|
979
|
|
|
(1,499
|
)
|
Proceeds from sale of investment
|
—
|
|
|
—
|
|
|
3,016
|
|
Proceeds from sale of property
|
9,443
|
|
|
748
|
|
|
—
|
|
Proceeds from sale of available for sale securities
|
6,639
|
|
|
—
|
|
|
—
|
|
Cash flows (used in) investing activities
|
(390,661
|
)
|
|
(363,190
|
)
|
|
(321,729
|
)
|
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES
|
|
|
|
|
|
Proceeds from long-term debt
|
100,000
|
|
|
275,000
|
|
|
250,000
|
|
Payments of long-term debt
|
(97,854
|
)
|
|
(13,289
|
)
|
|
(37,039
|
)
|
Net proceeds from (payments of) short-term debt
|
144,300
|
|
|
55,350
|
|
|
(234,650
|
)
|
Proceeds from sale-leaseback transaction - solar
|
32,901
|
|
|
—
|
|
|
—
|
|
Proceeds from sale-leaseback transaction - other
|
9,587
|
|
|
7,107
|
|
|
7,216
|
|
Payments of common stock dividends
|
(87,988
|
)
|
|
(82,445
|
)
|
|
(76,532
|
)
|
Proceeds from issuance of common stock
|
17,492
|
|
|
16,010
|
|
|
37,299
|
|
Purchases of treasury stock
|
(6,355
|
)
|
|
(1,008
|
)
|
|
(10,589
|
)
|
Tax withholding payments related to net settled stock compensation
|
(4,788
|
)
|
|
(3,547
|
)
|
|
(2,146
|
)
|
Cash flows from (used in) financing activities
|
107,295
|
|
|
253,178
|
|
|
(66,441
|
)
|
Change in cash and cash equivalents
|
(35,320
|
)
|
|
32,618
|
|
|
2,777
|
|
Cash and cash equivalents at beginning of period
|
37,546
|
|
|
4,928
|
|
|
2,151
|
|
Cash and cash equivalents at end of period
|
$
|
2,226
|
|
|
$
|
37,546
|
|
|
$
|
4,928
|
|
CHANGES IN COMPONENTS OF WORKING CAPITAL
|
|
|
|
|
|
Receivables
|
$
|
(56,974
|
)
|
|
$
|
11,303
|
|
|
$
|
32,529
|
|
Inventories
|
3,022
|
|
|
(45,986
|
)
|
|
114,638
|
|
Recovery of gas costs
|
(90
|
)
|
|
(39,642
|
)
|
|
18,979
|
|
Gas purchases payable
|
20,663
|
|
|
(11,963
|
)
|
|
(54,525
|
)
|
Gas purchases payable - related parties
|
2
|
|
|
(411
|
)
|
|
202
|
|
Prepaid and accrued taxes
|
10,366
|
|
|
2,385
|
|
|
(18,161
|
)
|
Accounts payable and other
|
13,086
|
|
|
(15,656
|
)
|
|
(14,714
|
)
|
Restricted broker margin accounts
|
22,570
|
|
|
(38,752
|
)
|
|
18,452
|
|
Customers
’
credit balances and deposits
|
(5,877
|
)
|
|
12,044
|
|
|
(1,545
|
)
|
Other current assets
|
10,313
|
|
|
3,353
|
|
|
(14,038
|
)
|
Total
|
$
|
17,081
|
|
|
$
|
(123,325
|
)
|
|
$
|
81,817
|
|
SUPPLEMENTAL DISCLOSURES
|
|
|
|
|
|
Cash paid (received) for:
|
|
|
|
|
|
Interest (net of amounts capitalized)
|
$
|
44,362
|
|
|
$
|
31,996
|
|
|
$
|
24,208
|
|
Income taxes
|
$
|
(6,877
|
)
|
|
$
|
(3,516
|
)
|
|
$
|
28,790
|
|
Accrued capital expenditures
|
$
|
21,769
|
|
|
$
|
48,881
|
|
|
$
|
28,676
|
|
Deferred gain on non-cash exchange of investments
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
24,601
|
|
See Notes to Consolidated Financial Statements
|
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
CONSOLIDATED BALANCE SHEETS
ASSETS
|
|
|
|
|
|
|
|
(Thousands)
|
|
|
September 30,
|
2017
|
2016
|
|
|
|
PROPERTY, PLANT AND EQUIPMENT
|
|
|
Utility plant, at cost
|
$
|
2,241,324
|
|
$
|
2,107,375
|
|
Construction work in progress
|
119,318
|
|
122,268
|
|
Solar and wind equipment, real estate properties and other, at cost
|
843,142
|
|
631,696
|
|
Construction work in progress
|
7,286
|
|
93,791
|
|
Total property, plant and equipment
|
3,211,070
|
|
2,955,130
|
|
Accumulated depreciation and amortization, utility plant
|
(489,122
|
)
|
(467,702
|
)
|
Accumulated depreciation and amortization, solar and wind equipment, real estate properties and other
|
(112,207
|
)
|
(79,776
|
)
|
Property, plant and equipment, net
|
2,609,741
|
|
2,407,652
|
|
|
|
|
CURRENT ASSETS
|
|
|
Cash and cash equivalents
|
2,226
|
|
37,546
|
|
Customer accounts receivable:
|
|
|
Billed
|
196,467
|
|
142,658
|
|
Unbilled revenues
|
7,202
|
|
5,744
|
|
Allowance for doubtful accounts
|
(5,181
|
)
|
(4,865
|
)
|
Regulatory assets
|
50,791
|
|
54,286
|
|
Gas in storage, at average cost
|
202,063
|
|
206,251
|
|
Materials and supplies, at average cost
|
11,944
|
|
10,778
|
|
Prepaid and accrued taxes
|
24,764
|
|
34,179
|
|
Derivatives, at fair value
|
30,081
|
|
29,964
|
|
Restricted broker margin accounts
|
25,827
|
|
47,644
|
|
Asset held for sale
|
—
|
|
7,660
|
|
Other current assets
|
33,260
|
|
35,419
|
|
Total current assets
|
579,444
|
|
607,264
|
|
|
|
|
NONCURRENT ASSETS
|
|
|
Investments in equity investees
|
172,585
|
|
141,148
|
|
Regulatory assets
|
375,919
|
|
441,294
|
|
Derivatives, at fair value
|
9,164
|
|
5,227
|
|
Available for sale securities
|
65,752
|
|
55,789
|
|
Intangible assets
|
41,084
|
|
—
|
|
Other noncurrent assets
|
74,818
|
|
60,196
|
|
Total noncurrent assets
|
739,322
|
|
703,654
|
|
Total assets
|
$
|
3,928,507
|
|
$
|
3,718,570
|
|
See Notes to Consolidated Financial Statements
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
CAPITALIZATION AND LIABILITIES
|
|
|
|
|
|
|
|
(Thousands, except share data)
|
|
|
September 30,
|
2017
|
2016
|
|
|
|
CAPITALIZATION
|
|
|
Common stock, $2.50 par value; authorized 150,000,000 shares;
outstanding September 30, 2017 — 86,555,507; September 30, 2016 — 86,086,355
|
$
|
222,258
|
|
$
|
221,654
|
|
Premium on common stock
|
219,696
|
|
215,580
|
|
Accumulated other comprehensive (loss), net of tax
|
(3,256
|
)
|
(15,155
|
)
|
Treasury stock at cost and other;
shares September 30, 2017
—
2,347,380; September 30, 2016
—
2,575,139
|
(70,039
|
)
|
(81,044
|
)
|
Retained earnings
|
867,984
|
|
825,556
|
|
Common stock equity
|
1,236,643
|
|
1,166,591
|
|
Long-term debt
|
997,080
|
|
1,055,038
|
|
Total capitalization
|
2,233,723
|
|
2,221,629
|
|
|
|
|
CURRENT LIABILITIES
|
|
|
Current maturities of long-term debt
|
165,375
|
|
61,452
|
|
Short-term debt
|
266,000
|
|
121,700
|
|
Gas purchases payable
|
160,115
|
|
139,452
|
|
Gas purchases payable to related parties
|
1,152
|
|
1,150
|
|
Accounts payable and other
|
96,878
|
|
107,184
|
|
Dividends payable
|
23,586
|
|
21,975
|
|
Accrued taxes
|
2,031
|
|
1,080
|
|
Regulatory liabilities
|
78
|
|
9,469
|
|
New Jersey clean energy program
|
14,202
|
|
14,232
|
|
Derivatives, at fair value
|
46,544
|
|
61,080
|
|
Customers’ credit balances and deposits
|
26,957
|
|
32,834
|
|
Total current liabilities
|
802,918
|
|
571,608
|
|
|
|
|
NONCURRENT LIABILITIES
|
|
|
Deferred income taxes
|
514,708
|
|
473,847
|
|
Deferred investment tax credits
|
4,297
|
|
4,619
|
|
Deferred gain
|
27,728
|
|
28,519
|
|
Derivatives, at fair value
|
11,330
|
|
25,252
|
|
Manufactured gas plant remediation
|
149,000
|
|
172,000
|
|
Postemployment employee benefit liability
|
128,888
|
|
141,604
|
|
Regulatory liabilities
|
14,507
|
|
41,411
|
|
Asset retirement obligation
|
31,420
|
|
28,379
|
|
Other noncurrent liabilities
|
9,988
|
|
9,702
|
|
Total noncurrent liabilities
|
891,866
|
|
925,333
|
|
Commitments and contingent liabilities (Note 14)
|
|
|
|
Total capitalization and liabilities
|
$
|
3,928,507
|
|
$
|
3,718,570
|
|
See Notes to Consolidated Financial Statements
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
CONSOLIDATED STATEMENTS OF COMMON STOCK EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Thousands)
|
Number of Shares
|
Common Stock
|
Premium on Common Stock
|
Accumulated Other Comprehensive (Loss) Income
|
Treasury Stock And Other
|
Retained Earnings
|
Total
|
Balance at September 30, 2014
|
84,356
|
|
$
|
218,223
|
|
$
|
199,739
|
|
|
$
|
(5,594
|
)
|
|
$
|
(121,031
|
)
|
$
|
674,829
|
|
$
|
966,166
|
|
Net income
|
|
|
|
|
|
|
|
180,960
|
|
180,960
|
|
Other comprehensive loss
|
|
|
|
|
(3,800
|
)
|
|
|
|
(3,800
|
)
|
Common stock issued:
|
|
|
|
|
|
|
|
|
|
Incentive compensation plan
|
359
|
|
895
|
|
5,013
|
|
|
|
|
|
|
5,908
|
|
Dividend reinvestment plan
(1)
|
1,149
|
|
1,720
|
|
6,722
|
|
|
|
|
19,096
|
|
|
27,538
|
|
Tax benefits from stock plans
|
|
|
(1,344
|
)
|
|
|
|
|
|
(1,344
|
)
|
Cash dividend declared ($.915 per share)
|
|
|
|
|
|
|
|
(78,044
|
)
|
(78,044
|
)
|
Treasury stock and other
|
(333
|
)
|
|
(199
|
)
|
|
|
|
9,771
|
|
|
9,572
|
|
Balance at September 30, 2015
|
85,531
|
|
220,838
|
|
209,931
|
|
|
(9,394
|
)
|
|
(92,164
|
)
|
777,745
|
|
1,106,956
|
|
Net income
|
|
|
|
|
|
|
|
131,672
|
|
131,672
|
|
Other comprehensive loss
|
|
|
|
|
(5,761
|
)
|
|
|
|
(5,761
|
)
|
Common stock issued:
|
|
|
|
|
|
|
|
|
|
Incentive compensation plan
|
325
|
|
816
|
|
8,583
|
|
|
|
|
|
|
9,399
|
|
Dividend reinvestment plan
(1)
|
471
|
|
|
(2,879
|
)
|
|
|
|
18,942
|
|
|
16,063
|
|
Cash dividend declared ($.975 per share)
|
|
|
|
|
|
|
|
(83,861
|
)
|
(83,861
|
)
|
Treasury stock and other
|
(241
|
)
|
|
(55
|
)
|
|
|
|
(7,822
|
)
|
|
(7,877
|
)
|
Balance at September 30, 2016
|
86,086
|
|
221,654
|
|
215,580
|
|
|
(15,155
|
)
|
|
(81,044
|
)
|
825,556
|
|
1,166,591
|
|
Net income
|
|
|
|
|
|
|
|
132,065
|
|
132,065
|
|
Other comprehensive income
|
|
|
|
|
11,899
|
|
|
|
|
11,899
|
|
Common stock issued:
|
|
|
|
|
|
|
|
|
|
Incentive compensation plan
|
241
|
|
604
|
|
5,090
|
|
|
|
|
|
|
5,694
|
|
Dividend reinvestment plan
(1)
|
472
|
|
|
(946
|
)
|
|
|
|
18,568
|
|
|
17,622
|
|
Cash dividend declared ($1.0375 per share)
|
|
|
|
|
|
|
|
(89,637
|
)
|
(89,637
|
)
|
Treasury stock and other
|
(243
|
)
|
|
(28
|
)
|
|
|
|
(7,563
|
)
|
|
(7,591
|
)
|
Balance at September 30, 2017
|
86,556
|
|
$
|
222,258
|
|
$
|
219,696
|
|
|
$
|
(3,256
|
)
|
|
$
|
(70,039
|
)
|
$
|
867,984
|
|
$
|
1,236,643
|
|
|
|
(1)
|
The DRP allows NJR, at its option, to use newly issued shares to raise capital. During fiscal
2015
, NJR issued approximately
688,000
new shares through the waiver discount feature of its DRP. There were
no
new shares issued through the waiver discount feature during
fiscal
2016
and
fiscal 2017
.
|
See Notes to Consolidated Financial Statements
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
1. NATURE OF THE BUSINESS
New Jersey Resources Corporation provides regulated gas distribution services and operates certain unregulated businesses primarily through the following:
New Jersey Natural Gas Company provides natural gas utility service to approximately
529,800
retail customers in central and northern New Jersey and is subject to rate regulation by the BPU. NJNG comprises the Natural Gas Distribution segment;
NJR Clean Energy Ventures Corporation, the Company’s clean energy subsidiary, comprises the Clean Energy Ventures segment and consists of the Company’s capital investments in commercial and residential solar projects located throughout New Jersey and onshore wind investments in Montana, Iowa, Kansas, Wyoming and Pennsylvania;
NJR Energy Services Company and N
JR Retail Services Company comprise
the Energy Services segment. NJRES maintains and transacts around a portfolio of natural gas storage and transportation capacity contracts and provides physical wholesale energy and energy management services in the U.S. and Canada. N
JRRS
provides retail natural gas supply and transportation services to commercial and industrial customers in Delaware, Maryland, Pennsylvania and New Jersey;
NJR Midstream Holdings Corporation, which comprises the Midstream segment, invests in energy-related ventures through its subsidiaries, NJR Steckman Ridge Storage Company, which holds the Company’s
50 percent
combined interest in Steckman Ridge located in Pennsylvania,
NJR Pipeline Company, which holds the Company’s
20 percent
ownership interest in PennEast and NJNR Pipeline Company, which holds
approximately
1.84 million
DM Common Units. See
Note 7. Investments in Equity Investees
for more information; and
NJR Retail Holdings Corporation has
two
principal subsidiaries, NJR Home Services Company, which provides heating, central air conditioning, standby generators, solar and other indoor and outdoor comfort products to residential homes throughout New Jersey, and Commercial Realty & Resources Corporation, which owns commercial real estate. NJR Home Services Company and Commercial Realty & Resources Corporation are included in Home Services and Other operations.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The Consolidated Financial Statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated.
Other financial investments or contractual interests that lack the characteristics of a voting interest entity, which are commonly referred to as variable interest entities, are evaluated by the Company to determine if it has the power to direct business activities and, therefore, would be considered a controlling interest that the Company would have to consolidate. Based on those evaluations, NJR has determined that it does not have any investments in variable interest entities as of
September 30, 2017
,
2016
and
2015
.
Investments in entities over which the Company does not have a controlling financial interest are either accounted for under the equity method or cost method of accounting.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires the Company to make estimates that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosure of contingencies during the reporting period. On a monthly basis, the Company evaluates its estimates, including those related to the calculation of the fair value of derivative instruments, debt, unbilled revenues, allowance for doubtful accounts, provisions for depreciation and amortization, regulatory assets and liabilities, income taxes, pensions and other postemployment benefits, contingencies related to environmental matters and litigation. AROs are evaluated as often as needed. The Company’s estimates are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources.
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
The Company has legal, regulatory and environmental proceedings during the normal course of business that can result in loss contingencies. When evaluating the potential for a loss, the Company will establish a reserve if a loss is probable and can be reasonably estimated, in which case it is the Company’s policy to accrue the full amount of such estimates. Where the information is sufficient only to establish a range of probable liability, and no point within the range is more likely than any other, it is the Company’s policy to accrue the lower end of the range. In the normal course of business, estimated amounts are subsequently adjusted to actual results that may differ from estimates.
Business Combinations
The Company accounts for business combinations by applying the acquisition method of accounting. Identifiable assets acquired and liabilities assumed are measured separately at their fair value as of the acquisition date and associated transactions costs are expensed as incurred.
The determination and allocation of fair values to the identifiable assets acquired and liabilities assumed are based on various assumptions and valuation methodologies requiring considerable management judgment. The most significant variables in these valuations are discount rates, the number of years on which to base the cash flow projections, as well as other assumptions and estimates used to determine the cash inflows and outflows. Management determines discount rates based on the risk inherent in the acquired assets and related cash flows. Our valuation of an acquired business is based on available information at the acquisition date and assumptions that we believe are reasonable. However, a change in facts and circumstances as of the acquisition date can result in subsequent adjustments during the measurement period, but no later than one year from the acquisition date. See
Note 3. Acquisition
for information related to the Company’s acquisition of a gas marketing business on July 27, 2017.
Regulatory Assets & Liabilities
Under cost-based regulation, regulated utility enterprises generally are permitted to recover their operating expenses and earn a reasonable rate of return on their utility investment.
Our Natural Gas Distribution segment maintains its accounts in accordance with the FERC Uniform System of Accounts as prescribed by the BPU and in accordance with the
Regulated Operations
Topic of the FASB ASC. As a result of the impact of the ratemaking process and regulatory actions of the BPU, NJNG is required to recognize the economic effects of rate regulation. Accordingly, NJNG capitalizes or defers certain costs that are expected to be recovered from its customers as regulatory assets and recognizes certain obligations representing probable future expenditures as regulatory liabilities on the Consolidated Balance Sheets. See
Note 4. Regulation
for a more detailed description of NJNG’s regulatory assets and liabilities.
Gas in Storage
Gas in storage is reflected at average cost on the Consolidated Balance Sheets, and represents natural gas and LNG that will be utilized in the ordinary course of business.
The following table summarizes gas in storage, at average cost by company, as of
September 30
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
2016
|
($ in thousands)
|
Gas in Storage
|
|
Bcf
|
Gas in Storage
|
|
Bcf
|
Energy Services
|
|
$
|
122,884
|
|
53.9
|
|
|
$
|
130,493
|
|
62.0
|
|
Natural Gas Distribution
|
|
79,179
|
|
21.8
|
|
|
75,758
|
|
21.3
|
|
Total
|
|
$
|
202,063
|
|
75.7
|
|
|
$
|
206,251
|
|
83.3
|
|
Demand Fees
For the purpose of securing storage and pipeline capacity in support of their respective businesses, our Energy Services and Natural Gas Distribution segments enter into storage and pipeline capacity contracts, which require the payment of associated demand fees and charges that allow them access to a high priority of service in order to maintain the ability to access storage or pipeline capacity during a fixed time period, which generally ranges from
one
to
10
years. Many of these demand fees and charges are based on established tariff rates as established and regulated by FERC. These charges represent commitments to pay storage providers and pipeline companies for the priority right to transport and/or store natural gas utilizing their respective assets.
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
The following table summarizes the demand charges, which are net of capacity releases, and are included as a component of gas purchases on the Consolidated Statements of Operations for the fiscal years ended September 30:
|
|
|
|
|
|
|
|
|
|
|
(Millions)
|
2017
|
2016
|
2015
|
Energy Services
|
$
|
126.4
|
|
$
|
141.0
|
|
$
|
130.6
|
|
Natural Gas Distribution
|
80.2
|
|
77.8
|
|
80.5
|
|
Total
|
$
|
206.6
|
|
$
|
218.8
|
|
$
|
211.1
|
|
Energy Services expenses demand charges ratably over the term of the service being provided.
Our Natural Gas Distribution segment’s costs associated with demand charges are included in its weighted average cost of gas. The demand charges are expensed based on NJNG’s BGSS sales and recovered as part of its gas commodity component of its BGSS tariff.
Derivative Instruments
The Company accounts for its financial instruments, such as futures, options, foreign exchange contracts, interest rate contracts, as well as its physical commodity contracts related to the purchase and sale of natural gas at Energy Services, as derivatives, and therefore recognizes them at fair value on the Consolidated Balance Sheets. The Company’s unregulated subsidiaries record changes in the fair value of their financial commodity derivatives in gas purchases and changes in the fair value of their physical forward contracts in gas purchases or operating revenues, as appropriate, on the Consolidated Statements of Operations. Energy Services designated its foreign exchange contracts, entered into prior to January 1, 2016, as cash flow hedges of Canadian dollar denominated gas purchases. Changes in the fair value of the effective portion of these hedges are recorded to AOCI, a component of stockholders’ equity, and reclassified to gas purchases on the Consolidated Statements of Operations when they settle. Ineffective portions of the cash flow hedges are recognized immediately in earnings. The Company did not have derivatives designated as fair value hedges during
fiscal 2016
and
2017
.
The
Derivatives and Hedging
Topic of the ASC also provides for a NPNS scope exception for qualifying physical commodity contracts that are intended for purchases and sales during the normal course of business and for which physical delivery is probable. Effective January 1, 2016, the Company prospectively applies this normal scope exception on a case-by-case basis to physical commodity contracts at NJNG and forward SREC contracts at Clean Energy Ventures. When applied, it does not record changes in the fair value of these contracts until the contract settles and the related underlying natural gas or SREC is delivered. Gains and/or losses on NJNG’s derivatives used to economically hedge its regulated natural gas supply obligations, as well as its exposure to interest rate variability, are recoverable through its BGSS, a component of its tariff. Accordingly, the offset to the change in fair value of these derivatives is recorded as a regulatory asset or liability on the Consolidated Balance Sheets.
See
Note 5. Derivative Instruments
for additional details regarding natural gas trading and hedging activities.
Fair values of exchange-traded instruments, including futures, swaps, and certain options, are based on unadjusted, quoted prices in active markets. The Company’s non-exchange-traded financial instruments, foreign currency derivatives, over-the-counter physical commodity contracts at Energy Services and NJNG’s Treasury Lock are valued using observable, quoted prices for similar or identical assets when available. In establishing the fair value of contracts for which a quoted basis price is not available at the measurement date, management utilizes available market data and pricing models to estimate fair values. Fair values are subject to change in the near term and reflect management’s best estimate based on a variety of factors. Estimating fair values of instruments that do not have quoted market prices requires management’s judgment in determining amounts that could reasonably be expected to be received from, or paid to, a third party in settlement of the instruments. These amounts could be materially different from amounts that might be realized in an actual sale transaction.
Revenues
Revenues from the sale of natural gas to NJNG customers are recognized in the period that gas is delivered and consumed by customers, including an estimate for unbilled revenue.
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
NJNG records unbilled revenue for natural gas services. Natural gas sales to individual customers are based on meter readings, which are performed on a systematic basis throughout the month. At the end of each month, the amount of natural gas delivered to each customer after the last meter reading through the end of the respective accounting period is estimated, and recognizes unbilled revenues related to these amounts. The unbilled revenue estimates are based on estimated customer usage by customer type, weather effects, unaccounted-for gas and the most current tariff rates.
