|
|
|
|
|
|
|
|
|
(Thousands)
|
2020
|
2019
|
Balance Sheets
|
|
|
Utility plant, at cost
|
$
|
13,452
|
|
$
|
—
|
|
Construction work in progress
|
$
|
—
|
|
$
|
4,778
|
|
Nonutility plant and equipment, at cost
|
$
|
316
|
|
$
|
—
|
|
Accumulated depreciation and amortization, utility plant
|
$
|
(279)
|
|
$
|
—
|
|
Accumulated depreciation and amortization, nonutility plant and equipment
|
$
|
(5)
|
|
$
|
—
|
|
Software costs
|
$
|
4,707
|
|
$
|
1,702
|
|
Statements of Operations
|
|
|
Operation and maintenance (1)
|
$
|
6,720
|
|
$
|
9,062
|
|
Depreciation and amortization
|
$
|
284
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)During fiscal 2020, $63,000 was amortized into O&M.
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
Investments in Equity Securities
Investments in equity securities were carried at fair value on the Consolidated Balance Sheets. For the fiscal year ended September 30, 2018, total unrealized gains and losses associated with equity securities were included as a part of accumulated other comprehensive income, a component of common stock equity, and reclassifications of realized gains or losses out of other comprehensive income into earnings were recorded in other income, net on the Consolidated Statements of Operations, based on average cost. On October 1, 2018, the Company adopted ASU No. 2016-01, an amendment to ASC 825, Financial Instruments. As a result, both realized and unrealized gains and losses were recorded in other income, net on the Consolidated Statements of Operations, based on average cost.
At September 30, 2018, the Company's investments in equity securities were comprised of an investment in DM Common Units, which had a fair value of $32.9 million. On January 28, 2019, Dominion and DM finalized an agreement and plan of merger and each outstanding DM Common Unit was converted into 0.2492 shares of Dominion common stock. This resulted in the conversion of the Company's 1.84 million DM Common Units into approximately 458,000 Dominion common shares. On March 6, 2019, the Company sold its investment in Dominion and received proceeds of approximately $34.5 million. As a result of the sale, the Company recorded total realized gains of $1.6 million in other income, net 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, 2020, intangible assets consist primarily of acquired wholesale natural gas energy contracts totaling $10 million. The wholesale natural gas contracts are being amortized based upon expected cash flows over the respective terms of the agreements.
The estimated future amortization expense as of September 30, is as follows:
|
|
|
|
|
|
(Thousands)
|
|
2021
|
$
|
5,101
|
|
2022
|
$
|
2,611
|
|
2023
|
$
|
2,271
|
|
2024
|
$
|
77
|
|
|
|
|
|
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 may not be recoverable, such as significant adverse changes in regulation, business climate or market conditions, including prolonged periods of adverse commodity and capacity prices. 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. Factors that the Company analyzes in determining whether an impairment in its long-lived assets exists include: a significant decrease in the market price of a long-lived asset; a significant adverse change in the extent in which a long-lived asset is being used in its physical condition; legal proceedings or other contributing factors; significant business climate changes; accumulations of costs in significant excess of the amounts expected; a current-period operating or cash flow loss combined with a history of such events; and current expectations that more likely than not, a long-lived asset will be sold or otherwise disposed of significantly before the end of its estimated useful life. During fiscal 2020 and 2019, there were no events or circumstances that indicated that the carrying value of long-lived assets or finite-lived intangibles were not recoverable.
Debt Issuance Costs
Debt issuance costs are capitalized and amortized as interest expense on a basis which approximates the effective interest method over the term of the related debt. Debt issuance costs are presented as a direct deduction from the carrying amount of the related debt. See Note 9. Debt for the total unamortized debt issuance costs that are recorded as a reduction to long-term debt on the Consolidated Balance Sheets.
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
Sale Leasebacks
NJNG utilizes sale leaseback arrangements as a financing mechanism to fund certain of its capital expenditures related to natural gas meters, whereby the physical asset is sold concurrent with an agreement to lease the asset back. These agreements include options to renew the lease or repurchase the asset at the end of the term. Proceeds from sale leaseback transactions are accounted for as financing arrangements and are included in long-term debt on the Consolidated Balance Sheets. During fiscal 2020 and 2019, NJNG received $4 million and $9.9 million, respectively, in connection with the sale leaseback of its natural gas meters with terms ranging from seven to 11 years.
In addition, 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 does not qualify as a sale as the Company retains control of the underlying assets and, as such, the Company uses the financing method to account for the transaction. Under the financing method, the Company recognizes the proceeds received from the buyer-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 2020 and 2018, Clean Energy Ventures received proceeds of $42.9 million and $71.5 million, respectively, in connection with the failed sale leaseback of commercial solar assets. The proceeds received were recognized as a financing obligation on the Consolidated Balance Sheets. Clean Energy Ventures did not enter into any sale leaseback transactions for its commercial solar assets during fiscal 2019. Clean Energy Ventures simultaneously entered into agreements to lease the assets back over a term of five- to 15-years. The Company continues to operate the solar assets and is responsible for related expenses and entitled to retain the revenue generated from SRECs and energy sales. The ITCs and other tax benefits associated with these solar projects transfer to the buyer; however, the payments are structured so that Clean Energy Ventures is compensated for the transfer of the related tax attributes. Accordingly, Clean Energy Ventures recognizes the equivalent value of the tax attributes in other income on the Consolidated Statements of Operations over the respective five-year ITC recapture periods, starting with the second year of the lease.
Environmental Contingencies
Loss contingencies are recorded as liabilities when it is probable a liability has been incurred and the amount of the loss is reasonably estimable in accordance with accounting standards for contingencies. Estimating probable losses requires an analysis of uncertainties that often depend upon judgments about potential actions by third parties. Accruals for loss contingencies are recorded based on an analysis of potential results.
With respect to environmental liabilities and related costs, 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’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. 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. See Note 15. Commitments and Contingent Liabilities for more details.
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 the 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 did not make any discretionary contributions to the pension plans in fiscal 2020, 2019 and 2018, respectively.
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 $8.4 million, $7.9 million and $6.2 million in aggregate to these plans in
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
fiscal 2020, 2019 and 2018, respectively, which is recorded in postemployment employee benefit liability on the Consolidated Balance Sheets. See Note 11. Employee Benefit Plans, for a more detailed description of the Company’s pension and postemployment plans.
Asset Retirement Obligations
The Company recognizes ARO related to the costs associated with cutting and capping NJNG’s main and service natural gas distribution mains, which is required by New Jersey law when taking such natural gas distribution mains out of service. The Company also recognizes ARO associated with Clean Energy Ventures’ solar assets when there are decommissioning provisions in lease agreements that require removal of the asset at the end of the lease term.
ARO are initially recognized when the legal obligation to retire an asset has been incurred and a reasonable estimate of fair value can be made. The discounted fair value is recognized as an ARO liability with a corresponding amount capitalized as part of the carrying cost of the underlying asset. The obligation is subsequently accreted to the future value of the expected retirement cost and the corresponding asset retirement cost is depreciated over the life of the related asset. Accretion expense associated with Clean Energy Ventures’ ARO is recognized as a component of operations and maintenance expense on the Consolidated Statements of Operations. Accretion amounts associated with NJNG’s ARO are recognized as part of its depreciation expense and the corresponding regulatory asset and liability will be shown gross on the Consolidated Balance Sheets.
Estimating future removal costs requires management to make significant judgments because most of the removal obligations span long time frames and removal may be conditioned upon future events. Asset removal technologies are also constantly changing, which makes it difficult to estimate removal costs. Accordingly, inherent in the estimate of ARO are various assumptions including the ultimate settlement date, expected cash outflows, inflation rates, credit-adjusted risk-free rates and consideration of potential outcomes where settlement of the ARO can be conditioned upon events. In the latter case, the Company develops possible retirement scenarios and assigns probabilities based on management’s reasonable judgment and knowledge of industry practice. Accordingly, ARO are subject to change.
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)
|
Investments in Equity Securities
|
Cash Flow Hedges
|
Postemployment Benefit Obligation
|
Total
|
Balance at September 30, 2018
|
$
|
3,446
|
|
|
$
|
—
|
|
|
$
|
(16,056)
|
|
|
$
|
(12,610)
|
|
Other comprehensive income, net of tax
|
|
|
|
|
|
|
|
Other comprehensive (loss), before reclassifications, net of tax of $0, $0, $6,557 and $6,557, respectively
|
—
|
|
|
—
|
|
|
(16,978)
|
|
|
(16,978)
|
|
Amounts reclassified from accumulated other comprehensive (loss), net of tax of $0, $0, $(451) and $(451), respectively
|
—
|
|
|
—
|
|
|
1,247
|
|
(1)
|
1,247
|
|
Net current-period other comprehensive income, net of tax of $0, $0, $6,106 and $6,106, respectively
|
—
|
|
|
—
|
|
|
(15,731)
|
|
|
(15,731)
|
|
Reclassifications of certain income tax effects to retained earnings (2)
|
(3,446)
|
|
|
—
|
|
|
—
|
|
|
(3,446)
|
|
Balance at September 30, 2019
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(31,787)
|
|
|
$
|
(31,787)
|
|
Other comprehensive income, net of tax
|
|
|
|
|
|
|
|
Other comprehensive (loss) income, before reclassifications, net of tax of $0, $3,203, $1,235, $4,438, respectively
|
—
|
|
|
(10,505)
|
|
|
(4,882)
|
|
|
(15,387)
|
|
Amounts reclassified from accumulated other comprehensive loss, net of tax of $0, $(32), $(668), $(700), respectively
|
—
|
|
|
108
|
|
|
2,751
|
|
(1)
|
2,859
|
|
Net current-period other comprehensive income, net of tax of $0, $3,171, $567, $3,738, respectively
|
—
|
|
|
(10,397)
|
|
|
(2,131)
|
|
|
(12,528)
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2020
|
$
|
—
|
|
|
$
|
(10,397)
|
|
|
$
|
(33,918)
|
|
|
$
|
(44,315)
|
|
(1)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.
(2)Due to the adoption of ASU No. 2016-01, an amendment to ASC 825, Financial Instruments. See Note 2. Summary of Significant Accounting Policies - Recently Adopted Updates to the Accounting Standards Codification section for more details.
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
Foreign Currency Transactions
The market area of Energy Services 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 natural gas purchases on the Consolidated Statements of Operations. Gains and losses recognized for the fiscal years ended September 30, 2020, 2019 and 2018, are considered immaterial.
Reclassification
Certain prior period amounts have been reclassified to conform to the current period presentation. Amounts related to energy and other taxes have been reclassified to O&M on the Consolidated Statements of Operations. Software costs previously recorded in other non-current assets have been reclassified to utility plant and software costs, and prepaid expenses previously recorded in other current assets have been reclassified on the Consolidated Balance Sheets. Certain amounts related to software costs previously reported in cash flows from operating activities have been reclassified to cash flows used in investing activities and prepaid expenses were reclassified within working capital on the Consolidated Statements of Cash Flows.
Recently Adopted Updates to the Accounting Standards Codification
Leases
In February 2016, the FASB issued ASU No. 2016-02, an amendment to ASC 842, Leases, which, along with other ASU's containing minor amendments and technical corrections, 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 an original term greater than one year are recorded on the balance sheet with a lessee recognizing a lease liability reflecting its obligation under the lease agreement and a right-of-use asset representing its right to use the leased asset over the lease term. The subsequent measurement of the lease depends on whether the lease is classified as an operating lease (resulting in the recognition of a straight-line lease cost) or a finance lease (resulting in the recognition of interest and asset amortization expense). Additional disclosures are required to provide transparency as to the amount, timing and uncertainty of cash flows arising from leasing activities.
In January 2018, the FASB issued ASU No. 2018-01, a further amendment to ASC 842, Leases, which was introduced by ASU No. 2016-02, as discussed above. This update provides an optional practical expedient that allows companies to not evaluate existing or expired land easements that were not previously accounted for under Topic 840 as leases as of October 1, 2019. The Company adopted this practical expedient. In July 2018, the FASB issued ASU No. 2018-11, which provides an optional transition method to ASC 842 that allows the Company to apply the new lease accounting requirements as of the effective date of the new standard, with the comparative periods remaining under the legacy ASC 840 requirements with a cumulative effect adjustment, if any, being made to the opening balance of retained earnings in the period of adoption. The Company elected this transition method and did not have any cumulative impact to the opening balance of retained earnings.
The Company elected various practical expedients permitted by ASC 842. This includes the package of practical expedients whereby the Company was not required to reassess all of its leases identified, lease classifications and initial direct costs associated with leases. The Company also elected to not separate nonlease components from lease components for certain classes of leases, such as office buildings, solar land leases and office equipment, and elected to exclude short-term leases from the recognition requirements of ASC 842 for all classes of assets. The Company adopted ASC 842 and all related amendments on October 1, 2019, using the modified retrospective transition method.
The Company’s lease agreements primarily consist of commercial solar land leases, storage and capacity leases, equipment and real property leases, including land and office facility leases and office equipment and the sale leaseback of its natural gas meters. The total right-of-use assets and operating lease liabilities recorded upon adoption were $67.1 million. Upon the acquisition of Leaf River, on October 11, 2019, the Company adopted ASC 842 for Leaf River which resulted in the recognition of an additional right-of-use asset and lease liability of $21.6 million.
Derivatives and Hedging
In August 2017, the FASB issued ASU No. 2017-12, an amendment to ASC 815, Derivatives and Hedging, which, along with other ASU's containing minor amendments and technical corrections, 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.
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
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 Company adopted this guidance on October 1, 2019. As October 1, 2019, the Company did not apply hedge accounting to its risk management activities, therefore the amendments did not have an impact on its financial position, results of operations or cash flows.
In October 2018, the FASB issued ASU No. 2018-16, an amendment to ASC 815, Derivatives and Hedging, which permits the use of the Overnight Index Swap rate based on the Secured Overnight Financing Rate as an additional acceptable U.S. benchmark interest rate for hedge accounting purposes. The Company adopted this guidance on October 1, 2019. As the Company did not apply hedge accounting to any of its risk management activities as of October 1, 2019, the amendments did not have an impact on its financial position, results of operations or cash flows.
Stock Compensation
In June 2018, the FASB issued ASU No. 2018-07, an amendment to ASC 718, Compensation - Stock Compensation, which expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from non-employees. The Company adopted this guidance on October 1, 2019. There was no impact to the Company's financial position, results of operations or cash flows.
Financial Instruments
In March 2020, the FASB issued ASU No. 2020-03, Codification Improvements to Financial Instruments. This accounting standard provides clarification of guidance for financial instruments and makes narrow scope amendments related to various issues. The Company adopted this standard effective upon issuance. There was no impact to the Company's financial position, results of operations or cash flows as a result of its adoption.
Reference Rate Reform
In March 2020, the FASB issued ASU No. 2020-04, an amendment to ASC 848, Reference Rate Reform, which provides relief for companies preparing for discontinuation of interest rates such as LIBOR. The amendments in this update provide optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. The amendments in this update apply only to contracts and hedging relationships that reference LIBOR or another reference rate expected to be discontinued due to reference rate reform. The amendments in this update are elective and are effective upon the ASU issuance through December 31, 2022. There was no impact to the Company's financial position, results of operations or cash flows as a result of its adoption.
Other Recent Updates to the Accounting Standards Codification
Financial Instruments
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. An entity will apply the amendment through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. The Company assessed the impact of the guidance on NJR's reserve methodologies and credit policies and procedures for any assets that could be impacted, noting the majority of NJR's financial assets are short-term in nature, such as trade receivables and unbilled revenues.
The Company completed its evaluation of ASU No. 2016-13 and subsequent amendments related to this topic and adopted this new guidance beginning October 1, 2020, using the modified retrospective method. The adoption did not result in a cumulative effect adjustment to retained earnings and did not have a material impact to our consolidated financial statements.
If implementation resulted in a material impact to amounts associated with NJNG accounts receivable and unbilled revenue within the scope of the new standard and that were considered incremental costs caused by COVID-19, the Company could elect to defer those costs as a regulatory asset in accordance with the July 2, 2020 BPU order which authorized New Jersey utilities to create a regulatory asset for incremental COVID-19 related costs. See Note 4. Regulation for further detail.
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
Fair Value
In August 2018, the FASB issued ASU No. 2018-13, an amendment to ASC 820, Fair Value Measurement, which removes, modifies and adds to certain disclosure requirements of fair value measurements. Disclosure requirements removed include the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, the policy for timing of transfers between levels and the valuation processes for Level 3 fair value measurements. Modifications include considerations around the requirement to disclose the timing of liquidation of an investee’s assets and the date when restrictions from redemption might lapse. The additions include the requirement to disclose changes in unrealized gains and losses for the period in other comprehensive income for recurring Level 3 fair value measurements held and the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. The guidance is effective for the Company beginning October 1, 2020, with early adoption permitted. Upon adoption, the amendments will be applied on a prospective or retrospective basis depending on the specific amendments’ transition requirements. The Company is currently evaluating the impact of the adoption of this ASU but does not expect that its pending adoption will have a material effect on its consolidated financial statements. The Company does not have either Level 3 fair value measurements or transfers between Level 1 or Level 2 in its current portfolios, and therefore, does not expect this ASU to have an impact on the Company's financial statements and disclosures.
Compensation - Retirement Benefits
In August 2018, the FASB issued ASU No. 2018-14, an amendment to ASC 715, Compensation - Retirement Benefits, which removes disclosures that no longer are considered cost-beneficial, clarifies the specific requirements of certain disclosures and adds new disclosure requirements identified as relevant. The guidance is effective for the Company beginning October 1, 2021, with early adoption permitted. Upon adoption, the amended presentation and disclosure guidance will be applied on a retrospective basis. The Company is continuing to evaluate the amendment to fully understand the impact on the Company's disclosures upon adoption but it is not expecting this ASU to materially affect the financial statements and disclosures.
Income Taxes
In December 2019, the FASB issued ASU No. 2019-12, an amendment to ASC 740, Income Taxes, which is intended to simplify the accounting for income taxes and changes the accounting for certain income tax transactions, among other minor improvements. The guidance is effective for the Company beginning October 1, 2021, with early adoption permitted. Upon adoption, the amendments will be applied on a prospective basis. The Company is currently evaluating the amendments to understand the impact on its financial position, results of operations, cash flows and disclosures upon adoption.
Investments - Equity Method and Derivatives and Hedging
In January 2020, the FASB issued ASU No. 2020-01, Investments - Equity Securities (Topic 321), Investments - Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815): Clarifying the Interactions between Topic 321, Topic 323, and Topic 815. The update states that an entity is required to evaluate observable transactions that necessitate applying or discontinuing the equity method of accounting, when applying the measurement alternative in Topic 321. This evaluation occurs prior to applying or upon ceasing the equity method. The update also states that when applying paragraph 815-10-15-141(a) for forward contracts and purchased options, an entity is not required to assess whether the underlying securities will be accounted for under the equity method in accordance with Topic 323 or fair value method under Topic 825 upon settlement or exercise. The guidance is effective for the Company beginning October 1, 2021, with early adoption permitted. The Company is currently evaluating the impact of the adoption of this ASU but does not expect that its pending adoption will have a material effect on its consolidated financial statements.
3. REVENUE
Revenue is recognized when a performance obligation is satisfied by transferring control of a product or service to a customer. Revenue is measured based on consideration specified in a contract with a customer using the output method of progress. The Company elected to apply the invoice practical expedient for recognizing revenue, whereby the amounts invoiced to customers represent the value to the customer and the Company’s performance completion as of the invoice date. Therefore we do not disclose related unsatisfied performance obligations. The Company also elected the practical expedient to exclude from the transaction price all sales taxes that are assessed by a governmental authority and therefore presents sales tax net in operating revenues on the Consolidated Statements of Operations.
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
Below is a listing of performance obligations that arise from contracts with customers, along with details on the satisfaction of each performance obligation, the significant payment terms and the nature of the goods and services being transferred, by reporting segment and other business operations:
|
|
|
|
|
|
|
|
|
Revenue Recognized Over Time:
|
Segment
|
Performance Obligation
|
Description
|
Natural Gas Distribution
|
Natural gas utility sales
|
NJNG's performance obligation is to provide natural gas to residential, commercial and industrial customers as demanded, based on regulated tariff rates, which are established by the BPU. Revenues from the sale of natural gas are recognized in the period that natural gas is delivered and consumed by customers, including an estimate for quantities consumed but not billed during the period. Payment is due each month for the previous month's deliveries. Natural gas sales to individual customers are based on meter readings, which are performed on a systematic basis throughout the billing period. The unbilled revenue estimates are based on estimated customer usage by customer type, weather effects and the most current tariff rates. NJNG is entitled to be compensated for performance completed until service is terminated.
