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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2020
OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 001-08359
NEW JERSEY RESOURCES CORPORATION
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(Exact name of registrant as specified in its charter) |
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New Jersey |
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22-2376465 |
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(State or other jurisdiction of incorporation or
organization) |
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(I.R.S. Employer Identification Number) |
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1415 Wyckoff Road |
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(732) |
938‑1480 |
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Wall |
New Jersey |
07719 |
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(Registrant's telephone number,
including area code) |
(Address of principal executive
offices) |
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Securities registered pursuant to Section 12 (b) of the
Act: |
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Title of each class |
Trading symbol(s) |
Name of each exchange on which registered) |
Common Stock - $2.50 Par Value |
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NJR |
New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days.
Yes:
☒ No:
☐
Indicate by check mark whether the registrant has submitted
electronically every Interactive Data File required to be submitted
pursuant to Rule 405 of Regulation S-T during the preceding 12
months (or for such shorter period that the registrant was required
to submit such files).
Yes:
☒ No:
☐
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer, a
smaller reporting company or an emerging growth company. See
definitions of “large accelerated filer,” “accelerated filer,”
“smaller reporting company,” and “emerging growth company” in Rule
12b‑2 of the Exchange Act.
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Large accelerated filer |
☒ |
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Accelerated filer |
☐ |
Non-accelerated filer |
☐ |
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Smaller reporting company |
☐ |
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Emerging growth company |
☐ |
If an emerging growth company, indicate by check mark if the
registrant has elected not to use the extended transition period
for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange
Act.
o
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act).
Yes:
☐ No:
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The number of shares outstanding of $2.50 par value Common Stock as
of February 2, 2021 was 96,250,435.
New Jersey Resources Corporation
TABLE OF CONTENTS
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Page |
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PART I. FINANCIAL INFORMATION |
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ITEM 1. |
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ITEM 2. |
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ITEM 3. |
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ITEM 4. |
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PART II. OTHER INFORMATION |
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ITEM 1. |
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ITEM 1A. |
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ITEM 2. |
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ITEM 6. |
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New Jersey Resources Corporation
GLOSSARY OF KEY
TERMS
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Adelphia Gateway |
Adelphia Gateway, LLC |
AFUDC |
Allowance for Funds Used During Construction |
ASC |
Accounting Standards Codification |
ASU |
Accounting Standards Update |
Bcf |
Billion Cubic Feet |
BGSS |
Basic Gas Supply Service |
BPU |
New Jersey Board of Public Utilities |
CARES Act |
Coronavirus Aid, Relief, and Economic Security Act |
CIP |
Conservation Incentive Program |
CME |
Chicago Mercantile Exchange |
COVID-19 |
Novel coronavirus disease |
CR&R |
Commercial Realty & Resources Corp. |
DRP |
NJR Direct Stock Purchase and Dividend Reinvestment
Plan |
Dths |
Dekatherms |
EE |
Energy Efficiency |
Energy Services |
Energy Services segment |
EPS |
Earnings Per Share |
FASB |
Financial Accounting Standards Board |
FCM |
Futures Commission Merchant |
FERC |
Federal Energy Regulatory Commission |
Financial margin |
A non-GAAP financial measure, which represents revenues earned from
the sale of natural gas less costs of natural gas sold including
any transportation and storage costs, and excludes any accounting
impact from the change in the fair value of certain derivative
instruments |
Fitch |
Fitch Ratings Company |
FMB |
First Mortgage Bond |
GAAP |
Generally Accepted Accounting Principles of the United
States |
Home Services and Other |
Home Services and Other Operations |
ICE |
Intercontinental Exchange |
IEC |
Interstate Energy Company, LLC |
IIP |
Infrastructure Investment Program |
IRS |
Internal Revenue Service |
ISDA |
The International Swaps and Derivatives Association |
ITC |
Federal Investment Tax Credit |
Leaf River |
Leaf River Energy Center LLC |
MGP |
Manufactured Gas Plant |
Moody's |
Moody's Investors Service, Inc. |
Mortgage Indenture |
The Amended and Restated Indenture of Mortgage, Deed of Trust and
Security Agreement between NJNG and U.S. Bank National Association
dated as of September 1, 2014 |
MW |
Megawatts |
MWh |
Megawatt Hour |
NAESB |
The North American Energy Standards Board |
Natural Gas Act |
The Natural Gas Act of 1938, as amended; the federal law regulating
interstate natural gas pipeline and storage companies, among other
things, codified beginning at 15 U.S.C. Section 717. |
NFE |
Net Financial Earnings |
NJ RISE |
New Jersey Reinvestment in System Enhancement |
NJCEP |
New Jersey's Clean Energy Program |
NJDEP |
New Jersey Department of Environmental Protection |
New Jersey Resources Corporation
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GLOSSARY OF KEY TERMS
(cont.) |
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NJNG |
New Jersey Natural Gas Company |
NJNG Credit Facility |
NJNG's $250 million unsecured committed credit facility expiring in
December 2023 |
NJR Credit Facility |
NJR's $425 million unsecured committed credit facility expiring in
December 2023 |
NJR or The Company |
New Jersey Resources Corporation |
NJRHS |
NJR Home Services Company |
Non-GAAP |
Not in accordance with Generally Accepted Accounting Principles of
the United States |
NPNS |
Normal Purchase/Normal Sale |
NYMEX |
New York Mercantile Exchange |
OASDI |
Old Age, Survivors and Disability Insurance tax |
O&M |
Operation and Maintenance |
OPEB |
Other Postemployment Benefit Plans |
PennEast |
PennEast Pipeline Company, LLC |
PPA |
Power Purchase Agreement |
RAC |
Remediation Adjustment Clause |
REC |
Renewable Energy Certificate |
S&P |
Standard & Poor's Financial Services, LLC |
SAFE |
Safety Acceleration and Facility Enhancement |
SAVEGREEN |
The SAVEGREEN Project® |
SBC |
Societal Benefits Charge |
SEC |
U.S. Securities and Exchange Commission |
SREC |
Solar Renewable Energy Certificate |
SRL |
Southern Reliability Link |
Steckman Ridge |
Collectively, Steckman Ridge GP, LLC and Steckman Ridge,
LP |
Talen |
Talen Energy Marketing, LLC |
TETCO |
Texas Eastern Transmission |
The Exchange Act |
The Securities Exchange Act of 1934, as amended |
The Tax Act |
An Act to Provide for Reconciliation Pursuant to Titles II and V of
the Concurrent Resolution on the Budget for Fiscal Year 2018,
previously known as The Tax Cuts and Jobs Act of 2017 |
Third Circuit |
The United States Court of Appeals for the Third
Circuit |
TREC |
Transition Renewable Energy Certificate |
Trustee |
U.S. Bank National Association |
U.S. |
The United States of America |
USF |
Universal Service Fund |
New Jersey Resources Corporation
INFORMATION CONCERNING FORWARD-LOOKING
STATEMENTS
Certain statements contained in this report, including, without
limitation, statements as to management expectations, assumptions
and beliefs presented in Part I, Item 2. “Management's Discussion
and Analysis of Financial Condition and Results of Operations,”
Part I, Item 3. “Quantitative and Qualitative Disclosures About
Market Risk,” Part II, Item 1. “Legal Proceedings” and in the notes
to the financial statements are forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as
amended, Section 21E of the Securities Exchange Act of 1934, as
amended, and the Private Securities Litigation Reform Act of 1995.
Forward-looking statements can also be identified by the use of
forward-looking terminology such as “anticipate,” “estimate,”
“may,” “could,” “might,” “intend,” “expect,” “believe,” “will”
“plan,” or “should,” or comparable terminology and are made based
upon management's current expectations, assumptions and beliefs as
of this date concerning future developments and their potential
effect on us. There can be no assurance that future developments
will be in accordance with management's expectations, assumptions
or beliefs, or that the effect of future developments on us will be
those anticipated by management.