Clean Energy Ventures recognizes revenue when SRECs are transferred to counterparties. SRECs are physically delivered through the transfer of certificates as per contractual settlement schedules.
Revenues for Energy Services are recognized when the natural gas is physically delivered to the customer. In addition, changes in the fair value of derivatives that economically hedge the forecasted sales of the natural gas are recognized in operating revenues as they occur, as noted above. Energy Services also recognizes changes in the fair value of SREC derivative contracts as a component of operating revenues.
Revenues from all other activities are recorded in the period during which products or services are delivered and accepted by customers, or over the related contractual term.
Gas Purchases
NJNG’s tariff includes a component for BGSS, which is designed to allow it to recover the cost of natural gas through rates charged to its customers and is typically revised on an annual basis. As part of computing its BGSS rate, NJNG projects its cost of natural gas, net of supplier refunds, the impact of hedging activities and cost savings created by BGSS incentive programs. NJNG subsequently recovers or credits the difference, if any, of actual costs compared with those included in current rates. Any underrecoveries or overrecoveries are either credited to customers or deferred and, subject to BPU approval, reflected in the BGSS rates in subsequent years.
Gas purchases at Energy Services are comprised of gas costs to be paid upon completion of a variety of transactions, as well as realized gains and losses from settled derivative instruments and unrealized gains and losses on the change in fair value of derivative instruments that have not yet settled. Changes in the fair value of derivatives that economically hedge the forecasted purchases of natural gas are recognized in gas purchases as they occur.
Income Taxes
The Company computes income taxes using the asset and liability method, whereby deferred income taxes are generally determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. See
Note 13. Income Taxes
.
In addition, the Company evaluates its tax positions to determine the appropriate accounting and recognition of future obligations associated with unrecognized tax benefits.
The Company invests in property that qualifies for federal ITCs and utilizes the ITCs, as allowed, based on the cost and life of the assets. ITCs at NJNG are deferred and amortized as a reduction to the tax provision over the average lives of the related equipment in accordance with regulatory treatment. ITCs at NJR’s unregulated subsidiaries are recognized as a reduction to income tax expense when the property is placed in service. The Company invests in property that qualifies for PTCs. PTCs are recognized as reductions to current federal income tax expense as PTCs are generated through the production activities of the assets. Changes to the federal statutes related to ITCs and PTCs, which have the effect of reducing or eliminating the credits, could have a negative impact on earnings and cash flows.
Capitalized and Deferred Interest
NJNG’s base rates include the ability to recover AFUDC on its construction work in progress. For all NJNG construction projects, an incremental cost of equity is recoverable during periods when NJNG’s short-term debt balances are lower than its construction work in progress. For more information on AFUDC treatment with respect to certain accelerated infrastructure projects, see
Note 4. Regulation
- Infrastructure programs.
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
Capitalized amounts associated with the debt and equity components of NJNG’s AFUDC are recorded in utility plant on the Consolidated Balance Sheets. Corresponding amounts for the debt component is recognized in interest expense and in other income for the equity component on the Consolidated Statements of Operations and include the following for the fiscal years ended September 30:
|
|
|
|
|
|
|
|
|
|
|
($ in thousands)
|
2017
|
2016
|
2015
|
AFUDC:
|
|
|
|
Debt
|
$
|
1,311
|
|
$
|
5,009
|
|
$
|
2,472
|
|
Equity
|
3,867
|
|
4,375
|
|
3,825
|
|
Total
|
$
|
5,178
|
|
$
|
9,384
|
|
$
|
6,297
|
|
Weighted average interest rate
|
6.90
|
%
|
5.06
|
%
|
4.63
|
%
|
Pursuant to a BPU order, NJNG is permitted to recover carrying costs on uncollected balances related to SBC program costs, which include NJCEP, RAC and USF expenditures. See
Note 4. Regulation
. The SBC interest rate changes each September based on the August 31
seven
-year constant maturity Treasury rate plus
60 basis points
. The rate was
2.55 percent
,
2.05 percent
and
2.54 percent
for the fiscal years ended
September 30, 2017
,
2016
and
2015
, respectively. Accordingly, other income included
$78,000
,
$54,000
and
$61,000
in the fiscal years ended
September 30, 2017
,
2016
and
2015
, respectively.
Sale-Leasebacks
The Company utilizes sale-leaseback arrangements to fund certain of its capital expenditures, whereby the physical asset is sold concurrent with an agreement to lease the asset back, with options that allow the Company to renew the lease at the end of the term or repurchase the asset. Proceeds from sale-leaseback transactions are included in long-term debt on the Consolidated Balance Sheets.
For certain of its commercial solar energy projects, the Company enters into lease agreements that provide for the sale of commercial solar energy assets to third-parties and the concurrent leaseback of the assets. For sale-leaseback transactions where the Company has concluded that the terms of the arrangement create a continuing involvement in the asset and the asset is considered integral equipment, the Company uses the financing method to account for the transaction. Under the financing method, the Company recognizes the proceeds received from the lessor that constitute a payment to acquire the solar energy asset as a financing arrangement, which is recorded as a component of debt on the Consolidated Balance Sheets.
During
fiscal 2017
and
2016
, NJNG received
$9.6 million
and
$7.1 million
, respectively, in connection with the sale-leaseback of its natural gas meters with terms ranging from
seven
to
11
years.
In September 2017, Clean Energy Ventures received
$32.9 million
in proceeds related to the sale of
two
commercial solar assets. Clean Energy Ventures simultaneously entered into an agreement to lease the assets back over
seven
-year terms. The Company will continue to operate the solar assets including related expenses and retain the revenue generated from SRECs and energy sales. The ITCs and other tax benefits associated with these solar projects were transferred to the buyer, however, the lease payments are structured so that Clean Energy Ventures is compensated for the transfer of the related tax incentives. Accordingly, Clean Energy Ventures will recognize the equivalent value of the ITC in other income on the Consolidated Statements of Operations over the respective five-year ITC recapture periods that are recognized as the recapture periods expire, starting at the beginning of the second year of the lease. There were no sale-leaseback transactions at Clean Energy Ventures during fiscal 2016.
Sales Tax Accounting
Sales tax that is collected from customers is presented in both operating revenues and operating expenses on the Consolidated Statements of Operations. During fiscal
2017
,
2016
and
2015
, sales tax collected was
$39.4 million
,
$31 million
and
$44.1 million
, respectively. Effective January 1, 2017, the New Jersey sales tax rate decreased from
7 percent
to
6.875 percent
.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash on deposit and temporary investments with maturities of three months or less, and excludes restricted cash of
$243,000
and
$1.6 million
as of
September 30, 2017
and
2016
, respectively, related to escrow balances for utility plant projects, which is recorded in other current and noncurrent assets on the Consolidated Balance Sheets.
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
Property Plant and Equipment
Regulated property, plant and equipment and solar and wind equipment are stated at original cost. Regulated property, plant and equipment costs include direct labor, materials and third-party construction contractor costs, AFUDC and certain indirect costs related to equipment and employees engaged in construction. Upon retirement, the cost of depreciable regulated property, plus removal costs less salvage, is charged to accumulated depreciation with no gain or loss recorded.
Depreciation is computed on a straight-line basis over the useful life of the assets for unregulated assets, and using rates based on the estimated average lives of the various classes of depreciable property for NJNG. The composite rate of depreciation used for NJNG was
2.25 percent
of average depreciable property in
fiscal 2017
,
2.32 percent
in
fiscal 2016
and
2.31 percent
in
fiscal 2015
. The Company recorded
$81.8 million
,
$72.7 million
and
$61.4 million
in depreciation expense during
fiscal 2017
,
2016
and
2015
, respectively. Effective October 1, 2016, the overall depreciation rate is
2.4 percent
, as settled in the base rate case.
Property, plant and equipment was comprised of the following as of
September 30
:
|
|
|
|
|
|
|
|
|
|
(Thousands)
|
|
|
|
|
Property Classifications
|
Estimated Useful Lives
|
|
2017
|
2016
|
Distribution facilities
|
38 to 74 years
|
|
$
|
1,952,697
|
|
$
|
1,823,672
|
|
Transmission facilities
|
35 to 56 years
|
|
294,586
|
|
292,433
|
|
Storage facilities
|
34 to 47 years
|
|
78,245
|
|
78,238
|
|
Solar property
|
20 to 25 years
|
|
587,345
|
|
479,948
|
|
Wind property
|
25 years
|
|
244,764
|
|
228,644
|
|
All other property
|
5 to 35 years
|
|
53,433
|
|
52,195
|
|
Total property, plant and equipment
|
|
|
3,211,070
|
|
2,955,130
|
|
Accumulated depreciation and amortization
|
|
|
(601,329
|
)
|
(547,478
|
)
|
Property, plant and equipment, net
|
|
|
$
|
2,609,741
|
|
$
|
2,407,652
|
|
On
March 8, 2017
, CR&R sold a
56,400
square foot office building on
five
acres of land located in Monmouth County for
$9.4 million
, net of closing costs, generating a pre-tax gain of
$1.9 million
, which was recognized as a reduction to O&M on the Consolidated Statements of Operations.
Intangible Assets
Finite-lived intangible assets are stated at cost less accumulated amortization. The Company amortizes intangible assets based upon the pattern in which the economic benefits are consumed over the life of the asset unless a pattern cannot be reliably determined, in which case the Company uses a straight-line amortization method. As of September 30, 2017, the Company has an intangible asset, net of amortization, of
$41.1 million
related to its acquisition of Talen's wholesale natural gas energy contracts. These contracts are being amortized based upon expected cash flows over the respective terms of the agreements. The estimated future amortization expense for the next five years as of September 30, is as follows:
|
|
|
|
|
(Thousands)
|
|
2018
|
$
|
18,222
|
|
2019
|
$
|
8,424
|
|
2020
|
$
|
4,925
|
|
2021
|
$
|
4,604
|
|
2022
|
$
|
2,561
|
|
Thereafter
|
$
|
2,348
|
|
See
Note 3. Acquisition
for more information about the acquisition of Talen's gas marketing business.
Long-lived Assets
The Company reviews the recoverability of long-lived assets and finite-lived intangible assets whenever events or changes in circumstances indicate that the carrying value of such assets may not be recoverable. If there are changes indicating that the carrying value of such assets may not be recoverable, an undiscounted cash flows test is performed. If the sum of the expected future undiscounted cash flows is less than the carrying amount of the asset, an impairment loss is recognized by reducing the recorded value of the asset to its fair value. During the year, there were no events or circumstances that indicated that the carrying value of assets is not recoverable.
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
Investments in Equity Investees
The Company accounts for its investments in Steckman Ridge, PennEast and Iroquois (through September 29, 2015), using the equity method of accounting, where its respective ownership interests are 50 percent or less and/or it has significant influence over operating and management decisions, but is not the primary beneficiary, as defined under ASC 810,
Consolidation
. The Company’s share of earnings is recognized as equity in earnings of affiliates on the Consolidated Statements of Operations. See
Note 7. Investments in Equity Investees
for more information.
Available for Sale Securities
The Company had investments in two publicly traded energy companies that have a fair value of
$65.8 million
and
$55.8 million
as of
September 30, 2017
and
2016
, respectively, which are included in available for sale securities on the Consolidated Balance Sheets. Total unrealized gains associated with these investments are included as a part of accumulated other comprehensive income, a component of common stock equity, and were
$18.4 million
,
$11 million
after tax, and
$7.2 million
,
$4.2 million
after tax, as of
September 30, 2017
and
2016
, respectively.
During
fiscal 2017
, the Company received proceeds of approximately
$6.6 million
from the sale of available for sale securities and realized a pre-tax gain of approximately
$5.4 million
, which is included in other income, net on the Consolidated Statements of Operations. Reclassifications of realized gains out of other comprehensive income into income are determined based on average cost. There were
no
sales of securities during
fiscal 2016
.
Customer Accounts Receivable and Allowance for Doubtful Accounts
Receivables consist of natural gas sales and transportation services billed to residential, commercial, industrial and other customers, as well as equipment sales, installations, solar leases and PPAs to commercial and residential customers. The Company evaluates its accounts receivables and, to the extent customer account balances are outstanding for more than
60 days
, establishes an allowance for doubtful accounts. The allowance is based on a combination of factors including historical collection experience and trends, aging of receivables, general economic conditions in the company’s distribution or sales territories, and customer specific information. The Company writes-off customers’ accounts once it is determined they are uncollectible.
The following table summarizes customer accounts receivable by company as of
September 30
:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Thousands)
|
2017
|
|
2016
|
Energy Services
|
$
|
150,322
|
|
77
|
%
|
|
$
|
102,884
|
|
72
|
%
|
NJNG
(1)
|
37,432
|
|
19
|
|
|
30,951
|
|
22
|
|
Clean Energy Ventures
|
2,655
|
|
1
|
|
|
1,807
|
|
1
|
|
NJRHS and other
|
6,058
|
|
3
|
|
|
7,016
|
|
5
|
|
Total
|
$
|
196,467
|
|
100
|
%
|
|
$
|
142,658
|
|
100
|
%
|
|
|
(1)
|
Does not include unbilled revenues of
$7.2 million
and
$5.7 million
as of
September 30, 2017
and
2016
, respectively.
|
Loans Receivable
NJNG currently provides loans, with terms ranging from
three
to
10
years, to customers that elect to purchase and install certain energy efficient equipment in accordance with its BPU-approved SAVEGREEN program. The loans are recognized at net present value on the Consolidated Balance Sheets. Refer to
Note 6. Fair Value
for a discussion of the Company’s fair value measurement policies and level disclosures. The Company has recorded
$8.9 million
and
$7.8 million
in other current assets and
$40.4 million
and
$39.5 million
in other noncurrent assets as of
September 30, 2017
and
2016
, respectively, on the Consolidated Balance Sheets, related to the loans.
NJNG’s policy is to establish an allowance for doubtful accounts when loan balances are in arrears for more than
60 days
. There was
no
allowance for doubtful accounts established for the SAVEGREEN loans during
fiscal 2017
and
2016
.
Asset Retirement Obligations
The Company recognizes a liability for its AROs based on the fair value of the liability when incurred, which is generally upon acquisition, construction, development and/or through the normal operation of the asset. Concurrently, the Company also capitalizes an asset retirement cost by increasing the carrying amount of the related asset by the same amount as the liability. In periods subsequent to the initial measurement, the Company is required to recognize changes in the liability resulting from the passage of time (accretion) or due to revisions to either timing or the amount of the originally estimated cash flows to settle the conditional ARO.
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
Pension and Postemployment Plans
The Company has
two
noncontributory defined pension plans covering eligible employees, including officers. Benefits are based on each employee’s years of service and compensation. The Company’s funding policy is to contribute annually to these plans at least the minimum amount required under Employee Retirement Income Security Act, as amended, and not more than can be deducted for federal income tax purposes. Plan assets consist of equity securities, fixed-income securities and short-term investments. The Company made a discretionary contribution of
$30 million
during the first quarter of fiscal
2016
to improve the funded status of the pension plans based on the current actuarial assumptions, which included the adoption of the most recent mortality table. The Company made
no
discretionary contributions to the pension plans in
fiscal 2017
and
2015
.
The Company also provides
two
primarily noncontributory medical and life insurance plans for eligible retirees and dependents. Medical benefits, which make up the largest component of the plans, are based upon an age and years-of-service vesting schedule and other plan provisions. Funding of these benefits is made primarily into Voluntary Employee Beneficiary Association trust funds. The Company contributed
$6 million
,
$3.2 million
and
$5.7 million
in aggregate to these plans in
fiscal 2017
,
2016
and
2015
, respectively.
See
Note 11. Employee Benefit Plans
,
for a more detailed description of the Company’s pension and postemployment plans.
Accumulated Other Comprehensive Income
The following table presents the changes in the components of accumulated other comprehensive income, net of related tax effects, as of
September 30
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Thousands)
|
Unrealized gain (loss) on available for sale securities
|
Net unrealized gain (loss) on derivatives
|
Adjustment to postemployment benefit obligation
|
Total
|
Balance as of September 30, 2015
|
$
|
6,385
|
|
|
$
|
—
|
|
|
$
|
(15,779
|
)
|
|
$
|
(9,394
|
)
|
Other comprehensive income, net of tax
|
|
|
|
|
|
|
|
Other comprehensive (loss), before reclassifications, net of tax of $1,499, $10, $3,164, $4,673
|
(2,187
|
)
|
|
(17
|
)
|
|
(4,600
|
)
|
|
(6,804
|
)
|
Amounts reclassified from accumulated other comprehensive income, net of tax of $0, $(10), $(698), $(708)
|
—
|
|
|
17
|
|
(1)
|
1,026
|
|
(2)
|
1,043
|
|
Net current-period other comprehensive (loss), net of tax of $1,499, $0, $2,466, $3,965
|
(2,187
|
)
|
|
—
|
|
|
(3,574
|
)
|
|
(5,761
|
)
|
Balance at September 30, 2016
|
$
|
4,198
|
|
|
$
|
—
|
|
|
$
|
(19,353
|
)
|
|
$
|
(15,155
|
)
|
Other comprehensive income, net of tax
|
|
|
|
|
|
|
|
Other comprehensive income, before reclassifications, net of tax of $(6,593), $0, $(2,619), $(9,212)
|
10,019
|
|
|
—
|
|
|
3,783
|
|
|
13,802
|
|
Amounts reclassified from accumulated other comprehensive (loss) income, net of tax of $2,192, $0, $(868), $1,324
|
(3,173
|
)
|
|
—
|
|
(1)
|
1,270
|
|
(2)
|
(1,903
|
)
|
Net current-period other comprehensive income, net of tax of $(4,401), $0, $(3,487), $(7,888)
|
6,846
|
|
|
—
|
|
|
5,053
|
|
|
11,899
|
|
Balance at September 30, 2017
|
$
|
11,044
|
|
|
$
|
—
|
|
|
$
|
(14,300
|
)
|
|
$
|
(3,256
|
)
|
|
|
(1)
|
Consists of realized losses related to foreign currency derivatives, which are reclassified to gas purchases on the Consolidated Statements of Operations.
|
|
|
(2)
|
Included in the computation of net periodic pension cost, a component of O&M expense on the Consolidated Statements of Operations. For more details, see
Note 11. Employee Benefit Plans
.
|
Foreign Currency Transactions
Energy Services’ market area includes Canadian delivery points and as a result, Energy Services incurs certain natural gas commodity costs and demand fees denominated in Canadian dollars. Gains or losses that occur as a result of these foreign currency transactions are reported as a component of gas purchases on the Consolidated Statements of Operations and were not material during the fiscal years ended
September 30, 2017
,
2016
and
2015
.
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
Recently Adopted Updates to the Accounting Standards Codification
Stock Compensation
In June 2014, the FASB issued ASU No. 2014-12, an amendment to ASC 718,
Compensation - Stock Compensation
, which clarifies the accounting for performance awards when the terms of the award provide that a performance target could be achieved after the requisite service period. The Company adopted the new guidance in the first quarter of fiscal 2017 and applied the new provisions on a prospective basis, which did not impact its financial position, results of operations or cash flows upon adoption.
Consolidation
In February 2015, the FASB issued ASU No. 2015-02, an amendment to ASC 810,
Consolidation
, which changes the consolidation analysis required under GAAP and reevaluates whether limited partnerships and similar entities must be consolidated. The Company adopted the new guidance in the first quarter of fiscal 2017 and applied the new provisions on a full retrospective basis, which did not impact its financial position, results of operations or cash flows upon adoption.
Interest
In April 2015, the FASB issued ASU No. 2015-03, an amendment to ASC 835,
Interest - Imputation of Interest,
which simplifies the presentation of debt issuance costs by requiring them to be presented on the balance sheet as a deduction from the carrying amount of the liability. The amendment does not affect the recognition and measurement guidance for debt issuance costs. In August 2015, the FASB issued ASU No. 2015-15, which clarified that the amendment contained within ASU No. 2015-03 does not require companies to modify their accounting for costs incurred in obtaining revolving credit facilities. The Company adopted the new guidance in the first quarter of fiscal 2017 and applied the new provisions on a full retrospective basis.
In addition, the following amounts on the Consolidated Balance Sheets have been adjusted, retrospectively, as of September 30, 2016.
|
|
|
|
|
|
|
|
|
|
|
|
|
(Thousands)
|
As Previously Reported
|
|
Effect of Change
|
|
As Adjusted
|
Assets
|
|
|
|
|
|
Other noncurrent assets
|
$
|
68,708
|
|
|
$
|
(8,512
|
)
|
|
$
|
60,196
|
|
Total noncurrent assets
|
$
|
712,166
|
|
|
$
|
(8,512
|
)
|
|
$
|
703,654
|
|
Total assets
|
$
|
3,727,082
|
|
|
$
|
(8,512
|
)
|
|
$
|
3,718,570
|
|
Capitalization and Liabilities
|
|
|
|
|
|
Long-term debt
|
$
|
1,063,550
|
|
|
$
|
(8,512
|
)
|
|
$
|
1,055,038
|
|
Total capitalization
|
$
|
2,230,141
|
|
|
$
|
(8,512
|
)
|
|
$
|
2,221,629
|
|
Total capitalization and liabilities
|
$
|
3,727,082
|
|
|
$
|
(8,512
|
)
|
|
$
|
3,718,570
|
|
Intangibles
In April 2015, the FASB issued ASU No. 2015-05, an amendment to ASC 350,
Intangibles - Goodwill and Other - Internal-Use Software,
which clarifies the accounting for fees in a cloud computing arrangement. The amendment provides guidance on how an entity should evaluate the accounting for fees paid in a cloud computing arrangement to determine whether an arrangement includes the sale or license of software. The Company adopted the new guidance in the first quarter of fiscal 2017 and applied the new provisions on a prospective basis, which did not impact its financial position, results of operations or cash flows upon adoption.
Other Recent Updates to the Accounting Standards Codification
Revenue
In May 2014, the FASB issued ASU No. 2014-09, and added Topic 606,
Revenue from Contracts with Customers
, to the ASC. ASC 606 supersedes ASC 605,
Revenue Recognition
, as well as most industry-specific guidance, and prescribes a single, comprehensive revenue recognition model designed to improve financial reporting comparability across entities, industries, jurisdictions and capital markets. In August 2015, the FASB issued ASU No. 2015-14, which defers the implementation of the new guidance for one year. The new guidance will not be early adopted and will be effective for the Company’s fiscal year ending September 30, 2019, and interim periods within that year. The Company continues to evaluate the provisions of ASC 606; however, based on the review of customer contracts to date, it is not anticipating a material impact to its financial position, results of operations
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
or cash flows upon adoption. The Company anticipates significant new disclosures as a result of the new standard and expects to transition to the new guidance using the modified retrospective approach. The Company is also monitoring industry specific developments that may have an impact on its financial position, results of operation and cash flows.
Inventory
In July 2015, the FASB issued ASU No. 2015-11, an amendment to ASC 330,
Inventory
, which requires entities to measure most inventory “at the lower of cost or net realizable value,” thereby simplifying the current guidance under which an entity must measure inventory at the lower of cost or market. The guidance is effective for the Company’s fiscal year ending September 30, 2018, and interim periods within that year. Upon adoption, the amendment will be applied on a prospective basis. The Company does not expect any impact on its financial position, results of operations and cash flows upon adoption.
Financial Instruments
In January 2016, the FASB issued ASU No. 2016-01, an amendment to ASC 825,
Financial Instruments
, to address certain aspects of the recognition, measurement, presentation and disclosure of financial instruments. The standard affects investments in equity securities that do not result in consolidation and are not accounted for under the equity method and the presentation of certain fair value changes for financial liabilities measured at fair value. It also simplifies the impairment assessment of equity investments without a readily determinable fair value by requiring a qualitative assessment. The guidance is effective for the Company’s fiscal year ending September 30, 2019, and interim periods within that year. Upon adoption, the amendment will be applied on a modified retrospective basis. The Company evaluated the amendment and noted that, upon adoption, subsequent changes to the fair value of the Company’s available for sale securities will be recorded in the Consolidated Statement of Operations as opposed to other comprehensive income. The Company does not expect any other material impacts to its financial position, results of operations or cash flows upon adoption.