Customers may elect to purchase the natural gas commodity from NJNG or may contract separately to purchase natural gas directly from third-party suppliers. As NJNG is acting as an agent on behalf of the third-party supplier, revenue is recorded for the delivery of natural gas to the customer.
|
Clean Energy Ventures
|
Commercial solar and wind electricity
|
Clean Energy Ventures operates wholly-owned solar projects that recognize revenue as electricity is generated and transferred to the customer. The performance obligation is to provide electricity to the customer in accordance with contract terms or the interconnection agreement and is satisfied upon transfer of electricity generated. All wind assets were sold as of February 7, 2019.
Revenue is recognized as invoiced and the payment is due each month for the previous month's services.
|
Clean Energy Ventures
|
Residential solar electricity
|
Clean Energy Ventures provides access to residential rooftop and ground-mount solar equipment to customers who then pay the Company a monthly fee. The performance obligation is to provide electricity to the customer based on generation from the underlying residential solar asset and is satisfied upon transfer of electricity generated.
Revenue is derived from the contract terms and is recognized as invoiced, with the payment due each month for the previous month's services.
|
Clean Energy Ventures
|
Transition Renewable Energy Certificates
|
Clean Energy Ventures generates RECs, which are created for every MWh of electricity produced by a solar generator. The performance obligation of Clean Energy Ventures is to generate electricity and TRECs, which are purchased monthly by a REC Administrator.
Revenue is recognized upon generation.
|
Energy Services
|
Wholesale natural gas services
|
The performance obligation of Energy Services is to provide the customer transportation, storage and asset management services on an as-needed basis. Energy Services generates revenue through management fees, demand charges, reservation fees and transportation charges centered around the buying and selling of the natural gas commodity, representing one series of distinct performance obligations.
Revenue is recognized based upon the underlying natural gas quantities physically delivered and the customer obtaining control. Energy Services invoices customers on a monthly basis in line with the terms of the contract and based on the services provided. Payment is due each month for the previous month's invoiced services.
|
Storage and Transportation
|
Natural gas services
|
The performance obligation of our Storage and Transportation segment is to provide the customer with storage and transportation services. Storage and Transportation generates revenues from firm storage contracts and transportation contracts, related usage fees for the use of storage space, injection and withdrawal at the storage facility and the delivery of natural gas to customers. Revenue is recognized over time as our customers receive the benefits of our service as it is performed on their behalf using an output method based on actual deliveries.
Demand fees are recognized as revenue over the term of the related agreement.
|
Home Services and Other
|
Service contracts
|
Home Services enters into service contracts with homeowners to provide maintenance and replacement services of applicable heating, cooling or ventilation equipment. All services provided relate to a distinct performance obligation which is to provide services for the specific equipment over the term of the contract.
Revenue is recognized on a straight-line basis over the term of the contract and payment is due upon receipt of the invoice.
|
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
Revenue Recognized at a Point in Time:
|
Storage and Transportation
|
Natural gas services
|
The performance obligation of our Storage and Transportation segment is to provide the customer with storage and transportation services. Storage and Transportation generates revenues from hub services for the use of storage space, injection and withdrawal from the storage facility. Hub services include park and loan transactions and wheeling.
Hub services revenues are recognized as services are performed.
|
Home Services and Other
|
Installations
|
Home Services installs appliances, including but not limited to, furnaces, air conditioning units, boilers and generators, for customers. The distinct performance obligation is the installation of the contracted appliance, which is satisfied at the point in time the item is installed.
The transaction price for each installation differs accordingly. Revenue is recognized at a point in time upon completion of the installation, which is when the customer is billed.
|
Disaggregated revenues from contracts with customers by product line and by reporting segment and other business operations during fiscal 2020 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Thousands)
|
Natural Gas Distribution
|
Clean Energy Ventures
|
|
Energy Services
|
Storage and Transportation
|
Home Services
and Other
|
Total
|
2020
|
|
|
|
|
|
|
|
Natural gas utility sales
|
$
|
695,858
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
$
|
695,858
|
|
Wholesale natural gas services
|
—
|
|
—
|
|
|
24,511
|
|
44,728
|
|
—
|
|
69,239
|
|
Service contracts
|
—
|
|
—
|
|
|
—
|
|
—
|
|
32,455
|
|
32,455
|
|
Installations and maintenance
|
—
|
|
—
|
|
|
—
|
|
—
|
|
18,562
|
|
18,562
|
|
Renewable Energy Certificates
|
—
|
|
1,384
|
|
|
—
|
|
—
|
|
—
|
|
1,384
|
|
Electricity sales
|
—
|
|
20,099
|
|
|
—
|
|
—
|
|
—
|
|
20,099
|
|
Eliminations (1)
|
—
|
|
—
|
|
|
—
|
|
(2,713)
|
|
(1,207)
|
|
(3,920)
|
|
Revenues from contracts with customers
|
695,858
|
|
21,483
|
|
|
24,511
|
|
42,015
|
|
49,810
|
|
833,677
|
|
Alternative revenue programs (2)
|
15,750
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
15,750
|
|
Derivative Instruments
|
18,315
|
|
81,134
|
|
(3)
|
1,005,908
|
|
—
|
|
—
|
|
1,105,357
|
|
Eliminations (1)
|
—
|
|
—
|
|
|
(1,116)
|
|
—
|
|
—
|
|
(1,116)
|
|
Revenues out of scope
|
34,065
|
|
81,134
|
|
|
1,004,792
|
|
—
|
|
—
|
|
1,119,991
|
|
Total operating revenues
|
$
|
729,923
|
|
102,617
|
|
|
1,029,303
|
|
42,015
|
|
49,810
|
|
$
|
1,953,668
|
|
2019
|
|
|
|
|
|
|
|
Natural gas utility sales
|
$
|
680,151
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
$
|
680,151
|
|
Wholesale natural gas services
|
—
|
|
—
|
|
|
31,459
|
|
—
|
|
—
|
|
31,459
|
|
Service contracts
|
—
|
|
—
|
|
|
—
|
|
—
|
|
31,499
|
|
31,499
|
|
Installations and maintenance
|
—
|
|
—
|
|
|
—
|
|
—
|
|
19,403
|
|
19,403
|
|
Electricity sales
|
—
|
|
22,121
|
|
|
—
|
|
—
|
|
—
|
|
22,121
|
|
Eliminations (1)
|
—
|
|
—
|
|
|
—
|
|
—
|
|
(2,302)
|
|
(2,302)
|
|
Revenues from contracts with customers
|
680,151
|
|
22,121
|
|
|
31,459
|
|
—
|
|
48,600
|
|
782,331
|
|
Alternative revenue programs (2)
|
10,364
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
10,364
|
|
Derivative Instruments
|
20,278
|
|
75,978
|
|
(3)
|
1,711,332
|
|
—
|
|
—
|
|
1,807,588
|
|
Eliminations (1)
|
—
|
|
—
|
|
|
(8,238)
|
|
—
|
|
—
|
|
(8,238)
|
|
Revenues out of scope
|
30,642
|
|
75,978
|
|
|
1,703,094
|
|
—
|
|
—
|
|
1,809,714
|
|
Total operating revenues
|
$
|
710,793
|
|
98,099
|
|
|
1,734,553
|
|
—
|
|
48,600
|
|
$
|
2,592,045
|
|
(1)Consists of transactions between subsidiaries that are eliminated in consolidation.
(2)Includes CIP revenue.
(3)Includes SREC revenue.
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
Disaggregated revenues from contracts with customers by customer type and by reporting segment and other business operations during the fiscal years ended September 30, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Thousands)
|
Natural Gas Distribution
|
Clean Energy Ventures
|
Energy Services
|
Storage and Transportation
|
Home Services
and Other
|
Total
|
2020
|
|
|
|
|
|
|
Residential
|
$
|
490,233
|
|
10,233
|
|
—
|
|
—
|
|
48,867
|
|
$
|
549,333
|
|
Commercial and industrial
|
129,946
|
|
11,250
|
|
24,511
|
|
42,015
|
|
943
|
|
208,665
|
|
Firm transportation
|
69,357
|
|
—
|
|
—
|
|
—
|
|
—
|
|
69,357
|
|
Interruptible and off-tariff
|
6,322
|
|
—
|
|
—
|
|
—
|
|
—
|
|
6,322
|
|
Revenues out of scope
|
34,065
|
|
81,134
|
|
1,004,792
|
|
—
|
|
—
|
|
1,119,991
|
|
Total operating revenues
|
$
|
729,923
|
|
102,617
|
|
1,029,303
|
|
42,015
|
|
49,810
|
|
$
|
1,953,668
|
|
2019
|
|
|
|
|
|
|
Residential
|
$
|
440,787
|
|
9,003
|
|
—
|
|
—
|
|
47,655
|
|
$
|
497,445
|
|
Commercial and industrial
|
171,357
|
|
13,118
|
|
31,459
|
|
—
|
|
945
|
|
216,879
|
|
Firm transportation
|
61,370
|
|
—
|
|
—
|
|
—
|
|
—
|
|
61,370
|
|
Interruptible and off-tariff
|
6,637
|
|
—
|
|
—
|
|
—
|
|
—
|
|
6,637
|
|
Revenues out of scope
|
30,642
|
|
75,978
|
|
1,703,094
|
|
—
|
|
—
|
|
1,809,714
|
|
Total operating revenues
|
$
|
710,793
|
|
98,099
|
|
1,734,553
|
|
—
|
|
48,600
|
|
$
|
2,592,045
|
|
Customer Accounts Receivable/Credit Balances and Deposits
The timing of revenue recognition, customer billings and cash collections resulting in accounts receivables, billed and unbilled, and customers’ credit balances and deposits on the Consolidated Balance Sheets during fiscal 2020 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer Accounts Receivable
|
Customers' Credit
|
(Thousands)
|
Billed
|
Unbilled
|
Balances and Deposits
|
Balance as of October 1, 2019
|
$
|
139,263
|
|
$
|
6,510
|
|
$
|
27,116
|
|
(Decrease) Increase
|
(5,090)
|
|
2,716
|
|
(1,182)
|
|
Balance as of September 30, 2020
|
$
|
134,173
|
|
$
|
9,226
|
|
$
|
25,934
|
|
The following table provides information about receivables and revenue earned on contracts in progress in excess of billings, which are included within accounts receivable, billed and unbilled, and customers’ credit balances and deposits, respectively, on the Consolidated Balance Sheets as of September 30:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Thousands)
|
Natural Gas Distribution
|
Clean Energy Ventures
|
Energy Services
|
Storage and Transportation
|
Home Services
and Other
|
|
Total
|
2020
|
|
|
|
|
|
|
|
Customer accounts receivable
|
|
|
|
|
|
|
Billed
|
$
|
52,134
|
|
5,282
|
|
70,457
|
|
3,905
|
|
2,395
|
|
|
$
|
134,173
|
|
Unbilled
|
7,842
|
|
1,384
|
|
—
|
|
—
|
|
—
|
|
|
9,226
|
|
Customers' credit balances and deposits
|
(25,934)
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
(25,934)
|
|
Total
|
$
|
34,042
|
|
6,666
|
|
70,457
|
|
3,905
|
|
2,395
|
|
|
$
|
117,465
|
|
2019
|
|
|
|
|
|
|
|
Customer accounts receivable
|
|
|
|
|
|
|
Billed
|
$
|
36,302
|
|
3,233
|
|
97,301
|
|
—
|
|
2,427
|
|
|
$
|
139,263
|
|
Unbilled
|
6,510
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
6,510
|
|
Customers' credit balances and deposits
|
(27,114)
|
|
—
|
|
—
|
|
—
|
|
(2)
|
|
|
(27,116)
|
|
Total
|
$
|
15,698
|
|
3,233
|
|
97,301
|
|
—
|
|
2,425
|
|
|
$
|
118,657
|
|
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
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 natural gas to NJNG’s service territory; and the delivery portion, which represents the transportation of the commodity portion through NJNG’s natural 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.
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 1, 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. The current base rates include a weighted average cost of capital of 6.95 percent and a return on common equity of 9.6 percent. In addition, NJNG is permitted to request approval of certain rate or program changes. All rate and program changes are subject to proper notification and BPU review and approval.
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
Regulatory assets and liabilities included on the Consolidated Balance Sheets as of September 30, are composed of the following:
|
|
|
|
|
|
|
|
|
(Thousands)
|
2020
|
2019
|
Regulatory assets-current
|
|
|
New Jersey Clean Energy Program
|
$
|
15,570
|
|
$
|
15,468
|
|
Conservation Incentive Program
|
19,120
|
|
3,371
|
|
Underrecovered natural gas costs
|
—
|
|
9,506
|
|
Derivatives at fair value, net
|
—
|
|
4,526
|
|
Other current regulatory assets
|
1,682
|
|
—
|
|
Total current regulatory assets
|
$
|
36,372
|
|
$
|
32,871
|
|
Regulatory assets-noncurrent
|
|
|
Environmental remediation costs:
|
|
|
Expended, net of recoveries
|
$
|
36,516
|
|
$
|
38,351
|
|
Liability for future expenditures
|
150,590
|
|
131,080
|
|
Deferred income taxes
|
28,241
|
|
19,631
|
|
Derivatives at fair value, net
|
1
|
|
486
|
|
SAVEGREEN
|
21,281
|
|
10,201
|
|
Postemployment and other benefit costs
|
188,170
|
|
212,461
|
|
Deferred storm damage costs
|
6,515
|
|
8,687
|
|
Cost of removal
|
75,080
|
|
65,660
|
|
|
|
|
Other noncurrent regulatory assets
|
20,068
|
|
10,080
|
|
Total noncurrent regulatory assets
|
$
|
526,462
|
|
$
|
496,637
|
|
Regulatory liability-current
|
|
|
Overrecovered natural gas costs
|
$
|
25,914
|
|
$
|
—
|
|
|
|
|
|
|
|
Derivatives at fair value, net
|
274
|
|
—
|
|
Total current regulatory liabilities
|
$
|
26,188
|
|
$
|
—
|
|
Regulatory liabilities-noncurrent
|
|
|
Tax Act impact (1)
|
$
|
195,425
|
|
$
|
200,417
|
|
Derivatives at fair value, net
|
352
|
|
—
|
|
New Jersey Clean Energy Program
|
—
|
|
197
|
|
Other noncurrent regulatory liabilities
|
509
|
|
1,821
|
|
Total noncurrent regulatory liabilities
|
$
|
196,286
|
|
$
|
202,435
|
|
(1)Reflects the re-measurement and subsequent amortization of NJNG's net deferred tax liabilities as a result of the change in federal tax rates enacted in the Tax Act.
Regulatory assets at Adelphia Gateway, not included in the table above, total $158,000 and $997,000 in current and noncurrent, respectively, and is comprised primarily of the tax benefit associated with the equity component of AFUDC as of September 30, 2020. Recovery of regulatory assets is subject to FERC approval.
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 2021. NJNG recovers the costs associated with its portion of the NJCEP obligation through its NJCEP rider, with interest.
Over and Underrecovered Natural Gas Costs
NJNG recovers its cost of natural gas through the BGSS rate component of its customers’ bills. NJNG’s cost of natural 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 natural 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 natural 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.
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
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.
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 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.
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 15. Commitments and Contingent Liabilities.
Deferred Income Taxes
Upon adoption of a 1993 provision of ASC 740, Income Taxes, 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, with interest, 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, as well as a 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. The BPU approved the recovery of the tax charge through NJNG’s base rates effective October 2016 over a seven-year amortization period. See Note 11. Employee Benefit Plans.
Deferred Storm Damage Costs
Portions of NJNG’s distribution system incurred significant damage as a result of Post-Tropical Cyclone Sandy in October 2012. NJNG deferred the uninsured incremental O&M costs associated with its restoration efforts, which were approved for recovery by the BPU through NJNG’s base rates, without interest, effective October 2016 over a seven-year amortization period.
Cost of Removal
NJNG accrues and collects for cost of removal in base rates on its utility property, without interest. These costs are recorded in accumulated depreciation for regulatory reporting purposes, and actual costs of removal, without interest, will be recovered in subsequent rates, pursuant to the BPU order. Consistent with GAAP, amounts recorded within accumulated depreciation for regulatory accounting purposes are reclassified out of accumulated depreciation to either a regulatory asset or a regulatory liability depending on whether actual cost of removal is still subject to collection or amounts overcollected will be refunded back to customers. NJNG’s prior regulatory liability represented customer collections in excess of actual expenditures, which the Company returned to customers as a reduction to depreciation expense.
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
Other Regulatory Assets
Other regulatory assets consist primarily of deferred costs associated with certain components of NJNG’s SBC, as discussed further in the regulatory proceedings section, 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, without interest, subject to BPU review and approval. As of September 30, 2020, NJNG recorded $1.8 million of PIM in other regulatory assets, which is being recovered through base rates over a seven-year amortization period effective October 2016.
The following is a description of certain regulatory proceedings during fiscal 2019 and 2020:
In March 2019, NJNG filed a base rate case with the BPU requesting a natural gas revenue increase of $128.2 million, including a change in the Company’s overall rate of return on rate base to 7.87 percent. NJNG is also seeking permission to request recovery for SRL in a future filing, upon completion of the project. On July 2, 2019, the Company filed an update with actual information through May 31, 2019, which reflected a revenue increase of $129.8 million. In September 2019, the Company filed a second update with actual information through August 31, 2019, which reflected a revenue increase of $134.3 million. On November 13, 2019, the BPU issued an order adopting a stipulation of settlement approving a $62.2 million increase to base rates, which were effective on November 15, 2019. The increase includes an overall rate of return on rate base of 6.95 percent, return on common equity of 9.6 percent, a common equity ratio of 54 percent and a depreciation rate of 2.78 percent.
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:
•2018 BGSS/CIP filing — In April 2019, the BPU approved NJNG’s annual petition on a final basis to maintain its BGSS rate for residential and small commercial customers and increase its balancing charge rate, resulting in a $10.3 million increase to the annual revenues credited to BGSS, as well as changes to the CIP rates, which resulted in a $30.9 million annual recovery decrease effective October 2018.
•On December 28, 2018, NJNG notified the BPU that it will increase the BGSS rate, effective February 1, 2019, resulting in an estimated $10.9 million increase to the revenues credited to BGSS from February through September 30, 2019.
•2019 BGSS/CIP filing — On March 27, 2020, the BPU approved, on a final basis, NJNG’s annual petition to modify its BGSS, balancing charge and CIP rates. The rate changes resulted in a $17.6 million decrease to the annual revenues credited to BGSS and a $15.6 million annual increase related to its balancing charge, as well as changes to CIP rates, which resulted in a $10.6 million annual recovery increase, effective October 1, 2019.
•2020 BGSS/CIP filing — On September 9, 2020, the BPU approved NJNG’s annual petition to modify its BGSS, balancing charge and CIP rates for residential and small commercial customers. The rate changes will result in a $20.4 million decrease to the annual revenues credited to BGSS, a $3.8 million annual decrease related to its balancing charge, as well as changes to CIP rates, which will result in a $16.5 million annual recovery increase, effective October 1, 2020.
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 and storage incentive programs. 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.
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
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 upgrades to promote energy efficiency 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 three- to 10-year period through a tariff rider mechanism. As of September 30, 2020, the BPU approved total SAVEGREEN investments of approximately $354.3 million, including $135 million that was approved in September 2018, for a continuation of existing EE programs and the implementation of new programs through December 2021.
On September 25, 2020, NJNG filed a petition with the BPU for an additional three-year SAVEGREEN program consisting of approximately $127 million of direct investment, $113 million in financing options, and approximately $23 million in operation and maintenance expenses, to be effective July 1, 2021. SAVEGREEN investments and costs are filed with the BPU on an annual basis. NJNG’s annual EE filings are summarized as follows:
•2018 EE filing — On December 18, 2018, the BPU approved a decrease in NJNG's EE recovery rate reflecting actual costs incurred through September 30, 2018, which resulted in an annual recovery of approximately $8.8 million, effective January 1, 2019.
•2019 EE filing — On October 25, 2019, the BPU approved an increase in NJNG's EE recovery rate, which resulted in an annual recovery of approximately $11.3 million, effective November 1, 2019.
•2020 EE filing — On May 29, 2020, NJNG filed a petition with the BPU to minimally decrease its EE recovery rate. Throughout the course of the proceeding, the Company updated the filing for additional actual information. Based on the updated information, the BPU approved the request to maintain its existing rate, which will result in an annual recovery of approximately $11.4 million, effective November 1, 2020.