We caution readers that the expectations, assumptions and beliefs
that form the basis for forward-looking statements regarding
customer growth, customer usage, qualifications for ITCs, RECs,
future rate case proceedings, financial condition, results of
operations, cash flows, capital requirements, future capital
expenditures, market risk, effective tax rate and other matters for
fiscal 2021 and thereafter include many factors that are beyond our
ability to control or estimate precisely, such as estimates of
future market conditions, the behavior of other market participants
and changes in the debt and equity capital markets. The factors
that could cause actual results to differ materially from our
expectations, assumptions and beliefs include, but are not limited
to, those discussed in Item 1A. Risk Factors of our Annual Report
on Form 10-K for the fiscal year ended September 30, 2020, as
well as the following:
•risks
related to the impact of COVID-19 on business operations, financial
performance and condition and cash flows;
•our
ability to obtain governmental and regulatory approvals, land-use
rights, electric grid connection (in the case of clean energy
projects) and/or financing for the construction, development and
operation of our unregulated energy investments, pipeline
transportation systems and NJNG and Storage and Transportation
infrastructure projects, including PennEast and Adelphia Gateway,
in a timely manner;
•risks
associated with our investments in clean energy projects, including
the availability of regulatory incentives and federal tax credits,
the availability of viable projects, our eligibility for ITCs, the
future market for SRECs and electricity prices, and operational
risks related to projects in service;
•risks
associated with acquisitions and the related integration of
acquired assets with our current operations, including the
acquisition of Adelphia Gateway and Leaf River;
•our
ability to comply with current and future regulatory
requirements;
•volatility
of natural gas and other commodity prices and their impact on NJNG
customer usage, NJNG’s BGSS incentive programs, our Energy Services
segment operations and our risk management efforts;
•the
performance of our subsidiaries;
•access
to adequate supplies of natural gas and dependence on third-party
storage and transportation facilities for natural gas
supply;
•the
level and rate at which NJNG’s costs and expenses are incurred and
the extent to which they are approved for recovery from customers
through the regulatory process, including through future base rate
case filings;
•the
impact of a disallowance of recovery of environmental-related
expenditures and other regulatory changes;
•the
regulatory and pricing policies of federal and state regulatory
agencies;
•operating
risks incidental to handling, storing, transporting and providing
customers with natural gas;
•demographic
changes in our service territory and their effect on our customer
growth;
•timing
of qualifying for ITCs due to delays or failures to complete
planned solar projects and the resulting impact on our effective
tax rate and earnings;
•changes
in rating agency requirements and/or credit ratings and their
effect on availability and cost of capital to the
Company;
•the
impact of volatility in the equity and credit markets on our access
to capital;
•our
ability to comply with debt covenants;
•the
results of legal or administrative proceedings with respect to
claims, rates, environmental issues, natural gas cost prudence
reviews and other matters;
•risks
related to cyberattacks or failure of information technology
systems;
•the
impact to the asset values and resulting higher costs and funding
obligations of our pension and postemployment benefit plans as a
result of potential downturns in the financial markets, lower
discount rates, revised actuarial assumptions or impacts associated
with the Patient Protection and Affordable Care Act;
•commercial
and wholesale credit risks, including the availability of
creditworthy customers and counterparties, and liquidity in the
wholesale energy trading market;
•accounting
effects and other risks associated with hedging activities and use
of derivatives contracts;
•our
ability to optimize our physical assets;
•weather
and economic conditions;
•the
costs of compliance with present and future environmental laws,
potential climate change-related legislation or any legislation
resulting from the 2019 New Jersey Energy Master Plan;
•uncertainties
related to litigation, regulatory, administrative or environmental
proceedings;
•changes
to tax laws and regulations;
•any
potential need to record a valuation allowance for our deferred tax
assets;
•the
impact of natural disasters, terrorist activities and other extreme
events on our operations and customers;
•risks
related to our employee workforce and succession
planning;
•risks
associated with the management of our joint ventures and
partnerships; and
•risks
associated with keeping pace with technological
change.
While we periodically reassess material trends and uncertainties
affecting our results of operations and financial condition in
connection with the preparation of management's discussion and
analysis of results of operations and financial condition contained
in our Quarterly and Annual Reports on Form 10-Q and Form 10-K,
respectively, we do not, by including this statement, assume any
obligation to review or revise any particular forward-looking
statement referenced herein in light of future events.
New Jersey Resources Corporation
Part I
ITEM 1. FINANCIAL
STATEMENTS
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
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Three Months Ended |
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December 31, |
(Thousands, except per share data) |
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2020 |
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2019 |
OPERATING REVENUES |
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Utility |
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$ |
195,729 |
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$ |
219,623 |
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Nonutility |
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258,576 |
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395,413 |
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Total operating revenues |
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454,305 |
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615,036 |
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OPERATING EXPENSES |
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Natural gas purchases: |
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Utility |
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56,145 |
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91,814 |
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Nonutility |
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173,247 |
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317,356 |
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Related parties |
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1,734 |
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1,524 |
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Operation and maintenance |
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73,636 |
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63,345 |
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Regulatory rider expenses |
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10,701 |
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11,742 |
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Depreciation and amortization |
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27,362 |
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24,637 |
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Total operating expenses |
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342,825 |
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510,418 |
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OPERATING INCOME |
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111,480 |
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104,618 |
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Other income, net |
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4,117 |
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286 |
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Interest expense, net of capitalized interest |
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19,786 |
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16,070 |
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INCOME BEFORE INCOME TAXES AND EQUITY IN EARNINGS OF
AFFILIATES |
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95,811 |
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88,834 |
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Income tax provision |
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17,441 |
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16,471 |
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Equity in earnings of affiliates |
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2,675 |
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3,389 |
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NET INCOME |
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$ |
81,045 |
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$ |
75,752 |
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EARNINGS PER COMMON SHARE |
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Basic |
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$0.84 |
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$0.82 |
Diluted |
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$0.84 |
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$0.82 |
WEIGHTED AVERAGE SHARES OUTSTANDING |
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Basic |
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96,114 |
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91,911 |
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Diluted |
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96,415 |
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92,320 |
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CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
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Three Months Ended |
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December 31, |
(Thousands) |
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2020 |
2019 |
Net income |
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$ |
81,045 |
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$ |
75,752 |
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Other comprehensive income, net of tax |
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Reclassifications of losses to net income on derivatives designated
as hedging instruments, net of tax of $(112) and $0,
respectively
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231 |
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— |
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Adjustment to postemployment benefit obligation, net of tax of
$(245) and $(217), respectively
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812 |
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759 |
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Other comprehensive income |
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$ |
1,043 |
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$ |
759 |
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Comprehensive income |
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$ |
82,088 |
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$ |
76,511 |
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See Notes to Unaudited Condensed Consolidated Financial
Statements
New Jersey Resources Corporation
Part I
ITEM 1. FINANCIAL STATEMENTS
(Continued)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