In June 2016, the FASB issued ASU No. 2016-13, an amendment to ASC 326,
Financial Instruments - Credit Losses,
which changes the impairment model for certain financial assets that have a contractual right to receive cash, including trade and loan receivables. The new model requires recognition based upon an estimation of expected credit losses rather than recognition of losses when it is probable that they have been incurred. The guidance is effective for the Company’s fiscal year ending September 30, 2021, and interim periods within that year, with early adoption permitted. The Company is currently evaluating the amendment to understand the impact on its financial position, results of operations and cash flows upon adoption and will apply the new guidance to its trade and loan receivables on a modified retrospective basis.
Leases
In February 2016, the FASB issued ASU No. 2016-02, an amendment to ASC 842,
Leases
, which provides for a comprehensive overhaul of the lease accounting model and changes the definition of a lease within the accounting literature. Under the new standard, all leases with a term greater than one year will be recorded on the balance sheet. Amortization of the related asset will be accounted for using one of two approaches prescribed by the guidance. Additional disclosures will be required to allow the user to assess the amount, timing and uncertainty of cash flows arising from leasing activities. A modified retrospective transition approach is required for leases existing at the time of adoption. The guidance is effective for the Company’s fiscal year ending September 30, 2020, and interim periods within that year, with early adoption permitted. The Company continues to evaluate the provisions of ASC 842 and is actively monitoring industry specific developments including the exposure draft issued by the FASB that would introduce a land easement practical expedient to ASC 842. At this time the Company does not plan to early adopt the new guidance and expects to elect the practical expedient package in the new guidance during transition.
Statement of Cash Flows
In August 2016, the FASB issued ASU No. 2016-15, an amendment to ASC 230,
Statement of Cash Flows
, which addresses eight specific cash flow issues for which there has been diversity in practice. The guidance is effective for the Company’s fiscal year ending September 30, 2019, and interim periods within that year with early adoption permitted. Upon adoption, the amendment will be applied on a retrospective basis. The Company does not expect any material impacts to its cash flows upon adoption.
In November 2016, the FASB issued ASU No. 2016-18, an amendment to ASC 230,
Statement of Cash Flows
, which requires that any amounts that are deemed to be restricted cash or restricted cash-equivalents be included in cash and cash-equivalent balances on the cash flow statement and, therefore, transfers between cash and restricted cash accounts will no longer be recognized within the statement of cash flows. The guidance is effective for the Company’s fiscal year ending September 30, 2019, with early adoption permitted. Upon adoption, the amendment will be applied on a retrospective basis. Based on the Company's historical
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
restricted cash balances, it does not expect any material impacts to its financial position, results of operations or cash flows upon adoption.
Business Combinations
In January 2017, the FASB issued ASU No. 2017-01, an amendment to ASC 805,
Business Combinations
, clarifying the definition of a business in the ASC, which is intended to reduce the complexity surrounding the assessment of a transaction as an asset acquisition or business combination. The amendment provides an initial fair value screen to reduce the number of transactions that would fit the definition of a business, and when the screen threshold is not met, provides an updated model that further clarifies the characteristics of a business. The guidance is effective for the Company’s fiscal year ending September 30, 2019, and interim periods within that year, with early adoption permitted. Upon adoption, the amendment will be applied on a prospective basis. The amendment could potentially have material impacts on future transactions that the Company may enter into by altering the Company’s conclusion on what accounting to apply to acquisitions.
Gains and Losses from the Derecognition of Nonfinancial Assets
In February 2017, the FASB issued ASU No. 2017-05, an amendment to ASC 610-20,
Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets
, which clarifies the scope and accounting related to the derecognition of nonfinancial assets, including partial sales and contributions of nonfinancial assets to a joint venture or other non-controlled investee. The guidance is effective concurrently with ASC 606, which is effective for the Company’s fiscal year ending September 30, 2019, and interim periods within that year with early adoption permitted. ASU No. 2017-05 may be applied retrospectively for all periods presented or retrospectively with a cumulative-effect adjustment at the date of adoption. The Company has determined that to the extent a deferred gain exists related to nonfinancial assets on the balance sheet upon adoption, it would be recognized under the new accounting guidance as a cumulative effect adjustment to the opening balance of retained earnings for the earliest period presented.
Compensation - Retirement Benefits
In March 2017, the FASB issued ASU No. 2017-07, an amendment to ASC 715,
Compensation - Retirement Benefits
, which changes the presentation of net periodic benefit cost on the income statement by requiring companies to present all components of net periodic benefit cost, other than service cost, outside a subtotal of income from operations. The amendment also states that only the service cost component of net periodic benefits costs is eligible for capitalization, when applicable. The guidance is effective for the Company’s fiscal year ending September 30, 2019, and interim periods within that year, with early adoption permitted. Upon adoption, the amendment will be applied on a retrospective basis for presentation and changes to capitalization of costs will be applied on a prospective basis. The Company is continuing to evaluate the amendment to fully understand the impact on its financial position, results of operations and cash flows upon adoption. The Company is also monitoring industry specific developments on the new guidance to determine the appropriate treatment of these changes in a rate regulated environment.
Stock Compensation
In May 2017, the FASB issued ASU No. 2017-09, an amendment to ASC 718,
Compensation - Stock Compensation
, which clarifies the accounting for changes to the terms or conditions of share-based payments. The guidance is effective for the Company’s fiscal year ending September 30, 2019, and interim periods within that year, with early adoption permitted. Upon adoption, the amendments will be applied prospectively to awards modified on or after the adoption date. The Company is currently evaluating the amendments to understand the impact on its financial position, results of operations and cash flows upon adoption.
Derivatives and Hedging
In August 2017, the FASB issued ASU No. 2017-12, an amendment to ASC 815,
Derivatives and Hedging
, which is intended to make targeted improvements to the accounting for hedging activities by better aligning an entity’s risk management activities and financial reporting for hedging relationships. These amendments modify the accounting for both nonfinancial and financial risk components and align the recognition and presentation of the effects of the hedging instrument and the hedged item in the financial statements. Additionally, the amendments are intended to simplify the application of the hedge accounting guidance and provide relief to companies by easing certain hedge documentation requirements. The guidance is effective for the Company’s fiscal year ending September 30, 2020, and interim periods within that year, with early adoption permitted. Upon adoption, the transition requirements and elections will be applied to hedging relationships existing on the date of adoption. The Company does not currently apply hedge accounting to any of its risk management activities and thus does not expect the amendments to have any impact on its financial position, results of operations and cash flows upon adoption.
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
3. ACQUISITION
On
July 27, 2017
, NJR, through its wholly owned subsidiary NJRRS, signed an asset purchase agreement with Talen to acquire certain of their retail and wholesale natural gas energy contract assets. The acquisition included sales agreements with large commercial and industrial retail customers, pipeline and storage capacity agreements on various pipelines, and various wholesale transportation contracts. The final purchase price totaled
$55.7 million
upon satisfaction of certain conditions as set forth in the asset purchase agreement.
The following table summarizes the purchase price allocation for the fair value of the assets acquired and liabilities assumed as of
July 27, 2017
:
|
|
|
|
|
(Thousands)
|
Estimated Fair Value
|
Total purchase price consideration transferred
|
$
|
55,661
|
|
Identifiable assets acquired
|
|
Wholesale energy contracts
(1)
|
$
|
41,846
|
|
Retail energy contracts
(2)
|
13,815
|
|
Net assets acquired
|
$
|
55,661
|
|
|
|
(1)
|
Wholesale energy contracts are presented within Intangible assets, net on the Consolidated Balance Sheets.
|
|
|
(2)
|
Retail energy contracts are presented within the Derivatives, at fair value line items on the Consolidated Balance Sheets.
|
The purchase price equaled the estimated fair value of the net assets acquired and, therefore,
no
goodwill or bargain purchase was recorded as of September 30, 2017. Identifiable assets were recorded at their estimated fair value as determined by management and were based upon significant estimates and assumptions that are judgmental in nature, including the projected amount and timing of future cash flows, a discount rate reflecting risk inherent in the future cash flows and future natural gas prices. During fiscal 2017, the Company incurred approximately
$300,000
in acquisition related transaction costs, which are recorded in operations and maintenance expense on the Consolidated Statements of Operations.
The useful lives of the acquired assets are based upon the terms of the contractual arrangements. The acquired wholesale energy contracts have useful lives ranging from
1
to
9
years, and the acquired retail energy contracts have useful lives ranging from
0
to
4
years. The acquisition date fair value of the wholesale contracts is presented as an intangible asset on the Consolidated Balance Sheet and is amortized based upon the pattern of expected future cash flows. The related amortization expense totaled
$762,000
during fiscal 2017, and is included in gas purchases on the Consolidated Statements of Operations. The acquired retail contracts consist of natural gas physical forward sales agreements and therefore are subsequently measured and accounted for in accordance with ASC 815,
Derivatives and Hedging
. Accordingly, the acquisition date fair value of the retail contracts is presented within the Derivatives, at fair value line items on the Consolidated Balance Sheets and is relieved in subsequent periods as the underlying physical forward contracts settle. During fiscal 2017, operating revenues of approximately
$20.5 million
, and operating income of approximately
$281,000
attributable to the acquisition are included in the Consolidated Statements of Operations.
As the assets were acquired from a non-public company that did not prepare financial information for the specific assets involved in the transaction, historical financial information was impracticable to obtain. As a result, pro forma results for the acquired assets are not presented.
4. REGULATION
The EDECA is the legal framework for New Jersey’s public utility and wholesale energy landscape. NJNG is required, pursuant to a written order by the BPU under EDECA, to open its residential markets to competition from third-party natural gas suppliers. Customers can choose the supplier of their natural gas commodity in NJNG’s service territory.
As required by EDECA, NJNG’s rates are segregated into two primary components the commodity portion, which represents the wholesale cost of natural gas, including the cost for interstate pipeline capacity to transport the gas to NJNG’s service territory, and the delivery portion, which represents the transportation of the commodity portion through NJNG’s gas distribution system to the end-use customer. NJNG does not earn utility gross margin on the commodity portion of its natural gas sales. NJNG earns utility gross margin through the delivery of natural gas to its customers, regardless of whether it or a third-party supplier provides the wholesale natural gas commodity.
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
Under EDECA, the BPU is required to audit the state’s energy utilities every two years. The primary purpose of the audit is to ensure that utilities and their affiliates offering unregulated retail services do not have an unfair competitive advantage over nonaffiliated providers of similar retail services. A combined competitive services and management audit of NJNG commenced in
August 2013
. A draft management audit report was accepted by the BPU on July 23, 2014, for public comment. To date, NJNG has implemented all audit recommendations with the approval of BPU staff and is waiting for final BPU approval.
NJNG is subject to cost-based regulation, therefore, it is permitted to recover authorized operating expenses and earn a reasonable return on its utility capital investments based on the BPU’s approval. The impact of the ratemaking process and decisions authorized by the BPU allows NJNG to capitalize or defer certain costs that are expected to be recovered from its customers as regulatory assets, and to recognize certain obligations representing amounts that are probable future expenditures as regulatory liabilities in accordance with accounting guidance applicable to regulated operations.
NJNG’s recovery of costs is facilitated through its base rates, BGSS and other regulatory tariff riders. NJNG is required to make an annual filing to the BPU by June 1 of each year for review of its BGSS, CIP and other programs and related rates. Annual rate changes are requested to be effective at the beginning of the following fiscal year. In addition, NJNG is permitted to request approval of certain rate or program changes on an interim basis. All rate and program changes are subject to proper notification and BPU review and approval.
In
September 2016
, the BPU approved NJNG's base rate case, effective
October 2016
, which included an increase in base rates in the amount of
$45 million
. The base rate increase includes a return on common equity of
9.75 percent
, a common equity ratio of
52.5 percent
and a depreciation rate of
2.4 percent
. The approval also included the rate mechanism and
five
-year extension of SAFE II, rate recovery of NJ RISE capital investment costs through June 30, 2016, recovery of NJNG’s SAFE I, NGV and LNG capital investments and recovery of other costs previously deferred in regulatory assets.
Regulatory assets and liabilities included on the Consolidated Balance Sheets as of September 30, are comprised of the following:
|
|
|
|
|
|
|
|
(Thousands)
|
2017
|
2016
|
Regulatory assets-current
|
|
|
Conservation Incentive Program
|
$
|
17,669
|
|
$
|
36,957
|
|
New Jersey Clean Energy Program
|
14,202
|
|
14,232
|
|
Underrecovered gas costs
|
9,910
|
|
—
|
|
Derivatives at fair value, net
|
9,010
|
|
3,097
|
|
Total current regulatory assets
|
$
|
50,791
|
|
$
|
54,286
|
|
Regulatory assets-noncurrent
|
|
|
Environmental remediation costs:
|
|
|
Expended, net of recoveries
|
$
|
28,547
|
|
$
|
19,595
|
|
Liability for future expenditures
|
149,000
|
|
172,000
|
|
Deferred income taxes
|
21,795
|
|
20,273
|
|
Derivatives at fair value, net
|
—
|
|
23,384
|
|
SAVEGREEN
|
16,302
|
|
25,208
|
|
Postemployment and other benefit costs
|
141,433
|
|
157,027
|
|
Deferred Superstorm Sandy costs
|
13,030
|
|
15,201
|
|
Other noncurrent regulatory assets
|
5,812
|
|
8,606
|
|
Total noncurrent regulatory assets
|
$
|
375,919
|
|
$
|
441,294
|
|
Regulatory liability-current
|
|
|
Derivatives at fair value, net
|
78
|
|
—
|
|
Overrecovered gas costs
|
—
|
|
9,469
|
|
Total current regulatory liabilities
|
$
|
78
|
|
$
|
9,469
|
|
Regulatory liabilities-noncurrent
|
|
|
Cost of removal obligation
|
$
|
7,902
|
|
$
|
30,549
|
|
New Jersey Clean Energy Program
|
5,795
|
|
10,657
|
|
Other noncurrent regulatory liabilities
|
664
|
|
205
|
|
Derivatives at fair value, net
|
146
|
|
—
|
|
Total noncurrent regulatory liabilities
|
$
|
14,507
|
|
$
|
41,411
|
|
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
Recovery of regulatory assets is subject to BPU approval, and therefore, if there are any changes in regulatory positions that indicate recovery is not probable, the related cost would be charged to income in the period of such determination. The BPU’s decision and order approving NJNG’s new base rates resulted in no changes to the recovery of NJNG’s regulatory assets.
Conservation Incentive Program
The CIP permits NJNG to recover utility gross margin variations related to customer usage resulting from customer conservation efforts and mitigates the impact of weather on its gross margin. Such utility gross margin variations are recovered in the year following the end of the CIP usage year, without interest, and are subject to additional conditions, including an earnings test, a revenue test and an evaluation of BGSS related savings. This program has no expiration date.
New Jersey Clean Energy Program
The NJCEP is a statewide program that encourages energy efficiency and renewable energy. Funding amounts are determined by the BPU’s Office of Clean Energy and all New Jersey utilities are required to share in the annual funding obligation. The current NJCEP program is for the State of New Jersey’s fiscal year ending June
2018
. NJNG recovers the costs associated with its portion of the NJCEP obligation through its NJCEP rider.
Derivatives
Derivatives are utilized by NJNG to manage the price risk associated with its natural gas purchasing activities and to participate in certain BGSS incentive programs. The gains and losses associated with NJNG’s derivatives are recoverable through its BGSS, as noted above, without interest. See
Note 5. Derivative Instruments
.
Environmental Remediation Costs
NJNG is responsible for the cleanup of certain former gas manufacturing facilities. Actual expenditures are recovered from customers, with interest, over
seven
year rolling periods, through a RAC rate rider. Recovery for NJNG’s estimated future liability will be requested and/or recovered when actual expenditures are incurred. See
Note 14. Commitments and Contingent Liabilities
.
Deferred Income Taxes
In 1993, NJNG adopted the provisions of ASC 740,
Income Taxes
, which changed the method used to determine deferred tax assets and liabilities. Upon adoption, NJNG recognized a transition adjustment and corresponding regulatory asset representing the difference between NJNG’s existing deferred tax amounts compared with the deferred tax amounts calculated in accordance with the change in method prescribed by ASC 740. NJNG recovers the regulatory asset associated with these tax impacts through future base rates, without interest.
SAVEGREEN
NJNG administers certain programs that supplement the state’s NJCEP and that allow NJNG to promote clean energy to its residential and commercial customers, as described further below. NJNG will recover related expenditures and a weighted average cost of capital on the unamortized balance through a tariff rider, as approved by the BPU, over a
two
to
10
-year period depending upon the specific program incentive.
Postemployment and Other Benefit Costs
Postemployment and Other Benefit Costs represents NJNG’s underfunded postemployment benefit obligations that the Company began recognizing in fiscal 2006, as a result of changes in the accounting provisions of ASC 715,
Compensation and Benefits
, as well as a
$2.4 million
fiscal 2010 tax charge resulting from a change in the deductibility of federal subsidies associated with Medicare Part D, both of which are deferred as regulatory assets and are recoverable, without interest, in base rates. In the
September 2016
base rate case decision and order, the BPU approved the recovery of the tax charge over a
seven
-year amortization period. See
Note 11. Employee Benefit Plans
.
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
Deferred Superstorm Sandy Costs
In October 2012, portions of NJNG’s distribution system incurred significant damage as a result of Superstorm Sandy. NJNG filed a petition with the BPU in November 2012 requesting deferred accounting for uninsured incremental O&M costs associated with its restoration efforts, which was approved in May 2013. In October 2014, the BPU approved, as prudent and reasonable, the deferred O&M storm costs. The deferred Superstorm Sandy costs were approved for recovery through NJNG’s new base rates effective
October 2016
, over a
seven
-year amortization period.
Other Regulatory Assets
Other regulatory assets consists primarily of deferred costs associated with certain components of NJNG’s SBC, as discussed further below, and NJNG’s compliance with federal and state mandated PIM provisions. NJNG’s related costs to maintain the operational integrity of its distribution and transmission main are recoverable, subject to BPU review and approval. Through September 30, 2016, NJNG was limited to recording a regulatory asset associated with PIM that did not exceed
$700,000
per year. In addition, to the extent that project costs were lower than the approved PIM annual expense of
$1.4 million
, NJNG recorded a regulatory liability to be refunded as a credit to customers’ gas costs when the net cumulative liability exceeded
$1 million
. As of
September 30, 2017
, NJNG recorded
$3.8 million
of PIM in other regulatory assets. The deferred PIM costs were approved for recovery through NJNG’s new base rates effective
October 2016
, over a
seven
-year amortization period. As of October 1, 2016, NJNG will no longer defer costs associated with PIM.
Over and Underrecovered Gas Costs
NJNG recovers its cost of gas through the BGSS rate component of its customers’ bills. NJNG’s cost of gas includes the purchased cost of the natural gas commodity, fees paid to pipelines and storage facilities, adjustments as a result of BGSS incentive programs and hedging transactions. Overrecovered gas costs represent a regulatory liability that generally occurs when NJNG’s BGSS rates are higher than actual costs and requests approval to be returned to customers including interest, when applicable, in accordance with NJNG’s approved BGSS tariff. Conversely, underrecovered gas costs generally occur during periods when NJNG’s BGSS rates are lower than actual costs, in which case NJNG records a regulatory asset and requests amounts to be recovered from customers in the future.
Cost of Removal Obligation
NJNG accrues and collects for cost of removal in base rates on its utility property, without interest. NJNG’s regulatory liability represents customer collections in excess of actual expenditures, which the Company will return to customers as a reduction to depreciation expense until it is depleted.
The following is a description of certain regulatory proceedings during
fiscal 2016
and
2017
:
BGSS and CIP
BGSS rates are normally revised on an annual basis. In addition, to manage the fluctuations in wholesale natural gas costs, NJNG has the ability to make two interim filings during each fiscal year to increase residential and small commercial customer BGSS rates on a self-implementing and provisional basis. NJNG is also permitted to refund or credit back a portion of the commodity costs to customers at any time given five days notice when the natural gas commodity costs decrease in comparison to amounts projected or to amounts previously collected from customers. Concurrent with the annual BGSS filing, NJNG files for an annual review of its CIP. NJNG’s annual BGSS and CIP filings are summarized as follows:
|
|
•
|
June 2015 BGSS/CIP filing
—
In
February 2016
, the BPU approved NJNG’s proposal to continue its existing BGSS rate and to increase its CIP rates resulting in a
$1.1 million
annual recovery increase, effective
October 2015
. NJNG also provided bill credits to residential and small commercial customers from November 2015 through February 2016, as a result of the decline in the wholesale price of natural gas, which totaled
$61.6 million
.
|
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
|
|
•
|
June 2016 BGSS/CIP filing
—
In
September 2016
, the BPU approved NJNG's filing to increase its CIP rates resulting in a
$43.9 million
annual recovery increase and to decrease its annual BGSS rate for residential and small commercial customers resulting in a
$22.6 million
annual recovery decrease, effective
October 2016
. This petition also included proposed bill credits to residential and small commercial customers during the months of November 2016 through February 2017, as a result of a decline in the wholesale price of natural gas. In
September 2016
, NJNG notified the BPU that the estimated bill credits would be approximately
$48 million
; however, customer usage was lower due to warmer weather during winter months and therefore, a total of
$42 million
in bill credits were issued during fiscal 2017.
|
|
|
•
|
June 2017 BGSS/CIP filing
—
On
September 22, 2017
, the BPU provisionally approved NJNG's petition to maintain its BGSS rate for residential and small commercial customers, increase its balancing charge rate, which will result in a
$3.7 million
increase to the annual revenues credited to BGSS and decrease its CIP rates, which will result in a
$16.2 million
annual recovery decrease, effective
October 2017
.
|
BGSS Incentive Programs
NJNG is eligible to receive financial incentives for reducing BGSS costs through a series of utility gross margin-sharing programs that include off-system sales, capacity release, storage incentive programs and the FRM program (through October 2015). The Company is permitted to annually propose a process to evaluate and discuss alternative incentive programs, should performance of the existing incentives or market conditions warrant re-evaluation. In
October 2015
, the BPU issued an order approving the continuation of the BGSS Incentive Programs with modification to the storage incentive program, beginning with the 2015 storage injection period, and termination of the FRM Program, effective
November 2015
.
Energy Efficiency Programs
SAVEGREEN conducts home energy audits and provides various grants, incentives and financing alternatives, which are designed to encourage the installation of high efficiency heating and cooling equipment and other energy efficiency upgrades to promote energy efficiency incentives to its residential and commercial customers while stimulating state and local economies through the creation of jobs. Depending on the specific initiative or approval, NJNG recovers costs associated with the programs over a
two
to
10
-year period through a tariff rider mechanism. As of
September 30, 2017
, the BPU has approved total SAVEGREEN investments of approximately
$219.3 million
, of which,
$149.7 million
in grants, rebates and loans have been provided to customers, with a total annual recovery of approximately
$20 million
. The recovery includes a weighted average cost of capital on the unamortized balance that ranges from
6.69 percent
, with a return on equity of
9.75 percent
, to
7.76 percent
, with a return on equity of
10.3 percent
. SAVEGREEN investments and costs are filed with the BPU on an annual basis. In
June 2016
, the BPU approved NJNG's petition to extend its current program, which was set to expire on
July 31, 2017
, to
December 31, 2018
. In
October 2016
, the BPU approved NJNG's filing to maintain its existing recovery rate. On
October 20, 2017
, the BPU approved NJNG's filing to decrease its EE recovery rate, which will result in an annual decrease of
$3.9 million
, effective
November 1, 2017
.