Societal Benefits Charge
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:
•2018 SBC filing — In September 2018, the BPU approved NJNG’s annual USF compliance filing to increase the statewide USF rate, which resulted in a $1 million annual increase, effective October 1, 2018. In March 2019, the BPU approved NJNG’s annual SBC application requesting recovery of remediation expenses incurred through June 30, 2018, an increase in the RAC of approximately $1.4 million annually, and an increase to the NJCEP factor, which resulted in an annual increase of approximately $1.9 million, effective April 1, 2019.
•2019 SBC filing — On June 24, 2019, NJNG filed its annual USF compliance filing proposing an increase to the statewide USF rate, which will result in the annual recovery increasing by $1.2 million, effective October 1, 2019. On September 27, 2019, NJNG filed its annual SBC application requesting to recover remediation expenses including an increase in the RAC, of approximately $1.4 million annually and an increase to the NJCEP factor, which resulted in an annual increase of approximately $3.3 million, effective April 1, 2020. On March 16, 2020, a stipulation was signed in NJNG's annual SBC application which included an increase in the RAC rate of $1.2 million annually and a decrease to the NJCEP factor of $600,000. The BPU approved the stipulation on September 9, 2020, effective October 1, 2020.
•2020 USF filing — On June 25, 2020, NJNG filed its annual USF compliance filing proposing a decrease to the statewide USF rate, decreasing the annual recovery by approximately $400,000. On September 23, 2020, the BPU approved the decrease, effective October 1, 2020.
•2020 SBC filing — On September 29, 2020, NJNG filed its annual SBC application requesting to recover remediation expenses including an increase in the RAC, of approximately $1.3 million annually and an increase to the NJCEP factor, which will result in an annual increase of approximately $6 million, effective April 1, 2021.
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 natural gas distribution system, including SAFE and NJ RISE.
SAFE/NJ RISE
The SAFE program replaces portions of NJNG’s natural gas distribution unprotected steel, cast iron infrastructure and associated services to improve the safety and reliability of the natural gas distribution system. SAFE I was approved to invest up to $130 million, exclusive of AFUDC, over a four-year period. SAFE II was approved to invest up to $200 million, excluding AFUDC, over a five-year period. NJNG will recover approximately $157.5 million through annual rate filings, with the remainder recovered through subsequent rate cases. As a condition of approval of the program, NJNG was required to file a base rate case no later than November 2019 and satisfied this requirement with its March 29, 2019 base rate case filing.
NJ RISE consists of six capital investment projects estimated to cost $102.5 million over a five-year period, excluding AFUDC, for natural gas distribution storm-hardening and mitigation projects, along with incremental depreciation expense. NJ RISE includes a weighted average cost of capital that ranges from 6.74 percent to 6.9 percent and a return on equity of 9.75 percent. Requests for recovery of future NJ RISE capital costs will occur in conjunction with SAFE II.
On September 17, 2018, the BPU approved NJNG’s petition requesting a base rate increase of $6.8 million annually for the recovery of SAFE II and NJ RISE capital investment costs related to the 12 months ending June 30, 2018, effective October 1, 2018. On September 27, 2019, the BPU approved NJNG’s annual petition requesting a base rate increase of $7.8 million, effective October 1, 2019.
On March 30, 2020, NJNG filed a petition with the BPU requesting a base rate increase of approximately $7.4 million for the recovery associated with NJ RISE and SAFE II capital investments cost of approximately $57.9 million made through June 30, 2020. On July 24, 2020, the Company updated this filing for actual information through June 30, 2020 and the revised rate increase requested is $7.1 million based on $55.1 million of actual capital investments. On September 9, 2020, the BPU approved the increase, effective October 1, 2020.
Southern Reliability Link
The SRL is an approximately 30-mile, 30-inch transmission main designed to support improved system reliability and integrity in the southern portion of NJNG’s service territory. All approvals required for the completion of the project have been received and construction began in December 2018.
Infrastructure Investment Program
On February 28, 2019, NJNG filed a petition with the BPU seeking authority to implement a five-year IIP. The IIP consists of two components, transmission and distribution investments and information technology replacement and enhancements. The total investment for the IIP is approximately $507 million. Upon approval from the BPU, investments will be recovered through annual filings to adjust base rates. On October 28, 2020, the BPU approved the Company’s transmission and distribution component of the IIP for $150 million over five years, effective November 1, 2020. The recovery of information technology replacement and enhancements, that was included in the original IIP filing, will be included as part of base rate filings as projects are placed in service.
Other Filings
COVID-19
On July 2, 2020, the BPU issued an order which authorized New Jersey utilities to create a regulatory asset by deferring incremental COVID-19 related costs and required a related quarterly report be filed for the COVID-19-related costs and savings incurred. Utilities must file petition by later of December 31, 2021, or within 60 days of the close of the regulatory asset period and rate recovery can be addressed in the filing or the utility may request consideration be deferred to future rate case. Any potential rate recovery and the appropriate period of recovery, will be addressed through that filing, or may request a deferral of rate recovery for a future base rate case.
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
The Tax Act
On December 22, 2017, the Tax Act was signed into law, which resulted in a reduction in the federal corporate tax rate. As a result, NJNG recorded a regulatory liability, which included the revaluation of its deferred income taxes and the accounting of the income tax effects on the revaluation.
On January 31, 2018, the BPU issued an Order which directed New Jersey utilities to submit filings to the BPU by March 2, 2018, to propose the prospective change in base rates as a result of the Tax Act to be effective April 1, 2018, the method to return to customers the overcollection of taxes in base rates from January 1, 2018, through March 31, 2018, and an outline of the method by which the excess deferred taxes would be returned to customers. The excess deferred taxes are primarily related to timing differences associated with utility plant depreciation and are subject to IRS normalization rules, which require amortization over the remaining life of the utility plant.
As a result of the changes associated with the Tax Act, NJNG recorded a decrease in its net deferred tax liability of $228.4 million, which included $164.3 million for the revaluation of its deferred income taxes and $64.1 million for the accounting of the income tax effects on the revaluation of those deferred income taxes. These amounts were recorded as a regulatory liability on the Consolidated Balance Sheets. On March 1, 2018, NJNG submitted its required filing to the BPU proposing a $19.7 million base rate reduction and customer refunds of approximately $31 million, which is inclusive of state sales tax and interest at the Company’s short-term debt rate as specified in the Company’s last base rate case. On March 26, 2018, the BPU approved, on an interim basis, the $19.7 million rate reduction, effective April 1, 2018. On May 22, 2018, the BPU approved final rates and customer refunds of the $31 million. These credits were returned to customer accounts in June 2018. As of September 30, 2020, the regulatory liability included excess deferred income taxes of $195 million, which requires amortization over the remaining life of the utility plant consistent with IRS normalization principles.
5. DERIVATIVE INSTRUMENTS
The Company is subject primarily 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 is exposed to foreign currency and interest rate risk and may utilize foreign currency derivatives to hedge Canadian dollar denominated natural gas purchases and/or sales and interest rate derivatives to reduce exposure to fluctuations in interest rates. All of these types of contracts are accounted for as derivatives, unless the Company elects NPNS, which is done on a contract-by-contract election. 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. The changes in the fair value of these derivatives are recorded as a component of natural 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 natural 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 natural 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 rates 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 natural gas purchase agreements.
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 natural 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.
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
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. Energy Services 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.
Natural Gas Distribution
NJNG’s physical and financial commodity derivatives, except for those designated as NPNS, are recognized at fair value on the Consolidated Balance Sheets. 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. Effective January 1, 2016, the Company prospectively applies the NPNS scope exception on a case-by-case basis to certain qualifying physical commodity contracts. Contracts that are designated as NPNS are recognized in regulatory assets or liabilities on the Consolidated Balances Sheets upon settlement. The average cost of natural gas is charged to expense in the current-period earnings based on the BGSS factor times the therm sales.
In June 2015, NJNG entered into a treasury lock transaction to fix a benchmark treasury rate of 3.26 percent associated with a $125 million debt issuance that was finalized in May 2018. This debt issuance coincided with the maturity of NJNG's $125 million, 5.6 percent notes that came due May 15, 2018. This treasury lock was settled on March 13, 2018, which coincided with the pricing of the new debt being issued. Settlement of the treasury lock resulted in a $2.6 million loss, which was recorded as a component of regulatory assets on the Consolidated Balance Sheets and will be amortized in earnings over the term of the $125 million, 4.01 percent notes that were issued on May 11, 2018.
During fiscal 2020, NJNG entered into treasury lock transactions to fix the benchmark treasury rate associated with a $75 million debt tranche that was issued in September 2020. Settlement of the treasury locks resulted in a $6.6 million loss, which was recorded as a component of regulatory assets on the Consolidated Balance Sheets and will be amortized in earnings over the term of the debt as a component of interest expense on the Consolidated Statements of Operations, which totaled $50,000, as of September 30, 2020.
Clean Energy Ventures
The Company elects NPNS accounting treatment on qualifying PPA contracts executed by Clean Energy Ventures that meet the definition of a derivative. Contracts designated as NPNS are accounted for on an accrual basis. Accordingly, electricity sales are recognized in revenues throughout the term of the PPA as electricity is delivered. NPNS is a contract-by-contract election and where it makes sense to do so, the Company can and may elect certain contracts to be normal.
Home Services and Other
On January 26, 2018, NJR entered into a variable-for-fixed interest rate swap on its $100 million variable rate term loan, which fixed the variable rate at 2.84 percent. The swap terminated on August 16, 2019, which coincided with the maturity of the debt. The change in the fair value and the settlement of the interest rate swap was recorded as a component of interest expense on the Consolidated Statements of Operations.
During fiscal 2020, NJR entered into treasury lock transactions to fix the benchmark treasury rate associated with $260 million debt issuance that was finalized in July 2020 and a $200 million debt issuance that was finalized in September 2020. NJR designated its treasury lock contracts as cash flow hedges, therefore, changes in fair value of the effective portion of the hedges were recorded in OCI. Settlement of the treasury locks resulted in a loss of $13.7 million, which was recorded within OCI and will be amortized in earnings over the life of the debt as a component of interest expense on the Consolidated Statements of Operations, which totaled $108,000, net of tax, as of September 30, 2020.
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
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
|
|
|
|
2020
|
|
2019
|
(Thousands)
|
Balance Sheet Location
|
Asset
Derivatives
|
Liability
Derivatives
|
Asset
Derivatives
|
Liability
Derivatives
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
Natural Gas Distribution:
|
|
|
|
|
|
|
|
|
|
Physical commodity contracts
|
Derivatives - current
|
|
$
|
78
|
|
|
$
|
76
|
|
|
$
|
67
|
|
|
$
|
245
|
|
|
|
|
|
|
|
|
|
|
|
Financial commodity contracts
|
Derivatives - current
|
|
71
|
|
|
282
|
|
|
382
|
|
|
570
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy Services:
|
|
|
|
|
|
|
|
|
|
Physical commodity contracts
|
Derivatives - current
|
|
6,454
|
|
|
20,438
|
|
|
6,847
|
|
|
27,540
|
|
|
Derivatives - noncurrent
|
|
1,264
|
|
|
12,003
|
|
|
1,710
|
|
|
12,641
|
|
Financial commodity contracts
|
Derivatives - current
|
|
16,671
|
|
|
12,965
|
|
|
17,806
|
|
|
29,057
|
|
|
Derivatives - noncurrent
|
|
2,037
|
|
|
1,346
|
|
|
5,716
|
|
|
6,105
|
|
Foreign currency contracts
|
Derivatives - current
|
|
36
|
|
|
104
|
|
|
1
|
|
|
211
|
|
|
Derivatives - noncurrent
|
|
48
|
|
|
3
|
|
|
—
|
|
|
75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fair value of derivatives
|
|
|
$
|
26,659
|
|
|
$
|
47,217
|
|
|
$
|
32,529
|
|
|
$
|
76,444
|
|
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 on Balance Sheets (1)
|
Offsetting Derivative Instruments (2)
|
Financial Collateral Received/Pledged (3)
|
Net Amounts (4)
|
As of September 2020:
|
|
|
|
|
|
|
|
|
Derivative assets:
|
|
|
|
|
|
|
|
|
Energy Services
|
|
|
|
|
|
|
|
|
Physical commodity contracts
|
|
$
|
7,718
|
|
|
$
|
(3,587)
|
|
|
$
|
(200)
|
|
|
$
|
3,931
|
|
Financial commodity contracts
|
|
18,708
|
|
|
(14,311)
|
|
|
—
|
|
|
4,397
|
|
Foreign currency contracts
|
|
84
|
|
|
(84)
|
|
|
—
|
|
|
—
|
|
Total Energy Services
|
|
$
|
26,510
|
|
|
$
|
(17,982)
|
|
|
$
|
(200)
|
|
|
$
|
8,328
|
|
Natural Gas Distribution
|
|
|
|
|
|
|
|
|
Physical commodity contracts
|
|
$
|
78
|
|
|
$
|
(65)
|
|
|
$
|
—
|
|
|
$
|
13
|
|
Financial commodity contracts
|
|
71
|
|
|
(71)
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Total Natural Gas Distribution
|
|
$
|
149
|
|
|
$
|
(136)
|
|
|
$
|
—
|
|
|
$
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities:
|
|
|
|
|
|
|
|
|
Energy Services
|
|
|
|
|
|
|
|
|
Physical commodity contracts
|
|
$
|
32,441
|
|
|
$
|
(3,587)
|
|
|
$
|
—
|
|
|
$
|
28,854
|
|
Financial commodity contracts
|
|
14,311
|
|
|
(14,311)
|
|
|
—
|
|
|
—
|
|
Foreign currency contracts
|
|
107
|
|
|
(84)
|
|
|
—
|
|
|
23
|
|
Total Energy Services
|
|
$
|
46,859
|
|
|
$
|
(17,982)
|
|
|
$
|
—
|
|
|
$
|
28,877
|
|
Natural Gas Distribution
|
|
|
|
|
|
|
|
|
Physical commodity contracts
|
|
$
|
76
|
|
|
$
|
(65)
|
|
|
$
|
—
|
|
|
$
|
11
|
|
Financial commodity contracts
|
|
282
|
|
|
(71)
|
|
|
—
|
|
|
211
|
|
|
|
|
|
|
|
|
|
|
Total Natural Gas Distribution
|
|
$
|
358
|
|
|
$
|
(136)
|
|
|
$
|
—
|
|
|
$
|
222
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2019:
|
|
|
|
|
|
|
|
|
Derivative assets:
|
|
|
|
|
|
|
|
|
Energy Services
|
|
|
|
|
|
|
|
|
Physical commodity contracts
|
|
$
|
8,557
|
|
|
$
|
(2,906)
|
|
|
$
|
(200)
|
|
|
$
|
5,451
|
|
Financial commodity contracts
|
|
23,522
|
|
|
(19,646)
|
|
|
—
|
|
|
3,876
|
|
Foreign currency contracts
|
|
1
|
|
|
(1)
|
|
|
—
|
|
|
—
|
|
Total Energy Services
|
|
$
|
32,080
|
|
|
$
|
(22,553)
|
|
|
$
|
(200)
|
|
|
$
|
9,327
|
|
Natural Gas Distribution
|
|
|
|
|
|
|
|
|
Physical commodity contracts
|
|
$
|
67
|
|
|
$
|
(9)
|
|
|
$
|
—
|
|
|
$
|
58
|
|
Financial commodity contracts
|
|
382
|
|
|
(382)
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Total Natural Gas Distribution
|
|
$
|
449
|
|
|
$
|
(391)
|
|
|
$
|
—
|
|
|
$
|
58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities:
|
|
|
|
|
|
|
|
|
Energy Services
|
|
|
|
|
|
|
|
|
Physical commodity contracts
|
|
$
|
40,181
|
|
|
$
|
(2,906)
|
|
|
$
|
—
|
|
|
$
|
37,275
|
|
Financial commodity contracts
|
|
35,162
|
|
|
(19,646)
|
|
|
(15,516)
|
|
|
—
|
|
Foreign currency contracts
|
|
286
|
|
|
(1)
|
|
|
—
|
|
|
285
|
|
Total Energy Services
|
|
$
|
75,629
|
|
|
$
|
(22,553)
|
|
|
$
|
(15,516)
|
|
|
$
|
37,560
|
|
Natural Gas Distribution
|
|
|
|
|
|
|
|
|
Physical commodity contracts
|
|
$
|
245
|
|
|
$
|
(9)
|
|
|
$
|
—
|
|
|
$
|
236
|
|
Financial commodity contracts
|
|
570
|
|
|
(382)
|
|
|
(188)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Total Natural Gas Distribution
|
|
$
|
815
|
|
|
$
|
(391)
|
|
|
$
|
(188)
|
|
|
$
|
236
|
|
(1)Derivative assets and liabilities are presented on a gross basis on the balance sheet as the Company does not elect balance sheet offsetting under ASC 210-20.
(2)Includes 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 natural gas to be used for storage injection and its subsequent sale at a later date. The gains (losses) on the financial transactions that are economic hedges of the cost of the purchased natural gas are recognized prior to the gains (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 (losses) on the financial derivative instruments and gains (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:
|
2020
|
|
2019
|
|
2018
|
Energy Services:
|
|
|
|
|
|
|
Physical commodity contracts
|
Operating revenues
|
$
|
1,163
|
|
|
$
|
(5,732)
|
|
|
$
|
(9,311)
|
|
Physical commodity contracts
|
Natural gas purchases
|
(3,366)
|
|
|
(521)
|
|
|
(197)
|
|
Financial commodity contracts
|
Natural gas purchases
|
58,949
|
|
|
(643)
|
|
|
(24,622)
|
|
Foreign currency contracts
|
Natural gas purchases
|
(41)
|
|
|
(283)
|
|
|
(379)
|
|
Home Services and Other:
|
|
|
|
|
|
|
Interest rate contracts
|
Interest expense
|
—
|
|
(233)
|
|
|
334
|
|
Total unrealized and realized (losses) gains
|
$
|
56,705
|
|
|
$
|
(7,412)
|
|
|
$
|
(34,175)
|
|
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. At settlement, the resulting gains and/or losses are payable to or recoverable from utility customers and are deferred in regulatory assets or liabilities resulting in no impact to earnings.
The following table reflects the gains (losses) associated with NJNG’s derivative instruments as of September 30:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Thousands)
|
2020
|
|
2019
|
|
2018
|
Natural Gas Distribution:
|
|
|
|
|
|
Physical commodity contracts
|
$
|
2,077
|
|
|
$
|
5,926
|
|
|
$
|
1,232
|
|
Financial commodity contracts
|
(3,903)
|
|
|
(7,700)
|
|
|
1,844
|
|
Interest rate contracts
|
—
|
|
|
—
|
|
|
8,467
|
|
Total unrealized and realized (losses) gains
|
$
|
(1,826)
|
|
|
$
|
(1,774)
|
|
|
$
|
11,543
|
|
NJR designates its treasury lock contracts as cash flow hedges, therefore, 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 OCI to interest expense on the Consolidated Statements of Operations.
The following table reflects the effect of derivative instruments designated as cash flow hedges in OCI as of September 30:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Thousands)
|
Amount of Pre-tax Gain (Loss) Recognized in OCI on Derivatives
|
Location of Gain (Loss) Reclassified from OCI into Income
|
Amount of Pre-tax Gain (Loss) Reclassified from OCI into Income
|
|
Derivatives in cash flow hedging relationships:
|
2020
|
2019
|
|
2020
|
2019
|
|
|
Interest rate contracts
|
$
|
(13,568)
|
|
$
|
—
|
|
Interest expense
|
$
|
140
|
|
$
|
—
|
|
|
|
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)
|
|
|
Transaction Type
|
|
|
2020
|
|
2019
|
Natural Gas Distribution
|
|
Futures
|
|
|
23.7
|
|
|
27.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Physical Commodity
|
|
|
6.0
|
|
|
11.6
|
|
|
|
|
|
|
|
|
|
Energy Services
|
|
Futures
|
|
|
(27.5)
|
|
|
(29.6)
|
|
|
|
Swaps
|
|
|
(1.8)
|
|
|
(5.0)
|
|
|
|
Options
|
|
|
—
|
|
|
1.0
|
|
|
|
Physical Commodity
|
|
|
5.0
|
|
|
44.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Not included in the above table are Energy Services' net notional amount of foreign currency transactions of approximately $5.1 million and $6.2 million and 960,000 and 796,000 SRECs that were open, as of September 30, 2020 and 2019, respectively.