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Three Months Ended |
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December 31, |
(Thousands) |
2020 |
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2019 |
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES |
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Net income |
$ |
81,045 |
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$ |
75,752 |
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Adjustments to reconcile net income to cash flows from operating
activities |
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Unrealized gain on derivative instruments |
(37,491) |
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(41,766) |
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Depreciation and amortization |
27,362 |
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24,637 |
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Amortization of acquired wholesale energy contracts |
716 |
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134 |
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Allowance for equity used during construction |
(4,931) |
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(2,732) |
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Allowance for doubtful accounts |
3,970 |
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430 |
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Non cash lease expense |
1,324 |
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861 |
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Deferred income taxes |
17,667 |
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19,976 |
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Manufactured gas plant remediation costs |
(1,274) |
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(2,974) |
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Equity in earnings, net of distributions received from equity
investees |
(1,189) |
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(1,332) |
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Cost of removal - asset retirement obligations |
(256) |
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(61) |
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Contributions to postemployment benefit plans |
(1,670) |
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(2,256) |
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Tax benefit from stock-based compensation |
76 |
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798 |
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Changes in: |
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Components of working capital |
(74,434) |
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(117,241) |
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Other noncurrent assets |
11,806 |
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1,312 |
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Other noncurrent liabilities |
9,002 |
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1,398 |
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Cash flows from (used in) operating activities |
31,723 |
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(43,064) |
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CASH FLOWS USED IN INVESTING ACTIVITIES |
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Expenditures for: |
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Utility plant |
(64,481) |
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(69,861) |
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Solar equipment |
(22,335) |
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(45,699) |
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Storage and Transportation and other |
(8,299) |
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(2,687) |
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Cost of removal |
(14,765) |
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(7,936) |
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Acquisition of assets, net of cash acquired of
$5.1 million
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(368,126) |
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Distribution from equity investees in excess of equity in
earnings |
1,413 |
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643 |
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Investments in equity investees |
(286) |
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(509) |
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Cash flows used in investing activities |
(108,753) |
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(494,175) |
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CASH FLOWS FROM FINANCING ACTIVITIES |
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Proceeds from term loan |
— |
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350,000 |
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Payments of term loan |
— |
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(212,900) |
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Payments of long-term debt |
(5,203) |
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(3,853) |
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Proceeds from (payments of) short-term debt, net |
9,000 |
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228,159 |
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Proceeds from sale leaseback transaction - solar |
12,124 |
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— |
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Proceeds from sale leaseback transaction |
— |
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4,000 |
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Payments of common stock dividends |
(31,902) |
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(26,974) |
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Proceeds from issuance of common stock - public equity
offering |
— |
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212,900 |
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Proceeds from issuance of common stock - DRP |
3,911 |
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3,572 |
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Tax withholding payments related to net settled stock
compensation |
(5,534) |
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(3,543) |
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Cash flows (used in) from financing activities |
(17,604) |
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551,361 |
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Change in cash, cash equivalents and restricted cash |
(94,634) |
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14,122 |
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Cash, cash equivalents and restricted cash at beginning of
period |
119,423 |
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4,063 |
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Cash, cash equivalents and restricted cash at end of
period |
$ |
24,789 |
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$ |
18,185 |
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CHANGES IN COMPONENTS OF WORKING CAPITAL |
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Receivables |
$ |
(108,143) |
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$ |
(164,622) |
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Inventories |
5,792 |
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(17,055) |
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Recovery of natural gas costs |
(10,542) |
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7,951 |
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Natural gas purchases payable |
24,146 |
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44,086 |
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Natural gas purchases payable - related parties |
74 |
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— |
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Prepaid expenses |
(5,045) |
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(12,482) |
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Prepaid and accrued taxes |
10,568 |
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15,390 |
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Accounts payable and other |
(39,232) |
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(27,080) |
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Restricted broker margin accounts |
38,986 |
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34,976 |
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Customers' credit balances and deposits |
7,014 |
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2,457 |
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Other current assets |
1,948 |
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(862) |
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Total |
$ |
(74,434) |
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$ |
(117,241) |
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SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION |
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Cash paid for: |
|
|
|
Interest (net of amounts capitalized) |
$ |
11,298 |
|
|
$ |
14,938 |
|
Income taxes |
$ |
230 |
|
|
$ |
— |
|
Accrued capital expenditures |
$ |
4,205 |
|
|
$ |
14,864 |
|
|
|
|
|
See Notes to Unaudited Condensed Consolidated Financial
Statements
New Jersey Resources Corporation
Part I
ITEM 1. FINANCIAL STATEMENTS
(Continued)
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
ASSETS
|
|
|
|
|
|
|
|
|
(Thousands) |
December 31, 2020 |
September 30, 2020 |
PROPERTY, PLANT AND EQUIPMENT |
|
|
Utility plant, at cost |
$ |
2,846,982 |
|
$ |
2,800,052 |
|
Construction work in progress |
401,393 |
|
379,846 |
|
Nonutility plant and equipment, at cost |
1,117,839 |
|
1,108,512 |
|
Construction work in progress |
204,152 |
|
176,556 |
|
Total property, plant and equipment |
4,570,366 |
|
4,464,966 |
|
Accumulated depreciation and amortization, utility
plant |
(603,385) |
|
(601,635) |
|
Accumulated depreciation and amortization, nonutility plant and
equipment |
(148,666) |
|
(140,562) |
|
Property, plant and equipment, net |
3,818,315 |
|
3,722,769 |
|
CURRENT ASSETS |
|
|
Cash and cash equivalents |
22,358 |
|
117,012 |
|
Customer accounts receivable |
|
|
Billed |
197,641 |
|
134,173 |
|
Unbilled revenues |
53,794 |
|
9,226 |
|
Allowance for doubtful accounts |
(11,105) |
|
(7,242) |
|
Regulatory assets |
39,342 |
|
36,530 |
|
Natural gas in storage, at average cost |
163,169 |
|
167,504 |
|
Materials and supplies, at average cost |
18,949 |
|
20,406 |
|
Prepaid expenses |
11,684 |
|
6,639 |
|
Prepaid and accrued taxes |
12,858 |
|
24,301 |
|
Derivatives, at fair value |
33,087 |
|
23,310 |
|
Restricted broker margin accounts |
48,105 |
|
69,444 |
|
|
|
|
Other |
19,322 |
|
21,029 |
|
Total current assets |
609,204 |
|
622,332 |
|
NONCURRENT ASSETS |
|
|
Investments in equity method investees |
211,581 |
|
208,375 |
|
Regulatory assets |
521,337 |
|
527,459 |
|
Operating lease assets |
138,633 |
|
131,769 |
|
Derivatives, at fair value |
1,547 |
|
3,349 |
|
|
|
|
Intangible assets, net |
9,397 |
|
10,060 |
|
Software costs |
5,498 |
|
4,707 |
|
Other noncurrent assets |
81,393 |
|
85,657 |
|
Total noncurrent assets |
969,386 |
|
971,376 |
|
Total assets |
$ |
5,396,905 |
|
$ |
5,316,477 |
|
See Notes to Unaudited Condensed Consolidated Financial
Statements
New Jersey Resources Corporation
Part I
ITEM 1. FINANCIAL STATEMENTS
(Continued)
CAPITALIZATION AND LIABILITIES
|
|
|
|
|
|
|
|
|
(Thousands, except share data) |
December 31, 2020 |
September 30, 2020 |
CAPITALIZATION |
|
|
Common stock, $2.50 par value; authorized 150,000,000 shares;
outstanding December 31, 2020 — 96,139,436; September 30, 2020 —
95,949,183
|
$ |
240,367 |
|
$ |
240,243 |
|
Premium on common stock |
492,890 |
|
491,982 |
|
Accumulated other comprehensive loss, net of tax |
(43,272) |
|
(44,315) |
|