Societal Benefits Clause
The SBC is comprised of three primary riders that allow NJNG to recover costs associated with USF, which is a permanent statewide program for all natural gas and electric utilities for the benefit of income-eligible customers, MGP remediation and the NJCEP. NJNG has submitted the following filings to the BPU, which include a report of program expenditures incurred each program year:
|
|
•
|
2015 SBC filings
—
In
September 2015
, the BPU approved the annual USF compliance filing decreasing the statewide USF rate, resulting in an annual
$3.9 million
decrease to USF recoveries, effective
October 2015
. In
June 2016
, the BPU approved NJNG's additional filing to recover remediation expenses incurred through
June 30, 2015
, increase the RAC with an annual recovery of
$9.4 million
and to decrease the NJCEP factor, effective
July 9, 2016
.
|
|
|
•
|
2016 SBC filing
—
In
September 2016
, the BPU approved NJNG's annual USF compliance filing proposing to increase the statewide USF rate, resulting in a
$1.3 million
annual increase in USF recoveries, effective
October 2016
.
|
|
|
•
|
2017 SBC filing
—
On
September 22, 2017
, the BPU approved NJNG's annual USF compliance filing to decrease the statewide USF rate, which will result in a
$2.6 million
annual decrease, effective
October 1, 2017
. On
November 17, 2017
, NJNG filed it's annual SBC application requesting to recover remediation expenses incurred through June 30, 2017, a reduction in the RAC, which will decrease the annual recovery to
$7 million
and to increase the NJCEP factor, effective
April 1, 2018
.
|
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
Infrastructure Programs
NJNG has significant annual capital expenditures associated with the management of its natural gas distribution and transmission system, including new utility plant for customer growth and its associated PIM and infrastructure programs. NJNG continues to implement BPU-approved infrastructure projects that are designed to enhance the reliability of NJNG’s gas distribution system, including SAFE and NJ RISE.
SAFE/NJ RISE
In
October 2012
, the BPU approved NJNG’s petition to implement SAFE I, investing up to
$130 million
, exclusive of AFUDC, over a
four
-year period to replace portions of NJNG’s gas distribution unprotected steel, cast iron infrastructure and associated services to improve the safety and reliability of the gas distribution system.
The recovery of SAFE I capital investments and the rate mechanism and five-year extension of SAFE II were approved through NJNG’s base rate case, effective
October 2016
. The estimated cost for SAFE II is approximately
$200 million
, excluding AFUDC and related costs to be recovered are approximately
$157.5 million
. As a condition of approval of the extension, NJNG is required to file a base rate case no later than November 2019.
In
July 2014
, the BPU approved NJ RISE, which consists of
six
capital investment projects estimated to cost
$102.5 million
over a
five
-year period, excluding AFUDC, for gas distribution storm hardening and mitigation projects, along with incremental depreciation expense. In
October 2015
, the BPU approved a base rate increase to recover capital costs through
July 2015
, resulting in a
$390,000
annual recovery increase, effective
November 2015
, and earned a weighted average cost of capital of
6.74 percent
, including a return on equity of
9.75 percent
.
NJ RISE investments through June 30, 2016, were approved for recovery through NJNG’s new base rates, effective
October 2016
. Requests for recovery of future NJ RISE capital costs will occur in conjunction with SAFE II, commencing with the rate recovery filing that was submitted in March 2017, with a weighted cost of capital of
6.9 percent
, including a return on equity of
9.75 percent
.
On
March 30, 2017
, NJNG filed its annual petition with the BPU requesting a base rate increase for the recovery of NJ RISE and SAFE II capital investment costs related to the period ending
June 30, 2017
, based on estimates, pursuant to the
September 2016
base rate case. On
July 20, 2017
, NJNG filed an update to this petition with actuals, requesting a
$4.1 million
annual increase in recoveries, which was approved by the BPU, effective
October 1, 2017
.
NGV refueling stations
In
June 2012
, the BPU approved a pilot program for NJNG to invest up to
$10 million
to build NGV refueling stations. NJNG has opened all
three
of its NGV stations to the public and its capital investments were approved for recovery through the new base rates, effective
October 2016
.
SRL
The SRL is an approximate 30-mile, 30-inch transmission main designed to support improved system integrity and reliability in the southern portion of NJNG’s service territory, estimated to cost between
$180 million
and
$200 million
. In
January 2016
, the BPU issued an order approving NJNG’s modified proposed SRL pipeline installation, operation and route selection. In
March 2016
, the BPU issued an order designating the SRL route and exempting the SRL from municipal land use ordinances, regulations, permits and license requirements. In February 2017, the New Jersey Department of Environmental Protection issued a permit authorizing construction of the SRL within the jurisdiction of the Coastal Area Facility Review Act as well as a Freshwater Wetlands permit. On September 14, 2017, the NJ Pinelands Commission approved construction of NJNG’s SRL. All approvals and permits have been appealed by third parties.
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
Other Regulatory Initiatives
In
May 2016
, NJNG included a proposal in its base rate case to recover certain capital costs and incremental operation and maintenance costs related to a
March 2016
BPU Order regarding new cyber security requirements. In June 2016, NJNG’s liquefaction project became operational, allowing NJNG to convert natural gas into LNG and to fill NJNG’s existing LNG storage tanks. Costs for this project along with other plant upgrades were approximately
$36.5 million
. Costs associated with both initiatives were approved for recovery through NJNG’s new base rates, effective
October 2016
.
5. DERIVATIVE INSTRUMENTS
The Company is subject to commodity price risk due to fluctuations in the market price of natural gas, SRECs and electricity. To manage this risk, the Company enters into a variety of derivative instruments including, but not limited to, futures contracts, physical forward contracts, financial options and swaps to economically hedge the commodity price risk associated with its existing and anticipated commitments to purchase and sell natural gas, SRECs and electricity. In addition, the Company may utilize foreign currency derivatives to hedge Canadian dollar denominated gas purchases and/or sales. Therefore, the Company’s primary underlying risks include commodity prices, interest rates and foreign currency. These contracts, with a few exceptions as described below, are accounted for as derivatives. Accordingly, all of the financial and certain of the Company’s physical derivative instruments are recorded at fair value on the Consolidated Balance Sheets. For a more detailed discussion of the Company’s fair value measurement policies and level disclosures associated with the Company’s derivative instruments, see
Note 6. Fair Value
.
Energy Services
Energy Services chooses not to designate its financial commodity and physical forward commodity derivatives as accounting hedges or to elect NPNS, and therefore changes in the fair value of these derivatives are recorded as a component of gas purchases or operating revenues, as appropriate for Energy Services, on the Consolidated Statements of Operations as unrealized gains or (losses). For Energy Services at settlement, realized gains and (losses) on all financial derivative instruments are recognized as a component of gas purchases and realized gains and (losses) on all physical derivatives follow the presentation of the related unrealized gains and (losses) as a component of either gas purchases or operating revenues.
Energy Services also enters into natural gas transactions in Canada and, consequently, is exposed to fluctuations in the value of Canadian currency relative to the U.S. dollar. Energy Services may utilize foreign currency derivatives to lock in the exchange rate associated with natural gas transactions denominated in Canadian currency. The derivatives may include currency forwards, futures, or swaps and are accounted for as derivatives. These derivatives are typically used to hedge demand fee payments on pipeline capacity, storage and gas purchase agreements. For transactions occurring on or before December 31, 2015, Energy Services designates its foreign exchange contracts as cash flow hedges, and the effective portion of the hedges are recorded in OCI. Effective January 1, 2016, on a prospective basis, the Company has elected not to designate its foreign currency derivatives as accounting hedges. Accordingly, changes in the fair value of foreign exchange contracts entered into from January 1, 2016, are recognized in gas purchases on the Consolidated Statements of Operations.
As a result of Energy Services entering into transactions to borrow natural gas, commonly referred to as “park and loans,” an embedded derivative is recognized relating to differences between the fair value of the amount borrowed and the fair value of the amount that will ultimately be repaid, based on changes in the forward price for natural gas prices at the borrowed location over the contract term. This embedded derivative is accounted for as a forward sale in the month in which the repayment of the borrowed gas is expected to occur, and is considered a derivative transaction that is recorded at fair value on the Consolidated Balance Sheets, with changes in value recognized in current period earnings.
Expected production of SRECs is hedged through the use of forward and futures contracts. All contracts require the Company to physically deliver SRECs through the transfer of certificates as per contractual settlement schedules. For transactions occurring on or before December 31, 2015, the Company elected NPNS accounting treatment on SREC forward and futures contracts. Effective January 1, 2016, on a prospective basis, Energy Services no longer elects NPNS accounting treatment on SREC contracts entered into from January 1, 2016, and recognizes changes in the fair value of these derivatives as a component of operating revenues. Upon settlement of the contract, the related revenue is recognized when the SREC is transferred to the counterparty. NPNS is a contract-by-contract election and, where it makes sense to do so, we can and may elect certain contracts to be normal.
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
Natural Gas Distribution
Changes in fair value of NJNG’s financial commodity derivatives are recorded as a component of regulatory assets or liabilities on the Consolidated Balance Sheets. The Company elects NPNS accounting treatment on all physical commodity contracts that NJNG entered into on or before December 31, 2015, and accounts for these contracts on an accrual basis. Accordingly, physical natural gas purchases are recognized in regulatory assets or liabilities on the Consolidated Balance Sheets when the contract settles and the natural gas is delivered. The average cost of natural gas is amortized in current period earnings based on the current BPU BGSS factor and therm sales. Effective January 1, 2016, on a prospective basis, NJNG no longer elects NPNS accounting treatment on all of its physical commodity contracts entered into from January 1, 2016. However, since NPNS is a contract-by-contract election, where it makes sense to do so, we can and may elect certain contracts to be normal. Because NJNG recovers these amounts through future BGSS rates as increases or decreases to the cost of natural gas in NJNG’s tariff for gas service, the changes in fair value of these contracts are deferred as a component of regulatory assets or liabilities on the Consolidated Balance Sheets.
In an April 2014 BPU Order, NJNG received regulatory approval to enter into interest rate risk management transactions related to long-term debt securities. On June 1, 2015, NJNG entered into a treasury lock transaction to fix a benchmark treasury rate of
3.26 percent
associated with a forecasted
$125 million
debt issuance expected in May 2018. This forecasted debt issuance coincides with the maturity of NJNG’s existing
$125 million
,
5.6 percent
notes due
May 15, 2018
. The change in fair value of NJNG’s treasury lock agreement is recorded as a component of regulatory assets or liabilities on the Consolidated Balance Sheets since NJNG believes that the market value upon settlement will be recovered in future rates. Upon settlement, any gain or loss will be amortized into earnings over the life of the future underlying debt issuance.
Fair Value of Derivatives
The following table reflects the fair value of the Company’s derivative assets and liabilities recognized on the Consolidated Balance Sheets as of
September 30
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
|
|
|
|
2017
|
|
2016
|
(Thousands)
|
Balance Sheet Location
|
Asset
Derivatives
|
Liability
Derivatives
|
Asset
Derivatives
|
Liability
Derivatives
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
NJNG:
|
|
|
|
|
|
|
|
|
|
Physical commodity contracts
|
Derivatives - current
|
|
$
|
151
|
|
|
$
|
72
|
|
|
$
|
235
|
|
|
$
|
1,154
|
|
Financial commodity contracts
|
Derivatives - current
|
|
—
|
|
|
1,149
|
|
|
805
|
|
|
2,979
|
|
|
Derivatives - noncurrent
|
|
—
|
|
|
—
|
|
|
75
|
|
|
386
|
|
Interest rate contracts
|
Derivatives - current
|
|
—
|
|
|
8,467
|
|
|
—
|
|
|
—
|
|
Interest rate contracts
|
Derivatives - noncurrent
|
|
—
|
|
|
—
|
|
|
—
|
|
|
23,073
|
|
Energy Services:
|
|
|
|
|
|
|
|
|
|
Physical commodity contracts
|
Derivatives - current
|
|
14,588
|
|
|
16,589
|
|
|
5,994
|
|
|
11,660
|
|
|
Derivatives - noncurrent
|
|
7,127
|
|
|
8,710
|
|
|
3,987
|
|
|
1,212
|
|
Financial commodity contracts
|
Derivatives - current
|
|
15,302
|
|
|
20,267
|
|
|
22,929
|
|
|
45,255
|
|
|
Derivatives - noncurrent
|
|
2,033
|
|
|
2,620
|
|
|
1,165
|
|
|
581
|
|
Foreign currency contracts
|
Derivatives - current
|
|
40
|
|
|
—
|
|
|
1
|
|
|
32
|
|
|
Derivatives - noncurrent
|
|
4
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total fair value of derivatives
|
|
|
$
|
39,245
|
|
|
$
|
57,874
|
|
|
$
|
35,191
|
|
|
$
|
86,332
|
|
Offsetting of Derivatives
The Company transacts under master netting arrangements or equivalent agreements that allow it to offset derivative assets and liabilities with the same counterparty. However, the Company’s policy is to present its derivative assets and liabilities on a gross basis at the contract level unit of account on the Consolidated Balance Sheets.
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
The following table summarizes the reported gross amounts, the amounts that the Company has the right to offset but elects not to, financial collateral, as well as the net amounts the Company could present on the Consolidated Balance Sheets but elects not to.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Thousands)
|
Amounts Presented in Balance Sheets
(1)
|
Offsetting Derivative Instruments
(2)
|
Financial Collateral Received/Pledged
(3)
|
Net Amounts
(4)
|
As of September 30, 2017:
|
|
|
|
|
|
|
|
|
Derivative assets:
|
|
|
|
|
|
|
|
|
Energy Services
|
|
|
|
|
|
|
|
|
Physical commodity contracts
|
|
$
|
21,715
|
|
|
$
|
(2,173
|
)
|
|
$
|
(200
|
)
|
|
$
|
19,342
|
|
Financial commodity contracts
|
|
17,335
|
|
|
(14,121
|
)
|
|
—
|
|
|
3,214
|
|
Foreign currency contracts
|
|
44
|
|
|
—
|
|
|
—
|
|
|
44
|
|
Total Energy Services
|
|
$
|
39,094
|
|
|
$
|
(16,294
|
)
|
|
$
|
(200
|
)
|
|
$
|
22,600
|
|
NJNG
|
|
|
|
|
|
|
|
|
Physical commodity contracts
|
|
$
|
151
|
|
|
$
|
(20
|
)
|
|
$
|
—
|
|
|
$
|
131
|
|
Financial commodity contracts
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Interest rate contracts
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total NJNG
|
|
$
|
151
|
|
|
$
|
(20
|
)
|
|
$
|
—
|
|
|
$
|
131
|
|
Derivative liabilities:
|
|
|
|
|
|
|
|
|
Energy Services
|
|
|
|
|
|
|
|
|
Physical commodity contracts
|
|
$
|
25,299
|
|
|
$
|
(2,173
|
)
|
|
$
|
—
|
|
|
$
|
23,126
|
|
Financial commodity contracts
|
|
22,887
|
|
|
(14,121
|
)
|
|
(8,766
|
)
|
|
—
|
|
Foreign currency contracts
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total Energy Services
|
|
$
|
48,186
|
|
|
$
|
(16,294
|
)
|
|
$
|
(8,766
|
)
|
|
$
|
23,126
|
|
NJNG
|
|
|
|
|
|
|
|
|
Physical commodity contracts
|
|
$
|
72
|
|
|
$
|
(20
|
)
|
|
$
|
—
|
|
|
$
|
52
|
|
Financial commodity contracts
|
|
1,149
|
|
|
—
|
|
|
(1,149
|
)
|
|
—
|
|
Interest rate contracts
|
|
8,467
|
|
|
—
|
|
|
—
|
|
|
8,467
|
|
Total NJNG
|
|
$
|
9,688
|
|
|
$
|
(20
|
)
|
|
$
|
(1,149
|
)
|
|
$
|
8,519
|
|
As of September 30, 2016:
|
|
|
|
|
|
|
|
|
Derivative assets:
|
|
|
|
|
|
|
|
|
Energy Services
|
|
|
|
|
|
|
|
|
Physical commodity contracts
|
|
$
|
9,981
|
|
|
$
|
(2,837
|
)
|
|
$
|
(755
|
)
|
|
$
|
6,389
|
|
Financial commodity contracts
|
|
24,094
|
|
|
(17,945
|
)
|
|
(6,149
|
)
|
|
—
|
|
Foreign currency contracts
|
|
1
|
|
|
(1
|
)
|
|
—
|
|
|
—
|
|
Total Energy Services
|
|
$
|
34,076
|
|
|
$
|
(20,783
|
)
|
|
$
|
(6,904
|
)
|
|
$
|
6,389
|
|
NJNG
|
|
|
|
|
|
|
|
|
Physical commodity contracts
|
|
$
|
235
|
|
|
$
|
(31
|
)
|
|
$
|
—
|
|
|
$
|
204
|
|
Financial commodity contracts
|
|
880
|
|
|
(880
|
)
|
|
—
|
|
|
—
|
|
Interest rate contracts
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total NJNG
|
|
$
|
1,115
|
|
|
$
|
(911
|
)
|
|
$
|
—
|
|
|
$
|
204
|
|
Derivative liabilities:
|
|
|
|
|
|
|
|
|
Energy Services
|
|
|
|
|
|
|
|
|
Physical commodity contracts
|
|
$
|
12,872
|
|
|
$
|
(2,837
|
)
|
|
$
|
1,200
|
|
|
$
|
11,235
|
|
Financial commodity contracts
|
|
45,836
|
|
|
(17,945
|
)
|
|
(27,891
|
)
|
|
—
|
|
Foreign currency contracts
|
|
32
|
|
|
(1
|
)
|
|
—
|
|
|
31
|
|
Total Energy Services
|
|
$
|
58,740
|
|
|
$
|
(20,783
|
)
|
|
$
|
(26,691
|
)
|
|
$
|
11,266
|
|
NJNG
|
|
|
|
|
|
|
|
|
Physical commodity contracts
|
|
$
|
1,154
|
|
|
$
|
(31
|
)
|
|
$
|
—
|
|
|
$
|
1,123
|
|
Financial commodity contracts
|
|
3,365
|
|
|
(880
|
)
|
|
(2,485
|
)
|
|
—
|
|
Interest rate contracts
|
|
23,073
|
|
|
—
|
|
|
—
|
|
|
23,073
|
|
Total NJNG
|
|
$
|
27,592
|
|
|
$
|
(911
|
)
|
|
$
|
(2,485
|
)
|
|
$
|
24,196
|
|
|
|
(1)
|
Derivative assets and liabilities are presented on a gross basis in the balance sheet as the Company does not elect balance sheet offsetting under ASC 210-20.
|
|
|
(2)
|
Offsetting derivative instruments include transactions with NAESB netting election, transactions held by FCMs with net margining and transactions with ISDA netting.
|
|
|
(3)
|
Financial collateral includes cash balances at FCMs, as well as cash received from or pledged to other counterparties.
|
|
|
(4)
|
Net amounts represent presentation of derivative assets and liabilities if the Company were to elect balance sheet offsetting under ASC 210-20.
|
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
Energy Services utilizes financial derivatives to economically hedge the gross margin associated with the purchase of physical gas to be used for storage injection and its subsequent sale at a later date. The gains or (losses) on the financial transactions that are economic hedges of the cost of the purchased gas are recognized prior to the gains or (losses) on the physical transaction, which are recognized in earnings when the natural gas is delivered. Therefore, mismatches between the timing of the recognition of realized gains or (losses) on the financial derivative instruments and gains or (losses) associated with the actual sale of the natural gas that is being economically hedged, along with fair value changes in derivative instruments, creates volatility in the results of Energy Services, although the Company’s intended economic results relating to the entire transaction are unaffected.
The following table reflects the effect of derivative instruments on the Consolidated Statements of Operations as of
September 30
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Thousands)
|
Location of gain (loss) recognized in income on derivatives
|
Amount of gain (loss) recognized
in income on derivatives
|
Derivatives not designated as hedging instruments:
|
2017
|
|
2016
|
|
2015
|
Energy Services:
|
|
|
|
|
|
|
Physical commodity contracts
|
Operating revenues
|
$
|
8,912
|
|
|
$
|
33,034
|
|
|
$
|
32,568
|
|
Physical commodity contracts
|
Gas purchases
|
(27,461
|
)
|
|
(45,637
|
)
|
|
(34,438
|
)
|
Financial commodity contracts
|
Gas purchases
|
26,563
|
|
|
45,579
|
|
|
109,082
|
|
Foreign currency contracts
|
Gas purchases
|
41
|
|
|
(34
|
)
|
|
—
|
|
Total unrealized and realized gains (losses)
|
$
|
8,055
|
|
|
$
|
32,942
|
|
|
$
|
107,212
|
|
Energy Services designated its foreign exchange contracts, entered into prior to January 1, 2016, as cash flow hedges and, as a result, changes in fair value of the effective portion of the hedges are recorded in OCI and, upon settlement of the contracts, realized gains and (losses) are reclassified from AOCI to gas purchases on the Consolidated Statements of Operations.
The following table reflects the effect of derivative instruments designated as cash flow hedges on OCI as of
September 30
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Thousands)
|
Amount of Gain or (Loss) Recognized in OCI on Derivatives (Effective Portion)
|
Amount of Gain or (Loss) Reclassified from OCI into Income (Effective Portion)
|
Amount of Gain or (Loss) Recognized on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing)
|
Derivatives in cash flow hedging relationships:
|
2017
|
2016
|
2017
|
2016
|
2017
|
2016
|
Foreign currency contracts
|
$
|
—
|
|
$
|
(27
|
)
|
$
|
—
|
|
$
|
27
|
|
$
|
—
|
|
$
|
—
|
|
NJNG’s derivative contracts are part of the Company’s risk management activities that relate to its natural gas purchases, BGSS incentive programs and debt financing. These transactions are entered into pursuant to regulatory approval and, at settlement, the resulting gains and/or losses are payable to or recoverable from utility customers. Any changes in the value of NJNG’s financial derivatives are deferred in regulatory assets or liabilities resulting in no impact to earnings.
The following table reflects the (losses) gains associated with NJNG’s derivative instruments as of
September 30
:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Thousands)
|
2017
|
|
2016
|
|
2015
|
NJNG:
|
|
|
|
|
|
Physical commodity contracts
|
$
|
(12,303
|
)
|
|
$
|
(15,756
|
)
|
|
$
|
—
|
|
Financial commodity contracts
|
5,595
|
|
|
(7,984
|
)
|
|
(33,428
|
)
|
Interest rate contracts
|
14,606
|
|
|
(18,845
|
)
|
|
(4,228
|
)
|
Total unrealized and realized (losses) gains
|
$
|
7,898
|
|
|
$
|
(42,585
|
)
|
|
$
|
(37,656
|
)
|
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
NJNG and Energy Services had the following outstanding long (short) derivatives as of
September 30
:
|
|
|
|
|
|
|
|
|
|
|
|
Volume (Bcf)
|
|
|
|
2017
|
|
2016
|
NJNG
|
Futures
|
|
18.2
|
|
|
23.6
|
|
|
Physical
|
|
32.1
|
|
|
9.2
|
|
Energy Services
|
Futures
|
|
(16.4
|
)
|
|
(79.1
|
)
|
|
Financial Options
|
|
—
|
|
|
1.2
|
|
|
Physical
|
|
(13.1
|
)
|
|
94.6
|
|
Not included in the previous table are Energy Services’ gross notional amount of foreign currency transactions of approximately
$4.5 million
, NJNG’s treasury lock agreement, as previously discussed, and
283,000
SRECs at Energy Services that are open as of
September 30, 2017
.