Broker Margin
Futures exchanges have contract-specific 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 the Natural Gas Distribution and Energy Services segments. The balances as of September 30, by segment, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
(Thousands)
|
Balance Sheet Location
|
2020
|
2019
|
Natural Gas Distribution
|
Restricted broker margin accounts
|
$
|
13,525
|
|
$
|
1,982
|
|
|
|
|
|
Energy Services
|
Restricted broker margin accounts
|
$
|
55,919
|
|
$
|
71,741
|
|
|
|
|
|
Wholesale Credit Risk
NJNG, Energy Services and Clean Energy Ventures are exposed to credit risk as a result of their sales/wholesale 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), then 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 Fitch or Moody’s. In these cases, the counterparty’s or guarantor’s financial statements are reviewed, and similar methodologies and ratios used by Fitch 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, 2020. 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
|
|
$
|
132,105
|
|
|
Noninvestment grade
|
|
8,527
|
|
|
Internally-rated investment grade
|
|
24,647
|
|
|
Internally-rated noninvestment grade
|
|
12,471
|
|
|
Total
|
|
$
|
177,750
|
|
|
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. 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, 2020 and 2019, were considered immaterial. 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 finance leases and debt issuance costs, is as follows (1):
|
|
|
|
|
|
|
|
|
(Thousands)
|
2020
|
2019
|
NJNG (2) (3)
|
|
|
Carrying value
|
$
|
1,092,845
|
|
$
|
892,845
|
|
Fair market value
|
$
|
1,271,715
|
|
$
|
984,129
|
|
NJR (4)
|
|
|
Carrying value
|
$
|
1,010,000
|
|
$
|
550,000
|
|
Fair market value
|
$
|
1,146,033
|
|
$
|
584,735
|
|
(1)See Note 9. Debt for a reconciliation to long-term and short-term debt.
(2)Excludes finance leases of $74.2 million and $35.4 million as of September 30, 2020 and September 30, 2019, respectively.
(3)Excludes NJNG's debt issuance costs of $9.2 million and $9 million as of September 30, 2020 and September 30, 2019, respectively.
(4)Excludes NJR's debt issuance costs of $3.4 million and $2 million as of September 30, 2020 and September 30, 2019, respectively.
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
Clean Energy Ventures enters into transactions to sell certain commercial solar assets and lease the assets back for a term specified in the lease. These transactions are considered financing obligations for accounting purposes and are recorded within long-term debt on the Consolidated Balance Sheets. The estimated fair value of solar asset financing obligations as of September 30, 2020 and September 30, 2019 was $149.2 million and $98.6 million, respectively.
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, 2020, NJR discloses 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 1Unadjusted 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 to internally as basis swaps, fixed swaps, futures and financial options that are cleared through a FCM.
Level 2Other 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). 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 3Inputs 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.
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
The Company also has other financial assets that include listed equities, mutual funds and money market funds for which there are active exchange quotes available.
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 2020:
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
Physical commodity contracts
|
|
$
|
—
|
|
|
|
$
|
7,796
|
|
|
|
$
|
—
|
|
|
$
|
7,796
|
|
Financial commodity contracts
|
|
18,279
|
|
|
|
500
|
|
|
|
—
|
|
|
18,779
|
|
Financial commodity contracts - foreign exchange
|
|
—
|
|
|
|
84
|
|
|
|
—
|
|
|
84
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
112,291
|
|
|
|
—
|
|
|
|
—
|
|
|
112,291
|
|
Other
|
|
1,840
|
|
|
|
—
|
|
|
|
—
|
|
|
1,840
|
|
Total assets at fair value
|
|
$
|
132,410
|
|
|
|
$
|
8,380
|
|
|
|
$
|
—
|
|
|
$
|
140,790
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
Physical commodity contracts
|
|
$
|
—
|
|
|
|
$
|
32,517
|
|
|
|
$
|
—
|
|
|
$
|
32,517
|
|
Financial commodity contracts
|
|
14,593
|
|
|
|
—
|
|
|
|
—
|
|
|
14,593
|
|
Financial commodity contracts - foreign exchange
|
|
—
|
|
|
|
107
|
|
|
|
—
|
|
|
107
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities at fair value
|
|
$
|
14,593
|
|
|
|
$
|
32,624
|
|
|
|
$
|
—
|
|
|
$
|
47,217
|
|
As of September 30, 2019:
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
Physical commodity contracts
|
|
$
|
—
|
|
|
|
$
|
8,624
|
|
|
|
$
|
—
|
|
|
$
|
8,624
|
|
Financial commodity contracts
|
|
20,028
|
|
|
|
3,876
|
|
|
|
—
|
|
|
23,904
|
|
Financial commodity contracts - foreign exchange
|
|
—
|
|
|
|
1
|
|
|
|
—
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (1)
|
|
1,706
|
|
|
|
—
|
|
|
|
—
|
|
|
1,706
|
|
Total assets at fair value
|
|
$
|
21,734
|
|
|
|
$
|
12,501
|
|
|
|
$
|
—
|
|
|
$
|
34,235
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
Physical commodity contracts
|
|
$
|
—
|
|
|
|
$
|
40,426
|
|
|
|
$
|
—
|
|
|
$
|
40,426
|
|
Financial commodity contracts
|
|
35,732
|
|
|
|
—
|
|
|
|
—
|
|
|
35,732
|
|
Financial commodity contracts - foreign exchange
|
|
—
|
|
|
|
286
|
|
|
|
—
|
|
|
286
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities at fair value
|
|
$
|
35,732
|
|
|
|
$
|
40,712
|
|
|
|
$
|
—
|
|
|
$
|
76,444
|
|
(1)Includes money market funds.
See Note 5. Derivative Instruments for additional details.
7. INVESTMENTS IN EQUITY INVESTEES
As of September 30, the Company’s investments in equity method investees includes the following:
|
|
|
|
|
|
|
|
|
(Thousands)
|
2020
|
2019
|
Steckman Ridge (1)
|
$
|
112,378
|
|
$
|
114,428
|
|
PennEast (2)
|
95,997
|
|
85,840
|
|
Total
|
$
|
208,375
|
|
$
|
200,268
|
|
(1)Includes loans with a total outstanding principal balance of $70.4 million for both fiscal 2020 and 2019, which accrue interest at a variable rate that resets quarterly and are due October 1, 2023.
(2)Includes a deferred tax component related to AFUDC equity of $4.6 million and $4.1 million for September 30, 2020 and September 30, 2019, respectively.
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
Steckman Ridge
The Company holds a 50 percent equity method investment in Steckman Ridge, a jointly owned and controlled natural gas storage facility located in Bedford County, Pennsylvania. Due to the anticipated expiration of a customer contract, the Company evaluated its investment in Steckman Ridge for other-than-temporary impairment and determined an impairment charge was not necessary.
The fair value of the Company’s investment in Steckman Ridge was determined using a discounted cash flow method and utilized management’s best estimates and assumptions related to expected future results, including the price and capacity of firm natural gas storage contracting, operations and maintenance costs, the nature and timing of major maintenance and capital investment, and discount rates. Fair value determinations require considerable judgment and are sensitive to changes in underlying assumptions and other factors. As a result, it is reasonably possible that unfavorable developments, such as the failure to execute storage contracts and other services for available capacity at anticipated price levels could result in an other-than temporary impairment charge in the Consolidated Financial Statements.
PennEast
The Company, through its subsidiary NJR Midstream Company, is a 20 percent investor in PennEast, a partnership whose purpose is to construct and operate a 120-mile natural gas pipeline that will extend from northeast Pennsylvania to western New Jersey. PennEast received a Certificate of Public Convenience and Necessity for the project from FERC on January 19, 2018.
On September 10, 2019, the Third Circuit issued an order overturning the U.S. District Court for the District of New Jersey’s order granting PennEast condemnation and immediate access in accordance with the Natural Gas Act to certain properties in which the State of New Jersey holds an interest. A Petition for Rehearing was denied by the Third Circuit on November 5, 2019.
On October 8, 2019, the NJDEP issued a letter indicating that it deemed PennEast’s freshwater wetlands permit application to be administratively incomplete and closed the matter without prejudice. On October 11, 2019, PennEast submitted a letter to the NJDEP objecting to its position that the application is administratively incomplete. PennEast's objections were rejected by the NJDEP on November 18, 2019.
On October 4, 2019, PennEast filed a petition for Declaratory Order with FERC requesting an interpretation of the eminent domain authority of a FERC certificate holder under the Natural Gas Act. The Declaratory Order was granted on January 30, 2020.
On January 30, 2020, PennEast filed an amendment with FERC to construct the PennEast pipeline in two phases. Phase one consists of construction of a 68-mile pipeline in Pennsylvania from the eastern Marcellus Shale region in Luzerne County that would terminate in Northampton County. Phase two includes construction of the remaining original certificated route in Pennsylvania and New Jersey. Construction could begin following approval by FERC of the phased approach and receipt of any remaining governmental and regulatory permits.
On February 18, 2020, PennEast filed a writ of certiorari with the Supreme Court of the U.S. to review the September 10, 2019 Third Circuit decision.
On June 29, 2020, the Supreme Court requested that the Solicitor General of the U.S. file a brief that expresses the views on the question of the use of eminent domain to acquire state owned lands for pipeline construction.
The Company evaluated its investment in PennEast for other-than-temporary impairment and determined an impairment charge was not necessary. The Company estimated the fair value of its investment in PennEast using probability-weighted scenarios of discounted future cash flows. Management made significant estimates and assumptions related to development options and legal outcomes, construction costs, timing of capital investments and in-service dates, revenues and discount rates. Higher probabilities were assumed related to those scenarios where the project is completed. The discounted cash flow scenarios contemplated the impact of key assumptions of future court decisions and future management decisions and requires management to make significant estimates regarding the likelihood of various scenarios and assumptions. It is reasonably possible that future unfavorable developments, such as a reduced likelihood of success from development options and legal outcomes, estimated increases in construction costs, increases in the discount rate, or further significant delays, could result in
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
an impairment of our equity method investment. Also, the use of alternate judgments and assumptions could result in a different calculation of fair value, which could ultimately result in the recognition of an other-than-temporary impairment charge in the Consolidated Financial Statements.
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)
|
2020
|
2019
|
2018
|
Net income, as reported
|
$
|
193,919
|
|
$
|
169,505
|
|
$
|
233,436
|
|
Basic earnings per share
|
|
|
|
Weighted average shares of common stock outstanding-basic
|
94,798
|
|
89,242
|
|
87,689
|
|
Basic earnings per common share
|
$2.05
|
$1.90
|
$2.66
|
Diluted earnings per share
|
|
|
|
Weighted average shares of common stock outstanding-basic
|
94,798
|
|
89,242
|
|
87,689
|
|
Incremental shares (1)
|
309
|
|
374
|
|
626
|
|
Weighted average shares of common stock outstanding-diluted
|
95,107
|
|
89,616
|
|
88,315
|
|
Diluted earnings per common share (2)
|
$2.04
|
$1.89
|
$2.64
|
(1)Incremental shares consist primarily of unvested stock awards and performance units.
(2)There were anti-dilutive shares of 74,000 excluded from the calculation of diluted earnings per share related to the equity forward sale agreement for fiscal 2020. There were no anti-dilutive shares excluded from the calculation of diluted earnings per share for fiscal 2019 and 2018.
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)
|
2020
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NJNG
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First mortgage bonds:
|
Maturity date:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.00%
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.01%
|
Series VV
|
May 11, 2048
|
125,000
|
|
125,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.50%
|
Series WW
|
April 1, 2042
|
10,300
|
|
10,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.38%
|
Series XX
|
April 1, 2038
|
10,500
|
|
10,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.45%
|
Series YY
|
April 1, 2059
|
15,000
|
|
15,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.76%
|
Series ZZ
|
July 17, 2049
|
100,000
|
|
100,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.86%
|
Series AAA
|
July 17, 2059
|
85,000
|
|
85,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.75%
|
Series BBB
|
August 1, 2039
|
9,545
|
|
9,545
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.00%
|
Series CCC
|
August 1, 2043
|
41,000
|
|
41,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.13%
|
Series DDD
|
June 30, 2050
|
50,000
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.13%
|
Series EEE
|
July 23, 2050
|
50,000
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.33%
|
Series FFF
|
July 23, 2060
|
25,000
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.87%
|
Series GGG
|
September 1, 2050
|
25,000
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.97%
|
Series HHH
|
September 1, 2060
|
50,000
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance lease obligation-buildings
|
June 30, 2037
|
47,597
|
|
5,637
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance lease obligation-meters
|
Various dates
|
26,562
|
|
29,744
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Debt issuance costs
|
|
(9,195)
|
|
(9,027)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Current maturities of long-term debt
|
|
(10,416)
|
|
(10,420)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total NJNG long-term debt
|
1,147,393
|
|
908,779
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NJR
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.25%
|
Unsecured senior notes
|
September 17, 2022
|
50,000
|
|
50,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.20%
|
Unsecured senior notes
|
August 18, 2023
|
50,000
|
|
50,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.48%
|
Unsecured senior notes
|
November 7, 2024
|
100,000
|
|
100,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.54%
|
Unsecured senior notes
|
August 18, 2026
|
100,000
|
|
100,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.96%
|
Unsecured senior notes
|
June 8, 2028
|
100,000
|
|
100,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.29%
|
Unsecured senior notes
|
July 17, 2029
|
150,000
|
|
150,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.60%
|
Unsecured senior notes
|
July 23, 2032
|
130,000
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.50%
|
Unsecured senior notes
|
July 23, 2030
|
130,000
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.25%
|
Unsecured senior notes
|
September 1, 2033
|
80,000
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.13%
|
Unsecured senior notes
|
September 1, 2031
|
120,000
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Debt issuance costs
|
|
(3,424)
|
|
(2,004)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Current maturities of long-term debt
|
|
—
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total NJR long-term debt
|
1,006,576
|
|
547,996
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Clean Energy Ventures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Solar asset financing obligation
|
Various dates
|
122,317
|
|
91,401
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Current maturities of long-term debt
|
(16,820)
|
|
(10,999)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Clean Energy Ventures long-term debt
|
105,497
|
|
80,402
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt
|
$
|
2,259,466
|
|
$
|
1,537,177
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
Annual long-term debt redemption requirements, excluding finance leases, debt issuance costs and solar asset financing obligations, as of September 30, are as follows:
|
|
|
|
|
|
|
|
|
(Thousands)
|
NJR
|
NJNG
|
2021
|
$
|
—
|
|
$
|
—
|
|
2022
|
$
|
50,000
|
|
$
|
—
|
|
2023
|
$
|
50,000
|
|
$
|
—
|
|
2024
|
$
|
100,000
|
|
$
|
70,000
|
|
2025
|
$
|
—
|
|
$
|
50,000
|
|
Thereafter
|
$
|
810,000
|
|
$
|
972,845
|
|
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 does not restrict 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, 2020, NJNG’s equity to total capitalization ratio is 53.1 percent and has the ability to issue up to $1.1 billion of FMB under the terms of the Mortgage Indenture.
On April 18, 2019, NJNG completed the remarketing of three FMBs, in the amount of $35.8 million, with a weighted average interest rate of 3.02 percent. The bonds have maturity dates ranging from April 2038 to April 2059. The bonds were previously purchased in lieu of redemption and were being held by the Company.
On July 17, 2019, NJNG entered into a Note Purchase Agreement, under which NJNG issued $100 million of 3.76 percent senior notes due July 17, 2049 and $85 million of 3.86 percent senior notes due July 17, 2059. The senior notes are secured by an equal principal amount of NJNG's FMBs issued under NJNG's Mortgage Indenture.
On August 1, 2019, NJNG completed a remarketing of three existing variable rate FMBs, with a total principal amount of $97 million, which fixed the interest rates of the bonds. NJNG remarketed $46.5 million at 3 percent due August 1, 2041, $41 million at 3 percent due August 2043 and $9.5 million at 2.75 percent due August 1, 2039. EDA Bonds are special, limited obligations of the EDA payable solely from payments made by NJNG pursuant to a Loan Agreement and are secured by the pledge of $97 million principal amount of the FMB issued by the Company.
On May 14, 2020, NJNG entered into a Note Purchase Agreement for $125 million of its senior notes, of which $100 million were at an interest rate of 3.13 percent, maturing in 2050, and $25 million were at an interest rate of 3.33 percent, maturing in 2060. On June 30, 2020, NJNG issued $50 million of 3.13 percent senior notes due June 30, 2050. On July 23, 2020, NJNG issued the remaining $50 million of 3.13 percent senior notes due July 23, 2050 and $25 million of 3.33 percent senior notes due July 23, 2060. The senior notes are secured by an equal principal amount of NJNG’s FMBs issued under NJNG’s Mortgage Indenture.
On September 1, 2020, NJNG entered into and issued a Note Purchase Agreement for $75 million of its senior notes, of which $25 million were at an interest rate of 2.87 percent, maturing in 2050, and $50 million were at an interest rate of 2.97 percent, maturing in 2060. The senior notes are secured by an equal principal amount of NJNG’s FMBs issued under NJNG’s Mortgage Indenture.
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
Sale Leasebacks
NJNG has entered into a sale leaseback for its headquarters building, which has a 16-year term that expires in June 30, 2037. The present value of the agreement’s lease payments is reflected as a finance lease liability, which are included in utility plant and long-term debt, respectively, on the Consolidated Balance Sheets.
NJNG received $4 million, $9.9 million and $7.8 million for fiscal 2020, 2019 and 2018, respectively, in connection with the sale leaseback of its natural gas meters. NJNG records a finance lease liability 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 2020, 2019 and 2018, NJNG exercised early purchase options with respect to meter leases by making final principal payments of $1.2 million, $1.1 million and $2.2 million, respectively.
Contractual commitments for finance lease payments, as of the fiscal years ended September 30, are as follows:
|
|
|
|
|
|
|
|
|
(Thousands)
|
senior note
|
2021
|
|
$
|
54,992
|
|
2022
|
|
6,004
|
|
2023
|
|
4,622
|
|
2024
|
|
5,279
|
|
2025
|
|
3,396
|
|
Thereafter
|
|
2,324
|
|
Subtotal
|
|
76,617
|
|
Less: Interest component
|
|
(2,458)
|
|
Total
|
|
$
|
74,159
|
|
NJR
On July 17, 2019, NJR entered into a Note Purchase Agreement for $150 million of 3.29 percent senior notes due on July 17, 2029. NJR issued $50 million of these senior notes on July 17, 2019 and issued the remaining $100 million of these senior notes on August 15, 2019.
On January 26, 2018, NJR entered into a variable-for-fixed interest rate swap on its $100 million variable rate term loan, which fixed the variable rate at 2.84 percent. The swap terminated on August 16, 2019, which coincided with the maturity of the debt. NJR had no long-term variable-rate debt outstanding as of September 30, 2020 and 2019.
On May 14, 2020, NJR entered into a Note Purchase Agreement for $260 million of its senior notes, of which $130 million are at a fixed interest rate of 3.5 percent, maturing in 2030, and $130 million are at a fixed interest rate of 3.6 percent, maturing in 2032. On July 23, 2020, NJR issued all $260 million of the senior notes. The senior notes are unsecured and guaranteed by certain unregulated subsidiaries of NJR.
On September 1, 2020, NJR entered into and issued a Note Purchase Agreement for $200 million of its senior notes, of which $120 million are at a fixed interest rate of 3.13 percent, maturing in 2031, and $80 million are at a fixed interest rate of 3.25 percent, maturing in 2033. The senior notes are unsecured and guaranteed by certain unregulated subsidiaries of NJR.
Clean Energy Ventures
Clean Energy Ventures received proceeds of $42.9 million and $71.5 million in fiscal 2020 and 2018, respectively, in connection with the sale leaseback of commercial solar assets. Clean Energy Ventures did not receive proceeds related to the sale leaseback of commercial solar assets during fiscal 2019. Clean Energy Ventures enters into transactions to sell the commercial solar assets concurrent with agreements to lease the assets back over a period of five to 15 years. These sale leasebacks arrangements did not qualify for sale treatment and, therefore, are accounted for as a financing arrangement, 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 are transferred to the buyer. Clean Energy Ventures continues 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 contract term.