Treasury stock at cost and other; shares December 31, 2020 —
7,623;
September 30, 2020 — 148,310
|
11,649 |
|
8,485 |
|
Retained earnings |
996,580 |
|
947,501 |
|
Common stock equity |
1,698,214 |
|
1,643,896 |
|
Long-term debt |
2,264,972 |
|
2,259,466 |
|
Total capitalization |
3,963,186 |
|
3,903,362 |
|
CURRENT LIABILITIES |
|
|
Current maturities of long-term debt |
26,864 |
|
27,236 |
|
Short-term debt |
134,350 |
|
125,350 |
|
Natural gas purchases payable |
120,091 |
|
95,945 |
|
Natural gas purchases payable to related parties |
865 |
|
791 |
|
Accounts payable and other |
110,456 |
|
141,500 |
|
Dividends payable |
31,966 |
|
31,902 |
|
Accrued taxes |
1,842 |
|
2,717 |
|
Regulatory liabilities |
16,941 |
|
26,188 |
|
New Jersey Clean Energy Program |
13,508 |
|
15,570 |
|
Derivatives, at fair value |
24,444 |
|
33,865 |
|
Operating lease liabilities |
4,397 |
|
6,724 |
|
|
|
|
|
|
|
Customers' credit balances and deposits |
32,948 |
|
25,934 |
|
Total current liabilities |
518,672 |
|
533,722 |
|
NONCURRENT LIABILITIES |
|
|
Deferred income taxes |
166,128 |
|
138,081 |
|
Deferred investment tax credits |
3,251 |
|
3,332 |
|
Deferred gain |
987 |
|
1,035 |
|
Derivatives, at fair value |
14,933 |
|
13,352 |
|
Manufactured gas plant remediation |
148,000 |
|
150,590 |
|
Postemployment employee benefit liability |
235,845 |
|
237,221 |
|
Regulatory liabilities |
195,282 |
|
196,450 |
|
Operating lease liabilities |
104,970 |
|
95,030 |
|
Asset retirement obligation |
33,906 |
|
33,723 |
|
Other |
11,745 |
|
10,579 |
|
Total noncurrent liabilities |
915,047 |
|
879,393 |
|
Commitments and contingent liabilities (Note 13) |
|
|
Total capitalization and liabilities |
$ |
5,396,905 |
|
$ |
5,316,477 |
|
See Notes to Unaudited Condensed Consolidated Financial
Statements
New Jersey Resources Corporation
Part I
ITEM 1. FINANCIAL STATEMENTS
(Continued)
CONDENSED CONSOLIDATED STATEMENTS OF COMMON STOCK EQUITY
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Thousands) |
Number of Shares |
Common Stock |
Premium on Common Stock |
Accumulated Other Comprehensive (Loss) Income |
Treasury Stock And Other |
Retained Earnings |
Total |
Balance at September 30, 2020 |
95,949 |
|
$ |
240,243 |
|
$ |
491,982 |
|
|
$ |
(44,315) |
|
|
$ |
8,485 |
|
$ |
947,501 |
|
$ |
1,643,896 |
|
Net income |
— |
|
— |
|
— |
|
|
— |
|
|
— |
|
81,045 |
|
81,045 |
|
Other comprehensive income |
— |
|
— |
|
— |
|
|
1,043 |
|
|
— |
|
— |
|
1,043 |
|
Common stock issued: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incentive compensation plan |
50 |
|
124 |
|
5,410 |
|
|
— |
|
|
— |
|
— |
|
5,534 |
|
Dividend reinvestment plan
(1)
|
140 |
|
— |
|
(4,502) |
|
|
— |
|
|
5,593 |
|
— |
|
1,091 |
|
|
|
|
|
|
|
|
|
|
|
Cash dividend declared ($.3325 per share)
|
— |
|
— |
|
— |
|
|
— |
|
|
— |
|
(31,966) |
|
(31,966) |
|
Treasury stock and other |
— |
|
— |
|
— |
|
|
— |
|
|
(2,429) |
|
— |
|
(2,429) |
|
Balance at December 31, 2020 |
96,139 |
|
$ |
240,367 |
|
$ |
492,890 |
|
|
$ |
(43,272) |
|
|
$ |
11,649 |
|
$ |
996,580 |
|
$ |
1,698,214 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)Shares
sold through the DRP are issued from treasury stock at average
cost, which may differ from the actual market price
paid.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Thousands) |
Number of Shares |
Common Stock |
Premium on Common Stock |
Accumulated Other Comprehensive (Loss) Income |
Treasury Stock And Other |
Retained Earnings |
Total |
Balance at September 30, 2019 |
89,999 |
|
$ |
226,649 |
|
$ |
291,331 |
|
|
$ |
(31,787) |
|
|
$ |
(10,436) |
|
$ |
869,858 |
|
$ |
1,345,615 |
|
Net income |
— |
|
— |
|
— |
|
|
— |
|
|
— |
|
75,752 |
|
75,752 |
|
Other comprehensive income |
— |
|
— |
|
— |
|
|
759 |
|
|
— |
|
— |
|
759 |
|
Common stock issued: |
|
|
|
|
|
|
|
|
|
Common stock offering |
5,333 |
|
13,333 |
|
199,567 |
|
|
— |
|
|
— |
|
— |
|
212,900 |
|
Incentive compensation plan |
96 |
|
239 |
|
3,053 |
|
|
— |
|
|
— |
|
— |
|
3,292 |
|
Dividend reinvestment plan
(1)
|
80 |
|
— |
|
314 |
|
|
— |
|
|
3,185 |
|
— |
|
3,499 |
|
|
|
|
|
|
|
|
|
|
|
Cash dividend declared ($.3125 per share)
|
— |
|
— |
|
— |
|
|
— |
|
|
— |
|
(29,846) |
|
(29,846) |
|
Treasury stock and other |
— |
|
— |
|
— |
|
|
— |
|
|
(3,879) |
|
— |
|
(3,879) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2019 |
95,508 |
|
$ |
240,221 |
|
$ |
494,265 |
|
|
$ |
(31,028) |
|
|
$ |
(11,130) |
|
$ |
915,764 |
|
$ |
1,608,092 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)Shares
sold through the DRP are issued from treasury stock at average
cost, which may differ from the actual market price
paid.
New Jersey Resources Corporation
Part I
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
1. NATURE OF THE BUSINESS
NJR provides regulated natural gas distribution services,
transportation and storage services and operates certain
unregulated businesses primarily through the
following:
NJNG provides natural gas utility service to approximately 559,600
customers throughout Burlington, Middlesex, Monmouth, Morris and
Ocean counties in New Jersey and is subject to rate regulation by
the BPU. NJNG comprises the Natural Gas Distribution
segment.
NJRCEV, the Company's clean energy subsidiary, comprises the Clean
Energy Ventures segment and consists of the Company's capital
investments in commercial and residential solar
projects.
NJRES comprises the Energy Services segment. Energy Services
maintains and transacts around a portfolio of natural gas
transportation and storage capacity contracts and provides physical
wholesale energy, retail energy and energy management services in
the U.S. and Canada.
NJR Midstream Holdings Corporation, which comprises the Storage and
Transportation segment, formerly the Midstream segment, invests in
energy-related ventures through its subsidiaries. The Company holds
a 50 percent combined ownership interest in Steckman Ridge, located
in Pennsylvania and 20 percent ownership interest in PennEast,
which are accounted for under the equity method of accounting. The
Company also operates natural gas storage and transmission assets
through the wholly-owned subsidiaries of Leaf River, which was
acquired on October 11, 2019 and Adelphia Gateway, which was
acquired on January 13, 2020 and is subject to rate regulation
by FERC. See
Note 17. Acquisitions and Dispositions
for more information regarding these acquisitions.
NJR Retail Holdings Corporation has two principal subsidiaries,
NJRHS, which provides heating, central air conditioning, standby
generators, solar and other indoor and outdoor comfort products to
residential homes throughout New Jersey, and CR&R, which owns
commercial real estate. NJRHS and CR&R are included in Home
Services and Other operations.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying Unaudited Condensed Consolidated Financial
Statements have been prepared by NJR in accordance with the rules
and regulations of the SEC and GAAP. The September 30, 2020
Balance Sheet data is derived from the audited financial statements
of the Company. These Unaudited Condensed Consolidated Financial
Statements should be read in conjunction with the consolidated
financial statements and the notes thereto included in NJR's 2020
Annual Report on Form 10-K.
The Unaudited Condensed Consolidated Financial Statements include
the accounts of NJR and its subsidiaries. In the opinion of
management, the accompanying Unaudited Condensed Consolidated
Financial Statements reflect all adjustments necessary for a fair
presentation of the results of the interim periods presented. These
adjustments are of a normal and recurring nature. Because of the
seasonal nature of NJR's utility and wholesale energy services
operations, in addition to other factors, the financial results for
the interim periods presented are not indicative of the results
that are to be expected for the fiscal year ending
September 30, 2021. Intercompany transactions and accounts
have been eliminated.
Use of Estimates
The preparation of financial statements in conformity with GAAP
requires the Company to make estimates that affect the reported
amounts of assets, liabilities, revenues, expenses and related
disclosure of contingencies during the reporting period. On a
quarterly basis or more frequently whenever events or changes in
circumstances indicate a need, the Company evaluates its estimates,
including those related to the calculation of the fair value of
derivative instruments, debt, equity method investments, unbilled
revenues, allowance for doubtful accounts, provisions for
depreciation and amortization, long-lived assets, regulatory assets
and liabilities, income taxes, pensions and other postemployment
benefits, contingencies related to environmental matters and
litigation. ARO are evaluated as often as needed. The Company’s
estimates are based on historical experience and on various other
assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making
judgments about the carrying value of assets and liabilities that
are not readily apparent from other sources.
New Jersey Resources Corporation
Part I
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The Company has legal, regulatory and environmental proceedings
during the normal course of business that can result in loss
contingencies. When evaluating the potential for a loss, the
Company will establish a reserve if a loss is probable and can be
reasonably estimated, in which case it is the Company’s policy to
accrue the full amount of such estimates. Where the information is
sufficient only to establish a range of probable liability, and no
point within the range is more likely than any other, it is the
Company’s policy to accrue the lower end of the range. In the
normal course of business, estimated amounts are subsequently
adjusted to actual results that may differ from
estimates.
In March 2020, COVID-19 was declared a pandemic by the World Health
Organization and the Centers for Disease Control and Prevention and
has spread globally, including throughout the United States. The
Company’s Unaudited Condensed Consolidated Financial Statements
reflect estimates and assumptions made by management that affect
the reported amounts of assets and liabilities at the balance sheet
date and reported amounts of revenue and expenses during the
reporting periods presented. The Company considered the impacts
of COVID-19 on the assumptions and estimates used and
determined that there have been no material adverse impacts on the
Company’s results of operations as of December 31,
2020.
Acquisitions
The Company follows the guidance in ASC 805,
Business Combinations,
for determining the appropriate accounting treatment for
acquisitions. ASU No. 2017-01,
Clarifying the Definition of a Business,
provides an initial fair value screen to determine if substantially
all of the fair value of the assets acquired is concentrated in a
single asset or group of similar assets. If the initial screening
test is not met, the set is considered a business based on whether
there are inputs and substantive processes in place. Based on the
results of this analysis and conclusion on an acquisition’s
classification of a business combination or an asset acquisition,
the accounting treatment is derived.
If the acquisition is deemed to be a business, the acquisition
method of accounting is applied. Identifiable assets acquired and
liabilities assumed at the acquisition date are recorded at fair
value. If the transaction is deemed to be an asset purchase, the
cost accumulation and allocation model is used whereby the assets
and liabilities are recorded based on the purchase price and
allocated to the individual assets and liabilities based on
relative fair values.
The determination and allocation of fair values to the identifiable
assets acquired and liabilities assumed are based on various
assumptions and valuation methodologies requiring considerable
management judgment. The most significant variables in these
valuations are discount rates and the number of years on which to
base the cash flow projections, as well as other assumptions and
estimates used to determine the cash inflows and outflows.