Broker Margin
Futures exchanges have contract specific performance bond requirements, also known as margin requirements that require the posting of cash or cash equivalents relating to traded contracts. Margin requirements consist of initial margin that is posted upon the initiation of a position, maintenance margin that is usually expressed as a percent of initial margin, and variation margin that fluctuates based on the daily marked-to-market relative to maintenance margin requirements. The Company maintains separate broker margin accounts for NJNG and Energy Services. The balances as of
September 30
, by company, are as follows:
|
|
|
|
|
|
|
|
|
(Thousands)
|
Balance Sheet Location
|
2017
|
2016
|
NJNG
|
Broker margin - Current assets
|
$
|
2,661
|
|
$
|
4,822
|
|
Energy Services
|
Broker margin - Current assets
|
$
|
23,166
|
|
$
|
42,822
|
|
Due to CME rulebook changes that took effect in January 2017, variation margin is being treated as a settlement payment, rather than collateral. As a result, the Company is now required to present variation margin net with the related derivative assets and/or liabilities on the Consolidated Balance Sheets for any derivatives the Company clears through the CME. This change is being applied on a prospective basis. In September 30, 2016, prior to the rule change, the Company reported the variation margin as a separate unit of account within restricted broker margin on the Consolidated Balance Sheets. There was no impact to the Company’s derivative gains or losses in the Consolidated Statements of Operations as a result of the CME rule amendment.
Wholesale Credit Risk
NJNG, Energy Services and Clean Energy Ventures are exposed to credit risk as a result of their sales/wholesale and retail marketing activities. As a result of the inherent volatility in the prices of natural gas commodities, derivatives, SRECs, electricity and RECs, the market value of contractual positions with individual counterparties could exceed established credit limits or collateral provided by those counterparties. If a counterparty fails to perform the obligations under its contract (e.g., fails to deliver or pay for natural gas, SRECs, electricity or RECs), the Company could sustain a loss.
The Company monitors and manages the credit risk of its wholesale operations through credit policies and procedures that management believes reduce overall credit risk. These policies include a review and evaluation of current and prospective counterparties’ financial statements and/or credit ratings, daily monitoring of counterparties’ credit limits and exposure, daily communication with traders regarding credit status and the use of credit mitigation measures, such as collateral requirements and netting agreements. Examples of collateral include letters of credit and cash received for either prepayment or margin deposit. Collateral may be requested due to the Company’s election not to extend credit or because exposure exceeds defined thresholds. Most of the Company’s wholesale marketing contracts contain standard netting provisions. These contracts include those governed by ISDA and the NAESB. The netting provisions refer to payment netting, whereby receivables and payables with the same counterparty are offset and the resulting net amount is paid to the party to which it is due.
Internally-rated exposure applies to counterparties that are not rated by S&P or Moody’s. In these cases, the counterparty’s or guarantor’s financial statements are reviewed, and similar methodologies and ratios used by S&P and/or Moody’s are applied to arrive at a substitute rating. Gross credit exposure is defined as the unrealized fair value of physical and financial derivative commodity contracts, plus any outstanding wholesale receivable for the value of natural gas delivered and/or financial derivative commodity contract that has settled for which payment has not yet been received.
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
The following is a summary of gross credit exposures grouped by investment and noninvestment grade counterparties, as of
September 30, 2017
.The amounts presented below have not been reduced by any collateral received or netting and exclude accounts receivable for NJNG retail natural gas sales and services and Clean Energy Ventures residential solar installations.
|
|
|
|
|
|
|
(Thousands)
|
Gross Credit
Exposure
|
Investment grade
|
|
$
|
136,804
|
|
|
Noninvestment grade
|
|
16,889
|
|
|
Internally-rated investment grade
|
|
16,378
|
|
|
Internally-rated noninvestment grade
|
|
68,498
|
|
|
Total
|
|
$
|
238,569
|
|
|
Conversely, certain of NJNG’s and Energy Services’ derivative instruments are linked to agreements containing provisions that would require cash collateral payments from the Company if certain events occur. These provisions vary based upon the terms in individual counterparty agreements and can result in cash payments if NJNG’s credit rating were to fall below its current level. NJNG’s credit rating, with respect to S&P, reflects the overall corporate credit profile of the Company. Specifically, most, but not all, of these additional payments will be triggered if NJNG’s debt is downgraded by the major credit agencies, regardless of investment grade status. In addition, some of these agreements include threshold amounts that would result in additional collateral payments if the values of derivative liabilities were to exceed the maximum values provided for in relevant counterparty agreements. Other provisions include payment features that are not specifically linked to ratings, but are based on certain financial metrics.
Collateral amounts associated with any of these conditions are determined based on a sliding scale and are contingent upon the degree to which the Company’s credit rating and/or financial metrics deteriorate, and the extent to which liability amounts exceed applicable threshold limits. The aggregate fair value of all derivative instruments with credit-risk-related contingent features that were in a liability position on
September 30, 2017
and
2016
, is
$8.7 million
and
$23.1 million
, respectively, for which the Company had not posted collateral. If all thresholds related to the credit-risk-related contingent features underlying these agreements had been invoked on
September 30, 2017
and
2016
, the Company would have been required to post an additional
$8.6 million
and
$23.1 million
, respectively, to its counterparties. These amounts differ from the respective net derivative liabilities reflected on the Consolidated Balance Sheets because the agreements also include clauses, commonly known as “Rights of Offset,” that would permit the Company to offset its derivative assets against its derivative liabilities for determining additional collateral to be posted, as previously discussed.
6. FAIR VALUE
Fair Value of Assets and Liabilities
The fair value of cash and cash equivalents, accounts receivable, current loan receivables, accounts payable, commercial paper and borrowings under revolving credit facilities are estimated to equal their carrying amounts due to the short maturity of those instruments. Non-current loan receivables are recorded based on what the Company expects to receive, which approximates fair value. The Company regularly evaluates the credit quality and collection profile of its customers to approximate fair value.
As of September 30, the estimated fair value of long-term debt at NJNG and NJR, including current maturities, excluding capital leases, debt issuance costs and solar asset financing obligations, is as follows:
|
|
|
|
|
|
|
|
(Thousands)
|
2017
|
2016
|
NJNG
|
|
|
Carrying value
(1) (2)
|
$
|
672,045
|
|
$
|
707,845
|
|
Fair market value
|
$
|
673,051
|
|
$
|
731,615
|
|
NJR
|
|
|
Carrying value
(3)
|
$
|
425,000
|
|
$
|
375,000
|
|
Fair market value
|
$
|
434,625
|
|
$
|
399,462
|
|
|
|
(1)
|
Excludes
capital leases of
$39.7 million
and
$42.2 million
as of
September 30, 2017
and
2016
, respectively.
|
|
|
(2)
|
Excludes debt issuance costs
of
$6.3 million
and
$7.7 million
as of
September 30, 2017
and
2016
, respectively.
|
|
|
(3)
|
Excludes debt issuance costs
of
$770,000
and
$853,000
as of
September 30, 2017
and
2016
, respectively.
|
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
The Company utilizes a discounted cash flow method to determine the fair value of its debt. Inputs include observable municipal and corporate yields, as appropriate, for the maturity of the specific issue and the Company’s credit rating. As of
September 30, 2017
and
2016
, the Company disclosed its debt within Level 2 of the fair value hierarchy.
Fair Value Hierarchy
The Company applies fair value measurement guidance to its financial assets and liabilities, as appropriate, which include financial derivatives and physical commodity contracts qualifying as derivatives, available for sale securities and other financial assets and liabilities. In addition, authoritative accounting literature prescribes the use of a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value based on the source of the data used to develop the price inputs.
The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities and the lowest priority to inputs that are based on unobservable market data and includes the following:
|
|
Level 1
|
Unadjusted quoted prices for identical assets or liabilities in active markets. The Company’s Level 1 assets and liabilities include exchange traded natural gas futures and options contracts, listed equities and money market funds.
Exchange traded futures and options contracts include all energy contracts traded on the NYMEX, CME and ICE that the Company refers internally to as basis swaps, fixed swaps, futures and financial options that are cleared through a FCM.
|
|
|
Level 2
|
Other significant observable inputs, such as interest rates or
price data, including both commodity and basis pricing that is observed either directly or indirectly from publications or pricing services. The Company’s Level 2 assets and liabilities include over-the-counter physical forward commodity contracts and swap contracts, SREC forward sales or derivatives that are initially valued using observable quotes and are subsequently adjusted to include time value, credit risk or estimated transport pricing components for which no basis price is available.
Level 2 financial derivatives consist of transactions with non-FCM counterparties (basis swaps, fixed swaps and/or options). NJNG’s treasury lock is also considered Level 2 as valuation is based on quoted market interest and swap rates as inputs to the valuation model. Inputs are verifiable and do not require significant management judgment. For some physical commodity contracts, the Company utilizes transportation tariff rates that are publicly available and that it considers to be observable inputs that are equivalent to market data received from an independent source. There are no significant judgments or adjustments applied to the transportation tariff inputs and no market perspective is required. Even if the transportation tariff input were considered to be a “model,” it would still be considered to be a Level 2 input as the data is:
|
|
|
•
|
widely accepted and public;
|
|
|
•
|
non-proprietary and sourced from an independent third party; and
|
|
|
•
|
observable and published.
|
These additional adjustments are generally not considered to be significant to the ultimate recognized values.
|
|
Level 3
|
Inputs derived from a significant amount of unobservable market data. These include the Company’s best estimate of fair value and are derived primarily through the use of internal valuation methodologies.
|
Financial derivative portfolios of NJNG and Energy Services consist mainly of futures, options and swaps. The Company primarily uses the market approach and its policy is to use actively quoted market prices when available. The principal market for its derivative transactions is the natural gas wholesale market, therefore, the primary sources for its price inputs are CME, NYMEX and ICE. Energy Services uses Platts and Natural Gas Exchange for Canadian delivery points. However, Energy Services also engages in transactions that result in transporting natural gas to delivery points for which there is no actively quoted market price. In most instances, the transportation cost to the final delivery location is not significant to the overall valuation. If required, Energy Services’ policy is to use the best information available to determine fair value based on internal pricing models, which would include estimates extrapolated from broker quotes or other pricing services.
The Company also has available for sale securities and other financial assets that include listed equities, mutual funds and money market funds for which there are active exchange quotes available.
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
When the Company determines fair values, measurements are adjusted, as needed, for credit risk associated with its counterparties, as well as its own credit risk. The Company determines these adjustments by using historical default probabilities that correspond to the applicable S&P issuer ratings, while also taking into consideration collateral and netting arrangements that serve to mitigate risk.
Assets and liabilities measured at fair value on a recurring basis are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices in Active Markets for Identical Assets
|
Significant Other Observable Inputs
|
Significant
Unobservable
Inputs
|
|
(Thousands)
|
(Level 1)
|
(Level 2)
|
(Level 3)
|
Total
|
As of September 30, 2017:
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
Physical commodity contracts
|
|
$
|
—
|
|
|
|
$
|
21,866
|
|
|
|
$
|
—
|
|
|
$
|
21,866
|
|
Financial commodity contracts
|
|
17,335
|
|
|
|
—
|
|
|
|
—
|
|
|
17,335
|
|
Financial commodity contracts - foreign exchange
|
|
—
|
|
|
|
44
|
|
|
|
—
|
|
|
44
|
|
Available for sale equity securities
|
|
65,752
|
|
|
|
—
|
|
|
|
—
|
|
|
65,752
|
|
Money market funds
|
|
112
|
|
|
|
—
|
|
|
|
—
|
|
|
112
|
|
Other
|
|
1,090
|
|
|
|
—
|
|
|
|
—
|
|
|
1,090
|
|
Total assets at fair value
|
|
$
|
84,289
|
|
|
|
$
|
21,910
|
|
|
|
$
|
—
|
|
|
$
|
106,199
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
Physical commodity contracts
|
|
$
|
—
|
|
|
|
$
|
25,371
|
|
|
|
$
|
—
|
|
|
$
|
25,371
|
|
Financial commodity contracts
|
|
24,036
|
|
|
|
—
|
|
|
|
—
|
|
|
24,036
|
|
Financial commodity contracts - foreign exchange
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
—
|
|
Interest rate contracts
|
|
—
|
|
|
|
8,467
|
|
|
|
—
|
|
|
8,467
|
|
Total liabilities at fair value
|
|
$
|
24,036
|
|
|
|
$
|
33,838
|
|
|
|
$
|
—
|
|
|
$
|
57,874
|
|
As of September 30, 2016:
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
Physical commodity contracts
|
|
$
|
—
|
|
|
|
$
|
10,216
|
|
|
|
$
|
—
|
|
|
$
|
10,216
|
|
Financial commodity contracts
|
|
24,974
|
|
|
|
—
|
|
|
|
—
|
|
|
24,974
|
|
Financial commodity contracts - foreign exchange
|
|
—
|
|
|
|
1
|
|
|
|
—
|
|
|
1
|
|
Available for sale equity securities
|
|
55,789
|
|
|
|
—
|
|
|
|
—
|
|
|
55,789
|
|
Money market funds
|
|
34,072
|
|
|
|
—
|
|
|
|
—
|
|
|
34,072
|
|
Other
|
|
1,444
|
|
|
|
—
|
|
|
|
—
|
|
|
1,444
|
|
Total assets at fair value
|
|
$
|
116,279
|
|
|
|
$
|
10,217
|
|
|
|
$
|
—
|
|
|
$
|
126,496
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
Physical commodity contracts
|
|
$
|
—
|
|
|
|
$
|
14,026
|
|
|
|
$
|
—
|
|
|
$
|
14,026
|
|
Financial commodity contracts
|
|
49,201
|
|
|
|
—
|
|
|
|
—
|
|
|
49,201
|
|
Financial commodity contracts - foreign exchange
|
|
—
|
|
|
|
32
|
|
|
|
—
|
|
|
32
|
|
Interest rate contracts
|
|
—
|
|
|
|
23,073
|
|
|
|
—
|
|
|
23,073
|
|
Total liabilities at fair value
|
|
$
|
49,201
|
|
|
|
$
|
37,131
|
|
|
|
$
|
—
|
|
|
$
|
86,332
|
|
Assets measured at fair value on a non-recurring basis are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices in Active Markets for Identical Assets
|
Significant Other Observable Inputs
|
Significant
Unobservable
Inputs
|
|
(Thousands)
|
(Level 1)
|
(Level 2)
|
(Level 3)
|
Total
|
As of September 30, 2017:
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
Acquired wholesale energy contracts
(1)
|
|
$
|
—
|
|
|
|
$
|
41,084
|
|
|
|
$
|
—
|
|
|
$
|
41,084
|
|
Total assets at fair value
|
|
$
|
—
|
|
|
|
$
|
41,084
|
|
|
|
$
|
—
|
|
|
$
|
41,084
|
|
|
|
(1)
|
Included in intangible asset on the Consolidated Balance Sheets, see
Note 3. Acquisition
for more information regarding the acquired contracts.
|
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
7. INVESTMENTS IN EQUITY INVESTEES
As of
September 30
, the Company’s investments in equity method investees includes the following:
|
|
|
|
|
|
|
|
(Thousands)
|
2017
|
2016
|
Steckman Ridge
(1)
|
$
|
120,262
|
|
$
|
123,155
|
|
PennEast
|
52,323
|
|
17,993
|
|
Total
|
$
|
172,585
|
|
$
|
141,148
|
|
(1)
Includes loans with a total outstanding principal balance of
$70.4 million
for both
fiscal 2017
and
2016
, which accrue interest at a variable rate that resets quarterly and are due
October 1, 2023
.
The Company, through its subsidiary NJR Pipeline Company, is an investor in PennEast, which is expected to construct and operate a
120
-mile pipeline that will extend from northeast Pennsylvania to western New Jersey and is estimated to be completed and operational in
2019
.
NJNG and Energy Services have entered into storage and park and loan agreements with Steckman Ridge. In addition, NJNG has entered into a precedent capacity agreement with PennEast. See
Note 16. Related Party Transactions
for more information on these intercompany transactions.
8. EARNINGS PER SHARE
The following table presents the calculation of the Company’s basic and diluted earnings per share for the fiscal years ended
September 30
:
|
|
|
|
|
|
|
|
|
|
|
(Thousands, except per share amounts)
|
2017
|
2016
|
2015
|
Net income, as reported
|
$
|
132,065
|
|
$
|
131,672
|
|
$
|
180,960
|
|
Basic earnings per share
|
|
|
|
Weighted average shares of common stock outstanding-basic
|
86,321
|
|
85,884
|
|
85,186
|
|
Basic earnings per common share
|
$1.53
|
$1.53
|
$2.12
|
Diluted earnings per share
|
|
|
|
Weighted average shares of common stock outstanding-basic
|
86,321
|
|
85,884
|
|
85,186
|
|
Incremental shares
(1)
|
823
|
|
847
|
|
1,079
|
|
Weighted average shares of common stock outstanding-diluted
|
87,144
|
|
86,731
|
|
86,265
|
|
Diluted earnings per common share
(2)
|
$1.52
|
$1.52
|
$2.10
|
|
|
(1)
|
Incremental shares consist primarily of unvested stock awards and performance units.
|
|
|
(2)
|
There were
no
anti-dilutive shares excluded from the calculation of diluted earnings per share for
fiscal 2017
,
2016
and
2015
.
|
9. DEBT
NJNG and NJR finance working capital requirements and capital expenditures through the issuance of various long-term debt and other financing arrangements, including unsecured credit and private placement debt shelf facilities. Amounts available under credit facilities are reduced by bank or commercial paper borrowings, as applicable, and any outstanding letters of credit.
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
Long-term Debt
The following table presents the long-term debt of the Company as of
September 30
:
|
|
|
|
|
|
|
|
|
|
(Thousands)
|
2017
|
2016
|
NJNG
|
|
|
|
First mortgage bonds:
|
Maturity date:
|
|
|
4.50%
|
Series II
|
August 1, 2023
|
$
|
—
|
|
$
|
10,300
|
|
4.60%
|
Series JJ
|
August 1, 2024
|
—
|
|
10,500
|
|
4.90%
|
Series KK
|
October 1, 2040
|
—
|
|
15,000
|
|
5.60%
|
Series LL
|
May 15, 2018
|
125,000
|
|
125,000
|
|
Variable
|
Series MM
|
September 1, 2027
|
9,545
|
|
9,545
|
|
Variable
|
Series NN
|
August 1, 2035
|
41,000
|
|
41,000
|
|
Variable
|
Series OO
|
August 1, 2041
|
46,500
|
|
46,500
|
|
3.15%
|
Series PP
|
April 15, 2028
|
50,000
|
|
50,000
|
|
3.58%
|
Series QQ
|
March 13, 2024
|
70,000
|
|
70,000
|
|
4.61%
|
Series RR
|
March 13, 2044
|
55,000
|
|
55,000
|
|
2.82%
|
Series SS
|
April 15, 2025
|
50,000
|
|
50,000
|
|
3.66%
|
Series TT
|
April 15, 2045
|
100,000
|
|
100,000
|
|
3.63%
|
Series UU
|
June 21, 2046
|
125,000
|
|
125,000
|
|
Capital lease obligation-buildings
|
June 1, 2021
|
11,617
|
|
14,262
|
|
Capital lease obligation-meters
|
Various dates
|
28,042
|
|
27,895
|
|
Less: Debt issuance costs
|
|
(6,262
|
)
|
(7,659
|
)
|
Less: Current maturities of long-term debt
|
|
(135,800
|
)
|
(11,452
|
)
|
Total NJNG long-term debt
|
569,642
|
|
730,891
|
|
NJR
|
|
|
|
6.05%
|
Unsecured senior notes
|
September 24, 2017
|
—
|
|
50,000
|
|
2.51%
|
Unsecured senior notes
|
September 15, 2018
|
25,000
|
|
25,000
|
|
3.25%
|
Unsecured senior notes
|
September 17, 2022
|
50,000
|
|
50,000
|
|
3.48%
|
Unsecured senior notes
|
November 7, 2024
|
100,000
|
|
100,000
|
|
3.20%
|
Unsecured senior notes
|
August 18, 2023
|
50,000
|
|
50,000
|
|
3.54%
|
Unsecured senior notes
|
August 18, 2026
|
100,000
|
|
100,000
|
|
Variable
|
Term loan
|
August 16, 2019
|
100,000
|
|
—
|
|
Less: Debt issuance costs
|
|
(770
|
)
|
(853
|
)
|
Less: Current maturities of long-term debt
|
|
(25,000
|
)
|
(50,000
|
)
|
Total NJR long-term debt
|
399,230
|
|
324,147
|
|
Clean Energy Ventures
|
|
|
Solar asset financing obligation
|
Various dates
|
32,790
|
|
—
|
|
Less: Current maturities of long-term debt
|
(4,582
|
)
|
—
|
|
Total Clean Energy Ventures long-term debt
|
28,208
|
|
—
|
|
Total long-term debt
|
$
|
997,080
|
|
$
|
1,055,038
|
|
Annual long-term debt redemption requirements, excluding capital leases, debt issuance costs and solar asset financing obligations, as of
September 30
, are as follows:
|
|
|
|
|
|
|
|
(Thousands)
|
NJNG
|
NJR
|
2018
|
$
|
125,000
|
|
$
|
25,000
|
|
2019
|
$
|
—
|
|
$
|
100,000
|
|
2020
|
$
|
—
|
|
$
|
—
|
|
2021
|
$
|
—
|
|
$
|
—
|
|
2022
|
$
|
—
|
|
$
|
50,000
|
|
Thereafter
|
$
|
547,045
|
|
$
|
250,000
|
|
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
NJNG
First Mortgage Bonds
NJNG and Trustee entered into the Mortgage Indenture, dated September 1, 2014, which secures all of the outstanding First Mortgage Bonds issued by NJNG. The Mortgage Indenture provides a direct first mortgage lien upon substantially all of the operating properties and franchises of NJNG (other than excepted property, such as cash on hand, choses-in-action, securities, rent, natural gas meters and certain materials, supplies, appliances and vehicles), subject only to certain permitted encumbrances. The Mortgage Indenture contains provisions subjecting after-acquired property (other than excepted property and subject to pre-existing liens, if any, at the time of acquisition) to the lien thereof.
NJNG’s Mortgage Indenture no longer contains a restriction on NJNG's ability to pay dividends. New Jersey Administrative Code 14:4-4.7 states that a public utility cannot issue dividends, without regulatory approval, if its equity to total capitalization ratio falls below
30 percent
. As of
September 30, 2017
, NJNG’s equity to total capitalization ratio is
55.6 percent
and has the ability to issue up to
$960 million
of FMB under the terms of the Mortgage Indenture.
NJNG has variable rate EDA Bonds with a total principal amount of
$97 million
and maturity dates ranging from
September 2027
to
August 2041
. The EDA Bonds are not subject to optional tender while they bear interest at a LIBOR index rate. As of
September 30, 2017
, the interest rate on the EDA Bonds was
1.42 percent
.
In
June 2016
, NJNG entered into a Note Purchase Agreement, under which NJNG issued
$125 million
of its
3.63 percent
senior notes due
June 2046
. The notes are secured by an equal principal amount of NJNG’s FMB (series UU) issued under NJNG’s Mortgage Indenture. The proceeds of the notes will be used for general corporate purposes, including, but not limited to, refinancing or retiring short-term debt and funding capital expenditures.
On January 17, 2017, the Company completed the purchase of three FMBs in lieu of redemption with an aggregate principal amount totaling
$35.8 million
. The FMBs bore interest at rates ranging from
4.5 percent
to
4.9 percent
. The bonds purchased in lieu of redemption are being held by the Company to provide an opportunity to evaluate remarketing alternatives.
As of
September 30, 2017
, NJNG's
$125 million
,
5.6 percent
senior notes, which will mature in
May 2018
, were classified as a current maturity of long-term debt.
Sale-Leasebacks
NJNG has entered into a sale-leaseback for its headquarters building, which has a
25.5
-year term that expires in
June 2021
, subject to an option by NJNG to renew the lease for additional
five
-year terms a maximum of
four
times. The present value of the agreement’s minimum lease payments is reflected as both a capital lease asset and a capital lease obligation, which are included in utility plant and long-term debt, respectively, on the Consolidated Balance Sheets.