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
Contractual commitments for the solar financing obligation payments, as of the fiscal years ended September 30, are as follows:
|
|
|
|
|
|
|
|
|
(Thousands)
|
Lease Payments
|
2021
|
|
$
|
12,928
|
|
2022
|
|
12,926
|
|
2023
|
|
13,003
|
|
2024
|
|
12,904
|
|
2025
|
|
8,985
|
|
Thereafter
|
|
47,268
|
|
Subtotal
|
|
108,014
|
|
Less: Interest component
|
|
(23,052)
|
|
Total
|
|
$
|
84,962
|
|
Short-term Debt
A summary of NJR’s and NJNG’s short-term bank facilities as of September 30, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Thousands)
|
2020
|
|
2019
|
|
Expiration Dates
|
NJR
|
|
|
|
|
|
Bank revolving credit facilities (1)
|
$
|
425,000
|
|
|
$
|
425,000
|
|
|
December 2023
|
Notes outstanding at end of period
|
$
|
125,350
|
|
|
$
|
25,450
|
|
|
|
Weighted average interest rate at end of period
|
1.49
|
%
|
|
3.04
|
%
|
|
|
Amount available at end of period (2)
|
$
|
289,356
|
|
|
$
|
394,800
|
|
|
|
Bank revolving credit facilities (1)
|
$
|
250,000
|
|
|
$
|
—
|
|
|
April 2021
|
Notes outstanding at end of period
|
$
|
—
|
|
|
$
|
—
|
|
|
|
Weighted average interest rate at end of period
|
—
|
%
|
|
—
|
%
|
|
|
Amount available at end of period (2)
|
$
|
250,000
|
|
|
$
|
—
|
|
|
|
NJNG
|
|
|
|
|
|
Bank revolving credit facilities (3)
|
$
|
250,000
|
|
|
$
|
250,000
|
|
|
December 2023
|
Commercial paper outstanding at end of period
|
$
|
—
|
|
|
$
|
—
|
|
|
|
Weighted average interest rate at end of period
|
—
|
%
|
|
—
|
%
|
|
|
Amount available at end of period (4)
|
$
|
249,269
|
|
|
$
|
249,269
|
|
|
|
(1)Committed credit facilities, which require commitment fees of 0.075 percent on the unused amounts.
(2)Letters of credit outstanding total $10.3 million and $4.8 million as of September 30, 2020 and 2019, respectively, which reduces amount available by the same amount.
(3)Committed credit facilities, which require commitment fees of 0.075 percent on the unused amounts.
(4)Letters of credit outstanding total $731,000 as of September 30, 2020 and 2019, which reduces amount available by the same amount.
Amounts available under credit facilities are reduced by bank or commercial paper borrowings, as applicable, and any outstanding letters of credit. Neither NJNG nor the results of its operations are obligated or pledged to support the NJR credit or debt shelf facilities.
On October 9, 2019, NJR entered into a $350 million Bridge Facility, which was used primarily to finance the Leaf River acquisition. The Bridge Facility accrued interest at the LIBOR rate for a 1-month interest period plus 0.875 percent during the first 180 days, and 1.075 percent after 180 days. Loans under the Bridge Facility were required to be prepaid to the extent of new cash proceeds received upon the issuance of equity of NJR, the incurrence of indebtedness by NJR or its subsidiaries, the disposition of assets by NJR or its subsidiaries or upon other specified events, in each case subject to certain exceptions set forth in the Bridge Facility. As of September 30, 2020, the loan was repaid in full.
NJR
On April 24, 2020, NJR entered into a 364-day $250 million revolving credit facility with an interest rate based on LIBOR plus 1.625 percent. After six months, all outstanding amounts under the credit facility would convert to a term loan and would be due on April 23, 2021. In connection with entry into this credit facility, as of September 30, 2020, all outstanding borrowings under NJR's December 13, 2019, $150 million revolving line of credit facility were repaid. On October 24, 2020, there was no balance outstanding on the $250 million credit facility. As a result, the credit facility was considered terminated.
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
On June 25, 2018, the $425 million NJR Credit Facility was amended to permit liens and the disposition of assets relating to sale leaseback or other similar tax equity financing arrangements of meter assets or of solar facilities. These transactions are permissible so long as NJR is in compliance with certain covenants both before and after such incurrence, and if no event of default may be caused by such sale leaseback or similar arrangement.
On December 5, 2018, NJR entered into an Amended and Restated Credit Agreement governing a $425 million NJR Credit Facility. The NJR Credit Facility expires on December 5, 2023, subject to two mutual options for a one-year extension beyond that date. The NJR Credit Facility permits the borrowing of revolving loans and swingline loans, as well as the issuance of letters of credit. The NJR Credit Facility also 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 increments of $50 million increments up to a maximum of $250 million. Certain of NJR’s unregulated subsidiaries have guaranteed all of NJR’s obligations under the NJR Credit Facility. 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.
As of September 30, 2020, NJR had seven letters of credit outstanding totaling $10.3 million on behalf of Energy Services and 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 natural gas sales and expire on dates ranging from December 2020 to September 2021.
Neither NJNG nor the results of its operations are obligated or pledged to support the NJR credit or debt shelf facilities.
NJNG
On December 5, 2018, NJNG entered into an Amended and Restated Credit Agreement governing a $250 million, NJNG Credit Facility. The NJNG Credit Facility expires on December 5, 2023, subject to two mutual options for a one-year extension beyond that date. The NJNG Credit Facility permits the borrowing of revolving loans and swingline loans, as well as the issuance of letters of credit. The NJNG Credit Facility also includes an accordion feature, which would allow NJNG, 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 NJNG Credit Facility in minimum increments of $50 million up to a maximum of $100 million.
As of September 30, 2020, 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 11, 2021. 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 they will be renewed as necessary.
10. STOCK-BASED COMPENSATION
In January 2017, the NJR 2017 Stock Award and Incentive Plan replaced the NJR 2007 Stock Award and Incentive Plan. Shares have been issued in the form of performance share units, restricted stock units, deferred retention stock units and unrestricted common stock to non-employee directors. As of September 30, 2020, 3,189,550 shares remain available for future issuance.
The following table summarizes all stock-based compensation expense recognized during the following fiscal years:
|
|
|
|
|
|
|
|
|
|
|
|
(Thousands)
|
2020
|
2019
|
2018
|
Stock-based compensation expense:
|
|
|
|
Performance share awards
|
$
|
1,943
|
|
$
|
5,804
|
|
$
|
3,526
|
|
Restricted and non-restricted stock
|
2,868
|
|
2,492
|
|
2,191
|
|
Deferred retention stock
|
1,725
|
|
1,500
|
|
7,128
|
|
Compensation expense included in operation and maintenance expense
|
6,536
|
|
9,796
|
|
12,845
|
|
Income tax benefit (1)
|
(1,900)
|
|
(2,848)
|
|
(3,734)
|
|
Total, net of tax
|
$
|
4,636
|
|
$
|
6,948
|
|
$
|
9,111
|
|
(1)Excludes additional tax benefit related to delivered shares of $647,000, $1.3 million and $3 million as of September 30, 2020, 2019 and 2018, respectively.
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
Performance Share Units
In fiscal 2020, the Company granted to certain officers 33,123 performance shares, which are market condition awards that vest on September 30, 2022, subject to the Company meeting certain conditions. In fiscal 2020, the Company also granted to certain officers 48,941 performance shares, of which 30,473 vest on September 30, 2022 and 18,468 vest annually over a three-year period beginning in September 2020, both of which are subject to the Company meeting certain performance conditions.
In fiscal 2019, the Company granted to certain officers 36,392 performance shares, which are market condition awards that vest on September 30, 2021, subject to the Company meeting certain conditions. In fiscal 2019, the Company also granted to certain officers 63,870 performance shares, of which 33,844 vest on September 30, 2021 and 30,026 vest annually over a three-year period beginning in September 2019, both of which are subject to the Company meeting certain performance conditions.
In fiscal 2018, the Company granted to certain officers 31,836 performance shares, which are market condition awards that vested on September 30, 2020, subject to the Company meeting certain conditions. In fiscal 2018, the Company also granted to certain officers 59,341 performance shares, of which 29,608 vested in September 30, 2020 and 29,733 vest annually over a three-year period beginning in September 2018, 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 $2.4 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, 2017
|
156,587
|
|
|
$30.12
|
|
|
—
|
|
|
Granted
|
91,177
|
|
|
$44.67
|
|
|
—
|
|
|
Vested (2)
|
(100,146)
|
|
|
$29.49
|
|
|
$
|
4,714
|
|
|
Cancelled/forfeited
|
(2,442)
|
|
|
$31.45
|
|
|
—
|
|
|
Non-vested and outstanding at September 30, 2018
|
145,176
|
|
|
$39.67
|
|
|
—
|
|
|
Granted
|
100,262
|
|
|
$47.98
|
|
|
—
|
|
|
Vested (3)
|
(103,009)
|
|
|
$38.52
|
|
|
$
|
4,622
|
|
|
Cancelled/forfeited
|
(11,920)
|
|
|
$44.34
|
|
|
—
|
|
|
Non-vested and outstanding at September 30, 2019
|
130,509
|
|
|
$46.53
|
|
|
—
|
|
|
Granted
|
82,064
|
|
|
$40.61
|
|
|
—
|
|
|
Vested (4)
|
(55,025)
|
|
|
$44.27
|
|
|
$
|
2,083
|
|
|
Cancelled/forfeited
|
(1,817)
|
|
|
$44.38
|
|
|
—
|
|
|
Non-vested and outstanding at September 30, 2020
|
155,731
|
|
|
$44.22
|
|
|
—
|
|
|
(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 13, 2018, the number of common shares related to performance shares earned was 99 percent, or 38,660 shares, the number of common shares earned related to NFE performance was 121 percent or 39,694 shares, and the number of common shares earned related to Performance Based Restricted Stock was 100 percent or 36,998 shares. Each award earned excludes accumulated dividends. The number represented on this line is the target number of 100 percent.
(3)As certified by the Company’s Leadership and Compensation Committee on November 12, 2019, the number of common shares earned related to TSR performance was 119 percent or 43,641 shares, the number of common shares earned related to NFE performance was 117 percent or 26,413 shares, and the number of common shares earned related to Performance Based Restricted Stock was 100 percent or 24,468 shares. Each award earned excludes accumulated dividends. The number represented on this line is the target number of 100 percent.
(4)As certified by the Company’s Leadership and Compensation Committee on November 9, 2020, there were no common shares earned related to TSR performance, the number of common shares earned related to NFE performance was 114 percent or 28,513 shares and the number of common shares earned related to Performance Based Restricted Stock was 100 percent or 11,139 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
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
are initially fair valued at the Company’s stock price on grant date, and are subsequently adjusted for actual achievement of the performance goals.
Restricted Stock Units
In fiscal 2020, the Company granted 42,478 shares of restricted stock units that vest annually over a three-year period beginning October 2020. In fiscal 2019, the Company granted 29,222 shares of restricted stock that vest annually over a three-year period beginning in October 2019. In fiscal 2019, the Company also granted 6,062 shares of restricted stock that vest annually over a three-year period beginning April 2020. In fiscal 2018, the Company granted 27,949 shares of restricted stock that vest annually over a three-year period beginning in October 2018. There is approximately $1 million of deferred compensation related to unvested restricted stock shares that is expected to be recognized over the weighted average period of 1.8 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, 2017
|
51,154
|
|
|
$32.40
|
|
|
—
|
|
|
Granted
|
27,949
|
|
|
$45.00
|
|
|
—
|
|
|
Vested
|
(33,815)
|
|
|
$31.23
|
|
|
$
|
1,438
|
|
|
Cancelled/forfeited
|
(1,120)
|
|
|
$33.54
|
|
|
—
|
|
|
Non-vested and outstanding at September 30, 2018
|
44,168
|
|
|
$41.24
|
|
|
—
|
|
|
Granted
|
35,284
|
|
|
$48.24
|
|
|
—
|
|
|
Vested
|
(20,748)
|
|
|
$39.26
|
|
|
$
|
935
|
|
|
Cancelled/forfeited
|
(548)
|
|
|
$42.96
|
|
|
—
|
|
|
Non-vested and outstanding at September 30, 2019
|
58,156
|
|
|
$46.18
|
|
|
—
|
|
|
Granted
|
42,478
|
|
|
$40.61
|
|
|
—
|
|
|
Vested
|
(25,973)
|
|
|
$44.71
|
|
|
$
|
1,073
|
|
|
Cancelled/forfeited
|
(1,175)
|
|
|
$43.62
|
|
|
—
|
|
|
Non-vested and outstanding at September 30, 2020
|
73,486
|
|
|
$43.52
|
|
|
—
|
|
|
Deferred Retention Stock Units
Deferred retention stock awards are granted upon approval by the Board of Directors, which generally occurs subsequent to the fiscal year end. 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 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, 2017
|
672,578
|
|
|
$29.54
|
|
|
—
|
|
|
Granted/Vested
|
24,167
|
|
|
$45.00
|
|
|
—
|
|
|
Delivered
|
(452,694)
|
|
|
$29.42
|
|
|
$
|
19,581
|
|
|
Forfeited
|
(1,969)
|
|
|
$35.56
|
|
|
|
|
Outstanding at September 30, 2018
|
242,082
|
|
|
$32.99
|
|
|
—
|
|
|
Granted/Vested
|
167,407
|
|
|
$47.95
|
|
|
—
|
|
|
Delivered
|
(158,733)
|
|
|
$30.32
|
|
|
$
|
7,145
|
|
|
Forfeited
|
(7,195)
|
|
|
$44.41
|
|
|
—
|
|
|
Outstanding at September 30, 2019
|
243,561
|
|
|
$44.67
|
|
|
—
|
|
|
Granted/Vested
|
42,358
|
|
|
$40.72
|
|
|
—
|
|
|
Delivered
|
(57,673)
|
|
|
$35.25
|
|
|
$
|
2,423
|
|
|
|
|
|
|
|
|
|
|
Outstanding at September 30, 2020
|
228,246
|
|
|
$46.32
|
|
|
—
|
|
|
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
Non-Employee Director Stock
Effective January 2020, non-employee director compensation includes an annual equity retainer that is awarded at the time of the Company’s annual meeting of shareowners. The shares vest upon the earlier of the first anniversary of the grant date or the date of the Company’s next annual meeting of shareowners following the grant date and are subsequently amortized to expense over a 12-month period. During fiscal years 2019 and 2018, the equity portion of non-employee director compensation was awarded in shares of NJR common stock. The shares vested immediately and were subsequently amortized to expense over a 12-month period. The following summarizes non-employee director share awards for the past three fiscal years:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
2019
|
2018
|
Shares granted
|
27,696
|
|
(1)
|
26,165
|
|
26,524
|
|
Weighted average grant date fair value
|
$42.88
|
|
$44.80
|
$39.85
|
(1)$311,000 of expense remains as of September 30, 2020, to be recognized through December 31, 2020.
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 non-represented 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.
In April 2018, the Company implemented a voluntary early retirement program open to certain eligible employees. As of September 30, 2018, pension and postemployment benefit costs related to the special termination benefits were $4.2 million and other severance benefits were $2.2 million. For the amounts incurred, NJNG recognized an expense of approximately $5.1 million and Home Services and other recognized an expense of approximately $1.3 million, as a component of O&M in the Consolidated Statements of Operations.
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 2020 and 2019, the Company had no minimum funding requirements. The Company made no discretionary contributions to the pension plans in fiscal 2020 or 2019. 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 $8.4 million and $7.9 million, in fiscal 2020 and 2019, respectively, and estimates that it will contribute between $5 million and $10 million over each of the next five years. Additional contributions may be required based on market conditions and changes to assumptions.
The Affordable Care Act was enacted in March 2010 and created an excise tax applicable to high-cost health plans, commonly known as the Cadillac Tax. Employers who sponsor health plans that have an annual cost that exceeded an amount defined by the law would pay a 40 percent tax on the excess plan costs beginning in 2022. The 2020 federal spending package permanently eliminated the Affordable Care Act-mandated Cadillac tax on high-cost employer-sponsored health coverage. Due to the repeal, the Company's OPEB liability was revalued for these changes. The Company applied a practical expedient to remeasure the plan assets and obligations as of December 31, 2019, which was the nearest calendar month-end date. The impact of the revaluation of the OPEB liability was recorded as of January 1, 2020 and is incorporated within actuarial assumptions at September 30, 2020.
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)
|
2020
|
2019
|
2020
|
2019
|
Change in Benefit Obligation
|
|
|
|
|
Benefit obligation at beginning of year
|
$
|
360,477
|
|
$
|
298,575
|
|
$
|
260,003
|
|
$
|
196,785
|
|
Service cost
|
8,223
|
|
7,381
|
|
4,854
|
|
4,404
|
|
Interest cost
|
10,587
|
|
12,173
|
|
7,026
|
|
8,324
|
|
Plan participants’ contributions (2)
|
25
|
|
43
|
|
194
|
|
210
|
|
|
|
|
|
|
Actuarial loss (gain)
|
29,738
|
|
52,549
|
|
(23,226)
|
|
54,700
|
|
Benefits paid, net of retiree subsidies received
|
(11,886)
|
|
(10,244)
|
|
(2,989)
|
|
(4,420)
|
|
Benefit obligation at end of year
|
$
|
397,164
|
|
$
|
360,477
|
|
$
|
245,862
|
|
$
|
260,003
|
|
Change in plan assets
|
|
|
|
|
Fair value of plan assets at beginning of year
|
$
|
288,634
|
|
$
|
279,410
|
|
$
|
83,925
|
|
$
|
77,980
|
|
Actual return on plan assets
|
30,632
|
|
19,194
|
|
6,872
|
|
2,499
|
|
Employer contributions
|
596
|
|
231
|
|
8,436
|
|
7,926
|
|
Benefits paid, net of plan participants’ contributions (2)
|
(11,894)
|
|
(10,201)
|
|
(2,827)
|
|
(4,479)
|
|
Fair value of plan assets at end of year
|
$
|
307,968
|
|
$
|
288,634
|
|
$
|
96,406
|
|
$
|
83,926
|
|
Funded status
|
$
|
(89,196)
|
|
$
|
(71,843)
|
|
$
|
(149,456)
|
|
$
|
(176,077)
|
|
Amounts recognized on Consolidated Balance Sheets
|
|
|
|
|
Postemployment employee (liability)
|
|
|
|
|
Current
|
$
|
(531)
|
|
$
|
(603)
|
|
$
|
(900)
|
|
$
|
(800)
|
|
Noncurrent
|
(88,665)
|
|
(71,240)
|
|
(148,556)
|
|
(175,277)
|
|
Total
|
$
|
(89,196)
|
|
$
|
(71,843)
|
|
$
|
(149,456)
|
|
$
|
(176,077)
|
|
(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 loss on the Company’s pension is primarily due to a decrease in the discount rate used to measure the benefit obligation. The actuarial gain related to the OPEB plans is primarily due to the remeasurement of the plan assets and obligations due to the removal of the Cadillac tax, partially offset by a decrease in the discount rate. The Company recognizes a liability for its underfunded benefit plans as required by ASC 715, Compensation - Retirement Benefits. 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, 2018
|
$
|
66,233
|
|
$
|
68,685
|
|
|
$
|
14,633
|
|
$
|
7,659
|
|
Amounts arising during the period:
|
|
|
|
|
|
Net actuarial loss
|
38,137
|
|
48,452
|
|
|
14,271
|
|
9,264
|
|
Amounts amortized to net periodic costs:
|
|
|
|
|
|
Net actuarial (loss)
|
(4,662)
|
|
(5,820)
|
|
|
(1,103)
|
|
(648)
|
|
Prior service credit
|
(102)
|
|
312
|
|
|
—
|
|
53
|
|
|
|
|
|
|
|
Balance at September 30, 2019
|
$
|
99,606
|
|
$
|
111,629
|
|
|
$
|
27,801
|
|
$
|
16,328
|
|
Amounts arising during the period:
|
|
|
|
|
|
Net actuarial loss (gain)
|
11,953
|
|
(21,974)
|
|
|
7,731
|
|
(1,614)
|
|
Amounts amortized to net periodic costs:
|
|
|
|
|
|
Net actuarial (loss)
|
(7,893)
|
|
(6,536)
|
|
|
(2,528)
|
|
(907)
|
|
Prior service (cost) credit
|
(102)
|
|
182
|
|
|
—
|
|
16
|
|
|
|
|
|
|
|
Balance at September 30, 2020
|
$
|
103,564
|
|
$
|
83,301
|
|
|
$
|
33,004
|
|
$
|
13,823
|
|
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)
|
2020
|
2019
|
2020
|
2019
|
2020
|
2019
|
2020
|
2019
|
Net actuarial loss
|
$
|
103,197
|
|
$
|
99,139
|
|
$
|
83,600
|
|
$
|
112,109
|
|
$
|
33,004
|
|
$
|
27,801
|
|
$
|
13,847
|
|
$
|
16,367
|
|
Prior service cost (credit)
|
367
|
|
467
|
|
(299)
|
|
(480)
|
|
—
|
|
—
|
|
(24)
|
|
(39)
|
|
|
|
|
|
|
|
|
|
|
Total
|
$
|
103,564
|
|
$
|
99,606
|
|
$
|
83,301
|
|
$
|
111,629
|
|
$
|
33,004
|
|
$
|
27,801
|
|
$
|
13,823
|
|
$
|
16,328
|
|
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 2021 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Regulatory Assets
|
|
Accumulated Other Comprehensive Income (Loss)
|
(Thousands)
|
Pension
|
OPEB
|
|
Pension
|
OPEB
|
Net actuarial loss
|
$
|
8,269
|
|
$
|
6,846
|
|
|
$
|
3,178
|
|
$
|
1,064
|
|
Prior service cost (credit)
|
102
|
|
(166)
|
|
|
—
|
|
(13)
|
|
|
|
|
|
|
|
Total
|
$
|
8,371
|
|
$
|
6,680
|
|
|
$
|
3,178
|
|
$
|
1,051
|
|
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)
|
2020
|
2019
|
Projected benefit obligation
|
$
|
397,164
|
|
$
|
360,477
|
|
Accumulated benefit obligation
|
$
|
352,320
|
|
$
|
319,527
|
|
Fair value of plan assets
|
$
|
307,968
|
|
$
|
288,634
|
|
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)
|
2020
|
2019
|
2018
|
2020
|
2019
|
2018
|
Service cost
|
$
|
8,223
|
|
$
|
7,381
|
|
$
|
8,139
|
|
$
|
4,854
|
|
$
|
4,404
|
|
$
|
4,607
|
|
Interest cost
|
10,587
|
|
12,173
|
|
10,493
|
|
7,026
|
|
8,324
|
|
6,365
|
|
Expected return on plan assets
|
(20,579)
|
|
(19,054)
|
|
(19,639)
|
|
(6,510)
|
|
(5,515)
|
|
(5,352)
|
|
Recognized actuarial loss
|
10,424
|
|
5,765
|
|
7,537
|
|
7,442
|
|
6,466
|
|
4,660
|
|
Prior service cost (credit) amortization
|
102
|
|
102
|
|
106
|
|
(197)
|
|
(365)
|
|
(365)
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
8,757
|
|
$
|
6,367
|
|
$
|
6,636
|
|
$
|
12,615
|
|
$
|
13,314
|
|
9,915
|
|
Special termination benefit
|
—
|
|
—
|
|
3,730
|
|
—
|
|
—
|
|
490
|
|
Net periodic benefit cost recognized as expense
|
$
|
8,757
|
|
$
|
6,367
|
|
$
|
10,366
|
|
$
|
12,615
|
|
$
|
13,314
|
|
$
|
10,405
|
|
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
|
|
|
2020
|
|
2019
|
|
2018
|
|
2020
|
|
2019
|
|
2018
|
|
Benefit costs:
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
3.37/3.35%
|
(1)
|
4.36/4.35%
|
(1)
|
4.04/4.03%
|
(1)
|
3.48/3.44%
|
(1)
|
4.38/4.37%
|
(1)
|
4.12/4.08%
|
(1)
|
Expected asset return
|
7.25
|
|
|
7.00
|
%
|
|
7.50
|
%
|
|
7.25
|
|
|
7.00
|
%
|
|
7.50
|
%
|
|
Compensation increase
|
3.00/3.50%
|
(1)
|
3.25/3.50%
|
(1)
|
3.25/3.50%
|
(1)
|
3.00/3.50%
|
(1)
|
3.25/3.50%
|
(1)
|
3.25/3.50%
|
(1)
|
Obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
2.95/2.92%
|
(1)
|
3.37/3.35%
|
(1)
|
4.36/4.35%
|
|
3.08/3.03%
|
(1)
|
3.48/3.44%
|
(1)
|
4.38/4.37%
|
(1)
|
Compensation increase
|
3.00/3.50%
|
(1)
|
3.00/3.50%
|
(1)
|
3.25/3.50%
|
(1)
|
3.00/3.50%
|
(1)
|
3.00/3.50%
|
(1)
|
3.25/3.50%
|
(1)
|
(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. The Company measures its service and interest costs using a disaggregated, or spot rate, 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, which aligns the timing of the plans’ separate future cash flows to the corresponding spot rates on the yield curve.