Management determines discount rates based on the risk inherent in
the acquired assets, specific risks, industry beta and capital
structure of guideline companies. The valuation of an acquired
business is based on available information at the acquisition date
and assumptions that are believed to be reasonable. However, a
change in facts and circumstances as of the acquisition date can
result in subsequent adjustments during the measurement period, but
no later than one year from the acquisition date.
Revenues
Revenues from the sale of natural gas to NJNG customers are
recognized in the period that natural gas is delivered and consumed
by customers, including an estimate for unbilled revenue. NJNG
records unbilled revenue for natural gas services. Natural gas
sales to individual customers are based on meter readings, which
are performed on a systematic basis throughout the month. At the
end of each month, the amount of natural gas delivered to each
customer after the last meter reading through the end of the
respective accounting period is estimated, and recognizes unbilled
revenues related to these amounts. The unbilled revenue estimates
are based on estimated customer usage by customer type, weather
effects, unaccounted-for natural gas and the most current tariff
rates.
Clean Energy Ventures recognizes revenue when SRECs are transferred
to counterparties. SRECs are physically delivered through the
transfer of certificates as per contractual settlement schedules.
The Clean Energy Act of 2018 established guidelines for the closure
of the SREC registration program to new applicants in New Jersey.
The SREC program officially closed to new qualified solar projects
on April 30, 2020.
In December 2019, the BPU established the TREC as the successor to
the SREC program. TRECs provide a fixed compensation base
multiplied by an assigned project factor in order to determine
their value. The project factor is determined by the type and
location of the project, as defined. All TRECs generated are
required to be purchased monthly by a TREC program administrator as
appointed by the BPU.
New Jersey Resources Corporation
Part I
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
In June 2020, Clean Energy Ventures began generating TRECs for
qualified new residential and commercial solar projects placed into
service following the close of the SREC program. TREC revenue is
recognized when TRECs are generated and are transferred monthly
based upon metered solar electricity activity.
Revenues for Energy Services are recognized when the natural gas is
physically delivered to the customer. In addition, changes in the
fair value of derivatives that economically hedge the forecasted
sales of the natural gas are recognized in operating revenues as
they occur, as noted above. Energy Services also recognizes changes
in the fair value of SREC derivative contracts as a component of
operating revenues.
The Storage and Transportation segment generates revenues from firm
storage contracts and transportation contracts, related usage fees
and hub services for the use of storage space, injections and
withdrawals from their natural gas storage facility and the
delivery of natural gas to customers. Demand fees are recognized as
revenue over the term of the related agreement while usage fees and
hub services revenues are recognized as services are
performed.
Revenues from all other activities are recorded in the period
during which products or services are delivered and accepted by
customers, or over the related contractual term. See
Note 3. Revenue
for further information.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash on deposit and temporary
investments with maturities of three months or less, and excludes
restricted cash related to escrow balances for utility plant
projects at NJNG and irrevocable letters of credit at Leaf River,
which is recorded in other current and noncurrent assets on the
Unaudited Condensed Consolidated Balance Sheets,
respectively.
The following table provides a reconciliation of cash and cash
equivalents and restricted cash reported in the Unaudited Condensed
Consolidated Balance Sheets to the total amounts in the Unaudited
Condensed Consolidated Statements of Cash Flows as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Thousands) |
December 31,
2020 |
September 30,
2020 |
December 31,
2019 |
September 30,
2019 |
Balance Sheet |
|
|
|
|
Cash and cash equivalents |
$ |
22,358 |
|
$ |
117,012 |
|
$ |
15,666 |
|
$ |
2,676 |
|
Restricted cash in other noncurrent assets |
$ |
2,431 |
|
$ |
2,411 |
|
$ |
2,519 |
|
$ |
1,387 |
|
Statements of Cash Flow |
|
|
|
|
Cash, cash equivalents and restricted cash |
$ |
24,789 |
|
$ |
119,423 |
|
$ |
18,185 |
|
$ |
4,063 |
|
Loans Receivable
NJNG currently provides loans, with terms ranging from
two to 10 years, to customers that elect to purchase and
install certain energy-efficient equipment in accordance with its
BPU-approved SAVEGREEN program. The loans are recognized at fair
value on the Unaudited Condensed Consolidated Balance Sheets. The
Company recorded $14.4 million and $13.7 million in other current
assets and $34.7 million and $35.3 million in other noncurrent
assets as of December 31, 2020 and September 30, 2020,
respectively, on the Unaudited Condensed Consolidated Balance
Sheets, related to the loans. The Company regularly evaluates the
credit quality and collection profile of its customers. If NJNG
determines a loan is impaired, the basis of the loan would be
subject to regulatory review for recovery. As of December 31,
2020 and September 30, 2020, the Company has not recorded any
impairments for SAVEGREEN loans.
Natural Gas in Storage
The following table summarizes natural gas in storage, at average
cost by segment as of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020 |
September 30, 2020 |
($ in thousands) |
Natural Gas in Storage |
Bcf |
Natural Gas in Storage |
Bcf |
Natural Gas Distribution |
|
$ |
98,434 |
|
25.1 |
|
|
$ |
110,037 |
|
27.2 |
|
Energy Services |
|
64,688 |
|
30.8 |
|
|
57,352 |
|
34.3 |
|
Storage and Transportation |
|
47 |
|
— |
|
|
115 |
|
0.02 |
|
Total |
|
$ |
163,169 |
|
55.9 |
|
|
$ |
167,504 |
|
61.52 |
|
New Jersey Resources Corporation
Part I
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Software Costs
The Company capitalizes certain costs, such as software design and
configuration, coding, testing and installation, that are incurred
to purchase or create and implement computer software for
internal use. Capitalized costs include external costs of materials
and services utilized in developing or obtaining internal-use
software and payroll and payroll-related costs for employees who
are directly associated with and devote time to
the internal-use software project. Maintenance costs are
expensed as incurred. Upgrades and enhancements are capitalized if
it is probable that such expenditures will result in additional
functionality.
Amortization is recorded on the straight-line basis over the
estimated useful lives. The following table presents the software
costs included in the Unaudited Condensed Consolidated Financial
Statements:
|
|
|
|
|
|
|
|
|
(Thousands) |
December 31,
2020 |
September 30,
2020 |
Balance Sheets |
|
|
Utility plant, at cost |
$ |
13,894 |
|
$ |
13,452 |
|
|
|
|
Nonutility plant and equipment, at cost |
$ |
330 |
|
$ |
316 |
|
Construction work in progress |
$ |
2 |
|
$ |
— |
|
Accumulated depreciation and amortization, utility
plant |
$ |
(517) |
|
$ |
(279) |
|
Accumulated depreciation and amortization, nonutility plant and
equipment |
$ |
(11) |
|
$ |
(5) |
|
Software costs |
$ |
5,498 |
|
$ |
4,707 |
|
|
|
|
|
Three Months Ended |
|
December 31, |
Statements of Operations |
2020 |
2019 |
Operation and maintenance
(1)
|
$ |
1,924 |
|
$ |
1,487 |
|
Depreciation and amortization |
$ |
253 |
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)During
the three months ended December 31, 2020, $77,000 was
amortized into O&M. There were no amounts amortized into
O&M for the three months ended December 31,
2019.
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
Unaudited Condensed Consolidated Balance Sheets. NJNG received $4.0
million in December 2019, in connection with the sale leaseback of
its natural gas meters. There were no natural gas meter sale
leasebacks recorded during the three months ended December 31,
2020.
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 Unaudited Condensed Consolidated Balance
Sheets.
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
Unaudited Condensed Consolidated Statements of Operations over the
respective five-year ITC recapture periods, starting with the
second year of the lease.
New Jersey Resources Corporation
Part I
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
In December 2020, Clean Energy Ventures received proceeds of $12.1
million in connection with the sale leaseback of two commercial
solar projects. Clean Energy Ventures did not receive proceeds
related to the sale leaseback of commercial solar assets during
fiscal 2020. The proceeds received were recognized as a financing
obligation on the Unaudited Condensed 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.
Accumulated Other Comprehensive Loss
The following table presents the changes in the components of
accumulated other comprehensive (loss) income, net of related tax
effects during the three months ended December 31, 2020 and
2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Thousands) |
Cash Flow Hedges |
Postemployment Benefit Obligation |
Total |
Balance at September 30, 2020 |
$ |
(10,397) |
|
|
$ |
(33,918) |
|
|
$ |
(44,315) |
|
Other comprehensive income, net of tax |
|
|
|
|
|
|
|
|
|
|
|
Amounts reclassified from accumulated other comprehensive income,
net of tax of $(112), $(245), $(357), respectively
|
231 |
|
|
812 |
|
(1) |
1,043 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2020 |
$ |
(10,166) |
|
|
$ |
(33,106) |
|
|
$ |
(43,272) |
|
|
|
|
|
|
|
Balance at September 30, 2019 |
$ |
— |
|
|
$ |
(31,787) |
|
|
$ |
(31,787) |
|
Other comprehensive income, net of tax |
|
|
|
|
|
|
|
|
|
|
|
Amounts reclassified from accumulated other comprehensive income,
net of tax of $0, $(217) and $(217)
|
— |
|
|
759 |
|
(1) |
759 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2019 |
$ |
— |
|
|
$ |
(31,028) |
|
|
$ |
(31,028) |
|
(1)Included
in the computation of net periodic pension cost, a component of
operations and maintenance expense on the Unaudited Condensed
Consolidated Statements of Operations.