NJNG received
$9.6 million
,
$7.1 million
and
$7.2 million
for
fiscal 2017
,
2016
and
2015
, respectively, in connection with the sale-leaseback of its natural gas meters. NJNG records a capital lease obligation that is paid over the term of the lease and has the option to purchase the meters back at fair value upon expiration of the lease. During
fiscal 2017
,
2016
and
2015
, NJNG exercised early purchase options with respect to meter leases by making final principal payments of
$2.4 million
,
$1.9 million
and
$768,000
, respectively. NJNG continues to evaluate this sale-leaseback program based on current market conditions.
Contractual commitments for capital lease payments, as of the fiscal years ended September 30, are as follows:
|
|
|
|
|
|
(Thousands)
|
Lease Payments
|
|
2018
|
|
$
|
12,436
|
|
2019
|
|
9,675
|
|
2020
|
|
8,849
|
|
2021
|
|
5,862
|
|
2022
|
|
2,518
|
|
Thereafter
|
|
4,914
|
|
Subtotal
|
|
44,200
|
|
Less: Interest component
|
|
(4,494
|
)
|
Total
|
|
$
|
39,700
|
|
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
NJR
In
March 2016
, NJR entered into a Note Purchase Agreement, under which the Company issued, in
August 2016
,
$50 million
of the Company’s
3.2 percent
senior notes due
August 2023
, and
$100 million
of the Company’s
3.54 percent
senior notes due
August 2026
. The notes are not secured by assets, but are instead guaranteed by certain unregulated subsidiaries of the Company. The proceeds of the notes will be used for general corporate purposes, including working capital and capital expenditures.
On
August 18, 2017
, NJR entered into a
$100 million
credit agreement due
August 16, 2019
. The term loan will accrue interest at a variable rate determined monthly, which is LIBOR plus
70
basis points. The weighted average interest rate on the term loan as of
September 30, 2017
, was
1.95 percent
. NJR had
no
long-term, variable-rate debt outstanding as of
September 30, 2016
.
As of
September 30, 2017
, NJR's
$25 million
,
2.51 percent
debt shelf notes, which will mature in
September 2018
, were classified as a current maturity of long-term debt.
Clean Energy Ventures
During September 2017, Clean Energy Ventures entered into transactions to sell
two
commercial solar assets concurrent with agreements to lease the assets back over a period of
seven
years. These sale-leasebacks are treated as financing obligations, which are typically secured by the renewable energy facility asset and its future cash flows from SREC and energy sales. ITCs and other tax benefits associated with these solar projects will be transferred to the buyer. Clean Energy Ventures will continue to operate the solar assets, including related expenses, and retain the revenue generated from SRECs and energy sales. and has the option to renew the lease or repurchase the assets sold at the end of the lease term. Clean Energy Ventures received proceeds of
$32.9 million
in connection with these sale-leasebacks. Contractual commitments for the sale-leasebacks will be
$2.7 million
annually for the next
five
years and
$5.3 million
in the aggregate for all years thereafter.
Short-term Debt
A summary of NJR’s and NJNG’s short-term bank facilities as of
September 30,
are as follows:
|
|
|
|
|
|
|
|
|
(Thousands)
|
2017
|
|
2016
|
NJR
|
|
|
|
Bank revolving credit facilities:
(1)
|
$
|
425,000
|
|
|
$
|
425,000
|
|
Notes outstanding at end of period
|
$
|
255,000
|
|
|
$
|
121,700
|
|
Weighted average interest rate at end of period
|
2.14
|
%
|
|
1.43
|
%
|
Amount available at end of period
(2)
|
$
|
156,601
|
|
|
$
|
288,910
|
|
NJNG
|
|
|
|
Bank revolving credit facilities:
(3)
|
$
|
250,000
|
|
|
$
|
250,000
|
|
Commercial paper outstanding at end of period
|
$
|
11,000
|
|
|
$
|
—
|
|
Weighted average interest rate at end of period
|
1.13
|
%
|
|
—
|
%
|
Amount available at end of period
(4)
|
$
|
238,269
|
|
|
$
|
249,269
|
|
|
|
(1)
|
Committed credit facilities, which require commitment fees of
.075 percent
on the unused amounts.
|
|
|
(2)
|
Letters of credit outstanding total
$13.4 million
and
$14.4 million
as of
September 30, 2017
and
2016
, respectively, which reduces amount available by the same amount.
|
|
|
(3)
|
Committed credit facilities, which require commitment fees of
.075 percent
on the unused amounts.
|
|
|
(4)
|
Letters of credit outstanding total
$731,000
as of
September 30, 2017
and
2016
, which reduces amount available by the same amount.
|
NJR
On
September 28, 2015
, NJR entered into a
$425 million
unsecured, committed credit facility scheduled to expire on
September 28, 2020
, subject to two mutual options for a one-year extension beyond that date. The NJR Credit Facility includes an accordion feature, which would allow NJR, in the absence of a default or event of default, to increase from time to time, with the existing or new lenders, the revolving credit commitments under the NJR Credit Facility in minimum
$5 million
increments up to a maximum of
$100 million
. The credit facility is used primarily to finance its share repurchases, to satisfy Energy Services’ short-term liquidity needs and to finance, on an initial basis, unregulated investments.
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
As of
September 30, 2017
, NJR had
six
letters of credit outstanding totaling
$13.4 million
.
Three
letters of credit totaling
$10.4 million
are issued on behalf of Energy Services and
three
letters of credit, which total
$3 million
, are issued on behalf of Clean Energy Ventures. These letters of credit reduce the amount available under NJR’s committed credit facility by the same amount. NJR does not anticipate that these letters of credit will be drawn upon by the counterparties, and they will be renewed as necessary.
Energy Services’ letters of credit are used for margin requirements for natural gas transactions, collateral and security deposit for retail gas sales and expire on dates ranging from
December 2017
to
September 2018
. Clean Energy Ventures’ letters of credit are used to secure construction of ground-mounted solar projects and to secure obligations pursuant to an Interconnection Services Agreement. They expire on dates ranging from
May 2018
to
August 2018
.
Neither NJNG nor the results of its operations are obligated or pledged to support the NJR credit or debt shelf facilities.
NJNG
NJNG has a
$250 million
,
five
-year, revolving, unsecured credit facility, which expires in
May 2019
. The NJNG Credit Facility permits the borrowing of revolving loans and swing loans, as well as the issuance of letters of credit. It also permits an increase to the facility, from time to time, with the existing or new lenders, in a minimum of
$15 million
increments up to a maximum of
$50 million
at the lending banks’ discretion.
As of
September 30, 2017
, NJNG has
two
letters of credit outstanding for
$731,000
. NJNG’s letters of credit are used as collateral for remediation projects and expire in
August 2018
. These letters of credit reduce the amount available under NJNG’s committed credit facility by the same amount. NJNG does not anticipate that these letters of credit will be drawn upon by the counterparty and will be renewed as necessary.
10. STOCK-BASED COMPENSATION
Effective January 25, 2017, the shareholders of the Company approved the NJR 2017 Stock Award and Incentive Plan, which replaced the NJR 2007 Stock Award and Incentive Plan. The 2007 plan had
914,169
shares granted but not issued as of
September 30, 2016
, which were transferred into the 2017 plan. The 2017 plan added an additional
3,135,000
shares available for issuance. Shares have been issued in the form of performance shares, restricted stock, deferred retention stock and unrestricted common stock to non-employee directors. As of
September 30, 2017
,
3,119,878
shares remain available for future issuance.
The following table summarizes all stock-based compensation expense recognized during the following fiscal years:
|
|
|
|
|
|
|
|
|
|
|
(Thousands)
|
2017
|
2016
|
2015
|
Stock-based compensation expense:
|
|
|
|
Performance share awards
|
$
|
2,614
|
|
$
|
3,188
|
|
$
|
2,473
|
|
Restricted and non-restricted stock
|
1,732
|
|
2,161
|
|
1,899
|
|
Deferred retention stock
|
1,461
|
|
1,885
|
|
5,273
|
|
Compensation expense included in operation and maintenance expense
|
5,807
|
|
7,234
|
|
9,645
|
|
Income tax benefit
(1)
|
(2,372
|
)
|
(2,955
|
)
|
(3,940
|
)
|
Total, net of tax
|
$
|
3,435
|
|
$
|
4,279
|
|
$
|
5,705
|
|
|
|
(1)
|
Excludes additional tax benefit related to delivered
shares of
$1.3 million
,
$1.8 million
and
$881,000
as of
September 30, 2017
,
2016
and
2015
, respectively.
|
Performance Shares
In fiscal 2017, the Company granted to various officers
44,576
performance shares, which are market condition awards that vest on
September 30, 2019
, subject to the Company meeting certain performance conditions. In fiscal 2017, the Company also granted to various officers
51,931
performance shares, of which
25,806
vest on
September 30, 2019
and
26,125
vest annually over a
three
year period beginning on
September 30, 2017
, both of which are subject to the Company meeting certain performance conditions.
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
In fiscal 2016, the Company granted to various officers
46,175
performance shares, which are market condition awards that vest on
September 30, 2018
, subject to the Company meeting certain performance conditions. In fiscal 2016, the Company also granted to various officers
69,305
performance shares, of which
38,789
vest on
September 30, 2018
and
30,516
vest annually over a
three
year period beginning in
September 2016
, both of which are subject to the Company meeting certain performance conditions.
In fiscal 2015, the Company granted to various officers
41,214
performance shares, which are market condition awards that vested on
September 30, 2017
, subject to the Company meeting certain performance conditions. In fiscal 2015, the Company also granted to various officers
61,576
performance shares, of which
34,622
vested in
September 30, 2017
and
26,954
vest annually over a
three
year period beginning in
September 2015
, both of which were subject to the Company meeting certain performance conditions. The vesting of these awards are shown in the table below.
There is approximately
$2.9 million
of deferred compensation related to unvested performance shares that is expected to be recognized over the weighted average period of
1.7
years.
The following table summarizes the performance share activity under the stock award and incentive plans for the past three fiscal years:
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
(1)
|
Weighted Average
Grant Date
Fair Value
|
Total Fair Value of Vested Shares (in Thousands)
|
Non-vested and outstanding at September 30, 2014
|
247,536
|
|
|
$18.30
|
|
|
—
|
|
|
Granted
|
102,790
|
|
|
$28.25
|
|
|
—
|
|
|
Vested
(2)
|
(112,446
|
)
|
|
$17.10
|
|
|
$
|
4,318
|
|
|
Cancelled/forfeited
(3)
|
(23,416
|
)
|
|
$17.98
|
|
|
—
|
|
|
Non-vested and outstanding at September 30, 2015
|
214,464
|
|
|
$23.40
|
|
|
—
|
|
|
Granted
|
115,480
|
|
|
$27.37
|
|
|
—
|
|
|
Vested
(4)
|
(137,053
|
)
|
|
$21.40
|
|
|
$
|
5,657
|
|
|
Cancelled/forfeited
(5)
|
(12,975
|
)
|
|
$23.40
|
|
|
—
|
|
|
Non-vested and outstanding at September 30, 2016
|
179,916
|
|
|
$27.47
|
|
|
—
|
|
|
Granted
|
96,507
|
|
|
$33.57
|
|
|
—
|
|
|
Vested
(6)
|
(95,407
|
)
|
|
$28.88
|
|
|
$
|
4,179
|
|
|
Cancelled/forfeited
|
(24,429
|
)
|
|
$29.14
|
|
|
—
|
|
|
Non-vested and outstanding at September 30, 2017
|
156,587
|
|
|
$30.12
|
|
|
—
|
|
|
|
|
(1)
|
The number of common shares issued related to certain performance shares may range from
zero
to
150 percent
of the number of shares shown in the table above based on the Company’s achievement of performance goals
.
|
|
|
(2)
|
As certified by the Company’s Leadership and Compensation Committee on November 10, 2015, the number of common shares related to performance shares earned was
120 percent
, or
112,918
shares, excluding accumulated dividends. The number represented on this line is the target number of
100 percent
. See footnote
(1)
above. Also included in the vested number are
9,364
shares certified by the Leadership and Compensation Committee on November 11, 2014 and
8,984
shares certified by the Leadership and Compensation Committee on November 10, 2015.
|
|
|
(3)
|
As certified by the Company’s Leadership and Compensation Committee on November 10, 2015,
9,364
shares were canceled due to not achieving a certain performance target. The remainder were forfeitures due to individuals departing the company.
|
|
|
(4)
|
As certified by the Company’s Leadership and Compensation Committee on November 15, 2016, the number of common shares earned related to TSR performance was
85 percent
or
55,702
shares, the number of common shares earned related to NFE performance was
150 percent
or
71,808
shares, and the number of common shares earned related to Performance Based Restricted Stock was
100 percent
or
23,649
shares. Each award earned excludes accumulated dividends. The number represented on this line is the target number of
100 percent
.
|
|
|
(5)
|
As certified by the Company’s Leadership and Compensation Committee on November 15, 2016,
9,366
shares were canceled due to not achieving a certain performance target. The remainder were forfeitures due to individuals departing the company.
|
|
|
(6)
|
As certified by the Company’s Leadership and Compensation Committee on November 14, 2017, the number of common shares earned related to TSR performance was
108.44 percent
or
39,595
shares, the number of common shares earned related to NFE performance was
119 percent
or
36,498
shares and the number of common shares earned related to Performance Based Restricted Stock was
100 percent
or
28,223
shares. Each award earned excludes accumulated dividends. The number represented on this line is the target number of
100 percent
.
|
The Company measures compensation expense related to performance shares based on the fair value of these awards at their date of grant. In accordance with ASC 718,
Compensation - Stock Compensation
, compensation expense for market condition grants are recognized for awards granted, and are not adjusted based on actual achievement of the performance goals. The Company estimated the fair value of these grants on the date of grant using a lattice model. Performance condition grants are initially fair valued at the company’s stock price on grant date, and are subsequently adjusted for actual achievement of the performance goals.
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
Restricted Stock
In
fiscal 2017
, the Company granted
22,591
shares of restricted stock that vest annually over a
three
year period beginning
October 15, 2017
. In
fiscal 2017
, the Company also granted
6,143
shares of restricted stock that vest annually over a
three
year period beginning
May 8, 2018
. In fiscal 2016, the Company granted
41,909
shares of restricted stock that vest annually over a
three
year period beginning in
October 2016
. In fiscal 2015, the Company granted
48,542
shares of restricted stock that vest annually over a
three
year period beginning in
October 2015
. In fiscal 2015, the Company also granted
10,236
shares of restricted stock that will vest
October 15, 2017
and
3,194
that vested
September 30, 2015
. There is approximately
$511,409
of deferred compensation related to unvested restricted stock shares that is expected to be recognized over the weighted average period of
two
years.
The following table summarizes the restricted stock activity under the stock award and incentive plans for the past three fiscal years:
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Weighted Average
Grant Date
Fair Value
|
Total Fair Value of Vested Shares (in Thousands)
|
Non-vested and outstanding at September 30, 2014
|
41,491
|
|
|
$22.60
|
|
|
—
|
|
|
Granted
|
61,972
|
|
|
$29.41
|
|
|
—
|
|
|
Vested
|
(18,170
|
)
|
|
$24.45
|
|
|
$
|
510
|
|
|
Cancelled/forfeited
|
(3,801
|
)
|
|
$26.79
|
|
|
—
|
|
|
Non-vested and outstanding at September 30, 2015
|
81,492
|
|
|
$27.17
|
|
|
—
|
|
|
Granted
|
41,909
|
|
|
$30.03
|
|
|
—
|
|
|
Vested
|
(48,089
|
)
|
|
$26.66
|
|
|
$
|
1,469
|
|
|
Cancelled/forfeited
|
(2,241
|
)
|
|
$29.21
|
|
|
—
|
|
|
Non-vested and outstanding at September 30, 2016
|
73,071
|
|
|
$29.09
|
|
|
—
|
|
|
Granted
|
28,734
|
|
|
$35.79
|
|
|
|
|
Vested
|
(38,752
|
)
|
|
$28.92
|
|
|
$
|
1,344
|
|
|
Cancelled/forfeited
|
(11,899
|
)
|
|
$31.56
|
|
|
|
|
Non-vested and outstanding at September 30, 2017
|
51,154
|
|
|
$32.40
|
|
|
—
|
|
|
Deferred Retention Stock
Deferred retention stock awards vest immediately when granted, with shares delivered at a future date in accordance with the terms of the underlying agreements. The expense for these awards is recognized in the fiscal year in which services are rendered. The related shares are granted upon approval by the Board of Directors, which generally occurs subsequent to the fiscal year end.
The following table summarizes the deferred retention stock award under the stock award and incentive plans for the past three fiscal years:
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
Weighted Average
Grant Date
Fair Value
|
Total Fair Value of Vested Shares (in Thousands)
|
Outstanding at September 30, 2014
|
276,782
|
|
|
$21.95
|
|
|
—
|
|
|
Granted/Vested
|
462,790
|
|
|
$29.32
|
|
|
—
|
|
|
Delivered
|
(95,098
|
)
|
|
$23.62
|
|
|
$
|
2,519
|
|
|
Forfeited
|
(11,744
|
)
|
|
$24.69
|
|
|
—
|
|
|
Outstanding at September 30, 2015
|
632,730
|
|
|
$27.03
|
|
|
—
|
|
|
Granted/Vested
|
159,831
|
|
|
$30.37
|
|
|
—
|
|
|
Delivered
|
(121,764
|
)
|
|
$20.31
|
|
|
$
|
3,751
|
|
|
Forfeited
|
(8,318
|
)
|
|
$28.14
|
|
|
—
|
|
|
Outstanding at September 30, 2016
|
662,479
|
|
|
$29.06
|
|
|
—
|
|
|
Granted/Vested
|
63,977
|
|
|
$35.64
|
|
|
—
|
|
|
Delivered
|
(53,878
|
)
|
|
$23.11
|
|
|
$
|
1,774
|
|
|
Outstanding at September 30, 2017
|
672,578
|
|
|
$29.54
|
|
|
—
|
|
|
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
Stock Options
The following table summarizes the stock option activity:
|
|
|
|
|
|
|
|
Shares
|
Weighted Average
Exercise Price
|
Outstanding at September 30, 2014
|
48,250
|
|
|
$15.00
|
|
Exercised
|
(48,250
|
)
|
|
$15.00
|
|
Outstanding at September 30, 2015
|
—
|
|
|
$0.00
|
|
NJR received proceeds of
$724,000
from the stock options exercised during fiscal
2015
. There were no remaining stock options outstanding as of September 30, 2015, and therefore NJR received
no
proceeds from stock options exercised during
fiscal 2017
and
2016
. There were no stock options granted during
fiscal 2017
,
2016
and
2015
.
Non-Employee Director Stock
Non-employee director compensation includes an annual January retainer that is awarded in stock. The shares vest immediately and are subsequently amortized to expense over a 12-month period. The following summarizes non-employee director share awards for the past three fiscal years:
|
|
|
|
|
|
|
2017
|
2016
|
2015
|
Shares granted
|
27,972
|
(1)
|
27,481
|
26,122
|
Weighted average grant date fair value
|
$35.59
|
|
$32.75
|
$30.63
|
|
|
(1)
|
$280,000
of expense remains as of
September 30, 2017
, to be recognized through
December 31, 2017
.
|
11. EMPLOYEE BENEFIT PLANS
Pension and Other Postemployment Benefit Plans
The Company has
two
trusteed, noncontributory defined benefit retirement plans covering eligible regular represented and nonrepresented employees with more than
one year
of service. Defined benefit plan benefits are based on years of service and average compensation during the highest
60
consecutive months of employment. The Company also provides postemployment medical and life insurance benefits to employees who meet certain eligibility requirements.
All represented employees of NJRHS hired on or after October 1, 2000, non-represented employees hired on or after October 1, 2009 and NJNG represented employees hired on or after January 1, 2012, are covered by an enhanced defined contribution plan instead of the defined benefit plan. Participation in the postemployment medical and life insurance plan was also frozen to new employees as of the same dates, with the exception of new NJRHS represented employees, for which benefits were frozen beginning April 3, 2012.
The Company maintains an unfunded nonqualified PEP that was established to provide employees with the full level of benefits as stated in the qualified plan without reductions due to various limitations imposed by the provisions of federal income tax laws and regulations. There were no plan assets in the nonqualified plan due to the nature of the plan.
The Company’s funding policy for its pension plans is to contribute at least the minimum amount required by the Employee Retirement Income Security Act of 1974, as amended. In
fiscal 2017
and
2016
, the Company had no minimum funding requirements. The Company made a discretionary contribution of
$30 million
during the first quarter of fiscal 2016 to improve the funded status of the pension plans based on current actuarial assumptions. The Company made
no
discretionary contributions to the pension plans in
fiscal 2017
. The Company does not expect to be required to make additional contributions to fund the pension plans over the following two fiscal years based on current actuarial assumptions; however, funding requirements are uncertain and can depend significantly on changes in actuarial assumptions, returns on plan assets and changes in the demographics of eligible employees and covered dependents.
There are no Federal requirements to pre-fund OPEB benefits. However, the Company is required to fund certain amounts due to regulatory agreements with the BPU. The Company contributed
$6 million
and
$3.2 million
, in
fiscal 2017
and
2016
, respectively, and estimates that it will contribute between
$4 million
to
$7 million
over each of the next
five years
. Additional contributions may be required based on market conditions and changes to assumptions.
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
The following summarizes the changes in the funded status of the plans and the related liabilities recognized on the Consolidated Balance Sheets as of
September 30
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension
(1)
|
OPEB
|
(Thousands)
|
2017
|
2016
|
2017
|
2016
|
Change in Benefit Obligation
|
|
|
|
|
Benefit obligation at beginning of year
|
$
|
293,654
|
|
$
|
255,987
|
|
$
|
160,393
|
|
$
|
138,367
|
|
Service cost
|
8,347
|
|
7,591
|
|
4,380
|
|
4,521
|
|
Interest cost
|
9,771
|
|
11,342
|
|
5,545
|
|
6,256
|
|
Plan participants’ contributions
(2)
|
45
|
|
47
|
|
120
|
|
104
|
|
Actuarial (gain) loss
|
(5,995
|
)
|
26,369
|
|
8,985
|
|
15,590
|
|
Benefits paid, net of retiree subsidies received
|
(7,987
|
)
|
(7,682
|
)
|
(4,333
|
)
|
(4,445
|
)
|
Benefit obligation at end of year
|
$
|
297,835
|
|
$
|
293,654
|
|
$
|
175,090
|
|
$
|
160,393
|
|
Change in plan assets
|
|
|
|
|
Fair value of plan assets at beginning of year
|
$
|
249,875
|
|
$
|
199,123
|
|
$
|
62,035
|
|
$
|
57,269
|
|
Actual return on plan assets
|
29,736
|
|
28,316
|
|
7,953
|
|
5,872
|
|
Employer contributions
|
74
|
|
30,071
|
|
6,049
|
|
3,235
|
|
Benefits paid, net of plan participants’ contributions
(2)
|
(7,942
|
)
|
(7,635
|
)
|
(4,503
|
)
|
(4,341
|
)
|
Fair value of plan assets at end of year
|
$
|
271,743
|
|
$
|
249,875
|
|
$
|
71,534
|
|
$
|
62,035
|
|
Funded status
|
$
|
(26,092
|
)
|
$
|
(43,779
|
)
|
$
|
(103,556
|
)
|
$
|
(98,358
|
)
|
Amounts recognized on Consolidated Balance Sheets
|
|
|
|
|
Postemployment employee (liability)
|
|
|
|
|
Current
|
$
|
(158
|
)
|
$
|
(79
|
)
|
$
|
(602
|
)
|
$
|
(454
|
)
|
Noncurrent
|
(25,934
|
)
|
(43,700
|
)
|
(102,954
|
)
|
(97,904
|
)
|
Total
|
$
|
(26,092
|
)
|
$
|
(43,779
|
)
|
$
|
(103,556
|
)
|
$
|
(98,358
|
)
|
|
|
(1)
|
Includes the Company’s PEP.
|
|
|
(2)
|
Prior to July 1, 1998, employees were eligible to elect an additional participant contribution to enhance their benefits and contributions made during the periods were insignificant.
|
The actuarial gain on the Company’s pension plans is primarily due to an increase in the discount rate and the adoption of the MP-2016 mortality table. The actuarial loss related to the OPEB plans is primarily due to an increase in expected retiree healthcare claims, partially offset by an increase in the discount rate and the adoption of the MP-2016 mortality table.