Information relating to the assumed HCCTR used to determine expected OPEB benefits as of September 30, and the effect of a 1 percent change in the rate, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in thousands)
|
2020
|
|
2019
|
|
2018
|
HCCTR
|
7.6%
|
|
7.6%
|
|
7.9%
|
Ultimate HCCTR
|
4.5%
|
|
4.5%
|
|
4.5%
|
Year ultimate HCCTR reached
|
2026
|
|
2026
|
|
2024
|
Effect of a 1 percentage point increase in the HCCTR on:
|
|
|
|
|
|
Year-end benefit obligation
|
$
|
49,106
|
|
|
$
|
49,061
|
|
|
$
|
36,260
|
|
Total service and interest cost
|
$
|
2,799
|
|
|
$
|
2,923
|
|
|
$
|
2,482
|
|
Effect of a 1 percentage point decrease in the HCCTR on:
|
|
|
|
|
|
Year-end benefit obligation
|
$
|
(38,844)
|
|
|
$
|
(38,747)
|
|
|
$
|
(28,743)
|
|
Total service and interest costs
|
$
|
(2,151)
|
|
|
$
|
(2,250)
|
|
|
$
|
(1,937)
|
|
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2021
|
Assets at
|
|
Target
|
September 30,
|
Asset Allocation
|
Allocation
|
2020
|
|
2019
|
|
U.S. equity securities
|
34
|
%
|
|
38
|
%
|
|
37
|
%
|
|
International equity securities
|
17
|
|
|
18
|
|
|
17
|
|
|
Fixed income
|
38
|
|
|
39
|
|
|
42
|
|
|
Other assets
|
11
|
|
|
5
|
|
|
4
|
|
|
Total
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
|
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 U.S. The adoption of the new mortality
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
projection scale, MP-2019 and the Pri-2012 mortality study, did not materially impact 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 fiscal years:
|
|
|
|
|
|
|
|
|
(Thousands)
|
Pension
|
OPEB
|
2021
|
$
|
12,799
|
|
$
|
6,179
|
|
2022
|
$
|
13,765
|
|
$
|
6,837
|
|
2023
|
$
|
14,512
|
|
$
|
7,420
|
|
2024
|
$
|
15,345
|
|
$
|
7,988
|
|
2025
|
$
|
16,267
|
|
$
|
8,625
|
|
2026 - 2030
|
$
|
95,969
|
|
$
|
52,480
|
|
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 following estimated subsidy payments are expected to be paid during the following fiscal years:
|
|
|
|
|
|
|
|
|
|
Estimated Subsidy
|
(Thousands)
|
Payment
|
2021
|
|
$
|
292
|
|
2022
|
|
$
|
316
|
|
2023
|
|
$
|
349
|
|
2024
|
|
$
|
384
|
|
2025
|
|
$
|
420
|
|
2026 - 2030
|
|
$
|
2,789
|
|
Pension and OPEB assets held in the master trust, measured at fair value, as of September 30, are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Thousands)
|
Quoted Prices in Active Markets for Identical Assets
(Level 1)
|
Total
|
|
Quoted Prices in Active Markets for Identical Assets
(Level 1)
|
Total
|
As of September 2020:
|
Pension
|
|
OPEB
|
Assets
|
|
|
|
|
|
|
|
Money market funds
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
15
|
|
|
$
|
15
|
|
Registered Investment Companies:
|
|
|
|
|
|
|
|
Equity Funds:
|
|
|
|
|
|
|
|
Large Cap Index
|
95,542
|
|
|
95,542
|
|
|
29,908
|
|
|
29,908
|
|
Extended Market Index
|
21,085
|
|
|
21,085
|
|
|
6,470
|
|
|
6,470
|
|
International Stock
|
56,912
|
|
|
56,912
|
|
|
17,390
|
|
|
17,390
|
|
Fixed Income Funds:
|
|
|
|
|
|
|
|
Emerging Markets
|
16,008
|
|
|
16,008
|
|
|
4,958
|
|
|
4,958
|
|
Core Fixed Income
|
—
|
|
|
—
|
|
|
11,146
|
|
|
11,146
|
|
Opportunistic Income
|
—
|
|
|
—
|
|
|
7,128
|
|
|
7,128
|
|
Ultra Short Duration
|
—
|
|
|
—
|
|
|
7,057
|
|
|
7,057
|
|
High Yield Bond Fund
|
26,303
|
|
|
26,303
|
|
|
8,223
|
|
|
8,223
|
|
Long Duration Fund
|
77,036
|
|
|
77,036
|
|
|
—
|
|
|
—
|
|
Total assets at in the fair value hierarchy
|
$
|
292,886
|
|
|
292,886
|
|
|
$
|
92,295
|
|
|
92,295
|
|
Investments measured at net asset value
|
|
|
|
|
|
|
|
Common collective trusts
|
|
|
15,082
|
|
|
|
|
4,111
|
|
Total assets at fair value
|
|
|
$
|
307,968
|
|
|
|
|
$
|
96,406
|
|
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Thousands)
|
Quoted Prices in Active Markets for Identical Assets
(Level 1)
|
|
Total
|
|
Quoted Prices in Active Markets for Identical Assets
(Level 1)
|
|
Total
|
As of September 30, 2019:
|
Pension
|
|
OPEB
|
Assets
|
|
|
|
|
|
|
|
Money market funds
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
21
|
|
|
$
|
21
|
|
Registered Investment Companies:
|
|
|
|
|
|
|
|
Equity Funds:
|
|
|
|
|
|
|
|
Large Cap Index
|
89,374
|
|
|
89,374
|
|
|
25,474
|
|
|
25,474
|
|
Extended Market Index
|
16,548
|
|
|
16,548
|
|
|
5,036
|
|
|
5,036
|
|
International Stock
|
49,929
|
|
|
49,929
|
|
|
14,564
|
|
|
14,564
|
|
Fixed Income Funds:
|
|
|
|
|
|
|
|
Emerging Markets
|
15,794
|
|
|
15,794
|
|
|
4,764
|
|
|
4,764
|
|
Core Fixed Income
|
—
|
|
|
—
|
|
|
10,570
|
|
|
10,570
|
|
Opportunistic Income
|
—
|
|
|
—
|
|
|
6,365
|
|
|
6,365
|
|
Ultra Short Duration
|
—
|
|
|
—
|
|
|
6,340
|
|
|
6,340
|
|
High Yield Bond Fund
|
24,328
|
|
|
24,328
|
|
|
7,350
|
|
|
7,350
|
|
Long Duration Fund
|
80,041
|
|
|
80,041
|
|
|
—
|
|
|
—
|
|
Total assets at in the fair value hierarchy
|
$
|
276,014
|
|
|
276,014
|
|
|
$
|
80,484
|
|
|
80,484
|
|
Investments measured at net asset value
|
|
|
|
|
|
|
|
Common collective trusts
|
|
|
12,620
|
|
|
|
|
3,442
|
|
Total assets at fair value
|
|
|
$
|
288,634
|
|
|
|
|
$
|
83,926
|
|
The Plan had no Level 2 or Level 3 fair value measurements during fiscal 2020 and 2019, and there have been no changes in valuation methodologies as of September 30, 2020. The Plan held assets that are valued using net asset value as a practical expedient, which are excluded from the fair value hierarchy.
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.
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.
Common collective trusts — The NAV for common collective trusts is provided by the trustee and is used as a practical expedient to estimate fair value. The NAV is based on the value of the underlying assets owned by the fund less liabilities.
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. The Company matches 80 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 3.5 percent and 4.5 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 $4.5 million in fiscal 2020, $3.9 million in fiscal 2019 and $3.9 million in fiscal 2018. The amount contributed for the employer special contribution of the Savings Plan was $1.6 million in fiscal 2020, $1.3 million in fiscal 2019 and $959,000 in fiscal 2018.
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
12. ASSET RETIREMENT OBLIGATIONS
The Company recognizes ARO 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 ARO related to the costs associated with cutting and capping its main and service natural gas distribution pipelines of NJNG, which is required by New Jersey law when taking such natural gas distribution pipeline out of service. The Company also recognizes ARO related to Clean Energy Ventures’ solar 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 are recognized as part of its depreciation expense and the corresponding regulatory asset and liability will be shown gross 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 ARO for the fiscal years ended September 30:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Thousands)
|
2020
|
|
2019
|
|
NJNG
|
NJRCEV
|
|
NJNG
|
NJRCEV
|
Balance at October 1
|
$
|
26,944
|
|
$
|
4,102
|
|
|
$
|
25,640
|
|
$
|
3,048
|
|
Accretion
|
1,476
|
|
196
|
|
|
1,427
|
|
150
|
|
Additions
|
—
|
|
1,306
|
|
|
135
|
|
904
|
|
Change in estimated useful life
|
—
|
|
(1,160)
|
|
|
—
|
|
—
|
|
Change in assumptions
|
1,104
|
|
—
|
|
|
—
|
|
—
|
|
Retirements
|
(244)
|
|
—
|
|
|
(258)
|
|
—
|
|
Other
|
—
|
|
—
|
|
|
—
|
|
—
|
|
Balance at period end
|
$
|
29,280
|
|
$
|
4,444
|
|
|
$
|
26,944
|
|
$
|
4,102
|
|
Accretion for the next five years, for the fiscal years ended September 30, is estimated to be as follows:
|
|
|
|
|
|
|
Estimated
|
(Thousands)
|
Accretion
|
2021
|
$
|
1,717
|
|
2022
|
1,789
|
|
2023
|
1,869
|
|
2024
|
1,948
|
|
2025
|
2,029
|
|
Total
|
$
|
9,352
|
|
13. INCOME TAXES
The income tax benefit from operations for the fiscal years ended September 30, consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
(Thousands)
|
2020
|
2019
|
2018
|
Current:
|
|
|
|
Federal
|
$
|
(2,164)
|
|
$
|
10,933
|
|
$
|
(2,848)
|
|
State
|
6,763
|
|
3,530
|
|
4,563
|
|
Deferred:
|
|
|
|
Federal
|
31,577
|
|
7,988
|
|
(40,785)
|
|
State
|
(900)
|
|
5,833
|
|
6,731
|
|
Investment/production tax credits
|
(42,220)
|
|
(66,035)
|
|
(21,446)
|
|
Income tax benefit
|
$
|
(6,944)
|
|
$
|
(37,751)
|
|
$
|
(53,785)
|
|
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
As of September 30, the temporary differences, which give rise to deferred tax assets (liabilities), consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
(Thousands)
|
2020
|
|
2019
|
Deferred tax assets
|
|
|
|
Investment tax credits (1)
|
$
|
194,840
|
|
|
$
|
156,153
|
|
|
|
|
|
Federal net operating losses (2)
|
24,091
|
|
|
24,173
|
|
State net operating losses
|
33,233
|
|
|
25,302
|
|
Fair value of derivatives
|
13,979
|
|
|
9,673
|
|
Postemployment benefits
|
8,544
|
|
|
9,192
|
|
Incentive compensation
|
7,071
|
|
|
7,231
|
|
Amortization of intangibles
|
5,892
|
|
|
4,991
|
|
|
|
|
|
Overrecovered natural gas costs
|
7,244
|
|
|
—
|
|
Other
|
2,370
|
|
|
7,139
|
|
Total deferred tax assets
|
$
|
297,264
|
|
|
$
|
243,854
|
|
Less: Valuation allowance
|
(17,639)
|
|
|
(4,035)
|
|
Total deferred tax assets net of valuation allowance
|
$
|
279,625
|
|
|
$
|
239,819
|
|
Deferred tax liabilities
|
|
|
|
Property related items
|
$
|
(419,075)
|
|
|
$
|
(379,673)
|
|
Remediation costs
|
(10,207)
|
|
|
(10,720)
|
|
Investments in equity investees
|
(23,395)
|
|
|
(21,730)
|
|
|
|
|
|
|
|
|
|
Underrecovered natural gas costs
|
—
|
|
|
(2,657)
|
|
Conservation incentive plan
|
(5,345)
|
|
|
(942)
|
|
|
|
|
|
Other
|
(6,639)
|
|
|
(4,776)
|
|
Total deferred tax liabilities
|
$
|
(464,661)
|
|
|
$
|
(420,498)
|
|
|
|
|
|
Total net deferred tax liabilities
|
$
|
(185,036)
|
|
|
$
|
(180,679)
|
|
(1)Includes $898,000 and $2 million for NJNG for fiscal 2020 and 2019, respectively, which is being amortized over the life of the related assets.
(2)See discussion of federal net operating loss utilization in the Other Tax Items section of this note.
A reconciliation of the U.S. federal statutory rate to the effective rate from operations for the fiscal years ended September 30, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
(Thousands)
|
2020
|
2019
|
2018
|
Statutory income tax expense
|
$
|
39,265
|
|
$
|
27,668
|
|
$
|
44,014
|
|
Change resulting from:
|
|
|
|
Investment/production tax credits
|
(42,220)
|
|
(66,035)
|
|
(21,446)
|
|
Cost of removal of assets placed in service prior to 1981
|
(5,362)
|
|
(6,349)
|
|
(5,829)
|
|
AFUDC equity
|
(4,933)
|
|
(2,313)
|
|
(2,117)
|
|
State income taxes, net of federal benefit
|
8,657
|
|
7,707
|
|
7,092
|
|
NJ Unitary method change
|
(15,345)
|
|
—
|
|
—
|
|
Basis adjustment of solar assets due to ITC
|
4,399
|
|
6,500
|
|
1,080
|
|
Valuation allowance
|
13,604
|
|
—
|
|
—
|
|
Tax Act - utility excess deferred income taxes amortized (1)
|
(3,573)
|
|
(3,573)
|
|
(1,786)
|
|
Tax Act - nonutility excess deferred income taxes (1)
|
—
|
|
—
|
|
(59,627)
|
|
Tax Act - utility excess deferred income taxes refunded to customers (1)
|
—
|
|
—
|
|
(14,323)
|
|
Other
|
(1,436)
|
|
(1,356)
|
|
(843)
|
|
Income tax benefit
|
$
|
(6,944)
|
|
$
|
(37,751)
|
|
$
|
(53,785)
|
|
Effective income tax rate (2) (3)
|
(3.7)
|
%
|
(28.7)
|
%
|
(29.9)
|
%
|
(1)For a more detailed description, see The Tax Act section of this note.
(2)The U.S. federal statutory rate was 21 percent for both fiscal 2020 and 2019 and 24.5 percent for fiscal 2018.
(3)The effective tax rate without the impact of the Tax Act would have been 12.4 percent for fiscal 2018.
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, Louisiana, Maryland, New Jersey, North Carolina, Pennsylvania, Texas, Mississippi and Virginia. 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.
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
The Company’s federal income tax returns through fiscal 2014 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 2014 are open to examination or are currently under examination by the IRS. For all periods subsequent to those ended September 30, 2016, the Company’s state income tax returns are statutorily open to examination in all applicable states with the exception of Colorado, New Jersey and Texas. In Colorado, New Jersey and Texas, all periods subsequent to September 30, 2015 are statutorily open to examination.
In May 2019, the Company received a favorable ruling from the IRS regarding a change to its tax method of accounting for the capitalization of certain costs associated with self-constructed property placed in service during fiscal years prior to September 30, 2015. The self-constructed property to which these costs relate is considered qualified energy property as defined under the Internal Revenue Code. As such, the Company is eligible to claim a 30 percent ITC on the increase in the depreciable cost basis of the property through the filing of an amended tax return in the year of change. As a result of the favorable IRS ruling, the Company recorded a benefit from income taxes of approximately $10 million from the additional ITC recognized, net of deferred taxes.
NJR evaluates its tax positions to determine the appropriate accounting and recognition of potential future obligations associated with unrecognized tax benefits. A tax benefit claimed, or expected to be claimed, on a tax return may be recognized if it is more likely than not that the position will be upheld upon examination by the applicable taxing authority. Interest and penalties related to unrecognized tax benefits, if any, are recognized within income tax expense and accrued interest, and penalties are recognized within other noncurrent liabilities on the Consolidated Balance Sheets.