Change in Accounting Policy
Effective October 1, 2020, the Company changed its method of
accounting for ITCs at Clean Energy Ventures from the flow through
method to the deferral method. Prior to the change, the Company
recognized ITCs as a reduction of income tax expense in the period
that the qualified solar energy property, to which it relates, was
placed in service. Effective with the accounting change, the
Company recorded ITCs as a reduction to the carrying value of the
related asset when placed in service and recognizes ITCs in
earnings as a reduction to depreciation expense over the productive
life of the related property. The deferral method is considered the
preferred method per the authoritative guidance as described
in
ASC 740 - Income Taxes.
The change to the deferral method is also consistent with the
application of authoritative accounting guidance throughout other
reporting segments and promotes proper matching of the benefits of
the recognition of the ITC with the expected use of the
asset.
The Company applied the change in accounting method retrospectively
to all prior periods presented.
The impact of the change in accounting policy on the Unaudited
Condensed Consolidated Statements of Operations during the
three months ended December 31, 2019 is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
As Previously |
Effect of |
As |
(Thousands) |
Reported |
Change |
Adjusted |
Depreciation and amortization |
$ |
27,758 |
|
(3,121) |
|
$ |
24,637 |
|
Total operating expenses |
$ |
513,539 |
|
(3,121) |
|
$ |
510,418 |
|
Operating income |
$ |
101,497 |
|
3,121 |
|
$ |
104,618 |
|
Income before income taxes and equity in earnings of
affiliates |
$ |
85,713 |
|
3,121 |
|
$ |
88,834 |
|
Income tax (benefit) expense |
$ |
(259) |
|
16,730 |
|
$ |
16,471 |
|
Net income |
$ |
89,361 |
|
(13,609) |
|
$ |
75,752 |
|
Earnings per common share |
|
|
|
Basic |
$ |
0.97 |
|
(0.15) |
|
$ |
0.82 |
|
Diluted |
$ |
0.97 |
|
(0.15) |
|
$ |
0.82 |
|
New Jersey Resources Corporation
Part I
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The cumulative effect of the change in accounting policy on the
Unaudited Condensed Consolidated Balance Sheets as of
September 30, 2020 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
As Previously |
Effect of |
As |
(Thousands) |
Reported |
Change |
Adjusted |
Assets |
|
|
|
Nonutility plant and equipment, at cost |
$ |
1,430,723 |
|
(322,211) |
|
$ |
1,108,512 |
|
Accumulated depreciation and amortization, nonutility plant and
equipment |
$ |
(202,507) |
|
61,945 |
|
$ |
(140,562) |
|
Property, plant and equipment, net |
$ |
3,983,035 |
|
(260,266) |
|
$ |
3,722,769 |
|
Other noncurrent assets |
$ |
78,716 |
|
6,941 |
|
$ |
85,657 |
|
Total noncurrent assets |
$ |
964,435 |
|
6,941 |
|
$ |
971,376 |
|
Total assets |
$ |
5,569,802 |
|
(253,325) |
|
$ |
5,316,477 |
|
Capitalization |
|
|
|
Retained earnings |
$ |
1,148,297 |
|
(200,796) |
|
$ |
947,501 |
|
Common stock equity |
$ |
1,844,692 |
|
(200,796) |
|
$ |
1,643,896 |
|
Total capitalization |
$ |
4,104,158 |
|
(200,796) |
|
$ |
3,903,362 |
|
Liabilities |
|
|
|
Deferred income taxes |
$ |
190,610 |
|
(52,529) |
|
$ |
138,081 |
|
Total noncurrent liabilities |
$ |
931,922 |
|
(52,529) |
|
$ |
879,393 |
|
Total capitalization and liabilities |
$ |
5,569,802 |
|
(253,325) |
|
$ |
5,316,477 |
|
The impact of the change in accounting policy on the Unaudited
Condensed Consolidated Statements of Cash Flows as of
December 31, 2019 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
As Previously |
Effect of |
As |
(Thousands) |
Reported |
Change |
Adjusted |
Depreciation and amortization |
$ |
27,758 |
|
(3,121) |
|
$ |
24,637 |
|
Deferred income taxes |
$ |
3,246 |
|
16,730 |
|
$ |
19,976 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The impact of the change in accounting policy on the Unaudited
Condensed Consolidated Statements of Common Stock Equity as of
December 31, 2019 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
As Previously |
Effect of |
As |
(Thousands) |
Reported |
Change |
Adjusted |
Retained Earnings |
|
|
|
Balance at September 30, 2019 |
$ |
1,075,960 |
|
(206,102) |
|
$ |
869,858 |
|
Net income |
$ |
89,361 |
|
(13,609) |
|
$ |
75,752 |
|
Balance at December 30, 2019 |
$ |
1,135,475 |
|
(219,711) |
|
$ |
915,764 |
|
Total |
|
|
|
Balance at September 30, 2019 |
$ |
1,551,717 |
|
(206,102) |
|
$ |
1,345,615 |
|
Net income |
$ |
89,361 |
|
(13,609) |
|
$ |
75,752 |
|
Balance at December 30, 2019 |
$ |
1,827,803 |
|
(219,711) |
|
$ |
1,608,092 |
|
Recently Adopted 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.
New Jersey Resources Corporation
Part I
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
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 as the current expected
lifetime loss estimates were not materially different from the
reserves already in place.
The Company segregates financial assets that fall within the scope
of ASC 326, primarily trade receivables and unbilled revenues due
in one year or less, into portfolio segments based on shared risk
characteristics, such as geographical location and regulatory
environment, for evaluation of expected credit losses. Historical
and current information, such as average write-offs, are applied to
each portfolio segment to estimate the allowance for losses on
uncollectible receivables. Additionally, the allowance for losses
on uncollectible receivables is adjusted for reasonable and
supportable forecasts of future economic conditions, which can
include changing weather, commodity prices, regulations, and
macroeconomic factors, such as unemployment rates among
others.
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 were applied on a
prospective or retrospective basis depending on the specific
amendments’ transition requirements. 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, this ASU did
not 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
was effective for the Company beginning October 1, 2020, with early
adoption permitted. Upon adoption, the amended presentation and
disclosure requirements guidance did not have an impact on the
Company's disclosures.
Other Recent Updates to the Accounting Standards
Codification
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.
New Jersey Resources Corporation
Part I
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
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.
Other
In October 2020, the FASB issued ASU 2020-10, which clarifies
application of various provisions in the ASC by amending and adding
new headings, cross referencing to other guidance, and refining or
correcting terminology. It also improves the consistency by
amending the ASC to include all disclosure guidance in the
appropriate section. The guidance is effective for public business
entities in the fiscal year beginning after December 15, 2020. This
ASU will be effective for the Company on October 1,
2021.
On January 7, 2021, the FASB issued ASU 2021-01, which refines the
scope of ASC 848 and clarifies some of its guidance of global
reference rate reform activities. The ASU permits entities to elect
certain optional expedients and exceptions when accounting for
derivative contracts and certain hedging relationships affected by
changes in the interest rates used for discounting cash flows, for
computing variation margin settlements, and for calculating price
alignment interest in connection with reference rate reform
activities under way in global financial markets (the “discounting
transition”). This Accounting Standards Update is the final version
of Proposed Accounting Standards Update 2020-900—Reference Rate
Reform (Topic 848): Scope Refinement, which has since been
deleted.
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, the Company does 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 Unaudited
Condensed Consolidated Statements of Operations.
New Jersey Resources Corporation
Part I
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(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 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 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.