The Company recognizes a liability for its underfunded benefit plans as required by the
Compensation - Retirement Benefits
Topic of the ASC. The Company records the offset to regulatory assets for the portion of liability relating to NJNG and to accumulated other comprehensive income for the portion of the liability related to its unregulated operations.
The following table summarizes the amounts recognized in regulatory assets and accumulated other comprehensive income as of
September 30
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Regulatory Assets
|
|
Accumulated Other Comprehensive Income (Loss)
|
|
Pension
|
OPEB
|
|
Pension
|
OPEB
|
Balance at September 30, 2015
|
$
|
86,960
|
|
$
|
50,737
|
|
|
$
|
25,640
|
|
$
|
1,242
|
|
Amounts arising during the period:
|
|
|
|
|
|
Net actuarial loss
|
13,696
|
|
11,274
|
|
|
4,475
|
|
3,289
|
|
Amounts amortized to net periodic costs:
|
|
|
|
|
|
Net actuarial (loss)
|
(5,607
|
)
|
(3,175
|
)
|
|
(1,676
|
)
|
(99
|
)
|
Prior service (cost) credit
|
(108
|
)
|
311
|
|
|
(3
|
)
|
54
|
|
Balance at September 30, 2016
|
$
|
94,941
|
|
$
|
59,147
|
|
|
$
|
28,436
|
|
$
|
4,486
|
|
Amounts arising during the period:
|
|
|
|
|
|
Net actuarial (gain) loss
|
(9,429
|
)
|
5,211
|
|
|
(6,990
|
)
|
587
|
|
Amounts amortized to net periodic costs:
|
|
|
|
|
|
Net actuarial (loss)
|
(6,799
|
)
|
(4,209
|
)
|
|
(2,028
|
)
|
(160
|
)
|
Prior service (cost) credit
|
(108
|
)
|
311
|
|
|
(3
|
)
|
54
|
|
Balance at September 30, 2017
|
$
|
78,605
|
|
$
|
60,460
|
|
|
$
|
19,415
|
|
$
|
4,967
|
|
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
The amounts in regulatory assets and accumulated other comprehensive income not yet recognized as components of net periodic benefit cost as of September 30 are:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Regulatory Assets
|
Accumulated Other Comprehensive Income (Loss)
|
|
Pension
|
OPEB
|
Pension
|
OPEB
|
(Thousands)
|
2017
|
2016
|
2017
|
2016
|
2017
|
2016
|
2017
|
2016
|
Net actuarial loss
|
$
|
77,930
|
|
$
|
94,158
|
|
$
|
61,563
|
|
$
|
60,561
|
|
$
|
19,414
|
|
$
|
28,432
|
|
$
|
5,113
|
|
$
|
4,686
|
|
Prior service cost (credit)
|
675
|
|
783
|
|
(1,103
|
)
|
(1,414
|
)
|
1
|
|
4
|
|
(146
|
)
|
(200
|
)
|
Total
|
$
|
78,605
|
|
$
|
94,941
|
|
$
|
60,460
|
|
$
|
59,147
|
|
$
|
19,415
|
|
$
|
28,436
|
|
$
|
4,967
|
|
$
|
4,486
|
|
To the extent the unrecognized amounts in accumulated other comprehensive income or regulatory assets exceed 10 percent of the greater of the benefit obligation or the fair value of plan assets, an amortized amount over the average expected future working lifetime of the active plan participants is recognized. Amounts included in regulatory assets and accumulated other comprehensive income expected to be recognized as components of net periodic benefit cost in fiscal
2018
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Regulatory Assets
|
|
Accumulated Other Comprehensive Income (Loss)
|
(Thousands)
|
Pension
|
OPEB
|
|
Pension
|
OPEB
|
Net actuarial loss
|
$
|
6,177
|
|
$
|
4,464
|
|
|
$
|
1,360
|
|
$
|
196
|
|
Prior service cost (credit)
|
105
|
|
(311
|
)
|
|
1
|
|
(53
|
)
|
Total
|
$
|
6,282
|
|
$
|
4,153
|
|
|
$
|
1,361
|
|
$
|
143
|
|
The accumulated benefit obligation for the pension plans, including the PEP, exceeded the fair value of plan assets. The projected benefit and accumulated benefit obligations and the fair value of plan assets as of
September 30,
are as follows:
|
|
|
|
|
|
|
|
|
Pension
|
(Thousands)
|
2017
|
2016
|
Projected benefit obligation
|
$
|
297,835
|
|
$
|
293,654
|
|
Accumulated benefit obligation
|
$
|
258,514
|
|
$
|
252,077
|
|
Fair value of plan assets
|
$
|
271,743
|
|
$
|
249,875
|
|
The components of the net periodic cost for pension benefits, including the Company’s PEP, and OPEB costs (principally health care and life insurance) for employees and covered dependents for fiscal years ended
September 30,
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension
|
OPEB
|
(Thousands)
|
2017
|
2016
|
2015
|
2017
|
2016
|
2015
|
Service cost
|
$
|
8,347
|
|
$
|
7,591
|
|
$
|
7,485
|
|
$
|
4,380
|
|
$
|
4,521
|
|
$
|
4,253
|
|
Interest cost
|
9,771
|
|
11,342
|
|
10,199
|
|
5,545
|
|
6,256
|
|
5,739
|
|
Expected return on plan assets
|
(19,313
|
)
|
(20,118
|
)
|
(17,090
|
)
|
(4,767
|
)
|
(4,845
|
)
|
(4,977
|
)
|
Recognized actuarial loss
|
8,827
|
|
7,281
|
|
6,985
|
|
4,370
|
|
3,274
|
|
2,943
|
|
Prior service cost (credit) amortization
|
111
|
|
111
|
|
111
|
|
(365
|
)
|
(365
|
)
|
(364
|
)
|
Net periodic benefit cost recognized as expense
|
$
|
7,743
|
|
$
|
6,207
|
|
$
|
7,690
|
|
$
|
9,163
|
|
$
|
8,841
|
|
$
|
7,594
|
|
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
Assumptions
The weighted average assumptions used to determine the Company’s benefit costs during the fiscal years below and obligations as of
September 30,
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension
|
|
OPEB
|
|
|
2017
|
|
2016
|
|
2015
|
|
2017
|
|
2016
|
|
2015
|
|
Benefit costs:
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
3.96/3.94%
|
|
4.50
|
%
|
|
4.55
|
%
|
|
4.08/4.01%
|
|
(1)
|
4.60/4.55%
|
|
(1)
|
4.55
|
%
|
|
Expected asset return
|
7.75
|
%
|
|
8.75
|
%
|
|
8.75
|
%
|
|
7.75
|
%
|
|
8.75
|
%
|
|
8.75
|
%
|
|
Compensation increase
|
3.25/3.50%
|
|
(1)
|
3.25/3.50%
|
|
(1)
|
3.25
|
%
|
|
3.25/3.50%
|
|
(1)
|
3.50
|
%
|
|
3.50
|
%
|
|
Obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
4.03
|
%
|
|
3.96/3.94%
|
|
(1)
|
4.50
|
%
|
|
4.12/4.08%
|
|
(1)
|
4.08/4.01%
|
|
(1)
|
4.60/4.55%
|
|
(1)
|
Compensation increase
|
3.25/3.50%
|
|
(1)
|
3.25/3.50%
|
|
(1)
|
3.25/3.50%
|
|
(1)
|
3.25/3.50%
|
|
(1)
|
3.50
|
%
|
|
3.50
|
%
|
|
|
|
(1)
|
Percentages for represented and nonrepresented plans, respectively.
|
When measuring its projected benefit obligations, the Company uses an aggregate discount rate at which its obligation could be effectively settled. The Company determines a single weighted average discount rate based on a yield curve comprised of rates of return on a population of high quality debt issuances (AA- or better) whose cash flows (via coupons or maturities) match the timing and amount of its expected future benefit payments. Prior to October 1, 2016, the Company used the same assumed rate to measure the service and interest cost components of its net periodic benefit costs. Effective October 1, 2016, the Company changed its method of measuring its service and interest costs from the aggregate approach to a disaggregated, or spot rate, approach. Under the new approach, the Company applies the duration specific spot rates from the full yield curve, as of the measurement date, to each year’s future benefit payments. The Company believes that the new method provides for a more precise measurement of its service and interest costs by aligning the timing of the plans’ separate future cash flows to the corresponding spot rates on the yield curve. Accordingly, the Company accounted for this change prospectively as a change in accounting estimate.
Information relating to the assumed HCCTR used to determine expected OPEB benefits as of
September 30,
and the effect of a one percent change in the rate, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in thousands)
|
2017
|
|
2016
|
|
2015
|
HCCTR
|
8.3
|
%
|
|
8.5
|
%
|
|
6.7
|
%
|
Ultimate HCCTR
|
4.5
|
%
|
|
4.5
|
%
|
|
4.8
|
%
|
Year ultimate HCCTR reached
|
2025
|
|
|
2025
|
|
|
2022
|
|
Effect of a 1 percentage point increase in the HCCTR on:
|
|
|
|
|
|
Year-end benefit obligation
|
$
|
32,019
|
|
|
$
|
28,803
|
|
|
$
|
26,025
|
|
Total service and interest cost
|
$
|
2,468
|
|
|
$
|
2,331
|
|
|
$
|
2,026
|
|
Effect of a 1 percentage point decrease in the HCCTR on:
|
|
|
|
|
|
Year-end benefit obligation
|
$
|
(25,466
|
)
|
|
$
|
(22,862
|
)
|
|
$
|
(20,427
|
)
|
Total service and interest costs
|
$
|
(1,909
|
)
|
|
$
|
(1,801
|
)
|
|
$
|
(1,593
|
)
|
The Company’s investment objective is a long-term real rate of return on assets before permissible expenses that is approximately
5 percent
greater than the assumed rate of inflation, as measured by the consumer price index. The expected long-term rate of return is based on the asset categories in which the Company invests and the current expectations and historical performance for these categories.
The mix and targeted allocation of the pension and OPEB plans’ assets are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
Assets at
|
|
Target
|
September 30,
|
Asset Allocation
|
Allocation
|
2017
|
|
|
2016
|
|
|
U.S. equity securities
|
40
|
%
|
|
39
|
%
|
|
38
|
%
|
|
International equity securities
|
20
|
|
|
21
|
|
|
20
|
|
|
Fixed income
|
40
|
|
|
40
|
|
|
42
|
|
|
Total
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
|
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
The Company adopted the revised mortality assumptions published by the Society of Actuaries for its pension and other postemployment benefit obligations, which reflected increased life expectancies in the United States. The adoption of the new mortality tables resulted in an increase to the projected benefit obligation for the plans.
The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid during the following years:
|
|
|
|
|
|
|
|
(Thousands)
|
Pension
|
OPEB
|
2018
|
$
|
8,928
|
|
$
|
4,230
|
|
2019
|
$
|
9,712
|
|
$
|
4,807
|
|
2020
|
$
|
10,549
|
|
$
|
5,435
|
|
2021
|
$
|
11,502
|
|
$
|
6,061
|
|
2022
|
$
|
12,469
|
|
$
|
6,755
|
|
2023 - 2027
|
$
|
79,081
|
|
$
|
43,267
|
|
The Company’s OPEB plans provide prescription drug benefits that are actuarially equivalent to those provided by Medicare Part D. Therefore, under the Medicare Prescription Drug, Improvement and Modernization Act of 2003, the Company qualifies for federal subsidies.
The estimated subsidy payments are as follows:
|
|
|
|
|
Estimated Subsidy Payment
|
Fiscal Year
|
(Thousands)
|
2018
|
$262
|
2019
|
$283
|
2020
|
$311
|
2021
|
$342
|
2022
|
$373
|
2023 - 2027
|
$2,574
|
Pension and OPEB assets held in the master trust, measured at fair value, as of September 30, are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices in Active Markets for Identical Assets
(Level 1)
|
(Thousands)
|
Pension
|
|
OPEB
|
Assets
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Money market funds
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
11
|
|
|
$
|
9
|
|
Registered Investment Companies:
|
|
|
|
|
|
|
|
Equity Funds:
|
|
|
|
|
|
|
|
Large Cap Index
|
88,321
|
|
|
78,306
|
|
|
23,986
|
|
|
19,532
|
|
Extended Market Index
|
16,329
|
|
|
16,250
|
|
|
4,409
|
|
|
4,114
|
|
International Stock
|
56,446
|
|
|
50,702
|
|
|
15,000
|
|
|
12,997
|
|
Fixed Income Funds:
|
|
|
|
|
|
|
|
Emerging Markets
|
13,516
|
|
|
12,906
|
|
|
3,551
|
|
|
3,294
|
|
Core Fixed Income
|
—
|
|
|
—
|
|
|
8,082
|
|
|
7,177
|
|
Opportunistic Income
|
—
|
|
|
—
|
|
|
4,744
|
|
|
4,155
|
|
Ultra Short Duration
|
—
|
|
|
—
|
|
|
4,673
|
|
|
4,082
|
|
High Yield Bond Fund
|
26,540
|
|
|
25,976
|
|
|
7,078
|
|
|
6,675
|
|
Long Duration Fund
|
70,591
|
|
|
65,735
|
|
|
—
|
|
|
—
|
|
Total assets at fair value
|
$
|
271,743
|
|
|
$
|
249,875
|
|
|
$
|
71,534
|
|
|
$
|
62,035
|
|
The Plan had no Level 2 or Level 3 fair value measurements during
fiscal 2017
and
2016
, and there have been no changes in valuation methodologies as of
September 30, 2017
. The following is a description of the valuation methodologies used for assets measured at fair value:
Money Market funds
—
Represents bank balances and money market funds that are valued based on the net asset value of shares held at year end.
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
Registered Investment Companies
—
Equity and fixed income funds valued at the net asset value of shares held by the plan at year end as reported on the active market on which the individual securities are traded.
The methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the Plan believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.
Defined Contribution Plan
The Company offers a Savings Plan to eligible employees. As of January 1, 2015, the Company matches
65 percent
of participants’ contributions up to
6 percent
of base compensation. Represented NJRHS employees, non-represented employees hired on or after
October 1, 2009
, and NJNG represented employees hired on or after
January 1, 2012
, are eligible for an employer special contribution of between
3
and
4 percent
of base compensation, depending on years of service, into the Savings Plan on their behalf. The amount expensed and contributed for the matching provision of the Savings Plan was
$2.9 million
in
fiscal 2017
,
$2.8 million
in
fiscal 2016
and
$2.6 million
in
fiscal 2015
. The amount contributed for the employer special contribution of the Savings Plan was
$781,000
in
fiscal 2017
,
$571,000
in
fiscal 2016
and
$461,000
in
fiscal 2015
.
12. ASSET RETIREMENT OBLIGATIONS
The Company recognizes AROs when the legal obligation to retire an asset has been incurred and a reasonable estimate of fair value can be made. Accordingly, the Company recognizes AROs related to the costs associated with cutting and capping its main and service gas distribution pipelines of NJNG, which is required by New Jersey law when taking such gas distribution pipeline out of service. The Company also recognizes AROs related to Clean Energy Ventures’ solar and wind assets when there are decommissioning provisions in Clean Energy Ventures’ lease agreements that require removal of the asset.
Accretion amounts associated with NJNG’s ARO is recognized as part of its depreciation expense and the corresponding regulatory asset and liability will be shown gross on the Consolidated Balance Sheets. During fiscal 2016, accretion amounts were not reflected as an expense, but rather were deferred as a regulatory asset and netted against NJNG’s regulatory liabilities, for presentation purposes, on the Consolidated Balance Sheets. Accretion amounts associated with Clean Energy Ventures’ ARO are recognized as a component of operations and maintenance expense on the Consolidated Statements of Operations.
The following is an analysis of the change in the Company’s AROs for the fiscal year ended
September 30
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Thousands)
|
2017
|
|
2016
|
|
NJNG
|
NJRCEV
|
|
NJNG
|
NJRCEV
|
Balance at October 1
|
$
|
23,521
|
|
$
|
4,858
|
|
|
$
|
16,773
|
|
$
|
2,372
|
|
Accretion
|
1,304
|
|
245
|
|
|
1,048
|
|
158
|
|
Additions
|
729
|
|
1,492
|
|
|
783
|
|
2,328
|
|
Revisions in estimated cash flows
|
(245
|
)
|
—
|
|
|
5,320
|
|
—
|
|
Retirements
|
(484
|
)
|
—
|
|
|
(403
|
)
|
—
|
|
Balance at period end
|
$
|
24,825
|
|
$
|
6,595
|
|
|
$
|
23,521
|
|
$
|
4,858
|
|
During fiscal 2016, NJNG revised its retirement assumptions to reflect an increase in inflation rates and construction costs. These increases, were discounted using the current credit adjusted risk free rate, resulting in an increase of approximately
$5.3 million
to the ARO liability.
Accretion for the next five years is estimated to be as follows:
|
|
|
|
|
|
|
(Thousands)
|
|
|
|
Fiscal Year Ended September 30,
|
Estimated Accretion
|
2018
|
|
$
|
1,644
|
|
|
2019
|
|
1,718
|
|
|
2020
|
|
1,795
|
|
|
2021
|
|
1,877
|
|
|
2022
|
|
1,960
|
|
|
Total
|
|
$
|
8,994
|
|
|
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
13. INCOME TAXES
A reconciliation of the U.S. federal statutory rate of
35 percent
to the effective rate from operations for the fiscal years ended
September 30, 2017
,
2016
and
2015
is as follows:
|
|
|
|
|
|
|
|
|
|
|
(Thousands)
|
2017
|
2016
|
2015
|
Statutory income tax expense
|
$
|
52,643
|
|
$
|
54,321
|
|
$
|
84,239
|
|
Change resulting from:
|
|
|
|
State income taxes
|
8,222
|
|
6,044
|
|
8,233
|
|
Cost of removal of assets placed in service prior to1981
|
(6,886
|
)
|
(5,738
|
)
|
(5,149
|
)
|
Investment/production tax credits
|
(34,526
|
)
|
(32,491
|
)
|
(30,096
|
)
|
Basis adjustment of solar assets due to ITC
|
4,256
|
|
4,453
|
|
4,861
|
|
AFUDC equity
|
(2,624
|
)
|
(1,531
|
)
|
(1,339
|
)
|
Other
|
(2,742
|
)
|
(1,528
|
)
|
(1,025
|
)
|
Income tax provision
|
$
|
18,343
|
|
$
|
23,530
|
|
$
|
59,724
|
|
Effective income tax rate
|
12.2
|
%
|
15.2
|
%
|
24.8
|
%
|
The income tax (benefit) provision from operations consists of the following:
|
|
|
|
|
|
|
|
|
|
|
(Thousands)
|
2017
|
2016
|
2015
|
Current:
|
|
|
|
Federal
|
$
|
(16,023
|
)
|
$
|
(23,597
|
)
|
$
|
20,492
|
|
State
|
2,470
|
|
(2,209
|
)
|
5,473
|
|
Deferred:
|
|
|
|
Federal
|
54,965
|
|
70,386
|
|
56,480
|
|
State
|
11,457
|
|
11,441
|
|
7,375
|
|
Investment/production tax credits
|
(34,526
|
)
|
(32,491
|
)
|
(30,096
|
)
|
Income tax provision
|
$
|
18,343
|
|
$
|
23,530
|
|
$
|
59,724
|
|
The temporary differences, which give rise to deferred tax assets and (liabilities), consist of the following:
|
|
|
|
|
|
|
|
|
(Thousands)
|
2017
|
|
2016
|
Deferred tax assets
|
|
|
|
Investment tax credits
(1)
|
$
|
111,642
|
|
|
$
|
76,517
|
|
Deferred service contract revenue
|
3,877
|
|
|
3,601
|
|
Incentive compensation
|
6,260
|
|
|
8,128
|
|
Fair value of derivatives
|
11,519
|
|
|
1,179
|
|
Federal net operating losses
|
28,487
|
|
|
27,541
|
|
State net operating losses
|
23,597
|
|
|
18,113
|
|
Overrecovered gas costs
|
—
|
|
|
3,831
|
|
Other
|
13,845
|
|
|
11,668
|
|
Total deferred tax assets
|
$
|
199,227
|
|
|
$
|
150,578
|
|
Deferred tax liabilities
|
|
|
|
Property related items
|
$
|
(620,850
|
)
|
|
$
|
(532,027
|
)
|
Remediation costs
|
(11,625
|
)
|
|
(7,928
|
)
|
Equity investments
|
(38,370
|
)
|
|
(37,740
|
)
|
Postemployment benefits
|
(6,855
|
)
|
|
(7,902
|
)
|
Conservation incentive plan
|
(7,195
|
)
|
|
(14,953
|
)
|
Underrecovered gas costs
|
(4,035
|
)
|
|
—
|
|
Other
|
(16,643
|
)
|
|
(14,610
|
)
|
Total deferred tax liabilities
|
$
|
(705,573
|
)
|
|
$
|
(615,160
|
)
|
Total net deferred tax liabilities
|
$
|
(506,346
|
)
|
|
$
|
(464,582
|
)
|
|
|
(1)
|
Includes
$2.3 million
and
$2.5 million
for NJNG for
fiscal 2017
and
2016
, respectively
, which is being amortized over the life of the related assets, and
$109.3 million
and
$74 million
for Clean Energy Ventures for
fiscal 2017
and
2016
, respectively
, which is ITC carryforward.
|
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
The Company and one or more of its subsidiaries files or expects to file income and/or franchise tax returns in the U.S. Federal jurisdiction and in the states of Colorado, Connecticut, Delaware, Iowa, Kansas, Louisiana, Maryland, Montana, New Jersey, New York, North Carolina, Pennsylvania, South Carolina, Texas, Utah, Virginia and the City of New York. The Company neither files in, nor believes it has a filing requirement in, any foreign jurisdictions other than Canada. Due to certain available tax treaty benefits, the Company incurs no tax liability in Canada.
The Company’s federal income tax returns through
fiscal 2013
have either been reviewed by the IRS, or the related statute of limitations has expired and all matters have been settled. Federal income tax returns for periods subsequent to
fiscal 2013
are not currently under examination by the IRS.
The State of New Jersey is currently conducting a sales and use tax examination for the period from
July 1, 2011
through
June 30, 2016
. All periods subsequent to those ended
September 30, 2013
, are statutorily open to examination in all applicable states with the exception of New York. In New York, all periods subsequent to
September 30, 2014
, are statutorily open to examination.
The Company evaluates its tax positions to determine the appropriate accounting and recognition of potential future obligations associated with unrecognized tax benefits. As of
September 30, 2017
and
2016
, based on its analysis, the Company determined there was no need to recognize any liabilities associated with uncertain tax positions.
As of
September 30, 2017
and
2016
, the Company has consolidated federal income tax net operating losses of approximately
$125.3 million
and
$78.7 million
, respectively, which generally can be carried back
two
years and forward
20
years. The Company plans to exercise its ability to carryback its federal net operating losses. Additionally, as of
September 30, 2017
and
2016
, the Company has state income tax net operating losses of approximately
$471.7 million
and
$310.6 million
, respectively. These state net operating losses have varying carry forward periods dictated by the state in which they were incurred; these state carry forward periods range from
seven
to
20
years. The Company has recorded deferred federal and state tax assets of approximately
$52.1 million
and federal income tax receivables of approximately
$15.4 million
on the Consolidated Balance Sheets, reflecting the tax benefit associated with the loss carrybacks.
The Company recorded a valuation allowance associated with state net operating loss carryforwards of
$1 million
related to NJRCEV in the state of Montana, as of
September 30, 2017
, and
$262,000
related to CR&R in the state of New Jersey, as of
September 30, 2016
, which was deemed more likely than not to be realized prior to expiration and therefore was released during fiscal 2017.