As of September 30, 2020, the Company evaluated certain tax benefits that have been recorded in the financial statements and concluded that a portion of the tax benefits are uncertain at this time. As a result, the Company recorded a reserve that is included in accrued taxes on the Consolidated Balance Sheets. The tax benefits relate to fiscal tax years open to examination by the IRS and may be subject to subsequent adjustment. The reserve for uncertain tax benefits for the fiscal year ended September 30, is as follows:
|
|
|
|
|
|
|
|
|
|
(Thousands)
|
2020
|
2019
|
|
Balance at October 1,
|
$
|
4,930
|
|
$
|
—
|
|
|
Additions based on tax positions related to the current fiscal period
|
—
|
|
4,930
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at period end
|
$
|
4,930
|
|
$
|
4,930
|
|
|
CARES Act
On March 27, 2020, the President of the U.S. signed the CARES Act, which is aimed at providing emergency assistance and health care for individuals, families, and businesses affected by the COVID-19 pandemic and generally supporting the U.S. economy. The CARES Act, among other things, includes several business tax provisions which include, but are not limited to modifications of federal net operating loss carrybacks and deductibility, changes to prior year refundable alternative minimum tax liabilities, increase of limitations on business interest deductions from 30 percent to 50 percent of earnings before interest, taxes, depreciation, and amortization, technical corrections of the classification of qualified improvement property making them eligible for bonus depreciation, increase of the limits on charitable contribution deductions from 10 percent to 25 percent of adjusted taxable income, modifications of the treatment of federal loans, loan guarantees, and other investments, suspension of industry specific excise taxes, deferral of the company portion of OASDI, and implementation of a refundable employee retention tax credit.
The CARES Act provides for the delay in the required deposit of the employer portion of the OASDI payroll tax from the date of enactment through the end of 2020. Of the taxes that the Company can defer, 50 percent of the deferred taxes are required to be deposited by the end of 2021 and the remaining 50 percent are required to be deposited by the end of 2022. Additionally, The CARES Act provides a refundable tax credit, the employee retention tax credit, to certain employers who are ordered by a competent governmental authority to suspend or reduce business operations due to concern about the spread of COVID-19 or suffered a significant decline in the business during a calendar quarter during 2020 compared to the same calendar quarter during the previous year. As of September 30, 2020, the Company deferred $3.1 million related to the employer portion of the OASDI tax. The Company is currently investigating the applicability of the Employee Retention Tax credit.
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
Other Tax Items
As of September 30, 2020 and 2019, the Company has federal income tax net operating losses of approximately $134 million. Federal net operating losses can generally be carried back two years and forward 20 years and will begin to expire in fiscal 2036, with the remainder expiring by 2038. The Company expects to exercise its ability to carryback federal net operating losses to offset taxable income in prior periods.
For the net operating losses it expects to carryback, the Company estimated the portion considered refundable and recorded receivables of approximately $22.8 million as of September 30, 2020 and 2019, as a component of other noncurrent assets on the Consolidated Balance Sheets. Upon filing amended federal income tax returns to carryback its remaining federal net operating losses totaling $24.1 million, the Company will reduce its taxable income in those periods and recapture federal investment tax credits of the same amount that were previously utilized to offset taxable income.
In addition, as of September 30, 2020 and 2019, the Company has tax credit carryforwards of approximately $195.2 million and $154.2 million, respectively, which each have a life of 20 years. When the Company carries back the federal net operating losses noted above, it expects to recapture investment tax credits totaling $24.1 million. These recaptured tax credits are in addition to the $195.2 million and will be carried forward to offset future taxable income. The Company expects to utilize this entire carryforward prior to expiration, which would begin in fiscal 2034.
As of September 30, 2020 and 2019, the Company has state income tax net operating losses of approximately $487.7 million and $340 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 and would begin to expire in fiscal 2021, with the majority expiring after 2035. The Company expects to utilize this entire carryforward, other than as described below.
On February 7, 2019, Clean Energy Ventures finalized the sale of its remaining wind assets. As a result of the sale, it is more likely than not that certain state net operating loss carryforwards will not be realizable prior to their expiration and recorded a valuation allowance related to state net operating loss carryforwards in Montana, Iowa and Kansas.
As a result of changes to filing requirements in the State of New Jersey that require tax returns filed for periods ending on or after July 31, 2019, be filed on a combined basis when part of an affiliated group, the Company recorded a benefit from income taxes, resulting from the re-measurement of deferred income tax attributes. The Company also evaluated its New Jersey state net operating loss carryforwards on a post-apportionment basis and determined it is more likely than not that a portion of these net operating loss carryforwards may not be realizable prior to their expiration. As a result, the Company recorded a valuation allowance associated with New Jersey state net operating loss carryforwards.
As of September 30, 2020 and 2019, the Company had a valuation allowance of $17.6 million and $4 million related to state net operating loss carryforwards.
The Consolidated Appropriations Act extended the 30 percent ITC for solar property that is under construction on or before December 31, 2019. Projects placed in service after December 31, 2019, may also qualify for a 30 percent federal ITC if five percent or more of the total costs of a solar property are incurred before the end of the applicable year and there are continuous efforts to advance towards completion of the project, based on the IRS guidance around ITC safe harbor determination. 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.
The Tax Act
On December 22, 2017, the President signed into law the Tax Act. The law made several changes to the Internal Revenue Code of 1986, as amended, the most impactful to the Company of which was a reduction in the federal corporate income tax rate from 35 percent to 21 percent that became effective January 1, 2018. Since the Company's fiscal year end is September 30, it is required by the Internal Revenue Code to calculate a statutory rate based upon the federal tax rates in effect before and after the effective date of the change in the taxable year that includes the effective date. Accordingly, the Company applied a federal statutory tax rate of 24.5 percent during fiscal 2018 and as of October 1, 2018, used the enacted rate of 21 percent. As a result of the changes associated with the Tax Act during fiscal 2019, the Company recognized a tax benefit of $59.6 million.
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
As a result of the changes associated with the Tax Act, NJNG recorded a decrease in its net deferred tax liability of $228.4 million, which included $164.3 million for the revaluation of its deferred income taxes and $64.1 million for the accounting of the income tax effects on the revaluation of those deferred income taxes. These amounts were recorded as a regulatory liability on the Consolidated Balance Sheets. On May 22, 2018, the BPU approved a refund of $31 million, which included approximately $20.1 million of the initial revaluation of excess deferred income taxes, $9 million for the overcollection of taxes from customers from January 1, 2018 through March 31, 2018, and interest on the overcollected taxes at the Company's short-term debt rate. These credits were returned to customer accounts in June 2018.
During fiscal 2018, NJNG credited approximately $17 million to income tax (benefit) provision on the Consolidated Statements of Operations, which includes $14.3 million attributable to the remeasurement of deferred income taxes, $1.8 million for the amortization of excess deferred income taxes primarily related to timing differences associated with utility plant depreciation and $880,000 related to the revaluation of deferred income taxes not included in base rates. As of September 30, 2020, the regulatory liability included excess deferred income taxes of $195 million, which requires amortization over the remaining life of the utility plant consistent with IRS normalization principles.
14. LEASES
Lessee Accounting
The Company determines if an arrangement is a lease at inception based on whether the Company has the right to control the use of an identified asset, the right to obtain substantially all of the economic benefits from the use of the asset and the right to direct the use of the asset and accounts for leases in accordance with ASC 842, Leases. Right-of-use assets represent the Company’s right to use the underlying asset for the lease term and lease liabilities represent the Company's obligation to make lease payments arising from the lease. Right-of-use assets and leased liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term, including payments at commencement that depend on an index or rate. The Company’s land leases and office equipment leases in which the Company is the lessee do not have a readily determinable implicit rate, so an incremental borrowing rate, based on the information available at the lease commencement date, is utilized to determine the present value of lease payments. When a secured borrowing rate is not readily available, unsecured borrowing rates are adjusted for the effects of collateral to determine the incremental borrowing rate. The Company uses the implicit rate for agreements in which it is a lessor. The Company has not entered into any material agreements in which it is a lessor. Lease expense and lease income are recognized on a straight-line basis over the lease term for operating leases. For more information on the adoption of ASC 842, Leases, see Note 2. Summary of Significant Accounting Policies.
The Company’s lease agreements primarily consist of commercial solar land leases, storage and capacity leases, equipment and real property, including land and office facilities, office equipment and the sale leaseback of its natural gas meters.
Certain leases contain escalation provisions for inflation metrics. The storage leases contain a variable payment component that relates to the change in the inflation metrics that are not known past the current payment period. These variable components of these lease payments are excluded from the lease payments that are used to determine the related right-of-use asset and lease liability. The variable portion of these leases are recognized as leasing expenses when they are incurred. The capacity lease payments are fully variable and based on the amount of natural gas stored in the storage caverns.
The Company’s solar land lease terms are primarily between 15 and 35 years, which includes options to extend the terms for multiple additional 5 to 10 years each. The Company’s office leases vary in duration, ranging from 1 to 25 years and may or may not include extension or early purchase options. The majority of the Company’s meter leases are for terms of 7 years with purchase options available prior to the end of the 7 year term. Equipment leases include general office equipment that also vary in duration, most are for a term of 5 years. The Company's storage and capacity leases have assumed terms of 50 years to coincide with the expected useful lives of the cavern assets with which the leases are associated. The Company's lease terms may include options to extend, purchase the leased asset or terminate a lease and they are included in the lease liability calculation when it is reasonably certain that those options will be exercised. The expense related to the leases subject to the short-term lease recognition exemption are recognized on a straight-line basis, with such amounts disclosed in the financial statement notes below.
The Company has lease agreements with lease and nonlease components and has elected the practical expedient to combine lease and nonlease components for certain classes of leases, such as office buildings, solar land leases and office equipment. Variable payments are not significant to the Company. The Company’s lease agreements do not contain any
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
material residual value guarantees, material restrictions or material covenants. There are no material lease transactions with related parties.
The following table presents the Company's lease costs included in the Consolidated Statements of Operations for the fiscal year ended September 30:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Thousands)
|
Income Statement Location
|
|
|
|
2020
|
|
|
Finance lease cost
|
|
|
|
|
|
|
|
Amortization of right-of-use assets
|
Depreciation and amortization
|
|
|
|
$
|
5,007
|
|
|
|
Interest on lease liabilities
|
Interest expense, net of capitalized interest
|
|
|
|
1,511
|
|
|
|
Total finance lease cost
|
|
|
|
|
6,518
|
|
|
|
Operating lease cost
|
Operation and maintenance, net of capitalized costs
|
|
|
|
$
|
6,404
|
|
|
|
Short-term lease cost
|
Operation and maintenance
|
|
|
|
1,041
|
|
|
|
Variable lease cost
|
Operation and maintenance
|
|
|
|
1,025
|
|
|
|
|
|
|
|
|
|
|
|
Total lease cost
|
|
|
|
|
$
|
14,988
|
|
|
|
The following table presents supplemental cash flow information related to leases for the fiscal year ended September 30:
|
|
|
|
|
|
|
|
(Thousands)
|
2020
|
|
|
Cash paid for amounts included in the measurement of lease liabilities
|
|
|
|
Operating cash flows from operating leases
|
$
|
8,804
|
|
|
|
Operating cash flows from finance leases
|
$
|
1,189
|
|
|
|
Financing cash flows from finance leases
|
$
|
6,985
|
|
|
|
Assets obtained or modified through amendments in exchange for operating lease liabilities during fiscal 2020 were $76.6 million. Assets obtained or modified through amendments in exchange for finance lease liabilities during fiscal 2020, were $49.7 million.
The following table presents the balance and classifications of our right of use assets and lease liabilities included in the Consolidated Balance Sheets for the fiscal year ended September 30:
|
|
|
|
|
|
|
|
|
|
(Thousands)
|
Balance Sheet Location
|
2020
|
|
Assets
|
|
|
|
Noncurrent
|
|
|
|
Operating lease assets
|
Operating lease assets
|
$
|
131,769
|
|
|
Finance lease assets
|
Utility plant
|
71,085
|
|
|
Total lease assets
|
|
$
|
202,854
|
|
|
Liabilities
|
|
|
|
Current
|
|
|
|
Operating lease liabilities
|
Operating lease liabilities
|
$
|
6,724
|
|
|
Finance lease liabilities
|
Current maturities of long-term debt
|
10,416
|
|
|
Noncurrent
|
|
|
|
Operating lease liabilities
|
Operating lease liabilities
|
95,030
|
|
|
Finance lease liabilities
|
Long-term debt
|
63,743
|
|
|
Total lease liabilities
|
|
$
|
175,913
|
|
|
As of September 30, 2020, the weighted average remaining lease term for the operating and finance leases is 25.5 and 11.5 years, respectively. The weighted average discount rate used in the valuation of the operating and finance lease liabilities and right-of-use assets over the remaining lease term is 3.18 percent and 2.5 percent, respectively.
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
The following table presents the Company's maturities of lease liabilities as of September 30, 2020:
|
|
|
|
|
|
|
|
|
|
(Thousands)
|
Operating Leases
|
Finance Leases
|
|
2021
|
$
|
6,706
|
|
$
|
54,992
|
|
|
2022
|
6,634
|
|
6,004
|
|
|
2023
|
6,590
|
|
4,622
|
|
|
2024
|
6,210
|
|
5,279
|
|
|
2025
|
5,646
|
|
3,396
|
|
|
Thereafter
|
122,085
|
|
2,324
|
|
|
Total future lease payments
|
153,871
|
|
76,617
|
|
|
Less: Liability accretion
|
(52,117)
|
|
(2,458)
|
|
|
|
|
|
|
Total lease liability
|
$
|
101,754
|
|
$
|
74,159
|
|
|
The following table reflects the Company's future minimum lease payments due under non-cancelable operating leases for continuing operations as of September 30, 2019, under ASC 840 and is being presented for comparative purposes. These commitments relate principally to commercial solar land leases, equipment and real property leases, including land and office facility leases, natural gas meters and office equipment.
|
|
|
|
|
|
|
|
|
|
(Thousands)
|
Operating Leases
|
Finance Leases
|
|
2020
|
$
|
4,411
|
|
$
|
11,707
|
|
|
2021
|
$
|
4,698
|
|
$
|
6,603
|
|
|
2022
|
$
|
4,609
|
|
$
|
7,494
|
|
|
2023
|
$
|
4,579
|
|
$
|
3,995
|
|
|
2024
|
$
|
4,199
|
|
$
|
4,652
|
|
|
Thereafter
|
$
|
54,405
|
|
$
|
4,173
|
|
|
On August 14, 2020, the Company entered into a partial termination agreement of its lease contracts associated with its natural gas cavern storage. As a result of the partial termination, the Company paid $28.5 million to the lease owners receiving in return a 50 year non-compete agreement. The Company treated these Leaf River lease arrangements as one combined contract and its termination was recognized as remeasurement of the remaining lease assets that will be amortized over the remaining part of the lease lives.
15. COMMITMENTS AND CONTINGENT LIABILITIES
Cash Commitments
NJNG has entered into long-term contracts, expiring at various dates through October 2036, for the supply, transportation and storage of natural gas. These contracts include annual fixed charges of approximately $124.7 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.
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
Commitments as of September 30, 2020, for natural gas purchases and future demand fees for the next five fiscal year periods, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Thousands)
|
2021
|
2022
|
2023
|
2024
|
2025
|
Thereafter
|
Energy Services:
|
|
|
|
|
|
|
Natural gas purchases
|
$
|
151,270
|
|
$
|
1,600
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
Storage demand fees
|
21,857
|
|
13,028
|
|
8,632
|
|
3,748
|
|
2,488
|
|
942
|
|
Pipeline demand fees
|
76,462
|
|
53,451
|
|
29,736
|
|
22,687
|
|
17,110
|
|
36,527
|
|
Sub-total Energy Services
|
$
|
249,589
|
|
$
|
68,079
|
|
$
|
38,368
|
|
$
|
26,435
|
|
$
|
19,598
|
|
$
|
37,469
|
|
NJNG:
|
|
|
|
|
|
|
Natural gas purchases
|
$
|
4,377
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
Storage demand fees
|
36,096
|
|
32,122
|
|
20,303
|
|
12,768
|
|
6,830
|
|
3,530
|
|
Pipeline demand fees
|
88,564
|
|
131,578
|
|
107,614
|
|
85,118
|
|
79,609
|
|
552,465
|
|
Sub-total NJNG
|
$
|
129,037
|
|
$
|
163,700
|
|
$
|
127,917
|
|
$
|
97,886
|
|
$
|
86,439
|
|
$
|
555,995
|
|
Total
|
$
|
378,626
|
|
$
|
231,779
|
|
$
|
166,285
|
|
$
|
124,321
|
|
$
|
106,037
|
|
$
|
593,464
|
|
As of September 30, 2020, the Company’s future minimum lease payments under various operating leases will not be more than $1.4 million annually for the next five years and $73,000 in the aggregate for all years thereafter.
Guarantees
As of September 30, 2020, there were NJR guarantees covering approximately $258 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 certain former 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 NJDEP regulations.
NJNG periodically, and at least annually, performs an environmental review of former MGP sites located in Atlantic Highlands, Berkeley, Long Branch, Manchester, Toms River, and Freehold, New Jersey, collectively, the "former 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 at the former MGP sites for which it is responsible, including potential liabilities for further and continued natural resource damages, may be brought by the NJDEP for alleged injury to groundwater or other natural resources concerning these sites. As we have not yet completed the remedial investigation of the site, the total amount of potential costs of all remedial actions at the MGP site in Freehold, New Jersey, cannot be reasonably estimated at this time.
The estimated total future expenditures for all former MGP sites will range from approximately $143.1 million to $181.7 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, the Company accrues at the lower end of the range. Accordingly, NJNG recorded an MGP remediation liability and a corresponding regulatory asset on the Consolidated Balance Sheets of $150.6 million as of September 30, 2020 and $131.1 million as of September 30, 2019, based on the most likely amount. The remediation liability at September 30, 2020 includes adjustments for actual expenditures during fiscal 2020. 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 insurance recoveries, if any.
In June 2019, NJNG initiated a preliminary assessment of a site in Aberdeen, New Jersey to determine prior ownership and if former MGP operations were active at the location. As of September 30, 2019, costs associated with preliminary assessment activities were considered immaterial and included as a component of NJNG’s annual SBC application to recover remediation expenses. The preliminary assessment and site investigation activities are ongoing at the Aberdeen, NJ site location. The estimated costs to complete the preliminary assessment and site investigation phase is included in the MGP
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
remediation liability and corresponding regulatory asset on the Consolidated Balance Sheet at September 30, 2020. NJNG will continue to gather information to determine whether the obligation exists to undertake remedial action.
NJNG recovers its remediation expenditures, including carrying costs, over rolling seven-year periods pursuant to a RAC approved by the BPU. On September 9, 2020,the BPU approved NJNG's an increase in the RAC, which increased the annual recovery from $8.5 million to $9.7 million and is effective October 1, 2020. As of September 30, 2020, $36.5 million of previously incurred remediation costs, net of recoveries from customers and insurance proceeds, are included in regulatory assets on the Consolidated Balance Sheets. 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.
General
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 the ordinary course of 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 accruals 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. NJR also discloses contingent matters for which there is a reasonable possibility of a loss. 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 accrued.
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.
16. COMMON STOCK EQUITY
On December 4, 2019, the Company completed an equity offering of 6,545,454 common shares, consisting of 5,333,334 common shares issued directly by the Company and 1,212,120 common shares issuable pursuant to forward sales agreements with investment banks. The issuance of 5,333,334 resulted in proceeds of approximately $212.9 million, net of issuance costs, and was reflected in shareholders' equity and as a financing activity on the statement of cash flows.
Under the forward sale agreements, a total of 1,212,120 common shares were borrowed from third parties and sold to the underwriters. Each forward sale agreement allowed the Company, at its election and prior to September 30, 2020, to physically settle the forward sale agreement by issuing common shares in exchange for net proceeds at the then-applicable forward sale price specified by the agreement, which was initially $40.0125 per share, or, alternatively, to settle the forward sale agreement in whole or in part through the delivery or receipt of shares or cash. The forward sale price is subject to adjustment daily based on a floating interest rate factor and will decrease in respect of certain fixed amounts specified in the agreement, such as anticipated dividends.
On September 18, 2020, the Company amended our forward sale agreements to extend the maturity date of such forward sales agreements from September 30, 2020 to September 10, 2021. As of September 30, 2020, if the Company elected to net settle the forward sale agreement, the Company would receive approximately $14.3 million under a cash settlement or would receive 543,150 common shares under a net share settlement.