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 TRECs, 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 |
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 the Storage and Transportation
segment is to provide the customer with storage and transportation
services. The Storage and Transportation segment 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 customers receive the
benefits of 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 I
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
|
|
|
|
|
|
|
|
|
Revenue Recognized at a Point in Time: |
Storage and Transportation
|
Natural gas services |
The performance obligation of the Storage and Transportation
segment is to provide the customer with storage and transportation
services. The Storage and Transportation segment 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 to
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
the three months ended December 31, 2020 and 2019, is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Thousands) |
Natural Gas Distribution |
Clean Energy Ventures |
Energy Services |
Storage and Transportation |
Home Services
and Other |
Total |
2020 |
|
|
|
|
|
|
|
Natural gas utility sales |
$ |
189,364 |
|
— |
|
|
— |
|
— |
|
— |
|
$ |
189,364 |
|
Natural gas services |
— |
|
— |
|
|
6,428 |
|
13,104 |
|
— |
|
19,532 |
|
Service contracts |
— |
|
— |
|
|
— |
|
— |
|
8,259 |
|
8,259 |
|
Installations and maintenance |
— |
|
— |
|
|
— |
|
— |
|
4,318 |
|
4,318 |
|
Renewable energy certificates |
— |
|
690 |
|
|
— |
|
— |
|
— |
|
690 |
|
Electricity sales |
— |
|
4,388 |
|
|
— |
|
— |
|
— |
|
4,388 |
|
Eliminations
(1)
|
— |
|
— |
|
|
— |
|
(657) |
|
(167) |
|
(824) |
|
Revenues from contracts with customers |
189,364 |
|
5,078 |
|
|
6,428 |
|
12,447 |
|
12,410 |
|
225,727 |
|
Alternative revenue programs
(2)
|
1,568 |
|
— |
|
|
— |
|
— |
|
— |
|
1,568 |
|
Derivative instruments |
4,797 |
|
1,292 |
|
(3) |
223,049 |
|
— |
|
— |
|
229,138 |
|
Eliminations
(1)
|
— |
|
— |
|
|
(2,128) |
|
— |
|
— |
|
(2,128) |
|
Revenues out of scope |
6,365 |
|
1,292 |
|
|
220,921 |
|
— |
|
— |
|
228,578 |
|
Total operating revenues |
$ |
195,729 |
|
6,370 |
|
|
227,349 |
|
12,447 |
|
12,410 |
|
$ |
454,305 |
|
2019 |
|
|
|
|
|
|
|
Natural gas utility sales |
$ |
219,894 |
|
— |
|
|
— |
|
— |
|
— |
|
$ |
219,894 |
|
Natural gas services |
— |
|
— |
|
|
7,321 |
|
9,072 |
|
— |
|
16,393 |
|
Service contracts |
— |
|
— |
|
|
— |
|
— |
|
8,038 |
|
8,038 |
|
Installations and maintenance |
— |
|
— |
|
|
— |
|
— |
|
4,869 |
|
4,869 |
|
|
|
|
|
|
|
|
|
Electricity sales |
— |
|
4,018 |
|
|
— |
|
— |
|
— |
|
4,018 |
|
Eliminations
(1)
|
— |
|
— |
|
|
— |
|
(667) |
|
(415) |
|
(1,082) |
|
Revenues from contracts with customers |
219,894 |
|
4,018 |
|
|
7,321 |
|
8,405 |
|
12,492 |
|
252,130 |
|
Alternative revenue programs
(2)
|
(1,943) |
|
— |
|
|
— |
|
— |
|
— |
|
(1,943) |
|
Derivative instruments |
1,672 |
|
2,194 |
|
(3) |
363,094 |
|
— |
|
— |
|
366,960 |
|
Eliminations
(1)
|
— |
|
— |
|
|
(2,111) |
|
— |
|
— |
|
(2,111) |
|
Revenues out of scope |
(271) |
|
2,194 |
|
|
360,983 |
|
— |
|
— |
|
362,906 |
|
Total operating revenues |
$ |
219,623 |
|
6,212 |
|
|
368,304 |
|
8,405 |
|
12,492 |
|
$ |
615,036 |
|
(1)Consists
of transactions between subsidiaries that are eliminated in
consolidation.
(2)Includes
CIP revenue.
(3)Includes
SREC revenue.
New Jersey Resources Corporation
Part I
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Disaggregated revenues from contracts with customers by customer
type and by reporting segment and other business operations during
the three months ended December 31, 2020 and 2019, is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Thousands) |
Natural Gas Distribution |
Clean Energy Ventures |
Energy Services |
Storage and Transportation |
Home Services
and Other |
Total |
2020 |
|
|
|
|
|
|
Residential |
$ |
137,224 |
|
2,722 |
|
— |
|
— |
|
12,204 |
|
$ |
152,150 |
|
Commercial and industrial |
29,229 |
|
2,356 |
|
6,428 |
|
12,447 |
|
206 |
|
50,666 |
|
Firm transportation |
21,104 |
|
— |
|
— |
|
— |
|
— |
|
21,104 |
|
Interruptible and off-tariff |
1,807 |
|
— |
|
— |
|
— |
|
— |
|
1,807 |
|
Revenues out of scope |
6,365 |
|
1,292 |
|
220,921 |
|
— |
|
— |
|
228,578 |
|
Total operating revenues |
$ |
195,729 |
|
6,370 |
|
227,349 |
|
12,447 |
|
12,410 |
|
$ |
454,305 |
|
|
|
|
|
|
|
|
2019 |
|
|
|
|
|
|
Residential |
$ |
153,222 |
|
2,460 |
|
— |
|
— |
|
12,279 |
|
$ |
167,961 |
|
Commercial and industrial |
45,422 |
|
1,558 |
|
7,321 |
|
8,405 |
|
213 |
|
62,919 |
|
Firm transportation |
19,589 |
|
— |
|
— |
|
— |
|
— |
|
19,589 |
|
Interruptible and off-tariff |
1,661 |
|
— |
|
— |
|
— |
|
— |
|
1,661 |
|
Revenues out of scope |
(271) |
|
2,194 |
|
360,983 |
|
— |
|
— |
|
362,906 |
|
Total operating revenues |
$ |
219,623 |
|
6,212 |
|
368,304 |
|
8,405 |
|
12,492 |
|
$ |
615,036 |
|
Customer Accounts Receivable/Credit Balances and
Deposits
The following table provides information about receivables, which
are included within accounts receivable, billed and unbilled, and
customers’ credit balances and deposits, respectively, on the
Unaudited Condensed Consolidated Balance Sheets as of
December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Thousands) |
Natural Gas Distribution |
Clean Energy Ventures |
Energy Services |
Storage and Transportation |
Home Services
and Other |
|
Total |
|
|
|
|
|
|
|
|
Customer accounts receivable |
|
|
|
|
|
|
|
Billed |
$ |
79,146 |
|
4,436 |
|
108,544 |
|
3,559 |
|
1,956 |
|
|
$ |
197,641 |
|
Unbilled |
51,720 |
|
2,074 |
|
— |
|
— |
|
— |
|
|
53,794 |
|
Customers' credit balances and deposits |
(32,948) |
|
— |
|
— |
|
— |
|
— |
|
|
(32,948) |
|
Total |
$ |
97,918 |
|
6,510 |
|
108,544 |
|
3,559 |
|
1,956 |
|
|
$ |
218,487 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4. REGULATION
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
annual filings to the BPU for review of its BGSS, CIP and various
other programs and related rates. Annual rate changes are typically
requested to be effective at the beginning of the following fiscal
year. All rate and program changes are subject to proper
notification and BPU review and approval. In addition, NJNG is
permitted to implement certain BGSS rate changes on a provisional
basis with proper notification to the BPU.
New Jersey Resources Corporation
Part I
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Regulatory assets and liabilities included on the Unaudited
Condensed Consolidated Balance Sheets for NJNG are comprised of the
following:
|
|
|
|
|
|
|
|
|
(Thousands) |
December 31,
2020 |
September 30,
2020 |
Regulatory assets-current |
|
|
New Jersey Clean Energy Program |
$ |
13,508 |
|
$ |
15,570 |
|
Conservation Incentive Program |
20,689 |
|
19,120 |
|
|
|
|
Derivatives at fair value, net |
3,194 |
|
— |
|
Other current regulatory assets |
1,622 |
|
1,682 |
|
Total current regulatory assets |
$ |
39,013 |
|
$ |
36,372 |
|
Regulatory assets-noncurrent |
|
|
Environmental remediation costs: |
|
|
Expended, net of recoveries |
$ |
36,892 |
|
$ |
36,516 |
|
Liability for future expenditures |
148,002 |
|
150,590 |
|
Deferred income taxes |
32,406 |
|
28,241 |
|
Derivatives at fair value, net |
8 |
|
1 |
|
SAVEGREEN |
21,825 |
|
21,281 |
|
Postemployment and other benefit costs |
184,265 |
|
188,170 |
|
Deferred storm damage costs |
5,972 |
|
6,515 |
|
Cost of removal |
73,237 |
|
75,080 |
|
|
|
|
Other noncurrent regulatory assets |
17,517 |
|
20,068 |
|
Total noncurrent regulatory assets |
$ |
520,124 |
|
$ |
526,462 |
|
Regulatory liability-current |
|
|
Overrecovered natural gas costs |
$ |
16,941 |
|
$ |
25,914 |
|
|
|
|
|
|
|
Derivatives at fair value, net |
— |
|
274 |
|
Total current regulatory liabilities |
$ |
16,941 |
|
$ |
26,188 |
|
Regulatory liabilities-noncurrent |
|
|
Tax Act impact
(1)
|
$ |
194,155 |
|
$ |
195,425 |
|
Derivatives at fair value, net |
— |
|
352 |
|
|
|
|
Other noncurrent regulatory liabilities |
961 |
|
509 |
|
Total noncurrent regulatory liabilities |
$ |
195,116 |
|
$ |
196,286 |
|
(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 and liabilities included on the Unaudited
Condensed Consolidated Balance Sheets for Adelphia Gateway are
comprised of the following:
|
|
|
|
|
|
|
|
|
(Thousands) |
December 31,
2020 |
September 30,
2020 |
Total current regulatory assets |
$ |
329 |
|
$ |
158 |
|
Total noncurrent regulatory assets |
$ |
1,213 |
|
$ |
997 |
|
|
|
|
Total-noncurrent regulatory liabilities |
$ |
166 |
|
$ |
— |
|
The assets are comprised primarily of the tax benefit associated
with the equity component of AFUDC and the liability consists
primarily of scheduling penalties. Recovery of regulatory assets is
subject to FERC approval.