In addition, as of
September 30, 2017
, the Company has an ITC/PTC carryforward of approximately
$109.3 million
, which has a life of
20
years. This carryforward will begin to expire in fiscal 2035. The Company expects to utilize this entire carryforward.
The deferred tax assets will expire as follows:
|
|
|
|
|
(Thousands)
|
|
Fiscal years 2018 - 2022
|
$
|
313
|
|
Fiscal years 2023 - 2027
|
1,051
|
|
Fiscal years 2028 - 2032
|
796
|
|
Fiscal years 2033 - 2037
|
159,237
|
|
Total
|
$
|
161,397
|
|
In December 2015, the Consolidated Appropriations Act extended the 30 percent ITC for solar property that is under construction on or before December 31, 2019. The credit will decline to 26 percent for property under construction during 2020, and to 22 percent for property under construction during 2021. For any property that is under construction before 2022, but not placed in service before 2024, the ITC will be reduced to 10 percent. In addition, the Consolidated Appropriations Act retroactively extended the PTC for five years through December 31, 2019, with a gradual three-year phase out for any project for which construction of the facility begins after December 31, 2016.
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
14. COMMITMENTS AND CONTINGENT LIABILITIES
Cash Commitments
NJNG has entered into long-term contracts, expiring at various dates through
October 2033
, for the supply, storage and transportation of natural gas. These contracts include annual fixed charges of approximately
$98.6 million
at current contract rates and volumes, which are recoverable through BGSS.
For the purpose of securing storage and pipeline capacity, our Energy Services segment enters into storage and pipeline capacity contracts, which require the payment of certain demand charges by Energy Services to maintain the ability to access such natural gas storage or pipeline capacity, during a fixed time period, which generally ranges from
one
to
10
years. Demand charges are established by interstate storage and pipeline operators and are regulated by FERC. These demand charges represent commitments to pay storage providers or pipeline companies for the right to store and/or transport natural gas utilizing their respective assets.
Commitments as of
September 30, 2017
, for natural gas purchases and future demand fees for the next five fiscal year periods, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Thousands)
|
2018
|
2019
|
2020
|
2021
|
2022
|
Thereafter
|
Energy Services:
|
|
|
|
|
|
|
Natural gas purchases
|
$
|
296,491
|
|
$
|
114,817
|
|
$
|
22,270
|
|
$
|
11,488
|
|
$
|
—
|
|
$
|
—
|
|
Storage demand fees
|
32,870
|
|
22,638
|
|
13,350
|
|
9,041
|
|
5,833
|
|
2,746
|
|
Pipeline demand fees
|
55,916
|
|
32,412
|
|
23,804
|
|
21,621
|
|
19,653
|
|
19,311
|
|
Sub-total Energy Services
|
$
|
385,277
|
|
$
|
169,867
|
|
$
|
59,424
|
|
$
|
42,150
|
|
$
|
25,486
|
|
$
|
22,057
|
|
NJNG:
|
|
|
|
|
|
|
Natural gas purchases
|
$
|
51,050
|
|
$
|
41,156
|
|
$
|
2,514
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
Storage demand fees
|
30,042
|
|
26,628
|
|
15,331
|
|
8,231
|
|
7,804
|
|
3,903
|
|
Pipeline demand fees
|
68,544
|
|
102,091
|
|
100,909
|
|
91,231
|
|
89,859
|
|
642,481
|
|
Sub-total NJNG
|
$
|
149,636
|
|
$
|
169,875
|
|
$
|
118,754
|
|
$
|
99,462
|
|
$
|
97,663
|
|
$
|
646,384
|
|
Total
|
$
|
534,913
|
|
$
|
339,742
|
|
$
|
178,178
|
|
$
|
141,612
|
|
$
|
123,149
|
|
$
|
668,441
|
|
As of
September 30, 2017
, the Company’s future minimum lease payments under various operating leases will not be more than
$2.6 million
annually for the next five years and
$38.3 million
in the aggregate for all years thereafter.
Guarantees
As of
September 30, 2017
, there were NJR guarantees covering approximately
$331.4 million
of Energy Services’ natural gas purchases and demand fee commitments not yet reflected in accounts payable on the Consolidated Balance Sheets.
Legal Proceedings
Manufactured Gas Plant Remediation
NJNG is responsible for the remedial cleanup of
five
MGP sites, dating back to gas operations in the late 1800s and early 1900s, which contain contaminated residues from former gas manufacturing operations. NJNG is currently involved in administrative proceedings with the NJDEP, and participating in various studies and investigations by outside consultants, to determine the nature and extent of any such contaminated residues and to develop appropriate programs of remedial action, where warranted, under Administrative Consent Orders or Memoranda of Agreement with the NJDEP.
NJNG may recover its remediation expenditures, including carrying costs, over rolling
seven
-year periods pursuant to a RAC approved by the BPU. NJNG currently recovers approximately
$9.4 million
annually through its SBC RAC. On
November 17, 2017
, NJNG filed it's annual SBC application requesting a reduction in the RAC, which will decrease the annual recovery to
$7 million
, effective
April 1, 2018
. As of
September 30, 2017
,
$28.5 million
of previously incurred remediation costs, net of recoveries from customers and insurance proceeds, are included in regulatory assets on the Consolidated Balance Sheets.
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
NJNG periodically, and at least annually, performs an environmental review of the MGP sites, including a review of potential liability for investigation and remedial action. NJNG estimated at the time of the most recent review that total future expenditures to remediate and monitor the
five
MGP sites for which it is responsible, including potential liabilities for Natural Resource Damages that might be brought by the NJDEP for alleged injury to groundwater or other natural resources concerning these sites, will range from approximately
$117.6 million
to
$205.2 million
. NJNG’s estimate of these liabilities is based upon known facts, existing technology and enacted laws and regulations in place when the review was completed. Where it is probable that costs will be incurred, and the information is sufficient to establish a range of possible liability, NJNG accrues the most likely amount in the range. If no point within the range is more likely than the other, it is NJNG’s policy to accrue the lower end of the range. Accordingly, as of
September 30, 2017
, NJNG recorded an MGP remediation liability and a corresponding regulatory asset of
$149 million
on the Consolidated Balance Sheets, based on the most likely amount. This was reduced from
$172 million
in fiscal 2016, due to the completion of remediation work at some of sites and a reduction to the remediation scope at another site. The actual costs to be incurred by NJNG are dependent upon several factors, including final determination of remedial action, changing technologies and governmental regulations, the ultimate ability of other responsible parties to pay and any insurance recoveries.
NJNG will continue to seek recovery of MGP-related costs through the RAC. If any future regulatory position indicates that the recovery of such costs is not probable, the related non-recoverable costs would be charged to income in the period of such determination.
Litigation
The Company is involved, and from time to time in the future may be involved, in a number of pending and threatened judicial, regulatory and arbitration proceedings relating to matters that arise in connection with the conduct of its business. In view of the inherent difficulty of predicting the outcome of litigation matters, particularly when such matters are in their early stages or where the claimants seek indeterminate damages, the Company cannot state with confidence what the eventual outcome of the pending litigation will be, what the timing of the ultimate resolution of these matters will be, or what the eventual loss, fines or penalties related to each pending matter will be, if any. In accordance with applicable accounting guidance, NJR establishes reserves for litigation for those matters that present loss contingencies as to which it is both probable that a loss will be incurred and the amount of such loss can be reasonably estimated. Based upon currently available information, NJR believes that the results of litigation that is currently pending, taken together, will not have a materially adverse effect on the Company’s financial condition, results of operations or cash flows. The actual results of resolving the pending litigation matters may be substantially higher than the amounts reserved.
The foregoing statements about NJR’s litigation are based upon the Company’s judgments, assumptions and estimates and are necessarily subjective and uncertain. The Company has a number of threatened and pending litigation matters at various stages. Certain of the Company’s significant litigation is described below.
On February 24, 2015, a natural gas fire and explosion occurred in Stafford Township, New Jersey as a result of a natural gas leak emanating from an underground pipe. There were no fatalities, although several employees of NJNG were injured and several homes were damaged. NJNG notified its insurance carrier and believes that any costs associated with the incident, including attorneys’ fees, property damage and other losses, will be substantially covered by insurance. The Company believes the resolution of any potential claims associated with the incident will not have a material effect on its financial condition, results of operations or cash flows. As of
September 30, 2017
, NJNG estimates that liabilities associated with claims will range between
$600,000
and
$3.2 million
and has accrued the lower end of the range.
15. REPORTING SEGMENT AND OTHER OPERATIONS DATA
The Company organizes its businesses based on a combination of factors, including its products and its regulatory environment. As a result, the Company manages its businesses through the following reporting segments and other operations: the Natural Gas Distribution segment consists of regulated energy and off-system, capacity and storage management operations; the Clean Energy Ventures segment consists of capital investments in clean energy projects; the Energy Services segment consists of unregulated wholesale and retail energy operations; the Midstream segment consists of the Company’s investments in natural gas transportation and storage facilities; the Home Services and Other operations consist of heating, cooling and water appliance sales, installations and services, other investments and general corporate activities.
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
Information related to the Company’s various reporting segments and other operations is detailed below:
|
|
|
|
|
|
|
|
|
|
|
(Thousands)
|
|
|
|
Fiscal Years Ended September 30,
|
2017
|
2016
|
2015
|
Operating revenues
|
|
|
|
Natural Gas Distribution
|
|
|
|
External customers
|
$
|
695,637
|
|
$
|
594,346
|
|
$
|
781,970
|
|
Clean Energy Ventures
|
|
|
|
External customers
|
64,394
|
|
53,540
|
|
32,513
|
|
Energy Services
|
|
|
|
External customers
(1)
|
1,462,365
|
|
1,187,754
|
|
1,872,781
|
|
Intercompany
|
316
|
|
9,499
|
|
61,526
|
|
Subtotal
|
2,222,712
|
|
1,845,139
|
|
2,748,790
|
|
Home Services and Other
|
|
|
|
External customers
|
46,221
|
|
45,265
|
|
46,723
|
|
Intercompany
|
3,370
|
|
3,232
|
|
1,980
|
|
Eliminations
|
(3,686
|
)
|
(12,731
|
)
|
(63,506
|
)
|
Total
|
$
|
2,268,617
|
|
$
|
1,880,905
|
|
$
|
2,733,987
|
|
Depreciation and amortization
|
|
|
|
Natural Gas Distribution
|
$
|
49,347
|
|
$
|
47,828
|
|
$
|
43,085
|
|
Clean Energy Ventures
|
31,834
|
|
23,971
|
|
17,297
|
|
Energy Services
|
63
|
|
88
|
|
90
|
|
Midstream
|
6
|
|
6
|
|
6
|
|
Subtotal
|
81,250
|
|
71,893
|
|
60,478
|
|
Home Services and Other
|
798
|
|
981
|
|
952
|
|
Eliminations
|
(207
|
)
|
(126
|
)
|
(31
|
)
|
Total
|
$
|
81,841
|
|
$
|
72,748
|
|
$
|
61,399
|
|
Interest income
(2)
|
|
|
|
Natural Gas Distribution
|
$
|
555
|
|
$
|
115
|
|
$
|
336
|
|
Clean Energy Ventures
|
—
|
|
—
|
|
26
|
|
Energy Services
|
6
|
|
98
|
|
438
|
|
Midstream
|
2,195
|
|
1,524
|
|
977
|
|
Subtotal
|
2,756
|
|
1,737
|
|
1,777
|
|
Home Services and Other
|
590
|
|
397
|
|
217
|
|
Eliminations
|
(1,312
|
)
|
(2,006
|
)
|
(1,414
|
)
|
Total
|
$
|
2,034
|
|
$
|
128
|
|
$
|
580
|
|
|
|
(1)
|
Includes sales to Canada, which accounted for
.8
,
2
and
3.7 percent
of total operating revenues during
fiscal 2017
,
2016
and
2015
, respectively
.
|
|
|
(2)
|
Included in other income, net on the Consolidated Statements of Operations.
|
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
|
|
|
|
|
|
|
|
|
|
|
(Thousands)
|
|
|
|
Fiscal Years Ended September 30,
|
2017
|
2016
|
2015
|
Interest expense, net of capitalized interest
|
|
|
|
Natural Gas Distribution
|
$
|
25,818
|
|
$
|
19,930
|
|
$
|
18,534
|
|
Clean Energy Ventures
|
16,263
|
|
10,304
|
|
7,635
|
|
Energy Services
|
2,747
|
|
1,095
|
|
1,209
|
|
Midstream
|
960
|
|
287
|
|
717
|
|
Subtotal
|
45,788
|
|
31,616
|
|
28,095
|
|
Home Services and Other
|
410
|
|
252
|
|
49
|
|
Eliminations
|
(1,312
|
)
|
(824
|
)
|
(423
|
)
|
Total
|
$
|
44,886
|
|
$
|
31,044
|
|
$
|
27,721
|
|
Income tax (benefit) provision
|
|
|
|
Natural Gas Distribution
|
$
|
43,485
|
|
$
|
34,951
|
|
$
|
39,544
|
|
Clean Energy Ventures
|
(31,161
|
)
|
(26,592
|
)
|
(26,968
|
)
|
Energy Services
|
(4,015
|
)
|
7,030
|
|
39,043
|
|
Midstream
|
5,820
|
|
6,130
|
|
6,849
|
|
Subtotal
|
14,129
|
|
21,519
|
|
58,468
|
|
Home Services and Other
|
3,857
|
|
1,387
|
|
1,551
|
|
Eliminations
|
357
|
|
624
|
|
(295
|
)
|
Total
|
$
|
18,343
|
|
$
|
23,530
|
|
$
|
59,724
|
|
Equity in earnings of affiliates
|
|
|
|
Midstream
|
$
|
17,797
|
|
$
|
13,936
|
|
$
|
17,487
|
|
Eliminations
|
(3,984
|
)
|
(4,421
|
)
|
(4,078
|
)
|
Total
|
$
|
13,813
|
|
$
|
9,515
|
|
$
|
13,409
|
|
Net financial earnings
|
|
|
|
Natural Gas Distribution
|
$
|
86,930
|
|
$
|
76,104
|
|
$
|
76,287
|
|
Clean Energy Ventures
|
24,873
|
|
28,393
|
|
20,101
|
|
Energy Services
|
18,554
|
|
21,934
|
|
42,122
|
|
Midstream
|
12,857
|
|
9,406
|
|
9,780
|
|
Subtotal
|
143,214
|
|
135,837
|
|
148,290
|
|
Home Services and Other
|
6,811
|
|
2,882
|
|
3,420
|
|
Eliminations
|
(633
|
)
|
(634
|
)
|
(207
|
)
|
Total
|
$
|
149,392
|
|
$
|
138,085
|
|
$
|
151,503
|
|
Capital expenditures
|
|
|
|
Natural Gas Distribution
|
$
|
176,249
|
|
$
|
205,133
|
|
$
|
168,875
|
|
Clean Energy Ventures
|
149,400
|
|
149,063
|
|
151,002
|
|
Subtotal
|
325,649
|
|
354,196
|
|
319,877
|
|
Home Services and Other
|
2,434
|
|
1,896
|
|
209
|
|
Total
|
$
|
328,083
|
|
$
|
356,092
|
|
$
|
320,086
|
|
Investments in equity investees
|
|
|
|
Midstream
|
27,070
|
|
11,176
|
|
5,780
|
|
Total
|
$
|
27,070
|
|
$
|
11,176
|
|
$
|
5,780
|
|
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
The Chief Executive Officer, who uses NFE as a measure of profit or loss in measuring the results of the Company’s reporting segments and operations, is the chief operating decision maker of the Company. A reconciliation of consolidated NFE to consolidated net income is as follows:
|
|
|
|
|
|
|
|
|
|
|
(Thousands)
|
2017
|
2016
|
2015
|
Consolidated net financial earnings
|
$
|
149,392
|
|
$
|
138,085
|
|
$
|
151,503
|
|
Less:
|
|
|
|
Unrealized (gain) loss on derivative instruments and related transactions
|
(11,241
|
)
|
46,883
|
|
(38,681
|
)
|
Tax effect
|
4,062
|
|
(17,018
|
)
|
14,391
|
|
Effects of economic hedging related to natural gas inventory
|
38,470
|
|
(36,816
|
)
|
(8,225
|
)
|
Tax effect
|
(13,964
|
)
|
13,364
|
|
3,058
|
|
Consolidated net income
|
$
|
132,065
|
|
$
|
131,672
|
|
$
|
180,960
|
|
The Company uses derivative instruments as economic hedges of purchases and sales of physical gas inventory. For GAAP purposes, these derivatives are recorded at fair value and related changes in fair value are included in reported earnings. Revenues and cost of gas related to physical gas flow is recognized when the gas is delivered to customers. Consequently, there is a mismatch in the timing of earnings recognition between the economic hedges and physical gas flows. Timing differences occur in two ways:
|
|
•
|
Unrealized gains and losses on derivatives are recognized in reported earnings in periods prior to physical gas inventory flows; and
|
|
|
•
|
Unrealized gains and losses of prior periods are reclassified as realized gains and losses when derivatives are settled in the same period as physical gas inventory movements occur.
|
NFE is a measure of the earnings based on eliminating these timing differences, to effectively match the earnings effects of the economic hedges with the physical sale of gas, SRECs and foreign currency contracts. Consequently, to reconcile between net income and NFE, current period unrealized gains and losses on the derivatives are excluded from NFE as a reconciling item. Additionally, realized derivative gains and losses are also included in current period net income. However, NFE includes only realized gains and losses related to natural gas sold out of inventory, effectively matching the full earnings effects of the derivatives with realized margins on physical gas flows. The Company also calculates a quarterly tax adjustment based on an estimated annual effective tax rate for NFE purposes.
The Company’s assets for the various reporting segments and business operations are detailed below:
|
|
|
|
|
|
|
|
|
|
|
(Thousands)
|
2017
|
2016
|
2015
|
Assets at end of period:
|
|
|
|
Natural Gas Distribution
|
$
|
2,519,578
|
|
$
|
2,517,401
|
|
$
|
2,305,293
|
|
Clean Energy Ventures
|
771,340
|
|
665,696
|
|
504,885
|
|
Energy Services
|
398,277
|
|
327,626
|
|
260,021
|
|
Midstream
|
232,806
|
|
186,259
|
|
182,007
|
|
Subtotal
|
3,922,001
|
|
3,696,982
|
|
3,252,206
|
|
Home Services and Other
|
114,801
|
|
109,487
|
|
88,880
|
|
Intercompany assets
(1)
|
(108,295
|
)
|
(87,899
|
)
|
(56,729
|
)
|
Total
|
$
|
3,928,507
|
|
$
|
3,718,570
|
|
$
|
3,284,357
|
|
|
|
(1)
|
Consists of transactions between subsidiaries that are eliminated and reclassified in consolidation.
|
16. RELATED PARTY TRANSACTIONS
In
January 2010
, NJNG entered into a
10
-year agreement effective
April 1, 2010
, for
3
Bcf of firm storage capacity with Steckman Ridge. Under the terms of the agreement, NJNG incurs demand fees, at market rates, of approximately
$9.3 million
annually, a portion of which is eliminated in consolidation. These fees are recoverable through NJNG’s BGSS mechanism and are included in regulatory assets.
Energy Services may periodically enter into storage or park and loan agreements with its affiliated FERC-regulated natural gas storage facility, Steckman Ridge. As of
September 30, 2017
, Energy Services has entered into storage and park and loan transactions with Steckman Ridge for varying terms, all of which expire by
October 31, 2020
.
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
Demand fees, net of eliminations, associated with Steckman Ridge during the fiscal years ended
September 30
, are as follows:
|
|
|
|
|
|
|
|
|
|
|
(Thousands)
|
2017
|
2016
|
2015
|
NJNG
|
$
|
5,590
|
|
$
|
5,562
|
|
$
|
5,700
|
|
Energy Services
|
2,750
|
|
2,789
|
|
1,957
|
|
Total
|
$
|
8,340
|
|
$
|
8,351
|
|
$
|
7,657
|
|
The following table summarizes demand fees payable to Steckman Ridge as of
September 30
:
|
|
|
|
|
|
|
|
(Thousands)
|
2017
|
2016
|
NJNG
|
$
|
775
|
|
$
|
775
|
|
Energy Services
|
377
|
|
375
|
|
Total
|
$
|
1,152
|
|
$
|
1,150
|
|
NJNG and Energy Services have entered into various asset management agreements, the effects of which are eliminated in consolidation. Under the terms of these agreements, NJNG releases certain transportation and storage contracts to Energy Services. NJNG retains the right to purchase market priced gas or fixed price storage gas from Energy Services. As of
September 30, 2017
, NJNG and Energy Services had
four
asset management agreements with expiration dates ranging from
October 31, 2017
through
October 31, 2020
.
NJNG has entered into a
15
-year transportation precedent agreement for committed capacity of
180,000
Dths per day with PennEast, to commence when in service.
17. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
A summary of financial data for each quarter of
fiscal 2017
and
2016
follows. Due to the seasonal nature of the Company’s businesses, quarterly amounts vary significantly during the fiscal year. In the opinion of management, the information furnished reflects all adjustments necessary for a fair presentation of the results of the interim periods.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
Second
|
Third
|
Fourth
|
(Thousands, except per share data)
|
Quarter
|
Quarter
|
Quarter
|
Quarter
|
2017
|
|
|
|
|
Operating revenues
|
$
|
541,028
|
|
$
|
733,546
|
|
$
|
457,523
|
|
$
|
536,520
|
|
Operating income (loss)
|
$
|
41,475
|
|
$
|
139,653
|
|
$
|
17,967
|
|
$
|
(32,051
|
)
|
Net income (loss)
|
$
|
34,929
|
|
$
|
114,702
|
|
$
|
18,957
|
|
$
|
(36,523
|
)
|
Earnings (loss) per share
(1)
|
|
|
|
|
Basic
|
$0.41
|
$1.33
|
$0.22
|
$(0.42)
|
Diluted
|
$0.40
|
$1.32
|
$0.22
|
$(0.42)
|
2016
|
|
|
|
|
Operating revenues
|
$
|
444,258
|
|
$
|
574,193
|
|
$
|
393,213
|
|
$
|
469,241
|
|
Operating income (loss)
|
$
|
59,451
|
|
$
|
93,933
|
|
$
|
(28,329
|
)
|
$
|
42,480
|
|
Net income (loss)
|
$
|
50,281
|
|
$
|
73,354
|
|
$
|
(17,363
|
)
|
$
|
25,400
|
|
Earnings (loss) per share
(1)
|
|
|
|
|
Basic
|
$0.59
|
$0.85
|
$(0.20)
|
$0.30
|
Diluted
|
$0.58
|
$0.84
|
$(0.20)
|
$0.29
|
|
|
(1)
|
The sum of quarterly amounts may not equal the annual amounts due to rounding.
|
18. SUBSEQUENT EVENTS
Acquisition
On
October 27, 2017
, Adelphia, an indirect wholly owned subsidiary of NJR, entered into a Purchase and Sale Agreement with Talen pursuant to which Adelphia will acquire all of Talen’s membership interests in IEC for a base purchase price of
$166 million
. which includes a
$10 million
initial payment. As additional consideration, Adelphia will pay Talen specified amounts of up to
$23 million
contingent upon the achievement of certain regulatory approvals and binding natural gas capacity commitments.
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
IEC owns an existing
84
-mile pipeline in southeastern Pennsylvania. The transaction is expected to close following receipt of necessary permits and regulatory actions including those from the FERC and the Pennsylvania Public Utility Commission. Upon the closing of the transactions contemplated by the purchase and sale agreement, Adelphia will acquire IEC and, with it, IEC’s existing pipeline, related assets and rights of way. Adelphia has also agreed to provide firm natural gas transportation service for ten years following the closing to two power generators owned by affiliates of Talen that are currently served by IEC.