Issuances of shares under the forward sale agreements are classified as equity transactions. Accordingly, no amounts relating to the forward sale agreements have or will be recorded in the financial statements until settlements take place. Prior to any settlements, the only impact to the financial statements is the inclusion of incremental shares within the calculation of diluted EPS using the treasury stock method until settlement of the forward sale agreements. Under this method, the number of the Company common shares used in calculating diluted EPS is deemed to be increased by the excess, if any, of the number of shares that would be issued upon physical settlement of the forward sale agreements less the number of shares that would be purchased by the Company in the market (based on the average market price during the same reporting period) using the proceeds receivable upon settlement (based on the adjusted forward sale price at the end of that reporting period). Share dilution occurs when the average market price of the Company's common shares is higher than the adjusted forward sale price. See Note 8. Earnings Per Share for the impact of the forward sale agreements on the calculation of diluted earnings per share.
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
17. 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 Storage and Transportation segment consists of the Company’s investments in natural gas storage and transportation facilities; the Home Services and Other operations consist of heating, cooling and water appliance sales, installations and services, other investments and general corporate activities.
Information related to the Company’s various reporting segments and other operations is detailed below:
|
|
|
|
|
|
|
|
|
|
|
|
(Thousands)
|
|
|
|
Fiscal Years Ended September 30,
|
2020
|
2019
|
2018
|
Operating revenues
|
|
|
|
Natural Gas Distribution
|
|
|
|
External customers
|
$
|
729,923
|
|
$
|
710,793
|
|
$
|
731,865
|
|
|
|
|
|
Clean Energy Ventures
|
|
|
|
External customers
|
102,617
|
|
98,099
|
|
71,375
|
|
Energy Services
|
|
|
|
External customers (1)
|
1,029,303
|
|
1,734,553
|
|
2,064,477
|
|
Intercompany
|
1,116
|
|
8,238
|
|
48,327
|
|
Storage and Transportation
|
|
|
|
External customers (1)
|
42,015
|
|
—
|
|
—
|
|
Intercompany
|
2,713
|
|
—
|
|
—
|
|
Subtotal
|
1,907,687
|
|
2,551,683
|
|
2,916,044
|
|
Home Services and Other
|
|
|
|
External customers
|
49,810
|
|
48,600
|
|
47,392
|
|
Intercompany
|
1,207
|
|
2,302
|
|
2,665
|
|
Eliminations
|
(5,036)
|
|
(10,540)
|
|
(50,992)
|
|
Total
|
$
|
1,953,668
|
|
$
|
2,592,045
|
|
$
|
2,915,109
|
|
Depreciation and amortization
|
|
|
|
Natural Gas Distribution
|
$
|
71,883
|
|
$
|
57,980
|
|
$
|
53,208
|
|
Clean Energy Ventures
|
37,855
|
|
32,997
|
|
31,877
|
|
Energy Services (2)
|
123
|
|
118
|
|
76
|
|
Storage and Transportation
|
9,293
|
|
6
|
|
6
|
|
Subtotal
|
119,154
|
|
91,101
|
|
85,167
|
|
Home Services and Other
|
1,032
|
|
914
|
|
780
|
|
Eliminations
|
(292)
|
|
(285)
|
|
(246)
|
|
Total
|
$
|
119,894
|
|
$
|
91,730
|
|
$
|
85,701
|
|
Interest income (3)
|
|
|
|
Natural Gas Distribution
|
$
|
538
|
|
$
|
994
|
|
$
|
614
|
|
Clean Energy Ventures
|
240
|
|
—
|
|
—
|
|
Energy Services
|
99
|
|
78
|
|
240
|
|
Storage and Transportation
|
3,510
|
|
4,000
|
|
3,374
|
|
Subtotal
|
4,387
|
|
5,072
|
|
4,228
|
|
Home Services and Other
|
8,633
|
|
1,942
|
|
1,476
|
|
Eliminations
|
(10,061)
|
|
(5,391)
|
|
(5,090)
|
|
Total
|
$
|
2,959
|
|
$
|
1,623
|
|
$
|
614
|
|
(1)Includes sales to Canada for the Energy Services segment, which are immaterial.
(2)The amortization of acquired wholesale energy contracts is excluded above and is included in natural gas purchases - nonutility on the Consolidated Statements of Operations.
(3)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,
|
2020
|
2019
|
2018
|
Interest expense, net of capitalized interest
|
|
|
|
Natural Gas Distribution
|
$
|
30,975
|
|
$
|
26,134
|
|
$
|
25,299
|
|
Clean Energy Ventures
|
20,253
|
|
14,846
|
|
18,320
|
|
Energy Services
|
3,276
|
|
5,205
|
|
3,945
|
|
Storage and Transportation
|
13,124
|
|
2,185
|
|
1,667
|
|
Subtotal
|
67,628
|
|
48,370
|
|
49,231
|
|
Home Services and Other
|
10,327
|
|
1,535
|
|
7
|
|
Eliminations
|
(10,358)
|
|
(2,823)
|
|
(2,952)
|
|
Total
|
$
|
67,597
|
|
$
|
47,082
|
|
$
|
46,286
|
|
Income tax provision (benefit)
|
|
|
|
Natural Gas Distribution
|
$
|
27,021
|
|
$
|
9,434
|
|
$
|
(1,910)
|
|
Clean Energy Ventures
|
(32,404)
|
|
(48,921)
|
|
(79,932)
|
|
Energy Services
|
(3,615)
|
|
(1,573)
|
|
24,996
|
|
Storage and Transportation
|
4,247
|
|
2,254
|
|
(8,548)
|
|
Subtotal
|
(4,751)
|
|
(38,806)
|
|
(65,394)
|
|
Home Services and Other
|
(2,478)
|
|
1,428
|
|
11,944
|
|
Eliminations
|
285
|
|
(373)
|
|
(335)
|
|
Total
|
$
|
(6,944)
|
|
$
|
(37,751)
|
|
$
|
(53,785)
|
|
Equity in earnings of affiliates
|
|
|
|
Storage and Transportation
|
$
|
15,903
|
|
$
|
15,832
|
|
$
|
16,165
|
|
Eliminations
|
(1,592)
|
|
(2,204)
|
|
(3,157)
|
|
Total
|
$
|
14,311
|
|
$
|
13,628
|
|
$
|
13,008
|
|
Net financial earnings (loss)
|
|
|
|
Natural Gas Distribution
|
$
|
126,902
|
|
$
|
78,062
|
|
$
|
84,048
|
|
Clean Energy Ventures
|
53,023
|
|
77,473
|
|
75,849
|
|
Energy Services
|
(7,873)
|
|
2,918
|
|
60,378
|
|
Storage and Transportation
|
18,311
|
|
14,689
|
|
24,367
|
|
Subtotal
|
190,363
|
|
173,142
|
|
244,642
|
|
Home Services and Other
|
5,784
|
|
1,911
|
|
(3,829)
|
|
Eliminations
|
98
|
|
(93)
|
|
(327)
|
|
Total
|
$
|
196,245
|
|
$
|
174,960
|
|
$
|
240,486
|
|
Capital expenditures
|
|
|
|
Natural Gas Distribution
|
$
|
290,040
|
|
$
|
345,004
|
|
$
|
254,523
|
|
Clean Energy Ventures
|
133,841
|
|
157,828
|
|
123,421
|
|
Storage and Transportation
|
20,998
|
|
20,616
|
|
5,431
|
|
Subtotal
|
444,879
|
|
523,448
|
|
383,375
|
|
Home Services and Other
|
3,230
|
|
2,484
|
|
1,213
|
|
Total
|
$
|
448,109
|
|
$
|
525,932
|
|
$
|
384,588
|
|
Investments in equity investees
|
|
|
|
Storage and Transportation
|
$
|
2,117
|
|
$
|
4,102
|
|
$
|
16,151
|
|
Total
|
$
|
2,117
|
|
$
|
4,102
|
|
$
|
16,151
|
|
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)
|
2020
|
2019
|
2018
|
Consolidated net financial earnings
|
$
|
196,245
|
|
$
|
174,960
|
|
$
|
240,486
|
|
Less:
|
|
|
|
Unrealized (gain) loss on derivative instruments and related transactions
|
(9,644)
|
|
2,881
|
|
26,770
|
|
Tax effect
|
2,296
|
|
(711)
|
|
(4,512)
|
|
Effects of economic hedging related to natural gas inventory
|
12,690
|
|
4,309
|
|
(22,570)
|
|
Tax effect
|
(3,016)
|
|
(1,024)
|
|
7,362
|
|
Consolidated net income
|
$
|
193,919
|
|
$
|
169,505
|
|
$
|
233,436
|
|
The Company uses derivative instruments as economic hedges of purchases and sales of physical natural 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 natural gas related to physical natural gas flow are recognized when the natural gas is delivered to customers. Consequently, there is a mismatch in the timing of earnings recognition between the economic hedges and physical natural gas flows. Timing differences occur in two ways:
•Unrealized gains and losses on derivatives are recognized in reported earnings in periods prior to physical natural 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 natural 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 natural 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 natural gas flows. Included in the tax effects are current and deferred income tax expense corresponding with the non-GAAP measure. Also included in the tax effects during fiscal 2018, are the impacts of the Tax Act and resulting revaluation of the deferred income taxes that arose from derivative and hedging activity as measured under NFE. The revaluation caused the effective tax rate on reconciling items to differ from the statutory rate in effect for the year. 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)
|
2020
|
2019
|
2018
|
Assets at end of period:
|
|
|
|
Natural Gas Distribution
|
$
|
3,531,477
|
|
$
|
3,064,309
|
|
$
|
2,663,054
|
|
Clean Energy Ventures (1)
|
1,015,073
|
|
864,323
|
|
865,018
|
|
Energy Services
|
244,836
|
|
290,847
|
|
396,852
|
|
Storage and Transportation
|
844,799
|
|
240,955
|
|
242,069
|
|
Subtotal
|
5,636,185
|
|
4,460,434
|
|
4,166,993
|
|
Home Services and Other
|
138,375
|
|
104,411
|
|
114,732
|
|
Intercompany assets (2)
|
(204,758)
|
|
(191,860)
|
|
(138,061)
|
|
Total
|
$
|
5,569,802
|
|
$
|
4,372,985
|
|
$
|
4,143,664
|
|
(1)Includes assets held for sale of $206.9 million for September 30, 2018.
(2)Consists of transactions between subsidiaries that are eliminated and reclassified in consolidation.
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
18. RELATED PARTY TRANSACTIONS
Effective April 1, 2020, NJNG entered into a 5-year agreement for 3 Bcf of firm storage capacity with Steckman Ridge, which expires on March 31, 2025. 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 as a component of regulatory assets.
Energy Services may periodically enter into storage or park and loan agreements with its affiliated FERC-jurisdictional natural gas storage facility, Steckman Ridge. As of September 30, 2020, Energy Services has entered into transactions with Steckman Ridge for varying terms, all of which expire by October 31, 2020.
NJNG has entered into a 15-year transportation precedent agreement for committed capacity of 180,000 Dths per day and NJRES entered into a 5-year, 50,000 Dths per day transportation precedent agreement with PennEast, both to commence when PennEast is placed in service.
Demand fees, net of eliminations, associated with Steckman Ridge during the fiscal years ended September 30, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
(Thousands)
|
2020
|
2019
|
2018
|
Natural Gas Distribution
|
$
|
5,900
|
|
$
|
5,814
|
|
$
|
5,730
|
|
Energy Services
|
183
|
|
2,134
|
|
2,775
|
|
Total
|
$
|
6,083
|
|
$
|
7,948
|
|
$
|
8,505
|
|
The following table summarizes demand fees payable to Steckman Ridge as of September 30:
|
|
|
|
|
|
|
|
|
(Thousands)
|
2020
|
2019
|
Natural Gas Distribution
|
$
|
775
|
|
$
|
775
|
|
Energy Services
|
16
|
|
15
|
|
Total
|
$
|
791
|
|
$
|
790
|
|
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. As of September 30, 2020, NJNG and Energy Services had three asset management agreements with expiration dates ranging from October 31, 2020 through October 31, 2021.
NJNG entered into a transportation precedent agreement with Adelphia Gateway for committed capacity of 130,000 Dths per day, which expires in October 2026.
Energy Services has a 5-year agreement for 3 Bcf of firm storage capacity with Leaf River, which is eliminated in consolidation and expires in March 2024.
19. ACQUISITIONS AND DISPOSITIONS
Acquisitions
Adelphia Gateway
On January 13, 2020, Adelphia Gateway, an indirect wholly-owned subsidiary of NJR, acquired all of Talen’s membership interests in IEC, an existing 84-mile pipeline in southeastern Pennsylvania, including related assets and rights of way, for a base purchase price of $166 million. In November 2017, the Company made an initial payment of $10 million towards the base purchase price, which was included in other noncurrent assets on the Consolidated Balance Sheets. The remaining purchase price of $156 million was paid upon the close of the acquisition of the related assets. As additional consideration, Adelphia Gateway will pay Talen specified amounts of up to $23 million contingent upon the achievement of certain regulatory approvals and binding natural gas capacity commitments. On December 20, 2019, FERC issued Adelphia Gateway’s Certificate of Public Convenience and Necessity. Adelphia Gateway has agreed to provide firm natural gas transportation service for 10 years following the closing to two power generators owned by affiliates of Talen that are currently served by the pipeline.
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
The Company evaluated the acquisition under the guidance of ASU 2017-01, Clarifying the Definition of a Business and concluded that the acquisition did not meet the definition of a business, as almost all of the fair value relates to the pipeline assets acquired. As a result, the purchase was accounted for as an asset acquisition.
The following table summarizes the consideration transferred and purchase price allocation based upon the relative fair value of the assets acquired and liabilities to be assumed:
|
|
|
|
|
|
(Thousands)
|
Estimated Fair Value
|
Purchase price
|
$
|
166,000
|
|
Net working capital adjustment
|
(449)
|
|
Transaction costs
|
9,456
|
|
Total costs capitalized
|
$
|
175,007
|
|
Identifiable assets acquired
|
|
Property, plant and equipment
|
$
|
174,438
|
|
Other
|
1,018
|
|
Net working capital
|
(449)
|
|
Net assets acquired
|
$
|
175,007
|
|
The Company utilized a discounted cash flow valuation technique to measure the fair value of the property, plant, and equipment based upon the present value of their future economic benefits reflecting current market expectations. The assumptions used in the discounted cash flow valuation are not observable in active markets and thus represent non-recurring Level 3 fair value measurements.
Property, plant and equipment consist primarily of pipeline related assets, land, buildings and other structures and software. Depreciation is computed on a straight-line basis over the estimated useful life of the assets, ranging from five to 30 years, based on various classes of depreciable property. Other assets consist primarily of an assembled workforce and base gas.
Asset retirement obligations are initially recognized when the legal obligation to retire an asset has been incurred and a reasonable estimate of fair value can be made. The Company records any asset retirement obligations in the period in which information permitting a reasonable estimate of such obligation becomes available. The Company is unable to predict when, or if, the pipelines would become completely obsolete and require decommissioning. As such, upon acquisition, there were no liabilities recorded for asset retirement obligations, as both the timing and future estimates of decommissioning the pipeline was indeterminable.
Leaf River
On October 11, 2019, NJR Pipeline Company, an indirect wholly-owned subsidiary of NJR, acquired 100 percent of the issued and outstanding limited liability company interests of Leaf River Energy Center LLC for $367.5 million. The purchase price was subject to certain contractual conditions, including customary purchase price adjustments related to the amount of net working capital and transaction expenses. Leaf River owns and operates a 32.2 million Dth salt dome natural gas storage facility, located in southeastern Mississippi.
The Company evaluated the acquisition under the guidance of ASU 2017-01, Clarifying the Definition of a Business and concluded that the acquisition did not meet the definition of a business, as almost all of the fair value relates to the natural gas storage assets acquired. As a result, the purchase was accounted for as an asset acquisition.
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
The following table summarizes the consideration transferred and purchase price allocation based upon the relative fair value of the assets acquired and liabilities to be assumed:
|
|
|
|
|
|
(Thousands)
|
Estimated Fair Value
|
Purchase price
|
$
|
367,500
|
|
Net working capital adjustment
|
4,111
|
|
Transaction costs
|
1,664
|
|
Total costs capitalized
|
$
|
373,275
|
|
Identifiable assets acquired
|
|
Property, plant and equipment
|
$
|
365,715
|
|
Base gas
|
3,445
|
|
Other assets, net
|
4
|
|
Net working capital
|
4,111
|
|
Net assets acquired
|
$
|
373,275
|
|
The total consideration transferred is comprised of the purchase price to the seller and the transaction costs incurred during the acquisition. The Company utilized a discounted cash flow valuation technique to measure the fair value of the property, plant, and equipment based upon the present value of their future economic benefits reflecting current market expectations. Base gas is valued based upon the estimated replacement costs associated with the respective assets.
Base gas is needed to maintain the necessary pressure to allow efficient operation of the storage facility. The base gas is determined to be recoverable and is considered a component of the facility and presented as a component in property, plant and equipment. This natural gas is not depreciated, as it is expected to be recovered and sold.
Property, plant and equipment consist primarily of surface equipment and pipelines necessary to operate the facility. Depreciation is computed on a straight-line basis over the estimated useful life of the assets, ranging from five to 50 years, based on various classes of depreciable property.
Asset retirement obligations are initially recognized when the legal obligation to retire an asset has been incurred and a reasonable estimate of fair value can be made. The Company records any asset retirement obligations in the period in which information permitting a reasonable estimate of such obligation becomes available. The Company is unable to predict when, or if, the storage facilities and related pipelines would become completely obsolete and require decommissioning. As such, upon acquisition, there were no liabilities recorded for asset retirement obligations, as both the timing and future estimates of decommissioning the storage facilities and related pipelines were indeterminable.
The assumptions used in the discounted cash flow valuation are not observable in active markets and thus represent non-recurring Level 3 fair value measurements.
Dispositions
Clean Energy Ventures
On June 1, 2018, Clean Energy Ventures completed the sale of its membership interest in its 9.7 MW wind farm in Two Dot, Montana to NorthWestern Energy for a total purchase price of $18.5 million. The transaction generated a pre-tax gain of approximately $951,000 which is recognized as a reduction to O&M on the Consolidated Statements of Operations.
On February 7, 2019, Clean Energy Ventures finalized the sale of its remaining wind assets to a subsidiary of Skyline Renewables LLC for a total purchase price of $208.6 million. The transaction generated a pre-tax gain of $645,000, which was recognized as a reduction to O&M expense on the Consolidated Statements of Operations.
Energy Services
On February 28, 2018, NJR sold all of the issued and outstanding shares of capital stock of NJRRS, which was a component of the Energy Services segment. The Company received $9.5 million in cash and a natural gas swap contract with a fair value of $14.6 million, which was recorded in derivatives, at fair value on the Consolidated Balance Sheets. The sale
New Jersey Resources Corporation
Part II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
generated a pre-tax gain of $3.7 million, which was recognized as a reduction to O&M on the Consolidated Statements of Operations.
20. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
A summary of financial data for each quarter of fiscal 2020 and 2019 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
|
2020
|
|
|
|
|
Operating revenues
|
$
|
615,036
|
|
$
|
639,614
|
|
$
|
298,974
|
|
$
|
400,044
|
|
Operating income (loss)
|
$
|
101,497
|
|
$
|
95,215
|
|
$
|
(20,191)
|
|
$
|
39,862
|
|
Net income (loss)
|
$
|
89,361
|
|
$
|
88,505
|
|
$
|
(27,219)
|
|
$
|
43,272
|
|
Earnings (loss) per share (1)
|
|
|
|
|
Basic
|
$0.97
|
$0.93
|
$(0.28)
|
$0.45
|
Diluted
|
$0.97
|
$0.92
|
$(0.28)
|
$0.45
|
2019
|
|
|
|
|
Operating revenues
|
$
|
811,767
|
|
$
|
866,255
|
|
$
|
434,942
|
|
$
|
479,081
|
|
Operating income (loss) (2)
|
$
|
88,743
|
|
$
|
77,001
|
|
$
|
(4,019)
|
|
$
|
(7,790)
|
|
Net income (loss)
|
$
|
86,248
|
|
$
|
73,573
|
|
$
|
(8,402)
|
|
$
|
18,086
|
|
Earnings (loss) per share (1)
|
|
|
|
|
Basic
|
$0.97
|
$0.83
|
$(0.09)
|
$0.20
|
Diluted
|
$0.97
|
$0.82
|
$(0.09)
|
$0.20
|
(1)The sum of quarterly amounts may not equal the annual amounts due to rounding.
(2)Quarterly amounts have been reclassified to conform to the current period presentation due to the adoption of ASU No. 2017-07, an amendment to ASC 715, Compensation - Retirement Benefits. See Note 2. Summary of Significant Accounting Policies.
New Jersey Resources Corporation
Part II