New Jersey Resources Corporation
Part I
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Regulatory filings and/or actions that occurred during the current
fiscal year include the following:
•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.
•On
November 20, 2020, NJNG notified the BPU of its intent to provide
BGSS bill credits to residential and small commercial sales
customers effective December 1, 2020 to December 31, 2020. The
December bill credits were estimated to be $10.0 million,
$9.4 million net of tax. On December 22, 2020, NJNG notified
the BPU of the extension of the BGSS bill credits through January
31, 2021. The January 2021 bill credits are estimated to be
$12.5 million, $11.7 million net of tax.
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
Unaudited Condensed 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 Unaudited
Condensed 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 Unaudited Condensed Consolidated
Balance Sheets, with changes in value recognized in current period
earnings.
Expected production of SRECs is hedged through the use of forward
and futures contracts. All contracts require the Company to
physically deliver SRECs through the transfer of certificates as
per contractual settlement schedules. 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.
New Jersey Resources Corporation
Part I
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Natural Gas Distribution
Changes in fair value of NJNG's financial commodity derivatives are
recorded as a component of regulatory assets or liabilities on the
Unaudited Condensed Consolidated Balance Sheets. The Company elects
NPNS accounting treatment on all physical commodity contracts that
NJNG entered into on or before December 31, 2015, and accounts for
these contracts on an accrual basis. Accordingly, physical natural
gas purchases are recognized in regulatory assets or liabilities on
the Unaudited Condensed Consolidated Balance Sheets when the
contract settles and the natural gas is delivered. The average cost
of natural gas is charged to expense in the current period earnings
based on the BGSS factor times the therm sales. Effective for
contracts executed on or after January 1, 2016, NJNG no longer
elects NPNS accounting treatment on a portfolio basis. However,
since NPNS is a contract-by-contract election, where it makes sense
to do so, NJNG can and may elect to treat certain contracts as
normal. Because NJNG recovers these amounts through future BGSS
rates as increases or decreases to the cost of natural gas in
NJNG’s tariff for natural gas service, the changes in fair value of
these contracts are deferred as a component of regulatory assets or
liabilities on the Unaudited Condensed Consolidated Balance
Sheets.
In February 2020 and March 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
Unaudited Condensed Consolidated Balance Sheets. The loss is being
amortized into earnings over the term of the debt as a component of
interest expense on the Unaudited Condensed Consolidated Statements
of Operations, which totaled $60,000 during the three months ended
December 31, 2020.
Clean Energy Ventures
The Company elects NPNS accounting treatment on PPA contracts
executed by Clean Energy Ventures that meet the definition of a
derivative and accounts for the contract 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 to treat certain contracts as
normal.
Home Services and Other
In February 2020 and March 2020, NJR entered into treasury lock
transactions to fix the benchmark treasury rate associated with
$260 million of debt, of which $60 million was issued in July 2020
and $200 million was issued 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. The loss is being amortized
into earnings over the term of the debt as a component of interest
expense on the Unaudited Condensed Consolidated Statements of
Operations, which totaled $231,000, net of tax, during the three
months ended December 31, 2020.
Fair Value of Derivatives
The following table presents the fair value of NJR's derivative
assets and liabilities recognized on the Unaudited Condensed
Consolidated Balance Sheets as of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value |
|
|
December 31, 2020 |
|
September 30, 2020 |
(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 |
|
$ |
1 |
|
|
$ |
176 |
|
|
$ |
78 |
|
|
$ |
76 |
|
|
|
|
|
|
|
|
|
|
|
Financial commodity contracts |
Derivatives - current |
|
723 |
|
|
574 |
|
|
71 |
|
|
282 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy Services: |
|
|
|
|
|
|
|
|
|
Physical commodity contracts |
Derivatives - current |
|
6,416 |
|
|
16,815 |
|
|
6,454 |
|
|
20,438 |
|
|
Derivatives - noncurrent |
|
1,159 |
|
|
12,668 |
|
|
1,264 |
|
|
12,003 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial commodity contracts |
Derivatives - current |
|
25,784 |
|
|
6,866 |
|
|
16,671 |
|
|
12,965 |
|
|
Derivatives - noncurrent |
|
333 |
|
|
2,265 |
|
|
2,037 |
|
|
1,346 |
|
Foreign currency contracts |
Derivatives - current |
|
163 |
|
|
13 |
|
|
36 |
|
|
104 |
|
|
Derivatives - noncurrent |
|
55 |
|
|
— |
|
|
48 |
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fair value of derivatives |
|
|
$ |
34,634 |
|
|
$ |
39,377 |
|
|
$ |
26,659 |
|
|
$ |
47,217 |
|
New Jersey Resources Corporation
Part I
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
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 Unaudited
Condensed Consolidated Balance Sheets. 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 Unaudited
Condensed 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 December 31, 2020: |
|
|
|
|
|
|
|
|
Derivative assets: |
|
|
|
|
|
|
|
|
Energy Services |
|
|
|
|
|
|
|
|
Physical commodity contracts |
|
$ |
7,575 |
|
|
$ |
(2,455) |
|
|
$ |
(200) |
|
|
$ |
4,920 |
|
Financial commodity contracts |
|
26,117 |
|
|
(9,131) |
|
|
(888) |
|
|
16,098 |
|
Foreign currency contracts |
|
218 |
|
|
(13) |
|
|
— |
|
|
205 |
|
Total Energy Services |
|
$ |
33,910 |
|
|
$ |
(11,599) |
|
|
$ |
(1,088) |
|
|
$ |
21,223 |
|
Natural Gas Distribution |
|
|
|
|
|
|
|
|
Physical commodity contracts |
|
$ |
1 |
|
|
$ |
(1) |
|
|
$ |
— |
|
|
$ |
— |
|
Financial commodity contracts |
|
723 |
|
|
(574) |
|
|
— |
|
|
149 |
|
|
|
|
|
|
|
|
|
|
Total Natural Gas Distribution |
|
$ |
724 |
|
|
$ |
(575) |
|
|
$ |
— |
|
|
$ |
149 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities: |
|
|
|
|
|
|
|
|
Energy Services |
|
|
|
|
|
|
|
|
Physical commodity contracts |
|
$ |
29,483 |
|
|
$ |
(2,455) |
|
|
$ |
— |
|
|
$ |
27,028 |
|
|
|
|
|
|
|
|
|
|
Financial commodity contracts |
|
9,131 |
|
|
(9,131) |
|
|
— |
|
|
— |
|
Foreign currency contracts |
|
13 |
|
|
(13) |
|
|
— |
|
|
— |
|
Total Energy Services |
|
$ |
38,627 |
|
|
$ |
(11,599) |
|
|
$ |
— |
|
|
$ |
27,028 |
|
Natural Gas Distribution |
|
|
|
|
|
|
|
|
Physical commodity contracts |
|
$ |
176 |
|
|
$ |
(1) |
|
|
$ |
— |
|
|
$ |
175 |
|
Financial commodity contracts |
|
574 |
|
|
(574) |
|
|
— |
|
|
— |
|
|
|
|
|
|
|
|
|
|
Total Natural Gas Distribution |
|
$ |
750 |
|
|
$ |
(575) |
|
|
$ |
— |
|
|
$ |
175 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 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 |
|
|
|
|
|
|